G.R. No.

118509 December 1, 1995

LIMKETKAI SONS MILLING, INC., petitioner,
vs.
COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS and NATIONAL BOOK
STORE, respondents.

MELO, J.:
The issue in the petition before us is whether or not there was a perfected contract between
petitioner Limketkai Sons Milling, Inc. and respondent Bank of the Philippine Islands (BPI) covering
the sale of a parcel of land, approximately 3.3 hectares in area, and located in Barrio Bagong Ilog,
Pasig City, Metro Manila.
Branch 151 of the Regional Trial Court of the National Capital Judicial Region stationed in Pasig
ruled that there was a perfected contract of sale between petitioner and BPI. It stated that there was
mutual consent between the parties; the subject matter is definite; and the consideration was
determined. It concluded that all the elements of a consensual contract are attendant. It ordered the
cancellation of a sale effected by BPI to respondent National Book Store (NBS) while the case was
pending and the nullification of a title issued in favor of said respondent NBS.
Upon elevation of the case to the Court of Appeals, it was held that no contract of sale was perfected
because there was no concurrence of the three requisites enumerated in Article 1318 of the Civil
Code. The decision of the trial court was reversed and the complaint dismissed.
Hence, the instant petition.
Shorn of the interpretations given to the acts of those who participated in the disputed sale, the
findings of facts of the trial court and the Court of Appeals narrate basically the same events and
occurrences. The records show that on May 14, 1976, Philippine Remnants Co., Inc. constituted BPI
as its trustee to manage, administer, and sell its real estate property. One such piece of property
placed under trust was the disputed lot, a 33,056-square meter lot at Barrio Bagong Ilog, Pasig,
Metro Manila covered by Transfer Certificate of Title No. 493122.
On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was given formal authority by BPI
to sell the lot for P1,000.00 per square meter. This arrangement was concurred in by the owners of
the Philippine Remnants.
Broker Revilla contacted Alfonso Lim of petitioner company who agreed to buy the land. On July 8,
1988, petitioner's officials and Revilla were given permission by Rolando V. Aromin, BPI Assistant
Vice-President, to enter and view the property they were buying.
On July 9, 1988, Revilla formally informed BPI that he had procured a buyer, herein petitioner. On
July 11, 1988, petitioner's officials, Alfonso Lim and Albino Limketkai, went to BPI to confirm the sale.
They were entertained by Vice-President Merlin Albano and Asst. Vice-President Aromin. Petitioner
asked that the price of P1,000.00 per square meter be reduced to P900.00 while Albano stated the

price to be P1,100.00. The parties finally agreed that the lot would be sold at P1,000.00 per square
meter to be paid in cash. Since the authority to sell was on a first come, first served and nonexclusive basis, it may be mentioned at this juncture that there is no dispute over petitioner's being
the first comer and the buyer to be first served.
Notwithstanding the final agreement to pay P1,000.00 per square meter on a cash basis, Alfonso
Lim asked if it was possible to pay on terms. The bank officials stated that there was no harm in
trying to ask for payment on terms because in previous transactions, the same had been allowed. It
was the understanding, however, that should the term payment be disapproved, then the price shall
be paid in cash.
It was Albano who dictated the terms under which the installment payment may be approved, and
acting thereon, Alfonso Lim, on the same date, July 11, 1988, wrote BPI through Merlin Albano
embodying the payment initially of 10% and the remaining 90% within a period of 90 days.
Two or three days later, petitioner learned that its offer to pay on terms had been frozen. Alfonso Lim
went to BPI on July 18, 1988 and tendered the full payment of P33,056,000.00 to Albano. The
payment was refused because Albano stated that the authority to sell that particular piece of
property in Pasig had been withdrawn from his unit. The same check was tendered to BPI VicePresident Nelson Bona who also refused to receive payment.
An action for specific performance with damages was thereupon filed on August 25, 1988 by
petitioner against BPI. In the course of the trial, BPI informed the trial court that it had sold the
property under litigation to NBS on July 14, 1989. The complaint was thus amended to include NBS.
On June 10, 1991, the trial court rendered judgment in the case as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
defendants Bank of the Philippine Islands and National Book Store, Inc.:
1. Declaring the Deed of Sale of the property covered by T.C.T. No. 493122 in the
name of the Bank of the Philippine Islands, situated in Barrio Bagong Ilog, Pasig,
Metro Manila, in favor of National Book Store, Inc., null and void;
2. Ordering the Register of Deeds of the Province of Rizal to cancel the Transfer
Certificate of Title which may have been issued in favor of National Book Store, Inc.
by virtue of the aforementioned Deed of Sale dated July 14, 1989;
3. Ordering defendant BPI, upon receipt by it from plaintiff of the sum of
P33,056,000.00, to execute a Deed of Sale in favor of plaintiff of the aforementioned
property at the price of P1,000.00 per square meter; in default thereof, the Clerk of
this Court is directed to execute the said deed;
4. Ordering the Register of Deeds of Pasig, upon registration of the said deed,
whether executed by defendant BPI or the Clerk of Court and payment of the
corresponding fees and charges, to cancel said T.C.T. No. 493122 and to issue, in
lieu thereof, another transfer certificate of title in the name of plaintiff;

5. Ordering defendants BPI and National Book Store, Inc. to pay, jointly and
severally, to the plaintiff the sums of P10,000,000.00 as actual and consequential
damages and P150,000.00 as attorney's fees and litigation expenses, both with
interest at 12% per annum from date hereof;
6. On the cross-claim of defendant bank against National Book Store, ordering the
latter to indemnify the former of whatever amounts BPI shall have paid to the plaintiff
by reason hereof; and
7. Dismissing the counterclaims of the defendants against the plaintiff and National
Book Store's cross-claim against defendant bank.
Costs against defendants.
(pp. 44-45, Rollo.)
As earlier intimated, upon the decision being appealed, the Court of Appeals (Buena [P], Rasul, and
Mabutas, JJ.), on August 12, 1994, reversed the trial court's decision and dismissed petitioner's
complaint for specific performance and damages.
The issues raised by the parties revolve around the following four questions:
(1) Was there a meeting of the minds between petitioner Limketkai and respondent BPI as to the
subject matter of the contract and the cause of the obligation?
(2) Were the bank officials involved in the transaction authorized by BPI to enter into the questioned
contract?
(3) Is there competent and admissible evidence to support the alleged meeting of the minds?
(4) Was the sale of the disputed land to the NBS during the pendency of trial effected in good faith?
There is no dispute in regard to the following: (a) that BPI as trustee of the property of Philippine
Remnant Co. authorized a licensed broker, Pedro Revilla, to sell the lot for P1,000.00 per square
meter; (b) that Philippine Remnants confirmed the authority to sell of Revilla and the price at which
he may sell the lot; (c) that petitioner and Revilla agreed on the former buying the property; (d) that
BPI Assistant Vice-President Rolando V. Aromin allowed the broker and the buyer to inspect the
property; and (e) that BPI was formally informed about the broker having procured a buyer.
The controversy revolves around the interpretation or the significance of the happenings or events at
this point.
Petitioner states that the contract to sell and to buy was perfected on July 11, 1988 when its top
officials and broker Revilla finalized the details with BPI Vice-Presidents Merlin Albano and Rolando
V. Aromin at the BPI offices.
Respondents, however, contend that what transpired on this date were part of continuing
negotiations to buy the land and not the perfection of the sale. The arguments of respondents center

on two propositions (1) Vice-Presidents Aromin and Albano had no authority to bind BPI on this
particular transaction and (2) the subsequent attempts of petitioner to pay under terms instead of full
payment in cash constitutes a counter-offer which negates the existence of a perfected contract.
The alleged lack of authority of the bank officials acting in behalf of BPI is not sustained by the
record.
At the start of the transactions, broker Revilla by himself already had full authority to sell the disputed
lot. Exhibit B dated June 23, 1988 states, "this will serve as your authority to sell on an as is, where
is basis the property located at Pasig Blvd., Bagong Ilog . . . ." We agree with Revilla's testimony that
the authority given to him was to sell and not merely to look for a buyer, as contended by
respondents.
Revilla testified that at the time he perfected the agreement to sell the litigated property, he was
acting for and in behalf of the BPI as if he were the Bank itself. This notwithstanding and to firm up
the sale of the land, Revilla saw it fit to bring BPI officials into the transaction. If BPI could give the
authority to sell to a licensed broker, we see no reason to doubt the authority to sell of the two BPI
Vice-Presidents whose precise job in the Bank was to manage and administer real estate property.
Respondent BPI alleges that sales of trust property need the approval of a Trust Committee made
up of top bank officials. It appears from the record that this trust committee meets rather infrequently
and it does not have to pass on regular transactions.
Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He directly supervised the BPI
Real Property Management Unit. He had been in the Real Estate Division since 1985 and was the
head supervising officer of real estate matters. Aromin had been with the BPI Trust Department since
1968 and had been involved in the handling of properties of beneficial owners since 1975 (tsn.,
December 3, 1990, p. 5).
Exhibit 10 of BPI, the February 15, 1989 letter from Senior Vice-President Edmundo Barcelon, while
purporting to inform Aromin of his poor performance, is an admission of BPI that Aromin was in
charge of Torrens titles, lease contracts, problems of tenants, insurance policies, installment
receivables, management fees, quitclaims, and other matters involving real estate transactions. His
immediate superior, Vice-President Merlin Albano had been with the Real Estate Division for only
one week but he was present and joined in the discussions with petitioner.
There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin before the incident.
Revilla brought the brothers directly to Aromin upon entering the BPI premises. Aromin acted in a
perfectly natural manner on the transaction before him with not the slightest indication that he was
acting ultra vires. This shows that BPI held Aromin out to the public as the officer routinely handling
real estate transactions and, as Trust Officer, entering into contracts to sell trust properties.
Respondents state and the record shows that the authority to buy and sell this particular trust
property was later withdrawn from Trust Officer Aromin and his entire unit. If Aromin did not have any
authority to act as alleged, there was no need to withdraw authority which he never possessed.
Petitioner points to Areola vs. Court of Appeals (236 SCRA 643 [1994]) which cited Prudential Bank
vs. Court of Appeals (22 SCRA 350 [1993]), which in turn relied upon McIntosh vs. Dakota Trust Co.
(52 ND 752, 204 NW 818, 40 ALR 1021), to wit:

