G.R. No.

125485 September 13, 2004 Private respondents contended that their declaration that they were legitimate children of Jose
Sebastian and Tomasina Paul did not affect the validity of the extrajudicial partition. Petitioner’s act of
signing the document estopped her to deny or question its validity. They moreover averred that the
RESTITUTA LEONARDO, assisted by JOSE T. RAMOS, petitioners,
action filed by petitioner was incompatible with her complaint. Considering that petitioner claimed
vs.
vitiation of consent, the proper action was annulment and not declaration of nullity of the instrument.
COURT OF APPEALS

On July 27, 1989, petitioner filed an amended complaint5 to include parties to the extrajudicial partition
CORONA, J.:
who were not named as defendants in the original complaint.

• complaint filed by petitioner against private respondents for declaration of nullity of

During the August 23, 1990 pre-trial conference,6 no amicable settlement was reached and the parties
the extrajudicial settlement of the estate of Jose Sebastian and Tomasina Paul.
agreed that the only issue to be resolved was whether petitioner’s consent to the extrajudicial partition
was voluntarily given.
Petitioner Restituta Leonardo is the only legitimate child of the late spouses Tomasina Paul and
Balbino Leonardo. Private respondents Teodoro, Victor, Corazon, Piedad, as well as the late Eduvigis
In a decision dated February 22, 1993, the RTC of San Carlos City, Pangasinan rendered a
and Dominador, all surnamed Sebastian, are the illegitimate children of Tomasina with Jose Sebastian
decision7 dismissing the complaint as well as the counterclaim. The court a quo ruled that the element
after she separated from Balbino Leonardo.
of duress or fraud that vitiates consent was not established and that the proper action was the
reformation of the instrument, not the declaration of nullity of the extrajudicial settlement of estate. By
In an action to declare the nullity of the extrajudicial settlement of the estate of Tomasina Paul and way of obiter dictum, the trial court stated that, being a legitimate child, petitioner was entitled to one-
Jose Sebastian before Branch 57, RTC of San Carlos City, Pangasinan, petitioner alleged that, on June half (or 19,282.5 sq.m.) of Tomasina Paul’s estate as her legitime. The 7,671.75 square meters allotted
24, 1988, at around 5:00 p.m., private respondent Corazon Sebastian and her niece Julieta to her in the assailed extrajudicial partition was therefore less than her correct share as provided by
Sebastian, and a certain Bitang, came to petitioner’s house to persuade her to sign a deed of extrajudicial law.
partition of the estate of Tomasina Paul and Jose Sebastian. Before signing the document, petitioner
allegedly insisted that they wait for her husband Jose Ramos so he could translate the document
On appeal, the Court of Appeals affirmed the judgment of the trial court in its May 23, 1996
which was written in English. Petitioner, however, proceeded to sign the document even without her
decision.8 Hence, this petition for review on certiorari under Rule 45.
husband and without reading the document, on the assurance of private respondent Corazon Sebastian
that petitioner’s share as a legitimate daughter of Tomasina Paul was provided for in the
extrajudicial partition. Petitioner then asked private respondent Corazon and her companions to wait The sole issue in this case is whether the consent given by petitioner to the extrajudicial settlement
for her husband so he could read the document. When petitioner’s husband arrived, however, private of estate was given voluntarily.
respondent Corazon and her companions had left without leaving a copy of the document. It was only
when petitioner hired a lawyer that they were able to secure a copy and read the contents thereof.
We hold that it was not.

Petitioner refuted3 private respondents’ claim that they were the legitimate children and sole heirs of
The essence of consent is the agreement of the parties on the terms of the contract, the acceptance by
Jose Sebastian and Tomasina Paul. Despite the (de facto) separation of petitioner’s father Balbino
one of the offer made by the other. It is the concurrence of the minds of the parties on the object
Leonardo and Tomasina Paul, the latter remained the lawful wife of Balbino. Petitioner maintained
and the cause which constitutes the contract.9 The area of agreement must extend to all points that
that no joint settlement of the estate of Jose Sebastian and Tomasina Paul could be effected since
the parties deem material or there is no consent at all.10
what existed between them was co-ownership, not conjugal partnership. They were never married
to each other. The extrajudicial partition was therefore unlawful and illegal.
To be valid, consent must meet the following requisites: (a) it should be intelligent, or with an
exact notion of the matter to which it refers; (b) it should be free and (c) it should be
Petitioner also claimed that her consent was vitiated because she was deceived into signing the
spontaneous. Intelligence in consent is vitiated by error; freedom by violence, intimidation or
extrajudicial settlement. She further denied having appeared before Judge Juan Austria of the
undue influence; and spontaneity by fraud.11
Municipal Trial Court (MTC) of Urbiztondo, Pangasinan on July 27, 1988 to acknowledge the execution
of the extrajudicial partition.
In determining the effect of an alleged error, the courts must consider both the objective and
subjective aspects of the case which is the intellectual capacity of the person who committed the
Private respondents, in their answer with counterclaim, 4 raised the defense of lack of cause of action.
mistake.12
They insisted that the document in question was valid and binding between the parties. According to
them, on July 27, 1988, they personally appeared before Judge Austria of the MTC of Urbiztondo,
who read and explained the contents of the document which all of them, including petitioner, Mistake, on the other hand, in order to invalidate consent "should refer to the substance of the
voluntarily signed. thing which is the object of the contract, or to those conditions which have principally moved
one or both parties to enter into the contract."13
Art. 1332 of the Civil Code. "[w]hen one of the parties is unable to read, or if the contract is in a Q: What did you do?
language not understood by him, and mistake or fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explained to the former."
A: I let them come in, sir.

• protect a party to a contract disadvantaged by illiteracy, ignorance, mental weakness

Q: Did they come in?
or some other handicap. It contemplates a situation wherein a contract is entered into but
the consent of one of the contracting parties is vitiated by mistake or fraud committed by
the other.15 A: Yes, sir.
• is unable to read and fraud
• "without knowing (its) contents which have not been explained to him," Q: Who was the companion of your half sister Corazon Sebastian when she arrived in your house?
• shifted to the other party to show that the former fully understood the contents of
the document; and if he fails to prove this, the presumption of mistake (if not fraud) stands
unrebutted and controlling.17 A: Julita Sebastian and her daughter Bitang, sir.

Contracts where consent is given by mistake or because of violence, intimidation, undue influence or Q: And who is this Julita Sebastian to you?
fraud are voidable.18 These circumstances are defects of the will, the existence of which impairs the
freedom, intelligence, spontaneity and voluntariness of the party in giving consent to the agreement. A: She is my niece, sir.
In determining whether consent is vitiated by any of the circumstances mentioned in Art. 1330 of the
Civil Code, courts are given a wide latitude in weighing the facts or circumstances in a given case and
in deciding in favor of what they believe actually occurred, considering the Q: And then when they got inside the house, what happened?

• age, physical infirmity, intelligence, relationship and the conduct of the parties at the A: I asked them their purpose, sir.
time of making the contract and subsequent thereto, irrespective of whether the contract is
in a public or private writing.19 Q: Did they tell you their purpose?

Although under Art. 1332 there exists a presumption of mistake or error accorded by the law to those A: I asked their purpose in coming to our house and they told me, "I came here because I have a
who have not had the benefit of a good education, one who alleges any defect or the lack of a valid partition executed so that the share of each one of us will be given", she said sir.
consent to a contract must establish the same by full, clear and convincing evidence, not merely by
preponderance of evidence.20 Hence, even as the burden of proof shifts to the defendants to rebut
the presumption of mistake, the plaintiff who alleges such mistake (or fraud) must show that his Q: Did you see that document?
personal circumstances warrant the application of Art. 1332.
A: Yes, sir.
In this case, the presumption of mistake or error on the part of petitioner was not sufficiently
rebutted by private respondents. Private respondents failed to offer any evidence to prove that the ATTY. L. TULAGAN
extrajudicial settlement of estate was explained in a language known to the petitioner, i.e. the
Pangasinan dialect. Clearly, petitioner, who only finished Grade 3, was not in a position to give her
free, voluntary and spontaneous consent without having the document, which was in English, Q: Did you read the document?
explained to her in the Pangasinan dialect. She stated in open court that she did not understand
English. Her testimony, translated into English, was as follows: A: No, sir because I was waiting for my husband to have that document read or translated to me
because I could not understand, sir.
Q : While you were there is your house at barangay Angatel, Urbiztondo, Pangasinan, what happened?
Q: What could you not understand?
A: On June 24, 1988, I was in our house because I got sick, sir.
A: I can not understand English, sir.
Q: What happened?
Q: But anyway, can you read?
A: When the time was about 5:00 o’clock, I was awaken by my daughter-in-law, Rita Ramos, and told
me that my half sister Corazon would like to tell us something, sir. A: Yes, sir in Pangasinan.
Q: Now, that document which according to you was brought by your half sister Corazon Sebastian, ATTY.O. DE GUZMAN
what happened to that document?
That will be improper, your Honor.
A: Corazon Sebastian request(ed) me to sign, sir.
COURT
Q: Did you sign immediately?
What is the question, you repeat the question.
A: Yes, sir, because according to her, all my shares were embodied in that document as a legal
daughter.21
INTERPRETER:

Petitioner’s wish to wait for her husband, Jose T. Ramos, to explain to her the contents of the
"Reflected upon all the pages of this Exhibit "1" are numerous signatures, two of whom belongs (sic)
document in the Pangasinan dialect was a reasonable and prudent act that showed her uncertainty
to Piedad Paul Sebastian and Eduardo Sebastian Tenorlas, in your just concluded testimony, you
over what was written. Due to her limited educational attainment, she could not understand the
said that everyone of them appeared with you, we have here a documented evidence coming from the
document in English. She wanted to seek assistance from her husband who was then out of the house.
Department of Justice, Bureau of Immigration and Deportation, Manila, certifying that Piedad Paul
However, due to the misrepresentation, deception and undue pressure of her half-sister Corazon
Sebastian and Eduardo Sebastian Tenorlas did not arrive in the Philippines or departed from the
Sebastian, petitioner signed the document. Corazon assured petitioner that she would receive her
Philippines on July, 1998, will you please educate us now Judge Austria on this document?
legitimate share in the estate of their late mother.

ATTY. O. DE GUZMAN:
Later on, when petitioner’s husband examined the extrajudicial partition agreement, he found out that
petitioner was deprived of her full legitime. Under the law, petitioner’s share should have been one-
half of her mother’s estate, comprising a total area of 19,282.50 square meters. Under the defective Your Honor please, before the witness answer, may we examine the certification first and may we
extrajudicial settlement of estate, however, petitioner was to receive only 7,671.75 square meters. state for the record that the month of July, 1998 does not specify any date.
This was a substantial mistake clearly prejudicial to the substantive interests of petitioner in her
mother’s estate. There is no doubt that, given her lack of education, petitioner is protected by Art.
ATTY.. L. TULAGAN:
1332 of the Civil Code. There is reason to believe that, had the provisions of the extrajudicial
agreement been explained to her in the Pangasinan dialect, she would not have consented to the
significant and unreasonable diminution of her rights. July.

MTC Judge Austria, the officer who notarized the extrajudicial settlement, stated that he explained the ATTY. O. DE GUZMAN:
contents to all the parties concerned. Granting arguendo, however, that Judge Austria did indeed
explain the provisions of the agreement to them, the records do not reflect that he explained it to
But not a particular date, for the record.
petitioner in a language or dialect known to her. Judge Austria never stated in his testimony before the
court a quo what language or dialect he used in explaining the contents of the document to the
parties.22 Significantly, he was not even certain if the parties to the agreement were present during the ATTY. L. TUL.AGAN:
notarization of the document:
For the whole month of July, no departure and no arrival. This is a certificate from the Bureau of
ATTY. TULAGAN Immigration, Manila. I do not know about this, as a matter of fact, I do not even know this person
personally
Q. Reflected upon all the pages of this Exhibit "1" are numerous signatures, two of whom belongs (sic)
to Piedad Paul Sebastian and Eduardo Sebastian Tenorlas. WITNESS:

ATTY. D. TULAGAN Somebody that kind of name appeared before me.

(continuing) ATTY. L. TULAGAN:

The Philippines on July, 1989, will you please educate us now Judge Austria on this document? Q: Since you do not know everybody from Urbiztondo, Pangasinan it is possible that another person
appeared and signed for that name?
A: Yes, possible.23
Therefore, the presumption of mistake under Article 1332 is controlling, having remained unrebutted
by private respondents. The evidence proving that the document was not fully explained to petitioner
in a language known to her, given her low educational attainment, remained uncontradicted by
private respondents. We find that, in the light of the circumstances presented by the testimonies of the
witnesses for both parties, the consent of petitioner was invalidated by a substantial mistake or error,
rendering the agreement voidable. The extrajudicial partition between private respondents and
petitioner should therefore be annulled and set aside on the ground of mistake.
contract is binding on all the contracting parties until annulled and set aside by a court of law. It may
be ratified. An action for annulment of contract has a four-year prescriptive period.30
On the other hand, an action for declaration of nullity of contract presupposes a void contract or one
where all of the requisites prescribed by law for contracts are present but the cause, object or purpose
is contrary to law, morals, good customs, public order or public policy, prohibited by law or declared
by law to be void.31 Such contract as a rule produces no legal and binding effect even if it is not set
aside by direct legal action. Neither may it be ratified. An action for the declaration of nullity of
contract is imprescriptible.32

In Rural Bank of Caloocan, Inc. v. Court of Appeals,24 we ruled that a contract may be annulled on the
ground of vitiated consent, even if the act complained of is committed by a third party without the
connivance or complicity of one of the contracting parties. We found that a substantial mistake arose
from the employment of fraud or misrepresentation. The plaintiff in that case was a 70-year-old
unschooled and unlettered woman who signed an unauthorized loan obtained by a third party on her
behalf. The Court annulled the contract due to a substantial mistake which invalidated her consent.
By the same reasoning, if it is one of the contracting parties who commits the fraud or
misrepresentation, such contract may all the more be annulled due to substantial mistake.
The petitioner’s pleading was for the declaration of nullity of the extrajudicial settlement of estate.
However, this did not necessarily mean the automatic dismissal of the case on the ground of lack of
cause of action.
Granting that the action filed by petitioner was incompatible with her allegations, it is not the caption
of the pleading but the allegations that determine the nature of the action. 33 The court should grant
the relief warranted by the allegations and the proof even if no such relief is prayed for.34 In this case,
the allegations in the pleading and the evidence adduced point to no other remedy but to annul the
extrajudicial settlement of estate because of vitiated consent.

In Remalante v. Tibe,25 this Court ruled that misrepresentation to an illiterate woman who did not WHEREFORE, the decision of the Court of Appeals dated 23 May 1996 is hereby REVERSED. The
know how to read and write, nor understand English, is fraudulent. Thus, the deed of sale was extrajudicial settlement of the estate of Tomasina Paul and Jose Sebastian is
considered vitiated with substantial error and fraud. This Court further held: 26 hereby ANNULLED and SET ASIDE. No cost.

Since it has been established by uncontradicted evidence that the plaintiff is practically unschooled SO ORDERED.
and illiterate, not knowing how to read, write and understand the English language in which
Exhibit 22 was drafted, it would have been incumbent upon the defendant to show that the terms
there of have been fully explained to the plaintiff. The evidence is entirely lacking at this point, and the
lack of it is fatal to the cause of the defendant for his failure to discharge the burden of proof.

Generally, the remedy of appeal by certiorari under Rule 45 of the Rules of Court contemplates only
questions of law and not issues of fact.27 This rule, however, is inapplicable in cases such as the one at
bar where the factual findings complained of are absolutely devoid of support in the records or the
assailed judgment of the appellate court is based on a misapprehension of facts. 28 Thus, this case is an
exception to the general rule on the conclusiveness of facts, the evidence pointing to no other
conclusion but the existence of vitiated consent, given the diminished intellectual capacity of the
petitioner and the misrepresentation of private respondent Corazon Sebastian on the contents of the
extrajudicial partition.

Private respondents also maintain that petitioner has no cause of action since the remedy that should
be pursued is an action for annulment and not for declaration of nullity. Private respondents therefore
pray for the dismissal of this petition on the ground of lack of cause of action.

