Sales – Chapter 3 Cases
HERMINIO TAYAG, petitioner,
vs.
AMANCIA LACSON, ROSENDO LACSON, ANTONIO LACSON,
JUAN LACSON, TEODISIA LACSON-ESPINOSA and THE COURT
OF APPEALS, respondents.
Before us is a petition for review on certiorari of the Decision1 and
the Resolution2 of respondent Court of Appeals in CA-G.R. SP No.
44883.
The Case for the Petitioner
Respondents Angelica Tiotuyco Vda. de Lacson,3 and her children
Amancia, Antonio, Juan, and Teodosia, all surnamed Lacson, were
the registered owners of three parcels of land located in
Mabalacat, Pampanga, covered by Transfer Certificates of Title
(TCT) Nos. 35922-R, 35923-R, and 35925-R, registered in the
Register of Deeds of San Fernando, Pampanga. The properties,
which were tenanted agricultural lands,4 were administered by
Renato Espinosa for the owner.
On March 17, 1996, a group of original farmers/tillers, namely,
Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido
Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose
Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres,
Meliton Allanigue, Dominga Laxamana, Felicencia de Leon,
Emiliano Ramos, and another group, namely, Felino G. Tolentino,
Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao,
Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana
Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto
Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino,
Ceferino de Leon, Alberto Hernandez, Orlando Flores, and Aurelio
Flores,5 individually executed in favor of the petitioner separate
Deeds of Assignment6 in which the assignees assigned to the
petitioner their respective rights as tenants/tillers of the
landholdings possessed and tilled by them for and in
consideration of P50.00 per square meter. The said amount was
made payable "when the legal impediments to the sale of the
property to the petitioner no longer existed." The petitioner was
also granted the exclusive right to buy the property if and when
the respondents, with the concurrence of the defendants-tenants,
agreed to sell the property. In the interim, the petitioner gave
varied sums of money to the tenants as partial payments, and the
latter issued receipts for the said amounts.
defendants-tenants, through Joven Mariano, wrote the petitioner
On July 24, 1996, the petitioner called a meeting of the defendants
-tenants to work out the implementation of the terms of their
separate agreements.7 However, on August 8, 1996, the
stating that they were not attending the meeting and instead gave
notice of their collective decision to sell all their rights and
interests, as tenants/lessees, over the landholding to the
respondents.8 Explaining their reasons for their collective
decision, they wrote as follows:
Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng
ating napagkasunduan, hindi tumanggap ng ibang buyer o ahente,
pero sinira ninyo ang aming pagtitiwala sa pamamagitan ng
demanda ninyo at pagbibigay ng problema sa amin na hindi
naman nagbenta ng lupa.
Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming
karapatan o ang aming lupang sinasaka sa landowner o sa mga
pamilyang Lacson, dahil ayaw naming magkaroon ng problema.
Kaya kung ang sasabihin ninyong ito’y katangahan, lalo sigurong
magiging katangahan kung ibebenta pa namin sa inyo ang aming
lupang sinasaka, kaya pasensya na lang Mister Tayag. Dahil sinira
ninyo ang aming pagtitiwala at katapatan.9
On August 19, 1996, the petitioner filed a complaint with the
Regional Trial Court of San Fernando, Pampanga, Branch 44,
against the defendants-tenants, as well as the respondents, for
the court to fix a period within which to pay the agreed purchase
price of P50.00 per square meter to the defendants, as provided
for in the Deeds of Assignment. The petitioner also prayed for a
writ of preliminary injunction against the defendants and the
respondents therein.10 The case was docketed as Civil Case No.
10910.
In his complaint, the petitioner alleged, inter alia, the following:
4. That defendants Julio Tiamson, Renato Gozun, Rosita
Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao,
Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano
Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana,
Felicencia de Leon, Emiliano Ramos are original farmers or direct
tillers of landholdings over parcels of lands covered by Transfer
Certificate of Title Nos. 35922-R, 35923-R and 35925-R which are
registered in the names of defendants LACSONS; while
defendants Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno
1
Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis,
Sales – Chapter 3 Cases
Alfredo Gozun, Jose Tiamson, Augusto Tolentino, Sixto 5. That on March 17, 1996 the defendants TIAMSON, et al., 19. Benigno Tolentino 10,000 ------ ------ ------
Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon, entered into Deeds of Assignment with the plaintiff by which the 20. Rodolfo Quiambao 10,000 ------ ------ ------
Alberto Hernandez, and Aurelio Flores are sub-tenants over the defendants assigned all their rights and interests on their 21. Roman Laxamana 10,000 ------ ------ ------
same parcel of land. landholdings to the plaintiff and that on the same date (March 17,
1996), the defendants received from the plaintiff partial payments
in the amounts corresponding to their names. Subsequent
payments were also received:

1st PAYMENT 2nd PAYMENT CHECK NO. TOTAL

1.Julio Tiamson - - - - - - P 20,000 P 10,621.54 231281 P
30,621.54
2. Renato Gozun - - - - - -
[son of Felix Gozun (deceased)] P 10,000 96,000
106,000.00
3. Rosita Hernandez - - - - P 5,000 14,374.24 231274 P
19,374.24
4. Bienvenido Tongol - - -
[Son of Abundio Tongol (deceased)]P 10,000 14,465.90
231285 24,465.90
5. Alfonso Flores - - - - - - P 30,000 26,648.40 231271
56,648.40
6. Norma Quiambao - - - - P 10,000 41,501.10 231279
51,501.10
7. Rosita Tolentino - - - - - P 10,000 22,126.08 231284
32,126.08
8. Jose Sosa - - - - - - - - - P 10,000 14,861.31 231291
24,861.31
9. Francisco Tolentino, Sr. P 10,000 24,237.62 231283
34,237.62
10. Emiliano Laxamana - - P 10,000 ------ ------ ------
11. Ruben Torres - - - - - -
[Son of Mariano Torres (deceased)] P 10,000 P 33,587.31
------ P 43,587.31
12. Meliton Allanigue P 10,000 12,944.77 231269 P
22,944.77
13. Dominga Laxamana P 5,000 22,269.02 231275
27,269.02
14. Felicencia de Leon 10,000 ------ ------ ------
15. Emiliano Ramos 5,000 18,869.60 231280
23,869.60
16. Felino G. Tolentino 10,000 ------ ------ ------
17. Rica Gozun 5,000 ------ ------ ------
2
18. Perla Gozun 10,000 ------ ------ ------
Sales – Chapter 3 Cases
22. Eddie San Luis 10,000 ------ ------ ------ al., should be restrained from rescinding their contracts with the LACSONS should be restrained from encumbering/alienating the
23. Ricardo Hernandez 10,000 ------ ------ ------ plaintiff, and the defendants LACSONS should also be restrained subject properties covered by TCT No. 35922-R, 35923-R and TCT
24. Nicenciana Miranda 10,000 ------ ------ ------ from accepting any offer of sale or alienation with the defendants No. 35925-R, Registry of Deeds of San Fernando, Pampanga;
25. Jose Gozun 10,000 ------ ------ ------ TIAMSON, et al., in whatever form, the latter’s rights and interests
26. Alfredo Sosa 5,000 ------ ------ ------ in the properties mentioned in paragraph 4 hereof; further, the 12. That the defendants TIAMSON, et al., threaten to rescind their
27. Jose Tiamson10,000 ------ ------ ------ contracts with the plaintiff and are also bent on selling/alienating
28. Augusto Tolentino 5,000 ------ ------ ------ their rights and interests over the subject properties to their co-
29. Sixto Hernandez 10,000 ------ ------ ------ defendants (LACSONS) or any other persons to the damage and
30. Alex Quiambao 10,000 ------ ------ ------ prejudice of the plaintiff who already invested much money,
31. Isidro Tolentino 10,000 ------ ------ ------ efforts and time in the said transactions;
32. Ceferino de Leon ------ 11,378.70 231270
------ 13. That the plaintiff is entitled to the reliefs being demanded in
33. Alberto Hernandez 10,000 ------ ------ ------ the complaint;
34. Orlando Florez 10,000 ------ ------ ------
35. Aurelio Flores 10,000 ------ ------ ------ 14. That to prevent irreparable damages and prejudice to the
6. That on July 24, 1996, the plaintiff wrote the defendants plaintiff, as the latter has no speedy and adequate remedy under
TIAMSON, et al., inviting them for a meeting regarding the the ordinary course of law, it is essential that a Writ of Preliminary
negotiations/implementations of the terms of their Deeds of Injunction be issued enjoining and restraining the defendants
Assignment; TIAMSON, et al., from rescinding their contracts with the plaintiff
and from selling/alienating their properties to the LACSONS or
7. That on August 8, 1996, the defendants TIAMSON, et al., other persons;
through Joven Mariano, replied that they are no longer willing to
pursue with the negotiations, and instead they gave notice to the 15. That the plaintiff is willing and able to put up a reasonable
plaintiff that they will sell all their rights and interests to the bond to answer for the damages which the defendants would
registered owners (defendants LACSONS). suffer should the injunction prayed for and granted be found
without basis.12
A copy of the letter is hereto attached as Annex "A" etc.;
The petitioner prayed, that after the proceedings, judgment be
8. That the defendants TIAMSON, et. al., have no right to deal with rendered as follows:
the defendants LACSON or with any third persons while their
contracts with the plaintiff are subsisting; defendants LACSONS 1. Pending the hearing, a Writ of Preliminary Injunction be issued
are inducing or have induced the defendants TIAMSON, et. al., to prohibiting, enjoining and restraining defendants Julio Tiamson,
violate their contracts with the plaintiff; Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso
Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco
9. That by reason of the malicious acts of all the defendants, Tolentino Sr., Emiliano Laxamana, Ruben Torres, Meliton
plaintiff suffered moral damages in the forms of mental anguish, Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano
mental torture and serious anxiety which in the sum of Ramos, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno
P500,000.00 for which defendants should be held liable jointly Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis,
and severally.11 Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo
Sosa, Jose Tiamson, Augusto Tolentino, Ceferino de Leon, Alberto
In support of his plea for injunctive relief, the petitioner, as Hernandez, Orlando Flores, and Aurelio Flores from rescinding
plaintiff, also alleged the following in his complaint: their contracts with the plaintiff and from alienating their rights
and interest over the aforementioned properties in favor of
3
11. That to maintain the status quo, the defendants TIAMSON, et defendants LACSONS or any other third persons; and prohibiting
Sales – Chapter 3 Cases
the defendants LACSONS from encumbering/alienating TCT Nos.
35922-R, 35923-R and 35925-R of the Registry of Deeds of San
Fernando, Pampanga.
2. And pending the hearing of the Prayer for a Writ of Preliminary
Injunction, it is prayed that a restraining order be issued
restraining the aforementioned defendants (TIAMSON, et al.) from
rescinding their contracts with the plaintiff and from alienating the
subject properties to the defendants LACSONS or any third
persons; further, restraining and enjoining the defendants
LACSONS from encumbering/selling the properties covered by
TCT Nos. 35922-R, 35923-R, and 35925-R of the Registry of Deeds
of San Fernando, Pampanga.
3. Fixing the period within which plaintiff shall pay the balance of
the purchase price to the defendants TIAMSON, et al., after the
lapse of legal impediment, if any.
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants to pay the plaintiff the sum of
P500,000.00 as moral damages;
6. Ordering the defendants to pay the plaintiff attorney’s fees in
the sum of P100,000.00 plus litigation expenses of P50,000.00;
Plaintiff prays for such other relief as may be just and equitable
under the premises.13
In their answer to the complaint, the respondents as defendants
asserted that (a) the defendant Angelica Vda. de Lacson had died
on April 24, 1993; (b) twelve of the defendants were
tenants/lessees of respondents, but the tenancy status of the rest
of the defendants was uncertain; (c) they never induced the
defendants Tiamson to violate their contracts with the petitioner;
and, (d) being merely tenants-tillers, the defendants-tenants had
no right to enter into any transactions involving their properties
without their knowledge and consent. They also averred that the
transfers or assignments of leasehold rights made by the
defendants-tenants to the petitioner is contrary to Presidential
Decree (P.D.) No. 27 and Republic Act No. 6657, the
Comprehensive Agrarian Reform Program (CARP).14 The
respondents interposed counterclaims for damages against the
petitioner as plaintiff.
The defendants-tenants Tiamson, et al., alleged in their answer
with counterclaim for damages, that the money each of them
received from the petitioner were in the form of loans, and that
they were deceived into signing the deeds of assignment:
a) That all the foregoing allegations in the Answer are hereby
repleaded and incorporated in so far as they are material and
relevant herein;
b) That the defendants Tiamson, et al., in so far as the Deeds of
Assignment are concern[ed] never knew that what they did sign is
a Deed of Assignment. What they knew was that they were made
to sign a document that will serve as a receipt for the loan granted
[to] them by the plaintiff;
c) That the Deeds of Assignment were signed through the
employment of fraud, deceit and false pretenses of plaintiff and
made the defendants believe that what they sign[ed] was a mere
receipt for amounts received by way of loans;
d) That the documents signed in blank were filled up and
completed after the defendants Tiamson, et al., signed the
documents and their completion and accomplishment was done
in the absence of said defendants and, worst of all, defendants
were not provided a copy thereof;
e) That as completed, the Deeds of Assignment reflected that the
defendants Tiamson, et al., did assign all their rights and interests
in the properties or landholdings they were tilling in favor of the
plaintiff. That if this is so, assuming arguendo that the documents
were voluntarily executed, the defendants Tiamson, et al., do not
have any right to transfer their interest in the landholdings they
are tilling as they have no right whatsoever in the landholdings,
the landholdings belong to their co-defendants, Lacson, et al., and
therefore, the contract is null and void;
f) That while it is admitted that the defendants Tiamson, et al.,
received sums of money from plaintiffs, the same were received
as approved loans granted by plaintiff to the defendants Tiamson,
et al., and not as part consideration of the alleged Deeds of
Assignment; and by way of:…15
At the hearing of the petitioner’s plea for a writ of preliminary
injunction, the respondents’ counsel failed to appear. In support of
his plea for a writ of preliminary injunction, the petitioner adduced
in evidence the Deeds of Assignment,16 the receipts17 issued by
4
the defendants-tenants for the amounts they received from him;
Sales – Chapter 3 Cases
and the letter18 the petitioner received from the defendants-
tenants. The petitioner then rested his case.
The respondents, thereafter, filed a Comment/Motion to
dismiss/deny the petitioner’s plea for injunctive relief on the
following grounds: (a) the Deeds of Assignment executed by the
defendants-tenants were contrary to public policy and P.D. No. 27
and Rep. Act No. 6657; (b) the petitioner failed to prove that the
respondents induced the defendants-tenants to renege on their
obligations under the "Deeds of Assignment;" (c) not being privy the issuance of a Writ of Preliminary Injunction and/or restraining
to the said deeds, the respondents are not bound by the said order.
deeds; and, (d) the respondents had the absolute right to sell and
dispose of their property and to encumber the same and cannot 3. In the meantime, a Writ of Preliminary Injunction be issued
be enjoined from doing so by the trial court. against the respondent court, prohibiting it from issuing its own
writ
The petitioner opposed the motion, contending that it was
premature for the trial court to resolve his plea for injunctive relief,
before the respondents and the defendants-tenants adduced
evidence in opposition thereto, to afford the petitioner a chance to
adduce rebuttal evidence and prove his entitlement to a writ of
preliminary injunction. The respondents replied that it was the
burden of the petitioner to establish the requisites of a writ of
preliminary injunction without any evidence on their part, and that
they were not bound to adduce any evidence in opposition to the
petitioner’s plea for a writ of preliminary injunction.
On February 13, 1997, the court issued an Order19 denying the
motion of the respondents for being premature. It directed the
hearing to proceed for the respondents to adduce their evidence.
The court ruled that the petitioner, on the basis of the material
allegations of the complaint, was entitled to injunctive relief. It
also held that before the court could resolve the petitioner’s plea
for injunctive relief, there was need for a hearing to enable the
respondents and the defendants-tenants to adduce evidence to
controvert that of the petitioner. The respondents filed a motion
for reconsideration, which the court denied in its Order dated April
16, 1997. The trial court ruled that on the face of the averments of
the complaint, the pleadings of the parties and the evidence
adduced by the petitioner, the latter was entitled to injunctive
relief unless the respondents and the defendants-tenants
adduced controverting evidence.
The respondents, the petitioners therein, filed a petition for
certiorari in the Court of Appeals for the nullification of the
February 13, 1997 and April 16, 1997 Orders of the trial court. The
case was docketed as CA-G.R. SP No. 44883. The petitioners
therein prayed in their petition that:
1. An order be issued declaring the orders of respondent court
dated February 13, 1997 and April 16, 1997 as null and void;
2. An order be issued directing the respondent court to issue an
5
order denying the application of respondent Herminio Tayag for
Sales – Chapter 3 Cases
of injunction against Petitioners, and thereafter making said
injunction to be issued by this Court permanent.
Such other orders as may be deemed just & equitable under the
premises also prayed for.20
The respondents asserted that the Deeds of Assignment
executed by the assignees in favor of the petitioner were contrary
to paragraph 13 of P.D. No. 27 and the second paragraph of
Section 70 of Rep. Act No. 6657, and, as such, could not be
enforced by the petitioner for being null and void. The
respondents also claimed that the enforcement of the deeds of
assignment was subject to a supervening condition:
3. That this exclusive and absolute right given to the assignee
shall be exercised only when no legal impediments exist to the lot
to effect the smooth transfer of lawful ownership of the
lot/property in the name of the ASSIGNEE.21
The respondents argued that until such condition took place, the
petitioner would not acquire any right to enforce the deeds by
injunctive relief. Furthermore, the petitioner’s plea in his complaint
before the trial court, to fix a period within which to pay the
balance of the amounts due to the tenants under said deeds after
the "lapse" of any legal impediment, assumed that the deeds were
valid, when, in fact and in law, they were not. According to the
respondents, they were not parties to the deeds of assignment;
hence, they were not bound by the said deeds. The issuance of a
writ of preliminary injunction would restrict and impede the
exercise of their right to dispose of their property, as provided for
in Article 428 of the New Civil Code. They asserted that the
petitioner had no cause of action against them and the
defendants-tenants.
On April 17, 1998, the Court of Appeals rendered its decision
against the petitioner, annulling and setting aside the assailed
orders of the trial court; and permanently enjoining the said trial
court from proceeding with Civil Case No. 10901. The decretal
portion of the decision reads as follows:
However, even if private respondent is denied of the injunctive
relief he demands in the lower court still he could avail of other
course of action in order to protect his interest such as the
institution of a simple civil case of collection of money against
TIAMSON, et al.
For all the foregoing considerations, the orders dated 13 February
1997 and 16 April 1997 are hereby NULLIFIED and ordered SET
ASIDE for having been issued with grave abuse of discretion
amounting to lack or excess of jurisdiction. Accordingly, public
respondent is permanently enjoined from proceeding with the
case designated as Civil Case No. 10901.22
The CA ruled that the respondents could not be enjoined from
alienating or even encumbering their property, especially so since
they were not privies to the deeds of assignment executed by the
defendants-tenants. The defendants-tenants were not yet owners
of the portions of the landholdings respectively tilled by them; as
such, they had nothing to assign to the petitioner. Finally, the CA
ruled that the deeds of assignment executed by the defendants-
tenants were contrary to P.D. No. 27 and Rep. Act No. 6657.
On August 4, 1998, the CA issued a Resolution denying the
petitioner’s motion for reconsideration.23
Hence, the petitioner filed his petition for review on certiorari
before this Court, contending as follows:
I
A MERE ALLEGATION IN THE ANSWER OF THE TENANTS COULD
NOT BE USED AS EVIDENCE OR BASIS FOR ANY CONCLUSION,
AS THIS ALLEGATION, IS STILL THE SUBJECT OF TRIAL IN THE
LOWER COURT (RTC).24
II
THE COURT OF APPEALS CANNOT ENJOIN THE HEARING OF A
PETITION FOR PRELIMINARY INJUNCTION AT A TIME WHEN THE
LOWER COURT (RTC) IS STILL RECEIVING EVIDENCE PRECISELY
TO DETERMINE WHETHER OR NOT THE WRIT OF PRELIMINARY
INJUNCTION BEING PRAYED FOR BY TAYAG SHOULD BE
GRANTED OR NOT.25
III
THE COURT OF APPEALS CANNOT USE "FACTS" NOT IN
EVIDENCE, TO SUPPORT ITS CONCLUSION THAT THE TENANTS
ARE NOT YET "AWARDEES OF THE LAND REFORM.26
IV
THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT
6
STOPPAGE OF THE ENTIRE PROCEEDINGS BELOW INCLUDING
Sales – Chapter 3 Cases
THE TRIAL ON THE MERITS OF THE CASE CONSIDERING THAT
THE ISSUE INVOLVED ONLY THE PROPRIETY OF MAINTAINING
THE STATUS QUO.27
V had yet been conducted by the trial court.
THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION
THE CASE OF THE OTHER 35 TENANTS WHO DO NOT QUESTION
THE JURISDICTION OF THE LOWER COURT (RTC) OVER THE
CASE AND WHO ARE IN FACT STILL PRESENTING THEIR
EVIDENCE TO OPPOSE THE INJUNCTION PRAYED FOR, AND TO
PROVE AT THE SAME TIME THE COUNTER-CLAIMS THEY FILED
AGAINST THE PETITIONER.28
VI
THE LOWER COURT (RTC) HAS JURISDICTION OVER THE CASE
FILED BY TAYAG FOR "FIXING OF PERIOD" UNDER ART. 1197 OF
THE NEW CIVIL CODE AND FOR "DAMAGES" AGAINST THE
LACSONS UNDER ART. 1314 OF THE SAME CODE. THIS CASE
CANNOT BE SUPPRESSED OR RENDERED NUGATORY
UNCEREMONIOUSLY.29
The petitioner faults the Court of Appeals for permanently
enjoining the trial court from proceeding with Civil Case No.
10910. He opines that the same was too drastic, tantamount to a
dismissal of the case. He argues that at that stage, it was
premature for the appellate court to determine the merits of the
case since no evidentiary hearing thereon was conducted by the
trial court. This, the Court of Appeals cannot do, since neither
party moved for the dismissal of Civil Case No. 10910. The
petitioner points out that the Court of Appeals, in making its
findings, went beyond the issue raised by the private respondents,
namely, whether or not the trial court committed a grave abuse of
discretion amounting to excess or lack of jurisdiction when it
denied the respondent’s motion for the denial/dismissal of the
petitioner’s plea for a writ of preliminary injunction. He, likewise,
points out that the appellate court erroneously presumed that the
leaseholders were not DAR awardees and that the deeds of
assignment were contrary to law. He contends that leasehold
tenants are not prohibited from conveying or waiving their
leasehold rights in his favor. He insists that there is nothing illegal
with his contracts with the leaseholders, since the same shall be
effected only when there are no more "legal impediments."
At bottom, the petitioner contends that, at that stage, it was
premature for the appellate court to determine the merits of his
case since no evidentiary hearing on the merits of his complaint
The Comment/Motion of the
Respondents to Dismiss/Deny
Petitioner’s Plea for a Writ
of Preliminary Injunction
Was Not Premature.
Contrary to the ruling of the trial court, the motion of the
respondents to dismiss/deny the petitioner’s plea for a writ of
preliminary injunction after the petitioner had adduced his
evidence, testimonial and documentary, and had rested his case
on the incident, was proper and timely. It bears stressing that the
petitioner had the burden to prove his right to a writ of preliminary
injunction. He may rely solely on the material allegations of his
complaint or adduce evidence in support thereof. The petitioner
adduced his evidence to support his plea for a writ of preliminary
injunction against the respondents and the defendants-tenants
and rested his case on the said incident. The respondents then
had three options: (a) file a motion to deny/dismiss the motion on
the ground that the petitioner failed to discharge his burden to
prove the factual and legal basis for his plea for a writ of
preliminary injunction and, if the trial court denies his motion, for
them to adduce evidence in opposition to the petitioner’s plea; (b)
forgo their motion and adduce testimonial and/or documentary
evidence in opposition to the petitioner’s plea for a writ of
preliminary injunction; or, (c) waive their right to adduce evidence
and submit the incident for consideration on the basis of the
pleadings of the parties and the evidence of the petitioner. The
respondents opted not to adduce any evidence, and instead filed
a motion to deny or dismiss the petitioner’s plea for a writ of
preliminary injunction against them, on their claim that the
petitioner failed to prove his entitlement thereto. The trial court
cannot compel the respondents to adduce evidence in opposition
to the petitioner’s plea if the respondents opt to waive their right
to adduce such evidence. Thus, the trial court should have
resolved the respondents’ motion even without the latter’s
opposition and the presentation of evidence thereon.
The RTC Committed a Grave
Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders
In its February 13, 1997 Order, the trial court ruled that the
7
petitioner was entitled to a writ of preliminary injunction against
Sales – Chapter 3 Cases
the respondents on the basis of the material averments of the
complaint. In its April 16, 1997 Order, the trial court denied the
respondents’ motion for reconsideration of the previous order, on
its finding that the petitioner was entitled to a writ of preliminary
injunction based on the material allegations of his complaint, the arm of equity that should never be extended unless to cases of
evidence on record, the pleadings of the parties, as well as the great injury, where courts of law cannot afford an adequate or
applicable laws: commensurate remedy in damages.
… For the record, the Court denied the LACSONS’
COMMENT/MOTION on the basis of the facts culled from the
evidence presented, the pleadings and the law applicable
unswayed by the partisan or personal interests, public opinion or
fear of criticism (Canon 3, Rule 3.02, Code of Judicial Ethics).30
Section 3, Rule 58 of the Rules of Court, as amended, enumerates
the grounds for the issuance of a writ of preliminary injunction,
thus:
(a) That the applicant is entitled to the relief demanded, and the
whole or part of such relief consists in restraining the commission
or continuance of the act or acts complained of, or in requiring the
performance of an act or acts, either for a limited period or
perpetually;
(b) That the commission, continuance or non-performance of the
act or acts complained of during the litigation would probably
work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or
is attempting to do, or is procuring or suffering to be done, some
act or acts probably in violation of the rights of the applicant
respecting the subject of the action or proceeding, and tending to
render the judgment ineffectual.
A preliminary injunction is an extraordinary event calculated to
preserve or maintain the status quo of things ante litem and is
generally availed of to prevent actual or threatened acts, until the
merits of the case can be heard. Injunction is accepted as the
strong arm of equity or a transcendent remedy.31 While generally
the grant of a writ of preliminary injunction rests on the sound
discretion of the trial court taking cognizance of the case, extreme
caution must be observed in the exercise of such discretion.32
Indeed, in Olalia v. Hizon,33 we held:
It has been consistently held that there is no power the exercise of
which is more delicate, which requires greater caution,
deliberation and sound discretion, or more dangerous in a
8
doubtful case, than the issuance of an injunction. It is the strong
Sales – Chapter 3 Cases
Every court should remember that an injunction is a limitation
upon the freedom of action of the defendant and should not be
granted lightly or precipitately. It should be granted only when the
court is fully satisfied that the law permits it and the emergency
demands it.34
The very foundation of the jurisdiction to issue writ of injunction
rests in the existence of a cause of action and in the probability of
irreparable injury, inadequacy of pecuniary compensation and the
prevention of the multiplicity of suits. Where facts are not shown
to bring the case within these conditions, the relief of injunction
should be refused.35
For the court to issue a writ of preliminary injunction, the
petitioner was burdened to establish the following: (1) a right in
esse or a clear and unmistakable right to be protected; (2) a
violation of that right; (3) that there is an urgent and permanent
act and urgent necessity for the writ to prevent serious
damage.36 Thus, in the absence of a clear legal right, the
issuance of the injunctive writ constitutes a grave abuse of
discretion. Where the complainant’s right is doubtful or disputed,
injunction is not proper. Injunction is a preservative remedy aimed
at protecting substantial rights and interests. It is not designed to
protect contingent or future rights. The possibility of irreparable
damage without proof of adequate existing rights is not a ground
for injunction.37
We have reviewed the pleadings of the parties and found that, as
contended by the respondents, the petitioner failed to establish
the essential requisites for the issuance of a writ of preliminary
injunction. Hence, the trial court committed a grave abuse of its
discretion amounting to excess or lack of jurisdiction in denying
the respondents’ comment/motion as well as their motion for
reconsideration.
First. The trial court cannot enjoin the respondents, at the
instance of the petitioner, from selling, disposing of and
encumbering their property. As the registered owners of the
property, the respondents have the right to enjoy and dispose of
their property without any other limitations than those established
by law, in accordance with Article 428 of the Civil Code. The right
to dispose of the property is the power of the owner to sell,
encumber, transfer, and even destroy the property. Ownership
also includes the right to recover the possession of the property
from any other person to whom the owner has not transmitted
such property, by the appropriate action for restitution, with the
fruits, and for indemnification for damages.38 The right of
ownership of the respondents is not, of course, absolute. It is
limited by those set forth by law, such as the agrarian reform
laws. Under Article 1306 of the New Civil Code, the
respondents may enter into contracts covering their property with
another under such terms and conditions as they may deem
beneficial provided they are not contrary to law, morals, good
conduct, public order or public policy.
The respondents cannot be enjoined from selling or encumbering
their property simply and merely because they had executed
Deeds of Assignment in favor of the petitioner, obliging
themselves to assign and transfer their rights or interests as
agricultural farmers/laborers/sub-tenants over the landholding,
and granting the petitioner the exclusive right to buy the property
subject to the occurrence of certain conditions. The respondents
were not parties to the said deeds. There is no evidence that the
respondents agreed, expressly or impliedly, to the said deeds or to
the terms and conditions set forth therein. Indeed, they assailed
the validity of the said deeds on their claim that the same were
contrary to the letter and spirit of P.D. No. 27 and Rep. Act No.
6657. The petitioner even admitted when he testified that he did
not know any of the respondents, and that he had not met any of
them before he filed his complaint in the RTC. He did not even
know that one of those whom he had impleaded as defendant,
Angelica Vda. de Lacson, was already dead.
Q: But you have not met any of these Lacsons?
A: Not yet, sir.
Q: Do you know that two (2) of the defendants are residents of the
United States?
A: I do not know, sir.
Q: You do not know also that Angela Tiotuvie (sic) Vda. de Lacson
had already been dead?
A: I am aware of that, sir.39
We are one with the Court of Appeals in its ruling that:
We cannot see our way clear on how or why injunction should lie
against petitioners. As owners of the lands being tilled by
TIAMSON, et al., petitioners, under the law, have the right to enjoy
and dispose of the same. Thus, they have the right to possess the
9
lands, as well as the right to encumber or alienate them. This
Sales – Chapter 3 Cases
principle of law notwithstanding, private respondent in the lower
court sought to restrain the petitioners from encumbering and/or
alienating the properties covered by TCT No. 35922-R, 35923-R
and TCT No. 35925-R of the Registry of Deeds of San Fernando,
Pampanga. This cannot be allowed to prosper since it would
constitute a limitation or restriction, not otherwise established by
law on their right of ownership, more so considering that
petitioners were not even privy to the alleged transaction between
private respondent and TIAMSON, et al.40
A : When there are (sic) no more legal impediment exist, sir.
Q : Did you make how (sic) to the effect that the meaning of that
phrase that you used the unlettered defendants?

Second. A reading the averments of the complaint will show that

the petitioner clearly has no cause of action against the
respondents for the principal relief prayed for therein, for the trial
court to fix a period within which to pay to each of the defendants-
tenants the balance of the P50.00 per square meter, the
consideration under the Deeds of Assignment executed by the
defendants-tenants. The respondents are not parties or privies to
the deeds of assignment. The matter of the period for the
petitioner to pay the balance of the said amount to each of the
defendants-tenants is an issue between them, the parties to the
deed.

Third. On the face of the complaint, the action of the petitioner

against the respondents and the defendants-tenants has no legal
basis. Under the Deeds of Assignment, the obligation of the
petitioner to pay to each of the defendants-tenants the balance of
the purchase price was conditioned on the occurrence of the
following events: (a) the respondents agree to sell their property
to the petitioner; (b) the legal impediments to the sale of the
landholding to the petitioner no longer exist; and, (c) the petitioner
decides to buy the property. When he testified, the petitioner
admitted that the legal impediments referred to in the deeds were
(a) the respondents’ refusal to sell their property; and, (b) the lack
of approval of the Department of Agrarian Reform:

Q : There is no specific agreement prior to the execution of those

documents as when they will pay?

A : We agreed to that, that I will pay them when there are no legal
impediment, sir.

Q : Many of the documents are unlattered (sic) and you want to

convey to this Honorable Court that prior to the execution of these
documents you have those tentative agreement for instance that
the amount or the cost of the price is to be paid when there are no
legal impediment, you are using the word "legal impediment," do
you know the meaning of that?
10
Sales – Chapter 3 Cases
A : We have agreed to that, sir.
ATTY. OCAMPO:
May I ask, Your Honor, that the witness please answer my
question not to answer in the way he wanted it.
COURT:
Just answer the question, Mr. Tayag.
WITNESS:
Yes, Your Honor.
ATTY. OCAMPO:
Q : Did you explain to them?
A : Yes, sir.
Q : What did you tell them?
A : I explain[ed] to them, sir, that the legal impediment then
especially if the Lacsons will not agree to sell their shares to me
or to us it would be hard to (sic) me to pay them in full. And those
covered by DAR. I explain[ed] to them and it was clearly stated in
the title that there is [a] prohibited period of time before you can
sell the property. I explained every detail to them.41
It is only upon the occurrence of the foregoing conditions that the
petitioner would be obliged to pay to the defendants-tenants the
balance of the P50.00 per square meter under the deeds of
assignment. Thus:
2. That in case the ASSIGNOR and LANDOWNER will mutually
agree to sell the said lot to the ASSIGNEE, who is given an
exclusive and absolute right to buy the lot, the ASSIGNOR shall
receive the sum of FIFTY PESOS (P50.00) per square meter as
consideration of the total area actually tilled and possessed by
the ASSIGNOR, less whatever amount received by the ASSIGNOR
including commissions, taxes and all allowable deductions
relative to the sale of the subject properties.
3. That this exclusive and absolute right given to the ASSIGNEE exclusive right to buy the landholding. But the grantors were
shall be exercised only when no legal impediments exist to the lot merely the defendants-tenants, and not the respondents, the
to effect the smooth transfer of lawful ownership of the registered owners of the property. Not being the registered
lot/property in the name of the ASSIGNEE; owners of the property, the defendants-tenants could not legally
grant to the petitioner the option, much less the "exclusive right"
4. That the ASSIGNOR will remain in peaceful possession over the to buy the property. As the Latin saying goes, "NEMO DAT QUOD
said property and shall enjoy the fruits/earnings and/or harvest of NON HABET."
the said lot until such time that full payment of the agreed
purchase price had been made by the ASSIGNEE.42
There is no showing in the petitioner’s complaint that the
respondents had agreed to sell their property, and that the legal
impediments to the agreement no longer existed. The petitioner
and the defendants-tenants had yet to submit the Deeds of
Assignment to the Department of Agrarian Reform which, in turn,
had to act on and approve or disapprove the same. In fact, as
alleged by the petitioner in his complaint, he was yet to meet with
the defendants-tenants to discuss the implementation of the
deeds of assignment. Unless and until the Department of Agrarian
Reform approved the said deeds, if at all, the petitioner had no
right to enforce the same in a court of law by asking the trial court
to fix a period within which to pay the balance of the purchase
price and praying for injunctive relief.
We do not agree with the contention of the petitioner that the
deeds of assignment executed by the defendants-tenants are
perfected option contracts.43 An option is a contract by which the
owner of the property agrees with another person that he shall
have the right to buy his property at a fixed price within a certain
time. It is a condition offered or contract by which the owner
stipulates with another that the latter shall have the right to buy
the property at a fixed price within a certain time, or under, or in
compliance with certain terms and conditions, or which gives to
the owner of the property the right to sell or demand a sale. It
imposes no binding obligation on the person holding the option,
aside from the consideration for the offer. Until accepted, it is not,
properly speaking, treated as a contract.44 The second party gets
in praesenti, not lands, not an agreement that he shall have the
lands, but the right to call for and receive lands if he elects.45 An
option contract is a separate and distinct contract from which the
parties may enter into upon the conjunction of the option.46
In this case, the defendants-tenants-subtenants, under the deeds
11
of assignment, granted to the petitioner not only an option but the
Sales – Chapter 3 Cases
Fourth. The petitioner impleaded the respondents as parties-
defendants solely on his allegation that the latter induced or are
inducing the defendants-tenants to violate the deeds of
assignment, contrary to the provisions of Article 1314 of the New
Civil Code which reads:
Art. 1314. Any third person who induces another to violate his
contract shall be liable for damages to the other contracting party.
In So Ping Bun v. Court of Appeals,47 we held that for the said law
to apply, the pleader is burdened to prove the following: (1) the
existence of a valid contract; (2) knowledge by the third person of
the existence of the contract; and (3) interference by the third
person in the contractual relation without legal justification.
Where there was no malice in the interference of a contract, and
the impulse behind one’s conduct lies in a proper business
interest rather than in wrongful motives, a party cannot be a
malicious interferer. Where the alleged interferer is financially
interested, and such interest motivates his conduct, it cannot be
said that he is an officious or malicious intermeddler.48
In fine, one who is not a party to a contract and who interferes
thereon is not necessarily an officious or malicious intermeddler.
The only evidence adduced by the petitioner to prove his claim is
the letter from the defendants-tenants informing him that they
had decided to sell their rights and interests over the landholding
to the respondents, instead of honoring their obligation under the
deeds of assignment because, according to them, the petitioner
harassed those tenants who did not want to execute deeds of
assignment in his favor, and because the said defendants-tenants
did not want to have any problem with the respondents who could
cause their eviction for executing with the petitioner the deeds of
assignment as the said deeds are in violation of P.D. No. 27 and
Rep. Act No. 6657.49 The defendants-tenants did not allege
therein that the respondents induced them to breach their
contracts with the petitioner. The petitioner himself admitted
when he testified that his claim that the respondents induced the
defendants-assignees to violate contracts with him was based
merely on what "he heard," thus:
Q: Going to your last statement that the Lacsons induces (sic) the
defendants, did you see that the Lacsons were inducing the
defendants?
consideration. By assigning their rights and interests on the
A: I heard and sometime in [the] first week of August, sir, they landholding under the deeds of assignment in favor of the
went in the barrio (sic). As a matter of fact, that is the reason why petitioner, the defendants-tenants thereby waived, in favor of the
they sent me letter that they will sell it to the Lacsons. petitioner, who is not a beneficiary under Section 22 of Rep. Act
No. 6657, their rights of preemption or redemption under Rep. Act
Q: Incidentally, do you knew (sic) these Lacsons individually? No. 3844. The defendants-tenants would then have to vacate the
property in favor of the petitioner upon full payment of the
A: No, sir, it was only Mr. Espinosa who I knew (sic) personally, the purchase price. Instead of acquiring ownership of the portions of
alleged negotiator and has the authority to sell the property.50 the landholding respectively tilled by them, the defendants-
tenants
Even if the respondents received an offer from the defendants-
tenants to assign and transfer their rights and interests on the
landholding, the respondents cannot be enjoined from
entertaining the said offer, or even negotiating with the
defendants-tenants. The respondents could not even be expected
to warn the defendants-tenants for executing the said deeds in
violation of P.D. No. 27 and Rep. Act No. 6657. Under Section 22
of the latter law, beneficiaries under P.D. No. 27 who have
culpably sold, disposed of, or abandoned their land, are
disqualified from becoming beneficiaries.
From the pleadings of the petitioner, it is quite evident that his
purpose in having the defendants-tenants execute the Deeds of
Assignment in his favor was to acquire the landholding without
any tenants thereon, in the event that the respondents agreed to
sell the property to him. The petitioner knew that under Section 11
of Rep. Act No. 3844, if the respondents agreed to sell the
property, the defendants-tenants shall have preferential right to
buy the same under reasonable terms and conditions:
SECTION 11. Lessee’s Right of Pre-emption. – In case the
agricultural lessor desires to sell the landholding, the agricultural
lessee shall have the preferential right to buy the same under
reasonable terms and conditions: Provided, That the entire
landholding offered for sale must be pre-empted by the Land
Authority if the landowner so desires, unless the majority of the
lessees object to such acquisition: Provided, further, That where
there are two or more agricultural lessees, each shall be entitled
to said preferential right only to the extent of the area actually
cultivated by him. …51
Under Section 12 of the law, if the property was sold to a third
person without the knowledge of the tenants thereon, the latter
12
shall have the right to redeem the same at a reasonable price and
Sales – Chapter 3 Cases
would again become landless for a measly sum of P50.00 per
square meter. The petitioner’s scheme is subversive, not only of
public policy, but also of the letter and spirit of the agrarian laws.
That the scheme of the petitioner had yet to take effect in the
future or ten years hence is not a justification. The respondents
may well argue that the agrarian laws had been violated by the
defendants-tenants and the petitioner by the mere execution of
the deeds of assignment. In fact, the petitioner has implemented
the deeds by paying the defendants-tenants amounts of money
and even sought their immediate implementation by setting a
meeting with the defendants-tenants. In fine, the petitioner would
not wait for ten years to evict the defendants-tenants. For him,
time is of the essence.
The Appellate Court Erred
In Permanently Enjoining
The Regional Trial Court
From Continuing with the
Proceedings in Civil Case No. 10910.
We agree with the petitioner’s contention that the appellate court
erred when it permanently enjoined the RTC from continuing with
the proceedings in Civil Case No. 10910. The only issue before the
appellate court was whether or not the trial court committed a
grave abuse of discretion amounting to excess or lack of
jurisdiction in denying the respondents’ motion to deny or dismiss
the petitioner’s plea for a writ of preliminary injunction. Not one of
the parties prayed to permanently enjoin the trial court from
further proceeding with Civil Case No. 10910 or to dismiss the
complaint. It bears stressing that the petitioner may still amend
his complaint, and the respondents and the defendants-tenants
may file motions to dismiss the complaint. By permanently
enjoining the trial court from proceeding with Civil Case No.
10910, the appellate court acted arbitrarily and effectively
dismissed the complaint motu proprio, including the
counterclaims of the respondents and that of the defendants-
tenants. The defendants-tenants were even deprived of their right
to prove their special and affirmative defenses.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The Decision of the Court of Appeals nullifying the
February 13, 1996 and April 16, 1997 Orders of the RTC is
AFFIRMED. The writ of injunction issued by the Court of Appeals
permanently enjoining the RTC from further proceeding with Civil
Case No. 10910 is hereby LIFTED and SET ASIDE. The Regional ADELFA PROPERTIES, INC., petitioner,
Trial Court of Mabalacat, Pampanga, Branch 44, is ORDERED to vs.
continue with the proceedings in Civil Case No. 10910 as provided COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑEDA and
for by the Rules of Court, as amended. SALUD JIMENEZ, respondents.
SO ORDERED.
The main issues presented for resolution in this petition for review
on certiorari of the judgment of respondent Court of appeals,
dated April 6, 1993, in CA-G.R. CV No. 347671 are (1) whether of
not the "Exclusive Option to Purchase" executed between
petitioner Adelfa Properties, Inc. and private respondents Rosario
Jimenez-Castañeda and Salud Jimenez is an option contract; and
(2) whether or not there was a valid suspension of payment of the
purchase price by said petitioner, and the legal effects thereof on
the contractual relations of the parties.
The records disclose the following antecedent facts which
culminated in the present appellate review, to wit:
1. Herein private respondents and their brothers, Jose and
Dominador Jimenez, were the registered co-owners of a parcel of
land consisting of 17,710 square meters, covered by Transfer
Certificate of Title (TCT) No. 309773,2 situated in Barrio Culasi,
Las Piñas, Metro Manila.
2. On July 28, 1988, Jose and Dominador Jimenez sold
their share consisting of one-half of said parcel of land,
specifically the eastern portion thereof, to herein petitioner
pursuant to a "Kasulatan sa Bilihan ng Lupa."3 Subsequently, a
"Confirmatory Extrajudicial Partition Agreement"4 was executed
by the Jimenezes, wherein the eastern portion of the subject lot,
with an area of 8,855 square meters was adjudicated to Jose and
Dominador Jimenez, while the western portion was allocated to
herein private respondents.
3. Thereafter, herein petitioner expressed interest in buying
the western portion of the property from private respondents.
Accordingly, on November 25, 1989, an "Exclusive Option to
Purchase"5 was executed between petitioner and private
respondents, under the following terms and conditions:
1. The selling price of said 8,655 square meters of the
subject property is TWO MILLION EIGHT HUNDRED FIFTY SIX
THOUSAND ONE HUNDRED FIFTY PESOS ONLY (P2,856,150.00)
13
Sales – Chapter 3 Cases
2. The sum of P50,000.00 which we received from ADELFA
PROPERTIES, INC. as an option money shall be credited as partial
payment upon the consummation of the sale and the balance in
the
sum of TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE purchase price to "lack of word of honor."
HUNDRED FIFTY PESOS (P2,806,150.00) to be paid on or before
November 30, 1989; 6. On December 7, 1989, petitioner caused to be annotated
on the title of the lot its option contract with private respondents,
3. In case of default on the part of ADELFA PROPERTIES,
INC. to pay said balance in accordance with paragraph 2 hereof,
this option shall be cancelled and 50% of the option money to be
forfeited in our favor and we will refund the remaining 50% of said
money upon the sale of said property to a third party;
4. All expenses including the corresponding capital gains
tax, cost of documentary stamps are for the account of the
VENDORS, and expenses for the registration of the deed of sale in
the Registry of Deeds are for the account of ADELFA
PROPERTIES, INC.
Considering, however, that the owner's copy of the certificate of
title issued to respondent Salud Jimenez had been lost, a petition
for the re-issuance of a new owner's copy of said certificate of
title was filed in court through Atty. Bayani L. Bernardo, who acted
as private respondents' counsel. Eventually, a new owner's copy
of the certificate of title was issued but it remained in the
possession of Atty. Bernardo until he turned it over to petitioner
Adelfa Properties, Inc.
4. Before petitioner could make payment, it received
summons6 on November 29, 1989, together with a copy of a
complaint filed by the nephews and nieces of private respondents
against the latter, Jose and Dominador Jimenez, and herein
petitioner in the Regional Trial Court of Makati, docketed as Civil
Case No. 89-5541, for annulment of the deed of sale in favor of
Household Corporation and recovery of ownership of the property
covered by TCT No. 309773.7
5. As a consequence, in a letter dated November 29, 1989,
petitioner informed private respondents that it would hold
payment of the full purchase price and suggested that private
respondents settle the case with their nephews and nieces,
adding that ". . . if possible, although November 30, 1989 is a
holiday, we will be waiting for you and said plaintiffs at our office
up to 7:00 p.m."8 Another letter of the same tenor and of even
date was sent by petitioner to Jose and Dominador Jimenez.9
Respondent Salud Jimenez refused to heed the suggestion of
14
petitioner and attributed the suspension of payment of the
Sales – Chapter 3 Cases
and its contract of sale with Jose and Dominador Jimenez, as
Entry No. 1437-4 and entry No. 1438-4, respectively.
7. On December 14, 1989, private respondents sent
Francisca Jimenez to see Atty. Bernardo, in his capacity as
petitioner's counsel, and to inform the latter that they were
cancelling the transaction. In turn, Atty. Bernardo offered to pay
the purchase price provided that P500,000.00 be deducted
therefrom for the settlement of the civil case. This was rejected by
private respondents. On December 22, 1989, Atty. Bernardo wrote
private respondents on the same matter but this time reducing the
amount from P500,000.00 to P300,000.00, and this was also
rejected by the latter.
8. On February 23, 1990, the Regional Trial Court of Makati
dismissed Civil Case No. 89-5541. Thus, on February 28, 1990,
petitioner caused to be annotated anew on TCT No. 309773 the
exclusive option to purchase as Entry No. 4442-4.
9. On the same day, February 28, 1990, private respondents
executed a Deed of Conditional Sale 10 in favor of Emylene Chua
over the same parcel of land for P3,029,250, of which
P1,500,000.00 was paid to private respondents on said date, with
the balance to be paid upon the transfer of title to the specified
one-half portion.
10. On April 16, 1990, Atty. Bernardo wrote private
respondents informing the latter that in view of the dismissal of
the case against them, petitioner was willing to pay the purchase
price, and he requested that the corresponding deed of absolute
sale be executed. 11 This was ignored by private respondents.
11. On July 27, 1990, private respondents' counsel sent a
letter to petitioner enclosing therein a check for P25,000.00
representing the refund of fifty percent of the option money paid
under the exclusive option to purchase. Private respondents then
requested petitioner to return the owner's duplicate copy of the
certificate of title of respondent Salud Jimenez. 12 Petitioner
failed to surrender the certificate of title, hence private
respondents filed Civil Case No. 7532 in the Regional Trial Court
of Pasay City, Branch 113, for annulment of contract with
damages, praying, among others, that the exclusive option to
purchase be declared null and void; that defendant, herein
petitioner, be ordered to return the owner's duplicate certificate of
title; and that the annotation of the option contract on TCT No.
309773 be cancelled. Emylene Chua, the subsequent purchaser of
the lot, filed a complaint in intervention.
12. The trial court rendered judgment 13 therein on
September 5, 1991 holding that the agreement entered into by the
parties was merely an option contract, and declaring that the
suspension of payment by herein petitioner constituted a counter-
offer which, therefore, was tantamount to a rejection of the
option. It likewise ruled that herein petitioner could not validly
suspend payment in favor of private respondents on the ground
that the vindicatory action filed by the latter's kin did not involve
the western portion of the land covered by the contract between
petitioner and private respondents, but the eastern portion thereof
which was the subject of the sale between petitioner and the
brothers Jose and Dominador Jimenez. The trial court then
directed the cancellation of the exclusive option to purchase,
declared the sale to intervenor Emylene Chua as valid and binding,
and ordered petitioner to pay damages and attorney's fees to
private respondents, with costs.
13. On appeal, respondent Court of appeals affirmed in toto
the decision of the court a quo and held that the failure of
petitioner to pay the purchase price within the period agreed upon
was tantamount to an election by petitioner not to buy the
property; that the suspension of payment constituted an
imposition of a condition which was actually a counter-offer
amounting to a rejection of the option; and that Article 1590 of the
Civil Code on suspension of payments applies only to a contract
of sale or a contract to sell, but not to an option contract which it
opined was the nature of the document subject of the case at bar.
Said appellate court similarly upheld the validity of the deed of
conditional sale executed by private respondents in favor of
intervenor Emylene Chua.
In the present petition, the following assignment of errors are
raised:
1. Respondent court of appeals acted with grave abuse of
discretion in making its finding that the agreement entered into by
petitioner and private respondents was strictly an option contract;
2. Granting arguendo that the agreement was an option
contract, respondent court of Appeals acted with grave abuse of
discretion in grievously failing to consider that while the option
period had not lapsed, private respondents could not unilaterally
and prematurely terminate the option period;
15
Sales – Chapter 3 Cases
3. Respondent Court of Appeals acted with grave abuse of
discretion in failing to appreciate fully the attendant facts and
circumstances when it made the conclusion of law that Article
1590 does not apply; and
4. Respondent Court of Appeals acted with grave abuse of
discretion in conforming with the sale in favor of appellee Ma.
Emylene Chua and the award of damages and attorney's fees
which are not only excessive, but also without in fact and in law.
14
such a stipulation, although there is a provision on the remedies
available to the parties in case of breach, it may legally be inferred
that the parties never intended to transfer ownership to the
petitioner to completion of payment of the purchase price.

An analysis of the facts obtaining in this case, as well as the

evidence presented by the parties, irresistibly leads to the
conclusion that the agreement between the parties is a contract
to sell, and not an option contract or a contract of sale.

1. In view of the extended disquisition thereon by

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

There are two features which convince us that the parties never
intended to transfer ownership to petitioner except upon the full
payment of the purchase price. Firstly, the exclusive option to
purchase, although it provided for automatic rescission of the
contract and partial forfeiture of the amount already paid in case
of default, does not mention that petitioner is obliged to return
possession or ownership of the property as a consequence of non
-payment. There is no stipulation anent reversion or reconveyance
of the property to herein private respondents in the event that
16
petitioner does not comply with its obligation. With the absence of
Sales – Chapter 3 Cases
In effect, there was an implied agreement that ownership shall not
pass to the purchaser until he had fully paid the price. Article 1478
of the civil code does not require that such a stipulation be
expressly made. Consequently, an implied stipulation to that
effect is considered valid and, therefore, binding and enforceable
between the parties. It should be noted that under the law and
jurisprudence, a contract which contains this kind of stipulation is
considered a contract to sell.
Moreover, that the parties really intended to execute a contract to
sell, and not a contract of sale, is bolstered by the fact that the
deed of absolute sale would have been issued only upon the
payment of the balance of the purchase price, as may be gleaned
from petitioner's letter dated April 16, 1990 16 wherein it informed
private respondents that it "is now ready and willing to pay you
simultaneously with the execution of the corresponding deed of
absolute sale."
Secondly, it has not been shown there was delivery of the
property, actual or constructive, made to herein petitioner. The
exclusive option to purchase is not contained in a public
instrument the execution of which would have been considered
equivalent to delivery. 17 Neither did petitioner take actual,
physical possession of the property at any given time. It is true
that after the reconstitution of private respondents' certificate of
title, it remained in the possession of petitioner's counsel, Atty.
Bayani L. Bernardo, who thereafter delivered the same to herein
petitioner. Normally, under the law, such possession by the
vendee is to be understood as a delivery.18 However, private
respondents explained that there was really no intention on their
part to deliver the title to herein petitioner with the purpose of
transferring ownership to it. They claim that Atty. Bernardo had
possession of the title only because he was their counsel in the
petition for reconstitution. We have no reason not to believe this
explanation of private respondents, aside from the fact that such
contention was never refuted or contradicted by petitioner.
2. Irrefragably, the controverted document should legally be
considered as a perfected contract to sell. On this particular point,
therefore, we reject the position and ratiocination of respondent
Court of Appeals which, while awarding the correct relief to
private respondents, categorized the instrument as "strictly an
option contract."
The important task in contract interpretation is always the
ascertainment of the intention of the contracting parties and that
task is, of course, to be discharged by looking to the words they
used to project that intention in their contract, all the words not
just
a particular word or two, and words in context not words standing
alone. 19 Moreover, judging from the subsequent acts of the
parties which will hereinafter be discussed, it is undeniable that
the intention of the parties was to enter into a contract to sell. 20
In addition, the title of a contract does not necessarily determine
its true nature. 21 Hence, the fact that the document under
discussion is entitled "Exclusive Option to Purchase" is not
controlling where the text thereof shows that it is a contract to
sell.
An option, as used in the law on sales, is a continuing offer or
contract by which the owner stipulates with another that the latter
shall have the right to buy the property at a fixed price within a
certain time, or under, or in compliance with, certain terms and
conditions, or which gives to the owner of the property the right to
sell or demand a sale. It is also sometimes called an "unaccepted
offer." An option is not of itself a purchase, but merely secures the
privilege to buy. 22 It is not a sale of property but a sale of
property but a sale of the right to purchase. 23 It is simply a
contract by which the owner of property agrees with another
person that he shall have the right to buy his property at a fixed
price within a certain time. He does not sell his land; he does not
then agree to sell it; but he does sell something, that it is, the right
or privilege to buy at the election or option of the other party. 24
Its distinguishing characteristic is that it imposes no binding
obligation on the person holding the option, aside from the
consideration for the offer. Until acceptance, it is not, properly
speaking, a contract, and does not vest, transfer, or agree to
transfer, any title to, or any interest or right in the subject matter,
but is merely a contract by which the owner of property gives the
optionee the right or privilege of accepting the offer and buying
the property on certain terms. 25
On the other hand, a contract, like a contract to sell, involves a
meeting of minds two persons whereby one binds himself, with
respect to the other, to give something or to render some service.
26 Contracts, in general, are perfected by mere consent, 27 which
is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract.
The offer must be certain and the acceptance absolute. 28
The distinction between an "option" and a contract of sale is that
an option is an unaccepted offer. It states the terms and
17
conditions on which the owner is willing to sell the land, if the
Sales – Chapter 3 Cases
holder elects to accept them within the time limited. If the holder
does so elect, he must give notice to the other party, and the
accepted offer thereupon becomes a valid and binding contract. If
an acceptance is not made within the time fixed, the owner is no
longer bound by his offer, and the option is at an end. A contract
of sale, on the other hand, fixes definitely the relative rights and
obligations of both
parties at the time of its execution. The offer and the acceptance
are concurrent, since the minds of the contracting parties meet in
the terms of the agreement. 29
A perusal of the contract in this case, as well as the oral and
documentary evidence presented by the parties, readily shows
that there is indeed a concurrence of petitioner's offer to buy and
private respondents' acceptance thereof. The rule is that except
where a formal acceptance is so required, although the
acceptance must be affirmatively and clearly made and must be
evidenced by some acts or conduct communicated to the offeror,
it may be made either in a formal or an informal manner, and may
be shown by acts, conduct, or words of the accepting party that
clearly manifest a present intention or determination to accept the
offer to buy or sell. Thus, acceptance may be shown by the acts,
conduct, or words of a party recognizing the existence of the
contract of sale. 30
The records also show that private respondents accepted the
offer of petitioner to buy their property under the terms of their
contract. At the time petitioner made its offer, private respondents
suggested that their transfer certificate of title be first
reconstituted, to which petitioner agreed. As a matter of fact, it
was petitioner's counsel, Atty. Bayani L. Bernardo, who assisted
private respondents in filing a petition for reconstitution. After the
title was reconstituted, the parties agreed that petitioner would
pay either in cash or manager's check the amount of
P2,856,150.00 for the lot. Petitioner was supposed to pay the
same on November 25, 1989, but it later offered to make a down
payment of P50,000.00, with the balance of P2,806,150.00 to be
paid on or before November 30, 1989. Private respondents agreed
to the counter-offer made by petitioner. 31 As a result, the so-
called exclusive option to purchase was prepared by petitioner
and was subsequently signed by private respondents, thereby
creating a perfected contract to sell between them.
It cannot be gainsaid that the offer to buy a specific piece of land
was definite and certain, while the acceptance thereof was
absolute and without any condition or qualification. The
agreement as to the object, the price of the property, and the
terms of payment was clear and well-defined. No other
significance could be given to such acts that than they were
meant to finalize and perfect the transaction. The parties even
went beyond the basic requirements of the law by stipulating that
"all expenses including the corresponding capital gains tax, cost
of documentary stamps are for the account of the vendors, and
expenses for the registration of the deed of sale in the Registry of
Deeds are for the account of Adelfa properties, Inc." Hence, there
was nothing left to be done except the performance of the
respective obligations of the parties.
We do not subscribe to private respondents' submission, which
was upheld by both the trial court and respondent court of
appeals, that the offer of petitioner to deduct P500,000.00, (later
reduced to P300,000.00) from the purchase price for the
settlement of the civil case was tantamount to a counter-offer. It
must be stressed that there already existed a perfected contract
between the parties at the time the alleged counter-offer was
made. Thus, any new offer by a party becomes binding only when
it is accepted by the other. In the case of private respondents,
they actually refused to concur in said offer of petitioner, by
reason of which the original terms of the contract continued to be
enforceable.
At any rate, the same cannot be considered a counter-offer for the
simple reason that petitioner's sole purpose was to settle the civil
case in order that it could already comply with its obligation. In
fact, it was even indicative of a desire by petitioner to immediately
comply therewith, except that it was being prevented from doing
so because of the filing of the civil case which, it believed in good
faith, rendered compliance improbable at that time. In addition, no
inference can be drawn from that suggestion given by petitioner
that it was totally abandoning the original contract.
More importantly, it will be noted that the failure of petitioner to
pay the balance of the purchase price within the agreed period
was attributed by private respondents to "lack of word of honor"
on the part of the former. The reason of "lack of word of honor" is
to us a clear indication that private respondents considered
petitioner already bound by its obligation to pay the balance of the
consideration. In effect, private respondents were demanding or
exacting fulfillment of the obligation from herein petitioner. with
the arrival of the period agreed upon by the parties, petitioner was
supposed to comply with the obligation incumbent upon it to
perform, not merely to exercise an option or a right to buy the
property.
18
The obligation of petitioner on November 30, 1993 consisted of
Sales – Chapter 3 Cases
an obligation to give something, that is, the payment of the
purchase price. The contract did not simply give petitioner the
discretion to pay for the property. 32 It will be noted that there is
nothing in the said contract to show that petitioner was merely
given a certain period within which to exercise its privilege to buy.
The agreed period was intended to give time to herein petitioner
within which to fulfill and comply with its obligation, that is, to pay
the balance of the purchase price. No evidence was presented by
private respondents to prove otherwise.
The test in determining whether a contract is a "contract of sale or money is given in a contract of sale, it shall be considered as part
purchase" or a mere "option" is whether or not the agreement of the price and as proof of the perfection of the contract. 38 It
could be specifically enforced. 33 There is no doubt that the constitutes an advance payment and must, therefore, be deducted
obligation of petitioner to pay the purchase price is specific, from the total price. Also, earnest money is given by the buyer to
definite and certain, and consequently binding and enforceable. the seller to bind the bargain.
Had private respondents chosen to enforce the contract, they
could have specifically compelled petitioner to pay the balance of
P2,806,150.00. This is distinctly made manifest in the contract
itself as an integral stipulation, compliance with which could
legally and definitely be demanded from petitioner as a
consequence.
This is not a case where no right is as yet created nor an
obligation declared, as where something further remains to be
done before the buyer and seller obligate themselves. 34 An
agreement is only an "option" when no obligation rests on the
party to make any payment except such as may be agreed on
between the parties as consideration to support the option until
he has made up his mind within the time specified. 35 An option,
and not a contract to purchase, is effected by an agreement to
sell real estate for payments to be made within specified time and
providing forfeiture of money paid upon failure to make payment,
where the purchaser does not agree to purchase, to make
payment, or to bind himself in any way other than the forfeiture of
the payments made. 36 As hereinbefore discussed, this is not the
situation obtaining in the case at bar.
While there is jurisprudence to the effect that a contract which
provides that the initial payment shall be totally forfeited in case
of default in payment is to be considered as an option contract, 37
still we are not inclined to conform with the findings of
respondent court and the court a quo that the contract executed
between the parties is an option contract, for the reason that the
parties were already contemplating the payment of the balance of
the purchase price, and were not merely quoting an agreed value
for the property. The term "balance," connotes a remainder or
something remaining from the original total sum already agreed
upon.
In other words, the alleged option money of P50,000.00 was
actually earnest money which was intended to form part of the
purchase price. The amount of P50,000.00 was not distinct from
the cause or consideration for the sale of the property, but was
19
itself a part thereof. It is a statutory rule that whenever earnest
Sales – Chapter 3 Cases
There are clear distinctions between earnest money and option
money, viz.: (a) earnest money is part of the purchase price, while
option money ids the money given as a distinct consideration for
an option contract; (b) earnest money is given only where there is
already a sale, while option money applies to a sale not yet
perfected; and (c) when earnest money is given, the buyer is
bound to pay the balance, while when the would-be buyer gives
option money, he is not required to buy. 39
The aforequoted characteristics of earnest money are apparent in
the so-called option contract under review, even though it was
called "option money" by the parties. In addition, private
respondents failed to show that the payment of the balance of the
purchase price was only a condition precedent to the acceptance
of the offer or to the exercise of the right to buy. On the contrary, it
has been sufficiently established that such payment was but an
element of the performance of petitioner's obligation under the
contract to sell. 40
II
1. This brings us to the second issue as to whether or not
there was valid suspension of payment of the purchase price by
petitioner and the legal consequences thereof. To justify its failure
to pay the purchase price within the agreed period, petitioner
invokes Article 1590 of the civil Code which provides:
Art. 1590. Should the vendee be disturbed in the
possession or ownership of the thing acquired, or should he have
reasonable grounds to fear such disturbance, by a vindicatory
action or a foreclosure of mortgage, he may suspend the payment
of the price until the vendor has caused the disturbance or danger
to cease, unless the latter gives security for the return of the price
in a proper case, or it has been stipulated that, notwithstanding
any such contingency, the vendee shall be bound to make the
payment. A mere act of trespass shall not authorize the
suspension of the payment of the price.
Respondent court refused to apply the aforequoted provision of
law on the erroneous assumption that the true agreement
between the parties was a contract of option. As we have
hereinbefore discussed, it was not an option contract but a
perfected contract to sell. Verily, therefore, Article 1590 would
properly apply.
Both lower courts, however, are in accord that since Civil Case No.
89-5541 filed against the parties herein involved only the eastern
half of the land subject of the deed of sale between petitioner and
the Jimenez brothers, it did not, therefore, have any adverse effect
on private respondents' title and ownership over the western half
of the land which is covered by the contract subject of the present
case. We have gone over the complaint for recovery of ownership
filed in said case 41 and we are not persuaded by the factual
findings made by said courts. At a glance, it is easily discernible
that, although the complaint prayed for the annulment only of the
contract of sale executed between petitioner and the Jimenez
brothers, the same likewise prayed for the recovery of therein
plaintiffs' share in that parcel of land specifically covered by TCT
No. 309773. In other words, the plaintiffs therein were claiming to
be co-owners of the entire parcel of land described in TCT No.
309773, and not only of a portion thereof nor, as incorrectly
interpreted by the lower courts, did their claim pertain exclusively
to the eastern half adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in suspending
payment of the balance of the purchase price by reason of the
aforesaid vindicatory action filed against it. The assurance made
by private respondents that petitioner did not have to worry about
the case because it was pure and simple harassment 42 is not the
kind of guaranty contemplated under the exceptive clause in
Article 1590 wherein the vendor is bound to make payment even
with the existence of a vindicatory action if the vendee should give
a security for the return of the price.
2. Be that as it may, and the validity of the suspension of
payment notwithstanding, we find and hold that private
respondents may no longer be compelled to sell and deliver the
subject property to petitioner for two reasons, that is, petitioner's
failure to duly effect the consignation of the purchase price after
the disturbance had ceased; and, secondarily, the fact that the
contract to sell had been validly rescinded by private respondents.
The records of this case reveal that as early as February 28, 1990
when petitioner caused its exclusive option to be annotated anew
on the certificate of title, it already knew of the dismissal of civil
Case No. 89-5541. However, it was only on April 16, 1990 that
petitioner, through its counsel, wrote private respondents
expressing its willingness to pay the balance of the purchase
price upon the execution of the corresponding deed of absolute
sale. At most, that was merely a notice to pay. There was no
proper tender of payment nor consignation in this case as
required by law.
20
Sales – Chapter 3 Cases
The mere sending of a letter by the vendee expressing the
intention to
pay, without the accompanying payment, is not considered a valid
tender of payment. 43 Besides, a mere tender of payment is not
sufficient to compel private respondents to deliver the property
and
execute the deed of absolute sale. It is consignation which is
essential in order to extinguish petitioner's obligation to pay the In the case at bar, it has been shown that although petitioner was
balance of the purchase price. 44 The rule is different in case of duly furnished and did receive a written notice of rescission which
an option contract 45 or in legal redemption or in a sale with right specified the grounds therefore, it failed to reply thereto or protest
to repurchase, 46 wherein consignation is not necessary because
these cases involve an exercise of a right or privilege (to buy,
redeem or repurchase) rather than the discharge of an obligation,
hence tender of payment would be sufficient to preserve the right
or privilege. This is because the provisions on consignation are
not applicable when there is no obligation to pay. 47 A contract to
sell, as in the case before us, involves the performance of an
obligation, not merely the exercise of a privilege of a right.
consequently, performance or payment may be effected not by
tender of payment alone but by both tender and consignation.
Furthermore, petitioner no longer had the right to suspend
payment after the disturbance ceased with the dismissal of the
civil case filed against it. Necessarily, therefore, its obligation to
pay the balance again arose and resumed after it received notice
of such dismissal. Unfortunately, petitioner failed to seasonably
make payment, as in fact it has deposit the money with the trial
court when this case was originally filed therein.
By reason of petitioner's failure to comply with its obligation,
private respondents elected to resort to and did announce the
rescission of the contract through its letter to petitioner dated
July 27, 1990. That written notice of rescission is deemed
sufficient under the circumstances. Article 1592 of the Civil Code
which requires rescission either by judicial action or notarial act is
not applicable to a contract to sell. 48 Furthermore, judicial action
for rescission of a contract is not necessary where the contract
provides for automatic rescission in case of breach,49 as in the
contract involved in the present controversy.
We are not unaware of the ruling in University of the Philippines
vs. De los Angeles, etc. 50 that the right to rescind is not absolute,
being ever subject to scrutiny and review by the proper court. It is
our considered view, however, that this rule applies to a situation
where the extrajudicial rescission is contested by the defaulting
party. In other words, resolution of reciprocal contracts may be
made extrajudicially unless successfully impugned in court. If the
debtor impugns the declaration, it shall be subject to judicial
determination51 otherwise, if said party does not oppose it, the
21
extrajudicial rescission shall have legal effect. 52
Sales – Chapter 3 Cases
against it. Its silence thereon suggests an admission of the
veracity and validity of private respondents' claim. 53
Furthermore, the initiative of instituting suit was transferred from
the rescinder to the defaulter by virtue of the automatic rescission
clause in the contract. 54 But then, the records bear out the fact
that aside from the lackadaisical manner with which petitioner
treated private respondents' latter of cancellation, it utterly failed
to seriously seek redress from the court for the enforcement of its
alleged rights under the contract. If private respondents had not
taken the initiative of filing Civil Case No. 7532, evidently
petitioner had no intention to take any legal action to compel
specific performance from the former. By such cavalier disregard,
it has been effectively estopped from seeking the affirmative
relief it now desires but which it had theretofore disdained.
WHEREFORE, on the foregoing modificatory premises, and
considering that the same result has been reached by respondent
Court of Appeals with respect to the relief awarded to private
respondents by the court a quo which we find to be correct, its
assailed judgment in CA-G.R. CV No. 34767 is hereby AFFIRMED.
SO ORDERED.
SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR, petitioners, reason it is my paraphernal property;
vs.
THE HON. COURT OF APPEALS AND SPOUSES MACARIA
LABINGISA REYES AND ROBERTO REYES, respondents.
This is a petition for review on certiorari of the decision of the Court of
Appeals in CA-G.R. No. 24176 entitled, "Spouses Julio Villamor and
Marina Villamor, Plaintiffs-Appellees, versus Spouses Macaria Labing-
isa Reyes and Roberto Reyes, Defendants-Appellants," which reversed
the decision of the Regional Trial Court (Branch 121) at Caloocan City
in Civil Case No. C-12942.
The facts of the case are as follows:
Macaria Labingisa Reyes was the owner of a 600-square meter lot
located at Baesa, Caloocan City, as evidenced by Transfer Certificate
of Title No. (18431) 18938, of the Register of Deeds of Rizal.
In July 1971, Macaria sold a portion of 300 square meters of the lot to
the Spouses Julio and Marina and Villamor for the total amount of
P21,000.00. Earlier, Macaria borrowed P2,000.00 from the spouses
which amount was deducted from the total purchase price of the 300
square meter lot sold. The portion sold to the Villamor spouses is now
covered by TCT No. 39935 while the remaining portion which is still in
the name of Macaria Labing-isa is covered by TCT No. 39934 (pars. 5
and 7, Complaint). On November 11, 1971, Macaria executed a "Deed
of Option" in favor of Villamor in which the remaining 300 square
meter portion (TCT No. 39934) of the lot would be sold to Villamor
under the conditions stated therein. The document reads:
DEED OF OPTION
This Deed of Option, entered into in the City of Manila, Philippines, this
11th day of November, 1971, by and between Macaria Labing-isa, of
age, married to Roberto Reyes, likewise of age, and both resideing on
Reparo St., Baesa, Caloocan City, on the one hand, and on the other
hand the spouses Julio Villamor and Marina V. Villamor, also of age
and residing at No. 552 Reparo St., corner Baesa Road, Baesa,
Caloocan City.
WITNESSETH
That, I Macaria Labingisa, am the owner in fee simple of a parcel of
land with an area of 600 square meters, more or less, more
particularly described in TCT No. (18431) 18938 of the Office of the
Register of Deeds for the province of Rizal, issued in may name, I 22
having inherited the same from my deceased parents, for which
Sales – Chapter 3 Cases
That I, with the conformity of my husband, Roberto Reyes, have sold
one-half thereof to the aforesaid spouses Julio Villamor and Marina V.
Villamor at the price of P70.00 per sq. meter, which was greatly higher
than the actual reasonable prevailing value of lands in that place at
the time, which portion, after segregation, is now covered by TCT No.
39935 of the Register of Deeds for the City of Caloocan, issued on
August 17, 1971 in the name of the aforementioned spouses vendees;
That the only reason why the Spouses-vendees Julio Villamor and
Marina V. Villamor, agreed to buy the said one-half portion at the
above-stated price of about P70.00 per square meter, is because I,
and my husband Roberto Reyes, have agreed to sell and convey to
them the remaining one-half portion still owned by me and now
covered by TCT No. 39935 of the Register of Deeds for the City of
Caloocan, whenever the need of such sale arises, either on our part or
on the part of the spouses (Julio) Villamor and Marina V. Villamor, at
the same price of P70.00 per square meter, excluding whatever
improvement may be found the thereon;
That I am willing to have this contract to sell inscribed on my
aforesaid title as an encumbrance upon the property covered thereby,
upon payment of the corresponding fees; and
That we, Julio Villamor and Marina V. Villamor, hereby agree to, and
accept, the above provisions of this Deed of Option.
IN WITNESS WHEREOF, this Deed of Option is signed in the City of
Manila, Philippines, by all the persons concerned, this 11th day of
November, 1971.
JULIO VILLAMOR MACARIA LABINGISA
With My Conformity:
MARINA VILLAMOR ROBERTO REYES
Signed in the Presence Of:
MARIANO Z. SUNIGA
ROSALINDA S. EUGENIO
ACKNOWLEDGMENT
REPUBLIC OF THE PHILIPPINES)
CITY OF MANILA ) S.S.
At the City of Manila, on the 11th day of November, 1971, personally
appeared before me Roberto Reyes, Macaria Labingisa, Julio Villamor
and Marina Ventura-Villamor, known to me as the same persons who
executed the foregoing Deed of Option, which consists of two (2)
pages including the page whereon this acknowledgement is written,
and
signed at the left margin of the first page and at the bottom of the
instrument by the parties and their witnesses, and sealed with my
notarial seal, and said parties acknowledged to me that the same is
their free act and deed. The Residence Certificates of the parties were
exhibited to me as follows: Roberto Reyes, A-22494, issued at Manila
on Jan. 27, 1971, and B-502025, issued at Makati, Rizal on Feb. 18,
1971; Macaria Labingisa, A-3339130 and B-1266104, both issued at
Caloocan City on April 15, 1971, their joint Tax Acct. Number being
3028-767-6; Julio Villamor, A-804, issued at Manila on Jan. 14, 1971,
and B-138, issued at Manila on March 1, 1971; and Marina Ventura-
Villamor, A-803, issued at Manila on Jan. 14, 1971, their joint Tax
Acct. Number being 608-202-6.
ARTEMIO M. MALUBAY
Notary Public
Until December 31, 1972
PTR No. 338203, Manila
January 15, 1971
Doc. No. 1526;
Page No. 24;
Book No. 38;
Series of 1971. (pp. 25-29, Rollo)
According to Macaria, when her husband, Roberto Reyes, retired in
1984, they offered to repurchase the lot sold by them to the Villamor
spouses but Marina Villamor refused and reminded them instead that
the Deed of Option in fact gave them the option to purchase the
remaining portion of the lot.
The Villamors, on the other hand, claimed that they had expressed
their desire to purchase the remaining 300 square meter portion of
the lot but the Reyeses had been ignoring them. Thus, on July 13,
1987, after conciliation proceedings in the barangay level failed, they
filed a complaint for specific performance against the Reyeses.
On July 26, 1989, judgment was rendered by the trial court in favor of
the Villamor spouses, the dispositive portion of which states:
WHEREFORE, and (sic) in view of the foregoing, judgment is hereby
rendered in favor of the plaintiffs and against the defendants ordering
the defendant MACARIA LABING-ISA REYES and ROBERTO REYES, to
sell unto the plaintiffs the land covered by T.C.T No. 39934 of the
Register of Deeds of Caloocan City, to pay the plaintiffs the sum of
P3,000.00 as and for attorney's fees and to pay the cost of suit.
23
The counterclaim is hereby DISMISSED, for LACK OF MERIT.
Sales – Chapter 3 Cases
SO ORDERED. (pp. 24-25, Rollo)
Not satisfied with the decision of the trial court, the Reyes spouses
appealed to the Court of Appeals on the following assignment of
errors:
1. HOLDING THAT THE DEED OF OPTION EXECUTED ON
NOVEMBER 11, 1971 BETWEEN THE PLAINTIFF-APPELLEES AND
DEFENDANT-APPELLANTS IS STILL VALID AND BINDING DESPITE
THE LAPSE OF MORE THAN THIRTEEN (13) YEARS FROM THE
EXECUTION OF THE CONTRACT;
2. FAILING TO CONSIDER THAT THE DEED OF OPTION
CONTAINS OBSCURE WORDS AND STIPULATIONS WHICH SHOULD
BE RESOLVED AGAINST THE PLAINTIFF-APPELLEES WHO
UNILATERALLY DRAFTED AND PREPARED THE SAME;
3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE
TRUE INTENTION AND PURPOSE OF THE PARTIES DESPITE
ADVERSE, CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE
PLAINTIFF-APPELLEES;
4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON
ACCOUNT OF THEIR IGNORANCE PLACING THEM AT A
DISADVANTAGE IN THE DEED OF OPTION;
5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION
TILT IN FAVOR OF THE DEFENDANT-APPELLANTS; and
6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY
PLAINTIFF-APPELLEES THE AMOUNT OF P3,000.00 FOR AND BY
WAY OF ATTORNEY'S FEES. (pp. 31-32, Rollo)
On February 12, 1991, the Court of Appeals rendered a decision
reversing the decision of the trial court and dismissing the complaint.
The reversal of the trial court's decision was premised on the finding
of respondent court that the Deed of Option is void for lack of
consideration.
The Villamor spouses brought the instant petition for review on
certiorari on the following grounds:
I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING
THAT THE PHRASE WHENEVER THE NEED FOR SUCH SALE ARISES
ON OUR (PRIVATE RESPONDENT) PART OR ON THE PART OF THE
SPOUSES JULIO D. VILLAMOR AND MARINA V. VILLAMOR'
CONTAINED IN THE DEED OF OPTION DENOTES A SUSPENSIVE
CONDITION;
II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE
QUESTIONED PHRASE IS INDEED A CONDITION, THE COURT OF
APPEALS ERRED IN NOT FINDING, THAT THE SAID CONDITION HAD
ALREADY BEEN FULFILLED;
III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE
QUESTIONED PHRASE IS INDEED A CONDITION, THE COURT OF
APPEALS ERRED IN HOLDING THAT THE IMPOSITION OF SAID
CONDITION PREVENTED THE PERFECTION OF THE CONTRACT OF
SALE DESPITE THE EXPRESS OFFER AND ACCEPTANCE CONTAINED
IN THE DEED OF OPTION;
IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE
DEED OF OPTION IS VOID FOR LACK OF CONSIDERATION;
V. THE COURT OF APPEALS ERRED IN HOLDING THAT A
DISTINCT CONSIDERATION IS NECESSARY TO SUPPORT THE DEED
OF OPTION DESPITE THE EXPRESS OFFER AND ACCEPTANCE
CONTAINED THEREIN. (p. 12, Rollo)
The pivotal issue to be resolved in this case is the validity of the Deed
of Option whereby the private respondents agreed to sell their lot to
petitioners "whenever the need of such sale arises, either on our part
(private respondents) or on the part of Julio Villamor and Marina
Villamor (petitioners)." The court a quo, rule that the Deed of Option
was a valid written agreement between the parties and made the
following conclusions:
xxx xxx xxx
It is interesting to state that the agreement between the parties are
evidence by a writing, hence, the controverting oral testimonies of the
herein defendants cannot be any better than the documentary
evidence, which, in this case, is the Deed of Option (Exh. "A" and "A-a")
The law provides that when the terms of an agreement have been
reduced to writing it is to be considered as containing all such terms,
and therefore, there can be, between the parties and their successors
in interest no evidence of their terms of the agreement, other than the
contents of the writing. ... (Section 7 Rule 130 Revised Rules of Court)
Likewise, it is a general and most inflexible rule that wherever written
instruments are appointed either by the requirements of law, or by the
contract of the parties, to be the repositories and memorials of truth,
any other evidence is excluded from being used, either as a substitute
for such instruments, or to contradict or alter them. This is a matter
both of principle and of policy; of principle because such instruments 24
are in their nature and origin entitled to a much higher degree of credit
Sales – Chapter 3 Cases
than evidence of policy, because it would be attended with great
mischief if those instruments upon which man's rights depended were
liable to be impeached by loose collateral evidence. Where the terms
of an agreement are reduced to writing, the document itself, being
constituted by the parties as the expositor of their intentions, it is the
only instrument of evidence in respect of that agreement which the
law will recognize so long as it exists for the purpose of evidence.
(Starkie,
EV, pp. 648, 655 cited in Kasheenath vs. Chundy, W.R. 68, cited in land at P70.00 per square meter "which was greatly higher than the
Francisco's Rules of Court, Vol. VII Part I p. 153) (Emphasis supplied, actual reasonable prevailing price." This cause or consideration is
pp. 126-127, Records). clear from the deed which stated:
The respondent appellate court, however, ruled that the said deed of
option is void for lack of consideration. The appellate court made the
following disquisitions:
Plaintiff-appellees say they agreed to pay P70.00 per square meter for
the portion purchased by them although the prevailing price at that
time was only P25.00 in consideration of the option to buy the
remainder of the land. This does not seem to be the case. In the first
place, the deed of sale was never produced by them to prove their
claim. Defendant-appellants testified that no copy of the deed of sale
had ever been given to them by the plaintiff-appellees. In the second
place, if this was really the condition of the prior sale, we see no
reason why it should be reiterated in the Deed of Option. On the
contrary, the alleged overprice paid by the plaintiff-appellees is given
in the Deed as reason for the desire of the Villamors to acquire the
land rather than as a consideration for the option given to them,
although one might wonder why they took nearly 13 years to invoke
their right if they really were in due need of the lot.
At all events, the consideration needed to support a unilateral promise
to sell is a dinstinct one, not something that is as uncertain as P70.00
per square meter which is allegedly 'greatly higher than the actual
prevailing value of lands.' A sale must be for a price certain (Art.
1458). For how much the portion conveyed to the plaintiff-appellees
was sold so that the balance could be considered the consideration
for the promise to sell has not been shown, beyond a mere allegation
that it was very much below P70.00 per square meter.
The fact that plaintiff-appellees might have paid P18.00 per square
meter for another land at the time of the sale to them of a portion of
defendant-appellant's lot does not necessarily prove that the
prevailing market price at the time of the sale was P18.00 per square
meter. (In fact they claim it was P25.00). It is improbable that plaintiff-
appellees should pay P52.00 per square meter for the privilege of
buying when the value of the land itself was allegedly P18.00 per
square meter. (pp. 34-35, Rollo)
As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is
"the why of the contracts, the essential reason which moves the
contracting parties to enter into the contract." The cause or the
impelling reason on the part of private respondent executing the deed
of option as appearing in the deed itself is the petitioner's having 25
agreed to buy the 300 square meter portion of private respondents'
Sales – Chapter 3 Cases
That the only reason why the spouses-vendees Julio Villamor and
Marina V. Villamor agreed to buy the said one-half portion at the
above stated price of about P70.00 per square meter, is because I,
and my husband Roberto Reyes, have agreed to sell and convey to
them the remaining one-half portion still owned by me ... (p. 26, Rollo)
The respondent appellate court failed to give due consideration to
petitioners' evidence which shows that in 1969 the Villamor spouses
bough an adjacent lot from the brother of Macaria Labing-isa for only
P18.00 per square meter which the private respondents did not rebut.
Thus, expressed in terms of money, the consideration for the deed of
option is the difference between the purchase price of the 300 square
meter portion of the lot in 1971 (P70.00 per sq.m.) and the prevailing
reasonable price of the same lot in 1971. Whatever it is, (P25.00 or
P18.00) though not specifically stated in the deed of option, was
ascertainable. Petitioner's allegedly paying P52.00 per square meter
for the option may, as opined by the appellate court, be improbable
but improbabilities does not invalidate a contract freely entered into
by the parties.
The "deed of option" entered into by the parties in this case had
unique features. Ordinarily, an optional contract is a privilege existing
in one person, for which he had paid a consideration and which gives
him the right to buy, for example, certain merchandise or certain
specified property, from another person, if he chooses, at any time
within the agreed period at a fixed price (Enriquez de la Cavada v.
Diaz, 37 Phil. 982). If We look closely at the "deed of option" signed by
the parties, We will notice that the first part covered the statement on
the sale of the 300 square meter portion of the lot to Spouses
Villamor at the price of P70.00 per square meter "which was higher
than the actual reasonable prevailing value of the lands in that place
at that time (of sale)." The second part stated that the only reason
why the Villamor spouses agreed to buy the said lot at a much higher
price is because the vendor (Reyeses) also agreed to sell to the
Villamors the other half-portion of 300 square meters of the land. Had
the deed stopped there, there would be no dispute that the deed is
really an ordinary deed of option granting the Villamors the option to
buy the remaining 300 square meter-half portion of the lot in
consideration for their having agreed to buy the other half of the land
for a much higher price. But, the "deed of option" went on and stated
that the sale of the other half would be made "whenever the need of
such sale arises, either on our (Reyeses) part or on the part of the
Spouses Julio Villamor and Marina V. Villamor. It appears that while
the option to buy was granted to the Villamors, the Reyeses were
likewise granted an option to sell. In other words, it was not only the
Villamors who were granted an option to buy for which they paid a
consideration. The Reyeses as well were granted an option to sell
should the need for such sale on their part arise.
In the instant case, the option offered by private respondents had
been accepted by the petitioner, the promise, in the same document.
The acceptance of an offer to sell for a price certain created a
bilateral
contract to sell and buy and upon acceptance, the offer, ipso facto
assumes obligations of a vendee (See Atkins, Kroll & Co. v. Cua Mian
Tek, 102 Phil. 948). Demandabilitiy may be exercised at any time after
the execution of the deed. In Sanchez v. Rigos, No. L-25494, June 14,
1972, 45 SCRA 368, 376, We held:
In other words, since there may be no valid contract without a cause
of consideration, the promisory is not bound by his promise and may,
accordingly withdraw it. Pending notice of its withdrawal, his
accepted promise partakes, however, of the nature of an offer to sell
which, if accepted, results in a perfected contract of sale.
A contract of sale is, under Article 1475 of the Civil Code, "perfected at
the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price. From that moment, the
parties may reciprocally demand perform of contracts." Since there
was, between the parties, a meeting of minds upon the object and the
price, there was already a perfected contract of sale. What was,
however, left to be done was for either party to demand from the other
their respective undertakings under the contract. It may be demanded
at any time either by the private respondents, who may compel the
petitioners to pay for the property or the petitioners, who may compel
the private respondents to deliver the property.
However, the Deed of Option did not provide for the period within
which the parties may demand the performance of their respective
undertakings in the instrument. The parties could not have
contemplated that the delivery of the property and the payment
thereof could be made indefinitely and render uncertain the status of
the land. The failure of either parties to demand performance of the
obligation of the other for an unreasonable length of time renders the
contract ineffective.
Under Article 1144 (1) of the Civil Code, actions upon written contract
must be brought within ten (10) years. The Deed of Option was
executed on November 11, 1971. The acceptance, as already
mentioned, was also accepted in the same instrument. The complaint
in this case was filed by the petitioners on July 13, 1987, seventeen
(17) years from the time of the execution of the contract. Hence, the
right of action had prescribed. There were allegations by the
petitioners that they demanded from the private respondents as early
as 1984 the enforcement of their rights under the contract. Still, it was
beyond the ten (10) years period prescribed by the Civil Code. In the
case of Santos v. Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and
subscribing to the observations of the court a quo held, thus: 26
Sales – Chapter 3 Cases
... Assuming that Rosa Ganayo, the oppositor herein, had the right
based on the Agreement to Convey and Transfer as contained in
Exhibits '1' and '1-A', her failure or the abandonment of her right to file
an action against Pulmano Molintas when he was still a co-owner of
the
on-half (1/2) portion of the 10,000 square meters is now barred by
laches and/or prescribed by law because she failed to bring such
action within ten (10) years from the date of the written agreement in
1941, pursuant to Art. 1144 of the New Civil Code, so that when she
filed the adverse claim through her counsel in 1959 she had
absolutely no more right whatsoever on the same, having been barred
by laches.
It is of judicial notice that the price of real estate in Metro Manila is
continuously on the rise. To allow the petitioner to demand the
delivery of the property subject of this case thirteen (13) years or
seventeen (17) years after the execution of the deed at the price of
only P70.00 per square meter is inequitous. For reasons also of equity
and in consideration of the fact that the private respondents have no
other decent place to live, this Court, in the exercise of its equity
jurisdiction is not inclined to grant petitioners' prayer.
ACCORDINGLY, the petition is DENIED. The decision of respondent
appellate court is AFFIRMED for reasons cited in this decision.
Judgement is rendered dismissing the complaint in Civil Case No. C-
12942 on the ground of prescription and laches.
SO ORDERED.
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Appeal from a decision of the Court of First Instance of Nueva
Ecija to the Court of Appeals, which certified the case to Us, upon
the ground that it involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez
and defendant Severina Rigos executed an instrument entitled
"Option to Purchase," whereby Mrs. Rigos "agreed, promised and
committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of
land situated in the barrios of Abar and Sibot, municipality of San
Jose, province of Nueva Ecija, and more particularly described in
Transfer Certificate of Title No. NT-12528 of said province, within
two (2) years from said date with the understanding that said
option shall be deemed "terminated and elapsed," if "Sanchez
shall fail to exercise his right to buy the property" within the
stipulated period. Inasmuch as several tenders of payment of the
sum of Pl,510.00, made by Sanchez within said period, were
rejected by Mrs. Rigos, on March 12, 1963, the former deposited
said amount with the Court of First Instance of Nueva Ecija and
commenced against the latter the present action, for specific
performance and damages.
After the filing of defendant's answer — admitting some
allegations of the complaint, denying other allegations thereof,
and alleging, as special defense, that the contract between the
parties "is a unilateral promise to sell, and the same being
unsupported by any valuable consideration, by force of the New
Civil Code, is null and void" — on February 11, 1964, both parties,
assisted by their respective counsel, jointly moved for a judgment
on the pleadings. Accordingly, on February 28, 1964, the lower
court rendered judgment for Sanchez, ordering Mrs. Rigos to
accept the sum judicially consigned by him and to execute, in his
favor, the requisite deed of conveyance. Mrs. Rigos was, likewise,
sentenced to pay P200.00, as attorney's fees, and other costs.
Hence, this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article
1479 of our Civil Code, which provides:
ART. 1479. A promise to buy and sell a determinate thing
27
for a price certain is reciprocally demandable.
Sales – Chapter 3 Cases
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. In other words, the promisee has the burden of
consideration, "defendant agreed and committed to sell" and "the proving such consideration. Plaintiff herein has not even alleged
plaintiff agreed and committed to buy" the land described in the the existence thereof in his complaint.
option, copy of which was annexed to said pleading as Annex A
thereof and is quoted on the margin.1 Hence, plaintiff maintains (3) Upon the other hand, defendant explicitly averred in her
that the promise contained in the contract is "reciprocally answer, and pleaded as a special defense, the absence of said
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
28
the former establishes the existence of said distinct
Sales – Chapter 3 Cases
consideration for her promise to sell and, by joining in the petition
for a judgment on the pleadings, plaintiff has impliedly admitted
the truth of said averment in defendant's answer. Indeed as early
as March 14, 1908, it had been held, in Bauermann v. Casas,3 that:
One who prays for judgment on the pleadings without offering
proof as to the truth of his own allegations, and without giving the
opposing party an opportunity to introduce evidence, must be
understood to admit the truth of all the material and relevant
allegations of the opposing party, and to rest his motion for
judgment on those allegations taken together with such of his
own as are admitted in the pleadings. (La Yebana Company vs.
Sevilla, 9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa4 and Mercy's
Incorporated v. Herminia Verde.5
Squarely in point is Southwestern Sugar & Molasses Co. v.
Atlantic Gulf & Pacific Co.,6 from which We quote:
The main contention of appellant is that the option granted to
appellee to sell to it barge No. 10 for the sum of P30,000 under
the terms stated above has no legal effect because it is not
supported by any consideration and in support thereof it invokes
article 1479 of the new Civil Code. The article provides:
"ART. 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
An accepted unilateral promise to buy or sell a determinate thing
for a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price."
On the other hand, Appellee contends that, even granting that the
"offer of option" is not supported by any consideration, that option
became binding on appellant when the appellee gave notice to it
of its acceptance, and that having accepted it within the period of
option, the offer can no longer be withdrawn and in any event
such withdrawal is ineffective. In support this contention, appellee
invokes article 1324 of the Civil Code which provides:
"ART. 1324. When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn any time before
acceptance by communicating such withdrawal, except when the
option is founded upon consideration as something paid or
promised."
There is no question that under article 1479 of the new Civil Code
"an option to sell," or "a promise to buy or to sell," as used in said
article, to be valid must be "supported by a consideration distinct
from the price." This is clearly inferred from the context of said
article that a unilateral promise to buy or to sell, even if accepted,
is only binding if supported by consideration. In other words, "an
accepted unilateral promise can only have a binding effect if
supported by a consideration which means that the option can
still be withdrawn, even if accepted, if the same is not supported
by any consideration. It is not disputed that the option is without
consideration. It can therefore be withdrawn notwithstanding the
acceptance of it by appellee.
It is true that under article 1324 of the new Civil Code, the general
rule regarding offer and acceptance is that, when the offerer gives
to the offeree a certain period to accept, "the offer may be
withdrawn at any time before acceptance" except when the option
is founded upon consideration, but this general rule must be
interpreted as modified by the provision of article 1479 above
referred to, which applies to "a promise to buy and sell"
specifically. As already stated, this rule requires that a promise to
sell to be valid must be supported by a consideration distinct from
the price.
We are not oblivious of the existence of American authorities
which hold that an offer, once accepted, cannot be withdrawn,
regardless of whether it is supported or not by a consideration (12
Am. Jur. 528). These authorities, we note, uphold the general rule
applicable to offer and acceptance as contained in our new Civil
Code. But we are prevented from applying them in view of the
specific provision embodied in article 1479. While under the "offer
of option" in question appellant has assumed a clear obligation to
sell its barge to appellee and the option has been exercised in
accordance with its terms, and there appears to be no valid or
justifiable reason for appellant to withdraw its offer, this Court
cannot adopt a different attitude because the law on the matter is
clear. Our imperative duty is to apply it unless modified by
Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc.
v. Cua Hian Tek,8 decided later that Southwestern Sugar &
Molasses Co. v. Atlantic Gulf & Pacific Co.,9 saw no distinction
between Articles 1324 and 1479 of the Civil Code and applied the
29
former where a unilateral promise to sell similar to the one sued
Sales – Chapter 3 Cases
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.
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