Accordingly a banking corporation is liable to innocent third persons where the

representation is made in the course of its business by an agent acting within the
general scope of his authority even though, in the particular case, the agent is
secretly abusing his authority and attempting to perpetrate a fraud upon his principal
or some other person for his own ultimate benefit.
(at pp. 652-653.)
In the present case, the position and title of Aromin alone, not to mention the testimony and
documentary evidence about his work, leave no doubt that he had full authority to act for BPI in the
questioned transaction. There is no allegation of fraud, nor is there the least indication that Aromin
was acting for his own ultimate benefit. BPI later dismissed Aromin because it appeared that a top
official of the bank was personally interested in the sale of the Pasig property and did not like
Aromin's testimony. Aromin was charged with poor performance but his dismissal was only
sometime after he testified in court. More than two long years after the disputed transaction, he was
still Assistant Vice-President of BPI.
The records show that the letter of instruction dated June 14, 1988 from the owner of Philippine
Remnants Co. regarding the sale of the firm's property was addressed to Aromin. The P1,000.00
figure on the first page of broker Revilla's authority to sell was changed to P1,100.00 by Aromin. The
price was later brought down again to P1,000.00, also by Aromin. The permission given to petitioner
to view the lot was signed by Aromin and honored by the BPI guards. The letter dated July 9, 1988
from broker Revilla informing BPI that he had a buyer was addressed to Aromin. The conference on
July 11, 1988 when the contract was perfected was with Aromin and Vice-President Albano. Albano
and Aromin were the ones who assured petitioner Limketkai's officers that term payment was
possible. It was Aromin who called up Miguel Bicharra of Philippine Remnants to state that the BPI
rejected payment on terms and it was to Aromin that Philippine Remnants gave the go signal to
proceed with the cash sale. Everything in the record points to the full authority of Aromin to bind the
bank, except for the self-serving memoranda or letters later produced by BPI that Aromin was an
inefficient and undesirable officer and who, in fact, was dismissed after he testified in this case. But,
of course, Aromin's alleged inefficiency is not proof that he was not fully clothed with authority to bind
BPI.
Respondents' second contention is that there was no perfected contract because petitioner's request
to pay on terms constituted a counter-offer and that negotiations were still in progress at that point.
Asst. Vice-President Aromin was subpoenaed as a hostile witness for petitioner during trial. Among
his statements is one to the effect that
. . . Mr. Lim offered to buy the property at P900.00 per square meter while Mr. Albano
counter-offered to sell the property at P1,100.00 per square meter but after the usual
haggling, we finally agreed to sell the property at the price of P1,000.00 per square
meter . . .
(tsn, 12-3-90, p. 17; Emphasis supplied.)
Asked if there was a meeting of the minds between the buyer and the bank in respect to the price of
P1,000.00 per square meter, Aromin answered:

Yes, sir, as far as my evaluation there was a meeting of the minds as far as the price
is concerned, sir.
(ibid, p. 17.)
The requirements in the payment of the purchase price on terms instead of cash were suggested by
BPI Vice-President Albano. Since the authority given to broker Revilla specified cash payment, the
possibility of paying on terms was referred to the Trust Committee but with the mutual agreement
that "if the proposed payment on terms will not be approved by our Trust Committee, Limketkai
should pay in cash . . . the amount was no longer subject to the approval or disapproval of the
Committee, it is only on the terms." (ibid, p. 19). This is incontrovertibly established in the following
testimony of Aromin:
A. After you were able to agree on the price of P1,000.00/sq. m.,
since the letter or authority says the payment must be in cash basis,
what transpired later on?
B. After we have agreed on the price, the Lim brothers inquired on
how to go about submitting the covering proposal if they will be
allowed to pay on terms. They requested us to give them a guide on
how to prepare the corresponding letter of proposal. I recall that,
upon the request of Mr. Albino Limketkai, we dictated a guide on how
to word a written firm offer that was to be submitted by Mr. Lim to the
bank setting out the terms of payment but with the mutual agreement
that if his proposed payment on terms will not be approved by our
trust committee, Limketkai should pay the price in cash.
Q And did buyer Limketkai agree to pay in cash in case the offer of
terms will be cash (disapproved).
A Yes, sir.
Q At the start, did they show their willingness to pay in cash?
A Yes, sir.
Q You said that the agreement on terms was to be submitted to the
trust committee for approval, are you telling the Court that what was
to be approved by the trust committee was the provision on the
payment on terms?
A Yes, sir.
Q So the amount was no longer subject to the approval or
disapproval of the committee, it is only on the terms?
A Yes, sir.

(tsn, Dec. 3, 1990, pp. 18-19; Emphasis supplied.)

The record shows that if payment was in cash, either broker Revilla or Aromin had full authority. But
because petitioner took advantage of the suggestion of Vice-President Albano, the matter was sent
to higher officials. Immediately upon learning that payment on terms was frozen and/or denied,
Limketkai exercised his right within the period given to him and tendered payment in full. The BPI
rejected the payment.
In its Comment and Memorandum, respondent NBS cites Ang Yu Asuncion vs. Court of
Appeals (238 SCRA 602 [1994]) to bolster its case. Contrarywise, it would seem that the legal
principles found in said case strengthen and support petitioner's submission that the contract was
perfected upon the meeting of the minds of the parties.
The negotiation or preparation stage started with the authority given by Philippine Remnants to BPI
to sell the lot, followed by (a) the authority given by BPI and confirmed by Philippine Remnants to
broker Revilla to sell the property, (b) the offer to sell to Limketkai, (c) the inspection of the property
and finally (d) the negotiations with Aromin and Albano at the BPI offices.
The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to sell and
Alfonso Lim with Albino Limketkai, acting for petitioner Limketkai, agreed to buy the disputed lot at
P1,000.00 per square meter. Aside from this there was the earlier agreement between petitioner and
the authorized broker. There was a concurrence of offer and acceptance, on the object, and on the
cause thereof.
The phases that a contract goes through may be summarized as follows:
a. preparation, conception or generation, which is the period of negotiation and
bargaining, ending at the moment of agreement of the parties;
b. perfection or birth of the contract, which is the moment when the parties come to
agree on the terms of the contract; and
c. consummation or death, which is the fulfillment or performance of the terms
agreed upon in the contract (Toyota Shaw, Inc. vs. Court of Appeals, G.R. No.
116650, May 23, 1995).
But in more graphic prose, we turn to Ang Yu Asuncion, per Justice Vitug:
. . . A contract undergoes various stages that include its negotiation or preparation, its
perfection and, finally, its consummation. Negotiation covers the period from the time
the prospective contracting parties indicate interest in the contract to the time the
contract is concluded (perfected). The perfectionof the contract takes place upon the
concurrence of the essential elements thereof. A contract which isconsensual 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.
(238 SCRA 602; 611 [1994].)
In Villonco Realty Company vs. Bormaheco (65 SCRA 352 [1975]), bearing factual antecendents
similar to this case, the Court, through Justice Aquino (later to be Chief Justice), quoting authorities,
upheld the perfection of the contract of sale thusly:
The contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. From that moment, the
parties may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts. (Art. 1475, Ibid.)
xxx xxx xxx
Consent is manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-offer (Art. 1319,
Civil Code). "An acceptance may be express or implied." (Art. 1320, Civil Code).
xxx xxx xxx
It is true that an acceptance may contain a request for certain changes in the terms
of the offer and yet be a binding acceptance. "So long as it is clear that the meaning
of the acceptance is positively and unequivocally to accept the offer, whether such
request is granted or not, a contract is formed." (Stuart vs. Franklin Life Ins. Co., 105
Fed. 2nd 965, citing Sec. 79, Williston on Contracts).
xxx xxx xxx
. . . the vendor's change in a phrase of the offer to purchase, which change does not
essentially change the terms of the offer, does not amount to a rejection of the offer
and the tender or a counter-offer. (Stuart vs. Franklin Life Ins. Co., supra.)
(at pp. 362-363; 365-366.)
In the case at bench, the allegation of NBS that there was no concurrence of the offer and
acceptance upon the cause of the contract is belied by the testimony of the very BPI official with
whom the contract was perfected. Aromin and Albano concluded the sale for BPI. The fact that the

deed of sale still had to be signed and notarized does not mean that no contract had already been
perfected. A sale of land is valid regardless of the form it may have been entered into (Claudel vs.
Court of Appeals, 199 SCRA 113, 119 [1991]). The requisite form under Article 1458 of the Civil
Code is merely for greater efficacy or convenience and the failure to comply therewith does not
affect the validity and binding effect of the act between the parties (Vitug, Compendium of Civil Law
and Jurisprudence, 1993 Revised Edition, p. 552). If the law requires a document or other special
form, as in the sale of real property, the contracting parties may compel each other to observe that
form, once the contract has been perfected. Their right may be exercised simultaneously with action
upon the contract (Article 1359, Civil Code).
Regarding the admissibility and competence of the evidence adduced by petitioner, respondent
Court of Appeals ruled that because the sale involved real property, the statute of frauds is
applicable.
In any event, petitioner cites Abrenica vs. Gonda (34 Phil. 739 [1916]) wherein it was held that
contracts infringing the Statute of Frauds are ratified when the defense fails to object, or asks
questions on cross-examination. The succinct words of Justice Araullo still ring in judicial cadence:
As no timely objection or protest was made to the admission of the testimony of the
plaintiff with respect to the contract; and as the motion to strike out said evidence
came too late; and, furthermore, as the defendants themselves, by the crossquestions put by their counsel to the witnesses in respect to said contract, tacitly
waived their right to have it stricken out, that evidence, therefore, cannot be
considered either inadmissible or illegal, and court, far from having erred in taking it
into consideration and basing his judgment thereon, notwithstanding the fact that it
was ordered to be stricken out during the trial, merely corrected the error he
committed in ordering it to be so stricken out and complied with the rules of
procedure hereinbefore cited.
(at p. 748.)
In the instant case, counsel for respondents cross-examined petitioner's witnesses at length on the
contract itself, the purchase price, the tender of cash payment, the authority of Aromin and Revilla,
and other details of the litigated contract. Under the Abrenica rule (reiterated in a number of cases,
among them Talosig vs. Vda. de Nieba 43 SCRA 472 [1972]), even assuming that parol evidence
was initially inadmissible, the same became competent and admissible because of the crossexamination, which elicited evidence proving the evidence of a perfected contract. The crossexamination on the contract is deemed a waiver of the defense of the Statute of Frauds (Vitug,
Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, supra, p. 563).
The reason for the rule is that as pointed out in Abrenica "if the answers of those witnesses were
stricken out, the cross-examination could have no object whatsoever, and if the questions were put
to the witnesses and answered by them, they could only be taken into account by connecting them
with the answers given by those witnesses on direct examination" (pp. 747-748).
Moreover, under Article 1403 of the Civil Code, an exception to the unenforceability of contracts
pursuant to the Statute of Frauds is the existence of a written note or memorandum evidencing the
contract. The memorandum may be found in several writings, not necessarily in one document. The
memorandum or memoranda is/are written evidence that such a contract was entered into.