Before ruling on this procedural matter, a distinction between an action for annulment and one for
declaration of nullity of an agreement is called for.1avvphil.net

An action for annulment of contract is one filed where consent is vitiated by lack of legal capacity of
one of the contracting parties, or by mistake, violence, intimidation, undue influence or fraud. 29 By its
very nature, annulment contemplates a contract which is voidable, that is, valid until annulled. Such
G.R. No. 128120 October 20, 2004
SWEDISH MATCH, AB, JUAN ENRIQUEZ, RENE DIZON, FRANCISCO RAPACON, FIEL SANTOS, BETH
FLORES, LAMBRTO DE LA EVA, GLORIA REYES, RODRIGO ORTIZ, NICANOR ESCALANTE, PETER
HODGSON, SAMUEL PARTOSA, HERMINDA ASUNCION, JUANITO HERRERA, JACOBUS NICOLAAS,
JOSEPH PEKELHARING (now Representing himself without court sanction as "JOOST
PEKELHARING)," MASSIMO ROSSI and ED ENRIQUEZ, petitioners,
vs.
COURT OF APPEALS, ALS MANAGEMENT & DEVELOPMENT CORPORATION and ANTONIO K.
LITONJUA,respondents.
DECISION
TINGA, J.:
Petitioners seek a reversal of the twin Orders1 of the Court of Appeals dated 15 November 19962 and
31 January 1997,3 in CA-G.R. CV No. 35886, entitled "ALS Management et al., v. Swedish Match, AB et
al." The appellate court overturned the trial court’s Order4 dismissing the respondents’ complaint for
specific performance and remanded the case to the trial court for further proceedings.
Swedish Match AB (hereinafter SMAB) is a corporation organized under the laws of Sweden not doing
business in the Philippines. SMAB, however, had three subsidiary corporations in the Philippines, all
organized under Philippine laws, to wit: Phimco Industries, Inc. (Phimco), Provident Tree Farms,
Inc., and OTT/Louie (Phils.), Inc.
Sometime in 1988, STORA, the then parent company of SMAB, decided to sell SMAB of Sweden and
the latter’s worldwide match, lighter and shaving products operation to Eemland Management
Services, now known as Swedish Match NV of Netherlands, (SMNV), a corporation organized and
existing under the laws of Netherlands. STORA, however, retained for itself the packaging business.
SMNV initiated steps to sell the worldwide match and lighter businesses while retaining for itself the
shaving business. SMNV adopted a two-pronged strategy, the first being to sell its shares in Phimco
Industries, Inc. and a match company in Brazil, which proposed sale would stave-off defaults in the
loan covenants of SMNV with its syndicate of lenders. The other move was to sell at once or in one
package all the SMNV companies worldwide which were engaged in match and lighter operations thru
a global deal (hereinafter, global deal).
Ed Enriquez (Enriquez), Vice-President of Swedish Match Sociedad Anonimas (SMSA)—the
management company of the Swedish Match group—was commissioned and granted full powers to
negotiate by SMNV, with the resulting transaction, however, made subject to final approval by the
board. Enriquez was held under strict instructions that the sale of Phimco shares should be executed
on or before 30 June 1990, in view of the tight loan covenants of SMNV. Enriquez came to the
Philippines in November 1989 and informed the Philippine financial and business circles that the
Phimco shares were for sale.
Several interested parties tendered offers to acquire the Phimco shares, among whom were the AFP
Retirement and Separation Benefits System, herein respondent ALS Management & Development
Corporation and respondent Antonio Litonjua (Litonjua), the president and general manager of ALS.
In his letter dated 3 November 1989, Litonjua submitted to SMAB a firm offer to buy all of the
latter’s shares in Phimco and all of Phimco’s shares in Provident Tree Farm, Inc. and OTT/Louie
(Phils.), Inc. for the sum of ₱750,000,000.00.5
Through its Chief Executive Officer, Massimo Rossi (Rossi), SMAB, in its letter dated 1 December 1989,
thanked respondents for their interest in the Phimco shares. Rossi informed respondents that their
price offer was below their expectations but urged them to undertake a comprehensive review and
analysis of the value and profit potentials of the Phimco shares, with the assurance that respondents
would enjoy a certain priority although several parties had indicated their interest to buy the shares. 6
Thereafter, an exchange of correspondence ensued between petitioners and respondents
regarding the projected sale of the Phimco shares. In his letter dated 21 May 1990, Litonjua
offered to buy the disputed shares, excluding the lighter division for US$30.6 million, which per
another letter of the same date was increased to US$36 million.7Litonjua stressed that the bid
amount could be adjusted subject to availability of additional information and audit verification of the
company finances.
Responding to Litonjua’s offer, Rossi sent his letter dated 11 June 1990, informing the former
that ALS should undertake a due diligence process or pre-acquisition audit and review of the
draft contract for the Match and Forestry activities of Phimco at ALS’ convenience. However,
Rossi made it clear that at the completion of the due diligence process, ALS should submit its final
offer in US dollar terms not later than 30 June 1990, for the shares of SMAB corresponding to ninety-
six percent (96%) of the Match and Forestry activities of Phimco. Rossi added that in case the "global
deal" presently under negotiation for the Swedish Match Lights Group would materialize, SMAB would
reimburse up to US$20,000.00 of ALS’ costs related to the due diligence process. 8
Litonjua in a letter dated 18 June 1990, expressed disappointment at the apparent change in SMAB’s
approach to the bidding process. He pointed out that in their 4 June 1990 meeting, he was advised that
one final bidder would be selected from among the four contending groups as of that date and that the
decision would be made by 6 June 1990. He criticized SMAB’s decision to accept a new bidder who
was not among those who participated in the 25 May 1990 bidding. He informed Rossi that it may
not be possible for them to submit their final bid on 30 June 1990, citing the advice to him of the
auditing firm that the financial statements would not be completed until the end of July. Litonjua
added that he would indicate in their final offer more specific details of the payment mechanics and
consider the possibility of signing a conditional sale at that time.9
Two days prior to the deadline for submission of the final bid, Litonjua again advised Rossi that
they would be unable to submit the final offer by 30 June 1990, considering that the acquisition
audit of Phimco and the review of the draft agreements had not yet been completed. He said, however,
that they would be able to finalize their bid on 17 July 1990 and that in case their bid would turn out
better than any other proponent, they would remit payment within ten (10) days from the execution
of the contracts.10
Enriquez sent notice to Litonjua that they would be constrained to entertain bids from other parties in
view of Litonjua’s failure to make a firm commitment for the shares of Swedish Match in Phimco by 30
June 1990.11
In a letter dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they signed a conditional
contract with a local group for the disposal of Phimco. He told Litonjua that his bid would no longer be
considered unless the local group would fail to consummate the transaction on or before 15
September1990.12
Apparently irked by SMAB’s decision to junk his bid, Litonjua promptly responded by letter dated 4
July 1990. Contrary to his prior manifestations, he asserted that, for all intents and purposes, the
US$36 million bid which he submitted on 21 May 1990 was their final bid based on the financial
statements for the year 1989. He pointed out that they submitted the best bid and they were
already finalizing the terms of the sale. He stressed that they were firmly committed to their
bid of US$36 million and if ever there would be adjustments in the bid amount, the
adjustments were brought about by SMAB’s subsequent disclosures and validated accounts,
such as the aspect that only ninety-six percent (96%) of Phimco shares was actually being sold
and not one-hundred percent (100%).13
More than two months from receipt of Litonjua’s last letter, Enriquez sent a fax communication to the
former, advising him that the proposed sale of SMAB’s shares in Phimco with local buyers did not
materialize. Enriquez then invited Litonjua to resume negotiations with SMAB for the sale of Phimco
shares. He indicated that SMAB would be prepared to negotiate with ALS on an exclusive basis
for a period of fifteen (15) days from 26 September 1990 subject to the terms contained in the
letter. Additionally, Enriquez clarified that if the sale would not be completed at the end of the fifteen
(15)-day period, SMAB would enter into negotiations with other buyers.14
Shortly thereafter, Litonjua sent a letter expressing his objections to the totally new set of terms
and conditions for the sale of the Phimco shares. He emphasized that the new offer constituted an
attempt to reopen the already perfected contract of sale of the shares in his favor. He intimated that he
could not accept the new terms and conditions contained therein. 15
On 14 December 1990, respondents, as plaintiffs, filed before the Regional Trial Court (RTC) of Pasig a
complaint for specific performance with damages, with a prayer for the issuance of a writ of preliminary
injunction, against defendants, now petitioners. The individual defendants were sued in their
respective capacities as officers of the corporations or entities involved in the aborted transaction.
Aside from the averments related to their principal cause of action for specific performance,
respondents alleged that the Phimco management, in utter bad faith, induced SMAB to violate its
contract with respondents. They contended that the Phimco management took an interest in
acquiring for itself the Phimco shares and that petitioners conspired to thwart the closing of such sale
by interposing various obstacles to the completion of the acquisition audit. 16 Respondents claimed
that the Phimco management maliciously and deliberately delayed the delivery of documents to Laya
Manabat Salgado & Co. which prevented them from completing the acquisition audit in time for the
deadline on 30 June 1990 set by petitioners.17 Respondents added that SMAB’s refusal to consummate
the perfected sale of the Phimco shares amounted to an abuse of right and constituted conduct which
is contrary to law, morals, good customs and public policy.18
Respondents prayed that petitioners be enjoined from selling or transferring the Phimco shares,
or otherwise implementing the sale or transfer thereof, in favor of any person or entity other than
respondents, and that any such sale to third parties be annulled and set aside. Respondents also
asked that petitioners be ordered to execute all documents or instruments and perform all acts
necessary to consummate the sales agreement in their favor.
Traversing the complaint, petitioners alleged that respondents have no cause of action, contending
that no perfected contract, whether verbal or written, existed between them. Petitioners added that
respondents’ cause of action, if any, was barred by the Statute of Frauds since there was no written
instrument or document evidencing the alleged sale of the Phimco shares to respondents.
Petitioners filed a motion for a preliminary hearing of their defense of bar by the Statute of Frauds,
which the trial court granted. Both parties agreed to adopt as their evidence in support of or against
the motion to dismiss, as the case may be, the evidence which they adduced in support of their
respective positions on the writ of preliminary injunction incident.
In its Order dated 17 April 1991, the RTC dismissed respondents’ complaint.19 It ruled that there was
no perfected contract of sale between petitioners and respondents. The court a quo said that the letter
dated 11 June 1990, relied upon by respondents, showed that petitioners did not accept the bid offer
of respondents as the letter was a mere invitation for respondents to conduct a due diligence process
or pre-acquisition audit of Phimco’s match and forestry operations to enable them to submit their
final offer on 30 June 1990. Assuming that respondent’s bid was favored by an oral acceptance made
in private by officers of SMAB, the trial court noted, such acceptance was merely preparatory to a
formal acceptance by the SMAB—the acceptance that would eventually lead to the execution and
signing of the contract of sale. Moreover, the court noted that respondents failed to submit their final
bid on the deadline set by petitioners.
Respondents appealed to the Court of Appeals, assigning the following errors:
A. THE TRIAL COURT EXCEEDED ITS AUTHORITY AND JURISDICTION WHEN IT ERRED
PROCEDURALLY IN MOTU PROPIO (sic) DISMISSING THE COMPLAINT IN ITS ENTIRETY FOR "LACK
OF A VALID CAUSE OF ACTION" WITHOUT THE BENEFIT OF A FULL-BLOWN TRIAL AND ON THE
MERE MOTION TO DISMISS.
B. THE TRIAL COURT ERRED IN IGNORING PLAINTIFF-APPELLANTS’ CAUSE OF ACTION BASED ON
TORT WHICH, HAVING BEEN SUFFICIENTLY PLEADED, INDEPENDENTLY WARRANTED A FULL-
BLOWN TRIAL.
C. THE TRIAL COURT ERRED IN IGNORING PLAINTIFFS-APPELLANTS’ CAUSE OF ACTION BASED ON
PROMISSORY ESTOPPEL WHICH, HAVING BEEN SUFFICIENTLY PLEADED, WARRANTED A FULL-
BLOWN TRIAL, INDEPENDENTLY FOR THE OTHER CAUSES OF ACTION.
D. THE TRIAL COURT JUDGE ERRED IN FORSWEARING JUDICIAL OBJECTIVITY TO FAVOR
DEFENDANTS-APPELLEES BY MAKING UNFOUNDED FINDINGS, ALL IN VIOLATION OF PLAINTIFFS-
APPELLANTS’ RIGHT TO DUE PROCESS.20
After assessing the respective arguments of the parties, the Court of Appeals reversed the trial court’s
decision. It ruled that the series of written communications between petitioners and respondents
collectively constitute a sufficient memorandum of their agreement under Article 1403 of the Civil
Code; thus, respondents’ complaint should not have been dismissed on the ground that it was
unenforceable under the Statute of Frauds. The appellate court opined that any document or writing,
whether formal or informal, written either for the purpose of furnishing evidence of the contract or
for another purpose which satisfies all the Statute’s requirements as to contents and signature would
be
sufficient; and, that two or more writings properly connected could be considered together. The
appellate court concluded that the letters exchanged by and between the parties, taken together, were
sufficient to establish that an agreement to sell the disputed shares to respondents was reached.
The Court of Appeals clarified, however, that by reversing the appealed decision it was not thereby
declaring that respondents are entitled to the reliefs prayed for in their complaint, but only that the
case should not have been dismissed on the ground of unenforceability under the Statute of Frauds. It
ordered the remand of the case to the trial court for further proceedings.
Hence, this petition.
Petitioners argue that the Court of Appeals erred in failing to consider that the Statute of Frauds
requires not just the existence of any note or memorandum but that such note or memorandum
should evidence an agreement to sell; and, that in this case, there was no word, phrase, or statement
in the letters exchanged between the two parties to show or even imply that an agreement had been
reached for the sale of the shares to respondent.
Petitioners stress that respondent Litonjua made it clear in his letters that the quoted prices were
merely tentative and still subject to further negotiations between him and the seller. They point out
that there was no meeting of the minds on the essential terms and conditions of the sale because
SMAB did not accept respondents’ offer that consideration would be paid in Philippine pesos.
Moreover, Litonjua signified their inability to submit their final bid on 30 June 1990, at the same
time stating that the broad terms and conditions described in their meeting were inadequate for them
to make a response at that time so much so that he would have to await the corresponding specifics.
Petitioners argue that the foregoing circumstances prove that they failed to reach an agreement on the
sale of the Phimco shares.
In their Comment, respondents maintain that the Court of Appeals correctly ruled that the Statute of
Frauds does not apply to the instant case. Respondents assert that the sale of the subject shares to
them was perfected as shown by the following circumstances, namely: petitioners assured them that
should they increase their bid, the sale would be awarded to them and that they did in fact increase
their previous bid of US$30.6 million to US$36 million; petitioners orally accepted their revised offer
and the acceptance was relayed to them by Rene Dizon; petitioners directed them to proceed with the
acquisition audit and to submit a comfort letter from the United Coconut Planters’ Bank (UCPB);
petitioner corporation confirmed its previous verbal acceptance of their offer in a letter dated 11 June
1990; with the prior approval of petitioners, respondents engaged the services of Laya, Manabat,
Salgado & Co., an independent auditing firm, to immediately proceed with the acquisition audit; and,
petitioner corporation reiterated its commitment to be bound by the result of the acquisition audit
and
promised to reimburse respondents’ cost to the extent of US$20,000.00. All these incidents, according
to respondents, overwhelmingly prove that the contract of sale of the Phimco shares was perfected.
Further, respondents argued that there was partial performance of the perfected contract on their
part. They alleged that with the prior approval of petitioners, they engaged the services of Laya,
Manabat, Salgado & Co. to conduct the acquisition audit. They averred that petitioners agreed to be
bound by the results of the audit and offered to reimburse the costs thereof to the extent of
US$20,000.00. Respondents added that in compliance with their obligations under the contract, they
have submitted a comfort letter from UCPB to show petitioners that the bank was willing to finance
the acquisition of the Phimco shares.21
The basic issues to be resolved are: (1) whether the appellate court erred in reversing the trial court’s
decision dismissing the complaint for being unenforceable under the Statute of Frauds; and (2)
whether there was a perfected contract of sale between petitioners and respondents with
respect to the Phimco shares.
The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil Code 22 requires certain
contracts enumerated therein to be evidenced by some note or memorandum in order to be
enforceable. The term "Statute of Frauds" is descriptive of statutes which require certain classes of
contracts to be in writing. The 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.23 Evidence of the agreement cannot be received
without the writing or a secondary evidence of its contents.
The Statute, however, simply provides the method by which the contracts enumerated therein may be
proved but does not declare them invalid because they are not reduced to writing. By law, contracts
are obligatory in whatever form they may have been entered into, provided all the essential requisites
for their validity are present. However, when the law requires that a contract be in some form in order
that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is
absolute and indispensable.24 Consequently, the effect of non-compliance with the requirement of the
Statute is simply that no action can be enforced unless the requirement is complied with. 25 Clearly, the
form required is for evidentiary purposes only. Hence, if the parties permit a contract to be proved,
without any objection, it is then just as binding as if the Statute has been complied with. 26
The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence on the unassisted memory of witnesses, by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the party to be
charged.27
However, for a note or memorandum to satisfy the Statute, it must be complete in itself and cannot
rest partly in writing and partly in parol. The note or memorandum must contain the names of the
parties, the terms and conditions of the contract, and a description of the property sufficient to render
it capable of identification.28 Such note or memorandum must contain the essential elements of the
contract expressed with certainty that may be ascertained from the note or memorandum itself, or
some other writing to which it refers or within which it is connected, without resorting to parol
evidence.29
Contrary to the Court of Appeals’ conclusion, the exchange of correspondence between the parties
hardly constitutes the note or memorandum within the context of Article 1403 of the Civil Code.
Rossi’s letter dated 11 June 1990, heavily relied upon by respondents, is not complete in itself.
First, it does not indicate at what price the shares were being sold. In paragraph (5) of the letter,
respondents were supposed to submit their final offer in U.S. dollar terms, at that after the
completion of the due diligence process. The paragraph undoubtedly proves that there was as yet no
definite agreement as to the price. Second, the letter does not state the mode of payment of the price.
In fact, Litonjua was supposed to indicate in his final offer how and where payment for the shares was
planned to be made.30
Evidently, the trial court’s dismissal of the complaint on the ground of unenforceability under the
Statute of Frauds is warranted.31
Even if we were to consider the letters between the parties as a sufficient memorandum for purposes
of taking the case out of the operation of the Statute the action for specific performance would still fail.
A contract is defined as a juridical convention manifested in legal form, by virtue of which one or more
persons bind themselves in favor of another, or others, or reciprocally, to the fulfillment of a
prestation to give, to do, or not to do. 32 There can be no contract unless the following requisites
concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of
the contract; (c) cause of the obligation which is established.33Contracts 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.34
Specifically, in the case of a contract of sale, required is the concurrence of three elements, 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.35 Such contract is born
from the moment there is a meeting of minds upon the thing which is the object of the contract and
upon the price.36
In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and
consummation. Negotiation begins from the time the prospective contracting parties manifest their
interest in the contract and ends at the moment of agreement of the parties. Perfection or birth of the
contract takes place when the parties agree upon the essential elements of the contract.
Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract,
culminating in the extinguishment thereof.37
A negotiation is formally initiated by an offer. A perfected promise merely tends to insure and pave
the way for the celebration of a future contract. An imperfect promise (policitacion), on the other
hand, is a mere unaccepted offer.38Public advertisements or solicitations and the like are ordinarily
construed as mere invitations to make offers or only as proposals. At any time prior to the perfection
of the contract, either negotiating party may stop the negotiation. 39The 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.40
An offer would require, among other things, a clear certainty on both the object and the cause or
consideration of the envisioned contract. Consent in a contract of sale should be 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.41
Quite obviously, Litonjua’s letter dated 21 May 1990, proposing the acquisition of the Phimco shares
for US$36 million was merely an offer. This offer, however, in Litonjua’s own words, "is understood to
be subject to adjustment on the basis of an audit of the assets, liabilities and net worth of Phimco and
its subsidiaries and on the final negotiation between ourselves."42
Was the offer certain enough to satisfy the requirements of the Statute of Frauds? Definitely not.
Litonjua repeatedly stressed in his letters that they would not be able to submit their final bid by 30
June 1990.43With indubitable inconsistency, respondents later claimed that for all intents and
purposes, the US$36 million was their final bid. If this were so, it would be inane for Litonjua to state,
as he did, in his letter dated 28 June 1990 that they would be in a position to submit their final bid
only on 17 July 1990. The lack of a definite offer on the part of respondents could not possibly serve as
the basis of their claim that the sale of the Phimco shares in their favor was perfected, for one essential
element of a contract of sale was obviously wanting—the price certain in money or its equivalent. The
price must be certain, otherwise there is no true consent between the parties. 44 There can be no sale
without a price.45 Quite recently, this Court reiterated the long-standing doctrine that the manner of
payment of the purchase price is an essential element before a valid and binding contract of sale can
exist since the agreement on the manner of payment goes into the price such that a
disagreement on the manner of payment is tantamount to a failure to agree on the price. 46
Granting arguendo, that the amount of US$36 million was a definite offer, it would remain as a mere
offer in the absence of evidence of its acceptance. To produce a contract, there must be acceptance,
which may be express or implied, but it must not qualify the terms of the offer.47 The acceptance of
an offer must be unqualified and absolute to perfect the contract. 48 In other words, it must be identical
in all respects with that of the offer so as to produce consent or meeting of the minds. 49
Respondents’ attempt to prove the alleged verbal acceptance of their US$36 million bid becomes futile
in the face of the overwhelming evidence on record that there was in the first place no meeting of the
minds with respect to the price. It is dramatically clear that the US$36 million was not the actual price
agreed upon but merely a preliminary offer which was subject to adjustment after the conclusion of the
audit of the company finances. Respondents’ failure to submit their final bid on the deadline set by
petitioners prevented the perfection of the contract of sale. It was not perfected due to the absence of
one essential element which was the price certain in money or its equivalent.
At any rate, from the procedural stand point, the continuing objections raised by petitioners to the
admission of parol evidence50 on the alleged verbal acceptance of the offer rendered any evidence of
acceptance inadmissible.
Respondents’ plea of partial performance should likewise fail. The acquisition audit and submission of
a comfort letter, even if considered together, failed to prove the perfection of the contract. Quite the
contrary, they indicated that the sale was far from concluded. Respondents conducted the audit as part
of the due diligence process to help them arrive at and make their final offer. On the other hand, the
submission of the comfort letter was merely a guarantee that respondents had the financial capacity to
pay the price in the event that their bid was accepted by petitioners.
The Statute of Frauds is applicable only to contracts which are executory and not to those which
have been consummated either totally or partially. 51 If a contract has been totally or partially
performed, the exclusion of parol evidence would promote fraud or bad faith, for it would enable the
defendant to keep the benefits already derived by him from the transaction in litigation, and at the same
time, evade the obligations, responsibilities or liabilities assumed or contracted by him thereby.52 This
rule, however, is predicated on the fact of ratification of the contract within the meaning of Article 1405
of the Civil Code either (1) by failure to object to the presentation of oral evidence to prove the same,
or (2) by the acceptance of benefits under them. In the instant case, respondents failed to prove that
there was partial performance of the contract within the purview of the Statute.
Respondents insist that even on the assumption that the Statute of Frauds is applicable in this case, the
trial court erred in dismissing the complaint altogether. They point out that the complaint presents
several causes of action.
A close examination of the complaint reveals that it alleges two distinct causes of action, the first is for
specific performance53 premised on the existence of the contract of sale, while the other is solely for
damages, predicated on the purported dilatory maneuvers executed by the Phimco management. 54
With respect to the first cause of action for specific performance, apart from petitioners’ alleged
refusal to honor the contract of sale—which has never been perfected in the first place—
respondents made a number of averments in their complaint all in support of said cause of action.
Respondents claimed that petitioners were guilty of promissory estoppel,55 warranty breaches56 and
tortious conduct57 in refusing to honor the alleged contract of sale. These averments are predicated
on or at least interwoven with the existence or perfection of the contract of sale. As there was no
such perfected contract, the trial court properly rejected the averments in conjunction with the
dismissal of the complaint for specific performance. However, respondents’ second cause of action due
to the alleged malicious and deliberate delay of the Phimco management in the delivery of documents
necessary for the completion of the audit on time, not being based on the existence of the contract of
sale, could stand independently of the action for specific performance and should not be deemed barred
by the dismissal of the cause of action predicated on the failed contract. If substantiated, this cause of
action would entitle respondents to the recovery of damages against the officers of the corporation
responsible for the acts complained of.
Thus, the Court cannot forthwith order dismissal of the complaint without affording respondents an
opportunity to substantiate their allegations with respect to its cause of action for damages against the
officers of Phimco based on the latter’s alleged self-serving dilatory maneuvers.
WHEREFORE, the petition is in part GRANTED. The appealed Decision is hereby MODIFIED insofar as
it declared the agreement between the parties enforceable under the Statute of Frauds. The complaint
before the trial court is ordered DISMISSED insofar as the cause of action for specific performance is
concerned. The case is ordered REMANDED to the trial court for further proceedings with respect to
the cause of action for damages as above specified.
SO ORDERED.
G.R. No. 147410 February 5, 2004
THE INSULAR LIFE ASSURANCE COMPANY, LTD., petitioner
vs.
ASSET BUILDERS CORPORATION, respondent.
PANGANIBAN, J.:
The Facts
The appellate court summarized the facts of the case as follows:
"Sometime in November, 1992, the Insular Life Assurance Company, Limited, [petitioner], invited
companies/corporations engaged in the building construction business to participate in the bidding of
[petitioner's] proposed Insular Life building in Lucena City. [Petitioner] distributed copies of 'Bid
Document[s]', including the general construction x x x contract, with the winning bidder and 'Bid
Proposal Forms'[,] and furnished copies of the 'Instruction to Bidders' to participating bidders,
containing the rules to be followed in the bidding, including the following rules: (a) all bond proposals
shall be accompanied with a bid bond from the Insular General Insurance Company, Inc., in an amount
equivalent to ten (10) percent of the bid or five (5) percent of the bid in Manager's or Cashier's check
payable to Insular Life, which bid bonds will be returned to the bidder after sixty (60) days from opening
of bids or after award of the project, whichever date comes first;5 (b) the bid shall be valid for sixty (60)
days [after] opening of bids[,] but the owner of the project (the [petitioner]) had the option to request
the bidder to extend the bid validity period after expiration of the original validity period; 6 [and] (c) the
bidder, whose proposal had been deemed acceptable and complying with the requirements of the
owner ([petitioner]) and the project, shall be notified in writing to personally appear to execute
the 'Contract Agreements' within five (5) days after the receipt of the 'Notice of Award'[,] and that
failure on the part of the winning bidder to execute the contract shall constitute a breach of the
agreement, as effected by acceptance of the proposal, resulting in the nullification of the award; and that
the bond heretofore, offered by the winning bidder shall be retained by the owner ([petitioner]) as
payment due for liquidated damages.7
"Asset Builders Corporation, [respondent], with four (4) other bidders, namely, Q.K. Calderon
Construction [Co., Inc.], Specified Contractors, A.[A.] Alarilla Construction[,] and Serg Construction,
submitted their respective bid proposals secured by bid bonds, valid for sixty (60) days. 8 Under
its 'Proposal Form' which the [respondent] submitted to the [petitioner], [respondent] bound and
obliged itself to enter into a 'Contract' with the petitioner within ten (10) days from notice of the
award, with good and sufficient securities for the faithful compliance thereof. 9
"On November 9, 1993, the respective proposals of the bidders were opened. The [petitioner]
forwarded a 'Summary of Bids and Tender Documents' to Adrian Wilson International Associate[s],
Inc.10 (AWIA for brevity), [petitioner's] designated 'Project Manager[,]' for the proposed Insular Life
Building in Lucena City for its evaluation and analysis. AWIA, in due time, submitted a report of its
evaluation to the 'Real Property Division' of the [petitioner]. As [could] be gleaned from the Report of
AWIA, [respondent's] ₱12,962,845.5411 bid was the lowest among the bidders.
"On January 21, 1994, Engineer Pete S. Espiritu (Espiritu for brevity) of the 'Real Property
Department', who was designated as 'Project Coordinator' of the petitioner[,] recommended that
[respondent] and the other bidders, 'Q.K. CALDERON [CONSTRUCTION] CO., INC.' AND 'SPECIFIED
CONTRACTORS', be subjected to post-qualification proceedings, including the inspection of their
respective offices, equipment, as well as past and present projects, and that said bidders be subjected
to credit and financial investigations.12
"[Petitioner] concurred with the recommendation of Espiritu and, indeed, post-qualification,
inspection[,] and evaluations of [respondent] and Q.K. Calderon Construction Co., Inc. were effected.
On January 25, 1994, [petitioner], with concurrence of [respondent], visited [respondent's] main office
at the Tektite Tower and its past and present projects, i.e., the four (4) and two (2) storey Air
Transportation buildings in its compound; the Government Service Insurance System (GSIS)
Headquarters Complex; and the National Historical Institute Building, and [respondent's] equipment.
On February 14, 1994, Espiritu suggested that a bid clarification and negotiation be undertaken with
prospective contractors.
"On February 23, 1994, Abraham Torrijos of [petitioner's] 'Real Property Department' (hereinafter
referred to as Torrijos) recommended the approval by the Board of Directors of [petitioner] of the
award of the general construction of the Proposed Lucena Building, in favor of [respondent],
emphasizing that:
'2. Asset Builders Corporation is a (sic) 'AAA' category Contractor. It has extensive experience in 4. Channel of [c]ommunications among Architect, Insular Life, ASSET and AWIA
vertical and horizontal projects. The company [has been] subjected to a post qualification and credit
investigation, the results of which are satisfactory and acceptable, thus making it technically
5. [Contractor submittals i.e. - Work Schedule, Schedule of] Prices, etc.
competent and financially capable of contracting the work.'13

