TEODORO COURT OF APPEALS and EDY DE LOS REYES, respondents.

PADILLA, J.:
This is a petition for review on certiorari of the decision 1 of the Court of Appeals, 2nd Division, in
CA-G.R. No. 36177, which affirmed the decision 2 of the Regional Trial Court of Himamaylan, Negros
Occidental holding that private respondent Edy de los Reyes had acquired ownership of Lot No.
1130 of the Cadastral Survey of Hinigaran, Negros Occidental based on a document entitled
"Declaration of Heirship and Waiver of Rights", and ordering the dispossession of petitioner as
leasehold tenant of the land for failure to pay rentals.
The facts of the case are as follows:
The title to Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental was evidenced
by OCT No. R-12179. The lot has an area of 13,720 sq. meters. The title was issued and is
registered in the name of spouses Santiago Vasquez and Lorenza Oruma. After both
spouses died, their only son Felixberto inherited the lot. In 1975, Felixberto executed a duly
notarized document entitled "Declaration of Heirship and Deed of Absolute Sale" in favor of
Cosme Pido.
The evidence before the court a quo established that since 1960, petitioner Teodoro Acap had
been the tenant of a portion of the said land, covering an area of nine thousand five hundred
(9,500) meters. When ownership was transferred in 1975 by Felixberto to Cosme Pido,
Acap continued to be the registered tenant thereof and religiously paid his leasehold rentals
to Pido and thereafter, upon Pido's death, to his widow Laurenciana.
The controversy began when Pido died intestate and on 27 November 1981, his surviving heirs
executed a notarized document denominated as "Declaration of Heirship and Waiver of
Rights of Lot No. 1130 Hinigaran Cadastre," wherein they declared; to quote its pertinent
portions, that:
. . . Cosme Pido died in the Municipality of Hinigaran, Negros Occidental, he died
intestate and without any known debts and obligations which the said parcel of
land is (sic) held liable.
That Cosme Pido was survived by his/her legitimate heirs, namely:
LAURENCIANA PIDO, wife, ELY, ERVIN, ELMER, and ELECHOR all surnamed
PIDO; children;
That invoking the provision of Section 1, Rule 74 of the Rules of Court, the
above-mentioned heirs do hereby declare unto [sic] ourselves the only heirs of
the late Cosme Pido and that we hereby adjudicate unto ourselves the abovementioned parcel of land in equal shares.
Now, therefore, We LAURENCIANA 3, ELY, ELMER, ERVIN and ELECHOR all
surnamed PIDO, do hereby waive, quitclaim all our rights, interests and participation
over the said parcel of land in favor of EDY DE LOS REYES, of legal age, (f)ilipino,

married to VIRGINIA DE LOS REYES, and resident of Hinigaran, Negros Occidental,

Philippines. . . . 4 (Emphasis supplied)

The document was signed by all of Pido's heirs. Private respondent Edy de los Reyes did not
sign said document.
It will be noted that at the time of Cosme Pido's death, title to the property continued to be
registered in the name of the Vasquez spouses. Upon obtaining the Declaration of Heirship
with Waiver of Rights in his favor, private respondent Edy de los Reyes filed the same with the
Registry of Deeds as part of a notice of an adverse claim against the original certificate of
title.
Thereafter, private respondent sought for petitioner (Acap) to personally inform him that
he (Edy) had become the new owner of the land and that the lease rentals thereon should
be paid to him. Private respondent further alleged that he and petitioner entered into an oral
lease agreement wherein petitioner agreed to pay ten (10) cavans of palay per annum as lease
rental. In 1982, petitioner allegedly complied with said obligation. In 1983, however, petitioner
refused to pay any further lease rentals on the land, prompting private respondent to seek the
assistance of the then Ministry of Agrarian Reform (MAR) in Hinigaran, Negros Occidental. The
MAR invited petitioner to a conference scheduled on 13 October 1983. Petitioner did not attend
the conference but sent his wife instead to the conference. During the meeting, an officer of
the Ministry informed Acap's wife about private respondent's ownership of the said land
but she stated that she and her husband (Teodoro) did not recognize private respondent's
claim of ownership over the land.
On 28 April 1988, after the lapse of four (4) years, private respondent filed a complaint for
recovery of possession and damages against petitioner, alleging in the main that as his
leasehold tenant, petitioner refused and failed to pay the agreed annual rental of ten (10) cavans
of palay despite repeated demands.
During the trial before the court a quo, petitioner reiterated his refusal to recognize private
respondent's ownership over the subject land. He averred that he continues to recognize
Cosme Pido as the owner of the said land, and having been a registered tenant therein
since 1960, he never reneged on his rental obligations. When Pido died, he continued to pay
rentals to Pido's widow. When the latter left for abroad, she instructed him to stay in the
landholding and to pay the accumulated rentals upon her demand or return from abroad.
Petitioner further claimed before the trial court that he had no knowledge about any
transfer or sale of the lot to private respondent in 1981 and even the following year after
Laurenciana's departure for abroad. He denied having entered into a verbal lease tenancy
contract with private respondent and that assuming that the said lot was indeed sold to private
respondent without his knowledge, R.A. 3844, as amended, grants him the right to redeem the
same at a reasonable price. Petitioner also bewailed private respondent's ejectment action as a
violation of his right to security of tenure under P.D. 27.
On 20 August 1991, the lower court rendered a decision in favor of private respondent, the
dispositive part of which reads:

WHEREFORE, premises considered, the Court renders judgment in favor of

the plaintiff, Edy de los Reyes, and against the defendant, Teodoro Acap,
ordering the following, to wit:
1. Declaring forfeiture of defendant's preferred right to issuance of a Certificate of
Land Transfer under Presidential Decree No. 27 and his farmholdings;
2. Ordering the defendant Teodoro Acap to deliver possession of said farm to
plaintiff, and;
3. Ordering the defendant to pay P5,000.00 as attorney's fees, the sum of
P1,000.00 as expenses of litigation and the amount of P10,000.00 as actual
damages. 5
In arriving at the above-mentioned judgment, the trial court stated that the evidence had
established that the subject land was "sold" by the heirs of Cosme Pido to private
respondent. This is clear from the following disquisitions contained in the trial court's six (6)
page decision:
There is no doubt that defendant is a registered tenant of Cosme Pido. However,
when the latter died their tenancy relations changed since ownership of
said land was passed on to his heirs who, by executing a Deed of Sale,
which defendant admitted in his affidavit, likewise passed on their
ownership of Lot 1130 to herein plaintiff (private respondent). As owner
hereof, plaintiff has the right to demand payment of rental and the tenant is
obligated to pay rentals due from the time demand is made. . . . 6
xxx xxx xxx

Certainly, the sale of the Pido family of Lot 1130 to herein plaintiff does not of
itself extinguish the relationship. There was only a change of the personality of
the lessor in the person of herein plaintiff Edy de los Reyes who being the
purchaser or transferee, assumes the rights and obligations of the former
landowner to the tenant Teodoro Acap, herein defendant. 7
Aggrieved, petitioner appealed to the Court of Appeals, imputing error to the lower court when it
ruled that private respondent acquired ownership of Lot No. 1130 and that he, as tenant, should
pay rentals to private respondent and that failing to pay the same from 1983 to 1987, his right to
a certificate of land transfer under P.D. 27 was deemed forfeited.
The Court of Appeals brushed aside petitioner's argument that the Declaration of Heirship and
Waiver of Rights (Exhibit "D"), the document relied upon by private respondent to prove his
ownership to the lot, was excluded by the lower court in its order dated 27 August 1990. The
order indeed noted that the document was not identified by Cosme Pido's heirs and was not
registered with the Registry of Deeds of Negros Occidental. According to respondent court,
however, since the Declaration of Heirship and Waiver of Rights appears to have been duly
notarized, no further proof of its due execution was necessary. Like the trial court, respondent
court was also convinced that the said document stands as prima facie proof of appellee's
(private respondent's) ownership of the land in dispute.

With respect to its non-registration, respondent court noted that petitioner had actual
knowledge of the subject sale of the land in dispute to private respondent because as early
as 1983, he (petitioner) already knew of private respondent's claim over the said land but which
he thereafter denied, and that in 1982, he (petitioner) actually paid rent to private respondent.
Otherwise stated, respondent court considered this fact of rental payment in 1982 as
estoppel on petitioner's part to thereafter refute private respondent's claim of ownership over the
said land. Under these circumstances, respondent court ruled that indeed there was deliberate
refusal by petitioner to pay rent for a continued period of five years that merited forfeiture of his
otherwise preferred right to the issuance of a certificate of land transfer.
In the present petition, petitioner impugns the decision of the Court of Appeals as not in accord
with the law and evidence when it rules that private respondent acquired ownership of Lot No.
1130 through the aforementioned Declaration of Heirship and Waiver of Rights.
Hence, the issues to be resolved presently are the following:
1. WHETHER OR NOT THE SUBJECT DECLARATION OF HEIRSHIP AND
WAIVER OF RIGHTS IS A RECOGNIZED MODE OF ACQUIRING OWNERSHIP
BY PRIVATE RESPONDENT OVER THE LOT IN QUESTION.
2. WHETHER OR NOT THE SAID DOCUMENT CAN BE CONSIDERED A DEED
OF SALE IN FAVOR OF PRIVATE RESPONDENT OF THE LOT IN QUESTION.
Petitioner argues that the Regional Trial Court, in its order dated 7 August 1990, explicitly
excluded the document marked as Exhibit "D" (Declaration of Heirship, etc.) as private
respondent's evidence because it was not registered with the Registry of Deeds and was
not identified by anyone of the heirs of Cosme Pido. The Court of Appeals, however, held the
same to be admissible, it being a notarized document, hence, a prima facie proof of private
respondents' ownership of the lot to which it refers.
Petitioner points out that the Declaration of Heirship and Waiver of Rights is not one of the
recognized modes of acquiring ownership under Article 712 of the Civil Code. Neither can
the same be considered a deed of sale so as to transfer ownership of the land to private
respondent because no consideration is stated in the contract (assuming it is a contract or deed
of sale).
Private respondent defends the decision of respondent Court of Appeals as in accord with the
evidence and the law. He posits that while it may indeed be true that the trial court excluded his
Exhibit "D" which is the Declaration of Heirship and Waiver of Rights as part of his evidence, the
trial court declared him nonetheless owner of the subject lot based on other evidence adduced
during the trial, namely, the notice of adverse claim (Exhibit "E") duly registered by him with the
Registry of Deeds, which contains the questioned Declaration of Heirship and Waiver of Rights
as an integral part thereof.
We find the petition impressed with merit.
In the first place, an asserted right or claim to ownership or a real right over a thing
arising from a juridical act, however justified, is not per se sufficient to give rise to
ownership over the res. That right or title must be completed by fulfilling certain
conditions imposed by law. Hence, ownership and real rights are acquired only pursuant to a

legal mode or process. While title is the juridical justification, mode is the actual process of
acquisition or transfer of ownership over a thing in question. 8
Under Article 712 of the Civil Code, the modes of acquiring ownership are generally classified
into two (2) classes, namely, the original mode (i.e., through occupation, acquisitive prescription,
law or intellectual creation) and the derivative mode (i.e., through succession mortis causa or
tradition as a result of certain contracts, such as sale, barter, donation, assignment or mutuum).
In the case at bench, the trial court was obviously confused as to the nature and effect of the
Declaration of Heirship and Waiver of Rights, equating the same with a contract (deed) of
sale. They are not the same.
In a Contract of Sale, one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other party to pay a price certain
in money or its equivalent. 9
Upon the other hand, a declaration of heirship and waiver of rights operates as a public
instrument when filed with the Registry of Deeds whereby the intestate heirs adjudicate
and divide the estate left by the decedent among themselves as they see fit. It is in effect
an extrajudicial settlement between the heirs under Rule 74 of the Rules of Court. 10
Hence, there is a marked difference between a sale of hereditary rights and a waiver of
hereditary rights. The first presumes the existence of a contract or deed of sale between the
parties. 11 The second is, technically speaking, a mode of extinction of ownership where there is
an abdication or intentional relinquishment of a known right with knowledge of its existence
and intention to relinquish it, in favor of other persons who are co-heirs in the
succession. 12 Private respondent, being then a stranger to the succession of Cosme Pido, cannot
conclusively claim ownership over the subject lot on the sole basis of the waiver document which
neither recites the elements of either a sale, 13 or a donation, 14 or any other derivative mode of
acquiring ownership.
Quite surprisingly, both the trial court and public respondent Court of Appeals concluded that a
"sale" transpired between Cosme Pido's heirs and private respondent and that petitioner
acquired actual knowledge of said sale when he was summoned by the Ministry of Agrarian
Reform to discuss private respondent's claim over the lot in question. This conclusion has no
basis both in fact and in law.
On record, Exhibit "D", which is the "Declaration of Heirship and Waiver of Rights"
was excluded by the trial court in its order dated 27 August 1990 because the document was
neither registered with the Registry of Deeds nor identified by the heirs of Cosme Pido. There is
no showing that private respondent had the same document attached to or made part of the
record. What the trial court admitted was Annex "E", a notice of adverse claim filed with the
Registry of Deeds which contained the Declaration of Heirship with Waiver of rights and
was annotated at the back of the Original Certificate of Title to the land in question.
A notice of adverse claim, by its nature, does not however prove private respondent's
ownership over the tenanted lot. "A notice of adverse claim is nothing but a notice of a
claim adverse to the registered owner, the validity of which is yet to be established in court at
some future date, and is no better than a notice of lis pendens which is a notice of a case already
pending in court." 15

It is to be noted that while the existence of said adverse claim was duly proven, there is no
evidence whatsoever that a deed of sale was executed between Cosme Pido's heirs and private
respondent transferring the rights of Pido's heirs to the land in favor of private respondent.
Private respondent's right or interest therefore in the tenanted lot remains an adverse claim
which cannot by itself be sufficient to cancel the OCT to the land and title the same in private
respondent's name.
Consequently, while the transaction between Pido's heirs and private respondent may be
binding on both parties, the right of petitioner as a registered tenant to the land cannot be
perfunctorily forfeited on a mere allegation of private respondent's ownership without the
corresponding proof thereof.
Petitioner had been a registered tenant in the subject land since 1960 and religiously paid
lease rentals thereon. In his mind, he continued to be the registered tenant of Cosme Pido and
his family (after Pido's death), even if in 1982, private respondent allegedly informed petitioner
that he had become the new owner of the land.
Under the circumstances, petitioner may have, in good faith, assumed such statement of private
respondent to be true and may have in fact delivered 10 cavans of palay as annual rental for
1982 to private respondent. But in 1983, it is clear that petitioner had misgivings over private
respondent's claim of ownership over the said land because in the October 1983 MAR
conference, his wife Laurenciana categorically denied all of private respondent's allegations. In
fact, petitioner even secured a certificate from the MAR dated 9 May 1988 to the effect that
he continued to be the registered tenant of Cosme Pido and not of private respondent.
The reason is that private respondent never registered the Declaration of Heirship with Waiver of
Rights with the Registry of Deeds or with the MAR. Instead, he (private respondent) sought to do
indirectly what could not be done directly, i.e., file a notice of adverse claim on the said lot to
establish ownership thereover.
It stands to reason, therefore, to hold that there was no unjustified or deliberate refusal by
petitioner to pay the lease rentals or amortizations to the landowner/agricultural lessor which, in
this case, private respondent failed to establish in his favor by clear and convincing evidence. 16
Consequently, the sanction of forfeiture of his preferred right to be issued a Certificate of Land
Transfer under P.D. 27 and to the possession of his farmholdings should not be applied against
petitioners, since private respondent has not established a cause of action for recovery of
possession against petitioner.
WHEREFORE, premises considered, the Court hereby GRANTS the petition and the decision of
the Court of Appeals dated 1 May 1994 which affirmed the decision of the RTC of Himamaylan,
Negros Occidental dated 20 August 1991 is hereby SET ASIDE. The private respondent's
complaint for recovery of possession and damages against petitioner Acap is hereby
DISMISSED for failure to properly state a cause of action, without prejudice to private respondent
taking the proper legal steps to establish the legal mode by which he claims to have acquired
ownership of the land in question.
SO ORDERED.