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
30
conflict between the same. Indeed, the presumption is that, in the
Sales – Chapter 3 Cases
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.
PERCELINO DIAMANTE, petitioner,
vs.
HON. COURT OF APPEALS and GERARDO DEYPALUBUS,
respondents.
Assailed in this petition for review is the Resolution of the
respondent Court of Appeals dated 21 March 1979 in C.A.-G.R.
No. SP-04866 setting aside its earlier decision therein,
promulgated on 6 December 1978, which reversed the decision of
the then Court of First Instance (now Regional Trial Court) of Iloilo
City. The latter nullified the Orders of the Secretary of the
Department of Agriculture and Natural Resources (DANR) dated
29 August 1969, 20 November 1969 and 21 April 1970, declared
binding the Fishpond Lease Agreement (FLA) issued to private
respondent and disallowed petitioner from repurchasing from
private respondent a portion of the fishery lot located at
Dumangas, Iloilo, covered by the FLA.
The pleadings of the parties and the decision of the respondent
Court disclose the factual antecedents of this case.
A fishery lot, encompassing an area of 9.4 hectares and
designated as Lot No. 518-A of the Cadastral Survey of
Dumangas, Iloilo, was previously covered by Fishpond Permit No.
F-2021 issued in the name of Anecita Dionio. Upon Anecita's
death, her heirs, petitioner Diamante and Primitivo Dafeliz,
inherited the property which they later divided between
themselves; petitioner got 4.4. hectares while Dafeliz got 5
hectares. It is the petitioner's share that is the subject of the
present controversy. Primitivo Dafeliz later sold his share to
private respondent.
On 21 May 1959, petitioner sold to private respondent his
leasehold rights over the property in question for P8,000.00 with
the right to repurchase the same within three (3) years from said
date.
On 16 August 1960, private respondent filed an application with
the Bureau of Fisheries, dated 12 July 1960, for a fishpond permit
and a fishpond lease agreement over the entire lot, submitting
therewith the deeds of sale executed by Dafeliz and the petitioner.
Pressed by urgent financial needs, petitioner, on 17 October 1960,
sold all his remaining rights over the property in question to the
private respondent for P4,000.00.
On 25 October 1960, private respondent, with his wife's consent,
executed in favor of the petitioner an Option to Repurchase the
property in question within ten (10) years from said date, with a
ten-year grace period.
Private respondent submitted to the Bureau of Fisheries the
definite deed of sale; he did not, however, submit the Option to
Repurchase.
Thereafter, on 2 August 1961, the Bureau of Fisheries issued to
private respondent Fishpond Permit No. 4953-Q; on 17 December
1962, it approved FLA No. 1372 in the latter's favor.
On 11 December 1963, petitioner, contending that he has a valid
twenty-year option to repurchase the subject property, requested
the Bureau of Fisheries to nullify FLA No. 1372 insofar as the said
property is concerned. On 18 December 1964, his letter-complaint
was dismissed. Petitioner then sought a reconsideration of the
dismissal; the same was denied on 29 April 1965. His appeal to
the Secretary of the DANR was likewise dismissed on 30 October
1968. Again, on 20 November 1968, petitioner sought for a
reconsideration; this time, however, he was successful. On 29
August 1969, the DANR Secretary granted his motion in an Order
cancelling FLA No. 1372 and stating, inter alia, that:
Evidently, the application as originally filed, could not be favorably
acted upon by reason of the existing right of a third party over a
portion thereof. It was only the submission of the deed of
absolute sale which could eliminate the stumbling block to the
approval of the transfer and the issuance of a permit or lease
agreement. It was on the basis of this deed of sale, in fact, the one
entitled "option to repurchase" executed barely a week from the
execution of the deed of absolute sale, (which) reverted, in effect,
the status of the land in question to what it was after the
execution of the deed of sale with right to repurchase; that is, the
land was again placed under an encumbrance in favor of a third
party. Circumstantially, there is a ground (sic) to believe that the
deed of absolute sale was executed merely with the end in view of
circumventing the requirements for the approval of the transfer of
leasehold rights of Diamante in favor of Deypalubos; and the
subsequent execution of the "Option to Repurchase" was made to
31
assure the maintenance of a vendor a retro's rights in favor of
Sales – Chapter 3 Cases
Diamante. There was, therefore, a misrepresentation of an
essential or material fact committed by the lessee-appellee
(Deypalubos) in his application for the permit and the lease
agreement, without which the same could not have been issued. 1
The Secretary based his action on Section 20 of Fisheries
Administrative Order No. 60, the second paragraph of which
reads:
Any and all of the statements made in the corresponding
application shall be considered as essential conditions and parts
of
the permit or lease granted. Any false statements in the respondent Secretary inasmuch as private respondent was given
application of facts or any alteration, change or modification of the opportunity to be heard on his claim that the Option to
any or all terms and conditions made therein shall ipso facto Repurchase is spurious, and that the trial court merely indulged in
cause the cancellation of the permit or lease. conjectures in not upholding its validity. Said the respondent
Court:
Private respondent moved for a reconsideration of this last Order
arguing that the DANR Secretary's previous Order of 30 October
1968 dismissing petitioner's letter-complaint had already become
final on the ground that he (private respondent) was not served a
copy of petitioner's 20 November 1968 motion for
reconsideration. On 20 November 1969, private respondent's
motion for reconsideration was denied; a second motion for
reconsideration was likewise denied on 20 April 1970.
On 5 May 1970, private respondent filed with the Court of First
Instance of Iloilo City a special civil action for certiorari with
preliminary injunction (docketed as Civil Case No. 8209), seeking
to annul the Secretary's Orders of 20 April 1970, 20 November
1969 and 29 August 1969 on the ground that the Secretary: (1)
gravely abused his discretion in not giving him the opportunity to
be heard on the question of whether or not the Option to
Repurchase was forged; and (2) has no jurisdiction to set aside
FLA No. 1372 as the Order of the Bureau of Fisheries dismissing
petitioner's 11 December 1963 letter-complaint had already
become final.
After issuing a temporary restraining order and a writ of
preliminary injunction, the lower court tried the case jointly with
Criminal Case No. 520 wherein both the petitioner and a certain
Atty. Agustin Dioquino, the Notary Public who notarized the 25
October 1960 Option to Repurchase, were charged with
falsification of a public document.
After due trial, the lower court acquitted the accused in the
criminal case and decided in favor of the private respondent in
Civil Case No. 8209; the court ruled that: (1) the DANR Secretary
abused his discretion in issuing the questioned Orders, (2)
petitioner cannot repurchase the property in question as the
Option to Repurchase is of doubtful validity, and (3) FLA No. 1372
in the name of private respondent is valid and binding.
Petitioner appealed to the respondent Court which, on 6
December 1978, reversed the decision of the trial court 2 on the
32
ground that no grave abuse of discretion was committed by
Sales – Chapter 3 Cases
With all the foregoing arguments appellee had exhaustively
adduced to show the spuriousness of the deed of "Option to
Repurchase", appellee can hardly complain of not having been
given an opportunity to be heard, which is all that is necessary in
relation to the requirement of notice and hearing in administrative
proceedings. Moreover, appellee never asked for a formal hearing
at the first opportunity that he had to do so, as when he filed his
first motion for reconsideration. He asked for a formal hearing
only in his second motion for reconsideration evidently as a mere
afterthought, upon realizing that his arguments were futile without
proofs to support them.
The only remaining question, therefore, is whether the Secretary
acted with grave abuse of discretion in giving weight to the
alleged execution by appellee of the deed of Option to
Repurchase, on the basis of the xerox copy of said deed as
certified by the Notary Public, Agustin Dioquino.
With such documentary evidence duly certified by the Notary
Public, which is in effect an affirmation of the existence of the
deed of "Option of Repurchase" (sic) and its due execution, the
Secretary may not be said to have gravely abused his discretion in
giving the document enough evidentiary weight to justify his
action in applying the aforequoted provisions of Fisheries Adm.
Order No. 60. This piece of evidence may be considered
substantial enough to support the conclusion reached by the
respondent Secretary, which is all that is necessary to sustain an
administrative finding of fact (Ortua vs. Encarnacion, 59 Phil. 635;
Ang Tibay vs. CIR, 69 Phil. 635; Ramos vs. The Sec. of Agriculture
and Natural Resources, et al. L-29097, Jan. 28, 1974, 55 SCRA
330). Reviewing courts do not re-examine the sufficiency of the
evidence in an administrative case, if originally instituted as such,
nor are they authorized to receive additional evidence that was
not submitted to the administrative agency concerned. For
common sense dictates that the question of whether the
administrative agency abused its discretion in weighing evidence
should be resolved solely on the basis of the proof that the
administrative authorities had before them and no other
(Timbancaya vs. Vicente, L-19100, Dec. 27, 1963, 9 SCRA 852). In
the instant case the evidence presented for the first time before
the court a quo could be considered only for the criminal case
heard jointly with this case.
The lower court's action of acquitting the notary public, Agustin
Dioquino, and appellant Diamante in Criminal Case No. 520 for
falsification of public document is in itself a finding that the
alleged forgery has not been conclusively established. This
finding is quite correct considering the admission of the NBI
handwriting expert that admission of the NBI handwriting expert
that he cannot make
any finding on the question of whether appellee's signature on the
deed of "Option to Repurchase" is forged or not, because of the
lack of (sic) specimen signature of appellee for comparative
examination. The Secretary may have such signature in the
application papers of appellee on file with the former's office
upon which to satisfy himself of (sic) the genuineness of
appellee's signature. It would be strange, indeed, that appellee
had not provided the NBI expert with a specimen of his signature
when his purpose was to have an expert opinion that his signature
on the questioned document is forged.
On the other hand, as to the signature of his wife, the latter herself
admitted the same to be her own. Thus —
Q There is a signature below the typewritten words "with
my marital consent" and above the name Edelina Duyo, whose
signature is this?
A That is my signature. (T.s.n., Crim. Case No. 520, April 5,
1971, p. 14).
In not finding in favor of the perfect validity of the "Option to
Repurchase," the court a quo merely indulged in conjectures.
Thus, believing the testimony of appellee that the later (sic) could
not have executed the deed of option to repurchase after
spending allegedly P12,000.00, and that if there was really a
verbal agreement upon the execution of the deed of absolute sale,
as alleged by appellant, that appellant's right to repurchase, as
was stipulated in the earlier deed of sale, shall be preserved, such
agreement should have been embodied in the deed of sale of
October 17, 1960 (Exh. D), the court doubted the genuineness of
the deed of Option to Repurchase (sic).
It is highly doubtful if appellee had spent P12,000.00 during the
period from October 17, 1960 to October 25, 1960 when the deed
of option was executed. Likewise, the right to repurchase could
not have been embodied in the deed of absolute sale since, as the
Secretary of DANR found, the purpose of the deed of absolute
sale is to circumvent the law and insure the approval of appellee's
application, as with his right to 4.4 hectares appearing to be
subject to an encumbrance, his application would not have been
given favorable action.
33
Above all, the speculation and conjectures as indulged in by the
Sales – Chapter 3 Cases
court a quo cannot outweigh the probative effect of the document
itself, a certified xerox copy thereof as issued by the Notary
Public, the non-presentation of the original having been explained
by its loss, as was the testimony of the same Notary Public, who
justly
won acquittal when charged with falsification of public document actually exists. Nevertheless, (sic) when such claim is impugned,
at the instance of appellee. The fact that the spaces for the the one who assails the existence of a document should be
document number, page and book numbers were not filled up in afforded the opportunity to prove such claim, because, at most,
the photostatic copy presented by the representative of the the presumption of regularity in the performance of official duties
Bureau of Records Management does not militate against the is
genuineness of the document. It simply means that the copy sent
to the said Bureau happens to have those spaces unfilled up (sic).
But the sending of a copy of the document to the Bureau of
Records Management attests strongly to the existence of such
document, the original of which was duly executed, complete with
the aforesaid data duly indicated thereon, as shown by the xerox
copy certified true by the Notary Public.
Indeed, in the absence of positive and convincing proof of forgery,
a public instrument executed with the intervention of a Notary
Public must be held in high respect and accorded full integrity, if
only upon the presumption of the regularity of official functions as
in the nature of those upon the presumption of the regularity of
official functions as in the nature of those of a notary public
(Bautista vs. Dy Bun Chin, 49 OG 179; El Hogar Filipino vs. Olviga,
60 Phil. 17).
Subsequently, the respondent Court, acting on private
respondent's motion for reconsideration, promulgated on 21
March 1979 the challenged Resolution 3 setting aside the earlier
decision and affirmed, in toto, the ruling of the trial court, thus:
. . . the respondent (DANR) Secretary had gone beyond his
statutory authority and had clearly acted in abuse of discretion in
giving due weight to the alleged option to repurchase whose (sic)
genuiness (sic) and due execution had been impugned and denied
by petitioner-appellee (Deypalubos). While the certified true copy
of the option to repurchase may have been the basis of the
respondent Secretary in resolving the motion for reconsideration,
the Court believes that he should have first ordered the
presentation of evidence to resolve this factual issue considering
the conflicting claims of the parties. As earlier pointed out, all that
was submitted to the Bureau of Fisheries and consequently to the
respondent Secretary, was a xerox copy of the questioned
document which was certified to by a notary public to be a copy of
a deed found in his notarial file which did not bear any specimen
of the signatures of the contracting parties. And assuming that a
certification made by a notary public as to the existence of a
34
document should be deemed an affirmation that such document
Sales – Chapter 3 Cases
merely disputable and can be rebutted by convincing and positive
evidence to the contrary.
His motion for reconsideration having been denied, the petitioner
filed the instant petition for review.
Petitioner contends that the Rules of Court should not be strictly
applied to administrative proceedings and that the findings of fact
of administrative bodies, absent a showing of arbitrariness,
should be accorded respect.
While the petition has merit, petitioner's victory is hollow and
illusory for, as shall hereafter be shown, even as We reverse the
assailed resolution of the respondent Court of Appeals, the
questioned decision of the Secretary must, nevertheless, be set
aside on the basis of an erroneous conclusion of law with respect
to the Option to Repurchase.
The respondent Court correctly held in its decision of 6 December
1978 that the respondent Secretary provided the private
respondent sufficient opportunity to question the authenticity of
the Option to Repurchase and committed no grave abuse of
discretion in holding that the same was in fact executed by private
respondent. We thus find no sufficient legal and factual moorings
for respondent Court's sudden turnabout in its resolution of 21
March 1979. That private respondent and his wife executed the
Option to Repurchase in favor of petitioner on 25 October 1960 is
beyond dispute. As determined by the respondent Court in its
decision of 6 December 1978, private respondent's wife, Edelina
Duyo, admitted having affixed her signature to the said document.
Besides, the trial court itself in Criminal Case No. 520 which was
jointly tried with the civil case, acquitted both the petitioners and
the notary public, before whom the Option to Repurchase was
acknowledged, of the crime of falsification of said document.
We hold, however, that the respondent Secretary gravely erred in
holding that private respondent's non-disclosure and suppression
of the fact that 4.4 hectares of the area subject of the application
is burdened with or encumbered by the Option to Repurchase
constituted a falsehood or a misrepresentation of an essential or
material fact which, under the second paragraph of Section 29 of
Fisheries Administrative Order No. 60 earlier quoted, "shall ipso
facto cause the cancellation of the permit or lease." In short, the
Secretary was of the opinion that the Option to Repurchase was
an encumbrance on the property which affected the absolute and
exclusive character of private respondent's ownership over the 4.4
hectares sold to him by petitioner. This is a clear case of a
misapplication of the law on conventional redemption and a
misunderstanding of the effects of a right to repurchase granted
subsequently in an instrument different from the original
document of sale.
Article 1601 of the Civil Code provides:
Conventional redemption shall take place when the vendor
reserves the right to repurchase the thing sold, with the obligation
to comply with the provisions of article 1616 and other
stipulations which may have been agreed upon.
In Villarica, et al. vs. Court of Appeals, et al., 4 decided on 29
November 1968, or barely seven (7) days before the respondent
Court promulgated its decision in this case, this Court, interpreting
the above Article, held:
The right of repurchase is not a right granted the vendor by the
vendee in a subsequent instrument, but is a right reserved by the
vendor in the same instrument of sale as one of the stipulations
of the contract. Once the instrument of absolute sale is executed,
the vendor can no longer reserve the right to repurchase, and any
right thereafter granted the vendor by the vendee in a separate
instrument cannot be a right of repurchase but some other right
like the option to buy in the instant case. . . .
In the earlier case of Ramos, et al. vs. Icasiano, et al., 5 decided in
1927, this Court had already ruled that "an agreement to
repurchase becomes a promise to sell when made after the sale,
because when the sale is made without such an agreement, the
purchaser acquires the thing sold absolutely, and if he afterwards
grants the vendor the right to repurchase, it is a new contract
entered into by the purchaser, as absolute owner already of the
object. In that case the vendor has not reserved to himself the
right to repurchase."
In Vda. de Cruzo, et al. vs. Carriaga, et al., 6 this Court found
another occasion to apply the foregoing principle.
Hence, the Option to Repurchase executed by private respondent
in the present case, was merely a promise to sell, which must be
governed by Article 1479 of the Civil Code which reads as follows:
Art. 1479. — A promise to buy and sell a determinate thing for a
35
price certain is reciprocally demandable.
Sales – Chapter 3 Cases
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.
A copy of the so-called Option to Repurchase is neither attached
to the records nor quoted in any of the pleadings of the parties.
This Court cannot, therefore, properly rule on whether the promise
was accepted and a consideration distinct from the price,
supports the option. Undoubtedly, in the absence of either or both
acceptance and separate consideration, the promise to sell is not
binding upon the promissor (private respondent).
A unilateral promise to buy or sell is a mere offer, which is not
converted into a contract except at the moment it is accepted.
Acceptance is the act that gives life to a juridical obligation,
because, before the promise is accepted, the promissor may
withdraw it at any time. Upon acceptance, however, a bilateral
contract to sell and to buy is created, and the offeree ipso facto
assumes the obligations of a purchaser; the offeror, on the other
hand, would be liable for damages if he fails to deliver the thing he
had offered for sale.
xxx xxx xxx
. . . The contract of option is a separate and distinct contract from
the contract which the parties may enter into upon the
consummation of the option, and a consideration for an optional
contract is just as important as the consideration for any other
kind of contract. Thus, a distinction should be drawn between the
consideration for the option to repurchase, and the consideration
for the contract of repurchase itself.7
Even if the promise was accepted, private respondent was not
bound thereby in the absence of a distinct consideration. 8
It may be true that the foregoing issues were not squarely raised
by the parties. Being, however, intertwined with the issue of the
correctness of the decision of the respondent Secretary and,
considering further that the determination of said issues is
essential and indispensable for the rendition of a just decision in
this case, this Court does not hesitate to rule on them.
In Hernandez vs. Andal, 9 this Court held:
If the appellants' assignment of error be not considered a direct
challenge to the decision of the court below, we still believe that
the objection takes a narrow view of practice and procedure
contrary to the liberal spirit which pervades the Rules of Court.
The first injunction of the new Rules (Rule 1, section 2) is that they
"shall be liberally construed in order to promote their object and to
assist the parties in obtaining just, speedy, and inexpensive
determination of
every action and proceeding." In line with the modern trends of
procedure, we are told that, "while an assignment of error which is
required by law or rule of court has been held essential to
appellate review, and only those assigned will be considered,
there are a number of cases which appear to accord to the
appellate court a broad discretionary power to waive the lack of
proper assignment of errors and consider errors not assigned.
And an unassigned error closely related to an error properly
assigned, or upon which the determination of the question raised
by the error properly assigned is dependent, will be considered by
the appellate court notwithstanding the failure to assign it as
error." (4 C.J.S., 1734; 3 C.J., 1341, footnote 77). At the least, the
assignment of error, viewed in this light, authorizes us to examine
and pass upon the decision of the court below.
In Insular Life Assurance Co., Ltd. Employees Association-NATU
vs. Insular Life Assurance Co., Ltd., 10 this Court ruled:
. . . (t)he Supreme Court has ample authority to review and resolve
matter not assigned and specified as errors by either of the
parties in the appeal if it finds the consideration and
determination of the same essential and indispensable in order to
arrive at a just decision in the case. 11 This Court, thus, has the
authority to waive the lack of proper assignment of errors if the
unassigned errors closely relate to errors properly pinpointed out
or if the unassigned errors refer to matters upon which the
determination of the questions raised by the errors properly
assigned depend. 12
The same also applies to issues not specifically raised by the
parties. The Supreme Court, likewise, has broad discretionary
power, in the resolution of a controversy, to take into
consideration matters on record which the parties fail to submit to
the Court as specific questions for determination. 13 Where the
issues already raised also rest on other issues not specifically
presented, as long as the latter issues bear relevance and close
relation to the former and as long as they arise from matters on
record, the Court has the authority to include them in its
discussion of the controversy as well as to pass upon them. In
brief, in those cases wherein questions not particularly raised by
the parties surface as necessary for the complete adjudication of
the rights and obligations of the parties and such questions fall
within the issues already framed by the parties, the interests of
36
justice dictate that the Court consider and resolve them.
Sales – Chapter 3 Cases
WHEREFORE, the instant petition is GRANTED. The Resolution of
respondent Court of Appeals of 21 March 1979 in C.A.-G.R. No. SP
-04866 and the Decision of the trial court in Civil Case No. 8209,
insofar as they declare, for the reasons therein given, Fishpond
Lease Agreement No. 1372, valid and binding, are hereby
REVERSED and SET ASIDE. The challenged Orders of the
respondent Secretary of Agriculture and Natural Resources of 29
August 1969, 20 November 1969 and 21 April 1970 are likewise
REVERSED and SET ASIDE and Fishpond Lease Agreement No.
1372 is ordered REINSTATED.
No pronouncement as to costs.
IT IS SO ORDERED.
BIBLE BAPTIST CHURCH and PASTOR REUBEN BELMONTE,
petitioners,
vs.
COURT OF APPEALS and MR. & MRS. ELMER TITO MEDINA
VILLANUEVA, respondents.
This petition for review on certiorari seeks to annul the Decision1
dated August 7, 1996, of the Court of Appeals in CA-G.R. CV No.
45956, and its Resolution2 dated September 12, 1996, denying
reconsideration of the decision. In the questioned issuances, the
Court of Appeals affirmed the Decision3 dated June 8, 1993, of
the Regional Trial Court of Manila, Branch 3, in Civil Case No. 90-
55437.
The antecedents are:
On June 7, 1985, the Bible Baptist Church (petitioner Baptist
Church) entered into a contract of lease4 with Mr. & Mrs. Elmer
Tito Medina Villanueva (respondent spouses Villanueva). The
latter are the registered owners of a property located at No. 2436
(formerly 2424) Leon Guinto St., Malate, Manila. The pertinent
stipulations in the lease contract were:
1. That the LESSOR lets and leases to the LESSEE a store space
known as 2424 Leon Guinto Sr. St., Malate, Manila, of which
property the LESSOR is the registered owner in accordance with
the Land Registration Act.
2. That the lease shall take effect on June 7, 1985 and shall be for
the period of Fifteen (15) years.
3. That LESSEE shall pay the LESSOR within five (5) days of each
calendar month, beginning Twelve (12) months from the date of
this agreement, a monthly rental of Ten Thousand Pesos
(P10,000.00) Philippine Currency, plus 10% escalation clause per
year starting on June 7, 1988.
4. That upon signing of the LEASE AGREEMENT, the LESSEE shall
pay the sum of Eighty Four Thousand Pesos (P84,000.00)
Philippine Currency. Said sum is to be paid directly to the Rural
Bank, Valenzuela, Bulacan for the purpose of redemption of said
property which is mortgaged by the LESSOR.
37
5. That the title will remain in the safe keeping of the Bible Baptist
Sales – Chapter 3 Cases
Church, Malate, Metro Manila until the expiration of the lease
agreement or the leased premises be purchased by the LESSEE,
whichever comes first. In the event that the said title will be lost or
destroyed while in the possession of the LESSEE, the LESSEE
agrees to pay all costs involved for the re-issuance of the title.
6. That the leased premises may be renovated by the LESSEE, to
the satisfaction of the LESSEE to be fit and usable as a Church.
the option to buy given to the Baptist Church is founded upon a
consideration; 2) Whether or not by the terms of the lease
agreement, a price certain for the purchase of the land had been

7. That the LESSOR will remove all other tenants from the leased
premises no later than March 15, 1986. It is further agreed that if
those tenants are not vacated by June 1, 1986, the rental will be
lowered by the sum of Three Thousand Pesos (P3,000.00) per
month until said tenants have left the leased premises.

8. That the LESSEE has the option to buy the leased premises
during the Fifteen (15) years of the lease. If the LESSEE decides to
purchase the premises the terms will be: A) A selling Price of One
Million Eight Hundred Thousand Pesos (P1.8 million), Philippine
Currency. B) A down payment agreed upon by both parties. C) The
balance of the selling price may be paid at the rate of One
Hundred Twenty Thousand Pesos (P120,000.00), Philippine
Currency, per year.

x x x.5

The foregoing stipulations of the lease contract are the subject of

the present controversy.

Although the same lease contract resulted in several cases6 filed

between the same parties herein, petitioner submits, for this
Court's review, only the following errors allegedly committed by
the Court of Appeals:

a) Respondent Court of Appeals erred in finding that the option to

buy granted the petitioner Baptist Church under its contract of
lease with the Villanuevas did not have a consideration and,
therefore, did not bind the latter;

b) [R]espondent court again also erred in finding that the option to

buy did not have a fixed price agreed upon by the parties for the
purchase of the property; and

c) [F]inally, respondent court erred in not awarding petitioners

Baptist Church and its pastor attorney's fees.7

38
In sum, this Court has three issues to resolve: 1) Whether or not
Sales – Chapter 3 Cases
fixed; and 3) Whether or not the Baptist Church is entitled to an
award for attorney's fees.
The stipulation in the lease contract which purportedly gives the
lessee an option to buy the leased premises at any time within the
duration of the lease, is found in paragraph 8 of the lease
contract, viz:
8. That the LESSEE has the option to buy the leased premises
during the Fifteen (15) years of the lease. If the LESSEE decides to
purchase the premises the terms will be: A) A selling Price of One
Million Eight Hundred Thousand Pesos (P1.8 million), Philippine
Currency. B) A down payment agreed upon by both parties. C) The
balance of the selling price may be paid at the rate of One
Hundred Twenty Thousand Pesos (P120,000.00), Philippine
Currency, per year.
Under Article 1479 of the Civil Code, it is provided:
Art. 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.
The second paragraph of Article 1479 provides for the definition
and consequent rights and obligations under an option contract.
For an option contract to be valid and enforceable against the
promissor, there must be a separate and distinct consideration
that supports it.
In this case, petitioner Baptist Church seeks to buy the leased
premises from the spouses Villanueva, under the option given to
them. Petitioners claim that the Baptist Church "agreed to
advance the large amount needed for the rescue of the property
but, in exchange, it asked the Villanuevas to grant it a long term
lease and an option to buy the property for P1.8 million."8 They
argue that the consideration supporting the option was their
agreement to pay off the Villanueva's P84,000 loan with the bank,
thereby freeing the subject property from the mortgage
encumbrance. They state further that the Baptist Church would
not have agreed to advance such a large amount as it did to
rescue the property from bank foreclosure had it not been given
an enforceable option to buy that went with the lease agreement.
In the petition, the Baptist Church states that "[t]rue, the Baptist
Church did not pay a separate and specific sum of money to cover
the option alone. But the P84,000 it paid the Villanuevas in
advance should be deemed consideration for the one contract
they entered into – the lease with option to buy."9 They rely on the
case of Teodoro v. Court of Appeals10 to support their stand.
This Court finds no merit in these contentions.
First, petitioners cannot insist that the P84,000 they paid in order
to release the Villanuevas' property from the mortgage should be
deemed the separate consideration to support the contract of
option. It must be pointed out that said amount was in fact
apportioned into monthly rentals spread over a period of one year,
at P7,000 per month. Thus, for the entire period of June 1985 to
May 1986, petitioner Baptist Church's monthly rent had already
been paid for, such that it only again commenced paying the
rentals in June 1986. This is shown by the testimony of petitioner
Pastor Belmonte where he states that the P84,000 was advance
rental equivalent to monthly rent of P7,000 for one year, such that
for the entire year from 1985 to 1986 the Baptist Church did not
pay monthly rent.11
This Court agrees with respondents that the amount of P84,000
has been fully exhausted and utilized by their occupation of the
premises and there is no separate consideration to speak of
which could support the option.12
Second, petitioners' reliance on the case of Teodoro v. Court of
Appeals13 is misplaced. The facts of the Teodoro case reveal
that therein respondent Ariola was the registered lessee of a
property owned by the Manila Railroad Co. She entered into an
agreement whereby she allowed Teodoro to occupy a portion of
the rented property and gave Teodoro an option to buy the same,
should Manila Railroad Co. decide to sell the property to Ariola. In
addition, Teodoro, who was occupying only a portion of the
subject rented property, also undertook to pay the Manila Railroad
Co., the full amount of the rent supposed to be paid by the
registered lessor Ariola. Consequently, unlike this case, Teodoro
paid over and above the amount due for her own occupation of a
portion of the property. That amount, which should have been
paid by Ariola as lessor, and for her own occupation of the
property, was deemed by the Court as sufficient consideration for
the option to buy which Ariola gave to Teodoro upon Ariola's
acquiring the property.
39
Sales – Chapter 3 Cases
Hence, in Teodoro, this Court was able to find that a separate
consideration supported the option contract and thus, its
enforcement may be demanded. Petitioners, therefore, cannot rely
on Teodoro, for the case even supports the respondents' stand
that
a consideration that is separate and distinct from the purchase
price is required to support an option contract.
Petitioners further insist that a consideration need not be a
separate sum of money. They posit that their act of advancing the
money to "rescue" the property from mortgage and impending
foreclosure, should be enough consideration to support the
option.
Court cannot find that petitioner Baptist Church parted with
anything of value, aside from the amount of P84,000 which was in
fact eventually utilized as rental payments. Second, there is no
document that contains an agreement between the parties that
petitioner Baptist Church's supposed rescue of the mortgaged
property was the consideration which the parties contemplated in

In Villamor v. Court of Appeals,14 this Court defined consideration

as "the why of the contracts, the essential reason which moves
the contracting parties to enter into the contract."15 This
definition illustrates that the consideration contemplated to
support an option contract need not be monetary. Actual cash
need not be exchanged for the option. However, by the very nature
of an option contract, as defined in Article 1479, the same is an
onerous contract for which the consideration must be something
of value, although its kind may vary.

Specifically, in Villamor v. Court of Appeals,16 half of a parcel of

land was sold to the spouses Villamor for P70 per square meter,
an amount much higher than the reasonable prevailing price.
Thereafter, a deed of option was executed whereby the sellers
undertook to sell the other half to the same spouses. It was stated
in the deed that the only reason the spouses bought the first half
of the parcel of land at a much higher price, was the undertaking
of the sellers to sell the second half of the land, also at the same
price. This Court held that the cause or consideration for the
option, on the part of the spouses-buyers, was the undertaking of
the sellers to sell the other half of the property. On the part of the
sellers, the consideration supporting the option was the much
higher amount at which the buyers agreed to buy the property. It
was explicit from the deed therein that for the parties, this was the
consideration for their entering into the contract.

It can be seen that the Court found that the buyer/optionee had
parted with something of value, which was the amount he paid
over and above the actual prevailing price of the land. Such
amount, different from the price of the land subject of the option,
was deemed sufficient and distinct consideration supporting the
option contract. Moreover, the parties stated the same in their
contract.

40
Villamor is distinct from the present case because, First, this
Sales – Chapter 3 Cases
support of the option clause in the contract. As previously stated,
the amount advanced had been fully utilized as rental payments
over a period of one year. While the Villanuevas may have them to
thank for extending the payment at a time of need, this is not the
separate consideration contemplated by law.
Noting that the option clause was part of a lease contract, this
Court looked into its previous ruling in the early case of Vda. De
Quirino v. Palarca,17 where the Court did say that "in reciprocal
contracts, like the one in question,18 the obligation or promise of
each party is the consideration for that of the other."19 However,
it must be noted that in that case, it was also expressly stated in
the deed that should there be failure to exercise the option to buy
the property, the optionee undertakes to sell the building and/or
improvements he has made on the premises. In addition, the
optionee had also been paying an amount of rent that was quite
high and in fact turned out to be too burdensome that there was a
subsequent agreement to reduce said rentals. The Court found
that "the amount of rentals agreed upon x x x – which amount
turned out to be so burdensome upon the lessee, that the lessor
agreed, five years later, to reduce it – as well as the building
and/or improvements contemplated to be constructed and/or
introduced by the lessee, were, undoubtedly, part of the
consideration for his option to purchase the leased premises."20
Again, this Court notes that the parties therein clearly stipulated in
their contract that there was an undertaking on the part of the
optionee to sell the improvements made on the property if the
option was not exercised. Such is a valuable consideration that
could support the option contract. Moreover, there was the
excessive rental payments that the optionee paid for five years,
which the Court also took into account in deciding that there was
a separate consideration supporting the option.
To summarize the rules, an option contract needs to be supported
by a separate consideration. The consideration need not be
monetary but could consist of other things or undertakings.
However, if the consideration is not monetary, these must be
things or undertakings of value, in view of the onerous nature of
the contract of option. Furthermore, when a consideration for an
option contract is not monetary, said consideration must be
clearly specified as such in the option contract or clause.
This Court also notes that in the present case both the Regional
Trial Court and the Court of Appeals agree that the option was not
founded upon a separate and distinct consideration and that, Having found that the option to buy granted to the petitioner
hence, respondents Villanuevas cannot be compelled to sell their Baptist Church was not founded upon a separate consideration,
property to petitioner Baptist Church. and hence, not enforceable against respondents, this Court finds
no need to discuss whether a price certain had been fixed as the
The Regional Trial Court found that "[a]ll payments made under purchase price.
the contract of lease were for rentals. No money [was] ever
exchanged for and in consideration of the option." Hence, the Anent the claim for attorney's fees, it is stipulated in paragraph 13
Regional Trial Court found the action of the Baptist Church to be of the lease agreement that in the event of failure of either of the
"premature and without basis to compel the defendant to sell the
leased premises." The Regional Trial Court consequently ruled:
WHEREFORE, judgment is rendered:
1) Denying plaintiffs' application for writ of injunction;
2) That defendant cannot be compelled to sell to plaintiffs the
leased premises in accordance with par. 8 of the contract of
lease;
3) Defendant is hereby ordered to reimburse plaintiffs the sum of
P15, 919.75 plus 12% interest representing real estate taxes,
plaintiffs paid the City Treasurer's Office of Manila;
4) Declaring that plaintiff made a valid and legal consignation to
the Court of the initial amount of P18,634.00 for the month of
November and December 1990 and every month thereafter.
All other claims of the plaintiffs are hereby dismissed for lack of
merit.
No pronouncement as to costs.
SO ORDERED. 21
On appeal, the Court of Appeals agreed with the Regional Trial
Court and found that the option to buy the leased premises was
not binding upon the Villanuevas for non-compliance with Article
1479. It found that said option was not supported by a
consideration as "no money was ever really exchanged for and in
consideration of the option." In addition, the appellate court
determined that in the instant case, "the price for the object is not
yet certain." Thus, the Court of Appeals affirmed the Regional Trial
41
Court decision and dismissed the appeal for lack of merit.22
Sales – Chapter 3 Cases
parties to comply with any of the conditions of the agreement, the
aggrieved party can collect reasonable attorney's fees.23
In view of this Court's finding that the option contract is not
enforceable for being without consideration, the respondents
Villanueva spouses' refusal to comply with it cannot be the basis
of a claim for attorney's fees.
Hence, this Court agrees with as the Court of Appeals, which
affirmed the findings of the Regional Trial Court, that such claim
is to be dismissed for lack of factual and legal basis.
WHEREFORE, the Decision and Resolution of the Court of Appeals
subject of the petition are hereby AFFIRMED.
No costs.
SO ORDERED.
A. A. ADDISON, plaintiff-appellant,
vs.
MARCIANA FELIX and BALBINO TIOCO, defendants-appellees.
By a public instrument dated June 11, 1914, the plaintiff sold to
the defendant Marciana Felix, with the consent of her husband,
the defendant Balbino Tioco, four parcels of land, described in the
instrument. The defendant Felix paid, at the time of the execution
of the deed, the sum of P3,000 on account of the purchase price,
and bound herself to pay the remainder in installments, the first of
P2,000 on July 15, 1914, and the second of P5,000 thirty days
after the issuance to her of a certificate of title under the Land
Registration Act, and further, within ten years from the date of
such title P10, for each coconut tree in bearing and P5 for each
such tree not in bearing, that might be growing on said four
parcels of land on the date of the issuance of title to her, with the
condition that the total price should not exceed P85,000. It was
further stipulated that the purchaser was to deliver to the vendor
25 per centum of the value of the products that she might obtain
from the four parcels "from the moment she takes possession of
them until the Torrens certificate of title be issued in her favor."
It was also covenanted that "within one year from the date of the
certificate of title in favor of Marciana Felix, this latter may rescind
the present contract of purchase and sale, in which case
Marciana Felix shall be obliged to return to me, A. A. Addison, the
net value of all the products of the four parcels sold, and I shall
obliged to return to her, Marciana Felix, all the sums that she may
have paid me, together with interest at the rate of 10 per cent per
annum."
In January, 1915, the vendor, A. A. Addison, filed suit in Court of
First Instance of Manila to compel Marciana Felix to make
payment of the first installment of P2,000, demandable in
accordance with the terms of the contract of sale
aforementioned, on July 15, 1914, and of the interest in arrears, at
the stipulated rate of 8 per cent per annum. The defendant, jointly
with her husband, answered the complaint and alleged by way of
special defense that the plaintiff had absolutely failed to deliver to
the defendant the lands that were the subject matter of the sale,
notwithstanding the demands made upon him for this purpose.
She therefore asked that she be absolved from the complaint, and
that, after a declaration of the rescission of the contract of the
purchase and sale of said lands, the plaintiff be ordered to refund
the P3,000 that had been paid to him on account, together with
the interest agreed upon, and to pay an indemnity for the losses
and damages which the defendant alleged she had suffered
through the plaintiff's non-fulfillment of the contract.
The evidence adduced shows that after the execution of the deed
of the sale the plaintiff, at the request of the purchaser, went to
Lucena, accompanied by a representative of the latter, for the
purpose of designating and delivering the lands sold. He was able
to designate only two of the four parcels, and more than two-
thirds of these two were found to be in the possession of one
Juan Villafuerte, who claimed to be the owner of the parts so
occupied by him. The plaintiff admitted that the purchaser would
have to bring suit to obtain possession of the land (sten. notes,
record, p. 5). In August, 1914, the surveyor Santamaria went to
Lucena, at the request of the plaintiff and accompanied by him, in
order to survey the land sold to the defendant; but he surveyed
only two parcels, which are those occupied mainly by the brothers
Leon and Julio Villafuerte. He did not survey the other parcels, as
they were not designated to him by the plaintiff. In order to make
this survey it was necessary to obtain from the Land Court a writ
of injunction against the occupants, and for the purpose of the
issuance of this writ the defendant, in June, 1914, filed an
application with the Land Court for the registration in her name of
four parcels of land described in the deed of sale executed in her
favor by the plaintiff. The proceedings in the matter of this
application were subsequently dismissed, for failure to present
the required plans within the period of the time allowed for the
purpose.
The trial court rendered judgment in behalf of the defendant,
holding the contract of sale to be rescinded and ordering the
return to the plaintiff the P3,000 paid on account of the price,
together with interest thereon at the rate of 10 per cent per
annum. From this judgment the plaintiff appealed.
In decreeing the rescission of the contract, the trial judge rested
his conclusion solely on the indisputable fact that up to that time
the lands sold had not been registered in accordance with the
Torrens system, and on the terms of the second paragraph of
clause (h) of the contract, whereby it is stipulated that ". . . within
one year from the date of the certificate of title in favor of
Marciana Felix, this latter may rescind the present contract of
42
purchase and sale . . . ."
Sales – Chapter 3 Cases
The appellant objects, and rightly, that the cross-complaint is not
founded on the hypothesis of the conventional rescission relied
upon by the court, but on the failure to deliver the land sold. He
argues that the right to rescind the contract by virtue of the
special agreement not only did not exist from the moment of the
execution of the contract up to one year after the registration of
the land, but does not accrue until the land is registered. The
wording of the clause, in fact, substantiates the contention. The
one year's deliberation granted to the purchaser was to be
counted "from the
date of the certificate of title ... ." Therefore the right to elect to "delivery" expresses a complex idea . . . the abandonment of the
rescind the contract was subject to a condition, namely, the thing by the person who makes the delivery and the taking control
issuance of the title. The record show that up to the present time of it by the person to whom the delivery is made."
that condition has not been fulfilled; consequently the defendant
cannot be heard to invoke a right which depends on the existence
of that condition. If in the cross-complaint it had been alleged that
the fulfillment of the condition was impossible for reasons
imputable to the plaintiff, and if this allegation had been proven,
perhaps the condition would have been considered as fulfilled
(arts. 1117, 1118, and 1119, Civ. Code); but this issue was not
presented in the defendant's answer.
However, although we are not in agreement with the reasoning
found in the decision appealed from, we consider it to be correct
in its result. The record shows that the plaintiff did not deliver the
thing sold. With respect to two of the parcels of land, he was not
even able to show them to the purchaser; and as regards the other
two, more than two-thirds of their area was in the hostile and
adverse possession of a third person.
The Code imposes upon the vendor the obligation to deliver the
thing sold. The thing is considered to be delivered when it is
placed "in the hands and possession of the vendee." (Civ. Code,
art. 1462.) It is true that the same article declares that the
execution of a public instruments is equivalent to the delivery of
the thing which is the object of the contract, but, in order that this
symbolic delivery may produce the effect of tradition, it is
necessary that the vendor shall have had such control over the
thing sold that, at the moment of the sale, its material delivery
could have been made. It is not enough to confer upon the
purchaser the ownership and the right of possession. The thing
sold must be placed in his control. When there is no impediment
whatever to prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic delivery through
the execution of a public instrument is sufficient. But if,
notwithstanding the execution of the instrument, the purchaser
cannot have the enjoyment and material tenancy of the thing and
make use of it himself or through another in his name, because
such tenancy and enjoyment are opposed by the interposition of
another will, then fiction yields to reality — the delivery has not
been effected.
As Dalloz rightly says (Gen. Rep., vol. 43, p. 174) in his
43
commentaries on article 1604 of the French Civil code, "the word
Sales – Chapter 3 Cases
The execution of a public instrument is sufficient for the purposes
of the abandonment made by the vendor; but it is not always
sufficient to permit of the apprehension of the thing by the
purchaser.
The supreme court of Spain, interpreting article 1462 of the Civil
Code, held in its decision of November 10, 1903, (Civ. Rep., vol. 96,
p. 560) that this article "merely declares that when the sale is
made through the means of a public instrument, the execution of
this latter is equivalent to the delivery of the thing sold: which
does not and cannot mean that this fictitious tradition necessarily
implies the real tradition of the thing sold, for it is incontrovertible
that, while its ownership still pertains to the vendor (and with
greater reason if it does not), a third person may be in possession
of the same thing; wherefore, though, as a general rule, he who
purchases by means of a public instrument should be deemed . . .
to be the possessor in fact, yet this presumption gives way before
proof to the contrary."
purchaser might be deprived of her possession during the course
of the registration proceedings, but that the transaction rested on
the assumption that she was to have, during said period, the
material possession and enjoyment of the four parcels of land.
Inasmuch as the rescission is made by virtue of the provisions of
law and not by contractual agreement, it is not the conventional
but the legal interest that is demandable.
It is therefore held that the contract of purchase and sale entered
into by and between the plaintiff and the defendant on June 11,
1914, is rescinded, and the plaintiff is ordered to make restitution
of the sum of P3,000 received by him on account of the price of
the sale, together with interest thereon at the legal rate of 6 per
annum from the date of the filing of the complaint until payment,
with the costs of both instances against the appellant. So
ordered.

It is evident, then, in the case at bar, that the mere execution of the
instrument was not a fulfillment of the vendors' obligation to
deliver the thing sold, and that from such non-fulfillment arises
the purchaser's right to demand, as she has demanded, the
rescission of the sale and the return of the price. (Civ. Code, arts.
1506 and 1124.)

Of course if the sale had been made under the express agreement
of imposing upon the purchaser the obligation to take the
necessary steps to obtain the material possession of the thing
sold, and it were proven that she knew that the thing was in the
possession of a third person claiming to have property rights
therein, such agreement would be perfectly valid. But there is
nothing in the instrument which would indicate, even implicitly,
that such was the agreement. It is true, as the appellant argues,
that the obligation was incumbent upon the defendant Marciana
Felix to apply for and obtain the registration of the land in the new
registry of property; but from this it cannot be concluded that she
had to await the final decision of the Court of Land Registration, in
order to be able to enjoy the property sold. On the contrary, it was
expressly stipulated in the contract that the purchaser should
deliver to the vendor one-fourth "of the products ... of the
aforesaid four parcels from the moment when she takes
possession of them until the Torrens certificate of title be issued
44
in her favor." This obviously shows that it was not forseen that the
Sales – Chapter 3 Cases
NAVOTAS INDUSTRIAL CORPORATION, represented herein by its
acting president DANIEL L. BAUTISTA, Petitioners,
vs.
GERMAN D. CRUZ, MARCELO D. CRUZ, ROSALINA CRUZ-LAIZ,
MARIANO A. CRUZ, JR., THE HEIRS OF ROGELIO D. CRUZ, namely,
SYLVIA, ROSYL, ROGELIO, JR., SERGIO and ESTRELLA, all surnamed
CRUZ, the HEIRS OF SERAFIN D. CRUZ, namely, ADELAIDA,
MERCEDITAS and GABRIEL, all surnamed CRUZ, MARIA CRISTINA
CRUZ-YCASIANO, MONICA CRUZ-DADIVAS and CARMEN VDA. DE
CRUZ, Respondent.
This is a petition for review on certiorari of the Decision1 of the Court
of Appeals (CA) in CA-G.R. CV No. 69818, reversing the Decision of
the Regional Trial Court (RTC) in Civil Case No. 2427-MN.
The Antecedents
Carmen Vda. De Cruz was the owner of a parcel of land located in
Navotas, Rizal, with an area of 13,999 square meters, covered by
Transfer Certificate of Title (TCT) No. 81574.2
On October 5, 1966, Carmen Cruz, as lessor, and the Navotas
Industrial Corporation (NIC), through its president, Cipriano C.
Bautista, as lessee, executed a contract of lease over one-half portion
of the said property, shown in the sketch appended thereto as Annex
"A." The lease was for the period of October 1, 1966 to midnight of
October 1, 1990. The property was to be used for shipyard slipways
and the lessee’s other allied businesses. The NIC obliged itself to
construct two slipways, with all its accessories, within the first 10
years of the lease with a total value of not less than ₱450,000.00.3
On March 14, 1973, the property was mortgaged to the China Banking
Corporation (CBC) as security for a loan by two of Carmen Cruz’s
children, Mariano and Gabriel.4 The owner’s duplicate of the title was
delivered to and kept by the CBC as mortgagee.
On December 31, 1974, Carmen Cruz executed a Deed of Absolute
Sale of Realty with Assumption of Mortgage in which she, as vendor,
sold and conveyed the property to her children, namely, Serafin D.
Cruz (married
to Adelaida Cruz), Mariano Cruz, Rogelio Cruz, Sr. Carmencita Cruz
and Sr. Mary Carmela Cruz, for the purchase price of ₱350,000.00
which the vendor acknowledged to have received from the vendees.5
In a Letter6 dated November 22, 1976, Mariano Cruz, in his behalf and
in behalf of the other vendees, requested CBC to conform to the sale
of the property, a copy of which was attached to the said letter. The
CBC refused. In the meantime, relations between Carmen Cruz and her children
became strained. She believed that her children had ignored her and
failed to take care of her.
On June 27, 1977, Mariano Cruz, for himself and in behalf of the other
vendees, presented the said deed of sale to the Register of Deeds for
registration purposes.7 In the same letter, they requested the Register
of Deeds to request the CBC for the transmittal of the owner’s TCT
No. 81574 for the annotation of the Deed of Sale with Assumption of
Mortgage. However, on June 28, 1977, the CBC, through counsel,
wrote Mariano Cruz, informing him that Carmen Cruz had instructed it
not to conform to the Deed of Sale with Assumption of Mortgage, and
not to surrender the owner’s duplicate of the said title.
In the meantime, the balance of the loan account secured by the
mortgage was paid to the CBC. Thus, on June 29, 1977, the CBC
executed a Cancellation of Real Estate Mortgage over the property.8
However, the deed was not presented to the Register of Deeds for
registration.
On the same day, Mariano Cruz executed an Affidavit of Adverse
Claim9 stating, inter alia, that he and the others named therein were
the vendees of the property as evidenced by a Deed of Sale with
Assumption of Mortgage appended thereto, and that, to protect their
rights and interests, the said affidavit of adverse claim was being
executed as a cautionary notice to third persons and the world that
the property had been sold to them. It was, likewise, stated that
Carmen Cruz had ordered the CBC not to surrender the owner’s
duplicate of TCT No. 81574. The aforesaid affidavit of adverse claim
was inscripted at the dorsal portion of the title10 on June 30, 1977 as
Entry No. 22178.
In a Letter11 dated July 1, 1977, the Register of Deeds requested CBC
to surrender the owner’s duplicate of TCT No. 81574, pursuant to
Section 72 of Act 496, in order that proper memorandum be made
thereon. The Register of Deeds was obviously unaware that the CBC
had already executed the cancellation of real estate mortgage on
June 29, 1977.
On July 30, 1977, Carmen Cruz, as lessor, and the NIC, as lessee,
executed a Supplementary Lease Agreement;12 the October 5, 1966
Contract of Lease earlier executed by the parties was modified, in that
the terms of the
lease was extended for another 15 years to expire on October 1, 2005.
The lessee was, likewise, given up to October 1, 1982 within which to
construct the two slipways at a cost of not less than ₱600,000.00 and45
increasing the lease rental for the property. The lessee was granted
Sales – Chapter 3 Cases
the option to buy the property for the price of ₱1,600,000.00. On the
same day, the parties executed a Contract of Lease13 over an
additional portion of the property, with an area of 590.58 square
meters, as shown in the sketch appended thereto. However, the said
contracts were not presented for registration to the Register of Deeds.
On September 14, 1977, the aforesaid Cancellation of Real Estate
Mortgage the CBC had earlier executed (on June 29, 1977) was
presented to the Register of Deeds and annotated at the dorsal
portion of TCT No. 81574 as Entry No. 27796. The following were,
likewise, presented to the Register of Deeds for registration, and,
thereafter, annotated at the dorsal portion of the said title: the
Contract of Lease dated October 5, 1966 (Entry No. 27797), the July
30, 1977 Contract of Lease (Entry No. 27798), and the Supplementary
Lease Agreement (Entry No. 27799).14
In the meantime, Mariano Cruz and the other vendees presented the
Deed of Sale with Assumption of Mortgage to the Register of Deeds
for registration. On December 19, 1977, the Register of Deeds
cancelled the said title and issued TCT No. 11272 in the names of the
new owners. TCT No. 11272 was later cancelled by TCT No. R-11830.
In a Letter15 dated October 20, 1978, Mariano Cruz, et al. informed
the NIC that the property had been sold to them, and gave it 30 days
from receipt of the letter to vacate the property and return possession
to them. The vendees, likewise, informed the NIC that since the
October 5, 1966 Contracts of Lease and the July 30, 1977
Supplementary Lease Agreement were annotated at the back of TCT
No. 81574 only on September 14, 1977, after the affidavit of adverse
claim of Mariano Cruz, et al. was annotated on June 29, 1977, such
contracts were null and void. However, the NIC refused to vacate the
property.
In the meantime, the property was subdivided into three lots: Lots 1-A,
1-B and 1-C. Lot 1-A had an area of 6,307 square meters, covered by
TCT No. 8509916 issued on July 5, 1982.
Carmen Cruz filed a complaint with the RTC of Navotas against
Cipriano Bautista, in his capacity as president of the NIC, for the
declaration of nullity of the July 30, 1977 Supplementary Lease
Agreement and Contract of Lease, and for the cancellation of the
annotation at the back of TCT No. 81574 referring to the said
contracts. The complaint was amended to implead the NIC as party-
defendant. Carmen Cruz alleged therein that she was the owner-
lessor of the property subject of the said contract; the NIC failed to
construct the two slipways within the period stated in the lease
contract; it took advantage of the animosity between her and her
children, and caused the preparation of the July 30, 1977
Supplementary Lease Agreement and Contract of Lease; the NIC was
able to insert therein blatantly erroneous, one-sided and highly unfair
provisions; and that the said contracts were even extended for a
period long beyond her life expectancy (the plaintiff was then almost
80 years old). She further alleged that the provisions in the Contract of
Lease and Supplementary Lease Agreement which granted NIC the
exclusive option to buy the property, was a sham. She prayed that,
after due proceedings, judgment be rendered in her favor:
WHEREFORE, it is respectfully prayed that judgment be rendered
declaring the Supplementary Contract of Lease dated July 30, 1977 as
null and void ab initio; ordering the defendant and all persons claiming
possession of the premises under it to vacate and turn over the
premises to the plaintiffs; ordering the defendant to pay the
reasonable monthly rental of ₱10,000.00 for the occupancy of the
premises, beginning October 1, 1990, until it vacates the premises;
ordering the defendant to pay the plaintiffs the sum of ₱30,000.00 as
moral damages; the sum of ₱50,000.00 as attorney’s fees, and the
sum of ₱1,000.00 as appearance fee of the undersigned counsel; to
pay the sum of ₱5,000.00 as litigation expenses; plus costs of suit.
Plaintiffs further pray for such other relief and remedies they are
entitled to in the premises.17
Mariano Cruz and his siblings filed a complaint-in-intervention in the
said case, alleging that they were the co-owners of the property, and
praying that judgment be rendered in their favor, as follows:
WHEREFORE, it is respectfully prayed that judgment be rendered
rescinding the Contract of Lease dated October 5, 1966, (Annex "B"),
declaring as null and void the Supplementary Lease Agreement
(Annex "C"), and the Contract of Lease (Annex "D"), both dated July 30,
1977, for having been entered into by the plaintiff who had long
ceased to be the owner of the property in question, awarding the sum
of ₱450,000.00, actual damages, representing the value of the
improvements which the defendants bound themselves to introduce
in the premises; awarding the plaintiffs-intervenors the sum of
₱100,000.00 as exemplary damages; the sum of ₱150,000.00 as
moral damages; ₱50,000.00 as attorney’s fees and ₱10,000.00 as
litigation expenses.
Plaintiffs-intervenors further pray for such other relief and remedies
they are entitled to in the premises.18
However, Carmen Cruz filed a motion to dismiss the amended
complaint. On February 6, 1984, the trial court issued an Order19
granting the motion and dismissing the amended complaint and the
complaint-in-intervention. The order became final and executory.
On June 23, 1990, Mariano Cruz, et al. wrote the NIC that they would
no longer renew the October 5, 1966 contract of lease which was to
expire on October 1, 1990; as far as they were concerned, the July 30,
1977 Supplementary Lease Agreement and Contract of Lease were
null and void, the same having been executed and annotated on
September 14, 1977 at the back of TCT No. 81574 long after the 46
annotation of the affidavit of the adverse claim of Mariano Cruz, et al.
Sales – Chapter 3 Cases
on June 30, 1977.20
In a Letter21 dated January 11, 1991, Mariano Cruz, et al. wrote the
NIC, demanding that it vacate the property within 30 days from notice
thereof, otherwise, a complaint for unlawful detainer would be filed dated 30 July 1977, Annex "D" hereof, as null and void ab initio; or,
against it. However, the NIC refused to vacate the property. alternatively,
On April 18, 1991, Mariano Cruz and his siblings filed a Complaint22 Under the Second Alternative Cause of Action, annulling the said
against the NIC with the Municipal Trial Court (MTC) of Navotas for Contract of Lease and Supplementary Lease Contract.
ejectment. However, on June 11, 1992, the trial court issued an
Order23
dismissing the complaint, on the ground that it had no jurisdiction
over the case, it appearing that the validity of the July 30, 1977
Supplementary Lease Agreement and the Contract of Lease, in
relation to the deed of absolute sale with assumption of mortgage
executed by Carmen Cruz, were intertwined with the issue of NIC’s
right of possession. The plaintiffs sought a motion for reconsideration
of the decision, which the MTC denied on September 15, 1992. The
plaintiffs appealed to the RTC, which rendered a decision granting the
appealed decision.24 The plaintiffs-appellants filed a petition for
review with the CA. On July 13, 1993, the CA affirmed the decision of
the RTC and dismissed the petition.25 The decision became final and
executory.
In the meantime, Mariano Cruz died intestate and was survived by his
son Mariano Cruz, Jr.; Rogelio Cruz, likewise, died and was survived by
his children Sylvia, Rosyl, Rogelio, Jr., Sergio and Estrella, all
surnamed Cruz; Serafin Cruz also died and was survived by his wife
Adelaida, and his children Merceditas and Gabriel. TCT No. 81574
was reconstituted and TCT No. R-85099 was issued.
On January 24, 1995, German and Marcelo Cruz, Rosalina Cruz-Laiz,
Mariano Cruz, Jr. and the said heirs filed a Complaint against Carmen
Cruz, as unwilling plaintiff, and the NIC with the RTC of Malabon for
the nullification of the July 30, 1977 Supplementary Lease Agreement
and Contract of Lease. The complaint was amended to allege that
they were the co-owners of the property covered by TCT No. 85099
based on the Deed of Sale with Assumption of Mortgage executed by
Carmen Cruz on December 31, 1974; an affidavit of adverse claim
was annotated at the dorsal portion of TCT No. 81574 on June 30,
1977, despite which NIC caused Carmen Cruz to execute, on July 30,
1977, a Supplementary Lease Agreement and Contract of Lease by
taking advantage of her age, mental weakness and lack of will; and
that NIC failed to pay rentals for the property. The plaintiffs prayed
that:
WHEREFORE, it is respectfully prayed that, after trial on the merits,
judgment be rendered in favor of the plaintiffs as follows:
1. Under the First Alternative Cause of Action, declaring the Contract 47
of Lease dated 30 July 1977 and the Supplementary Lease Contract
Sales – Chapter 3 Cases
Under the Third Alternative Cause of Action, rescinding and canceling
the Contract of Lease and Supplementary Lease Agreement, ordering
the defendants to vacate the leased premises and to pay plaintiffs all
unpaid rentals from 1 October 1991 until defendants vacate the
premises.
2. Under the Second Cause of Action, ordering defendants NAVOTAS
and Bautista to vacate and surrender the possession of the subject
property and all improvements thereon to the plaintiffs;
3. Under the Third Cause of Action, ordering defendants NAVOTAS
and Bautista, jointly and severally, to pay plaintiffs the reasonable
compensation for the use of the premises in the amount of at least
₱10,000.00 a month from October 1990 up to the filing of this
Complaint, totalling ₱500,000.00, as well as ₱10,000.00 every month
thereafter until defendants shall have vacated and surrendered the
premises to the plaintiffs.
4. Under the Fourth Cause of Action, ordering defendants NAVOTAS
and Bautista, jointly and severally, to pay the plaintiffs exemplary
damages of at least ₱50,000.00 or such amount as the Honorable
Court may deem just and equitable in the premises; and
5. Under the Fifth Cause of Action, ordering defendants NAVOTAS and
Bautista to pay plaintiff attorney’s fees and expenses of litigation in
such amount as may be established during the trial, but not less than
₱35,000.00.
Plaintiffs pray for such other reliefs just and equitable in the
premises.26
In her answer with cross-claim, Carmen Cruz alleged, inter alia, that
she was willing to be made a party-plaintiff, although she was initially
reluctant to become one because of the burden of a court hearing;
she admitted that the plaintiffs were the co-owners of the property;
Bautista was granted an "exclusive option to buy" the leased property
at the ridiculously low fixed price of ₱1,600,000.00, which, according
to Carmen Cruz, was an option unsupported by any consideration;
hence, null and void.27
Carmen Cruz prayed that, after due proceedings, judgment be
rendered in her favor:
WHEREFORE, it is most respectfully prayed that the complaint as
against answering defendant be dismissed, and that:
AS TO THE CROSS-CLAIM
a) The Contract of Lease and the Supplemental Lease Contract be
declared null and void due to vitiated consent;
b) In the event that monetary judgment be rendered by this Honorable
Court against answering defendant in favor of the plaintiffs, her co-
defendants, Navotas Industrial Corporation and Bautista, be made to
reimburse her for all or part of the said judgment;
c) Co-defendants be ordered to pay her moral as well as exemplary
damages in the amount which this Honorable Court may deem just
and proper;
d) Co-defendants, instead of answering defendants, be, likewise,
ordered to pay the plaintiffs, the rentals in arrears over the premises
which now amounts to ₱147,000.00.
BOTH AS TO COUNTERCLAIM AND CROSS-CLAIM
a) Plaintiffs and co-defendants be ordered, jointly and severally, to
reimburse answering defendant the sum of ₱30,000.00 which the
latter paid her counsel as and for attorney’s fees for unnecessarily
dragging her into this suit including the amount of ₱1,000.00 which
she will pay her lawyer for every appearance;
b) Likewise, the costs of suit and other litigation expenses.
Other reliefs and remedies reasonable under the premises are
similarly prayed for.28
In its amended answer, NIC alleged that its July 30, 1977
Supplementary Lease Agreement and Contract of Lease were valid,
whereas the deed of absolute sale with assumption of mortgage
executed by Carmen Cruz in favor of the plaintiffs was null and void
for being simulated and fraudulent. NIC and Bautista further alleged
that it was exercising its option to buy the subject property now
covered by TCT No. 85099;29 it, likewise, offered ₱1,600,000.00 as
consideration for the sale to be paid upon the execution of a deed of
transfer.30
NIC and Bautista prayed that, after due proceeding, judgment be
rendered in their favor, thus:
WHEREFORE, premises considered, herein answering defendants
respectfully prayed that the complaint be dismissed for lack of merit.
On the Counterclaim: (a) that the "Contract of Lease" and the
"Supplementary Lease Agreement" be declared valid, legal and
binding between Carmen Vda. de Cruz and defendants Navotas and
Bautista, as well as their respective heirs, successors or assigns, 48
while the "Deed of Absolute Sale with Assumption of Mortgage" be
Sales – Chapter 3 Cases
declared null and void so far as it prejudiced and adversely affected
the rights of defendants Navotas and Bautista on the portion of the
property leased to it; (b) that the plaintiffs and Carmen Vda. de Cruz
be ordered to accept the sum of ₱1,600,000.00 representing the
option money for the purchase of the property subject of the lease
contract specifically that
which is now covered by TRANSFER CERTIFICATE OF TITLE NO. R-
85099 and to execute and sign the necessary deed of conveyance
therefore in favor of defendant Navotas and/or Bautista; and (c) that
plaintiffs and Carmen Vda. de Cruz be ordered and condemned, jointly
and severally, to pay defendants Navotas and Bautista moral and
exemplary damages of not less than ₱80,000.00, attorney’s fees and
litigation expenses of not less than ₱50,000.00, and the costs of suit.
₱20,000.00 by way of reasonable attorney’s fees.
Costs against the plaintiffs.33
The trial court declared that when defendant Carmen Cruz executed
the July 30, 1977 Supplementary Lease Agreement and Contract of
Lease, she was still the owner of the property; as such, NIC was not

Herein answering defendants further pray for such other reliefs and
remedies available in the premises.31

In the meantime, Carmen Cruz died intestate on November 20, 1995

at the age of 97. She was survived by the plaintiffs as her heirs.32

On March 7, 2000, the trial court rendered judgment in favor of the

NIC and Bautista. The fallo of the decision reads:

WHEREFORE, premises considered, judgment is hereby rendered:

a) Affirming the validity of the Contract of Lease and the

Supplementary Lease Agreement, both dated 30 July 1977, including
the provision granting defendants exclusive option to buy the subject
property.

b) Affirming the full rental payments made by defendants Navotas

and Bautista for the lease of the subject property until the expiration
thereof.

c) Denying the claims for actual and compensatory, moral and

exemplary damages as well as attorney’s fees interposed by plaintiffs
against defendants.

d) Denying the claims for moral and exemplary damages interposed

by defendants Navotas and Bautista against plaintiffs.

e) The Deed of Absolute Sale with Assumption of Mortgage is hereby

declared null and void as far as it prejudiced and is adversely
affecting the rights of defendants Navotas and Bautista on the portion
thereof leased to them. The plaintiffs, as heirs of defendant Cruz, are
hereby ordered to accept the sum of ₱1,600,000.00 representing the
option money for the purchase of the subject property subject of the
lease contract specifically that which is now covered by Transfer
Certificate of Title No. R-85099 and to execute and sign the necessary
deed of conveyance therefor in favor of defendants Navotas and/or
Bautista.
49
f) Ordering plaintiffs to pay defendants Navotas and Bautista
Sales – Chapter 3 Cases
bound by the deed of sale with assumption of mortgage executed by
Carmen Cruz because it was not a party thereto; and that such deed
was not registered with the Office of the Register of Deeds. The trial
court ruled that the plaintiffs failed to prove fraud and undue influence
on Carmen Cruz and/or that NIC took advantage of her mental
weakness. The RTC ruled that only Carmen Cruz had the right to
rescind the contracts of lease and supplementary lease agreement.
The option to buy the property granted to NIC was supported by a
consideration, more specifically the ₱42,000.00 rental payment it
made upon the execution of the said contracts.
The plaintiffs appealed the decision to the CA wherein they alleged
that:
I PAID THE RENTALS DUE ON THE PROPERTY SINCE 1991.
THE TRIAL COURT ERRED IN HOLDING THAT APPELLEES WERE NOT
BOUND BY THE DEED OF ABSOLUTE SALE OF REALTY WITH
ASSUMPTION OF MORTGAGE WHICH APPELLANTS ANNOTATED AS
AN ADVERSE CLAIM ON THE CERTIFICATE OF TITLE OF THE
PROPERTY AS EARLY AS 30 JUNE 1977 BEFORE APPELLEES
REGISTERED THE QUESTIONED LEASE CONTRACTS ON 14
SEPTEMBER 1977.
II
THE TRIAL COURT ERRED IN COMPLETELY IGNORING THE
OVERWHELMING EVIDENCE ON RECORD SHOWING THAT
APPELLEES HAD ACTUAL AND CONSTRUCTIVE NOTICE OF THE
SALE OF THE SUBJECT PROPERTY TO THE CRUZ CHILDREN IN 1974,
AND THUS KNEW OR OUGHT TO HAVE KNOWN THAT IN EXECUTING
THE QUESTIONED LEASE CONTRACTS WITH MRS. CRUZ IN 1977,
THEY WERE DEALING WITH ONE WHO WAS NO LONGER THE
OWNER OF THE PROPERTY WHO CAN BIND THE SAME UNDER THE
QUESTIONED LEASE CONTRACTS.
III
THE TRIAL COURT ERRED IN HOLDING THAT THE CONSENT OF MRS.
CRUZ TO THE SUBJECT LEASE CONTRACTS HAD NOT BEEN
VITIATED BY UNDUE AND IMPROPER PRESSURE AND INFLUENCE ON
THE PART OF APPELLEES CONSIDERING THAT:
A. THE UNDISPUTED EVIDENCE ON RECORD READILY BEARS OUT
THE UNDUE AND IMPROPER PRESSURE AND INFLUENCE EXERTED
BY APPELLEES ON MRS. CRUZ TO OBTAIN HER CONSENT TO THE
SUBJECT LEASE CONTRACTS;
B. THE VERY TERMS AND CONDITIONS OF THE LEASE CONTRACTS,
WHICH ARE GROSSLY DISADVANTAGEOUS TO MRS. CRUZ, POINT
TO APPELLEES’ USE OF UNDUE PRESSURE
AND INFLUENCE ON HER TO OBTAIN HER CONSENT TO THE
SUBJECT LEASE CONTRACTS.
IV
THE TRIAL COURT ERRED IN NOT HOLDING, IN THE ALTERNATIVE,
THAT THE SUBJECT LEASE CONTRACTS WERE RENDERED
RESCINDED BY REASON OF APPELLEES’ MATERIAL BREACHES OF
THE TERMS AND CONDITIONS CONSIDERING THAT:
A. APPELLEES HAD ADMITTEDLY FAILED TO CONSTRUCT THE
SLIPWAYS AS REQUIRED UNDER THE LEASE CONTRACT;
B. THE EVIDENCE FULLY ESTABLISHES THAT APPELLEES HAVE NOT
V
THE TRIAL COURT ERRED IN DECLARING THE DEED OF ABSOLUTE
SALE WITH ASSUMPTION OF MORTGAGE AS NULL AND VOID AS
AGAINST APPELLEES CONSIDERING THAT THE SAME HAS BEEN
CONFIRMED AND RECOGNIZED IN SUBJECT TRANSFERS AFFECTING
THE SAME PROPERTY.
VI
THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION
CONTRACT FOR APPELLEES’ PURCHASE OF THE SUBJECT
PROPERTY WAS SUPPORTED BY A SEPARATE CONSIDERATION AND
THUS VALID AND BINDING ON APPELLANTS.
VII
THE TRIAL COURT ERRED IN NOT HOLDING APPELLEES LIABLE TO
APPELLANTS FOR ACTUAL AND COMPENSATORY DAMAGES
CONSISTING OF THE REASONABLE RENTALS ON THE PROPERTY
FROM 2 OCTOBER 1990 UNTIL THE RETURN THEREOF TO
APPELLANTS.
VIII
THE TRIAL COURT ERRED IN ABSOLVING APPELLEES OF LIABILITY
TO APPELLANTS FOR MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY’S FEES.34
On July 18, 2003, the CA rendered judgment granting the appeal, and50
reversing the decision of the RTC. The CA ruled that the appellees had
Sales – Chapter 3 Cases
constructive notice of the Deed of Sale with Assumption of Mortgage,
which Carmen Cruz executed in favor of the appellants, based on the
affidavit of adverse claim annotated on June 29, 1977 at the dorsal
portion of TCT No. 81574. The CA declared that the adverse claim property. Even Carmen Cruz maintained that she was the owner of the
annotated at the dorsal portion of the said title continued to be property in her complaint in Civil Case No. C-7040 filed after the
effective and remained a lien until cancelled. The CA held that the execution of the deed of absolute sale with assumption of real estate
option granted to the appellee NIC to purchase the property was not mortgage; she even
effective because there was no consideration therefor, apart from
NIC’s rental payments. Besides, the CA emphasized, when Carmen
Cruz executed the July 30, 1977 Supplementary Lease Agreement and
Contract of Lease, she was no longer the owner of the property.
The CA denied NIC’s motion for reconsideration of the said decision;
hence, it filed the instant petition for review on certiorari, alleging that:
A.
THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE
ERROR WHEN IT DECLARED THAT THE QUESTIONED LEASE
CONTRACTS WERE NULL AND VOID, IT APPEARING IN AN ADVERSE
CLAIM ANNOTATED ON THE CERTIFICATE OF TITLE OF CARMEN
VDA. DE CRUZ THAT SHE WAS NO LONGER THE OWNER OF THE
PROPERTY SUBJECT MATTER THEREOF WHEN THE LEASE WAS
EXECUTED ON JULY 30, 1977.
B.
THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE
ERROR WHEN IT RULED THAT THE OPTION TO BUY THE LEASED
PROPERTY CONTAINED IN THE SUPPLEMENTARY LEASE
CONTRACT IS NOT VALID AND BINDING FOR LACK OF
CONSIDERATION AND CAPACITY OF CARMEN VDA. DE CRUZ TO
CONVEY THE SAME.
C.
THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE
ERROR WHEN IT FAILED TO RECOGNIZE A PRIOR JUDGMENT BASED
ON A COMPROMISE AS A BAR TO THE PROCEEDINGS IN THIS
INSTANT CASE.35
On the first issue, the petitioner avers that the adverse claim
annotated at the dorsal portion of TCT No. 81574 was ineffective
because the respondents failed to submit to the Register of Deeds the
owner’s duplicate of TCT No. 81574, as mandated by Section 110 of
Act No. 496. The annotation of the adverse claim in the Office of the
Register of Deeds on June 29, 1977 on TCT No. 81574 despite such
failure to present the owner’s duplicate of the said title rendered such
inscription ineffectual, not binding on it and Carmen Cruz. Hence, the 51
petitioner posits, Carmen Cruz remained the lawful owner of the
Sales – Chapter 3 Cases
executed the July 30, 1977 Supplementary Lease Agreement and
Contract of Lease in its favor. According to the petitioner, the said
deed of sale was fictitious as, in fact, it was rejected by Carmen Cruz.
For their part, the respondents aver that the petitioner had
constructive notice of the said sale, based on the inscription of the
affidavit of adverse claim on June 29, 1977 at the dorsal portion of
TCT No. 81574. Besides, the respondents posit, Cipriano Bautista
even admitted having known of the said adverse claim before the July
30, 1977 Contract of Lease and Supplementary Lease Agreement
were registered in the Office of the Register of Deeds. The
respondents cited the ruling of this Court in Sajonas v. Court of
Appeals36 to support their claim.
On the second issue, the petitioner avers that the exclusive option
granted to it by Carmen Cruz under the Supplementary Lease
Agreement was essentially a mutual promise to buy and sell,
equivalent to a reciprocal contract under the first paragraph of Article
1479 of the New Civil Code. But in the same breath, the petitioner
argues that its exclusive option to buy the property for ₱1,600,000.00
was supported by a consideration apart from the said amount. The
petitioner insists that the ₱42,000.00 which it paid to Carmen Cruz as
rental upon the execution of the Supplementary Lease Agreement
was "advance money," which motivated Carmen Cruz to grant the
option to the petitioner.
On the third issue, the petitioner argues that the respondents’ action
was barred by the order of the RTC in Civil Case No. C-7040
dismissing the complaint and complaint-in-intervention therein, based
on a compromise agreement of Carmen Cruz and petitioner NIC.
The Ruling of the Court
The annotation of an adverse claim is a measure designed to protect
the interest of a person over a part of real property, and serves as a
notice and warning to third parties dealing with the said property that
someone is claiming an interest over it or has a better right than the
registered owner thereof.37
On the first issue, we agree with the ruling of the CA that the petitioner
had constructive notice of the Deed of Sale with Assumption of
Mortgage executed by Carmen Cruz in favor of the respondents. The
affidavit of adverse claim the respondents executed on June 29, 1977
was annotated at the dorsal portion of TCT No. 81574 on June 30,
1977, to wit:
A review of the facts and circumstances in the case at bar reveals
that at the time the Supplementary Lease Agreement and Contract of
Lease both dated July 30, 1977 were executed by and between
CARMEN and herein appellees, CARMEN was apparently no longer the
owner of the land covered by TCT No. 81574 subject of this
controversy. Obviously,
appellees cannot turn a blind eye on the inscription found on
CARMEN’s certificate of title at the time the Supplementary Lease
Agreement and Contract of Lease were signed on July 30, 1977. Basic
is the rule that the annotation of an adverse claim is a measure
designed to protect the interest of a person over a piece of real
property and serves as a notice and warning to third parties dealing
with said property that someone is claiming an interest on the same
or a better right than the registered owner thereof. A subsequent
transaction involving the property cannot prevail over the adverse
claim which was previously annotated in the certificate of title of the
property. Here, the records are obvious, the notice of adverse claim
executed on June 29, 1977 was annotated on the title on June 30,
1977, that is, one month prior to the signing of the disputed lease
contracts on July 30, 1977. Said contracts of lease were belatedly
annotated two months after its execution or on September 14, 1977
only, after appellees were allegedly warned by CARMEN that her
children are desirous of the property leased in their favor. To say the
least, this warning from CARMEN should have aroused appellees’
suspicion regarding the status of the prime property they intend to
lease for another fifteen (15) years. …38
Section 110 of Act No. 496 was the law in force when Carmen Cruz
executed the Deed of Sale with Assumption of Mortgage, and when
the respondents executed the affidavit of adverse claim and
presented it to the Register of Deeds on June 30, 1977. The
petitioner’s reliance on the said provision is misplaced. Indeed, the
Register of Deeds acted in accord with Section 110 of Act No. 496
when he inscribed the affidavit of adverse claim at the dorsal portion
of TCT No. 81574, despite the non-production of the owner’s
duplicate of TCT No. 81574 simultaneously with the presentation of
the affidavit of adverse claim. The law reads:
SEC. 110. Whoever claims any part or interest in registered land
adverse to the registered owner, arising subsequent to the date of the
original registration, may, if no other provision is made in this Act for
registering the same, make a statement in writing setting forth fully
his alleged right or interest, and how or under whom acquired, and a
reference to the volume and page of the certificate of title of the
registered owner, and a description of the land in which the right or
interest is claimed.
The statement shall be signed and sworn to, and shall state the
adverse claimant’s residence, and designate a place at which all
notices may be served upon him. This statement shall be entitled to
registration as an adverse claim, and the court, upon a petition of any
party-in-interest, shall grant a speedy hearing upon the question of the
52
validity of such adverse claim and shall enter such decree therein as
Sales – Chapter 3 Cases
justice and equity may require. If the claim is adjudged to be invalid,
the registration shall be cancelled. If in any case the court, after notice
and hearing, shall find that a claim thus registered was frivolous or
vexatious, it may tax the adverse claimant double or treble costs in its
discretion.
Irrefragably, the Deed of Sale with Assumption of Mortgage which
Carmen Cruz executed on December 31, 1974 was a voluntary act;
and under Section 50 of the law, the act of registration shall be the
operative act to convey and affect the land. Indeed, Section 55 of Act
No. 496 provides that the presentation of the owner’s duplicate
certificate of title for the registration of any voluntary instrument is
required:
SEC. 55. No new certificate of title shall be entered, no memorandum
shall be made upon any certificate of title by the register of deeds, in
pursuance of any deed or other voluntary instrument, unless the
owner’s duplicate certificate is presented for such indorsement,
except in cases expressly provided for in this Act, or upon the order of
the court for cause shown; and whenever such order is made, a
memorandum thereof shall be entered upon the new certificate of title
and upon the owner’s duplicate: Provided, however, That in case the
mortgagee refuses or fails to deliver within a reasonable time to the
register of deeds the duplicate or copy of the certificate of title
surrendered by the owner, after advice by said officer, in order to
enable him to register or annotate thereon another real right acquired
by said owner, the record or annotation made on the certificate in the
register book shall be valid for all legal purposes.
The production of the owner’s duplicate certificate whenever any
voluntary instrument is presented for registration shall be conclusive
authority from the registered owner to the register of deeds to enter a
new certificate or to make a memorandum of registration in
accordance with such instrument, and the new certificate or
memorandum shall be binding upon the registered owner and upon all
persons claiming under him, in favor of every purchaser for value and
in good faith: Provided, however, That in all cases of registration
procured by fraud the owner may pursue all his legal and equitable
remedies against the parties to such fraud, without prejudice,
however, to the rights of any innocent holder for value of a certificate
of title: And provided, further, That after the transcription of the decree
of registration under this Act procured by the presentation of a forged
duplicate certificate, or of a forged deed or other instrument, shall be
null and void. In case of the loss or theft of an owner’s duplicate
certificate, notice shall be sent by the owner or by someone in his
behalf to the register of deeds of the province in which the land lies as
soon as the loss or theft is discovered.
This Court explained the rationale of the requirement in L.P. Leviste &
Company, Inc. v. Noblejas:39
The basis of respondent Villanueva’s adverse claim was an
agreement to sell executed in her favor by Garcia Realty. An
agreement to sell is a voluntary instrument as it is a willful act of the
registered owner. As such voluntary instrument, Section 50 of Act No.
496 expressly provides that the act of registration shall be the
operative act to convey and affect the land. And Section 55 of the
same Act requires the
presentation of the owner’s duplicate certificate of title for the
registration of any deed or voluntary instrument. As the agreement to
sell involves an interest less than an estate in fee simple, the same
should have been registered by filing it with the Register of Deeds
who, in turn, makes a brief memorandum thereof upon the original
and owner’s duplicate certificate of title. The reason for requiring the
production of the owner’s duplicate certificate in the registration of a
voluntary instrument is that, being a willful act of the registered owner,
it is to be presumed that he is
interested in registering the instrument and would willingly surrender,
present or produce his duplicate certificate of title to the Register of
Deeds in order to accomplish such registration. …40
However, in this case, Carmen Cruz had ordered the CBC, the
mortgagee and custodian of the owner’s duplicate of TCT No. 81574,
not to surrender the owner’s duplicate of the said title to the Register
of Deeds. The latter thus acted in accord with law when the affidavit
of adverse claim was inscribed at the dorsal portion of TCT No. 81574
on June 30, 1977. Indeed, this Court ruled in L.P. Leviste & Company,
Inc. v. Noblejas41 that:
… However, where the owner refuses to surrender the duplicate
certificate for the annotation of the voluntary instrument, the grantee
may file with the Register of Deeds a statement setting forth his
adverse claim, as provided for in Section 110 of Act No. 496. In such a
case, the annotation of the instrument upon the entry book is
sufficient to affect the real estate to which it relates, although Section
72 of Act No. 496 imposes upon the Register of Deeds the duty to
require the production by the Registered owner of his duplicate
certificate for the inscription of the adverse claim. The annotation of
an adverse claim is a measure designed to protect the interest of a
person over a piece of real property where the registration of such
interest or right is not, otherwise, provided for by the Land
Registration Act, and serves as a notice and warning to third parties
dealing with said property that someone is claiming an interest on the
same or a better right than the registered owner thereof.42
Moreover, on June 29, 1977, the balance of Mariano Cruz and Gabriel
Cruz’s account with the CBC had already been paid, presumably by
Mariano Cruz; and the CBC had executed a cancellation of real estate
mortgage. However, the said deed was inexplicably not presented to
the Register of Deeds for registration.
The general rule is that a person dealing with registered land is not
required to go behind the register to determine the condition of the
property. However, such person is charged with notice of the burden53
on the property which is noted on the face of the register or certificate
Sales – Chapter 3 Cases
of title.43 A person who deals with registered land is bound by the
liens and encumbrances including adverse claim annotated therein.44
In the present action, the petitioner caused the annotation of the July age and present physical condition and now realizing that I may have
30, 1977 Supplementary Lease Agreement and Contract of Sale only been unduly taken advantage of by some parties to promote their own
on September 14, 1977, long after the annotation of the respondents’ selfish interests, I now hereby execute this sworn statement and
adverse claim at the dorsal portion of TCT No. 81574 on June 30, hereby affirm the validity of the sale of said parcel of land covered by
1977. Thus, as of that date, the petitioner had constructive knowledge TCT No. 81574 of the Register of Deeds of Rizal and hereby state that
of the Deed of Sale with Assumption of Mortgage Carmen Cruz said sale
executed on December 31, 1974 in favor of her children. Even before
July 30, 1977, the petitioner had knowledge that Carmen Cruz was no
longer the owner of the property, and had no more right to execute the
July 30, 1977 Supplementary Lease Agreement and Contract of
Lease. The registration of the said lease contracts was of no moment,
since it is understood to be without prejudice to the better rights of
third parties.45
While it is true that in the complaint and amended complaint in Civil
Case No. C-7040, Carmen Cruz alleged that she was the owner-lessor
of the
property, such allegation cannot detract from the fact that the
property had already been registered under the names of the
respondents under TCT No. 11272, later cancelled by TCT No. R-
11830. The petitioner was informed by the respondents that they were
the registered owners of the property. Moreover, the already aging
Carmen Cruz and her children had a domestic quarrel, and animosity
that caused her to go into seclusion; she thought then that her
children had abandoned her. The attendant circumstances must have
influenced Carmen Cruz to erroneously allege in her complaint that
she was the owner of the property.46
Even then, on February 23, 1988, Carmen Cruz executed an Affidavit in
which she swore that she had sold the property to her children:
3. That among the parcels of land which I have sold was that parcel
located in Barrio Almacen, Navotas, Rizal, then covered by Transfer
Certificate of Title No. 81574 of the Register of Deeds of Rizal in favor
of my children Serafin D. Cruz, Mariano D. Cruz, Rogelio D. Cruz, Sr.
Carmencita Cruz and Sr. Mary Carmellas as vendees, with the
agreement that the then existing mortgage with the China Banking
Corporation shall be assumed and settled by said vendees, as
embodied in a document entitled "Deed of Absolute Sale of Realty
with Assumption of Mortgage," which I executed on December 31,
1974 and entered in the notarial register of Notary Public P. Dario
Guevarra, Jr. as Doc. No. 198, Page No. 41, Book No. 198, Series of
1975.47
…
54
7. That in view of these developments and considering my advanced
Sales – Chapter 3 Cases
was entered into by me of my own free will and for valuable
consideration.48
In her answer to the respondents’ amended complaint in the trial
court, Carmen Cruz reiterated that she had sold the property to her
children:
2.5. On 31 December 1974, she sold the subject property to the
plaintiffs for valuable consideration, free from all liens and
encumbrances and claim of third parties, except that pertaining to a
real estate mortgage with China Banking Corporation as evidenced by
a notarized "Deed of Absolute Sale of Realty with Assumption of
Mortgage" dated 31 December 1974, a photocopy of which is hereto
attached and made an integral part hereof as Annex "B";
2.6. After she sold the subject lot to the plaintiffs herein, the latter
tried to effect the registration and annotation of the said transfer with
the Registry of Deeds of Rizal sometime in 28 June 1977 but China
Banking Corporation, the mortgagee, through its legal counsel, Atty.
Arsenio Sy Santos, refused to release the title thus the delay in the
registration of the said "Deed of Sale with Assumption of Mortgage"
which she executed in favor of the plaintiffs involving the subject
parcel of land with the Registry of Deeds;
2.7. In order to protect their rights and interests over the subject
property, the plaintiffs, through their appointed attorney-in-fact,
Mariano A. Cruz, annotated an adverse claim on the title which was
then still under answering defendant’s name, as a cautionary notice to
third persons and the whole world that said title has been transferred
by answering defendant in favor of the plaintiffs herein and that any
voluntary dealing thereon shall be considered subject to the said
adverse claim.49
Carmen Cruz also alleged, in her amended complaint in Civil Case No.
C-7040, that the July 30, 1977 Contract of Lease and Supplementary
Lease Agreement she executed in favor of the petitioner were
fraudulent.50
In her answer to the amended complaint in the court a quo, Carmen
Cruz alleged that the defendant therein (now the petitioner) was
granted an "exclusive option to buy the leased property at the
ridiculously low price of ₱1,600,000.00, payable over an unspecified
period – an option unsupported by any consideration – hence, null
and void."51 She elaborated that:
15. That the above-quoted provision is not only a foolery, trickery and
a product of deception because the exercise of the "option" is not
fixed – the same maybe conveniently exercised by the defendant at
anytime up to the year 2005. Even the fixing of the sum worded as
"flat sum" of One Million Six Hundred Thousand – the valuation fifteen
(15) years, hence, (2005) without providing for the "inflation and
deflation" of the currency is grossly prejudicial and unfair. Moreover,
the provision which
states that if and when defendants finally decides to exercise their
option during the lifetime of the Lessor, the lessee will continue
paying the rentals is not only illogical, untrue and deceptive, the same
being used mainly as a ploy to win the sympathy and titillate the ego
of the old woman. It is rather unbelievable that being already the
owner, defendants will still pay the rentals. This, to our mind, is the
height of hyprocracy.52
On the second issue, we reject the petitioner’s contention that the
exclusive option granted to it by Carmen Cruz under the
Supplementary Lease Agreement is essentially a mutual promise to
buy and sell, equivalent to a reciprocal contract under the first
paragraph of Article 1479 of the New Civil Code, which reads:
ART. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing
for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.
In the first place, the petitioner insisted in its pleadings in the court a
quo that under the Supplementary Lease Agreement and Contract of
Lease, it was granted the exclusive option to purchase the property
leased. The petitioner maintained its theory of the case in the CA. The
petitioner cannot change its theory, and claim this time that it and
Carmen Cruz entered into a promise to buy and sell the property
leased.53
Considering that Carmen Cruz was no longer the owner of the
property when she executed the July 30, 1977 Supplementary Lease
Agreement and Contract of Lease, and that the respondents had
acquired ownership over the property as of December 31, 1974 (which
the petitioner had constructive knowledge of since June 30, 1977), the
petitioner’s claim that it had the option to buy the property or to
compel the respondents to sell the property to it has no legal and
factual basis.
Even after a careful study of the merits of the petition, the Court finds
that the petitioner’s claim is untenable. The relevant portions of the
Supplementary Lease Agreement read:
4. The LESSEE is hereby granted an exclusive option to buy the
property including all improvements already made by the LESSEE
(slipways and camarines) subject matter of this contract comprising
SIX THOUSAND NINE HUNDRED FORTY-NINE Point FIVE Square 55
Meters (6,949.5) which is one-half portion of the area covered by TCT
Sales – Chapter 3 Cases
No. 81574 and same property subject matter of this contract should
also be equally divided with one-half frontage along M. Naval Street
and along the Navotas River Bank shoreline during the period of the
lease. The price of the property is agreed to be fixed for the duration
of the Option to Buy at a flat sum of ONE MILLION SIX HUNDRED
THOUSAND PESOS (₱1,600,000.00), Philippine Currency, payable over
a period to be mutually agreed upon. Should the LESSEE exercise the On the third issue, the respondents’ action in the court a quo was not
option to buy during the lifetime of the LESSOR, the LESSEE will barred by the order of the RTC dismissing the complaint of Carmen
continue to pay the monthly rental to the LESSOR during her lifetime. Cruz, and the respondents’ complaint-in-intervention in Civil Case No.
5. The LESSEE shall pay to the LESSOR the sum of FORTY-TWO
THOUSAND (₱42,000.00) PESOS upon signing of this contract as
consideration thereof, to be applied as against the rental for the
period from October 1, 1990 to September 30, 1991.54
It must be stressed that an option contract is a contract granting a
privilege to buy or sell within an agreed time and at a determined
price. Such a contract is a separate and distinct contract from the
time the parties may enter into upon the construction of the option.55
In Carceller v. Court of Appeals,56 the Court held that an option
contract is a preparatory contract in which one party grants to the
other, for a fixed period and under specified conditions, the power to
decide, whether or not to enter into a principal contract. The Court
further stated that:
… It binds the party who has given the option, not to enter into the
principal contract with any other person during the period designated,
and, within that period, to enter into such contract with the one to
whom the option was granted, if the latter should decide to use the
option. It is a separate agreement distinct from the contract which the
parties may enter into upon the consummation of the option.57
It is only when the option is exercised may a sale be perfected.58 An
option contract needs to be supported by a separate consideration.
The Court defined consideration for an option in Bible Baptist Church
v. Court of Appeals,59 as follows:
… The consideration need not be monetary but could consist of other
things or undertakings. However, if the consideration is not monetary,
these must be things or undertakings of value, in view of the onerous
nature of the contract of option. Furthermore, when a consideration
for an option contract is not monetary, said consideration must be
clearly specified as such in the option contract or clause.
In the present case, there was no given period for the petitioner to
exercise its option; it had yet to be determined and fixed at a future
time by the parties, subsequent to the execution of the Supplementary
Lease Agreement. There was, likewise, no consideration for the
option. The amount of ₱42,000.00 paid by the petitioner to Carmen
Cruz on July 30, 1977 was payment for rentals from October 1, 1990
to September 30, 1991, and not as a consideration for the option 56
granted to the petitioner.
Sales – Chapter 3 Cases
5114. Contrary to the petitioner’s claim, Carmen Cruz (the plaintiff
therein) and the petitioner (the defendant therein) did not enter into
any compromise agreement in the said case. Moreover, the dismissal
of the complaint, and, consequently, the respondents’ complaint-in-
intervention was upon motion of plaintiff Carmen Cruz and without
prejudice.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of
merit. The Decision of the Court of Appeals in CA-G.R. CV No. 69818
is AFFIRMED. Costs against the petitioner.
SO ORDERED.
PHILIPPINE NATIONAL OIL COMPANY AND PNOC DOCKYARD & Together with Keppel's lease rights and option to purchase,
ENGINEERING CORPORATION, Petitioners, v. KEPPEL Lusteveco warranted not to sell the land or assign its rights to the
PHILIPPINES HOLDINGS, INC., Respondent. land for the duration of the lease unless with the prior written
consent of Keppel.13 Accordingly, when the petitioner Philippine
Before the Court is a petition for review on certiorari filed under National Oil Corporation14 (PNOC) acquired the land from
Rule 45 of the Rules of Court, appealing the decision dated 19
December 20111 and resolution dated 14 May 20122 of the Court
of Appeals (CA) in CA-G.R. CV No. 86830. These assailed CA
rulings affirmed in toto the decision dated 12 January 20063 of
the Regional Trial Court (RTQ of Batangas City, Branch 84, in Civil
Case No. 7364.
THE FACTS
The 1976 Lease Agreement and Option to Purchase
Almost 40 years ago or on 6 August 1976, the respondent Keppel
Philippines Holdings, Inc.4 (Keppel) entered into a lease
agreement5 (the agreement) with Luzon Stevedoring Corporation
(Lusteveco) covering 11 hectares of land located in Bauan,
Batangas. The lease was for a period of 25 years for a
consideration of P2.1 million.6 At the option of Lusteveco, the
rental fee could be totally or partially converted into equity shares
in Keppel.7chanrobleslaw
At the end of the 25-year Jease period, Keppel was given the "firm
and absolute option to purchase8the land for P4.09 million,
provided that it had acquired the necessary qualification to own
land under Philippine laws at the time the option is exercised.9
Apparently, when the lease agreement was executed, less than
60% of Keppel's shareholding was Filipino-owned, hence, it was
not constitutionally qualified to acquire private lands in the
country.10chanrobleslaw
If, at the end of the 25-year lease period (or in 2001), Keppel
remained unqualified to own private lands, the agreement
provided that the lease would be automatically renewed for
another 25 years.11 Keppel was further allowed to exercise the
option to purchase the land up to the 30th year of the lease (or in
2006), also on the condition that, by then, it would have acquired
the requisite qualification to own land in the
Philippines.12chanrobleslaw
57
Sales – Chapter 3 Cases
Lusteveco and took over the rights and obligations under the
agreement, Keppel did not object to the assignment so long as
the agreement was annotated on PNOC's title.15 With PNOC's
consent and cooperation, the agreement was recorded as Entry
No. 65340 on PNOC's Transfer of Certificate of Title No. T-
50724.16chanrobleslaw
The Case and the Lower Court Rulings
On 8 December 2000, Keppel wrote PNOC informing the latter that
at least 60% of its shares were now owned by Filipinos17
Consequently, Keppel expressed its readiness to exercise its
option to purchase the land. Keppel reiterated its demand to
purchase the land several times, but on every occasion, PNOC did
not favourably respond.18chanrobleslaw
To compel PNOC to comply with the Agreement, Keppel instituted
a complaint for specific performance with the RTC on 26
September 2003 against PNOC.19 PNOC countered Keppel's
claims by contending that the agreement was illegal for
circumventing the constitutional prohibition against aliens holding
lands in the Philippines.20 It further asserted that the option
contract was void, as it was unsupported by a separate valuable
consideration.21 It also claimed that it was not privy to the
agreement.22chanrobleslaw
After due proceedings, the RTC rendered a decision23in favour of
Keppel and ordered PNOC to execute a deed of absolute sale
upon payment by Keppel of the purchase price of P4.09
million.24chanrobleslaw
PNOC elevated the case to the CA to appeal the RTC
decision.25cralawred Affirming the RTC decision in toto, the CA
upheld Keppel's right to acquire the land.26 It found that since the
option contract was embodied in the agreement - a reciprocal
contract - the consideration was the obligation that each of the
contracting party assumed.27 Since Keppel was already a Filipino-
owned corporation, it satisfied the condition that entitled it to
purchase the land.28chanrobleslaw
Failing to secure a reconsideration of the CA decision,29 PNOC
filed the present Rule 45 petition before this Court to assail the CA
rulings.
THE PARTIES' ARGUMENTS and THE ISSUES
PNOC argues that the CA failed to resolve the constitutionality of
the agreement. It contends that the terms of the agreement
amounted to a virtual sale of the land to Keppel who, at the time
of the agreement's enactment, was a foreign corporation and,
thus, violated the 1973 Constitution.
Specifically, PNOC refers to (a) the 25-year duration of the lease
that was automatically renewable for another 25 years30; (b) the
option to purchase the land for a nominal consideration of
P100.00 if the option is exercised anytime between the 25th and
the 30th year of the lease31; and (c) the prohibition imposed on
Lusteveco to sell the land or assign its rights therein during the
lifetime of the lease.32 Taken together, PNOC submits that these
provisions amounted to a virtual transfer of ownership of the land
to an alien which act the 1973 Constitution prohibited.
PNOC claims that the agreement is no different from the lease
contract in Philippine Banking Corporation v. Lui She,33 which the
Court struck down as unconstitutional. In Lui She, the lease
contract allowed the gradual divestment of ownership rights by
the Filipino owner-lessor in favour of the foreigner-lessee.34 The
arrangement in Lui She was declared as a scheme designed to
enable the parties to circumvent the constitutional prohibition.35
PNOC posits that a similar intent is apparent from the terms of
the agreement with Keppel and accordingly should also be
nullified.36chanrobleslaw
PNOC additionally contends the illegality of the option contract for
lack of a separate consideration, as required by Article 1479 of
the Civil Code.37 It claims that the option contract is distinct from
the main contract of lease and must be supported by a
consideration other than the rental fees provided in the
agreement.38chanrobleslaw
On the other hand, Keppel maintains the validity of both the
agreement and the option contract it contains. It opposes the
claim that there was "virtual sale" of the land, noting that the
option is subject to the condition that Keppel becomes qualified
to own private lands in the Philippines.39 This condition ripened in
2000, when at least 60% of Keppel's equity became Filipino-
owned.
Keppel contends that the agreement is not a scheme designed to
circumvent the constitutional prohibition. Lusteveco was not
proscribed from alienating its ownership rights over the land but
58
was simply required to secure Keppel's prior written consent.40
Sales – Chapter 3 Cases
Indeed, Lusteveco was able to transfer its interest to PNOC
without any objection from Keppel.41chanrobleslaw
Keppel also posits that the requirement of a separate
consideration for an option to purchase applies only when the
option is granted in
a separate contract.42 In the present case, the option is embodied
in a reciprocal contract and, following the Court's ruling in Vda. De
Quirino v. Palarca,43 the option is supported by the same
consideration supporting the main contract.
From the parties' arguments, the following ISSUES emerge:
transferred to foreigners.50 In Lui Shui,51 we considered a 99-
year lease agreement, which gave the foreigner-lessee the option
to buy the land and prohibited the Filipino owner-lessor from
selling or otherwise disposing the land, amounted to -

chanRoblesvirtualLawlibraryFirst, the constitutionality of the

Agreement, i.e., whether the terms of the Agreement amounted to
a virtual sale of the land to Keppel that was designed to
circumvent the constitutional prohibition on aliens owning lands
in the Philippines.

Second, the validity of the option contract, i.e., whether the option
to purchase the land given to Keppel is supported by a separate
valuable consideration.

If these issues are resolved in favour of Keppel, a third issue

emerges - one that was not considered by the lower courts, but is
critical in terms of determining Keppel's right to own and acquire
full title to the land, i.e., whether Keppel's equity ownership meets
the 60% Filipino-owned capital requirement of trie Constitution, in
accordance with the Court's ruling in Gamboa v.
Teves.44chanrobleslaw

THE COURT'S RULING

I. The constitutionality of the Agreement

The Court affirms the constitutionality of the Agreement.

Preserving the ownership of land, whether public or private, in

Filipino hands is the policy consistently adopted in all three of our
constitutions.45 Under the 1935,46 1973,47 and 198748
Constitutions, no private land shall be transferred, assigned, or
conveyed except to individuals, corporations, or associations
qualified to acquire or hold lands of the public domain.
Consequently, only Filipino citizens, or corporations or
associations whose capital is 60% owned by Filipinos citizens, are
constitutionally qualified to own private lands.