6. As-built[s] drawings
"On February 24, 1994, a conference was held by and among the representatives of the [petitioner]
and of the [respondent], including [respondent's] Operations Manager, Engineer Ramon Abu, for some
clarifications. [Petitioner] proposed that [respondent] adjust its bid from ₱12,961,845.54 to 7. Submitt[al] of shop drawings prior to use of materials
₱13,000,000.00 to accommodate the wage increase brought about by Wage Order No. 03, series of
1993, effective December 3, 1993. However, [respondent's] representatives were noncommittal,
8. Sanitation
declaring that they had [to] report to the management of the [respondent] the proposal of
[petitioner's] representatives, for its consideration and approval. Subsequently, the [respondent]
agreed to the readjustment of the amount of its bid as proposed by the [petitioner]. 9. Safety programs (first aid kit and hard hats)

"On March 9, 1994, Januario L. Flores (Flores for brevity), head of the 'Real Property 10. Night work
Department' and Assistant Vice-President of the [petitioner], submitted to Mabini L. Juan, the Chief
Operating Officer and Senior Executive Vice-President of the [petitioner], his findings on the post-
11. CAR (Contractor's All Ris[k I]nsurance)
qualification, evaluation and credit investigation of [respondent], with the recommendation that the
award be given to the [respondent]:
12. Owners review of payrolls, vouchers, etc. (sic) payments etc.
'2. On the basis of the above very positive indicators, RPD[,] E.L. Mariano, [F. B.] Mariano Associates
and Co.[,] and Adrian Wilson Int'l Associates, [Inc.] recommen[d] to award the Lucena [p]roject to 13. Sub-contracting [for] approval of subs.
Asset Builders Corporation. We honestly believe that they will do a good job.
14. Photographs every month
'3. For your consideratio[n/a]pproval.'14
15. Billings based on actual work accomplishments. Undistributed materials not billable
"On March 14, 1994, [Flores] signed a 'Notice to Proceed', addressed to the [respondent], for the
conformity of the latter's President, Rogelio P. Centeno. Under the [ultimate] paragraph of the 'Notice
16. Security measures
to Proceed', the [respondent] may start its mobilization and proceed with the construction
immediately[,] pending execution of the 'Construction Agreement'.15 The [petitioner prepared] a
draft of the contract to be executed by the [petitioner] and the [respondent]. 17. Tests as required by spec[']s

"On the same day, [Torrijos] informed, by letter, Engineer Bernardo A. Sajorda (Sajorda for brevity's 18. Take note of specific requirements before final payment is made' 18
sake), 'Project Manager' of AWIA, that [petitioner] had awarded the general construction contract of the
proposed Lucena Building to the [respondent] and advised AWIA to coordinate with [respondent] and
"The [respondent] received a copy of the 'Memorandum' of Sajorda, on March 17, 1994. On March 18,
inform the latter that a pre-construction meeting [would] be held on March 22, 1994 at the job
1994, the [petitioner] transmitted to the [respondent] the following documents, evidenced by
site.16 A copy of the 'Notice of Award' was appended to said letter.17 Sajorda forthwith informed
a 'Transmittal Sheet', received by Roy Roxas, for the [respondent], to enable the latter to secure
Rogelio P. Centeno, the President of [respondent], by 'Memorandum' that, pursuant to the AWARD to
a 'Building Permit' for the project:
[respondent], of the general construction of the Proposed Lucena Building, a pre-construction
conference [would] be held on March 22, 1994 at the job site, during which the following will be
discussed: 'ONE (1) LOT DOCUMENTS/PLANS FOR BUILDING PERMIT