[G.R. No. 108346. July 11, 2001]

Spouses
MARIANO
Z.
VELARDE
and
AVELINA
VELARDE, petitioners, vs. COURT OF APPEALS, DAVID
RAYMUNDO and GEORGE RAYMUNDO,respondents.

D.
A.

DECISION
PANGANIBAN, J.:

A substantial breach of a reciprocal obligation, like failure to pay the price in

the manner prescribed by the contract, entitles the injured party to rescind the
obligation. Rescission abrogates the contract from its inception and requires a
mutual restitution of benefits received.
The Case

Before us is a Petition for Review on Certiorari [1] questioning the Decision[2] of

the Court of Appeals (CA) in CA-GR CV No. 32991 dated October 9, 1992, as
well as its Resolution[3] dated December 29, 1992 denying petitioners motion for
reconsideration.[4]
The dispositive portion of the assailed Decision reads:
WHEREFORE, the Order dated May 15, 1991 is hereby ANNULLED and SET
ASIDE and the Decision dated November 14, 1990 dismissing the [C]omplaint is
REINSTATED. The bonds posted by plaintiffs-appellees and defendants-appellants
are hereby RELEASED.[5]
The Facts

The factual antecedents of the case, as found by the CA, are as follows:
x x x. David Raymundo [herein private respondent] is the absolute and
registered owner of a parcel of land, together with the house and other
improvements thereon, located at 1918 Kamias St., Dasmarias Village, Makati and
covered by TCT No. 142177. Defendant George Raymundo [herein private
respondent] is Davids father who negotiated with plaintiffs Avelina and
Mariano Velarde [herein petitioners] for the sale of said property, which was,
however, under lease (Exh. 6, p. 232, Record of Civil Case No. 15952).

On August 8, 1986, a Deed of Sale with Assumption of Mortgage was executed

by defendant David Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as
vendee, with the following terms and conditions:
xxxxxxxxx
That for and in consideration of the amount of EIGHT HUNDRED THOUSAND
PESOS (P800,000.00), Philippine currency, receipt of which in full is hereby
acknowledged by the VENDOR from theVENDEE, to his entire and complete
satisfaction, by these presents the VENDOR hereby SELLS, CEDES,
TRANSFERS, CONVEYS AND DELIVERS, freely and voluntarily, with full
warranty of a legal and valid title as provided by law, unto the VENDEE, her heirs,
successors and assigns, the parcel of land mentioned and described above, together
with the house and other improvements thereon.
That the aforesaid parcel of land, together with the house and other improvements
thereon, were mortgaged by the VENDOR to the BANK OF THE PHILIPPINE
ISLANDS, Makati, Metro Manila, to secure the payment of a loan of ONE
MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine
currency, as evidenced by a Real Estate Mortgage signed and executed by the
VENDOR in favor of the said Bank of the Philippine Islands, on______ and which
Real Estate Mortgage was ratified before Notary Public for Makati, _______, as
Doc. No. ____, Page No. ___, Book No. ___, Series of 1986 of his Notarial
Register.
That as part of the consideration of this sale, the VENDEE hereby assumes to pay
the mortgage obligations on the property herein sold in the amount of ONE
MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine
currency, in favor of Bank of the Philippine Islands, in the name of the VENDOR,
and further agrees to strictly and faithfully comply with all the terms and
conditions appearing in the Real Estate Mortgage signed and executed by the
VENDOR in favor of BPI, including interests and other charges for late payment
levied by the Bank, as if the same were originally signed and executed by the
VENDEE.
It is further agreed and understood by the parties herein that the capital gains tax
and documentary stamps on the sale shall be for the account of the VENDOR;
whereas, the registration fees and transfer tax thereon shall be for the account of
the VENDEE. (Exh. A, pp. 11-12, Record).

On the same date, and as part of the above-document, plaintiff Avelina Velarde,
with the consent of her husband, Mariano, executed an Undertaking (Exh. C, pp.
13-14, Record), the pertinent portions of which read, as follows:
xxxxxxxxx
Whereas, as per Deed of Sale with Assumption of Mortgage, I paid Mr. David A.
Raymundo the sum of EIGHT HUNDRED THOUSAND PESOS (P800,000.00),
Philippine currency, and assume the mortgage obligations on the property with the
Bank of the Philippine Islands in the amount of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in
accordance with the terms and conditions of the Deed of Real Estate Mortgage
dated _________, signed and executed by Mr. David A. Raymundo with the said
Bank, acknowledged before Notary Public for Makati, _____, as Doc. No. ___,
Page No. ___, Book No. __, Series of 1986 of his Notarial Register.
WHEREAS, while my application for the assumption of the mortgage obligations
on the property is not yet approved by the mortgagee Bank, I have agreed to pay
the mortgage obligations on the property with the Bank in the name of Mr. David
A. Raymundo, in accordance with the terms and conditions of the said Deed of
Real Estate Mortgage, including all interests and other charges for late payment.
WHEREAS, this undertaking is being executed in favor of Mr. David A.
Raymundo, for purposes of attesting and confirming our private understanding
concerning the said mortgage obligations to be assumed.
NOW, THEREFORE, for and in consideration of the foregoing premises, and the
assumption of the mortgage obligations of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine currency, with the Bank of the
Philippine islands, I, Mrs. Avelina D. Velarde, with the consent of my husband,
Mariano Z. Velarde, do hereby bind and obligate myself, my heirs, successors and
assigns, to strictly and faithfully comply with the following terms and
conditions:
1. That until such time as my assumption of the mortgage obligations on the
property purchased is approved by the mortgagee bank, the Bank of the
Philippine Islands, I shall continue to pay the said loan in accordance with the
terms and conditions of the Deed of Real Estate Mortgage in the name of Mr.
David A. Raymundo, the original Mortgagor.

2. That, in the event I violate any of the terms and conditions of the said Deed of
Real Estate Mortgage, I hereby agree that my downpayment of P800,000.00, plus
all payments made with the Bank of the Philippine Islands on the mortgage loan,
shall be forfeited in favor of Mr. David A. Raymundo, as and by way of liquidated
damages, without necessity of notice or any judicial declaration to that effect, and
Mr. David A Raymundo shall resume total and complete ownership and possession
of the property sold by way of Deed of Sale with Assumption of Mortgage, and the
same shall be deemed automatically cancelled and be of no further force or effect,
in the same manner as if (the) same had never been executed or entered into.
3. That I am executing this Undertaking for purposes of binding myself, my heirs,
successors and assigns, to strictly and faithfully comply with the terms and
conditions of the mortgage obligations with the Bank of the Philippine Islands, and
the covenants, stipulations and provisions of this Undertaking.
That, David A. Raymundo, the vendor of the property mentioned and identified
above, [does] hereby confirm and agree to the undertakings of the Vendee pertinent
to the assumption of the mortgage obligations by the Vendee with the Bank of the
Philippine Islands. (Exh. C, pp. 13-14, Record).
This undertaking was signed by Avelina and Mariano Velarde and David
Raymundo.
It appears that the negotiated terms for the payment of the balance of P1.8
million was from the proceeds of a loan that plaintiffs were to secure from a
bank with defendants help. Defendants had a standing approved credit line with
the Bank of the Philippine Islands (BPI). The parties agreed to avail of this,
subject to BPIs approval of an application for assumption of mortgage by
plaintiffs. Pending BPIs approval o[f] the application, plaintiffs were to continue
paying the monthly interests of the loan secured by a real estate mortgage.
Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan
secured by the aforementioned mortgage for three (3) months as follows:
September 19, 1986 at P27,225.00; October 20, 1986 at P23,000.00; and
November 19, 1986 at P23,925.00 (Exh. E, H & J, pp. 15, 17 and 18, Record).
On December 15, 1986, plaintiffs were advised that the Application for
Assumption of Mortgage with BPI was not approved (Exh. J, p. 133,
Record). This prompted plaintiffs not to make any further payment.

On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter
that their non-payment to the mortgage bank constitute[d] non-performance of their
obligation .
In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows:
This is to advise you, therefore, that our client is willing to pay the balance in
cash not later than January 21, 1987 provided: (a) you deliver actual
possession of the property to her not later than January 15, 1987 for her
immediate occupancy; (b) you cause the release of title and mortgage from the
Bank of P.I. and make the title available and free from any liens and encumbrances;
and (c) you execute an absolute deed of sale in her favor free from any liens or
encumbrances not later than January 21, 1987. (Exhs. K, 4, p. 223, Record).
On January 8, 1987, defendants sent plaintiffs a notarial notice of cancellation/rescission
of the intended sale of the subject property allegedly due to the latters failure to comply
with the terms and conditions of the Deed of Sale with Assumption of Mortgage and the
Undertaking (Exh. 5, pp. 225-226, Record).[6]

Consequently, petitioners filed on February 9, 1987 a Complaint against

private respondents for specific performance, nullity of cancellation, writ of
possession and damages. This was docketed as Civil Case No. 15952 at the
Regional Trial Court of Makati, Branch 149. The case was tried and heard by then
Judge Consuelo Ynares-Santiago (now an associate justice of this Court), who
dismissed the Complaint in a Decision dated November 14, 1990. [7] Thereafter,
petitioners filed a Motion for Reconsideration. [8]
Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals
and Judge Salvador S. A. Abad Santos was assigned to the sala she vacated. In an
Order dated May 15, 1991,[9] Judge Abad Santos granted petitioners Motion for
Reconsideration and directed the parties to proceed with the sale. He instructed
petitioners to pay the balance of P1.8 million to private respondents who, in turn,
were ordered to execute a deed of absolute sale and to surrender possession of the
disputed property to petitioners.
Private respondents appealed to the CA.
Ruling of the Court of Appeals

The CA set aside the Order of Judge Abad Santos and reinstated then
Judge
Ynares-Santiagos
earlier
Decision
dismissing
petitioners

Complaint. Upholding the validity of the rescission made by private

respondents, the CA explained its ruling in this wise:
In the Deed of Sale with Assumption of Mortgage, it was stipulated that as part of
the consideration of this sale, the VENDEE (Velarde) would assume to pay the
mortgage obligation on the subject property in the amount of P1.8 million in favor
of BPI in the name of the Vendor (Raymundo). Since the price to be paid by the
Vendee Velarde includes the downpayment of P800,000.00 and the balance of P1.8
million, and the balance of P1.8 million cannot be paid in cash, Vendee Velarde, as
part of the consideration of the sale, had to assume the mortgage obligation on the
subject property. In other words, the assumption of the mortgage obligation is part
of the obligation of Velarde, as vendee, under the contract. Velarde further
agreed to strictly and faithfully comply with all the terms and conditions appearing
in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI
x x x as if the same were originally signed and executed by the Vendee. (p.2,
thereof, p.12, Record). This was reiterated by Velarde in the document entitled
Undertaking wherein the latter agreed to continue paying said loan in accordance
with the terms and conditions of the Deed of Real Estate Mortgage in the name of
Raymundo. Moreover, it was stipulated that in the event of violation by
Velarde of any terms and conditions of said deed of real estate mortgage, the
downpayment of P800,000.00 plus all payments made with BPI or the
mortgage loan would be forfeited and the [D]eed of [S]ale with [A]ssumption
of [M]ortgage would thereby be cancelled automatically and of no force and
effect (pars. 2 & 3, thereof, pp. 13-14, Record).
From these 2 documents, it is therefore clear that part of the consideration of the
sale was the assumption by Velarde of the mortgage obligation of Raymundo in the
amount of P1.8 million. This would mean that Velarde had to make payments to
BPI under the [D]eed of [R]eal [E]state [M]ortgage in the name of Raymundo. The
application with BPI for the approval of the assumption of mortgage would mean
that, in case of approval, payment of the mortgage obligation will now be in the
name of Velarde. And in the event said application is disapproved, Velarde had to
pay in full. This is alleged and admitted in Paragraph 5 of the Complaint. Mariano
Velarde likewise admitted this fact during the hearing on September 15, 1997 (p.
47, t.s.n., September 15, 1987; see also pp. 16-26, t.s.n., October 8, 1989). This
being the case, the non-payment of the mortgage obligation would result in a
violation of the contract. And, upon Velardes failure to pay the agreed price, the[n]
Raymundo may choose either of two (2) actions - (1) demand fulfillment of the
contract, or (2) demand its rescission (Article 1191, Civil Code).

The disapproval by BPI of the application for assumption of mortgage cannot

be used as an excuse for Velardes non-payment of the balance of the purchase
price. As borne out by the evidence, Velarde had to pay in full in case of BPIs
disapproval of the application for assumption of mortgage. What Velarde should
have done was to pay the balance of P1.8 million. Instead, Velarde sent Raymundo
a letter dated January 7, 1987 (Exh. K, 4) which was strongly given weight by the
lower court in reversing the decision rendered by then Judge Ynares-Santiago. In
said letter, Velarde registered their willingness to pay the balance in cash but
enumerated 3 new conditions which, to the mind of this Court, would constitute a
new undertaking or new agreement which is subject to the consent or approval of
Raymundo. These 3 conditions were not among those previously agreed upon by
Velarde and Raymundo. These are mere offers or, at most, an attempt to
novate. But then again, there can be no novation because there was no agreement
of all the parties to the new contract (Garcia, Jr. vs. Court of Appeals, 191 SCRA
493).
It was likewise agreed that in case of violation of the mortgage obligation, the
Deed of Sale with Assumption of Mortgage would be deemed automatically
cancelled and of no further force and effect, as if the same had never been executed
or entered into. While it is true that even if the contract expressly provided for
automatic rescission upon failure to pay the price, the vendee may still pay, he may
do so only for as long as no demand for rescission of the contract has been made
upon him either judicially or by a notarial act (Article 1592, Civil Code). In the
case at bar, Raymundo sent Velarde a notarial notice dated January 8, 1987 of
cancellation/rescission of the contract due to the latters failure to comply with
their obligation. The rescission was justified in view of Velardes failure to pay
the price (balance) which is substantial and fundamental as to defeat the
object of the parties in making the agreement. As adverted to above, the
agreement of the parties involved a reciprocal obligation wherein the obligation of
one is a resolutory condition of the obligation of the other, the non-fulfillment of
which entitles the other party to rescind the contract (Songcuan vs. IAC, 191
SCRA 28). Thus, the non-payment of the mortgage obligation by appellees Velarde
would create a right to demand payment or to rescind the contract, or to criminal
prosecution (Edca Publishing & Distribution Corporation vs. Santos, 184 SCRA
614). Upon appellees failure, therefore, to pay the balance, the contract was
properly rescinded. Consequently, appellees Velarde having violated the
contract, they have lost their right to its enforcement and hence, cannot avail
of the action for specific performance.

Hence, this appeal.[11]

The Issues

Petitioners, in their Memorandum,[12] interpose the following assignment of

errors:
I.

The Court of Appeals erred in holding that the non-payment of the

mortgage obligation resulted in a breach of the contract.
II.

The Court of Appeals erred in holding that the rescission (resolution) of the
contract by private respondents was justified.
III.

The Court of Appeals erred in holding that petitioners January 7, 1987 letter
gave three new conditions constituting mere offers or an attempt to novate
necessitating a new agreement between the parties.
The Courts Ruling

The Petition is partially meritorious.