Upholding this nationalization policy, the Court has voided not

only outright conveyances of land to foreigners,49: but also
59
arrangements where the rights of ownership were gradually
Sales – Chapter 3 Cases
a virtual transfer of ownership whereby the owner divests himself
in stages not only of the right to enjoy the land (Jus possidendi,
jus utendi, jus fruendi, and jus abutendi) but also of the right to
dispose of it (jus disponendi) — rights the sum total of which
make up ownership.52 [Emphasis supplied]
In the present case, PNOC submits that a similar scheme is
apparent from the agreement's terms, but a review of the overall
circumstances leads us to reject PNOC's claim.
The agreement was executed to enable Keppel to use the land for
its shipbuilding and ship repair business.53 The
industrial/commercial purpose behind the agreement
differentiates the present case from Lui She where the leased
property was primarily devoted to residential use.54 Undoubtedly,
the establishment and operation of a shipyard business involve
significant investments. Keppel's uncontested testimony showed
that it incurred P60 million costs solely for preliminary activities to
make the land suitable as a shipyard, and subsequently
introduced improvements worth P177 million.55 Taking these
investments into account and the nature of the business that
Keppel conducts on the land, we find it reasonable that the
agreement's terms provided for an extended duration of the lease
and a restriction on the rights of Lusteveco.
We observe that, unlike in Lui She,56 Lusteveco was not
completely denied its ownership rights during the course of the
lease. It could dispose of the lands or assign its rights thereto,
provided it secured Keppel's prior written consent.57 That
Lusteveco was able to convey the land in favour of PNOC during
the pendency of the lease58 should negate a finding that the
agreement's terms amounted to a virtual transfer of ownership of
the land to Keppel.
II. The validity of the option contract
II.A
An option contract must be supported by a separate
consideration that is either clearly specified as such in the
contract or duly proven by the offeree/promisee.
An option contract is defined in the second paragraph of Article
1479 of the Civil Code:ChanRoblesVirtualawlibrary
Article 14791 x x x An accepted promise to buy or to sell a
determinate thing for a price certain is binding upon the promissor
if the promise is supported by a consideration distinct from the
price.
An option contract is a contract where one person (the
offeror/promissor) grants to another person (the
offeree/promisee) the right or privilege to buy (or to sell) a
determinate thing at a fixed
price, if he or she chooses to do so within an agreed
period.59chanrobleslaw
As a contract, it must necessarily have the essential elements of
subject matter, consent, and consideration.60 Although an option
contract is deemed a preparatory contract to the principal
contract of sale,61 it is separate and distinct therefrom,62 thus,
its essential elements should be distinguished from those of a
sale.63chanrobleslaw
In an option contract, the subject matter is the right or privilege to
buy (or to sell) a determinate thing for a price certain,64 while in a
sales contract, the subject matter is the determinate thing
itself.65 The consent in an option contract is the acceptance by
the offeree of the offerer's promise to sell (or to buy) the
determinate thing, i.e., the offeree agrees to hold the right or
privilege to buy (or to sell) within a specified period. This
acceptance is different from the acceptance of the offer itself
whereby the offeree asserts his or her right or privilege to buy (or
to sell), which constitutes as his or her consent to the sales
contract. The consideration in an option contract may be anything
of value, unlike in a sale where the purchase price must be in
money or its equivalent.66 There is sufficient consideration for a
promise if there is any benefit to the offeree or any detriment to
the offeror.67chanrobleslaw
In the present case, PNOC claims the option contract is void for
want of consideration distinct from the purchase price for the
land.68 The option is incorporated as paragraph 5 of the
Agreement and reads as
5. If within the period of the first [25] years [Keppel] becomes
qualified to own land under the laws of the Philippines, it has the
firm and absolute option to purchase the above property for a
total price of [P-4,090,000.00] at the end of the 25th year,
discounted at 16% annual for every year before the end of the
25th year, which amount may be converted into equity of [Keppel]
at book value prevailing at the time of sale, or paid in cash at
Lusteveco's option.
However, if after the first [25] years, [Keppel] is still not qualified to
own land under the laws of the Republic of the Philippines,
[Keppel's] lease of the above stated property shall be
automatically renewed for another [25] years, under the same
60
terms and conditions save for the rental price which shall be for
Sales – Chapter 3 Cases
the sum of P4,090,000.00... and which sum may be totally
converted into equity of [Keppel] at book value prevailing at the
time of conversion, or paid in cash at Lusteveco's option.
If anytime within the second [25] years up to the [30th] year from
the date of this agreement, [Keppel] becomes qualified to own
land
under the laws of the Republic of the Philippines, [Keppel] has the does not need to be monetary and may be anything of value.74
firm and absolute option to buy and Lusteveco hereby undertakes However, when the consideration is not monetary, the
to sell the above stated property for the nominal consideration of consideration must be clearly specified as such in the option
[P100.00.00]...69 contract or clause.75chanrobleslaw
Keppel counters that a separate consideration is not necessary to
support its option to buy because the option is one of the
stipulations of the lease contract. It claims that a separate
consideration is required only when an option to buy is embodied
in an independent contract.70 It relies on Vda. de Quirino v.
Palarca,71 where the Court declared that the option to buy the
leased property is supported by the same consideration as that of
the lease itself: "in reciprocal contracts [such as lease], the
obligation or promise of each party is the consideration for that of
the other.72chanrobleslaw
In considering Keppel's submission, we note that the Court's
ruling in 1969 in Vda. de Quirino v. Palarca has been taken out of
context and erroneously applied in subsequent cases. In 2004,
through Bible Baptist Church v. CA73 we revisited Vda. de Quirino
v. Palarca and observed that the option to buy given to the lessee
Palarca by the lessor Quirino was in fact supported by a separate
consideration: Palarca paid a higher amount of rent and, in the
event that he does not exercise the option to buy the leased
property, gave Quirino the option to buy the improvements he
introduced thereon. These additional concessions were separate
from the purchase price and deemed by the Court as sufficient
consideration to support the option contract.
Vda. de Quirino v. Palarca, therefore, should not be regarded as
authority that the mere inclusion of an option contract in a
reciprocal lease contract provides it with the requisite separate
consideration for its validity. The reciprocal contract should be
closely scrutinized and assessed whether it contains additional
concessions that the parties intended to constitute as a
consideration for the option contract, separate from that of the
purchase price.
In the present case, paragraph 5 of the agreement provided that
should Keppel exercise its option to buy, Lusteveco could opt to
convert the purchase price into equity in Keppel. May Lusteveco's
option to convert the price for shares be deemed as a sufficient
separate consideration for Keppel's option to buy?
61
As earlier mentioned, the consideration for an option contract
Sales – Chapter 3 Cases
In Villamor v. CA,76 the parties executed a deed expressly
acknowledging that the purchase price of P70.00 per square
meter "was greatly higher than the actual reasonable prevailing
value of lands in that place at that time."77 The difference
between the purchase price and the prevailing value constituted
as the consideration for the option contract. Although the actual
amount of the consideration was not stated, it was ascertainable
from the contract whose terms evinced the parties' intent to
constitute this amount as consideration for the option contract.78
Thus, the Court upheld the validity of the option contract.79 In the
light of the offeree's acceptance of the option, the Court further
declared that a bilateral contract to sell and buy was created and
that the parties' respective obligations became reciprocally
demandable.80chanrobleslaw
When the written agreement itself does not state the
consideration for the option contract, the offeree or promisee
bears the burden of proving the existence of a separate
consideration for the option.81 The offeree cannot rely on Article
1354 of the Civil Code,82 which presumes the existence of
consideration, since Article 1479 of the Civil Code is a specific
provision on option contracts that explicitly requires the existence
of a consideration distinct from the purchase
price.83chanrobleslaw
In the present case, none of the above rules were observed. We
find nothing in paragraph 5 of the Agreement indicating that the
grant to Lusteveco of the option to convert the purchase price for
Keppel shares was intended by the parties as the consideration
for Keppel's option to buy the land; Keppel itself as the offeree
presented no evidence to support this finding. On the contrary, the
option to convert the purchase price for shares should be deemed
part of the consideration for the contract of sale itself, since the
shares are merely an alternative to the actual cash price.
There are, however cases where, despite the absence of an
express intent in the parties' agreements, the Court considered
the additional concessions stipulated in an agreement to
constitute a sufficient separate consideration for the option
contract.
In Teodoro v. CA,84 the sub-lessee (Teodoro) who was given the
option to buy the land assumed .the obligation to pay not only her
rent as sub-lessee, but also the rent of the sub-lessor (Ariola) to
the primary lessor (Manila Railroad Company).85 In other words,
Teodoro paid an amount over and above the amount due for her
own occupation of the property, and this amount was found by the
Court as sufficient consideration for the option
contract.86chanrobleslaw
In Dijamco v. CA,87 the spouses Dijamco failed to pay their loan
with the bank, allowing the latter to foreclose the mortgage.88
Since the spouses Dijamco did not exercise their right to redeem,
the bank consolidated its ownership over the mortgaged
property.89 The spouses Dijamco later proposed to purchase the
same property by paying a purchase price of P622,095.00
(equivalent to their principal loan) and a monthly amount of
P13,478.00 payable for 12 months (equivalent to the interest on
their principal loan). They further stated that should they fail to
make a monthly payment, the proposal should be automatically
revoked and all payments be treated as rentals for their continued
use of the property.90 The Court treated the spouses Dijamco's
proposal to purchase the property as an option contract, and the
consideration for which was the monthly interest payments.91
Interestingly, this ruling was made despite the categorical
stipulation that the monthly interest payments should be treated
as rent for the spouses Dijamco's continued possession and use
of the foreclosed property.
At the other end of the jurisprudential spectrum are cases where
the Court refused to consider the additional concessions
stipulated in agreements as separate consideration for the option
contract.
In Bible Baptist Church v. CA,92 the lessee (Bible Baptist Church)
paid in advance P84,000.00 to the lessor in order to free the
property from an encumbrance. The lessee claimed that the
advance payment constituted as the separate consideration for
its option to buy the property.93 The Court, however, disagreed
noting that the P84,000.00 paid in advance was eventually offset
against the rent due for the first year of the lease, "such that for
the entire year from 1985 to 1986 the [Bible Baptist Church] did
not pay monthly rent."94 Hence, the Court refused to recognize
the existence of a valid option contract.95chanrobleslaw
What Teodoro, Dijamco, and Bible Baptist Church show is that the
determination of whether the additional concessions in
agreements are sufficient to support an option contract, is fraught
with danger; in ascertaining the parties' intent on this matter, a
court may read too much or too little from the facts before it.
For uniformity and consistency in contract interpretation, the
better rule to follow is that the consideration for the option
62
contract should be clearly specified as such in the option contract
Sales – Chapter 3 Cases
or clause. Otherwise, the offeree must bear the burden of proving
that a separate consideration for the option contract exists.
Given our finding that the Agreement did not categorically refer to
any consideration to support Keppel's option to buy and for
Keppel's failure to present evidence in this regard, we cannot On the other hand, when the offer is not supported by a separate
uphold the existence of an option contract in this case. consideration, the offer stands but, in the absence of a binding
II. B. contract, the offeror may withdraw it any time.101 In either case,
An option, though unsupported by a separate consideration, once the acceptance of the offer is duly communicated before the
remains an offer that, if duly accepted, generates into a contract
to sell where the parties' respective obligations become
reciprocally demandable
The absence of a consideration supporting the option contract,
however, does not invalidate an offer to buy (or to sell). An option
unsupported by a separate consideration stands as an
unaccepted offer to buy (or to sell) which, when properly
accepted, ripens into a contract to sell. This is the rule established
by the Court en banc as early as 1958 in Atkins v. Cua Hian Tek,96
and upheld in 1972 in Sanchez v. Rigos.97chanrobleslaw
Sanchez v. Rigos reconciled the apparent conflict between
Articles 1324 and 1479 of the Civil Code, which are quoted
below:ChanRoblesVirtualawlibrary
Article 1324. When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, as something paid or
promised.
Article 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price,
[emphases supplied]
The Court en banc declared that there is no distinction between
these two provisions because the scenario contemplated in the
second paragraph of
Article 1479 is the same as that in the last clause of Article
1324.98 Instead of finding a conflict, Sanchez v. Rigos
harmonised the two provisions, consistent with the established
rules of statutory construction.99chanrobleslaw
Thus, when an offer is supported by a separate consideration, a
valid option contract exists, i.e., there is a contracted offer100
which the offerer cannot withdraw from without incurring liability
in damages.
63
Sales – Chapter 3 Cases
withdrawal of the offer, a bilateral contract to buy and sell is
generated which, in accordance with the first paragraph of Article
1479 of the Civil Code, becomes reciprocally
demandable.102chanrobleslaw
Sanchez v. Rigos expressly overturned the 1955 case of
Southwestern Sugar v. AGPC,103 which declared that
a unilateral promise to buy or to sell, even if accepted, is only
binding if supported by a consideration... In other words, an
accepted unilateral promise can only have a binding effect if
supported by a consideration, which means that the option can
still be withdrawn, even if accepted, if the same is not supported
by any consideration.104 [Emphasis supplied]
The Southwestern Sugar doctrine was based on the reasoning
that Article 1479 of the Civil Code is distinct from Article 1324 of
the Civil Code and is a provision that specifically governs options
to buy (or to sell).105 As mentioned, Sanchez v. Rigos found no
conflict between these two provisions and accordingly abandoned
the Southwestern Sugar doctrine.
Unfortunately, without expressly overturning or abandoning the
Sanchez ruling, subsequent cases reverted back to the
Southwestern Sugar doctrine.106 In 2009, Eulogio v Apeles107
referred to Southwestern Sugar v. AGPC as the controlling
doctrine108 and, due to the lack of a separate consideration,
refused to recognize the option to buy as an offer that would have
resulted in a sale given its timely acceptance by the offeree. In
2010, Tuazon v. Del Rosario-Suarez109 referred to Sanchez v.
Rigos but erroneously cited as part of its ratio decidendi that
portion of the Southwestern Sugar doctrine that Sanchez had
expressly abandoned.110chanrobleslaw
Given that! the issue raised in the present case involves the
application of Article 1324 and 1479 of the Civil Code, it becomes
imperative for the Court [en banc] to clarify and declare here
which between Sanchez and Southwestern Sugar is the
controlling doctrine.
The Constitution itself declares that "no doctrine or principle of
law laid down by the court in a decision rendered en banc or in
division may be modified or reversed except by the court sitting
en banc.111Sanchez v. Rigos was an en banc decision which was
affirmed in 1994 in Asuncion v. CA,112 also an en banc decision,
while the decisions citing the Southwestern Sugar doctrine are all
division cases.113 Based on the constitutional rule (as well as the
inherent logic in reconciling Civil Code provisions), there should be
no doubt that Sanchez v. Rigos remains as the controlling
doctrine.
Accordingly, when an option to buy or to sell is not supported by a
consideration separate from the purchase price, the option
constitutes as an offer to buy or to sell, which may be withdrawn
by the offeror at any time prior to the communication of the
offeree's acceptance. When the offer is duly accepted, a mutual
promise to buy and to sell under the first paragraph of Article
1479 of the Civil Code ensues and the parties' respective
obligations become reciprocally demandable.
Applied to the present case, we find that the offer to buy the land
was timely accepted by Keppel.
As early as 1994, Keppel expressed its desire to exercise its
option to buy the land. Instead of rejecting outright Keppel's
acceptance, PNOC referred the matter to the Office of the
Government Corporate Counsel (OGCC). In its Opinion No. 160,
series of 1994, the OGCC opined that Keppel "did not yet have the
right to purchase the Bauan lands."114 On account of the OGCC
opinion, the PNOC did not agree with Keppel's attempt to buy the
land;115 nonetheless, the PNOC made no categorical withdrawal
of the offer to sell provided under the Agreement.
By 2000, Keppel had met the required Filipino equity proportion
and duly communicated its acceptance of the offer to buy to
PNOC.116 Keppel met with the board of directors and officials of
PNOC who interposed no objection to the sale.117 It was only
when the amount of purchase price was raised that the conflict
between the parties arose,118 with PNOC backtracking in its
position and questioning the validity of the
option.119chanrobleslaw
Thus, when Keppel communicated its acceptance, the offer to
purchase the Bauan land stood, not having been withdrawn by
PNOC. The offer having been duly accepted, a contract to sell the
land ensued which Keppel can rightfully demand PNOC to comply
with.
III. Keppel's constitutional right to acquire full title to the
land
Filipinization is the spirit that pervades the constitutional
provisions on national patrimony and economy. The Constitution
has reserved the ownership of public and private lands,120 the
ownership and operation of public utilities,121 and certain areas
of investment122 to Filipino citizens, associations, and
64
corporations. To qualify, sixty per cent (60%) of the association or
Sales – Chapter 3 Cases
corporation's capital must be owned by Filipino citizens. Although
the 60% Filipino equity proportion has been adopted in our
Constitution since 1935, it was only in 2011 that the Court
interpreted what the term capital constituted.
In Gamboa v. Teves,123 the Court declared that the "legal and December 2011 and the resolution dated 14 May 2012 of the CA
beneficial ownership of 60 percent of the outstanding capital in CA-G.R. CV No. 86830 insofar as these rulings uphold the
stock must rest in the hands of Filipino nationals." 124 Clarifying respondent Keppel Philippines Holdings, Inc.'s option to buy the
the ruling, the Court decreed that the 60% Filipino ownership land, and REMANDS the case to the Regional Trial Court of
requirement applies separately to each class of shares, whether Batangas City, Branch 84, for the determination of whether the
with or without voting rights,125 thus:ChanRoblesVirtualawlibrary
Applying uniformly the 60-40 ownership requirement in favour of
Filipino citizens to each class of shares, regardless of differences
in voting rights, privileges and restrictions, guarantees effective
Filipino control of public utilities, as mandated by the
Constitution.126
Although the ruling was made in the context of ownership and
operation of public utilities, the same should be applied to the
ownership of public and private lands, since the same proportion
of Filipino ownership is required and the same nationalist policy
pervades.
The uncontested fact is that, as of November 2000, Keppel's
capital is 60% Filipino-owned.127 However, there is nothing in the
records showing the nature and composition of Keppel's
shareholdings, i.e., whether its shareholdings are divided into
different classes, and 60% of each share class is legally and
beneficially owned by Filipinos - understandably because when
Keppel exercised its option to buy the land in 2000, the Gamboa
ruling had not yet been promulgated. The Court cannot deny
Keppel its option to buy the land by retroactively applying the
Gamboa ruling without violating Keppel's vested right. Thus,
Keppel's failure to prove the nature and composition of its
shareholdings in 2000 could not prevent it from validly exercising
its option to buy the land.
Nonetheless, the Court cannot completely disregard the effect of
the Gamboa ruling; the 60% Filipino equity proportion is a
continuing requirement to hold land in the Philippines. Even in
Gamboa, the Court prospectively applied its ruling, thus enabling
the public utilities to meet the nationality requirement before the
Securities and Exchange Commission commences administrative
investigation and cases, and imposes sanctions for
noncompliance on erring corporations.128 In this case, Keppel
must be allowed to prove whether it meets the required Filipino
equity ownership and proportion in accordance with the Gamboa
ruling before it can acquire full title to the land.
65
In view of the foregoing, the Court AFFIRMS the decision dated 19
Sales – Chapter 3 Cases
respondent Keppel Philippines Holdings, Inc. meets the required POLYTECHNIC UNIVERSITY indicating its exercise of the option to renew the lease for another ten
Filipino equity ownership and proportion in accordance with the OF THE PHILIPPINES, (10) years. As no response was received from NDC, GHRC sent
Court's ruling in Gamboa v. Teves, to allow it to acquire full title to Petitioner, another letter on August 12, 1988, reiterating its desire to renew the
the land. - versus - contract and also requesting for priority to negotiate for its purchase
GOLDEN HORIZON REALTY
SO ORDERED. CORPORATION,
Respondent.

The above-titled consolidated petitions filed under Rule 45 of the 1997

Rules of Civil Procedure, as amended, seek to reverse the Decision[1]
dated June 25, 2008 and Resolution dated August 22, 2008 of the
Court of Appeals (CA) in CA-G.R. CV No. 84399 which affirmed the
Decision[2] dated November 25, 2004 of the Regional Trial Court
(RTC) of Makati City, Branch 144 in Civil Case No. 88-2238.
The undisputed facts are as follows:
Petitioner National Development Company (NDC) is a government-
owned and controlled corporation, created under Commonwealth Act
No. 182, as amended by Com. Act No. 311 and Presidential Decree
(P.D.) No. 668. Petitioner Polytechnic University of the Philippines
(PUP) is a public, non-sectarian, non-profit educational institution
created in 1978 by virtue of P.D. No. 1341.
In the early sixties, NDC had in its disposal a ten (10)-hectare property
located along Pureza St., Sta. Mesa, Manila. The estate was popularly
known as the NDC Compound and covered by Transfer Certificate of
Title Nos. 92885, 110301 and 145470.
On September 7, 1977, NDC entered into a Contract of Lease (C-33-
77) with Golden Horizon Realty Corporation (GHRC) over a portion of
the property, with an area of 2,407 square meters for a period of ten
(10) years, renewable for another ten (10) years with mutual consent
of the parties.[3]
On May 4, 1978, a second Contract of Lease (C-12-78) was executed
between NDC and GHRC covering 3,222.80 square meters, also
renewable upon mutual consent after the expiration of the ten (10)-
year lease period. In addition, GHRC as lessee was granted the option
to purchase the area leased, the price to be negotiated and
determined at the time the option to purchase is exercised.[4]
Under the lease agreements, GHRC was obliged to construct at its
own expense buildings of strong material at no less than the
stipulated cost, and other improvements which shall automatically
belong to the NDC as lessor upon the expiration of the lease period.
Accordingly, GHRC introduced permanent improvements and
structures as required by the terms of the contract. After the
completion of the industrial complex project, for which GHRC spent
P5 million, it was leased to various manufacturers, industrialists and
other businessmen thereby generating hundreds of jobs.[5]
On June 13, 1988, before the expiration of the ten (10)-year period 66
under the second lease contract, GHRC wrote a letter to NDC
Sales – Chapter 3 Cases
should NDC opt to sell the leased premises.[6] NDC still did not reply
but continued to accept rental payments from GHRC and allowed the
latter to remain in possession of the property.
Sometime after September 1988, GHRC discovered that NDC had
decided to secretly dispose the property to a third party. On October
21, 1988, GHRC filed in the RTC a complaint for specific performance,
damages with preliminary injunction and temporary restraining
order.[7]
In the meantime, then President Corazon C. Aquino issued
Memorandum Order No. 214 dated January 6, 1989, ordering the
transfer of the whole NDC Compound to the National Government,
which in turn would convey the said property in favor of PUP at
acquisition cost. The memorandum order cited the serious need of
PUP, considered the Poor Mans University, to expand its campus,
which adjoins the NDC Compound, to accommodate its growing
student population, and the willingness of PUP to buy and of NDC to
sell its property. The order of conveyance of the 10.31-hectare
property would automatically result in the cancellation of NDCs total
obligation in favor of the National Government in the amount of
P57,193,201.64.[8]
On February 20, 1989, the RTC issued a writ of preliminary injunction
enjoining NDC and its attorneys, representatives, agents and any other
persons assisting it from proceeding with the sale and disposition of
the leased premises.[9]
On February 23, 1989, PUP filed a motion to intervene as party
defendant, claiming that as a purchaser pendente lite of a property
subject of litigation it is entitled to intervene in the proceedings. The
RTC granted the said motion and directed PUP to file its Answer-in-
Intervention.[10]
PUP also demanded that GHRC vacate the premises, insisting that the
latters lease contract had already expired. Its demand letter unheeded
by GHRC, PUP filed an ejectment case (Civil Case No. 134416) before
the Metropolitan Trial Court (MeTC) of Manila on January 14,
1991.[11]
Due to this development, GHRC filed an Amended and/or
Supplemental Complaint to include as additional defendants PUP,
Honorable Executive Secretary Oscar Orbos and Judge Ernesto A.
Reyes of the Manila MeTC, and to enjoin the afore-mentioned
defendants from prosecuting Civil Case No. 134416 for ejectment. A
temporary restraining order was subsequently issued by the RTC
enjoining PUP from prosecuting and Judge Francisco Brillantes, Jr.
from proceeding with the ejectment case.[12]
In its Second Amended and/or Supplemental Complaint, GHRC
argued that Memorandum Order No. 214 is a nullity, for being violative
of the writ of injunction issued by the trial court, apart from being an
infringement of the Constitutional prohibition against impairment of
obligation of contracts, an encroachment on legislative functions and
a bill of attainder. In the alternative, should the trial court adjudge the
memorandum order as valid, GHRC contended that its existing right
must still be respected by allowing it to purchase the leased
premises.[13]
Pre-trial was set but was suspended upon agreement of the parties to
await the final resolution of a similar case involving NDC, PUP and
another lessee of NDC, Firestone Ceramics, Inc. (Firestone), then
pending before the RTC of Pasay City.[14]
On November 14, 2001, this Court rendered a decision in G.R. Nos.
143513 (Polytechnic University of the Philippines v. Court of Appeals)
and 143590 (National Development Corporation v. Firestone
Ceramics, Inc.),[15] which declared that the sale to PUP by NDC of the
portion leased by Firestone pursuant to Memorandum Order No. 214
violated the right of first refusal granted to Firestone under its third
lease contract with NDC. We thus decreed:
WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590
are DENIED. Inasmuch as the first contract of lease fixed the area of
the leased premises at 2.90118 hectares while the second contract
placed it at 2.60 hectares, let a ground survey of the leased premises
be immediately conducted by a duly licensed, registered surveyor at
the expense of private respondent FIRESTONE CERAMICS, INC.,
within two (2) months from the finality of the judgment in this case.
Thereafter, private respondent FIRESTONE CERAMICS, INC., shall
have six (6) months from receipt of the approved survey within which
to exercise its right to purchase the leased property at P1,500.00 per
square meter, and petitioner Polytechnic University of the Philippines
is ordered to reconvey the property to FIRESTONE CERAMICS, INC., in
the exercise of its right of first refusal upon payment of the purchase
price thereof.
SO ORDERED.[16]
The RTC resumed the proceedings and when mediation and pre-trial
failed to settle the case amicably, trial on the merits ensued.[17]
On November 25, 2004, the RTC rendered its decision upholding the
right of first refusal granted to GHRC under its lease contract with
NDC and ordering PUP to reconvey the said portion of the property in
favor of GHRC. The dispositive portion reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and against the defendants ordering the plaintiff
to cause immediate ground survey of the premises subject of the
leased contract under Lease Contract No. C-33-77 and C-12-78
measuring 2,407 and 3,222.8 square meters respectively, by a duly
licensed and registered surveyor at the expense of the plaintiff within
two months from receipt of this Decision and thereafter, the plaintiff
shall have six (6) months from receipt of the approved survey within
which to exercise its right to purchase the leased property at P554.74
per square meter. And finally, the defendant PUP, in whose name the
property is titled, is hereby ordered to reconvey the aforesaid property
to the plaintiff in the exercise of its right of its option to buy or first
refusal upon payment of the purchase price thereof.
67
The defendant NDC is hereby further ordered to pay the plaintiff
Sales – Chapter 3 Cases
attorneys fees in the amount of P100,000.00.
The case against defendant Executive Secretary is dismissed and this
decision shall bind defendant Metropolitan Trial Court, Branch 20 of
Manila.
With costs against defendants NDC and PUP.
Petitioner PUP further contends that while it is conceded that there
was an implied new lease between respondent and petitioner NDC
after the expiration of the lease contracts, the same did not include
the right of first refusal originally granted to respondent. The CA
should have

SO ORDERED.[18]

NDC and PUP separately appealed the decision to the CA.[19] By

Decision of June 25, 2008, the CA affirmed in toto the decision of the
RTC.[20]
Both the RTC and the CA applied this Courts ruling in Polytechnic
University of the Philippines v. Court of Appeals (supra), considering
that GHRC is similarly situated as a lessee of NDC whose right of first
refusal under the lease contract was violated by the sale of the
property to PUP without NDC having first offered to sell the same to
GHRC despite the latters request for the renewal of the lease and/or
to purchase the leased premises prior to the expiration of the second
lease contract. The CA further agreed with the RTCs finding that there
was an implied renewal of the lease upon the failure of NDC to act on
GHRCs repeated requests for renewal of the lease contract, both
verbal and written, and continuing to accept monthly rental payments
from GHRC which was allowed to continue in possession of the
leased premises.
The CA also rejected the argument of NDC and PUP that even
assuming that GHRC had the right of first refusal, said right pertained
only to the second lease contract, C-12-78 covering 3,222.80 square
meters, and not to the first lease contract, C-33-77 covering 2,407
square meters, which had already expired. It sustained the RTCs
finding that the two (2) lease contracts were interrelated because
each formed part of GHRCs industrial complex, such that business
operations would be rendered useless and inoperative if the first
contract were to be detached from the other, as similarly held in the
afore-mentioned case of Polytechnic University of the Philippines v.
Court of Appeals.
Petitioner PUP argues that respondents right to exercise the option to
purchase had expired with the termination of the original contract of
lease and was not carried over to the subsequent implied new lease
between respondent and petitioner NDC. As testified to by their
witnesses Leticia Cabantog and Atty. Rhoel Mabazza, there was no
agreement or document to the effect that respondents request for
extension or renewal of the subject contracts of lease for another ten
(10) years was approved by NDC. Hence, respondent can no longer
exercise the option to purchase the leased premises when the same
were conveyed to PUP pursuant to Memorandum Order No. 214 dated
January 6, 1989, long after the expiration of C-33-77 and C-12-78 in 68
September 1988.[21]
Sales – Chapter 3 Cases
applied the ruling in Dizon v. Magsaysay[22] that the lessee cannot
any more exercise its option to purchase after the lapse of the one (1)
-year period of the lease contract. With the implicit renewal of the
lease on a monthly basis, the other terms of the original contract of
lease which are revived in the implied new lease under Article 1670 of
the Civil Code are only those terms which are germane to the lessees
right of continued enjoyment of the property leased. The provision
entitling the lessee the option to purchase the leased premises is not
deemed incorporated in the impliedly renewed contract because it is
alien to the possession of the lessee. Consequently, as in this case,
respondents right of option to purchase the leased premises was not
violated despite the impliedly renewed contract of lease with NDC.
Respondent cannot favorably invoke the decision in G.R. Nos. 143513
and 143590 (Polytechnic University of the Philippines v. Court of
Appeals) for the simple reason, among others, that unlike in said
cases, the contracts of lease of respondent with NDC were not
mutually extended or renewed for another ten (10) years. Thus, when
the leased premises were conveyed to PUP, respondent did not any
more have any right of first refusal, which incidentally appears only in
the second lease contract and not in the first lease contract.[23]
On its part, petitioner NDC assails the CA in holding that the contracts
of lease were impliedly renewed for another ten (10)-year period. The
provisions of C-33-77 and C-12-78 clearly state that the lessee is
granted the option to renew for another ten (10) years with the mutual
consent of both parties. As regards the continued receipt of rentals by
NDC and possession by the respondent of the leased premises, the
impliedly renewed lease was only month-to-month and not ten (10)
years since the rentals are being paid on a monthly basis, as held in
Dizon v. Magsaysay.[24]
Petitioner NDC further faults the CA in sustaining the RTCs decision
which erroneously granted respondent the option to purchase the
leased premises at the rate of P554.74 per square meter, the same
rate for which NDC sold the property to petitioner PUP and/or the
National Government, which is the mere acquisition cost thereof. It
must be noted that such consideration or rate was imposed by
Memorandum Order No. 214 under the premise that it shall, in effect,
be a sale and/or purchase from one (1) government agency to
another. It was intended merely as a transfer of one (1) user of the
National Government to another, with the beneficiary, PUP in this
case, merely returning to the petitioner/transferor the cost of
acquisition thereof, as appearing on its accounting books. It does not
in any way reflect the true and fair market value of the property, nor
was it a price a willing seller would demand and accept for parting
with his real property. Such benefit, therefore, cannot be extended to
respondent as a private entity, as the latter does not share the same
pocket, so to speak, with the National Government.[25]
The issue to be resolved is whether or not our ruling in Polytechnic
University of the Philippines v. Court of Appeals applies in this case
involving another lessee of NDC who claimed that the option to
purchase the portion leased to it was similarly violated by the sale of
the NDC Compound in favor of PUP pursuant to Memorandum Order
No. 214.
We rule in the affirmative.
The second lease contract contained the following provision:
III. It is mutually agreed by the parties that this Contract of Lease shall
be in full force and effect for a period of ten (10) years counted from
the effectivity of the payment of rental as provided under sub-
paragraph (b) of Article I, with option to renew for another ten (10)
years with the mutual consent of both parties. In no case should the
rentals be increased by more than 100% of the original amount fixed.
Lessee shall also have the option to purchase the area leased, the
price to be negotiated and determined at the time the option to
purchase is exercised. [EMPHASIS SUPPLIED]
An option is a contract by which the owner of the property agrees with
another person that the latter shall have the right to buy the formers
property at a fixed price within a certain time. It is a condition offered
or contract by which the owner stipulates with another that the latter
shall have the right to buy the property at a fixed price within a certain
time, or under, or in compliance with certain terms and conditions; or
which gives to the owner of the property the right to sell or demand a
sale.[26] It binds the party, who has given the option, not to enter into
the principal contract with any other person during the period
designated, and, within that period, to enter into such contract with
the one to whom the option was granted, if the latter should decide to
use the option.[27]
Upon the other hand, a right of first refusal is a contractual grant, not
of the sale of a property, but of the first priority to buy the property in
the event the owner sells the same.[28] As distinguished from an
option contract, in a right of first refusal, while the object might be
made determinate, the exercise of the right of first refusal would be
dependent not only on the owners eventual intention to enter into a
binding juridical relation with another but also on terms, including the
price, that are yet to be firmed up.[29]
As the option to purchase clause in the second lease contract has no
definite period within which the leased premises will be offered for
sale to respondent lessee and the price is made subject to negotiation
and determined only at the time the option to buy is exercised, it is
obviously a mere right of refusal, usually inserted in lease contracts to
give the lessee the first crack to buy the property in case the lessor
decides to sell the same. That respondent was granted a right of first
refusal under the second lease contract appears not to have been
disputed by petitioners. What petitioners assail is the CAs erroneous
conclusion that such right of refusal subsisted even after the 69
expiration of the original lease period, when respondent was allowed
Sales – Chapter 3 Cases
to continue staying in the leased premises under an implied renewal
of the lease and without the right of refusal carried over to such
month-to-month lease. Petitioners thus maintain that no right of
refusal was violated by the sale
of the property in favor of PUP pursuant to Memorandum Order No. the time said memorandum order was issued.[31]
214. Such contention does not hold water. As already mentioned, the
Petitioners position is untenable. reckoning point of the offer of sale to a third party was not the
When a lease contract contains a right of first refusal, the lessor has issuance of Memorandum Order No. 214 on January 6, 1989 but the
the legal duty to the lessee not to sell the leased property to anyone at commencement of such negotiations as early as July 1988 when
any price until after the lessor has made an offer to sell the property
to the lessee and the lessee has failed to accept it. Only after the
lessee has failed to exercise his right of first priority could the lessor
sell the property to other buyers under the same terms and conditions
offered to the lessee, or under terms and conditions more favorable to
the lessor.[30]
Records showed that during the hearing on the application for a writ
of preliminary injunction, respondent adduced in evidence a letter of
Antonio A. Henson dated 15 July 1988 addressed to Mr. Jake C.
Lagonera, Director and Special Assistant to Executive Secretary
Catalino Macaraeg, reviewing a proposed memorandum order
submitted to President Corazon C. Aquino transferring the whole NDC
Compound, including the premises leased by respondent, in favor of
petitioner PUP. This letter was offered in evidence by respondent to
prove the existence of documents as of that date and even prior to
the expiration of the second lease contract or the lapse of the ten (10)
-year period counted from the effectivity of the rental payment -- that
is, one hundred and fifty (150) days from the signing of the contract
(May 4, 1978), as provided in Art. I, paragraph (b) of C-12-78, or on
October 1, 1988.
Respondent thus timely exercised its option to purchase on August
12, 1988. However, considering that NDC had been negotiating
through the National Government for the sale of the property in favor
of PUP as early as July 15, 1988 without first offering to sell it to
respondent and even when respondent communicated its desire to
exercise the option to purchase granted to it under the lease contract,
it is clear that NDC violated respondents right of first refusal. Under
the premises, the matter of the right of refusal not having been carried
over to the impliedly renewed month-to-month lease after the
expiration of the second lease contract on October 21, 1988 becomes
irrelevant since at the time of the negotiations of the sale to a third
party, petitioner PUP, respondents right of first refusal was still
subsisting.
Petitioner NDC in its memorandum contended that the CA erred in
applying the ruling in Polytechnic University of the Philippines v. Court
of Appeals pointing out that the case of lessee Firestone Ceramics,
Inc. is different because the lease contract therein had not yet expired
while in this case respondents lease contracts have already expired
and never renewed. The date of the expiration of the lease contract in
said case is December 31, 1989 which is prior to the issuance of
Memorandum Order No. 214 on January 6, 1989. In contrast, 70
respondents lease contracts had already expired (September 1988) at
Sales – Chapter 3 Cases
respondents right of first refusal was still subsisting and the lease
contracts still in force. Petitioner NDC did not bother to respond to
respondents letter of June 13, 1988 informing it of respondents
exercise of the option to renew and requesting to discuss further the
matter with NDC, nor to the subsequent letter of August 12, 1988
reiterating the request for renewing the lease for another ten (10)
years and also the exercise of the option to purchase under the lease
contract. Petitioner NDC had dismissed these letters as mere
informative in nature, and a request at its best.[32]
Perusal of the letter dated August 12, 1988, however, belies such
claim of petitioner NDC that it was merely informative, thus:
August 12, 1988
HON. ANTONIO HENSON
General Manager
NATIONAL DEVELOPMENT COMPANY
377 Se(n). Gil J. Puyat Avenue
Makati, Metro Manila
REF: Contract of Lease
Nos. C-33-77 & C-12-78
Dear Sir:
This is further to our earlier letter dated June 13, 1988 formally
advising your goodselves of our intention to exercise our option for
another ten (10) years. Should the National Development Company
opt to sell the property covered by said leases, we also request for
priority to negotiate for its purchase at terms and/or conditions
mutually acceptable.
As a backgrounder, we wish to inform you that since the start of our
lease, we have improved on the property by constructing bodega-type
buildings which presently house all legitimate trading and
manufacturing concerns. These business are substantial taxpayers,
employ not less than 300 employees and contribute even foreign
earnings.
It is in this context that we are requesting for the extension of the
lease contract to prevent serious economic disruption and dislocation
of the business concerns, as well as provide ourselves, the lessee, an
opportunity to recoup our investments and obtain a fair return thereof.
Your favorable consideration on our request will be very much
appreciated.
very truly yours,
As to petitioners argument that respondents right of first refusal can
TIU HAN TENG be invoked only with respect to the second lease contract which
President[33] expressly provided for the option to purchase by the lessee, and not in
the first lease contract which contained no such clause, we sustain
the RTC and CA in finding that the second contract, covering an area
of 3,222.80 square meters, is interrelated to and inseparable from the
first contract over 2,407 square meters. The structures built on the
leased premises, which are adjacent to each other, form part of an
integrated system of a commercial complex leased out to
manufacturers, fabricators and other businesses. Petitioners
submitted a sketch plan and pictures taken of the driveways, in an
effort to show that the leased premises can be used separately by
respondent, and that the two (2) lease contracts are distinct from
each other.[34] Such was a desperate attempt to downplay the
commercial purpose of respondents substantial improvements which
greatly contributed to the increased value of the leased premises. To
prove that petitioner NDC had considered the leased premises as a
single unit, respondent submitted evidence showing that NDC issued
only one (1) receipt for the rental payments for the two portions.[35]
Respondent further presented the blueprint plan prepared by its
witness, Engr. Alejandro E. Tinio, who supervised the construction of
the structures on the leased premises, to show the building concept
as a one-stop industrial site and integrated commercial complex.[36]
In fine, the CA was correct in declaring that there exists no justifiable
reason not to apply the same rationale in Polytechnic University of the
Philippines v. Court of Appeals in the case of respondent who was
similarly prejudiced by petitioner NDCs sale of the property to PUP, as
to entitle the respondent to exercise its option to purchase until
October 1988 inasmuch as the May 4, 1978 contract embodied the
option to renew the lease for another ten (10) years upon mutual
consent and giving respondent the option to purchase the leased
premises for a price to be negotiated and determined at the time such
option was exercised by respondent. It is to be noted that
Memorandum Order No. 214 itself declared that the transfer is
subject to such liens/leases existing [on the subject property]. Thus:
...we now proceed to determine whether FIRESTONE should be
allowed to exercise its right of first refusal over the property. Such
right was expressly stated by NDC and FIRESTONE in par. XV of their
third contract denominated as A-10-78 executed on 22 December
1978 which, as found by the courts a quo, was interrelated to and
inseparable from their first contract denominated as C-30-65
executed on 24 August 1965 and their second contract denominated
as C-26-68 executed on 8 January 1969. Thus -
Should the LESSOR desire to sell the leased premises during the term71
of this Agreement, or any extension thereof, the LESSOR shall first
Sales – Chapter 3 Cases
give to the LESSEE, which shall have the right of first option to
purchase the leased premises subject to mutual agreement of both
parties.
In the instant case, the right of first refusal is an integral and FIRESTONE never raised this as an issue, while on the other hand it
indivisible part of the contract of lease and is inseparable from the admitted that the value of the property stood at P1,500.00 per square
whole contract. The consideration for the right is built into the meter, then we see no compelling reason to modify the holdings of
reciprocal obligations of the parties. Thus, it is not correct for the
petitioners to insist that there was no consideration paid by
FIRESTONE to entitle it to the exercise of the right, inasmuch as the
stipulation is part and parcel of the contract of lease making the
consideration for the lease the same as that for the option.
It is a settled principle in civil law that when a lease contract contains
a right of first refusal, the lessor is under a legal duty to the lessee not
to sell to anybody at any price until after he has made an offer to sell
to the latter at a certain price and the lessee has failed to accept it.
The lessee has a right that the lessors first offer shall be in his favor.
The option in this case was incorporated in the contracts of lease by
NDC for the benefit of FIRESTONE which, in view of the total amount
of its investments in the property, wanted to be assured that it would
be given the first opportunity to buy the property at a price for which it
would be offered. Consistent with their agreement, it was then
implicit for NDC to have first offered the leased premises of 2.60
hectares to FIRESTONE prior to the sale in favor of PUP. Only if
FIRESTONE failed to exercise its right of first priority could NDC
lawfully sell the property to petitioner PUP.[37] [EMPHASIS SUPPLIED]
As we further ruled in the afore-cited case, the contractual grant of a
right of first refusal is enforceable, and following an earlier ruling in
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,[38] the
execution of such right consists in directing the grantor to comply
with his obligation according to the terms at which he should have
offered the property in favor of the grantee and at that price when the
offer should have been made. We then determined the proper rate at
which the leased portion should be reconveyed to respondent by PUP,
to whom the lessor NDC sold it in violation of respondent lessees
right of first refusal, as follows:
It now becomes apropos to ask whether the courts a quo were correct
in fixing the proper consideration of the sale at P1,500.00 per square
meter. In contracts of sale, the basis of the right of first refusal must
be the current offer of the seller to sell or the offer to purchase of the
prospective buyer. Only after the lessee-grantee fails to exercise its
right under the same terms and within the period contemplated can
the owner validly offer to sell the property to a third person, again,
under the same terms as offered to the grantee. It appearing that the
whole NDC compound was sold to PUP for P554.74 per square meter,
it would have been more proper for the courts below to have ordered 72
the sale of the property also at the same price. However, since
Sales – Chapter 3 Cases
courts a quo that the leased premises be sold at that price.[39]
[EMPHASIS SUPPLIED]
In the light of the foregoing, we hold that respondent, which did not
offer any amount to petitioner NDC, and neither disputed the
P1,500.00 per square meter actual value of NDCs property at that
time it was sold to PUP at P554.74 per square meter, as duly
considered by this Court in the Firestone case, should be bound by
such determination. Accordingly, the price at which the leased
premises should be sold to respondent in the exercise of its right of
first refusal under the lease contract with petitioner NDC, which was
pegged by the RTC at P554.74 per square meter, should be adjusted
to P1,500.00 per square meter, which more accurately reflects its true
value at that time of the sale in favor of petitioner PUP.
Indeed, basic is the rule that a party to a contract cannot unilaterally
withdraw a right of first refusal that stands upon valuable
consideration.[40] We have categorically ruled that it is not correct to
say that there is no consideration for the grant of the right of first
refusal if such grant is embodied in the same contract of lease. Since
the stipulation forms part of the entire lease contract, the
consideration for the lease includes the consideration for the grant of
the right of first refusal. In entering into the contract, the lessee is in
effect stating that it consents to lease the premises and to pay the
price agreed upon provided the lessor also consents that, should it
sell the leased property, then, the lessee shall be given the right to
match the offered purchase price and to buy the property at that
price.[41]
We have further stressed that not even the avowed public welfare or
the constitutional priority accorded to education, invoked by petitioner
PUP in the Firestone case, would serve as license for us, and any party
for that matter, to destroy the sanctity of binding obligations. While
education may be prioritized for legislative and budgetary purposes, it
is doubtful if such importance can be used to confiscate private
property such as the right of first refusal granted to a lessee of
petitioner NDC.[42] Clearly, no reversible error was committed by the
CA in sustaining respondents contractual right of first refusal and
ordering the reconveyance of the leased portion of petitioner NDCs
property in its favor.
WHEREFORE, the petitions are DENIED. The Decision dated November
25, 2004 of the Regional Trial Court of Makati City, Branch 144 in Civil
Case No. 88-2238, as affirmed by the Court of Appeals in its Decision
dated June 25, 2008 in CA-G.R. CV No. 84399, is hereby AFFIRMED
with MODIFICATION in that the price to be paid by respondent Golden
Horizon Realty Corporation for the leased portion of the NDC
Compound under Lease Contract Nos. C-33-77 and C-12-78 is hereby
increased to P1,500.00 per square meter.
No pronouncement as to costs. ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
SO ORDERED. vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.
Assailed, in this petition for review, is the decision of the Court of
Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345 setting
aside and declaring without force and effect the orders of execution
of the trial court, dated 30 August 1991 and 27 September 1991, in
Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court
thusly:
On July 29, 1987 a Second Amended Complaint for Specific
Performance was filed by Ang Yu Asuncion and Keh Tiong, et al.,
against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the
Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058,
alleging, among others, that plaintiffs are tenants or lessees of
residential and commercial spaces owned by defendants described
as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have
occupied said spaces since 1935 and have been religiously paying the
rental and complying with all the conditions of the lease contract; that
on several occasions before October 9, 1986, defendants informed
plaintiffs that they are offering to sell the premises and are giving
them priority to acquire the same; that during the negotiations, Bobby
Cu Unjieng offered a price of P6-million while plaintiffs made a
counter offer of P5-million; that plaintiffs thereafter asked the
defendants to put their offer in writing to which request defendants
acceded; that in reply to defendant's letter, plaintiffs wrote them on
October 24, 1986 asking that they specify the terms and conditions of
the offer to sell; that when plaintiffs did not receive any reply, they
sent another letter dated January 28, 1987 with the same request; that
since defendants failed to specify the terms and conditions of the
offer to sell and because of information received that defendants
were about to sell the property, plaintiffs were compelled to file the
complaint to compel defendants to sell the property to them.
Defendants filed their answer denying the material allegations of the
complaint and interposing a special defense of lack of cause of
action.
After the issues were joined, defendants filed a motion for summary
judgment which was granted by the lower court. The trial court found
that defendants' offer to sell was never accepted by the plaintiffs for
the reason that the parties did not agree upon the terms and 73
conditions of the proposed sale, hence, there was no contract of sale
Sales – Chapter 3 Cases
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 consideration by this Court, the Cu Unjieng spouses executed a Deed
and against the plaintiffs summarily dismissing the complaint subject of Sale (Annex D, Petition) transferring the property in question to
to the aforementioned condition that if the defendants subsequently herein petitioner Buen Realty and Development Corporation, subject to
decide to offer their property for sale for a purchase price of Eleven the following terms and conditions:
Million Pesos or lower, then the plaintiffs has the option to purchase
the property or of first refusal, otherwise, defendants need not offer
the property to the plaintiffs if the purchase price is higher than Eleven
Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September 21,
1990 (penned by Justice Segundino G. Chua and concurred in by
Justices Vicente V. Mendoza and Fernando A. Santiago), this Court
affirmed with modification the lower court's judgment, holding:
In resume, there was no meeting of the minds between the parties
concerning the sale of the property. Absent such requirement, the
claim for specific performance will not lie. Appellants' demand for
actual, moral and exemplary damages will likewise fail as there exists
no justifiable ground for its award. Summary judgment for defendants
was properly granted. Courts may render summary judgment when
there is no genuine issue as to any material fact and the moving party
is entitled to a judgment as a matter of law (Garcia vs. Court of
Appeals, 176 SCRA 815). All requisites obtaining, the decision of the
court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment
appealed from is hereby AFFIRMED, but subject to the following
modification: The court a quo in the aforestated decision gave the
plaintiffs-appellants the right of first refusal only if the property is sold
for a purchase price of Eleven Million pesos or lower; however,
considering the mercurial and uncertain forces in our market
economy today. We find no reason not to grant the same right of first
refusal to herein appellants in the event that the subject property is
sold for a price in excess of Eleven Million pesos. No pronouncement
as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by
petition for review on certiorari. The Supreme Court denied the appeal
on May 6, 1991 "for insufficiency in form and substances" (Annex H,
Petition).
74
On November 15, 1990, while CA-G.R. CV No. 21123 was pending
Sales – Chapter 3 Cases
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 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 75
respondent, set aside and declared without force and effect the above
Sales – Chapter 3 Cases
questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen
Realty can be held bound by the writ of execution by virtue of the
notice of lis pendens, carried over on TCT No. 195816 issued in the
name of Buen Realty, at the time of the latter's purchase of the
property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the
adoption of such arrangements as the right of first refusal, a purchase
option and a contract to sell. For ready reference, we might point out
some fundamental precepts that may find some relevance to this
discussion.
An obligation is a juridical necessity to give, to do or not to do (Art.
1156, Civil Code). The obligation is constituted upon the concurrence
of the essential elements thereof, viz: (a) The vinculum juris or
juridical tie which is the efficient cause established by the various
sources of obligations (law, contracts, quasi-contracts, delicts and
quasi-delicts); (b) the object which is the prestation or conduct;
required to be observed (to give, to do or not to do); and (c) the
subject-persons who, viewed from the demandability of the obligation,
are the active (obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil
Code), which is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to
render some service (Art. 1305, Civil Code). A contract undergoes
various stages that include its negotiation or preparation, its
perfection and, finally, its consummation. Negotiation covers the
period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is concluded
(perfected). The perfection of the contract takes place upon the
concurrence of the essential elements thereof. A contract which is
consensual as to perfection is so established upon a mere meeting of
minds, i.e., the concurrence of offer and acceptance, on the object
and on the cause thereof. A contract which requires, in addition to the
above, the delivery of the object of the agreement, as in a pledge or
commodatum, is commonly referred to as a real contract. In a solemn
contract, compliance with certain formalities prescribed by law, such
as in a donation of real property, is essential in order to make the act
valid, the prescribed form being thereby an essential element thereof.
The stage of consummation begins when the parties perform their
respective undertakings under the contract culminating in the
extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation. In sales, particularly, to
which the topic for discussion about the case at bench belongs, the
contract is perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer ownership of a
thing or right to another, called the buyer, over which the latter agrees.
Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract
to Sell" where invariably the ownership of the thing sold is retained
until the fulfillment of a positive suspensive condition (normally, the
full payment of the purchase price), the breach of the condition will
prevent the obligation to convey title from acquiring an obligatory
force.2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said
that, although denominated a "Deed of Conditional Sale," a sale is still
absolute where the contract is devoid of any proviso that title is
reserved or the right to unilaterally rescind is stipulated, e.g., until or
unless the price is paid. Ownership will then be transferred to the
buyer upon actual or constructive delivery (e.g., by the execution of a
public document) of the property sold. Where the condition is
imposed upon the perfection of the contract itself, the failure of the
condition would prevent such perfection.3 If the condition is imposed
on the obligation of a party which is not fulfilled, the other party may
either waive the condition or refuse to proceed with the sale (Art.
1545, Civil Code).4
An unconditional mutual promise to buy and sell, as long as the object
is made determinate and the price is fixed, can be obligatory on the
parties, and compliance therewith may accordingly be exacted.5
An accepted unilateral promise which specifies the thing to be sold
and the price to be paid, when coupled with a valuable consideration
distinct and separate from the price, is what may properly be termed a
perfected contract of option. This contract is legally binding, and in
sales, it conforms with the second paragraph of Article 1479 of the
Civil Code, viz:
Art. 1479. ...
An accepted unilateral promise to buy or to sell a determinate thing
for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price. (1451a)6
Observe, however, that the option is not the contract of sale itself.7
The optionee has the right, but not the obligation, to buy. Once the
option is exercised timely, i.e., the offer is accepted before a breach of
the option, a bilateral promise to sell and to buy ensues and both
parties are then reciprocally bound to comply with their respective
undertakings.8 76
Sales – Chapter 3 Cases
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:
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

(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 77
can the right of first refusal, understood in its normal concept, per se
Sales – Chapter 3 Cases
be made determinate, the exercise of the right, however, would be decision of the trial court as modified by this Court. As already stated, (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila
dependent not only on the grantor's eventual intention to enter into a there was nothing in said decision 13 that decreed the execution of a vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs.
binding juridical relation with another but also on terms, including the deed of sale between the Cu Unjiengs and respondent lessees, or the CA, 122 SCRA 885).
price, that obviously are yet to be later firmed up. Prior thereto, it can fixing of the price of the sale, or the cancellation of title in the name of
at best be so described as merely belonging to a class of preparatory petitioner It is likewise quite obvious to us that the decision in Civil Case No. 87-
juridical relations governed not by contracts (since the essential 41058 could not have decreed at the time the execution of any deed
elements to establish the vinculum juris would still be indefinite and of sale between the Cu Unjiengs and petitioners.
inconclusive) but by, among other laws of general application, the
pertinent scattered provisions of the Civil Code on human conduct. WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting
aside the questioned Orders, dated 30 August 1991 and 27
Even on the premise that such right of first refusal has been decreed September 1991, of the court a quo. Costs against petitioners.
under a final judgment, like here, its breach cannot justify
correspondingly an issuance of a writ of execution under a judgment SO ORDERED.
that merely recognizes its existence, nor would it sanction an action
for specific performance without thereby negating the indispensable
element of consensuality in the perfection of contracts.11 It is not to
say, however, that the right of first refusal would be inconsequential
for, such as already intimated above, an unjustified disregard thereof,
given, for instance, the circumstances expressed in Article 1912 of the
Civil Code, can warrant a recovery for damages.

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:
78
Finally, the questioned writ of execution is in variance with the
Sales – Chapter 3 Cases
PARAÑAQUE KINGS ENTERPRISES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS, CATALINA L. SANTOS, represented by her
attorney-in-fact, LUZ B. PROTACIO, and DAVID A. RAYMUNDO,
respondents.
Do allegations in a complaint showing violation of a contractual right
of "first option or priority to buy the properties subject of the lease"
constitute a valid cause of action? Is the grantee of such right entitled
to be offered the same terms and conditions as those given to a third
party who eventually bought such properties? In short, is such right of
first refusal enforceable by an action for specific performance?
These questions are answered in the affirmative by this Court in
resolving this petition for review under Rule 45 of the Rules of Court
challenging the Decision 1 of the Court of Appeals 2 promulgated on
March 29, 1993, in CA-G.R. CV No. 34987 entitled "Parañaque Kings
Enterprises, Inc. vs. Catalina L. Santos, et al.," which affirmed the
order 3 of September 2, 1991, of the Regional Trial Court of Makati,
Branch 57, 4 dismissing Civil Case No. 91-786 for lack of a valid cause
of action.
Facts of the Case
On March 19, 1991, herein petitioner filed before the Regional Trial
Court of Makati a complaint, 5 which is reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and existing
under and by virtue of the laws of the Philippines, with principal place
of business of (sic) Dr. A. Santos Avenue, Parañaque, Metro Manila,
while defendant Catalina L. Santos, is of legal age, widow, with
residence and postal address at 444 Plato Street, Ct., Stockton,
California, USA, represented in this action by her attorney-in-fact, Luz
B. Protacio, with residence and postal address at No, 12, San Antonio
Street, Magallanes Village, Makati, Metro Manila, by virtue of a general
power of attorney. Defendant David A. Raymundo, is of legal age,
single, with residence and postal address at 1918 Kamias Street,
Damariñas Village, Makati, Metro Manila, where they (sic) may be
served with summons and other court processes. Xerox copy of the
general power of attorney is hereto attached as Annex "A".
2. Defendant Catalina L. Santos is the owner of eight (8)
parcels of land located at (sic) Parañaque, Metro Manila with transfer
certificate of title nos. S-19637, S-19638 and S-19643 to S-19648.
Xerox copies of the said title (sic) are hereto attached as Annexes "B"
to "I", respectively. 3. On November 28, 1977, a certain Frederick Chua leased the
above-described property from defendant Catalina L. Santos, the said
lease was registered in the Register of Deeds. Xerox copy of the lease
is hereto attached as Annex "J".
4. On February 12, 1979, Frederick Chua assigned all his rights
and interest and participation in the leased property to Lee Ching Bing,
by virtue of a deed of assignment and with the conformity of
defendant Santos, the said assignment was also registered. Xerox
copy of the deed of assignment is hereto attached as Annex "K".
5. On August 6, 1979, Lee Ching Bing also assigned all his
rights and interest in the leased property to Parañaque Kings
Enterprises, Incorporated by virtue of a deed of assignment and with
the conformity of defendant Santos, the same was duly registered,
Xerox copy of the deed of assignment is hereto attached as Annex
"L".
6. Paragraph 9 of the assigned leased (sic) contract provides
among others that:
"9. That in case the properties subject of the lease agreement
are sold or encumbered, Lessors shall impose as a condition that the
buyer or mortgagee thereof shall recognize and be bound by all the
terms and conditions of this lease agreement and shall respect this
Contract of Lease as if they are the LESSORS thereof and in case of
sale, LESSEE shall have the first option or priority to buy the properties
subject of the lease;"
7. On September 21, 1988, defendant Santos sold the eight
parcels of land subject of the lease to defendant David Raymundo for
a consideration of FIVE MILLION (P5,000,000.00) PESOS. The said
sale was in contravention of the contract of lease, for the first option
or priority to buy was not offered by defendant Santos to the plaintiff.
Xerox copy of the deed of sale is hereto attached as Annex "M".
8. On March 5, 1989, defendant Santos wrote a letter to the
plaintiff informing the same of the sale of the properties to defendant
Raymundo, the said letter was personally handed by the attorney-in-
fact of defendant Santos, Xerox copy of the letter is hereto attached
as Annex "N".
9. Upon learning of this fact plaintiff's representative wrote a
letter to defendant Santos, requesting her to rectify the error and
consequently realizing the error, she had it reconveyed to her for the
same consideration of FIVE MILLION (P5,000,000.00) PESOS. Xerox79
copies of the letter and the deed of reconveyance are hereto attached
Sales – Chapter 3 Cases
as Annexes "O" and "P". therefore (sic) the said period expired another letter came from the 19. When the property was still registered in the name of
counsel of defendant Santos, containing the same tenor of (sic) the defendant Santos, her collector of the rental of the leased properties
10. Subsequently the property was offered for sale to plaintiff by former letter. Xerox copies of the letters are hereto attached as was her brother-in-law David Santos and when it was transferred to
the defendant for the sum of FIFTEEN MILLION (P15,000,000.00) Annexes "Q" and "R". defendant Raymundo the collector was still David Santos up to the
PESOS. Plaintiff was given ten (10) days to make good of the offer,
but 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. 80
Sales – Chapter 3 Cases
month of June, 1990. Xerox copies of cash vouchers are hereto
attached as Annexes "X" to "HH", respectively.
20. The purpose of this unholy alliance between defendants
Santos and Raymundo is to mislead the plaintiff and make it appear
that the price of the leased property is much higher than its actual
value of FIVE MILLION (P5,000,000.00) PESOS, so that plaintiff would
purchase the properties at a higher price.
21. Plaintiff has made considerable investments in the said
leased property by erecting a two (2) storey, six (6) doors commercial
building amounting to THREE MILLION (P3,000,000.00) PESOS. This
considerable improvement was made on the belief that eventually the
said premises shall be sold to the plaintiff.
22. As a consequence of this unlawful act of the defendants,
plaintiff will incurr (sic) total loss of THREE MILLION (P3,000,000.00)
PESOS as the actual cost of the building and as such defendants
should be charged of the same amount for actual damages.
23. As a consequence of the collusion, evil design and illegal
acts of the defendants, plaintiff in the process suffered mental
anguish, sleepless nights, bismirched (sic) reputation which entitles
plaintiff to moral damages in the amount of FIVE MILLION
(P5,000,000.00) PESOS.
24. The defendants acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner and as a deterrent to the
commission of similar acts, they should be made to answer for
exemplary damages, the amount left to the discretion of the Court.
25. Plaintiff demanded from the defendants to rectify their
unlawful acts that they committed, but defendants refused and failed
to comply with plaintiffs just and valid and (sic) demands. Xerox
copies of the demand letters are hereto attached as Annexes "KK" to
"LL", respectively.
26. Despite repeated demands, defendants failed and refused
without justifiable cause to satisfy plaintiff's claim, and was
constrained to engaged (sic) the services of undersigned counsel to
institute this action at a contract fee of P200,000.00, as and for
attorney's fees, exclusive of cost and expenses of litigation.
PRAYER
WHEREFORE, it is respectfully prayed, that judgment be rendered in
favor of the plaintiff and against defendants and ordering that:
meaning or purpose. . . . .
a. The Deed of Sale between defendants dated May 15, 1989,
be annulled and the leased properties be sold to the plaintiff in the The inescapable result of the foregoing considerations point to no
amount of P5,000,000.00; other conclusion than that the Complaint actually does not contain
any valid cause of action and should therefore be as it is hereby
b. Dependants (sic) pay plaintiff the sum of P3,000,000.00 as ordered DISMISSED. The Court finds no further need to consider the
actual damages; other grounds of estoppel and laches inasmuch as this resolution is
sufficient to dispose the matter. 6
c. Defendants pay the sum of P5,000,000.00 as moral
damages;
d. Defendants pay exemplary damages left to the discretion of
the Court;
e. Defendants pay the sum of not less than P200,000.00 as
attorney's fees.
Plaintiff further prays for other just and equitable reliefs plus cost of
suit.
Instead of filing their respective answers, respondents filed motions
to dismiss anchored on the grounds of lack of cause of action,
estoppel and laches.
On September 2, 1991, the trial court issued the order dismissing the
complaint for lack of a valid cause of action. It ratiocinated thus:
Upon the very face of the plaintiff's Complaint itself, it therefore
indubitably appears that the defendant Santos had verily complied
with paragraph 9 of the Lease Agreement by twice offering the
properties for sale to the plaintiff for ~1 5 M. The said offers, however,
were plainly rejected by the plaintiff which scorned the said offer as
"RIDICULOUS". There was therefore a definite refusal on the part of
the plaintiff to accept the offer of defendant Santos. For in acquiring
the said properties back to her name, and in so making the offers to
sell both by herself (attorney-in-fact) and through her counsel,
defendant Santos was indeed conscientiously complying with her
obligation under paragraph 9 of the Lease Agreement. . . . .
xxx xxx xxx
This is indeed one instance where a Complaint, after barely
commencing to create a cause of action, neutralized itself by its
subsequent averments which erased or extinguished its earlier
allegations of an impending wrong. Consequently, absent any
actionable wrong in the very face of the Complaint itself, the plaintiffs 81
subsequent protestations of collusion is bereft or devoid of any
Sales – Chapter 3 Cases
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 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 the82
face of the complaint; that to determine the sufficiency of a cause of
Sales – Chapter 3 Cases
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 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 83
third person, again, under the same terms as offered to the optionee.
Sales – Chapter 3 Cases
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 as assignee, it was expressly stated that:
provided "that if the LESSOR should desire to sell the leased premises,
the LESSEE shall be given 30 days exclusive option to purchase the . . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to
same." Carmelo initially offered to sell the leased property to Mayfair herein ASSIGNEE, all his rights, interest and participation over said
for six to seven million pesos. Mayfair indicated interest in purchasing premises afore-described, . . . . 20 (emphasis supplied)
the property though it invoked the 30-day period. Nothing was heard
thereafter from Carmelo. Four years later, the latter sold its entire
Recto Avenue property, including the leased premises, to Equatorial
for P11,300,000.00 without priorly informing Mayfair. The Court held
that both Carmelo and Equatorial acted in bad faith: Carmelo for
knowingly violating the right of first option of Mayfair, and Equatorial
for purchasing the property despite being aware of the contract
stipulation. In addition to rescission of the contract of sale, the Court
ordered Carmelo to allow Mayfair to buy the subject property at the
same price of P11,300,000.00.
No cause of action
under P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or the Urban
Land Reform Law, as another source of its right of first refusal. It
claims to be covered under said law, being the "rightful occupant of
the land and its structures" since it is the lawful lessee thereof by
reason of contract. Under the lease contract, petitioner would have
occupied the property for fourteen (14) years at the end of the
contractual period.
Without probing into whether petitioner is rightfully a beneficiary
under said law, suffice it to say that this Court has previously ruled
that under
Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the
exercise of the lessee's right of first refusal to purchase shall be
determined by the Urban Zone Expropriation and Land Management
Committee. Hence, . . . . certain prerequisites must be complied with
by anyone who wishes to avail himself of the benefits of the decree."
19 There being no allegation in its complaint that the prerequisites
were complied with, it is clear that the complaint did fail to state a
cause of action on this ground.
Deed of Assignment included
the option to purchase
Neither do we find merit in the contention of respondent Santos that
the assignment of the lease contract to petitioner did not include the
option to purchase. The provisions of the deeds of assignment with
regard to matters assigned were very clear. Under the first 84
assignment between Frederick Chua as assignor and Lee Ching Bing
Sales – Chapter 3 Cases
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.
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.

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.

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 85
estoppel or laches. As these matters require presentation and/or
Sales – Chapter 3 Cases
ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN,
petitioners,
vs.
PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN,
FERNANDO MAGBANUA and LIZZA TIANGCO, respondents.
This is a petition for review on certiorari under Rule 45 of the
Rules of Court seeking reversal of the Decision1 of the Court of
Appeals dated June 25, 1999 in CA-G.R. CV No. 53963. The Court
of Appeals decision reversed and set aside the Decision2 dated
May 13, 1996 of Branch 217 of the Regional Trial Court of Quezon
City in Civil Case No. Q-93-18582.1âwphi1.nêt
The case was originally filed on December 10, 1993 by Paterno
Inquing, Irene Guillermo and Federico Bantugan, herein
respondents, against Rosencor Development Corporation
(hereinafter "Rosencor"), Rene Joaquin, and Eufrocina de Leon.
Originally, the complaint was one for annulment of absolute deed
of sale but was later amended to one for rescission of absolute
deed of sale. A complaint-for intervention was thereafter filed by
respondents Fernando Magbanua and Danna Lizza Tiangco. The
complaint-in-intervention was admitted by the trial court in an
Order dated May 4, 1994.3
The facts of the case, as stated by the trial court and adopted by
the appellate court, are as follows:
"This action was originally for the annulment of the Deed of
Absolute Sale dated September 4, 1990 between defendants
Rosencor and Eufrocina de Leon but later amended (sic) praying
for the rescission of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the
lessees since 1971 of a two-story residential apartment located at
No. 150 Tomas Morato Ave., Quezon City covered by TCT No.
96161 and owned by spouses Faustino and Cresencia Tiangco.
The lease was not covered by any contract. The lessees were
renting the premises then for P150.00 a month and were allegedly
verbally granted by the lessors the pre-emptive right to purchase
the property if ever they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the
management of the property was adjudicated to their heirs who
were represented by Eufrocina de Leon. The lessees were
allegedly promised the same pre-emptive right by the heirs of
Tiangcos since the latter had knowledge that this right was
extended to the former by the late spouses Tiangcos. The lessees
continued to stay in the premises
and allegedly spent their own money amounting from P50,000.00
to P100,000.00 for its upkeep. These expenses were never
deducted from the rentals which already increased to P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda
Aguila demanding that they vacate the premises so that the
demolition of the building be undertaken. They refused to leave
the premises. In that same month, de Leon refused to accept the
lessees’ rental payment claiming that they have run out of
receipts and that a new collector has been assigned to receive the
payments. Thereafter, they received a letter from Eufrocina de
Leon offering to sell to them the property they were leasing for
P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for the
amount of P1,000,000.00. De Leon told them that she will be
submitting the offer to the other heirs. Since then, no answer was
given by de Leon as to their offer to buy the property. However, in
November 1990, Rene Joaquin came to the leased premises
introducing himself as its new owner.
In January 1991, the lessees again received another letter from
Atty. Aguila demanding that they vacate the premises. A month
thereafter, the lessees received a letter from de Leon advising
them that the heirs of the late spouses Tiangcos have already
sold the property to Rosencor. The following month Atty. Aguila
wrote them another letter demanding the rental payment and
introducing herself as counsel for Rosencor/Rene Joaquin, the
new owners of the premises.
The lessees requested from de Leon why she had disregarded the
pre-emptive right she and the late Tiangcos have promised them.
They also asked for a copy of the deed of sale between her and
the new owners thereof but she refused to heed their request. In
the same manner, when they asked Rene Joaquin a copy of the
deed of sale, the latter turned down their request and instead Atty.
Aguila wrote them several letters demanding that they vacate the
premises. The lessees offered to tender their rental payment to de
Leon but she refused to accept the same.
In April 1992 before the demolition can be undertaken by the
Building Official, the barangay interceded between the parties
herein after which Rosencor raised the issue as to the rental
86
payment of the premises. It was also at this instance that the
Sales – Chapter 3 Cases
lessees were furnished with a copy of the Deed of Sale and
discovered that they were deceived by de Leon since the sale
between her and Rene Joaquin/Rosencor took place in September
4, 1990 while de Leon made the offer to them only in October
1990
or after the sale with Rosencor had been consummated. The In its stead, a new one is rendered ordering:
lessees also noted that the property was sold only for
P726,000.00. (1) The rescission of the Deed of Absolute Sale executed between
the appellees on September 4, 1990;
The lessees offered to reimburse de Leon the selling price of
P726,000.00 plus an additional P274,000.00 to complete their
P1,000.000.00 earlier offer. When their offer was refused, they
filed the present action praying for the following: a) rescission of
the Deed of Absolute Sale between de Leon and Rosencor dated
September 4, 1990; b) the defendants Rosencor/Rene Joaquin be
ordered to reconvey the property to de Leon; and c) de Leon be
ordered to reimburse the plaintiffs for the repairs of the property,
or apply the said amount as part of the price for the purchase of
the property in the sum of P100,000.00."4
After trial on the merits, the Regional Trial Court rendered a
Decision5 dated May 13, 1996 dismissing the complaint. The trial
court held that the right of redemption on which the complaint.
The trial court held that the right of redemption on which the
complaint was based was merely an oral one and as such, is
unenforceable under the law. The dispositive portion of the May
13, 1996 Decision is as follows:
"WHEREFORE, in view of the foregoing, the Court DISMISSES the
instant action. Plaintiffs and plaintiffs-intervenors are hereby
ordered to pay their respective monthly rental of P1,000.00 per
month reckoned from May 1990 up to the time they leave the
premises. No costs.
SO ORDERED."6
Not satisfied with the decision of the trial court, respondents
herein filed a Notice of Appeal dated June 3, 1996. On the same
date, the trial court issued an Order for the elevation of the
records of the case to the Court of Appeals. On August 8, 1997,
respondents filed their appellate brief before the Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its decision7
reversing the decision of the trial court. The dispositive portion of
the June 25, 1999 decision is as follows:
"WHEREFORE, premises considered, the appealed decision (dated
May 13, 1996) of the Regional Trial Court (Branch 217) in Quezon
87
City in Case No. Q-93-18582 is hereby REVERSED and SET ASIDE.
Sales – Chapter 3 Cases
(2) The reconveyance of the subject premises to appellee
Eufrocina de Leon;
(3) The heirs of Faustino and Crescencia Tiangco, thru appellee
Eufrocina de Leon, to afford the appellants thirty days within
which to exercise their right of first refusal by paying the amount
of ONE MILLION PESOS (P1,000,000.00) for the subject property;
and
(4) The appellants to, in turn, pay the appellees back rentals from
May 1990 up to the time this decision is promulgated.
No pronouncement as to costs.
SO ORDERED".8
Petitioners herein filed a Motion for Reconsideration of the
decision of the Court of Appeals but the same was denied in a
Resolution dated October 15, 1999.9
Hence, this petition for review on certiorari where petitioners
Rosencor Development Corporation and Rene Joaquin raise the
following assignment of errors10:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED
THE RESCISSION OF THE ABSOLUTE DEED OF SALE BETWEEN
EUFROCINA DE LEON AND PETITIONER ROSENCOR.
II.
THE COURT OF APPEALS COMMTITED MANIFEST ERROR IN
MANDATING THAT EUFROCINA DE LEON AFFORD
RESPONDENTS THE OPPORTUNITY TO EXERCISE THEIR RIGHT
OF FIRST REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING
THAT RESPONDENTS HAVE ESTABLISHED THEIR RIGHT OF
FIRST REFUSAL DESPITE PETITIONERS’ RELIANCE ON THEIR
DEFENSE BASED ON THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the spouses subscribed by the party charged, or by his agent; evidence,
Faustino and Crescencia Tiangco, did not appeal the decision of therefore, of the agreement cannot be received without the
the Court of Appeals. writing, or a secondary evidence of its contents:
At the onset, we not that both the Court of Appeals and the a) An agreement that by its terms is not to be performed within a
Regional Trial Court relied on Article 1403 of the New Civil Code, year from the making thereof;
more specifically the provisions on the statute of frauds, in
coming out with their respective decisions. The trial court, in
denying the petition for reconveyance, held that right of first
refusal relied upon by petitioners was not reduced to writing and
as such, is unenforceable by virtue of the said article. The Court of
Appeals, on the other hand, also held that the statute of frauds
governs the "right of first refusal" claimed by respondents.
However, the appellate court ruled that respondents had duly
proven the same by reason of petitioners’ waiver of the protection
of the statute by reason of their failure to object to the
presentation of oral evidence of the said right.
Both the appellate court and the trial court failed to discuss,
however, the threshold issue of whether or not a right of first
refusal is indeed covered by the provisions of the New Civil Code
on the statute of frauds. The resolution of the issue on the
applicability of the statute of frauds is important as it will
determine the type of evidence which may be considered by the
trial court as proof of the alleged right of first refusal.
The term "statute of frauds" is descriptive of statutes which
require certain classes of contracts to be in writing. This statute
does not deprive the parties of the right to contract with respect
to the matters therein involved, but merely regulates the
formalities of the contract necessary to render it enforceable.
Thus, they are included in the provisions of the New Civil Code
regarding unenforceable contracts, more particularly Art. 1403,
paragraph 2. Said article provides, as follows:
"Art. 1403. The following contracts are unenforceable, unless they
are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set
forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the same,
88
or some note or memorandum thereof, be in writing, and
Sales – Chapter 3 Cases
b) A special promise to answer for the debt, default, or in Article 1403 of the New Civil Code. of a perfected, albeit unwritten, contract of sale.18 A right of first
miscarriage of another; refusal, such as the one involved in the instant case, is not by any
A right of first refusal is not among those listed as unenforceable means a perfected contract of sale of real property. At best, it is a
c) An agreement made in consideration of marriage, other than a under the statute of frauds. Furthermore, the application of Article contractual grant, not of the sale of the real property involved, but
mutual promise to marry; 1403, par. 2(e) of the New Civil Code presupposes the existence of the right of first refusal over the property sought to be sold19.

d) An agreement for the sale of goods, chattels or things in action, It is thus evident that the statute of frauds does not contemplate
at a price not less than five hundred pesos, unless the buyer cases involving a right of first refusal. As such, a right of first
accept and receive part of such goods and chattels, or the refusal need not be written to be enforceable and may be proven
evidences, or some of them, of such things in action, or pay at the by oral evidence.
time some part of the purchase money; but when a sale is made
by auction and entry is made by the auctioneer in his sales book, The next question to be ascertained is whether or not
at the time of the sale, of the amount and kind of property sold, respondents have satisfactorily proven their right of first refusal
terms of sale, price, names of purchasers and person on whose over the property subject of the Deed of Absolute Sale dated
account the sale is made, it is a sufficient memorandum; September 4, 1990 between petitioner Rosencor and Eufrocina de
Leon.
e) An agreement for the leasing of a longer period than one year,
or for the sale of real property or of an interest therein; On this point, we agree with the factual findings of the Court of
Appeals that respondents have adequately proven the existence
f) A representation to the credit of a third person." of their right of first refusal. Federico Bantugan, Irene Guillermo,
and Paterno Inquing uniformly testified that they were promised
The purpose of the statute is to prevent fraud and perjury in the by the late spouses Faustino and Crescencia Tiangco and, later
enforcement of obligations depending for their evidence on the on, by their heirs a right of first refusal over the property they were
unassisted memory of witnesses by requiring certain enumerated currently leasing should they decide to sell the same. Moreover,
contracts and transactions to be evidenced by a writing signed by respondents presented a letter20 dated October 9, 1990 where
the party to be charged.11 Moreover, the statute of frauds refers Eufrocina de Leon, the representative of the heirs of the spouses
to specific kinds of transactions and cannot apply to any other Tiangco, informed them that they had received an offer to buy the
transaction that is not enumerated therein.12 The application of disputed property for P2,000,000.00 and offered to sell the same
such statute presupposes the existence of a perfected to the respondents at the same price if they were interested.
contract.13 Verily, if Eufrocina de Leon did not recognize respondents’ right of
first refusal over the property they were leasing, then she would
The question now is whether a "right of first refusal" is among not have bothered to offer the property for sale to the
those enumerated in the list of contracts covered by the Statute of respondents.
Frauds. More specifically, is a right of first refusal akin to "an
agreement for the leasing of a longer period than one year, or for It must be noted that petitioners did not present evidence before
the sale of real property or of an interest therein" as contemplated the trial court contradicting the existence of the right of first
by Article 1403, par. 2(e) of the New Civil Code. refusal of respondents over the disputed property. They only
presented petitioner Rene Joaquin, the vice-president of petitioner
We have previously held that not all agreements "affecting land" Rosencor, who admitted having no personal knowledge of the
must be put into writing to attain enforceability.14 Thus, we have details of the sales transaction between Rosencor and the heirs of
held that the setting up of boundaries,15 the oral partition of real the spouses Tiangco21. They also dispensed with the testimony
property16, and an agreement creating a right of way17 are not of Eufrocina de Leon22 who could have denied the existence or
covered by the provisions of the statute of frauds. The reason knowledge of the right of first refusal. As such, there being no
89
simply is that these agreements are not among those enumerated evidence to the contrary, the right of first refusal claimed by
Sales – Chapter 3 Cases
respondents was substantially proven by respondents before the
lower court.
Having ruled upon the question as to the existence of
respondents’ right of first refusal, the next issue to be answered is
whether or not the Court of Appeals erred in ordering the
rescission of the Deed of Absolute Sale dated September 4, 1990
between Rosencor and
Eufrocina de Leon and in decreeing that the heirs of the spouses Indeed, Guzman, Bocaling and Co. was the vendee in the Contract
Tiangco should afford respondents the exercise of their right of of Sale. Moreover, the petitioner cannot be deemed a purchaser in
first refusal. In other words, may a contract of sale entered into in good faith for the record shows that it categorically admitted that
violation of a third party’s right of first refusal be rescinded in it was aware of the lease in favor of the Bonnevies, who were
order that such third party can exercise said right? actually occupying the subject property at the time it was sold to
it. Although
The issue is not one of first impression.
In Guzman, Bocaling and Co, Inc. vs. Bonnevie23, the Court upheld
the decision of a lower court ordering the rescission of a deed of
sale which violated a right of first refusal granted to one of the
parties therein. The Court held:
"xxx Contract of Sale was not voidable but rescissible. Under
Article 1380 to 1381 (3) of the Civil Code, a contract otherwise
valid may nonetheless be subsequently rescinded by reason of
injury to third persons, like creditors. The status of creditors could
be validly accorded the Bonnevies for they had substantial
interests that were prejudiced by the sale of the subject property
to the petitioner without recognizing their right of first priority
under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to
the contracting parties and even to third persons, to secure
reparations for damages caused to them by a contract, even if
this should be valid, by means of the restoration of things to their
condition at the moment prior to the celebration of said contract.
It is a relief allowed for the protection of one of the contracting
parties and even third persons from all injury and damage the
contract may cause, or to protect some incompatible and
preferent right created by the contract. Rescission implies a
contract which, even if initially valid, produces a lesion or
pecuniary damage to someone that justifies its invalidation for
reasons of equity.
It is true that the acquisition by a third person of the property
subject of the contract is an obstacle to the action for its
rescission where it is shown that such third person is in lawful
possession of the subject of the contract and that he did not act
in bad faith. However, this rule is not applicable in the case before
us because the petitioner is not considered a third party in relation
to the Contract of Sale nor may its possession of the subject
property be regarded as acquired lawfully and in good faith.
90
Sales – Chapter 3 Cases
the occupying the subject property at the time it was sold to it.
Although the Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso and Africa
Reynoso, the petitioner cannot deny actual knowledge of such
lease which was equivalent to and indeed more binding than
presumed notice by registration.
A purchaser in good faith and for value is one who buys the
property of another without notice that some other person has a
right to or interest in such property without and pays a full and fair
price for the same at the time of such purchase or before he has
notice of the claim or interest of some other person in the
property. Good faith connotes an honest intention to abstain from
taking unconscientious advantage of another. Tested by these
principles, the petitioner cannot tenably claim to be a buyer in
good faith as it had notice of the lease of the property by the
Bonnevies and such knowledge should have cautioned it to look
deeper into the agreement to determine if it involved stipulations
that would prejudice its own interests."
Subsequently24 in Equatorial Realty and Development, Inc. vs.
Mayfair Theater, Inc.25, the Court, en banc, with three justices
dissenting,26 ordered the rescission of a contract entered into in
violation of a right of first refusal. Using the ruling in Guzman
Bocaling & Co., Inc. vs. Bonnevie as basis, the Court decreed that
since respondent therein had a right of first refusal over the said
property, it could only exercise the said right if the fraudulent sale
is first set aside or rescinded. Thus:
"What Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in the
event Carmelo sells the leased premises. It is undisputed that
Carmelo did recognize this right of Mayfair, for it informed the
latter of its intention to sell the said property in 1974. There was
an exchange of letters evidencing the offer and counter-offers
made by both parties. Carmelo, however, did not pursue the
exercise to its logical end. While it initially recognized Mayfair’s
right of first refusal, Carmelo violated such right when without
affording its negotiations with Mayfair the full process to ripen to
at least an interface of a definite offer and a possible
corresponding acceptance within the "30-day exclusive option"
time granted Mayfair, Carmelo abandoned negotiations, kept a
low profile for some time, and then sold, without prior notice to
Mayfair, the entire Claro M. Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the
sale to it of the property in question, rescissible. We agree with
respondent Appellate Court that the records bear out the fact that
Equatorial was aware of the lease contracts because its lawyers
had, prior to the sale, studied the said contracts. As such,
Equatorial cannot tenably claim that to be a purchaser in good
faith, and, therefore, rescission lies.
XX X
As also earlier emphasized, the contract of sale between
Equatorial and Carmelo is characterized by bad faith, since it was
knowingly entered into in violation of the rights of and to the
prejudice of Mayfair. In fact, as correctly observed by the Court of
Appeals, Equatorial admitted that its lawyers had studied the
contract or lease prior to the sale. Equatorial’s knowledge of the
stipulations therein should have cautioned it to look further into
the agreement to determine if it involved stipulations that would
prejudice its own interests.
Since Mayfair had a right of first refusal, it can exercise the right
only if the fraudulent sale is first set aside or rescinded. All of
these matters are now before us and so there should be no
piecemeal determination of this case and leave festering sores to
deteriorate into endless litigation. The facts of the case and
considerations of justice and equity require that we order
rescission here and now. Rescission is a relief allowed for the
protection of one of the contracting parties and even third
persons from all injury and damage the contract may cause or to
protect some incompatible and preferred right by the contract.
The sale of the subject real property should now be rescinded
considering that Mayfair, which had substantial interest over the
subject property, was prejudiced by the sale of the subject
property to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulate periond.27
In Paranaque Kings Enterprises, Inc. vs. Court of Appeals,28 the
Court held that the allegations in a complaint showing violation of
a contractual right of "first option or priority to buy the properties
subject of the lease" constitute a valid cause of action
enforceable by an action for specific performance. Summarizing
the rulings in the two previously cited cases, the Court affirmed
the nature of and concomitant rights and obligations of parties
under a right of first refusal. Thus:
"We hold however, that in order to have full compliance with the
91
contractual right granting petitioner the first option to purchase,
Sales – Chapter 3 Cases
the sale of the properties for the amount of P9,000,000.00, the
price for which they were finally sold to respondent Raymundo,
should have likewise been offered to petitioner.
The Court has made an extensive and lengthy discourse on the purchasing the property despite being aware of the contract
concept of, and obligations under, a right of first refusal in the stipulation. In addition to rescission of the contract of sale, the
case of Guzman, Bocaling & Co. vs. Bonnevie. In that case, under Court ordered Carmelo to allow Mayfair to buy the subject
a contract of lease, the lessees (Raul and Christopher Bonnevie) property at the same price of P11,300,000.00.
were given a "right of first priority" to purchase the leased property
in case the lessor (Reynoso) decided to sell. The selling price
quoted to the Bonnevies was 600,000.00 to be fully paid in cash,
less a mortgage lien of P100,000.00. On the other hand, the
selling price offered by Reynoso to and accepted by Guzman was
only P400,000.00 of which P137,500.00 was to be paid in cash
while the balance was to be paid only when the property was
cleared of occupants. We held that even if the Bonnevies could
not buy it at the price quoted (P600,000.00), nonetheless, Reynoso
could not sell it to another for a lower price and under more
favorable terms and conditions without first offering said
favorable terms and price to the Bonnevies as well. Only if the
Bonnevies failed to exercise their right of first priority could
Reynoso thereafter lawfully sell the subject property to others, and
only under the same terms and conditions previously offered to
the Bonnevies.
X X X
This principle was reiterated in the very recent case of Equatorial
Realty vs. Mayfair Theater, Inc. which was decided en banc. This
Court upheld the right of first refusal of the lessee Mayfair, and
rescinded the sale of the property by the lessor Carmelo to
Equatorial Realty "considering that Mayfair, which had substantial
interest over the subject property, was prejudiced by its sale to
Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period"
In that case, two contracts of lease between Carmelo and Mayfair
provided "that if the LESSOR should desire to sell the leased
premises, the LESSEE shall be given 30 days exclusive option to
purchase the same." Carmelo initially offered to sell the leased
property to Mayfair for six to seven million pesos. Mayfair
indicated interest in purchasing the property though it invoked the
30-day period. Nothing was heard thereafter from Carmelo. Four
years later, the latter sold its entire Recto Avenue property,
including the leased premises, to Equatorial for P11,300,000.00
without priorly informing Mayfair. The Court held that both
Carmelo and Equatorial acted in bad faith: Carmelo or knowingly
92
violating the right of first option of Mayfair, and Equatorial for
Sales – Chapter 3 Cases
In the recent case of Litonjua vs L&R Corporation,29 the Court,
also citing the case of Guzman, Bocaling & Co. vs. Bonnevie, held
that the sale made therein in violation of a right of first refusal
embodied in a mortgage contract, was rescissible. Thus:
"While petitioners question the validity of paragraph 8 of their
mortgage contract, they appear to be silent insofar as paragraph 9
thereof is concerned. Said paragraph 9 grants upon L&R
Corporation the right of first refusal over the mortgaged property
in the event the mortgagor decides to sell the same. We see
nothing wrong in this provision. The right of first refusal has long
been recognized as valid in our jurisdiction. The consideration for
the loan mortgage includes the consideration for the right of first
refusal. L&R Corporation is in effect stating that it consents to
lend out money to the spouses Litonjua provided that in case they
decide to sell the property mortgaged to it, then L&R Corporation
shall be given the right to match the offered purchase price and to
buy the property at that price. Thus, while the spouses Litonjua
had every right to sell their mortgaged property to PWHAS without
securing the prior written consent of L&R Corporation, they had
the obligation under paragraph 9, which is a perfectly valid
provision, to notify the latter of their intention to sell the property
and give it priority over other buyers. It is only upon the failure of
L&R Corporation to exercise its right of first refusal could the
spouses Litonjua validly sell the subject properties to the others,
under the same terms and conditions offered to L&R Corporation.
What then is the status of the sale made to PWHAS in violation of
L & R Corporation’s contractual right of first refusal? On this score,
we agree with the Amended Decision of the Court of Appeals that
the sale made to PWHAS is rescissible. The case of Guzman,
Bocaling & Co. v. Bonnevie is instructive on this point.
X X X subsequently recognized by their heirs. As such, in order to hold
It was then held that the Contract of Sale there, which violated the
right of first refusal, was rescissible.
In the case at bar, PWHAS cannot claim ignorance of the right of
first refusal granted to L & R Corporation over the subject
properties since the Deed of Real Estate Mortgage containing
such a provision was duly registered with the Register of Deeds.
As such, PWHAS is presumed to have been notified thereof by
registration, which equates to notice to the whole world.
All things considered, what then are the relative rights and
X X X obligations of the parties? To recapitulate: the sale between the
spouses Litonjua and PWHAS is valid, notwithstanding the
absence of L & R Corporation’s prior written consent thereto.
Inasmuch as the sale to PWHAS was valid, its offer to redeem and
its tender of the redemption price, as successor-in-interest of the
spouses Litonjua, within the one-year period should have been
accepted as valid by the L & R Corporation. However, while the
sale is, indeed, valid, the same is rescissible because it ignored L
& R Corporation’s right of first refusal."
Thus, the prevailing doctrine, as enunciated in the cited cases, is
that a contract of sale entered into in violation of a right of first
refusal of another person, while valid, is rescissible.
There is, however, a circumstance which prevents the application
of this doctrine in the case at bench. In the cases cited above, the
Court ordered the rescission of sales made in violation of a right
of first refusal precisely because the vendees therein could not
have acted in good faith as they were aware or should have been
aware of the right of first refusal granted to another person by the
vendors therein. The rationale for this is found in the provisions of
the New Civil Code on rescissible contracts. Under Article 1381 of
the New Civil Code, paragraph 3, a contract validly agreed upon
may be rescinded if it is "undertaken in fraud of creditors when
the latter cannot in any manner collect the claim due them."
Moreover, under Article 1385, rescission shall not take place
"when the things which are the object of the contract are legally in
the possession of third persons who did not act in bad faith."30
It must be borne in mind that, unlike the cases cited above, the
right of first refusal involved in the instant case was an oral one
given to respondents by the deceased spouses Tiangco and
that petitioners were in bad faith, there must be clear and
convincing proof that petitioners were made aware of the said
right of first refusal either by the respondents or by the heirs of
the spouses Tiangco.
It is axiomatic that good faith is always presumed unless contrary
evidence is adduced.31 A purchaser in good faith is one who buys
the property of another without notice that some other person has
a right or interest in such a property and pays a full and fair price
93
at the time of the purchase or before he has notice of the claim or
Sales – Chapter 3 Cases
interest of some other person in the property.32 In this regard, the
rule on constructive notice would be inapplicable as it is
undisputed that the right of first refusal was an oral one and that
the same was never reduced to writing, much less registered with
the Registry of
Deeds. In fact, even the lease contract by which respondents of the existence of the said right. Moreover, the letter was made a
derive their right to possess the property involved was an oral month after the execution of the Deed of Absolute Sale on
one. September 4, 1990 between petitioner Rosencor and the heirs of
the spouses Tiangco. There is no showing that prior to the date of
On this point, we hold that the evidence on record fails to show
that petitioners acted in bad faith in entering into the deed of sale
over the disputed property with the heirs of the spouses Tiangco.
Respondents failed to present any evidence that prior to the sale
of the property on September 4, 1990, petitioners were aware or
had notice of the oral right of first refusal.
Respondents point to the letter dated June 1, 199033 as indicative
of petitioners’ knowledge of the said right. In this letter, a certain
Atty. Erlinda Aguila demanded that respondent Irene Guillermo
vacate the structure they were occupying to make way for its
demolition.
We fail to see how the letter could give rise to bad faith on the part
of the petitioner. No mention is made of the right of first refusal
granted to respondents. The name of petitioner Rosencor or any
of it officers did not appear on the letter and the letter did not
state that Atty. Aguila was writing in behalf of petitioner. In fact,
Atty. Aguila stated during trial that she wrote the letter in behalf of
the heirs of the spouses Tiangco. Moreover, even assuming that
Atty. Aguila was indeed writing in behalf of petitioner Rosencor,
there is no showing that Rosencor was aware at that time that
such a right of first refusal existed.
Neither was there any showing that after receipt of this June 1,
1990 letter, respondents notified Rosencor or Atty. Aguila of their
right of first refusal over the property. Respondents did not try to
communicate with Atty. Aguila and inform her about their
preferential right over the disputed property. There is even no
showing that they contacted the heirs of the spouses Tiangco
after they received this letter to remind them of their right over the
property.
Respondents likewise point to the letter dated October 9, 1990 of
Eufrocina de Leon, where she recognized the right of first refusal
of respondents, as indicative of the bad faith of petitioners. We do
not agree. Eufrocina de Leon wrote the letter on her own behalf
and not on behalf of petitioners and, as such, it only shows that
Eufrocina de Leon was aware of the existence of the oral right of
94
first refusal. It does not show that petitioners were likewise aware
Sales – Chapter 3 Cases
the execution of the said Deed, petitioners were put on notice of
the existence of the right of first refusal.
Clearly, if there was any indication of bad faith based on
respondents’ evidence, it would only be on the part of Eufrocina
de Leon as she was aware of the right of first refusal of
respondents yet she still sold the disputed property to Rosencor.
However, bad faith on the part of Eufrocina de Leon does not
mean that petitioner Rosencor likewise acted in bad faith. There is
no showing that prior to the execution of the Deed of Absolute
Sale, petitioners were made aware or put on notice of the
existence of the oral right of first refusal. Thus, absent clear and
convincing evidence to the contrary, petitioner Rosencor will be
presumed to have acted in good faith in entering into the Deed of
Absolute Sale over the disputed property.
Considering that there is no showing of bad faith on the part of
the petitioners, the Court of Appeals thus erred in ordering the
rescission of the Deed of Absolute Sale dated September 4, 1990
between petitioner Rosencor and the heirs of the spouses
Tiangco. The acquisition by Rosencor of the property subject of
the right of first refusal is an obstacle to the action for its
rescission where, as in this case, it was shown that Rosencor is in
lawful possession of the subject of the contract and that it did not
act in bad faith.34
This does not mean however that respondents are left without any
remedy for the unjustified violation of their right of first refusal.
Their remedy however is not an action for the rescission of the
Deed of Absolute Sale but an action for damages against the
heirs of the spouses Tiangco for the unjustified disregard of their
right of first refusal35.
WHEREFORE, premises considered, the decision of the Court of
Appeals dated June 25, 1999 is REVERSED and SET ASIDE. The
Decision dated May 13, 1996 of the Quezon City Regional Trial
Court, Branch 217 is hereby REINSTATED insofar as it dismisses
the action for rescission of the Deed of Absolute Sale dated
September 4, 1990 and orders the payment of monthly rentals of
P1,000.00 per month reckoned from May 1990 up to the time
respondents leave the premises.
SO ORDERED.
DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners,
vs.
AYALA CORPORATION, respondent.
The rise in value of four lots in one of the country's prime residential
developments, Ayala Alabang Village in Muntinlupa City, over a period
of six (6) years only, represents big money. The huge price difference
lies at the heart of the present controversy. Petitioners insist that the
lots should be sold to them at 1984 prices while respondent
maintains that the prevailing market price in 1990 should be the
selling price.
Dr. Daniel Vazquez and Ma. Luisa Vazquez1 filed this Petition for
Review on Certiorari2 dated October 11, 2001 assailing the Decision3
of the Court of Appeals dated September 6, 2001 which reversed the
Decision4 of the Regional Trial Court (RTC) and dismissed their
complaint for specific performance and damages against Ayala
Corporation.
Despite their disparate rulings, the RTC and the appellate court agree
on the following antecedents:5
On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez
(hereafter, Vasquez spouses) entered into a Memorandum of
Agreement (MOA) with Ayala Corporation (hereafter, AYALA) with
AYALA buying from the Vazquez spouses, all of the latter's shares of
stock in Conduit Development, Inc. (hereafter, Conduit). The main
asset of Conduit was a 49.9 hectare property in Ayala Alabang,
Muntinlupa, which was then being developed by Conduit under a
development plan where the land was divided into Villages 1, 2 and 3
of the "Don Vicente Village." The development was then being
undertaken for Conduit by G.P. Construction and Development Corp.
(hereafter, GP Construction).
Under the MOA, Ayala was to develop the entire property, less what
was defined as the "Retained Area" consisting of 18,736 square
meters. This "Retained Area" was to be retained by the Vazquez
spouses. The area to be developed by Ayala was called the
"Remaining Area". In this "Remaining Area" were 4 lots adjacent to the
"Retained Area" and Ayala agreed to offer these lots for sale to the
Vazquez spouses at the prevailing price at the time of purchase. The
relevant provisions of the MOA on this point are:
"5.7. The BUYER hereby commits that it will develop the 'Remaining
Property' into a first class residential subdivision of the same class as
its New Alabang Subdivision, and that it intends to complete the first
phase under its amended development plan within three (3) years
from the date of this Agreement. x x x"
5.15. The BUYER agrees to give the SELLERS a first option to
purchase four developed lots next to the "Retained Area" at the
prevailing market price at the time of the purchase."
The parties are agreed that the development plan referred to in
paragraph 5.7 is not Conduit's development plan, but Ayala's
amended development plan which was still to be formulated as of the
time of the MOA. While in the Conduit plan, the 4 lots to be offered for
sale to the Vasquez Spouses were in the first phase thereof or Village
1, in the Ayala plan which was formulated a year later, it was in the
third phase, or Phase II-c.
Under the MOA, the Vasquez spouses made several express
warranties, as follows:
"3.1. The SELLERS shall deliver to the BUYER:
xxx
3.1.2. The true and complete list, certified by the Secretary and
Treasurer of the Company showing:
xxx
D. A list of all persons and/or entities with whom the Company has
pending contracts, if any.
xxx
3.1.5. Audited financial statements of the Company as at Closing
date.
4. Conditions Precedent
All obligations of the BUYER under this Agreement are subject to
fulfillment prior to or at the Closing, of the following conditions:
4.1. The representations and warranties by the SELLERS contained in
this Agreement shall be true and correct at the time of Closing as
though such representations and warranties were made at such time;
and
xxx
95
6. Representation and Warranties by the SELLERS
Sales – Chapter 3 Cases
The SELLERS jointly and severally represent and warrant to the BUYER
that at the time of the execution of this Agreement and at the Closing:
xxx
6.2.3. There are no actions, suits or proceedings pending, or to the
knowledge of the SELLERS, threatened against or affecting the
SELLERS with respect to the Shares or the Property; and
7. Additional Warranties by the SELLERS
7.1. With respect to the Audited Financial Statements required to be
submitted at Closing in accordance with Par. 3.1.5 above, the SELLER
jointly and severally warrant to the BUYER that:
7.1.1 The said Audited Financial Statements shall show that on the
day of Closing, the Company shall own the "Remaining Property", free
from all liens and encumbrances and that the Company shall have no
obligation to any party except for billings payable to GP Construction
& Development Corporation and advances made by Daniel Vazquez
for which BUYER shall be responsible in accordance with Par. 2 of this
Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited
Financial Statements of the Company as of Closing, and those
disclosed to BUYER, the Company as of the date thereof, has no
liabilities of any nature whether accrued, absolute, contingent or
otherwise, including, without limitation, tax liabilities due or to become
due and whether incurred in respect of or measured in respect of the
Company's income prior to Closing or arising out of transactions or
state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of
any basis for any assertion against the Company as at closing or any
liability of any nature and in any amount not fully reflected or reserved
against such Audited Financial Statements referred to above, and
those disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or
before the Closing, the Company is not engaged in or a party to, or to
the best of the knowledge of the SELLERS, threatened with, any legal
action or other proceedings before any court or administrative body,
nor do the SELLERS know or have reasonable grounds to know of any
basis for any such action or proceeding or of any governmental
investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in
the due performance and observance by the Company of any term,
covenant or condition of any instrument or agreement to which the
company is a party or by which it is bound, and no condition exists
which, with notice or lapse of time or both, will constitute such default
or breach."
After the execution of the MOA, Ayala caused the suspension of work
on Village 1 of the Don Vicente Project. Ayala then received a letter
from one Maximo Del Rosario of Lancer General Builder Corporation
informing Ayala that he was claiming the amount of P1,509,558.80 as
the subcontractor of G.P. Construction...
G.P. Construction not being able to reach an amicable settlement with
Lancer, on March 22, 1982, Lancer sued G.P. Construction, Conduit
and Ayala in the then Court of First Instance of Manila in Civil Case
No. 82-8598. G.P. Construction in turn filed a cross-claim against
Ayala. G.P. Construction and Lancer both tried to enjoin Ayala from
undertaking the development of the property. The suit was terminated
only on February 19, 1987, when it was dismissed with prejudice after
Ayala paid both Lancer and GP Construction the total of
P4,686,113.39.
Taking the position that Ayala was obligated to sell the 4 lots adjacent
to the "Retained Area" within 3 years from the date of the MOA, the
Vasquez spouses sent several "reminder" letters of the approaching
so-called deadline. However, no demand after April 23, 1984, was ever
made by the Vasquez spouses for Ayala to sell the 4 lots. On the
contrary, one of the letters signed by their authorized agent, Engr.
Eduardo Turla, categorically stated that they expected "development
of Phase 1 to be completed by February 19, 1990, three years from
the settlement of the legal problems with the previous contractor."
By early 1990 Ayala finished the development of the vicinity of the 4
lots to be offered for sale. The four lots were then offered to be sold
to the Vasquez spouses at the prevailing price in 1990. This was
rejected by the Vasquez spouses who wanted to pay at 1984 prices,
thereby leading to the suit below.
After trial, the court a quo rendered its decision, the dispositive
portion of which states:
"THEREFORE, judgment is hereby rendered in favor of plaintiffs and
against defendant, ordering defendant to sell to plaintiffs the relevant
lots described in the Complaint in the Ayala Alabang Village at the
price of P460.00 per square meter amounting to P1,349,540.00;
ordering defendant to reimburse to plaintiffs attorney's fees in the
sum of P200,000.00 and to pay the cost of the suit."
In its decision, the court a quo concluded that the Vasquez spouses
were not obligated to disclose the potential claims of GP
Construction, Lancer and Del Rosario; Ayala's accountants should
have opened the records of Conduit to find out all claims; the warranty
against suit is with respect to "the shares of the Property" and the
Lancer suit does not affect the shares of stock sold to Ayala; Ayala
was obligated to develop within 3 years; to say that Ayala was under96
no obligation to follow a time frame was to put the Vasquezes at
Sales – Chapter 3 Cases
Ayala's mercy; Ayala did not develop because of a slump in the real
estate market; the MOA was drafted and prepared by the AYALA who
should suffer its ambiguities; the option to purchase the 4 lots is valid
because it was supported by
consideration as the option is incorporated in the MOA where the
parties had prestations to each other. [Emphasis supplied]
Ayala Corporation filed an appeal, alleging that the trial court erred in
holding that petitioners did not breach their warranties under the
MOA6 dated April 23, 1981; that it was obliged to develop the land
where the four (4) lots subject of the option to purchase are located
within three (3) years from the date of the MOA; that it was in delay;
and that the option to purchase was valid because it was incorporated
in the MOA and the consideration therefor was the commitment by
Ayala Corporation to petitioners embodied in the MOA.
Corporation's offer to sell the subject lots at the reduced 1990 price of
P5,000.00 per square meter, they have effectively waived their right to
buy the same.
In the instant Petition, petitioners allege that the appellate court erred
in ruling that they violated their warranties under the MOA; that Ayala
Corporation was not obliged to develop the "Remaining Property"
within

As previously mentioned, the Court of Appeals reversed the RTC

Decision. According to the appellate court, Ayala Corporation was
never informed beforehand of the existence of the Lancer claim. In
fact, Ayala Corporation got a copy of the Lancer subcontract only on
May 29, 1981 from G.P. Construction's lawyers. The Court of Appeals
thus held that petitioners violated their warranties under the MOA
when they failed to disclose Lancer's claims. Hence, even conceding
that Ayala Corporation was obliged to develop and sell the four (4)
lots in question within three (3) years from the date of the MOA, the
obligation was suspended during the pendency of the case filed by
Lancer.

Interpreting the MOA's paragraph 5.7 above-quoted, the appellate

court held that Ayala Corporation committed to develop the first
phase of its own amended development plan and not Conduit's
development plan. Nowhere does the MOA provide that Ayala
Corporation shall follow Conduit's development plan nor is Ayala
Corporation prohibited from changing the sequence of the phases of
the property it will develop.