We cite the findings of the trial court on this matter:

In accordance with the provisions of Art. 1403 of the Civil Code, the existence of a
written contract of the sale is not necessary so long as the agreement to sell real
property is evidenced by a written note or memorandum, embodying the essentials of
the contract and signed by the party charged or his agent. Thus, it has been held:
The Statute of Frauds, embodied in Article 1403 of the Civil Code of
the Philippines, does not require that the contract itself be
written. The plain test of Article 1403, Paragraph (2) is clear that a
written note or memorandum, embodying the essentials of the
contract and signed by the party charged, or his agent suffices to
make the verbal agreement enforceable, taking it out of the operation
of the statute. (Emphasis supplied)
xxx xxx xxx
In the case at bar, the complaint in its paragraph 3 pleads that the
deal had been closed by letter and telegram (Record on Appeal, p.
2), and the letter referred to was evidently the one copy of which was
appended as Exhibit A to plaintiffs opposition to the motion to dismiss.
The letter, transcribed above in part, together with the one marked as
Appendix B, constitute an adequate memorandum of the transaction.
They are signed by the defendant-appellant; refer to the property sold
as a Lot in Puerto Princesa, Palawan, covered by T.C.T. No. 62, give
its area as 1,825 square meters and the purchase price of four
(P4.00) pesos per square meter payable in cash. We have in them,
therefore, all the essential terms of the contract and they satisfy the
requirements of the Statute of Frauds.
(Footnote 26, Paredes vs. Espino, 22 SCRA 1000 [1968]).
While there is no written contract of sale of the Pasig property executed by BPI in
favor of plaintiff, there are abundant notes and memoranda extant in the records of
this case evidencing the elements of a perfected contract. There is Exhibit P, the
letter of Kenneth Richard Awad addressed to Roland Aromin, authorizing the sale of
the subject property at the price of P1,000.00 per square meter giving 2%
commission to the broker and instructing that the sale be on cash basis.
Concomitantly, on the basis of the instruction of Mr. Awad, (Exh. P), an authority to
sell, (Exh. B) was issued by BPI to Pedro Revilla, Jr., representing Assetrade Co.,
authorizing the latter to sell the property at the initial quoted price of P1,000.00 per
square meter which was altered on an unaccepted offer by Technoland. After the
letter authority was issued to Mr. Revilla, a letter authority was signed by Mr. Aromin
allowing the buyer to enter the premises of the property to inspect the same (Exh. C).
On July 9, 1988, Pedro Revilla, Jr., acting as agent of BPI, wrote a letter to BPI
informing it that he had procured a buyer in the name of Limketkai Sons Milling, Inc.
with offices at Limketkai Bldg., Greenhills, San Juan, Metro Manila, represented by
its Exec. Vice-President, Alfonso Lim (Exh. D). On July 11, 1988, the plaintiff, through
Alfonso Lim, wrote a letter to the bank, through Merlin Albano, confirming their

transaction regarding the purchase of the subject property (Exh. E). On July 18,
1988, the plaintiff tendered upon the officials of the bank a check for P33,056,000.00
covered by Check No. CA510883, dated July 18, 1988. On July 1, 1988, Alfonso
Zamora instructed Mr. Aromin in a letter to resubmit new offers only if there is no
transaction closed with Assetrade Co. (Exh. S). Combining all these notes and
memoranda, the Court is convinced of the existence of perfected contract of sale.
Aptly, the Supreme Court, citing American cases with approval, held:
No particular form of language or instrument is necessary to
constitute a memorandum or note in writing under the statute of
frauds; any document or writing, formal or informal, written either for
the purpose of furnishing evidence of the contract or for another
purpose, which satisfies all the requirements of the statute as to
contents and signature, as discussed respectively infra secs. 178200, and infra secs. 201-205, is a sufficient memorandum or note. A
memorandum may be written as well with lead pencil as with pen and
ink. It may also be filled in on a printed form. (37 C.J.S., 653-654).
The note or memorandum required by the statute of frauds need not
be contained in a single document, nor, when contained in two or
more papers, need each paper be sufficient as to contents and
signature to satisfy the statute. Two or more writings properly
connected may be considered together, matters missing or uncertain
in one may be supplied or rendered certain by another, and their
sufficiency will depend on whether, taken together, they meet the
requirements of the statute as to contents and the requirements of
the statutes as to signature, as considered respectively infra secs.
179-200 and secs. 201-215.
(pp. 460-463, Original RTC Record).
The credibility of witnesses is also decisive in this case. The trial court directly observed the
demeanor and manner of testifying of the witnesses while the Court of Appeals relied merely on the
transcript of stenographic notes.
In this regard, the court of origin had this to say:
Apart from weighing the merits of the evidence of the parties, the Court had occasion
to observe the demeanor of the witnesses they presented. This is one important
factor that inclined the Court to believe in the version given by the plaintiff because
its witnesses, including hostile witness Roland V. Aromin, an assistant vice-president
of the bank, were straightforward, candid and unhesitating in giving their respective
testimonies. Upon the other hand, the witnesses of BPI were evasive, less than
candid and hesitant in giving their answers to cross examination questions.
Moreover, the witnesses for BPI and NBS contradicted each other. Fernando Sison
III insisted that the authority to sell issued to Mr. Revilla was merely an evidence by
which a broker may convince a prospective buyer that he had authority to offer the
property mentioned therein for sale and did not bind the bank. On the contrary,
Alfonso Zamora, a Senior Vice-President of the bank, admitted that the authority to

sell issued to Mr. Pedro Revilla, Jr. was valid, effective and binding upon the bank
being signed by two class "A" signatories and that the bank cannot back out from its
commitment in the authority to sell to Mr. Revilla.
While Alfredo Ramos of NBS insisted that he did not know personally and was not
acquainted with Edmundo Barcelon, the latter categorically admitted that Alfredo
Ramos was his friend and that they have even discussed in one of the luncheon
meetings the matter of the sale of the Pasig property to NBS. George Feliciano
emphatically said that he was not a consultant of Mr. Ramos nor was he connected
with him in any manner, but his calling card states that he was a consultant to the
chairman of the Pacific Rim Export and Holdings Corp. whose chairman is Alfredo
Ramos. This deliberate act of Mr. Feliciano of concealing his being a consultant to
Mr. Alfredo Ramos evidently was done by him to avoid possible implication that he
committed some underhanded maneuvers in manipulating to have the subject
property sold to NBS, instead of being sold to the plaintiff.
(pp. 454-455, Original RTC Record.)
On the matter of credibility of witnesses where the findings or conclusions of the Court of Appeals
and the trial court are contrary to each other, the pronouncement of the Court in Serrano vs. Court of
Appeals (196 SCRA 107 [1991]) bears stressing:
It is a settled principle of civil procedure that the conclusions of the trial court
regarding the credibility of witnesses are entitled to great respect from the appellate
courts because the trial court had an opportunity to observe the demeanor of
witnesses while giving testimony which may indicate their candor or lack thereof.
While the Supreme Court ordinarily does not rule on the issue of credibility of
witnesses, that being a question of fact not properly raised in a petition under Rule
45, the Court has undertaken to do so in exceptional situations where, for instance,
as here, the trial court and the Court of Appeals arrived at divergent conclusions on
questions of fact and the credibility of witnesses.
(at p. 110.)
On the fourth question of whether or not NBS is an innocent purchaser for value, the record shows
that it is not. It acted in bad faith.
Respondent NBS ignored the notice of lis pendens annotated on the title when it bought the lot. It
was the willingness and design of NBS to buy property already sold to another party which led BPI to
dishonor the contract with Limketkai.
Petitioner cites several badges of fraud indicating that BPI and NBS conspired to prevent petitioner
from paying the agreed price and getting possession of the property:
1. The sale was supposed to be done through an authorized broker, but top officials of BPI
personally and directly took over this particular sale when a close friend became interested.

2. BPI Senior Vice President Edmundo Barcelon admitted that NBS's President, Alfredo Ramos, was
his friend; that they had lunch meetings before this incident and discussed NBS's purchase of the lot.
Barcelon's father was a business associate of Ramos.
3. George Feliciano, in behalf of NBS, offered P5 million and later P7 million if petitioner would drop
the case and give up the lot. Feliciano went to petitioner's office and haggled with Alfonso Lim but
failed to convince him inspite of various and increasing offers.
4. In a place where big and permanent buildings abound, NBS had constructed only a warehouse
marked by easy portability. The warehouse is bolted to its foundations and can easily be dismantled.
It is the very nature of the deed of absolute sale between BPI and NBS which, however, clearly
negates any allegation of good faith on the part of the buyer. Instead of the vendee insisting that the
vendor guarantee its title to the land and recognize the right of the vendee to proceed against the
vendor if the title to the land turns out to be defective as when the land belongs to another person,
the reverse is found in the deed of sale between BPI and NBS. Any losses which NBS may incur in
the event the title turns out to be vested in another person are to be borne by NBS alone. BPI is
expressly freed under the contract from any recourse of NBS against it should BPI's title be found
defective.
NBS, in its reply memorandum, does not refute or explain the above circumstance squarely. It simply
cites the badges of fraud mentioned in Oria vs. McMicking (21 Phil. 243 [1912]) and argues that the
enumeration there is exclusive. The decision in said case plainly states "the following are some of
the circumstances attending sales which have been denominated by courts (as) badges of fraud."
There are innumerable situations where fraud is manifested. One enumeration in a 1912 decision
cannot possibly cover all indications of fraud from that time up to the present and into the future.
The Court of Appeals did not discuss the issue of damages. Petitioner cites the fee for filing the
amended complaint to implead NBS, sheriffs fees, registration fees, plane fare and hotel expenses
of Cebu-based counsel. Petitioner also claimed, and the trial court awarded, damages for the profits
and opportunity losses caused to petitioner's business in the amount of P10,000,000.00.
We rule that the profits and the use of the land which were denied to petitioner because of the noncompliance or interference with a solemn obligation by respondents is somehow made up by the
appreciation in land values in the meantime.
Prescinding from the above, we rule that there was a perfected contract between BPI and petitioner
Limketkai; that the BPI officials who transacted with petitioner had full authority to bind the bank; that
the evidence supporting the sale is competent and admissible; and that the sale of the lot to NBS
during the trial of the case was characterized by bad faith.
WHEREFORE, the questioned judgment of the Court of Appeals is hereby REVERSED and SET
ASIDE. The June 10, 1991 judgment of Branch 151 of the Regional Trial Court of The National
Capital Judicial Region stationed in Pasig, Metro Manila is REINSTATED except for the award of Ten
Million Pesos (P10,000,000.00) damages which is hereby DELETED.
SO ORDERED.
G.R. No. 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 quois 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. 8741058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in
Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No.
21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted
as follows:
Presented before the Court is a Motion for Execution filed by plaintiff
represented by Atty. Antonio Albano. Both defendants Bobby Cu
Unjieng and Rose Cu Unjieng represented by Atty. Vicente Sison and
Atty. Anacleto Magno respectively were duly notified in today's
consideration of the motion as evidenced by the rubber stamp and
signatures upon the copy of the Motion for Execution.
The gist of the motion is that the Decision of the Court dated
September 21, 1990 as modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated to the Supreme Court
upon the petition for review and that the same was denied by the
highest tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence,
there was an Entry of Judgment by the Supreme Court as of June 6,
1991, stating that the aforesaid modified decision had already
become final and executory.
It is the observation of the Court that this property in dispute was the
subject of the Notice of Lis Pendens and that the modified decision of
this Court promulgated by the Court of Appeals which had become
final to the effect that should the defendants decide to offer the
property for sale for a price of P11 Million or lower, and considering