First Issue:

Breach of Contract

Petitioners aver that their nonpayment of private respondents mortgage

obligation did not constitute a breach of contract, considering that their request to
assume the obligation had been disapproved by the mortgagee bank. Accordingly,
payment of the monthly amortizations ceased to be their obligation and, instead, it
devolved upon private respondents again.
However, petitioners did not merely stop paying the mortgage obligations;
they also failed to pay the balance of the purchase price. As admitted by both
parties, their agreement mandated that petitioners should pay the purchase price
balance of P1.8 million to private respondents in case the request to assume the
mortgage would be disapproved. Thus, on December 15, 1986, when petitioners

received notice of the banks disapproval of their application to assume respondents

mortgage, they should have paid the balance of the P1.8 million loan.
Instead of doing so, petitioners sent a letter to private respondents offering to
make such payment only upon the fulfillment of certain conditions not originally
agreed upon in the contract of sale. Such conditional offer to pay cannot take the
place of actual payment as would discharge the obligation of a buyer under a
contract of sale.
In a contract of sale, the seller obligates itself to transfer the ownership of
and deliver a determinate thing, and the buyer to pay therefor a price certain
in money or its equivalent.[13] Private respondents had already performed their
obligation through the execution of the Deed of Sale, which effectively
transferred ownership of the property to petitioner through constructive
delivery. Prior physical delivery or possession is not legally required, and the
execution of the Deed of Sale is deemed equivalent to delivery.[14]
Petitioners, on the other hand, did not perform their correlative obligation of
paying the contract price in the manner agreed upon. Worse, they wanted
private respondents to perform obligations beyond those stipulated in the contract
before fulfilling their own obligation to pay the full purchase price.
Second Issue

Validity of the Rescission

Petitioners likewise claim that the rescission of the contract by private

respondents was not justified, inasmuch as the former had signified their
willingness to pay the balance of the purchase price only a little over a month from
the time they were notified of the disapproval of their application for assumption of
mortgage. Petitioners also aver that the breach of the contract was not substantial
as would warrant a rescission. They cite several cases[15] in which this Court
declared that rescission of a contract would not be permitted for a slight or casual
breach. Finally, they argue that they have substantially performed their obligation
in good faith, considering that they have already made the initial payment
of P800,000 and three (3) monthly mortgage payments.
As pointed out earlier, the breach committed by petitioners was not so much
their nonpayment of the mortgage obligations, as their nonperformance of their
reciprocal obligation to pay the purchase price under the contract of sale. Private

respondents right to rescind the contract finds basis in Article 1191 of the Civil
Code, which explicitly provides as follows:
Art. 1191. -- The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission even after he has chosen fulfillment, if the latter should become
impossible.
The right of rescission of a party to an obligation under Article 1191 of the
Civil Code is predicated on a breach of faith by the other party who violates the
reciprocity between them.[16] The breach contemplated in the said provision is the
obligors failure to comply with an existing obligation. [17] When the obligor cannot
comply with what is incumbent upon it, the obligee may seek rescission and, in the
absence of any just cause for the court to determine the period of compliance, the
court shall decree the rescission.[18]
In the present case, private respondents validly exercised their right to rescind
the contract, because of the failure of petitioners to comply with their obligation to
pay the balance of the purchase price.Indubitably, the latter violated the very
essence of reciprocity in the contract of sale, a violation that consequently gave rise
to private respondents right to rescind the same in accordance with law.
True, petitioners expressed their willingness to pay the balance of the purchase
price one month after it became due; however, this was not equivalent to actual
payment as would constitute a faithful compliance of their reciprocal
obligation. Moreover, the offer to pay was conditioned on the performance by
private respondents of additional burdens that had not been agreed upon in the
original contract.Thus, it cannot be said that the breach committed by petitioners
was merely slight or casual as would preclude the exercise of the right to rescind.
Misplaced is petitioners reliance on the cases [19] they cited because the factual
circumstances in those cases are not analogous to those in the present one. In Song
Fo there was, on the part of the buyer, only a delay of twenty (20) days to pay for
the goods delivered. Moreover, the buyers offer to pay was unconditional and was
accepted by the seller. In Zepeda, the breach involved a mere one-week delay in
paying the balance of P1,000, which was actually paid. In Tan, the alleged breach
was private respondents delay of only a few days, which was for the purpose of

clearing the title to the property; there was no reference whatsoever to the
nonpayment of the contract price.
In the instant case, the breach committed did not merely consist of a slight
delay in payment or an irregularity; such breach would not normally defeat the
intention of the parties to the contract. Here, petitioners not only failed to pay
the P1.8 million balance, but they also imposed upon private respondents new
obligations as preconditions to the performance of their own obligation. In effect,
the qualified offer to pay was a repudiation of an existing obligation, which was
legally due and demandable under the contract of sale. Hence, private respondents
were left with the legal option of seeking rescission to protect their own interest.
Mutual Restitution

Required in Rescission

As discussed earlier, the breach committed by petitioners was the

nonperformance of a reciprocal obligation, not a violation of the terms and
conditions of the mortgage contract. Therefore, the automatic rescission and
forfeiture of payment clauses stipulated in the contract does not apply. Instead,
Civil Code provisions shall govern and regulate the resolution of this controversy.
Considering that the rescission of the contract is based on Article 1191 of the
Civil Code, mutual restitution is required to bring back the parties to their original
situation prior to the inception of the contract. Accordingly, the initial payment
of P800,000 and the corresponding mortgage payments in the amounts
of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners
should be returned by private respondents, lest the latter unjustly enrich themselves
at the expense of the former.
Rescission creates the obligation to return the object of the contract. It can be
carried out only when the one who demands rescission can return whatever he may
be obliged to restore.[20] To rescind is to declare a contract void at its inception and
to put an end to it as though it never was. It is not merely to terminate it and release
the parties from further obligations to each other, but to abrogate it from the
beginning and restore the parties to their relative positions as if no contract has
been made.[21]
Third Issue

Attempt to Novate

In view of the foregoing discussion, the Court finds it no longer necessary to

discuss the third issue raised by petitioners. Suffice it to say that the three
conditions appearing on the January 7, 1987 letter of petitioners to private
respondents were not part of the original contract. By that time, it was already
incumbent upon the former to pay the balance of the sale price. They had no right
to demand preconditions to the fulfillment of their obligation, which had become
due.
WHEREFORE, the assailed Decision is hereby AFFIRMED with
the MODIFICATION that private respondents are ordered to return to
petitioners the amount of P874,150, which the latter paid as a consequence of
the rescinded contract, with legal interest thereon from January 8, 1987, the date
of rescission. No pronouncement as to costs.
SO ORDERED.

G.R. No. L-9935

February 1, 1915

YU TEK and CO., plaintiff-appellant,

vs.
BASILIO GONZALES, defendant-appellant.
Beaumont, Tenney and Ferrier for plaintiff.
Buencamino and Lontok for defendant.
TRENT, J.:
The basis of this action is a written contract, Exhibit A, the pertinent paragraphs of which follow:
1. That Mr. Basilio Gonzalez hereby acknowledges receipt of the sum of P3,000
Philippine currency from Messrs. Yu Tek and Co., and that in consideration of said
sum be obligates himself to deliver to the said Yu Tek and Co., 600 piculs of sugar
of the first and second grade, according to the result of the polarization, within the
period of three months, beginning on the 1st day of January, 1912, and ending on the
31st day of March of the same year, 1912.
2. That the said Mr. Basilio Gonzales obligates himself to deliver to the said Messrs.
Yu Tek and Co., of this city the said 600 piculs of sugar at any place within the said
municipality of Santa Rosa which the said Messrs. Yu Tek and Co., or a representative
of the same may designate.
3. That in case the said Mr. Basilio Gonzales does not deliver to Messrs. Yu Tek and
Co. the 600 piculs of sugar within the period of three months, referred to in the
second paragraph of this document, this contract will be rescinded and the said Mr.

Basilio Gonzales will then be obligated to return to Messrs. Yu Tek and Co. the P3,000
received and also the sum of P1,200 by way of indemnity for loss and damages.
Plaintiff proved that no sugar had been delivered to it under this contract nor had it been
able to recover the P3,000. Plaintiff prayed for judgment for the P3,000 and, in addition, for
P1,200 under paragraph 4, supra. Judgment was rendered for P3,000 only, and from this
judgment both parties appealed.
The points raised by the defendant will be considered first. He alleges that the court erred in
refusing to permit parol evidence showing that the parties intended that the sugar was to be
secured from the crop which the defendant raised on his plantation, and that he was unable to
fulfill the contract by reason of the almost total failure of his crop. This case appears to be one to
which the rule which excludes parol evidence to add to or vary the terms of a written contract is
decidedly applicable. There is not the slightest intimation in the contract that the sugar was to be
raised by the defendant. Parties are presumed to have reduced to writing all the essential
conditions of their contract. While parol evidence is admissible in a variety of ways to explain the
meaning of written contracts, it cannot serve the purpose of incorporating into the contract
additional contemporaneous conditions which are not mentioned at all in the writing, unless there
has been fraud or mistake. In an early case this court declined to allow parol evidence
showing that a party to a written contract was to become a partner in a firm instead of a creditor
of the firm. (Pastorvs. Gaspar, 2 Phil. Rep., 592.) Again, in Eveland vs. Eastern Mining Co. (14
Phil. Rep., 509) a contract of employment provided that the plaintiff should receive from the
defendant a stipulated salary and expenses. The defendant sought to interpose as a defense to
recovery that the payment of the salary was contingent upon the plaintiff's employment
redounding to the benefit of the defendant company. The contract contained no such condition
and the court declined to receive parol evidence thereof.
In the case at bar, it is sought to show that the sugar was to be obtained exclusively from the
crop raised by the defendant. There is no clause in the written contract which even remotely
suggests such a condition. The defendant undertook to deliver a specified quantity of sugar
within a specified time. The contract placed no restriction upon the defendant in the matter of
obtaining the sugar. He was equally at liberty to purchase it on the market or raise it himself. It
may be true that defendant owned a plantation and expected to raise the sugar himself, but he
did not limit his obligation to his own crop of sugar. Our conclusion is that the condition which the
defendant seeks to add to the contract by parol evidence cannot be considered. The rights of the
parties must be determined by the writing itself.
The second contention of the defendant arises from the first. He assumes that the
contract was limited to the sugar he might raise upon his own plantation; that the contract
represented a perfected sale; and that by failure of his crop he was relieved from
complying with his undertaking by loss of the thing due. (Arts. 1452, 1096, and 1182, Civil
Code.) This argument is faulty in assuming that there was a perfected sale. Article 1450
defines a perfected sale as follows:z
The sale shall be perfected between vendor and vendee and shall be binding on both of
them, if they have agreed upon the thing which is the object of the contract and upon the
price, even when neither has been delivered.
Article 1452 reads: "The injury to or the profit of the thing sold shall, after the contract has been
perfected, be governed by the provisions of articles 1096 and 1182."

This court has consistently held that there is a perfected sale with regard to the "thing"
whenever the article of sale has been physically segregated from all other articles Thus, a
particular tobacco factory with its contents was held sold under a contract which did not provide
for either delivery of the price or of the thing until a future time. McCullough vs. Aenlle and Co. (3
Phil. Rep., 295). Quite similar was the recent case of Barretto vs. Santa Marina where specified
shares of stock in a tobacco factory were held sold by a contract which deferred delivery of both
the price and the stock until the latter had been appraised by an inventory of the entire assets of
the company. In Borromeo vs. Franco (5 Phil. Rep., 49) a sale of a specific house was held
perfected between the vendor and vendee, although the delivery of the price was withheld until
the necessary documents of ownership were prepared by the vendee. In Tan Leonco vs. Go
Inqui (8 Phil. Rep., 531) the plaintiff had delivered a quantity of hemp into the warehouse of the
defendant. The defendant drew a bill of exchange in the sum of P800, representing the price
which had been agreed upon for the hemp thus delivered. Prior to the presentation of the bill for
payment, the hemp was destroyed. Whereupon, the defendant suspended payment of the bill. It
was held that the hemp having been already delivered, the title had passed and the loss was the
vendee's. It is our purpose to distinguish the case at bar from all these cases.
In the case at bar the undertaking of the defendant was to sell to the plaintiff 600 piculs of
sugar of the first and second classes. Was this an agreement upon the "thing" which was the
object of the contract within the meaning of article 1450, supra? Sugar is one of the staple
commodities of this country. For the purpose of sale its bulk is weighed, the customary unit of
weight being denominated a "picul." There was no delivery under the contract. Now, if called
upon to designate the article sold, it is clear that the defendant could only say that it was
"sugar." He could only use this generic name for the thing sold. There was no
"appropriation" of any particular lot of sugar. Neither party could point to any specific
quantity of sugar and say: "This is the article which was the subject of our contract." How
different is this from the contracts discussed in the cases referred to above! In the McCullough
case, for instance, the tobacco factory which the parties dealt with was specifically pointed out
and distinguished from all other tobacco factories. So, in the Barretto case, the particular shares
of stock which the parties desired to transfer were capable of designation. In the Tan Leonco
case, where a quantity of hemp was the subject of the contract, it was shown that that quantity
had been deposited in a specific warehouse, and thus set apart and distinguished from all other
hemp.
A number of cases have been decided in the State of Louisiana, where the civil law prevails,
which confirm our position. Perhaps the latest is Witt Shoe Co. vs. Seegars and Co. (122 La.,
145; 47 Sou., 444). In this case a contract was entered into by a traveling salesman for a quantity
of shoes, the sales having been made by sample. The court said of this contract:
But it is wholly immaterial, for the purpose of the main question, whether Mitchell was
authorized to make a definite contract of sale or not, since the only contract that he was
in a position to make was an agreement to sell or an executory contract of sale. He says
that plaintiff sends out 375 samples of shoes, and as he was offering to sell by sample
shoes, part of which had not been manufactured and the rest of which were incorporated
in plaintiff's stock in Lynchburg, Va., it was impossible that he and Seegars and Co.
should at that time have agreed upon the specific objects, the title to which was to pass,
and hence there could have been no sale. He and Seegars and Co. might have agreed,
and did (in effect ) agree, that the identification of the objects and their appropriation to
the contract necessary to make a sale should thereafter be made by the plaintiff, acting
for itself and for Seegars and Co., and the legend printed in red ink on plaintiff's billheads

("Our responsibility ceases when we take transportation Co's. receipt `In good order'"
indicates plaintiff's idea of the moment at which such identification and appropriation
would become effective. The question presented was carefully considered in the case of
State vs. Shields, et al. (110 La., 547, 34 Sou., 673) (in which it was absolutely necessary
that it should be decided), and it was there held that in receiving an order for a quantity of
goods, of a kind and at a price agreed on, to be supplied from a general stock,
warehoused at another place, the agent receiving the order merely enters into an
executory contract for the sale of the goods, which does not divest or transfer the title of
any determinate object, and which becomes effective for that purpose only when specific
goods are thereafter appropriated to the contract; and, in the absence of a more specific
agreement on the subject, that such appropriated takes place only when the goods as
ordered are delivered to the public carriers at the place from which they are to be
shipped, consigned to the person by whom the order is given, at which time and place,
therefore, the sale is perfected and the title passes.
This case and State vs. Shields, referred to in the above quotation are amply illustrative of the
position taken by the Louisiana court on the question before us. But we cannot refrain from
referring to the case of Larue and Prevost vs.Rugely, Blair and Co. (10 La. Ann., 242) which is
summarized by the court itself in the Shields case as follows:
. . . It appears that the defendants had made a contract for the sale, by weight, of a lot of
cotton, had received $3,000 on account of the price, and had given an order for its
delivery, which had been presented to the purchaser, and recognized by the press in
which the cotton was stored, but that the cotton had been destroyed by fire before it was
weighed. It was held that it was still at the risk of the seller, and that the buyer was
entitled to recover the $3,000 paid on account of the price.
We conclude that the contract in the case at bar was merely an executory agreement; a
promise of sale and not a sale. At there was no perfected sale, it is clear that articles 1452,
1096, and 1182 are not applicable. The defendant having defaulted in his engagement, the
plaintiff is entitled to recover the P3,000 which it advanced to the defendant, and this portion of
the judgment appealed from must therefore be affirmed.
The plaintiff has appealed from the judgment of the trial court on the ground that it is entitled to
recover the additional sum of P1,200 under paragraph 4 of the contract. The court below held
that this paragraph was simply a limitation upon the amount of damages which could be
recovered and not liquidated damages as contemplated by the law. "It also appears," said the
lower court, "that in any event the defendant was prevented from fulfilling the contract by the
delivery of the sugar by condition over which he had no control, but these conditions were not
sufficient to absolve him from the obligation of returning the money which he received."
The above quoted portion of the trial court's opinion appears to be based upon the proposition
that the sugar which was to be delivered by the defendant was that which he expected to obtain
from his own hacienda and, as the dry weather destroyed his growing cane, he could not comply
with his part of the contract. As we have indicated, this view is erroneous, as, under the contract,
the defendant was not limited to his growth crop in order to make the delivery. He agreed to
deliver the sugar and nothing is said in the contract about where he was to get it.
We think is a clear case of liquidated damages. The contract plainly states that if the defendant
fails to deliver the 600 piculs of sugar within the time agreed on, the contract will be rescinded

and he will be obliged to return the P3,000 and pay the sum of P1,200 by way of indemnity for
loss and damages. There cannot be the slightest doubt about the meaning of this language or
the intention of the parties. There is no room for either interpretation or construction. Under the
provisions of article 1255 of the Civil Code contracting parties are free to execute the contracts
that they may consider suitable, provided they are not in contravention of law, morals, or public
order. In our opinion there is nothing in the contract under consideration which is opposed to any
of these principles.
For the foregoing reasons the judgment appealed from is modified by allowing the
recovery of P1,200 under paragraph 4 of the contract. As thus modified, the judgment
appealed from is affirmed, without costs in this instance.