Anent the question of delay, the Court of Appeals ruled that there was
no delay as petitioners never made a demand for Ayala Corporation to
sell the subject lots to them. According to the appellate court, what
petitioners sent were mere reminder letters the last of which was
dated prior to April 23, 1984 when the obligation was not yet
demandable. At any rate, the Court of Appeals found that petitioners
in fact waived the three (3)-year period when they sent a letter through
their agent, Engr. Eduardo Turla, stating that they "expect that the
development of Phase I will be completed by 19 February 1990, three
years from the settlement of the legal problems with the previous
contractor."7

The appellate court likewise ruled that paragraph 5.15 above-quoted

is not an option contract but a right of first refusal there being no 97
separate consideration therefor. Since petitioners refused Ayala
Sales – Chapter 3 Cases
three (3) years from the execution of the MOA; that Ayala was not in
delay; and that paragraph 5.15 of the MOA is a mere right of first
refusal. Additionally, petitioners insist that the Court should review the
factual findings of the Court of Appeals as they are in conflict with
those of the trial court.
Ayala Corporation filed a Comment on the Petition8 dated March 26,
2002, contending that the petition raises questions of fact and seeks
a review of evidence which is within the domain of the Court of
Appeals. Ayala Corporation maintains that the subcontract between
GP Construction, with whom Conduit contracted for the development
of the property under a Construction Contract dated October 10, 1980,
and Lancer was not disclosed by petitioners during the negotiations.
Neither was the liability for Lancer's claim included in the Audited
Financial Statements submitted by petitioners after the signing of the
MOA. These justify the conclusion that petitioners breached their
warranties under the afore-quoted paragraphs of the MOA. Since the
Lancer suit ended only in February 1989, the three (3)-year period
within which Ayala Corporation committed to develop the property
should only be counted thence. Thus, when it offered the subject lots
to petitioners in 1990, Ayala Corporation was not yet in delay.
In response to petitioners' contention that there was no action or
proceeding against them at the time of the execution of the MOA on
April 23, 1981, Ayala Corporation avers that the facts and
circumstances which gave rise to the Lancer claim were already
extant then. Petitioners warranted that their representations under the
MOA shall be true and correct at the time of "Closing" which shall take
place within four (4) weeks from the signing of the MOA.9 Since the
MOA was signed on April 23, 1981, "Closing" was approximately the
third week of May 1981. Hence, Lancer's claims, articulated in a letter
which Ayala Corporation received on May 4, 1981, are among the
liabilities warranted against under paragraph 7.1.2 of the MOA.
Moreover, Ayala Corporation asserts that the warranties under the
MOA are not just against suits but against all kinds of liabilities not
reflected in the Audited Financial Statements. It cannot be faulted for
relying on the express warranty that except for billings payable to GP
Construction and advances made by petitioner Daniel Vazquez in the
amount of P38,766.04, Conduit has no other liabilities. Hence,
petitioners cannot claim that Ayala Corporation should have
examined and investigated the Audited Financial Statements of
Conduit and should now assume all its obligations and liabilities
including the Lancer suit and the cross-claim of GP Construction.
Furthermore, Ayala Corporation did not make a commitment to
complete the development of the first phase of the property within
three (3) years from the execution of the MOA. The provision refers to
a mere declaration of intent to develop the first phase of its (Ayala
Corporation's) own development plan and not Conduit's. True to its
intention, Ayala Corporation did complete the development of the first
phase (Phase II-A) of its amended development plan within three (3)
years from the execution of the MOA. However, it is not obliged to
develop the third phase (Phase II-C) where the subject lots are located
within the same time frame because there is no contractual
stipulation in the MOA therefor. It is free to decide on its own the
period for the development of Phase II-C. If petitioners wanted to
impose the same three (3)-year timetable upon the third phase of the
amended development plan, they should have filed a suit to fix the
time table in accordance with Article 119710 of the Civil Code. Having
failed to do so, Ayala Corporation cannot be declared to have been in
delay.
Ayala Corporation further contends that no demand was made on it
for the performance of its alleged obligation. The letter dated October
4, 1983 sent when petitioners were already aware of the Lancer suit
did not demand the delivery of the subject lots by April 23, 1984.
Instead, it requested Ayala Corporation to keep petitioners posted on
the status of the case. Likewise, the letter dated March 4, 1984 was
merely an inquiry as to the date when the development of Phase 1 will
be completed. More importantly, their letter dated June 27, 1988
through Engr. Eduardo Turla expressed petitioners' expectation that
Phase 1 will be completed by February 19, 1990.
Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is
a right of first refusal and not an option contract.
Petitioners filed their Reply11 dated August 15, 2002 reiterating the
arguments in their Petition and contending further that they did not
violate their warranties under the MOA because the case was filed by
Lancer only on April 1, 1982, eleven (11) months and eight (8) days
after the signing of the MOA on April 23, 1981. Ayala Corporation
admitted that it received Lancer's claim before the "Closing" date. It
therefore had all the time to rescind the MOA. Not having done so, it
can be concluded that Ayala Corporation itself did not consider the
matter a violation of petitioners' warranty.
Moreover, petitioners submitted the Audited Financial Statements of
Conduit and allowed an acquisition audit to be conducted by Ayala
Corporation. Thus, the latter bought Conduit with "open eyes."
Petitioners also maintain that they had no knowledge of the
impending case against Conduit at the time of the execution of the
MOA. Further, the MOA makes Ayala Corporation liable for the
payment of all billings of GP Construction. Since Lancer's claim was
actually a claim against GP Construction being its sub-contractor, it is
Ayala Corporation and not petitioners which is liable. 98
Sales – Chapter 3 Cases
Likewise, petitioners aver that although Ayala Corporation may
change the sequence of its development plan, it is obliged under the
MOA to develop the entire area where the subject lots are located in
three (3) years.
They also assert that demand was made on Ayala Corporation to
comply with their obligation under the MOA. Apart from their reminder
letters dated January 24, February 18 and March 5, 1984, they also
sent a letter dated March 4, 1984 which they claim is a categorical
demand for Ayala Corporation to comply with the provisions of the
MOA.
The parties were required to submit their respective memoranda in
the Resolution12 dated November 18, 2002. In compliance with this
directive, petitioners submitted their Memorandum13 dated February
14, 2003 on even date, while Ayala Corporation filed its
Memorandum14 dated February 14, 2003 on February 17, 2003.
We shall first dispose of the procedural question raised by the instant
petition.
It is well-settled that the jurisdiction of this Court in cases brought to it
from the Court of Appeals by way of petition for review under Rule 45
is limited to reviewing or revising errors of law imputed to it, its
findings of fact being conclusive on this Court as a matter of general
principle. However, since in the instant case there is a conflict
between the factual findings of the trial court and the appellate court,
particularly as regards the issues of breach of warranty, obligation to
develop and incurrence of delay, we have to consider the evidence on
record and resolve such factual issues as an exception to the general
rule.15 In any event, the submitted issue relating to the categorization
of the right to purchase granted to petitioners under the MOA is legal
in character.
The next issue that presents itself is whether petitioners breached
their warranties under the MOA when they failed to disclose the
Lancer claim. The trial court declared they did not; the appellate court
found otherwise.
Ayala Corporation summarizes the clauses of the MOA which
petitioners allegedly breached when they failed to disclose the Lancer
claim:
a) Clause 7.1.1. – that Conduit shall not be obligated to anyone
except to GP Construction for P38,766.04, and for advances made by
Daniel Vazquez;
b) Clause 7.1.2. – that except as reflected in the audited financial
statements Conduit had no other liabilities whether accrued, absolute,
contingent or otherwise;
c) Clause 7.2. – that there is no basis for any assertion against
Conduit of any liability of any value not reflected or reserved in the
financial statements, and those disclosed to Ayala;
d) Clause 7.6.3. – that Conduit is not threatened with any legal action
or other proceedings; and
e) Clause 7.6.4. – that Conduit had not breached any term, condition,
or covenant of any instrument or agreement to which it is a party or by
which it is bound.16
The Court is convinced that petitioners did not violate the foregoing
warranties.
The exchanges of communication between the parties indicate that
petitioners substantially apprised Ayala Corporation of the Lancer
claim or the possibility thereof during the period of negotiations for
the sale of Conduit.
In a letter17 dated March 5, 1984, petitioner Daniel Vazquez reminded
Ayala Corporation's Mr. Adolfo Duarte (Mr. Duarte) that prior to the
completion of the sale of Conduit, Ayala Corporation asked for and
was given information that GP Construction sub-contracted,
presumably to Lancer, a greater percentage of the project than it was
allowed. Petitioners gave this information to Ayala Corporation
because the latter intimated a desire to "break the contract of Conduit
with GP." Ayala Corporation did not deny this. In fact, Mr. Duarte's
letter18 dated March 6, 1984 indicates that Ayala Corporation had
knowledge of the Lancer subcontract prior to its acquisition of
Conduit. Ayala Corporation even admitted that it "tried to
explore…legal basis to discontinue the contract of Conduit with GP"
but found this "not feasible when information surfaced about the tacit
consent of Conduit to the sub-contracts of GP with Lancer."
At the latest, Ayala Corporation came to know of the Lancer claim
before the date of Closing of the MOA. Lancer's letter19 dated April
30, 1981 informing Ayala Corporation of its unsettled claim with GP
Construction was received by Ayala Corporation on May 4, 1981, well
before the "Closing"20 which occurred four (4) weeks after the date of
signing of the MOA on April 23, 1981, or on May 23, 1981.
The full text of the pertinent clauses of the MOA quoted hereunder
likewise indicate that certain matters pertaining to the liabilities of
Conduit were disclosed by petitioners to Ayala Corporation although
the specifics thereof were no longer included in the MOA:
7.1.1 The said Audited Financial Statements shall show that on the 99
day of Closing, the Company shall own the "Remaining Property", free
Sales – Chapter 3 Cases
from all liens and encumbrances and that the Company shall have no
obligation to any party except for billings payable to GP Construction
& Development Corporation and advances made by Daniel Vazquez
for which BUYER shall be responsible in accordance with Paragraph 2
of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited
Financial Statements of the Company as of Closing, and those
disclosed to BUYER, the Company as of the date hereof, has no
liabilities of any
nature whether accrued, absolute, contingent or otherwise, including,
without limitation, tax liabilities due or to become due and whether
incurred in respect of or measured in respect of the Company's
income prior to Closing or arising out of transactions or state of facts
existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of
any basis for any assertion against the Company as at Closing of any
liability of any nature and in any amount not fully reflected or reserved
against such Audited Financial Statements referred to above, and
those disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or
before the Closing, the Company is not engaged in or a party to, or to
the best of the knowledge of the SELLERS, threatened with, any legal
action or other proceedings before any court or administrative body,
nor do the SELLERS know or have reasonable grounds to know of any
basis for any such action or proceeding or of any governmental
investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in
the due performance and observance by the Company of any term,
covenant or condition of any instrument or agreement to which the
Company is a party or by which it is bound, and no condition exists
which, with notice or lapse of time or both, will constitute such default
or breach."21 [Emphasis supplied]
Hence, petitioners' warranty that Conduit is not engaged in, a party to,
or threatened with any legal action or proceeding is qualified by Ayala
Corporation's actual knowledge of the Lancer claim which was
disclosed to Ayala Corporation before the "Closing."
At any rate, Ayala Corporation bound itself to pay all billings payable
to GP Construction and the advances made by petitioner Daniel
Vazquez. Specifically, under paragraph 2 of the MOA referred to in
paragraph 7.1.1, Ayala Corporation undertook responsibility "for the
payment of all billings of the contractor GP Construction &
Development Corporation after the first billing and any payments
made by the company and/or SELLERS shall be reimbursed by BUYER
on closing which advances to date is P1,159,012.87."22
The billings knowingly assumed by Ayala Corporation necessarily
include the Lancer claim for which GP Construction is liable. Proof of
this is Ayala Corporation's letter23 to GP Construction dated before
"Closing" on May 4, 1981, informing the latter of Ayala Corporation's
receipt of the Lancer claim embodied in the letter dated April 30, 1981,
acknowledging that it is taking over the contractual responsibilities of
Conduit, and requesting copies of all sub-contracts affecting the
Conduit property. The pertinent excerpts of the letter read:
…
In this connection, we wish to inform you that this morning we
received a letter from Mr. Maximo D. Del Rosario, President of Lancer
General Builders Corporation apprising us of the existence of
subcontracts that they have with your corporation. They have also
furnished us with a copy of their letter to you dated 30 April 1981.
Since we are taking over the contractual responsibilities of Conduit
Development, Inc., we believe that it is necessary, at this point in time,
that you furnish us with copies of all your subcontracts affecting the
property of Conduit, not only with Lancer General Builders
Corporation, but all subcontracts with other parties as well…24
Quite tellingly, Ayala Corporation even attached to its Pre-Trial Brief25
dated July 9, 1992 a copy of the letter26 dated May 28, 1981 of GP
Construction's counsel addressed to Conduit furnishing the latter with
copies of all sub-contract agreements entered into by GP
Construction. Since it was addressed to Conduit, it can be presumed
that it was the latter which gave Ayala Corporation a copy of the letter
thereby disclosing to the latter the existence of the Lancer sub-
contract.
The ineluctable conclusion is that petitioners did not violate their
warranties under the MOA. The Lancer sub-contract and claim were
substantially disclosed to Ayala Corporation before the "Closing" date
of the MOA. Ayala Corporation cannot disavow knowledge of the
claim.
Moreover, while in its correspondence with petitioners, Ayala
Corporation did mention the filing of the Lancer suit as an obstacle to
its development of the property, it never actually brought up nor
sought redress for petitioners' alleged breach of warranty for failure to
disclose the Lancer claim until it filed its Answer27 dated February 17,
1992.
We now come to the correct interpretation of paragraph 5.7 of the
MOA. Does this paragraph express a commitment or a mere intent on
the part of Ayala Corporation to develop the property within three (3)
years from date thereof? Paragraph 5.7 provides:
100
5.7. The BUYER hereby commits that it will develop the 'Remaining
Sales – Chapter 3 Cases
Property' into a first class residential subdivision of the same class as
its New Alabang Subdivision, and that it intends to complete the first
phase under its amended development plan within three (3) years
from the date of this Agreement….28
Notably, while the first phrase of the paragraph uses the word
"commits" in reference to the development of the "Remaining
Property" into a first class residential subdivision, the second phrase
uses the word "intends" in relation to the development of the first
phase of the property within three (3) years from the date of the MOA.
The variance
in wording is significant. While "commit"29 connotes a pledge to do complete the first phase under its amended development plan within
something, "intend"30 merely signifies a design or proposition. three years from the date of this agreement."
Atty. Leopoldo Francisco, former Vice President of Ayala
Corporation's legal division who assisted in drafting the MOA,
testified:
COURT
You only ask what do you mean by that intent. Just answer on that
point.
ATTY. BLANCO
Don't talk about standard.
WITNESS
A Well, the word intent here, your Honor, was used to emphasize the
tentative character of the period of development because it will be
noted that the sentence refers to and I quote "to complete the first
phase under its amended development plan within three (3) years
from the date of this agreement, at the time of the execution of this
agreement, your Honor." That amended development plan was not yet
in existence because the buyer had manifested to the seller that the
buyer could amend the subdivision plan originally belonging to the
seller to conform with its own standard of development and second,
your Honor, (interrupted)31
It is thus unmistakable that this paragraph merely expresses an
intention on Ayala Corporation's part to complete the first phase
under its amended development plan within three (3) years from the
execution of the MOA. Indeed, this paragraph is so plainly worded that
to misunderstand its import is deplorable.
More focal to the resolution of the instant case is paragraph 5.7's
clear reference to the first phase of Ayala Corporation's amended
development plan as the subject of the three (3)-year intended
timeframe for development. Even petitioner Daniel Vazquez admitted
on cross-examination that the paragraph refers not to Conduit's but to
Ayala Corporation's development plan which was yet to be formulated
when the MOA was executed:
Q: Now, turning to Section 5.7 of this Memorandum of Agreement, it is
stated as follows: "The Buyer hereby commits that to develop the
remaining property into a first class residential subdivision of the 101
same class as New Alabang Subdivision, and that they intend to
Sales – Chapter 3 Cases
Now, my question to you, Dr. Vasquez is that there is no dispute that
the amended development plan here is the amended development
plan of Ayala?
A: Yes, sir.
Q: In other words, it is not Exhibit "D-5" which is the original plan of
Conduit?
A: No, it is not.
Q: This Exhibit "D-5" was the plan that was being followed by GP
Construction in 1981?
A: Yes, sir.
Q: And point of fact during your direct examination as of the date of
the agreement, this amended development plan was still to be
formulated by Ayala?
A: Yes, sir.32
As correctly held by the appellate court, this admission is crucial
because while the subject lots to be sold to petitioners were in the
first phase of the Conduit development plan, they were in the third or
last phase of the Ayala Corporation development plan. Hence, even
assuming that paragraph 5.7 expresses a commitment on the part of
Ayala Corporation to develop the first phase of its amended
development plan within three (3) years from the execution of the
MOA, there was no parallel commitment made as to the timeframe for
the development of the third phase where the subject lots are located.
Lest it be forgotten, the point of this petition is the alleged failure of
Ayala Corporation to offer the subject lots for sale to petitioners
within three (3) years from the execution of the MOA. It is not that
Ayala Corporation committed or intended to develop the first phase of
its amended development plan within three (3) years. Whether it did or
did not is actually beside the point since the subject lots are not
located in the first phase anyway.
We now come to the issue of default or delay in the fulfillment of the
obligation.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order
that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered
it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins.
In order that the debtor may be in default it is necessary that the
following requisites be present: (1) that the obligation be demandable
and already liquidated; (2) that the debtor delays performance; and (3)
that the creditor requires the performance judicially or
extrajudicially.33
Under Article 1193 of the Civil Code, obligations for whose fulfillment
a day certain has been fixed shall be demandable only when that day
comes. However, no such day certain was fixed in the MOA.
Petitioners, therefore, cannot demand performance after the three (3)
year period fixed by the MOA for the development of the first phase of
the property since this is not the same period contemplated for the
development of the subject lots. Since the MOA does not specify a
period for the development of the subject lots, petitioners should have
petitioned the court to fix the period in accordance with Article
119734 of the Civil Code. As no such action was filed by petitioners,
their complaint for specific performance was premature, the
obligation not being demandable at that point. Accordingly, Ayala
Corporation cannot likewise be said to have delayed performance of
the obligation.
Even assuming that the MOA imposes an obligation on Ayala
Corporation to develop the subject lots within three (3) years from
date thereof, Ayala Corporation could still not be held to have been in
delay since no demand was made by petitioners for the performance
of its obligation.
As found by the appellate court, petitioners' letters which dealt with
the three (3)-year timetable were all dated prior to April 23, 1984, the
date when the period was supposed to expire. In other words, the
letters were sent before the obligation could become legally
demandable. Moreover, the letters were mere reminders and not
categorical demands to perform. More importantly, petitioners waived
the three (3)-year period as evidenced by their agent, Engr. Eduardo
Turla's letter to the effect that petitioners agreed that the three (3)-
year period should be counted from the termination of the case filed
by Lancer. The letter reads in part:
I. Completion of Phase I
As per the memorandum of Agreement also dated April 23, 1981, it
was undertaken by your goodselves to complete the development of
Phase I within three (3) years. Dr. & Mrs. Vazquez were made to
understand that you were unable to accomplish this because of legal
problems with the previous contractor. These legal problems were
resolved as of February 19, 1987, and Dr. & Mrs. Vazquez therefore
expect that the development of Phase I will be completed by February
19, 1990, three years from the settlement of the legal problems with
the previous contractor. The reason for this is, as you know, that
security-wise, Dr. & Mrs. Vazquez have been advised not to construct
their residence till the surrounding area (which is Phase I) is
developed and occupied. They have been anxious to build their
residence for quite some time now, and would like to receive
assurance from your goodselves regarding this, in compliance with
the agreement.
II. Option on the adjoining lots
We have already written your goodselves regarding the intention of Dr.
& Mrs. Vazquez to exercise their option to purchase the two lots on
each side (a total of 4 lots) adjacent to their "Retained Area". They are
concerned that although over a year has elapsed since the settlement
of the legal problems, you have not presented them with the size,
configuration, etc. of these lots. They would appreciate being
provided with these at your earliest convenience.35
Manifestly, this letter expresses not only petitioners'
acknowledgement that the delay in the development of Phase I was
due to the legal problems with GP Construction, but also their
acquiescence to the completion of the development of Phase I at the
much later date of February 19, 1990. More importantly, by no stretch
of semantic interpretation can it be construed as a categorical
demand on Ayala Corporation to offer the subject lots for sale to 102
petitioners as the letter merely articulates petitioners' desire to
Sales – Chapter 3 Cases
exercise their option to purchase the subject lots and concern over
the fact that they have not been provided with the specifications of
these lots.
The letters of petitioners' children, Juan Miguel and Victoria Vazquez,
dated January 23, 198436 and February 18, 198437 can also not be
considered categorical demands on Ayala Corporation to develop the
first phase of the property within the three (3)-year period much less
to offer the subject lots for sale to petitioners. The letter dated
January 23, 1984 reads in part:
You will understand our interest in the completion of the roads to our
property, since we cannot develop it till you have constructed the
same. Allow us to remind you of our Memorandum of Agreement, as
per which you committed to develop the roads to our property "as per
the original plans of the company", and that
1. The back portion should have been developed before the front
portion – which has not been the case.
2. The whole project – front and back portions be completed by
1984.38
The letter dated February 18, 1984 is similarly worded. It states:
In this regard, we would like to remind you of Articles 5.7 and 5.9 of
our Memorandum of Agreement which states respectively:…39
Even petitioner Daniel Vazquez' letter40 dated March 5, 1984 does not
make out a categorical demand for Ayala Corporation to offer the
subject lots for sale on or before April 23, 1984. The letter reads in
part:
…and that we expect from your goodselves compliance with our
Memorandum of Agreement, and a definite date as to when the road
to our property and the development of Phase I will be completed.41
At best, petitioners' letters can only be construed as mere reminders
which cannot be considered demands for performance because it
must appear that the tolerance or benevolence of the creditor must
have ended.42
The petition finally asks us to determine whether paragraph 5.15 of
the MOA can properly be construed as an option contract or a right of
first refusal. Paragraph 5.15 states:
5.15 The BUYER agrees to give the SELLERS first option to purchase
four developed lots next to the "Retained Area" at the prevailing
market price at the time of the purchase.43
The Court has clearly distinguished between an option contract and a
right of first refusal. An option is a preparatory contract in which one
party grants to another, for a fixed period and at a determined price,
the privilege to buy or sell, or to decide whether or not to enter into a
principal contract. It binds the party who has given the option not to
enter into the principal contract with any other person during the
period designated, and within that period, to enter into such contract
with the one to whom the option was granted, if the latter should
decide to use the option. It is a separate and distinct contract from
that which the parties may enter into upon the consummation of the
option. It must be supported by consideration.44
In a right of first refusal, on the other hand, while the object might be
made determinate, the exercise of the right would be dependent not
only on the grantor's eventual intention to enter into a binding juridical
relation with another but also on terms, including the price, that are
yet to be firmed up.45
Applied to the instant case, paragraph 5.15 is obviously a mere right
of first refusal and not an option contract. Although the paragraph has
a definite object, i.e., the sale of subject lots, the period within which
they will be offered for sale to petitioners and, necessarily, the price
for which the subject lots will be sold are not specified. The phrase "at
the prevailing market price at the time of the purchase" connotes that
there is no definite period within which Ayala Corporation is bound to
reserve the subject lots for petitioners to exercise their privilege to
purchase. Neither is there a fixed or determinable price at which the
subject lots will be offered for sale. The price is considered certain if it
may be determined with reference to another thing certain or if the
determination thereof is left to the judgment of a specified person or
persons.46
Further, paragraph 5.15 was inserted into the MOA to give petitioners
the first crack to buy the subject lots at the price which Ayala
Corporation would be willing to accept when it offers the subject lots
for sale. It is not supported by an independent consideration. As such
it is not governed by Articles 1324 and 1479 of the Civil Code, viz:
Art. 1324. When the offeror has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded
upon a consideration, as something paid or promised.
Art. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing
for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.
Consequently, the "offer" may be withdrawn anytime by
communicating the withdrawal to the other party.47
In this case, Ayala Corporation offered the subject lots for sale to
petitioners at the price of P6,500.00/square meter, the prevailing
market price for the property when the offer was made on June 18,
1990.48 Insisting on paying for the lots at the prevailing market price
in 1984 of P460.00/square meter, petitioners rejected the offer. Ayala
Corporation reduced the price to P5,000.00/square meter but again,
petitioners rejected the offer and instead made a counter-offer in the
amount of P2,000.00/square meter.49 Ayala Corporation rejected
petitioners' counter-offer. With this rejection, petitioners lost their right
to purchase the subject lots.
103
It cannot, therefore, be said that Ayala Corporation breached
Sales – Chapter 3 Cases
petitioners' right of first refusal and should be compelled by an action
for specific performance to sell the subject lots to petitioners at the
prevailing market price in 1984.
WHEREFORE, the instant petition is DENIED. No pronouncement as to TANAY RECREATION CENTER AND DEVELOPMENT CORP.,
costs. petitioner, vs. CATALINA MATIENZO FAUSTO+ and
ANUNCIACION FAUSTO PACUNAYEN, respondents.
SO ORDERED.
Petitioner Tanay Recreation Center and Development Corp.
(TRCDC) is the lessee of a 3,090-square meter property located in
Sitio Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto,[1]
under a Contract of Lease executed on August 1, 1971. On this
property stands the Tanay Coliseum Cockpit operated by
petitioner. The lease contract provided for a 20-year term, subject
to renewal within sixty days prior to its expiration. The contract
also provided that should Fausto decide to sell the property,
petitioner shall have the priority right to purchase the same.[2]
On June 17, 1991, petitioner wrote Fausto informing her of its
intention to renew the lease.[3] However, it was Faustos daughter,
respondent Anunciacion F. Pacunayen, who replied, asking that
petitioner remove the improvements built thereon, as she is now
the absolute owner of the property.[4] It appears that Fausto had
earlier sold the property to Pacunayen on August 8, 1990, for the
sum of P10,000.00 under a Kasulatan ng Bilihan Patuluyan ng
Lupa,[5] and title has already been transferred in her name under
Transfer Certificate of Title (TCT) No. M-35468.[6]
Despite efforts, the matter was not resolved. Hence, on
September 4, 1991, petitioner filed an Amended Complaint for
Annulment of Deed of Sale, Specific Performance with Damages,
and Injunction, docketed as Civil Case No. 372-M.[7]
In her Answer, respondent claimed that petitioner is estopped
from assailing the validity of the deed of sale as the latter
acknowledged her ownership when it merely asked for a renewal
of the lease. According to respondent, when they met to discuss
the matter, petitioner did not demand for the exercise of its option
to purchase the property, and it even asked for grace period to
vacate the premises.[8]
After trial on the merits, the Regional Trial Court of Morong, Rizal
(Branch 78), rendered judgment extending the period of the lease
for another seven years from August 1, 1991 at a monthly rental
of P10,000.00, and dismissed petitioners claim for damages.[9]
On appeal, docketed as CA-G.R. CV No. 43770, the Court of
104
Appeals (CA) affirmed with modifications the trial courts
Sales – Chapter 3 Cases
judgment per its Decision dated June 14, 1999.[10] The
dispositive portion of the decision reads:
WHEREFORE, the appealed decision is AFFIRMED AND for review on certiorari, raising the following grounds:
ACCORDINGLY MODIFIED AS DISCUSSED.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
Furthermore, we resolved: REVERSIBLE ERROR IN HOLDING THAT THE
1.0. That TRCDC VACATE the leased premises immediately;
2.0. To GRANT the motion of Pacunayen to allow her to withdraw
the amount of P320,000.00, deposited according to records, with
this court.
3.0. To order TRCDC to MAKE THE NECESSARY ACCOUNTING
regarding the amounts it had already deposited (for unpaid
rentals for the extended period of seven [7] years of the contract
of lease). In case it had not yet completed its deposit, to
immediately pay the remaining balance to Pacunayen.
4.0. To order TRCDC to PAY the amount of P10,000.00 as monthly
rental, with regard to its continued stay in the leased premises
even after the expiration of the extended period of seven (7) years,
computed from August 1, 1998, until it finally vacates therefrom.
SO ORDERED.[11]
In arriving at the assailed decision, the CA acknowledged the
priority right of TRCDC to purchase the property in question.
However, the CA interpreted such right to mean that it shall be
applicable only in case the property is sold to strangers and not to
Faustos relative. The CA stated that (T)o interpret it otherwise as
to comprehend all sales including those made to relatives and to
the compulsory heirs of the seller at that would be an absurdity,
and her (Faustos) only motive for such transfer was precisely one
of preserving the property within her bloodline and that someone
administer the property.[12] The CA also ruled that petitioner
already acknowledged the transfer of ownership and is deemed to
have waived its right to purchase the property.[13] The CA even
further went on to rule that even if the sale is annulled, petitioner
could not achieve anything because the property will be eventually
transferred to Pacunayen after Faustos death.[14]
Petitioner filed a motion for reconsideration but it was denied per
Resolution dated September 14, 1999.[15]
105
Dissatisfied, petitioner elevated the case to this Court on petition
Sales – Chapter 3 Cases
CONTRACTUAL STIPULATION GIVING PETITIONER THE
PRIORITY RIGHT TO PURCHASE THE LEASED PREMISES SHALL
ONLY APPLY IF THE LESSOR DECIDES TO SELL THE SAME TO
STRANGERS;
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
REVERSIBLE ERROR IN HOLDING THAT PETITIONERS PRIORITY
RIGHT TO PURCHASE THE LEASED PREMISES IS
INCONSEQUENTIAL.[16]
The principal bone of contention in this case refers to petitioners
priority right to purchase, also referred to as the right of first
refusal.
Petitioners right of first refusal in this case is expressly provided
for in the notarized Contract of Lease dated August 1, 1971,
between Fausto and petitioner, to wit:
7. That should the LESSOR decide to sell the leased premises, the
LESSEE shall have the priority right to purchase the same;[17]
When a lease contract contains a right of first refusal, the lessor is
under a legal duty to the lessee not to sell to anybody at any price
until after he has made an offer to sell to the latter at a certain
price and the lessee has failed to accept it. The lessee has a right
that the lessor's first offer shall be in his favor.[18] Petitioners
right of first refusal is an integral and indivisible part of the
contract of lease and is inseparable from the whole contract. The
consideration for the lease includes the consideration for the right
of first refusal[19] and is built into the reciprocal obligations of the
parties.
It was erroneous for the CA to rule that the right of first refusal
does not apply when the property is sold to Faustos relative.[20]
When the terms of an agreement have been reduced to writing, it
is considered as containing all the terms agreed upon. As such,
there can be, between the parties and their successors in interest,
no evidence of such terms other than the contents of the written
agreement, except when it fails to express the true intent and
agreement of the parties.[21] In this case, the wording of the
stipulation giving petitioner the right of first refusal is plain and
unambiguous, and leaves no room for interpretation. It simply
means that should Fausto decide to sell the leased property
during the term of the lease, such sale should first be offered to
petitioner. The stipulation does not provide for the qualification
that such right may be exercised only when the sale is made to
strangers or persons other than Faustos kin. Thus, under the
terms of petitioners right of first refusal, Fausto has the legal duty
to petitioner not to sell the property to anybody, even her relatives,
at any price until after she has made an offer to sell to petitioner
at a
certain price and said offer was rejected by petitioner. Pursuant to
their contract, it was essential that Fausto should have first
offered the property to petitioner before she sold it to respondent.
It was only after petitioner failed to exercise its right of first
priority could Fausto then lawfully sell the property to respondent.
The rule is that a sale made in violation of a right of first refusal is
valid. However, it may be rescinded, or, as in this case, may be the
subject of an action for specific performance.[22] In Riviera
Filipina, Inc. vs. Court of Appeals,[23] the Court discussed the
concept and interpretation of the right of first refusal and the
consequences of a breach thereof, to wit:
. . . It all started in 1992 with Guzman, Bocaling & Co. v. Bonnevie
where the Court held that a lease with a proviso granting the
lessee the right of first priority all things and conditions being
equal meant that there should be identity of the terms and
conditions to be offered to the lessee and all other prospective
buyers, with the lessee to enjoy the right of first priority. A deed of
sale executed in favor of a third party who cannot be deemed a
purchaser in good faith, and which is in violation of a right of first
refusal granted to the lessee is not voidable under the Statute of
Frauds but rescissible under Articles 1380 to 1381 (3) of the New
Civil Code.
Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of
Appeals, the Court en banc departed from the doctrine laid down
in Guzman, Bocaling & Co. v. Bonnevie and refused to rescind a
contract of sale which violated the right of first refusal. The Court
held that the so-called right of first refusal cannot be deemed a
perfected contract of sale under Article 1458 of the New Civil
Code and, as such, a breach thereof decreed under a final
judgment does not entitle the aggrieved party to a writ of
execution of the judgment but to an action for damages in a
proper forum for the purpose.
In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair
Theater, Inc., the Court en banc reverted back to the doctrine in
Guzman Bocaling & Co. v. Bonnevie stating that rescission is a
relief allowed for the protection of one of the contracting parties
and even third persons from all injury and damage the contract
may cause or to protect some incompatible and preferred right by
the contract.
106
Sales – Chapter 3 Cases
Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v. Court of
Appeals, the Court affirmed the nature of and the concomitant
rights and obligations of parties under a right of first refusal. The
Court, summarizing the rulings in Guzman, Bocaling & Co. v.
Bonnevie and Equatorial Realty Development, Inc. v. Mayfair
Theater, Inc., held that in order to have full compliance with the
contractual right granting petitioner the first option to purchase,
the sale of the properties for the price for which they were finally
sold to a third person should have likewise been first offered to
the former. Further, there should be identity of terms and
conditions to be offered to the buyer holding a right of first refusal
if such right is not to be rendered illusory. Lastly, the basis of the
right of first refusal must be the current offer to sell of the seller
or offer to purchase of any prospective buyer.
The prevailing doctrine therefore, is that a right of first refusal
means identity of terms and conditions to be offered to the lessee
and all other prospective buyers and a contract of sale entered
into in violation of a right of first refusal of another person, while
valid, is rescissible.[24]
It was also incorrect for the CA to rule that it would be useless to
annul the sale between Fausto and respondent because the
property would still remain with respondent after the death of her
mother by virtue of succession, as in fact, Fausto died in March
1996, and the property now belongs to respondent, being Faustos
heir.[25]
For one, Fausto was bound by the terms and conditions of the
lease contract. Under the right of first refusal clause, she was
obligated to offer the property first to petitioner before selling it to
anybody else. When she sold the property to respondent without
offering it to petitioner, the sale while valid is rescissible so that
petitioner may exercise its option under the contract.
With the death of Fausto, whatever rights and obligations she had
over the property, including her obligation under the lease
contract, were transmitted to her heirs by way of succession, a
mode of acquiring the property, rights and obligation of the
decedent to the extent of the value of the inheritance of the heirs.
Article 1311 of the Civil Code provides:
ART. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or
by stipulation or by provision of law. The heir is not liable beyond
the value of the property he received from the decedent.
A lease contract is not essentially personal in character.[26] Thus,
the rights and obligations therein are transmissible to the heirs.
The general rule is that heirs are bound by contracts entered into
by their predecessors-in-interest except when the rights and
obligations arising therefrom are not transmissible by (1) their
nature, (2) stipulation or (3) provision of law.[27]
In this case, the nature of the rights and obligations are, by their
nature, transmissible. There is also neither contractual stipulation
nor provision of law that makes the rights and obligations under
the lease contract intransmissible. The lease contract between
petitioner and Fausto is a property right, which is a right that
passed on to respondent and the other heirs, if any, upon the
death of Fausto.
In DKC Holdings Corporation vs. Court of Appeals,[28] the Court
held that the Contract of Lease with Option to Buy entered into by
the late Encarnacion Bartolome with DKC Holdings Corporation
was binding upon her sole heir, Victor, even after her demise and
it subsists even after her death. The Court ruled that:
. . . Indeed, being an heir of Encarnacion, there is privity of interest
between him and his deceased mother. He only succeeds to what
rights his mother had and what is valid and binding against her is
also valid and binding as against him. This is clear from Paraaque
Kings Enterprises vs. Court of Appeals, where this Court rejected a
similar defense-
With respect to the contention of respondent Raymundo that he is
not privy to the lease contract, not being the lessor nor the lessee
referred to therein, he could thus not have violated its provisions,
but he is nevertheless a proper party. Clearly, he stepped into the
shoes of the owner-lessor of the land as, by virtue of his purchase,
he assumed all the obligations of the lessor under the lease
contract. Moreover, he received benefits in the form of rental
payments. Furthermore, the complaint, as well as the petition,
prayed for the annulment of the sale of the properties to him. Both
pleadings also alleged collusion between him and respondent
Santos which defeated the exercise by petitioner of its right of
first refusal.
In order then to accord complete relief to petitioner, respondent
Raymundo was a necessary, if not indispensable, party to the
case. A favorable judgment for the petitioner will necessarily
affect the rights of respondent Raymundo as the buyer of the
107
property over which petitioner would like to assert its right of first
Sales – Chapter 3 Cases
option to buy.[29] (Emphasis supplied)
Likewise in this case, the contract of lease, with all its
concomitant provisions, continues even after Faustos death and
her heirs merely stepped into her shoes.[30] Respondent, as an
heir of Fausto, is therefore bound to fulfill all its terms and
conditions.
There is no personal act required from Fausto such that
respondent cannot perform it. Faustos obligation to deliver
possession of the property to petitioner upon the exercise by the
latter of its right of first refusal may be performed by respondent
and the other heirs, if any. Similarly, nonperformance is not
excused by the death of the party when the other party has a
property interest in the subject matter of the contract.[31]
The records are bereft of any proposition that petitioner waived its
right of first refusal under the contract such that it is now
estopped from exercising the same. In a letter dated June 17,
1991, petitioner wrote to Fausto asking for a renewal of the term
of lease.[34] Petitioner cannot be faulted for merely seeking a
renewal of the

The CA likewise found that petitioner acknowledged the

legitimacy of the sale to respondent and it is now barred from
exercising its right of first refusal. According to the appellate
court:

Second, when TRCDC, in a letter to Fausto, signified its intention

to renew the lease contract, it was Pacunayen who answered the
letter on June 19, 1991. In that letter Pacunayen demanded that
TRCDC vacate the leased premises within sixty (60) days and
informed it of her ownership of the leased premises. The pertinent
portion of the letter reads:

Furtherly, please be advised that the land is no longer under the

absolute ownership of my mother and the undersigned is now the
real and absolute owner of the land.

Instead of raising a howl over the contents of the letter, as would

be its expected and natural reaction under the circumstances,
TRCDC surprisingly kept silent about the whole thing. As we
mentioned in the factual antecedents of this case, it even invited
Pacunayen to its special board meeting particularly to discuss
with her the renewal of the lease contract. Again, during that
meeting, TRCDC did not mention anything that could be construed
as challenging Pacunayens ownership of the leased premises.
Neither did TRCDC assert its priority right to purchase the same
against Pacunayen.[32]

The essential elements of estoppel are: (1) conduct of a party

amounting to false representation or concealment of material
facts or at least calculated to convey the impression that the facts
are otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (2) intent, or at least
expectation, that this conduct shall be acted upon by, or at least
influence, the other party; and (3) knowledge, actual or
constructive, of the real facts.[33]
108
Sales – Chapter 3 Cases
lease contract because obviously, it was working on the
assumption that title to the property is still in Faustos name and
the latter has the sole authority to decide on the fate of the
property. Instead, it was respondent who replied, advising
petitioner to remove all the improvements on the property, as the
lease is to expire on the 1st of August 1991. Respondent also
informed petitioner that her mother has already sold the property
to her.[35] In order to resolve the matter, a meeting was called
among petitioners stockholders, including respondent, on July 27,
1991, where petitioner, again, proposed that the lease be renewed.
Respondent, however, declined. While petitioner may have sought
the renewal of the lease, it cannot be construed as a
relinquishment of its right of first refusal. Estoppel must be
intentional and unequivocal.[36]
Also, in the excerpts from the minutes of the special meeting, it
was further stated that the possibility of a sale was likewise
considered.[37] But respondent also refused to sell the land, while
the improvements, if for sale shall be subject for appraisal.[38]
After respondent refused to sell the land, it was then that
petitioner filed the complaint for annulment of sale, specific
performance and damages.[39] Petitioners acts of seeking all
possible avenues for the amenable resolution of the conflict do
not amount to an intentional and unequivocal abandonment of its
right of first refusal.
Respondent was well aware of petitioners right to priority of sale,
and that the sale made to her by her mother was merely for her to
be able to take charge of the latters affairs. As admitted by
respondent in her Appellees Brief filed before the CA, viz.:
After June 19, 1991, TRCDC invited Pacunayen to meeting with
the officers of the corporation. . . . In the same meeting,
Pacunayens attention was called to the provision of the Contract
of Lease had by her mother with TRCDC, particularly paragraph 7
thereof, which states:
7. That should the lessor decide to sell the leased premises, the
LESSEE shall have the priority right to purchase the same.
Of course, in the meeting she had with the officers of TRCDC,
Pacunayen explained that the sale made in her favor by her
mother was just a formality so that she may have the proper
representation with TRCDC in the absence of her parents, more so
that her father had already passed away, and there was no malice
in her mine (sic) and that of her mother, or any intention on their
part to deceive TRCDC. All these notwithstanding, and for her to
show their good faith in dealing with TRCDC, Pacunayen started
the ground work to reconvey ownership over the whole land, now
covered by
Transfer Certificare (sic) of Title No. M-259, to and in the name of
her mother (Fausto), but the latter was becoming sickly, old and
weak, and they found no time to do it as early as they wanted
to.[40] (Emphasis supplied)
Given the foregoing, the Kasulatan ng Bilihan Patuluyan ng Lupa
dated August 8, 1990 between Fausto and respondent must be
rescinded. Considering, however, that Fausto already died on
March 16, 1996, during the pendency of this case with the CA, her
heirs should have been substituted as respondents in this case.
Considering further that the Court cannot declare respondent
Pacunayen as the sole heir, as it is not the proper forum for that
purpose, the right of petitioner may only be enforced against the
heirs of the deceased Catalina Matienzo Fausto, represented by
respondent Pacunayen.
In Paraaque Kings Enterprises, Inc. vs. Court of Appeals,[41] it
was ruled that the basis of the right of the first refusal must be the
current offer to sell of the seller or offer to purchase of any
prospective buyer. It is only after the grantee fails to exercise its
right of first priority under the same terms and within the period
contemplated, could the owner validly offer to sell the property to
a third person, again, under the same terms as offered to the
grantee. The circumstances of this case, however, dictate the
application of a different ruling. An offer of the property to
petitioner under identical terms and conditions of the offer
previously given to respondent Pacunayen would be inequitable.
The subject property was sold in 1990 to respondent Pacunayen
for a measly sum of P10,000.00. Obviously, the value is in a small
amount because the sale was between a mother and daughter. As
admitted by said respondent, the sale made in her favor by her
mother was just a formality so that she may have the proper
representation with TRCDC in the absence of her parents[42]
Consequently, the offer to be made to petitioner in this case
should be under reasonable terms and conditions, taking into
account the fair market value of the property at the time it was
sold to respondent.
In its complaint, petitioner prayed for the cancellation of TCT No.
M-35468 in the name of respondent Pacunayen,[43] which was
issued by the Register of Deeds of Morong on February 7,
1991.[44] Under ordinary circumstances, this would be the logical
effect of the rescission of the Kasulatan ng Bilihan Patuluyan ng
109
Lupa between the deceased Fausto and respondent Pacunayen.
Sales – Chapter 3 Cases
However, the circumstances in this case are not ordinary. The
buyer of the subject property is the sellers own daughter. If and
when the title (TCT No. M-35468) in respondent Pacunayens
name is cancelled and reinstated in Faustos name, and thereafter
negotiations between petitioner and respondent Pacunayen for
the
purchase of the subject property break down, then the subject P111,000.00 from such closure. TRCDCs president, Ambrosio
property will again revert to respondent Pacunayen as she Sacramento, testified that they suffered income losses with the
appears to be one of Faustos heirs. This would certainly be a closure of the cockpit from August 2, 1991 until it re-opened on
winding route to traverse. Sound reason therefore dictates that October 20, 1991.[48] Mr. Sacramento, however, cannot state with
title should remain in the name of respondent Pacunayen, for and
in behalf of the other heirs, if any, to be cancelled only when
petitioner successfully exercises its right of first refusal and
purchases the subject property.
Petitioner further seeks the award of the following damages in its
favor: (1) P100,000.00 as actual damages; (2) P1,100,000.00 as
compensation for lost goodwill or reputation; (3) P100,000.00 as
moral damages; (4) P100,000.00 as exemplary damages; (5)
P50,000.00 as attorneys fees; (6) P1,000.00 appearance fee per
hearing; and (7) the costs of suit.[45]
According to petitioner, respondents act in fencing the property
led to the closure of the Tanay Coliseum Cockpit and petitioner
was unable to conduct cockfights and generate income of not
less than P100,000.00 until the end of September 1991, aside
from the expected rentals from the cockpit space lessees in the
amount of P11,000.00.[46]
Under Article 2199 of the Civil Code, it is provided that:
Except as provided by law or by stipulation, one is entitled to an
adequate compensation only for such pecuniary loss suffered by
him as he has duly proved. Such compensation is referred to as
actual or compensatory damages. (Emphasis supplied)
The rule is that actual or compensatory damages cannot be
presumed, but must be proved with reasonable degree of
certainty. A court cannot rely on speculations, conjectures, or
guesswork as to the fact and amount of damages, but must
depend upon competent proof that they have been suffered by the
injured party and on the best obtainable evidence of the actual
amount thereof. It must point out specific facts, which could
afford a basis for measuring whatever compensatory or actual
damages are borne.[47]
In the present case, there is no question that the Tanay Coliseum
Cockpit was closed for two months and TRCDC did not gain any
income during said period. But there is nothing on record to
110
substantiate petitioners claim that it was bound to lose some
Sales – Chapter 3 Cases
certainty the amount of such unrealized income.[49] Meanwhile,
TRCDCs accountant, Merle Cruz, stated that based on the
corporations financial statement for the years 1990 and 1991,[50]
they derived the amount of P120,000.00 as annual income from
rent.[51] From said financial statement, it is safe to presume that
TRCDC generated a monthly income of P10,000.00 a month
(P120,000.00 annual income divided by 12 months). At best
therefore, whatever actual damages that petitioner suffered from
the cockpits closure for a period of two months can be reasonably
summed up only to P20,000.00.
Such award of damages shall earn interest at the legal rate of six
percent (6%) per annum, which shall be computed from the time
of the filing of the Complaint on August 22, 1991, until the finality
of this decision. After the present decision becomes final and
executory, the rate of interest shall increase to twelve percent
(12%) per annum from such finality until its satisfaction, this
interim period being deemed to be equivalent to a forbearance of
credit.[52] This is in accord with the guidelines laid down by the
Court in Eastern Shipping Lines, Inc. vs. Court of Appeals,[53]
regarding the manner of computing legal interest, viz.:
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time quantification of
damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance
of credit.[54]
Petitioner also claims the amount of P1,100,000.00 as
compensation for lost goodwill or reputation. It alleged that with
the unjust and wrongful conduct of the defendants as above-
described, plaintiff stands to lose its goodwill and reputation
established for the past 20 years.[55]
An award of damages for loss of goodwill or reputation falls
under actual or compensatory damages as provided in Article
2205 of the Civil Code, to wit:
Art. 2205. Damages may be recovered:
(1) For loss or impairment of earning capacity in cases of
temporary or permanent personal injury;
(2) For injury to the plaintiffs business standing or commercial
credit.
Even if it is not recoverable as compensatory damages, it may still
be awarded in the concept of temperate or moderate
damages.[56] In arriving at a reasonable level of temperate
damages to be awarded, trial courts are guided by the ruling that:
. . . There are cases where from the nature of the case, definite
proof of pecuniary loss cannot be offered, although the court is
convinced that there has been such loss. For instance, injury to
one's commercial credit or to the goodwill of a business firm is
often hard to show certainty in terms of money. Should damages
be denied for that reason? The judge should be empowered to
calculate moderate damages in such cases, rather than that the
plaintiff should suffer, without redress from the defendant's
wrongful act. (Araneta v. Bank of America, 40 SCRA 144, 145)[57]
111
In this case, aside from the nebulous allegation of petitioner in its
Sales – Chapter 3 Cases
amended complaint, there is no evidence on record, whether
testimonial or documentary, to adequately support such claim.
Hence, it must be denied.
Petitioners claim for moral damages must likewise be denied. The
award of moral damages cannot be granted in favor of a
corporation because, being an artificial person and having
existence only in legal contemplation, it has no feelings, no
emotions, no senses. It cannot, therefore, experience physical
suffering and mental anguish, which can be experienced only by
one having a nervous system.[58] Petitioner being a
corporation,[59] the claim for moral damages must be denied.
With regard to the claim for exemplary damages, it is a requisite in
the grant thereof that the act of the offender must be
accompanied by bad faith or done in wanton, fraudulent or
malevolent manner.[60] Moreover, where a party is not entitled to
actual or moral damages, an award of exemplary damages is
likewise baseless.[61] In this case, petitioner failed to show that
respondent acted in bad faith, or in wanton, fraudulent or
malevolent manner.
Petitioner likewise claims the amount of P50,000.00 as attorneys
fees, the sum of P1,000.00 for every appearance of its counsel,
plus costs of suit. It is well settled that no premium should be
placed on the right to litigate and not every winning party is
entitled to an automatic grant of attorney's fees. The party must
show that he falls under one of the instances enumerated in
Article 2208 of the Civil Code. In this case, since petitioner was
compelled to engage the services of a lawyer and incurred
expenses to protect its interest and right over the subject
property, the award of attorneys fees is proper. However there are
certain standards in fixing attorney's fees, to wit: (1) the amount
and the character of the services rendered; (2) labor, time and
trouble involved; (3) the nature and importance of the litigation
and business in which the services were rendered; (4) the
responsibility imposed; (5) the amount of money and the value of
the property affected by the controversy or involved in the
employment; (6) the skill and the experience called for in the
performance of the services; (7) the professional character and
the social standing of the attorney; and (8) the results secured, it
being a recognized rule that an attorney may properly charge a
much larger fee when it is contingent than when it is not.[62]
Considering the foregoing, the award of P10,000.00 as attorneys
fees, including the costs of suit, is reasonable under the
circumstances.
WHEREFORE, the instant Petition for Review is PARTIALLY
GRANTED. The Court of Appeals Decision dated June 14, 1999 in
CA-G.R. CV No. 43770 is MODIFIED as follows:
(1) the Kasulatan ng Bilihan Patuluyan ng Lupa dated August 8,
1990 between Catalina Matienzo Fausto and respondent
Anunciacion Fausto Pacunayen is hereby deemed rescinded;
(2) The Heirs of the deceased Catalina Matienzo Fausto who are
hereby deemed substituted as respondents, represented by
respondent Anunciacion Fausto Pacunayen, are ORDERED to
recognize the obligation of Catalina Matienzo Fausto under the
Contract of Lease with respect to the priority right of petitioner
Tanay Recreation Center and Development Corp. to purchase the
subject property under reasonable terms and conditions;
(3) Transfer Certificate of Title No. M-35468 shall remain in the
name of respondent Anunciacion Fausto Pacunayen, which shall
be cancelled in the event petitioner successfully purchases the
subject property;
(4) Respondent is ORDERED to pay petitioner Tanay Recreation
Center and Development Corporation the amount of Twenty
Thousand Pesos (P20,000.00) as actual damages, plus interest
thereon at the legal rate of six percent (6%) per annum from the
filing of the Complaint until the finality of this Decision. After this
Decision becomes final and executory, the applicable rate shall be
twelve percent (12%) per annum until its satisfaction; and,
(5) Respondent is ORDERED to pay petitioner the amount of Ten
Thousand Pesos (P10,000.00) as attorneys fees, and to pay the
costs of suit.
(6) Let the case be remanded to the Regional Trial Court, Morong,
Rizal (Branch 78) for further proceedings on the determination of
the reasonable terms and conditions of the offer to sell by
respondents to petitioner, without prejudice to possible mediation
between the parties.
The rest of the unaffected dispositive portion of the Court of
Appeals Decision is AFFIRMED.
SO ORDERED.
112
Sales – Chapter 3 Cases
ROBERTO D. TUAZON, Petitioner,
vs.
LOURDES Q. DEL ROSARIO-SUAREZ, CATALINA R. SUAREZ-DE
LEON, WILFREDO DE LEON, MIGUEL LUIS S. DE LEON, ROMMEL
LEE S. DE LEON, and GUILLERMA L. SANDICO-SILVA, as attorney
-in-fact of the defendants, except Lourdes Q. Del Rosario-
Suarez, Respondents.
In a situation where the lessor makes an offer to sell to the lessee
a certain property at a fixed price within a certain period, and the
lessee fails to accept the offer or to purchase on time, then the
lessee loses his right to buy the property and the owner can
validly offer it to another.
This Petition for Review on Certiorari1 assails the Decision2 dated
May 30, 2005 of the Court of Appeals (CA) in CA-G.R. CV No.
78870, which affirmed the Decision3 dated November 18, 2002 of
the Regional Trial Court (RTC), Branch 101, Quezon City in Civil
Case No. Q-00-42338.
Factual Antecedents
Respondent Lourdes Q. Del Rosario-Suarez (Lourdes) was the
owner of a parcel of land, containing more or less an area of 1,211
square meters located along Tandang Sora Street, Barangay Old
Balara, Quezon City and previously covered by Transfer Certificate
of Title (TCT) No. RT-561184 issued by the Registry of Deeds of
Quezon City.
On June 24, 1994, petitioner Roberto D. Tuazon (Roberto) and
Lourdes executed a Contract of Lease5 over the abovementioned
parcel of land for a period of three years. The lease commenced
in March 1994 and ended in February 1997. During the effectivity
of the lease, Lourdes sent a letter6 dated January 2, 1995 to
Roberto where she offered to sell to the latter subject parcel of
land. She pegged the price at ₱37,541,000.00 and gave him two
years from January 2, 1995 to decide on the said offer.
On June 19, 1997, or more than four months after the expiration
of the Contract of Lease, Lourdes sold subject parcel of land to
her only child, Catalina Suarez-De Leon, her son-in-law Wilfredo De
Leon, and her two grandsons, Miguel Luis S. De Leon and Rommel
S. De Leon (the De Leons), for a total consideration of only
₱2,750,000.00 as evidenced by a Deed of Absolute Sale7
executed by the parties. TCT No. 1779868 was then issued by the
Registry of Deeds of Quezon City in the name of the De Leons.
The new owners through their attorney-in-fact, Guillerma S. Silva,
notified Roberto to vacate the premises. Roberto refused hence,
the De Leons filed a complaint for Unlawful Detainer before the
Metropolitan Trial Court (MeTC) of Quezon City against him. On
August 30, 2000, the MeTC rendered a Decision9 ordering Roberto
to vacate the property for non-payment of rentals and expiration
of the contract.
Ruling of the Regional Trial Court
On November 8, 2000, while the ejectment case was on appeal,
Roberto filed with the RTC of Quezon City a Complaint10 for
Annulment of Deed of Absolute Sale, Reconveyance, Damages
and Application for Preliminary Injunction against Lourdes and the
De Leons. On November 13, 2000, Roberto filed a Notice of Lis
Pendens11 with the Registry of Deeds of Quezon City.
On January 8, 2001, respondents filed An Answer with
Counterclaim12 praying that the Complaint be dismissed for lack
of cause of action. They claimed that the filing of such case was a
mere leverage of Roberto against them because of the favorable
Decision issued by the MeTC in the ejectment case.
On September 17, 2001, the RTC issued an Order13 declaring
Lourdes and the De Leons in default for their failure to appear
before the court for the second time despite notice. Upon a
Motion for Reconsideration,14 the trial court in an Order15 dated
October 19, 2001 set aside its Order of default.
After trial, the court a quo rendered a Decision declaring the Deed
of Absolute Sale made by Lourdes in favor of the De Leons as
valid and binding. The offer made by Lourdes to Roberto did not
ripen into a contract to sell because the price offered by the
former was not acceptable to the latter. The offer made by
Lourdes is no longer binding and effective at the time she decided
to sell the subject lot to the De Leons because the same was not
accepted by Roberto. Thus, in a Decision dated November 18,
2002, the trial court dismissed the complaint. Its dispositive
portion reads:
WHEREFORE, premises considered, judgment is hereby rendered
dismissing the above-entitled Complaint for lack of merit, and
ordering the Plaintiff to pay the Defendants, the following:
113
Sales – Chapter 3 Cases
1. the amount of ₱30,000.00 as moral damages;
2. the amount of ₱30,000.00 as exemplary damages;
3. the amount of ₱30,000.00 as attorney’s fees; and
4. cost of the litigation.
SO ORDERED.16
Ruling of the Court of Appeals
On May 30, 2005, the CA issued its Decision dismissing Roberto’s
appeal and affirming the Decision of the RTC.
Hence, this Petition for Review on Certiorari filed by Roberto
advancing the following arguments:
I.
The Trial Court and the Court of Appeals had decided that the
"Right of First Refusal" exists only within the parameters of an
"Option to Buy", and did not exist when the property was sold later
to a third person, under favorable terms and conditions which the
former buyer can meet.
II.
What is the status or sanctions of an appellee in the Court of
Appeals who has not filed or failed to file an appellee’s brief?17
Petitioner’s Arguments
Roberto claims that Lourdes violated his right to buy subject
property under
the principle of "right of first refusal" by not giving him "notice"
and the opportunity to buy the property under the same terms and
conditions or specifically based on the much lower price paid by
the De Leons.
Roberto further contends that he is enforcing his "right of first
refusal" based on Equatorial Realty Development, Inc. v. Mayfair
Theater, Inc.18 which is the leading case on the "right of first
refusal."
Respondents’ Arguments
On the other hand, respondents posit that this case is not covered
by the principle of "right of first refusal" but an unaccepted
unilateral promise to sell or, at best, a contract of option which
was not perfected. The letter of Lourdes to Roberto clearly
embodies an option contract as it grants the latter only two years
to exercise the
option to buy the subject property at a price certain of
₱37,541,000.00. As an option contract, the said letter would have
been binding upon Lourdes without need of any consideration,
had Roberto accepted the offer. But in this case there was no
acceptance made neither was there a distinct consideration for
the option contract.
Our Ruling
The petition is without merit.
This case involves an option contract and not a contract of a right
of first refusal
In Beaumont v. Prieto,19 the nature of an option contract is
explained thus:
In his Law Dictionary, edition of 1897, Bouvier defines an option
as a contract, in the following language:
‘A contract by virtue of which A, in consideration of the payment
of a certain sum to B, acquires the privilege of buying from, or
selling to, B certain securities or properties within a limited time at
a specified price. (Story vs. Salamon, 71 N. Y., 420.)’
From Vol. 6, page 5001, of the work "Words and Phrases," citing
the case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St.
Rep., 17) the following quotation has been taken:
‘An agreement in writing to give a person the ‘option’ to purchase
lands within a given time at a named price is neither a sale nor an
agreement to sell. It is simply a contract by which the owner of
property agrees with another person that he shall have the right to
buy his property at a fixed price within a certain time. He does not
sell his land; he does not then agree to sell it; but he does sell
something; that is, the right or privilege to buy at the election or
option of the other party. The second party gets in praesenti, not
lands, nor an agreement that he shall have lands, but he does get
something of value; that is, the right to call for and receive lands if
he elects. The owner parts with his right to sell his lands, except
to the second party, for a limited period. The second party
receives this right, or rather, from his point of view, he receives the
right to elect to buy.
114
Sales – Chapter 3 Cases
But the two definitions above cited refer to the contract of option,
or, what amounts to the same thing, to the case where there was
cause or consideration for the obligation x x x. (Emphasis
supplied.)
On the other hand, in Ang Yu Asuncion v. Court of Appeals,20 an contract of a right of first refusal. In its entirety, the said letter-
elucidation on the "right of first refusal" was made thus: offer reads:
In the law on sales, the so-called ‘right of first refusal’ is an 206 Valdes Street
innovative juridical relation. Needless to point out, it cannot be Josefa Subd. Balibago
deemed a perfected contract of sale under Article 1458 of the
Civil Code. Neither can the right of first refusal, understood in its
normal concept, per se be brought within the purview of an option
under the second paragraph of Article 1479, aforequoted, or
possibly of an offer under Article 1319 of the same Code. An
option or an offer would require, among other things, a clear
certainty on both the object and the cause or consideration of the
envisioned contract. In a right of first refusal, while the object
might be made determinate, the exercise of the right, however,
would be dependent not only on the grantor's eventual intention to
enter into a binding juridical relation with another but also on
terms, including the price, that obviously are yet to be later firmed
up. Prior thereto, it can at best be so described as merely
belonging to a class of preparatory juridical relations governed
not by contracts (since the essential elements to establish the
vinculum juris would still be indefinite and inconclusive) but by,
among other laws of general application, the pertinent scattered
provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been
decreed under a final judgment, like here, its breach cannot justify
correspondingly an issuance of a writ of execution under a
judgment that merely recognizes its existence, nor would it
sanction an action for specific performance without thereby
negating the indispensable element of consensuality in the
perfection of contracts. It is not to say, however, that the right of
first refusal would be inconsequential for, such as already
intimated above, an unjustified disregard thereof, given, for
instance, the circumstances expressed in Article 19 of the Civil
Code, can warrant a recovery for damages. (Emphasis supplied.)
From the foregoing, it is thus clear that an option contract is
entirely different and distinct from a right of first refusal in that in
the former, the option granted to the offeree is for a fixed period
and at a determined price. Lacking these two essential requisites,
what is involved is only a right of first refusal.
In this case, the controversy is whether the letter of Lourdes to
115
Roberto dated January 2, 1995 involved an option contract or a
Sales – Chapter 3 Cases
Angeles City 2009 An accepted unilateral promise to buy or to sell a determinate
Art. 1479. A promise to buy and sell a determinate thing for a thing for a price certain is binding upon the promissor if the
January 2, 1995 price certain is reciprocally demandable. promise is supported by a consideration distinct from the price.

Tuazon Const. Co. It is clear from the provision of Article 1324 that there is a great
986 Tandang Sora Quezon City difference between the effect of an option which is without a
consideration from one which is founded upon a consideration. If
Dear Mr. Tuazon, the option is without any consideration, the offeror may withdraw
his offer by communicating such withdrawal to the offeree at
I received with great joy and happiness the big box of sweet anytime before acceptance; if it is founded upon a consideration,
grapes and ham, fit for a king’s party. Thanks very much. the offeror cannot withdraw his offer before the lapse of the
period agreed upon.
I am getting very old (79 going 80 yrs. old) and wish to live in the
U.S.A. with my only family. I need money to buy a house and lot The second paragraph of Article 1479 declares that "an accepted
and a farm with a little cash to start. unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported
I am offering you to buy my 1211 square meter at ₱37,541,000.00 by a consideration distinct from the price." Sanchez v. Rigos21
you can pay me in dollars in the name of my daughter. I never provided an interpretation of the said second paragraph of Article
offered it to anyone. Please shoulder the expenses for the 1479 in relation to Article 1324. Thus:
transfer. I wish the Lord God will help you buy my lot easily and
you will be very lucky forever in this place. You have all the time to There is no question that under Article 1479 of the new Civil Code
decide when you can, but not for 2 years or more. "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
I wish you long life, happiness, health, wealth and great fortune from the price." This is clearly inferred from the context of said
always! article that a unilateral promise to buy or to sell, even if accepted,
is only binding if supported by consideration. In other words, "an
I hope the Lord God will help you be the recipient of multi-billion accepted unilateral promise can only have a binding effect if
projects aid from other countries. supported by a consideration, which means that the option can
still be withdrawn, even if accepted, if the same is not supported
Thank you, by any consideration. Hence, it is not disputed that the option is
without consideration. It can therefore be withdrawn
Lourdes Q. del Rosario vda de Suarez notwithstanding the acceptance made of it by appellee.

It is clear that the above letter embodies an option contract as it It is true that under Article 1324 of the new Civil Code, the general
grants Roberto a fixed period of only two years to buy the subject rule regarding offer and acceptance is that, when the offerer gives
property at a price certain of ₱37,541,000.00. It being an option to the offeree a certain period to accept, "the offer may be
contract, the rules applicable are found in Articles 1324 and 1479 withdrawn at any time before acceptance" except when the option
of the Civil Code which provide: is founded upon consideration, but this general rule must be
interpreted as modified by the provision of Article 1479 above
Art. 1324. When the offerer has allowed the offeree a certain referred to, which applies to "a promise to buy and sell"
period to accept, the offer may be withdrawn at any time before specifically. As already stated, this rule requires that a promise to
acceptance by communicating such withdrawal, except when the sell to be valid must be supported by a consideration distinct from
option is founded upon a consideration, as something paid or the price.
116
promised.
Sales – Chapter 3 Cases
In Diamante v. Court of Appeals,22 this Court further declared
that:
A unilateral promise to buy or sell is a mere offer, which is not
converted into a contract except at the moment it is accepted.
Acceptance is the act that gives life to a juridical obligation,
because, before the promise is accepted, the promissor may
withdraw it at any time. Upon acceptance, however, a bilateral
contract to sell and to buy is created, and the offeree ipso facto
assumes the obligations of a purchaser; the offeror, on the other
hand, would be liable for damages if he fails to deliver the thing he
had offered for sale.
property to Equatorial. The existence of the lease of the property
is known to the De Leons as they are related to Lourdes while in
Equatorial, the lawyers of Equatorial studied the lease contract of
Mayfair over the property. The property in this case was sold by
Lourdes to the De

xxxx

Even if the promise was accepted, private respondent was not

bound thereby in the absence of a distinct consideration.
(Emphasis ours.)

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

Consent is manifested by the meeting of the offer and the

acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer.
(Emphasis supplied.)

The counter-offer of Roberto for a much lower price was not

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

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

applicable here

It is the position of Roberto that the facts of this case and that of
Equatorial are similar in nearly all aspects. Roberto is a lessee of
the property like Mayfair Theater in Equatorial. There was an offer
made to Roberto by Lourdes during the effectivity of the contract
of lease which was also the case in Equatorial. There were
negotiations as to the price which did not bear fruit because
Lourdes sold the property to the De Leons which was also the
117
case in Equatorial wherein Carmelo and Bauermann sold the
Sales – Chapter 3 Cases
Leons at a much lower price which is also the case in Equatorial
where Carmelo and Bauerman sold to Equatorial at a lesser price.
It is Roberto’s conclusion that as in the case of Equatorial, there
was a violation of his right of first refusal and hence annulment or
rescission of the Deed of Absolute Sale is the proper remedy.
Roberto’s reliance in Equatorial is misplaced. Despite his claims,
the facts in Equatorial radically differ from the facts of this case.
Roberto overlooked the fact that in Equatorial, there was an
express provision in the Contract of Lease that –
right of first refusal which is similar to the one given to Mayfair
Theater in the case of Equatorial. Therefore, there is no
justification to annul the deed of sale validly entered into by
Lourdes with the De Leons.
What is the effect of the failure of Lourdes to file her appellee’s
brief at the CA?
Lastly, Roberto argues that Lourdes should be sanctioned for her
failure to file her appellee’s brief before the CA.
appellee’s brief.
The failure of the appellee to file his brief would not result to the
rendition of a decision favorable to the appellant. The former is
considered only to have waived his right to file the Appellee’s
Brief. The CA has the jurisdiction to resolve the case based on the
Appellant’s Brief and the records of the case forwarded by the
RTC. The appeal is therefore considered submitted for decision
and the CA properly acted on it.

(i)f the LESSOR should desire to sell the leased properties, the
LESSEE shall be given 30-days exclusive option to purchase the
same.
There is no such similar provision in the Contract of Lease
between Roberto and Lourdes. What is involved here is a separate
and distinct offer made by Lourdes through a letter dated January
2, 1995 wherein she is selling the leased property to Roberto for a
definite price and which gave the latter a definite period for
acceptance. Roberto was not given a right of first refusal. The
letter-offer of Lourdes did not form part of the Lease Contract
because it was made more than six months after the
commencement of the lease.
It is also very clear that in Equatorial, the property was sold within
the lease period. In this case, the subject property was sold not
only after the expiration of the period provided in the letter-offer of
Lourdes but also after the effectivity of the Contract of Lease.
Moreover, even if the offer of Lourdes was accepted by Roberto,
still the former is not bound thereby because of the absence of a
consideration distinct and separate from the price. The argument
of Roberto that the separate consideration was the liberality on
the part of Lourdes cannot stand. A perusal of the letter-offer of
Lourdes would show that what drove her to offer the property to
Roberto was her immediate need for funds as she was already
very old. Offering the property to Roberto was not an act of
liberality on the part of Lourdes but was a simple matter of
convenience and practicality as he was the one most likely to buy
the property at that time as he was then leasing the same.
All told, the facts of the case, as found by the RTC and the CA, do
not support Roberto’s claims that the letter of Lourdes gave him a
Certainly, the appellee’s failure to file her brief would not mean
that the case would be automatically decided against her. Under
the circumstances, the prudent action on the part of the CA would
be to deem Lourdes to have waived her right to file her appellee’s
brief. De Leon v. Court of Appeals,23 is instructive when this Court
decreed:
On the second issue, we hold that the Court of Appeals did not
commit grave abuse of discretion in considering the appeal
submitted for decision. The proper remedy in case of denial of the
motion to dismiss is to file the appellee’s brief and proceed with
the appeal. Instead, petitioner opted to file a motion for
reconsideration which, unfortunately, was pro forma. All the
grounds raised therein have been discussed in the first resolution
of the respondent Court of Appeals. There is no new ground
raised that might warrant reversal of the resolution. A cursory
perusal of the motion would readily show that it was a near
verbatim repetition of the grounds stated in the motion to dismiss;
hence, the filing of the motion for reconsideration did not suspend
the period for filing the appellee’s brief. Petitioner was therefore
properly deemed to have waived his right to file appellee’s brief.
(Emphasis supplied.)lawphi1
In the above cited case, De Leon was the plaintiff in a Complaint
for a sum of money in the RTC. He obtained a favorable judgment
and so defendant went to the CA. The appeal of defendant-
appellant was taken cognizance of by the CA but De Leon filed a
Motion to Dismiss the Appeal with Motion to Suspend Period to
file Appellee’s Brief. The CA denied the Motion to Dismiss. De
Leon filed a Motion for Reconsideration which actually did not
suspend the period to file the appellee’s brief. De Leon therefore
failed to file his brief within the period specified by the rules and
118
hence he was deemed by the CA to have waived his right to file
Sales – Chapter 3 Cases
WHEREFORE, the instant petition for review on certiorari is
DENIED. The assailed Decision of the Court of Appeals in CA-G.R.
CV No. 78870, which affirmed the Decision dated November 18,
2002 of the Regional Trial Court, Branch 101, Quezon City in Civil
Case No. Q-00-42338 is AFFIRMED.
SO ORDERED.
HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D. IGNACIO- verbal repurchase/compromise agreement was actually reached
MANALO, MILFA D. IGNACIO-MANALO AND FAUSTINO D. and implemented by the parties.
IGNACIO, Petitioners,
vs.
HOME BANKERS SAVINGS AND TRUST COMPANY, SPOUSES
PHILLIP AND THELMA RODRIGUEZ, CATHERINE, REYNOLD &
JEANETTE, all surnamed ZUNIGA, Respondents.

Before the Court is a Petition for Review on Certiorari under Rule

45 assailing the Decision1 dated July 18, 2006 and Resolution2
dated May 2, 2007 of the Court of Appeals (CA) in CA-G.R. CV No.
73551. The CA reversed the Decision3 dated June 15, 1999 of the
Regional Trial Court (RTC) of Pasig City, Branch 151 in Civil Case
No. 58980.

The factual antecedents:

In August 1981, petitioner Fausto C. Ignacio mortgaged two

parcels of land to Home Savings Bank and Trust Company, the
predecessor of respondent Home Bankers Savings and Trust
Company, as security for the ₱500,000.00 loan extended to him
by said bank. These properties which are located in Cabuyao,
Laguna are covered by Transfer Certificate of Title Nos. (T-40380)
T-8595 and (T-45804) T-8350 containing an area of 83,303 square
meters and 120,110 square meters, respectively.4

When petitioner defaulted in the payment of his loan obligation,

respondent bank proceeded to foreclose the real estate
mortgage. At the foreclosure sale held on January 26, 1983,
respondent bank was the highest bidder for the sum of
₱764,984.67. On February 8, 1983, the Certificate of Sale issued
to respondent bank was registered with the Registry of Deeds of
Calamba, Laguna. With the failure of petitioner to redeem the
foreclosed properties within one year from such registration, title
to the properties were consolidated in favor of respondent bank.
Consequently, TCT Nos. T-8595 and T-8350 were cancelled and
TCT Nos. 111058 and 111059 were issued in the name of
respondent bank.5

Despite the lapse of the redemption period and consolidation of

title in respondent bank, petitioner offered to repurchase the
properties. While the respondent bank considered petitioner's
offer to repurchase, there was no repurchase contract executed.
119
The present controversy was fuelled by petitioner's stance that a
Sales – Chapter 3 Cases
In the meantime, respondent bank made the following
dispositions of the foreclosed properties already titled in its name:
TCT No. 111059 (Subdivided into six lots with individual titles -
TCT Nos. 117771, 117772, 117773, 117774, 117775 and 117776)
A. TCT No. 117771 (16,350 sq.ms.) - Sold to Fermin Salvador and
Bella Salvador under Deed of Absolute Sale dated May 23, 1984
for the price of ₱150,000.00
B. TCT No. 11772 (82,569 sq.ms. subdivided into 2 portions
1) Lot 3-B-1 (35,447 sq.ms.) - Sold to Dr. Oscar Remulla and
Natividad Pagtakhan, Dr. Edilberto Torres and Dra. Rebecca
Amores under Deed of Absolute Sale dated April 17, 1985 for the
price of ₱150,000.00
2) Lot 3-B-2 covered by separate title TCT No. 124660 (Subdivided
into 3 portions -
Lot 3-B-2-A (15,000 sq.ms.) - Sold to Dr. Myrna del Carmen Reyes
under Deed of Absolute Sale dated March 23, 1987 for the price of
₱150,000.00
Lot 3-B-2-B (15,000 sq.ms.) - Sold to Dr. Rodito Boquiren under
Deed of Absolute Sale dated March 23, 1987 for the price of
₱150,000.00
Lot 3-B-2-C (17,122 sq.ms.) covered by TCT No. T-154568 -
C. TCT No.117773 (17,232 sq.ms.) - Sold to Rizalina Pedrosa
under Deed of Absolute Sale dated June 4, 1984 for the price of
₱150,000.00
The expenses for the subdivision of lots covered by TCT No.
111059 and TCT No. 117772 were shouldered by petitioner who
likewise negotiated the above-mentioned sale transactions. The
properties covered by TCT Nos. T-117774 to 117776 are still
registered in the name of respondent bank.6
In a letter addressed to respondent bank dated July 25, 1989,
petitioner expressed his willingness to pay the amount of
₱600,000.00 in full, as balance of the repurchase price, and
requested respondent bank to release to him the remaining
parcels of land covered by TCT Nos. 111058 and T-154658 intervenors and return all amounts paid to it.13
("subject properties").7 Respondent bank however, turned down
his request. This prompted petitioner to cause the annotation of On July 8, 1991, petitioner amended his complaint to include as
an adverse claim on the said titles on September 18, 1989.8 alternative relief under the prayer for reconveyance the payment
by respondent bank of the prevailing market value of the subject
Prior to the annotation of the adverse claim, on August 24, 1989, properties "less whatever remaining obligation due the bank by
the property covered by TCT No. 154658 was sold by respondent reason of the mortgage under the terms of the compromise
bank to respondent spouses Phillip and Thelma Rodriguez, agreement.14
without informing the petitioner. On October 6, 1989, again
without petitioner's knowledge, respondent bank sold the property
covered by TCT No T-111058 to respondents Phillip and Thelma
Rodriguez, Catherine M. Zuñiga, Reynold M. Zuñiga and Jeannette
M. Zuñiga.9
On December 27, 1989, petitioner filed an action for specific
performance and damages in the RTC against the respondent
bank. As principal relief, petitioner sought in his original complaint
the reconveyance of the subject properties after his payment of
₱600,000.00.10 Respondent bank filed its Answer denying the
allegations of petitioner and asserting that it was merely
exercising its right as owner of the subject properties when the
same were sold to third parties.
For failure of respondent bank to appear during the pre-trial
conference, it was declared as in default and petitioner was
allowed to present his evidence ex parte on the same date
(September 3, 1990). Petitioner simultaneously filed an "Ex-Parte
Consignation" tendering the amount of ₱235,000.00 as balance of
the repurchase price.11 On September 7, 1990, the trial court
rendered judgment in favor of petitioner. Said decision, as well as
the order of default, were subsequently set aside by the trial court
upon the filing of a motion for reconsideration by the respondent
bank.12
In its Order dated November 19, 1990, the trial court granted the
motion for intervention filed by respondents Phillip and Thelma
Rodriguez, Catherine Zuñiga, Reynold Zuñiga and Jeannette
Zuñiga. Said intervenors asserted their status as innocent
purchasers for value who had no notice or knowledge of the claim
or interest of petitioner when they bought the properties already
registered in the name of respondent bank. Aside from a
counterclaim for damages against the petitioner, intervenors also
prayed that in the event respondent bank is ordered to reconvey
120
the properties, respondent bank should be adjudged liable to the
Sales – Chapter 3 Cases
On June 15, 1999, the trial court rendered its Decision, the
dispositive portion of which reads:
WHEREFORE, findings [sic] the facts aver[r]ed in the complaint
supported by preponderance of evidences adduced, judgment is
hereby rendered in favor of the plaintiff and against the defendant
and intervenors by:
1. Declaring the two Deeds of Sale executed by the defendant in
favor of the intervenors as null and void and the Register of Deeds
in Calamba, Laguna is ordered to cancel and/or annul the two
Transfer Certificate of Titles No. T-154658 and TCT No. T-111058
issued to the intervenors.
2. Ordering the defendant to refund the amount of ₱1,004,250.00
to the intervenors as the consideration of the sale of the two
properties.
3. Ordering the defendant to execute the appropriate Deed of
Reconveyance of the two (2) properties in favor of the plaintiff
after the plaintiff pays in full the amount of ₱600,000.00 as
balance of the repurchase price.
4. Ordering the defendant bank to pay plaintiff the sum of
₱50,000.00 as attorney's fees.
5. Dismissing the counterclaim of the defendant and intervenors
against the plaintiff.
Costs against the defendant.
SO ORDERED.15
The trial court found that respondent bank deliberately
disregarded petitioner's substantial payments on the total
repurchase consideration. Reference was made to the letter dated
March 22, 1984 (Exhibit "I")16 as the authority for petitioner in
making the installment payments directly to the Universal
Properties, Inc. (UPI), respondent bank's collecting agent. Said
court concluded that the compromise agreement amounts to a
valid contract of sale between petitioner, as Buyer, and
respondent bank, as Seller. Hence, in entertaining other buyers for
the same properties already sold to petitioner with intention to
increase its revenues, respondent bank acted in bad faith and is
thus liable for damages to the petitioner. Intervenors were
likewise found liable for damages as they failed to exercise due
diligence before buying the subject properties.
Respondent bank appealed to the CA which reversed the trial
court's ruling, as follows:
WHEREFORE, the foregoing premises considered, the instant
appeal is hereby GRANTED. Accordingly, the assailed decision is
hereby REVERSED and SET ASIDE.
SO ORDERED.17
The CA held that by modifying the terms of the offer contained in
the March 22, 1984 letter of respondent bank, petitioner
effectively rejected the original offer with his counter-offer. There
was also no written conformity by respondent bank's officers to
the amended conditions for repurchase which were unilaterally
inserted by petitioner. Consequently, no contract of repurchase
was perfected and respondent bank acted well within its rights
when it sold the subject properties to herein respondents-
intervenors.
As to the receipts presented by petitioner allegedly proving the
installment payments he had completed, the CA said that these
were not payments of the repurchase price but were actually
remittances of the payments made by petitioner's buyers for the
purchase of the foreclosed properties already titled in the name of
respondent bank. It was noted that two of these receipts (Exhibits
"K" and "K-1")18 were issued to Fermin Salvador and Rizalina
Pedrosa, the vendees of two subdivided lots under separate
Deeds of Absolute Sale executed in their favor by the respondent
bank. In view of the attendant circumstances, the CA concluded
that petitioner acted merely as a broker or middleman in the sales
transactions involving the foreclosed properties. Lastly, the
respondents-intervenors were found to be purchasers who bought
the properties in good faith without notice of petitioner's interest
or claim. Nonetheless, since there was no repurchase contract
perfected, the sale of the subject properties to respondents-
intervenors remains valid and binding, and the issue of whether
the latter were innocent purchasers for value would be of no
consequence.
Petitioner's motion for reconsideration was likewise denied by the
appellate court.
Hence, this petition alleging that:
121
Sales – Chapter 3 Cases
A.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE
TRIAL COURT THAT THERE WAS A PERFECTED CONTRACT
TO REPURCHASE BETWEEN PETITIONER AND RESPONDENT-
BANK. ART. 1319. Consent is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to
B.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE
TRIAL COURT THAT PETITIONER DID NOT ACT AS BROKER IN
THE SALE OF THE FORECLOSED PROPERTIES AND THUS FAILED
TO CONSIDER THE EXISTENCE OF OFFICIAL RECEIPTS ISSUED IN
THE NAME OF THE PETITIONER THAT ARE DULY NOTED FOR HIS
ACCOUNT.
C.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE
TRIAL COURT THAT RESPONDENT-BANK DID NOT HAVE THE
RIGHT TO DISPOSE THE SUBJECT PROPERTIES.
D.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE
TRIAL COURT THAT RESPONDENTS-INTERVENORS ARE NOT
INNOCENT PURCHASERS FOR VALUE IN GOOD FAITH.19
It is to be noted that the above issues raised by petitioner alleged
grave abuse of discretion committed by the CA, which is proper in
a petition for certiorari under Rule 65 of the 1997 Rules of Civil
Procedure, as amended, but not in the present petition for review
on certiorari under Rule 45.
The core issue for resolution is whether a contract for the
repurchase of the foreclosed properties was perfected between
petitioner and respondent bank.
The Court sustains the decision of the CA.
Contracts are perfected by mere consent, which is manifested by
the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract.20 The requisite
acceptance of the offer is expressed in Article 1319 of the Civil
122
Code which states:
Sales – Chapter 3 Cases
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer.
In Palattao v. Court of Appeals,21 this Court held that if the
acceptance of the offer was not absolute, such acceptance is
insufficient to generate consent that would perfect a contract.
Thus:
Contracts that are consensual in nature, like a contract of sale, are
perfected upon mere meeting of the minds. Once there is
concurrence between the offer and the acceptance upon the
subject matter, consideration, and terms of payment, a contract is
produced. The offer must be certain. To convert the offer into a
contract, the acceptance must be absolute and must not qualify
the terms of the offer; it must be plain, unequivocal, unconditional,
and without variance of any sort from the proposal. A qualified
acceptance, or one that involves a new proposal, constitutes a
counter-offer and is a rejection of the original offer. Consequently,
when something is desired which is not exactly what is proposed
in the offer, such acceptance is not sufficient to generate consent
because any modification or variation from the terms of the offer
annuls the offer.22
The acceptance must be identical in all respects with that of the
offer so as to produce consent or meeting of the minds.23 Where
a party sets a different purchase price than the amount of the
offer, such acceptance was qualified which can be at most
considered as a counter-offer; a perfected contract would have
arisen only if the other party had accepted this counter-offer.24 In
Villanueva v. Philippine National Bank25 this Court further
elucidated on the meaning of unqualified acceptance, as follows:
…While it is impossible to expect the acceptance to echo every
nuance of the offer, it is imperative that it assents to those points
in the offer which, under the operative facts of each contract, are
not only material but motivating as well. Anything short of that
level of mutuality produces not a contract but a mere counter-
offer awaiting acceptance. More particularly on the matter of the
consideration of the contract, the offer and its acceptance must
be unanimous both on the rate of the payment and on its term. An
acceptance of an offer which agrees to the rate but varies the
term is ineffective.26 (Emphasis supplied)
Petitioner submitted as evidence of a perfected contract of a certain Mr. Lazaro, the representative of Mrs. Manuel
repurchase the March 22, 1984 letter (Exhibit "I")27 from Rita B. (President), and a certain Mr. Fajardo, which notations supposedly
Manuel, then President of UPI, a corporation formed by represent their "compromise agreement."28 These notations
respondent bank to dispose of its acquired assets, with notations indicate that the repurchase price would be ₱900,000.00 which
handwritten by petitioner himself. Said letter reads: shall be paid as follows: ₱150,000 - end of May '84; ₱150,000 -
end of June '84; Balance - "Depending on financial position".
March 22, 1984 Petitioner further alleged the following conditions of the verbal
agreement: (1) respondent bank shall release the equivalent land
Honorable Judge Fausto Ignacio area for payments made by petitioner who shall shoulder the
412 Bagumbayan Street, Pateros expenses for
Metro Manila
Dear Judge Ignacio:
Your proposal to repurchase your foreclosed properties located at
Cabuyao, Laguna consisting of a total area of 203,413 square
meters has been favorably considered subject to the following
terms and conditions:
1) Total Selling Price shall be ₱950,000.00
2) Downpayment of ₱150,00000 with the balance
Payable in Three (3) equal installments
as follows:
1st Installment - P 266,667 - on or before May 31, '84
2nd Installment - P 266,667 - on or before Sept. 31, '84
3rd Installment - P 266,666 - on or before Jan. 30, '85
TOTAL - P 800,000.00
3) All expenses pertinent to the subdivision of the parcel of land
consisting of 120,110 square meters shall be for your account.
Thank you,
Very truly yours,
RITA B. MANUEL
President
123
According to petitioner, he wrote the notations in the presence of
Sales – Chapter 3 Cases
subdivision of the land; (2) in case any portion of the subdivided
land is sold by petitioner, a separate document of sale would be
executed directly to the buyer; (3) the remaining portion of the
properties shall not be subject of respondent bank's transaction
without the consent and authority of petitioner; (4) the petitioner
shall continue in possession of the properties and whatever
portion still remaining, and attending to the needs of its tenants;
and (5) payments shall be made directly to UPI.29
The foregoing clearly shows that petitioner's acceptance of the
respondent bank's terms and conditions for the repurchase of the
foreclosed properties was not absolute. Petitioner set a different
repurchase price and also modified the terms of payment, which
even contained a unilateral condition for payment of the balance
(₱600,000), that is, depending on petitioner's "financial position."
The CA thus considered the qualified acceptance by petitioner as
a counter-proposal which must be accepted by respondent bank.
However, there was no evidence of any document or writing
showing the conformity of respondent bank's officers to this
counter-proposal.
Petitioner contends that the receipts issued by UPI on his
installment payments are concrete proof -- despite denials to the
contrary by respondent bank -- that there was an implied
acceptance of his counter-proposal and that he did not merely act
as a broker for the sale of the subdivided portions of the
foreclosed properties to third parties. Since all these receipts,
except for two receipts issued in the name of Fermin Salvador
and Rizalina Pedrosa, were issued in the name of petitioner
instead of the buyers themselves, petitioner emphasizes that the
payments were made for his account. Moreover, petitioner
asserts that the execution of the separate deeds of sale directly to
the buyers was in pursuance of the perfected repurchase
agreement with respondent bank, such an arrangement being "an
accepted practice to save on taxes and shortcut paper works."
The Court is unconvinced.
In Adelfa Properties, Inc. v. CA,30 the Court ruled that:
x x x The rule is that except where a formal acceptance is so
required, although the acceptance must be affirmatively and
clearly made and must be evidenced by some acts or conduct
communicated to the offeror, it may be made either in a formal or
an informal manner, and may be shown by acts, conduct, or words
of the accepting party that clearly manifest a present intention or
determination to accept the offer to buy or sell. Thus, acceptance
may be shown by the acts, conduct, or words of a party
recognizing the existence of the contract of sale.31
Even assuming that the bank officer or employee whom petitioner
claimed he had talked to regarding the March 22, 1984 letter had
acceded to his own modified terms for the repurchase, their
supposed verbal exchange did not bind respondent bank in view
of its corporate nature. There was no evidence that said Mr.
Lazaro or Mr. Fajardo was authorized by respondent bank's Board
of Directors to accept petitioner's counter-proposal to repurchase
the foreclosed properties at the price and terms other than those
communicated in the March 22, 1984 letter. As this Court ruled in
AF Realty & Development, Inc. v. Dieselman Freight Services,
Co.32
Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the
board of directors. Just as a natural person may authorize
another to do certain acts in his behalf, so may the board of
directors of a corporation validly
delegate some of its functions to individual officers or agents
appointed by it.1âwphi1 Thus, contracts or acts of a corporation
must be made either by the board of directors or by a corporate
agent duly authorized by the board. Absent such valid
delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but not
in the course of, or connected with, the performance of authorized
duties of such director, are held not binding on the corporation.33
Thus, a corporation can only execute its powers and transact its
business through its Board of Directors and through its officers
and agents when authorized by a board resolution or its by-
laws.34
In the absence of conformity or acceptance by properly
authorized bank officers of petitioner's counter-proposal, no
perfected repurchase contract was born out of the talks or
negotiations between petitioner and Mr. Lazaro and Mr. Fajardo.
Petitioner therefore had no legal right to compel respondent bank
to accept the ₱600,000 being tendered by him as payment for the
supposed balance of repurchase price.
124
A contract of sale is consensual in nature and is perfected upon
Sales – Chapter 3 Cases
mere meeting of the minds. When there is merely an offer by one Manalo, Milfa D. Ignacio-Manalo and Faustino D. Ignacio. SO ORDERED.
party without acceptance of the other, there is no contract.35
When the contract of sale is not perfected, it cannot, as an WHEREFORE, the petition for review on certiorari is DENIED. The
independent source of obligation, serve as a binding juridical Decision dated July 18, 2006 and Resolution dated May 2, 2007 of
relation between the parties.36 the Court of Appeals in CA-G.R. CV No. 73551 are hereby
AFFIRMED.
In sum, we find the ruling of the CA more in accord with the
established facts and applicable law and jurisprudence. With costs against the petitioners.
Petitioner's claim of utmost accommodation by respondent bank
of his own terms for the repurchase of his foreclosed properties
are simply contrary to normal business practice. As aptly
observed by the appellate court:

The submission of the plaintiff-appellee is unimpressive.

First, if the counter-proposal was mutually agreed upon by both

the plaintiff-appellee and defendant-appellant, how come not a
single signature of the representative of the defendant-appellant
was affixed thereto. Second, it is inconceivable that an agreement
of such great importance, involving two personalities who are
both aware and familiar of the practical and legal necessity of
reducing agreements into writing, the plaintiff-appellee, being a
lawyer and the defendant-appellant, a banking institution, not to
formalize their repurchase agreement. Third, it is quite absurd and
unusual that the defendant-appellant could have acceded to the
condition that the balance of the payment of the repurchase price
would depend upon the financial position of the plaintiff-appellee.
Such open[-]ended and indefinite period for payment is hardly
acceptable to a banking institution like the defendant-appellant
whose core existence fundamentally depends upon its financial
arrangements and transactions which, most, if not all the times
are intended to bear favorable outcome to its business. Last, had
there been a repurchase agreement, then, there should have been
titles or deeds of conveyance issued in favor of the plaintiff-
appellee. But as it turned out, the plaintiff-appellee never had any
land deeded or titled in his name as a result of the alleged
repurchase agreement. All these, reinforce the conclusion that the
counter-proposal was unilaterally made and inserted by the
plaintiff-appellee in Exhibit "I" and could not have been accepted
by the defendant-appellant, and that a different agreement other
than a repurchase agreement was perfected between them.37

Petitioner Fausto C. Ignacio passed away on November 11, 2008

125
and was substituted by his heirs, namely: Marfel D. Ignacio-
Sales – Chapter 3 Cases
VILLONCO REALTY COMPANY, plaintiff-appellee and EDITH
PEREZ DE TAGLE, intervenor-appellee,
vs.
BORMAHECO, INC., FRANCISCO N. CERVANTES and ROSARIO
N. CERVANTES, defendants-appellants. Meer, Meer & Meer for
plaintiff-appellee.
This action was instituted by Villonco Realty Company against
Bormaheco, Inc. and the spouses Francisco N. Cervantes and
Rosario N. Cervantes for the specific performance of a supposed
contract for the sale of land and the improvements thereon for
one million four hundred thousand pesos. Edith Perez de Tagle, as
agent, intervened in order to recover her commission. The lower
court enforced the sale. Bormaheco, Inc. and the Cervantes
spouses, as supposed vendors, appealed.
This Court took cognizance of the appeal because the amount
involved is more than P200,000 and the appeal was perfected
before Republic Act No. 5440 took effect on September 9, 1968.
The facts are as follows:
Francisco N. Cervantes and his wife, Rosario P. Navarra-
Cervantes, are the owners of lots 3, 15 and 16 located at 245
Buendia Avenue, Makati, Rizal with a total area of three thousand
five hundred square meters (TCT Nos. 43530, 43531 and 43532,
Exh. A, A-1 and A-2). The lots were mortgaged to the Development
Bank of the Phil (DBP) on April 21, 1959 as security for a loan of
P441,000. The mortgage debt was fully paid on July 10, 1969.
Cervantes is the president of Bormaheco, Inc., a dealer and
importer of industrial and agricultural machinery. The entire lots
are occupied by the building, machinery and equipment of
Bormaheco, Inc. and are adjacent to the property of Villonco
Realty Company situated at 219 Buendia Avenue.
In the early part of February, 1964 there were negotiations for the
sale of the said lots and the improvements thereon between
Romeo Villonco of Villonco Realty Company "and Bormaheco, Inc.,
represented by its president, Francisco N. Cervantes, through the
intervention of Edith Perez de Tagle, a real estate broker".
In the course of the negotiations, the brothers Romeo Villonco and
Teofilo Villonco conferred with Cervantes in his office to discuss
the price and terms of the sale. Later, Cervantes "went to see
Villonco for the same reason until some agreement" was arrived
at. On a subsequent occasion, Cervantes, accompanied by Edith
Perez de Tagle, discussed again the terms of the sale with
Villonco.
During the negotiations, Villonco Realty Company assumed that
the lots belonged to Bormaheco, Inc. and that Cervantes was duly
authorized to sell the same. Cervantes did not disclose to the
broker and to Villonco Realty Company that the lots were conjugal
properties of himself and his wife and that they were mortgaged
to the DBP.
Bormaheco, Inc., through Cervantes, made a written offer dated
February 12, 1964, to Romeo Villonco for the sale of the property.
The offer reads (Exh. B):
BORMAHECO, INC.
February 12,1964
Mr. Romeo
Villonco Villonco Building
Buendia Avenue
Makati, Rizal.
Dear Mr. Villonco:
This is with reference to our telephone conversation this noon on
the matter of the sale of our property located at Buendia Avenue,
with a total area of 3,500 sq. m., under the following conditions:
(1) That we are offering to sell to you the above property at
the price of P400.00 per square meter;
(2) That a deposit of P100,000.00 must be placed as earnest
money on the purchase of the above property which will become
part payment of the property in the event that the sale is
consummated;
(3) That this sale is to be consummated only after I shall
have also consummated my purchase of another property located
at Sta. Ana, Manila;
(4) That if my negotiations with said property will not be
consummated by reason beyond my control, I will return to you
your deposit of P100,000 and the sale of my property to you will
not also be consummated; and
126
(5) That final negotiations on both properties can be
Sales – Chapter 3 Cases
definitely known after 45 days. If the above terms is (are) acceptable to your Board, please issue
out the said earnest money in favor of Bormaheco, Inc., and Dear Mr. Cervantes:
deliver the same thru the bearer, Miss Edith Perez de Tagle.

Very truly yours,

SGD. FRANCISCO N. CERVANTES

President

The property mentioned in Bormaheco's letter was the land of the

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

On February 28, 1964, the Nassco Acting General Manager wrote

a letter to the Economic Coordinator, requesting approval of that
resolution. The Acting Economic Coordinator approved the
resolution on March 24, 1964 (Exh. 1).

In the meanwhile, Bormaheco, Inc. and Villonco Realty Company

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

VILLONCO REALTY COMPANY

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

March 4, 1964

Mr. Francisco Cervantes.

Bormaheco, Inc.
245 Buendia Avenue
127
Makati, Rizal
Sales – Chapter 3 Cases
In reference to the letter of Miss E. Perez de Tagle dated February (Sgd.) TEOFILO VILLONCO BORMAHECO, INC.
12th and 26, 1964 in respect to the terms and conditions on the (Sgd.) FRANCISCO CERVANTES
purchase of your property located at Buendia Ave., Makati, Rizal, CONFORME:
with a total area of 3,500 sq. meters., we hereby revise our offer, That this sale shall be subject to favorable consummation of a
as follows: property in Sta. Ana we are negotiating.