the mercurial and uncertain forces in our market economy today, the
same right of first refusal to herein plaintiffs/appellants in the event
that the subject property is sold for a price in excess of Eleven Million
pesos or more.
WHEREFORE, defendants are hereby ordered to execute the
necessary Deed of Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs' right of
first refusal and that a new Transfer Certificate of Title be issued in
favor of the buyer.
All previous transactions involving the same property notwithstanding
the issuance of another title to Buen Realty Corporation, is hereby set
aside as having been executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the dispositive
portion of which reads:
WHEREFORE, let there be Writ of Execution issue in the aboveentitled case directing the Deputy Sheriff Ramon Enriquez of this
Court to implement said Writ of Execution ordering the defendants
among others to comply with the aforesaid Order of this Court within
a period of one (1) week from receipt of this Order and for defendants
to execute the necessary Deed of Sale of the property in litigation in
favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for
the consideration of P15,000,000.00 and ordering the Register of
Deeds of the City of Manila, to cancel and set aside the title already
issued in favor of Buen Realty Corporation which was previously
executed between the latter and defendants and to register the new
title in favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong
and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution (Annex C,
Petition) was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and
declared without force and effect the above questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the
writ of execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the
name of Buen Realty, at the time of the latter's purchase of the property on 15 November 1991 from
the Cu Unjiengs.
We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such arrangements as the
right of first refusal, a purchase option and a contract to sell. For ready reference, we might point out
some fundamental precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation
is constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum
juris or juridical tie which is the efficient cause established by the various sources of obligations (law,
contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is the prestation or
conduct; required to be observed (to give, to do or not to do); and (c) the subject-persons who,
viewed from the demandability of the obligation, are the active (obligee) and the passive (obligor)
subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds
between two persons whereby one binds himself, with respect to the other, to give something or to
render some service (Art. 1305, Civil Code). A contract undergoes various stages that include its
negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the
period from the time the prospective contracting parties indicate interest in the contract to the time
the contract is concluded (perfected). The perfection of the contract takes place upon the
concurrence of the essential elements thereof. A contract which is consensual as to perfection is so
established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the
object and on the cause thereof. A contract which requires, in addition to the above, the delivery of
the object of the agreement, as in a pledge or commodatum, is commonly referred to as
a real contract. In a solemn contract, compliance with certain formalities prescribed by law, such as
in a donation of real property, is essential in order to make the act valid, the prescribed form being
thereby an essential element thereof. The stage of consummation begins when the parties perform
their respective undertakings under the contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding
juridical relation. In sales, particularly, to which the topic for discussion about the case at bench
belongs, the contract is perfected when a person, called the seller, obligates himself, for a price
certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over
which the latter agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the
ownership of the thing sold is retained until the fulfillment of a positive suspensive condition
(normally, the full payment of the purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force. 2 In Dignos vs. Court of Appeals (158
SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still absolute
where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is
stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon
actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where
the condition is imposed upon the perfection of the contract itself, the failure of the condition would
prevent such perfection. 3 If the condition is imposed on the obligation of a party which is not fulfilled, the
other party may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the
price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be
exacted. 5
An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when
coupled with a valuable consideration distinct and separate from the price, is what may properly be
termed a perfected contract ofoption. 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 (see Art.
1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is
applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in South
Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of
Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to
withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a
damage claim under Article 19 of the Civil Code which ordains that "every person must, in the
exercise of his rights and in the performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it
would be a breach of that contract to withdraw the offer during the agreed period. The option,
however, is an independent contract by itself, and it is to be distinguished from the projected main
agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the
optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the optioneeofferee, 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 theconsideration 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 1319 9 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 19 12 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 CAG.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. L-11668

April 1, 1918

ANTONIO ENRIQUEZ DE LA CAVADA, plaintiff-appellee,

vs.
ANTONIO DIAZ, defendant-appellant.
Ramon Diokno for appellant.
Alfredo Chicote and Jose Arnaiz for appellee.
JOHNSON, J.:
This action was instituted by the plaintiff for the purpose of requiring the defendant to comply with a
certain "contract of option" to purchase a certain piece or parcel of land described in said contract
and for damages for a noncompliance with said contract. After the close of the trial the Honorable
James A. Ostrand, judge, rendered a judgment the dispositive part of which is as follows:
Wherefore, it is hereby ordered and adjudged that the defendant, within the period of thirty
days from the date upon which this decision becomes final, convey to the plaintiff a good and
sufficient title in fee simple to the land described in decrees Nos. 13909 and 13919 of the
Court of Land Registration, upon payment or legal tender of payment by said plaintiff of the
sum of thirty thousand pesos (P30,000) in cash, and upon said plaintiff giving security
approved by this court for the payment within the term of 6 years from the date of the
conveyance for the additional sum of forty thousand pesos (P40,000) with interest at the rate
of 6 per cent per annum.
It is further ordered and adjudged that in the event of the failure of the defendant to execute
the conveyance as aforesaid, the plaintiff have and recover judgment against him, the said
defendant, for the sum of twenty thousand pesos (P20,000), with interest at the rate of six
per cent (6 per cent per annum from the date upon which the conveyance should have been
made). It is so ordered.
From that judgment the defendant appealed and made several assignment of error.
It appears from the record that on the 15th day of November, 1912, the defendant and the plaintiff
entered into the following "contract of option:"
(EXHIBIT A.)
CONTRACT OF OPTION.
I, the undersigned, Antonio Diaz, of legal age, with personal registration certificate Number
F-855949, issued at Pitogo, Tayabas, January 16, 1912, and temporarily residing in Manila,
P. I., do hereby grant an option to Antonio Enriquez to purchase my hacienda at Pitogo

consisting of 100 and odd hectares, within the period necessary for the approval and
issuance of a Torrens title thereto by the Government for which he may pay me either the
sum of thirty thousand pesos (P30,000), Philippine currency, in cash, or within the period of
six (6) years, beginning with the date of the purchase, the sum of forty thousand pesos
(P40,000), Philippine currency, at six per cent interest per annum, with due security for the
payment of the said P40,000 in consideration of the sale to him of my property described as
follows, to wit:
About one hundred hectares of land in Pitogo, Tayabas, containing about 20,000 coconut
trees and 10,000 nipa-palm trees, all belonging to me, which I hereby sell to Antonio
Enriquez de la Cavada for seventy thousand pesos, under the conditions herein specified.
I declare that Antonio Enriquez is the sole person who has, and shall have, during the period
of this option, the right to purchase the property above-mentioned.
I likewise declare that Antonio Enriquez shall be free to resell the said property at whatever
price he may desire, provided that he should comply with the stipulations covenanted with
me.
In witness of my entire conformity with the foregoing, I hereunto affix my signature, in Manila,
P. I., this 15th day of November, 1912.
(Sgd.) Antonio Diaz.
Signed in the presence of:
(Sgd.) J. VALDS DIAZ.
(EXHIBIT B.)

P. I., November 15, 1912.

Sr. Don ANTONIO DIAZ,

Calle Victoria, No. 125, W. C., Manila, P. I.
DEAR SIR: I have the honor to inform you that, in conformity with the letter of option in my
favor of even date, I will buy your coconut plantation in Pitogo, containing one hundred
hectares, together with all the coconut and nipa-palm trees planted thereon, under the
following conditions:
1. I shall send a surveyor to survey the said property, and to apply to the Government for a
Torrens title therefore, and, if the expenses incurred for the same should not exceed P1,000,
I shall pay the P500 and you the other P500; Provided, however, that you shall give the
surveyor all necessary assistance during his stay at the hacienda.
2. I shall pay the purchase price to you in conformity with our letter of option of this date, and
after the Torrens title shall have been officially approved.

Yours respectfully,
(Sgd.) A. ENRIQUEZ
I acknowledge receipt of, and conform with, the foregoing.
(Sgd.) ANTONIO DIAZ
It appears from the record that soon after the execution of said contract, and in part compliance with
the terms thereof, the defendant presented two petitions in the Court of Land Registration (Nos.
13909 and 13919), each for the purpose of obtaining the registration of a part of the "Hacienda de
Pitogo." Said petitions were granted, and each parcel as registered and a certificate of title was
issued for each part under the Torrens system to the defendant herein. Later, and pretending to
comply with the terms of said contract, the defendant offered to transfer to the plaintiff one of said
parcels only, which was a part of said "hacienda." The plaintiff refused to accept said certificate for a
part only of said "hacienda" upon the ground (a) that it was only a part of the "Hacienda de Pitogo,"
and (b) under the contract (Exhibits A and B) he was entitled to a transfer to him all said "hacienda."
The theory of the defendant is that the contract of sale of said "Hacienda de Pitogo" included only
100 hectares, more or less, of said "hacienda," and that by offering to convey to the plaintiff a portion
of said "hacienda" composed of "100 hectares, more or less," he thereby complied with the terms of
the contract. The theory of the plaintiff is that he had purchased all of said "hacienda," and that the
same contained, at least, 100 hectares, more or less. The lower court sustained the contention of
the plaintiff, to wit, that the sale was a sale of the "Hacienda de Pitogo" and not a sale of a part of it,
and rendered a judgment requiring the defendant to comply with the terms of the contract by
transferring to the plaintiff, by proper deeds of conveyance, all said "hacienda," or to pay in lieu
thereof the sum of P20,000 damages, together with 6 per cent interest from the date upon which
said conveyance should have been made.
After issue had been joined between the plaintiff and defendant upon their pleadings, they entered
into the following agreement with reference to the method of presenting their proof:
The attorneys for the parties in this case make the following stipulations:
1. Each of the litigating parties shall present his evidence before Don Felipe Canillas,
assistant clerk of the Court of First Instance of Manila, who, for such purpose, should be
appointed commissioner.
2. Said commissioner shall set a day and hour for the presentation of the evidence abovementioned, both oral and documentary, and in the stenographic notes shall have record
entered of all objections made to the evidence by either party, in order that they may
afterwards be decided by the court.
3. The transcription of the stenographic notes, containing the record of the evidence taken,
shall be paid for in equal shares by both parties.
4. At the close of the taking of the evidence, each of the parties shall file his brief in respect
to such evidence, whereupon the case as it then stands shall be submitted to the decision of
the court.

The parties request the court to approve this agreement in the part thereof which refers to
the proceedings in this case.
Manila, P. I., December 21, 1914.
(Sgd.) ANTONIO V. HERRERO.

(Sgd.) ALFREDO CHICOTE.

Approved:
(Sgd.) GEO. R. HARVEY,
Judge.
Said agreement was approved by the lower court, and proof was taken in accordance therewith. The
defendant-appellant now alleges, giving several reasons therefor, that the proof was improperly
practiced, and that the judge was without authority o decide the cause upon proof taken in the
manner agreed upon by the respective parties. The defendant-appellant makes no contention that
he was not permitted to present all the proof he desired to present. He makes no contention that he
has been prejudiced in any manner whatsoever by virtue of the method agreed upon for taking the
testimony.
There is nothing in the law nor in public policy which prohibits the parties in a civil litigation from
making the agreement above quoted. While the law concedes to parties litigant, generally, the right
to have their proof taken in the presence of the judge, such right is a renounceable one. In a civil
action the parties litigant have a right to agree, outside of the court, upon the facts in litigation. Under
certain conditions the parties litigant have a right to take the depositions of witnesses and submit the
sworn statements in that form to the court. The proof, as it was submitted to the court in the present
case, by virtue of said agreement, was, in effect, in the form of a deposition of the various witnesses
presented. Having agreed to the method of taking the proof, and the same having been taking in
compliance with said agreement, it is now too late, there being no law to the contrary, for them to
deny and repudiate the effect of their agreement. (Biunas vs. Mora, R. G. No. 11464, March 11,
1918; Behr vs. Levy Hermanos, R. G. No 12211, March 19, 1918. 1)
Not only is there no law prohibiting the parties from entering into an agreement to submit their proof
to the court in civil actions as was done in the present case, but it may be a method highly
convenient, not only to the parties, but to busy courts. The judgment of the lower court, therefore,
should not be modified or reversed on account of the first assignment of error.
In the second assignment of error, the appellant alleges (a) that the lower court committed an error
in declaring the contract (Exhibits A and B) a valid obligation, for the reason that it not been admitted
in evidence, and (b) that the same was null for a failure of consideration. Upon the first question, an
examination of the proof shows that said contract (Exhibits A and B) was offered in evidence and
admitted as proof without objection. Said contract was, therefore, properly presented to the court as
proof. Not only was the contract before the court by reason of its having been presented in evidence,
but the defendant himself made said contract an integral part of his pleadings. The defendant
admitted the execution and delivery of the contract, and alleged that he made an effort to comply
with its terms. His only defense is that he sold to the plaintiff a part of the "hacienda" only and that he
offered, in compliance with the terms of the contract, to convey to the plaintiff all of the land which he
had promised to sell.