FIRST DIVISION
[G.R. No. 125531. February 12, 1997]
JOVAN LAND, petitioner, vs. COURT OF APPEALS and EUGENIO QUESADA,
INC., respondents.
DECISION
HERMOSISIMA, JR. J.:
This is a petition for review on certiorari to reverse and set aside the decision
of the Court of Appeals in C.A.-G.R. CV No. 47515.
Petitioner Jovan Land, Inc. is a corporation engaged in the real estate
business. Its President and Chairman of the Board of Directors is one Joseph Sy.
Private respondent Eugenio Quesada is the owner of the Q Building
located on an 801 sq. m. lot at the corner of Mayhaligue Street and Rizal Avenue,
Sta. Cruz, Manila. The property is covered by TCT No. 77796 of the Registry of
Deeds of Manila.
Petitioner learned from co-petitioner Consolacion P. Mendoza that private
respondent was selling the aforesaid Mayhaligue property. Thus, petitioner
through Joseph Sy made a written offer, dated July 27, 1987 for P10.25
million. This first offer was not accepted by Conrado Quesada, the
General Manager of private respondent. Joseph Sy sent a second written
offer dated July 31, 1989 for the same price but inclusive of an undertaking to
pay the documentary stamp tax, transfer tax, registration fees and notarial
charges. Check No. 247048, dated July 31, 1989, for one million pesos drawn
against the Philippine Commercial and Industrial Bank (PCIB) was enclosed
therewith as earnest money. This second offer, with earnest money, was again
rejected by Conrado Quesada. Undaunted, Joseph Sy, on August 10, 1989, sent a
third written offer for twelve million pesos with a similar check for one million

pesos as earnest money. Annotated on this third letter-offer was the phrase
"Received original, 9-4-89" beside which appears the signature of
Conrado Quesada.
On the basis of this annotation which petitioner insists is the proof that there
already exists a valid, perfected agreement to sell the Mayhaligue property,
petitioner filed with the trial court, a complaint for specific performance and
collection of sum of money with damages.However, the trial court held that:
"x x x the business encounters between Joseph Sy and Conrado
Quesada had not passed the negotiation stage relating to the
intended sale by the defendant corporation of the property in question.
x x x As the court finds, there is nothing in the record to point that a
contract was ever perfected. In fact, there is nothing in writing which is
indispensably necessary in order that the perfected contract could be
enforced under the Statute of Frauds." [1]
Since the trial court dismissed petitioner's complaint for lack of cause of
action, petitioner appealed[2] to respondent Court of Appeals before which it
assigned the following errors:
"1. The Court a quo failed to appreciate that there was already a
perfected contract of sale between Jovan Land, Inc. and the private
respondent];
2. The Court a quo erred in its conclusion that there was no implied
acceptance of the offer by appellants to appellee [private respondent];
3. The Court a quo was in error where it concluded that the contract of
sale was unenforceable;
4.The Court a quo failed to rule that appellant [petitioner] Mendoza is
entitled to her broker's commission."[3]
Respondent court placed petitioner to task on their assignment of errors and
concluded that not any of them justifies a reversal of the trial court decision.
We agree.
In the case of Ang Yu Asuncion v. Court of Appeals,[4] we held that:
"xxx [A] contract (Art. 1157, Civil Code), x x x 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 xxx. 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 xxx. The perfection of the contract takes
place upon the concurrence of the essential elements thereof."
Moreover, it is a fundamental principle that before contract of sale can be
valid, the following elements must be present, viz: (a) consent or meeting of the
minds; (b) determinate subject matter; (3) price certain in money or its
equivalent. Until the contract of sale is perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation between the parties.
In the case at bench, petitioner, anchors its main argument on the
annotation on its third letter-offer of the phrase "Received original, 9-4-89,"
beside which appears the signature of Conrado Quesada. It also contends that
the said annotation is evidence to show that there was already a perfected
agreement to sell as respondent can be said to have accepted petitioner's
payment in the form of a check which was enclosed in the third letter.
However, as correctly elucidated by the Court of Appeals:
"Sy insisted in his testimony that this offer of P12M was accepted by
Conrado Quesada but there is nothing written or documentary to show
that such offer was accepted by Conrado Quesada. While Sy claimed that
the acceptance could be gleaned from the notation in the third written
offer, the court is not impressed thereon however because the notation
merely states as follows: "Received Original, (S)-Conrado Quesada"
and below this signature is "9-4-89". As explained by Conrado Quesada in
his testimony what was received by him was the original of the written
offer.
The court cannot believe that this notation marked as Exhibit D-2
would signify the acceptance of the offer. Neither does it signify, as
Sy had testified that the check was duly received on said date. If this
were true Sy, who appears to be an intelligent businessman could have
easily asked Conrado Quesada to indicate on Exhibit D the alleged fact of
acceptance of said check. And better still, Sy could have asked Quesada
the acceptance in writing separate of the written offer if indeed there was
an agreement as to the price of the proposed sale of the property in
question."[5]
Clearly then, a punctilious examination of the receipt reveals that the same
can neither be regarded as a contract of sale nor a promise to sell. Such
an annotation by Conrado Quesada amounts to neither a written nor an implied
acceptance of the offer of Joseph Sy. It is merely a memorandum of the
receipt by the former of the latter's offer. The requisites of a valid contract
of sale are lacking in said receipt and therefore the "sale" is neither
valid nor enforceable.

Although there was a series of communications through letter-offers and

rejections as evident from the facts of this case, still it is undeniable that no
written agreement was reached between petitioner and private
respondent with regard to the sale of the realty. Hence, the alleged
transaction is unenforceable as the requirements under the Statute of Frauds
have not been complied with. Under the said provision, an agreement for the
sale of real property or of an interest therein, to be enforceable, must be in
writing and subscribed by the party charged or by an agent thereof
Petitioner also asseverates that the failure of Conrado Quesada to return the
check for one million pesos, translates to implied acceptance of its third letteroffer. It, however, does not rebut the finding of the trial court that private
respondent was returning the check but petitioner refused to accept the same
and that when Conrado Quesada subsequently sent it back to petitioner through
registered mail, the latter failed to claim its mail from the post office.
Finally, we fittingly apply here the oft-repeated doctrine that the factual
findings of the trial court, especially as regards the credibility of witnesses, are
conclusive upon this court, unless the case falls under the jurisprudentially
established exceptions. But this is a case that tenders no exceptional
circumstance; rather, we find the observations of the trial court to be legally
sound and valid:
"x x x Joseph Sy's testimony is not impressive because of several
inconsistencies herein pointed out. On the matter of earnest money, the
same appears to be the idea solely of the [petitioner], assuming that he
had intended to bind the [petitioner] corporation. In the written second
offer x x x he had stated that the check of P1M had been enclosed
(attached) therewith. The same check x x x was again mentioned to be
enclosed (attached) in the third written offer under date August 10, 1989
x x x. Sy testified in his direct examination that he had personally given
this check to Conrado Quesada. But on cross examination, he reversed
himself by saying that the check was given thru his [co-petitioner]
Mendoza.Examining the third written offer, it appears that when it was
first typewritten, this P11M was noted to have been corrected, and that
as per his testimony, Sy had increased it to P12M. This is the reason
according to Sy why there was a superimposition of the number '12' over
the number '11' to mean P12M as the revised consideration for the sale of
the property in question."[6]
Respondent court thus concluded that:
"x x x [since] the matter of evaluation of the credibility of witness[es] is
addressed to the trial court and unless clearly contrary to the records
before Us, the findings of the said court are entitled to great respondent
on appeal, x x x it was Joseph Sy's idea to offer the earnest money, and

the evidence to show that Joseph Sy accepted the same, is wanting. x x

x"[7]
and accordingly affirmed the trial court judgment appealed from.
As shown elucidated above, we agree with the findings and conclusions of
the trial court and the respondent court. Neither has petitioner posited any new
issues in the instant petition that warrant the further exercise by this court of its
review powers.
WHEREFORE, premises considered, this petition is DENIED.
Costs against petitioner.

THIRD DIVISION
[G.R. No. 132415. January 30, 2002]
MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO BALGUMA and
LEOPOLDO BALGUMA, JR., petitioners, vs. BRAULIO KATIPUNAN,
JR., respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari[1] assailing the Decision[2] of the
Court of Appeals dated July 31, 1997 in CA-GR CV No. 45928, Braulio Katipunan,
Jr. vs. Miguel Katipunan, Inocencio Valdez, Atty. Leopoldo Balguma, Sr., Edgardo
Balguma and Leopoldo Balguma, Jr. which set aside the Decision of the Regional
Trial Court (RTC) of Manila, Branch 28, in Civil Case No. 87-39891 for annulment
of a Deed of Absolute Sale.
The antecedents are:
Respondent Braulio Katipunan, Jr. is the owner of a 203 square meter
lot and a five-door apartment constructed thereon located at 385-F Matienza
St., San Miguel, Manila. The lot is registered in his name under TCT No.
109193[3] of the Registry of Deeds of Manila. The apartment units are occupied
by lessees.
On December 29, 1985, respondent, assisted by his brother,
petitioner Miguel Katipunan, entered into a Deed of Absolute
Sale[4] with brothers Edgardo Balguma and Leopoldo Balguma, Jr. (copetitioners), represented by their father Atty. Leopoldo Balguma, Sr., involving
the subject property for a consideration of P187,000.00. Consequently,

respondents title to the property was cancelled and in lieu thereof, TCT No.
168394[5] was registered and issued in the names of the Balguma brothers. In
January, 1986, Atty. Balguma, then still alive, started collecting rentals from
the lessees of the apartments.
On March 10, 1987, respondent filed with the RTC of Manila, Branch 21, [6] a
complaint for annulment of the Deed of Absolute Sale, docketed as Civil
Case No. 87-39891.[7] He averred that his brother Miguel, Atty. Balguma and
Inocencio Valdez (defendants therein, now petitioners) convinced him to work
abroad. They even brought him to the NBI and other government offices for the
purpose of securing clearances and other documents which later turned out to
be falsified. Through insidious words and machinations, they made him
sign a document purportedly a contract of employment, which
document turned out to be a Deed of Absolute Sale. By virtue of the said
sale, brothers Edgardo and Leopoldo, Jr. (co-defendants), were able to register
the title to the property in their names. Respondent further alleged that he did
not receive the consideration stated in the contract. He was shocked
when his sister Agueda Katipunan-Savellano told him that the Balguma brothers
sent a letter to the lessees of the apartment informing them that they are the
new owners. Finally, he claimed that the defendants, now petitioners, with
evident bad faith, conspired with one another in taking advantage of his
ignorance, he being only a third grader.
In their answer, petitioners denied the allegations in the complaint, alleging
that respondent was aware of the contents of the Deed of Absolute Sale and that
he received the consideration involved; that he also knew that the Balguma
brothers have been collecting the rentals since December, 1985 but
that he has not objected or confronted them; and that he filed the
complaint because his sister, Agueda Savellano, urged him to do so. [8]
Twice respondent moved to dismiss his complaint (which were granted) on
the grounds that he was actually instigated by his sister to file the same; and
that the parties have reached an amicable settlement after Atty. Balguma, Sr.
paid him P2,500.00 as full satisfaction of his claim. In granting his motions for
reconsideration, the trial court was convinced that respondent did not sign the
motions to dismiss voluntarily because of his poor comprehension, as shown by
the medical report of Dr. Annette Revilla, a Resident Psychiatrist at the Philippine
General Hospital. Besides, the trial court noted that respondent was not assisted
by counsel in signing the said motions, thus it is possible that he did not
understand the consequences of his action. [9]
Eventually the trial court set the case for pre-trial. The court likewise granted
respondents motion to appoint Agueda Savellano as his guardian ad litem.[10]
After hearing, the trial court dismissed the complaint, holding that
respondent failed to prove his causes of action since he admitted that:
(1) he obtained loans from the Balgumas; (2) he signed the Deed of

Absolute Sale; and (3) he acknowledged selling the property and that
he stopped collecting the rentals.
Upon appeal by respondent, the Court of Appeals, on July 31, 1997, rendered
the assailed Decision, the dispositive portion of which reads:
WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE,
and a new one entered annulling the Deed of Sale. Consequently, TCT No.
168394 is hereby declared null and void and of no force and effect. The Register
of Deeds of Manila is directed to cancel the same and restore TCT No. 109193 in
the name of Braulio Katipunan.
SO ORDERED.
In reversing the RTC Decision, the Court of Appeals ruled:
Upon close scrutiny of all the evidence on record, plaintiff-appellants contention
finds support in the certification dated August 4, 1987 issued by Dr. Ana Marie
Revilla, a psychiatrist at the UP-PGH, who was presented as an expert witness.
Her findings explained the reason why plaintiff-appellant showed a lot of
inconsistencies when he was put on the stand. It supports the fact that plaintiffappellant is slow in comprehension and has a very low IQ. Based on such
findings, the trial court was faulted for its wrong assessment of appellants
mental condition. It arbitrarily disregarded the testimony of a skilled witness and
made an unsupported finding contrary to her expert opinion.
Admittedly, expert witnesses when presented to the court must be construed to
have been presented not to sway the court in favor of any of the parties, but to
assist the court in the determination of the issue before it (Espiritu vs. Court of
Appeals, 242 SCRA 362). Expert opinions are not ordinarily conclusive. They are
generally regarded as purely advisory in character; the court may place
whatever weight they choose upon such testimony and may reject it if they find
it inconsistent with the facts in the case or otherwise unreasonable (Basic
Evidence by Ricardo J. Francisco, pp. 202).
The trial court whose decision is now under review refused to admit the experts
testimony and prefer to base its decision on its findings that contrary to the
allegation of the appellant, he is nonetheless capable of responding to the
questions expounded to him while on the stand. In short, the court was swayed
by its own observation of appellants demeanor on the stand. Of course, the rule
is to accord much weight to the impressions of the trial judge, who had the
opportunity to observe the witnesses directly and to test their credibility by their
demeanor on the stand (People vs. Errojo, 229 SCRA 49). Such impression
however, is not per se the basis of a conclusion, for it needs conformity with the
findings of facts relevant to the case.