1. That the price of the property shall be P400.00 per sq. (Sgd.) FRANCISCO CERVANTES
m., including the improvements thereon;
The check for P100,000 (Exh. E) mentioned in the foregoing letter-
2. That a deposit of P100,000.00 shall be given to you as contract was delivered by Edith Perez de Tagle to Bormaheco, Inc.
earnest money which will become as part payment in the event on March 4, 1964 and was received by Cervantes. In the voucher-
the sale is consummated; receipt evidencing the delivery the broker indicated in her
handwriting that the earnest money was "subject to the terms and
3. This sale shall be cancelled, only if your deal with conditions embodied in Bormaheco's letter" of February 12 and
another property in Sta. Ana shall not be consummated and in Villonco Realty Company's letter of March 4, 1964 (Exh. E-1; 14
such case, the P100,000-00 earnest money will be returned to us tsn).
with a 10% interest p.a. However, if our deal with you is finalized,
said P100,000.00 will become as part payment for the purchase Then, unexpectedly, in a letter dated March 30, 1964, or twenty-six
of your property without interest: days after the signing of the contract of sale, Exhibit D, Cervantes
returned the earnest money, with interest amounting to P694.24
4. The manner of payment shall be as follows: (at ten percent per annum). Cervantes cited as an excuse the
circumstance that "despite the lapse of 45 days from February 12,
a. P100,000.00 earnest money and 1964 there is no certainty yet" for the acquisition of the Punta
650,000.00 as part of the down payment, or property (Exh. F; F-I and F-2). Villonco Realty Company refused to
P750,000.00 as total down payment accept the letter and the checks of Bormaheco, Inc. Cervantes
sent them by registered mail. When he rescinded the contract, he
b. The balance is payable as follows: was already aware that the Punta lot had been awarded to
P100,000.00 after 3 months Bormaheco, Inc. (25-26 tsn).
125,000.00 -do-
212,500.00 -do- Edith Perez de Tagle, the broker, in a letter to Cervantes dated
P650,000.00 Total March 31, 1964 articulated her shock and surprise at
Bormaheco's turnabout. She reviewed the history of the deal and
As regards to the other conditions which we have discussed explained why Romeo Villonco could not agree to the rescission
during our last conference on February 27, 1964, the same shall of the sale (Exh. G).**
be finalized upon preparation of the contract to sell.*
Cervantes in his letter of April 6, 1964, a reply to Miss Tagle's
If the above terms and conditions are acceptable to you, kindly letter, alleged that the forty-five day period had already expired
sign your conformity hereunder. Enclosed is our check for ONE and the sale to Bormaheco, Inc. of the Punta property had not
HUNDRED THOUSAND (P100,000.00) PESOS, MBTC Check No. been consummated. Cervantes said that his letter was a
448314, as earnest money. "manifestation that we are no longer interested to sell" the
Buendia Avenue property to Villonco Realty Company (Annex I of
Very truly yours, Stipulation of Facts). The latter was furnished with a copy of that
letter.
128
VILLONCO REALTY COMPANY
Sales – Chapter 3 Cases
In a letter dated April 7, 1964 Villonco Realty Company returned
the two checks to Bormaheco, Inc., stating that the condition for
the cancellation of the contract had not arisen and at the same
time announcing that an action for breach of contract would be
filed
against Bormaheco, Inc. (Annex G of Stipulation of
Facts).1äwphï1.ñët
On that same date, April 7, 1964 Villonco Realty Company filed the
complaint (dated April 6) for specific performance against
Bormaheco, Inc. Also on that same date, April 7, at eight-forty-five
in the morning, a notice of lis pendens was annotated on the titles
of the said lots.
Bormaheco, Inc. in its answers dated May 5 and 25, 1964 pleaded
the defense that the perfection of the contract of sale was subject
to the conditions (a) "that final acceptance or not shall be made
after 45 days" (sic) and (b) that Bormaheco, Inc. "acquires the Sta.
Ana property".
On June 2, 1964 or during the pendency of this case, the Nassco
Acting General Manager wrote to Bormaheco, Inc., advising it that
the Board of Directors and the Economic Coordinator had
approved the sale of the Punta lot to Bormaheco, Inc. and
requesting the latter to send its duly authorized representative to
the Nassco for the signing of the deed of sale (Exh. 1).
The deed of sale for the Punta land was executed on June 26,
1964. Bormaheco, Inc. was represented by Cervantes (Exh. J. See
Bormaheco, Inc. vs. Abanes, L-28087, July 31, 1973, 52 SCRA 73).
In view of the disclosure in Bormaheco's amended answer that
the three lots were registered in the names of the Cervantes
spouses and not in the name of Bormaheco, Inc., Villonco Realty
Company on July 21, 1964 filed an amended complaint
impleading the said spouses as defendants. Bormaheco, Inc. and
the Cervantes spouses filed separate answers.
As of January 15, 1965 Villonco Realty Company had paid to the
Manufacturers' Bank & Trust Company the sum of P8,712.25 as
interests on the overdraft line of P100,000 and the sum of P27.39
as interests daily on the same loan since January 16, 1965. (That
overdraft line was later settled by Villonco Realty Company on a
date not mentioned in its manifestation of February 19, 1975).
Villonco Realty Company had obligated itself to pay the sum of
P20,000 as attorney's fees to its lawyers. It claimed that it was
damaged in the sum of P10,000 a month from March 24, 1964
when the award of the Punta lot to Bormaheco, Inc. was
approved. On the other hand, Bormaheco, Inc. claimed that it had
sustained damages of P200,000 annually due to the notice of lis
pendens which had prevented it from constructing a multi-story
building on the three lots. (Pars. 18 and 19, Stipulation of
Facts).1äwphï1.ñët
Miss Tagle testified that for her services Bormaheco, Inc., through
Cervantes, obligated itself to pay her a three percent commission
on the price of P1,400,000 or the amount of forty-two thousand
pesos (14 tsn).
After trial, the lower court rendered a decision ordering the
Cervantes spouses to execute in favor of Bormaheco, Inc. a deed
of conveyance for the three lots in question and directing
Bormaheco, Inc. (a) to convey the same lots to Villonco Realty
Company, (b) to pay the latter, as consequential damages, the
sum of P10,000 monthly from March 24, 1964 up to the
consummation of the sale, (c) to pay Edith Perez de Tagle the
sum of P42,000 as broker's commission and (d) pay P20,000 as
to attorney's fees (Civil Case No. 8109).
Bormaheco, Inc. and the Cervantes spouses appealed. Their
principal contentions are (a) that no contract of sale was
perfected because Cervantes made a supposedly qualified
acceptance of the revised offer contained in Exhibit D, which
acceptance amounted to a counter-offer, and because the
condition that Bormaheco, inc. would acquire the Punta land
within the forty-five-day period was not fulfilled; (2) that
Bormaheco, Inc. cannot be compelled to sell the land which
belongs to the Cervantes spouses and (3) that Francisco N.
Cervantes did not bind the conjugal partnership and his wife
when, as president of Bormaheco, Inc., he entered into
negotiations with Villonco Realty Company regarding the said
land.
We hold that the appeal, except as to the issue of damages, is
devoid of merit.
"By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determining
thing, and the other to pay therefor a price certain in money or its
equivalent. A contract of sale may be absolute or conditional" (Art.
1458, Civil Code).
129
Sales – Chapter 3 Cases
"The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the
contract and upon the price. From that moment, the parties may
reciprocally demand performance, subject to the provisions of the
law governing the form of contracts" (Art. 1475, Ibid.).
"Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith,
usage and law" (Art. 1315, Civil Code).
"Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer" (Art.
1319, Civil Code). "An acceptance may be express or implied" (Art.
1320, Civil Code).
Bormaheco's acceptance of Villonco Realty Company's offer to
purchase the Buendia Avenue property, as shown in Teofilo
Villonco's letter dated March 4, 1964 (Exh. D), indubitably proves
that there was a meeting of minds upon the subject matter and
consideration of the sale. Therefore, on that date the sale was
perfected. (Compare with McCullough vs. Aenlle & Co., 3 Phil. 285;
Goyena vs. Tambunting, 1 Phil. 490). Not only that Bormaheco's
acceptance of the part payment of one hundred ,thousand pesos
shows that the sale was conditionally consummated or partly
executed subject to the purchase by Bormaheco, Inc. of the Punta
property. The nonconsummation of that purchase would be a
negative resolutory condition (Taylor vs. Uy Tieng Piao, 43 Phil.
873).
On February 18, 1964 Bormaheco's bid for the Punta property was
already accepted by the Nassco which had authorized its General
Manager to sign the corresponding deed of sale. What was
necessary only was the approval of the sale by the Economic
Coordinator and a request for that approval was already pending
in the office of that functionary on March 4, 1964.
Bormaheco, Inc. and the Cervantes spouses contend that the sale
was not perfected because Cervantes allegedly qualified his
acceptance of Villonco's revised offer and, therefore, his
acceptance amounted to a counter-offer which Villonco Realty
Company should accept but no such acceptance was ever
transmitted to Bormaheco, Inc. which, therefore, could withdraw
its offer.
That contention is not well-taken. It should be stressed that there
is no evidence as to what changes were made by Cervantes in
Villonco's revised offer. And there is no evidence that Villonco
Realty Company did not assent to the supposed changes and that
such assent was never made known to Cervantes.
What the record reveals is that the broker, Miss Tagle, acted as
intermediary between the parties. It is safe to assume that the
alleged changes or qualifications made by Cervantes were
approved by Villonco Realty Company and that such approval was
duly communicated to Cervantes or Bormaheco, Inc. by the broker
as shown by the fact that Villonco Realty Company paid, and
Bormaheco, Inc. accepted, the sum of P100,000 as earnest money
or down payment. That crucial fact implies that Cervantes was
aware that Villonco Realty Company had accepted the
modifications which he had made in Villonco's counter-offer. Had
Villonco Realty Company not assented to those insertions and
annotations, then it would have stopped payment on its check for
P100,000. The fact that Villonco Realty Company allowed its
check to be cashed by Bormaheco, Inc. signifies that the company
was in conformity with the changes made by Cervantes and that
Bormaheco, Inc. was aware of that conformity. Had those
insertions not been binding, then Bormaheco, Inc. would not have
paid interest at the rate of ten percent per annum, on the earnest
money of P100,000.
The truth is that the alleged changes or qualifications in the
revised counter — offer (Exh. D) are not material or are mere
clarifications of what the parties had previously agreed upon.
Thus, Cervantes' alleged insertion in his handwriting of the figure
and the words "12th and" in Villonco's counter-offer is the same
as the statement found in the voucher-receipt for the earnest
money, which reads: "subject to the terms and conditions
embodied in Bormaheco's letter of Feb. 12, 1964 and your letter of
March 4, 1964" (Exh. E-1).
Cervantes allegedly crossed out the word "Nassco" in paragraph 3
of Villonco's revised counter-offer and substituted for it the word
"another" so that the original phrase, "Nassco's property in Sta.
Ana", was made to read as "another property in Sta. Ana". That
change is trivial. What Cervantes did was merely to adhere to the
wording of paragraph 3 of Bormaheco's original offer (Exh. B)
which mentions "another property located at Sta. Ana." His
obvious purpose was to avoid jeopardizing his negotiation with
the Nassco for the purchase of its Sta. Ana property by unduly
publicizing it.
It is noteworthy that Cervantes, in his letter to the broker dated
April 6, 1964 (Annex 1) or after the Nassco property had been
awarded to Bormaheco, Inc., alluded to the "Nassco property". At
that time, there was no more need of concealing from the public
that Bormaheco, Inc. was interested in the Nassco property.
130
Similarly, Cervantes' alleged insertion of the letters "PA" ( per
Sales – Chapter 3 Cases
annum) after the word "interest" in that same paragraph 3 of the
revised counter-offer (Exh. D) could not be categorized as a major
alteration of that counter-offer that prevented a meeting of the
minds of the parties. It was understood that the parties had
contemplated a rate of ten percent per annum since ten percent a within three years provided security is given for the payment of
month or semi-annually would be usurious. the balance within three years with interest. Zayco, instead of
unconditionally accepting those terms, countered that he was
Appellants Bormaheco, Inc. and Cervantes further contend that going to make a down payment of P100,000, that Serra's
Cervantes, in clarifying in the voucher for the earnest money of mortgage
P100,000 that Bormaheco's acceptance thereof was subject to
the terms and conditions embodied in Bormaheco's letter of
February 12, 1964 and your (Villonco's) letter of March 4, 1964"
made Bormaheco's acceptance "qualified and conditional".
That contention is not correct. There is no incompatibility
between Bormaheco's offer of February 12, 1964 (Exh. B) and
Villonco's counter-offer of March 4, 1964 (Exh. D). The revised
counter-offer merely amplified Bormaheco's original offer.
The controlling fact is that there was agreement between the
parties on the subject matter, the price and the mode of payment
and that part of the price was paid. "Whenever earnest money is
given in a contract of sale, it shall be considered as part of the
price and as proof of the perfection of the contract" (Art. 1482,
Civil Code).
"It is true that an acceptance may contain a request for certain
changes in the terms of the offer and yet be a binding acceptance.
'So long as it is clear that the meaning of the acceptance is
positively and unequivocally to accept the offer, whether such
request is granted or not, a contract is formed.' " (Stuart vs.
Franklin Life Ins. Co., 165 Fed. 2nd 965, citing Sec. 79, Williston on
Contracts).
Thus, it was held that the vendor's change in a phrase of the offer
to purchase, which change does not essentially change the terms
of the offer, does not amount to a rejection of the offer and the
tender of a counter-offer (Stuart vs. Franklin Life Ins. Co., supra).
The instant case is not governed by the rulings laid down in
Beaumont vs. Prieto, 41 Phil. 670, 985, 63 L. Ed. 770, and Zayco
vs. Serra, 44 Phil. 326. In those two cases the acceptance
radically altered the offer and, consequently, there was no
meeting of the minds of the parties.
Thus, in the Zayco case, Salvador Serra offered to sell to Lorenzo
Zayco his sugar central for P1,000,000 on condition that the price
131
be paid in cash, or, if not paid in cash, the price would be payable
Sales – Chapter 3 Cases
obligation to the Philippine National Bank of P600,000 could be
transferred to Zayco's account and that he (plaintiff) would give a
bond to secure the payment of the balance of the price. It was
held that the acceptance was conditional or was a counter-offer
which had to be accepted by Serra. There was no such
acceptance. Serra revoked his offer. Hence, there was no
perfected contract.
In the Beaumont case, Benito Valdes offered to sell to W Borck
the Nagtahan Hacienda owned by Benito Legarda, who had
empowered Valdes to sell it. Borck was given three months from
December 4, 1911 to buy the hacienda for P307,000. On January
17, 1912 Borck wrote to Valdes, offering to purchase the hacienda
for P307,000 payable on May 1, 1912. No reply was made to that
letter. Borck wrote other letters modifying his proposal. Legarda
refused to convey the property.
It was held that Borck's January 17th letter plainly departed from
the terms of the offer as to the time of payment and was a
counter-offer which amounted to a rejection of Valdes' original
offer. A subsequent unconditional acceptance could not revive
that offer.
The instant case is different from Laudico and Harden vs. Arias
Rodriguez, 43 Phil. 270 where the written offer to sell was revoked
by the offer or before the offeree's acceptance came to the
offeror's knowledge.
Appellants' next contention is that the contract was not perfected
because the condition that Bormaheco, Inc. would acquire the
Nassco land within forty-five days from February 12, 1964 or on or
before March 28, 1964 was not fulfilled. This contention is tied up
with the following letter of Bormaheco, Inc. (Exh. F):
BORMAHECO, INC.
March 30, 1964
Villonco Realty Company
V.R.C. Building
219 Buendia Ave.,
Makati, Rizal
Gentlemen:
Had it been Cervantes' intention that the forty-five days would be
We are returning herewith your earnest money together with the period within which the Nassco land should be acquired by
interest thereon at 10% per annum. Please be informed that Bormaheco, then he would have specified that period in paragraph
despite the lapse of the 45 days from February 12, 1964 there is 3 of his offer so that paragraph would read in this wise: "That this
no certainty yet for us to acquire a substitute property, hence the sale is to be consummated only after I shall have consummated
return of the earnest money as agreed upon. my purchase of another property located at Sta. Ana, Manila
within forty-five days from the date hereof ." He could have also
Very truly yours, specified that period in his "conforme" to Villonco's counter-offer
of March 4, 1964 (Exh. D) so that instead of merely stating "that
SGD. FRANCISCO N. CERVANTES this sale shall be subject to favorable consummation of a property
President in Sta. Ana we
Encl.: P.N.B. Check No. 112994 J
P.N.B. Check No. 112996J
That contention is predicated on the erroneous assumption that
Bormaheco, Inc. was to acquire the Nassco land within forty-five
days or on or before March 28, 1964.
The trial court ruled that the forty-five-day period was merely an
estimate or a forecast of how long it would take Bormaheco, Inc.
to acquire the Nassco property and it was not "a condition or a
deadline set for the defendant corporation to decide whether or
not to go through with the sale of its Buendia property".
The record does not support the theory of Bormaheco, Inc. and
the Cervantes spouses that the forty-five-day period was the time
within which (a) the Nassco property and two Pasong Tamo lots
should be acquired, (b) when Cervantes would secure his wife's
consent to the sale of the three lots and (c) when Bormaheco, Inc.
had to decide what to do with the DBP encumbrance.
Cervantes in paragraph 3 of his offer of February 12, 1964 stated
that the sale of the Buendia lots would be consummated after he
had consummated the purchase of the Nassco property. Then, in
paragraph 5 of the same offer he stated "that final negotiations on
both properties can be definitely known after forty-five days" (See
Exh. B).
It is deducible from the tenor of those statements that the
consummation of the sale of the Buendia lots to Villonco Realty
Company was conditioned on Bormaheco's acquisition of the
Nassco land. But it was not spelled out that such acquisition
132
should be effected within forty-five days from February 12, 1964.
Sales – Chapter 3 Cases
are negotiating" he could have said: "That this sale shall be
subject to favorable consummation within forty-five days from
February 12, 1964 of a property in Sta. Ana we are negotiating".
No such specification was made. The term of forty-five days was
not a part of the condition that the Nassco property should be
acquired. It is clear that the statement "that final negotiations on
both property can be definitely known after 45 days" does not and
cannot mean that Bormaheco, Inc. should acquire the Nassco
property within forty-five days from February 12, 1964 as
pretended by Cervantes. It is simply a surmise that after forty-five
days (in fact when the forty-five day period should be computed is
not clear) it would be known whether Bormaheco, Inc. would be
able to acquire the Nassco property and whether it would be able
to sell the Buendia property. That aforementioned paragraph 5
does not even specify how long after the forty-five days the
outcome of the final negotiations would be known.
It is interesting to note that in paragraph 6 of Bormaheco's answer
to the amended complaint, which answer was verified by
Cervantes, it was alleged that Cervantes accepted Villonco's
revised counter-offer of March 4, 1964 subject to the condition
that "the final negotiations (acceptance) will have to be made by
defendant within 45 days from said acceptance" (31 Record on
Appeal). If that were so, then the consummation of Bormaheco's
purchase of the Nassco property would be made within forty-five
days from March 4, 1964.
What makes Bormaheco's stand more confusing and untenable is
that in its three answers it invariably articulated the incoherent
and vague affirmative defense that its acceptance of Villonco's
revised counter-offer was conditioned on the circumstance "that
final acceptance or not shall be made after 45 days" whatever that
means. That affirmative defense is inconsistent with the other
aforequoted incoherent statement in its third answer that "the
final negotiations (acceptance) will have to be made by defendant
within 45 days from said acceptance" (31 Record on
Appeal).1äwphï1.ñët
Thus, Bormaheco's three answers and paragraph 5 of his offer of
February 12, 1964 do not sustain at all its theory that the Nassco
property should be acquired on or before March 28, 1964. Its
rescission or revocation of its acceptance cannot be anchored on
that theory which, as articulated in its pleadings, is quite equivocal
and unclear.
It should be underscored that the condition that Bormaheco, Inc.
should acquire the Nassco property was fulfilled. As admitted by
the appellants, the Nassco property was conveyed to Bormaheco,
Inc. on June 26, 1964. As early as January 17, 1964 the property
was awarded to Bormaheco, Inc. as the highest bidder. On
February 18, 1964 the Nassco Board authorized its General
Manager to sell the property to Bormaheco, Inc. (Exh. H). The
Economic Coordinator approved the award on March 24, 1964. It
is reasonable to assume that had Cervantes been more assiduous
in following up the transaction, the Nassco property could have
been transferred to Bormaheco, Inc. on or before March 28, 1964,
the supposed last day of the forty-five-day period.
The appellants, in their fifth assignment of error, argue that
Bormaheco, Inc. cannot be required to sell the three lots in
question because they are conjugal properties of the Cervantes
spouses. They aver that Cervantes in dealing with the Villonco
brothers acted as president of Bormaheco, Inc. and not in his
individual capacity and, therefore, he did not bind the conjugal
partnership nor Mrs. Cervantes who was allegedly opposed to the
sale.
Those arguments are not sustainable. It should be remembered
that Cervantes, in rescinding the contract of sale and in returning
the earnest money, cited as an excuse the circumstance that
there was no certainty in Bormaheco's acquisition of the Nassco
property (Exh. F and Annex 1). He did not say that Mrs. Cervantes
was opposed to the sale of the three lots. He did not tell Villonco
Realty Company that he could not bind the conjugal partnership.
In truth, he concealed the fact that the three lots were registered
"in the name of FRANCISCO CERVANTES, Filipino, of legal age,
married to Rosario P. Navarro, as owner thereof in fee simple". He
certainly led the Villonco brothers to believe that as president of
Bormaheco, Inc. he could dispose of the said lots. He inveigled
the Villoncos into believing that he had untrammelled control of
Bormaheco, Inc., that Bormaheco, Inc. owned the lots and that he
was invested with adequate authority to sell the same.
Thus, in Bormaheco's offer of February 12, 1964, Cervantes first
identified the three lots as "our property" which "we are offering to
sell ..." (Opening paragraph and par. 1 of Exh. B). Whether the
prounoun "we" refers to himself and his wife or to Bormaheco, Inc.
is not clear. Then, in paragraphs 3 and 4 of the offer, he used the
first person and said: "I shall have consummated my purchase" of
the Nassco property; "... my negotiations with said property" and "I
will return to you your deposit". Those expressions conveyed the
133
impression and generated the belief that the Villoncos did not
Sales – Chapter 3 Cases
have to deal with Mrs. Cervantes nor with any other official of
Bormaheco, Inc.
The pleadings disclose that Bormaheco, Inc. and Cervantes
deliberately and studiously avoided making the allegation that
Cervantes was not authorized by his wife to sell the three lots or
that he acted merely as president of Bormaheco, Inc. That
defense was not interposed so as not to place Cervantes in the
ridiculous position of having acted under false pretenses when he
negotiated with the Villoncos for the sale of the three lots.
The incongruous stance of the Cervantes spouses is also patent
in their answer to the amended complaint. In that answer they
disclaimed knowledge or information of certain allegations which

Villonco Realty Company, in paragraph 2 of its original complaint,

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

That paragraph 2 was not, repeat, was not denied by Bormaheco,

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

The three answers of Bormaheco, Inc. contain the following

affirmative defense:

13. That defendant's insistence to finally decide on the

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

In that affirmative defense, Bormaheco, Inc. pretended that it

needed forty- five days within which to acquire the Nassco
property and "to negotiate" with the registered owner of the three
lots. The absurdity of that pretension stands out in bold relief
when it is borne in mind that the answers of Bormaheco, Inc. were
verified by Cervantes and that the registered owner of the three
lots is Cervantes himself. That affirmative defense means that
Cervantes as president of Bormaheco, Inc. needed forty-five days
134
in order to "negotiate" with himself (Cervantes).
Sales – Chapter 3 Cases
were well-known to Cervantes as president of Bormaheco, Inc.
and which were admitted in Bormaheco's three answers that were
verified by Cervantes.
It is significant to note that Bormaheco, Inc. in its three answers,
which were verified by Cervantes, never pleaded as an affirmative
defense that Mrs. Cervantes opposed the sale of the three lots or
that she did not authorize her husband to sell those lots. Likewise,
it should be noted that in their separate answer the Cervantes
spouses never pleaded as a defense that Mrs. Cervantes was
opposed to the sale of three lots or that Cervantes could not bind
the conjugal partnership. The appellants were at first hesitant to
make it appear that Cervantes had committed the skullduggery of
trying to sell property which he had no authority to alienate.
It was only during the trial on May 17, 1965 that Cervantes
declared on the witness stand that his wife was opposed to the
sale of the three lots, a defense which, as already stated, was
never interposed in the three answers of Bormaheco, Inc. and in
the separate answer of the Cervantes spouses. That same
viewpoint was adopted in defendants' motion for reconsideration
dated November 20, 1965.
But that defense must have been an afterthought or was evolved
post litem motam since it was never disclosed in Cervantes' letter
of rescission and in his letter to Miss Tagle (Exh. F and Annex 1).
Moreover, Mrs. Cervantes did not testify at the trial to fortify that
defense which had already been waived for not having been
pleaded (See sec. 2, Rule 9, Rules of Court).
Taking into account the situation of Cervantes vis-a-vis
Bormaheco, Inc. and his wife and the fact that the three lots were
entirely occupied by Bormaheco's building, machinery and
equipment and were mortgaged to the DBP as security for its
obligation, and considering that appellants' vague affirmative
defenses do not include Mrs. Cervantes' alleged opposition to the
sale, the plea that Cervantes had no authority to sell the lots
strains the rivets of credibility (Cf. Papa and Delgado vs.
Montenegro, 54 Phil. 331; Riobo vs. Hontiveros, 21 Phil. 31).
"Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith"
(Art. 1159, Civil Code). Inasmuch as the sale was perfected and
even partly executed, Bormaheco, Inc., and the Cervantes
spouses, as a matter of justice and good faith, are bound to
comply with their contractual commitments.
Parenthetically, it may be observed that much misunderstanding
could have been avoided had the broker and the buyer taken the
trouble of making some research in the Registry of Deeds and
availing themselves of the services of a competent lawyer in
drafting the contract to sell.
Bormaheco, Inc. and the Cervantes spouses in their sixth
assignment of error assail the trial court's award to Villonco
Realty Company of consequential damage amounting to ten
thousand pesos monthly from March 24, 1964 (when the
Economic Coordinator approved the award of the Nassco
property to Bormaheco, Inc.) up to the consummation of the sale.
The award was based on paragraph 18 of the stipulation of facts
wherein Villonco Realty Company "submits that the delay in the
consummation of the sale" has caused it to suffer the
aforementioned damages.
The appellants contend that statement in the stipulation of facts
simply means that Villonco Realty Company speculates that it has
suffered damages but it does not mean that the parties have
agreed that Villonco Realty Company is entitled to those
damages.
Appellants' contention is correct. As rightly observed by their
counsel, the damages in question were not specifically pleaded
and proven and were "clearly conjectural and speculative".
However, appellants' view in their seventh assignment of error
that the trial court erred in ordering Bormaheco, Inc. to pay
Villonco Realty Company the sum of twenty thousand pesos as
attorney's fees is not tenable. Under the facts of the case, it is
evident that Bormaheco, Inc. acted in gross and evident bad faith
in refusing to satisfy the valid and just demand of Villonco Realty
Company for specific performance. It compelled Villonco Realty
Company to incure expenses to protect its interest. Moreover, this
is a case where it is just and equitable that the plaintiff should
recover attorney's fees (Art. 2208, Civil Code).
The appellants in their eighth assignment of error impugn the trial
court's adjudication of forty-two thousand pesos as three percent
broker's commission to Miss Tagle. They allege that there is no
evidence that Bormaheco, Inc. engaged her services as a broker in
the projected sale of the three lots and the improvements thereon.
135
That allegation is refuted by paragraph 3 of the stipulation of
Sales – Chapter 3 Cases
facts and by the documentary evidence. It was stipulated that
Miss Tagle intervened in the negotiations for the sale of the three
lots. Cervantes in his original offer of February 12, 1964 apprised
Villonco Realty Company that the earnest money should be
delivered to Miss Tagle, the bearer of the letter-offer. See also
Exhibit G and Annex I of the stipulation of facts.
We hold that the trial court did not err in adjudging that
Bormaheco, Inc. should pay Miss Tagle her three percent
commission.
WHEREFORE, the trial court's decision is modified as follows:
1. Within ten (10) days from the date the defendants-
appellants receive notice from the clerk of the lower court that the
records of this case have been received from this Court, the
spouses Francisco N. Cervantes and Rosario P. Navarra-
Cervantes should execute a deed conveying to Bormaheco, Inc.
their three lots covered by Transfer Certificate of Title Nos. 43530,
43531 and 43532 of the Registry of Deeds of Rizal.
2. Within five (5) days from the execution of such deed of
conveyance, Bormaheco, Inc. should execute in favor of Villonco
Realty Company, V. R. C. Building, 219 Buendia Avenue, Makati,
Rizal a registerable deed of sale for the said three lots and all the
improvements thereon, free from all lien and encumbrances, at
the price of four hundred pesos per square meter, deducting from
the total purchase price the sum of P100,000 previously paid by
Villonco Realty Company to Bormaheco, Inc.
3. Upon the execution of such deed of sale, Villonco Realty
Company is obligated to pay Bormaheco, Inc. the balance of the
price in the sum of one million three hundred thousand pesos
(P1,300,000).
4. Bormaheco, Inc. is ordered (a) to pay Villonco Realty
Company twenty thousand pesos (P20,000) as attorney's fees
and (b) to pay Edith Perez de Tagle the sum of forty-two thousand
pesos (P42,000) as commission. Costs against the defendants-
appellants.
SO ORDERED.
MANILA METAL CONTAINER CORPORATION,
Petitioner,
- versus -
PHILIPPINE NATIONAL BANK,
Respondent,
DMCI-PROJECT DEVELOPERS, INC.,
Intervenor.
Before us is a petition for review on certiorari of the Decision[1] of the
Court of Appeals (CA) in CA-G.R. No. 46153 which affirmed the
decision[2] of the Regional Trial Court (RTC), Branch 71, Pasig City, in
Civil Case No. 58551, and its Resolution[3] denying the motion for
reconsideration filed by petitioner Manila Metal Container Corporation
(MMCC).
The Antecedents
Petitioner was the owner of a 8,015 square meter parcel of land
located in Mandaluyong (now a City), Metro Manila. The property was
covered by Transfer Certificate of Title (TCT) No. 332098 of the
Registry of Deeds of Rizal. To secure a P900,000.00 loan it had
obtained from respondent Philippine National Bank (PNB), petitioner
executed a real estate mortgage over the lot. Respondent PNB later
granted petitioner a new credit accommodation of P1,000,000.00;
and, on November 16, 1973, petitioner executed an Amendment[4] of
Real Estate Mortgage over its property. On March 31, 1981, petitioner
secured another loan of P653,000.00 from respondent PNB, payable
in quarterly installments of P32,650.00, plus interests and other
charges.[5]
On August 5, 1982, respondent PNB filed a petition for extrajudicial
foreclosure of the real estate mortgage and sought to have the
property sold at public auction for P911,532.21, petitioners
outstanding obligation to respondent PNB as of June 30, 1982,[6] plus
interests and attorneys fees.
After due notice and publication, the property was sold at public
auction on September 28, 1982 where respondent PNB was declared
the winning bidder for P1,000,000.00. The Certificate of Sale[7] issued
in its favor was registered with the Office of the Register of Deeds of
Rizal, and was annotated at the dorsal portion of the title on February
17, 1983. Thus, the period to redeem the property was to expire on
February 17, 1984.
Petitioner sent a letter dated August 25, 1983 to respondent PNB,
requesting that it be granted an extension of time to 136
redeem/repurchase the property.[8] In its reply dated August 30, 1983,
Sales – Chapter 3 Cases
respondent PNB informed petitioner that the request had been
referred to its Pasay City Branch for appropriate action and
recommendation.[9]
In a letter[10] dated February 10, 1984, petitioner reiterated its request
for a one year extension from February 17, 1984 within which to
redeem/repurchase the property on installment basis. It reiterated its deposited with it.[19] On page two of the letter was a space above the
request to repurchase the property on installment.[11] Meanwhile, typewritten name of petitioners President, Pablo Gabriel, where he
some PNB Pasay City Branch personnel informed petitioner that as a was to affix his signature. However, Pablo Gabriel did not conform to
matter of policy, the bank does not accept partial redemption.[12] the letter but merely indicated therein that he had received it.[20]
Petitioner
Since petitioner failed to redeem the property, the Register of Deeds
cancelled TCT No. 32098 on June 1, 1984, and issued a new title in
favor of respondent PNB.[13] Petitioners offers had not yet been
acted upon by respondent PNB.
Meanwhile, the Special Assets Management Department (SAMD) had
prepared a statement of account, and as of June 25, 1984 petitioners
obligation amounted to P1,574,560.47. This included the bid price of
P1,056,924.50, interest, advances of insurance premiums, advances
on realty taxes, registration expenses, miscellaneous expenses and
publication cost.[14] When apprised of the statement of account,
petitioner remitted P725,000.00 to respondent PNB as deposit to
repurchase, and Official Receipt No. 978191 was issued to it.[15]
In the meantime, the SAMD recommended to the management of
respondent PNB that petitioner be allowed to repurchase the property
for P1,574,560.00. In a letter dated November 14, 1984, the PNB
management informed petitioner that it was rejecting the offer and
the recommendation of
the SAMD. It was suggested that petitioner purchase the property for
P2,660,000.00, its minimum market value. Respondent PNB gave
petitioner until December 15, 1984 to act on the proposal; otherwise,
its P725,000.00 deposit would be returned and the property would be
sold to other interested buyers.[16]
Petitioner, however, did not agree to respondent PNBs proposal.
Instead, it wrote another letter dated December 12, 1984 requesting
for a reconsideration. Respondent PNB replied in a letter dated
December 28, 1984, wherein it reiterated its proposal that petitioner
purchase the property for P2,660,000.00. PNB again informed
petitioner that it would return the deposit should petitioner desire to
withdraw its offer to purchase the property.[17] On February 25, 1985,
petitioner, through counsel, requested that PNB reconsider its letter
dated December 28, 1984. Petitioner declared that it had already
agreed to the SAMDs offer to purchase the property for
P1,574,560.47, and that was why it had paid P725,000.00. Petitioner
warned respondent PNB that it would seek judicial recourse should
PNB insist on the position.[18]
On June 4, 1985, respondent PNB informed petitioner that the PNB
Board of Directors had accepted petitioners offer to purchase the 137
property, but for P1,931,389.53 in cash less the P725,000.00 already
Sales – Chapter 3 Cases
did not respond, so PNB requested petitioner in a letter dated June 30,
1988 to submit an amended offer to repurchase.
Petitioner rejected respondents proposal in a letter dated July 14,
1988. It maintained that respondent PNB had agreed to sell the
property for P1,574,560.47, and that since its P725,000.00
downpayment had been accepted, respondent PNB was proscribed
from increasing the purchase price of the property.[21] Petitioner
averred that it had a net balance payable in the amount of
P643,452.34. Respondent PNB, however, rejected petitioners offer to
pay the balance of P643,452.34 in a letter dated August 1, 1989.[22]
On August 28, 1989, petitioner filed a complaint against respondent
PNB for Annulment of Mortgage and Mortgage Foreclosure, Delivery
of Title, or Specific Performance with Damages. To support its cause
of action for specific performance, it alleged the following:
34. As early as June 25, 1984, PNB had accepted the down payment
from Manila Metal in the substantial amount of P725,000.00 for the
redemption/repurchase price of P1,574,560.47 as approved by its
SMAD and considering the reliance made by Manila Metal and the
long time that has elapsed, the approval of the higher management of
the Bank to confirm the agreement of its SMAD is clearly a
potestative condition which cannot legally prejudice Manila Metal
which has acted and relied on the approval of SMAD. The Bank
cannot take advantage of a condition which is entirely dependent
upon its own will after accepting and benefiting from the substantial
payment made by Manila Metal.
35. PNB approved the repurchase price of P1,574,560.47 for which it
accepted P725,000.00 from Manila Metal. PNB cannot take
advantage of its own delay and long inaction in demanding a higher
amount based on unilateral computation of interest rate without the
consent of Manila Metal.
Petitioner later filed an amended complaint and supported its claim
for damages with the following arguments:
36. That in order to protect itself against the wrongful and malicious
acts of the defendant Bank, plaintiff is constrained to engage the
services of counsel at an agreed fee of P50,000.00 and to incur
litigation expenses of at least P30,000.00, which the defendant PNB
should be condemned to pay the plaintiff Manila Metal.
37. That by reason of the wrongful and malicious actuations of
defendant PNB, plaintiff Manila Metal suffered besmirched reputation
for which defendant PNB is liable for moral damages of at least
P50,000.00.
38. That for the wrongful and malicious act of defendant PNB which
are highly reprehensible, exemplary damages should be awarded in
favor of the plaintiff by way of example or correction for the public
good of at least P30,000.00.[23]
Petitioner prayed that, after due proceedings, judgment be rendered in
its favor, thus:
a) Declaring the Amended Real Estate Mortgage (Annex A) null and
void and without any legal force and effect.
b) Declaring defendants acts of extra-judicially foreclosing the
mortgage over plaintiffs property and setting it for auction sale null
and void.
c) Ordering the defendant Register of Deeds to cancel the new title
issued in the name of PNB (TCT NO. 43792) covering the property
described in paragraph 4 of the Complaint, to reinstate TCT No.
37025 in the name of Manila Metal and to cancel the annotation of
the mortgage in question at the back of the TCT No. 37025 described
in paragraph 4 of this Complaint.
d) Ordering the defendant PNB to return and/or deliver physical
possession of the TCT No. 37025 described in paragraph 4 of this
Complaint to the plaintiff Manila Metal.
e) Ordering the defendant PNB to pay the plaintiff Manila Metals
actual damages, moral and exemplary damages in the aggregate
amount of not less than P80,000.00 as may be warranted by the
evidence and fixed by this Honorable Court in the exercise of its
sound discretion, and attorneys fees of P50,000.00 and litigation
expenses of at least P30,000.00 as may be proved during the trial, and
costs of suit.
Plaintiff likewise prays for such further reliefs which may be deemed
just and equitable in the premises.[24]
In its Answer to the complaint, respondent PNB averred, as a special
and affirmative defense, that it had acquired ownership over the
property after the period to redeem had elapsed. It claimed that no
contract of sale was perfected between it and petitioner after the
period to redeem the property had expired.
During pre-trial, the parties agreed to submit the case for decision,
based on their stipulation of facts.[25] The parties agreed to limit the
issues to the following:
138
1. Whether or not the June 4, 1985 letter of the defendant
Sales – Chapter 3 Cases
approving/accepting plaintiffs offer to purchase the property is still 2. Whether or not the plaintiff has waived its right to purchase the PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-APPELLANT
valid and legally enforceable. property when it failed to conform with the conditions set forth by the AND DEFENDANT-APPELLEE.
defendant in its letter dated June 4, 1985.

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

parties.[26]

While the case was pending, respondent PNB demanded, on

September 20, 1989, that petitioner vacate the property within 15 days
from notice,[27] but petitioners refused to do so.

On March 18, 1993, petitioner offered to repurchase the property for

P3,500,000.00.[28] The offer was however rejected by respondent
PNB, in a letter dated April 13, 1993. According to it, the prevailing
market value of the property was approximately P30,000,000.00, and
as a matter of policy, it could not sell the property for less than its
market value.[29] On June 21, 1993, petitioner offered to purchase the
property for P4,250,000.00 in cash.[30] The offer was again rejected
by respondent PNB on September 13, 1993.[31]

On May 31, 1994, the trial court rendered judgment dismissing the
amended complaint and respondent PNBs counterclaim. It ordered
respondent PNB to refund the P725,000.00 deposit petitioner had
made.[32] The trial court ruled that there was no perfected contract of
sale between the parties; hence, petitioner had no cause of action for
specific performance against respondent. The trial court declared that
respondent had rejected petitioners offer to repurchase the property.
Petitioner, in turn, rejected the terms and conditions contained in the
June 4, 1985 letter of the SAMD. While petitioner had offered to
repurchase the property per its letter of
July 14, 1988, the amount of P643,422.34 was way below the
P1,206,389.53 which respondent PNB had demanded. It further
declared that the P725,000.00 remitted by petitioner to respondent
PNB on June 4, 1985 was a deposit, and not a downpayment or
earnest money.

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

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

II 139
THE LOWER COURT ERRED IN RULING THAT THERE WAS NO
Sales – Chapter 3 Cases
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.
V June 30, 1988 cannot revive the failed negotiations between the
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT
THERE WAS NO VALID RESCISSION OR CANCELLATION OF SUBJECT
CONTRACT OF REPURCHASE.
VI
THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED
AND REFUSED TO SUBMIT THE AMENDED REPURCHASE OFFER.
VII
THE LOWER COURT ERRED IN DISMISSING THE AMENDED
COMPLAINT OF PLAINTIFF-APPELLANT.
VIII
THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-
APPELLANT ACTUAL, MORAL AND EXEMPLARY DAMAGES,
ATTOTRNEYS FEES AND LITIGATION EXPENSES.[33]
Meanwhile, on June 17, 1993, petitioners Board of Directors approved
Resolution No. 3-004, where it waived, assigned and transferred its
rights over the property covered by TCT No. 33099 and TCT No.
37025 in favor of Bayani Gabriel, one of its Directors.[34] Thereafter,
Bayani Gabriel executed a Deed of Assignment over 51% of the
ownership and management of the property in favor of Reynaldo
Tolentino, who later moved for leave to intervene as plaintiff-
appellant. On July 14, 1993, the CA issued a resolution granting the
motion,[35] and likewise granted the motion of Reynaldo Tolentino
substituting petitioner MMCC, as plaintiff-appellant, and his motion to
withdraw as intervenor.[36]
The CA rendered judgment on May 11, 2000 affirming the decision of
the RTC.[37] It declared that petitioner obviously never agreed to the
selling price proposed by respondent PNB (P1,931,389.53) since
petitioner had kept on insisting that the selling price should be
lowered to P1,574,560.47. Clearly therefore, there was no meeting of
the minds between the parties as to the price or consideration of the
sale.
The CA ratiocinated that petitioners original offer to purchase the
subject property had not been accepted by respondent PNB. In fact, it
made a counter-offer through its June 4, 1985 letter specifically on
the selling price; petitioner did not agree to the counter-offer; and the
negotiations did not prosper. Moreover, petitioner did not pay the
balance of the purchase price within the sixty-day period set in the
June 4, 1985 letter of respondent PNB. 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 PNBs letter dated
parties. Respondent PNB merely asked petitioner to submit an
amended offer to repurchase. While petitioner reiterated its request
for a lower selling price and that the balance of the repurchase be
reduced, however, respondent rejected the proposal in a letter dated
August 1, 1989.
Petitioner filed a motion for reconsideration, which the CA likewise
denied.
Thus, petitioner filed the instant petition for review on certiorari,
alleging that:
I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT
RULED THAT THERE IS NO PERFECTED CONTRACT OF SALE
BETWEEN THE PETITIONER AND RESPONDENT.
II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN
IT RULED THAT THE AMOUNT OF PHP725,000.00 PAID BY THE
PETITIONER IS NOT AN EARNEST MONEY.
III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN
IT RULED THAT THE FAILURE OF THE PETITIONER-APPELLANT TO
SIGNIFY ITS CONFORMITY TO THE TERMS CONTAINED IN PNBS
JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID AND
LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE
PARTIES.
IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT
NON-PAYMENT OF THE PETITIONER-APPELLANT OF THE BALANCE
OF THE OFFERED PRICE IN THE LETTER OF PNB DATED JUNE 4,
1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL
CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE CONTRACT 140
OF SALE BETWEEN THE PARTIES.
Sales – Chapter 3 Cases
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.
Petitioners letters dated March 18, 1993 and June 21, 1993 to
respondent during the pendency of the case in the RTC were merely to
compromise the pending lawsuit, they did not constitute separate
offers to repurchase the property. Such offer to compromise should
not be

Petitioner maintains that it had accepted respondents offer made

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

Petitioner posits that respondent was proscribed from increasing the

interest rate after it had accepted respondents offer to sell the
property for P1,574,560.00. Consequently, respondent could no longer
validly make a counter-offer of P1,931,789.88 for the purchase of the
property. It likewise maintains that, although the P725,000.00 was
considered as deposit for the repurchase of the property in the receipt
issued by the SAMD, the amount constitutes earnest money as
contemplated in Article 1482 of the New Civil Code. Petitioner cites
the rulings of this Court in Villonco v. Bormaheco[39] and Topacio v.
Court of Appeals.[40]

Petitioner avers that its failure to append its conformity to the June 4,
1984 letter of respondent and its failure to pay the balance of the
price as fixed by respondent within the 60-day period from notice was
to protest respondents breach of its obligation to petitioner. It did not
amount to a rejection of respondents offer to sell the property since
respondent was merely seeking to enforce its right to pay the balance
of P1,570,564.47. In any event, respondent had the option either to
accept the balance of the offered price or to cause the rescission of
the contract. 141
Sales – Chapter 3 Cases
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.
appear to petitioner that it represented itself as having such authority.
Respondent reiterates that SAMD had informed petitioner that its
offer to repurchase had been approved by the Board subject to the
condition, among others, that the selling price shall be the total banks
claim as of documentation date x x x payable in cash (P725,000.00
already deposited)
within 60 days from notice of approval. A new Statement of Account
was attached therein indicating the total banks claim to be
P1,931,389.53 less deposit of P725,000.00, or P1,206,389.00.
Furthermore, while respondents Board of Directors accepted
petitioners offer to repurchase the property, the acceptance was
qualified, in that it required a higher sale price and subject to specified
terms and conditions enumerated therein. This qualified acceptance
was in effect a counter-offer, necessitating petitioners acceptance in
return.
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]

According to respondent, the Statement of Account prepared by
SAMD as of June 25, 1984 cannot be classified as a counter-offer; it
is simply a recital of its total monetary claims against petitioner.
Moreover, the amount stated therein could not likewise be considered
as the counter-offer since as admitted by petitioner, it was only
recommendation which was subject to approval of the PNB Board of
Directors.
Neither can the receipt by the SAMD of P725,000.00 be regarded as
evidence of a perfected sale contract. As gleaned from the parties
Stipulation of Facts during the proceedings in the court a quo, the
amount is merely an acknowledgment of the receipt of P725,000.00
as deposit to repurchase the property. The deposit of P725,000.00
was accepted by respondent on the condition that the purchase price
would still be approved by its Board of Directors. Respondent
maintains that its acceptance of the amount was qualified by that
condition, thus not absolute. Pending such approval, it cannot be
legally claimed that respondent is already bound by any contract of
sale with petitioner.
According to respondent, petitioner knew that the SAMD has no
capacity to bind respondent and that its authority is limited to
administering, managing and preserving the properties and other
special assets of PNB. The SAMD does not have the power to sell,
encumber, dispose of, or otherwise alienate the assets, since the
power to do so must emanate from its Board of Directors. The SAMD
was not authorized by respondents Board to enter into contracts of
sale with third persons involving corporate assets. There is absolutely
nothing on record that respondent authorized the SAMD, or made it
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, 142
and the other to pay therefor a price certain in money or its
Sales – Chapter 3 Cases
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.
A negotiation is formally initiated by an offer, which, however, must be
certain.[50] At any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. At this stage, the offer
may be withdrawn; the withdrawal is effective immediately after its
manifestation. To convert the offer into a contract, the acceptance
must be absolute and must not qualify the terms of the offer; it must
be plain, unequivocal, unconditional and without variance of any sort
from the proposal. In Adelfa Properties, Inc. v. Court of Appeals,[51]
the Court ruled that:
x x x The rule is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly made and
must be evidenced by some acts or conduct communicated to the
offeror, it may be shown by acts, conduct, or words of the accepting
party that clearly manifest a present intention or determination to
accept the offer to buy or sell. Thus, acceptance may be shown by the
acts, conduct, or words of a party recognizing the existence of the
contract of sale.[52]
A qualified acceptance or one that involves a new proposal
constitutes a counter-offer and a rejection of the original offer. A
counter-offer is considered in law, a rejection of the original offer and
an attempt to end the negotiation between the parties on a different
basis.[53] Consequently, when something is desired which is not
exactly what is proposed in the offer, such acceptance is not
sufficient to guarantee consent because any modification or variation
from the terms of the offer annuls the offer.[54] The acceptance must
be identical in all respects with that of the offer so as to produce
consent or meeting of the minds.
In this case, petitioner had until February 17, 1984 within which to
redeem the property. However, since it lacked the resources, it
requested for more time to redeem/repurchase the property under
such terms and conditions agreed upon by the parties.[55] The
request,
which was made through a letter dated August 25, 1983, was referred
to the respondents main branch for appropriate action.[56] Before
respondent could act on the request, petitioner again wrote
respondent as follows:
1. Upon approval of our request, we will pay your goodselves ONE
HUNDRED & FIFTY THOUSAND PESOS (P150,000.00);
2. Within six months from date of approval of our request, we will pay
another FOUR HUNDRED FIFTY THOUSAND PESOS (P450,000.00);
and
3. The remaining balance together with the interest and other
expenses that will be incurred will be paid within the last six months
of the one year grave period requested for.[57]
When the petitioner was told that respondent did not allow partial
redemption,[58] it sent a letter to respondents President reiterating its
offer to purchase the property.[59] There was no response to
petitioners letters dated February 10 and 15, 1984.
The statement of account prepared by the SAMD stating that the net
claim of respondent as of June 25, 1984 was P1,574,560.47 cannot
be considered an unqualified acceptance to petitioners offer to
purchase the property. The statement is but a computation of the
amount which petitioner was obliged to pay in case respondent would
later agree to sell the property, including interests, advances on
insurance premium, advances on realty taxes, publication cost,
registration expenses and miscellaneous expenses.
There is no evidence that the SAMD was authorized by respondents
Board of Directors to accept petitioners offer and sell the property for
P1,574,560.47. Any acceptance by the SAMD of petitioners offer
would not bind respondent. As this Court ruled in AF Realty
Development, Inc. vs. Diesehuan Freight Services, Inc.:[60]
Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the board
of directors. Just as a natural person may authorize another to do
certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual
officers or agents appointed by it. Thus, contracts or acts of a
corporation must be made either by the board of directors or by a
corporate agent duly authorized by the board. Absent such valid 143
delegation/authorization, the rule is that the declarations of an
Sales – Chapter 3 Cases
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.
approve the recommendation of SAMD for respondent to accept
Thus, a corporation can only execute its powers and transact its petitioners offer to purchase the property for P1,574,560.47. Unless
business through its Board of Directors and through its officers and and until the respondent accepted the offer on these terms, no
agents when authorized by a board resolution or its by-laws.[61] perfected contract of sale would arise. Absent proof of the
concurrence
It appears that the SAMD had prepared a recommendation for
respondent to accept petitioners offer to repurchase the property
even beyond the one-year period; it recommended that petitioner be
allowed to redeem the property and pay P1,574,560.00 as the
purchase price. Respondent later approved the recommendation that
the property be sold to petitioner. But instead of the P1,574,560.47
recommended by the SAMD and to which petitioner had previously
conformed, respondent set the purchase price at P2,660,000.00. In
fine, respondents acceptance of petitioners offer was qualified, hence
can be at most considered as a counter-offer. If petitioner had
accepted this counter-offer, a perfected contract of sale would have
arisen; as it turns out, however, petitioner merely sought to have the
counter-offer reconsidered. This request for reconsideration would
later be rejected by respondent.
We do not agree with petitioners contention that the P725,000.00 it
had remitted to respondent was earnest money which could be
considered as proof of the perfection of a contract of sale under
Article 1482 of the New Civil Code. The provision reads:
ART. 1482. Whenever earnest money is given in a contract of sale, it
shall be considered as part of the price and as proof of the perfection
of the contract.
This contention is likewise negated by the stipulation of facts which
the parties entered into in the trial court:
8. On June 8, 1984, the Special Assets Management Department
(SAMD) of PNB prepared an updated Statement of Account showing
MMCCs total liability to PNB as of June 25, 1984 to be P1,574,560.47
and recommended this amount as the repurchase price of the subject
property.
9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to
repurchase the property. The deposit of P725,000 was accepted by
PNB on the condition that the purchase price is still subject to the
approval of the PNB Board.[62]
Thus, the P725,000.00 was merely a deposit to be applied as part of 144
the purchase price of the property, in the event that respondent would
Sales – Chapter 3 Cases
of all the essential elements of a contract of sale, the giving of requested respondent to reconsider its amended counter-offer. In sum, then, there was no perfected contract of sale between
earnest money cannot establish the existence of a perfected contract Petitioners request was ultimately rejected and respondent offered to petitioner and respondent over the subject property.
of sale.[63] refund its P725,000.00 deposit.

It appears that, per its letter to petitioner dated June 4, 1985, the IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.
respondent had decided to accept the offer to purchase the property The assailed decision is AFFIRMED. Costs against petitioner Manila
for P1,931,389.53. However, this amounted to an amendment of Metal Container Corporation.
respondents qualified acceptance, or an amended counter-offer,
because while the respondent lowered the purchase price, it still SO ORDERED.
declared that its acceptance was subject to the following terms and
conditions:

1. That the selling price shall be the total Banks claim as of

documentation date (pls. see attached statement of account as of 5-
31-85), payable in cash (P725,000.00 already deposited) within sixty
(60) days from notice of approval;

2. The Bank sells only whatever rights, interests and

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

3. All taxes and other government imposts due or to become

due on the property, as well as expenses including costs of
documents and science stamps, transfer fees, etc., to be incurred in
connection with the execution and registration of all covering
documents shall be borne by you;

4. That you shall undertake at your own expense and account

the ejectment of the occupants of the property subject of the sale, if
there are any;

5. That upon your failure to pay the balance of the purchase

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

6. That the sale shall be subject to such other terms and

conditions that the Legal Department may impose to protect the
interest of the Bank.[64]

It appears that although respondent requested petitioner to conform 145

to its amended counter-offer, petitioner refused and instead
Sales – Chapter 3 Cases
FIRST OPTIMA REALTY CORPORATION, Petitioner,
vs.
SECURITRON SECURITY SERVICES, INC., Respondent.
In a potential sale transaction, the prior payment of earnest money
even before the property owner can agree to sell his property is
irregular, and cannot be used to bind the owner to the obligations of a
seller under an otherwise perfected contract of sale; to cite a well-
worn cliche, the carriage cannot be placed before the horse. The
property owner-prospective seller may not be legally obliged to enter
into a sale with a prospective buyer through the latter's employment
of questionable practices which prevent the owner from freely giving
his consent to the transaction; this constitutes a palpable
transgression of the prospective seller's rights of ownership over his
property, an anomaly which the Court will certainly not condone.
This Petition for Review on Certiorari1 seeks to set aside: 1) the
September 30, 2011 Decision2 of the Court of Appeals (CA) in CA-G.R.
CV No. 93715 affirming the February 16, 2009 Decision' of the
Regional Trial Court (RTC) of Pasay City, Branch 115 in Civil Case No.
06-0492 CFM; and 2) the CA’s December 9, 2011 Resolution4 denying
the herein petitioner’s Motion for Reconsideration5 of the assailed
judgment.
Factual Antecedents
Petitioner First Optima Realty Corporation is a domestic corporation
engaged in the real estate business. It is the registered owner of a 256
-square meter parcel of land with improvements located in Pasay City,
covered by Transfer Certificate of Title No. 125318 (the subject
property).6 Respondent Securitron Security Services, Inc., on the other
hand, is a domestic corporation with offices located beside the
subject property.
Looking to expand its business and add toits existing offices,
respondent – through its General Manager, Antonio Eleazar (Eleazar)
– sent a December 9, 2004 Letter7 addressed to petitioner – through
its Executive Vice-President, Carolina T. Young (Young) – offering to
purchase the subject property at ₱6,000.00 per square meter. A series
of telephone calls ensued, but only between Eleazar and Young’s
secretary;8 Eleazar likewise personally negotiated with a certain Maria
Remoso (Remoso), who was an employee of petitioner.9 At this point,
Eleazar was unable to personally negotiate with Young or the
petitioner’s board of directors.
Sometime thereafter, Eleazar personally went to petitioner’s office
offering to pay for the subject property in cash, which he already
brought with him. However, Young declined to accept payment, saying
that she still needed to secure her sister’s advice on the matter.10 She
likewise informed Eleazar that prior approval of petitioner’s Board of
Directors was required for the transaction, to which remark Eleazar
replied that respondent shall instead await such approval.11
On February 4, 2005, respondent sent a Letter12 of even date to
petitioner. It was accompanied by Philippine National Bank Check No.
24677 (the subject check), issued for ₱100,000.00 and made payable
to petitioner. The letter states thus:
Gentlemen:
As agreed upon, we are making a deposit of ONE HUNDRED
THOUSAND PESOS (Php 100,000.00) as earnest money for your
property at the corner of Layug St., & Lim-An St., Pasay City as per
TCT No. 125318 with an area of 256 sq. m. at 6,000.00/ sq. m. for a
total of ONE MILLION FIVE HUNDRED THIRTY SIX THOUSAND PESOS
(Php 1,536,000.00).
Full payment upon clearing of the tenants at said property and signing
of the Deed of Sale.
(signed)
ANTONIO S. ELEAZAR13
Despite the delicate nature of the matter and large amount involved,
respondent did not deliver the letter and check directly to Young or her
office; instead, they were coursed through an ordinary receiving
clerk/receptionist of the petitioner, who thus received the same and
therefor issued and signed Provisional Receipt No. 33430.14 The said
receipt reads:
Received from x x x Antonio Eleazar x x x the sum of Pesos One
Hundred Thousand x x x
IN PAYMENT OF THE FOLLOWING x x x
Earnest money or Partial payment of
Pasay Property Layug & Lim-an St. x x x.
Note: This is issued to transactions not
yet cleared but subsequently an OfficialReceipt will be issued. x x x15
The check was eventually deposited with and credited to petitioner’s
bank account.
Thereafter, respondent through counsel demanded in writing that 146
petitioner proceed with the sale of the property.16 In a March 3, 2006
Sales – Chapter 3 Cases
Letter17 addressed to respondent’s counsel, petitioner wrote back: Anent your letter dated January 16, 2006 received on February 20, it never agreed to sell the subject property; that its board of directors
2006, please be informed of the following: did not authorize the sale thereof to respondent, as no corresponding
Dear Atty. De Jesus: board resolution to such effect was issued; that the respondent’s
1. It was your client SECURITRON SECURITY SERVICES, INC. ₱100,000.00 check payment cannot be considered as earnest money
represented by Mr. Antonio Eleazar who offered to buy our property
located at corner Layug and Lim-An St., Pasay City;

2. It tendered an earnest money despite the fact that we are still

undecided to sell the said property;

3. Our Board of Directors failed to pass a resolution to date whether it

agrees to sell the property;

4. We have no Contract for the earnest money nor Contract to Sell the
said property with your client;

Considering therefore the above as well as due to haste and demands

which we feel [are forms] of intimidation and harassment, we regret to
inform you that we are now incline (sic) not to accept your offer to buy
our property. Please inform your client to coordinate with us for the
refund of this (sic) money.

Very truly yours,

(signed)
CAROLINA T. YOUNG
Executive Vice[-]President18

Ruling of the Regional Trial Court of Pasay City

On April 18, 2006, respondent filed with the Pasay RTC a civil case
against petitioner for specific performance with damages to compel
the latter to consummate the supposed sale of the subject property.
Docketed as Civil Case No. 06-0492 CFM and assigned to Branch 115
of the Pasay RTC, the Complaint19 is predicated on the claim that
since a perfected contract of sale arose between the parties after
negotiations were conducted and respondent paid the ₱100,000.00
supposed earnest money – which petitioner accepted, the latter
should be compelled to sell the subject property to the former. Thus,
respondent prayed that petitioner be ordered to comply with its
obligation as seller, accept the balance of the purchase price, and
execute the corresponding deed of sale in respondent’s favor; and
that petitioner be made to pay ₱200,000.00 damages for its breach
and delay in the performance of its obligations, ₱200,000.00 by way
of attorney's fees, and costs of suit.
147
In its Answer with Compulsory Counterclaim,20 petitioner argued that
Sales – Chapter 3 Cases
for the subject property, since said payment was merely coursed
through petitioner’s receiving clerk, who was forced to accept the
same; and that respondent was simply motivated by a desire to
acquire the subject property at any cost. Thus, petitioner prayed for
the dismissal of the case and, by way of counterclaim, it sought the
payment of moral damages in the amount of ₱200,000.00; exemplary
damages in the amount of ₱100,000.00; and attorney’s fees and
costs of suit.
In a Reply,21 respondent countered that authorization by petitioner’s
Board of Directors was not necessary since it is a real estate
corporation principally engaged in the buying and selling of real
property; that respondent did not force nor intimidate petitioner’s
receiving clerk into accepting the February 4, 2005 letter and check for
₱100,000.00; that petitioner’s acceptance of the check and its failure
– for more than a year – to return respondent’s payment amounts to
estoppel and a ratification of the sale; and that petitioner is not
entitled to its counterclaim.
After due proceedings were taken, the Pasay RTC issued its Decision
dated February 16, 2009, decreeing as follows:
WHEREFORE, defendant First Optima Realty Corporation is directed to
comply with its obligation by accepting the remaining balance of One
Million Five Hundred Thirty-Six Thousand Pesos and Ninety-Nine
Centavos (₱1,536,000.99), and executing the corresponding deed of
sale in favor of the plaintiff Securitron Security Services, Inc. over the
subject parcel of land.
No costs.
SO ORDERED.22
In ruling for the respondent, the trial court held that petitioner’s
acceptance of ₱100,000.00 earnest money indicated the existence of
a perfected contract of sale between the parties; that there is no
showing that when respondent gave the February 4, 2005 letter and
check to petitioner’s receiving clerk, the latter was harassed or forced
to accept the same; and that for the sale of the subject property, no
resolution of petitioner’s board of directors was required since Young
was "free to represent" the corporation in negotiating with respondent
for the sale thereof. Ruling of the Court of Appeals
Petitioner filed an appeal with the CA. Docketed as CA-G.R. CV No.
93715, the appeal made out a case that no earnest money can be
considered to have been paid to petitioner as the supposed payment
was received by a mere receiving clerk, who was not authorized to
accept the same; that the required board of directors resolution
authorizing the sale of corporate assets cannot be dispensed with in
the case of petitioner; that whatever negotiations were held between
the parties only concerned the possible sale, not the sale itself, of the
subject property; that without the written authority of petitioner’s
board
of directors, Young cannot enter into a sale of its corporate property;
and finally, that there was no meeting of the minds between the
parties in the first place.
On September 30, 2011, the CA issued the assailed Decision affirming
the trial court’s February 16, 2009Decision, pronouncing thus:
Article 1318 of the Civil Code declares that no contract exists unless
the following requisites concur: (1) consent of the contracting parties;
(2) object certain which is the subject matter of the contract; and (3)
cause of the obligation established.
A careful perusal of the records of the case show[s] that there was
indeed a negotiation between the parties as regards the sale of the
subject property, their disagreement lies on whether they have arrived
on an agreement regarding said sale. Plaintiff-appellee avers that the
parties have already agreed on the sale and the price for it and the
payment of earnest money and the remaining balance upon clearing
of the property of unwanted tenants. Defendant-appellant on the other
hand disputes the same and insists that there was no concrete
agreement between the parties.
Upon a careful consideration of the arguments of the parties and the
records of the case, we are more inclined to sustain the arguments of
the plaintiff-appellee and affirm the findings of the trial court that
there was indeed a perfected contract of sale between the parties.
The following instances militate against the claim of the defendant-
appellant: First. The letter of the plaintiff-appellee dated February 4,
2005 reiterating their agreement as to the sale of the realty for the
consideration of Php 1,536,000.00 was not disputed nor replied to by
the defendant-appellant, the said letter also provides for the payment
of the earnest money of Php 100,000.00 and the full payment upon
the clearing of the property of unwanted tenants, if the defendant-
appellant did not really agree on the sale of the property it could have
easily replied to the said letter informing the plaintiff-appellee that it is
not selling the property or that the matter will be decided first by the
board of directors, defendant-appellant’s silence or inaction on said
letter shows its conformity or consent thereto; Second. In addition to
the aforementioned letter, defendant-appellant’s acceptance of the
earnest money and the issuance of a provisional receipt clearly shows
that there was indeed an agreement between the parties and we do
not subscribe to the argument of the defendant-appellant that the
check was merely forced upon its employee and the contents of the
receipt was just dictated by the plaintiff-appellee’s employee because
common sense dictates that a person would not issue a receipt for a
check with a huge amount if she does not know what that is for and148
similarly would not issue [a] receipt which would bind her employer if
Sales – Chapter 3 Cases
she does not have prior instructions to do [so] from her superiors;
Third. The said check for earnest money was deposited in the bank by
defendant-appellant and not until after one year did it offer to return
the same. Defendant-appellant cannot claim lack of knowledge of the
payment of the check
since there was a letter for it, and it is just incredible that a big amount
of money was deposited in [its] account [without knowing] about it [or] Moreover, plaintiff-appellee can assume that Ms. Young, by virtue of
investigat[ing] what [it was] for. We are more inclined to believe that her position, was authorized to sell the property of the corporation.
their inaction for more than one year on the earnest money paid was Selling of realty is not foreign to [an] executive vice[-]president’s
due to the fact that after the payment of earnest money the place function, and the real estate sale was shown to be a normal business
should be cleared of unwanted tenants before the full amount of the
purchase price will be paid as agreed upon as shown in the letter sent
by the plaintiff-appellee.
As stated above the presence of defendant-appellant’s consent and,
corollarily, the existence of a perfected contract between the parties
are evidenced by the payment and receipt of Php 100,000.00 as
earnest money by the contracting parties’ x x x. Under the law on
sales, specifically Article 1482 of the Civil Code, it provides that
whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and proof of the perfection of the
contract. Although the presumption is not conclusive, as the parties
may treat the earnest money differently, there is nothing alleged in the
present case that would give rise to a contrary presumption.
We also do not find merit in the contention of the defendant-appellant
that there is a need for a board resolution for them to sell the subject
property since it is a corporation, a juridical entity which acts only thru
the board of directors. While we agree that said rule is correct, we
must also point out that said rule is the general rule for all
corporations [but] a corporation [whose main business is buying and
selling real estate] like herein defendant-appellant, is not required to
have a board resolution for the sale of the realty in the ordinary course
of business, thus defendant-appellant’s claim deserves scant
consideration.
Furthermore, the High Court has held that "a corporate officer or agent
may represent and bind the corporation in transactions with third
persons to the extent that the authority to do so has been conferred
upon him, and this includes powers which have been intentionally
conferred, and also such powers as, in the usual course of the
particular business, are incidental to, or may be implied from, the
powers intentionally conferred, powers added by custom and usage,
as usually pertaining to the particular officer or agent, and such
apparent powers as the corporation has caused persons dealing with
the officer or agent to believe that it was conferred."
In the case at bench, it is not disputed and in fact was admitted by the
defendant-appellant that Ms. Young, the Executive Vice-President was
authorized to negotiate for the possible sale of the subject parcel of
land. Therefore, Ms. Young can represent and bind defendant- 149
appellant in the transaction.
Sales – Chapter 3 Cases
activity of defendant-appellant since its primary business is the buy
and sell of real estate. Unmistakably, its Executive Vice-President is
cloaked with actual or apparent authority to buy or sell real property,
an activity which falls within the scope of her general authority.
Furthermore, assuming arguendo that a board resolution was indeed
needed for the sale of the subject property, the defendant-appellant is
estopped from raising it now since, [it] did not inform the plaintiff-
appellee of the same, and the latter deal (sic) with them in good faith.
Also it must be stressed that the plaintiff-appellee negotiated with one
of the top officer (sic) of the company thus, any requirement on the
said sale must have been known to Ms. Young and she should have
informed the plaintiff-appellee of the same.
In view of the foregoing we do not find any reason to deviate from the
findings of the trial court, the parties entered into the contract freely,
thus they must perform their obligation faithfully. Defendant-
appellant’s unjustified refusal to perform its part of the agreement
constitutes bad faith and the court will not tolerate the same.
WHEREFORE, premises considered, the Decision of the Regional Trial
Court of Pasay City Branch 115, in Civil Case No. 06-0492 CFM is
hereby AFFIRMED.
SO ORDERED.23
Petitioner moved for reconsideration,24 but in a December 9, 2011
Resolution, the CA held its ground. Hence, the present Petition.
Issues
In an October 9,2013 Resolution,25 this Court resolved to give due
course to the Petition, which raises the following issues:
I Petitioner argues that ultimately, it cannot be said that it gave its
THE HONORABLE COURT OF APPEALS ERRED ON A QUESTION OF
LAW WHEN IT RULED THAT THE MONEY RESPONDENT DELIVERED
TO PETITIONER WAS EARNEST MONEY THEREBY PROVIDING A
PERFECTED CONTRACT OF SALE.
II
THE HONORABLE COURT OF APPEALS ERRED ON A QUESTION OF
LAW WHEN IT RULED THAT THE TIME THAT LAPSED IN RETURNING
THE MONEY AND IN REPLYING TO THE LETTER IS PROOF OF
ACCEPTANCE OF EARNEST MONEY.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND
III GRAVE ERROR WHEN IT IGNOREDTHE RESERVATION IN THE
PROVISIONAL RECEIPT – "Note: This is issued to transactions not yet
cleared but subsequently an Official Receipt will be issued."26
Petitioner’s Arguments
In its Petition and Reply27 seeking to reverse and set aside the
assailed CA dispositions and in effect to dismiss Civil Case No. 06-
0492 CFM, petitioner argues that respondent failed to prove its case
that a contract of sale was perfected between the parties. It
particularly notes that, contrary to the CA’s ruling, respondent’s
delivery of the February 4, 2005 letter and check; petitioner’s failure to
respond to said letter; petitioner’s supposed acceptance of the check
by depositing the same in its account; and its failure to return the
same after more than one year from its tender – these circumstances
do not at all prove that a contract of sale was perfected between the
parties. It claims that there was never an agreement in the first place
between them concerning the sale of the subject property, much less
the payment of earnest money therefor; that during trial, Eleazar
himself admitted that the check was merely a "deposit";28 that the
February 4, 2005 letter and check were delivered not to Young, but to
a mere receiving clerk of petitioner who knew nothing about the
supposed transaction and was simply obliged to accept the same
without the prerogative to reject them; that the acceptance of
respondent’s supposed payment was not cleared and was subject to
approval and issuance of the corresponding official receipt as noted
in Provisional Receipt No. 33430; that respondent intentionally
delivered the letter and check in the manner that it did in order to bind
petitioner to the supposed sale with or without the latter’s consent;
that petitioner could not be faulted for receiving the check and for
depositing the same as a matter of operational procedure with
respect to checks received in the course of its day-to-day business.
consent to any transaction with respondent or to the payment made
by the latter. Respondent’s letter and check constitute merely an offer
which required petitioner’s acceptance in order to give rise to a
perfected sale; "[o]therwise, a buyer can easily bind any unsuspecting
seller to a contract of sale by merely devising a way that prevents the
latter from acting on the communicated offer."29
Petitioner thus theorizes that since it had no perfected agreement
with the respondent, the latter’s check should be treated not as
earnest money, but as mere guarantee, deposit or option money to
prevent the prospective seller from backing out from the sale,30 since
150
the payment of any consideration acquires the character of earnest
Sales – Chapter 3 Cases
money only after a perfected sale between the parties has been In its Comment,32 respondent counters that petitioner’s case typifies The stages of a contract of sale are: (1) negotiation, starting from the
arrived at.31 a situation where the seller has had an undue change of mind and time the prospective contracting parties indicate interest in the
desires to escape the legal consequences attendant to a perfected contract to the time the contract is perfected; (2) perfection, which
Respondent’s Arguments contract of sale. It reiterates the appellate court’s pronouncements takes place upon the concurrence of the essential elements of the
that petitioner’s failure to reply to respondent’s February 4, 2005 letter sale; and (3)
indicates its consent to the sale; that its acceptance of the check as
earnest money and the issuance of the provisional receipt prove that
there is a prior agreement between the parties; that the deposit of the
check in petitioner’s account and failure to timely return the money to
respondent militates against petitioner’s claim of lack of knowledge
and consent. Rather they indicate petitioner’s decision to sell subject
property as agreed. Respondent adds that contrary to petitioner’s
claim, negotiations were in fact held between the parties after it sent
its December 9, 2004 letter-offer, which negotiations precisely
culminated in the preparation and issuance of the February4, 2005
letter; that petitioner’s failure to reply to its February 4, 2005 letter
meant that it was amenable to respondent’s terms; that the issuance
of a provisional receipt does not prevent the perfection of the
agreement between the parties, since earnest money was already
paid; and that petitioner cannot pretend to be ignorant of respondent’s
check payment, as it involved a large sum of money that was
deposited in the former’s bank account.

Our Ruling

The Court grants the Petition. The trial and appellate courts erred
materially in deciding the case; they overlooked important facts that
should change the complexion and outcome of the case.

It cannot be denied that there were negotiations between the parties

conducted after the respondent’s December 9, 2004 letter-offer and
prior to the February 4, 2005 letter. These negotiations culminated in
a meeting between Eleazar and Young whereby the latter declined to
enter into an agreement and accept cash payment then being
tendered by the former. Instead, Young informed Eleazar during said
meeting that she still had to confer with her sister and petitioner’s
board of directors; in turn, Eleazar told Young that respondent shall
await the necessary approval.

Thus, the trial and appellate courts failed to appreciate that

respondent’s offer to purchase the subject property was never
accepted by the petitioner at any instance, even after negotiations
were held between them. Thus, as between them, there is no sale to
speak of. "When there is merely an offer by one party without
acceptance of the other, there is no contract."33 To borrow a
pronouncement in a previously decided case, 151
Sales – Chapter 3 Cases
consummation, which commences when the parties perform their
respective undertakings under the contract of sale, culminating in the
extinguishment of the contract.
In the present case, the parties never got past the negotiation stage.
Nothing shows that the parties had agreed on any final arrangement
containing the essential elements of a contract of sale, namely, (1)
consent or the meeting of the minds of the parties; (2) object or
subject matter of the contract; and (3) price or consideration of the
sale.34
Respondent’s subsequent sending of the February 4, 2005 letter and
check to petitioner – without awaiting the approval of petitioner’s
board of directors and Young’s decision, or without making a new
offer – constitutes a mere reiteration of its original offer which was
already rejected previously; thus, petitioner was under no obligation to
reply to the February 4, 2005 letter. It would be absurd to require a
party to reject the very same offer each and every time it is made;
otherwise, a perfected contract of sale could simply arise from the
failure to reject the same offer made for the hundredth time.1âwphi1
Thus, said letter cannot be considered as evidence of a perfected
sale, which does not exist in the first place; no binding obligation on
the part of the petitioner to sell its property arose as a consequence.
The letter made no new offer replacing the first which was rejected.
Since there is no perfected sale between the parties, respondent had
no obligation to make payment through the check; nor did it possess
the right to deliver earnest money to petitioner in order to bind the
latter to a sale. As contemplated under Art. 1482 of the Civil Code,
"there must first be a perfected contract of sale before we can speak
of earnest money."35 "Where the parties merely exchanged offers and
counter-offers, no contract is perfected since they did not yet give
their consent to such offers. Earnest money applies to a perfected
sale."36
This Court is inclined to accept petitioner’s explanation that since the
check was mixed up with all other checks and correspondence sent to
and received by the corporation during the course of its daily
operations, Young could not have timely discovered respondent’s
check payment; petitioner’s failure to return the purported earnest
money cannot mean that it agreed to respondent’s offer.
Besides, respondent’s payment of supposed earnest money was
made under dubious circumstances and in disregard of sound
business practice and common sense. Indeed, respondent must be
faulted for taking such a course of action that is irregular and
extraordinary: common sense and logic dictate that if any payment is
made under the supposed sale transaction, it should have been made
directly to Young or coursed directly through her office, since she is
the officer directly responsible for negotiating the sale, as far as
respondent is concerned and considering the amount of money
involved; no other ranking officer of petitioner can be expected to
know of the ongoing talks covering the subject property. Respondent
already knew, from Eleazar’s previous
meeting with Young, that it could only effectively deal with her; more
than that, it should know that corporations work only through the
proper channels. By acting the way it did – coursing the February 4,
2005 letter and check through petitioner’s mere receiving clerk or
receptionist instead of directly with Young’s office, respondent placed
itself under grave suspicion of putting into effect a premeditated plan
to unduly bind petitioner to its rejected offer, in a manner which it
could not achieve through negotiation and employing normal
business practices. It impresses the Court that respondent attempted
to secure the consent needed for the sale by depositing part of the
purchase price and under the false pretense that an agreement was
already arrived at, even though there was none. Respondent achieved
the desired effect up to this point, but the Court will not be fooled.
Thus, as between respondent’s irregular and improper actions and
petitioner’s failure to timely return the ₱100,000.00 purported earnest
money, this Court sides with petitioner. In a manner of speaking,
respondent cannot fault petitioner for not making a refund since it is
equally to blame for making such payment under false pretenses and
irregular circumstances, and with improper motives. Parties must
come to court with clean hands, as it were.
In a potential sale transaction, the prior payment of earnest money
even before the property owner can agree to sell his property is
irregular, and cannot be used to bind the owner to the obligations of a
seller under an otherwise perfected contract of sale; to cite a well-
worn cliché, the carriage cannot be placed before the horse. The
property owner-prospective seller may not be legally obliged to enter
into a sale with a prospective buyer through the latter’s employment
of questionable practices which prevent the owner from freely giving
his consent to the transaction; this constitutes a palpable
transgression of the prospective seller’s rights of ownership over his
property, an anomaly which the Court will certainly not condone. An
agreement where the prior free consent of one party thereto is
withheld or suppressed will be struck down, and the Court shall
always endeavor to protect a property owner’s rights against devious
practices that put his property in danger of being lost or unduly
disposed without his prior knowledge or consent. As this ponente has
held before, "[t]his Court cannot presume the existence of a sale of
land, absent any direct proof of it."37
Nor will respondent's supposed payment be 'treated as a deposit or
guarantee; its actions will not be dignified and must be called for what
they are: they were done irregularly and with a view to acquiring the
subject property against petitioner's consent.
152
Finally, since there is nothing in legal contemplation which petitioner
Sales – Chapter 3 Cases
must perform particularly for the respondent, it should follow that Civil
Case No. 06-0492 CFM for specific performance with damages is left
with no leg. to stand on; it must be dismissed.
With the foregoing view, there is no need to resolve the other specific
issues and arguments raised by the petitioner, as they do not
materially affect the rights and obligations of the parties - the Court
having declared that no agreement exists between them; nor do they
have the effect of altering the outcome of the case.
WHEREFORE, the Petition is GRANTED. The September 30, 2011
Decision and December 9, 2011 Resolution of the Court of Appeals in
CA-G.R. CV No. 93715, as well as the February 16, 2009 Decision of
the Regional Trial Court of Pasay City, Branch 115 in Civil Case No. 06-
0492 CFM are REVERSED and SET ASIDE. Civil Case No. 06-0492
CFM is ordered DISMISSED. , Petitioner First Optima Realty
Corporation is ordered to REFUND the amount of ₱100,000.00 to
respondent Securitron Security Services, Inc. without interest, unless
petitioner has done so during the course of the proceedings.
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.
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.
153
Sales – Chapter 3 Cases
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.
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

Pursuant to the said meeting, a Contract to Sell[5] was drafted by

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

On 5 April 1989, a duplicate copy of the instrument was returned

to respondent corporation. On 21 April 1989, respondent brought
the same to a notary public for notarization.

In a letter[6] dated 1 November 1989, addressed to respondent

corporation, petitioners informed the former of their intention to
rescind the Contract to Sell and to return the amount of
P100,000.00 given by respondent as option money.

Respondent did not respond to the aforesaid letter. On 30 May

1991, herein petitioners, together with Adolfo and Jesus, filed a
Complaint[7] for Declaration of Nullity or for Annulment of Option
Agreement or Contract to Sell with Damages before the Regional
Trial Court (RTC) of Bacoor, Cavite. The said case was docketed
as Civil Case No. BCV-91-49.

During trial, petitioner Rizalino died. Upon motion of petitioners,

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

After trial on the merits, the lower court rendered a Decision[9]

dated 27 March 1996 in favor of the respondent, the dispositive
portion of which reads:
154
Sales – Chapter 3 Cases
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]
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
155
sale by all the co-owners.
Sales – Chapter 3 Cases
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.
sell their shares in the subject parcels of land because, by affixing
They further claim that the supposed Contract to Sell does not their signatures on the Contract to Sell, they were not selling their
bind the respondent because the latter did not sign the said shares through an agent but, rather, they were selling the same
contract as to indicate its consent to be bound by its terms. directly and in their own right.
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.
156
Therefore, a written authority is no longer necessary in order to
Sales – Chapter 3 Cases
The Court also finds untenable the following arguments raised by
petitioners to the effect that the Contract to Sell is not binding
upon them, except to Ernesto, because: (1) the signatures of five
of the petitioners do not signify their consent to sell their shares in
the questioned properties since petitioner Enriqueta merely
signed as a witness to the said Contract to Sell, and that the other
petitioners, namely: Librado, Rizalino, Leonora, and Bibiano, Jr.,
did not understand the importance and consequences of their
action because of their low degree of education and the contents
of the aforesaid contract were not read nor explained to them; and
(2) assuming that the signatures indicate consent, such consent
was merely conditional, thus, the effectivity of the alleged
Contract to Sell was subject to a suspensive condition, which is
the approval by all the co-owners of the sale.
It is well-settled that contracts are perfected by mere consent,
upon the acceptance by the offeree of the offer made by the
offeror. From that moment, the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in
keeping with good faith, usage and law. To produce a contract,
the acceptance must not qualify the terms of the offer. However,
the acceptance may be express or implied. For a contract to arise,
the acceptance must be made known to the offeror. Accordingly,
the acceptance can be withdrawn or revoked before it is made
known to the offeror.[13]
In the case at bar, the Contract to Sell was perfected when the
petitioners consented to the sale to the respondent of their shares
in the subject parcels of land by affixing their signatures on the
said contract. Such signatures show their acceptance of what has
been stipulated in the Contract to Sell and such acceptance was
made known to respondent corporation when the duplicate copy
of the Contract to Sell was returned to the latter bearing
petitioners signatures.
As to petitioner Enriquetas claim that she merely signed as a
witness to the said contract, the contract itself does not say so.
There was no single indication in the said contract that she signed
the same merely as a witness. The fact that her signature appears
on the right-hand margin of the Contract to Sell is insignificant.
The contract indisputably referred to the Heirs of Bibiano and
Encarnacion Oesmer, and since there is no showing that Enriqueta
signed the document in some other capacity, it can be safely
assumed that she did so as one of the parties to the sale.
Emphasis should also be given to the fact that petitioners Ernesto
and Enriqueta concurrently signed the Contract to Sell. As the
Court of Appeals mentioned in its Decision,[14] the records of the
case speak of the fact that petitioner Ernesto, together with
petitioner Enriqueta, met with the representatives of the
respondent in order to finalize the terms and conditions of the
Contract to Sell. Enriqueta affixed her signature on the said
contract when the same was drafted. She even admitted that she
understood the undertaking that she and petitioner Ernesto made
in connection with the contract. She likewise disclosed that
pursuant to the terms embodied in the Contract to Sell, she
updated the payment of the real property taxes and transferred
the Tax Declarations of the questioned properties in her name.[15]
Hence, it cannot be gainsaid that she merely signed the Contract
to Sell as a witness because she did not only actively participate
in the negotiation and execution of the same, but her subsequent
actions also reveal an attempt to comply with the conditions in
the said contract.
With respect to the other petitioners assertion that they did not
understand the importance and consequences of their action
because of their low degree of education and because the
contents of the aforesaid contract were not read nor explained to
them, the same cannot be sustained.
We only have to quote the pertinent portions of the Court of
Appeals Decision, clear and concise, to dispose of this issue.
Thus,
First, the Contract to Sell is couched in such a simple language
which is undoubtedly easy to read and understand. The terms of
the Contract, specifically the amount of P100,000.00 representing
the option money paid by [respondent] corporation, the purchase
price of P60.00 per square meter or the total amount of
P3,316,560.00 and a brief description of the subject properties are
well-indicated thereon that any prudent and mature man would
have known the nature and extent of the transaction encapsulated
in the document that he was signing.
Second, the following circumstances, as testified by the
witnesses and as can be gleaned from the records of the case
clearly indicate the [petitioners] intention to be bound by the
stipulations chronicled in the said Contract to Sell.
As to [petitioner] Ernesto, there is no dispute as to his intention to
effect the alienation of the subject property as he in fact was the
157
one who initiated the negotiation process and culminated the
Sales – Chapter 3 Cases
same by affixing his signature on the Contract to Sell and by As to [petitioner] Librado, the [appellate court] finds it and her age did not make her senile or incompetent. x x x.
taking receipt of the amount of P100,000.00 which formed part of preposterous that he willingly affixed his signature on a document
the purchase price. written in a language (English) that he purportedly does not At any rate, Metrobank had no obligation to explain the
understand. He testified that the document was just brought to documents to the petitioner as nowhere has it been proven that
xxxx him by an 18 year old niece named Baby and he was told that the she is unable
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
158
when she signed the documents. She was literate, to begin with,
Sales – Chapter 3 Cases
to read or that the contracts were written in a language not known
to her. It was her responsibility to inform herself of the meaning
and consequence of the contracts she was signing and, if she
found them difficult to comprehend, to consult other persons,
preferably lawyers, to explain them to her. After all, the
transactions involved not only a few hundred or thousand pesos
but, indeed, hundreds of thousands of pesos.
As the Court has held:
x x x The rule that one who signs a contract is presumed to know
its contents has been applied even to contracts of illiterate
persons on the ground that if such persons are unable to read,
they are negligent if they fail to have the contract read to them. If
a person cannot read the instrument, it is as much his duty to
procure some reliable persons to read and explain it to him,
before he signs it, as it would be to read it before he signed it if he
were able to do and his failure to obtain a reading and explanation
of it is such gross negligence as will estop from avoiding it on the
ground that he was ignorant of its contents.[16]
That the petitioners really had the intention to dispose of their
shares in the subject parcels of land, irrespective of whether or
not all of the heirs consented to the said Contract to Sell, was
unveiled by Adolfos testimony as follows:
ATTY. GAMO: This alleged agreement between you and your other
brothers and sisters that unless everybody will agree, the
properties would not be sold, was that agreement in writing?
WITNESS: No sir.
ATTY. GAMO: What you are saying is that when your brothers and
sisters except Jesus and you did not sign that agreement which
had been marked as [Exhibit] D, your brothers and sisters were
grossly violating your agreement.
WITNESS: Yes, sir, they violated what we have agreed upon.[17]
We also cannot sustain the allegation of the petitioners that
assuming the signatures indicate consent, such consent was
merely conditional, and that, the effectivity of the alleged Contract
to Sell was subject to the suspensive condition that the sale be
approved by all the co-owners. The Contract to Sell is clear
enough. It is a cardinal rule in the interpretation of contracts that if
the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its
stipulation shall control.[18] The terms of the Contract to Sell
made no mention of the condition that before it can become valid
and binding, a
unanimous consent of all the heirs is necessary. Thus, when the
language of the contract is explicit, as in the present case, leaving
no doubt as to the intention of the parties thereto, the literal
meaning of its stipulation is controlling.
In addition, the petitioners, being owners of their respective
undivided shares in the subject properties, can dispose of their
shares even without the consent of all the co-heirs. Article 493 of
the Civil Code expressly provides:
Article 493. Each co-owner shall have the full ownership of his
part and of the fruits and benefits pertaining thereto, and he may
therefore alienate, assign or mortgage it, and even substitute
another person in its enjoyment, except when personal rights are
involved. But the effect of the alienation or the mortgage, with
respect to the co-owners, shall be limited to the portion which
may be allotted to him in the division upon the termination of the
co-ownership. [Emphases supplied.]
Consequently, even without the consent of the two co-heirs,
Adolfo and Jesus, the Contract to Sell is still valid and binding
with respect to the 6/8 proportionate shares of the petitioners, as
properly held by the appellate court.
Therefore, this Court finds no error in the findings of the Court of
Appeals that all the petitioners who were signatories in the
Contract to Sell are bound thereby.
The final arguments of petitioners state that the Contract to Sell is
void altogether considering that respondent itself did not sign it
as to indicate its consent to be bound by its terms; and moreover,
the Contract to Sell is really a unilateral promise to sell without
consideration distinct from the price, and hence, again, void. Said
arguments must necessarily fail.
The Contract to Sell is not void merely because it does not bear
the signature of the respondent corporation. Respondent
corporations consent to be bound by the terms of the contract is
shown in the uncontroverted facts which established that there
was partial performance by respondent of its obligation in the
said Contract to Sell when it tendered the amount of P100,000.00
to form part of the purchase price, which was accepted and
159
acknowledged expressly by petitioners. Therefore, by force of law,
Sales – Chapter 3 Cases
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.
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.

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.
WHEREFORE, premises considered, the Petition is DENIED, and
the Decision and Resolution of the Court of Appeals dated 26 April
2002 and 4 March 2003, respectively, are AFFIRMED, thus, (a) the
Contract to Sell is DECLARED valid and binding with respect to the
undivided proportionate shares in the subject parcels of land of
the six signatories of the said document, herein petitioners
Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer); (b) respondent is ORDERED to tender
payment to petitioners in the amount of P3,216,560.00
representing the balance of the purchase price for the latters
160
shares in the subject parcels of land; and (c) petitioners are
Sales – Chapter 3 Cases
SERAFIN, RAUL, NENITA, NAZARETO, NEOLANDA, all surnamed monthly rental of his two properties. To show his gratitude to
SO ORDERED. NARANJA, AMELIA NARANJA-RUBINOS, NILDA NARANJA- Belardo, Roque sold Lot No. 4 and his one-third share in Lot No. 2
LIMANA, and NAIDA NARANJA-GICANO, to Belardo on August 21, 1981, through a Deed of Sale of Real
Petitioners, Property which was duly notarized by Atty. Eugenio Sanicas. The
- versus - Deed of Sale reads:
COURT OF APPEALS, LUCILIA P. BELARDO, represented by her
Attorney-in-Fact, REBECCA CORDERO, and THE LOCAL
REGISTER OF DEEDS, BACOLOD CITY,
Respondents.

This petition seeks a review of the Court of Appeals (CA)

Decision[1] dated September 13, 2002 and Resolution[2] dated
September 24, 2003 which upheld the contract of sale executed
by petitioners predecessor, Roque Naranja, during his lifetime,
over two real properties.

Roque Naranja was the registered owner of a parcel of land,

denominated as Lot No. 4 in Consolidation-Subdivision Plan (LRC)
Pcs-886, Bacolod Cadastre, with an area of 136 square meters
and covered by Transfer Certificate of Title (TCT) No. T-18764.
Roque was also a co-owner of an adjacent lot, Lot No. 2, of the
same subdivision plan, which he co-owned with his brothers,
Gabino and Placido Naranja. When Placido died, his one-third
share was inherited by his children, Nenita, Nazareto, Nilda, Naida
and Neolanda, all surnamed Naranja, herein petitioners. Lot No. 2
is covered by TCT No. T-18762 in the names of Roque, Gabino
and the said children of Placido. TCT No. T-18762 remained even
after Gabino died. The other petitioners Serafin Naranja, Raul
Naranja, and Amelia Naranja-Rubinos are the children of
Gabino.[3]

The two lots were being leased by Esso Standard Eastern, Inc. for
30 years from 1962-1992. For his properties, Roque was being
paid P200.00 per month by the company.[4]

In 1976, Roque, who was single and had no children, lived with his
half sister, Lucilia P. Belardo (Belardo), in Pontevedra, Negros
Occidental. At that time, a catheter was attached to Roques body
to help him urinate. But the catheter was subsequently removed
when Roque was already able to urinate normally. Other than this
and the influenza prior to his death, Roque had been physically
sound.[5]

161
Roque had no other source of income except for the P200.00
Sales – Chapter 3 Cases
I, ROQUE NARANJA, of legal age, single, Filipino and a resident of
Bacolod City, do hereby declare that I am the registered owner of
Lot No. 4 of the Cadastral Survey of the City of Bacolod,
consisting of 136 square meters, more or less, covered by
Transfer Certificate of Title No. T-18764 and a co-owner of Lot
No. 2, situated at the City of Bacolod, consisting of 151 square
meters, more or less, covered by Transfer Certificate of Title No. T
-18762 and my share in the aforesaid Lot No. 2 is one-third share.
That for and in consideration of the sum of TEN THOUSAND
PESOS (P10,000.00), Philippine Currency, and other valuable
consideration, receipt of which in full I hereby acknowledge to my
entire satisfaction, by these presents, I hereby transfer and convey
by way of absolute sale the above-mentioned Lot No. 4 consisting
of 136 square meters covered by Transfer Certificate of Title No.
T-18764 and my one-third share in Lot No. 2, covered by Transfer
Certificate of Title No. T-18762, in favor of my sister LUCILIA P.
BELARDO, of legal age, Filipino citizen, married to Alfonso D.
Belardo, and a resident of Pontevedra, Negros Occidental, her
heirs, successors and assigns.
IN WITNESS WHEREOF, I have hereunto set my hand this 21st day
of August, 1981 at Bacolod City, Philippines.
(SGD.)
ROQUE NARANJA[6]
Roques copies of TCT No. T-18764 and TCT No. T-18762 were
entrusted to Atty. Sanicas for registration of the deed of sale and
transfer of the titles to Belardo. But the deed of sale could not be
registered because Belardo did not have the money to pay for the
registration fees.[7]
Belardos only source of income was her store and coffee shop.
Sometimes, her children would give her money to help with the
household expenses, including the expenses incurred for Roques
support. At times, she would also borrow money from Margarita
Dema-ala, a neighbor.[8] When the amount of her loan reached
P15,000.00, Dema-ala required a security. On November 19, 1983,
Roque executed a deed of sale in favor of Dema-ala, covering his
two properties in consideration of the P15,000.00 outstanding
loan and an additional P15,000.00, for a total of P30,000.00.
Dema-ala explained that she wanted Roque to execute the deed of
sale himself since the properties were still in his name. Belardo
merely acted as a witness. The titles to the properties were given
to Dema-ala for safekeeping.[9]
Three days later, or on December 2, 1983, Roque died of influenza.
The proceeds of the loan were used for his treatment while the
rest was spent for his burial.[10]
In 1985, Belardo fully paid the loan secured by the second deed of
sale. Dema-ala returned the certificates of title to Belardo, who, in
turn, gave them back to Atty. Sanicas.[11]
Unknown to Belardo, petitioners, the children of Placido and
Gabino Naranja, executed an Extrajudicial Settlement Among
Heirs[12] on October 11, 1985, adjudicating among themselves
Lot No. 4. On February 19, 1986, petitioner Amelia Naranja-
Rubinos, accompanied by Belardo, borrowed the two TCTs,
together with the lease agreement with Esso Standard Eastern,
Inc., from Atty. Sanicas on account of the loan being proposed by
Belardo to her. Thereafter, petitioners had the Extrajudicial
Settlement Among Heirs notarized on February 25, 1986. With
Roques copy of TCT No. T-18764 in their possession, they
succeeded in having it cancelled and a new certificate of title, TCT
No. T-140184, issued in their names.[13]
In 1987, Belardo decided to register the Deed of Sale dated
August 21, 1981. With no title in hand, she was compelled to file a
petition with the RTC to direct the Register of Deeds to annotate
the deed of sale even without a copy of the TCTs. In an Order
dated June 18, 1987, the RTC granted the petition. But she only
succeeded in registering the deed of sale in TCT No. T-18762
because TCT No. T-18764 had already been cancelled.[14]
On December 11, 1989, Atty. Sanicas prepared a certificate of
authorization, giving Belardos daughter, Jennelyn P. Vargas, the
authority to collect the payments from Esso Standard Eastern, Inc.
But it appeared from the companys Advice of Fixed Payment that
payment of the lease rental had already been transferred from
Belardo to Amelia Naranja-Rubinos because of the Extrajudicial
Settlement Among Heirs.
On June 23, 1992, Belardo,[15] through her daughter and attorney-
in-fact, Rebecca Cordero, instituted a suit for reconveyance with
damages. The complaint prayed that judgment be rendered
declaring Belardo as the sole legal owner of Lot No. 4, declaring
null and void the Extrajudicial Settlement Among Heirs, and TCT
162
No. T-140184, and ordering petitioners to reconvey to her the
Sales – Chapter 3 Cases
subject property and to pay damages. The case was docketed as Subsequently, petitioners also filed a case against respondent for to pay plaintiffs the sum of P20,000.00 as attorneys fees, the
Civil Case No. 7144. annulment of sale and quieting of title with damages, praying, amount of P500.00 as appearance fees.
among others, that judgment be rendered nullifying the Deed of
Sale, and ordering the Register of Deeds of Bacolod City to cancel
the annotation of the Deed of Sale on TCT No. T-18762. This case
was docketed as Civil Case No. 7214.

On March 5, 1997, the RTC rendered a Decision in the

consolidated cases in favor of petitioners. The trial court noted
that the Deed of Sale was defective in form since it did not
contain a technical description of the subject properties but
merely indicated that they were Lot No. 4, covered by TCT No. T-
18764 consisting of 136 square meters, and one-third portion of
Lot No. 2 covered by TCT No. T-18762. The trial court held that,
being defective in form, the Deed of Sale did not vest title in
private respondent. Full and absolute ownership did not pass to
private respondent because she failed to register the Deed of
Sale. She was not a purchaser in good faith since she acted as a
witness to the second sale of the property knowing that she had
already purchased the property from Roque. Whatever rights
private respondent had over the properties could not be superior
to the rights of petitioners, who are now the registered owners of
the parcels of land. The RTC disposed, thus:

IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered:

1. Dismissing Civil Case No. 7144.

2. Civil Case No. 7214.

a) Declaring the Deed of Sale dated August 21, 1981,

executed by Roque Naranja, covering his one-third (1/3) share of
Lot 2 of the consolidation-subdivision plan (LRC) Pcs-886, being a
portion of the consolidation of Lots 240-A, 240-B, 240-C and 240-
D, described on plan, Psd-33443 (LRC) GLRO Cad. Rec. No. 55 in
favor of Lucilia Belardo, and entered as Doc. No. 80, Page 17,
Book No. XXXVI, Series of 1981 of Notary Public Eugenio Sanicas
of Bacolod City, as null and void and of no force and effect;

b) Ordering the Register of Deeds of Bacolod City to

cancel Entry No. 148123 annotate at the back of Transfer
Certificate of Title No. T-18762;

163
c) Ordering Lucilia Belardo or her successors-in-interest
Sales – Chapter 3 Cases
Counterclaims in both Civil Cases Nos. 7144 and 7214 are hereby The CA denied petitioners motion for reconsideration on 1. WHETHER OR NOT THE HONORABLE RESPONDENT COURT OF
DISMISSED. September 24, 2003.[18] Petitioners filed this petition for review, APPEALS IS CORRECT IN IGNORING THE POINT RAISED BY
raising the following issues: [PETITIONERS] THAT THE DEED OF SALE WHICH DOES NOT
SO ORDERED.[16] COMPL[Y] WITH THE PROVISIONS OF ACT NO. 496 IS [NOT]
VALID.

On September 13, 2002, the CA reversed the RTC Decision. The 2. WHETHER OR NOT THE ALLEGED DEED OF SALE [OF REAL
CA held that the unregisterability of a deed of sale will not PROPERTIES] IS VALID CONSIDERING THAT THE CONSENT OF
undermine its validity and efficacy in transferring ownership of the THE LATE ROQUE NARANJA HAD BEEN VITIATED; x x x THERE
properties to private respondent. The CA noted that the records [IS] NO CONCLUSIVE SHOWING THAT THERE WAS
were devoid of any proof evidencing the alleged vitiation of CONSIDERATION AND THERE [ARE] SERIOUS IRREGULARITIES IN
Roques consent to the sale; hence, there is no reason to invalidate THE NOTARIZATION OF THE SAID DOCUMENTS.[19]
the sale. Registration is only necessary to bind third parties, which
petitioners, being the heirs of Roque Naranja, are not. The trial
court erred in applying Article 1544 of the Civil Code to the case at In her Comment, private respondent questioned the Verification
bar since petitioners are not purchasers of the said properties. and Certification of Non-Forum Shopping attached to the Petition
Hence, it is not significant that private respondent failed to for Review, which was signed by a certain Ernesto Villadelgado
register the deed of sale before the extrajudicial settlement without a special power of attorney. In their reply, petitioners
among the heirs. The dispositive portion of the CA Decision reads: remedied the defect by attaching a Special Power of Attorney
signed by them.
WHEREFORE, the decision dated March 5, 1997 in Civil Cases
Nos. 7144 and 7214 is hereby REVERSED and SET ASIDE. In lieu Pursuant to its policy to encourage full adjudication of the merits
thereof, judgment is hereby rendered as follows: of an appeal, the Court had previously excused the late
submission of a special power of attorney to sign a certification
1. Civil Case No. 7214 is hereby ordered DISMISSED for lack of against forum-shopping.[20] But even if we excuse this defect, the
cause of action. petition nonetheless fails on the merits.