With reference to the second objection, to wit, that there was no consideration for said contract it
may be said (a) that the contract was for the sale of a definite parcel of land; (b) that it was reduced
to writing; (c) that the defendant promised to convey to the plaintiff said parcel of land; (d) that the
plaintiff promised to pay therefor the sum of P70,000 in the manner prescribed in said contract; (e)
that the defendant admitted the execution and delivery of the contract and alleged that he made an
effort to comply with the same (par. 3 of defendant's answer) and requested the plaintiff to comply
with his part of the contract; and (f) that no defense or pretension was made in the lower court that
there was no consideration for his contract. Having admitted the execution and delivery of the
contract, having admitted an attempt to comply with its terms, and having failed in the court below to
raise any question whatsoever concerning the inadequacy of consideration, it is rather late, in the
face of said admissions, to raise that question for the first time in this court. The only dispute
between the parties in the lower court was whether or not the defendant was obliged to convey to
the plaintiff all of said "hacienda." The plaintiff insisted that his contract entitled him to a conveyance
of all of said "hacienda." The defendant contended that he had complied with the terms of his
contract by offering to convey to the plaintiff a part of the said "hacienda" only. That was the only
question presented to the lower court and that was the only question decided.
A promise made by one party, if made in accordance with the forms required by the law, may be a
good consideration (causa) for a promise made by another party. (Art. 1274, Civil Code.) In other
words, the consideration (causa) need not pass from one to the other at the time the contract is
entered into. For example, A promises to sell a certain parcel of land to B for the sum of P70,000. A,
by virtue of the promise of B to pay P70,000, promises to sell said parcel of land to B for said sum,
then the contract is complete, provided they have complied with the forms required by the law. The
consideration need not be paid at the time of the promise. The one promise is a consideration for the
other. Of course, A cannot enforce a compliance with the contract and require B to pay said sum until
he has complied with his part of the contract. In the present case, the defendant promised to convey
the land in question to the plaintiff as soon as the same could be registered. The plaintiff promised to
pay to the defendant P70,000 therefor in accordance with the terms of their contract. The plaintiff
stood ready to comply with his part of the contract. The defendant, even though he had obtained a
registered title to said parcel of land, refused to comply with his promise. All of the conditions of the
contract on the part of the defendant had been concluded, except delivering the deeds of transfer. Of
course, if the defendant had been unable to obtain a registration of his title, or if he had violated the
terms of the alleged optional contract by selling the same to some other person than the plaintiff,
then he might have raised the objection that he had received nothing from the plaintiff for the option
which he had conceded. That condition, of course, would have presented a different question from
the one which we have before us. The said contract (Exhibits A and B) was not, in fact, an "optional
contract" as that phrase is generally used. Reading the said contract from its four corners it is clearly
as absolute promise to sell a definite parcel of land for a fixed price upon definite conditions. The
defendant promised to convey to the plaintiff the land in question as soon as the same was
registered under the Torrens system, and the plaintiff promised to pay to the defendant the sum of
P70,000, under the conditions named, upon the happening of that event. The contract was not, in
fact, what is generally known as a "contract of option." It differs very essentially from a contract of
option. An optional contract is a privilege existing in one person, for which he had paid a
consideration, which gives him the right to buy, for example, certain merchandise of certain specified
property, from another person, if he chooses, at any time within the agreed period, at a fixed price.
The contract of option is a separate and distinct contract from the contract which the parties may
enter into upon the consummation of the option. A consideration for an optional contract is just as
important as the consideration for any other kind of contract. If there was no consideration for the
contract of option, then it cannot be entered any more than any other contract where no
consideration exists. To illustrate, A offers B the sum of P100,000 for the option of buying his
property within the period of 30 days. While it is true that the conditions upon which A promises to
buy the property at the end of the period mentioned are usually fixed in the option, the consideration
for the option is an entirely different consideration from the consideration of the contract with

reference to which the option exists. A contract of option is a contract by virtue of the terms of which
the parties thereto promise and obligate themselves to enter into contract at a future time, upon the
happening of certain events, or the fulfillment of certain conditions.
Upon the other hand, suppose that the defendant had complied with his part of the contract and had
tendered the deeds of transfer of the "Hacienda de Pitogo" in accordance with its terms and had
demanded the payments specified in the contract, and the plaintiff refused to comply what then
would have been the rights of the defendant? Might he not have successfully maintained an action
for the specific performance of the contract, or for the damages resulting from the breach of said
contract? When the defendant alleged that he had complied with his part of the contract (par. 3 of
defendant's answer) and demanded that the plaintiff should immediately comply with his part of the
same, he evidently was laying the foundation for an action for damages, the nullification or a specific
compliance with the contract.
The appellant contends that the contract which he made was not with the plaintiff but with
Rosenstock, Elser and Co. That question was not presented in the court below. The contract in
question shows, upon its face, that the defendant made the same with the plaintiff, Not having raised
the question in the court below, and having admitted the execution and delivery of the contract in
question with the plaintiff, we are of the opinion that his admission is conclusive upon that question
(par. 1 of special defense of defendant's answer) and need not be further discussed.
The appellant further contends that the action was premature, for the reason that the plaintiff had not
paid nor offered to pay the price agreed upon, under the conditions named, for the land in question.
That question was not raised in the court below, which fact, ordinarily, would be a sufficient answer
to the contention of the appellant. It may be added, however, that the defendant could not demand
the payment until he had offered the deeds of conveyance, in accordance with the terms of his
contract. He did not offer to comply with the terms of his contract. True it is that he offered to comply
partially with the terms of the contract, but not fully. While the payment must be simultaneous with
the delivery of the deeds of conveyance, the payment need not be made until the deed of
conveyance is offered. The plaintiff stood ready and willing to perform his part of the contract
immediately upon the performance on the part of the defendant. (Arts. 1258 and 1451 of Civil Code.)
In the fifth assignment of error the appellant contends that the lower court committed an error in not
declaring that the defendant was not obligated to sell the "Hacienda de Pitogo" to the plaintiff "por
incumplimiento, renuncia abandono y negligencia del mismo demandante, etc." (For nonfulfillment,
renunciation, abandonment and negligence of plaintiff himself, etc.) That question was not presented
to the court below. But even though it had been the record shows that the plaintiff, at all times,
insisted upon a compliance with the terms of the contract on the part of the defendant, standing
ready to comply with his part of the same.
The appellant contends in his sixth assignment of error that the plaintiff had not suffered the
damages complained of, to wit, in the sum of P20,000. The only proof upon the question of damages
suffered by the plaintiff for the noncompliance with the terms of the contract in question on the part of
the defendant is that the plaintiff, in contemplation of the compliance with the terms of the contract
on the part of the defendant, entered into a contract with a third party to sell the said "hacienda" at a
profit of P30,000. That proof is not disputed. No attempt was made in the lower court to deny that
fact. The proof shows that the person with whom the plaintiff had entered into a conditional sale of
the land in question had made a deposit for the purpose of guaranteeing the final consummation of
that contract. By reason of the failure of the defendant to comply with the contract here in question,
the plaintiff was obliged to return the sum deposited by said third party with a promise to pay
damages. The record does not show why the plaintiff did not ask for damages in the sum of
P30,000. He asked for a judgment only in the sum of P20,000. He now asks that the judgment of the

lower court be modified and that he be given a judgment for P30,000. Considering the fact that he
neither asked for a judgment for more than P20,000 nor appealed from the judgment of the lower
court, his request now cannot be granted. We find no reason for modifying the judgment of the lower
court by virtue of the sixth assignment of error.
In the seventh assignment of error the appellant contends that the contract of sale was not in effect a
contract of sale. He alleges that the contract was, in fact, a contract by virtue of which the plaintiff
promised to find a buyer for the parcel of land in question; that the plaintiff was not in fact the
purchaser; that the only obligation that the plaintiff assumed was to find some third person who
would purchase the land from the defendant. Again, it would be sufficient to say, in answer to that
assignment of error, that no contention of that nature was presented in the court below, and for that
reason it is improperly presented now for the first time. In addition, however, it may be added that the
defendant, in his answer, admitted that he not only sold the land in question, but offered to transfer
the same to the plaintiff, in compliance with the contract. (See answer of defendant.)
In the eighth assignment of error the appellant contends that the lower court committed an error in its
order requiring him to convey to the plaintiff the "Hacienda de Pitogo," for the reason that the plaintiff
had not demanded a transfer of said property, and for the additional reason that a portion of said
"hacienda" had already been sold to a third person. With reference to the first contention, the record
clearly shows that the plaintiff was constantly insisting upon a compliance with the terms of the
contract, to wit, a conveyance to him of the "Hacienda de Pitogo" by the defendant. Naturally, he
refused, under the contract, to accept a conveyance of a part only of said "hacienda." With reference
to the second contention, it may be said that the mere fact that the defendant had sold a part of the
"hacienda" to other persons, is no sufficient reason for not requiring a strict compliance with the
terms of his contract with the plaintiff, or to answer in damages for his failure. (Arts. 1101 and 1252
of the Civil Code.)
In view of the foregoing, and after a consideration of the facts and the law applicable thereto, we are
persuaded that there is no reason given in the record justifying a modification or reversal of the
judgment of the lower court. The same is, however, hereby affirmed, with costs. So ordered.
G.R. No. 124791 February 10, 1999
JOSE RAMON CARCELLER, petitioner,
vs.
COURT OF APPEALS and STATE INVESTMENT HOUSES, INC., respondents.

QUISUMBING, J.:
Before us is a petition for review of the Decision 1 dated September 21, 1995 of the Court of Appeals2 in
CA G. R. CV No. 37520, as well as its Resolution 3 dated April 25, 1996, denying both parties' motion
for partial reconsideration or clarification. The assailed decision affirmed with modification the
judgment 4 of the Regional Trial Court of Cebu City, Branch 5, in Civil Case No. CEB 4700, and disposed
of the controversy as follows:
However, We do not find it just that the appellee, in exercising his option to buy,
should pay appellant SIHI only P1,800,000.00. In fairness to appellant SIHI, the
purchase price must be based on the prevailing market price of real property in
Bulacao, Cebu City. (Emphasis supplied)

The factual background of this case is quite simple.