We find it indispensable to give credit to the findings of Dr. Ana Marie

Revilla, whose testimony remains unshaken and unimpeached. The
tests she made are revealing and unrebutted and has a bearing on facts
of the case.
It is a proven fact that Braulio reached only Grade III due to his very low IQ; that
he is illiterate; and that he can not read and is slow in comprehension. His
mental age is only that of a six-year old child. On the other hand, the documents
presented by the appellees in their favor, i.e., the deeds of mortgage and of sale,
are all in English. There is no showing that the contracts were read and/or
explained to Braulio nor translated in a language he understood.
Article 1332 of the Civil Code provides:
Art. 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully
explained to the former.
Furthermore, if Braulio has a mental state of a six year old child, he can not be
considered as fully capacitated. He falls under the category of incompetent as
defined in Section 2, Rule 92 of the Rules of Court, which reads:
Sec. 2. Meaning of Word Incompetent - Under this rule, the word incompetent
includes persons suffering the penalty of civil interdiction or who are hospitalized
lepers, prodigals, deaf and dumb who are unable to read and write, those who
are of unsound mind, even though they have lucid intervals, and persons not
being of unsound mind, but by reason of age, disease, weak mind, and other
similar causes, can not, without outside aid, take care of themselves and manage
their property, becoming thereby an easy prey for deceit and exploitation.
We also note the admission of defendant-appellee Miguel Katipunan,
that he and Braulio received the considerations of the sale, although he
did not explain what portion went to each other of them. Anyway, there is
no reason why Miguel should receive part of the consideration, since he is not a
co-owner of the property. Everything should have gone to Braulio. Yet, Miguel did
not refute that he was giving him only small amounts (coins).
As to the allegation of the scheme utilized in defrauding Braulio, neither Miguel
nor Atty. Balguma refuted the statement of Braulio that he was being enticed to
go abroad - which was the alleged reason for the purported sale. Nothing was
explained about the alleged trip to NBI, the fake passport, etc., nor of Miguels
own plans to go abroad. It is then most probable that it was Miguel who wanted
to go abroad and needed the money for it.

In view of the foregoing, it is apparent that the contract entered into by Braulio
and Atty. Balguma is voidable, pursuant to the provisions of Article 1390 of the
Civil Code, to wit:
Art. 1390. The following contracts are voidable or annullable, even though there
may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court,
they are susceptible of ratification.[11]
Petitioners filed a motion for reconsideration but was denied. Hence, this
petition.
Petitioners, in seeking the reversal of the Court of Appeals Decision, rely
heavily on the rule that findings of fact by the trial courts are entitled to full faith
and credence by the Appellate Court. Petitioners contend that the Court of
Appeals erred when it overturned the factual findings of the trial court which are
amply supported by the evidence on record.
The petition is devoid of merit.
While it may be true that findings of a trial court, given its peculiar vantage
point to assess the credibility of witnesses, are entitled to full faith and credit and
may not be disturbed on appeal, this rule is not infallible, for it admits of certain
exceptions. One of these exceptions is when there is a showing that the trial
court had overlooked, misunderstood or misapplied some fact or circumstance of
weight and substance, which, if considered, could materially affect the result of
the case.[12] Also, when the factual findings of the trial court contradict those of
the appellate court, this Court is constrained to make a factual review of the
records and make its own assessment of the case. [13]The instant case falls within
the said exception.
A contract of sale is born from the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price. [14] This meeting
of the minds speaks of the intent of the parties in entering into the contract
respecting the subject matter and the consideration thereof. [15] Thus, the
elements of a contract of sale are consent, object, and price in money or its
equivalent.[16] Under Article 1330 of the Civil Code, consent may be vitiated by
any of the following: (a) mistake, (2) violence, (3) intimidation, (4) undue
influence, and (5) fraud.[17] The presence of any of these vices renders the
contract voidable.

Here, as borne by the facts on hand, respondent signed the deed without the
remotest idea of what it was, thus:
ATTY. SARMIENTO:
Q After Miguel received that money which amount you do not remember
how much, do you remember having signed a document purported to
be sale of property that which you owned?
A Yes, I signed something because they forced me to sign.
COURT (To the witness)
Q Do you know how to affix your signature?
A Yes, Your Honor.
Q You sign your name here. (witness is given a piece of paper by the
court wherein he was made to sign his name)
ATTY. SARMIENTO:
Q You said that you remember you have signed a document. Did
you come to know what kind of document was that which you
signed at that time?
A I do not know.
Q Where did you sign that document?
A I signed that document in the house of Sencio.
Q Where is this house of Sencio?
A It is just behind our house at San Miguel.
Q Nobody informed you what document you were signing?
A Nobody informed me what document I was signing.
Q Who asked you to sign that document?
A My brother Miguel and Sencio asked me to sign that document.
Q You never bothered to ask your brother Miguel why you were signing
that document?
A According to them, if I will not sign, something will happen.

Q Who particularly told you that if you will not sign that document
something will happen?
A Atty. Balguma. (witness pointing to Atty. Balguma)
Q You want to tell the court that Atty. Balguma at that time you signed
that document was present?
A Yes, sir, he was there.
Q What if any did Atty. Balguma do when you were asked to sign that
document?
A He was asking me also to sign.
COURT (To the witness)
Q Were you threatened with a gun or any instrument?
A No, Your Honor.
Q How were you threatened?
A I was shoved aside by Sencio and Miguel and I was surprised
why they made me sign.
Q Did you fall down when you were shoved?
A I was made to move to the side.
Q And because of that you signed that document that you were being
forced to sign?
A Yes, sir.
Q What kind of paper did you sign?
A A coupon bond paper.
Q Was there something written?
A There was something written on it, but I do not know.
Q Was it typewritten?
A There was something typewritten when it was shown to me but I do not
know what it was.[18] (Underscoring supplied)

The circumstances surrounding the execution of the contract manifest a

vitiated consent on the part of respondent. Undue influence was exerted upon
him by his brother Miguel and Inocencio Valdez (petitioners) and Atty. Balguma. It
was his brother Miguel who negotiated with Atty. Balguma. However, they did
not explain to him the nature and contents of the document. Worse, they
deprived him of a reasonable freedom of choice. It bears stressing that he
reached only grade three. Thus, it was impossible for him to understand the
contents of the contract written in English and embellished in legal jargon. Even
the trial court, in reinstating the case which it earlier dismissed, took cognizance
of the medical finding of Dr. Revilla (presented by respondents counsel as expert
witness) who testified during the hearing of respondents motion for
reconsideration of the first order dismissing the complaint. According to her,
based on the tests she conducted, she found that respondent has a very low IQ
and a mind of a six-year old child. [19] In fact, the trial court had to clarify certain
matters because Braulio was either confused, forgetful or could not comprehend.
[20]
Thus, his lack of education, coupled with his mental affliction, placed him not
only at a hopelessly disadvantageous position vis--vis petitioners to enter into a
contract, but virtually rendered him incapable of giving rational consent. To be
sure, his ignorance and weakness made him most vulnerable to the deceitful
cajoling and intimidation of petitioners. The trial court obviously erred when it
disregarded Dr. Revillas testimony without any reason at all. It must be
emphasized that petitioners did not rebut her testimony.
Even the consideration, if any, was not shown to be actually paid to
respondent. Extant from the records is the fact that Miguel profited
from the entire transaction and gave only small amounts of money to
respondent, thus:
Q Do you know how much money was given to Miguel and from
whom did that money come from?
A I do not know how much, but the money came from Atty.
Balguma.
Q You do not know how much amount was given by Atty.
Balguma and for what consideration was the money given
you are not aware of that?
A I am not aware because I was not there, I do not know
anything.
Q You want to tell the court that despite that it is you being the
owner of this property it was Miguel who negotiated the
asking of money from Atty. Balguma?
A Yes, it is like that.

Q Were you consulted by your brother Miguel when he asked money from
Atty. Balguma?
A No, sir, in the beginning he kept it a secret then later on he told us.
Q You want to tell this court that it was only when your brother
Miguel gave (you) money that he told you that we have now
the money from Atty. Balguma?
A No, sir, I did not even know where that money came from. He
was about to leave for abroad when he told me that he
received money from Atty. Balguma.
Q Did you receive any amount from Miguel every time he was
given by Atty. Balguma? You received also money from
Miguel every time he was given by Atty. Balguma?
A Yes, he would give me small denominations, barya.
Q When you said "barya, would you be able to tell the court how much
this barya you are referring to is?
A May be twenty pesos, may be ten pesos, but they are all loose
change.
Q Tell us how many times did Miguel receive money from Atty. Balguma
as much as you can recall?
A I do not know because every time my brother Miguel and Atty.
Balguma would transact business, I was not present.
xxx
Q Before or after the signing of this piece of paper were you
given any big amount of money by your brother Miguel or
Atty. Balguma or Sencio?
A After signing that document, Atty. Balguma gave me several
loose change barya, no paper bills. A just handful of coins. [21]
(Underscoring supplied)
We are convinced that respondent was telling the truth that he did not
receive the purchase price. His testimony on this point was not controverted by
Miguel. Moreover, Atty. Balguma admitted that it was Miguel who
received the money from him.[22] What Miguel gave respondent was
merely loose change or barya-barya, grossly disproportionate to the
value of his property. We agree with the conclusion of the Court of Appeals

that it is then most probable that it was Miguel who wanted to go abroad and
needed the money for it.
In the case of Archipelago Management and Marketing Corp. vs. Court of
Appeals,[23] penned by Justice Artemio V. Panganiban, this Court sustained the
decision of the Court of Appeals annulling the deed of sale subject thereof. In
that case, Rosalina (the owner) was convinced by her second husband to sign
several documents, purportedly an application for the reconstitution of her
burned certificate of title. However, said documents turned out to be a Deed of
Absolute Sale where it was stipulated that she sold her property for P
1,200,000.00, a consideration which she did not receive. The Court ruled that
Rosalina, who was quite old at that time she signed the deed, was tricked by her
own husband, who employed fraud and deceit, into believing that what she was
signing was her application for reconstitution of title.
A contract where one of the parties is incapable of giving consent or where
consent is vitiated by mistake, fraud, or intimidation is not void ab initio but only
voidable and is binding upon the parties unless annulled by proper Court action.
The effect of annulment is to restore the parties to the status quo ante insofar as
legally and equitably possible-- this much is dictated by Article 1398 of the Civil
Code. As an exception however to the principle of mutual restitution, Article 1399
provides that when the defect of the contract consists in the incapacity of one of
the parties, the incapacitated person is not obliged to make any restitution,
except when he has been benefited by the things or price received by him.
Thus, since the Deed of Absolute Sale between respondent and the
Balguma brothers is voidable and hereby annulled, then the restitution
of the property and its fruits to respondent is just and proper. Petitioners
should turn over to respondent all the amounts they received starting January,
1986 up to the time the property shall have been returned to the latter. During
the pre-trial and as shown by the Pre-Trial Order, the contending parties
stipulated that the Balguma brothers received from the lessees monthly rentals
in the following amounts:
PERIOD AMOUNT OF RENTALS
January, 1986 to
December, 1987 P 481.00 per month
January, 1988 to
December, 1988 P2,100.00 per month
January, 1989 to
present P3,025.00 per month

Article 24 of the Civil Code enjoins courts to be vigilant for the protection of a
party to a contract who is placed at a disadvantage on account of his ignorance,
mental weakness or other handicap, like respondent herein. We give substance
to this mandate.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of
Appeals dated July 3, 1997 in CA-GR CV No. 45928 is AFFIRMED with
MODIFICATION in the sense that petitioners Edgardo Balguma and Leopoldo
Balguma, Jr., are ordered to turn over to respondent Braulio Katipunan, Jr. the
rentals they received for the five-door apartment corresponding to the period
from January, 1986 up to the time the property shall have been returned to him,
with interest at the legal rate. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Carpio, JJ., concur.

[G.R. No. 122544. January 28, 1999]

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER

ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON,
GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs.COURT
OF APPEALS and OVERLAND EXPRESS LINES, INC., respondents.

[G.R. No. 124741. January 28, 1999]

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER

ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON,
GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs.COURT
OF APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND
EXPRESS LINES, INC.,respondents.
DECISION
MARTINEZ, J.:
Two consolidated petitions were filed before us seeking to set aside and
annul the decisions and resolutions of respondent Court of Appeals. What
seemed to be a simple ejectment suit was juxtaposed with procedural intricacies
which finally found its way to this Court.

G. R. NO. 122544:

On May 23, 1974, private respondent Overland Express Lines, Inc.

(lessee) entered into a Contract of Lease with Option to Buy with
petitioners[1](lessors) involving a 1,755.80 square meter parcel of land situated
at corner MacArthur Highway and South "H" Street, Diliman, Quezon City. The
term of the lease was for one (1) year commencing from May 16, 1974 up to
May 15, 1975. During this period, private respondent was granted an option to
purchase for the amount of P3,000.00 per square meter. Thereafter, the lease
shall be on a per month basis with a monthly rental of P3,000.00.
For failure of private respondent to pay the increased rental
of P8,000.00 per month effective June 1976, petitioners filed an action
for ejectment (Civil Case No. VIII-29155) on November 10, 1976 before the then
City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII. On
November 22, 1982, the City Court rendered judgment [2] ordering private
respondent to vacate the leased premises and to pay the sum of P624,000.00
representing rentals in arrears and/or as damages in the form of reasonable
compensation for the use and occupation of the premises during the period of
illegal detainer from June 1976 to November 1982 at the monthly rental
of P8,000.00, less payments made, plus 12% interest per annum from November
18, 1976, the date of filing of the complaint, until fully paid, the sum
of P8,000.00 a month starting December 1982, until private respondent fully
vacates the premises, and to pay P20,000.00 as and by way of attorney's fees.
Private respondent filed a certiorari petition praying for the issuance of a
restraining order enjoining the enforcement of said judgment and dismissal of
the case for lack of jurisdiction of the City Court.
On September 26, 1984, the then Intermediate Appellate Court [3] (now Court
of Appeals) rendered a decision[4] stating that:
"x x x, the alleged question of whether petitioner was granted an
extension of the option to buy the property; whether such option, if any,
extended the lease or whether petitioner actually paid the
alleged P300,000.00 to Fidela Dizon, as representative of private
respondents in consideration of the option and, whether petitioner
thereafter offered to pay the balance of the supposed purchase price, are
all merely incidental and do not remove the unlawful detainer case from
the jurisdiction of respondent court. In consonance with the ruling in the
case of Teodoro, Jr. vs. Mirasol (supra), the above matters may be raised
and decided in the unlawful detainer suit as, to rule otherwise, would be a
violation of the principle prohibiting multiplicity of suits. (Original Records,
pp. 38-39)."
The motion for reconsideration was denied. On review, this Court dismissed
the petition in a resolution dated June 19, 1985 and likewise denied private
respondent's subsequent motion for reconsideration in a resolution dated
September 9, 1985.[5]
On October 7, 1985, private respondent filed before the Regional Trial Court
(RTC) of Quezon City (Civil Case No. Q-45541) an action for Specific
Performance and Fixing of Period for Obligation with prayer for the
issuance of a restraining order pending hearing on the prayer for a writ
of preliminary injunction. It sought to compel the execution of a deed of

sale pursuant to the option to purchase and the receipt of the partial
payment, and to fix the period to pay the balance. In an Order dated October
25, 1985, the trial court denied the issuance of a writ of preliminary injunction on
the ground that the decision of the then City Court for the ejectment of the
private respondent, having been affirmed by the then Intermediate Appellate
Court and the Supreme Court, has become final and executory.
Unable to secure an injunction, private respondent also filed before the RTC
of Quezon City, Branch 102 (Civil Case No. Q-46487) on November 15, 1985 a
complaint for Annulment of and Relief from Judgment with injunction and
damages. In its decision[6] dated May 12, 1986, the trial court dismissed the
complaint for annulment on the ground of res judicata, and the writ of
preliminary injunction previously issued was dissolved. It also ordered private
respondent to pay P3,000.00 as attorney's fees. As a consequence of private
respondent's motion for reconsideration, the preliminary injunction was
reinstated, thereby restraining the execution of the City Court's judgment on the
ejectment case.
The two cases were thereafter consolidated before the RTC of Quezon City,
Branch 77. On April 28, 1989, a decision[7] was rendered dismissing private
respondent's complaint in Civil Case No. Q-45541 (specific performance case)
and denying its motion for reconsideration in Civil Case No. 46487 (annulment of
the ejectment case). The motion for reconsideration of said decision was likewise
denied.
On appeal,[8] respondent Court of Appeals rendered a decision[9] upholding
the jurisdiction of the City Court of Quezon City in the ejectment case. It also
concluded that there was a perfected contract of sale between the
parties on the leased premises and that pursuant to the option to buy
agreement, private respondent had acquired the rights of a vendee in a
contract of sale. It opined that the payment by private respondent
of P300,000.00 on June 20, 1975 as partial payment for the leased property,
which petitioners accepted (through Alice A. Dizon) and for which an official
receipt was issued, was the operative act that gave rise to a perfected
contract of sale, and that for failure of petitioners to deny receipt thereof,
private respondent can therefore assume that Alice A. Dizon, acting as agent of
petitioners, was authorized by them to receive the money in their behalf. The
Court of Appeals went further by stating that in fact, what was entered into
was a "conditional contract of sale" wherein ownership over the leased
property shall not pass to the private respondent until it has fully paid
the purchase price. Since private respondent did not consign to the court the
balance of the purchase price and continued to occupy the subject premises, it
had the obligation to pay the amount of P1,700.00 in monthly rentals until full
payment of the purchase price. The dispositive portion of said decision reads:
"WHEREFORE, the appealed decision in Case No. 46487 is
AFFIRMED. The appealed decision in Case No. 45541 is, on the other hand,
ANNULLED and SET ASIDE. The defendants-appellees are ordered to
execute the deed of absolute sale of the property in question, free from
any lien or encumbrance whatsoever, in favor of the plaintiff-appellant,
and to deliver to the latter the said deed of sale, as well as the owner's
duplicate of the certificate of title to said property upon payment of the
balance of the purchase price by the plaintiff-appellant. The plaintiffappellant is ordered to pay P1,700.00 per month from June 1976, plus 6%

interest per annum, until payment of the balance of the purchase price, as
previously agreed upon by the parties.
SO ORDERED."
Upon denial of the motion for partial reconsideration (Civil Case No. Q-45541)
by respondent Court of Appeals, [10] petitioners elevated the case via petition
for certiorari questioning the authority of Alice A. Dizon as agent of petitioners in
receiving private respondent's partial payment amounting to P300,000.00
pursuant to the Contract of Lease with Option to Buy. Petitioners also assail the
propriety of private respondent's exercise of the option when it tendered the said
amount on June 20, 1975 which purportedly resulted in a perfected contract of
sale.