2. In Civil Case No. 7144, the extrajudicial settlement executed by The Court does not agree with petitioners contention that a deed
the heirs of Roque Naranja adjudicating among themselves Lot of sale must contain a technical description of the subject
No. 4 of the consolidation-subdivision plan (LRC) Pcs 886 of the property in order to be valid. Petitioners anchor their theory on
Bacolod Cadastre is hereby declared null and void for want of Section 127 of Act No. 496,[21] which provides a sample form of a
factual and legal basis. The certificate of title issued to the heirs deed of sale that includes, in particular, a technical description of
of Roque Naranja (Transfer Certificate of [T]i[t]le No. T-140184) as the subject property.
a consequence of the void extra-judicial settlement is hereby
ordered cancelled and the previous title to Lot No. 4, Transfer To be valid, a contract of sale need not contain a technical
Certificate of Title No. T-18764, is hereby ordered reinstated. description of the subject property. Contracts of sale of real
Lucilia Belardo is hereby declared the sole and legal owner of said property have no prescribed form for their validity; they follow the
Lot No. 4, and one-third of Lot No. 2 of the same consolidation- general rule on contracts that they may be entered into in
subdivision plan, Bacolod Cadastre, by virtue of the deed of sale whatever form, provided all the essential requisites for their
thereof in her favor dated August 21, 1981. validity are present.[22] The requisites of a valid contract of sale
under Article 1458 of the Civil Code are: (1) consent or meeting of
SO ORDERED.[17] the minds; (2) determinate subject matter; and (3) price certain in
money or its equivalent.
164
Sales – Chapter 3 Cases
The failure of the parties to specify with absolute clarity the object
of a contract by including its technical description is of no
moment. What is important is that there is, in fact, an object that
is
determinate or at least determinable, as subject of the contract of be inferred from age, sickness, or debility of body, if sufficient
sale. The form of a deed of sale provided in Section 127 of Act intelligence remains.[27] The evidence presented pertained more
No. 496 is only a suggested form. It is not a mandatory form that to Roques physical condition rather than his mental condition. On
must be strictly followed by the parties to a contract. the contrary, Atty. Sanicas, the notary public, attested that Roque
In the instant case, the deed of sale clearly identifies the subject
properties by indicating their respective lot numbers, lot areas,
and the certificate of title covering them. Resort can always be
made to the technical description as stated in the certificates of
title covering the two properties.
On the alleged nullity of the deed of sale, we hold that petitioners
failed to submit sufficient proof to show that Roque executed the
deed of sale under the undue influence of Belardo or that the deed
of sale was simulated or without consideration.
A notarized document carries the evidentiary weight conferred
upon it with respect to its due execution, and documents
acknowledged before a notary public have in their favor the
presumption of regularity. It must be sustained in full force and
effect so long as he who impugns it does not present strong,
complete, and conclusive proof of its falsity or nullity on account
of some flaws or defects provided by law.[23]
Petitioners allege that Belardo unduly influenced Roque, who was
already physically weak and senile at that time, into executing the
deed of sale. Belardo allegedly took advantage of the fact that
Roque was living in her house and was dependent on her for
support.
There is undue influence when a person takes improper
advantage of his power over the will of another, depriving the
latter of a reasonable freedom of choice.[24] One who alleges any
defect, or the lack of consent to a contract by reason of fraud or
undue influence, must establish by full, clear and convincing
evidence, such specific acts that vitiated the partys consent;
otherwise, the latters presumed consent to the contract
prevails.[25] For undue influence to be present, the influence
exerted must have so overpowered or subjugated the mind of a
contracting party as to destroy his free agency, making him
express the will of another rather than his own.[26]
Petitioners adduced no proof that Roque had lost control of his
165
mental faculties at the time of the sale. Undue influence is not to
Sales – Chapter 3 Cases
was very healthy and mentally sound and sharp at the time of the
execution of the deed of sale. Atty. Sanicas said that Roque also
told him that he was a Law graduate.[28]
Neither was the contract simulated. The late registration of the
Deed of Sale and Roques execution of the second deed of sale in
favor of Dema-ala did not mean that the contract was simulated.
We are convinced with the explanation given by respondents
witnesses that the deed of sale was not immediately registered
because Belardo did not have the money to pay for the fees. This
explanation is, in fact, plausible considering that Belardo could
barely support herself and her brother, Roque. As for the second
deed of sale, Dema-ala, herself, attested before the trial court that
she let Roque sign the second deed of sale because the title to
the properties were still in his name.
Finally, petitioners argue that the Deed of Sale was not supported
by a consideration since no receipt was shown, and it is
incredulous that Roque, who was already weak, would travel to
Bacolod City just to be able to execute the Deed of Sale.
The Deed of Sale which states receipt of which in full I hereby
acknowledge to my entire satisfaction is an acknowledgment
receipt in itself. Moreover, the presumption that a contract has
sufficient consideration cannot be overthrown by a mere
assertion that it has no consideration.[29]
Heirs are bound by contracts entered into by their predecessors-in
-interest.[30] As heirs of Roque, petitioners are bound by the
contract of sale that Roque executed in favor of Belardo. Having
been sold already to Belardo, the two properties no longer formed
part of Roques estate which petitioners could have inherited. The
deed of extrajudicial settlement that petitioners executed over Lot
No. 4 is, therefore, void, since the property subject thereof did not
become part of Roques estate.
WHEREFORE, premises considered, the petition is DENIED. The
Court of Appeals Decision dated September 13, 2002 and
Resolution dated September 24, 2003 are AFFIRMED.
SO ORDERED.
SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-DALION, On May 28, 1973, Sabesaje sued to recover ownership of a parcel
petitioners, of land, based on a private document of absolute sale, dated July
vs. 1, 1965 (Exhibit "A"), allegedly executed by Dalion, who, however
THE HONORABLE COURT OF APPEALS AND RUPERTO denied the fact of sale, contending that the document sued upon
SABESAJE, JR., respondents. is
This is a petition to annul and set aside the decision of the Court
of Appeals rendered on May 26, 1987, upholding the validity of the
sale of a parcel of land by petitioner Segundo Dalion (hereafter,
"Dalion") in favor of private respondent Ruperto Sabesaje, Jr.
(hereafter, "Sabesaje"), described thus:
A parcel of land located at Panyawan, Sogod, Southern Leyte,
declared in the name of Segundo Dalion, under Tax Declaration
No. 11148, with an area of 8947 hectares, assessed at P 180.00,
and bounded on the North, by Sergio Destriza and Titon Veloso,
East, by Feliciano Destriza, by Barbara Bonesa (sic); and West, by
Catalino Espina. (pp. 36-37, Rollo)
The decision affirms in toto the ruling of the trial court 1 issued on
January 17, 1984, the dispositive portion of which provides as
follows:
WHEREFORE, IN VIEW OF THE FOREGOING, the Court hereby
renders judgment.
(a) Ordering the defendants to deliver to the plaintiff the
parcel of land subject of this case, declared in the name of
Segundo Dalion previously under Tax Declaration No. 11148 and
lately under Tax Declaration No. 2297 (1974) and to execute the
corresponding formal deed of conveyance in a public document in
favor of the plaintiff of the said property subject of this case,
otherwise, should defendants for any reason fail to do so, the
deed shall be executed in their behalf by the Provincial Sheriff or
his Deputy;
(b) Ordering the defendants to pay plaintiff the amount of
P2,000.00 as attorney's fees and P 500.00 as litigation expenses,
and to pay the costs; and
(c) Dismissing the counter-claim. (p. 38, Rollo)
The facts of the case are as follows:
166
Sales – Chapter 3 Cases
fictitious, his signature thereon, a forgery, and that subject land is
conjugal property, which he and his wife acquired in 1960 from
Saturnina Sabesaje as evidenced by the "Escritura de Venta
Absoluta" (Exhibit "B"). The spouses denied claims of Sabesaje
that after executing a deed of sale over the parcel of land, they
had pleaded with Sabesaje, their relative, to be allowed to
administer the land because Dalion did not have any means of
livelihood. They admitted, however, administering since 1958, five
(5) parcels of land in Sogod, Southern Leyte, which belonged to
Leonardo Sabesaje, grandfather of Sabesaje, who died in 1956.
They never received their agreed 10% and 15% commission on the
sales of copra and abaca, respectively. Sabesaje's suit, they
countered, was intended merely to harass, preempt and forestall
Dalion's threat to sue for these unpaid commissions.
From the adverse decision of the trial court, Dalion appealed,
assigning errors some of which, however, were disregarded by the
appellate court, not having been raised in the court below. While
the Court of Appeals duly recognizes Our authority to review
matters even if not assigned as errors in the appeal, We are not
inclined to do so since a review of the case at bar reveals that the
lower court has judicially decided the case on its merits.
As to the controversy regarding the identity of the land, We have
no reason to dispute the Court of Appeals' findings as follows:
To be sure, the parcel of land described in Exhibit "A" is the same
property deeded out in Exhibit "B". The boundaries delineating it
from adjacent lots are identical. Both documents detail out the
following boundaries, to wit:
On the North-property of Sergio Destriza and Titon Veloso;
On the East-property of Feliciano Destriza;
On the South-property of Barbara Boniza and
On the West-Catalino Espina.
(pp. 41-42, Rollo)
The issues in this case may thus be limited to: a) the validity of
the contract of sale of a parcel of land and b) the necessity of a
public document for transfer of ownership thereto.
The appellate court upheld the validity of the sale on the basis of
Secs. 21 and 23 of Rule 132 of the Revised Rules of Court.
SEC. 21. Private writing, its execution and authenticity, how
proved.-Before any private writing may be received in evidence, its
due execution and authenticity must be proved either:
(a) By anyone who saw the writing executed;
(b) By evidence of the genuineness of the handwriting of the
maker; or
(c) By a subscribing witness
xxx xxx xxx
SEC. 23. Handwriting, how proved. — The handwriting of a person
may be proved by any witness who believes it to be the
handwriting of such person, and has seen the person write, or has
seen writing purporting to be his upon which the witness has
acted or been charged, and has thus acquired knowledge of the
handwriting of such person. Evidence respecting the handwriting
may also be given by a comparison, made by the witness or the
court, with writings admitted or treated as genuine by the party
against whom the evidence is offered, or proved to be genuine to
the satisfaction of the judge. (Rule 132, Revised Rules of Court)
And on the basis of the findings of fact of the trial court as
follows:
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
167
Espina, aside from the testimony of the plaintiff, must prevail.
Sales – Chapter 3 Cases
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 Assuming authenticity of his signature and the genuineness of the
show that plaintiff committed forgery or caused said forgery to be document, Dalion nonetheless still impugns the validity of the sale
committed, to overcome the presumption of innocence. Mere on the ground that the same is embodied in a private document,
denial of having signed, does not suffice to show forgery. and did not thus convey title or right to the lot in question since
"acts and contracts which have for their object the creation,
In addition, a comparison of the questioned signatories or transmission,
specimens (Exhs. A-2 and A-3) with the admitted signatures or
specimens (Exhs. X and Y or 3-C) convinces the court that Exhs. A
-2 or Z and A-3 were written by defendant Segundo Dalion who
admitted that Exhs. X and Y or 3-C are his signatures. The
questioned signatures and the specimens are very similar to each
other and appear to be written by one person.
Further comparison of the questioned signatures and the
specimens with the signatures Segundo D. Dalion appeared at the
back of the summons (p. 9, Record); on the return card (p. 25,
Ibid.); back of the Court Orders dated December 17, 1973 and July
30, 1974 and for October 7, 1974 (p. 54 & p. 56, respectively, Ibid.),
and on the open court notice of April 13, 1983 (p. 235, Ibid.)
readily reveal that the questioned signatures are the signatures of
defendant Segundo Dalion.
It may be noted that two signatures of Segundo D. Dalion appear
on the face of the questioned document (Exh. A), one at the right
corner bottom of the document (Exh. A-2) and the other at the left
hand margin thereof (Exh. A-3). The second signature is already a
surplusage. A forger would not attempt to forge another
signature, an unnecessary one, for fear he may commit a
revealing error or an erroneous stroke. (Decision, p. 10) (pp. 42-43,
Rollo)
We see no reason for deviating from the appellate court's ruling
(p. 44, Rollo) as we reiterate that
Appellate courts have consistently subscribed to the principle that
conclusions and findings of fact by the trial courts are entitled to
great weight on appeal and should not be disturbed unless for
strong and cogent reasons, since it is undeniable that the trial
court is in a more advantageous position to examine real
evidence, as well as to observe the demeanor of the witnesses
while testifying in the case (Chase v. Buencamino, Sr., G.R. No. L-
20395, May 13, 1985, 136 SCRA 365; Pring v. Court of Appeals,
G.R. No. L-41605, August 19, 1985, 138 SCRA 185)
168
Sales – Chapter 3 Cases
modification or extinction of real rights over immovable property perfected (See Art. 1357). ACCORDINGLY, the petition is DENIED and the decision of the
must appear in a public instrument" (Art. 1358, par 1, NCC). Court of Appeals upholding the ruling of the trial court is hereby
... . (p. 12, Decision, p. 272, Records) AFFIRMED. No costs.
This argument is misplaced. The provision of Art. 1358 on the
necessity of a public document is only for convenience, not for SO ORDERED.
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
169
once the contract appearing in a private instrument hag been
Sales – Chapter 3 Cases
HEIRS OF ERNESTO BIONA, NAMELY: EDITHA B. BLANCAFLOR,
MARIANITA D. DE JESUS, VILMA B. BLANCAFLOR, ELSIE B.
RAMOS and PERLITA B. CARMEN, petitioners, vs. THE COURT
OF APPEALS and LEOPOLDO HILAJOS, respondents.
Before us is a petition for review on certiorari under Rule 45 of the
Decision of the Court of Appeals dated March 31, 1992, reversing
the decision of the Regional Trial Court, 11th Judicial region,
Branch 26, Surallah, South Cotabato and the Resolution dated
May 26, 1992, denying the subsequent motion for reconsideration.
Quoting from the decision of the Court of Appeals, the antecedent
facts are as follows:
On October 23, 1953, the late Ernesto Biona, married to plaintiff-
appellee Soledad Biona, was awarded Homestead Patent No. V-
840 over the property subject of this suit, a parcel of agricultural
land denominated as lot 177 of PLS-285-D, located in Bo. 3,
Banga, Cotabato, containing an area of ten (10) hectares, forty-
three (43) acres and sixty-eight (68) centares, Original Certificate
of Title No. (V-2323) P-3831 was issued in his name by the
Register of Deeds of Cotabato (Exh. C). On June 3, 1954, Ernesto
and Soledad Biona obtained a loan from the then Rehabilitation
Finance Corporation (now the Development Bank of the
Philippines) and put up as collateral the subject property (Exh. 4).
On June 12, 1956, Ernesto Biona died (Exh. B) leaving as his heirs
herein plaintiffs-appellees, namely, his wife, Soledad Estrobillo
Vda. De Biona, and five daughters, Editha B. Blancaflor, Marianita
B. de Jesus, Vilma B. Blancaflor, Elsie B. Ramos and Perlita B.
Carmen.
On March 1, 1960, plaintiff-appellee Soledad Biona obtained a
loan from defendant-appellant in the amount of P1,000 and as
security therefore, the subject property was mortgaged. It was
further agreed upon by the contracting parties that for a period of
two years until the debt is paid, defendant-appellant shall occupy
the land in dispute and enjoy the usufruct thereof.
The two-year period elapsed but Soledad Biona was not able to
pay her indebtedness. Defendant-appellant continued occupying
and cultivating the subject property without protest from plaintiffs
-appellees.
On July 3, 1962, defendant-appellant paid the sum of P1,400.00 to
the Development Bank of the Philippines to cancel the mortgage
previously constituted by the Biona spouses on June 3, 1953
(Exhs. 4 and 6).
Thereafter, and for a period of not less than twenty-five years,
defendant-appellant continued his peaceful and public occupation
of the property, declaring it in his name for taxation purposes
(Exhs. 10 and 11), paying real estate property taxes thereon (Exhs.
12, 13, 13-a to 13-e, F, G, H and I), and causing the same to be
tenanted (Exhs. 7, 8, 9).
On June 19, 1985, plaintiffs-appellees, filed a complaint for
recovery of ownership, possession, accounting and damages,
with a prayer for a writ of preliminary mandatory injunction and/
or restraining order against defendant-appellant alleging, among
others, that the latter had unlawfully been depriving them of the
use, possession and enjoyment of the subject property; that the
entire parcel of land, which was devoted and highly suited to palay
and corn, was yielding three harvests annually, with an average of
one hundred twenty (120) sacks of corn and eighty cavans of rice
per hectare; that plaintiffs-appellees were deprived of its total
produce amounting to P150,000.00. Plaintiffs-appellees prayed
for the award of moral damages in the sum of P50,000.00,
exemplary damages in the amount of P20,000,00 and litigation
expenses in the amount of P2,000.00.
On September 19, 1986, defendant-appellant filed his answer with
counterclaim traversing the material allegations in the complaint
and alleging, by way of affirmative and special defenses, that: on
September 11, 1961, Soledad Biona, after obtaining the loan of
P1,000.00 from defendant-appellant, approached and begged the
latter to buy the whole of Lot No. 177 since it was then at the brink
of foreclosure by the Development Bank of the Philippines and
she had no money to redeem the same nor the resources to
support herself and her five small children; that defendant-
appellant agreed to buy the property for the amount of P4,300.00,
which consideration was to include the redemption price to be
paid to the Development Bank of the Philippines; that the
purchase price paid by defendant far exceeded the then current
market value of the property and defendant had to sell his own
eight-hectare parcel of land in Surallah to help Soledad Biona; that
to evidence the transaction, a deed of sale was handwritten by
Soledad Biona and signed by her and the defendant; that at the
time of the sale, half of the portion of the property was already
submerged in water and from the years 1969 to 1984, two and
one-half hectares thereof were eroded by the Allah River; that by
virtue of his continuous and peaceful occupation of the property
170
from the time of its sale and for more than twenty- five years
Sales – Chapter 3 Cases
thereafter, defendant possesses a better right thereto subject only
to the rights of the tenants whom he had allowed to cultivate the
land under the Land Reform Program of the government; that the
complaint states no cause of action; that plaintiffs alleged right, if
any, is barred by the statutes
of fraud. As counterclaim, defendant-appellant prayed that Dissatisfied, herein private respondent appealed to the Court of
plaintiffs-appellees be ordered to execute a formal deed of sale Appeals which reversed the trial court's ruling. The dispositive
over the subject property and to pay him actual, moral and portion reads as follows:
exemplary damages as the trial court may deem proper. He
likewise prayed for the award of attorney's fees in the sum of
P10,000.00.
During the hearing of the case, plaintiffs-appellees presented in
evidence the testimonies of Editha Biona Blancaflor and Vilma
Biona Blancaflor, and documentary exhibits A to G and their
submarkings.
Defendant-appellant, for his part, presented the testimonies of
himself and Mamerto Famular, including documentary exhibits 1
to 13, F, G, H, I, and their submarkings.[1]
On January 31, 1990, the RTC rendered a decision with the
following dispositive portion:
I (SIC) VIEW OF THE FOREGOING, decision is hereby rendered:
1. ordering the defendant to vacate possession of the lot in
question to the extent of six-tenths (6/10) of the total area thereof
and to deliver the same to the plaintiff Soledad Estrobillo Biona
upon the latter's payment of the sum of P1,000.00 TO THE
FORMER IN REDEMPTION OF ITS MORTGAGE CONSTITUTED
UNDER exh. "1" of defendant;
2. ordering the defendant to vacate the possession of the
remaining four-tenths (4/10) of the area of the lot in question,
representing the shares of the children of the late Ernesto Biona
and deliver the same to said plaintiffs; the defendant shall render
an accounting of the net produce of the area ordered returned to
the co-plaintiffs of Soledad Biona commencing from the date of
the filing of the complaint until possession thereto has been
delivered to said co-plaintiffs and to deliver or pay 25% of said net
produce to said co-plaintiffs;
3. ordering the defendant to pay the costs of this suit.
The defendant's counter-claim are dismissed for lack of merit.
SO ORDERED.[2]
171
Sales – Chapter 3 Cases
WHEREFORE, premises considered, the judgment appealed from
is set aside and a new one entered dismissing the complaint, and
the plaintiffs-appellees are ordered to execute a registrable deed
of conveyance of the subject property in favor of the defendant-
appellant within ten (10) days from the finality of this decision.
With costs against plaintiffs-appellees.[3]
Hence, the instant petition where the following assignment of
errors were made:
I.- RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING
THAT THE SIGNATURE OF SOLEDAD ESTROBILLO IN THE DEED
OF SALE (EXHIBIT "2"), A PRIVATE DOCUMENT, IS GENUINE.
II - RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT
THE DEED OF SALE (EXHIBIT 2) IS VALID AND COULD LEGALLY
CONVEY TO PRIVATE RESPONDENT OWNERSHIP AND TITLE
OVER THE SUBJECT PROPERTY.
III - RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT
HEREIN PETITIONERS HAD LOST THEIR RIGHT TO RECOVER THE
SUBJECT PROPERTY BY VIRTUE OF THE EQUITABLE PRINCIPLE
OF LACHES.
IV- RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING
THAT PRIVATE RESPONDENT'S RIGHT OF ACTION UNDER THE
DEED OF SALE (EXHIBIT "2") HAD PRESCRIBED.[4]
As correctly pointed out by the Court of Appeals, the pivotal issue
in the instant case is whether or not the deed of sale is valid and if
it effectively conveyed to the private respondents the subject
property.
In ruling in favor of the petitioners, the trial court refused to give
weight to the evidence of private respondent which consisted of
(1) the handwritten and unnotarized deed of sale executed by
Soledad Biona in favor of the private respondent; and (2) the
corresponding acknowledgment receipt of the amount of
P3,500.00 as partial payment for the land in dispute. To the mind
of the trial court, the signature of Soledad Biona on the deed of
sale was not genuine. There was no direct evidence to prove that
Soledad Biona herself signed the document. Moreover, the deed
of sale was not notarized and therefore, did not convey any rights
to the vendee. The trial court also ruled that petitioners' rights
over the land have not allegedly prescribed.
On the other hand, the respondent Court of Appeals accepted as
genuine the deed of sale (Exh. 2) which "sets forth in
unmistakable terms that Soledad Biona agreed for the
consideration of P4,500.00, to transfer to defendant-appellant Lot
177. The fact that payment was made is evidenced by the
acknowledgment receipt for P3,500.00 (Exh. 3) signed by Soledad
Biona, and private respondent previous delivery of P1,000.00 to
her pursuant to the Mutual Agreement (Exh. 1).
The contract of sale between the contracting parties was
consummated by the delivery of the subject land to private
respondent who since then had occupied and cultivated the same
continuously and peacefully until the institution of this suit."[5]
Given the contrary findings of the trial court and the respondent
court, there is a need to re-examine the evidence altogether. After
a careful study, we are inclined to agree with the findings and
conclusions of the respondent court as they are more in accord
with the law and evidence on record.
As to the authenticity of the deed of sale, we subscribe to the
Court of Appeals' appreciation of evidence that private
respondent has substantially proven that Soledad Biona indeed
signed the deed of sale of the subject property in his favor. His
categorical statement in the trial court that he himself saw
Soledad Estrobillo affix her signature on the deed of sale lends
credence. This was corroborated by another witness, Mamerto
Famular. Although the petitioners consider such testimony as self
-serving and biased,[6] it can not, however, be denied that private
respondent has shown by competent proof that a contract of sale
where all the essential elements are present for its validity was
executed between the parties.[7] The burden is on the petitioners
to prove the contrary which they have dismally failed to do. As
aptly stated by the Court of Appeals:
Having established the due execution of the subject deed of sale
and the receipt evidencing payment of the consideration, the
burden now shifted to plaintiffs-appellees to prove by contrary
evidence that the property was not so transferred. They were not
able to do this since the very person who could deny the due
execution of the document, Soledad Biona, did not testify. She
similarly failed to take the witness stand in order to deny her
signatures on Exhs. 2 and 3. Admitting as true that she was under
172
medication in Manila while the hearing of the case was underway,
Sales – Chapter 3 Cases
it was easy enough to get her deposition. Her non-presentation
gives rise to the presumption that if her testimony was taken, the
same would be adverse to the claim by plaintiffs-appellees.
It must also be noted that under Sec. 22 Rule 132 of our into by Soledad Biona and the private respondent. Regardless of
procedural law, evidence respecting handwriting may also be its form, it was valid, binding and enforceable between the parties.
given by a comparison, made by the witness or the court, with We quote with favor the respondent court's ratiocination on the
writings admitted or treated as genuine by the party against matter:
whom the evidence is offered. Our own close scrutiny of the
signature of Soledad Biona appearing on Exh. 1, the document
admitted by the contending parties, reveals that it is the same as
the signatures appearing on Exhs. 2 and 3, the documents in
dispute. Admittedly, as was pointed out by the trial court, the "S" in
Exhs. 2 and 3 were written in printed type while that in Exh. 1 is in
handwriting type. But a careful look at the text of Exh. 2 would
reveal that Soledad Biona alternately wrote the letter "S" in
longhand and printed form. Thus, the words "Sum" and "Sept.,"
found in the penultimate and last paragraphs of the document,
respectively, were both written in longhand, while her name
appearing on first part of the document, as well as the erased
word "Sept." in the last paragraph thereof were written in printed
form. Moreover, all doubts about the genuineness of Soledad
Biona's signatures on Exhs. 2 and 3 are removed upon their
comparison to her signature appearing on the special power of
attorney (Exh. A) presented in evidence by plaintiffs-appellees
during trial. In said document, Soledad Biona signed her name
using the same fact that Soledad Estrobillo Biona wrote her entire
name on Exh. 2 while she merely affixed her maiden name on the
other two documents may have been due to the lesser options left
to her when the lawyers who drafted the two documents (Exhs. 2
and 3) already had typewritten the names "SOLEDAD
ESTROBILLO" thereon whereas in Exh. 2, it was Soledad Biona
herself who printed and signed her own name. Thus, in the special
power of attorney (Exh. A), Soledad Biona signed her name in the
same manner it was typewritten on the document.[8]
We agree with the private respondent that all the requisites for a
valid contract of sale are present in the instant case. For a
valuable consideration of P4,500.00, Soledad Biona agreed to sell
and actually conveyed the subject property to private respondent.
The fact that the deed of sale was not notarized does not render
the agreement null and void and without any effect. The provision
of Article 1358 of the Civil Code[9] on the necessity of a public
document is only for convenience, and not for validity or
enforceability.[10] The observance of which is only necessary to
insure its efficacy, so that after the existence of said contract had
been admitted, the party bound may be compelled to execute the
173
proper document.[11] Undeniably, a contract has been entered
Sales – Chapter 3 Cases
xxx The trial court cannot dictate the manner in which the parties
may execute their agreement, unless the law otherwise provides
for a prescribed form, which is not so in this case. The deed of
sale so executed, although a private document, is effective as
between the parties themselves and also as the third persons
having no better title, and should be admitted in evidence for the
purpose of showing the rights and relations of the contracting
parties (Carbonell v. Court of Appeals, 69 SCRA 99; Elumbaring v.
Elumbaring, 12 Phil. 384). Under Art. 1356 of the Civil Code,
contracts shall be obligatory in whatever form they may have
been entered into provided all the essential requisites for their
necessary elements for a valid contract of sale were met when
Soledad Biona agreed to sell and actually conveyed Lot 177 to
defendant-appellant who paid the amount of P4,500.00 therefore.
The deed of sale (Exh. 2) is not made ineffective merely because
it is not notarized or does not appear in a public document. The
contract is binding upon the contracting parties, defendant-
appellant and Soledad Biona, including her successors-in-interest.
Pursuant to Art. 1357, plaintiffs-appellees may be compelled by
defendant-appellant to execute a public document to embody
their valid and enforceable contract and for the purpose of
registering the property in the latter's name (Clarin v. Rulona, 127
SCRA 512; Heirs of Amparo v. Santos, 108 SCRA 43; Araneta v.
Montelibano, 14 Phil. 117).[12]
Finally, we find no merit in petitioners' contention that their right
over the land has not prescribed. The principle of laches was
properly applied against petitioner. Laches has been defined as
the failure or neglect, for an unreasonable and unexplained length
of time, to do that which by exercising due diligence could or
should have been done earlier, it is negligence or omission to
assert a right within a reasonable time, warranting a presumption
that the party entitled to assert it has either abandoned it or
declined to assert it.[13] In the instant case, the Court of Appeals
point to the circumstances that warrant the principle to come into
play:
Laches had been defined to be such neglect or omission to assert
a right taken in conjunction with the lapse of time and other
circumstances causing prejudice to an adverse party, as will bar
him in equity (Heirs of Batiog Lacamen v. Heirs of Laruan, 65
SCRA 605, 609-610). In the instant suit, Soledad Biona, at the time
of the execution of the deed of sale (Exh. 2) on September 11,
1961, could only alienate that portion of Lot 177 belonging to her,
which is seven-twelfths of the entire property. She had no power
or authority to dispose of the shares of her co-owners, the five
daughters of the deceased Ernesto Biona, who were entitled to an
indivisible five-twelfths portion of the whole property. It is not
disputed, however, that as early as 1960, when Soledad Biona
borrowed money from defendant-appellant (Exh. L), the latter
entered, possessed and started occupying the same in the
concept of an owner. He caused its cultivation through various
tenants under Certificates of Land Transfer (Exhs. 7-9), declared
the property in his name, religiously paid taxes thereon, reaped
benefits therefrom, and executed other acts of dominion without
any protest or interference from plaintiffs-appellees for more than
twenty-five years. Even when the five daughters of the deceased
Ernesto Biona were way past the age of majority, when they could
have already asserted their right to their share, no sale in
defendant-appellant's favor was ever brought or any other action
was taken by them to recover their share. Instead, they allowed
defendant-appellant to peacefully occupy the property without
protest. Although it is true that no title to registered land in
derogation of that of the registered owner shall be acquired by
prescription or adverse possession as the right to recover
possession of registered land is imprescriptible, jurisprudence
has laid down the rule that a person and his heirs may lose their
right to recover back the possession of such property and title
thereto by reason of laches. (Victoriano v. Court of Appeals, 194
SCRA 19; Lola v. CA, 145 SCRA 439, 449). Indeed, it has been
ruled in the case of Miguel v. Catalino, 26 SCRA 234, 239, that:
'Courts can not look with favor at parties who, by their silence,
delay and inaction, knowingly induce another to spend time, effort
and expense in cultivating the land, paying taxes and making
improvements thereof for 30 long years, only to spring from
ambush and claim title when the possessor's efforts and the rise
of land values offer an opportunity to make easy profit at his
expense.'
Thus, notwithstanding the invalidity of the sale with respect to the
share of plaintiffs-appellees, the daughters of the late Ernesto
Biona, they [allowed] the vendee, defendant-appellant herein, to
enter, occupy and possess the property in the concept of an
owner without demurrer and molestation for a long period of time,
never claiming the land as their own until 1985 when the property
has greatly appreciated in value. Vigilantibus non dormientibus
sequitas subvenit.[14]
WHEREFORE, the Petition is DENIED and the assailed Decision of
the Court of Appeals is AFFIRMED.
174
SO ORDERED.
Sales – Chapter 3 Cases
HEIRS OF CECILIO (also known as BASILIO) CLAUDEL, namely,
MODESTA CLAUDEL, LORETA HERRERA, JOSE CLAUDEL,
BENJAMIN CLAUDEL, PACITA CLAUDEL, CARMELITA CLAUDEL,
MARIO CLAUDEL, ROBERTO CLAUDEL, LEONARDO CLAUDEL,
ARSENIA VILLALON, PERPETUA CLAUDEL and FELISA CLAUDEL,
petitioners,
vs.
HON. COURT OF APPEALS, HEIRS OF MACARIO, ESPERIDIONA,
RAYMUNDA and CELESTINA, all surnamed CLAUDEL,
respondents.
This petition for review on certiorari seeks the reversal of the
decision rendered by the Court of Appeals in CA-G.R. CV No.
044291 and the reinstatement of the decision of the then Court of
First Instance (CFI) of Rizal, Branch CXI, in Civil Case No. M-5276-
P, entitled. "Heirs of Macario Claudel, et al. v. Heirs of Cecilio
Claudel, et al.," which dismissed the complaint of the private
respondents against the petitioners for cancellation of titles and
reconveyance with damages.2
As early as December 28, 1922, Basilio also known as "Cecilio"
Claudel, acquired from the Bureau of Lands, Lot No. 1230 of the
Muntinlupa Estate Subdivision, located in the poblacion of
Muntinlupa, Rizal, with an area of 10,107 square meters; he
secured Transfer Certificate of Title (TCT) No. 7471 issued by the
Registry of Deeds for the Province of Rizal in 1923; he also
declared the lot in his name, the latest Tax Declaration being No.
5795. He dutifully paid the real estate taxes thereon until his death
in 1937.3 Thereafter, his widow "Basilia" and later, her son Jose,
one of the herein petitioners, paid the taxes.
The same piece of land purchased by Cecilio would, however,
become the subject of protracted litigation thirty-nine years after
his death.
Two branches of Cecilio's family contested the ownership over
the land-on one hand the children of Cecilio, namely, Modesto,
Loreta, Jose, Benjamin, Pacita, Carmelita, Roberto, Mario,
Leonardo, Nenita, Arsenia Villalon, and Felisa Claudel, and their
children and descendants, now the herein petitioners (hereinafter
referred to as HEIRS OF CECILIO), and on the other, the brother
and sisters of Cecilio, namely, Macario, Esperidiona, Raymunda,
and Celestina and their children and descendants, now the herein
private respondents (hereinafter referred to as SIBLINGS OF
CECILIO). In 1972, the HEIRS OF CECILIO partitioned this lot
among themselves and obtained the corresponding Transfer
Certificates of Title on their shares, as follows:
TCT No. 395391 1,997 sq. m. –– Jose Claudel
TCT No. 395392 1,997 sq. m. –– Modesta Claudel
and children
TCT No. 395393 1,997 sq. m. –– Armenia C. Villalon
TCT No. 395394 1,997 sq. m. –– Felisa Claudel4
Four years later, on December 7, 1976, private respondents
SIBLINGS OF CECILIO, filed Civil Case No. 5276-P as already
adverted to at the outset, with the then Court of First Instance of
Rizal, a "Complaint for Cancellation of Titles and Reconveyance
with Damages," alleging that 46 years earlier, or sometime in
1930, their parents had purchased from the late Cecilio Claudel
several portions of Lot No. 1230 for the sum of P30.00. They
admitted that the transaction was verbal. However, as proof of the
sale, the SIBLINGS OF CECILIO presented a subdivision plan of
the said land, dated March 25, 1930, indicating the portions
allegedly sold to the SIBLINGS OF CECILIO.
As already mentioned, the then Court of First Instance of Rizal,
Branch CXI, dismissed the complaint, disregarding the above sole
evidence (subdivision plan) presented by the SIBLINGS OF
CECILIO, thus:
Examining the pleadings as well as the evidence presented in this
case by the parties, the Court can not but notice that the present
complaint was filed in the name of the Heirs of Macario,
Espiridiona, Raymunda and Celestina, all surnamed Claudel,
without naming the different heirs particularly involved, and who
wish to recover the lots from the defendants. The Court tried to
find this out from the evidence presented by the plaintiffs but to
no avail. On this point alone, the Court would not be able to
apportion the property to the real party in interest if ever they are
entitled to it as the persons indicated therein is in generic term
(Section 2, Rule 3). The Court has noticed also that with the
exception of plaintiff Lampitoc and (sic) the heirs of Raymunda
Claudel are no longer residing in the property as they have (sic)
left the same in 1967. But most important of all the plaintiffs
failed to present any document evidencing the alleged sale of the
property to their predecessors in interest by the father of the
defendants. Considering that the subject matter of the supposed
175
sale is a real property the absence of any document evidencing
Sales – Chapter 3 Cases
the sale would preclude the admission of oral testimony (Statute
of Frauds). Moreover, considering also that the alleged sale took
place in 1930, the action filed by the plaintiffs herein for the
recovery of the same more than thirty years after the cause of
action has accrued has already prescribed.
WHEREFORE, the Court renders judgment dismissing the
complaint, without pronouncement as to costs.
SO ORDERED.5
On appeal, the following errors6 were assigned by the SIBLINGS
OF CECILIO:
1. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS'
COMPLAINT DESPITE CONCLUSIVE EVIDENCE SHOWING THE
PORTION SOLD TO EACH OF PLAINTIFFS' PREDECESSORS.
2. THE TRIAL COURT ERRED IN HOLDING THAT
PLAINTIFFS FAILED TO PROVE ANY DOCUMENT EVIDENCING
THE ALLEGED SALE.
3. THE TRIAL COURT ERRED IN NOT GIVING CREDIT TO
THE PLAN, EXHIBIT A, SHOWING THE PORTIONS SOLD TO EACH
OF THE PLAINTIFFS' PREDECESSORS-IN-INTEREST.
4. THE TRIAL COURT ERRED IN NOT DECLARING
PLAINTIFFS AS OWNERS OF THE PORTION COVERED BY THE
PLAN, EXHIBIT A.
5. THE TRIAL COURT ERRED IN NOT DECLARING
TRANSFER CERTIFICATES OF TITLE NOS. 395391, 395392,
395393 AND 395394 OF THE REGISTER OF DEEDS OF RIZAL AS
NULL AND VOID.
The Court of Appeals reversed the decision of the trial court on
the following grounds:
1. The failure to bring and prosecute the action in the name
of the real party in interest, namely the parties themselves, was
not a fatal omission since the court a quo could have adjudicated
the lots to the SIBLINGS OF CECILIO, the parents of the herein
respondents, leaving it to them to adjudicate the property among
themselves.
2. The fact of residence in the disputed properties by the
herein respondents had been made possible by the toleration of
the deceased Cecilio.
3. The Statute of Frauds applies only to executory contracts
and not to consummated sales as in the case at bar where oral
evidence may be admitted as cited in Iñigo v. Estate of Magtoto7
and Diana, et al. v. Macalibo.8
In addition,
. . . Given the nature of their relationship with one another it is not
unusual that no document to evidence the sale was executed, . . .,
in their blind faith in friends and relatives, in their lack of
experience and foresight, and in their ignorance, men, in spite of
laws, will make and continue to make verbal contracts. . . .9
4. The defense of prescription cannot be set up against the
herein petitioners despite the lapse of over forty years from the
time of the alleged sale in 1930 up to the filing of the "Complaint
for Cancellation of Titles and Reconveyance . . ." in 1976.
According to the Court of Appeals, the action was not for the
recovery of possession of real property but for the cancellation of
titles issued to the HEIRS OF CECILIO in 1973. Since the SIBLINGS
OF CECILIO commenced their complaint for cancellation of titles
and reconveyance with damages on December 7, 1976, only four
years after the HEIRS OF CECILIO partitioned this lot among
themselves and obtained the corresponding Transfer Certificates
of Titles, then there is no prescription of action yet.
Thus the respondent court ordered the cancellation of the
Transfer Certificates of Title Nos. 395391, 395392, 395393, and
395394 of the Register of Deeds of Rizal issued in the names of
the HEIRS OF CECILIO and corollarily ordered the execution of the
following deeds of reconveyance:
To Celestina Claudel, Lot 1230-A with an area of 705 sq. m.
To Raymunda Claudel, Lot 1230-B with an area of 599 sq. m.
To Esperidiona Claudel, Lot 1230-C with an area of 597 sq. m.
To Macario Claudel, Lot 1230-D, with an area of 596 sq. m.10
The respondent court also enjoined that this disposition is without
prejudice to the private respondents, as heirs of their deceased
parents, the SIBLINGS OF CECILIO, partitioning among
themselves in accordance with law the respective portions sold to
176
and herein adjudicated to their parents.
Sales – Chapter 3 Cases
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.
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

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

177
set forth in this number. In the following cases, an agreement
Sales – Chapter 3 Cases
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.
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
178
registration, though indefeasible, should not be used as a means
Sales – Chapter 3 Cases
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
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.

In the present case, however, the facts belie the claim of

ownership.

For several years, when the SIBLINGS OF CECILIO, namely,

Macario, Esperidiona Raymunda, and Celestina were living on the
contested premises, they regularly paid a sum of money,
designated as "taxes" at first, to the widow of Cecilio, and later, to
his heirs.21 Why their payments were never directly made to the
Municipal Government of Muntinlupa when they were intended as
payments for "taxes" is difficult to square with their claim of
ownership. We are rather inclined to consider this fact as an
admission of non-ownership. And when we consider also that the
petitioners HEIRS OF CECILIO had individually paid to the
municipal treasury the taxes corresponding to the particular
portions they were occupying,22 we can readily see the superiority
of the petitioners' position.

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
179
certificates of title of the petitioners to the survey or subdivision
Sales – Chapter 3 Cases
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.
SPOUSES GODOFREDO ALFREDO and CARMEN LIMON of the purchase price of the Subject Land for which Carmen
ALFREDO, SPOUSES ARNULFO SAVELLANO and EDITHA B. issued a receipt dated 11 March 1970. Godofredo and Carmen
SAVELLANO, DANTON D. MATAWARAN, SPOUSES DELFIN F. then delivered to Adelia the owners duplicate copy of OCT No.
ESPIRITU, JR. and ESTELA S. ESPIRITU and ELIZABETH 284, with the document of cancellation of mortgage, official
TUAZON, petitioners, vs. SPOUSES ARMANDO BORRAS and receipts of realty
ADELIA LOBATON BORRAS, respondents.
The Case
Before us is a petition for review assailing the Decision[1] of the
Court of Appeals dated 26 November 1999 affirming the
decision[2] of the Regional Trial Court of Bataan, Branch 4, in Civil
Case No. DH-256-94. Petitioners also question the Resolution of
the Court of Appeals dated 26 July 2000 denying petitioners
motion for reconsideration.
The Antecedent Facts
A parcel of land measuring 81,524 square meters (Subject Land)
in Barrio Culis, Mabiga, Hermosa, Bataan is the subject of
controversy in this case. The registered owners of the Subject
Land were petitioner spouses, Godofredo Alfredo (Godofredo) and
Carmen Limon Alfredo (Carmen). The Subject Land is covered by
Original Certificate of Title No. 284 (OCT No. 284) issued to
Godofredo and Carmen under Homestead Patent No. V-69196.
On 7 March 1994, the private respondents, spouses Armando
Borras (Armando) and Adelia Lobaton Borras (Adelia), filed a
complaint for specific performance against Godofredo and
Carmen before the Regional Trial Court of Bataan, Branch 4. The
case was docketed as Civil Case No. DH-256-94.
Armando and Adelia alleged in their complaint that Godofredo
and Carmen mortgaged the Subject Land for P7,000.00 with the
Development Bank of the Philippines (DBP). To pay the debt,
Carmen and Godofredo sold the Subject Land to Armando and
Adelia for P15,000.00, the buyers to pay the DBP loan and its
accumulated interest, and the balance to be paid in cash to the
sellers.
Armando and Adelia gave Godofredo and Carmen the money to
pay the loan to DBP which signed the release of mortgage and
returned the owners duplicate copy of OCT No. 284 to Godofredo
180
and Carmen. Armando and Adelia subsequently paid the balance
Sales – Chapter 3 Cases
tax payments, and tax declaration in the name of Godofredo.
Godofredo and Carmen introduced Armando and Adelia, as the
new owners of the Subject Land, to the Natanawans, the old
tenants of the Subject Land. Armando and Adelia then took
possession of the Subject Land.
In January 1994, Armando and Adelia learned that hired persons
had entered the Subject Land and were cutting trees under
instructions of allegedly new owners of the Subject Land.
Subsequently, Armando and Adelia discovered that Godofredo
and Carmen had re-sold portions of the Subject Land to several
persons.
On 8 February 1994, Armando and Adelia filed an adverse claim
with the Register of Deeds of Bataan. Armando and Adelia
discovered that Godofredo and Carmen had secured an owners
duplicate copy of OCT No. 284 after filing a petition in court for
the issuance of a new copy. Godofredo and Carmen claimed in
their petition that they lost their owners duplicate copy. Armando
and Adelia wrote Godofredo and Carmen complaining about their
acts, but the latter did not reply. Thus, Armando and Adelia filed a
complaint for specific performance.
On 28 March 1994, Armando and Adelia amended their complaint
to include the following persons as additional defendants: the
spouses Arnulfo Savellano and Editha B. Savellano, Danton D.
Matawaran, the spouses Delfin F. Espiritu, Jr. and Estela S.
Espiritu, and Elizabeth Tuazon (Subsequent Buyers). The
Subsequent Buyers, who are also petitioners in this case,
purchased from Godofredo and Carmen the subdivided portions
of the Subject Land. The Register of Deeds of Bataan issued to
the Subsequent Buyers transfer certificates of title to the lots they
purchased.
In their answer, Godofredo and Carmen and the Subsequent
Buyers (collectively petitioners) argued that the action is
unenforceable under the Statute of Frauds. Petitioners pointed
out that there is no written instrument evidencing the alleged
contract of sale over the Subject Land in favor of Armando and
Adelia. Petitioners objected to whatever parole evidence Armando
and Adelia introduced or offered on the alleged sale unless the
same was in writing and subscribed by Godofredo. Petitioners
asserted that the Subsequent Buyers were buyers in good faith
and for value. As counterclaim, petitioners sought payment of
attorneys fees and incidental expenses.
Trial then followed. Armando and Adelia presented the following
witnesses: Adelia, Jesus Lobaton, Roberto Lopez, Apolinario
Natanawan, Rolando Natanawan, Tomas Natanawan, and Mildred
Lobaton. Petitioners presented two witnesses, Godofredo and
Constancia Calonso.
On 7 June 1996, the trial court rendered its decision in favor of
Armando and Adelia. The dispositive portion of the decision
reads:
WHEREFORE, premises considered, judgment is hereby rendered
in favor of plaintiffs, the spouses Adelia Lobaton Borras and
Armando F. Borras, and against the defendant-spouses
Godofredo Alfredo and Carmen Limon Alfredo, spouses Arnulfo
Sabellano and Editha B. Sabellano, spouses Delfin F. Espiritu, Jr.
and Estela S. Espiritu, Danton D. Matawaran and Elizabeth
Tuazon, as follows:
1. Declaring the Deeds of Absolute Sale of the disputed parcel of
land (covered by OCT No. 284) executed by the spouses
Godofredo Alfredo and Camen Limon Alfredo in favor of spouses
Arnulfo Sabellano and Editha B. Sabellano, spouses Delfin F.
Espiritu, Danton D. Matawaran and Elizabeth Tuazon, as null and
void;
2. Declaring the Transfer Certificates of Title Nos. T-163266 and T
-163267 in the names of spouses Arnulfo Sabellano and Editha B.
Sabellano; Transfer Certificates of Title Nos. T-163268 and
163272 in the names of spouses Delfin F. Espiritu, Jr. and Estela
S. Espiritu; Transfer Certificates of Title Nos. T-163269 and T-
163271 in the name of Danton D. Matawaran; and Transfer
Certificate of Title No. T-163270 in the name of Elizabeth Tuazon,
as null and void and that the Register of Deeds of Bataan is
hereby ordered to cancel said titles;
3. Ordering the defendant-spouses Godofredo Alfredo and
Carmen Limon Alfredo to execute and deliver a good and valid
Deed of Absolute Sale of the disputed parcel of land (covered by
OCT No. 284) in favor of the spouses Adelia Lobaton Borras and
Armando F. Borras within a period of ten (10) days from the
finality of this decision;
4. Ordering defendant-spouses Godofredo Alfredo and Carmen
Limon Alfredo to surrender their owners duplicate copy of OCT
No. 284 issued to them by virtue of the Order dated May 20, 1992
181
of the Regional Trial Court of Bataan, Dinalupihan Branch, to the
Sales – Chapter 3 Cases
Registry of Deeds of Bataan within ten (10) days from the finality
of this decision, who, in turn, is directed to cancel the same as
there exists in the possession of herein plaintiffs of the owners
duplicate copy of said OCT No. 284 and, to restore and/or
reinstate OCT No. 284 of the Register of Deeds of Bataan to its
full force and effect;
5. Ordering the defendant-spouses Godofredo Alfredo and settlement of the purchase price and this was paid on 11 March
Carmen Limon Alfredo to restitute and/or return the amount of 1970 as evidenced by the receipt issued by Carmen.
the respective purchase prices and/or consideration of sale of the
disputed parcels of land they sold to their co-defendants within
ten (10) days from the finality of this decision with legal interest
thereon from date of the sale;
6. Ordering the defendants, jointly and severally, to pay plaintiff-
spouses the sum of P20,000.00 as and for attorneys fees and
litigation expenses; and
7. Ordering defendants to pay the costs of suit.
Defendants counterclaims are hereby dismissed for lack of merit.
SO ORDERED.[3]
Petitioners appealed to the Court of Appeals.
On 26 November 1999, the Court of Appeals issued its Decision
affirming the decision of the trial court, thus:
WHEREFORE, premises considered, the appealed decision in Civil
Case No. DH-256-94 is hereby AFFIRMED in its entirety. Treble
costs against the defendants-appellants.
SO ORDERED.[4]
On 26 July 2000, the Court of Appeals denied petitioners motion
for reconsideration.
The Ruling of the Trial Court
The trial court ruled that there was a perfected contract of sale
between the spouses Godofredo and Carmen and the spouses
Armando and Adelia. The trial court found that all the elements of
a contract of sale were present in this case. The object of the sale
was specifically identified as the 81,524-square meter lot in Barrio
Culis, Mabigas, Hermosa, Bataan, covered by OCT No. 284 issued
by the Registry of Deeds of Bataan. The purchase price was fixed
at P15,000.00, with the buyers assuming to pay the sellers
P7,000.00 DBP mortgage loan including its accumulated interest.
The balance of the purchase price was to be paid in cash to the
182
sellers. The last payment of P2,524.00 constituted the full
Sales – Chapter 3 Cases
The trial court found the following facts as proof of a perfected
contract of sale: (1) Godofredo and Carmen delivered to Armando
and Adelia the Subject Land; (2) Armando and Adelia treated as
their own tenants the tenants of Godofredo and Carmen; (3)
Godofredo and Carmen turned over to Armando and Adelia
documents such as the owners duplicate copy of the title of the
Subject Land, tax declaration, and the receipts of realty tax
payments in the name of Godofredo; and (4) the DBP cancelled
the mortgage on the Subject Property upon payment of the loan of
Godofredo and Carmen. Moreover, the receipt of payment issued
by Carmen served as an acknowledgment, if not a ratification, of
the verbal sale between the sellers and the buyers. The trial court
ruled that the Statute of Frauds is not applicable because in this
case the sale was perfected.
The trial court concluded that the Subsequent Buyers were not
innocent purchasers. Not one of the Subsequent Buyers testified
in court on how they purchased their respective lots. The
Subsequent Buyers totally depended on the testimony of
Constancia Calonso (Calonso) to explain the subsequent sale.
Calonso, a broker, negotiated with Godofredo and Carmen the
sale of the Subject Land which Godofredo and Carmen subdivided
so they could sell anew portions to the Subsequent Buyers.
Calonso admitted that the Subject Land was adjacent to her own
lot. The trial court pointed out that Calonso did not inquire on the
nature of the tenancy of the Natanawans and on who owned the
Subject Land. Instead, she bought out the tenants for
P150,000.00. The buy out was embodied in a Kasunduan.
Apolinario Natanawan (Apolinario) testified that he and his wife
accepted the money and signed the Kasunduan because Calonso
and the Subsequent Buyers threatened them with forcible
ejectment. Calonso brought Apolinario to the Agrarian Reform
Office where he was asked to produce the documents showing
that Adelia is the owner of the Subject Land. Since Apolinario
could not produce the documents, the agrarian officer told him
that he would lose the case. Thus, Apolinario was constrained to
sign the Kasunduan and accept the P150,000.00.
Another indication of Calonsos bad faith was her own admission
that she saw an adverse claim on the title of the Subject Land
when she registered the deeds of sale in the names of the
Subsequent Buyers. Calonso ignored the adverse claim and
proceeded with the registration of the deeds of sale.
The trial court awarded P20,000.00 as attorneys fees to Armando
and Adelia. In justifying the award of attorneys fees, the trial court
invoked Article 2208 (2) of the Civil Code which allows a court to
award attorneys fees, including litigation expenses, when it is just
and equitable to award the same. The trial court ruled that
Armando and Adelia are entitled to attorneys fees since they were
compelled to file this case due to petitioners refusal to heed their
just and valid demand.
The Ruling of the Court of Appeals
The Court of Appeals found the factual findings of the trial court
well supported by the evidence. Based on these findings, the
Court of Appeals also concluded that there was a perfected
contract of sale and the Subsequent Buyers were not innocent
purchasers.
The Court of Appeals ruled that the handwritten receipt dated 11
March 1970 is sufficient proof that Godofredo and Carmen sold
the Subject Land to Armando and Adelia upon payment of the
balance of the purchase price. The Court of Appeals found the
recitals in the receipt as sufficient to serve as the memorandum
or note as a writing under the Statute of Frauds.[5] The Court of
Appeals then reiterated the ruling of the trial court that the Statute
of Frauds does not apply in this case.
The Court of Appeals gave credence to the testimony of a witness
of Armando and Adelia, Mildred Lobaton, who explained why the
title to the Subject Land was not in the name of Armando and
Adelia. Lobaton testified that Godofredo was then busy preparing
to leave for Davao. Godofredo promised that he would sign all the
papers once they were ready. Since Armando and Adelia were
close to the family of Carmen, they trusted Godofredo and
Carmen to honor their commitment. Armando and Adelia had no
reason to believe that their contract of sale was not perfected or
validly executed considering that they had received the duplicate
copy of OCT No. 284 and other relevant documents. Moreover,
they had taken physical possession of the Subject Land.
The Court of Appeals held that the contract of sale is not void
even if only Carmen signed the receipt dated 11 March 1970.
Citing Felipe v. Heirs of Maximo Aldon,[6] the appellate court ruled
that a contract of sale made by the wife without the husbands
consent is not void but merely voidable. The Court of Appeals
further declared that the sale in this case binds the conjugal
partnership even if only the wife signed the receipt because the
183
proceeds of the sale were used for the benefit of the conjugal
Sales – Chapter 3 Cases
partnership. The appellate court based this conclusion on Article
161[7] of the Civil Code.
The Subsequent Buyers of the Subject Land cannot claim that
they are buyers in good faith because they had constructive notice
of the adverse claim of Armando and Adelia. Calonso, who
brokered
the subsequent sale, testified that when she registered the
subsequent deeds of sale, the adverse claim of Armando and Whether the deeds of absolute sale and the transfer certificates
Adelia was already annotated on the title of the Subject Land. The of title over the portions of the Subject Land issued to the
Court of Appeals believed that the act of Calonso and the Subsequent Buyers, innocent purchasers in good faith and for
Subsequent Buyers in forcibly ejecting the Natanawans from the value whose
Subject Land buttresses the conclusion that the second sale was
tainted with bad faith from the very beginning.
Finally, the Court of Appeals noted that the issue of prescription
was not raised in the Answer. Nonetheless, the appellate court
explained that since this action is actually based on fraud, the
prescriptive period is four years, with the period starting to run
only from the date of the discovery of the fraud. Armando and
Adelia discovered the fraudulent sale of the Subject Land only in
January 1994. Armando and Adelia lost no time in writing a letter
to Godofredo and Carmen on 2 February 1994 and filed this case
on 7 March 1994. Plainly, Armando and Adelia did not sleep on
their rights or lose their rights by prescription.
The Court of Appeals sustained the award of attorneys fees and
imposed treble costs on petitioners.
The Issues
Petitioners raise the following issues:
Whether the alleged sale of the Subject Land in favor of Armando
and Adelia is valid and enforceable, where (1) it was orally entered
into and not in writing; (2) Carmen did not obtain the consent and
authority of her husband, Godofredo, who was the sole owner of
the Subject Land in whose name the title thereto (OCT No. 284)
was issued; and (3) it was entered into during the 25-year
prohibitive period for alienating the Subject Land without the
approval of the Secretary of Agriculture and Natural Resources.
II
Whether the action to enforce the alleged oral contract of sale
brought after 24 years from its alleged perfection had been barred
by prescription and by laches.
184
III
Sales – Chapter 3 Cases
individual titles to their respective lots are absolute and
indefeasible, are valid.
IV
Whether petitioners are liable to pay Armando and Adelia
P20,0000.00 as attorneys fees and litigation expenses and the
treble costs, where the claim of Armando and Adelia is clearly
unfounded and baseless.
V namely the owners duplicate copy of OCT No. 284, the tax
Whether petitioners are entitled to the counterclaim for attorneys
fees and litigation expenses, where they have sustained such
expenses by reason of institution of a clearly malicious and
unfounded action by Armando and Adelia.[8]
The Courts Ruling
The petition is without merit.
In a petition for review on certiorari under Rule 45, this Court
reviews only errors of law and not errors of facts.[9] The factual
findings of the appellate court are generally binding on this
Court.[10] This applies with greater force when both the trial court
and the Court of Appeals are in complete agreement on their
factual findings.[11] In this case, there is no reason to deviate
from the findings of the lower courts. The facts relied upon by the
trial and appellate courts are borne out by the record. We agree
with the conclusions drawn by the lower courts from these facts.
Validity and Enforceability of the Sale
The contract of sale between the spouses Godofredo and Carmen
and the spouses Armando and Adelia was a perfected contract. A
contract is perfected once there is consent of the contracting
parties on the object certain and on the cause of the
obligation.[12] In the instant case, the object of the sale is the
Subject Land, and the price certain is P15,000.00. The trial and
appellate courts found that there was a meeting of the minds on
the sale of the Subject Land and on the purchase price of
P15,000.00. This is a finding of fact that is binding on this Court.
We find no reason to disturb this finding since it is supported by
substantial evidence.
The contract of sale of the Subject Land has also been
consummated because the sellers and buyers have performed
their respective obligations under the contract. In a contract of
sale, the seller obligates himself to transfer the ownership of the
determinate thing sold, and to deliver the same, to the buyer who
obligates himself to pay a price certain to the seller.[13] In the
instant case, Godofredo and Carmen delivered the Subject Land
to Armando and Adelia, placing the latter in actual physical
possession of the Subject Land. This physical delivery of the
Subject Land also constituted a transfer of ownership of the
Subject Land to Armando and Adelia.[14] Ownership of the thing
sold is transferred to the vendee upon its actual or constructive
delivery.[15] Godofredo and Carmen also turned over to Armando
and Adelia the documents of ownership to the Subject Land,
declaration and the receipts of realty tax payments.
On the other hand, Armando and Adelia paid the full purchase
price as evidenced by the receipt dated 11 March 1970 issued by
Carmen. Armando and Adelia fulfilled their obligation to provide
the P7,000.00 to pay the DBP loan of Godofredo and Carmen, and
to pay the latter the balance of P8,000.00 in cash. The P2,524.00
paid under the receipt dated 11 March 1970 was the last
installment to settle fully the purchase price. Indeed, upon
payment to DBP of the P7,000.00 and the accumulated interests,
the DBP cancelled the mortgage on the Subject Land and returned
the owners duplicate copy of OCT No. 284 to Godofredo and
Carmen.
The trial and appellate courts correctly refused to apply the
Statute of Frauds to this case. The Statute of Frauds[16] provides
that a contract for the sale of real property shall be unenforceable
unless the contract or some note or memorandum of the sale is in
writing and subscribed by the party charged or his agent. The
existence of the receipt dated 11 March 1970, which is a
memorandum of the sale, removes the transaction from the
provisions of the Statute of Frauds.
The Statute of Frauds applies only to executory contracts and not
to contracts either partially or totally performed.[17] Thus, where
one party has performed ones obligation, oral evidence will be
admitted to prove the agreement.[18] In the instant case, the
parties have consummated the sale of the Subject Land, with both
sellers and buyers performing their respective obligations under
the contract of sale. In addition, a contract that violates the
Statute of Frauds is ratified by the acceptance of benefits under
the contract.[19] Godofredo and Carmen benefited from the
185
contract because they paid their DBP loan and secured the
Sales – Chapter 3 Cases
cancellation of their mortgage using the money given by Armando
and Adelia. Godofredo and Carmen also accepted payment of the
balance of the purchase price.
Godofredo and Carmen cannot invoke the Statute of Frauds to husband, the sale would only be voidable and not void.
deny the existence of the verbal contract of sale because they
have performed their obligations, and have accepted benefits, However, Godofredo can no longer question the sale. Voidable
under the verbal contract. [20] Armando and Adelia have also contracts are susceptible of ratification.[24] Godofredo ratified
performed their obligations under the verbal contract. Clearly, the
both the sellers and the buyers have consummated the verbal
contract of sale of the Subject Land. The Statute of Frauds was
enacted to prevent fraud.[21] This law cannot be used to advance
the very evil the law seeks to prevent.
Godofredo and Carmen also claim that the sale of the Subject
Land to Armando and Adelia is void on two grounds. First, Carmen
sold the Subject Land without the marital consent of Godofredo.
Second, the sale was made during the 25-year period that the law
prohibits the alienation of land grants without the approval of the
Secretary of Agriculture and Natural Resources.
These arguments are without basis.
The Family Code, which took effect on 3 August 1988, provides
that any alienation or encumbrance made by the husband of the
conjugal partnership property without the consent of the wife is
void. However, when the sale is made before the effectivity of the
Family Code, the applicable law is the Civil Code.[22]
Article 173 of the Civil Code provides that the disposition of
conjugal property without the wifes consent is not void but merely
voidable. Article 173 reads:
The wife may, during the marriage, and within ten years from the
transaction questioned, ask the courts for the annulment of any
contract of the husband entered into without her consent, when
such consent is required, or any act or contract of the husband
which tends to defraud her or impair her interest in the conjugal
partnership property. Should the wife fail to exercise this right, she
or her heirs, after the dissolution of the marriage, may demand the
value of property fraudulently alienated by the husband.
In Felipe v. Aldon,[23] we applied Article 173 in a case where the
wife sold some parcels of land belonging to the conjugal
partnership without the consent of the husband. We ruled that the
contract of sale was voidable subject to annulment by the
husband. Following petitioners argument that Carmen sold the
186
land to Armando and Adelia without the consent of Carmens
Sales – Chapter 3 Cases
sale when he introduced Armando and Adelia to his tenants as
the new owners of the Subject Land. The trial court noted that
Godofredo failed to deny categorically on the witness stand the
claim of the complainants witnesses that Godofredo introduced
Armando and Adelia as the new landlords of the tenants.[25] That
Godofredo and Carmen allowed Armando and Adelia to enjoy
possession of the Subject Land for 24 years is formidable proof of
Godofredos acquiescence to the sale. If the sale was truly
unauthorized, then Godofredo should have filed an action to annul
the sale. He did not. The prescriptive period to annul the sale has
long lapsed. Godofredos conduct belies his claim that his wife
sold the Subject Land without his consent.
Moreover, Godofredo and Carmen used most of the proceeds of
the sale to pay their debt with the DBP. We agree with the Court of
Appeals that the sale redounded to the benefit of the conjugal
partnership. Article 161 of the Civil Code provides that the
conjugal partnership shall be liable for debts and obligations
contracted by the wife for the benefit of the conjugal partnership.
Hence, even if Carmen sold the land without the consent of her
husband, the sale still binds the conjugal partnership.
Petitioners contend that Godofredo and Carmen did not deliver
the title of the Subject Land to Armando and Adelia as shown by
this portion of Adelias testimony on cross-examination:
Q -- No title was delivered to you by Godofredo Alfredo?
A -- I got the title from Julie Limon because my sister told me.[26]
Petitioners raise this factual issue for the first time. The Court of
Appeals could have passed upon this issue had petitioners raised
this earlier. At any rate, the cited testimony of Adelia does not
convincingly prove that Godofredo and Carmen did not deliver the
Subject Land to Armando and Adelia. Adelias cited testimony
must be examined in context not only with her entire testimony
but also with the other circumstances.
Adelia stated during cross-examination that she obtained the title
of the Subject Land from Julie Limon (Julie), her classmate in
college and the sister of Carmen. Earlier, Adelias own sister had
secured the title from the father of Carmen. However, Adelias
sister, who was about to leave for the United States, gave the title
to Julie because of the absence of the other documents. Adelias
sister told Adelia to secure the title from Julie, and this was how
Adelia obtained the title from Julie.
It is not necessary that the seller himself deliver the title of the
property to the buyer because the thing sold is understood as
delivered when it is placed in the control and possession of the
vendee.[27] To repeat, Godofredo and Carmen themselves
introduced the Natanawans, their tenants, to Armando and Adelia
as the new owners of the Subject Land. From then on, Armando
and Adelia acted as the landlords of the Natanawans. Obviously,
Godofredo and Carmen themselves placed control and
possession of the Subject Land in the hands of Armando and
Adelia.
Petitioners invoke the absence of approval of the sale by the
Secretary of Agriculture and Natural Resources to nullify the sale.
Petitioners never raised this issue before the trial court or the
Court of Appeals. Litigants cannot raise an issue for the first time
on appeal, as this would contravene the basic rules of fair play,
justice and due process.[28] However, we will address this new
issue to finally put an end to this case.
The sale of the Subject Land cannot be annulled on the ground
that the Secretary did not approve the sale, which was made
within 25 years from the issuance of the homestead title. Section
118 of the Public Land Act (Commonwealth Act No. 141) reads as
follows:
SEC. 118. Except in favor of the Government or any of its
branches, units, or institutions or legally constituted banking
corporation, lands acquired under free patent or homestead
provisions shall not be subject to encumbrance or alienation from
the date of the approval of the application and for a term of five
years from and after the date of the issuance of the patent or
grant.
xxx
No alienation, transfer, or conveyance of any homestead after 5
years and before twenty-five years after the issuance of title shall
be valid without the approval of the Secretary of Agriculture and
Commerce, which approval shall not be denied except on
constitutional and legal grounds.
A grantee or homesteader is prohibited from alienating to a
private individual a land grant within five years from the time that
187
the patent or grant is issued.[29] A violation of this prohibition
Sales – Chapter 3 Cases
renders a sale void.[30] This prohibition, however, expires on the
fifth year. From then on until the next 20 years[31] the land grant
may be alienated provided the Secretary of Agriculture and
Natural Resources approves the alienation. The Secretary is
required to approve the alienation unless there are constitutional
and legal grounds to deny the approval. In this case, there are no
apparent constitutional or
legal grounds for the Secretary to disapprove the sale of the favor of Armando and Adelia. This gives Armando and Adelia the
Subject Land. right to seek reconveyance of the property from the Subsequent
Buyers.[40]
The failure to secure the approval of the Secretary does not ipso
facto make a sale void.[32] The absence of approval by the To determine when the prescriptive period commenced in an
Secretary does not nullify a sale made after the expiration of the 5 action for reconveyance, plaintiffs possession of the disputed
-year period, for in such event the requirement of Section 118 of property is
the Public Land Act becomes merely directory[33] or a
formality.[34] The approval may be secured later, producing the
effect of ratifying and adopting the transaction as if the sale had
been previously authorized.[35] As held in Evangelista v.
Montano:[36]
Section 118 of Commonwealth Act No. 141, as amended,
specifically enjoins that the approval by the Department Secretary
"shall not be denied except on constitutional and legal grounds."
There being no allegation that there were constitutional or legal
impediments to the sales, and no pretense that if the sales had
been submitted to the Secretary concerned they would have been
disapproved, approval was a ministerial duty, to be had as a
matter of course and demandable if refused. For this reason, and
if necessary, approval may now be applied for and its effect will
be to ratify and adopt the transactions as if they had been
previously authorized. (Emphasis supplied)
Action Not Barred by Prescription and Laches
Petitioners insist that prescription and laches have set in. We
disagree.
The Amended Complaint filed by Armando and Adelia with the
trial court is captioned as one for Specific Performance. In reality,
the ultimate relief sought by Armando and Adelia is the
reconveyance to them of the Subject Land. An action for
reconveyance is one that seeks to transfer property, wrongfully
registered by another, to its rightful and legal owner.[37] The body
of the pleading or complaint determines the nature of an action,
not its title or heading.[38] Thus, the present action should be
treated as one for reconveyance.[39]
Article 1456 of the Civil Code provides that a person acquiring
property through fraud becomes by operation of law a trustee of
an implied trust for the benefit of the real owner of the property.
188
The presence of fraud in this case created an implied trust in
Sales – Chapter 3 Cases
material. An action for reconveyance based on an implied trust
prescribes in ten years.[41] The ten-year prescriptive period
applies only if there is an actual need to reconvey the property as
when the plaintiff is not in possession of the property.[42]
However, if the plaintiff, as the real owner of the property also
remains in possession of the property, the prescriptive period to
recover title and possession of the property does not run against
him.[43] In such a case, an action for reconveyance, if
nonetheless filed, would be in the nature of a suit for quieting of
title, an action that is imprescriptible.[44]
In this case, the appellate court resolved the issue of prescription
by ruling that the action should prescribe four years from
discovery of the fraud. We must correct this erroneous application
of the four-year prescriptive period. In Caro v. Court of
Appeals,[45] we explained why an action for reconveyance based
on an implied trust should prescribe in ten years. In that case, the
appellate court also erroneously applied the four-year prescriptive
period. We declared in Caro:
We disagree. The case of Liwalug Amerol, et al. v. Molok
Bagumbaran, G.R. No. L-33261, September 30, 1987,154 SCRA
396 illuminated what used to be a gray area on the prescriptive
period for an action to reconvey the title to real property and,
corollarily, its point of reference:
xxx It must be remembered that before August 30, 1950, the date
of the effectivity of the new Civil Code, the old Code of Civil
Procedure (Act No. 190) governed prescription. It provided:
SEC. 43. Other civil actions; how limited.- Civil actions other than
for the recovery of real property can only be brought within the
following periods after the right of action accrues:
xxx xxx xxx
3. Within four years: xxx An action for relief on the ground of
fraud, but the right of action in such case shall not be deemed to
have accrued until the discovery of the fraud;
xxx xxx xxx
In contrast, under the present Civil Code, we find that just as an
implied or constructive trust is an offspring of the law (Art. 1456,
Civil Code), so is the corresponding obligation to reconvey the innocent holder of the decree of registration on the original
property and the title thereto in favor of the true owner. In this petition or application, xxx
context, and vis-a-vis prescription, Article 1144 of the Civil Code is
applicable. This provision should be read in conjunction with Article 1456 of
the Civil Code, which provides:
Article 1144. The following actions must be brought within ten
years from the time the right of action accrues: Article 1456. If property is acquired through mistake or fraud, the
person obtaining it is, by force of law, considered a trustee of an
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
xxxxxxxxx
(Emphasis supplied).
An action for reconveyance based on an implied or constructive
trust must perforce prescribe in ten years and not otherwise. A
long line of decisions of this Court, and of very recent vintage at
that, illustrates this rule. Undoubtedly, it is now well-settled that an
action for reconveyance based on an implied or constructive trust
prescribes in ten years from the issuance of the Torrens title over
the property. The only discordant note, it seems, is Balbin vs.
Medalla which states that the prescriptive period for a
reconveyance action is four years. However, this variance can be
explained by the erroneous reliance on Gerona vs. de Guzman.
But in Gerona, the fraud was discovered on June 25,1948, hence
Section 43(3) of Act No. 190, was applied, the new Civil Code not
coming into effect until August 30, 1950 as mentioned earlier. It
must be stressed, at this juncture, that article 1144 and article
1456, are new provisions. They have no counterparts in the old
Civil Code or in the old Code of Civil Procedure, the latter being
then resorted to as legal basis of the four-year prescriptive period
for an action for reconveyance of title of real property acquired
under false pretenses.
An action for reconveyance has its basis in Section 53, paragraph
3 of Presidential Decree No. 1529, which provides:
In all cases of registration procured by fraud, the owner may
pursue all his legal and equitable remedies against the parties to
189
such fraud without prejudice, however, to the rights of any
Sales – Chapter 3 Cases
implied trust for the benefit of the person from whom the property
comes.
The law thereby creates the obligation of the trustee to reconvey
the property and the title thereto in favor of the true owner.
Correlating Section 53, paragraph 3 of Presidential Decree No.
1529 and Article 1456 of the Civil Code with Article 1144(2) of the
Civil Code, supra, the prescriptive period for the reconveyance of
fraudulently registered real property is ten (10) years reckoned
from the date of the issuance of the certificate of title xxx
(Emphasis supplied)[46]
Following Caro, we have consistently held that an action for
reconveyance based on an implied trust prescribes in ten
years.[47] We went further by specifying the reference point of the
ten-year prescriptive period as the date of the registration of the
deed or the issuance of the title.[48]
Had Armando and Adelia remained in possession of the Subject
Land, their action for reconveyance, in effect an action to quiet
title to property, would not be subject to prescription. Prescription
does not run against the plaintiff in actual possession of the
disputed land because such plaintiff has a right to wait until his
possession is disturbed or his title is questioned before initiating
an action to vindicate his right.[49] His undisturbed possession
gives him the continuing right to seek the aid of a court of equity
to determine the nature of the adverse claim of a third party and
its effect on his title.[50]
Armando and Adelia lost possession of the Subject Land when
the Subsequent Buyers forcibly drove away from the Subject Land
the Natanawans, the tenants of Armando and Adelia.[51] This
created an actual need for Armando and Adelia to seek
reconveyance of the Subject Land. The statute of limitation
becomes relevant in this case. The ten-year prescriptive period
started to run from the date the Subsequent Buyers registered
their deeds of sale with the Register of Deeds.
The Subsequent Buyers bought the subdivided portions of the
Subject Land on 22 February 1994, the date of execution of their
deeds of sale. The Register of Deeds issued the transfer
certificates of title to the Subsequent Buyers on 24 February 1994.
Armando and Adelia filed the Complaint on 7 March 1994. Clearly,
prescription could not have set in since the case was filed at the
early stage of the ten-year prescriptive period.
Neither is the action barred by laches. We have defined laches as
the failure or neglect, for an unreasonable time, to do that which,
by the exercise of due diligence, could or should have been done
earlier.[52] It is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled
to assert it either has abandoned it or declined to assert it.[53]
Armando and Adelia discovered in January 1994 the subsequent
sale of the Subject Land and they filed this case on 7 March 1994.
Plainly, Armando and Adelia did not sleep on their rights.
Validity of Subsequent Sale of Portions of the Subject Land
Petitioners maintain that the subsequent sale must be upheld
because the Subsequent Buyers, the co-petitioners of Godofredo
and Carmen, purchased and registered the Subject Land in good
faith. Petitioners argue that the testimony of Calonso, the person
who brokered the second sale, should not prejudice the
Subsequent Buyers. There is no evidence that Calonso was the
agent of the Subsequent Buyers and that she communicated to
them what she knew about the adverse claim and the prior sale.
Petitioners assert that the adverse claim registered by Armando
and Adelia has no legal basis to render defective the transfer of
title to the Subsequent Buyers.
We are not persuaded. Godofredo and Carmen had already sold
the Subject Land to Armando and Adelia. The settled rule is when
ownership or title passes to the buyer, the seller ceases to have
any title to transfer to any third person.[54] If the seller sells the
same land to another, the second buyer who has actual or
constructive knowledge of the prior sale cannot be a registrant in
good faith.[55] Such second buyer cannot defeat the first buyers
title.[56] In case a title is issued to the second buyer, the first
buyer may seek reconveyance of the property subject of the
sale.[57]
Thus, to merit protection under the second paragraph of Article
1544[58] of the Civil Code, the second buyer must act in good
faith in registering the deed.[59] In this case, the Subsequent
Buyers good faith hinges on whether they had knowledge of the
previous sale. Petitioners do not dispute that Armando and Adelia
registered their adverse claim with the Registry of Deeds of
Bataan on 8 February 1994. The Subsequent Buyers purchased
their respective lots only on 22 February 1994 as shown by the
date of their deeds of sale. Consequently, the adverse claim
registered prior to the second sale charged the Subsequent
190
Buyers with constructive notice of the defect in the title of the
Sales – Chapter 3 Cases
sellers,[60] Godofredo and Carmen.
It is immaterial whether Calonso, the broker of the second sale,
communicated to the Subsequent Buyers the existence of the
adverse claim. The registration of the adverse claim on 8 February
1994 constituted, by operation of law, notice to the whole
world.[61] From that date onwards, the Subsequent Buyers were
deemed to have constructive notice of the adverse claim of
Armando and Adelia. When the Subsequent Buyers purchased
portions of the Subject Land on 22 February 1994, they already
had constructive notice of the adverse claim registered earlier.[62]
Thus, the Subsequent Buyers were not buyers in good faith when
they purchased their lots on 22 February 1994. They were also not
registrants in good faith when they registered their deeds of sale
with the Registry of Deeds on 24 February 1994.
The Subsequent Buyers individual titles to their respective lots are
not absolutely indefeasible. The defense of indefeasibility of the
Torrens Title does not extend to a transferee who takes the
certificate of title with notice of a flaw in his title.[63] The principle
of indefeasibility of title does not apply where fraud attended the
issuance of the titles as in this case.[64]
Attorneys Fees and Costs
We sustain the award of attorneys fees. The decision of the court
must state the grounds for the award of attorneys fees. The trial
court complied with this requirement.[65] We agree with the trial
court that if it were not for petitioners unjustified refusal to heed
the just and valid demands of Armando and Adelia, the latter
would not have been compelled to file this action.
The Court of Appeals echoed the trial courts condemnation of
petitioners fraudulent maneuverings in securing the second sale
of the Subject Land to the Subsequent Buyers. We will also not
turn a blind eye on petitioners brazen tactics. Thus, we uphold the
treble costs imposed by the Court of Appeals on petitioners.
WHEREFORE, the petition is DENIED and the appealed decision is
AFFIRMED. Treble costs against petitioners.
SO ORDERED.
SPS. FORTUNATO SANTOS and ROSALINDA R SANTOS,
petitioners,
vs.
COURT OF APPEALS, SPS. MARIANO R. CASEDA and CARMEN
CASEDA, respondents.
For review on certiorari is the decision of the Court of Appeals,
dated March 28, 1995, in CA-G.R. CV No. 30955, which reversed
and set aside the judgment of the Regional Trial Court of Makati,
Branch 133, in Civil Case No. 89-4759. Petitioners (the Santoses)
were the owners of a house and lot informally sold, with
conditions, to herein private respondents (the Casedas). In the
trial court, the Casedas had complained that the Santoses refused
to deliver said house and lot despite repeated demands. The trial
court dismissed the complaint for specific performance and
damages, but in the Court of Appeals, the dismissal was reversed,
as follows:
"WHEREFORE, in view of the foregoing, the decision appealed
from is hereby REVERSED and SET ASIDE and a new one entered:
"1. GRANTING plaintiffs-appellants a period of NINETY (90)
DAYS from the date of the finality of judgment within which to pay
the balance of the obligation in accordance with their agreement;
"2. Ordering appellees to restore possession of the subject
house and lot to the appellants upon receipt of the full amount of
the balance due on the purchase price; and
"3. No pronouncement as to costs.
"SO ORDERED."1
The undisputed facts of this case are as follows:
The spouses Fortunato and Rosalinda Santos owned the house
and lot consisting of 350 square meters located at Lot 7, Block 8,
Better Living Subdivision, Parañaque, Metro Manila, as evidenced
by TCT (S-11029) 28005 of the Register of Deeds of Parañaque.
The land together with the house, was mortgaged with the Rural
Bank of Salinas, Inc., to secure a loan of P150,000.00 maturing on
June 16, 1987.
191
Sometime in 1984, Rosalinda Santos met Carmen Caseda, a
Sales – Chapter 3 Cases
fellow market vendor of hers in Pasay City and soon became very
good friends with her. The duo even became kumadres when
Carmen stood as a wedding sponsor of Rosalinda's nephew.
On June 16, 1984, the bank sent Rosalinda Santos a letter
demanding payment of P16,915.84 in unpaid interest and other
charges. Since the Santos couple had no funds, Rosalinda offered
to sell the house and lot to Carmen. After inspecting the real
property, Carmen and her husband agreed.
Sometime that month of June, Carmen and Rosalinda signed a
document, which reads:
"Received the amount of P54,100.00 as a partial payment of Mrs.
Carmen Caseda to the (total) amount of 350,000.00 (house and
lot) that is own (sic) by Mrs. Rosalinda R. Santos.
(Sgd.) Carmen H. Caseda
direct buyer
Mrs. Carmen Caseda
"(Sgd.) Rosalinda Del R. Santos
Owner
Mrs. Rosalinda R. Santos
House and Lot
Better Living Subd. Parañaque, Metro Manila
Section V Don Bosco St."2
The other terms and conditions that the parties agreed upon were
for the Caseda spouses to pay: (1) the balance of the mortgage
loan with the Rural bank amounting to P135,385.18; (2) the real
estate taxes; (3) the electric and water bills; and (4) the balance of
the cash price to be paid not later than June 16, 1987, which was
the maturity date of the loan.3
The Casedas gave an initial payment of P54,100.00 and
immediately took possession of the property, which they then
leased out. They also paid in installments, P81,696.84 of the
mortgage loan. The Casedas, however, failed to pay the remaining
balance of the loan because they suffered bankruptcy in 1987.
Notwithstanding the state of their finances, Carmen nonetheless
paid in March 1990, the real estate taxes on the property for 1981-
1984. She also settled the electric bills from December 12, 1988
to July 12, 1989. All these payments were made in the name of
Rosalinda Santos.
In January 1989, the Santoses, seeing that the Casedas lacked the
means to pay the remaining installments and/or amortization of
the loan, repossessed the property. The Santoses then collected
the rentals from the tenants.
In February 1989, Carmen Caseda sold her fishpond in Batangas.
She then approached petitioners and offered to pay the balance of
the purchase price for the house and lot. The parties, however,
could not agree, and the deal could not push through because the
Santoses wanted a higher price. For understandably, the real
estate boom in Metro Manila at this time, had considerably jacked
up realty values. On August 11, 1989, the Casedas filed Civil Case
No. 89-4759, with the RTC of Makati, to have the Santoses
execute the final deed of conveyance over the property, or in
default thereof, to reimburse the amount of P180,000.00 paid in
cash and P249,900.00 paid to the rural bank, plus interest, as well
as rentals for eight months amounting to P32,000.00, plus
damages and costs of suit.1âwphi1.nêt
After trial on the merits, the lower court disposed of the case as
follows:
"WHEREFORE, judgment is hereby ordered:
(a) dismissing plaintiff's (Casedas') complaint; and
(b) declaring the agreement; marked as Annex "C" of the
complaint rescinded. Costs against plaintiffs.
"SO ORDERED."4
Said judgment of dismissal is mainly based on the trial court's
finding that:
"Admittedly, the purchase price of the house and lot was
P485,385.18, i.e. P350,000.00 as cash payment and P135,385.18,
assumption of mortgage. Of it plaintiffs [Casedas] paid the
following: (1) P54,100.00 down payment; and (2) P81,694.64
192
installment payments to the bank on the loan (Exhs. E to E-19) or
Sales – Chapter 3 Cases
a total of P135,794.64. Thus, plaintiffs were short of the purchase
price. They cannot, therefore, demand specific performance."5
The trial court further held that the Casedas were not entitled to
reimbursement of payments already made, reasoning that:
"As earlier mentioned, plaintiffs made a total payment of
P135,794.64 out of the purchase price of P485,385.18. The
property was in plaintiffs' possession from June 1984 to January CIVIL CODE) IS NOT APPLICABLE.
1989 or a period of fifty-five months. During that time, plaintiffs
leased the property. Carmen said the property was rented for ASSUMING ARGUENDO THAT A JUDICIAL DEMAND FOR
P25.00 a day or P750.00 a month at the start and in 1987 it was RESCISSION IS REQUIRED, WHETHER PETITIONERS' DEMAND
increased to P2,000.00 and P4,000 a month. But the evidence is AND PRAYER FOR RESCISSION CONTAINED IN
not precise when the different amounts of rental took place. Be
that as it may, fairness demands that plaintiffs must pay
defendants for the exercise of dominical rights over the property
by renting it to others. The amount of P2,000.00 a month would be
reasonable based on the average of P750.00, P2,000.00,
P4,000.00 lease-rentals charged. Multiply P2,000 by 55 months,
the plaintiffs must pay defendants P110,000 for the use of the
property. Deducting this amount from the P135,794.64 payment
of the plaintiffs on the property the difference is P25,794.64.
Should the plaintiffs be entitled to a reimbursement of this
amount? The answer is in the negative. Because of failure of
plaintiffs to liquidated the mortgage loan on time, it had ballooned
from its original figure of P135,384.18 as of June 1984 to
P337,280.78 as of December 31, 1988. Defendants [Santoses]
had to pay the last amount to the bank to save the property from
foreclosure. Logically, plaintiffs must share in the burden arising
from their failure to liquidate the loan per their contractual
commitment. Hence, the amount of P25,794.64 as their share in
the defendants' damages in the form of increased loan-amount, is
reasonable."6
On appeal, the appellate court, as earlier noted, reversed the lower
court. The appellate court held that rescission was not justified
under the circumstances and allowed the Caseda spouses a
period of ninety days within which to pay the balance of the
agreed purchase price.
Hence, this instant petition for review on certiorari filed by the
Santoses.
Petitioners now submit the following issues for our consideration:
WHETHER OR NOT THE COURT OF APPEALS, HAS JURISDICTION
TO DECIDE PRIVATE RESPONDENT'S APPEAL INTERPOSING
PURELY QUESTIONS OF LAW.
WHETHER THE SUBJECT TRANSACTION IS NOT A CONTRACT
OF ABSOLUTE SALE BUT A MERE ORAL CONTRACT TO SELL IN
193
WHICH CASE JUDICIAL DEMAND FOR RESCISSION (ART. 1592,7
Sales – Chapter 3 Cases
THEIR ANSWER FILED BEFORE THE TRIAL SATISFIED THE SAID
REQUIREMENT.
WHETHER OR NOT THE NON-PAYMENT OF MORE THAN HALF
OF THE ENTIRE PURCHASE PRICE INCLUDING THE NON-
COMPLIANCE WITH THE STIPULATION TO LIQUIDATE THE
MORTGAGE LOAN ON TIME WHICH CAUSED GRAVE DAMAGE
AND PREJUDICE TO PETITIONERS, CONSTITUTE SUBSTANTIAL
BREACH TO JUSTIFY RESCISSION OF A CONTRACT TO SELL
UNDER ARTICLE 1191 8 (CIVIL CODE).
On the first issue, petitioners argue that, since both the parties
and the apellate court adopted the findings of trial court,9 no
questions of fact were raised before the Court of Appeals.
According to petitioners, CA-G.R. CV No. 30955, involved only pure
questions of law. They aver that the court a quo had no
jurisdiction to hear, much less decide, CA-G.R. CV No. 30955,
without running afoul of Supreme Court Circular No. 290 (4) [c].10
There is a question of law in a given case when the doubt or
difference arises as to how the law is on a certain set of facts, and
there is a question of fact when the doubt or difference arises as
to the truth or falsehood of the alleged facts.11 But we note that
the first assignment of error submitted by respondents for
consideration by the appellate court dealt with the trial court's
finding that herein petitioners got back the property in question
because respondents did not have the means to pay the
installments and/or amortization of the loan.12 The resolution of
this question involved an evaluation of proof, and not only a
consideration of the applicable statutory and case laws. Clearly,
C.A.-G.R. CV No. 30955 did not involve pure questions of law,
hence the Court of Appeals had jurisdiction and there was no
violation of our Circular No. 2-90.
Moreover, we find that petitioners took an active part in the
proceedings before the Court of Appeals, yet they did not raise
there the issue of jurisdiction. They should have raised this issue
at the earliest opportunity before the Court of Appeals. A party
taking part in the proceedings before the appellate court and
submitting his case for its decision ought not to later on attack
the court's decision for want of jurisdiction because the decision
turns out to be adverse to him.13
The second and third issues deal with the question: Did the Court
of Appeals err in holding that a judicial rescission of the
agreement was necessary? In resolving both issues, we must first
make a preliminary determination of the nature of the contract in
question:
Was it a contract of sale, as insisted by the respondents or a mere
contract to sell, as contended by petitioners?
Petitioners argue that the transaction between them and
respondents was a mere contract to sell, and not a contract of
sale, since the sole documentary evidence (Exh. D, receipt)
referring to their agreement clearly showed that they did not
transfer ownership of the property in question simultaneous with
its delivery and hence remained its owners, pending fulfillment of
the other suspensive conditions, i.e. full payment of the balance
of the purchase price and the loan amortizations. Petitioners point
to Manuel v. Rodriguez, 109 Phil. 1 (1960) and Luzon Brokerage
Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93 (1972), where
he held that article 1592 of the Civil Code is inapplicable to a
contract to sell. They charge the court a quo with reversible error
in holding that petitioners should have judicially rescinded the
agreement with respondents when the latter failed to pay the
amortizations on the bank loan.
Respondents insist that there was a perfected contract of sale,
since upon their partial payment of the purchase price, they
immediately took possession of the property as vendees, and
subsequently leased it, thus exercising all the rights of ownership
over the property. This showed that transfer of ownership was
simultaneous with the delivery of the realty sold, according to
respondents.
It must be emphasized from the outset that a contract is what the
law defines it to be, taking into consideration its essential
elements, and not what the contracting parties call it.14 Article
145815 of the Civil Code defines a contract of sale. Note that the
said article expressly obliges the vendor to transfer the ownership
of the thing sold as an essential element of a contract of sale.16
We have carefully examined the contents of the unofficial receipt,
Exh. D, with the terms and conditions informally agreed upon by
the parties, as well as the proofs submitted to support their
respective contentions. We are far from persuaded that there was
a transfer of ownership simultaneously with the delivery of the
property purportedly sold. The records clearly show that,
notwithstanding the fact that the Casedas first took then lost
possession of the disputed house and lot, the title to the property,
TCT No. 28005 (S-11029) issued by the Register of Deeds of
Parañaque, has remained always in the name of Rosalinda
194
Santos.17 Note further that although the parties agreed that the
Sales – Chapter 3 Cases
Casedas would assume the mortgage, all amortization payments
made by Carmen Caseda to the bank were in the name of
Rosalinda Santos.18 We likewise find that the bank's cancellation
and discharge of mortgage dated January 20, 1990, was made in
favor of Rosalinda Santos.19 The
foregoing circumstances categorically and clearly show that no the present case.
valid transfer of ownership was made by the Santoses to the
Casedas. Absent this essential element, their agreement cannot As to the last issue, we need not tarry to make a determination of
be deemed a contract of sale. We agree with petitioner's averment whether the breach of contract by private respondents is so
that the agreement between Rosalinda Santos and Carmen substantial as to defeat the purpose of the parties in entering into
Caseda is a contract to sell. In contracts to sell, ownership is the agreement and thus entitle petitioners to rescission. Having
reserved the by the vendor and is not to pass until full payment of
the purchase price. This we find fully applicable and
understandable in this case, given that the property involved is a
titled realty under mortgage to a bank and would require notarial
and other formalities of law before transfer thereof could be
validly effected.
In view of our finding in the present case that the agreement
between the parties is a contract to sell, it follows that the
appellate court erred when it decreed that a judicial rescission of
said agreement was necessary. This is because there was no
rescission to speak of in the first place. As we earlier pointed, in a
contract to sell, title remains with the vendor and does not pass
on to the vendee until the purchase price is paid in full, Thus, in
contract to sell, the payment of the purchase price is a positive
suspensive condition. Failure to pay the price agreed upon is not a
mere breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an
obligatory force.20 This is entirely different from the situation in a
contract of sale, where non-payment of the price is a negative
resolutory condition. The effects in law are not identical. In a
contract of sale, the vendor has lost ownership of the thing sold
and cannot recover it, unless the contract of sale is rescinded and
set aside.21 In a contract to sell, however, the vendor remains the
owner for as long as the vendee has not complied fully with the
condition of paying the purchase. If the vendor should eject the
vendee for failure to meet the condition precedent, he is enforcing
the contract and not rescinding it. When the petitioners in the
instant case repossessed the disputed house and lot for failure of
private respondents to pay the purchase price in full, they were
merely enforcing the contract and not rescinding it. As petitioners
correctly point out the Court of Appeals erred when it ruled that
petitioners should have judicially rescinded the contract pursuant
to Articles 1592 and 1191 of the Civil Code. Article 1592 speaks
of non-payment of the purchase price as a resolutory condition. It
does not apply to a contract to sell.22 As to Article 1191, it is
subordinated to the provisions of Article 1592 when applied to
195
sales of immovable property.23 Neither provision is applicable in
Sales – Chapter 3 Cases
ruled that there is no rescission to speak of in this case, the
question is moot.
WHEREFORE, the instant petition is GRANTED and the assailed
decision of the Court of Appeals in CA-G.R. CV No. 30955 is
REVERSED and SET ASIDE. The judgment of the Regional Trial
Court of Makati, Branch 133, with respect to the DISMISSAL of the
complaint in Civil Case No. 89-4759, is hereby REINSTATED. No
pronouncement as to costs.1âwphi1.nêt
SO ORDERED.
ZENAIDA M. SANTOS, petitioner, vs. CALIXTO SANTOS, ALBERTO be subjected to encumbrances or liens annotated on the title; that the
SANTOS, ROSA SANTOS-CARREON and ANTONIO SANTOS, respondents right to reconveyance was already barred by prescription
respondents. and laches; and that the complaint stated no cause of action.
This petition for review[1] seeks to annul and set aside the decision
dated March 10, 1998 of the Court of Appeals that affirmed the
decision of the Regional Trial Court of Manila, Branch 48, dated March
17, 1993. Petitioner also seeks to annul the resolution that denied her
motion for reconsideration.
Petitioner Zenaida M. Santos is the widow of Salvador Santos, a
brother of private respondents Calixto, Alberto, Antonio, all surnamed
Santos and Rosa Santos-Carreon.
The spouses Jesus and Rosalia Santos owned a parcel of land
registered under TCT No. 27571 with an area of 154 square meters,
located at Sta. Cruz Manila. On it was a four-door apartment
administered by Rosalia who rented them out. The spouses had five
children, Salvador, Calixto, Alberto, Antonio and Rosa.
On January 19, 1959, Jesus and Rosalia executed a deed of sale of
the properties in favor of their children Salvador and Rosa. TCT No.
27571 became TCT No. 60819. Rosa in turn sold her share to
Salvador on November 20, 1973 which resulted in the issuance of a
new TCT No. 113221. Despite the transfer of the property to Salvador,
Rosalia continued to lease and receive rentals from the apartment
units.
On November 1, 1979, Jesus died. Six years after or on January 9,
1985, Salvador died, followed by Rosalia who died the following
month. Shortly after, petitioner Zenaida, claiming to be Salvadors heir,
demanded the rent from Antonio Hombrebueno,[2] a tenant of
Rosalia. When the latter refused to pay, Zenaida filed an ejectment
suit against him with the Metropolitan Trial Court of Manila, Branch
24, which eventually decided in Zenaidas favor.
On January 5, 1989, private respondents instituted an action for
reconveyance of property with preliminary injunction against
petitioner in the Regional Trial Court of Manila, where they alleged that
the two deeds of sale executed on January 19, 1959 and November
20, 1973 were simulated for lack of consideration. They were
executed to accommodate Salvador in generating funds for his
business ventures and providing him with greater business flexibility.
In her Answer, Zenaida denied the material allegations in the
complaint and as special and affirmative defenses, argued that 196
Salvador was the registered owner of the property, which could only
Sales – Chapter 3 Cases
On March 17, 1993, the trial court decided in private respondents
favor, thus:
WHEREFORE, viewed from all the foregoing considerations, judgment
is hereby made in favor of the plaintiffs and against the defendants:
a) Declaring Exh. B, the deed of sale executed by Rosalia Santos and
Jesus Santos on January 19, 1959, as entirely null and void for being
fictitious or simulated and inexistent and without any legal force and
effect;
b) Declaring Exh. D, the deed of sale executed by Rosa Santos in favor
of Salvador Santos on November 20, 1973, also as entirely null and
void for being likewise fictitious or simulated and inexistent and
without any legal force and effect;
c) Directing the Register of Deeds of Manila to cancel Transfer
Certificate of Title No. T-113221 registered in the name of Salvador
Santos, as well as, Transfer Certificate of Title No. 60819 in the
names of Salvador Santos, Rosa Santos, and consequently thereafter,
reinstating with the same legal force and effect as if the same was
not cancelled, and which shall in all respects be entitled to like faith
and credit; Transfer Certificate of Title No. T-27571 registered in the
name of Rosalia A. Santos, married to Jesus Santos, the same to be
partitioned by the heirs of the said registered owners in accordance
with law; and
d) Making the injunction issued in this case permanent.
Without pronouncement as to costs.
SO ORDERED.[3]
The trial court reasoned that notwithstanding the deeds of sale
transferring the property to Salvador, the spouses Rosalia and Jesus
continued to possess the property and to exercise rights of ownership
not only by receiving the monthly rentals, but also by paying the realty
taxes. Also, Rosalia kept the owners duplicate copy of the title even
after it was already in the name of Salvador. Further, the spouses had
no compelling reason in 1959 to sell the property and Salvador was
not financially capable to purchase it. The deeds of sale were
therefore fictitious. Hence, the action to assail the same does not
prescribe.[4]
Upon appeal, the Court of Appeals affirmed the trial courts decision
dated March 10, 1998. It held that in order for the execution of a
public instrument to effect tradition, as provided in Article 1498 of the
Civil Code,[5] the vendor shall have had control over the thing sold, at
the moment of sale. It was not enough to confer upon the purchaser
the ownership and the right of possession. The thing sold must be
placed in his control. The subject deeds of sale did not confer upon
Salvador the ownership over the subject property, because even after
the sale,
the original vendors remained in dominion, control, and possession
thereof. The appellate court further said that if the reason for
Salvadors failure to control and possess the property was due to his
acquiescence to his mother, in deference to Filipino custom,
petitioner, at least, should have shown evidence to prove that her
husband declared the property for tax purposes in his name or paid
the land taxes, acts which strongly indicate control and possession.
The appellate court disposed:
WHEREFORE, finding no reversible error in the decision appealed
from, the same is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.[6]
Hence, this petition where petitioner avers that the Court of Appeals
erred in:
I.
...HOLDING THAT THE OWNERSHIP OVER THE LITIGATED PROPERTY
BY THE LATE HUSBAND OF DEFENDANT-APPELLANT WAS
AFFECTED BY HIS FAILURE TO EXERCISE CERTAIN ATTRIBUTES OF
OWNERSHIP.
II
...HOLDING THAT DUE EXECUTION OF A PUBLIC INSTRUMENT IS
NOT EQUIVALENT TO DELIVERY OF THE LAND IN DISPUTE.
III
...NOT FINDING THAT THE CAUSE OF ACTION OF ROSALIA SANTOS
HAD PRESCRIBED AND/OR BARRED BY LACHES.
IV
...IGNORING PETITIONERS ALLEGATION TO THE EFFECT THAT
PLAINTIFF DR. ROSA [S.] CARREON IS NOT DISQUALIFIED TO
TESTIFY AS TO THE QUESTIONED DEEDS OF SALE CONSIDERING
THAT SALVADOR SANTOS HAS LONG BEEN DEAD.[7]
In this petition, we are asked to resolve the following:
1. Are payments of realty taxes and retention of possession
indications of continued ownership by the original owners?
197
2. Is a sale through a public instrument tantamount to delivery of the
Sales – Chapter 3 Cases
thing sold? 4. Can petitioner invoke the Dead Mans Statute?[8]
Nowhere in the Civil Code, however, does it provide that execution of a
3. Did the cause of action of Rosalia Santos and her heirs prescribe? On the first issue, petitioner contends that the Court of Appeals erred deed of sale is a conclusive presumption of delivery of possession.
in holding that despite the deeds of sale in Salvadors favor, Jesus and The Code merely said that the execution shall be equivalent to
Rosalia still owned the property because the spouses continued to delivery. The presumption can be rebutted by clear and convincing
pay the realty taxes and possess the property. She argues that tax
declarations are not conclusive evidence of ownership when not
supported by evidence. She avers that Salvador allowed his mother to
possess the property out of respect to her in accordance with Filipino
values.

It is true that neither tax receipts nor declarations of ownership for

taxation purposes constitute sufficient proof of ownership. They must
be supported by other effective proofs.[9] These requisite proofs we
find present in this case. As admitted by petitioner, despite the sale,
Jesus and Rosalia continued to possess and administer the property
and enjoy its fruits by leasing it to third persons.[10] Both Rosa and
Salvador did not exercise any right of ownership over it.[11] Before the
second deed of sale to transfer her 1/2 share over the property was
executed by Rosa, Salvador still sought the permission of his
mother.[12] Further, after Salvador registered the property in his
name, he surrendered the title to his mother.[13] These are clear
indications that ownership still remained with the original owners. In
Serrano vs. CA, 139 SCRA 179, 189 (1985), we held that the continued
collection of rentals from the tenants by the seller of realty after
execution of alleged deed of sale is contrary to the notion of
ownership.

Petitioner argues that Salvador, in allowing her mother to use the

property even after the sale, did so out of respect for her and out of
generosity, a factual matter beyond the province of this Court.[14]
Significantly, in Alcos vs. IAC, 162 SCRA 823, 837 (1988), we noted
that the buyers immediate possession and occupation of the property
corroborated the truthfulness and authenticity of the deed of sale.
Conversely, the vendors continued possession of the property makes
dubious the contract of sale between the parties.

On the second issue, is a sale through a public instrument tantamount

to delivery of the thing sold? Petitioner in her memorandum invokes
Article 1477[15] of the Civil Code which provides that ownership of
the thing sold is transferred to the vendee upon its actual or
constructive delivery. Article 1498, in turn, provides that when the sale
is made through a public instrument, its execution is equivalent to the
delivery of the thing subject of the contract. Petitioner avers that
applying said provisions to the case, Salvador became the owner of
the subject property by virtue of the two deeds of sale executed in his 198
favor.
Sales – Chapter 3 Cases
evidence.[16] Presumptive delivery can be negated by the failure of
the vendee to take actual possession of the land sold.[17]
In Danguilan vs. IAC, 168 SCRA 22, 32 (1988), we held that for the
execution of a public instrument to effect tradition, the purchaser
must be placed in control of the thing sold. When there is no
impediment to prevent the thing sold from converting to tenancy of
the purchaser by the sole will of the vendor, symbolic delivery through
the execution of a public instrument is sufficient. But if,
notwithstanding the execution of the instrument, the purchaser
cannot have the enjoyment and material tenancy nor make use of it
himself or through another in his name, then delivery has not been
effected.
As found by both the trial and appellate courts and amply supported
by the evidence on record, Salvador was never placed in control of the
property. The original sellers retained their control and possession.
Therefore, there was no real transfer of ownership.
Moreover, in Norkis Distributors, Inc. vs. CA, 193 SCRA 694, 698-699
(1991), citing the land case of Abuan vs. Garcia, 14 SCRA 759 (1965),
we held that the critical factor in the different modes of effecting
delivery, which gives legal effect to the act is the actual intention of
the vendor to deliver, and its acceptance by the vendee. Without that
intention, there is no tradition. In the instant case, although the
spouses Jesus and Rosalia executed a deed of sale, they did not
deliver the possession and ownership of the property to Salvador and
Rosa. They agreed to execute a deed of sale merely to accommodate
Salvador to enable him to generate funds for his business venture.
On the third issue, petitioner argues that from the date of the sale
from Rosa to Salvador on November 20, 1973, up to his death on
January 9, 1985, more or less twelve years had lapsed, and from his
death up to the filing of the case for reconveyance in the court a quo
on January 5, 1989, four years had lapsed. In other words, it took
respondents about sixteen years to file the case below. Petitioner
argues that an action to annul a contract for lack of consideration
prescribes in ten years and even assuming that the cause of action
has not prescribed, respondents are guilty of laches for their inaction
for a long period of time.
Has respondents cause of action prescribed? In Lacsamana vs. CA,
288 SCRA 287, 292 (1998), we held that the right to file an action for
reconveyance on the ground that the certificate of title was obtained
by means of a fictitious deed of sale is virtually an action for the
declaration of its nullity, which does not prescribe. This applies
squarely to the present case. The complaint filed by respondents in
the court a quo was for the reconveyance of the subject property to the dead mans statute is effectively waived when a counsel for a
the estate of Rosalia since the deeds of sale were simulated and petitioner cross-examines a private respondent on matters occurring
fictitious. The complaint amounts to a declaration of nullity of a void during the deceaseds lifetime. The Court of Appeals cannot be faulted
contract, which is imprescriptible. Hence, respondents cause of in ignoring petitioner on Rosas disqualification.
action has not prescribed.
WHEREFORE, the instant petition is DENIED. The assailed decision
Neither is their action barred by laches. The elements of laches are: 1) dated March 10, 1998 of the Court of Appeals, which sustained the
conduct on the part of the defendant, or of one under whom he judgment of the Regional Trial Court dated March 17, 1993, in favor of
claims, giving rise to the situation of which the complaint seeks a herein private respondents, is AFFIRMED. Costs against petitioner.
remedy; 2) delay in asserting the complainants rights, the complainant SO ORDERED.
having had knowledge or notice of the defendants conduct as having
been afforded an opportunity to institute a suit; 3) lack of knowledge
or notice on the part of the defendant that the complainant would
assert the right in which he bases his suit; and 4) injury or prejudice to
the defendant in the event relief is accorded to the complainant, or the
suit is not held barred.[18] These elements must all be proved
positively. The conduct which caused the complaint in the court a quo
was petitioners assertion of right of ownership as heir of Salvador.
This started in December 1985 when petitioner demanded payment of
the lease rentals from Antonio Hombrebueno, the tenant of the
apartment units. From December 1985 up to the filing of the
complaint for reconveyance on January 5, 1989, only less than four
years had lapsed which we do not think is unreasonable delay
sufficient to bar respondents cause of action. We likewise find the
fourth element lacking. Neither petitioner nor her husband made
considerable investments on the property from the time it was
allegedly transferred to the latter. They also did not enter into
transactions involving the property since they did not claim ownership
of it until December 1985. Petitioner stood to lose nothing. As we held
in the same case of Lacsamana vs. CA, cited above, the concept of
laches is not concerned with the lapse of time but only with the effect
of unreasonable lapse. In this case, the alleged 16 years of
respondents inaction has no adverse effect on the petitioner to make
respondents guilty of laches.
Lastly, petitioner in her memorandum seeks to expunge the testimony
of Rosa Santos-Carreon before the trial court in view of Sec. 23, Rule
130 of the Revised Rules of Court, otherwise known as the Dead Mans
Statute.[19] It is too late for petitioner, however, to invoke said rule.
The trial court in its order dated February 5, 1990, denied petitioners
motion to disqualify respondent Rosa as a witness. Petitioner did not
appeal therefrom. Trial ensued and Rosa testified as a witness for
respondents and was cross-examined by petitioners counsel. By her
failure to appeal from the order allowing Rosa to testify, she waived
her right to invoke the dead mans statute. Further, her counsel cross-
examined Rosa on matters that occurred during Salvadors lifetime. In 199
Goi vs. CA, 144 SCRA 222, 231 (1986), we held that protection under
Sales – Chapter 3 Cases
FRANCISCO N. DY, JR., Substituted by his Estate Rep. by
ROSARIO PEREZ-DY, Administratrix, petitioner,
vs.
COURT OF APPEALS and FERTILIZER MARKETING COMPANY
OF THE PHILIPPINES, respondents.
This is a petition for review of the Court of Appeals' decision
dated December 11, 1990, which affirmed in toto the decision of
the Regional Trial Court of Makati dated July 18, 1988, which
ordered the petitioner to pay the private respondent the sum of
P337,120.00 plus interest of 12% per annum, attorney's fees and
costs.
Private respondent Fertilizer Marketing Company of the
Philippines filed an action to collect from Francisco Dy, Jr. (now
deceased) and the Francisco Dy, Jr. Trading Corporation the sum
of P337,120.00 as unpaid balance on their purchase of fertilizers
on credit from the private respondent.
The defendants were declared in default on August 15, 1983 for
failure to answer the complaint within the reglementary period.
Private respondent was thereafter allowed to present its evidence
ex parte before the Branch Clerk of Court.
Subsequently, the defendants filed a motion to admit their
answer, but it was denied by the court. They filed a motion for
reconsideration; it was granted; the order of default was set aside;
their answer was admitted; and they were allowed to present their
evidence without retaking the plaintiff s evidence.
On the date set for the reception of their evidence, the defendants
failed to appear despite due notice, so, judgment was rendered by
the trial court against them on January 4, 1984.
On appeal to the Court of Appeals, the judgment by default was
set aside and the case was remanded to the lower court for pre-
trial and trial on the merits (AC-G.R. CV No. 03747, p. 46, Rollo).
At the pre-trial conference on November 12, 1987, the plaintiff and
defendant Francisco Dy, Jr. appeared, but there was no
appearance for the defendant trading corporation, so it was
declared in default again and the plaintiff was allowed to present
its evidence ex parte before the Branch Clerk of Court. However, in
that same pre-trial conference the parties agreed that the
evidence previously presented by the plaintiff shall remain on
record for purposes of the continuation of the trial, subject to
cross-examination in open court, and, that the presentation of the
affidavits in question and answer form will constitute the direct
testimony of the defendant's witnesses likewise subject to cross-
examination of the adverse counsel.
On motion for reconsideration, the order of default against the
corporation was lifted. A second motion for reconsideration was
filed by the defendants on January 22, 1988 to set aside the
agreement for trial by affidavits but it was denied by the court.
On the date of the hearing set on April 25, 1988, the defendants
failed to appear to present their evidence despite due notice,
hence, they were deemed to have waived the presentation of their
evidence. The case was submitted for decision upon the plaintiffs
evidence.
On July 18, 1988, the trial court rendered a decision (mentioned
earlier) for the plaintiff and against the defendants. The latter
appealed to the Court of Appeals (CA-G.R. CV No. 23540) alleging
that the court a quo erred (1) in reinstating the nullified
proceedings on August 19, 1983 before the Branch Clerk of Court;
(2) in denying her procedural due process; and (3) in awarding
damages against her.
During the pendency of the appeal, Francisco Dy, Jr. passed away
on June 20, 1989. His wife, Rosario Perez-Dy, as judicial
administratrix of his estate, prosecuted the appeal (Azarraga vs.
Cortes, 9 Phil. 698).
On December 11, 1990, the Court of Appeals dismissed the
appeal (CA-G.R. CV No. 23540) for lack of merit.
In this petition for review of that decision, the petitioner reiterates
the same issues that she raised in the Court of Appeals.
With regard to the validity of the proceedings before the Branch
Clerk of Court, we agree with the observations of the Court of
Appeals that:
Appellant is now estopped from questioning the retention of the
proceedings held on August 19, 1983 before the Branch Clerk of
Court since her husband agreed to the same during the pre-trial
conference held on November 12, 1987. Agreements reached at
the pre-trial conference and embodied in the pre-trial order shall
control the subsequent course of the trial and should not be
200
disturbed unless there could be manifest injustice.
Sales – Chapter 3 Cases
The agreement is not unjust to appellant. Aside from appellant
having the right to adduce evidence on her behalf, the parties
agreed that the evidence presented by appellee before the Branch
Clerk of Court would be retained, with appellant having the right to due to a voluntary waiver by her husband. (p. 28, Rollo)
cross-examine appellee's witnesses.
WHEREFORE, the petition for review is denied for lack of merit.
xxx xxx xxx Costs against the petitioners.
SO ORDERED.
The agreement of the parties as contained in the pre-trial order is
not invalid. The parties are authorized by the Rules of Court to
consider "[s]uch other matters as may aid in the prompt
disposition of the action." An authority believes this includes
"agreement on certain matters so that witnesses need not and will
not be called." Undoubtedly, the procedure agreed upon by the
parties in this case would have greatly accelerated the trial and
the decision therein, which, at the, time of the pre-trial conference,
had been pending for three years and had already gone up on
appeal to this Court. (pp. 27-28, Rollo.)
The presentation of the plaintiff's evidence before the Branch
Clerk of Court was not void. The Supreme Court, in the case of
Continental Bank vs. Tiangco, et al. (94 SCRA 715) departing from
its contrary statement in the Lim Tan Hu case (66 SCRA 425),
declared that a decision based on evidence heard by a deputy
clerk of court as commissioner is valid and enforceable because
it was rendered by a court of competent jurisdiction, was not
impaired by extrinsic fraud, nor by lack of due process, and there
was no showing that the private respondents were prejudiced by
such a procedure, or that the commissioner committed any
mistake or abuse of discretion, or that the proceedings were
vitiated by collusion and collateral fraud. That ruling applies four
square to this case.
The practice of designating the clerk of court as a commissioner
to receive evidence in the event of the non-appearance of the
defendant and its counsel, is not irregular and is sanctioned by
Rule 33 of the Rules of Court on trial by commissioner (J.M.
Tuazon, Inc. vs. Dela Rosa, 18 SCRA 591; Wassmer vs. Velez, 12
SCRA 648).
The petitioner was not denied due process. As pointed out by the
appellate court:
. . . Appellant retained her right to present evidence on her behalf
and the opportunity to cross-examine the witnesses already
presented by appellee. At any rate, if appellant believes that her
201
right to procedural due process had been curtailed, the same was
Sales – Chapter 3 Cases
SPOUSES EROSTO SANTIAGO and NELSIE SANTIAGO,
Petitioners,
vs.
MANCER VILLAMOR, CARLOS VILLAMOR, JOHN VILLAMOR and
DOMINGO VILLAMOR, JR., Respondents.
We resolve the petition for review on certiorari1 tiled by spouses
Eros to Santiago and Nelsie Santiago (petitioners) to challenge
the August 10, 2004 decision2 and the June 8, 2005 resolution3 of
the Court of Appeals (CA) in CA-G.R. CV No. 59112. The CA
decision set aside the May 28, 1997 decision4 of the Regional
Trial Court (RTC) of San Jacinto, Masbate, Branch 50, in Civil Case
No. 201. The CA resolution denied the petitioners' subsequent
motion for reconsideration.
THE FACTUAL ANTECEDENTS
In January 1982,5 the spouses Domingo Villamor, Sr. and Trinidad
Gutierrez Villamor (spouses Villamor, Sr.), the parents of Mancer
Villamor, Carlos Villamor and Domingo Villamor, Jr. (respondents)
and the grandparents of respondent John Villamor, mortgaged
their 4.5-hectare coconut land in Sta. Rosa, San Jacinto, Masbate,
known as Lot No. 1814, to the Rural Bank of San Jacinto
(Masbate), Inc. (San Jacinto Bank) as security for a P10,000.00
loan.
For non-payment of the loan, the San Jacinto Bank extrajudicially
foreclosed the mortgage, and, as the highest bidder at the public
auction, bought the land. When the spouses Villamor, Sr. failed to
redeem the property within the prescribed period, the San Jacinto
Bank obtained a final deed of sale in its favor sometime in 1991.
The San Jacinto Bank then offered the land for sale to any
interested buyer.6
a. The Specific Performance Case
Since the respondents had been in possession and cultivation of
the land, they decided, together with their sister Catalina Villamor
Ranchez, to acquire the land from the San Jacinto Bank. The San
Jacinto Bank agreed with the respondents and Catalina to a
P65,000.00 sale, payable in installments. The respondents and
Catalina made four (4) installment payments of P28,000.00,
P5,500.00, P7,000.00 and P24,500.00 on November 4, 1991,
November 23, 1992, April 26, 1993 and June 8, 1994,
respectively.7
When the San Jacinto Bank refused to issue a deed of
conveyance in their favor despite full payment, the respondents
and Catalina
filed a complaint against the San Jacinto Bank (docketed as Civil
Case No. 200) with the RTC on October 11, 1994. The complaint
was for specific performance with damages.
The San Jacinto Bank claimed that it already issued a deed of
repurchase in favor of the spouses Villamor, Sr.; the payments
made by the respondents and Catalina were credited to the
account of Domingo, Sr. since the real buyers of the land were the
spouses Villamor, Sr.8
In a February 10, 2004 decision, the RTC dismissed the specific
performance case. It found that the San Jacinto Bank acted in
good faith when it executed a deed of "repurchase" in the spouses
Villamor, Sr.’s names since Domingo, Sr., along with the
respondents and Catalina, was the one who transacted with the
San Jacinto Bank to redeem the land.9
The CA, on appeal, set aside the RTC’s decision.10 The CA found
that the respondents and Catalina made the installment payments
on their own behalf and not as representatives of the spouses
Villamor, Sr. The San Jacinto Bank mistakenly referred to the
transaction as a "repurchase" when the redemption period had
already lapsed and the title had been transferred to its name; the
transaction of the respondents and Catalina was altogether alien
to the spouses Villamor, Sr.’s loan with mortgage. Thus, it ordered
the San Jacinto Bank to execute the necessary deed of sale in
favor of the respondents and Catalina, and to pay P30,000.00 as
attorney’s fees.11 No appeal appears to have been taken from
this decision.
b. The Present Quieting of Title Case
On July 19, 1994 (or prior to the filing of the respondents and
Catalina’s complaint for specific performance, as narrated above),
the San Jacinto Bank issued a deed of sale in favor of Domingo,
Sr.12 On July 21, 1994, the spouses Villamor, Sr. sold the land to
the petitioners for P150,000.00.13
After the respondents and Catalina refused the petitioners’
demand to vacate the land, the petitioners filed on October 20,
1994 a complaint for quieting of title and recovery of possession
against the respondents.14 This is the case that is now before us.
202
The respondents and Catalina assailed the San Jacinto Bank’s
Sales – Chapter 3 Cases
execution of the deed of sale in favor of Domingo, Sr., claiming
that the respondents and Catalina made the installment payments
on their own behalf.15
In its May 28, 1997 decision,16 the RTC declared the petitioners and are in actual possession of the land; the petitioners are not
as the legal and absolute owners of the land, finding that the purchasers in good faith since they failed to ascertain why the
petitioners were purchasers in good faith; the spouses Villamor, respondents were in possession of the land.
Sr.’s execution of the July 21, 1994 notarized deed of sale in favor
of the petitioners resulted in the constructive delivery of the land. THE ISSUE
Thus, it ordered the respondents to vacate and to transfer
possession of the land to the petitioners, and to pay P10,000.00
as moral damages.17
On appeal, the CA, in its August 10, 2004 decision, found that the
petitioners’ action to quiet title could not prosper because the
petitioners failed to prove their legal or equitable title to the land.
It noted that there was no real transfer of ownership since neither
the spouses Villamor, Sr. nor the petitioners were placed in actual
possession and control of the land after the execution of the
deeds of sale. It also found that the petitioners failed to show that
the respondents and Catalina’s title or claim to the land was
invalid or inoperative, noting the pendency of the specific
performance case, at that time on appeal with the CA. Thus, it set
aside the RTC decision and ordered the dismissal of the
complaint, without prejudice to the outcome of the specific
performance case.18
When the CA denied19 the motion for reconsideration20 that
followed, the petitioners filed the present Rule 45 petition.
THE PETITION
The petitioners argue that the spouses Villamor, Sr.’s execution of
the July 21, 1994 deed of sale in the petitioners’ favor was
equivalent to delivery of the land under Article 1498 of the Civil
Code; the petitioners are purchasers in good faith since they had
no knowledge of the supposed transaction between the San
Jacinto Bank and the respondents and Catalina; and the
respondents and Catalina’s possession of the land should not be
construed against them (petitioners) since, by tradition and
practice in San Jacinto, Masbate, the children use their parents’
property.
THE CASE FOR THE RESPONDENTS
The respondents and respondent John submit that they hold legal
title to the land since they perfected the sale with the San Jacinto
203
Bank as early as November 4, 1991, the first installment payment,
Sales – Chapter 3 Cases
The case presents to us the issue of whether the CA committed a
reversible error when it set aside the RTC decision and dismissed
the petitioners’ complaint for quieting of title and recovery of
possession.
OUR RULING
The petition lacks merit.
Quieting of title is a common law remedy for the removal of any
cloud, doubt or uncertainty affecting title to real property. The
plaintiffs must show not only that there is a cloud or contrary
interest over the subject real property,21 but that they have a valid
title to it.22 Worth stressing, in civil cases, the plaintiff must
establish his cause of action by preponderance of evidence;
otherwise, his suit will not prosper.23
The petitioners anchor their claim over the disputed land on the
July 21, 1994 notarized deed of sale executed in their favor by the
spouses Villamor, Sr. who in turn obtained a July 19, 1994
notarized deed of sale from the San Jacinto Bank. On the other
hand, the respondents and respondent John claim title by virtue of
their installment payments to the San Jacinto Bank from
November 4, 1991 to June 8, 1994 and their actual possession of
the disputed land.
After considering the parties’ evidence and arguments, we agree
with the CA that the petitioners failed to prove that they have any
legal or equitable title over the disputed land.
Execution of the deed of sale only a
prima facie presumption of delivery.
Article 1477 of the Civil Code recognizes that the "ownership of
the thing sold shall be transferred to the vendee upon the actual
or constructive delivery thereof." Related to this article is Article
1497 which provides that "the thing sold shall be understood as
delivered, when it is placed in the control and possession of the
vendee."
With respect to incorporeal property, Article 1498 of the Civil Code
lays down the general rule: the execution of a public instrument
"shall be equivalent to the delivery of the thing which is the object
of the contract, if from the deed the contrary does not appear or
cannot clearly be inferred." However, the execution of a public
instrument gives rise only to a prima facie presumption of
delivery, which is negated by the failure of the vendee to take
actual
possession of the land sold.24 "A person who does not have
actual possession of the thing sold cannot transfer constructive
possession by the execution and delivery of a public
instrument."25
In this case, no constructive delivery of the land transpired upon
the execution of the deed of sale since it was not the spouses
Villamor, Sr. but the respondents who had actual possession of
the land. The presumption of constructive delivery is inapplicable
and must yield to the reality that the petitioners were not placed in
possession and control of the land.
The petitioners are not purchasers in
good faith.
The petitioners can hardly claim to be purchasers in good faith.
"A purchaser in good faith is one who buys property without
notice that some other person has a right to or interest in such
property and pays its fair price before he has notice of the adverse
claims and interest of another person in the same property."26
However, where the land sold is in the possession of a person
other than the vendor, the purchaser must be wary and must
investigate the rights of the actual possessor; without such
inquiry, the buyer cannot be said to be in good faith and cannot
have any right over the property.27
In this case, the spouses Villamor, Sr. were not in possession of
the land.1âwphi1 The petitioners, as prospective vendees, carried
the burden of investigating the rights of the respondents and
respondent John who were then in actual possession of the land.
The petitioners cannot take refuge behind the allegation that, by
custom and tradition in San Jacinto, Masbate, the children use
their parents' property, since they offered no proof supporting
their bare allegation. The burden of proving the status of a
purchaser in good faith lies upon the party asserting that status
and cannot be discharged by reliance on the legal presumption of
good faith.28 The petitioners failed to discharge this burden.
Lastly, since the specific performance case already settled the
respondents and respondent John's claim over the disputed land,
the dispositive portion of the CA decision (dismissing the
complaint without prejudice to the outcome of the specific
204
performance case29 ) is modified to reflect this fact; we thus
Sales – Chapter 3 Cases
dismiss for lack of merit the complaint for quieting of title and LA FUERZA, INC., petitioner, be in strict accordance with the approved plan made part of this
recovery of possession. vs. agreement hereof." A few days later, Antonio Co made the
THE HON. COURT OF APPEALS and ASSOCIATED ENGINEERING demand for the down payment of P5,000.00 which was readily
WHEREFORE, we hereby DENY the petition and ORDER the CO., INC., respondents. delivered by the defendant in the form of a check for the said
DISMISSAL of Civil Case No. 201 before the Regional Trial Court amount. After that agreement, the plaintiff started to
of San Jacinto, Masbate, Branch 50. Ordinary action for the recovery of a sum of money. In due course,
the Court of First Instance of Manila rendered judgment for
Costs against the petitioners. defendant, La Fuerza, Inc. — hereinafter referred to as La Fuerza —
which was at first affirmed by the Court of Appeals. On motion for
SO ORDERED. reconsideration, the latter, however, set aside its original decision
and sentenced La Fuerza to pay to the plaintiff, Associated
Engineering Co., — hereinafter referred to as the Plaintiff — the
sum of P8,250.00, with interest at the rate of 1% per month, from
July, 1960 until fully paid, plus P500 as attorney's fees and the
costs. Hence, this Petition for review on certiorari.