Private respondent State Investment Houses, Inc. (SIHI) is the registered owner of two (2) parcels of
land with a total area of 9,774 square meters, including all the improvements thereon, located at
Bulacao, Cebu City, covered by Transfer Certificate of Titles Nos. T-89152 and T-89153 of the
Registry of Deeds of Cebu City.
On January 10, 1985, petitioner and SIHI entered into a lease contract with option to purchase 5 over
said two parcels of land, at a monthly rental of Ten Thousand (P10,000.00) pesos for a period of eighteen
(18) months, beginning on August 1, 1984 until January 30, 1986. The pertinent portion of the lease
contract subject of the dispute reads in part:
4. As part of the consideration of this agreement, the LESSOR hereby grants unto
the LESSEE the exclusive right, option and privilege to purchase, within the lease
period, the leased premises thereon for the aggregate amount of P1,800,000.00
payable as follows:
a. Upon the signing of the Deed of Sale, the LESSEE shall
immediately pay P360,000.00.
b. The balance of P1,440,000.00 shall be paid in equal installments of
P41,425.87 over sixty (60) consecutive months computed with
interest at 24% per annum on the diminishing balance; Provided, that
the LESSEE shall have the right to accelerate payments at anytime in
which event the stipulated interest for the remaining installments shall
no longer be imposed.
x . . The option shall be exercised by a written notice to the LESSOR at anytime
within the option period and the document of sale over the afore-described properties
has to be consummated within the month immediately following the month when the
LESSEE exercised his option under this contract. 6
On January 7, 1986, or approximately three (3) weeks before the expiration of the lease contract,
SIHI notified petitioner of the impending termination of the lease agreement, and of the short period
of time left within which he could still validly exercise the option. It likewise requested petitioner to
advise them of his decision on the option, on or before January 20, 1986. 7
In a letter dated January 15, 1986, which was received by SIHI on January 29, 1986, petitioner
requested for a six-month extension of the lease contract, alleging that he needs ample time to raise
sufficient funds in order to exercise the option. To support his request, petitioner averred that he had
already made a substantial investment on the property, and had been punctual in paying his monthly
rentals. 8
On February 14, 1986, SIHI notified petitioner that his request was disapproved. Nevertheless, it
offered to lease the same property to petitioner at the rate of Thirty Thousand (P30,000.00) pesos a
month, for a period of one (1) year. It further informed the petitioner of its decision to offer for sale
said leased property to the general public. 9
On February 18, 1986, petitioner notified SIHI of his decision to exercise the option to purchase the
property and at the same time he made arrangements for the payment of the downpayment thereon
in the amount of Three Hundred Sixty Thousand (P360,000.00) pesos. 10

On February 20, 1986, SIHI sent another letter to petitioner, reiterating its previous stand on the
latter's offer, stressing that the period within which the option should have been exercised had
already lapsed. SIHI asked petitioner to vacate the property within ten (10) days from notice, and to
pay rental and penalty due. 11
Hence, on February 28, 1986, a complaint for specific performance and damages 12 was filed by
petitioner against SIHI before the Regional Trial Court of Cebu City, to compel the latter to honor its
commitment and execute the corresponding deed of sale.
After trial, the court a quo promulgated its decision dated April 1, 1991, the dispositive portion of
which reads:
In the light of the foregoing considerations, the Court hereby renders judgment in
Civil Case No. CEB 4700, ordering the defendant to execute a deed of sale in favor
of the plaintiff, covering the parcels of land together with all the improvements
thereon, covered by Transfer Certificates of Title Nos. 89152 and 89153 of the
Registry of Deeds of Cebu City, in accordance with the lease contract executed on
January 10, 1984 between the plaintiff and the defendant, but the purchase price
may be by "one shot payment" of P1,800,000.00; and the defendant to pay attorney's
fee of P20,000.00.
No damages awarded. 13
Not satisfied with the judgment, SIHI elevated the case to the Court of Appeals by way of a petition
for review.
On September 21, 1995, respondent court rendered its decision, affirming the trial court's judgment,
but modified the basis for assessing the purchase price. While respondent court affirmed appellee's
option to buy the property, it added that, "the purchase price must be based on the prevailing market
price of real property in Bulacao, Cebu City." 14
Baffled by the modification made by respondent court, both parties filed a motion for reconsideration
and/or clarification, with petitioner, on one hand, praying that the prevailing market price be the value
of the property in February 1986, the time when the sale would have been consummated. SIHI, on
the other hand, prayed that the market price of the property be based on the prevailing price index at
least 10 years later, that is, 1996.
Respondent court conducted further hearing to clarify the matter, but no agreement was reached by
the parties. Thus, on April 25, 1996, respondent court promulgated the assailed resolution, which
denied both parties' motions, and directed the trial court to conduct further hearings to ascertain the
prevailing market value of real properties in Bulacao, Cebu City and fix the value of the property
subject of the controversy. 14a
Hence, the instant petition for review.
The fundamental issue to be resolved is, should petitioner be allowed to exercise the option to
purchase the leased property, despite the alleged delay in giving the required notice to private
respondent?
An option is a preparatory contract in which one party grants to the other, for a fixed period and
under specified conditions, the power to decide, whether or not to enter into a principal contract. It

binds the party who has given the option, not to enter into the principal contract with any other
person during the period designated, and, within that period, to enter into such contract with the one
to whom the option was granted, if the latter should decide to use the option. 15 It is a separate agreement
distinct from the contract which the parties may enter into upon the consummation of the option.

16

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

We hold that the appellee [herein petitioner] acted with honesty and good faith.
Verily, We are in accord with the trial court that he should be allowed to exercise his
option to purchase the lease property. In fact, SIHI will not be prejudiced. A contrary
ruling, however, will definitely cause damage to the appellee, it appearing that he has
introduced considerable improvements on the property and has borrowed huge loan
from the Technology Resources Center. 17a
The contracting parties' primary intent in entering into said lease contract with option to purchase
confirms, in our view, the correctness of respondent court's ruling. Analysis and construction,
however, should not be limited to the words used in the contract, as they may not accurately reflect
the parties' true intent. The reasonableness of the result obtained, after said analysis, ought likewise
to be carefully considered.
It is well-settled in both law and jurisprudence, that contracts are the law between the contracting
parties and should be fulfilled, if their terms are clear and leave no room for doubt as to the intention
of the contracting parties. 18Further, it is well-settled that in construing a written agreement, the reason behind and the
circumstances surrounding its execution are of paramount importance. Sound construction requires one to be placed mentally in the situation
occupied by the parties concerned at the time the writing was executed. Thereby, the intention of the contracting parties could be made to
prevail, because their agreement has the force of law between them. 19

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

As sufficiently established during the trial, SIHI, prior to its negotiation with petitioner, was already
beset with financial problems. SIHI was experiencing difficulty in meeting the claims of its creditors.
Thus, in order to reprogram the company's financial investment plan and facilitate its rehabilitation
and viability, SIHI, being a quasi-banking financial institution, had been placed under the supervision
and control of the Central Bank (CB). It was in dire need of liquidating its assets, so to speak, in
order to stay afloat financially.
Thus, SIHI was compelled to dispose some of its assets, among which is the subject leased
property, to generate sufficient funds to augment its badly-depleted financial resources. This then
brought about the execution of the lease contract with option to purchase between SIHI and the
petitioner.
The lease contract provided that to exercise the option, petitioner had to send a letter to SIHI,
manifesting his intent to exercise said option within the lease period ending January 30, 1986.

However, what petitioner did was to request on January 15, 1986, for a six-month extension of the
lease contract, for the alleged purpose of raising funds intended to purchase the property subject of
the option. It was only after the request was denied on February 14, 1986, that petitioner notified
SIHI of his desire to exercise the option formally. This was by letter dated February 18, 1986. In
private respondent's view, there was already a delay of 18 days, fatal to petitioner's cause. But
respondent court found the delay neither "substantial" nor "fundamental" and did not amount to a
breach that would defeat the intention of the parties when they executed the lease contract with
option to purchase. 20a
In allowing petitioner to exercise the option, however, both lower courts are in accord in their
decision, rationalizing that a contrary ruling would definitely cause damage to the petitioner, as he
had the whole place renovated to make the same suitable and conducive for the business he
established there. Moreover, judging from the subsequent acts of the parties, it is undeniable that
SIHI really intended to dispose of said leased property, which petitioner indubitably intended to buy.
SIHI's agreement to enter first into a lease contract with option to purchase with herein petitioner, is
a clear proof of its intent to promptly dispose said property although the full financial returns may
materialize only in a year's time. Furthermore, its letter dated January 7, 1986, reminding the
petitioner of the short period of time left within which to consummate their agreement, clearly
showed its desire to sell that property. Also, SIHI's letter dated February 14, 1986 supported the
conclusion that it was bent on disposing said property. For this letter made mention of the fact that,
"said property is now for sale to the general public".
Petitioner's determination to purchase said property is equally indubitable. He introduced permanent
improvements on the leased property, demonstrating his intent to acquire dominion in a year's time.
To increase his chances of acquiring the property, he secured an P8 Million loan from the
Technology Resources Center (TRC), thereby augmenting his capital. He averred that he applied for
a loan since he planned to pay the purchase price in one single payment, instead of paying in
installment, which would entail the payment of additional interest at the rate of 24% per annum,
compared to 73/4% per annum interest for the TRC loan. His letter earlier requesting extension was
premised, in fact, on his need for time to secure the needed financing through a TRC loan.
In contractual relations, the law allows the parties reasonable leeway on the terms of their
agreement, which is the law between them. 21 Note that by contract SIHI had given petitioner 4 periods: (a) the option to
purchase the property for P1,800,000.00 within the lease period, that is, until January 30, 1986; (b) the option to be exercised within the
option period by written notice at anytime; (c) the "document of sale . . . to be consummated within the month immediately following the
month" when petitioner exercises the option; and (d) the payment in equal installments of the purchase price over a period of 60 months. In
our view, petitioner's letter of January 15, 1986 and his formal exercise of the option on February 18, 1986 were within a reasonable timeframe consistent with periods given and the known intent of the parties to the agreement dated January 10, 1985. A contrary view would be
harsh and inequituous indeed.

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

WHEREFORE, the appealed decision of respondent court, insofar as it affirms the judgment of the
trial court in granting petitioner the opportunity to exercise the option to purchase the subject
property, is hereby AFFIRMED. However the purchase price should be based on the fair market
value of real property in Bulacao, Cebu City, as of February 1986, when the contract would have

been consummated. Further, petitioner is hereby ordered to pay private respondent SIHI legal
interest on the said purchase price beginning February 1986 up to the time it is actually paid, as well
as the taxes due on said property, considering that petitioner have enjoyed the beneficial use of said
property. The case is hereby remanded to Regional Trial Court of Cebu, Branch 5, for further
proceedings to determine promptly the fair market value of said real property as of February 1986, in
Bulacao, Cebu City.
Costs against private respondent.
SO ORDERED.
G.R. No. 111238 January 25, 1995
ADELFA PROPERTIES, INC., petitioner,
vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAEDA and SALUD JIMENEZ, respondents.