'1. Contract Amount and completion time 4 SETS OF STRUCTURAL COMPUTATION

2. Role of AWIA 5 SETS OF SPECS FOR GENERAL CONSTRUCTION

3. Project Contractors Key [p]ersonnel [l]ist with [s]ignatures and [p]ositions 3 SETS OF ELECTRICAL LOAD COMPUTATION
5 COPIES OF PRC ID [&] PTR OF DESIGN ENGRS.
6 SETS OF ELMA PLANS
5 SETS OF [R]MDA PLANS/SPECS'19
"On March 22, 1994, the 'Pre-Construction Conference' ensued with the representatives of the
[petitioner] and its Project Manager and of the [respondent], in the person of its Project Engineer, J.G.
Quizon, in attendance:
'Attendees: CARLOS M. ESPIRITU -- AWIA Asst. Project Manager
BERNARDO [A]. SAJORDA -- AWIA Project Manager
EDMUNDO C. SABATER -- AWIA Resident Engineer
JANUARIO L. FLORES -- IL/RPD Manager
J.G. QUIZON -- ASSET Project Manager
PETE S. ESPIRITU -- IL/RPD Project Coordinator
ABRAHAM P. TORRIJOS -- IL/RPD Asst. Manager'20
"During the conference, the following were discussed and clarified:
'1. Contract Amount and Completion Time: Contract is for ₱13,000,000.00, to be completed within 210
calendar days; day one to be 5 days after receipt of NTP by the Contractor. Actual site mobilization to
be first week of April 1994, per Mr. J.G. Quizon. Issuance of building and other permits being worked
out by the Contractor.'21
"On March 26, 1994, Jacobo G. Quizon, the Project Manager of [respondent], sent to AWIA a letter
requesting for the TCT lot description for the purpose of relocation of the monuments and the staking
out of the building:
'We have the honor to request your good office, in relocating the monuments[,] as per TCT lot
description[s,] prior to staking out the building[;] likewise, we can do the relocation[,] provided the
cost will be reimbursed to the Owner[,] with an approximate fee of ₱5,000.00 lump sum.
'Further, problems may occur regarding structur[al] excavation for footing [and footing] tie beams at
Grid Line A & 4. As per plan, the proposed depth [of] excavation of about 2.5[0M] along the existing
adjacent building walls will expose the CHB footing.'22
"Thereafter, a Ground Breaking ceremony was held at the project site, with Rogelio B. Centeno, the
President of [respondent], [and] Pete S. Espiritu and Januario L. Flores of the [petitioner] in
attendance. A billboard announcing the construction of [the] Insular Life Building in Lucena City, with
the [respondent] as the General Contractor, was also erected in the project site.
"However, the [respondent] did not affix its conformity to any 'Notice of Award', much less commence
its construction of the project. Neither did it execute any 'Construction Agreement'. Subsequently, the
[respondent] wrote the [petitioner] a letter dated April 5, 1994, informing the [petitioner] that the
[respondent would] not be able to undertake the project anymore[,] because the prerequisite paper
work and attendant processing could not be fast-trac[k]ed and that, since the previous two (2) weeks,
prices had escalated, which rendered its bid unattractive.23 On April 25, 1994, the [petitioner] wrote a
letter to the [respondent], in response to its April 5, 1994 [letter], informing the [respondent] that, in
view of the unjust withdrawal of the [respondent] from the project, despite the award of the project to
the [respondent], the [petitioner] was impelled to engage the services of another contractor to
complete the project[,] without prejudice to further action of the [petitioner] against the [respondent]
for its withdrawal, pursuant to Section 10 of the 'Instruction to Bidders', quoted, infra:
'The exact amount of damages to the Owner due to the failure to execute the Contract may be deemed
difficult to determine. Failure, thereof, to execute the Contract within five (5) days after the receipt of
the Notice of Award shall cause [the] annulment of the award. The amount of bid bond deposited with
the proposal shall be retained by the Owner as payment due for liquidated damages incurred.
"By way of riposte, the [respondent] sent a letter to the [petitioner] averring that: (a) it never received
any written 'Notice of Award' from the [petitioner]; [and] (b) since its bid offer had a lifetime of sixty
(60) days from November 9, 1993 or until January 8, 1993 (sic)[,] its offer was automatically
withdrawn after said date, since the [petitioner] had not requested the [respondent] for the extension
of the lifetime thereof.
"On December 23, 1994, the [petitioner] filed a complaint 24 against the [respondent], with the
Regional Trial Court25of Makati City, for 'Damages', x x x:
xxx xxx xxx
"The [petitioner] alleged, inter alia, in its complain[t t]hat the [respondent] was duly notified by
AWIA of the award, in its favor, by the [petitioner], of the project[,] but the [respondent] unjustly and
arbitrarily withdrew from the project and refused to execute the 'Construction Contract' with the
[petitioner,] which impelled the latter to engage the services of another contractor for the project at
the price of ₱14,500,000.00 and that, consequently, the [petitioner] was obliged to pay the amount of
₱1,500,000.00 which was [the] difference between the contract price of the project with the
[respondent] in the amount of ₱13,000,000.00 and ₱14,500,000.00, by way of actual damages or,
alternatively, by way of liquidated damages. In its Answer 26 to the complaint, the [respondent]
alleged, inter alia, that it never received any 'Notice of Award' or 'Notice to Proceed'; its bid had
expired by January 8, 1994, without the [petitioner] asking the [respondent] for the extension
thereof[,] and interposed counterclaims for damages against the [petitioner], praying that, after due
proceedings, judgment be rendered in its favor, x x x:
xxx xxx xxx
"After due proceedings, the Court a quo rendered a Decision,27 dated December [5], 1997, in favor of
the [respondent] and against the [petitioner], ordering the dismissal of the complaint of the
[petitioner] and ordering the latter to pay damages to the [respondent], the dispositive portion of
which is quoted, infra:
'WHEREFORE, judgment is rendered DISMISSING the Complaint with costs against [petitioner].'
'On the counter-claim, Insular Life Assurance Co., Ltd., is hereby ordered to pay Asset Builders
Corporation the sums of Pesos: Five Hundred Thousand (₱500,000.00) as compensation for the injury
to the latter's business standing, and Pesos: Seventy Five Thousand (₱75,000.00) by way of attorney's
fees and expenses of litigation.
'Filing fees on the amount of ₱2,135,000.00 [respondent] sought in the counter-claim shall constitute
a first lien on the recovery from [petitioner].'
The Issues
"I. The Court of Appeals gravely erred in not holding that there exists a valid contract for the
construction of the building project between IL30 and ABC.31
"II. The Court of Appeals gravely erred in not holding that IL has notified ABC of the award of the
construction of the building project to it before it withdrew its bid proposal.
"III. The Court of Appeals gravely erred in not holding that ABC's withdrawal from the contract
constituted a breach of that contract.
"IV. The Court of Appeals gravely erred in not holding that the contract had been perfected and that its
consummation stage [had] in fact been commenced.
"V. The Court of Appeals gravely erred in not holding that ABC is estopped from claiming the contract
was not perfected.
"VI. The Court of Appeals gravely erred in not holding that ABC, instead of IL, is liable for damages[,]
and that, at worst, there is no evidence that supported the award in favor of ABC.
"VII. In any event, there is no basis to penalize IL for going to court."32
There is really only one major issue: Was there a valid contract between petitioner and respondent?
The Court's Ruling
The Petition is unmeritorious.
Sole Issue:
Existence of a Contract
No Notice of Award,
No Contract
It is elementary that, being consensual,33 a contract34 is perfected35 by mere consent.36 From the
moment of a meeting37 of the offer and the acceptance38 upon the object and the cause that would
constitute the contract,39consent arises.40 However, "the offer must be certain"41 and "the acceptance
seasonable and absolute;42 if qualified,43 the acceptance44 would merely constitute a counter-offer."45
Equally important are the three distinct stages of a contract -- its "preparation or negotiation, its
perfection, and finally, its consummation."46 Negotiation begins when the prospective contracting
parties manifest their interest in the contract and ends at the moment of their agreement. The
perfection or birth of the contract47 occurs when they agree upon the essential elements thereof.48 The
last stage is its consummation, wherein they "fulfill or perform the terms agreed upon in the contract,
culminating in the extinguishment thereof."49
In the case at bar, the parties did not get past the negotiation stage. The events that transpired
between them were indeed initiated by a formal offer, but this policitación was merely an imperfect
promise that could not be considered a binding commitment. 50 At any time, either of the prospective
contracting parties may stop the negotiation and withdraw the offer.
In the present case, in fact, there was only an offer and a counteroffer51 that did not sum up to any
final arrangement containing the elements of a contract. 52 Clearly, no meeting of minds was
established.53 First, only after the bid bond had lapsed were post-qualification proceedings,
inspections, and credit investigations conducted. Second, the inter-office memoranda issued by
petitioner, as well as other memoranda between it and its own project manager, were simply
documents to which respondent was not privy. Third, petitioner proposed a counteroffer to adjust
respondent's bid to accommodate the wage increase of December 3, 1993.
In effect, the rule on the concurrence of the offer and its acceptance54 did not apply, because other
matters or details -- in addition to the subject matter and the consideration -- would still be stipulated
and agreed upon by the parties.55 While there was an initial offer made, there was no acceptance; but
when there allegedly came an acceptance that could have had a binding effect, the offer was already
lacking. The offer and its acceptance "did not meet to give birth to a contract." 56
Moreover, the Civil Code provides that no contract shall arise unless its acceptance is communicated
to the offeror.57 That is, the mere determination to accept the proposal of a bidder does not constitute
a contract; that decision must be communicated to the bidder. 58 Although consent may be either
express or implied,59 the Instruction to Bidders prepared by petitioner itself expressly required (1) a
formal acceptance and (2) a period within which such acceptance was to be made known to
respondent. The effect of giving the Notice of Award to the latter would have been the perfection of
the contract.60 No such acceptance was communicated to respondent; therefore, no consent was given.
Without that express manifestation, as required by the terms of its proposal, there was no contract.
The due execution of documents representing a contract is one thing, but its perfection is another.61
There is no issue as regards the subject of the contract or the cause of the obligation. The controversy
lies in the consent -- whether there was an acceptance by petitioner of the offer made by respondent;
and, if so, whether that acceptance was communicated to the latter, thereby perfecting the contract.
The period given to the former within which to accept the offer was not itself founded upon or
supported by any consideration. Therefore, under the law, respondent still had the freedom and the
right to withdraw the offer by communicating such withdrawal to petitioner 62 before the latter's
acceptance of the offer;63 or, if the offer has been accepted,64 before the acceptance came to be known
by respondent.65
Petitioner avers that an acceptance was made, but this allegation has not been proven. Respondent
had no knowledge of such acceptance when it communicated its withdrawal to the former. Notably,
this right to withdraw was not exercised whimsically or arbitrarily by respondent. It did send a
formal letter on April 5, 1994, expressing and explaining its withdrawal. As of that date, the decision
to award the contract had not been made according to the terms of the Instruction to Bidders.
Besides, the subsequent acts between the parties did not even serve as a confirmation of that decision.
The existence of a second proposal -- petitioner's request for an adjustment of the bid to
accommodate the wage increase -- in fact belies the perfection of any contract arising from the
first.66 To the Court's mind, there was indeed no acceptance of the offer made by respondent. Such
failure to comply with a condition imposed for the perfection of a contract resulted in failure of the
contract.67
As aptly held by the appellate court, respondent's acts subsequent to the expiration of the bid bond
did not constitute a waiver of Section 9 of the Instruction to Bidders. To be valid and effective, waivers
must be couched in clear and unequivocal terms, leaving no doubt as to the intention of those giving
up a right or a benefit that legally pertains to them. 79 Respondent, contrary to the claim of petitioner,
despite its repeated requests, never received a copy of the Notice of Award. Indeed, the former never
adopted an inconsistent position, attitude or course of conduct that caused loss or injury to the
latter.80 The attendance of respondent in the pre-construction conference and the ground-breaking
ceremony was part of the negotiation process. Thus, petitioner's claim of estoppel against it could not
be applied.
"Estoppel cannot be sustained by mere argument or doubtful inference; it must be clearly proved in all
its essential elements by clear, convincing and satisfactory evidence."81 It is hardly separable from the
waiver of a right.82 The party claiming estoppel must show the following elements: "(1) lack of
knowledge and of the means of knowledge of the truth as to the facts in question; (2) reliance, in good
faith, upon the conduct or statements of the party to be estopped; and (3) action or inaction based
thereon of such character as to change the position or status of the party claiming the estoppel, to his
injury, detriment or prejudice."83
None of these elements was proven.

Subsistence of an Offer
Even Without a Bid Bond
Certainly, the "bid bond is an indispensable requirement for the validation of a bid proposal."68 This
requisite ensures the good faith of bidders and binds them to enter into a contract with the owner,
should their proposal be accepted.69 One who submits a bid not only signifies assent to the terms and
conditions of a proposal, but impliedly binds oneself to them, if and when the bid is considered. The
Invitation to Bidders even provided that incomplete proposals might be sufficient cause for their
rejection.70 If mere insufficiency of a bond required of a bidder is a ground for rejection, a fortiori, all
the more so is the total want thereof.
First, petitioner had the knowledge and the means of knowledge of the truth as to the facts in
question. It had the means of knowing if respondent had been served a copy of the Notice of Award,
yet the former did not preserve a copy of such Notice, which supposedly bore the signature of the
latter's employee who had received it. Petitioner did not even enter in its corporate logbooks the
release to and receipt by respondent of that copy. The latter had every reason to withdraw its bid,
given that the "prerequisite paper work and attendant processing could not be fast-tracked."84
Second, respondent's conduct and statements were always consistent and reliable. The manner of
acceptance of all bids was prescribed by petitioner itself. Applying Article 1321 of the Civil Code, such
prescription must be complied with,85 yet it did not follow its own rules. Of no moment was its
reliance in good faith upon respondent. Good faith is always presumed, unless contrary evidence is
adduced.86

The proposal of respondent was merely validated by its bid bond, which was considered by petitioner.
Third, the action or inaction of petitioner that caused its own injury was its own fault. The written
The expiration of the bond on January 8, 1994,71 did not mean that the bid also lapsed on the same
Notice of Award, which constituted the acceptance of the proposal, was a sine qua non to the
date. The bond, which was an accessory, merely guaranteed the performance of the principal
perfection of the contract.87 The misplacement of such vital document was inexcusable. Without it,
obligation and could not exist without the latter. 72 The former was given for the benefit of petitioner,
there was no contract. Moreover, the March 14, 1994 Notice to Proceed clearly stated that its issuance
which could legally waive it. The bid continued without a bond, but still no formal acceptance was
would depend upon the execution of the construction agreement.
made. Again, on that basis, no contract was perfected.

Estoppel is a shield against injustice; the party invoking its protection should not be allowed to use it
In the interpretation of a contract, the literal meaning of its stipulations controls, if their terms are
to conceal its own lack of diligence88 or want of reasonable care and circumspection.89
clear and leave no doubt as to the intention of the contracting parties.73 When "there is no ambiguity
in the language of a contract, there is no room for construction, 74 only compliance."75 This rule applies
to the Instruction to Bidders, which provides that "failure to execute the Contract shall constitute a WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution AFFIRMED.
breach of agreement as effected by acceptance of the proposal."76 The language is clear and, like Costs against petitioner.
contracts in general, is the law between the parties.77 The contract must be fulfilled according to its
literal sense.78
SO ORDERED.

No Estoppel
G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.
VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991,
in CA-G.R. SP No. 26345 setting aside and declaring without force and effect the orders of execution of
the trial court, dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu Asuncion
and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the Regional
Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging, among others, that plaintiffs are
tenants or lessees of residential and commercial spaces owned by defendants described as Nos. 630-
638 Ongpin Street, Binondo, Manila; that they have occupied said spaces since 1935 and have been
religiously paying the rental and complying with all the conditions of the lease contract; that on
several occasions before October 9, 1986, defendants informed plaintiffs that they are offering to sell
the premises and are giving them priority to acquire the same; that during the negotiations, Bobby Cu
Unjieng offered a price of P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs
thereafter asked the defendants to put their offer in writing to which request defendants
acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24, 1986 asking that
they specify the terms and conditions of the offer to sell; that when plaintiffs did not receive any reply,
they sent another letter dated January 28, 1987 with the same request; that since defendants failed to
specify the terms and conditions of the offer to sell and because of information received that
defendants were about to sell the property, plaintiffs were compelled to file the complaint to compel
defendants to sell the property to them.
Defendants filed their answer denying the material allegations of the complaint and interposing a
special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary judgment which was granted by
the lower court. The trial court found that defendants' offer to sell was never accepted by the plaintiffs
for the reason that the parties did not agree upon the terms and conditions of the proposed sale,
hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should the
defendants subsequently offer their property for sale at a price of P11-million or below, plaintiffs will
have the right of first refusal. Thus the dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiffs
summarily dismissing the complaint subject to the aforementioned condition that if the defendants
subsequently decide to offer their property for sale for a purchase price of Eleven Million Pesos or
lower, then the plaintiffs has the option to purchase the property or of first refusal, otherwise,
defendants need not offer the property to the plaintiffs if the purchase price is higher than Eleven
Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice
Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A. Santiago), this
Court affirmed with modification the lower court's judgment, holding:
In resume, there was no meeting of the minds between the parties concerning the sale of the property.
Absent such requirement, the claim for specific performance will not lie. Appellants' demand for
actual, moral and exemplary damages will likewise fail as there exists no justifiable ground for its
award. Summary judgment for defendants was properly granted. Courts may render summary
judgment when there is no genuine issue as to any material fact and the moving party is entitled to a
judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the
decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED,
but subject to the following modification: The court a quo in the aforestated decision gave the
plaintiffs-appellants the right of first refusal only if the property is sold for a purchase price of Eleven
Million pesos or lower; however, considering the mercurial and uncertain forces in our market
economy today. We find no reason not to grant the same right of first refusal to herein appellants in
the event that the subject property is sold for a price in excess of Eleven Million pesos. No
pronouncement as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by petition for review on certiorari. The
Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form and substances" (Annex H,
Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu
Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the property in question to
herein petitioner Buen Realty and Development Corporation, subject to the following terms and
conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (P15,000,000.00), receipt of
which in full is hereby acknowledged, the VENDORS hereby sells, transfers and conveys for and in
favor of the VENDEE, his heirs, executors, administrators or assigns, the above-described property
with all the improvements found therein including all the rights and interest in the said property free
from all liens and encumbrances of whatever nature, except the pending ejectment proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the transfer of title in
his favor and other expenses incidental to the sale of above-described property including capital gains
tax and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was
cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3,
1990.
On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees
demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property
subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-
881 in the name of the Cu Unjiengs.
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.
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 the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition) was
issued.1
On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:

On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and
Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty. Antonio
declared without force and effect the above questioned orders of the court a quo.
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. 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 gist of the motion is that the Decision of the Court dated September 21, 1990 as modified by the
the Cu Unjiengs.
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. We affirm the decision of the appellate court.
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
A not too recent development in real estate transactions is the adoption of such arrangements as the
final and executory.
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.
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
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is
become final to the effect that should the defendants decide to offer the property for sale for a price of
constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum
P11 Million or lower, and considering the mercurial and uncertain forces in our market economy
juris or juridical tie which is the efficient cause established by the various sources of obligations (law,
today, the same right of first refusal to herein plaintiffs/appellants in the event that the subject
contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct;
property is sold for a price in excess of Eleven Million pesos or more.
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.
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
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds
Million pesos in recognition of plaintiffs' right of first refusal and that a new Transfer Certificate of
between two persons whereby one binds himself, with respect to the other, to give something or to
Title be issued in favor of the buyer.
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
All previous transactions involving the same property notwithstanding the issuance of another title to period from the time the prospective contracting parties indicate interest in the contract to the time
Buen Realty Corporation, is hereby set aside as having been executed in bad faith. 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
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect
promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a
contract is perfected, are not considered binding commitments. Thus, at any time prior to the
perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage,
may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its
mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil.
270). Where a period is given to the offeree within which to accept the offer, the following rules
generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is still
free and has the right to withdraw the offer before its acceptance, or, if an acceptance has
been made, before the offeror's coming to know of such fact, by communicating that
withdrawal to the offeree
(2) The right to withdraw, however, must not be exercised whimsically or arbitrarily;
otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which
ordains that "every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would
be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an
independent contract by itself, and it is to be distinguished from the projected main agreement
(subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-
offeror withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the
latter may not sue for specific performance on the proposed contract ("object" of the option) since it
has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable
for damages for breach of the option. In these cases, care should be taken of the real nature of
the consideration given, for if, in fact, it has been intended to be part of the consideration for the main
contract with a right of withdrawal on the part of the optionee, the main contract could be deemed
perfected; a similar instance would be an "earnest money" in a contract of sale that can evidence its
perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to
point out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code.
Neither can the right of first refusal, understood in its normal concept, per se be brought within the
purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an offer
under Article 13199 of the same Code. An option or an offer would require, among other things, 10 a
clear certainty on both the object and the cause or consideration of the envisioned contract. In a right
of first refusal, while the object might be made determinate, the exercise of the right, however, would
be dependent not only on the grantor's eventual intention to enter into a binding juridical relation
with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior
thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations
governed not by contracts (since the essential elements to establish the vinculum juris would still be
indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered
provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final judgment, like here,
its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that
merely recognizes its existence, nor would it sanction an action for specific performance without
thereby negating the indispensable element of consensuality in the perfection of contracts. 11 It is not
to say, however, that the right of first refusal would be inconsequential for, such as already intimated
above, an unjustified disregard thereof, given, for instance, the circumstances expressed in Article
1912 of the Civil Code, can warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first
refusal" in favor of petitioners. The consequence of such a declaration entails no more than what has
heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure
of private respondents to honor the right of first refusal, the remedy is not a writ of execution on the
judgment, since there is none to execute, but an action for damages in a proper forum for the
purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the alleged
purchaser of the property, has acted in good faith or bad faith and whether or not it should, in any
case, be considered bound to respect the registration of the lis pendens in Civil Case No. 87-41058 are
matters that must be independently addressed in appropriate proceedings. Buen Realty, not having
been impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution issued by
respondent Judge, let alone ousted from the ownership and possession of the property, without first
being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the
writ of execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R.
CV-21123. The Court of Appeals, in this regard, has observed:
Finally, the questioned writ of execution is in variance with the decision of the trial court as modified
by this Court. As already stated, there was nothing in said decision 13 that decreed the execution of a
deed of sale between the Cu Unjiengs and respondent lessees, or the fixing of the price of the sale, or
the cancellation of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng
Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA
885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at
the time the execution of any deed of sale between the Cu Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders,
dated 30 August 1991 and 27 September 1991, of the court a quo. Costs against petitioners.
SO ORDERED.
G.R. No. 111238 January 25, 1995
ADELFA PROPERTIES, INC., petitioner,
vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑEDA and SALUD JIMENEZ, respondents.
REGALADO, J.:
The main issues presented for resolution in this petition for review on certiorari of the judgment of
respondent Court of appeals, dated April 6, 1993, in CA-G.R. CV No. 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. 309773,2situated in Barrio Culasi, Las Piñas, Metro Manila.
2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of said parcel
of land, specifically the eastern portion thereof, to herein petitioner pursuant to a "Kasulatan sa
Bilihan ng Lupa."3Subsequently, a "Confirmatory Extrajudicial Partition Agreement"4 was executed by
the Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855 square meters was
adjudicated to Jose and Dominador Jimenez, while the western portion was allocated to herein private
respondents.
3. Thereafter, herein petitioner expressed interest in buying the western portion of the property from
private respondents. Accordingly, on November 25, 1989, an "Exclusive Option to Purchase" 5 was
executed between petitioner and private respondents, under the following terms and conditions:
1. The selling price of said 8,655 square meters of the subject property is TWO MILLION EIGHT
HUNDRED FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS ONLY (P2,856,150.00)
2. The sum of P50,000.00 which we received from ADELFA PROPERTIES, INC. as an option money
shall be credited as partial payment upon the consummation of the sale and the balance in the sum of
TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS (P2,806,150.00) to be
paid on or before November 30, 1989;
3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance in accordance
with paragraph 2 hereof, this option shall be cancelled and 50% of the option money to be
forfeited in our favor and we will refund the remaining 50% of said money upon the sale of said
property to a third party;
4. All expenses including the corresponding capital gains tax, cost of documentary stamps are for the
account of the VENDORS, and expenses for the registration of the deed of sale in the Registry of Deeds
are for the account of ADELFA PROPERTIES, INC.
Considering, however, that the owner's copy of the certificate of title issued to respondent Salud
Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said certificate of title
was filed in court through Atty. Bayani L. Bernardo, who acted as private respondents' counsel.
Eventually, a new owner's copy of the certificate of title was issued but it remained in the possession
of Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc.
4. Before petitioner could make payment, it received 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 petitioner and attributed the suspension of payment
of the purchase price to "lack of word of honor."
6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option contract
with private respondents, and its contract of sale with Jose and Dominador Jimenez, as Entry No.
1437-4 and entry No. 1438-4, respectively.
7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. Bernardo, in his
capacity as petitioner's counsel, and to inform the latter that they were cancelling the transaction. In
turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00 be deducted
therefrom for the settlement of the civil case. This was rejected by private respondents. On December
22, 1989, Atty. Bernardo wrote private respondents on the same matter but this time reducing the
amount from P500,000.00 to P300,000.00, and this was also rejected by the latter.
8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-5541. Thus, on
February 28, 1990, petitioner caused to be annotated anew on TCT No. 309773 the exclusive option to
purchase as Entry No. 4442-4.
9. On the same day, February 28, 1990, private respondents executed a Deed of Conditional Sale 10 in
favor of Emylene Chua over the same parcel of land for P3,029,250, of which P1,500,000.00 was paid
to private respondents on said date, with the balance to be paid upon the transfer of title to the
specified one-half portion.
10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view of
the dismissal of the case against them, petitioner was willing to pay the purchase price, and he
requested that the corresponding deed of absolute sale be executed. 11 This was ignored by private
respondents.
11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing therein a check
for P25,000.00 representing the refund of fifty percent of the option money paid under the exclusive
option to purchase. Private respondents then requested petitioner to return the owner's duplicate
copy of the certificate of title of respondent Salud Jimenez. 12 Petitioner failed to surrender the
certificate of title, hence private respondents filed Civil Case No. 7532 in the Regional Trial Court of
Pasay City, Branch 113, for annulment of contract with damages, praying, among others, that the
exclusive option to purchase be declared null and void; that defendant, herein petitioner, be ordered
to return the owner's duplicate certificate of title; and that the annotation of the option contract on
TCT No. 309773 be cancelled. Emylene Chua, the subsequent purchaser of the lot, filed a complaint in
intervention.
12. The trial court rendered judgment 13 therein on September 5, 1991 holding that the agreement
entered into by the parties was merely an option contract, and declaring that the suspension of
payment by herein petitioner constituted a counter-offer which, therefore, was tantamount to a
rejection of the option. It likewise ruled that herein petitioner could not validly suspend payment in
favor of private respondents on the ground that the vindicatory action filed by the latter's kin did not
involve the western portion of the land covered by the contract between petitioner and private
respondents, but the eastern portion thereof which was the subject of the sale between petitioner and
the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation of the
exclusive option to purchase, declared the sale to intervenor Emylene Chua as valid and binding, and
ordered petitioner to pay damages and attorney's fees to private respondents, with costs.
13. On appeal, respondent Court of appeals affirmed in toto the decision of the court a quo and held
that the failure of petitioner to pay the purchase price within the period agreed upon was tantamount
to an election by petitioner not to buy the property; that the suspension of payment constituted an
imposition of a condition which was actually a counter-offer amounting to a rejection of the option;
and that Article 1590 of the Civil Code on suspension of payments applies only to a contract of sale or
a contract to sell, but not to an option contract which it opined was the nature of the document subject
of the case at bar. Said appellate court similarly upheld the validity of the deed of conditional sale
executed by private respondents in favor of intervenor Emylene Chua.
In the present petition, the following assignment of errors are raised:
1. Respondent court of appeals acted with grave abuse of discretion in making its finding that the
agreement entered into by petitioner and private respondents was strictly an option contract;
2. Granting arguendo that the agreement was an option contract, respondent court of Appeals acted
with grave abuse of discretion in grievously failing to consider that while the option period had not
lapsed, private respondents could not unilaterally and prematurely terminate the option period;
3. Respondent Court of Appeals acted with grave abuse of discretion in failing to appreciate fully the
attendant facts and circumstances when it made the conclusion of law that Article 1590 does not
apply; and
4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with the sale in
favor of appellee Ma. Emylene Chua and the award of damages and attorney's fees which are not only
excessive, but also without in fact and in law. 14
An analysis of the facts obtaining in this case, as well as the evidence presented by the parties,
irresistibly leads to the conclusion that the agreement between the parties is a contract to sell, and not
an option contract or a contract of sale.

I refuted or contradicted by petitioner.
1. In view of the extended disquisition thereon by respondent court, it would be worthwhile at this
juncture to briefly discourse on the rationale behind our treatment of the alleged option contract as a
contract to sell, rather than a contract of sale. The distinction between the two is important for in
contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a
contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full
payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and
unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the
vendor until the full payment of the price, such payment being a positive suspensive condition and
failure of which is not a breach but an event that prevents the obligation of the vendor to convey title
from becoming effective. Thus, a deed of sale is considered absolute in nature where there is neither a
stipulation in the deed that title to the property sold is reserved in the seller until the full payment of
the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the
buyer fails to pay within a fixed period. 15
There are two features which convince us that the parties never intended to transfer ownership to
petitioner except upon the full payment of the purchase price. Firstly, the exclusive option to
purchase, although it provided for automatic rescission of the contract and partial forfeiture of the
amount already paid in case of default, does not mention that petitioner is obliged to return
possession or ownership of the property as a consequence of non-payment. There is no
stipulation anent reversion or reconveyance of the property to herein private respondents in the
event that petitioner does not comply with its obligation. With the absence of such a stipulation,
although there is a provision on the remedies available to the parties in case of breach, it may legally
be inferred that the parties never intended to transfer ownership to the petitioner to completion of
payment of the purchase price.
In effect, there was an implied agreement that ownership shall not pass to the purchaser until he
had fully paid the price. Article 1478 of the civil code does not require that such a stipulation be
expressly made. Consequently, an implied stipulation to that effect is considered valid and, therefore,
binding and enforceable between the parties. It should be noted that under the law and
jurisprudence, a contract which contains this kind of stipulation is considered a contract to sell.
Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale, is
bolstered by the fact that the deed of absolute sale would have been issued only upon the payment of
the balance of the purchase price, as may be gleaned from petitioner's letter dated April 16,
1990 16 wherein it informed private respondents that it "is now ready and willing to pay you
simultaneously with the execution of the corresponding deed of absolute sale."
Secondly, it has not been shown there was delivery of the property, actual or constructive, made
to herein petitioner. The exclusive option to purchase is not contained in a public instrument the
execution of which would have been considered equivalent to delivery. 17 Neither did petitioner take
actual, physical possession of the property at any given time. It is true that after the reconstitution of
private respondents' certificate of title, it remained in the possession of petitioner's counsel, Atty.
Bayani L. Bernardo, who thereafter delivered the same to herein petitioner. Normally, under the law,
such possession by the vendee is to be understood as a delivery. 18 However, private respondents
explained that there was really no intention on their part to deliver the title to herein petitioner with
the purpose of transferring ownership to it. They claim that Atty. Bernardo had possession of the title
only because he was their counsel in the petition for reconstitution. We have no reason not to
believe this explanation of private respondents, aside from the fact that such contention was never
2. Irrefragably, the controverted document should legally be considered as a perfected contract to sell.
On this particular point, therefore, we reject the position and ratiocination of respondent Court of
Appeals which, while awarding the correct relief to private respondents, categorized the instrument
as "strictly an option contract."
The important task in contract interpretation is always the ascertainment of the intention of the
contracting parties and that task is, of course, to be discharged by looking to the words they used to
project that intention in their contract, all the words not just a particular word or two, and words in
context not words standing alone. 19 Moreover, judging from the subsequent acts of the parties which
will hereinafter be discussed, it is undeniable that the intention of the parties was to enter into a
contract to sell. 20 In addition, the title of a contract does not necessarily determine its true
nature. 21 Hence, the fact that the document under discussion is entitled "Exclusive Option to
Purchase" is not controlling where the text thereof shows that it is a contract to sell.
An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates
with another that the latter shall have the right to buy the property at a fixed price within a certain
time, or under, or in compliance with, certain terms and conditions, or which gives to the owner of the
property the right to sell or demand a sale. It is also sometimes called an "unaccepted offer." An option
is not of itself a purchase, but merely secures the privilege to buy. 22 It is not a sale of property but a
sale of property but a sale of the right to purchase. 23 It is simply a contract by which the owner of
property agrees with another person that he shall have the right to buy his property at a fixed price
within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell
something, that it is, the right or privilege to buy at the election or option of the other party. 24 Its
distinguishing characteristic is that it imposes no binding obligation on the person holding the option,
aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and
does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter,
but is merely a contract by which the owner of property gives the optionee the right or privilege of
accepting the offer and buying the property on certain terms. 25
On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons whereby
one binds himself, with respect to the other, to give something or to render some service. 26 Contracts,
in general, are perfected by mere consent, 27 which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain
and the acceptance absolute. 28
The distinction between an "option" and a contract of sale is that an option is an unaccepted offer. It
states the terms and conditions on which the owner is willing to sell the land, if the holder elects to
accept them within the time limited. If the holder does so elect, he must give notice to the other party,
and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is not made
within the time fixed, the owner is no longer bound by his offer, and the option is at an end. A contract
of sale, on the other hand, fixes definitely the relative rights and obligations of both parties at the
time of its execution. The offer and the acceptance are concurrent, since the minds of the contracting
parties meet in the terms of the agreement. 29
A perusal of the contract in this case, as well as the oral and documentary evidence presented by the
parties, readily shows that there is indeed a concurrence of petitioner's offer to buy and private
respondents' acceptance thereof. The rule is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly made and must be evidenced by some acts obligation incumbent upon it to perform, not merely to exercise an option or a right to buy the
or conduct communicated to the offeror, it may be made either in a formal or an informal manner, and property.
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
The obligation of petitioner on November 30, 1993 consisted of an obligation to give something, that
acts, conduct, or words of a party recognizing the existence of the contract of sale. 30
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
The records also show that private respondents accepted the offer of petitioner to buy their was merely given a certain period within which to exercise its privilege to buy. The agreed period was
property under the terms of their contract. At the time petitioner made its offer, private respondents intended to give time to herein petitioner within which to fulfill and comply with its obligation, that is,
suggested that their transfer certificate of title be first reconstituted, to which petitioner agreed. As a to pay the balance of the purchase price. No evidence was presented by private respondents to prove
matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who assisted private otherwise.
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 test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is
the lot. Petitioner was supposed to pay the same on November 25, 1989, but it later offered to make a
whether or not the agreement could be specifically enforced. 33 There is no doubt that the obligation of
down payment of P50,000.00, with the balance of P2,806,150.00 to be paid on or before November 30,
petitioner to pay the purchase price is specific, definite and certain, and consequently binding and
1989. Private respondents agreed to the counter-offer made by petitioner. 31 As a result, the so-called
enforceable. Had private respondents chosen to enforce the contract, they could have specifically
exclusive option to purchase was prepared by petitioner and was subsequently signed by private
compelled petitioner to pay the balance of P2,806,150.00. This is distinctly made manifest in the
respondents, thereby creating a perfected contract to sell between them.
contract itself as an integral stipulation, compliance with which could legally and definitely be
demanded from petitioner as a consequence.
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
This is not a case where no right is as yet created nor an obligation declared, as where something
object, the price of the property, and the terms of payment was clear and well-defined. No other
further remains to be done before the buyer and seller obligate themselves. 34 An agreement is only an
significance could be given to such acts that than they were meant to finalize and perfect the
"option" when no obligation rests on the party to make any payment except such as may be agreed on
transaction. The parties even went beyond the basic requirements of the law by stipulating that "all
between the parties as consideration to support the option until he has made up his mind within the
expenses including the corresponding capital gains tax, cost of documentary stamps are for the
time specified. 35 An option, and not a contract to purchase, is effected by an agreement to sell real
account of the vendors, and expenses for the registration of the deed of sale in the Registry of
estate for payments to be made within specified time and providing forfeiture of money paid upon
Deeds are for the account of Adelfa properties, Inc." Hence, there was nothing left to be done
failure to make payment, where the purchaser does not agree to purchase, to make payment, or to
except the performance of the respective obligations of the parties.
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.
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
While there is jurisprudence to the effect that a contract which provides that the initial payment shall
P300,000.00) from the purchase price for the settlement of the civil case was tantamount to a counter-
be totally forfeited in case of default in payment is to be considered as an option contract, 37 still we
offer. It must be stressed that there already existed a perfected contract between the parties at
are not inclined to conform with the findings of respondent court and the court a quo that the contract
the time the alleged counter-offer was made. Thus, any new offer by a party becomes binding only
executed between the parties is an option contract, for the reason that the parties were already
when it is accepted by the other. In the case of private respondents, they actually refused to concur in
contemplating the payment of the balance of the purchase price, and were not merely quoting an
said offer of petitioner, by reason of which the original terms of the contract continued to be
agreed value for the property. The term "balance," connotes a remainder or something remaining
enforceable.
from the original total sum already agreed upon.