G. R. NO. 124741:

Petitioners filed with respondent Court of Appeals a motion to remand the

records of Civil Case No. 38-29155 (ejectment case) to the Metropolitan Trial
Court (MTC), then City Court of Quezon City, Branch 38, for execution of the
judgment[11] dated November 22, 1982 which was granted in a resolution dated
June 29, 1992. Private respondent filed a motion to reconsider said resolution
which was denied.
Aggrieved, private respondent filed a petition for certiorari, prohibition with
preliminary injunction and/or restraining order with this Court (G.R. Nos. 10675051) which was dismissed in a resolution dated September 16, 1992 on the
ground that the same was a refiled case previously dismissed for lack of
merit. On November 26, 1992, entry of judgment was issued by this Court.
On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of
the decision in Civil Case No. 38-29155 with the MTC of Quezon City, Branch
38. On September 13, 1993, the trial court ordered the issuance of a third alias
writ of execution. In denying private respondent's motion for reconsideration, it
ordered the immediate implementation of the third writ of execution without
delay.
On December 22, 1993, private respondent filed with the Regional Trial Court
(RTC) of Quezon City, Branch 104 a petition for certiorari and prohibition with
preliminary injunction/restraining order (SP. PROC. No. 93-18722) challenging the
enforceability and validity of the MTC judgment as well as the order for its
execution.
On January 11, 1994, RTC of Quezon City, Branch 104 issued an
order[12] granting the issuance of a writ of preliminary injunction upon private
respondent's posting of an injunction bond of P50,000.00.
Assailing the aforequoted order after denial of their motion for partial
reconsideration, petitioners filed a petition [13] for certiorari and prohibition with a
prayer for a temporary restraining order and/or preliminary injunction with the
Court of Appeals. In its decision,[14] the Court of Appeals dismissed the petition
and ruled that:
"The avowed purpose of this petition is to enjoin the public
respondent from restraining the ejectment of the private

respondent. To grant the petition would be to allow the ejectment of

the private respondent. We cannot do that now in view of the decision
of this Court in CA-G.R. CV Nos. 25153-54. Petitioners' alleged right to
eject private respondent has been demonstrated to be without basis in
the said civil case. The petitioners have been shown, after all, to have
no right to eject private respondents.
WHEREFORE, the petition is DENIED due course and is accordingly
DISMISSED.
SO ORDERED."[15]
Petitioners' motion for reconsideration was denied in a resolution [16] by the
Court of Appeals stating that:
"This court in its decision in CA-G.R. CV Nos. 25153-54 declared that
the plaintiff-appellant (private respondent herein) acquired the rights of a
vendee in a contract of sale, in effect, recognizing the right of the private
respondent to possess the subject premises. Considering said decision, we
should not allow ejectment; to do so would disturb the status quo of the
parties since the petitioners are not in possession of the subject
property. It would be unfair and unjust to deprive the private respondent of
its possession of the subject property after its rights have been
established in a subsequent ruling.
WHEREFORE, the motion for reconsideration is DENIED for lack of
merit.
SO ORDERED."[17]
Hence, this instant petition.
We find both petitions impressed with merit.
First. Petitioners have established a right to evict private respondent from
the subject premises for non-payment of rentals. The term of the Contract of
Lease with Option to Buy was for a period of one (1) year (May 16, 1974 to May
15, 1975) during which the private respondent was given an option to purchase
said property at P3,000.00 per square meter. After the expiration thereof, the
lease was for P3,000.00 per month.
Admittedly, no definite period beyond the one-year term of lease was agreed
upon by petitioners and private respondent. However, since the rent was paid on
a monthly basis, the period of lease is considered to be from month to month in
accordance with Article 1687 of the New Civil Code. [18] Where the rentals are paid
monthly, the lease, even if verbal may be deemed to be on a monthly basis,
expiring at the end of every month pursuant to Article 1687, in relation to Article
1673 of the Civil Code.[19] In such case, a demand to vacate is not even
necessary for judicial action after the expiration of every month. [20]
When private respondent failed to pay the increased rental of P8,000.00 per
month in June 1976, the petitioners had a cause of action to institute an
ejectment suit against the former with the then City Court. In this regard, the
City Court (now MTC) had exclusive jurisdiction over the ejectment suit.The filing
by private respondent of a suit with the Regional Trial Court for specific

performance to enforce the option to purchase did not divest the then City Court
of its jurisdiction to take cognizance over the ejectment case. Of note is the fact
that the decision of the City Court was affirmed by both the Intermediate
Appellate Court and this Court.
Second. Having failed to exercise the option within the stipulated
one-year period, private respondent cannot enforce its option to
purchase anymore. Moreover, even assuming arguendo that the right to
exercise the option still subsists at the time private respondent tendered the
amount on June 20, 1975, the suit for specific performance to enforce the option
to purchase was filed only on October 7, 1985 or more than ten (10) years after
accrual of the cause of action as provided under Article 1144 of the New Civil
Code.[21]
In this case, there was a contract of lease for one (1) year with
option to purchase. The contract of lease expired without the private
respondent, as lessee, purchasing the property but remained in possession
thereof. Hence, there was an implicit renewal of the contract of lease on a
monthly basis. The other terms of the original contract of lease which are revived
in the implied new lease under Article 1670 of the New Civil Code[22] are only
those terms which are germane to the lessees right of continued enjoyment of
the property leased.[23] Therefore, an implied new lease does not ipso
facto carry with it any implied revival of private respondent's option to
purchase (as lessee thereof) the leased premises. The provision entitling
the lessee the option to purchase the leased premises is not deemed
incorporated in the impliedly renewed contract because it is alien to the
possession of the lessee. Private respondents right to exercise the
option to purchase expired with the termination of the original contract
of lease for one year. The rationale of this Court is that:
This is a reasonable construction of the provision, which is based on the
presumption that when the lessor allows the lessee to continue enjoying
possession of the property for fifteen days after the expiration of the contract he
is willing that such enjoyment shall be for the entire period corresponding to the
rent which is customarily paid in this case up to the end of the month because
the rent was paid monthly. Necessarily, if the presumed will of the parties refers
to the enjoyment of possession the presumption covers the other terms of the
contract related to such possession, such as the amount of rental, the date when
it must be paid, the care of the property, the responsibility for repairs, etc. But no
such presumption may be indulged in with respect to special agreements which
by nature are foreign to the right of occupancy or enjoyment inherent in a
contract of lease.[24]
Third. There was no perfected contract of sale between petitioners
and private respondent. Private respondent argued that it delivered the check
ofP300,000.00 to Alice A. Dizon who acted as agent of petitioners pursuant to the
supposed authority given by petitioner Fidela Dizon, the payee thereof.Private
respondent further contended that petitioners filing of the ejectment case
against it based on the contract of lease with option to buy holds petitioners in
estoppel to question the authority of petitioner Fidela Dizon. It insisted that
the payment of P300,000.00 as partial payment of the purchase price
constituted a valid exercise of the option to buy.
Under Article 1475 of the New Civil Code, 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. Thus, the elements of a contract of sale
are consent, object, and price in money or its equivalent. It bears stressing
that the absence of any of these essential elements negates the
existence of a perfected contract of sale. Sale is a consensual contract
and he who alleges it must show its existence by competent proof. [25]
In an attempt to resurrect the lapsed option, private respondent
gave P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous
presumption that the said amount tendered would constitute a perfected
contract of sale pursuant to the contract of lease with option to buy. There was
no valid consent by the petitioners (as co-owners of the leased
premises) on the supposed sale entered into by Alice A. Dizon, as petitioners
alleged agent, and private respondent. The basis for agency is representation
and a person dealing with an agent is put upon inquiry and must discover upon
his peril the authority of the agent. [26] As provided in Article 1868 of the New Civil
Code,[27] there was no showing that petitioners consented to the act of Alice A.
Dizon nor authorized her to act on their behalf with regard to her transaction
with private respondent. The most prudent thing private respondent should have
done was to ascertain the extent of the authority of Alice A. Dizon. Being
negligent in this regard, private respondent cannot seek relief on the basis of a
supposed agency.
In Bacaltos Coal Mines vs. Court of Appeals,[28] we explained the rule in
dealing with an agent:
Every person dealing with an agent is put upon inquiry and must discover upon
his peril the authority of the agent. If he does not make such inquiry, he is
chargeable with knowledge of the agents authority, and his ignorance of that
authority will not be any excuse. Persons dealing with an assumed agent,
whether the assumed agency be a general or special one, are bound at their
peril, if they would hold the principal, to ascertain not only the fact of the agency
but also the nature and extent of the authority, and in case either is
controverted, the burden of proof is upon them to establish it.
For the long years that private respondent was able to thwart the execution
of the ejectment suit rendered in favor of petitioners, we now write finis to this
controversy and shun further delay so as to ensure that this case would really
attain finality.
WHEREFORE, in view of the foregoing, both petitions are GRANTED. The
decision dated March 29, 1994 and the resolution dated October 19, 1995 in CAG.R. CV No. 25153-54, as well as the decision dated December 11, 1995 and the
resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court of Appeals
are hereby REVERSED and SET ASIDE.
Let the records of this case be remanded to the trial court for immediate
execution of the judgment dated November 22, 1982 in Civil Case No. VIII-29155
of the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII
as affirmed in the decision dated September 26, 1984 of the then Intermediate
Appellate Court (now Court of Appeals) and in the resolution dated June 19, 1985
of this Court.

However, petitioners are ordered to REFUND to private respondent the

amount of P300,000.00 which they received through Alice A. Dizon on June 20,
1975.
SO ORDERED.
Davide, Jr., C.J. (Chairman), Melo, Kapunan and Pardo, JJ., concur.
SECOND DIVISION
[G.R. No. 137290. July 31, 2000]
SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner, vs. SPOUSES
ALFREDO HUANG and GRACE HUANG,respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision, [1] dated April 8, 1997, of the Court of
Appeals which reversed the decision of the Regional Trial Court, Branch 153,
Pasig City dismissing the complaint brought by respondents against petitioner for
enforcement of a contract of sale.
The facts are not in dispute.
Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation
engaged in the purchase and sale of real properties. Part of its inventory
are two parcels of land totalling 1, 738 square meters at the corner of Meralco
Avenue and General Capinpin Street, Barrio Oranbo, Pasig City, which are
covered by TCT Nos. PT-82395 and PT-82396 of the Register of Deeds of Pasig
City.
On February 21, 1994, the properties were offered for sale
for P52,140,000.00 in cash. The offer was made to Atty. Helena M. Dauz who
was acting for respondent spouses as undisclosed principals. In a
letter[2] dated March 24, 1994, Atty. Dauz signified her clients interest in
purchasing the properties for the amount for which they were offered by
petitioner, under the following terms: the sum of P500,000.00 would be
given as earnest money and the balance would be paid in eight equal
monthly installments from May to December, 1994. However, petitioner
refused the counter-offer.
On March 29, 1994, Atty. Dauz wrote another letter[3] proposing the following
terms for the purchase of the properties, viz:
This is to express our interest to buy your-above-mentioned
property with an area of 1, 738 sq. meters. For this purpose, we are
enclosing herewith the sum of P1,000,000.00 representing earnestdeposit money, subject to the following conditions.

1. We will be given the exclusive option to purchase the property

within the 30 days from date of your acceptance of this offer.
2. During said period, we will negotiate on the terms and conditions
of the purchase; SMPPI will secure the necessary Management and
Board approvals; and we initiate the documentation if there is
mutual agreement between us.
3. In the event that we do not come to an agreement on this
transaction, the said amount of P1,000,000.00 shall be refundable
to us in full upon demand. . . .
Isidro A. Sobrecarey, petitioners vice-president and operations manager for
corporate real estate, indicated his conformity to the offer by affixing his
signature to the letter and accepted the "earnest-deposit" of P1 million.
Upon request of respondent spouses, Sobrecarey ordered the removal of the
"FOR SALE" sign from the properties.
Atty. Dauz and Sobrecarey then commenced negotiations. During their
meeting on April 8, 1994, Sobrecarey informed Atty. Dauz that petitioner was
willing to sell the subject properties on a 90-day term. Atty. Dauz countered with
an offer of six months within which to pay.
On April 14, 1994, the parties again met during which Sobrecarey informed Atty.
Dauz that petitioner had not yet acted on her counter-offer. This prompted Atty.
Dauz to propose a four-month period of amortization.
On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April
29, 1994 to June 13, 1994 within which to exercise her option to purchase
the property, adding that within that period, "[we] hope to finalize [our]
agreement on the matter."[4] Her request was granted.
On July 7, 1994, petitioner, through its president and chief executive officer,
Federico Gonzales, wrote Atty. Dauz informing her that because the parties
failed to agree on the terms and conditions of the sale despite the
extension granted by petitioner, the latter was returning the amount
of P1 million given as "earnest-deposit."[5]
On July 20, 1994, respondent spouses, through counsel, wrote petitioner
demanding the execution within five days of a deed of sale covering the
properties. Respondents attempted to return the "earnest-deposit" but petitioner
refused on the ground that respondents option to purchase had already
expired.
On August 16, 1994, respondent spouses filed a complaint for specific
performance against petitioner before the Regional Trial Court, Branch 133, Pasig
City where it was docketed as Civil Case No. 64660.