REGALADO, J.:
The main issues presented for resolution in this petition for review on certiorari of the judgment of
respondent Court of appeals, dated April 6, 1993, in CA-G.R. CV No. 34767 1 are (1) whether of not
the "Exclusive Option to Purchase" executed between petitioner Adelfa Properties, Inc. and private
respondents Rosario Jimenez-Castaeda 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 Pias, Metro Manila.
2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of said
parcel of land, specifically the eastern portion thereof, to herein petitioner pursuant to a "Kasulatan
sa Bilihan ng Lupa." 3Subsequently, a "Confirmatory Extrajudicial Partition Agreement" 4 was executed by
the Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855 square meters was
adjudicated to Jose and Dominador Jimenez, while the western portion was allocated to herein private
respondents.
3. Thereafter, herein petitioner expressed interest in buying the western portion of the property from
private respondents. Accordingly, on November 25, 1989, an "Exclusive Option to Purchase" 5 was
executed between petitioner and private respondents, under the following terms and conditions:
1. The selling price of said 8,655 square meters of the subject property is TWO
MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED FIFTY
PESOS ONLY (P2,856,150.00)

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

an option money shall be credited as partial payment upon the consummation of the
sale and the balance in the sum of TWO MILLION EIGHT HUNDRED SIX
THOUSAND ONE HUNDRED FIFTY PESOS (P2,806,150.00) to be paid on or
before November 30, 1989;
3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance
in accordance with paragraph 2 hereof, this option shall be cancelled and 50% of the
option money to be forfeited in our favor and we will refund the remaining 50% of
said money upon the sale of said property to a third party;
4. All expenses including the corresponding capital gains tax, cost of documentary
stamps are for the account of the VENDORS, and expenses for the registration of
the deed of sale in the Registry of Deeds are for the account of ADELFA
PROPERTIES, INC.
Considering, however, that the owner's copy of the certificate of title issued to respondent Salud
Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said certificate of title
was filed in court through Atty. Bayani L. Bernardo, who acted as private respondents' counsel.
Eventually, a new owner's copy of the certificate of title was issued but it remained in the possession
of Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc.
4. Before petitioner could make payment, it received summons 6 on November 29, 1989, together with
a copy of a complaint filed by the nephews and nieces of private respondents against the latter, Jose and
Dominador Jimenez, and herein petitioner in the Regional Trial Court of Makati, docketed as Civil Case
No. 89-5541, for annulment of the deed of sale in favor of Household Corporation and recovery of
ownership of the property covered by TCT No. 309773. 7
5. As a consequence, in a letter dated November 29, 1989, petitioner informed private respondents
that it would hold payment of the full purchase price and suggested that private respondents settle
the case with their nephews and nieces, adding that ". . . if possible, although November 30, 1989 is
a holiday, we will be waiting for you and said plaintiffs at our office up to 7:00 p.m." 8 Another letter of
the same tenor and of even date was sent by petitioner to Jose and Dominador Jimenez. 9 Respondent
Salud Jimenez refused to heed the suggestion of petitioner and attributed the suspension of payment of
the purchase price to "lack of word of honor."
6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option contract
with private respondents, and its contract of sale with Jose and Dominador Jimenez, as Entry No.
1437-4 and entry No. 1438-4, respectively.
7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. Bernardo, in his
capacity as petitioner's counsel, and to inform the latter that they were cancelling the transaction. In
turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00 be deducted
therefrom for the settlement of the civil case. This was rejected by private respondents. On
December 22, 1989, Atty. Bernardo wrote private respondents on the same matter but this time
reducing the amount from P500,000.00 to P300,000.00, and this was also rejected by the latter.
8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-5541.
Thus, on February 28, 1990, petitioner caused to be annotated anew on TCT No. 309773 the
exclusive option to purchase as Entry No. 4442-4.

9. On the same day, February 28, 1990, private respondents executed a Deed of Conditional
Sale 10 in favor of Emylene Chua over the same parcel of land for P3,029,250, of which P1,500,000.00
was paid to private respondents on said date, with the balance to be paid upon the transfer of title to the
specified one-half portion.
10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view of
the dismissal of the case against them, petitioner was willing to pay the purchase price, and he
requested that the corresponding deed of absolute sale be executed. 11 This was ignored by private
respondents.
11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing therein a
check for P25,000.00 representing the refund of fifty percent of the option money paid under the
exclusive option to purchase. Private respondents then requested petitioner to return the owner's
duplicate copy of the certificate of title of respondent Salud Jimenez. 12 Petitioner failed to surrender
the certificate of title, hence private respondents filed Civil Case No. 7532 in the Regional Trial Court of
Pasay City, Branch 113, for annulment of contract with damages, praying, among others, that the
exclusive option to purchase be declared null and void; that defendant, herein petitioner, be ordered to
return the owner's duplicate certificate of title; and that the annotation of the option contract on TCT No.
309773 be cancelled. Emylene Chua, the subsequent purchaser of the lot, filed a complaint in
intervention.
12. The trial court rendered judgment 13 therein on September 5, 1991 holding that the agreement
entered into by the parties was merely an option contract, and declaring that the suspension of payment
by herein petitioner constituted a counter-offer which, therefore, was tantamount to a rejection of the
option. It likewise ruled that herein petitioner could not validly suspend payment in favor of private
respondents on the ground that the vindicatory action filed by the latter's kin did not involve the western
portion of the land covered by the contract between petitioner and private respondents, but the eastern
portion thereof which was the subject of the sale between petitioner and the brothers Jose and
Dominador Jimenez. The trial court then directed the cancellation of the exclusive option to purchase,
declared the sale to intervenor Emylene Chua as valid and binding, and ordered petitioner to pay
damages and attorney's fees to private respondents, with costs.
13. On appeal, respondent Court of appeals affirmed in toto the decision of the court a quo and held
that the failure of petitioner to pay the purchase price within the period agreed upon was tantamount
to an election by petitioner not to buy the property; that the suspension of payment constituted an
imposition of a condition which was actually a counter-offer amounting to a rejection of the option;
and that Article 1590 of the Civil Code on suspension of payments applies only to a contract of sale
or a contract to sell, but not to an option contract which it opined was the nature of the document
subject of the case at bar. Said appellate court similarly upheld the validity of the deed of conditional
sale executed by private respondents in favor of intervenor Emylene Chua.
In the present petition, the following assignment of errors are raised:
1. Respondent court of appeals acted with grave abuse of discretion in making its finding that the
agreement entered into by petitioner and private respondents was strictly an option contract;
2. Granting arguendo that the agreement was an option contract, respondent court of Appeals acted
with grave abuse of discretion in grievously failing to consider that while the option period had not
lapsed, private respondents could not unilaterally and prematurely terminate the option period;
3. Respondent Court of Appeals acted with grave abuse of discretion in failing to appreciate fully the
attendant facts and circumstances when it made the conclusion of law that Article 1590 does not
apply; and

4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with the sale in
favor of appellee Ma. Emylene Chua and the award of damages and attorney's fees which are not
only excessive, but also without in fact and in law. 14
An analysis of the facts obtaining in this case, as well as the evidence presented by the parties,
irresistibly leads to the conclusion that the agreement between the parties is a contract to sell, and
not an option contract or a contract of sale.
I
1. In view of the extended disquisition thereon by respondent court, it would be worthwhile at this
juncture to briefly discourse on the rationale behind our treatment of the alleged option contract as a
contract to sell, rather than a contract of sale. The distinction between the two is important for in
contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a
contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full
payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until
and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the
vendor until the full payment of the price, such payment being a positive suspensive condition and
failure of which is not a breach but an event that prevents the obligation of the vendor to convey title
from becoming effective. Thus, a deed of sale is considered absolute in nature where there is neither
a stipulation in the deed that title to the property sold is reserved in the seller until the full payment of
the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the
buyer fails to pay within a fixed period. 15
There are two features which convince us that the parties never intended to transfer ownership to
petitioner except upon the full payment of the purchase price. Firstly, the exclusive option to
purchase, although it provided for automatic rescission of the contract and partial forfeiture of the
amount already paid in case of default, does not mention that petitioner is obliged to return
possession or ownership of the property as a consequence of non-payment. There is no stipulation
anent reversion or reconveyance of the property to herein private respondents in the event that
petitioner does not comply with its obligation. With the absence of such a stipulation, although there
is a provision on the remedies available to the parties in case of breach, it may legally be inferred
that the parties never intended to transfer ownership to the petitioner to completion of payment of the
purchase price.
In effect, there was an implied agreement that ownership shall not pass to the purchaser until he had
fully paid the price. Article 1478 of the civil code does not require that such a stipulation be expressly
made. Consequently, an implied stipulation to that effect is considered valid and, therefore, binding
and enforceable between the parties. It should be noted that under the law and jurisprudence, a
contract which contains this kind of stipulation is considered a contract to sell.
Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale, is
bolstered by the fact that the deed of absolute sale would have been issued only upon the payment
of the balance of the purchase price, as may be gleaned from petitioner's letter dated April 16,
1990 16 wherein it informed private respondents that it "is now ready and willing to pay you simultaneously
with the execution of the corresponding deed of absolute sale."
Secondly, it has not been shown there was delivery of the property, actual or constructive, made to
herein petitioner. The exclusive option to purchase is not contained in a public instrument the
execution of which would have been considered equivalent to delivery. 17 Neither did petitioner take
actual, physical possession of the property at any given time. It is true that after the reconstitution of
private respondents' certificate of title, it remained in the possession of petitioner's counsel, Atty. Bayani L.

Bernardo, who thereafter delivered the same to herein petitioner. Normally, under the law, such
possession by the vendee is to be understood as a delivery. 18 However, private respondents explained
that there was really no intention on their part to deliver the title to herein petitioner with the purpose of
transferring ownership to it. They claim that Atty. Bernardo had possession of the title only because he
was their counsel in the petition for reconstitution. We have no reason not to believe this explanation of
private respondents, aside from the fact that such contention was never refuted or contradicted by
petitioner.

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

sell. On this particular point, therefore, we reject the position and ratiocination of respondent Court of
Appeals which, while awarding the correct relief to private respondents, categorized the instrument
as "strictly an option contract."
The important task in contract interpretation is always the ascertainment of the intention of the
contracting parties and that task is, of course, to be discharged by looking to the words they used to
project that intention in their contract, all the words not just a particular word or two, and words in
context not words standing alone. 19Moreover, 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. 21Hence, the fact
that the document under discussion is entitled "Exclusive Option to Purchase" is not controlling where the
text thereof shows that it is a contract to sell.
An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates
with another that the latter shall have the right to buy the property at a fixed price within a certain
time, or under, or in compliance with, certain terms and conditions, or which gives to the owner of the
property the right to sell or demand a sale. It is also sometimes called an "unaccepted offer." An
option is not of itself a purchase, but merely secures the privilege to buy. 22 It is not a sale of property
but a sale of property but a sale of the right to purchase. 23 It is simply a contract by which the owner of
property agrees with another person that he shall have the right to buy his property at a fixed price within
a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, that
it is, the right or privilege to buy at the election or option of the other party. 24 Its distinguishing
characteristic is that it imposes no binding obligation on the person holding the option, aside from the
consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest,
transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a
contract by which the owner of property gives the optionee the right or privilege of accepting the offer and
buying the property on certain terms. 25
On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons
whereby one binds himself, with respect to the other, to give something or to render some
service. 26 Contracts, in general, are perfected by mere consent, 27 which is manifested by the meeting of
the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer
must be certain and the acceptance absolute. 28
The distinction between an "option" and a contract of sale is that an option is an unaccepted offer. It
states the terms and conditions on which the owner is willing to sell the land, if the holder elects to
accept them within the time limited. If the holder does so elect, he must give notice to the other party,
and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is not
made within the time fixed, the owner is no longer bound by his offer, and the option is at an end. A
contract of sale, on the other hand, fixes definitely the relative rights and obligations of both parties
at the time of its execution. The offer and the acceptance are concurrent, since the minds of the
contracting parties meet in the terms of the agreement. 29