At any rate, the same cannot be considered a counter-offer for the simple reason that petitioner's sole
In other words, the alleged option money of P50,000.00 was actually earnest money which was
purpose was to settle the civil case in order that it could already comply with its obligation. In fact, it
intended to form part of the purchase price. The amount of P50,000.00 was not distinct from the cause
was even indicative of a desire by petitioner to immediately comply therewith, except that it was
or consideration for the sale of the property, but was itself a part thereof. It is a statutory rule that
being prevented from doing so because of the filing of the civil case which, it believed in good faith,
whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as
rendered compliance improbable at that time. In addition, no inference can be drawn from that
proof of the perfection of the contract. 38 It constitutes an advance payment and must, therefore, be
suggestion given by petitioner that it was totally abandoning the original contract.
deducted from the total price. Also, earnest money is given by the buyer to the seller to bind the
bargain.
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
There are clear distinctions between earnest money and option money, viz.: (a) earnest money is part
of the former. The reason of "lack of word of honor" is to us a clear indication that private respondents
of the purchase price, while option money ids the money given as a distinct consideration for an
considered petitioner already bound by its obligation to pay the balance of the consideration. In effect,
option contract; (b) earnest money is given only where there is already a sale, while option money
private respondents were demanding or exacting fulfillment of the obligation from herein petitioner.
applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is bound to pay the
with the arrival of the period agreed upon by the parties, petitioner was supposed to comply with 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 price after the disturbance had ceased; and, secondarily, the fact that the contract to sell had been
review, even though it was called "option money" by the parties. In addition, private respondents validly rescinded by 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
The records of this case reveal that as early as February 28, 1990 when petitioner caused its exclusive
sufficiently established that such payment was but an element of the performance of petitioner's
option to be annotated anew on the certificate of title, it already knew of the dismissal of civil Case No.
obligation under the contract to sell. 40
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
II 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.
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 The mere sending of a letter by the vendee expressing the intention to
purchase price within the agreed period, petitioner invokes Article 1590 of the civil Code which pay, without the accompanying payment, is not considered a valid tender of payment. 43 Besides, a
provides: mere tender of payment is not sufficient to compel private respondents to deliver the property and
execute the deed of absolute sale. It is consignation which is essential in order to extinguish
petitioner's obligation to pay the balance of the purchase price. 44 The rule is different in case of an
Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or
option contract 45 or in legal redemption or in a sale with right to repurchase, 46 wherein consignation
should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure
is not necessary because these cases involve an exercise of a right or privilege (to buy, redeem or
of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or
repurchase) rather than the discharge of an obligation, hence tender of payment would be sufficient to
danger to cease, unless the latter gives security for the return of the price in a proper case, or it has
preserve the right or privilege. This is because the provisions on consignation are not applicable when
been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the
there is no obligation to pay. 47 A contract to sell, as in the case before us, involves the performance of
payment. A mere act of trespass shall not authorize the suspension of the payment of the price.
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.
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,
Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased with
it was not an option contract but a perfected contract to sell. Verily, therefore, Article 1590 would
the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the balance
properly apply.
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
Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the parties originally filed therein.
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
By reason of petitioner's failure to comply with its obligation, private respondents elected to resort to
ownership over the western half of the land which is covered by the contract subject of the present
and did announce the rescission of the contract through its letter to petitioner dated July 27, 1990.
case. We have gone over the complaint for recovery of ownership filed in said case 41 and we are not
That written notice of rescission is deemed sufficient under the circumstances. Article 1592 of the
persuaded by the factual findings made by said courts. At a glance, it is easily discernible that,
Civil Code which requires rescission either by judicial action or notarial act is not applicable to a
although the complaint prayed for the annulment only of the contract of sale executed between
contract to sell. 48 Furthermore, judicial action for rescission of a contract is not necessary where the
petitioner and the Jimenez brothers, the same likewise prayed for the recovery of therein plaintiffs'
contract provides for automatic rescission in case of breach,49 as in the contract involved in the
share in that parcel of land specifically covered by TCT No. 309773. In other words, the plaintiffs
present controversy.
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. 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
Such being the case, petitioner was justified in suspending payment of the balance of the purchase
contested by the defaulting party. In other words, resolution of reciprocal contracts may be made
price by reason of the aforesaid vindicatory action filed against it. The assurance made by private
extrajudicially unless successfully impugned in court. If the debtor impugns the declaration, it shall be
respondents that petitioner did not have to worry about the case because it was pure and simple
subject to judicial determination51 otherwise, if said party does not oppose it, the extrajudicial
harassment 42 is not the kind of guaranty contemplated under the exceptive clause in Article 1590
rescission shall have legal effect. 52
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.
In the case at bar, it has been shown that although petitioner was duly furnished and did receive a
written notice of rescission which specified the grounds therefore, it failed to reply thereto or protest
2. Be that as it may, and the validity of the suspension of payment notwithstanding, we find and hold
against it. Its silence thereon suggests an admission of the veracity and validity of private
that private respondents may no longer be compelled to sell and deliver the subject property to
respondents' claim. 53 Furthermore, the initiative of instituting suit was transferred from the rescinder
petitioner for two reasons, that is, petitioner's failure to duly effect the consignation of the purchase
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.
EN BANC
G.R. No. L-14070 March 29, 1961
MARIA GERVACIO BLAS, MANUEL GERVACIO BLAS, LEONCIO GERVACIO BLAS and LODA
GERVACIO BLAS, plaintiffs-appellants,
vs.
ROSALINA SANTOS, in her capacity as Special Administratrix of the Estate of the deceased
MAXIMA SANTOS VDA. DE BLAS, in Sp. Proc. No. 2524, Court of First Instance of Rizal,
defendants-appellants. MARTA GERVACIO BLAS and DR. JOSE CHIVI, defendants-appellants.
Teofilo Sison and Nicanor Sison for plaintiffs-appellants.
De los Santos, Caluag, Pascal and Felizardo for defendants-appellees.
LABRADOR, J.:
This action was instituted by plaintiffs against the administration of the estate of Maxima Santos,
to secure a judicial declaration that one-half of the properties left by Maxima Santos Vda. de
Blas, the greater bulk of which are set forth and described in the project of partition presented in the
proceedings for the administration of the estate of the deceased Simeon Blas, had been promised by
the deceased Maxima Santos to be delivered upon her death and in her will to the plaintiffs, and
requesting that the said properties so promised be adjudicated to the plaintiffs. The complaint
also prays for actual damages in the amount of P50,000. (Record on Appeal, pp. 1-65.) The alleged
promise of the deceased Maxima Santos is contained in a document executed by Maxima Santos on
December 26, 1936 attached to the complaint as Annex "H" and introduced at the trial as Exhibit "A".
(Ibid., pp. 258-259.) The complaint also alleges that the plaintiffs are entitled to inherit certain
properties enumerated in paragraph 3 thereof, situated in Malabon, Rizal and Obando,
Bulacan, but which properties have already been in included in the inventory of the estate of
the deceased Simeon Blas and evidently partitioned and conveyed to his heirs in the proceedings for
the administration of his (Simeon Blas) estate.
Defendant, who is the administratrix of the estate of the deceased Maxima Santos Vda. de Blas, filed an
answer with a counterclaim, and later, an amended answer and a counterclaim. The said amended
answer admits the allegations of the complaint as to her capacity as administratrix the death of Simeon
Blas on January 3, 1937; the fact that Simeon Blas and Marta Cruz begot three children only one of
whom, namely, Eulalio Blas, left legitimate descendants; that Simeon Blas contracted a second marriage
with Maxima Santos on June 28, 1898. She denies for lack of sufficient information and belief, knowledge
edge of the first marriage of Simeon Blas to Marta Cruz, the averment that Simeon Blas and Marta Cruz
acquired properties situated in Obando, Bulacan, that said properties were utilized as capital, etc.
As special defenses, she alleges that the properties of the spouses Blas and Santos had been settled and
liquidated in the project of partition of the estate of said Simeon Blas; that pursuant to the project of
partition, plaintiffs and some defendants had already received the respective properties adjudicated to
them; that the plaintiffs and the defendants Marta Geracio and Jose Chivi are estopped from impugning
the validity of the project of partition of the estate of the deceased Simeon Blas and from questioning
the ownership in the properties conveyed in the project of partition to Maxima Santos as her own
exclusive property; that the testament executed by Maxima Santos is valid, the plain plaintiffs having
no right to recover any portion of Maxima Santos' estate now under administration by the court. A
counterclaim for the amount of P50,000 as damages is also included in the complaint, as also a cross-
claim against Marta Gervacio Blas and Jose Chivi.
Trial of the case was Conducted and, thereafter, the court, Hon. Gustave Victoriano, presiding,
rendered judgment dismissing the complaint, with costs against plaintiff, and dismissing also the
counterclaim and cross-claim decision ,the plaintiffs filed by the defendants. From this district have
appealed to this Court.
The facts essential to an understanding of the issues involved in the case may be briefly summarized as
follows: Simeon Blas contracted a first marriage with Marta Cruz sometime before 1898. They had three
children, only one of whom, Eulalio, left children, namely, Maria Gervacio Blas, one of the plaintiffs,
Marta Gervacio Blas, one of the defendants, and Lazaro Gervacio Blas. Lazaro died in 1950, and is
survived by three legitimate children who are plaintiffs herein, namely, Manuel Gervacio Blas, Leoncio
Gervacio Blas and Loida Gervacio Blas. Marta Cruz died in 1898, and the following year, Simeon Blas
contracted a second marriage with Maxima Santos. At the time of this second marriage, no liquidation
of the properties required by Simeon Blas and Marta Cruz was made. Three of the properties left are
fishponds located in Obando, Bulacan. Maxima Santos does not appear to have apported properties to
her marriage with Simeon Blas.
On December 26, 1936, only over a week before over a week before his death on January 9, 1937,
Simeon Blas executed a last will and testament. In the said testament Simeon Blas makes the following
declarations:
I
2. Sa panahon ng aking pangalawang asawa, MAXIMA SANTOS DE BLAS, ay nagkaroon ako at
nakatipon ng mga kayamanan (bienes) at pag-aari (propriedades) na ang lahat ng lupa, palaisdaan at
iba pang pag-aari ay umaabot sa halagang ANIM NA RAAN PITONG PU'T WALONG DAAN LIBO
WALONG DAAN WALONG PUNG PISO (678,880-00) sang-ayon sa mga halaga sa amillarimento (valor
Amillarado.)
II
1. Ang kalahati ng lahat ng aming pag-aari, matapos mabayaran ang lahat ng aking o aming pag-
kakautang na mag-asawa, kung mayroon man, yayamang ang lahat ng ito ay kita sa loob ng
matrimonio (bienes ganaciales) ay bahagi ng para sa aking asawa, MAXIMA SANTOS DE BLAS, sang-
ayon sa batas. (Record on Appeal, pp. 250-251.)
The above testamentary provisions may be translated as follows:
I
2. During my second marriage with Maxima Santos de Blas, I possessed and acquired wealth and
properties, consisting of lands, fishponds and other kinds of properties, the total assessed value of
which reached the amount P678,880.00.
II
1. One-half of our properties, after the payment of my and our indebtedness, all these properties
having been acquired during marriage (conjugal properties), constitutes the share of my wife Maxima
Santos de Blas, according to the law.
At the time of the execution of said will, Andres Pascual a son-in-law of the testator, and Avelina
Pascual and others, were present. Andres Pascual had married a descendant by the first marriage. The
will was prepared by Andres Pascual, with the help of his nephew Avelino Pascual. The testator asked
Andres Pascual to prepare a document which was presented in court as Exhibit "A", thus:
Q — Was there anybody who asked you to prepare this document?
A — Don Simeon Blas asked me to prepare this document (referring to Exhibit "A"), (t.s.n., Sarmiento
to, P. 24).
The reason why the testator ordered the preparation of Exhibit "A" was because the properties that
the testator had acquired during his first marriage with Marta Cruz had not been liquidated and were
not separated from those acquired during the second marriage. Pascual's testimony is as follows:
Q — To whom do you refer with the word "they"?
A — Simeon Blas and his first wife, Marta Cruz. When Marta Cruz died they had not made a liquidation
of their conjugal properties and so all those properties were included all in the assets of the second
marriage, and that is the reason why this document was prepared. (t.s.n., Sarmiento, p. 36.)
The above testimony is fully corroborated by that of Leoncio Gervacio, son-in-law of Simeon Blas.
Q — Please state to the Court?
A — My children were claiming from their grandfather Simeon Blas the properties left by their
grandmother Marta Cruz in the year 1936.
Q — And what happened with that claim of your children against Simeon Blas regarding the assets or
properties of the first marriage that were left after the death of Marta Cruz in 1936?
A — The claim was not pushed through because they reached into an agreement whereby the parties
Simeon Blas Maxima Santos, Maria Gervacio Bias, Marta Gervacio Blas and Lazaro Gervacio Blas
agreed that Simeon Blas and Maxima Blas will give one-half of the estate of Simeon Blas. (t.s.n.,
Sarmiento, pp. 143-144).
The document which was thus prepared and which is marked as Exhibit "A" reads in Tagalog, thus:
MAUNAWA NG SINO MANG MAKABABASA:
Na akong si MAXIMA SANTOS DE BLAS, nasa hustong gulang, kasal kay SIMEON BLAS, taga bayan ng
Malabon, Rizal, Philippines, sa pamamagitan ng kasulatang ito ay malaya kong ipinahahayag:
Na aking nabasa at naunawa ang testamento at huling kalooban na nilagdaan ng aking asawa, SIMEON
BLAS, at ipinahahayag ko sa ilalim ng aking karangalan at sa harap ng aking asawa na igagalang at
pagpipitaganan ang lahat at bawa't isang bahagi ng nabanggit na testamento at ipinangangako ko pa
sa pamamagitan ng kasulatang ito na ang lahat ng maiiwang pag-aari at kayamanan naming mag-
asawa, na nauukol at bahaging para sa akin sa paggawa ko naman ng aking testamento ay
ipagkakaloob ko ang kalahati (½) sa mga herederos at legatarios o pinamamanahan ng aking
nabanggit na asawa, SIMEON BLAS, sa kaniyang testamento, na ako'y makapipili o makahihirang na
kahit kangino sa kanila ng aking pagbibigyan at pamamanahan sang-ayon sa paggalang, paglilingkod,
at pakikisama ng gagawin sa akin.
SA KATUNAYAN NG LAHAT NG ITO ay nilagdaan ko ang kasulatang ito ngayon ika 26 ng Diciembre ng
taong 1936, dito sa San Francisco del Monte, San Juan, Rizal, Philippines. (Exh. "A", pp. 29-30 —
Appellant's brief).
(Fdo.) MAXIMA SANTOS DE BLAS
and which, translated into English, reads as follows:
KNOW ALL MEN BY THESE PRESENTS:
That I MAXIMA SANTOS DE BLAS, of legal age, married to SIMEON BLAS, resident of Malabon, Rizal,
Philippines, voluntarily state:
That I have read and knew the contents of the will signed by my husband, SIMEON BLAS, (2) and I
promise on my word of honor in the presence of my husband that I will respect and obey all and every
disposition of said will (3) and furthermore, I promise in this document that all the properties my
husband and I will leave, the portion and share corresponding to me when I make my will, I will give
one-half (½) to the heirs and legatees or the beneficiaries named in the will of my husband, (4) and
that I can select or choose any of them, to whom I will give depending upon the respect, service and
treatment accorded to me.
IN WITNESS WHEREOF, I signed this document this 26th day of December, 1936 at San Francisco del
Monte, San Juan, Rizal, Philippines. (Exh. "A", pp. 30-31, Appellant's brief).