Within the period for filing a responsive pleading, petitioner filed a motion to
dismiss the complaint alleging that (1) the alleged "exclusive option" of
respondent spouses lacked a consideration separate and distinct from
the purchase price and was thus unenforceable and (2) the complaint
did not allege a cause of action because there was no "meeting of the
minds" between the parties and, therefore, no perfected contract of
sale. The motion was opposed by respondents.
On December 12, 1994, the trial court granted petitioners motion and dismissed
the action. Respondents filed a motion for reconsideration, but it was denied by
the trial court. They then appealed to the Court of Appeals which, on April 8,
1997, rendered a decision[6] reversing the judgment of the trial court. The
appellate court held that all the requisites of a perfected contract of
sale had been complied with as the offer made on March 29, 1994, in
connection with which the earnest money in the amount of P1 million
was tendered by respondents, had already been accepted by petitioner.
The court cited Art. 1482 of the Civil Code which provides that "[w]henever
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." The fact
the parties had not agreed on the mode of payment did not affect the contract as
such is not an essential element for its validity. In addition, the court found that
Sobrecarey had authority to act in behalf of petitioner for the sale of the
properties.[7]
Petitioner moved for reconsideration of the trial courts decision, but its motion
was denied. Hence, this petition.
Petitioner contends that the Court of Appeals erred in finding that there
was a perfected contract of sale between the parties because the March 29,
1994 letter of respondents, which petitioner accepted, merely resulted in an
option contract, albeit it was unenforceable for lack of a distinct consideration.
Petitioner argues that the absence of agreement as to the mode of
payment was fatal to the perfection of the contract of sale. Petitioner also
disputes the appellate courts ruling that Isidro A. Sobrecarey had authority to sell
the subject real properties.[8]
Respondents were required to comment within ten (10) days from notice.
However, despite 13 extensions totalling 142 days which the Court had given to
them, respondents failed to file their comment. They were thus considered to
have waived the filing of a comment.
The petition is meritorious.
In holding that there is a perfected contract of sale, the Court of Appeals relied
on the following findings: (1) earnest money was allegedly given by
respondents and accepted by petitioner through its vice-president and
operations manager, Isidro A. Sobrecarey; and (2) the documentary

evidence in the records show that there was a perfected contract of

sale.
With regard to the alleged payment and acceptance of earnest money, the Court
holds that respondents did not give the P1 million as "earnest money" as
provided by Art. 1482 of the Civil Code. They presented the amount
merely as a deposit of what would eventually become the earnest
money or downpayment should a contract of sale be made by them. The
amount was thus given not as a part of the purchase price and as proof of the
perfection of the contract of sale but only as a guarantee that respondents would
not back out of the sale. Respondents in fact described the amount as an
"earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals,[9] it was held:
. . . While the P5,000 might have indeed been paid to Carlos in
October, 1967, there is nothing to show that the same was in the
concept of the earnest money contemplated in Art. 1482 of the Civil
Code, invoked by petitioner, as signifying perfection of the
sale. Viewed in the backdrop of the factual milieu thereof extant in
the record, We are more inclined to believe that the said P5,000.00
were paid in the concept of earnest money as the term was
understood under the Old Civil Code, that is, as a guarantee that
the buyer would not back out, considering that it is not clear that
there was already a definite agreement as to the price then and
that petitioners were decided to buy 6/7 only of the property should
respondent Javellana refuse to agree to part with her 1/7 share. [10]
In the present case, the P1 million "earnest-deposit" could not have
been given as earnest money as contemplated in Art. 1482 because, at
the time when petitioner accepted the terms of respondents offer of
March 29, 1994, their contract had not yet been perfected. This is
evident from the following conditions attached by respondents to their letter, to
wit: (1) that they be given the exclusive option to purchase the property within
30 days from acceptance of the offer; (2) that during the option period, the
parties would negotiate the terms and conditions of the purchase; and (3)
petitioner would secure the necessary approvals while respondents would handle
the documentation.
The first condition for an option period of 30 days sufficiently shows
that a sale was never perfected. As petitioner correctly points out,
acceptance of this condition did not give rise to a perfected sale but
merely to an option or an accepted unilateral promise on the part of
respondents to buy the subject properties within 30 days from the date of
acceptance of the offer. Such option giving respondents the exclusive right to
buy the properties within the period agreed upon is separate and distinct from
the contract of sale which the parties may enter.[11] All that respondents had was
just the option to buy the properties which privilege was not, however, exercised

by them because there was a failure to agree on the terms of payment. No

contract of sale may thus be enforced by respondents.
Furthermore, even the option secured by respondents from petitioner was fatally
defective. Under the second paragraph of Art. 1479, an accepted unilateral
promise to buy or sell a determinate thing for a price certain is binding upon the
promisor only if the promise is supported by a distinct consideration.
Consideration in an option contract may be anything of value, unlike in sale
where it must be the price certain in money or its equivalent. There is no
showing here of any consideration for the option. Lacking any proof of such
consideration, the option is unenforceable.
Equally compelling as proof of the absence of a perfected sale is the second
condition that, during the option period, the parties would negotiate the terms
and conditions of the purchase. The stages of a contract of sale are as follows:
(1) negotiation, covering the period from the time the prospective
contracting parties indicate interest in the contract to the time the
contract is perfected; (2) perfection, which takes place upon the
concurrence of the essential elements of the sale which are the meeting
of the minds of the parties as to the object of the contract and upon the
price; and (3) consummation, which begins when the parties perform
their respective undertakings under the contract of sale, culminating in
the extinguishment thereof.[12] In the present case, the parties never
got past the negotiation stage. The alleged "indubitable evidence"[13] of a
perfected sale cited by the appellate court was nothing more than offers and
counter-offers which did not amount to any final arrangement containing the
essential elements of a contract of sale. While the parties already agreed on the
real properties which were the objects of the sale and on the purchase price, the
fact remains that they failed to arrive at mutually acceptable terms of payment,
despite the 45-day extension given by petitioner.
The appellate court opined that the failure to agree on the terms of payment was
no bar to the perfection of the sale because Art. 1475 only requires agreement
by the parties as to the price of the object. This is error. In Navarro v. Sugar
Producers Cooperative Marketing Association, Inc.,[14] we laid down the rule that
the manner of payment of the purchase price is an essential element before a
valid and binding contract of sale can exist. Although the Civil Code does not
expressly state that the minds of the parties must also meet on the terms or
manner of payment of the price, the same is needed, otherwise there is no sale.
As held in Toyota Shaw, Inc. v. Court of Appeals,[15] agreement on the manner of
payment goes into the price such that a disagreement on the manner of
payment is tantamount to a failure to agree on the price. [16] In Velasco v. Court of
Appeals,[17] the parties to a proposed sale had already agreed on the object of
sale and on the purchase price. By the buyers own admission, however, the
parties still had to agree on how and when the downpayment and the
installments were to be paid. It was held:

. . . Such being the situation, it can not, therefore, be said that a

definite and firm sales agreement between the parties had been
perfected over the lot in question. Indeed, this Court has already
ruled before that a definite agreement on the manner of payment of
the purchase price is an essential element in the formation of a
binding and enforceable contract of sale. The fact, therefore, that
the petitioners delivered to the respondent the sum of P10,000 as
part of the down-payment that they had to pay cannot be
considered as sufficient proof of the perfection of any purchase and
sale agreement between the parties herein under Art. 1482 of the
new Civil Code, as the petitioners themselves admit that some
essential matter - the terms of the payment - still had to be
mutually covenanted.[18]
Thus, it is not the giving of earnest money, but the proof of the
concurrence of all the essential elements of the contract of sale which
establishes the existence of a perfected sale.
In the absence of a perfected contract of sale, it is immaterial whether Isidro A.
Sobrecarey had the authority to enter into a contract of sale in behalf of
petitioner. This issue, therefore, needs no further discussion.
WHEREFORE, the decision of the Court of Appeals is REVERSED and
respondents complaint is DISMISSED.
SO ORDERED.
Quisumbing, Buena, and De Leon, Jr., JJ., concur.
Bellosillo, (Chairman), J., on leave.

THIRD DIVISION

[G.R. No. 103577. October 7, 1996] APPEALED JUDGMENT IS

AFFIRMED. PETITION DISMISSED.

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL,

ANNABELLE C. GONZALES (for herself and on behalf of Floraida C.
Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A.
ALMONTE, and CATALINA BALAIS MABANAG, petitioners, vs. THE
COURT OF APPEALS, CONCEPCION D. ALCARAZ and RAMONA
PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-infact,respondents.

DECISION
MELO, J.:
The petition before us has its roots in a complaint for specific
performance to compel herein petitioners (except the last named, Catalina
Balais Mabanag) to consummate the sale of a parcel of land with its
improvements located along Roosevelt Avenue in Quezon City entered into by
the parties sometime in January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent court in
this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et. al.
(hereinafter referred to as Coronels) executed a document entitled Receipt
of Down Payment (Exh. A) in favor of plaintiff Ramona Patricia Alcaraz
(hereinafter referred to as Ramona) which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 - Total amount
50,000.00 - Down payment
-----------------------------------------P1,190,000.00 - Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum
of Fifty Thousand Pesos purchase price of our inherited house and lot, covered
by TCT No. 119627 of the Registry of Deeds of Quezon City, in the total amount
of P1,240,000.00.
We bind ourselves to effect the transfer in our names from our
deceased father, Constancio P. Coronel, the transfer certificate of title
immediately upon receipt of the down payment above-stated.
On our presentation of the TCT already in or name, We will immediately execute
the deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall
immediately pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00) pesos
upon execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the
property registered in the name of their deceased father upon receipt of the Fifty
Thousand (P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels will
execute the deed of absolute sale in favor of Ramona and the latter will
pay the former the whole balance of One Million One Hundred Ninety Thousand
(P1,190,000.00) Pesos.

On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz

(hereinafter referred to as Concepcion), mother of Ramona, paid the down
payment of Fifty Thousand (P50,000.00) Pesos (Exh. B, Exh. 2).
On February 6, 1985, the property originally registered in the name of the
Coronels father was transferred in their names under TCT No. 327043 (Exh. D;
Exh 4)
On February 18, 1985, the Coronels sold the property covered by TCT No.
327043 to intervenor-appellant Catalina B. Mabanag (hereinafter referred
to as Catalina) for One Million Five Hundred Eighty Thousand (P1,580,000.00)
Pesos after the latter has paid Three Hundred Thousand (P300,000.00) Pesos
(Exhs. F-3; Exh. 6-C)
For this reason, Coronels canceled and rescinded the contract (Exh. A)
with Ramona by depositing the down payment paid by Concepcion in
the bank in trust for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et. al., filed a complaint for a
specific performance against the Coronels and caused the annotation of a
notice of lis pendens at the back of TCT No. 327403 (Exh. E; Exh. 5).
On April 2, 1985, Catalina caused the annotation of a notice of adverse claim
covering the same property with the Registry of Deeds of Quezon City (Exh. F;
Exh. 6).
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the
subject property in favor of Catalina (Exh. G; Exh. 7).
On June 5, 1985, a new title over the subject property was issued in the name of
Catalina under TCT No. 351582 (Exh. H; Exh. 8).
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83,
RTC, Quezon City) the parties agreed to submit the case for decision solely on
the basis of documentary exhibits. Thus, plaintiffs therein (now private
respondents) proffered their documentary evidence accordingly marked as
Exhibits A through J, inclusive of their corresponding submarkings. Adopting
these same exhibits as their own, then defendants (now petitioners) accordingly
offered and marked them as Exhibits 1 through 10, likewise inclusive of their
corresponding submarkings. Upon motion of the parties, the trial court gave
them thirty (30) days within which to simultaneously submit their respective
memoranda, and an additional 15 days within which to submit their
corresponding comment or reply thereto, after which, the case would be deemed
submitted for resolution.
On April 14, 1988, the case was submitted for resolution before Judge
Reynaldo Roura, who was then temporarily detailed to preside over Branch 82 of
the RTC of Quezon City. On March 1, 1989, judgment was handed down by Judge
Roura from his regular bench at Macabebe, Pampanga for the Quezon
City branch, disposing as follows:

WHEREFORE, judgment for specific performance is hereby rendered

ordering defendant to execute in favor of plaintiffs a deed of absolute
sale covering that parcel of land embraced in and covered by Transfer
Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of Deeds
for Quezon City, together with all the improvements existing thereon free from
all liens and encumbrances, and once accomplished, to immediately deliver the
said document of sale to plaintiffs and upon receipt thereof, the plaintiffs are
ordered to pay defendants the whole balance of the purchase price amounting
toP1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the Registry
of Deeds for Quezon City in the name of intervenor is hereby canceled and
declared to be without force and effect. Defendants and intervenor and all other
persons claiming under them are hereby ordered to vacate the subject property
and deliver possession thereof to plaintiffs. Plaintiffs claim for damages and
attorneys fees, as well as the counterclaims of defendants and intervenors are
hereby dismissed.
xxx
(Rollo, p. 106)
A motion for reconsideration was filed by petitioners before the new
presiding judge of the Quezon City RTC but the same was denied by Judge
Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and to
render anew decision by the undersigned Presiding Judge should be denied for
the following reasons:
(1) The instant case became submitted for decision as of April 14, 1988 when
the parties terminated the presentation of their respective documentary
evidence and when the Presiding Judge at that time was Judge Reynaldo
Roura. The fact that they were allowed to file memoranda at some future date
did not change the fact that the hearing of the case was terminated before Judge
Roura and therefore the same should be submitted to him for decision; (2) When
the defendants and intervenor did not object to the authority of Judge Reynaldo
Roura to decide the case prior to the rendition of the decision, when they met for
the first time before the undersigned Presiding Judge at the hearing of a pending
incident in Civil Case No. Q-46145 on November 11, 1988, they were deemed to
have acquiesced thereto and they are now estopped from questioning said
authority of Judge Roura after they received the decision in question which
happens to be adverse to them; (3) While it is true that Judge Reynaldo Roura
was merely a Judge-on-detail at this Branch of the Court, he was in all respects
the Presiding Judge with full authority to act on any pending incident submitted
before this Court during his incumbency. When he returned to his Official Station
at Macabebe, Pampanga, he did not lose his authority to decide or resolve cases
submitted to him for decision or resolution because he continued as Judge of the
Regional Trial Court and is of co-equal rank with the undersigned Presiding
Judge. The standing rule and supported by jurisprudence is that a Judge to whom
a case is submitted for decision has the authority to decide the case
notwithstanding his transfer to another branch or region of the same court (Sec.
9, Rule 135, Rule of Court).

Coming now to the twin prayer for reconsideration of the Decision dated March 1,
1989 rendered in the instant case, resolution of which now pertains to the
undersigned Presiding Judge, after a meticulous examination of the documentary
evidence presented by the parties, she is convinced that the Decision of March 1,
1989 is supported by evidence and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration and/or to Annul
Decision and Render Anew Decision by the Incumbent Presiding Judge
dated March 20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991, the
Court of Appeals (Buena, Gonzaga-Reyes, Abad-Santos (P), JJ.) rendered its
decision fully agreeing with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The last
pleading, private respondents Reply Memorandum, was filed onSeptember 15,
1993. The case was, however, re-raffled to undersigned ponente only on August
28, 1996, due to the voluntary inhibition of the Justice to whom the case was last
assigned.
While we deem it necessary to introduce certain refinements in the
disquisition of respondent court in the affirmance of the trial courts decision, we
definitely find the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of the
other issues in the case at bar is the precise determination of the legal
significance of the document entitled Receipt of Down Payment which
was offered in evidence by both parties. There is no dispute as to the fact that
the said document embodied the binding contract between Ramona Patricia
Alcaraz on the one hand, and the heirs of Constancio P. Coronel on the other,
pertaining to a particular house and lot covered by TCT No. 119627, as defined in
Article 1305 of the Civil Code of the Philippines which reads as follows:
Art. 1305. A contract is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some
service.
While, it is the position of private respondents that the Receipt of Down
Payment embodied a perfected contract of sale, which perforce, they seek to
enforce by means of an action for specific performance, petitioners on their
part insist that what the document signified was a mere executory
contract to sell, subject to certain suspensive conditions, and because of the
absence of Ramona P. Alcaraz, who left for the United States of America, said
contract could not possibly ripen into a contract of absolute sale.
Plainly, such variance in the contending parties contention is brought about
by the way each interprets the terms and/or conditions set forth in said private
instrument. Withal, based on whatever relevant and admissible evidence may be
available on record, this Court, as were the courts below, is now called upon to

adjudge what the real intent of the parties was at the time the said document
was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by
mere consent. The essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a
Contract of Sale because the first essential element is lacking. In a contract to
sell, the prospective seller explicitly reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the contract to sell until
the happening of an event, which for present purposes we shall take as the full
payment of the purchase price. What the seller agrees or obliges himself to
do is to fulfill his promise to sell the subject property when the entire
amount of the purchase price is delivered to him. In other words the full
payment of the purchase price partakes of a suspensive condition, the
non-fulfillment of which prevents the obligation to sell from arising and thus,
ownership is retained by the prospective seller without further remedies by the
prospective buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had
occasion to rule:
Hence, We hold that the contract between the petitioner and the
respondent was a contract to sell where the ownership or title is
retained by the seller and is not to pass until the full payment of the
price, such payment being a positive suspensive condition and failure of which
is not a breach, casual or serious, but simply an event that prevented the
obligation of the vendor to convey title from acquiring binding force.
Stated positively, upon the fulfillment of the suspensive condition
which is the full payment of the purchase price, the prospective sellers obligation
to sell the subject property by entering into a contract of sale with the
prospective buyer becomes demandable as provided in Article 1479 of the
Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor of the promise is supported by a
consideration distinct from the price.