The facts, as found by the Court of First Instance and adopted by

the Court of Appeals, are:

The plaintiff (Associated Engineering, Co., Inc.) is a corporation

engaged in the manufacture and installation of flat belt
conveyors. The defendant (La Fuerza, Inc.) is also a corporation
engaged in the manufacture of wines. Sometime in the month of
January, 1960, Antonio Co, the manager of the plaintiff
corporation, who is an engineer, called the office of the defendant
located at 399 Muelle de Binondo, Manila and told Mariano Lim,
the President and general manager of the defendant that he had
just visited the defendant's plant at Pasong Tamo, Makati, Rizal
and was impressed by its size and beauty but he believed it
needed a conveyor system to convey empty bottles from the
storage room in the plant to the bottle washers in the production
room thereof. He therefore offered his services to manufacture
and install a conveyor system which, according to him, would
increase production and efficiency of his business. The president
of the defendant corporation did not make up his mind then but
suggested to Antonio Co to put down his offer in writing.
Effectively, on February 4, 1960, marked as Exhibit A in this case.
Mariano Lim did not act on the said offer until February 11, 1960,
when Antonio Co returned to inquire about the action of the
defendant on his said offer. The defendants president and general
manager then expressed his conformity to the offer made in
Exhibit A by writing at the foot thereof under the word
"confirmation" his signature. He caused, however, to be added to
205
this offer at the foot a note which reads: "All specifications shall
Sales – Chapter 3 Cases
prepare the premises for the installations of the conveyor system
by digging holes in the cement floor of the plant and on April 18,
1960, they delivered one unit of 110' 26" wide flat belt conveyor,
valued at P3,750.00, and another unit measuring 190' and 4" wide
flat conveyor, valued at P4,500.00, or a total of P13,250.00.
Deducting the down payment of P5,000.00 from this value, there
is a balance, of P8,250.00 to be paid by the defendant upon the
completion of the installation, Exhibit B.
The work went under way during the months of March and April,
during which time the president and general manager of the
defendant corporation was duly apprised of the progress of the
same because his plant mechanic, one Mr. Santos, had kept him
informed of the installation for which he gave the go signal. It
seems that the work was completed during the month of May,
1960. Trial runs were made in the presence of the president and
general manager of the defendant corporation, Antonio Co, the
technical manager of the plaintiff, and some other people. Several
trial runs were made then totalling about five. These runs were
continued during the month of June where about three trial runs
were made and, lastly, during the month of July, 1960.
As a result of this trial or experimental runs, it was discovered,
according to the defendant's general manager, that the conveyor
system did not function to their satisfaction as represented by the
technical manager of the plaintiff Antonio Co for the reason that,
when operated several bottles collided with each other, some
jumping off the conveyor belt and were broken, causing
considerable damage. It was further observed that the flow of the
system was so sluggish that in the opinion of the said general
manager of the defendant their old system of carrying the bottles
from the storage room to the washers by hand carrying them was
even more efficient and faster.
After the last trial run made in the month of July and after the
plaintiff's technical manager had been advised several times to
make the necessary and proper adjustments or corrections in
order to improve the efficiency of the conveyor system, it seems
that the defects indicated by the said president and general
manager of the defendant had not been remedied so that they
came to the parting of the ways with the result that when the
plaintiff billed the defendant for the balance of the contract price,
the latter refused to pay for the reason that according to the
defendant the conveyor system installed by the plaintiff did not
serve the purpose for which the same was manufactured and
installed at such a heavy expense. The flat belt conveyors
installed in the factory of the defendant are still there....
xxx xxx xxx
On March 22, 1961, the contractor commenced the present action
to recover the sums of P8,250, balance of the stipulated price of
the aforementioned conveyors, and P2,000, as attorney's fees, in
addition to the costs.
In its answer to the complaint, La Fuerza alleged that the
"conveyors furnished and installed by the plaintiff do not meet the
conditions and warrantings" (warranties?) of the latter, and set up
a counterclaim for the P5,000 advanced by La Fuerza, which
prayed that the complaint be dismissed; that its contract with the
plaintiff be rescinded; and that plaintiff be sentenced to refund
said sum of P5,000 to La Fuerza, as well as to pay thereto P1,000
as attorney's fees, apart from the costs.
After appropriate proceedings, the Court of First Instance of
Manila rendered a decision the dispositive part of which reads:
WHEREFORE, judgment is hereby rendered rescinding the
contract entered into by the parties in this case, marked as Exhibit
A, and ordering the plaintiff to refund or return to the defendant
the amount of P5,000.00 which they had received as down
payment, and the costs of this action. On the other hand,
defendant is ordered to permit the plaintiff to remove the flat belt
conveyors installed in their premises.
As above indicated, this decision was affirmed by the Court of
Appeals, which, on motion for reconsideration of the plaintiff, later
set aside its original decision and rendered another in plaintiff's
favor, as stated in the opening paragraph hereof.
The appealed resolution of the Court of Appeals was, in effect,
based upon the theory of prescription of La Fuerza's right of
action for rescission of its contract with the plaintiff, for — in the
language of said resolution — "Article 1571 of the Civil Code
provides that an action to rescind 'shall be barred after six months
from delivery of the thing sold'", and, in the case at bar, La Fuerza
did not avail of the right to demand rescission until the filing of its
answer in the Court of First Instance, on April 17, 1961, or over ten
(10) months after the installation of the conveyors in question had
been completed on May 30, 1960.
206
La Fuerza assails the view taken by the Court of Appeals, upon the
Sales – Chapter 3 Cases
ground: 1) that there has been, in contemplation of law, no
delivery of the conveyors by the plaintiff; and 2) that, assuming
that there has been such delivery, the period of six (6) months
prescribed in said Art. 1571 refers to the "period within which" La
Fuerza may
"bring an action to demand compliance of the warranty against categorically whether they accepted or rejected the conveyors
hidden defects", not the action for rescission of the contract. Both does not detract from the fact that the same were actually in its
grounds are untenable. possession and control; that, accordingly, the conveyors had
already been
With respect to the first point, La Fuerza maintains that plaintiff is
deemed not to have delivered the conveyors, within the purview of
Art. 1571, until it shall have complied with the conditions or
requirements of the contract between them — that is to say, until
the conveyors shall meet La Fuerza's "need of a conveyor system
that would mechanically transport empty bottles from the storage
room to the bottle workers in the production room thus increasing
the production and efficiency" of its business-and La Fuerza had
accepted said conveyors.
On this point, the Court of Appeals had the following to say:
Article 1571 of the Civil Code provides that an action to rescind
'shall be barred after six months, from delivery of the thing sold".
This article is made applicable to the case at bar by Article 1714
which provides that "the pertinent provisions on warranty of title
against hidden defect in a contract of sale" shall be applicable to
a contract for a piece of work. Considering that Article 1571 is a
provision on sales, the delivery mentioned therein should be
construed in the light of the provisions on sales. Article 1497
provides that the thing sold shall be understood as delivered when
it is placed in the control and possession of the vendee.
Therefore, when the thing subject of the sale is placed in the
control and possession of the vendee, delivery is complete.
Delivery is an act of the vendor. Thus, one of the obligations of the
vendor is the delivery of the thing sold (Art. 1495). The vendee has
nothing to do with the act of delivery by the vendor. On the other
hand, acceptance is an obligation on the part of the vendee (Art.
1582). Delivery and acceptance are two distinct and separate acts
of different parties. Consequently, acceptance cannot be regarded
as a condition to complete delivery.
xxx xxx xxx
We find no plausible reason to disagree with this view. Upon the
completion of the installation of the conveyors, in May, 1960,
particularly after the last trial run, in July 1960, La Fuerza was in a
position to decide whether or not it was satisfied with said
conveyors, and, hence, to state whether the same were a
207
accepted or rejected. The failure of La Fuerza to express
Sales – Chapter 3 Cases
delivered by the plaintiff; and that, the period prescribed in said
Art. 1571 had begun to run.
With respect to the second point raised by La Fuerza, Art. 1571 of
the Civil Code provides:
Actions arising from the provisions of the preceding ten articles
shall be barred after six months, from the delivery of the thing
sold.
merchandise, machinery or parts or equipment thereof are
involved, it is obviously wise to require the parties to define their
position, in relation thereto, within the shortest possible time.
Public interest demands that the status of the relations between
the vendor and the vendee be not left in a condition of uncertainty
for
an unreasonable length of time, which would be the case, if the
lifetime of the vendee's right of rescission were four (4) years.
WHEREFORE, the appealed resolution of the Court of Appeals is
hereby affirmed, with costs against appellant, La Fuerza, Inc. It is
so ordered.

xxx xxx xxx

Among the "ten articles" referred to in this provision, are Articles

1566 and 1567, reading:

Art. 1566. The vendor is responsible to the vendee for any hidden
faults or defects in the thing sold, even though he was not aware
thereof. ."This provision shall not apply if the contrary has been
stipulated, and the vendor was not aware of the hidden faults or
defects in the thing sold.

Art. 1567. In the cases of articles 1561, 1562, 1564, 1565 and
1566, the vendee may elect between withdrawing from the
contract and demanding a proportionate reduction of the price,
with damages in either case.

xxx xxx xxx

Pursuant to these two (2) articles, if the thing sold has hidden
faults or defects — as the conveyors are claimed to have — the
vendor — in the case at bar, the plaintiff — shall be responsible
therefor and the vendee — or La Fuerza, in the present case —
"may elect between withdrawing from the contract and
demanding a proportional reduction of the price, with damages in
either case." In the exercise of this right of election, La Fuerza had
chosen to withdraw from the contract, by praying for its
rescission; but the action therefor — in the language of Art. 1571
— "shall be barred after six months, from the delivery of the thing
sold." The period of four (4) years, provided in Art. 1389 of said
Code, for "the action to claim rescission," applies to contracts, in
general, and must yields, in the instant case, to said Art. 1571,
which refers to sales in particular.

208
Indeed, in contracts of the latter type, especially when goods,
Sales – Chapter 3 Cases
FABIO CAHAYAG and CONRADO RIVERA, Petitioners,
vs.
COMMERCIAL CREDIT CORPORATION, represented by its
President, LEONARDO B. ALEJANDRO; TERESITA T. QUA,
assisted by her husband ALFONSO MA. QUA; and the REGISTER
OF DEEDS OF LAS PINAS, METRO MANILA, DISTRICT IV,
Respondents.
Before us are consolidated Rule 45 Petitions1 seeking to nullify
the Court of Appeals (CA) Decision dated 2 November 20042 and
Resolution dated 10 May 20053 in CA-G.R. CV No. 47421. The CA
Decision reversed and set aside the Decision dated 6 July 1992
issued by the Regional Trial Court (RTC), Branch 65 of Makati.4
FACTUAL ANTECEDENTS
Petitioner Dulos Realty was the registered owner of certain
residential lots covered by Transfer Certificate of Title (TCT) Nos.
S-39767, S-39775, S-28335, S-39778 and S-29776, located at
Airmen's Village Subdivision, Pulang Lupa II, Las Pinas, Metro
Manila.
On 20 December 1980, Dulos Realty obtained a loan from
respondent CCC in the amount of P300,000. To secure the loan,
the realty executed a Real Estate Mortgage over the subject
properties in favor of respondent. The mortgage was duly
annotated on the certificates of title on 3 February 1981.5
On 29 March 1981, Dulos Realty entered into a Contract to Sell
with petitioner Cahayag over the lot covered by TCT No. S-
39775.6
On 12 August 1981, Dulos Realty entered into another Contract to
Sell, this time with petitioner Rivera over the lot covered by TCT
No. S-28335.7
Dulos Realty defaulted in the payment of the mortgage loan,
prompting respondent CCC to initiate extrajudicial foreclosure
proceedings. On 17 November 1981, the auction sale was held,
with respondent CCC emerging as the highest bidder.8
On 23 November 1981, a Certificate of Sale covering the
properties, together with all the buildings and improvements
existing thereon, was issued in favor of CCC.9 The Certificate of
Sale was annotated on the corresponding titles to the properties
on 8 March 1982.10
Thereafter, or on 13 January 1983, Dulos Realty entered into a
Contract to Sell with petitioner Escalona over the house and lot
covered by TCT No. S-29776.11
On 10 November 1983, an Affidavit of Consolidation in favor of
respondent CCC dated 26 August 1983 was annotated on the
corresponding titles to the properties.12 By virtue of the affidavit,
TCT Nos. S-39775, S-28335, S-39778 and S-29776 - all in the
name of Dulos Realty - were cancelled and TCT Nos. 74531,
74532, 74533 and 74534 were issued in the name of respondent
CCC on the same day.13
On 10 December 1983, Dulos Realty entered into a Deed of
Absolute Sale with petitioner Baldoza over the property covered
by TCT No. S-39778, together with the improvements existing
thereon.14
On 21 December 1983, respondent CCC, through a Deed of
Absolute Sale, sold to respondent Qua the same subject
properties, now covered by TCT Nos. 74531, 74532, 74533 and
74534, which were in the name of respondent CCC. The sale was
duly annotated on the corresponding titles to the properties on 5
January 1984.15
Accordingly, TCT Nos. 74531, 74532, 74533 and 74534 were
cancelled; and TCT Nos. 77012, 77013, 77014 and 770015 were
issued to respondent Qua on 5 January 1984.16
Subsequently, respondent Qua filed ejectment suits individually
against petitioners Du1os Realty,17 Cahayag,18 Esca1ona,19 and
Rivera20 before the Metropolitan Trial Court (MTC) of Las Piñas,
Metro Manila.
The MTC rendered Decisions in favor of respondent Qua. It
ordered Dulos Realty, Escalona, Cahayag, and Rivera to vacate the
properties.
On 8 March 1988, the MTC issued a Writ of Execution to enforce
its Decision dated 20 October 1986 in Civil Case No. 2257 against
Dulos Realty "and all persons claiming right under defendant."21
The subject of the writ of execution was Lot 11 Block II,22 which
was the lot sold by Dulos Realty to petitioner Baldoza.
209
COMPLAINT FOR ANNULMENT
Sales – Chapter 3 Cases
OF SHERIFF'S SALE AND OTHER DOCUMENTS
On 5 December 1988, petitioners filed a Complaint against
respondents for the "Annulment of Sherifffs] Sale and Other
Documents with Preliminary Injunction and/or Temporary CA anchored this conclusion on the fact that the Real Estate
Restraining Order" before the RTC of Makati City, where it was Mortgage was annotated at the back of the titles to the subject
docketed as Civil Case No. 88-2599.23 properties before the execution of the Contracts to Sell. It said
that the annotation constituted sufficient notice to third parties
The Complaint24 alleged that petitioners Cahayag, Rivera, that the property was subject to an encumbrance. With the notice,
Escalona and Baldoza were owners of the properties in question Cahayag, Rivera and
by virtue of Contracts of Sale individually executed in their favor,
and that the Real Estate Mortgage between Dulos Realty and
defendant-appellant CCC did not include the houses, but merely
referred to the lands themselves.25 Thus, the inclusion of the
housing units in the Deed of Sale executed by respondent CCC in
favor of respondent Qua was allegedly illegal.26
Respondents failed to file an answer within the reglementary
period. Subsequently, they were declared in default. They
appealed the order of default but their appeal was dismissed on 8
February 1990.27
On 6 July 1992, the RTC rendered a Decision,28 which ruled that
the houses were not included in the Real Estate Mortgage; and
that the foreclosure of the mortgage over the subject lots, as well
as the housing units, was not valid.29 The trial court held that this
conclusion was established by the plaintiffs' evidence, which went
unrefuted when defendants were declared in default.30
THE CA DECISION
Respondents proceeded to the CA, where they secured a
favorable ruling. In its Decision rendered on 2 November 2004,31
the appellate court held that the extrajudicial foreclosure was
valid, since the Real Estate Mortgage clearly included the
buildings and improvements on the lands, subject of the
mortgage.
After establishing the inclusion of the housing units in the Real
Estate Mortgage, the CA determined the rights of the buyers in the
Contracts to Sell/Contract of Sale vis-a-vis those of the
mortgagee and its successor-in-interest.
In the cases of petitioners Cahayag, Rivera and Escalona, the CA
pointed to lack of evidence establishing full payment of the price.
As supporting reason, it stated that even if there were full
payment of the purchase price, the mortgagee and the latter's
210
successor-in-interest had a better right over the properties. The
Sales – Chapter 3 Cases
Escalona should have redeemed the properties within the one-
year redemption period, but they failed to do so. Consequently, the
right of respondent CCC over the properties became absolute, and
the transfer to respondent Qua was valid.
As regards Baldoza, though the case involved a Contract of Sale,
and not a mere Contract to Sell, the CA declared the transaction
null and void on the purported ground that Dulos was no longer
the owner at the time of the sale.
The CA accordingly reversed and set aside the RTC Decision,
dismissed the case for lack of merit, and ordered petitioners to
surrender possession of the properties to respondent Qua.
THE RULE 45 PETITIONS
On 30 May 2005, petitioners Cahayag and Rivera filed their Rule
45 Petition with this Court.32 For their part, petitioners Dulos
Realty, Baldoza and Escalona filed their Rule 45 Petition on 19
July 2005.33
In the Petition under G.R. No. 168357, it is argued, among others,
that the Deed of Absolute Sale in favor of petitioner Baldoza was
the culmination of a Contract to Sell between her and Dulos
Realty. She claims that the Contract to Sell, marked as Exhibit "L"
during the trial, was executed on 10 January 1979, which
preceded the execution of the Deed of Real Estate Mortgage and
the registration of the mortgage on 3 February 1981.34 After full
payment of the price under the Contract to Sell, Dulos Realty
executed the Deed of Absolute Sale. In other words, Baldoza is
arguing that she has a better title to the property than respondent
Qua since the unregistered contract to sell in her favor was
executed before the registration of the mortgage. But the CA
ignored Exhibit "L" and merely stated that there was only a Deed
of Absolute Sale in favor of Baldoza.
THE ARGUMENTS
The arguments of petitioners, as stated in their respective
Memoranda, are summarized as follows:
Coverage of the Mortgage
Initially, petitioners attempt to stave off the effects of the extra
judicial foreclosure by attacking the coverage of the Real Estate
Mortgage with respect to its subject-matter.35 They draw
attention to the fact that the List of Properties attached to the
Deed of Real Estate Mortgage refers merely to the lands
themselves and does
not include the housing units found thereon.36 Petitioners also
contend that doubts should be resolved against the drafter
inasmuch as the agreement is a contract of adhesion, having
been prepared by the mortgagee.37
As backup argument for the theory that the houses are outside
the coverage of the mortgage agreement, petitioners argue that
the improvements were not owned by Dulos Realty, the
mortgagor, but by its buyers under the Contracts to Sell and
Contracts of Sale; hence, those improvements are excluded from
the coverage of the real estate mortgage.
Validity of the Mortgage
Petitioners next challenge the validity of the foreclosure sale on
the ground that the mortgage executed by the mortgagor
(petitioner Dulos Realty) and the mortgagee (respondent CCC)
was null and void.38 Petitioners claim that Dulos Realty was no
longer the owner of the properties it had mortgaged at the time of
the execution of the mortgage contract, as they were sold under
existing Contracts to Sell and Deed of Absolute Sale.39
Petitioners Cahayag, Rivera and Escalona lean on the unregistered
Contracts to Sell they had individually executed with Dulos Realty
as vendor. For his part, petitioner Baldoza points to the Deed of
Absolute Sale executed by Dulos Realty in his favor.
Better Right over the Properties
Petitioners claim that respondent CCC cannot claim to be a
mortgagee in good faith, since it is a financial institution.40 As
such, respondent CCC knew that it was dealing with a subdivision
developer, which was in the business of selling subdivision lots.41
Dela Merced v. GSIS42 which states that the general rule that a
mortgagee need not look beyond the title cannot benefit banks
and other financial institutions, as a higher due diligence
requirement is imposed on them.
They also raise the contention that lack of full payment of the
purchase price under the Contracts to Sell on the part of Cahayag,
Rivera and Escalona was due to respondent Qua's "harassment
and unlawful actuations.43
211
Petitioners further state that respondent Qua is a mere transferee
Sales – Chapter 3 Cases
of respondent CCC and that, like a stream, she cannot rise higher
than her source. They also argue that Qua is not an innocent
purchaser for value, since she is a former investor of respondent
CCC and one of its principal stockholders.44
No Prior Written HLURB Approval of
the Mortgage
Finally, petitioners allege that the mortgage contract in this case
was not approved by the BLURB, which violates Section 18 of P.D.
95745 and results in the nullity of the mortgage.46
Exhibit "L" as Evidence of a Prior
Contract to Sell
The matter of CA ignoring Exhibit "L" as evidence of a prior
unregistered Contract to Sell was not included in the Memoranda
of petitioners.
THE ISSUES
Based on the foregoing facts and arguments raised by petitioners,
the threshold issues to be resolved are the following:
1. Whether the real mortgage covers the lands only, as
enumerated in the Deed of Real Estate Mortgage or the housing
units as well;
2. Whether Dulos Realty was the owner of the properties it had
mortgaged at the time of its execution in view of the various
Contracts to Sell and Deed of Absolute Sale respectively executed
in favor of petitioners Cahayag, Rivera, Escalona and Cahayag;
3. Who, as between petitioners-buyers and respondent Qua, has a
better right over the properties?
4. Whether the Deed of Absolute Sale in favor of Baldoza was not
preceded by a Contract to Sell and full payment of the purchase
price; and
5. Whether the mortgage is void on the ground that it lacked the
prior written approval of the HLURB.
OUR RULING
We deny the Petition for reasons as follows.
1. Attack on the Subject-matter of
the Real Estate Mortgage
It is true that the List of Properties attached to the Deed of Real
Estate Mortgage refers merely to the lands themselves and does
not include the housing units found thereon. A plain reading of the
Real Estate Mortgage, however, reveals that it covers the housing
units as well. We quote the pertinent provision of the agreement:
[T]he MORTGAGOR has transferred and conveyed and, by these
presents, do hereby transfer and convey by way of FIRST
MORTGAGE unto the MORTGAGEE, its successors and assigns
the real properties described in the list appearing at the back of
this document and/or in a supplemental document attached
hereto as Annex "A" and made and integral part hereof, together
with all the buildings and/or other improvements now existing or
which may hereafter be place[d] or constructed thereon, all of
which the MORTGAGOR hereby warrants that he is the absolute
owner and exclusive possessor thereof, free from all liens and
encumbrances of whatever kind and nature. xxx.47 (Emphasis
Ours)
Thus, the housing units would fall under the catch-all phrase
"together with all the buildings and/or other improvements now
existing or which may hereafter be placed or constructed
thereon."
The contra proferentem rule finds no application to this case. The
doctrine provides that in the interpretation of documents,
ambiguities are to be construed against the drafter.48 By its very
nature, the precept assumes the existence of an ambiguity in the
contract, which is why contra proferentem is also called the
ambiguity doctrine.49 In this case, the Deed of Real Estate
Mortgage clearly establishes that the improvements found on the
real properties listed therein are included as subject-matter of the
contract. It covers not only the real properties, but the buildings
and improvements thereon as well.
2. Challenge to the Foreclosure
Sale with Regard to the
Ownership of the Mortgaged
Properties
To begin with, the Contracts to Sell and Deed of Absolute Sale
could not have posed an impediment at all to the mortgage, given
that these contracts had yet to materialize when the mortgage
was constituted. They were all executed after the constitution of
the Real Estate Mortgage on 20 December 1980.
212
As regards Cahayag, the Contract to Sell in his favor was
Sales – Chapter 3 Cases
executed on 29 March 1981, more than three months after the
execution of the mortgage contract.50 This is taken from the
Contract to Sell itself, which forms part of the records of this
case.51
At this juncture, we note that the CA, for reasons unknown,
specified 29 September 1980,52 and not 29 March 1981, as the
date of the execution of the Contract to Sell in its Decision. anything.60
Respondent Qua has raised this point in her Memorandum filed
with us. This Court cannot be bound by the factual finding of the 3. Who Has a Better Right over the Properties
CA with regard to the date of the Contract to Sell in favor of
Cahayag. The general rule that the Court is bound by the factual
findings of the CA must yield in this case, as it falls under one of
the exceptions: when the findings of the CA are contradicted by
the evidence on record.53 In this case, there is nothing in the
records to support the CA's conclusion that the Contract to Sell
was executed on 29 September 1980. The evidence on record,
however, reveals that the correct date is 29 March 1981.
In the case of petitioner Rivera, the corresponding Contract to Sell
in his favor was executed only on 12 August 1981, or almost eight
months after the perfection of the mortgage contract on 20
December 1980.
Lastly, Dulos Realty executed the Deed of Absolute Sale in favor
of petitioner Baldoza on 10 December 1983, which was almost
three years from the time the mortgage contract was executed on
20 December 1980.
There was neither a contract to sell nor a deed of absolute sale to
speak of when the mortgage was executed.
Petitioners equate a contract to sell to a contract of sale, in which
the vendor loses ownership over the property upon its delivery.54
But a contract to sell, standing alone, does not transfer
ownership.55 At the point of perfection, the seller under a
contract to sell does not even have the obligation to transfer
ownership to the buyer.56 The obligation arises only when the
buyer fulfills the condition: full payment of the purchase price.57
In other words, the seller retains ownership at the time of the
execution of the contract to sell.58
There is no evidence to show that any of petitioners Cahayag,
Rivera and Escalona were able to effect full payment of the
purchase price, which could have at least given rise to the
obligation to transfer ownership. Petitioners Cahayag and Rivera
even admit that they defaulted on their obligations under their
respective Contracts to Sell, although they attribute the default to
respondent Qua's "harassment and unlawful actuations."59 The
statement, though, was a mere allegation that was left
213
unsubstantiated and, as such, could not qualify as proof of
Sales – Chapter 3 Cases
Registration of the mortgage hound the buyers under the
Contracts to Sell
Registration of the mortgage establishes a real right or lien in
favor of the mortgagee, as provided by Articles 131261 and
212662 of the Civil Code.63 Corollary to the rule, the lien has been
treated as "inseparable from the property inasmuch as it is a right
in rem."64 In other words, it binds third persons to the mortgage.
The purpose of registration is to notify persons other than the
parties to the contract that a transaction concerning the property
was entered into.65 Ultimately, registration, because it provides
constructive notice to the whole world, makes the certificate of
title reliable, such that third persons dealing with registered land
need only look at the certificate to determine the status of the
property.66
In this case, the Real Estate Mortgage over the property was
registered on 3 February 1981. On the other hand, the Contracts to
Sell were all executed after the registration of the mortgage. The
Contract to Sell in favor of petitioner Cahayag was executed on 29
March 1981, or almost two months after the registration of the
mortgage. The corresponding Contract to Sell in favor of Rivera
was executed only on 12 August 1981, roughly six months after
the registration of the mortgage contract. Lastly, the Contract to
Sell in favor of Escalona was executed on 13 January 1983, or
nearly two years after the registration of the mortgage on 3
February 1981.
Consequently, petitioners Cahayag, Rivera and Escalona, were
bound to the mortgage executed between mortgagor Dulos Realty
and mortgagee CCC, by virtue of its registration. Definitely, the
buyers each had constructive knowledge of the existence of the
mortgage contract when they individually executed the Contracts
to Sell.
Dela Merced v. GSIS not applicable
Petitioner invokes the above case. Dela Merced involved a clash
between an unrecorded contract to sell and a registered mortgage
contract. The contract to sell between the mortgagors (Spouses
Zulueta) and the buyer (Francisco Dela Merced) was executed
before the former's constitution of the mortgage in favor of GSIS.
Because the Zuluetas defaulted on their loans, the mortgage was
foreclosed; the properties were sold at public auction to GSIS as
the highest bidder; and the titles were consolidated after the
spouses' failure to redeem the properties within the one-year
redemption period. GSIS later sold the contested lot to Elizabeth
D. Manlongat and Ma. Therese D. Manlongat. However, Dela
Merced was able to fully pay the purchase price to Spouses
Zulueta, who
executed a Deed of Absolute Sale in his favor prior to the
foreclosure sale.
This Court stated therein the general rule that the purchaser is not
required to go beyond the Torrens title if there is nothing therein
to indicate any cloud or vice in the ownership of the property or
any encumbrance thereon. The case nonetheless provided an
exception to the general rule. The exception arises when the
purchaser or mortgagee has knowledge of a defect in the vendor's
title or lack thereof, or is aware of sufficient facts to induce a
reasonably prudent person to inquire into the status of the
property under litigation. The Court applied the exception, taking
into consideration the fact that GSIS, the mortgagee, was a
financing institution.
But Dela Merced is not relevant here. Dela Merced involved a
Contract to Sell that was executed prior to the mortgage, while the
Contracts to Sell in this case were all executed after the
constitution and registration of the mortgage.
In Dela Merced, since GSIS had knowledge of the contract to sell,
this knowledge was equivalent to the registration of the Contract
to Sell. Effectively, this constitutes registration canceled out the
subsequent registration of the mortgage. In other words, the
buyer under the Contract to Sell became the- first to register.
Following the priority in time rule in civil law, the lot buyer was
accorded preference or priority in right in Dela Merced.
In this case, the registration of the mortgage, which predated the
Contracts to Sell, already bound the buyers to the mortgage.
Consequently, the determination of good faith does not come into
play.
Dela Merced materially differs from this case on another point.
The Contract to Sell in favor of Dela Merced was followed by full
payment of the price and execution of the Deed of Absolute Sale.
In this case, the Contract to Sell in favor of each of petitioners
Cahayag, Rivera and Escalona, is not coupled with full payment
and execution of a deed of absolute sale.
This case also needs to be distinguished from Luzon
Development Bank v. Enriquez.67 In that case, the unregistered
Contract to Sell was executed after the execution of the
214
mortgage. Instead of resorting to foreclosure, the
Sales – Chapter 3 Cases
owner/developer and the bank entered into a dacion en pago. The
Court declared that the bank was bound by the Contract to Sell
despite the non-registration of the contract. It reasoned that the
bank impliedly assumed the risk that some of the units might
have been covered by contracts to sell. On the other
hand, the Court pronounced the mortgage to be void, as it was the certificate of sale, whichever comes first.70 The General
without the approval of the Housing and Land Use Regulatory Banking Law of 2000 came into law on 13 June 2000.
Board (HLURB). The Court consequently ordered the unit buyer in
that case to pay the balance to the bank, after which the buyer
was obliged to deliver a clean title to the property.
There are points of distinction between the case at bar and Luzon
Development Bank. First, there is a definite finding in Luzon
Development Bank that the mortgage was without prior HLURB
approval, rendering the mortgage void. In the present case, as will
be discussed later, there is no proof from the records on whether
the HLURB did or did not approve the mortgage. Second, Luzon
Development Bank did not even reach the foreclosure stage of the
mortgage. This case, however, not only reached the foreclosure
stage; it even went past the redemption period, consolidation of
the title in the owner, and sale of the property by the highest
bidder to a third person.
The first distinction deserves elaboration. The absence of prior
written approval of the mortgage by the HLURB rendered it void.
This effectively wiped out any discussion on whether registration
bound the installment buyer. In fact, Luzon Development Bank did
not even bother to state whether the mortgage was registered or
not. More important, the tables were turned when Luzon
Development Bank held that the bank was bound to the Contract
to Sell in view of the latter's constructive notice of the Contract to
Sell. Stated differently, the actually unregistered Contract to Sell
became fictionally registered, making it binding on the bank.
In this case, on account of its registration, and the fact that the
contracts were entered into after it, the mortgage is valid even as
to petitioners.
No Redemption within One Year from the Foreclosure Sale
When it comes to extrajudicial foreclosures, the law68 grants
mortgagors or their successors-in-interest an opportunity to
redeem the property within one year from the date of the sale. The
one-year period has been jurisprudentially held to be counted from
the registration of the foreclosure sale with the Register of
Deeds.69 An exception to this rule has been carved out by
Congress for juridical mortgagors. Section 47 of the General
Banking Law of 2000 shortens the redemption period to within
215
three months after the foreclosure sale or until the registration of
Sales – Chapter 3 Cases
If the redemption period expires and the mortgagors or their
successors-in-interest fail to redeem the foreclosed property, the
title thereto is consolidated in the purchaser.71 The consolidation
confirms the purchaser as the owner of the property; concurrently,
the mortgagor-for failure to exercise the right of redemption
within the period-loses all interest in the property.72
We now apply the rules to this case.
As the foreclosure sale took place prior to the advent of the
General Banking Law of 2000, the applicable redemption period is
one year. In this case, because the Certificate of Sale in favor of
respondent CCC was registered on 8 March 1982, the redemption
period was until 8 March 1983. It lapsed without any right of
redemption having been exercised by Dulos Realty. Consequently,
the right of respondent CCC, as purchaser of the subject lots,
became absolute. As a matter of right, it was entitled to the
consolidation of the titles in its name and to the possession of
those lots. Further, the right of respondent CCC over the lots was
transferred to respondent Qua by virtue of the Deed of Sale
executed between them.
Given the foregoing considerations, respondent Qua, who now has
title to the properties subject of the various Contracts to Sell, is
the lawful owner thereof.
Foreclosure Sale vs. Contract of Sale
When Dulos Realty executed a Deed of Absolute Sale covering the
real property registered under TCT No. S-39778 in favor of
petitioner Baldoza on 10 December 1983, it was no longer the
owner of the property. Titles to the subject properties, including
the one sold to Baldoza, had already been consolidated in favor of
respondent CCC as early as 10 November 1983. In fact, on the
same date, the titles to the subject lots in the name of Dulos
Realty had already been cancelled and new ones issued to
respondent CCC.
The fact that Dulos Realty was no longer the owner of the real
property at the time of the sale led the CA to declare that the
Contract of Sale was null and void. On this premise, the appellate
court concluded that respondent Qua had a better title to the
property over petitioner Baldoza.
We find no error in the conclusion of the CA that respondent Qua time of delivery of the item sold. The seller need not be the owner
has a better right to the property. The problem lies with its at the perfection stage of the contract, whether it is of a contract
reasoning. We therefore take a different route to reach the same to sell or a contract of sale. Ownership is not a requirement for a
conclusion. valid contract of sale; it is a requirement for a valid transfer of
ownership'.
Proper place of nemo dat quod non habet in the Law on Sales
Consequently, it was not correct for the CA to consider the
Undeniably, there is an established rule under the law on sales contract of sale void. The CA erroneously considered lack of
that one cannot give what one does not have (Nemo dat quad non ownership on the part of the seller as having an effect on the
ha bet).73 The CA, however, confuses the application of this rule validity of the sale. The sale was very much valid when the Deed
with respect to time. It makes the nemo dat quad non habet rule a of Absolute Sale
requirement for the perfection of a contract of sale, such that a
violation thereof goes into the validity of the sale. But the Latin
precept has been jurisprudentially held to apply to a contract of
sale at its consummation stage, and not at the perfection
stage.74
Cavite Development Bank v. Spouses Syrus Lim75 puts nemo dat
quad non habet in its proper place.1âwphi1 Initially, the Court
rules out ownership as a requirement for the perfection of a
contract of sale. For all that is required is a meeting of the minds
upon the object of the contract and the price. The case then
proceeds to give examples of the rule. It cites Article 1434 of the
Civil Code, which provides that in case the seller does not own the
subject matter of the contract at the time of the sale, but later
acquires title to the thing sold, ownership shall pass to the buyer.
The Court also refers to the rule as the rationale behind Article
1462, which deals with sale of "future goods."
Cavite Development Bank thereafter turns to Article 1459, which
requires ownership by the seller of the thing sold at the time of
delivery or consummation stage of the sale. The Court explains
that if the rule were otherwise, the seller would not be able to
comply with the latter's obligation to transfer ownership to the
buyer under a perfected contract of sale. The Court ends the
discourse with the conclusion that "[i]t is at the consummation
stage where the principle of nemo dat quad non habet applies.76
Case law also provides that the fact th,at the seller is not the
owner of the subject matter of the sale at the time of perfection
does not make the sale void.77
Hence, the lesson: for title to pass to the buyer, the seller must be
216
the owner of the thing sold at the consummation stage or at the
Sales – Chapter 3 Cases
between the parties was executed on 10 December 1983, even
though title to the property had earlier been consolidated in favor
of respondent CCC as early as 10 November 1983. The fact that
Dulos Realty was no longer the owner of the property in question
at the time of the sale did not affect the validity of the contract.
On the contrary, lack of title goes into the performance of a
contract of sale. It is therefore crucial to determine in this case if
the seller was the owner at the time of delivery of the object of the
sale. For this purpose, it should be noted that execution of a
public instrument evidencing a sale translates to delivery.78 It
transfers ownership of the item sold to the buyer.79
In this case, the delivery coincided with the perfection of the
contract -The Deed of Absolute Sale covering the real property in
favor of petitioner Baldoza was executed on 10 December 1983.
As already mentioned, Dulos Realty was no longer the owner of
the property on that date. Accordingly, it could not have validly
transferred ownership of the real property it had sold to petitioner.
Thus, the correct conclusion that should be made is that while
there was a valid sale, there was no valid transfer of title to
Baldoza, since Dulos Realty was no longer the owner at the time
of the execution of the Deed of Absolute Sale.
No Bad Faith on Qua
The contention that Qua is a stockholder and former member of
the Board of Directors of respondent CCC and therefore she is not
exactly a stranger to the affairs of CCC is not even relevant.
An innocent purchaser for value is one who "buys the property of
another without notice that some other person has a right to or
interest in it, and who pays a full and fair price at the time of the
purchase or before receiving any notice of another person's
claim."80 The concept thus presupposes that there must be an
adverse claim or defect in the title to the property to be purchased
by the innocent purchaser for value.
Respondent Qua traces her title to respondent CCC, whose
acquisition over the property proceeded from a foreclosure sale
that was valid. As there is no defect in the title of respondent CCC
to speak of in this case, there is no need to go into a discussion of
whether Qua is an innocent purchaser for value.
4. Dispute as to the Factual Finding of the CA that the Deed of Exhibit "L" not relevant
Absolute Sale in Favor of Baldoza was not Preceded by a Contract
to Sell and Full Payment of the Purchase Price Be that as it may, the contention that a Contract to Sell in favor of
Baldoza preceded the sale in her favor is irrelevant. It must be
We absolutely discard the argument. We can think of at least four stressed that the sale to Baldoza made by Dulos Realty took place
reasons why. First, Exhibit "L" was not formally offered in after the lapse of the redemption period and after consolidation of
evidence. Second, it was not even incorporated into the records. title in the name of respondent CCC on 10 November 1983, one
Third, the argument is irrelevant. Fourth, it was even abandoned in
the Memoranda filed by petitioners with us. Last, we are not a trier
of facts and thus we yield to the finding of the CA.
Exhibit "L" not formally offered
A perusal of the records shows that the Contract to Sell that
Baldoza referred to had in fact been marked as Exhibit "L" during
her direct examination in court.81 Even so, Exhibit "L" was never
formally offered as evidence. For this reason, we reject her
contention. Courts do not consider evidence that has not been
formally offered.82 This explains why the CA never mentioned the
alleged Contract to Sell in favor of Baldoza.
The rationale behind the rule rests on the need for judges to
confine their factual findings and ultimately their judgment solely
and strictly to the evidence offered by the parties to a suit.83 The
rule has a threefold purpose. It allows the trial judge to know the
purpose of the evidence presented; affords opposing parties the
opportunity to examine the evidence and object to its admissibility
when necessary; and facilitates review, given that an appellate
court does not have to review documents that have not been
subjected to scrutiny by the trial court.84
Exhibit "L" not incorporated into the records
The rule, of course, admits an exception. Evidence not formally
offered may be admitted and considered by the trial court so long
as the following requirements obtain: (1) the evidence is duly
identified by testimony duly recorded; and (2) the evidence is
incorporated into the records of the case.
The exception does not apply to the case of Baldoza. While she
duly identified the Contract to Sell during her direct examination,
which was duly recorded, Exhibit "L" was not incorporated into the
217
records.
Sales – Chapter 3 Cases
month prior to the sale to Baldoza on 10 December 1983. Dulos
Realty still would have lost all interest over the property
mortgaged.
The fact that Dulos Realty ceased to be the owner of the property
and therefore it could no longer effect delivery of the property at
the time the Deed of Absolute Sale in favor of Baldoza was
executed is the very reason why the case of Baldoza cannot be
compared with Dela Merced. In the case, the buyer in the Contract
to Sell was able to effect full payment of the purchase price and
to execute a Deed of Absolute Sale in his favor before the
foreclosure sale. In this case, the full payment of the purchase
price and the execution of a Deed of Absolute Sale in favor of
Baldoza was done after the foreclosure sale.
Issue over Exhibit "L" not included in the Memorandum
Equally important is the fact that petitioners failed to include the
issue over Exhibit "L" in any of the Memoranda they filed with us.
The omission is fatal. Issues raised in previous pleadings but not
included in the memorandum are deemed waived or abandoned
(A.M. No. 99-2-04-SC). As they are "a summation of the parties'
previous pleadings, the memoranda alone may be considered by
the Court in deciding or resolving the petition."85 Thus, even as
the issue was raised in the Petition, the Court may not consider it
in resolving the case on the ground of failure of petitioners to
include the issue in the Memorandum. They have either waived or
abandoned it.
5. Issue of HLURB's Non-Approval of the Mortgage
Petitioners allege before the Court that the mortgage contract in
this case was not approved by the HLURB. They claim that this
violates Section 18 of P.D. 95786 and results in the nullity of the
mortgage. Respondents have disputed the claim and counter-
argue that the allegation of the petitioners is not supported by
evidence. Respondents likewise aver that the argument was
raised for the first time on appeal.87
It is rather too late in the day for petitioners to raise this
argument. Parties are not permitted to change their theory of a
case at the appellate stage.88 Thus, theories and issues not
raised at the trial level will not be considered by a reviewing court
on the ground that they cannot be raised for the first time on
appeal.89 Overriding considerations of fair play, justice and due
process dictate this recognized rule.90 This Court cannot even
receive evidence on this matter.
Petitioners' original theory of the case is the nullity of the
mortgage on the grounds previously discussed. If petitioners are
allowed to introduce their new theory, respondents would have no
more opportunity to rebut the new claim with contrary evidence,
as the trial stage has already been terminated. In the interest of
fair play and justice, the introduction of the new argument must
be barred.91
Exceptions Not Applicable
The Court is aware that the foregoing is merely a general rule.
Exceptions are written in case law: first, an issue of jurisdiction
may be raised at any time, even on appeal, for as long as the
exercise thereof will not result in a mockery of the demands of fair
play;92 second, in the interest of justice and at the sound
discretion of the appellate court, a party may be allowed to
change its legal theory on appeal, but only when the factual bases
thereof would not require further presentation of evidence by the
adverse party for the purpose of addressing the issue raised in the
new theory;93 and last, which is actually a bogus exception, is
when the question falls within the issues raised at the trial
court.94
The exceptions do not apply to the instant case. The new
argument offered in this case concerns a factual matter - prior
approval by the HLURB. This prerequisite is not in any way related
to jurisdiction, and so the first exception is not applicable. There is
nothing in the record to allow us to make any conclusion with
respect to this new allegation.
Neither will the case fall under the second exception. Evidence
would be required of the respondents to disprove the new
allegation that the mortgage did not have the requisite prior
HLURB approval. Besides, to the mind of this court, to allow
petitioners to change their theory at this stage of the proceedings
will be exceedingly inappropriate.
Petitioners raised the issue only after obtaining an unfavorable
judgment from the CA. Undoubtedly, if we allow a change of
theory late in the game, so to speak, we will unjustifiably close our
eyes to the fundamental right of petitioners to procedural due
process. They will lose the opportunity to meet the challenge,
because trial has already ended. Ultimately, we will be throwing
218
the Constitutional rulebook out the window.
Sales – Chapter 3 Cases
SO ORDERED. BEHN, MEYER & CO., plaintiff,
WHEREFORE, premises considered, the Petitions are DENIED, and vs.
the Court of Appeals Decision dated 2 November 2004 and J.S. STANLEY, ET AL., defendants.
Resolution dated 10 May 2005 in CA-G.R. CV No. 47421 are
hereby AFFIRMED. And

LAZARUS G. JOSEPH and A.N. JUREIDINI & BROS., appellants,

vs.
JOHN BORDMAN, J.M. MENZI, and THE BANK OF THE
PHILIPPINE ISLANDS, intervenors-appellees.

There is particularly no dispute as to the facts in this case. On

January 23, 1917, Behn, Meyer & Co., Ltd., a foreign corporation
with a branch in the Philippine Islands, brought an action against
the Collector of Customs to recover the possession of certain
merchandise imported into the Islands and then in the hands of
the Collector. A.N. Jureidini & Bros. intervened in the case and
claimed title to the merchandise under a sale of the same ordered
by the British Admiralty Court of Alexandria, Egypt, in prize court
proceedings.

The Court of First Instance on February 28, 1918, rendered

judgment in favor of Behn, Meyer & Co., on the ground that the
title to the merchandise originally rested in Behn, Meyer & Co.,
Ltd., and that no record on the prize court proceedings showing
that Behn, Meyer & Co., Ltd., had been divested of the title had
been presented in evidence. On appeal to the Supreme Court the
judgment was reversed and the case remanded to the court below
with instructions to allow Jureidini & Bros. a reasonable time
within which to obtain a duly certified copy of the decision of the
Admiralty Court of Alexandria, in which the court declared that the
merchandise constituted lawful prize. 1 A new trial was held on
February 24, 1922, after which a judgment was entered in favor of
A.N. Jureidini & Bros. and against Behn, Meyer & Co., Ltd., for the
sum of P1,988 in damages for the further sum of P1,988 for the
value of the merchandise in default of delivery to Jureidini & Bros.

In the meantime, on the 16th day of February, 1918, all the

business, property, and assets of every nature of the firm of Behn,
Meyer & Co., Ltd., were taken over by the Alien Property Custodian
of the United States under the provisions of the Trading with the
Enemy Act and by direction of the said Alien Property Custodian,
one W.D. Pemberton was appointed receiver and placed in full
219
charge of the business and assets of the firm.
Sales – Chapter 3 Cases
During the month of January, 1919, the business of the Philippine
branch of Behn, Meyer & Co., Ltd., was liquidated and the property
and assets of the corporation in the Philippine Islands, including property sold as property of the said Behn, Meyer & Co., Ltd., and
the goodwill, trade-marks, accounts receivable, together with all for an accounting and other relief.
vouchers, entries, and other proofs of the indebtedness, such as
the books of account, etc., were sold to one of the intervenors On the 5th of September, 1923, the said Lazarus G. Joseph, in his
herein, John Bordman, by the direction and under the supervision capacity of receiver, appeared in the present case in the Court of
of the said Alien Property Custodian, in accordance with the
provisions of the Alien Enemy Act, for the sum of P660,000, as
shown by the letters and bills of sale, Exhibits B, C, D, and E.
The intervenor herein the Bank of the Philippine Islands, advanced
to Bordman the sum of P660,000 with which to purchase the said
business, property, and assets of the said Behn, Meyer & Co., Ltd.,
which sum was turned over to W.D. Pemberton, the receiver
appointed by the Alien Property Custodian.
On the 21st of February, 1919, Behn, Meyer & Co., Ltd., was
declared by the Alien Property Custodian to be an enemy not
holding a license granted by the President, and on the same date
demand was made on the receiver to convey, transfer, assign,
deliver, and pay over to the Alien Property Custodian the bet
proceeds of the sale and liquidation of the business, property, and
assets aforesaid, and by virtue of that demand, the said net
proceeds in the sum of P392,674.96 was on February 28, 1919,
delivered to the managing director of the office of the Alien
Property Custodian in the Philippine Islands, as shown by Exhibits
F and G, which sum as far as the record shows, is still in
possession of the Alien Property Custodian.
Execution of the judgment of February 24, 1922, in favor of A.N.
Jureidini & Bros, having been issued and returned unsatisfied,
Jureidini & Bros. on August 8, 1922, filed an ex-parte petition in
the same case praying that a receiver be appointed by the court to
take charge of the estate and effects of Behn, Meyer & Co., Ltd.,
and on August 10, 1922, the Court of First Instance issued an
order appointing Lazarus G. Joseph receiver of the property,
assets and estate of the said firm, upon giving a bond in the sum
of P1,000.
On the 4th of September, 1923, the said Lazarus G. Joseph, as
such receiver, commenced an action in the Court of First Instance
of Manila against the Bank of the Philippine Islands and J.M.
Menzi, being civil case No. 24892 of said court, to annul the
aforesaid sale of the business, property, and assets, etc., of the
220
said Behn, & Co., Ltd., to John Bordman and to recover back the
Sales – Chapter 3 Cases
First Instance and obtained an order directed to the said J.M.
Menzi citing him to appear before the court on a certain date to
show cause why he should not turn over to the said receiver the
books of account of the said Behn, Meyer & Co., Ltd.
On September 14, 1923, John Bordman, J.M. Menzi, and the Bank
of the Philippine Islands filed in the same case a motion for
permission to intervene in the receivership proceedings solely for
the purpose of vacating the order of August 10, 1922, appointing a
receiver for the property, assets, and estate of the said Behn,
Meyer & Co., Ltd., and alleging in support thereof that they had a
legal interest in the subject-matter of said receivership and an
interest against that of the parties to said
proceedings.lawphi1.net
At the same time the intervenors filed a verified motion setting
forth the facts hereinabove stated asking that the said order of
August 10, 1922, appointing the said Lazarus G. Joseph, receiver
of the said Behn, Meyer & Co. Ltd., be vacated and set aside on
the ground that Jureidini & Bros., under the facts and
circumstances stated, had no legal right to such receivership and
that the court had no jurisdiction to make such appointment, and
that consequently its order to that effect was null and void.
Upon hearing, the Court of First Instance, under date of
September 26, 1923, entered an order, the dispositive part of
which reads as follows:
For the foregoing and the interests of J.M. Menzi, John Bordman
and the Bank of the Philippine Islands in this proceeding having, in
the opinion of the court, been shown, that of Bordman consisting
in his having in his acquired through purchase for the sum of
P660,000 all the interests, rights, choses in action, books,
vouchers of the herein plaintiff; that of J.M. Menzi in his having
been designated by said Bordman to take charge of said
properties and books in his name; and that of the Bank of the
Philippine Islands in its having furnished the sum of money with
which said Bordman made the purchase, it is hereby adjudged to
permit said parties, as they are hereby permitted and authorized,
to intervene in this case; and the court having reached the
conclusion that it has not, and did not have, any jurisdiction to
appoint a receiver in view of the fact that all of the properties of
the said plaintiff had been sold by the Alien Property Custodian in
accordance with the Act of Congress hereinbefore mentioned; it is
hereby adjudged that the order of this court of August 10, 1922,
appointing Lazarus G. Joseph, receiver, should be, as it hereby is,
set aside. Let the bond given by said receiver to secure the faithful
performance of his duties be cancelled, and J.M. Menzi is held to
be under no obligation to deliver to the aforesaid Lazarus G.
Joseph, the books under said
Menzi's charge which formerly belonged to the plaintiff Behn,
Meyer & Co., Ltd.
No exception was taken to this order neither by the receiver nor by
Jureidini Bros., but on October 1, 1923, their counsel filed the
following motion for reconsideration:
Come now the Receiver and A.N. Jureidini & Bros. in the above
entitled case and move this court that the court reconsider the
resolution of this court dated September 26, 1923, and, thereafter
order the delivery of the books to the said receiver.
On December 3, 1923, the motion for reconsideration was denied,
exception duly taken and the case is now before us upon appeal
from the two orders last mentioned.
The appellants contend that the court below erred in permitting
the appellees to intervene inasmuch as (a) a final judgment had
been entered in the case and (b) the appellees had no legal
interest in the matter in litigation. Neither of these points is, in our
opinion, well taken. The appellees intervene only in the
receivership proceedings which still were an open issue and did
not attempt to interfere in the part of the case which was covered
by the final judgment. They claimed no interest in the controversy
between Jureidini & Bros., and Behn, Meyer & Co., Ltd., but that
Bordman and the Bank of the Philippine Islands had a vital
interest in the subsequent receivership is clearly shown by the
fact that one of the first actions of the receiver appears to have
been the institution of an action against them to annul the sale
made by the Alien Property Custodian to Bordman, thus disturbing
the latter in his ' property rights and threatening the lien held by
the bank upon the property sold. As to the appellee Menzi, it is
sufficient to say that he was brought into the present case by the
receiver himself on the order to show cause why he did not turn
over and deliver to said receiver the books of account of Behn,
Meyer & Co., Ltd. We fail to find any error or abuse of discretion
on the part of the court below in permitting the intervention.
Appellants further maintain that the court erred in holding that the
appointment of the receiver was in excess of its jurisdiction. This
contention is also untenable. As soon as Behn, Meyer & Co., Ltd.,
was an "enemy not holding a license granted by the President of
the United States," it became the duty of the Alien Property
221
Custodian to take possession of its business and all its assets
Sales – Chapter 3 Cases
within United States territory, and we must presume that this duty
was duly performed and that all such assets are now either
actually or constructively in the possession of the Alien Property
Custodian and under his control. If so, they are beyond the
jurisdiction and
control of the Philippine Courts. Section 7 of the Trading with litigation in regard to property under the control of the Alien
Enemy Act as amended provides as follows: Property Custodian, the Act would, of course, have so stated.
"The sole relief and remedy of any person having any claim to any
money or other property heretofore or hereafter conveyed,
transferred, assigned, delivered, or paid over to the Alien Property
Custodian, or required so to be, or seized by him shall be that
provided by the terms of this Act, and in the event of sale or other
disposition of such property by the Alien Property Custodian, shall
be limited to and enforced against the net proceeds received
therefrom and held by the Alien Property Custodian or by the
Treasurer of the United States."lawphi1.net
Section 9 of the Act provides that anyone "not an enemy or ally of
enemy claiming any interest, right, or title in any money of other
property so requested and held, may give notice of his claim and
institute a suit in equity against the Custodian or the Treasurer, as
the case may be, to establish and enforce his claim, and where
suit is brought, the money or property is to be retained by the
Custodian or in the Treasury, to abide the final decree. The same
section further provides:
Except as herein provided, the money or other property conveyed,
transferred, assigned, delivered, or paid to the Alien Property
Custodian shall not be liable to lien, attachment, garnishment,
trustee, process, or execution, or subject to any order to decree of
any court.
Section 17 of the same Act provides:
That the district courts of the United States are hereby given
jurisdiction to make and enter all such rules as to notice and
otherwise, and all such orders and decrees, and to issue such
process as may be necessary and proper in the premises to
enforce the provisions of this Act, with a right of appeal from the
final order or decree of such court as provided in sections one
hundred and twenty-eight and two hundred and thirty-eight of the
Act of March third, nineteen hundred and eleven, entitled "An Act
to codify, revise, and amend the laws relating to the judiciary."
The only jurisdiction given to the Courts of First Instance of the
Philippine Islands is in regard to criminal offenses under said Act,
as shown by section 18 thereof. Had it been the intention of
222
Congress to give the Philippine courts jurisdiction over civil
Sales – Chapter 3 Cases
The orders appealed from are affirmed, with the costs against the VIRGILIO S. DAVID, Petitioner,
appellants. So ordered. vs. The Board Resolution, on the other hand, stated that the purchase of
MISAMIS OCCIDENTAL II ELECTRIC COOPERATIVE, INC., the said transformer was to be financed through a loan from the
Respondent. National Electrification Administration (NEA). As there was no

Before this Court is a petition for review under Rule 45 of the Rules of
Court assailing the July 8, 2010 Decision1 of the Court of Appeals
(CA), in CA-G.R. CR No. 91839, which affirmed the July 17, 2008
Decision2 of the Regional Trial Court, Branch VIII, Manila (RTC) in Civil
Case No. 94-69402, an action for specific performance and damages.

The Facts:

Petitioner Virgilio S. David (David) was the owner or proprietor of VSD

Electric Sales, a company engaged in the business of supplying
electrical hardware including transformers for rural electric
cooperatives like respondent Misamis Occidental II Electric
Cooperative, Inc. (MOELCI), with principal office located in Ozamis
City.

To solve its problem of power shortage affecting some areas within

its coverage, MOELCI expressed its intention to purchase a 10 MVA
power transformer from David. For this reason, its General Manager,
Engr. Reynaldo Rada (Engr. Rada), went to meet David in the latter’s
office in Quezon City. David agreed to supply the power transformer
provided that MOELCI would secure a board resolution because the
item would still have to be imported.

On June 8, 1992, Engr. Rada and Director Jose Jimenez (Jimenez),

who was in-charge of procurement, returned to Manila and presented
to David the requested board resolution which authorized the
purchase of one 10 MVA power transformer. In turn, David presented
his proposal for the acquisition of said transformer. This proposal
was the same proposal that he would usually give to his clients.

After the reading of the proposal and the discussion of terms, David
instructed his then secretary and bookkeeper, Ellen M. Wong, to type
the names of Engr. Rada and Jimenez at the end of the proposal. Both
signed the document under the word "conforme." The board
resolution was thereafter attached to the proposal.

As stated in the proposal, the subject transformer, together with the

basic accessories, was valued at P5,200,000.00. It was also stipulated
therein that 50% of the purchase price should be paid as
downpayment and the remaining balance to be paid upon delivery.
Freight handling, insurance, customs duties, and incidental expenses 223
were for the account of the buyer.
Sales – Chapter 3 Cases
immediate action on the loan application, Engr. Rada returned to
Manila in early December 1992 and requested David to deliver the
transformer to them even without the required downpayment. David
granted the request provided that MOELCI would pay interest at 24%
per annum. Engr. Rada acquiesced to the condition. On December 17,
1992, the goods were shipped to Ozamiz City via William Lines. In the
Bill of Lading, a sales invoice was included which stated the agreed
interest rate of 24% per annum.
When nothing was heard from MOELCI for sometime after the
shipment, Emanuel Medina (Medina), David’s Marketing Manager,
went to Ozamiz City to check on the shipment. Medina was able to
confer with Engr. Rada who told him that the loan was not yet
released and asked if it was possible to withdraw the shipped items.
Medina agreed.
When no payment was made after several months, Medina was
constrained to send a demand letter, dated September 15, 1993,
which MOELCI duly received. Engr. Rada replied in writing that the
goods were still in the warehouse of William Lines again reiterating
that the loan had not been approved by NEA. This prompted Medina
to head back to Ozamiz City where he found out that the goods had
already been released to MOELCI evidenced by the shipping
company’s copy of the Bill of Lading which was stamped "Released,"
and with the notation that the arrastre charges in the amount of
P5,095.60 had been paid. This was supported by a receipt of payment
with the corresponding cargo delivery receipt issued by the Integrated
Port Services of Ozamiz, Inc.
Subsequently, demand letters were sent to MOELCI demanding the
payment of the whole amount plus the balance of previous purchases
of other electrical hardware. Aside from the formal demand letters,
David added that several statements of accounts were regularly sent
through the mails by the company and these were never disputed by
MOELCI.
On February 17, 1994, David filed a complaint for specific
performance with damages with the RTC. In response, MOECLI
moved for its dismissal on the ground that there was lack of cause of
action as there was no contract of sale, to begin with, or in the
alternative, the said contract was unenforceable under the Statute of
Frauds. MOELCI argued that the quotation letter could not be
considered a binding contract because there was nothing in the said
document from which consent, on its part, to the terms and
conditions proposed by David could be inferred. David knew that
MOELCI’s assent could only be obtained upon the issuance of a
purchase order in favor of the bidder chosen by the Canvass and
Awards Committee.
Eventually, pursuant to Rule 16, Section 5 of the Rules of Court,
MOELCI filed its Motion for Preliminary Hearing of Affirmative
Defenses and Deferment of the Pre-Trial Conference which was
denied by the
RTC to abbreviate proceedings and for the parties to proceed to trial
and avoid piecemeal resolution of issues. The order denying its
motion was raised with the CA, and then with this Court. Both courts
sustained the RTC ruling.
Trial ensued. By reason of MOELCI’s continued failure to appear
despite notice, David was allowed to present his testimonial and
documentary evidence ex parte, pursuant to Rule 18, Section 5 of the
Rules. A Very Urgent Motion to Allow Defendant to Present Evidence
was filed by MOELCI, but was denied.
In its July 17, 2008 Decision, the RTC dismissed the complaint. It
found that although a contract of sale was perfected, it was not
consummated because David failed to prove that there was indeed a
delivery of the subject item and that MOELCI received it.3
Aggrieved, David appealed his case to the CA.
On July 8, 2010, the CA affirmed the ruling of the RTC. In the assailed
decision, the CA reasoned out that although David was correct in
saying that MOELCI was deemed to have admitted the genuineness
and due execution of the "quotation letter" (Exhibit A), wherein the
signatures of the Chairman and the General Manager of MOELCI
appeared, he failed to offer any textual support to his stand that it was
a contract of sale instead of a mere price quotation agreed to by
MOELCI representatives. On this score, the RTC erred in stating that a
contract of sale was perfected between the parties despite the
irregularities that tainted their transaction. Further, the fact that
MOELCI’s representatives agreed to the terms embodied in the
agreement would not preclude the finding that said contract was at
best a mere contract to sell.
A motion for reconsideration was filed by David but it was denied.4
Hence, this petition.
Before this Court, David presents the following issues for
consideration:
I.
WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF SALE.
II.
WHETHER OR NOT THERE WAS A DELIVERY THAT CONSUMMATED
224
THE CONTRACT.
Sales – Chapter 3 Cases
The Court finds merit in the petition.
I.
On the issue as to whether or not there was a perfected contract of
sale, this Court is required to delve into the evidence of the case. In a
petition for review on certiorari under Rule 45 of the Rules of Court,
the issues to be threshed out are generally questions of law only, and
not of fact.
This was reiterated in the case of Buenaventura v. Pascual,5 where it
was written:
Time and again, this Court has stressed that its jurisdiction in a
petition for review on certiorari under Rule 45 of the Rules of Court is
limited to reviewing only errors of law, not of fact, unless the findings
of fact complained of are devoid of support by the evidence on record,
or the assailed judgment is based on the misapprehension of facts.
The trial court, having heard the witnesses and observed their
demeanor and manner of testifying, is in a better position to decide
the question of their credibility. Hence, the findings of the trial court
must be accorded the highest respect, even finality, by this Court.
That being said, the Court is not unmindful, however, of the
recognized exceptions well-entrenched in jurisprudence. It has always
been stressed that when supported by substantial evidence, the
findings of fact of the CA are conclusive and binding on the parties
and are not reviewable by this Court, unless the case falls under any
of the following recognized exceptions:
(1) When the conclusion is a finding grounded entirely on speculation,
surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd or
impossible;
(3) Where there is a grave abuse of discretion:
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both
appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are without citation of specific evidence
on which the conclusions are based;
(9) When the facts set forth in the petition as well as in the petitioner’s
main and reply briefs are not disputed by the respondents; and
(10) When the findings of fact of the Court of Appeals are premised
on the supposed absence of evidence and contradicted by the
evidence on record. 6 [Emphasis supplied]
In this case, the CA and the RTC reached different conclusions on the
question of whether or not there was a perfected contract of sale. The
RTC ruled that a contract of sale was perfected although the same
was not consummated because David failed to show proof of
delivery.7
The CA was of the opposite view. The CA wrote:
Be that as it may, it must be emphasized that the appellant failed to
offer any textual support to his insistence that Exhibit "A" is a contract
of sale instead of a mere price quotation conformed to by MOELCI
representatives. To that extent, the trial court erred in laying down the
premise that "indeed a contract of sale is perfected between the
parties despite the irregularities attending the transaction." x x x
That representatives of MOELCI conformed to the terms embodied in
the agreement does not preclude the finding that such contract is, at
best, a mere contract to sell with stipulated costs quoted should it
ultimately ripen into one of sale. The conditions upon which that
development may occur may even be obvious from statements in the
agreement itself, that go beyond just "captions." Thus, the appellant
opens with, "WE are pleased to submit our quotation xxx." The
purported contract also ends with. "Thank you for giving us the
opportunity to quote on your requirements and we hope to receive
your order soon" apparently referring to a purchase order which
MOELCI contends to be a formal requirement for the entire
transaction.8
In other words, the CA was of the position that Exhibit A was at best a
contract to sell.
A perusal of the records persuades the Court to hold otherwise.
The elements of a contract of sale are, to wit: a) Consent or meeting
of the minds, that is, consent to transfer ownership in exchange for
the price; b) Determinate subject matter; and c) Price certain in money
or its equivalent.9 It is the absence of the first element which
distinguishes a contract of sale from that of a contract to sell.
In a contract to sell, the prospective seller explicitly reserves the
transfer of title to the prospective buyer, meaning, the prospective
seller does not as yet agree or consent to transfer ownership of the225
property subject of the contract to sell until the happening of an event,
Sales – Chapter 3 Cases
such as, in most cases, the full payment of the purchase price. What
the seller agrees or obliges himself to do is to fulfill his promise to sell
the subject property when the entire amount of the purchase price is
delivered to him. In other words, the full payment of the purchase
price partakes of a suspensive condition, the non-fulfillment of which
prevents the
obligation to sell from arising and, thus, ownership is retained by the
prospective seller without further remedies by the prospective Lines, as evidenced by a bill of lading.
buyer.10
Second, the document specified a determinate subject matter which
In a contract of sale, on the other hand, the title to the property passes was one (1) Unit of 10 MVA Power Transformer with corresponding
to the vendee upon the delivery of the thing sold. Unlike in a contract KV Line Accessories. And third, the document stated categorically the
to sell, the first element of consent is present, although it is price
conditioned upon the happening of a contingent event which may or
may not occur. If the suspensive condition is not fulfilled, the
perfection of the contract of sale is completely abated. However, if
the suspensive condition is fulfilled, the contract of sale is thereby
perfected, such that if there had already been previous delivery of the
property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any
further act having to be performed by the seller. The vendor loses
ownership over the property and cannot recover it until and unless the
contract is resolved or rescinded.11
An examination of the alleged contract to sell, "Exhibit A," despite its
unconventional form, would show that said document, with all the
stipulations therein and with the attendant circumstances
surrounding it, was actually a Contract of Sale. The rule is that it is not
the title of the contract, but its express terms or stipulations that
determine the kind of contract entered into by the parties.12 First,
there was meeting of minds as to the transfer of ownership of the
subject matter. The letter (Exhibit A), though appearing to be a mere
price quotation/proposal, was not what it seemed. It contained terms
and conditions, so that, by the fact that Jimenez, Chairman of the
Committee on Management, and Engr. Rada, General Manager of
MOELCI, had signed their names under the word "CONFORME," they,
in effect, agreed with the terms and conditions with respect to the
purchase of the subject 10 MVA Power Transformer. As correctly
argued by David, if their purpose was merely to acknowledge the
receipt of the proposal, they would not have signed their name under
the word "CONFORME."
Besides, the uncontroverted attending circumstances bolster the fact
that there was consent or meeting of minds in the transfer of
ownership. To begin with, a board resolution was issued authorizing
the purchase of the subject power transformer. Next, armed with the
said resolution, top officials of MOELCI visited David’s office in
Quezon City three times to discuss the terms of the purchase. Then,
when the loan that MOELCI was relying upon to finance the purchase
was not forthcoming, MOELCI, through Engr. Rada, convinced David to
do away with the 50% downpayment and deliver the unit so that it
could already address its acute power shortage predicament, to which 226
David acceded when it made the delivery, through the carrier William
Sales – Chapter 3 Cases
certain in money which was P5,200,000.00 for one (1) unit of 10 MVA
Power Transformer and P2,169,500.00 for the KV Line Accessories.
In sum, since there was a meeting of the minds, there was consent on
the part of David to transfer ownership of the power transformer to
MOELCI in exchange for the price, thereby complying with the first
element. Thus, the said document cannot just be considered a
contract to sell but rather a perfected contract of sale.
II.
Now, the next question is, was there a delivery?
MOELCI, in denying that the power transformer was delivered to it,
argued that the Bill of Lading which David was relying upon was not
conclusive. It argued that although the bill of lading was stamped
"Released," there was nothing in it that indicated that said power
transformer was indeed released to it or delivered to its possession.
For this reason, it is its position that it is not liable to pay the purchase
price of the 10 MVA power transformer.
This Court is unable to agree with the CA that there was no delivery of
the items. On the contrary, there was delivery and release.
To begin with, among the terms and conditions of the proposal to
which MOELCI agreed stated:
2. Delivery – Ninety (90) working days upon receipt of your purchase
order and downpayment.
C&F Manila, freight, handling, insurance, custom duties and incidental
expenses shall be for the account of MOELCI II. 13 (Emphasis
supplied)
On this score, it is clear that MOELCI agreed that the power
transformer would be delivered and that the freight, handling,
insurance, custom duties, and incidental expenses shall be
shouldered by it.
On the basis of this express agreement, Article 1523 of the Civil Code
becomes applicable.1âwphi1 It provides:
Where, in pursuance of a contract of sale, the seller is authorized or
required to send the goods to the buyer delivery of the goods to a
carrier, whether named by the buyer or not, for the purpose of
transmission to the buyer is deemed to be a delivery of the goods to
the buyer, except in the cases provided for in Article 1503, first,
second and third paragraphs, or unless a contrary intent appears.
(Emphasis supplied)
Thus, the delivery made by David to William Lines, Inc., as evidenced
by the Bill of Lading, was deemed to be a delivery to MOELCI. David
was authorized to send the power transformer to the buyer pursuant
to their agreement. When David sent the item through the carrier, it
amounted to a delivery to MOELCI.
Furthermore, in the case of Behn, Meyer & Co. (Ltd.) v. Yangco,14 it
was pointed out that a specification in a contract relative to the
payment of freight can be taken to indicate the intention of the parties
with regard to the place of delivery. So that, if the buyer is to pay the
freight, as in this case, it is reasonable to suppose that the subject of
the sale is transferred to the buyer at the point of shipment. In other
words, the title to the goods transfers to the buyer upon shipment or
delivery to the carrier.
Of course, Article 1523 provides a mere presumption and in order to
overcome said presumption, MOELCI should have presented evidence
to the contrary. The burden of proof was shifted to MOELCI, who had
to show that the rule under Article 1523 was not applicable. In this
regard, however, MOELCI failed.
There being delivery and release, said fact constitutes partial
performance which takes the case out of the protection of the Statute
of Frauds. It is elementary that the partial execution of a contract of
sale takes the transaction out of the provisions of the Statute of
Frauds so long as the essential requisites of consent of the
contracting parties, object and cause of the obligation concur and are
clearly established to be present.15
That being said, the Court now comes to David’s prayer that MOELCI
be made to pay the total sum of ₱ 5,472,722.27 plus the stipulated
interest at 24% per annum from the filing of the complaint. Although
the Court agrees that MOELCI should pay interest, the stipulated rate
is, however, unconscionable and should be equitably reduced. While
there is no question that parties to a loan agreement have wide
latitude to stipulate on any interest rate in view of the Central Bank
Circular No. 905 s. 1982 which suspended the Usury Law ceiling on
interest effective January 1, 1983, it is also worth stressing that
interest rates whenever unconscionable may still be reduced to a
reasonable and fair level. There is nothing in the said circular which
grants lenders carte blanche authority to raise interest rates to levels
which will either enslave their borrowers or lead to a hemorrhaging of
their assets.16 Accordingly, the excessive interest of 24% per annum
stipulated in the sales invoice should be reduced to 12% per annum.
Indeed, David was compelled to file an action against MOELCI but this
reason alone will not warrant an award of attorney’s fees. It is settled
that the award of attorney's fees is the exception rather than the rule.
227
Counsel's fees are not awarded every time a party prevails in a suit
Sales – Chapter 3 Cases
because of the policy that no premium should be placed on the right
to litigate. Attorney's fees, as part of damages, are not necessarily
equated to the amount paid by a litigant to a lawyer. In the ordinary
sense, attorney's fees represent the reasonable compensation paid to
a lawyer by his client for the legal services he has rendered to the
latter; while in its extraordinary concept, they may be awarded by the
court as indemnity for damages to be paid by the losing party to the
prevailing party. Attorney's fees as part of damages are awarded only
in the instances specified in Article 2208 of the Civil Code 17 which
demands factual, legal, and equitable justification. Its basis cannot be
left to speculation or conjecture. In this regard, none was proven.
Moreover, in the absence of stipulation, a winning party may be
awarded attorney's fees only in case plaintiffs action or defendant's
stand is so untenable as to amount to gross and evident bad faith.18
is MOELCI's case cannot be similarly classified.
Also, David's claim for the balance of P73,059.76 plus the stipulated
interest is denied for being unsubstantiated.
WHEREFORE, the petition Is GRANTED. The July 8, 2010 Decision of
the Court of Appeals Is REVERSED and SET ASIDE. Respondent
Misamis Occidental II Electric Cooperative, Inc. is ordered to pay
petitioner Virgilio S. David the total sum of P5,472,722.27 with interest
at the rate of 12o/o per annum reckoned from the filing of the
complaint until fully paid.
SO ORDERED.
SPOUSES JOSE C. ROQUE AND BEATRIZ DELA CRUZ ROQUE,
with deceased Jose C. Roque represented by his substitute heir
JOVETTE ROQUE-LIBREA, Petitioners,
vs.
MA. PAMELA P. AGUADO, FRUCTUOSO C. SABUG, JR.,
NATIONAL COUNCIL OF CHURCHES IN THE PHILIPPINES
(NCCP), represented by its Secretary General SHARON ROSE
JOY RUIZ-DUREMDES, LAND BANK OF THE PHILIPPINES (LBP),
represented by Branch Manager EVELYN M. MONTERO, ATTY.
MARIO S.P. DIAZ, in his Official Capacity as Register of Deeds
for Rizal, Morong Branch, and CECILIO U. PULAN, in his Official
Capacity as Sheriff, Office of the Clerk of Court, Regional Trial
Court, Binangonan, Rizal, Respondents.
Assailed in this petition for review on certiorari1 are the Decision2
dated May 12, 2010 and the Resolution3 dated September 15,
2010 of the Court of Appeals (CA) in CA G.R. CV No. 92113 which
affirmed the Decision4 dated July 8, 2008 of the Regional Trial
Court of Binangonan, Rizal, Branch 69 (RTC) that dismissed Civil
Case Nos. 03-022 and 05-003 for reconveyance, annulment of
sale, deed of real estate mortgage, foreclosure and certificate of
sale, and damages.
The Facts
The property subject of this case is a parcel of land with an area
of 20,862 square meters (sq. m.), located in Sitio Tagpos,
Barangay Tayuman, Binangonan, Rizal, known as Lot 18089.5
On July 21, 1977, petitioners-spouses Jose C. Roque and Beatriz
dela Cruz Roque (Sps. Roque) and the original owners of the then
unregistered Lot 18089 – namely, Velia R. Rivero (Rivero),
Magdalena Aguilar, Angela Gonzales, Herminia R. Bernardo,
Antonio Rivero, Araceli R. Victa, Leonor R. Topacio, and Augusto
Rivero (Rivero, et al.) – executed a Deed of Conditional Sale of
Real Property6 (1977 Deed of Conditional Sale) over a 1,231-sq.
m. portion of Lot 18089 (subject portion) for a consideration of
₱30,775.00. The parties agreed that Sps. Roque shall make an
initial payment of ₱15,387.50 upon signing, while the remaining
balance of the purchase price shall be payable upon the
registration of Lot 18089, as well as the segregation and the
concomitant issuance of a separate title over the subject portion
in their names. After the deed’s execution, Sps. Roque took
228
possession and introduced improvements on the subject portion
Sales – Chapter 3 Cases
which they utilized as a balut factory.7
On August 12, 1991, Fructuoso Sabug, Jr. (Sabug, Jr.), former M-5955, covering Lot 18089, which certificate of title at the time
Treasurer of the National Council of Churches in the Philippines of sale was free from any lien and/or encumbrances. She also
(NCCP), applied for a free patent over the entire Lot 18089 and claimed that Sps. Roque’s cause of action had already prescribed
was eventually issued Original Certificate of Title (OCT) No. M- because their adverse claim was made only on April 21, 2003, or
59558 in his name on October 21, 1991. On June 24, 1993, Sabug, four (4)
Jr. and Rivero, in her personal capacity and in representation of
Rivero, et al., executed a Joint Affidavit9 (1993 Joint Affidavit),
acknowledging that the subject portion belongs to Sps. Roque
and expressed their willingness to segregate the same from the
entire area of Lot 18089.
On December 8, 1999, however, Sabug, Jr., through a Deed of
Absolute Sale10 (1999 Deed of Absolute Sale), sold Lot 18089 to
one Ma. Pamela P. Aguado (Aguado) for ₱2,500,000.00, who, in
turn, caused the cancellation of OCT No. M-5955 and the issuance
of Transfer Certificate of Title (TCT) No. M-96692 dated
December 17, 199911 in her name.
Thereafter, Aguado obtained an ₱8,000,000.00 loan from the Land
Bank of the Philippines (Land Bank) secured by a mortgage over
Lot 18089.12 When she failed to pay her loan obligation, Land
Bank commenced extra-judicial foreclosure proceedings and
eventually tendered the highest bid in the auction sale. Upon
Aguado’s failure to redeem the subject property, Land Bank
consolidated its ownership, and TCT No. M-11589513 was issued
in its name on July 21, 2003.14
On June 16, 2003, Sps. Roque filed a complaint15 for
reconveyance, annulment of sale, deed of real estate mortgage,
foreclosure, and certificate of sale, and damages before the RTC,
docketed as Civil Case No. 03-022, against Aguado, Sabug, Jr.,
NCCP, Land Bank, the Register of Deeds of Morong, Rizal, and
Sheriff Cecilio U. Pulan, seeking to be declared as the true owners
of the subject portion which had been erroneously included in the
sale between Aguado and Sabug, Jr., and, subsequently, the
mortgage to Land Bank, both covering Lot 18089 in its entirety.
In defense, NCCP and Sabug, Jr. denied any knowledge of the
1977 Deed of Conditional Sale through which the subject portion
had been purportedly conveyed to Sps. Roque.16
For her part, Aguado raised the defense of an innocent purchaser
for value as she allegedly derived her title (through the 1999 Deed
229
of Absolute Sale) from Sabug, Jr., the registered owner in OCT No.
Sales – Chapter 3 Cases
years from the date OCT No. M-5955 was issued in Sabug, Jr.’s
name on December 17, 1999.17
On the other hand, Land Bank averred that it had no knowledge of
Sps. Roque’s claim relative to the subject portion, considering that
at the time the loan was taken out, Lot 18089 in its entirety was
registered in Aguado’s name and no lien and/or encumbrance
was annotated on her certificate of title.18
Meanwhile, on January 18, 2005, NCCP filed a separate
complaint19 also for declaration of nullity of documents and
certificates of title and damages, docketed as Civil Case No. 05-
003. It claimed to be the real owner of Lot 18089 which it
supposedly acquired from Sabug, Jr. through an oral contract of
sale20 in the early part of 1998, followed by the execution of a
Deed of Absolute Sale on December 2, 1998 (1998 Deed of
Absolute Sale).21 NCCP also alleged that in October of the same
year, it entered into a Joint Venture Agreement (JVA) with
Pilipinas Norin Construction Development Corporation (PNCDC), a
company owned by Aguado’s parents, for the development of its
real properties, including Lot 18089, into a subdivision project, and
as such, turned over its copy of OCT No. M-5955 to PNCDC.22
Upon knowledge of the purported sale of Lot 18089 to Aguado,
Sabug, Jr. denied the transaction and alleged forgery. Claiming
that the Aguados23 and PNCDC conspired to defraud NCCP, it
prayed that PNCDC’s corporate veil be pierced and that the
Aguados be ordered to pay the amount of ₱38,092,002.00
representing the unrealized profit from the JVA.24 Moreover,
NCCP averred that Land Bank failed to exercise the diligence
required to ascertain the true owners of Lot 18089. Hence, it
further prayed that: (a) all acts of ownership and dominion over
Lot 18089 that the bank might have done or caused to be done be
declared null and void; (b) it be declared the true and real owners
of Lot 18089; and (c) the Register of Deeds of Morong, Rizal be
ordered to cancel any and all certificates of title covering the lot,
and a new one be issued in its name.25 In its answer, Land Bank
reiterated its stance that Lot 18089 was used as collateral for the
₱8,000,000.00 loan obtained by the Countryside Rural Bank,
Aguado, and one Bella Palasaga. There being no lien and/ or
encumbrance annotated on its certificate of title, i.e., TCT No. M-
115895, it cannot be held liable for NCCP’s claims. Thus, it prayed
for the dismissal of NCCP’s complaint.26
On September 7, 2005, Civil Case Nos. 02-022 and 05-003 were
ordered consolidated.27 After due proceedings, the RTC rendered a Decision28 dated July
8, 2008, dismissing the complaints of Sps. Roque and NCCP.
The RTC Ruling
With respect to Sps. Roque’s complaint, the RTC found that the
latter failed to establish their ownership over the subject portion,
considering the following: (a) the supposed owners-vendors, i.e.,
Rivero, et al., who executed the 1977 Deed of Conditional Sale,
had no proof of their title over Lot 18089; (b) the 1977 Deed of
Conditional Sale was not registered with the Office of the Register
of Deeds;29 (c) the 1977 Deed of Conditional Sale is neither a
deed of conveyance nor a transfer document, as it only gives the
holder the right to compel the supposed vendors to execute a
deed of absolute sale upon full payment of the consideration; (d)
neither Sps. Roque nor the alleged owners-vendors, i.e., Rivero, et
al., have paid real property taxes in relation to Lot 18089; and (e)
Sps. Roque’s occupation of the subject portion did not ripen into
ownership that can be considered superior to the ownership of
Land Bank.30 Moreover, the RTC ruled that Sps. Roque’s action
for reconveyance had already prescribed, having been filed ten
(10) years after the issuance of OCT No. M-5955.31
On the other hand, regarding NCCP’s complaint, the RTC observed
that while it anchored its claim of ownership over Lot 18089 on
the 1998 Deed of Absolute Sale, the said deed was not annotated
on OCT No. M-5955. Neither was any certificate of title issued in
its name nor did it take possession of Lot 18089 or paid the real
property taxes therefor. Hence, NCCP’s claim cannot prevail
against Land Bank’s title, which was adjudged by the RTC as an
innocent purchaser for value. Also, the RTC disregarded NCCP’s
allegation that the signature of Sabug, Jr. on the 1999 Deed of
Absolute Sale in favor of Aguado was forged because his
signatures on both instruments bear semblances of similarity and
appear genuine. Besides, the examiner from the National Bureau
of Investigation, who purportedly found that Sabug, Jr.’s signature
thereon was spurious leading to the dismissal of a criminal case
against him, was not presented as a witness in the civil action.32
Finally, the RTC denied the parties’ respective claims for
damages.33
The CA Ruling
On appeal, the Court of Appeals (CA) affirmed the foregoing RTC
230
findings in a Decision34 dated May 12, 2010. While Land Bank
Sales – Chapter 3 Cases
was not regarded as a mortgagee/purchaser in good faith with
respect to the subject portion considering Sps. Roque’s
possession thereof,35 the CA did not order its reconveyance or
segregation in the latter’s favor because of Sps. Roque’s failure to
pay the
remaining balance of the purchase price. Hence, it only directed
Land Bank to respect Sps. Roque’s possession with the option to Instead of traversing the arguments of Sps. Roque, NCCP, in its
appropriate the improvements introduced thereon upon payment Comment47 dated December 19, 2011, advanced its own case,
of compensation.36 arguing that the CA erred in holding that it failed to establish its
As regards NCCP, the CA found that it failed to establish its right
over Lot 18089 for the following reasons: (a) the sale to it of the
lot by Sabug, Jr. was never registered; and (b) there is no showing
that it was in possession of Lot 18089 or any portion thereof from
1998. Thus, as far as NCCP is concerned, Land Bank is a
mortgagee/purchaser in good faith.37
Aggrieved, both Sps. Roque38 and NCCP39 moved for
reconsideration but were denied by the CA in a Resolution40
dated September 15, 2010, prompting them to seek further
recourse before the Court.
The Issue Before the Court
The central issue in this case is whether or not the CA erred in not
ordering the reconveyance of the subject portion in Sps. Roque’s
favor.
Sps. Roque maintain that the CA erred in not declaring them as
the lawful owners of the subject portion despite having possessed
the same since the execution of the 1977 Deed of Conditional
Sale, sufficient for acquisitive prescription to set in in their
favor.41 To bolster their claim, they also point to the 1993 Joint
Affidavit whereby Sabug, Jr. and Rivero acknowledged their
ownership thereof.42 Being the first purchasers and in actual
possession of the disputed portion, they assert that they have a
better right over the 1,231- sq. m. portion of Lot 18089 and, hence,
cannot be ousted therefrom by Land Bank, which was adjudged
as a ortgagee/purchaser in bad faith, pursuant to Article 1544 of
the Civil Code.43
In opposition, Land Bank espouses that the instant petition should
be dismissed for raising questions of fact, in violation of the
proscription under Rule 45 of the Rules of Court which allows only
pure questions of law to be raised.44 Moreover, it denied that
ownership over the subject portion had been acquired by Sps.
Roque who admittedly failed to pay the remaining balance of the
purchase price.45 Besides, Land Bank points out that Sps.
231
Roque’s action for reconveyance had already prescribed.46
Sales – Chapter 3 Cases
claimed ownership over Lot 18089 in its entirety. Incidentally,
NCCP’s appeal from the CA Decision dated May 12, 2010 was
already denied by the Court,48 and hence, will no longer be dealt
with in this case.
The Court’s Ruling
The petition lacks merit.
The essence of an action for reconveyance is to seek the transfer
of the property which was wrongfully or erroneously registered in
another person’s name to its rightful owner or to one with a better
right.49 Thus, it is incumbent upon the aggrieved party to show
that he has a legal claim on the property superior to that of the
registered owner and that the property has not yet passed to the
hands of an innocent purchaser for value.50
Sps. Roque claim that the subject portion covered by the 1977
Deed of Conditional Sale between them and Rivero, et al. was
wrongfully included in the certificates of title covering Lot 18089,
and, hence, must be segregated therefrom and their ownership
thereof be confirmed. The salient portions of the said deed state:
DEED OF CONDITIONAL SALE OF REAL PROPERTY
KNOW ALL MEN BY THESE PRESENTS:
xxxx
That for and in consideration of the sum of THIRTY THOUSAND
SEVEN HUNDRED SEVENTY FIVE PESOS (₱30,775.00), Philippine
Currency, payable in the manner hereinbelow specified, the
VENDORS do hereby sell, transfer and convey unto the VENDEE, or
their heirs, executors, administrators, or assignors, that
unsegregated portion of the above lot, x x x.
That the aforesaid amount shall be paid in two installments, the
first installment which is in the amount of __________ (₱15,387.50)
and the balance in the amount of __________ (₱15,387.50), shall be
paid as soon as the described portion of the property shall have
been registered under the Land Registration Act and a Certificate
of Title issued accordingly;
That as soon as the total amount of the property has been paid
and the Certificate of Title has been issued, an absolute deed of The Court further notes that Sps. Roque did not even take any
sale shall be executed accordingly; active steps to protect their claim over the disputed portion. This
remains evident from the following circumstances appearing on
x x x x51 record: (a) the 1977 Deed of Conditional Sale was never
registered; (b) they did not seek the actual/physical segregation
Examining its provisions, the Court finds that the stipulation above of the disputed portion despite their knowledge of the fact that, as
-highlighted shows that the 1977 Deed of Conditional Sale is early as 1993, the entire Lot 18089 was registered in Sabug, Jr.’s
actually in the nature of a contract to sell and not one of sale name under OCT No. M-5955; and (c) while they signified their
contrary to Sps. Roque’s belief.52 In this relation, it has been willingness to
consistently ruled that where the seller promises to execute a
deed of absolute sale upon the completion by the buyer of the
payment of the purchase price, the contract is only a contract to
sell even if their agreement is denominated as a Deed of
Conditional Sale,53 as in this case. This treatment stems from the
legal characterization of a contract to sell, that is, a bilateral
contract whereby the prospective seller, while expressly reserving
the ownership of the subject property despite delivery thereof to
the prospective buyer, binds himself to sell the subject property
exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, such as, the full payment of the purchase
price.54 Elsewise stated, in a contract to sell, ownership is
retained by the vendor and is not to pass to the vendee until full
payment of the purchase price.55 Explaining the subject matter
further, the Court, in Ursal v. CA,56 held that:
[I]n contracts to sell the obligation of the seller to sell becomes
demandable only upon the happening of the suspensive condition,
that is, the full payment of the purchase price by the buyer. It is
only upon the existence of the contract of sale that the seller
becomes obligated to transfer the ownership of the thing sold to
the buyer. Prior to the existence of the contract of sale, the seller
is not obligated to transfer the ownership to the buyer, even if
there is a contract to sell between them.
Here, it is undisputed that Sps. Roque have not paid the final
installment of the purchase price.57 As such, the condition which
would have triggered the parties’ obligation to enter into and
thereby perfect a contract of sale in order to effectively transfer
the ownership of the subject portion from the sellers (i.e., Rivero
et al.) to the buyers (Sps. Roque) cannot be deemed to have been
fulfilled. Consequently, the latter cannot validly claim ownership
over the subject portion even if they had made an initial payment
and even took possession of the same.58
232
Sales – Chapter 3 Cases
pay the balance of the purchase price,59 Sps. Roque neither
compelled Rivero et al., and/or Sabug, Jr. to accept the same nor
did they consign any amount to the court, the proper application
of which would have effectively fulfilled their obligation to pay the
purchase price.60 Instead, Sps. Roque waited 26 years, reckoned
from the execution of the 1977 Deed of Conditional Sale, to
institute an action for reconveyance (in 2003), and only after Lot
18089 was sold to Land Bank in the foreclosure sale and title
thereto was consolidated in its name. Thus, in view of the
foregoing, Sabug, Jr. – as the registered owner of Lot 18089
borne by the grant of his free patent application – could validly
convey said property in its entirety to Aguado who, in turn,
mortgaged the same to Land Bank. Besides, as aptly observed by
the RTC, Sps. Roque failed to establish that the parties who sold
the property to them, i.e., Rivero, et al., were indeed its true and
lawful owners.61 In fine, Sps. Roque failed to establish any
superior right over the subject portion as against the registered
owner of Lot 18089, i.e., Land Bank, thereby warranting the
dismissal of their reconveyance action, without prejudice to their
right to seek damages against the vendors, i.e., Rivero et al.62 As
applied in the case of Coronel v. CA:63
It is essential to distinguish between a contract to sell and a
conditional contract of sale specially in cases where the subject
property is sold by the owner not to the party the seller contracted
with, but to a third person, as in the case at bench. In a contract to
sell, there being no previous sale of the property, a third person
buying such property despite the fulfilment of the suspensive
condition such as the full payment of the purchase price, for
instance, cannot be deemed a buyer in bad faith and the
prospective buyer cannot seek the relief of reconveyance of the
property.
There is no double sale in such case.1âwphi1 Title to the property
will transfer to the buyer after registration because there is no
defect in the owner-seller’s title per se, but the latter, of course,
may be sued for damages by the intending buyer. (Emphasis
supplied)
On the matter of double sales, suffice it to state that Sps. Roque’s
reliance64 on Article 154465 of the Civil Code has been misplaced
since the contract they base their claim of ownership on is, as
earlier stated, a contract to sell, and not one of sale. In Cheng v.
Genato,66 the Court stated the circumstances which must concur
in order to determine the applicability of Article 1544, none of
which are obtaining in this case, viz.:
(a) The two (or more) sales transactions in issue must pertain to
exactly the same subject matter, and must be valid sales
transactions;
(b) The two (or more) buyers at odds over the rightful ownership
of the subject matter must each represent conflicting interests;
and
(c) The two (or more) buyers at odds over the rightful ownership
of the subject matter must each have bought from the same
seller.
Finally, regarding Sps. Roque’s claims of acquisitive prescription
and reimbursement for the value of the improvements they have
introduced on the subject property,67 it is keenly observed that
none of the arguments therefor were raised before the trial court
or the CA.68 Accordingly, the Court applies the well-settled rule
that litigants cannot raise an issue for the first time on appeal as
this would contravene the basic rules of fair play and justice. In
any event, such claims appear to involve questions of fact which
are generally prohibited under a Rule 45 petition.69
With the conclusions herein reached, the Court need not belabor
on the other points raised by the parties, and ultimately finds it
proper to proceed with the denial of the petition.
WHEREFORE, the petition is DENIED. The Decision dated May 12,
2010 and the Resolution dated September 15, 2010 of the Court
of Appeals in CAG.R. CV No. 92113 are hereby AFFIRMED.
SO ORDERED.
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A.
CORONEL, ANNABELLE C. GONZALES (for herself and on behalf
of Florida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL,
FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG,
petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and
RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as
attorney-in-fact, respondents.
The petition before us has its roots in a complaint for specific
performance to compel herein petitioners (except the last named,
Catalina Balais Mabanag) to consummate the sale of a parcel of
land with its improvements located along Roosevelt Avenue in
Quezon City entered into by the parties sometime in January 1985
for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent
court in this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et
al. (hereinafter referred to as Coronels) executed a document
entitled "Receipt of Down Payment" (Exh. "A") in favor of plaintiff
Ramona Patricia Alcaraz (hereinafter referred to as Ramona)
which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 — Total amount
50,000 — Down payment
———————————
P1,190,000.00 — Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog,
Quezon City, the sum of Fifty Thousand Pesos purchase price of
our inherited house and lot, covered by TCT No. 119627 of the
Registry of Deeds of Quezon City, in the total amount of
P1,240,000.00.
We bind ourselves to effect the transfer in our names from our
deceased father, Constancio P. Coronel, the transfer certificate of
title immediately upon receipt of the down payment above-stated.
233
Sales – Chapter 3 Cases
On our presentation of the TCT already in or name, We will
immediately execute the deed of absolute sale of said property
and Miss Ramona Patricia Alcaraz shall immediately pay the
balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand
(P50,000.00) Pesos upon execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the
title of the property registered in the name of their deceased
father upon receipt of the Fifty Thousand (P50,000.00) Pesos
down payment;
3. Upon the transfer in their names of the subject property,
the Coronels will execute the deed of absolute sale in favor of
Ramona and the latter will pay the former the whole balance of
One Million One Hundred Ninety Thousand (P1,190,000.00)
Pesos.
On the same date (January 15, 1985), plaintiff-appellee
Concepcion D. Alcaraz (hereinafter referred to as Concepcion),
mother of Ramona, paid the down payment of Fifty Thousand
(P50,000.00) Pesos (Exh. "B", Exh. "2").
On February 6, 1985, the property originally registered in the name
of the Coronels' father was transferred in their names under TCT
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold the property covered by
TCT No. 327043 to intervenor-appellant Catalina B. Mabanag
(hereinafter referred to as Catalina) for One Million Five Hundred
Eighty Thousand (P1,580,000.00) Pesos after the latter has paid
Three Hundred Thousand (P300,000.00) Pesos (Exhs. "F-3"; Exh.
"6-C")
For this reason, Coronels canceled and rescinded the contract
(Exh. "A") with Ramona by depositing the down payment paid by
Concepcion in the bank in trust for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al., filed a complaint for
specific performance against the Coronels and caused the
annotation of a notice of lis pendens at the back of TCT No.
327403 (Exh. "E"; Exh. "5").
On April 2, 1985, Catalina caused the annotation of a notice of
adverse claim covering the same property with the Registry of
Deeds of Quezon City (Exh. "F"; Exh. "6").
On April 25, 1985, the Coronels executed a Deed of Absolute Sale
over the subject property in favor of Catalina (Exh. "G"; Exh. "7").
On June 5, 1985, a new title over the subject property was issued
in the name of Catalina under TCT No. 351582 (Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83,
RTC, Quezon City) the parties agreed to submit the case for
decision solely on the basis of documentary exhibits. Thus,
plaintiffs therein (now private respondents) proffered their
documentary evidence accordingly marked as Exhibits "A" through
"J", inclusive of their corresponding submarkings. Adopting these
same exhibits as their own, then defendants (now petitioners)
accordingly offered and marked them as Exhibits "1" through "10",
likewise inclusive of their corresponding submarkings. Upon
motion of the parties, the trial court gave them thirty (30) days
within which to simultaneously submit their respective
memoranda, and an additional 15 days within which to submit
their corresponding comment or reply thereof, after which, the
case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before
Judge Reynaldo Roura, who was then temporarily detailed to
preside over Branch 82 of the RTC of Quezon City. On March 1,
1989, judgment was handed down by Judge Roura from his
regular bench at Macabebe, Pampanga for the Quezon City
branch, disposing as follows:
WHEREFORE, judgment for specific performance is hereby
rendered ordering defendant to execute in favor of plaintiffs a
deed of absolute sale covering that parcel of land embraced in
and covered by Transfer Certificate of Title No. 327403 (now TCT
No. 331582) of the Registry of Deeds for Quezon City, together
with all the improvements existing thereon free from all liens and
encumbrances, and once accomplished, to immediately deliver
the said document of sale to plaintiffs and upon receipt thereof,
the said document of sale to plaintiffs and upon receipt thereof,
the plaintiffs are ordered to pay defendants the whole balance of
the purchase price amounting to P1,190,000.00 in cash. Transfer
Certificate of Title No. 331582 of the Registry of Deeds for
Quezon City in the name of intervenor is hereby canceled and
declared to be without force and effect. Defendants and
intervenor and all other persons claiming under them are hereby
ordered to vacate the subject property and deliver possession
234
thereof to plaintiffs. Plaintiffs' claim for damages and attorney's
Sales – Chapter 3 Cases
fees, as well as the counterclaims of defendants and intervenors So Ordered. which now pertains to the undersigned Presiding Judge, after a
are hereby dismissed. meticulous examination of the documentary evidence presented
Macabebe, Pampanga for Quezon City, March 1, 1989. by the parties, she is convinced that the Decision of March 1, 1989
No pronouncement as to costs. is supported by evidence and, therefore, should not be disturbed.
(Rollo, p. 106)

A motion for reconsideration was filed by petitioner before the

new presiding judge of the Quezon City RTC but the same was
denied by Judge Estrella T. Estrada, thusly:

The prayer contained in the instant motion, i.e., to annul the

decision and to render anew decision by the undersigned
Presiding Judge should be denied for the following reasons: (1)
The instant case became submitted for decision as of April 14,
1988 when the parties terminated the presentation of their
respective documentary evidence and when the Presiding Judge
at that time was Judge Reynaldo Roura. The fact that they were
allowed to file memoranda at some future date did not change the
fact that the hearing of the case was terminated before Judge
Roura and therefore the same should be submitted to him for
decision; (2) When the defendants and intervenor did not object to
the authority of Judge Reynaldo Roura to decide the case prior to
the rendition of the decision, when they met for the first time
before the undersigned Presiding Judge at the hearing of a
pending incident in Civil Case No. Q-46145 on November 11, 1988,
they were deemed to have acquiesced thereto and they are now
estopped from questioning said authority of Judge Roura after
they received the decision in question which happens to be
adverse to them; (3) While it is true that Judge Reynaldo Roura
was merely a Judge-on-detail at this Branch of the Court, he was
in all respects the Presiding Judge with full authority to act on any
pending incident submitted before this Court during his
incumbency. When he returned to his Official Station at
Macabebe, Pampanga, he did not lose his authority to decide or
resolve such cases submitted to him for decision or resolution
because he continued as Judge of the Regional Trial Court and is
of co-equal rank with the undersigned Presiding Judge. The
standing rule and supported by jurisprudence is that a Judge to
whom a case is submitted for decision has the authority to decide
the case notwithstanding his transfer to another branch or region
of the same court (Sec. 9, Rule 135, Rule of Court).