(Sgd.) MAXIMA SANTOS DE BLAS
The court below held that said Exhibit "A" has not created any right in favor of plaintiffs which can
serve as basis for the complaint; that neither can it be considered as a valid and enforceable contract
for lack of consideration and because it deals with future inheritance. The court also declared that
Exhibit "A" is not a will because it does not comply with the requisites for the execution of a will; nor
could it be considered as a donation, etc.
Both the court below in its decision and the appellees in their brief before us, argue vehemently that
the heirs of Simeon Blas and his wife Marta Cruz can no longer make any claim for the unliquidated
conjugal properties acquired during said first marriage, because the same were already included in
the mass of properties constituting the estate of the deceased Simeon Blas and in the adjudications
made by virtue of his will, and that the action to recover the same has prescribed. This contention is
correct. The descendants of Marta Cruz can no longer claim the conjugal properties that she and her
husband may have required during their marriage although no liquidation of such properties and
delivery thereof to the heirs of Marta Cruz have been made, no action to recover said propertied
having been presented in the proceedings for the settlement of the estate of Simeon Blas.
But the principal basis for the plaintiffs' action in the case at bar is the document Exhibit "A". It is not
disputed that this document was prepared at the instance of Simeon Blas for the reason that the
conjugal properties of me on Blas for the reason his first marriage had not been liquidated; that it was
prepared at the same time as the will of Simeon Blas on December 26, 1936, at the instance of the
latter himself. It is also not disputed that the document was signed by Maxima Santos and one copy
thereof, which was presented in court as Exhibit "A", was kept by plaintiffs' witness Andres Pascual.
Plaintiffs-appellants argue before us that Exhibit "A" is both a trust agreement and a contract in the
nature of a compromise to avoid litigation. Defendants-appellees, in answer, claim that it is neither a
trust agreement nor a compromise a agreement. Considering that the properties of the first marriage
of Simeon Blas had not been liquidated when Simeon Blas executed his will on December 26, 1936',
and the further fact such properties where actually , and the further fact that included as conjugal
properties acquired during the second marriage, we find, as contended by plaintiffs-appellants that
the preparation and execution of Exhibit "A" was ordered by Simeon Blas evidently to prevent his
heirs by his first marriage from contesting his will and demanding liquidation of the conjugal
properties acquired during the first marriage, and an accounting of the fruits and proceeds thereof
from the time of the death of his first wife.
Exhibit "A", therefore, appears to be the compromise defined in Article 1809 of the Civil Code of Spain,
in force at the time of the execution of Exhibit "A", which provides as follows:
Compromise is a contract by which each of the parties in interest, by giving, promising, or retaining
something avoids the provocation of a suitor terminates one which has already the provocation been
instituted. (Emphasis supplied.)
Exhibit "A" states that the maker (Maxima Santos) had read and knew the contents of the will of her
husband read and knew the contents of the will Simeon Blas — she was evidently referring to the
declaration in the will(of Simeon Blas) that his properties are conjugal properties and one-half thereof
belongs to her (Maxima Santos) as her share of the conjugal assets under the law. The agreement or
promise that Maxima Santos makes in Exhibit "A" is to hold one-half of her said share in the conjugal
assets in trust for the heirs and legatees of her husband in his will, with the obligation of conveying the
same to such of his heirs or legatees as she may choose in her last will and testament. It is to be noted
that the conjugal properties referred to are those that were actually existing at that time, December
26, 1936. Simeon Blas died on January 9, 1937. On June 2, 1937, an inventory of the properties left by
him, all considered conjugal, was submitted by Maxima Santos herself as administratrix of his estate. A
list of said properties is found in Annex "E", the complete inventory submitted by Maxima Santos Vda.
de Blas, is administratrix of the estate of her husband, dated March 10, 1939. The properties which
were given to Maxima Santos as her share in the conjugal properties are also specified in the project of
partition submitted by said Maxima Santos herself on March 14, 1939. (Record on Appeal, pp. 195-
241.) Under Exhibit "A", therefore, Maxima Santos contracted the obligation and promised to give one-
half of the above indicated properties to the heirs and legatees of Simeon Blas.
Counsel for the defendant-appellee claims Exhibit "A" is a worthless piece of paper because it is not a
will nor a donation mortis causa nor a contract. As we have in indicated above, it is a compromise and
at the same time a contract with a sufficient cause or consideration. It is also contended that it deals
with future inheritance. We do not think that Exhibit "A" is a contract on future inheritance. it is an
obligation or promise made by the maker to transmit one-half of her share in the conjugal properties
acquired with her husband, which properties are stated or declared to be conjugal properties in the
will of the husband. The conjugal properties were in existence at the time of the execution of Exhibit
"A" on December 26, 1936. As a matter of fact, Maxima Santos included these properties in her
inventory of her husband's estate of June 2, 1937. The promise does not refer to any properties that
the maker would inherit upon the death of her husband, because it is her share in the conjugal assets.
That the kind of agreement or promise contained in Exhibit "A" is not void under Article 1271 of the
old Civil Code, has been decided by the Supreme Court of Spain in its decision of October 8, 19154,
thus:
Que si bien el art. 1271 del Codigo civil dispone que sobre la herenciafutura no se podra celebrar otros
contratos que aquellos cuyo objecto seapracticar entre vivos la division de un caudal, conforme al
articulo 1056, esta prohibicion noes aplicable al caso, porque la obligacion que contrajoel recurr en
contrato privado de otorgar testamento e instituir heredera a su subrina de los bienes que adquirio en
virtud de herencia, procedentes desu finada consorte que le quedasen sobrantes despues de pagar las
deudas, y del ganacial que se expresa, asi como de reconocer, ademas, con alguna cosaa otros
sobrinos, se refiere a bienes conocidos y determinados existentes cuando tal compromisi se otorgo, y no a
la universalidad de una herencia que, sequn el art. 659 del citado Codigo civil, as determina a muerte,
constituyendola todos los bienes, derechos y obligaciones que por ella no sehayan extinguido: ..."
(Emphasis supplied.)
It will be noted that what is prohibited to be the subject matter of a contract under Article 1271 of the
Civil Code is "future inheritance." To us future inheritance is any property or right not in existence or
capable of determination at the time of the contract, that a person may in the future acquire by
succession. The properties subject of the contract Exhibit "A" are well defined properties, existing at
the time of the agreement, which Simeon Blas declares in his statement as belonging to his wife as her
share in the conjugal partnership. Certainly his wife's actual share in the conjugal properties may not
be considered as future inheritance because they were actually in existence at the time Exhibit "A" was
executed.
The trial court held that the plaintiffs-appellants in the case at bar are concluded by the judgement
rendered in the proceedings for the settlement of the estate of Simeon Blas for the reason that the
properties left by him belonged to himself and his wife Maxima Santos; that the project of partition in
the said case, adjudicating to Maxima Santos one-half as her share in the conjugal properties, is a bar
to another action on the same subject matter, Maxima Santos having become absolute owner of the
said properties adjudicated in her favor. As already adverted to above, these contentions would be (c) 53.5180 "
correct if applied to the claim of the plaintiffs-appellants that said properties were acquired with the
first wife of Simeon Blas, Marta Cruz. But the main ground upon which plaintiffs base their present 46. Pinanganakan, Lubao, Pampanga 159.0078 "
action is the document Exhibit "A", already fully considered above. As this private document contains 47. Emigdio Lingid, Lubao, Pampanga 34.5229 "
the express promise made by Maxima Santos to convey in her testament, upon her death, one-half of
the conjugal properties she would receive as her share in the conjugal properties, the action to enforce 48. Propios, Lubao, Pampanga 80.5382 "
the said promise did not arise until and after her death when it was found that she did not comply 49. Batang Mabuanbuan, Sexmoan, Pampanga 43.3350 "
with her above-mentioned promise. (Art. 1969, old Civil Code.) The argument that the failure of the
plaintiffs-appellants herein to oppose the project of partition in the settlement of the estate of Simeon 50. Binatang Mabuanbuan, Sexmoan, Pampanga 3.5069 "
Blas, especially that portion of the project which assigned to Maxima Santos one-half of all the 51. Sapang Magtua, Sexmoan, Pampanga 56,8242 "
conjugal properties bars their present action, is, therefore, devoid of merit. It may be added that
plaintiffs-appellants did not question the validity of the project of partition precisely because of the 52. Kay Limpin, Sexmoan, Pampanga 5.0130 "
promise made by Maxima Santos in the compromise Exhibit "A"; they acquised in the approval of said 53. Calise Mabalumbum, Sexmoan, Pampanga 23.8935 "
project of partition because they were relying on the promise made by Maxima Santos in Exhibit "A",
54. Messapinit Kineke, Sexmoan, Pampanga (a) 5.2972 "
that she would transmit one-half of the conjugal properties that she was going to receive as her share
in the conjugal partnership upon her death and in her will, to the heirs and legatees of her husband (b) 5.9230 "
Simeon Blas.
(c) 1.4638 "
(d) 1.4638 "
Neither can the claim of prescription be considered in favor of the defendants. The right of action
arose at the time of the death of Maxima Santos on October 5,1956, when she failed to comply with the (e) 2.8316 "
promise made by her in Exhibit "A". The plaintiffs-appellants immediately presented this action on
(f) 10.4412 "
December 27, 1956, upon learning of such failure on the part of Maxima Santos to comply with said
promise. This defense is, therefore, also without merit. (g) 3.9033 "
(h) 11.9263 "
It is next contended by the defendant-appellee that Maxima Santos complied with her above- (i) 6.0574 "
mentioned promise, — that Andres Pascual, Tomasa Avelino, Justo Garcia, Ludovico Pimpin and Marta
Gervacio Blas were given substancial legacies in the will and testament of Maxima Santos. To 55. Dalang, Banga, Sexmoan, Pampanga 23.3989 "
determine whether she had actually complied with the promise made in Exhibit "A", there is herein 62. Alaminos, Pangasinan 147.1242 "
set forth a list only of the fishponds and their respective areas as contained in the list of properties she
acquired as her share in the conjugal partnership, which list includes, besides many ricelands as well 80. Mangasu Sexmoan, Pampanga 10.000 "
as residential lots, thus: 81. Don Tomas, Sexmoan, Pampanga 21.6435 "
82. Matikling, Lubao, Pampanga 16.0000 "
31. Paco, Obando, Bulacan 5.8396 has.
Total area ............................... 1045.7863 "
32. Pangjolo, Obando 3.5857 "
(See Record on Record, pp. 195-241.)
34. Batang Pirasuan, Lubao, Pampanga 11.9515 "
35. Calangian, Lubao, Pampanga 30.2059 " In her will, Maxima Santos devised to Marta Gervacio Blas the 80-hectare fishpond situated in Lubao,
38. Bakuling, Lubao, Pampanga 215.4325 " Pampanga. The fishpond devised is evidently that designated as "Propios" in Lubao, Pampanga, item
No. 8 in the list of properties adjudicated to her in the project of partition. (Record on Appeal, p. 215.)
39. Bakuling, Lubao, Pampanga 8.3763 " Considering that the total area of the fishponds amount to 1045.7863 hectares, the 80 hectares
40. Bangkal, Sinubli 23.0730 " devised to Marta Gervacio Blas is not even one-tenth of the total area of the fishponds. Add to this the
fact that in the will she imposed upon Marta Gervacio Blas de Chivi an existing obligation on said
41. Tagulod, 6.8692 " fishponds, namely, its lease in 1957 and the duty to pay out of the rentals thereof an obligation to the
44. Bangkal Pugad (a) 34.2779 " Rehabilitation Finance Corporation RFC (Ibid., pp. 262-263.) Angelina Blas was given only a lot of 150
square meters in Hulong Duhat, Malabon, Rizal, and Leony Blas, the sum of P300.00 (Ibid., p. 264.)
(b) 51.7919 "
(c) 2.5202 "
It is evident from a consideration of the above figures and facts that Maxima Santos did not comply
45. Magtapat Bangkal, Lubao, Pampanga (a) 18.0024 " with her obligation to devise one-half of her conjugal properties to the heirs and legatees of her
husband. She does not state that she had complied with such obligation in her will. If she intended to
(b) 7.3265 "
comply therewith by giving some of the heirs of Simeon Blas the properties mentioned above, the
most that can be considered in her favor is to deduct the value of said properties from the total
amount of properties which she had undertaken to convey upon her death.
All the issues in the pleadings of the parties and in their respective briefs, have now been fully
discussed and considered. Reiterating what we have stated above, we declare that by Exhibit "A", a
compromise to avoid litigation, Maxima Santos promised to devise to the heirs and legatees of her
husband Simeon Blas, one-half of the properties she received as her share in the conjugal partnership
of herself and her husband, which share is specified in the project of partition submitted by herself on
March 14, 1939 in the settlement of the estate of her husband, and which is found on pages 195 to 240
of the record on appeal and on pages 27 to 46 of the project of partition, submitted by Maxima Santos
herself before the Court of First Instance of Rizal in Civil Case No. 6707, entitled "Testamentaria del
Finado Don Simeon Blas, Maxima Santos Vda. de Bias, Administradora"; and that she failed to comply
with her aforementioned obligation. (Exhibit "A")
WHEREFORE, the judgment appealed from is hereby reversed and the defendant-appellee,
administratrix of the estate of Maxima Santos, is ordered to convey and deliver one-half of the
properties adjudicated o Maxima Santos as her share in the conjugal properties in said Civil Case No.
6707, entitled "Testamentaria del Finado Don Simeon Blas, Maxima Santos Vda. de Blas,
Administradora", to the heirs and the legatees of her husband Simeon Blas. Considering that all said
heirs and legatees, designated in the will of Simeon Blas as the persons for whose benefit Exhibit "A"
had been executed, have not appeared in these proceedings, the record is hereby remanded to the
court below, with instructions that, after the conveyance of the properties hereinabove ordered had
been effected, the said heirs and legatees (of Simeon Blas) file adversary pleadings to determine the
participation of each and every one of them in said properties. Costs against the defendant- appellee
Rosalina Santos.
G.R. No. 138018 July 26, 2002
RIDO MONTECILLO, petitioner,
vs.
IGNACIA REYNES and SPOUSES REDEMPTOR and ELISA ABUCAY, respondents.
CARPIO, J.:
The Facts
Respondents Ignacia Reynes ("Reynes" for brevity) and Spouses Abucay ("Abucay Spouses" for
brevity) filed on June 20, 1984 a complaint for Declaration of Nullity and Quieting of Title against
petitioner Rido Montecillo ("Montecillo" for brevity). Reynes asserted that she is the owner of a lot
situated in Mabolo, Cebu City, covered by Transfer Certificate of Title No. 74196 and containing an
area of 448 square meters ("Mabolo Lot" for brevity). In 1981, Reynes sold 185 square meters of the
Mabolo Lot to the Abucay Spouses who built a residential house on the lot they bought.
Reynes alleged further that on March 1, 1984 she signed a Deed of Sale of the Mabolo Lot in favor of
Montecillo ("Montecillo’s Deed of Sale" for brevity). Reynes, being illiterate, 6 signed by affixing her
thumb-mark7 on the document. Montecillo promised to pay the agreed P47,000.00 purchase price
within one month from the signing of the Deed of Sale. Montecillo’s Deed of Sale states as follows:
"That I, IGNACIA T. REYNES, of legal age, Filipino, widow, with residence and postal address at
Mabolo, Cebu City, Philippines, for and in consideration of FORTY SEVEN THOUSAND (P47,000.00)
PESOS, Philippine Currency, to me in hand paid by RIDO MONTECILLO, of legal age, Filipino,
married, with residence and postal address at Mabolo, Cebu City, Philippines, the receipt hereof is
hereby acknowledged, have sold, transferred, and conveyed, unto RIDO MONTECILLO, his heirs,
executors, administrators, and assigns, forever, a parcel of land together with the improvements
thereon, situated at Mabolo, Cebu City, Philippines, free from all liens and encumbrances, and more
particularly described as follows:
A parcel of land (Lot 203-B-2-B of the subdivision plan Psd-07-01-00 2370, being a portion of Lot 203-
B-2, described on plan (LRC) Psd-76821, L.R.C. (GLRO) Record No. 5988), situated in the Barrio of
Mabolo, City of Cebu. Bounded on the SE., along line 1-2 by Lot 206; on the SW., along line 2-3, by Lot
202, both of Banilad Estate; on the NW., along line 4-5, by Lot 203-B-2-A of the subdivision of Four
Hundred Forty Eight (448) square meters, more or less.
of which I am the absolute owner in accordance with the provisions of the Land Registration Act, my
title being evidenced by Transfer Certificate of Title No. 74196 of the Registry of Deeds of the City of
Cebu, Philippines. That This Land Is Not Tenanted and Does Not Fall Under the Purview of P.D.
27."8 (Emphasis supplied)
Reynes further alleged that Montecillo failed to pay the purchase price after the lapse of the one-
month period, prompting Reynes to demand from Montecillo the return of the Deed of Sale. Since
Montecillo refused to return the Deed of Sale,9 Reynes executed a document unilaterally revoking the
sale and gave a copy of the document to Montecillo.
Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring to the Abucay Spouses the
entire Mabolo Lot, at the same time confirming the previous sale in 1981 of a 185-square meter
portion of the lot. This Deed of Sale states:
"I, IGNACIA T. REYNES, of legal age, Filipino, widow and resident of Mabolo, Cebu City, do hereby
confirm the sale of a portion of Lot No. 74196 to an extent of 185 square meters to Spouses
Redemptor Abucay and Elisa Abucay covered by Deed per Doc. No. 47, Page No. 9, Book No. V, Series
of 1981 of notarial register of Benedicto Alo, of which spouses is now in occupation;
That for and in consideration of the total sum of FIFTY THOUSAND (P50,000) PESOS, Philippine
Currency, received in full and receipt whereof is herein acknowledged from SPOUSES REDEMPTOR
ABUCAY and ELISA ABUCAY, do hereby in these presents, SELL, TRANSFER and CONVEY absolutely
unto said Spouses Redemptor Abucay and Elisa Abucay, their heirs, assigns and successors-in-interest
the whole parcel of land together with improvements thereon and more particularly described as
follows:
TCT No. 74196
A parcel of land (Lot 203-B-2-B of the subdivision plan psd-07-01-002370, being a portion of Lot 203-
B-2, described on plan (LRC) Psd 76821, LRC (GLRO) Record No. 5988) situated in Mabolo, Cebu City,
along Arcilla Street, containing an area of total FOUR HUNDRED FORTY EIGHT (448) Square meters.
of which I am the absolute owner thereof free from all liens and encumbrances and warrant the same
against claim of third persons and other deeds affecting said parcel of land other than that to the said
spouses and inconsistent hereto is declared without any effect.
In witness whereof, I hereunto signed this 23rd day of May, 1984 in Cebu City, Philippines."10
Reynes and the Abucay Spouses alleged that on June 18, 1984 they received information that the
Register of Deeds of Cebu City issued Certificate of Title No. 90805 in the name of Montecillo for the
Mabolo Lot.
"WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered declaring the
deed of sale in favor of defendant null and void and of no force and effect thereby ordering the
cancellation of Transfer Certificate of Title No. 90805 of the Register of Deeds of Cebu City and to
declare plaintiff Spouses Redemptor and Elisa Abucay as rightful vendees and Transfer Certificate of
Title to the property subject matter of the suit issued in their names. The defendants are further
directed to pay moral damages in the sum of P20,000.00 and attorney’s fees in the sum of P2,000.00
plus cost of the suit.
xxx"