A contract to sell may thus be defined as a bilateral contract

whereby the prospective seller, while expressly reserving the ownership
of the subject property despite delivery thereof to the prospective
buyer, binds himself to sell the said property exclusively to the
prospective buyer upon fulfillment of the condition agreed upon, that
is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a
conditional contract of sale where the seller may likewise reserve title to the
property subject of the sale until the fulfillment of a suspensive condition,
because in a conditional contract of sale, the first element of consent is present,
although it is conditioned upon the happening of a contingent event which may
or may not occur. If the suspensive condition is not fulfilled, the perfection of the
contract of sale is completely abated (cf. Homesite and Housing Corp. vs. Court
of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is
fulfilled, the contract of sale is thereby perfected, such that if there had already
been previous delivery of the property subject of the sale to the buyer,
ownership thereto automatically transfers to the buyer by operation of law
without any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition
which is the full payment of the purchase price, ownership will not
automatically transfer to the buyer although the property may have been
previously delivered to him. The prospective seller still has to convey title
to the prospective buyer by entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell and a conditional
contract of sale specially in cases where the subject property is sold by the
owner not to the party the seller contracted with, but to a third person, as in the
case at bench. In a contract to sell, there being no previous sale of the property,
a third person buying such property despite the fulfillment of the suspensive
condition such as the full payment of the purchase price, for instance, cannot be
deemed a buyer in bad faith and the prospective buyer cannot seek the relief of
reconveyance of the property. There is no double sale in such case. Title to the
property will transfer to the buyer after registration because there is no defect in
the owner-sellers title per se, but the latter, of course, may be sued for damages
by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the
suspensive condition, the sale becomes absolute and this will definitely affect
the sellers title thereto. In fact, if there had been previous delivery of the subject
property, the sellers ownership or title to the property is automatically
transferred to the buyer such that, the seller will no longer have any
title to transfer to any third person. Applying Article 1544 of the Civil Code,
such second buyer of the property who may have had actual or constructive
knowledge of such defect in the sellers title, or at least was charged with the
obligation to discover such defect, cannot be a registrant in good faith. Such
second buyer cannot defeat the first buyers title. In case a title is issued to the
second buyer, the first buyer may seek reconveyance of the property subject of
the sale.
With the above postulates as guidelines, we now proceed to the task of
deciphering the real nature of the contract entered into by petitioners and
private respondents.
It is a canon in the interpretation of contracts that the words used therein
should be given their natural and ordinary meaning unless a technical meaning

was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when
petitioners declared in the said Receipt of Down Payment that they -Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum
of Fifty Thousand Pesos purchase price of our inherited house and lot,
covered by TCT No. 1199627 of the Registry of Deeds of Quezon City, in the total
amount of P1,240,000.00.
without any reservation of title until full payment of the entire purchase price,
the natural and ordinary idea conveyed is that they sold their property.
When the Receipt of Down payment is considered in its entirety, it becomes
more manifest that there was a clear intent on the part of petitioners to transfer
title to the buyer, but since the transfer certificate of title was still in the
name of petitioners father, they could not fully effect such transfer
although the buyer was then willing and able to immediately pay the
purchase price. Therefore, petitioners-sellers undertook upon receipt of the
down payment from private respondent Ramona P. Alcaraz, to cause the issuance
of a new certificate of title in their names from that of their father, after which,
they promised to present said title, now in their names, to the latter and to
execute the deed of absolute sale whereupon, the latter shall, in turn, pay the
entire balance of the purchase price.
The agreement could not have been a contract to sell because the sellers
herein made no express reservation of ownership or title to the subject parcel of
land. Furthermore, the circumstance which prevented the parties from entering
into an absolute contract of sale pertained to the sellers themselves (the
certificate of title was not in their names) and not the full payment of the
purchase price. Under the established facts and circumstances of the case, the
Court may safely presume that, had the certificate of title been in the names of
petitioners-sellers at that time, there would have been no reason why an
absolute contract of sale could not have been executed and consummated right
there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not
merely promise to sell the property to private respondent upon the fulfillment of
the suspensive condition. On the contrary, having already agreed to sell the
subject property, they undertook to have the certificate of title change to their
names and immediately thereafter, to execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where
the sellers, after compliance by the buyer with certain terms and
conditions, promised to sell the property to the latter. What may be
perceived from the respective undertakings of the parties to the contract is that
petitioners had already agreed to sell the house and lot they inherited from their
father, completely willing to transfer ownership of the subject house and lot to
the buyer if the documents were then in order. It just so happened, however, that
the transfer certificate of title was then still in the name of their father. It was
more expedient to first effect the change in the certificate of title so as to bear
their names. That is why they undertook to cause the issuance of a new transfer
of the certificate of title in their names upon receipt of the down payment in the
amount of P50,000.00. As soon as the new certificate of title is issued in their
names, petitioners were committed to immediately execute the deed of absolute
sale. Only then will the obligation of the buyer to pay the remainder of the
purchase price arise.

There is no doubt that unlike in a contract to sell which is most commonly

entered into so as to protect the seller against a buyer who intends to buy the
property in installment by withholding ownership over the property until the
buyer effects full payment therefor, in the contract entered into in the case at
bar, the sellers were the ones who were unable to enter into a contract of
absolute sale by reason of the fact that the certificate of title to the property was
still in the name of their father. It was the sellers in this case who, as it were, had
the impediment which prevented, so to speak, the execution of an contract of
absolute sale.
What is clearly established by the plain language of the subject
document is that when the said Receipt of Down Payment was prepared
and signed by petitioners Romulo A. Coronel, et. al., the parties had
agreed to a conditional contract of sale, consummation of which is subject
only to the successful transfer of the certificate of title from the name of
petitioners father, Constancio P. Coronel, to their names.
The Court significantly notes that this suspensive condition was, in fact,
fulfilled on February 6, 1985 (Exh. D; Exh. 4). Thus, on said date, the conditional
contract of sale between petitioners and private respondent Ramona P. Alcaraz
became obligatory, the only act required for the consummation thereof being the
delivery of the property by means of the execution of the deed of absolute sale
in a public instrument, which petitioners unequivocally committed themselves to
do as evidenced by the Receipt of Down Payment.
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly
applies to the case at bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition.
Since the condition contemplated by the parties which is the
issuance of a certificate of title in petitioners names was fulfilled on
February 6, 1985, the respective obligations of the parties under the
contract of sale became mutually demandable, that is, petitioners, as
sellers, were obliged to present the transfer certificate of title already
in their names to private respondent Ramona P. Alcaraz, the buyer, and
to immediately execute the deed of absolute sale, while the buyer on
her part, was obliged to forthwith pay the balance of the purchase price
amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their
petition, petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves to effect the transfer
in our names from our deceased father Constancio P. Coronel, the
transfer certificate of title immediately upon receipt of the
downpayment above-stated". The sale was still subject to this
suspensive condition. (Emphasis supplied.)

(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale
subject to a suspensive condition. Only, they contend, continuing in the same
paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first transferring
the title to the property under their names, there could be no perfected contract
of sale. (Emphasis supplied.)
(Ibid.)
not aware that they have set their own trap for themselves, for Article 1186 of
the Civil Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more controlling
than these mere hypothetical arguments is the fact that the condition herein
referred to was actually and indisputably fulfilled on February 6, 1985,
when a new title was issued in the names of petitioners as evidenced by TCT No.
327403 (Exh. D; Exh. 4).
The inevitable conclusion is that on January 19, 1985, as evidenced by the
document denominated as Receipt of Down Payment (Exh. A; Exh. 1), the parties
entered into a contract of sale subject to the suspensive condition that the
sellers shall effect the issuance of new certificate title from that of their fathers
name to their names and that, on February 6, 1985, this condition was fulfilled
(Exh. D; Exh. 4).
We, therefore, hold that, in accordance with Article 1187 which pertinently
provides Art. 1187. The effects of conditional obligation to give, once the condition has
been fulfilled, shall retroact to the day of the constitution of the obligation . . .
In obligations to do or not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.
the rights and obligations of the parties with respect to the perfected contract of
sale became mutually due and demandable as of the time of fulfillment or
occurrence of the suspensive condition on February 6, 1985. As of that point in
time, reciprocal obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on January 19,
1985 because they were then not yet the absolute owners of the inherited
property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring
ownership as follows:

Art. 774. Succession is a mode of acquisition by virtue of which the property,

rights and obligations to the extent and value of the inheritance of a person are
transmitted through his death to another or others by his will or by operation of
law.
Petitioners-sellers in the case at bar being the sons and daughters of the
decedent Constancio P. Coronel are compulsory heirs who were called to
succession by operation of law. Thus, at the point their father drew his last
breath, petitioners stepped into his shoes insofar as the subject property is
concerned, such that any rights or obligations pertaining thereto became binding
and enforceable upon them. It is expressly provided that rights to the succession
are transmitted from the moment of death of the decedent (Article 777, Civil
Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners claim that succession may not be declared
unless the creditors have been paid is rendered moot by the fact that they were
able to effect the transfer of the title to the property from the decedents name to
their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed lack of
capacity to enter into an agreement at that time and they cannot be allowed to
now take a posture contrary to that which they took when they entered into the
agreement with private respondent Ramona P. Alcaraz. The Civil Code expressly
states that:
Art. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon.
Having represented themselves as the true owners of the subject property at the
time of sale, petitioners cannot claim now that they were not yet the absolute
owners thereof at that time.
Petitioners also contend that although there was in fact a perfected contract
of sale between them and Ramona P. Alcaraz, the latter breach her reciprocal
obligation when she rendered impossible the consummation thereof by going to
the United States of America, without leaving her address, telephone number,
and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory
Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so
petitioners conclude, they were correct in unilaterally rescinding the contract of
sale.
We do not agree with petitioners that there was a valid rescission of the
contract of sale in the instant case. We note that these supposed grounds for
petitioners rescission, are mere allegations found only in their responsive
pleadings, which by express provision of the rules, are deemed controverted
even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of
Court). The records are absolutely bereft of any supporting evidence to
substantiate petitioners allegations. We have stressed time and again that
allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110
Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere allegation is not
an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United States of
America on February 6, 1985, we cannot justify petitioners-sellers act of
unilaterally and extrajudicially rescinding the contract of sale, there being no

express stipulation authorizing the sellers to extrajudicially rescind the contract

of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. De Leon, 132
SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of
Ramona P. Alcaraz because although the evidence on record shows that the sale
was in the name of Ramona P. Alcaraz as the buyer, the sellers had been dealing
with Concepcion D. Alcaraz, Ramonas mother, who had acted for and in behalf of
her daughter, if not also in her own behalf. Indeed, the down payment was made
by Concepcion D. Alcaraz with her own personal Check (Exh. B; Exh. 2) for and in
behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever
questioned Concepcions authority to represent Ramona P. Alcaraz when they
accepted her personal check. Neither did they raise any objection as regards
payment being effected by a third person. Accordingly, as far as petitioners are
concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind
the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default,
insofar as her obligation to pay the full purchase price is concerned. Petitioners
who are precluded from setting up the defense of the physical absence of
Ramona P. Alcaraz as above-explained offered no proof whatsoever to show that
they actually presented the new transfer certificate of title in their names and
signified their willingness and readiness to execute the deed of absolute sale in
accordance with their agreement. Ramonas corresponding obligation to pay the
balance of the purchase price in the amount of P1,190,000.00 (as buyer) never
became due and demandable and, therefore, she cannot be deemed to have
been in default.
Article 1169 of the Civil Code defines when a party in a contract involving
reciprocal obligations may be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay from the
time the obligee judicially or extrajudicially demands from them the fulfillment of
their obligation.
xxx
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfill his obligation,
delay by the other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale
between petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B.
Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code
will apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in the possession; and, in the absence thereof to the person
who presents the oldest title, provided there is good faith.
The record of the case shows that the Deed of Absolute Sale dated April 25,
1985 as proof of the second contract of sale was registered with the Registry of
Deeds of Quezon City giving rise to the issuance of a new certificate of title in
the name of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of
Article 1544 shall apply.
The above-cited provision on double sale presumes title or ownership to pass
to the buyer, the exceptions being: (a) when the second buyer, in good faith,
registers the sale ahead of the first buyer, and (b) should there be no inscription
by either of the two buyers, when the second buyer, in good faith, acquires
possession of the property ahead of the first buyer. Unless, the second buyer
satisfies these requirements, title or ownership will not transfer to him to the
prejudice of the first buyer.
In his commentaries on the Civil Code, an accepted authority on the subject,
now a distinguished member of the Court, Justice Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time, stronger in
right). Knowledge by the first buyer of the second sale cannot defeat the first
buyers rights except when the second buyer first registers in good faith the
second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained
by the second buyer of the first sale defeats his rights even if he is first to
register, since knowledge taints his registration with bad faith (see also Astorga
vs. Court of Appeals, G.R. No. 58530, 26 December 1984). In Cruz vs. Cabana
(G.R. No. 56232, 22 June 1984, 129 SCRA 656), it was held that it is essential, to
merit the protection of Art. 1544, second paragraph, that the second realty buyer
must act in good faith in registering his deed of sale (citing Carbonell vs. Court of
Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).
(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).
Petitioners point out that the notice of lis pendens in the case at bar was
annotated on the title of the subject property only on February 22, 1985,
whereas, the second sale between petitioners Coronels and petitioner Mabanag
was supposedly perfected prior thereto or on February 18, 1985. The idea
conveyed is that at the time petitioner Mabanag, the second buyer, bought the
property under a clean title, she was unaware of any adverse claim or previous
sale, for which reason she is a buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not whether
or not the second buyer in good faith but whether or not said second buyer
registers such second sale in good faith, that is, without knowledge of any defect
in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag could
not have in good faith, registered the sale entered into on February 18, 1985
because as early as February 22, 1985, a notice of lis pendens had been
annotated on the transfer certificate of title in the names of petitioners, whereas
petitioner Mabanag registered the said sale sometime in April, 1985. At the time
of registration, therefore, petitioner Mabanag knew that the same property had
already been previously sold to private respondents, or, at least, she was

charged with knowledge that a previous buyer is claiming title to the same
property. Petitioner Mabanag cannot close her eyes to the defect in petitioners
title to the property at the time of the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers the sale after he has acquired knowledge
that there was a previous sale of the same property to a third party or that
another person claims said property in a previous sale, the registration will
constitute a registration in bad faith and will not confer upon him any right.
(Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43
Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil.
581.)
Thus, the sale of the subject parcel of land between petitioners and Ramona
P. Alcaraz, perfected on February 6, 1985, prior to that between petitioners and
Catalina B. Mabanag on February 18, 1985, was correctly upheld by both the
courts below.
Although there may be ample indications that there was in fact an agency
between Ramona as principal and Concepcion, her mother, as agent insofar as
the subject contract of sale is concerned, the issue of whether or not Concepcion
was also acting in her own behalf as a co-buyer is not squarely raised in the
instant petition, nor in such assumption disputed between mother and
daughter. Thus, We will not touch this issue and no longer disturb the lower
courts ruling on this point.
WHEREFORE, premises considered, the instant petition is hereby DISMISSED
and the appealed judgment AFFIRMED.
SO ORDERED.
Narvasa, C.J. (Chairman), Davide, Jr., and Francisco, JJ., concur.
Panganiban, J., no part.