Coming now to the twin prayer for reconsideration of the Decision

235
dated March 1, 1989 rendered in the instant case, resolution of
Sales – Chapter 3 Cases
IN VIEW OF THE FOREGOING, the "Motion for Reconsideration
and/or to Annul Decision and Render Anew Decision by the
Incumbent Presiding Judge" dated March 20, 1989 is hereby
DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16,
1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad Santos
(P), JJ.) rendered its decision fully agreeing with the trial court.
perforce, they seek to enforce by means of an action for specific
performance, petitioners on their part insist that what the
document signified was a mere executory contract to sell, subject
to certain suspensive conditions, and because of the absence of
Ramona P. Alcaraz, who left for the United States of America, said
contract could not possibly ripen into a contract absolute sale.
Plainly, such variance in the contending parties' contentions is
brought about by the way each interprets the terms and/or
conditions set forth in said private instrument. Withal, based on
whatever relevant and admissible evidence may be available on
record, this, Court, as were the courts below, is now called upon to
adjudge what the real intent of the parties was at the time the said
document was executed.
a suspensive condition, the non-fulfillment of which prevents the
obligation to sell from arising and thus, ownership is retained by
the prospective seller without further remedies by the prospective
buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had
occasion to rule:
Hence, We hold that the contract between the petitioner and the
respondent was a contract to sell where the ownership or title is
retained by the seller and is not to pass until the full payment of
the price, such payment being a positive suspensive condition and
failure of which is not a breach, casual or serious, but simply an

Hence, the instant petition which was filed on March 5, 1992. The
last pleading, private respondents' Reply Memorandum, was filed
on September 15, 1993. The case was, however, re-raffled to
undersigned ponente only on August 28, 1996, due to the
voluntary inhibition of the Justice to whom the case was last
assigned.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a price
certain in money or its equivalent.

While we deem it necessary to introduce certain refinements in
the disquisition of respondent court in the affirmance of the trial
court's decision, we definitely find the instant petition bereft of
merit.
The heart of the controversy which is the ultimate key in the
resolution of the other issues in the case at bar is the precise
determination of the legal significance of the document entitled
"Receipt of Down Payment" which was offered in evidence by both
parties. There is no dispute as to the fact that said document
embodied the binding contract between Ramona Patricia Alcaraz
on the one hand, and the heirs of Constancio P. Coronel on the
other, pertaining to a particular house and lot covered by TCT No.
119627, as defined in Article 1305 of the Civil Code of the
Philippines which reads as follows:
Art. 1305. A contract is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to
give something or to render some service.
While, it is the position of private respondents that the "Receipt of
Down Payment" embodied a perfected contract of sale, which
Sale, by its very nature, is a consensual contract because it is
perfected by mere consent. The essential elements of a contract
of sale are the following:
a) Consent or meeting of the minds, that is, consent to
transfer ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as
a Contract of Sale because the first essential element is lacking.
In a contract to sell, the prospective seller explicity reserves the
transfer of title to the prospective buyer, meaning, the prospective
seller does not as yet agree or consent to transfer ownership of
the property subject of the contract to sell until the happening of
an event, which for present purposes we shall take as the full
payment of the purchase price. What the seller agrees or obliges
himself to do is to fulfill is promise to sell the subject property
when the entire amount of the purchase price is delivered to him.
236
In other words the full payment of the purchase price partakes of
Sales – Chapter 3 Cases
event that prevented the obligation of the vendor to convey title
from acquiring binding force.
Stated positively, upon the fulfillment of the suspensive condition
which is the full payment of the purchase price, the prospective
seller's obligation to sell the subject property by entering into a
contract of sale with the prospective buyer becomes demandable
as provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing
for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract
whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be
considered as a conditional contract of sale where the seller may
likewise reserve title to the property subject of the sale until the
fulfillment of a suspensive condition, because in a conditional
contract of sale, the first element of consent is present, although
it is conditioned upon the happening of a contingent event which
may or may not occur. If the suspensive condition is not fulfilled,
the perfection of the contract of sale is completely abated (cf.
Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777
[1984]). However, if the suspensive condition is fulfilled, the
contract of sale is thereby perfected, such that if there had
already been previous delivery of the property subject of the sale
to the buyer, ownership thereto automatically transfers to the
buyer by operation of law without any further act having to be
performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price,
ownership will not automatically transfer to the buyer although the
property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer
by entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell and a
conditional contract of sale specially in cases where the subject
property is sold by the owner not to the party the seller contracted
with, but to a third person, as in the case at bench. In a contract to
sell, there being no previous sale of the property, a third person
buying such property despite the fulfillment of the suspensive
condition such as the full payment of the purchase price, for
instance, cannot be deemed a buyer in bad faith and the
prospective buyer cannot seek the relief of reconveyance of the
property. There is no double sale in such case. Title to the
property will transfer to the buyer after registration because there
is no defect in the owner-seller's title per se, but the latter, of
course, may be used for damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of
the suspensive condition, the sale becomes absolute and this will
definitely affect the seller's title thereto. In fact, if there had been
previous delivery of the subject property, the seller's ownership or
title to the property is automatically transferred to the buyer such
that, the seller will no longer have any title to transfer to any third
person. Applying Article 1544 of the Civil Code, such second buyer
of the property who may have had actual or constructive
knowledge of such defect in the seller's title, or at least was
charged with the obligation to discover such defect, cannot be a
registrant in good faith. Such second buyer cannot defeat the first
buyer's title. In case a title is issued to the second buyer, the first
buyer may seek reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now proceed to the
task of deciphering the real nature of the contract entered into by
petitioners and private respondents.
It is a canon in the interpretation of contracts that the words used
therein should be given their natural and ordinary meaning unless
a technical meaning was intended (Tan vs. Court of Appeals, 212
SCRA 586 [1992]). Thus, when petitioners declared in the said
"Receipt of Down Payment" that they —
Received from Miss Ramona Patricia Alcaraz of 146 Timog,
Quezon City, the sum of Fifty Thousand Pesos purchase price of
our inherited house and lot, covered by TCT No. 1199627 of the
Registry of Deeds of Quezon City, in the total amount of
P1,240,000.00.
without any reservation of title until full payment of the entire
purchase price, the natural and ordinary idea conveyed is that they
237
sold their property.
Sales – Chapter 3 Cases
When the "Receipt of Down Payment" is considered in its entirety,
it becomes more manifest that there was a clear intent on the part
of petitioners to transfer title to the buyer, but since the transfer
certificate of title was still in the name of petitioner's father, they payment in the amount of P50,000.00. As soon as the new
could not fully effect such transfer although the buyer was then certificate of title is issued in their names, petitioners were
willing and able to immediately pay the purchase price. Therefore, committed to immediately execute the deed of absolute sale. Only
petitioners-sellers undertook upon receipt of the down payment then will the obligation of the buyer to pay the remainder of the
from private respondent Ramona P. Alcaraz, to cause the purchase price arise.
issuance of a new certificate of title in their names from that of
their father, after which, they promised to present said title, now in
their names, to the latter and to execute the deed of absolute sale
whereupon, the latter shall, in turn, pay the entire balance of the
purchase price.
The agreement could not have been a contract to sell because the
sellers herein made no express reservation of ownership or title to
the subject parcel of land. Furthermore, the circumstance which
prevented the parties from entering into an absolute contract of
sale pertained to the sellers themselves (the certificate of title
was not in their names) and not the full payment of the purchase
price. Under the established facts and circumstances of the case,
the Court may safely presume that, had the certificate of title been
in the names of petitioners-sellers at that time, there would have
been no reason why an absolute contract of sale could not have
been executed and consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar
did not merely promise to sell the properly to private respondent
upon the fulfillment of the suspensive condition. On the contrary,
having already agreed to sell the subject property, they undertook
to have the certificate of title changed to their names and
immediately thereafter, to execute the written deed of absolute
sale.
Thus, the parties did not merely enter into a contract to sell where
the sellers, after compliance by the buyer with certain terms and
conditions, promised to sell the property to the latter. What may
be perceived from the respective undertakings of the parties to
the contract is that petitioners had already agreed to sell the
house and lot they inherited from their father, completely willing to
transfer full ownership of the subject house and lot to the buyer if
the documents were then in order. It just happened, however, that
the transfer certificate of title was then still in the name of their
father. It was more expedient to first effect the change in the
certificate of title so as to bear their names. That is why they
undertook to cause the issuance of a new transfer of the
238
certificate of title in their names upon receipt of the down
Sales – Chapter 3 Cases
There is no doubt that unlike in a contract to sell which is most
commonly entered into so as to protect the seller against a buyer
who intends to buy the property in installment by withholding
ownership over the property until the buyer effects full payment
therefor, in the contract entered into in the case at bar, the sellers
were the one who were unable to enter into a contract of absolute
sale by reason of the fact that the certificate of title to the
property was still in the name of their father. It was the sellers in
this case who, as it were, had the impediment which prevented, so
to speak, the execution of an contract of absolute sale.
What is clearly established by the plain language of the subject
document is that when the said "Receipt of Down Payment" was
prepared and signed by petitioners Romeo A. Coronel, et al., the
parties had agreed to a conditional contract of sale,
consummation of which is subject only to the successful transfer
of the certificate of title from the name of petitioners' father,
Constancio P. Coronel, to their names.
The Court significantly notes this suspensive condition was, in
fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on said
date, the conditional contract of sale between petitioners and
private respondent Ramona P. Alcaraz became obligatory, the
only act required for the consummation thereof being the delivery
of the property by means of the execution of the deed of absolute
sale in a public instrument, which petitioners unequivocally
committed themselves to do as evidenced by the "Receipt of
Down Payment."
Article 1475, in correlation with Article 1181, both of the Civil
Code, plainly applies to the case at bench. Thus,
Art. 1475. The contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the object of
the contract and upon the price.
From the moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the
form of contracts.
Art. 1181. In conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which
constitutes the condition.
Since the condition contemplated by the parties which is the
issuance of a certificate of title in petitioners' names was fulfilled
on February 6, 1985, the respective obligations of the parties
under the contract of sale became mutually demandable, that is,
petitioners, as sellers, were obliged to present the transfer
certificate of title already in their names to private respondent
Ramona P. Alcaraz, the buyer, and to immediately execute the
deed of absolute sale, while the buyer on her part, was obliged to
forthwith pay the balance of the purchase price amounting to
P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of
their petition, petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves "to
effect the transfer in our names from our deceased father
Constancio P. Coronel, the transfer certificate of title immediately
upon receipt of the downpayment above-stated". The sale was
still subject to this suspensive condition. (Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a
contract of sale subject to a suspensive condition. Only, they
contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first
transferring the title to the property under their names, there could
be no perfected contract of sale. (Emphasis supplied.)
(Ibid.)
not aware that they set their own trap for themselves, for Article
1186 of the Civil Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when
the obligor voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more
controlling than these mere hypothetical arguments is the fact
that the condition herein referred to was actually and indisputably
fulfilled on February 6, 1985, when a new title was issued in the
names of petitioners as evidenced by TCT No. 327403 (Exh. "D";
Exh. "4").
The inevitable conclusion is that on January 19, 1985, as
evidenced by the document denominated as "Receipt of Down
239
Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract of
Sales – Chapter 3 Cases
sale subject only to the suspensive condition that the sellers shall
effect the issuance of new certificate title from that of their
father's name to their names and that, on February 6, 1985, this
condition was fulfilled (Exh. "D"; Exh. "4").
We, therefore, hold that, in accordance with Article 1187 which
pertinently provides —
Art. 1187. The effects of conditional obligation to give,
once the condition has been fulfilled, shall retroact to the day of
the constitution of the obligation . . .
In obligation to do or not to do, the courts shall determine, in each
case, the retroactive effect of the condition that has been
complied with.
the rights and obligations of the parties with respect to the
perfected contract of sale became mutually due and demandable
as of the time of fulfillment or occurrence of the suspensive
condition on February 6, 1985. As of that point in time, reciprocal
obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on
January 19, 1985 because they were then not yet the absolute
owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of
transferring ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which
the property, rights and obligations to be extent and value of the
inheritance of a person are transmitted through his death to
another or others by his will or by operation of law.
Petitioners-sellers in the case at bar being the sons and daughters
of the decedent Constancio P. Coronel are compulsory heirs who
were called to succession by operation of law. Thus, at the point
their father drew his last breath, petitioners stepped into his shoes
insofar as the subject property is concerned, such that any rights
or obligations pertaining thereto became binding and enforceable
upon them. It is expressly provided that rights to the succession
are transmitted from the moment of death of the decedent
(Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession may not be
declared unless the creditors have been paid is rendered moot by
the fact that they were able to effect the transfer of the title to the
property from the decedent's name to their names on February 6,
1985.
Aside from this, petitioners are precluded from raising their
supposed lack of capacity to enter into an agreement at that time
and they cannot be allowed to now take a posture contrary to that
which they took when they entered into the agreement with
private respondent Ramona P. Alcaraz. The Civil Code expressly
states that:
Art. 1431. Through estoppel an admission or
representation is rendered conclusive upon the person making it,
and cannot be denied or disproved as against the person relying
thereon.
Having represented themselves as the true owners of the subject
property at the time of sale, petitioners cannot claim now that
they were not yet the absolute owners thereof at that time.
Petitioners also contend that although there was in fact a
perfected contract of sale between them and Ramona P. Alcaraz,
the latter breached her reciprocal obligation when she rendered
impossible the consummation thereof by going to the United
States of America, without leaving her address, telephone number,
and Special Power of Attorney (Paragraphs 14 and 15, Answer
with Compulsory Counterclaim to the Amended Complaint, p. 2;
Rollo, p. 43), for which reason, so petitioners conclude, they were
correct in unilaterally rescinding rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission
of the contract of sale in the instant case. We note that these
supposed grounds for petitioners' rescission, are mere allegations
found only in their responsive pleadings, which by express
provision of the rules, are deemed controverted even if no reply is
filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The
records are absolutely bereft of any supporting evidence to
substantiate petitioners' allegations. We have stressed time and
again that allegations must be proven by sufficient evidence (Ng
Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2
SCRA 598 [1961]. Mere allegation is not an evidence (Lagasca vs.
De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the
United States of America on February 6, 1985, we cannot justify
petitioner-sellers' act of unilaterally and extradicially rescinding
the contract of sale, there being no express stipulation authorizing
240
the sellers to extarjudicially rescind the contract of sale. (cf.
Sales – Chapter 3 Cases
Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, Moreover, petitioners are estopped from raising the alleged
132 SCRA 722 [1984]) absence of Ramona P. Alcaraz because although the evidence on
record shows that the sale was in the name of Ramona P. Alcaraz
as the buyer, the sellers had been dealing with Concepcion D.
Alcaraz, Ramona's mother, who had acted for and in behalf of her
daughter, if not also in her own behalf. Indeed, the down payment
was made by Concepcion D. Alcaraz with her own personal check
(Exh. "B"; Exh. "2") for and in behalf of Ramona P. Alcaraz. There is
no evidence showing that petitioners ever questioned
Concepcion's authority to represent Ramona P. Alcaraz when they
accepted her personal check. Neither did they raise any objection
as regards payment being effected by a third person. Accordingly,
as far as petitioners are concerned, the physical absence of
Ramona P. Alcaraz is not a ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in
default, insofar as her obligation to pay the full purchase price is
concerned. Petitioners who are precluded from setting up the
defense of the physical absence of Ramona P. Alcaraz as above-
explained offered no proof whatsoever to show that they actually
presented the new transfer certificate of title in their names and
signified their willingness and readiness to execute the deed of
absolute sale in accordance with their agreement. Ramona's
corresponding obligation to pay the balance of the purchase price
in the amount of P1,190,000.00 (as buyer) never became due and
demandable and, therefore, she cannot be deemed to have been
in default.
Article 1169 of the Civil Code defines when a party in a contract
involving reciprocal obligations may be considered in default, to
wit:
Art. 1169. Those obliged to deliver or to do something,
incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
xxx xxx xxx
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties
fulfill his obligation, delay by the other begins. (Emphasis
supplied.)
There is thus neither factual nor legal basis to rescind the
contract of sale between petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner,
Catalina B. Mabanag, gave rise to a case of double sale where
Article 1544 of the Civil Code will apply, to wit:
Art. 1544. If the same thing should have been sold to
different vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in good faith,
if it should be movable property.
Should if be immovable property, the ownership shall belong to
the person acquiring it who in good faith first recorded it in
Registry of Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the
absence thereof to the person who presents the oldest title,
provided there is good faith.
The record of the case shows that the Deed of Absolute Sale
dated April 25, 1985 as proof of the second contract of sale was
registered with the Registry of Deeds of Quezon City giving rise to
the issuance of a new certificate of title in the name of Catalina B.
Mabanag on June 5, 1985. Thus, the second paragraph of Article
1544 shall apply.
The above-cited provision on double sale presumes title or
ownership to pass to the first buyer, the exceptions being: (a)
when the second buyer, in good faith, registers the sale ahead of
the first buyer, and (b) should there be no inscription by either of
the two buyers, when the second buyer, in good faith, acquires
possession of the property ahead of the first buyer. Unless, the
second buyer satisfies these requirements, title or ownership will
not transfer to him to the prejudice of the first buyer.
In his commentaries on the Civil Code, an accepted authority on
the subject, now a distinguished member of the Court, Justice
Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time,
stronger in right). Knowledge by the first buyer of the second sale
241
cannot defeat the first buyer's rights except when the second
Sales – Chapter 3 Cases
buyer first registers in good faith the second sale (Olivares vs.
Gonzales, 159 SCRA 33). Conversely, knowledge gained by the
second buyer of the first sale defeats his rights even if he is first
to register, since knowledge taints his registration with bad faith
(see also Astorga vs. Court of Appeals, G.R. No. 58530, 26
December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June
1984, 129 SCRA 656), it has held that it is essential, to merit the
protection of Art. 1544, second paragraph, that the second realty
buyer must act in good faith in registering his deed of sale (citing
Carbonell vs. Court of Appeals,
69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September Fernandez vs. Mercader, 43 Phil. 581.)
1992).
(J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Thus, the sale of the subject parcel of land between petitioners
Edition, p. 604). and Ramona P. Alcaraz, perfected on February 6, 1985, prior to
that
Petitioner point out that the notice of lis pendens in the case at
bar was annoted on the title of the subject property only on
February 22, 1985, whereas, the second sale between petitioners
Coronels and petitioner Mabanag was supposedly perfected prior
thereto or on February 18, 1985. The idea conveyed is that at the
time petitioner Mabanag, the second buyer, bought the property
under a clean title, she was unaware of any adverse claim or
previous sale, for which reason she is buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is
not whether or not the second buyer was a buyer in good faith but
whether or not said second buyer registers such second sale in
good faith, that is, without knowledge of any defect in the title of
the property sold.
As clearly borne out by the evidence in this case, petitioner
Mabanag could not have in good faith, registered the sale entered
into on February 18, 1985 because as early as February 22, 1985,
a notice of lis pendens had been annotated on the transfer
certificate of title in the names of petitioners, whereas petitioner
Mabanag registered the said sale sometime in April, 1985. At the
time of registration, therefore, petitioner Mabanag knew that the
same property had already been previously sold to private
respondents, or, at least, she was charged with knowledge that a
previous buyer is claiming title to the same property. Petitioner
Mabanag cannot close her eyes to the defect in petitioners' title to
the property at the time of the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers that sale after he has
acquired knowledge that there was a previous sale of the same
property to a third party or that another person claims said
property in a pervious sale, the registration will constitute a
registration in bad faith and will not confer upon him any right.
(Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs.
242
Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554;
Sales – Chapter 3 Cases
between petitioners and Catalina B. Mabanag on February 18,
1985, was correctly upheld by both the courts below.
Although there may be ample indications that there was in fact an
agency between Ramona as principal and Concepcion, her
mother, as agent insofar as the subject contract of sale is
concerned, the issue of whether or not Concepcion was also
acting in her own behalf as a co-buyer is not squarely raised in the
instant petition, nor in such assumption disputed between mother
and daughter. Thus, We will not touch this issue and no longer
disturb the lower courts' ruling on this point.
WHEREFORE, premises considered, the instant petition is hereby
DISMISSED and the appealed judgment AFFIRMED.
SO ORDERED.
ANGEL M. PAGADUAN, et al. deed of sale, this time conveying the entire parcel of land,
- versus - including the southern portion, in respondents favor. Thus, TCT
SPOUSES ESTANISLAO & FE POSADAS OCUMA, No. T-1221 was cancelled and in lieu thereof TCT No. T-5425 was
Respondents. issued in the name of respondents. On June 27, 1989,
respondents subdivided the land into two lots. The subdivision
In this Petition for Review,[1] petitioners assail the Decision[2] of resulted in the cancellation
the Court of Appeals dated September 18, 2006 which ruled that
petitioners action for reconveyance is barred by prescription and
consequently reversed the decision[3] dated June 25, 2002 of the
Regional Trial Court (RTC) of Olongapo City.
Petitioners Angel N. Pagaduan, Amelia P. Tucci, Teresita P. del
Monte, Orlita P. Gadin, Perla P. Espiritu, Elisa P. Dunn, Lorna P.
Kimble, Edito N. Pagaduan and Leo N. Pagaduan are all heirs of
the late Agaton Pagaduan. Respondents are the spouses
Estanislao Ocuma and Fe Posadas Ocuma.
The facts are as follows:
The subject lot used to be part of a big parcel of land that
originally belonged to Nicolas Cleto as evidenced by Certificate of
Title (C.T.) No. 14. The big parcel of land was the subject of two
separate lines of dispositions. The first line of dispositions began
with the sale by Cleto to Antonio Cereso on May 11, 1925. Cereso
in turn sold the land to the siblings with the surname Antipolo on
September 23, 1943. The Antipolos sold the property to Agaton
Pagaduan, father of petitioners, on March 24, 1961. All the
dispositions in this line were not registered and did not result in
the issuance of new certificates of title in the name of the
purchasers.
The second line of dispositions started on January 30, 1954, after
Cletos death, when his widow Ruperta Asuncion as his sole heir
and new owner of the entire tract, sold the same to Eugenia
Reyes. This resulted in the issuance of Transfer Certificate of Title
(TCT) No. T-1221 in the name of Eugenia Reyes in lieu of TCT No.
T-1220 in the name of Ruperta Asuncion.
On November 26, 1961, Eugenia Reyes executed a unilateral deed
of sale where she sold the northern portion with an area of 32,325
square meters to respondents for P1,500.00 and the southern
portion consisting of 8,754 square meters to Agaton Pagaduan
243
for P500.00. Later, on June 5, 1962, Eugenia executed another
Sales – Chapter 3 Cases
of TCT No. T-5425 and the issuance of TCT Nos. T-37165
covering a portion with 31,418 square meters and T-37166
covering the remaining portion with 9,661 square meters.
On July 26, 1989, petitioners instituted a complaint for
reconveyance of the southern portion with an area of 8,754
square meters, with damages, against respondents before the
RTC of Olongapo City.
On June 25, 2002, the trial court rendered a decision in petitioners
favor. Ruling that a constructive trust over the property was
created in petitioners favor, the court below ordered respondents
to reconvey the disputed southern portion and to pay attorneys
fees as well as litigation expenses to petitioners. The dispositive
portion of the decision reads:
WHEREFORE, foregoing premises considered, judgment is hereby
rendered:
1. Ordering the defendants to reconvey to the plaintiffs, a portion
of their property originally covered by Certificate of Title No. T-
54216[4] now TCT Nos. 37165 and 37166 an area equivalent to
8,754 square meters.
2. Ordering the defendant to pay plaintiffs P15,000.00 as
attorneys fees and P5,000.00 for litigation expenses.
3. Defendants counterclaims are dismissed.
SO ORDERED.[5]
Dissatisfied with the decision, respondents appealed it to the
Court of Appeals. The Court of Appeals reversed and set aside the
decision of the trial court; with the dispositive portion of the
decision reading, thus:
WHEREFORE, premises considered, the appeal is granted.
Accordingly, prescription having set in, the assailed June 25, 2002
Decision of the RTC is reversed and set aside, and the Complaint
for reconveyance is hereby DISMISSED.
SO ORDERED.[6]
The Court of Appeals ruled that while the registration of the
southern portion in the name of respondents had created an
implied trust in favor of Agaton Pagaduan, petitioners, however,
failed to show that they had taken possession of the said portion.
Hence, the appellate court concluded that prescription had set in,
thereby precluding petitioners recovery of the disputed portion.
Unperturbed by the reversal of the trial courts decision, the
petitioners come to this Court via a petition for review on
certiorari.[7] They assert that the Civil Code provision on double
sale is controlling. They submit further that since the
incontrovertible evidence on record is that they are in possession
of the southern portion, the ten (10)-year prescriptive period for
actions for reconveyance should not apply to them.[8]
Respondents, on the other hand, aver that the action for
reconveyance has prescribed since the ten (10)-year period, which
according to them has to be reckoned from the issuance of the
title in their name in 1962, has elapsed long ago.[9]
The Court of Appeals decision must be reversed and set aside,
hence the petition succeeds.
An action for reconveyance respects the decree of registration as
incontrovertible but seeks the transfer of property, which has been
wrongfully or erroneously registered in other persons' names, to
its rightful and legal owners, or to those who claim to have a
better right. However, contrary to the positions of both the
appellate and trial courts, no trust was created under Article 1456
of the new Civil Code which provides:
244
Art. 1456. If property is acquired through mistake or fraud, the
Sales – Chapter 3 Cases
person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the property
comes. (Emphasis supplied)
The property in question did not come from the petitioners. In fact ART. 1544. If the same thing should have been sold to different
that property came from Eugenia Reyes. The title of the Ocumas vendees, the ownership shall be transferred to the person who
can be traced back from Eugenia Reyes to Ruperta Asuncion to may
the original owner Nicolas Cleto. Thus, if the respondents are
holding the property in trust for anyone, it would be Eugenia Reyes
and not the petitioners.
Moreover, as stated in Berico v. Court of Appeals,[10] Article 1456
refers to actual or constructive fraud. Actual fraud consists in
deception, intentionally practiced to induce another to part with
property or to surrender some legal right, and which accomplishes
the end designed. Constructive fraud, on the other hand, is a
breach of legal or equitable duty which the law declares
fraudulent irrespective of the moral guilt of the actor due to the
tendency to deceive others, to violate public or private confidence,
or to injure public interests. The latter proceeds from a breach of
duty arising out of a fiduciary or confidential relationship. In the
instant case, none of the elements of actual or constructive fraud
exists. The respondents did not deceive Agaton Pagaduan to
induce the latter to part with the ownership or deliver the
possession of the property to them. Moreover, no fiduciary
relations existed between the two parties.
This lack of a trust relationship does not inure to the benefit of the
respondents. Despite a host of jurisprudence that states a
certificate of title is indefeasible, unassailable and binding against
the whole world, it merely confirms or records title already
existing and vested, and it cannot be used to protect a usurper
from the true owner, nor can it be used for the perpetration of
fraud; neither does it permit one to enrich himself at the expense
of others.[11]
Rather, after a thorough scrutiny of the records of the instant
case, the Court finds that this is a case of double sale under
245
article 1544 of the Civil Code which reads:
Sales – Chapter 3 Cases
have first possession thereof in good faith, if it should be movable
property.
Should it be immovable property, the ownership shall belong to
the person acquiring it who in good faith first recorded it in the
Registry of Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in possession; and, in the
absence thereof; to the person who presents the oldest title,
provided there is good faith.
Otherwise stated, where it is an immovable property that is the
subject of a double sale, ownership shall be transferred: (1) to the
person acquiring it who in good faith first recorded it in the
Registry of Property; (2) in default thereof, to the person who in
good faith was first in possession; and (3) in default thereof, to
the person who presents the oldest title, provided there is good
faith. The requirement of the law then is two-fold: acquisition in
good faith and registration in good faith.[12]
In this case there was a first sale by Eugenia Reyes to Agaton
Pagaduan and a second sale by Eugenia Reyes to the
respondents.[13] For a second buyer like the respondents to
successfully invoke the second paragraph, Article 1544 of the Civil
Code, it must possess good faith from the time of the sale in its
favor until the registration of the same. Respondents sorely failed
to meet this requirement of good faith since they had actual
knowledge of Eugenias prior sale of the southern portion property
to the petitioners, a fact antithetical to good faith. This cannot be
denied by respondents since in the same deed of sale that
Eugenia sold them the northern portion to the respondents for
P1,500.00, Eugenia also sold the southern portion of the land to
Agaton Pagaduan for P500.00.[14]
It is to be emphasized that the Agaton Pagaduan never parted
with the ownership and possession of that portion of Lot No. 785
which he had purchased from Eugenia Santos. Hence, the
registration of the deed of sale by respondents was ineffectual
and vested upon them no preferential rights to the property in
derogation of the rights of the petitioners.
Respondents had prior knowledge of the sale of the questioned
portion to Agaton Pagaduan as the same deed of sale that
conveyed the northern portion to them, conveyed the southern
portion to Agaton Pagaduan.[15] Thus the subsequent issuance
of TCT No. T-5425, to the extent that it affects the Pagaduans
portion, conferred no better right than the registration which was
the source of the authority to issue the said title. Knowledge
gained by respondents of the first sale defeats their rights even if
they were first to register the second sale. Knowledge of the first
sale blackens this prior registration with bad faith.[16] Good faith
must concur with the registration.[17] Therefore, because the
registration by the respondents was in bad faith, it amounted to
no registration at all.
As the respondents gained no rights over the land, it is petitioners
who are the rightful owners, having established that their
successor-in-interest Agaton Pagaduan had purchased the
property from Eugenia Reyes on November 26, 1961 and in fact
took possession of the said property. The action to recover the
immovable is not barred by prescription, as it was filed a little over
27 years after the title was registered in bad faith by the Ocumas
as per Article 1141 of the Civil Code.[18]
WHEREFORE, the petition is GRANTED. The Decision of the Court
of Appeals dated January 25, 2006 and its Resolution dated May
5, 2006 are hereby REVERSED and SET ASIDE. The Decision of
the Regional Trial Court is hereby REINSTATED.
SO ORDERED.
246
Sales – Chapter 3 Cases
ROSARIO CARBONELL, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE PONCIO, EMMA
INFANTE and RAMON INFANTE, respondents.
Petitioner seeks a review of the resolution of the Court of Appeals
(Special Division of Five) dated October 30, 1968, reversing its
decision of November 2, 1967 (Fifth Division), and its resolution of
December 6, 1968 denying petitioner's motion for reconsideration.
The dispositive part of the challenged resolution reads:
Wherefore, the motion for reconsideration filed on behalf of
appellee Emma Infante, is hereby granted and the decision of
November 2, 1967, is hereby annulled and set aside. Another
judgement shall be entered affirming in toto that of the court a
quo, dated January 20, 1965, which dismisses the plaintiff's
complaint and defendant's counterclaim.
Without costs.
The facts of the case as follows:
Prior to January 27, 1955, respondent Jose Poncio, a native of the
Batanes Islands, was the owner of the parcel of land herein
involve with improvements situated at 179 V. Agan St., San Juan,
Rizal, having an area of some one hundred ninety-five (195)
square meters, more or less, covered by TCT No. 5040 and
subject to mortgage in favor of the Republic Savings Bank for the
sum of P1,500.00. Petitioner Rosario Carbonell, a cousin and
adjacent neighbor of respondent Poncio, and also from the
Batanes Islands, lived in the adjoining lot at 177 V. Agan Street.
Both petitioners Rosario Carbonell and respondent Emma Infante
offered to buy the said lot from Poncio (Poncio's Answer, p. 38,
rec. on appeal).
Respondent Poncio, unable to keep up with the installments due
on the mortgage, approached petitioner one day and offered to
sell to the latter the said lot, excluding the house wherein
respondent lived. Petitioner accepted the offer and proposed the
price of P9.50 per square meter. Respondent Poncio, after having
secured the consent of his wife and parents, accepted the price
proposed by petitioner, on the condition that from the purchase
price would come the money to be paid to the bank.
Petitioner and respondent Jose Poncio then went to the Republic
Savings Bank and secured the consent of the President thereof
for
her to pay the arrears on the mortgage and to continue the
payment of the installments as they fall due. The amount in
arrears reached a total sum of P247.26. But because respondent
Poncio had previously told her that the money, needed was only
P200.00, only the latter amount was brought by petitioner
constraining respondent Jose Poncio to withdraw the sum of
P47.00 from his bank deposit with Republic Savings Bank. But the
next day, petitioner refunded to Poncio the sum of P47.00.
On January 27, 1955, petitioner and respondent Poncio, in the
presence of a witness, made and executed a document in the
Batanes dialect, which, translated into English, reads:
CONTRACT FOR ONE HALF LOT WHICH I BOUGHT FROM
JOSE PONCIO
Beginning today January 27, 1955, Jose Poncio can start living on
the lot sold by him to me, Rosario Carbonell, until after one year
during which time he will not pa anything. Then if after said one
can he could not find an place where to move his house, he could
still continue occupying the site but he should pay a rent that man,
be agreed.
(Sgd) JOSE PONCIO
(Sgd.) ROSARIO CARBONELL
(Sgd) CONSTANCIO MEONADA
Witness
(Pp. 6-7 rec. on appeal).
Thereafter, petitioner asked Atty. Salvador Reyes, also from the
Batanes Islands, to prepare the formal deed of sale, which she
brought to respondent Poncio together with the amount of some
P400.00, the balance she still had to pay in addition to her
assuming the mortgaged obligation to Republic Savings Bank.
Upon arriving at respondent Jose Poncio's house, however, the
latter told petitioner that he could not proceed any more with the
sale, because he had already given the lot to respondent Emma
Infants; and that he could not withdraw from his deal with
respondent Mrs. Infante, even if he were to go to jail. Petitioner
then sought to contact respondent Mrs. Infante but the latter
247
refused to see her.
Sales – Chapter 3 Cases
Petitioner then consulted Atty. Jose Garcia, who advised her to
On February 5, 1955, petitioner saw Emma Infante erecting a all present an adverse claim over the land in question with the Office
around the lot with a gate. of the Register of Deeds of Rizal. Atty. Garcia actually sent a letter
of inquiry to the Register of Deeds and demand letters to private
respondents Jose Poncio and Emma Infante.
second amended complaint against private respondents, praying
that she be declared the lawful owner of the questioned parcel of
land; that the subsequent sale to respondents Ramon R. Infante
and Emma L. Infante be declared null and void, and that
respondent Jose Poncio be ordered to execute the corresponding

In his answer to the complaint Poncio admitted "that on January

30, 1955, Mrs. Infante improved her offer and he agreed to sell the
land and its improvements to her for P3,535.00" (pp. 38-40, ROA).

In a private memorandum agreement dated January 31, 1955,

respondent Poncio indeed bound himself to sell to his
corespondent Emma Infante, the property for the sum of
P2,357.52, with respondent Emma Infante still assuming the
existing mortgage debt in favor of Republic Savings Bank in the
amount of P1,177.48. Emma Infante lives just behind the houses
of Poncio and Rosario Carbonell.

On February 2, 1955, respondent Jose Poncio executed the formal

deed of sale in favor of respondent Mrs. Infante in the total sum
of P3,554.00 and on the same date, the latter paid Republic
Savings Bank the mortgage indebtedness of P1,500.00. The
mortgage on the lot was eventually discharged.

Informed that the sale in favor of respondent Emma Infante had

not yet been registered, Atty. Garcia prepared an adverse claim for
petitioner, who signed and swore to an registered the same on
February 8, 1955.

The deed of sale in favor of respondent Mrs. Infante was

registered only on February 12, 1955. As a consequence thereof, a
Transfer Certificate of Title was issued to her but with the
annotation of the adverse claim of petitioner Rosario Carbonell.

Respondent Emma Infante took immediate possession of the lot

involved, covered the same with 500 cubic meters of garden soil
and built therein a wall and gate, spending the sum of P1,500.00.
She further contracted the services of an architect to build a
house; but the construction of the same started only in 1959 —
years after the litigation actually began and during its pendency.
Respondent Mrs. Infante spent for the house the total amount of
P11,929.00.

248
On June 1, 1955, petitioner Rosario Carbonell, thru counsel, filed a
Sales – Chapter 3 Cases
deed of conveyance of said land in her favor and for damages and
attorney's fees (pp. 1-7, rec. on appeal in the C.A.).
Respondents first moved to dismiss the complaint on the ground,
among others, that petitioner's claim is unenforceable under the
Statute of Frauds, the alleged sale in her favor not being
evidenced by a written document (pp. 7-13, rec. on appeal in the
C.A.); and when said motion was denied without prejudice to
passing on the question raised therein when the case would be
tried on the merits (p. 17, ROA in the C.A.), respondents filed
separate answers, reiterating the grounds of their motion to
dismiss (pp. 18-23, ROA in the C.A.).
During the trial, when petitioner started presenting evidence of the
sale of the land in question to her by respondent Poncio, part of
which evidence was the agreement written in the Batanes dialect
aforementioned, respondent Infantes objected to the presentation
by petitioner of parole evidence to prove the alleged sale between
her and respondent Poncio. In its order of April 26, 1966, the trial
court sustained the objection and dismissed the complaint on the
ground that the memorandum presented by petitioner to prove
said sale does not satisfy the requirements of the law (pp. 31-35,
ROA in the C.A.).
From the above order of dismissal, petitioner appealed to the
Supreme Court (G.R. No. L-11231) which ruled in a decision dated
May 12, 1958, that the Statute of Frauds, being applicable only to
executory contracts, does not apply to the alleged sale between
petitioner and respondent Poncio, which petitioner claimed to
have been partially performed, so that petitioner is entitled to
establish by parole evidence "the truth of this allegation, as well
as the contract itself." The order appealed from was thus
reversed, and the case remanded to the court a quo for further
proceedings (pp. 26-49, ROA in the C.A.).
After trial in the court a quo; a decision was, rendered on
December 5, 1962, declaring the second sale by respondent Jose
Poncio to his co-respondents Ramon Infante and Emma Infante of
the land in question null and void and ordering respondent Poncio
to execute the proper deed of conveyance of said land in favor of
petitioner after compliance by the latter of her covenants under
her agreement with respondent Poncio (pp. 5056, ROA in the
C.A.).
On January 23, 1963, respondent Infantes, through another
counsel, filed a motion for re-trial to adduce evidence for the
proper implementation of the court's decision in case it would be
affirmed on appeal (pp. 56-60, ROA in the C.A.), which motion was
opposed by petitioner for being premature (pp. 61-64, ROA in the
C.A.).
Before their motion for re-trial could be resolved, respondent
Infantes, this time through their former counsel, filed another
motion for new trial, claiming that the decision of the trial court is
contrary to the evidence and the law (pp. 64-78, ROA in the C.A.),
which motion was also opposed by petitioner (pp. 78-89, ROA in
the C.A.).
The trial court granted a new trial (pp. 89-90, ROA in the C.A.), at
which re-hearing only the respondents introduced additional
evidence consisting principally of the cost of improvements they
introduced on the land in question (p. 9, ROA in the C.A.).
After the re-hearing, the trial court rendered a decision, reversing
its decision of December 5, 1962 on the ground that the claim of
the respondents was superior to the claim of petitioner, and
dismissing the complaint (pp. 91-95, ROA in the C.A.), From this
decision, petitioner Rosario Carbonell appealed to the respondent
Court of Appeals (p. 96, ROA in the C.A.).
On November 2, 1967, the Court of Appeals (Fifth Division
composed of Justices Magno Gatmaitan, Salvador V. Esguerra
and Angle H. Mojica, speaking through Justice Magno Gatmaitan),
rendered judgment reversing the decision of the trial court,
declaring petitioner therein, to have a superior right to the land in
question, and condemning the defendant Infantes to reconvey to
petitioner after her reimbursement to them of the sum of
P3,000.00 plus legal interest, the land in question and all its
improvements (Appendix "A" of Petition).
Respondent Infantes sought reconsideration of said decision and
acting on the motion for reconsideration, the Appellate Court,
three Justices (Villamor, Esguerra and Nolasco) of Special
Division of Five, granted said motion, annulled and set aside its
decision of November 2, 1967, and entered another judgment
affirming in toto the decision of the court a quo, with Justices
Gatmaitan and Rodriguez dissenting (Appendix "B" of Petition).
Petitioner Rosario Carbonell moved to reconsider the Resolution
of the Special Division of Five, which motion was denied by
Minute Resolution of December 6, 1968 (but with Justices
Rodriguez and Gatmaitan voting for reconsideration) [Appendix
"C" of Petition].
249
Hence, this appeal by certiorari.
Sales – Chapter 3 Cases
Article 1544, New Civil Code, which is decisive of this case,
recites:
If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first
taken possession thereof in good faith, if it should movable
property.
Should it be immovable property, the ownership shall belong to
the person acquiring it who in good faith first recorded it in the
Registry of Property.
to see her. So Carbonell did the next best thing to protect her right
— she registered her adversed claim on February 8, 1955. Under
the circumstances, this recording of her adverse claim should be
deemed to have been done in good faith and should emphasize

Should there be no inscription, the ownership shall pertain to the

person who in good faith was first in the possession; and, in the
absence thereof, to the person who presents the oldest title,
provided there is good faith (emphasis supplied).

It is essential that the buyer of realty must act in good faith in

registering his deed of sale to merit the protection of the second
paragraph of said Article 1544.

Unlike the first and third paragraphs of said Article 1544, which
accord preference to the one who first takes possession in good
faith of personal or real property, the second paragraph directs
that ownership of immovable property should be recognized in
favor of one "who in good faith first recorded" his right. Under the
first and third paragraph, good faith must characterize the act of
anterior registration (DBP vs. Mangawang, et al., 11 SCRA 405;
Soriano, et al. vs. Magale, et al., 8 SCRA 489).

If there is no inscription, what is decisive is prior possession in

good faith. If there is inscription, as in the case at bar, prior
registration in good faith is a pre-condition to superior title.

When Carbonell bought the lot from Poncio on January 27, 1955,
she was the only buyer thereof and the title of Poncio was still in
his name solely encumbered by bank mortgage duly annotated
thereon. Carbonell was not aware — and she could not have been
aware — of any sale of Infante as there was no such sale to
Infante then. Hence, Carbonell's prior purchase of the land was
made in good faith. Her good faith subsisted and continued to
exist when she recorded her adverse claim four (4) days prior to
the registration of Infantes's deed of sale. Carbonell's good faith
did not cease after Poncio told her on January 31, 1955 of his
second sale of the same lot to Infante. Because of that
information, Carbonell wanted an audience with Infante, which
desire underscores Carbonell's good faith. With an aristocratic
disdain unworthy of the good breeding of a good Christian and
250
good neighbor, Infante snubbed Carbonell like a leper and refused
Sales – Chapter 3 Cases
Infante's bad faith when she registered her deed of sale four (4)
days later on February 12, 1955.
Bad faith arising from previous knowledge by Infante of the prior
sale to Carbonell is shown by the following facts, the vital
significance and evidenciary effect of which the respondent Court
of Appeals either overlooked of failed to appreciate:
(1) Mrs. Infante refused to see Carbonell, who wanted to see
Infante after she was informed by Poncio that he sold the lot to
Infante but several days before Infante registered her deed of
sale. This indicates that Infante knew — from Poncio and from the
bank — of the prior sale of the lot by Poncio to Carbonell.
Ordinarily, one will not refuse to see a neighbor. Infante lives just
behind the house of Carbonell. Her refusal to talk to Carbonell
could only mean that she did not want to listen to Carbonell's
story that she (Carbonell) had previously bought the lot from
Poncio.
(2) Carbonell was already in possession of the mortgage
passbook [not Poncio's saving deposit passbook — Exhibit "1" —
Infantes] and Poncio's copy of the mortgage contract, when
Poncio sold the lot Carbonell who, after paying the arrearages of
Poncio, assumed the balance of his mortgaged indebtedness to
the bank, which in the normal course of business must have
necessarily informed Infante about the said assumption by
Carbonell of the mortgage indebtedness of Poncio. Before or
upon paying in full the mortgage indebtedness of Poncio to the
Bank. Infante naturally must have demanded from Poncio the
delivery to her of his mortgage passbook as well as Poncio's
mortgage contract so that the fact of full payment of his bank
mortgage will be entered therein; and Poncio, as well as the bank,
must have inevitably informed her that said mortgage passbook
could not be given to her because it was already delivered to
Carbonell.
If Poncio was still in possession of the mortgage passbook and
his copy of the mortgage contract at the time he executed a deed
of sale in favor of the Infantes and when the Infantes redeemed
his mortgage indebtedness from the bank, Poncio would have
surrendered his mortgage passbook and his copy of the mortgage
contract to the Infantes, who could have presented the same as
exhibits during the trial, in much the same way that the Infantes
were able to present as evidence Exhibit "1" — Infantes, Poncio's
savings deposit passbook, of which Poncio necessarily remained
in possession as the said deposit passbook was never involved in
the contract of sale with assumption of mortgage. Said savings
deposit passbook merely proves that Poncio had to withdraw
P47.26, which amount was tided to the sum of P200.00 paid by
Carbonell for Poncio's amortization arrearages in favor of the
bank
on January 27, 1955; because Carbonell on that day brought with
her only P200.00, as Poncio told her that was the amount of his
arrearages to the bank. But the next day Carbonell refunded to
Poncio the sum of P47.26.
(3) The fact that Poncio was no longer in possession of his
mortgage passbook and that the said mortgage passbook was
already in possession of Carbonell, should have compelled Infante
to inquire from Poncio why he was no longer in possession of the
mortgage passbook and from Carbonell why she was in
possession of the same (Paglago, et. al vs. Jara et al 22 SCRA
1247, 1252-1253). The only plausible and logical reason why
Infante did not bother anymore to make such injury , w because in
the ordinary course of business the bank must have told her that
Poncio already sold the lot to Carbonell who thereby assumed the
mortgage indebtedness of Poncio and to whom Poncio delivered
his mortgage passbook. Hoping to give a semblance of truth to
her pretended good faith, Infante snubbed Carbonell's request to
talk to her about the prior sale to her b Poncio of the lot. As
aforestated, this is not the attitude expected of a good neighbor
imbued with Christian charity and good will as well as a clear
conscience.
(4) Carbonell registered on February 8, 1955 her adverse
claim, which was accordingly annotated on Poncio's title, four [4]
days before Infante registered on February 12, 1955 her deed of
sale executed on February 2, 1955. Here she was again on notice
of the prior sale to Carbonell. Such registration of adverse claim is
valid and effective (Jovellanos vs. Dimalanta, L-11736-37, Jan. 30,
1959, 105 Phil. 1250-51).
(5) In his answer to the complaint filed by Poncio, as
defendant in the Court of First Instance, he alleged that both Mrs.
Infante and Mrs. Carbonell offered to buy the lot at P15.00 per
square meter, which offers he rejected as he believed that his lot
is worth at least P20.00 per square meter. It is therefore logical to
presume that Infante was told by Poncio and consequently knew
of the offer of Carbonell which fact likewise should have put her
on her guard and should have compelled her to inquire from
Poncio whether or not he had already sold the property to
Carbonell.
As recounted by Chief Justice Roberto Concepcion, then
251
Associate Justice, in the preceding case of Rosario Carbonell vs.
Sales – Chapter 3 Cases
Jose Poncio, Ramon Infante and Emma Infante (1-11231, May 12,
1958), Poncio alleged in his answer:
... that he had consistently turned down several offers, made by
plaintiff, to buy the land in question, at P15 a square meter, for he
believes that it is worth not less than P20 a square meter; that
Mrs.
Infante, likewise, tried to buy the land at P15 a square meter; that, the sale of the property in favor of the plaintiff is already an
on or about January 27, 1955, Poncio was advised by plaintiff that accomplished act..."
should she decide to buy the property at P20 a square meter, she
would allow him to remain in the property for one year; that
plaintiff then induced Poncio to sign a document, copy of which if
probably the one appended to the second amended complaint;
that Poncio signed it 'relying upon the statement of the plaintiff
that the document was a permit for him to remain in the premises
in the event defendant decided to sell the property to the plaintiff
at P20.00 a square meter'; that on January 30, 1955, Mrs. Infante
improved her offer and agreed to sell the land and its
improvement to her for P3,535.00; that Poncio has not lost 'his
mind,' to sell his property, worth at least P4,000, for the paltry sum
P1,177.48, the amount of his obligation to the Republic Saving s
Bank; and that plaintiff's action is barred by the Statute of Frauds.
... (pp. 38-40, ROA, emphasis supplied).
II
EXISTENCE OF THE PRIOR SALE TO CARBONELL
DULY ESTABLISHED
(1) In his order dated April 26, 1956 dismissing the
complaint on the ground that the private document Exhibit "A"
executed by Poncio and Carbonell and witnessed by Constancio
Meonada captioned "Contract for One-half Lot which I Bought
from Jose Poncio," was not such a memorandum in writing within
the purview of the Statute of Frauds, the trial judge himself
recognized the fact of the prior sale to Carbonell when he stated
that "the memorandum in question merely states that Poncio is
allowed to stay in the property which he had sold to the plaintiff.
There is no mention of the reconsideration, a description of the
property and such other essential elements of the contract of
sale. There is nothing in the memorandum which would tend to
show even in the slightest manner that it was intended to be an
evidence of contract sale. On the contrary, from the terms of the
memorandum, it tends to show that the sale of the property in
favor of the plaintiff is already an accomplished act. By the very
contents of the memorandum itself, it cannot therefore, be
considered to be the memorandum which would show that a sale
has been made by Poncio in favor of the plaintiff" (p. 33, ROA,
emphasis supplied). As found by the trial court, to repeat the said
memorandum states "that Poncio is allowed to stay in the
252
property which he had sold to the plaintiff ..., it tends to show that
Sales – Chapter 3 Cases
(2) When the said order was appealed to the Supreme Court
by Carbonell in the previous case of Rosario Carbonell vs. Jose
Poncio, Ramon Infante and Emma Infante
(L-11231, supra), Chief Justice Roberto Concepcion, then
Associate Justice, speaking for a unanimous Court, reversed the
aforesaid order of the trial court dismissing the complaint, holding
that because the complaint alleges and the plaintiff claims that
the contract of sale was partly performed, the same is removed
from the application of the Statute of Frauds and Carbonell should
be allowed to establish by parol evidence the truth of her
allegation of partial performance of the contract of sale, and
further stated:
Apart from the foregoing, there are in the case at bar several
circumstances indicating that plaintiff's claim might not be
entirely devoid of factual basis. Thus, for instance, Poncio
admitted in his answer that plaintiff had offered several times to
purchase his land.
Again, there is Exhibit A, a document signed by the defendant. It is
in the Batanes dialect, which, according to plaintiff's
uncontradicted evidence, is the one spoken by Poncio, he being a
native of said region. Exhibit A states that Poncio would stay in
the land sold by him to plaintiff for one year, from January 27,
1955, free of charge, and that, if he cannot find a place where to
transfer his house thereon, he may remain upon. Incidentally, the
allegation in Poncio's answer to the effect that he signed Exhibit A
under the belief that it "was a permit for him to remain in the
premises in the" that "he decided to sell the property" to the
plaintiff at P20 a sq. m." is, on its face, somewhat difficult to
believe. Indeed, if he had not decided as yet to sell the land to
plaintiff, who had never increased her offer of P15 a square meter,
there was no reason for Poncio to get said permit from her. Upon
the other hand, if plaintiff intended to mislead Poncio, she would
have caused Exhibit A to be drafted, probably, in English , instead
of taking the trouble of seeing to it that it was written precisely in
his native dialect, the Batanes. Moreover, Poncio's signature on
Exhibit A suggests that he is neither illiterate nor so ignorant as to
sign document without reading its contents, apart from the fact
that Meonada had read Exhibit A to him and given him a copy
thereof, before he signed thereon, according to Meonada's
uncontradicted testimony.
Then, also, defendants say in their brief:
The only allegation in plaintiff's complaint that bears any relation
to her claim that there has been partial performance of the
supposed contract of sale, is the notation of the sum of P247.26
in the bank book of defendant Jose Poncio. The noting or jotting
down of the sum of P247.26 in the bank book of Jose Poncio
does not prove the fact that the said amount was the purchase
price of the property
in question. For all we knew, the sum of P247.26 which plaintiff
claims to have paid to the Republic Savings Bank for the account
of the defendant, assuming that the money paid to the Republic
Savings Bank came from the plaintiff, was the result of some
usurious loan or accomodation, rather than earnest money or part
payment of the land. Neither is it competent or satisfactory
evidence to prove the conveyance of the land in question the fact
that the bank book account of Jose Poncio happens to be in the
possession of the plaintiff. (Defendants-Appellees' brief, pp. 25-
26).
How shall We know why Poncio's bank deposit book is in
plaintiffs possession, or whether there is any relation between the
P247.26 entry therein and the partial payment of P247.26
allegedly made by plaintiff to Poncio on account of the price of his
land, if we do not allow the plaintiff to explain it on the witness
stand? Without expressing any opinion on the merits of plaintiff's
claim, it is clear, therefore, that she is entitled , legally as well as
from the viewpoint of equity, to an opportunity to introduce parol
evidence in support of the allegations of her second amended
complaint. (pp. 46-49, ROA, emphasis supplied).
(3) In his first decision of December 5, 1962 declaring null and
void the sale in favor of the Infantes and ordering Poncio to
execute a deed of conveyance in favor of Carbonell, the trial judge
found:
... A careful consideration of the contents of Exh. 'A' show to the
satisfaction of the court that the sale of the parcel of land in
question by the defendant Poncio in favor of the plaintiff was
covered therein and that the said Exh. "a' was also executed to
allow the defendant to continue staying in the premises for the
stated period. It will be noted that Exh. 'A' refers to a lot 'sold by
him to me' and having been written originally in a dialect well
understood by the defendant Poncio, he signed the said Exh. 'A'
with a full knowledge and consciousness of the terms and
consequences thereof. This therefore, corroborates the testimony
of the plaintiff Carbonell that the sale of the land was made by
Poncio. It is further pointed out that there was a partial
performance of the verbal sale executed by Poncio in favor of the
plaintiff, when the latter paid P247.26 to the Republic Savings
Bank on account of Poncio's mortgage indebtedness. Finally, the
possession by the plaintiff of the defendant Poncio's passbook of
253
the Republic Savings Bank also adds credibility to her testimony.
Sales – Chapter 3 Cases
The defendant contends on the other hand that the testimony of
the plaintiff, as well as her witnesses, regarding the sale of the
land made by Poncio in favor of the plaintiff is inadmissible under
the provision of the Statute of Fraud based on the argument that
the note Exh. "A" is not the note or memorandum referred to in the
to in the Statute of Fraud. The defendants argue that Exh. "A" fails
to comply with the
requirements of the Statute of Fraud to qualify it as the note or attempted to be disproved by defendants, particularly Jose
memorandum referred to therein and open the way for the Poncio, and corroborated as it is by the private document in
presentation of parole evidence to prove the fact contained in the Batanes dialect, Exhibit A, the testimony being to the effect that
note or memorandum. The defendant argues that there is even no between herself and Jose there had been celebrated a sale of the
description of the lot referred to in the note, especially when the property excluding the house for the price of P9.50 per square
note refers to only one half lot. With respect to the latter argument meter, so
of the Exhibit 'A', the court has arrived at the conclusion that there
is a sufficient description of the lot referred to in Exh. 'A' as none
other than the parcel of land occupied by the defendant Poncio
and where he has his improvements erected. The Identity of the
parcel of land involved herein is sufficiently established by the
contents of the note Exh. "A". For a while, this court had that
similar impression but after a more and thorough consideration of
the context in Exh. 'A' and for the reasons stated above, the Court
has arrived at the conclusion stated earlier (pp. 52-54, ROA,
emphasis supplied).
(4) After re-trial on motion of the Infantes, the trial Judge
rendered on January 20, 1965 another decision dismissing the
complaint, although he found
1. That on January 27, 1955, the plaintiff purchased from
the defendant Poncio a parcel of land with an area of 195 square
meters, more or less, covered by TCT No. 5040 of the Province of
Rizal, located at San Juan del Monte, Rizal, for the price of P6.50
per square meter;
2. That the purchase made by the plaintiff was not reduced
to writing except for a short note or memorandum Exh. A, which
also recited that the defendant Poncio would be allowed to
continue his stay in the premises, among other things, ... (pp. 91-
92, ROA, emphasis supplied).
From such factual findings, the trial Judge confirms the due
execution of Exhibit "A", only that his legal conclusion is that it is
not sufficient to transfer ownership (pp. 93-94, ROA).
(5) In the first decision of November 2, 1967 of the Fifth
Division of the Court of Appeals composed of Justices Esguerra
(now Associate Justice of the Supreme Court), Gatmaitan and
Mojica, penned by Justice Gatmaitan, the Court of Appeals found
that:
254
... the testimony of Rosario Carbonell not having at all been
Sales – Chapter 3 Cases
much so that on faith of that, Rosario had advanced the sum of
P247.26 and binding herself to pay unto Jose the balance of the
purchase price after deducting the indebtedness to the Bank and
since the wording of Exhibit A, the private document goes so far
as to describe their transaction as one of sale, already
consummated between them, note the part tense used in the
phrase, "the lot sold by him to me" and going so far even as to
state that from that day onwards, vendor would continue to live
therein, for one year, 'during which time he will not pay anything'
this can only mean that between Rosario and Jose, there had
been a true contract of sale, consummated by delivery
constitutum possession, Art. 1500, New Civil Code; vendor's
possession having become converted from then on, as a mere
tenant of vendee, with the special privilege of not paying rental for
one year, — it is true that the sale by Jose Poncio to Rosario
Carbonell corroborated documentarily only by Exhibit A could not
have been registered at all, but it was a valid contract
nonetheless, since under our law, a contract sale is consensual,
perfected by mere consent, Couto v. Cortes, 8 Phil 459, so much
so that under the New Civil Code, while a sale of an immovable is
ordered to be reduced to a public document, Art. 1358, that
mandate does not render an oral sale of realty invalid, but merely
incapable of proof, where still executory and action is brought and
resisted for its performance, 1403, par. 2, 3; but where already
wholly or partly executed or where even if not yet, it is evidenced
by a memorandum, in any case where evidence to further
demonstrate is presented and admitted as the case was here,
then the oral sale becomes perfectly good, and becomes a good
cause of action not only to reduce it to the form of a public
document, but even to enforce the contract in its entirety, Art.
1357; and thus it is that what we now have is a case wherein on
the one hand Rosario Carbonell has proved that she had an
anterior sale, celebrated in her favor on 27 January, 1955, Exhibit
A, annotated as an adverse claim on 8 February, 1955, and on
other, a sale is due form in favor of Emma L. Infante on 2
February, 1955, Exhibit 3-Infante, and registered in due form with
title unto her issued on 12 February, 1955; the vital question must
now come on which of these two sales should prevail; ... (pp. 74-
76, rec., emphasis supplied).
(6) In the resolution dated October 30, 1968 penned by then
Court of Appeals Justice Esguerra (now a member of this Court),
concurred in by Justices Villamor and Nolasco, constituting the
majority of a Special Division of Five, the Court of Appeals, upon
motion of the Infantes, while reversing the decision of November
2, 1967 and affirming the decision of the trial court of January 20,
1965 dismissing plaintiff's complaint, admitted the existence and
genuineness of Exhibit "A", the private memorandum dated
January 27, 1955, although it did not consider the same as
satisfying "the essential elements of a contract of sale," because
it "neither specifically describes the property and its boundaries,
nor mention its certificate of title number, nor states the price
certain to be paid, or contrary to the express mandate of Articles
1458 and 1475 of the Civil Code.
(7) In his dissent concurred in by Justice Rodriguez, Justice
Gatmaitan maintains his decision of November 2, 1967 as well as
his findings of facts therein, and reiterated that the private
memorandum Exhibit "A", is a perfected sale, as a sale is
consensual and consummated by mere consent, and is binding on
and effective between the parties. This statement of the principle
is correct [pp. 89-92, rec.].
III
ADEQUATE CONSIDERATION OR PRICE FOR THE SALE
IN FAVOR OF CARBONELL
It should be emphasized that the mortgage on the lot was about
to be foreclosed by the bank for failure on the part of Poncio to
pay the amortizations thereon. To forestall the foreclosure and at
the same time to realize some money from his mortgaged lot,
Poncio agreed to sell the same to Carbonell at P9.50 per square
meter, on condition that Carbonell [1] should pay (a) the amount
of P400.00 to Poncio and 9b) the arrears in the amount of
P247.26 to the bank; and [2] should assume his mortgage
indebtedness. The bank president agreed to the said sale with
assumption of mortgage in favor of Carbonell an Carbonell
accordingly paid the arrears of P247.26. On January 27, 1955, she
paid the amount of P200.00 to the bank because that was the
amount that Poncio told her as his arrearages and Poncio
advanced the sum of P47.26, which amount was refunded to him
by Carbonell the following day. This conveyance was confirmed
that same day, January 27, 1955, by the private document, Exhibit
"A", which was prepared in the Batanes dialect by the witness
Constancio Meonada, who is also from Batanes like Poncio and
Carbonell.
The sale did not include Poncio's house on the lot. And Poncio
was given the right to continue staying on the land without paying
any rental for one year, after which he should pay rent if he could
not still find a place to transfer his house. All these terms are part
255
of the consideration of the sale to Carbonell.
Sales – Chapter 3 Cases
It is evident therefore that there was ample consideration, and not
merely the sum of P200.00, for the sale of Poncio to Carbonell of
the lot in question.
But Poncio, induced by the higher price offered to him by Infante,
reneged on his commitment to Carbonell and told Carbonell, who
confronted him about it, that he would not withdraw from his deal
with Infante even if he is sent to jail The victim, therefore, "of
injustice and outrage is the widow Carbonell and not the Infantes,
who without moral compunction exploited the greed and
treacherous nature of Poncio, who, for love of money and without
remorse of conscience, dishonored his own plighted word to
Carbonell, his own cousin.
him-and given him a copy thereof, before he signed thereon,
according to Meonada's uncontradicted testimony. (pp. 46-47,
ROA).
As stressed by Justice Gatmaitan in his first decision of
November 2, 1965, which he reiterated in his dissent from the
resolution of the

Inevitably evident therefore from the foregoing discussion, is the

bad faith of Emma Infante from the time she enticed Poncio to
dishonor his contract with Carbonell, and instead to sell the lot to
her (Infante) by offering Poncio a much higher price than the price
for which he sold the same to Carbonell. Being guilty of bad faith,
both in taking physical possession of the lot and in recording their
deed of sale, the Infantes cannot recover the value of the
improvements they introduced in the lot. And after the filing by
Carbonell of the complaint in June, 1955, the Infantes had less
justification to erect a building thereon since their title to said lot
is seriously disputed by Carbonell on the basis of a prior sale to
her.

With respect to the claim of Poncio that he signed the document

Exhibit "A" under the belief that it was a permit for him to remain
in the premises in ease he decides to sell the property to
Carbonell at P20.00 per square meter, the observation of the
Supreme Court through Mr. Chief Justice Concepcion in G.R. No.
L-11231, supra, bears repeating:

... Incidentally, the allegation in Poncio's answer to the effect that

he signed Exhibit A under the belief that it 'was a permit for him to
remain in the premises in the event that 'he decided to sell the
property' to the plaintiff at P20.00 a sq. m is, on its face,
somewhat difficult to believe. Indeed, if he had not decided as yet
to sell that land to plaintiff, who had never increased her offer of
P15 a square meter, there as no reason for Poncio to get said
permit from her. Upon the they if plaintiff intended to mislead
Poncio, she would have Exhibit A to be drafted, probably, in
English, instead of taking the trouble of seeing to it that it was
written precisely in his native dialect, the Batanes. Moreover,
Poncio's signature on Exhibit A suggests that he is neither
illiterate nor so ignorant as to sign a document without reading its
256
contents, apart from the fact that Meonada had read Exhibit A to
Sales – Chapter 3 Cases
majority of the Special Division. of Five on October 30, 1968,
Exhibit A, the private document in the Batanes dialect, is a valid
contract of sale between the parties, since sale is a consensual
contract and is perfected by mere consent (Couto vs. Cortes, 8
Phil. 459). Even an oral contract of realty is all between the parties
and accords to the vendee the right to compel the vendor to
execute the proper public document As a matter of fact, Exhibit A,
while merely a private document, can be fully or partially
performed, to it from the operation of the statute of frauds. Being
a all consensual contract, Exhibit A effectively transferred the
possession of the lot to the vendee Carbonell by constitutum
possessorium (Article 1500, New Civil Code); because thereunder
the vendor Poncio continued to retain physical possession of the
lot as tenant of the vendee and no longer as knew thereof. More
than just the signing of Exhibit A by Poncio and Carbonell with
Constancio Meonada as witness to fact the contract of sale, the
transition was further confirmed when Poncio agreed to the
actual payment by at Carbonell of his mortgage arrearages to the
bank on January 27, 1955 and by his consequent delivery of his
own mortgage passbook to Carbonell. If he remained owner and
mortgagor, Poncio would not have surrendered his mortgage
passbook to' Carbonell.
IV
IDENTIFICATION AND DESCRIPTION OF THE DISPUTED LOT IN
THE MEMORANDUM EXHIBIT "A"
The claim that the memorandum Exhibit "A" does not sufficiently
describe the disputed lot as the subject matter of the sale, was
correctly disposed of in the first decision of the trial court of
December 5, 1962, thus: "The defendant argues that there is even
no description of the lot referred to in the note (or memorandum),
especially when the note refers to only one-half lot. With respect
to the latter argument of the defendant, plaintiff points out that
one- half lot was mentioned in Exhibit 'A' because the original
description carried in the title states that it was formerly part of a
bigger lot and only segregated later. The explanation is tenable, in
(sic) considering the time value of the contents of Exh. 'A', the
court has arrived at the conclusion that there is sufficient
description of the lot referred to in Exh. As none other than the
parcel of lot occupied by the defendant Poncio and where he has
his improvements erected. The Identity of the parcel of land
involved herein is sufficiently established by the contents of the
note Exh. 'A'. For a while, this court had that similar impression introduced by the possessor in bad faith for pure luxury or mere
but after a more and through consideration of the context in Exh. pleasure only by paying the value thereof at the time he enters
'A' and for the reasons stated above, the court has arrived to (sic) into possession (Article 549 NCC), as a matter of equity, the
the conclusion stated earlier" (pp. 53-54, ROA). Infantes, although possessors in bad faith, should be allowed to
remove the aforesaid improvements, unless petitioner Carbonell
Moreover, it is not shown that Poncio owns another parcel with chooses to pay for their value at the time the Infantes introduced
the same area, adjacent to the lot of his cousin Carbonell and said useful improvements in 1955 and 1959. The Infantes cannot
likewise mortgaged by him to the Republic Savings Bank. The claim reimbursement for the current value of the said useful
transaction therefore between Poncio and Carbonell can only improvements; because they have
refer and does refer to the lot involved herein. If Poncio had
another lot to remove his house, Exhibit A would not have
stipulated to allow him to stay in the sold lot without paying any
rent for one year and thereafter to pay rental in case he cannot
find another place to transfer his house.
While petitioner Carbonell has the superior title to the lot, she
must however refund to respondents Infantes the amount of
P1,500.00, which the Infantes paid to the Republic Savings Bank
to redeem the mortgage.
It appearing that the Infantes are possessors in bad faith, their
rights to the improvements they introduced op the disputed lot are
governed by Articles 546 and 547 of the New Civil Code. Their
expenses consisting of P1,500.00 for draining the property, filling
it with 500 cubic meters of garden soil, building a wall around it
and installing a gate and P11,929.00 for erecting a b ' bungalow
thereon, are useful expenditures, for they add to the value of the
property (Aringo vs. Arenas, 14 Phil. 263; Alburo vs. Villanueva, 7
Phil. 277; Valencia vs. Ayala de Roxas, 13 Phil. 45).
Under the second paragraph of Article 546, the possessor in good
faith can retain the useful improvements unless the person who
defeated him in his possession refunds him the amount of such
useful expenses or pay him the increased value the land may have
acquired by reason thereof. Under Article 547, the possessor in
good faith has also the right to remove the useful improvements if
such removal can be done without damage to the land, unless the
person with the superior right elects to pay for the useful
improvements or reimburse the expenses therefor under
paragraph 2 of Article 546. These provisions seem to imply that
the possessor in bad faith has neither the right of retention of
useful improvements nor the right to a refund for useful expenses.
257
But, if the lawful possessor can retain the improvements
Sales – Chapter 3 Cases
been enjoying such improvements for about two decades without
paying any rent on the land and during which period herein
petitioner Carbonell was deprived of its possession and use.
WHEREFORE, THE DECISION OF THE SPECIAL DIVISION OF FIVE
OF THE COURT OF APPEALS OF OCTOBER 30, 1968 IS HEREBY
REVERSED; PETITIONER ROSARIO CARBONELL IS HEREBY
DECLARED TO HAVE THE SUPERIOR RIGHT TO THE LAND IN
QUESTION AND IS HEREBY DIRECTED TO REIMBURSE TO
PRIVATE RESPONDENTS INFANTES THE SUM OF ONE
THOUSAND FIVE HUNDRED PESOS (P1,500.00) WITHIN THREE
(3) MONTHS FROM THE FINALITY OF THIS DECISION; AND THE
REGISTER OF DEEDS OF RIZAL IS HEREBY DIRECTED TO CANCEL
TRANSFER CERTIFICATE OF TITLE NO. 37842 ISSUED IN FAVOR
OF PRIVATE RESPONDENTS INFANTES COVERING THE
DISPUTED LOT, WHICH CANCELLED TRANSFER CERTIFICATE OF
TITLE NO. 5040 IN THE NAME OF JOSE PONCIO, AND TO ISSUE A
NEW TRANSFER CERTIFICATE OF TITLE IN FAVOR OF
PETITIONER ROSARIO CARBONELL UPON PRESENTATION OF
PROOF OF PAYMENT BY HER TO THE INFANTES OF THE
AFORESAID AMOUNT OF ONE THOUSAND FIVE HUNDRED PESOS
(P1,500.00).
PRIVATE RESPONDENTS INFANTES MAY REMOVE THEIR
AFOREMENTIONED USEFUL IMPROVEMENTS FROM THE LOT
WITHIN THREE (3) MONTHS FROM THE FINALITY OF THIS
DECISION, UNLESS THE PETITIONER ROSARIO CARBONELL
ELECTS TO ACQUIRE THE SAME AND PAYS THE INFANTES THE
AMOUNT OF THIRTEEN THOUSAND FOUR HUNDRED TWENTY-
NINE PESOS (P13,429.00) WITHIN THREE (3) MONTHS FROM
THE FINALITY OF THIS DECISION. SHOULD PETITIONER
CARBONELL FAIL TO PAY THE SAID AMOUNT WITHIN THE
AFORESTATED PERIOD OF THREE (3) MONTHS FROM THE
FINALITY OF THIS DECISION, THE PERIOD OF THREE (3)
MONTHS WITHIN WHICH THE RESPONDENTS INFANTES MAY
REMOVE THEIR AFOREMENTIONED USEFUL IMPROVEMENTS
SHALL COMMENCE FROM THE EXPIRATION OF THE THREE (3)
MONTHS GIVEN PETITIONER CARBONELL TO PAY FOR THE SAID
USEFUL IMPROVEMENTS.
WITH COSTS AGAINST PRIVATE RESPONDENTS.
Republic of the Philippines They also alleged that, despite the fact that the said properties
*HOSPICIO D. ROSAROSO, ANTONIO D. ROSAROSO, MANUEL D. had already been sold to them, respondent Laila, in conspiracy
ROSAROSO, ALGERICA D. ROSAROSO, and CLEOFE R. with her mother, Lucila, obtained the Special Power of Attorney
LABINDAO, Petitioners, (SPA),6 dated April 3, 1993, from Luis (First SPA); that Luis was
vs. then sick,
LUCILA LABORTE SORIA, SPOUSES HAM SOLUTAN and **LAILA
SOLUTAN, and MERIDIAN REALTY CORPORATION,
Respondents.
This is a petition for review on certiorari under Rule 45 of the
Rules of Court assailing the December 4, 2009 Decision1 of the
Court of Appeals (CA). in CA G.R. CV No. 00351, which reversed
and set aside the July 30, 2004 Decision2 of the Regional Trial
Court, Branch 8, 7th Judicial Region, Cebu City (RTC), in Civil Case
No. CEB-16957, an action for declaration of nullity of documents.
The Facts
Spouses Luis Rosaroso (Luis) and Honorata Duazo (Honorata)
acquired several real properties in Daan Bantayan, Cebu City,
including the subject properties. The couple had nine (9) children
namely: Hospicio, Arturo, Florita, Lucila, Eduardo, Manuel, Cleofe,
Antonio, and Angelica. On April 25, 1952, Honorata died. Later on,
Luis married Lourdes Pastor Rosaroso (Lourdes).
On January 16, 1995, a complaint for Declaration of Nullity of
Documents with Damages was filed by Luis, as one of the
plaintiffs, against his daughter, Lucila R. Soria (Lucila); Lucila’s
daughter, Laila S. Solutan (Laila); and Meridian Realty Corporation
(Meridian). Due to Luis’ untimely death, however, an amended
complaint was filed on January 6, 1996, with the spouse of Laila,
Ham Solutan (Ham); and Luis’ second wife, Lourdes, included as
defendants.3
In the Amended Complaint, it was alleged by petitioners Hospicio
D. Rosaroso, Antonio D. Rosaroso (Antonio), Angelica D. Rosaroso
(Angelica), and Cleofe R. Labindao (petitioners) that on November
4, 1991, Luis, with the full knowledge and consent of his second
wife, Lourdes, executed the Deed of Absolute Sale4 (First Sale)
covering the properties with Transfer Certificate of Title (TCT) No.
31852 (Lot No. 8); TCT. No. 11155 (Lot 19); TCT No. 10885 (Lot
No. 22); TCT No. 10886 (Lot No. 23); and Lot Nos. 5665 and 7967,
all located at Daanbantayan, Cebu, in their favor.5
258
Sales – Chapter 3 Cases
infirm, blind, and of unsound mind; that Lucila and Laila
accomplished this by affixing Luis’ thumb mark on the SPA which
purportedly authorized Laila to sell and convey, among others, Lot
Nos. 8, 22 and 23, which had already been sold to them; and that
on the strength of another SPA7 by Luis, dated July 21, 1993
(Second SPA), respondents Laila and Ham mortgaged Lot No. 19
to Vital Lending Investors, Inc. for and in consideration of the
amount of ₱150,000.00 with the concurrence of Lourdes.8
Petitioners further averred that a second sale took place on
August 23, 1994, when the respondents made Luis sign the Deed
of Absolute Sale9 conveying to Meridian three (3) parcels of
residential land for ₱960,500.00 (Second Sale); that Meridian was
in bad faith when it did not make any inquiry as to who were the
occupants and owners of said lots; and that if Meridian had only
investigated, it would have been informed as to the true status of
the subject properties and would have desisted in pursuing their
acquisition.
Petitioners, thus, prayed that they be awarded moral damages,
exemplary damages, attorney’s fees, actual damages, and
litigation expenses and that the two SPAs and the deed of sale in
favor of Meridian be declared null and void ab initio.10
On their part, respondents Lucila and Laila contested the First
Sale in favor of petitioners. They submitted that even assuming
that it was valid, petitioners were estopped from questioning the
Second Sale in favor of Meridian because they failed not only in
effecting the necessary transfer of the title, but also in annotating
their interests on the titles of the questioned properties. With
respect to the assailed SPAs and the deed of absolute sale
executed by Luis, they claimed that the documents were valid
because he was conscious and of sound mind and body when he
executed them. In fact, it was Luis together with his wife who
received the check payment issued by Meridian where a big part
of it was used to foot his hospital and medical expenses.11
Respondent Meridian, in its Answer with Compulsory
Counterclaim, averred that Luis was fully aware of the
conveyances he made. In fact, Sophia Sanchez (Sanchez), Vice-
President of the corporation, personally witnessed Luis affix his
thumb mark on the deed of sale in its favor. As to petitioners’
contention that Meridian acted in bad faith when it did not
endeavor to make some inquiries as to the status of the
properties in question, it countered that before purchasing the
properties, it checked the titles of the said lots with the Register of
Deeds of Cebu and discovered therein that the First Sale
purportedly executed in favor of the plaintiffs was not
registered with the said Register of Deeds. Finally, it argued that
the suit against it was filed in bad faith.12
On her part, Lourdes posited that her signature as well as that of
Luis appearing on the deed of sale in favor of petitioners, was
obtained through fraud, deceit and trickery. She explained that
they signed the prepared deed out of pity because petitioners told
them that it was necessary for a loan application. In fact, there
was no consideration involved in the First Sale. With respect to
the Second Sale, she never encouraged the same and neither did
she participate in it. It was purely her husband’s own volition that
the Second Sale materialized. She, however, affirmed that she
received Meridian’s payment on behalf of her husband who was
then bedridden.13
RTC Ruling
After the case was submitted for decision, the RTC ruled in favor
of petitioners. It held that when Luis executed the second deed of
sale in favor of Meridian, he was no longer the owner of Lot Nos.
19, 22 and 23 as he had already sold them to his children by his
first marriage. In fact, the subject properties had already been
delivered to the vendees who had been living there since birth and
so had been in actual possession of the said properties. The trial
court stated that although the deed of sale was not registered,
this fact was not prejudicial to their interest. It was of the view
that the actual registration of the deed of sale was not necessary
to render a contract valid and effective because where the vendor
delivered the possession of the parcel of land to the vendee and
no superior rights of third persons had intervened, the efficacy of
said deed was not destroyed. In other words, Luis lost his right to
dispose of the said properties to Meridian from the time he
executed the first deed of sale in favor of petitioners. The same
held true with his alleged sale of Lot 8 to Lucila Soria.14
Specifically, the dispositive portion of the RTC decision reads:
IN VIEW OF THE FOREGOING, the Court finds that a
preponderance of evidence exists in favor of the plaintiffs and
against the defendants. Judgment is hereby rendered:
a. Declaring that the Special Power of Attorney, Exhibit "K," for the
plaintiffs and Exhibit "3" for the defendants null and void including
all transactions subsequent thereto and all proceedings arising
259
therefrom;
Sales – Chapter 3 Cases
c. Declaring the Deed of Absolute Sale of Three (3) Parcels of
b. Declaring the Deed of Sale marked as Exhibit "E" valid and Residential Land marked as Exhibit "F" null and void from the
binding; beginning;
d. Declaring the Deed of Sale, Exhibit "16" (Solutan) or Exhibit "FF,"
null and void from the beginning;
revoked by Luis when he executed the affidavit, dated November
24, 1994, the CA ruled that the Second Sale remained valid. The
Second Sale was transacted on August 23, 1994, before the First
SPA was revoked. In other words, when the Second Sale was
consummated,

e. Declaring the vendees named in the Deed of Sale marked as

Exhibit "E" to be the lawful, exclusive and absolute owners and
possessors of Lots Nos. 8, 19, 22, and 23;

f. Ordering the defendants to pay jointly and severally each

plaintiff ₱50,000.00 as moral damages; and

g. Ordering the defendants to pay plaintiffs ₱50,000.00 as

attorney’s fees; and ₱20,000.00 as litigation expenses.

The crossclaim made by defendant Meridian Realty Corporation

against defendants Soria and Solutan is ordered dismissed for
lack of sufficient evidentiary basis.

SO ORDERED."15

Ruling of the Court of Appeals

On appeal, the CA reversed and set aside the RTC decision. The
CA ruled that the first deed of sale in favor of petitioners was void
because they failed to prove that they indeed tendered a
consideration for the four (4) parcels of land. It relied on the
testimony of Lourdes that petitioners did not pay her husband.
The price or consideration for the sale was simulated to make it
appear that payment had been tendered when in fact no payment
was made at all.16

With respect to the validity of the Second Sale, the CA stated that
it was valid because the documents were notarized and, as such,
they enjoyed the presumption of regularity. Although petitioners
alleged that Luis was manipulated into signing the SPAs, the CA
opined that evidence was wanting in this regard. Dr. Arlene Letigio
Pesquira, the attending physician of Luis, testified that while the
latter was physically infirmed, he was of sound mind when he
executed the first SPA.17

260
With regard to petitioners’ assertion that the First SPA was
Sales – Chapter 3 Cases
the First SPA was still valid and subsisting. Thus, "Meridian had all
the reasons to rely on the said SPA during the time of its validity
until the time of its actual filing with the Register of Deeds
considering that constructive notice of the revocation of the SPA
only came into effect upon the filing of the Adverse Claim and the
aforementioned Letters addressed to the Register of Deeds on 17
December 1994 and 25 November 1994, respectively, informing
the Register of Deeds of the revocation of the first SPA."18
Moreover, the CA observed that the affidavit revoking the first
SPA was also revoked by Luis on December 12, 1994.19
Furthermore, although Luis revoked the First SPA, he did not
revoke the Second SPA which authorized respondent Laila to sell,
convey and mortgage, among others, the property covered by TCT
T-11155 (Lot No. 19). The CA opined that had it been the intention
of Luis to discredit the
Second Sale, he should have revoked not only the First SPA but
also the Second SPA. The latter being valid, all transactions
emanating from it, particularly the mortgage of Lot 19, its
subsequent redemption and its second sale, were valid.20 Thus,
the CA disposed in this wise:
WHEREFORE, the appeal is hereby GRANTED. The Decision dated
30 July 2004 is hereby REVERSED AND SET ASIDE, and in its
stead a new decision is hereby rendered:
1. DECLARING the Special Power of Attorney, dated 21 July 1993,
as valid;
2. DECLARING the Special Power of Attorney, dated 03 April 1993,
as valid up to the time of its revocation on 24 November 1994;
3. DECLARING the Deed of Absolute sale, dated 04 November
1991, as ineffective and without any force and effect;
4. DECLARING the Deed of Absolute Sale of Three (3) Parcels of
Residential Land, dated 23 August 1994, valid and binding from
the very beginning;
5. DECLARING the Deed of Absolute Sale, dated 27 September
1994, also valid and binding from the very beginning;
6. ORDERING the substituted plaintiffs to pay jointly and severally
the defendant-appellant Meridian Realty Corporation the sum of
Php100,000.00 as moral damages, Php100,000.00 as attorney’s
fee and Php100,000.00 as litigation expenses; and
7. ORDERING the substituted plaintiffs to pay jointly and severally
the defendant-appellants Leila Solutan et al., the sum of
Php50,000.00 as moral damages.
SO ORDERED.21
Petitioners filed a motion for reconsideration, but it was denied in
the CA Resolution,22 dated November 18, 2010. Consequently,
they filed the present petition with the following ASSIGNMENT OF
ERRORS
I.
THE HONORABLE COURT OF APPEALS (19TH DIVISION)
GRAVELY ERRED WHEN IT DECLARED AS VOID THE FIRST SALE
EXECUTED BY THE LATE LUIS ROSAROSO IN FAVOR OF HIS
CHILDREN OF HIS FIRST MARRIAGE.
II.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT
SUSTAINING AND AFFIRMING THE RULING OF THE TRIAL COURT
DECLARING THE MERIDIAN REALTY CORPORATION A BUYER IN
BAD FAITH, DESPITE THE TRIAL COURT’S FINDINGS THAT THE
DEED OF SALE (First Sale), IS GENUINE AND HAD FULLY
COMPLIED WITH ALL THE LEGAL FORMALITIES.
III.
THE HONORABLE COURT OF APPEALS FURTHER ERRED IN NOT
HOLDING THE SALE (DATED 27 SEPTEMBER 1994), NULL AND
VOID FROM THE VERY BEGINNING SINCE LUIS ROSAROSO ON
NOVEMBER 4, 1991 WAS NO LONGER THE OWNER OF LOTS 8,
19, 22 AND 23 AS HE HAD EARLIER DISPOSED SAID LOTS IN
FAVOR OF THE CHILDREN OF HIS (LUIS ROSAROSO) FIRST
MARRIAGE.23
Petitioners argue that the second deed of sale was null and void
because Luis could not have validly transferred the ownership of
the subject properties to Meridian, he being no longer the owner
after selling them to his children. No less than Atty. William Boco,
the lawyer who notarized the first deed of sale, appeared and
testified in court that the said deed was the one he notarized and
261
that Luis and his second wife, Lourdes, signed the same before
Sales – Chapter 3 Cases
him. He also identified the signatures of the subscribing
witnesses.24 Thus, they invoke the finding of the RTC which
wrote:
In the case of Heirs of Joaquin Teves, Ricardo Teves versus Court
of Appeals, et al., G.R. No. 109963, October 13, 1999, the Supreme The fact that the first deed of sale was executed, conveying the
Court held that a public document executed [with] all the legal subject properties in favor of petitioners, was never contested by
formalities is entitled to a presumption of truth as to the recitals the respondents. What they vehemently insist, though, is that the
contained therein. In order to overthrow a certificate of a notary
public to the effect that a grantor executed a certain document
and acknowledged the fact of its execution before him, mere
preponderance of evidence will not suffice. Rather, the evidence
must (be) so clear, strong and convincing as to exclude all
reasonable dispute as to the falsity of the certificate. When the
evidence is conflicting, the certificate will be upheld x x x .
A notarial document is by law entitled to full faith and credit upon
its face. (Ramirez vs. Ner, 21 SCRA 207). As such it … must be
sustained in full force and effect so long as he who impugns it
shall not have presented strong, complete and conclusive proof of
its falsity or nullity on account of some flaw or defect provided
against by law (Robinson vs. Villafuerte, 18 Phil. 171, 189-190).25
Furthermore, petitioners aver that it was erroneous for the CA to
say that the records of the case were bereft of evidence that they
paid the price of the lots sold to them. In fact, a perusal of the
records would reveal that during the cross-examination of Antonio
Rosaroso, when asked if there was a monetary consideration, he
testified that they indeed paid their father and their payment
helped him sustain his daily needs.26
Petitioners also assert that Meridian was a buyer in bad faith
because when its representative visited the site, she did not make
the necessary inquiries. The fact that there were already houses
on the said lots should have put Meridian on its guard and, for
said reason, should have made inquiries as to who owned those
houses and what their rights were over the same.27
Meridian’s assertion that the Second Sale was registered in the
Register of Deeds was a falsity. The subject titles, namely: TCT
No. 11155 for Lot 19, TCT No. 10885 for Lot 22, and TCT No.
10886 for Lot 23 were free from any annotation of the alleged
sale.28
After an assiduous assessment of the records, the Court finds for
the petitioners.
262
The First Deed Of Sale Was Valid
Sales – Chapter 3 Cases
said sale was simulated because the purported sale was made
without a valid consideration.
Under Section 3, Rule 131 of the Rules of Court, the following are
disputable presumptions: (1) private transactions have been fair
and regular; (2) the ordinary course of business has been
followed; and (3) there was sufficient consideration for a
contract.29 These presumptions operate against an adversary
who has not introduced proof to rebut them. They create the
necessity of presenting evidence to rebut the prima facie case
they created, and which, if no proof to the contrary is presented
and offered, will prevail. The burden of proof remains where it is
but, by the presumption, the one who has that burden is relieved
for the time being from introducing evidence in support of the
averment, because the presumption stands in the place of
evidence unless rebutted.30
In this case, the respondents failed to trounce the said
presumption. Aside from their bare allegation that the sale was
made without a consideration, they failed to supply clear and
convincing evidence to back up this claim. It is elementary in
procedural law that bare allegations, unsubstantiated by evidence,
are not equivalent to proof under the Rules of Court.31
The CA decision ran counter to this established rule regarding
disputable presumption. It relied heavily on the account of
Lourdes who testified that the children of Luis approached him
and convinced him to sign the deed of sale, explaining that it was
necessary for a loan application, but they did not pay the purchase
price for the subject properties.32 This testimony, however, is self
-serving and would not amount to a clear and convincing evidence
required by law to dispute the said presumption. As such, the
presumption that there was sufficient consideration will not be
disturbed.
Granting that there was no delivery of the consideration, the seller
would have no right to sell again what he no longer owned. His
remedy would be to rescind the sale for failure on the part of the
buyer to perform his part of their obligation pursuant to Article
1191 of the New Civil Code. In the case of Clara M. Balatbat v.
Court Of Appeals and Spouses Jose Repuyan and Aurora
Repuyan,33 it was written:
The failure of the buyer to make good the price does not, in law,
cause the ownership to revest to the seller unless the bilateral at all.
contract of sale is first rescinded or resolved pursuant to Article
1191 of the New Civil Code. Non-payment only creates a right to The principle of primus tempore, potior jure (first in time, stronger
demand the fulfillment of the obligation or to rescind the contract. in right) gains greater significance in case of a double sale of
[Emphases supplied] immovable property. When the thing sold twice is an immovable,
the one who acquires it and first records it in the Registry of
Meridian is Not a Property, both made in good faith, shall be deemed the owner.
Buyer in Good Faith Verily, the act of registration must be coupled with good faith—
that is, the registrant must have no knowledge of the defect or
Respondents Meridian and Lucila argue that, granting that the lack of
First Sale was valid, the properties belong to them as they
acquired these in good faith and had them first recorded in the
Registry of Property, as they were unaware of the First Sale.34
Again, the Court is not persuaded.
The fact that Meridian had them first registered will not help its
cause. In case of double sale, Article 1544 of the Civil Code
provides:
ART. 1544. If the same thing should have been sold to different
vendees, the ownership shall be transferred to the person who
may have first possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to
the person acquiring it who in good faith first recorded it in the
Registry of Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in possession; and, in the
absence thereof; to the person who presents the oldest title,
provided there is good faith.
Otherwise stated, ownership of an immovable property which is
the subject of a double sale shall be transferred: (1) to the person
acquiring it who in good faith first recorded it in the Registry of
Property; (2) in default thereof, to the person who in good faith
was first in possession; and (3) in default thereof, to the person
who presents the oldest title, provided there is good faith. The
requirement of the law then is two-fold: acquisition in good faith
and registration in good faith. Good faith must concur with the
registration. If it would be shown that a buyer was in bad faith, the
263
alleged registration they have made amounted to no registration
Sales – Chapter 3 Cases
title of his vendor or must not have been aware of facts which
should have put him upon such inquiry and investigation as might
be necessary to acquaint him with the defects in the title of his
vendor.)35 [Emphases and underlining supplied]
When a piece of land is in the actual possession of persons other
than the seller, the buyer must be wary and should investigate the
rights of those in possession. Without making such inquiry, one
cannot claim that he is a buyer in good faith. When a man
proposes to buy or deal with realty, his duty is to read the public
manuscript, that is, to look and see who is there upon it and what
his rights are. A want of caution and diligence, which an honest
man of ordinary prudence is accustomed to exercise in making
purchases, is in contemplation of law, a want of good faith. The
buyer who has failed to know or discover that the land sold to him
is in adverse possession of another is a buyer in bad faith.36 In
the case of Spouses Sarmiento v. Court of Appeals,37 it was
written:
Verily, every person dealing with registered land may safely rely on
the correctness of the certificate of title issued therefor and the
law will in no way oblige him to go behind the certificate to
determine the condition of the property. Thus, the general rule is
that a purchaser may be considered a purchaser in good faith
when he has examined the latest certificate of title. An exception
to this rule is when there exist important facts that would create
suspicion in an otherwise reasonable man to go beyond the
present title and to investigate those that preceded it. Thus, it has
been said that a person who deliberately ignores a significant fact
which would create suspicion in an otherwise reasonable man is
not an innocent purchaser for value. A purchaser cannot close his
eyes to facts which should put a reasonable man upon his guard,
and then claim that he acted in good faith under the belief that
there was no defect in the title of the vendor. As we have held:
The failure of appellees to take the ordinary precautions which a
prudent man would have taken under the circumstances, specially
in buying a piece of land in the actual, visible and public
possession of another person, other than the vendor, constitutes
gross negligence amounting to bad faith.
In this connection, it has been held that where, as in this case, the
land sold is in the possession of a person other than the vendor,
the purchaser is required to go beyond the certificate of title to
make inquiries concerning the rights of the actual possessor.
Failure to do so would make him a purchaser in bad faith.
(Citations omitted).
One who purchases real property which is in the actual
possession of another should, at least make some inquiry
concerning the right
of those in possession. The actual possession by other than the
vendor should, at least put the purchaser upon inquiry. He can
scarely, in the absence of such inquiry, be regarded as a bona fide
purchaser as against such possessors. (Emphases supplied)
Prescinding from the foregoing, the fact that private respondent
RRC did not investigate the Sarmiento spouses' claim over the
subject land despite its knowledge that Pedro Ogsiner, as their
overseer, was in actual possession thereof means that it was not
an innocent purchaser for value upon said land. Article 524 of the
Civil Code directs that possession may be exercised in one's
name or in that of another. In herein case, Pedro Ogsiner had
informed RRC that he was occupying the subject land on behalf of
the Sarmiento spouses. Being a corporation engaged in the
business of buying and selling real estate, it was gross negligence
on its part to merely rely on Mr. Puzon's assurance that the
occupants of the property were mere squatters considering the
invaluable information it acquired from Pedro Ogsiner and
considering further that it had the means and the opportunity to
investigate for itself the accuracy of such information. [Emphases
supplied]
In another case, it was held that if a vendee in a double sale
registers the sale after he has acquired knowledge of a previous
sale, the registration constitutes a registration in bad faith and
does not confer upon him any right. If the registration is done in
bad faith, it is as if there is no registration at all, and the buyer who
has first taken possession of the property in good faith shall be
preferred.38
In the case at bench, the fact that the subject properties were
already in the possession of persons other than Luis was never
disputed. Sanchez, representative and witness for Meridian, even
testified as follows:
x x x; that she together with the two agents, defendant Laila
Solutan and Corazon Lua, the president of Meridian Realty
Corporation, went immediately to site of the lots; that the agents
brought with them the three titles of the lots and Laila Solutan
brought with her a special power of attorney executed by Luis B.
Rosaroso in her favor but she went instead directly to Luis
Rosaroso to be sure; that the lots were pointed to them and she
saw that there were houses on it but she did not have any interest
264
of the houses because her interest was on the lots; that Luis
Sales – Chapter 3 Cases
Rosaroso said that the houses belonged to him; that he owns the
property and that he will sell the same because he is very sickly
and he wanted to buy medicines; that she requested someone to
check the records of the lots in the Register of Deeds; that one of
the titles was mortgaged and she told them to redeem the
mortgage because the corporation will buy the property; that the
registered owner of the lots was Luis
Rosaroso; that in more or less three months, the encumbrance
was cancelled and she told the prospective sellers to prepare the
deed of sale; that there were no encumbrances or liens in the title;
that when the deed of absolute sale was prepared it was signed
by the vendor Luis Rosaroso in their house in Opra x x x.39
(Underscoring supplied)
From the above testimony, it is clear that Meridian, through its
agent, knew that the subject properties were in possession of
persons other than the seller. Instead of investigating the rights
and interests of the persons occupying the said lots, however, it
chose to just believe that Luis still owned them. Simply, Meridian
Realty failed to exercise the due diligence required by law of
purchasers in acquiring a piece of land in the possession of
person or persons other than the seller.
In this regard, great weight is accorded to the findings of fact of
the RTC. Basic is the rule that the trial court is in a better position
to examine real evidence as well as to observe the demeanor of
witnesses who testify in the case.40
WHEREFORE, the petition is GRANTED. The December 4, 2009
Decision and the November 18, 201 0 Resolution of the Court of
Appeals, in CA-G.R. CV No. 00351, are REVERSED and SET ASIDE.
The July 30, 2004 Decision of the Regional Trial Court, Branch 8,
7th Judicial Region, Cebu City, in Civil Case No. CEB-16957, is
hereby REINSTATED.
SO ORDERED.
265