Not satisfied with the trial court’s Decision, Montecillo appealed the same to the Court of Appeals.
Reynes and the Abucay Spouses argued that "for lack of consideration there (was) no meeting of the
minds"11between Reynes and Montecillo. Thus, the trial court should declare null and void ab
initio Montecillo’s Deed of Sale, and order the cancellation of Certificate of Title No. 90805 in the name Ruling of the Court of Appeals
of Montecillo.
The appellate court affirmed the Decision of the trial court in toto and dismissed the appeal13 on the
In his Answer, Montecillo, a bank executive with a B.S. Commerce degree, 12 claimed he was a buyer in ground that Montecillo’s Deed of Sale is void for lack of consideration. The appellate court also denied
good faith and had actually paid the P47,000.00 consideration stated in his Deed of Sale. Montecillo, Montecillo’s Motion for Reconsideration14 on the ground that it raised no new arguments.
however, admitted he still owed Reynes a balance of P10,000.00. He also alleged that he
paid P50,000.00 for the release of the chattel mortgage which he argued constituted a lien on the
Still dissatisfied, Montecillo filed the present petition for review on certiorari.
Mabolo Lot. He further alleged that he paid for the real property tax as well as the capital gains tax on
the sale of the Mabolo Lot.
The Issues
In their Reply, Reynes and the Abucay Spouses contended that Montecillo did not have authority to
discharge the chattel mortgage, especially after Reynes revoked Montecillo’s Deed of Sale and gave the Montecillo raises the following issues:
mortgagee a copy of the document of revocation. Reynes and the Abucay Spouses claimed that
Montecillo secured the release of the chattel mortgage through machination. They further asserted
1. "Was there an agreement between Reynes and Montecillo that the stated consideration
that Montecillo took advantage of the real property taxes paid by the Abucay Spouses and
of P47,000.00 in the Deed of Sale be paid to Cebu Ice and Cold Storage to secure the release of the
surreptitiously caused the transfer of the title to the Mabolo Lot in his name.
Transfer Certificate of Title?"

During pre-trial, Montecillo claimed that the consideration for the sale of the Mabolo Lot was the
2. "If there was none, is the Deed of Sale void from the beginning or simply rescissible?"15
amount he paid to Cebu Ice and Cold Storage Corporation ("Cebu Ice Storage" for brevity) for the
mortgage debt of Bienvenido Jayag ("Jayag" for brevity). Montecillo argued that the release of the
mortgage was necessary since the mortgage constituted a lien on the Mabolo Lot. The Ruling of the Court

Reynes, however, stated that she had nothing to do with Jayag’s mortgage debt except that the house The petition is devoid of merit.
mortgaged by Jayag stood on a portion of the Mabolo Lot. Reynes further stated that the payment by
Montecillo to release the mortgage on Jayag’s house is a matter between Montecillo and Jayag. The
First issue: manner of payment of the P47,000.00 purchase price.
mortgage on the house, being a chattel mortgage, could not be interpreted in any way as an
encumbrance on the Mabolo Lot. Reynes further claimed that the mortgage debt had long prescribed
since the P47,000.00 mortgage debt was due for payment on January 30, 1967. Montecillo’s Deed of Sale does not state that the P47,000.00 purchase price should be paid by
Montecillo to Cebu Ice Storage. Montecillo failed to adduce any evidence before the trial court showing
that Reynes had agreed, verbally or in writing, that the P47,000.00 purchase price should be paid to
The trial court rendered a decision on March 24, 1993 declaring the Deed of Sale to Montecillo null
Cebu Ice Storage. Absent any evidence showing that Reynes had agreed to the payment of the
and void. The trial court ordered the cancellation of Montecillo’s Transfer Certificate of Title No.
purchase price to any other party, the payment to be effective must be made to Reynes, the vendor in
90805 and the issuance of a new certificate of title in favor of the Abucay Spouses. The trial court
the sale. Article 1240 of the Civil Code provides as follows:
found that Montecillo’s Deed of Sale had no cause or consideration because Montecillo never paid
Reynes the P47,000.00 purchase price, contrary to what is stated in the Deed of Sale that Reynes
received the purchase price. The trial court ruled that Montecillo’s Deed of Sale produced no effect "Payment shall be made to the person in whose favor the obligation has been constituted, or his
whatsoever for want of consideration. The dispositive portion of the trial court’s decision reads as successor in interest, or any person authorized to receive it."
follows:
Thus, Montecillo’s payment to Cebu Ice Storage is not the payment that would
extinguish16 Montecillo’s obligation to Reynes under the Deed of Sale.
It militates against common sense for Reynes to sell her Mabolo Lot for P47,000.00 if this entire
amount would only go to Cebu Ice Storage, leaving not a single centavo to her for giving up ownership
of a valuable property. This incredible allegation of Montecillo becomes even more absurd when one
considers that Reynes did not benefit, directly or indirectly, from the payment of the P47,000.00 to
Cebu Ice Storage.
The trial court found that Reynes had nothing to do with Jayag’s mortgage debt with Cebu Ice Storage.
The trial court made the following findings of fact:
"x x x. Plaintiff Ignacia Reynes was not a party to nor privy of the obligation in favor of the Cebu Ice
and Cold Storage Corporation, the obligation being exclusively of Bienvenido Jayag and wife who
mortgaged their residential house constructed on the land subject matter of the complaint. The
payment by the defendant to release the residential house from the mortgage is a matter between him
and Jayag and cannot by implication or deception be made to appear as an encumbrance upon the
land."17
Thus, Montecillo’s payment to Jayag’s creditor could not possibly redound to the benefit 18 of Reynes.
We find no reason to disturb the factual findings of the trial court. In petitions for review on certiorari
as a mode of appeal under Rule 45, as in the instant case, a petitioner can raise only questions of
law.19 This Court is not the proper venue to consider a factual issue as it is not a trier of facts.
Second issue: whether the Deed of Sale is void ab initio or only rescissible.
Under Article 1318 of the Civil Code, "[T]here 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." Article 1352 of the Civil Code also provides that
"[C]ontracts without cause x x x produce no effect whatsoever."
Montecillo argues that his Deed of Sale has all the requisites of a valid contract. Montecillo points out
that he agreed to purchase, and Reynes agreed to sell, the Mabolo Lot at the price of P47,000.00. Thus,
the three requisites for a valid contract concur: consent, object certain and consideration. Montecillo
asserts there is no lack of consideration that would prevent the existence of a valid contract. Rather,
there is only non-payment of the consideration within the period agreed upon for payment.
Montecillo argues there is only a breach of his obligation to pay the full purchase price on time. Such
breach merely gives Reynes a right to ask for specific performance, or for annulment of the obligation
to sell the Mabolo Lot. Montecillo maintains that in reciprocal obligations, the injured party can choose
between fulfillment and rescission,20or more properly cancellation, of the obligation under Article
119121 of the Civil Code. This Article also provides that the "court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of the period." Montecillo claims that because Reynes
failed to make a demand for payment, and instead unilaterally revoked Montecillo’s Deed of Sale, the
court has a just cause to fix the period for payment of the balance of the purchase price.
These arguments are not persuasive.
Montecillo’s Deed of Sale states that Montecillo paid, and Reynes received, the P47,000.00 purchase
price on March 1, 1984, the date of signing of the Deed of Sale. This is clear from the following
provision of the Deed of Sale:
"That I, IGNACIA T. REYNES, x x x for and in consideration of FORTY SEVEN THOUSAND
(P47,000.00) PESOS, Philippine Currency, to me in hand paid by RIDO MONTECILLO xxx, receipt of
which is hereby acknowledged, have sold, transferred, and conveyed, unto RIDO MONTECILLO, x x x
a parcel of land x x x."
On its face, Montecillo’s Deed of Absolute Sale22 appears supported by a valuable consideration.
However, based on the evidence presented by both Reynes and Montecillo, the trial court found that
Montecillo never paid to Reynes, and Reynes never received from Montecillo, the P47,000.00 purchase
price. There was indisputably a total absence of consideration contrary to what is stated in
Montecillo’s Deed of Sale. As pointed out by the trial court –
"From the allegations in the pleadings of both parties and the oral and documentary evidence adduced
during the trial, the court is convinced that the Deed of Sale (Exhibits "1" and "1-A") executed by
plaintiff Ignacia Reynes acknowledged before Notary Public Ponciano Alvinio is devoid of any
consideration. Plaintiff Ignacia Reynes through the representation of Baudillo Baladjay had executed a
Deed of Sale in favor of defendant on the promise that the consideration should be paid within one (1)
month from the execution of the Deed of Sale. However, after the lapse of said period, defendant failed
to pay even a single centavo of the consideration. The answer of the defendant did not allege clearly
why no consideration was paid by him except for the allegation that he had a balance of
only P10,000.00. It turned out during the pre-trial that what the defendant considered as the
consideration was the amount which he paid for the obligation of Bienvenido Jayag with the Cebu Ice
and Cold Storage Corporation over which plaintiff Ignacia Reynes did not have a part except that the
subject of the mortgage was constructed on the parcel of land in question. Plaintiff Ignacia Reynes was
not a party to nor privy of the obligation in favor of the Cebu Ice and Cold Storage Corporation, the
obligation being exclusively of Bienvenido Jayag and wife who mortgaged their residential house
constructed on the land subject matter of the complaint. The payment by the defendant to release the
residential house from the mortgage is a matter between him and Jayag and cannot by implication or
deception be made to appear as an encumbrance upon the land. "23
Factual findings of the trial court are binding on us, especially if the Court of Appeals affirms such
findings.24 We do not disturb such findings unless the evidence on record clearly does not support
such findings or such findings are based on a patent misunderstanding of facts, 25 which is not the case
here. Thus, we find no reason to deviate from the findings of both the trial and appellate courts that no
valid consideration supported Montecillo’s Deed of Sale.
This is not merely a case of failure to pay the purchase price, as Montecillo claims, which can only
amount to a breach of obligation with rescission as the proper remedy. What we have here is a
purported contract that lacks a cause - one of the three essential requisites of a valid contract. Failure
to pay the consideration is different from lack of consideration. The former results in a right to
demand the fulfillment or cancellation of the obligation under an existing valid contract26 while the
latter prevents the existence of a valid contract
Where the deed of sale states that the purchase price has been paid but in fact has never been paid,
the deed of sale is null and void ab initio for lack of consideration. This has been the well-settled rule
as early as Ocejo Perez & Co. v. Flores,27 a 1920 case. As subsequently explained in Mapalo v.
Mapalo28 –
"In our view, therefore, the ruling of this Court in Ocejo Perez & Co. vs. Flores, 40 Phil. 921, is squarely
applicable herein. In that case we ruled that a contract of purchase and sale is null and void and
produces no effect whatsoever where the same is without cause or consideration in that the purchase
price which appears thereon as paid has in fact never been paid by the purchaser to the vendor."
The Court reiterated this rule in Vda. De Catindig v. Heirs of Catalina Roque,29 to wit –
In summary, Montecillo’s Deed of Sale is null and void ab initio not only for lack of consideration, but
also for lack of consent. The cancellation of TCT No. 90805 in the name of Montecillo is in order as
there was no valid contract transferring ownership of the Mabolo Lot from Reynes to Montecillo.
WHEREFORE, the petition is DENIED and the assailed Decision dated July 16, 1998 of the Court of
Appeals in CA-G.R. CV No. 41349 is AFFIRMED. Costs against petitioner.

"The Appellate Court’s finding that the price was not paid or that the statement in the supposed SO ORDERED.
contracts of sale (Exh. 6 to 26) as to the payment of the price was simulated fortifies the view that the
alleged sales were void. "If the price is simulated, the sale is void . . ." (Art. 1471, Civil Code)

A contract of sale is void and produces no effect whatsoever where the price, which appears thereon
as paid, has in fact never been paid by the purchaser to the vendor (Ocejo, Perez & Co. vs. Flores and
Bas, 40 Phil. 921; Mapalo vs. Mapalo, L-21489, May 19, 1966, 64 O.G. 331, 17 SCRA 114, 122). Such a
sale is non-existent (Borromeo vs. Borromeo, 98 Phil. 432) or cannot be considered consummated
(Cruzado vs. Bustos and Escaler, 34 Phil. 17; Garanciang vs. Garanciang, L-22351, May 21, 1969, 28
SCRA 229)."

Applying this well-entrenched doctrine to the instant case, we rule that Montecillo’s Deed of Sale is
null and void ab initio for lack of consideration.

Montecillo asserts that the only issue in controversy is "the mode and/or manner of payment and/or
whether or not payment has been made."30 Montecillo implies that the mode or manner of payment is
separate from the consideration and does not affect the validity of the contract. In the recent case
of San Miguel Properties Philippines, Inc. v. Huang,31 we ruled that –

"In Navarro v. Sugar Producers Cooperative Marketing Association, Inc. (1 SCRA 1181 [1961]), we laid
down the rule that the manner of payment of the purchase price is an essential element before a
valid and binding contract of sale can exist. Although the Civil Code does not expressly state that
the minds of the parties must also meet on the terms or manner of payment of the price, the same is
needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of Appeals (244 SCRA 320
[1995]), agreement on the manner of payment goes into the price such that a disagreement on the
manner of payment is tantamount to a failure to agree on the price." (Emphasis supplied)

One of the three essential requisites of a valid contract is consent of the parties on the object and
cause of the contract. In a contract of sale, the parties must agree not only on the price, but also on the
manner of payment of the price. An agreement on the price but a disagreement on the manner of its
payment will not result in consent, thus preventing the existence of a valid contract for lack of
consent. This lack of consent is separate and distinct from lack of consideration where the contract
states that the price has been paid when in fact it has never been paid.

Reynes expected Montecillo to pay him directly the P47,000.00 purchase price within one month after
the signing of the Deed of Sale. On the other hand, Montecillo thought that his agreement with Reynes
required him to pay the P47,000.00 purchase price to Cebu Ice Storage to settle Jayag’s mortgage debt.
Montecillo also acknowledged a balance of P10,000.00 in favor of Reynes although this amount is not
stated in Montecillo’s Deed of Sale. Thus, there was no consent, or meeting of the minds, between
Reynes and Montecillo on the manner of payment. This prevented the existence of a valid contract
because of lack of consent.