A perusal of the contract in this case, as well as the oral and documentary evidence presented by
the parties, readily shows that there is indeed a concurrence of petitioner's offer to buy and private
respondents' acceptance thereof. The rule is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly made and must be evidenced by some
acts or conduct communicated to the offeror, it may be made either in a formal or an informal
manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest a
present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown
by the acts, conduct, or words of a party recognizing the existence of the contract of sale. 30
The records also show that private respondents accepted the offer of petitioner to buy their property
under the terms of their contract. At the time petitioner made its offer, private respondents suggested
that their transfer certificate of title be first reconstituted, to which petitioner agreed. As a matter of
fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who assisted private respondents in filing a
petition for reconstitution. After the title was reconstituted, the parties agreed that petitioner would
pay either in cash or manager's check the amount of P2,856,150.00 for the lot. Petitioner was
supposed to pay the same on November 25, 1989, but it later offered to make a down payment of
P50,000.00, with the balance of P2,806,150.00 to be paid on or before November 30, 1989. Private
respondents agreed to the counter-offer made by petitioner. 31 As a result, the so-called exclusive
option to purchase was prepared by petitioner and was subsequently signed by private respondents,
thereby creating a perfected contract to sell between them.
It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain, while the
acceptance thereof was absolute and without any condition or qualification. The agreement as to the
object, the price of the property, and the terms of payment was clear and well-defined. No other
significance could be given to such acts that than they were meant to finalize and perfect the
transaction. The parties even went beyond the basic requirements of the law by stipulating that "all
expenses including the corresponding capital gains tax, cost of documentary stamps are for the
account of the vendors, and expenses for the registration of the deed of sale in the Registry of
Deeds are for the account of Adelfa properties, Inc." Hence, there was nothing left to be done except
the performance of the respective obligations of the parties.
We do not subscribe to private respondents' submission, which was upheld by both the trial court
and respondent court of appeals, that the offer of petitioner to deduct P500,000.00, (later reduced to
P300,000.00) from the purchase price for the settlement of the civil case was tantamount to a
counter-offer. It must be stressed that there already existed a perfected contract between the parties
at the time the alleged counter-offer was made. Thus, any new offer by a party becomes binding only
when it is accepted by the other. In the case of private respondents, they actually refused to concur
in said offer of petitioner, by reason of which the original terms of the contract continued to be
enforceable.
At any rate, the same cannot be considered a counter-offer for the simple reason that petitioner's
sole purpose was to settle the civil case in order that it could already comply with its obligation. In
fact, it was even indicative of a desire by petitioner to immediately comply therewith, except that it
was being prevented from doing so because of the filing of the civil case which, it believed in good
faith, rendered compliance improbable at that time. In addition, no inference can be drawn from that
suggestion given by petitioner that it was totally abandoning the original contract.
More importantly, it will be noted that the failure of petitioner to pay the balance of the purchase price
within the agreed period was attributed by private respondents to "lack of word of honor" on the part
of the former. The reason of "lack of word of honor" is to us a clear indication that private
respondents considered petitioner already bound by its obligation to pay the balance of the
consideration. In effect, private respondents were demanding or exacting fulfillment of the obligation

from herein petitioner. with the arrival of the period agreed upon by the parties, petitioner was
supposed to comply with the obligation incumbent upon it to perform, not merely to exercise an
option or a right to buy the property.
The obligation of petitioner on November 30, 1993 consisted of an obligation to give something, that
is, the payment of the purchase price. The contract did not simply give petitioner the discretion to
pay for the property. 32 It will be noted that there is nothing in the said contract to show that petitioner was
merely given a certain period within which to exercise its privilege to buy. The agreed period was intended
to give time to herein petitioner within which to fulfill and comply with its obligation, that is, to pay the
balance of the purchase price. No evidence was presented by private respondents to prove otherwise.
The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is
whether or not the agreement could be specifically enforced. 33 There is no doubt that the obligation of
petitioner to pay the purchase price is specific, definite and certain, and consequently binding and
enforceable. Had private respondents chosen to enforce the contract, they could have specifically
compelled petitioner to pay the balance of P2,806,150.00. This is distinctly made manifest in the contract
itself as an integral stipulation, compliance with which could legally and definitely be demanded from
petitioner as a consequence.
This is not a case where no right is as yet created nor an obligation declared, as where something
further remains to be done before the buyer and seller obligate themselves. 34 An agreement is only
an "option" when no obligation rests on the party to make any payment except such as may be agreed on
between the parties as consideration to support the option until he has made up his mind within the time
specified. 35 An option, and not a contract to purchase, is effected by an agreement to sell real estate for
payments to be made within specified time and providing forfeiture of money paid upon failure to make
payment, where the purchaser does not agree to purchase, to make payment, or to bind himself in any
way other than the forfeiture of the payments made. 36 As hereinbefore discussed, this is not the situation
obtaining in the case at bar.
While there is jurisprudence to the effect that a contract which provides that the initial payment shall
be totally forfeited in case of default in payment is to be considered as an option contract, 37 still we
are not inclined to conform with the findings of respondent court and the court a quo that the contract
executed between the parties is an option contract, for the reason that the parties were already
contemplating the payment of the balance of the purchase price, and were not merely quoting an agreed
value for the property. The term "balance," connotes a remainder or something remaining from the original
total sum already agreed upon.
In other words, the alleged option money of P50,000.00 was actually earnest money which was
intended to form part of the purchase price. The amount of P50,000.00 was not distinct from the
cause or consideration for the sale of the property, but was itself a part thereof. It is a statutory rule
that whenever earnest money is given in a contract of sale, it shall be considered as part of the price
and as proof of the perfection of the contract. 38 It constitutes an advance payment and must, therefore,
be deducted from the total price. Also, earnest money is given by the buyer to the seller to bind the
bargain.
There are clear distinctions between earnest money and option money, viz.: (a) earnest money is
part of the purchase price, while option money ids the money given as a distinct consideration for an
option contract; (b) earnest money is given only where there is already a sale, while option money
applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is bound to pay
the balance, while when the would-be buyer gives option money, he is not required to buy. 39
The aforequoted characteristics of earnest money are apparent in the so-called option contract
under review, even though it was called "option money" by the parties. In addition, private

respondents failed to show that the payment of the balance of the purchase price was only a
condition precedent to the acceptance of the offer or to the exercise of the right to buy. On the
contrary, it has been sufficiently established that such payment was but an element of the
performance of petitioner's obligation under the contract to sell. 40
II
1. This brings us to the second issue as to whether or not there was valid suspension of payment of
the purchase price by petitioner and the legal consequences thereof. To justify its failure to pay the
purchase price within the agreed period, petitioner invokes Article 1590 of the civil Code which
provides:
Art. 1590. Should the vendee be disturbed in the possession or ownership of the
thing acquired, or should he have reasonable grounds to fear such disturbance, by a
vindicatory action or a foreclosure of mortgage, he may suspend the payment of the
price until the vendor has caused the disturbance or danger to cease, unless the
latter gives security for the return of the price in a proper case, or it has been
stipulated that, notwithstanding any such contingency, the vendee shall be bound to
make the payment. A mere act of trespass shall not authorize the suspension of the
payment of the price.
Respondent court refused to apply the aforequoted provision of law on the erroneous assumption
that the true agreement between the parties was a contract of option. As we have hereinbefore
discussed, it was not an option contract but a perfected contract to sell. Verily, therefore, Article 1590
would properly apply.
Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the parties
herein involved only the eastern half of the land subject of the deed of sale between petitioner and
the Jimenez brothers, it did not, therefore, have any adverse effect on private respondents' title and
ownership over the western half of the land which is covered by the contract subject of the present
case. We have gone over the complaint for recovery of ownership filed in said case 41 and we are not
persuaded by the factual findings made by said courts. At a glance, it is easily discernible that, although
the complaint prayed for the annulment only of the contract of sale executed between petitioner and the
Jimenez brothers, the same likewise prayed for the recovery of therein plaintiffs' share in that parcel of
land specifically covered by TCT No. 309773. In other words, the plaintiffs therein were claiming to be coowners of the entire parcel of land described in TCT No. 309773, and not only of a portion thereof nor, as
incorrectly interpreted by the lower courts, did their claim pertain exclusively to the eastern half
adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of the balance of the purchase
price by reason of the aforesaid vindicatory action filed against it. The assurance made by private
respondents that petitioner did not have to worry about the case because it was pure and simple
harassment 42 is not the kind of guaranty contemplated under the exceptive clause in Article 1590
wherein the vendor is bound to make payment even with the existence of a vindicatory action if the
vendee should give a security for the return of the price.
2. Be that as it may, and the validity of the suspension of payment notwithstanding, we find and hold
that private respondents may no longer be compelled to sell and deliver the subject property to
petitioner for two reasons, that is, petitioner's failure to duly effect the consignation of the purchase
price after the disturbance had ceased; and, secondarily, the fact that the contract to sell had been
validly rescinded by private respondents.

The records of this case reveal that as early as February 28, 1990 when petitioner caused its
exclusive option to be annotated anew on the certificate of title, it already knew of the dismissal of
civil Case No. 89-5541. However, it was only on April 16, 1990 that petitioner, through its counsel,
wrote private respondents expressing its willingness to pay the balance of the purchase price upon
the execution of the corresponding deed of absolute sale. At most, that was merely a notice to pay.
There was no proper tender of payment nor consignation in this case as required by law.
The mere sending of a letter by the vendee expressing the intention to
pay, without the accompanying payment, is not considered a valid tender of payment. 43 Besides, a
mere tender of payment is not sufficient to compel private respondents to deliver the property and
execute the deed of absolute sale. It is consignation which is essential in order to extinguish petitioner's
obligation to pay the balance of the purchase price. 44 The rule is different in case of an option
contract 45 or in legal redemption or in a sale with right to repurchase, 46 wherein consignation is not
necessary because these cases involve an exercise of a right or privilege (to buy, redeem or repurchase)
rather than the discharge of an obligation, hence tender of payment would be sufficient to preserve the
right or privilege. This is because the provisions on consignation are not applicable when there is no
obligation to pay. 47 A contract to sell, as in the case before us, involves the performance of an obligation,
not merely the exercise of a privilege of a right. consequently, performance or payment may be effected
not by tender of payment alone but by both tender and consignation.
Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased
with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the
balance again arose and resumed after it received notice of such dismissal. Unfortunately, petitioner
failed to seasonably make payment, as in fact it has deposit the money with the trial court when this
case was originally filed therein.
By reason of petitioner's failure to comply with its obligation, private respondents elected to resort to
and did announce the rescission of the contract through its letter to petitioner dated July 27, 1990.
That written notice of rescission is deemed sufficient under the circumstances. Article 1592 of the
Civil Code which requires rescission either by judicial action or notarial act is not applicable to a
contract to sell. 48 Furthermore, judicial action for rescission of a contract is not necessary where the
contract provides for automatic rescission in case of breach, 49 as in the contract involved in the present
controversy.
We are not unaware of the ruling in University of the Philippines vs. De los Angeles, etc. 50 that the
right to rescind is not absolute, being ever subject to scrutiny and review by the proper court. It is our
considered view, however, that this rule applies to a situation where the extrajudicial rescission is
contested by the defaulting party. In other words, resolution of reciprocal contracts may be made
extrajudicially unless successfully impugned in court. If the debtor impugns the declaration, it shall be
subject to judicial determination 51 otherwise, if said party does not oppose it, the extrajudicial rescission
shall have legal effect. 52
In the case at bar, it has been shown that although petitioner was duly furnished and did receive a
written notice of rescission which specified the grounds therefore, it failed to reply thereto or protest
against it. Its silence thereon suggests an admission of the veracity and validity of private
respondents' claim. 53 Furthermore, the initiative of instituting suit was transferred from the rescinder to
the defaulter by virtue of the automatic rescission clause in the contract. 54 But then, the records bear out
the fact that aside from the lackadaisical manner with which petitioner treated private respondents' latter
of cancellation, it utterly failed to seriously seek redress from the court for the enforcement of its alleged
rights under the contract. If private respondents had not taken the initiative of filing Civil Case No. 7532,
evidently petitioner had no intention to take any legal action to compel specific performance from the
former. By such cavalier disregard, it has been effectively estopped from seeking the affirmative relief it
now desires but which it had theretofore disdained.

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