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G.R. No.

134971

March 25, 2004

HERMINIO TAYAG, petitioner,


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

On August 19, 1996, the petitioner filed a complaint with the Regional
Trial Court of San Fernando, Pampanga, Branch 44, against the
defendants-tenants, as well as the respondents, for the court to fix a
period within which to pay the agreed purchase price of P50.00 per
square meter to the defendants, as provided for in the Deeds of
Assignment. The petitioner also prayed for a writ of preliminary
injunction against the defendants and the respondents therein.10 The
case was docketed as Civil Case No. 10910.
In his complaint, the petitioner alleged, inter alia, the following:
4. That defendants Julio Tiamson, Renato Gozun, Rosita
Hernandez, Bienvenido Tongol, Alfonso Flores, Norma
Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino,
Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue,
Dominga Laxamana, Felicencia de Leon, Emiliano Ramos
are original farmers or direct tillers of landholdings over
parcels of lands covered by Transfer Certificate of Title Nos.
35922-R, 35923-R and 35925-R which are registered in the
names of defendants LACSONS; while defendants Felino G.
Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino,
Rodolfo Quiambao, Roman Laxamana, Eddie San Luis,
Alfredo Gozun, Jose Tiamson, Augusto Tolentino, Sixto
Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de
Leon, Alberto Hernandez, and Aurelio Flores are sub-tenants
over the same parcel of land.
5. That on March 17, 1996 the defendants TIAMSON, et al.,
entered into Deeds of Assignment with the plaintiff by which
the defendants assigned all their rights and interests on their
landholdings to the plaintiff and that on the same date
(March 17, 1996), the defendants received from the plaintiff
partial payments in the amounts corresponding to their
names. Subsequent payments were also received:
1st
PAYMENT
1.Julio
Tiamson - - ---

2nd
PAYMENT

CHECK
NO.

TOTAL

P 20,000

P
10,621.54

P 10,000

96,000

P 5,000

14,374.24

231274

P 10,000

14,465.90

231285

24,465.90

5. Alfonso
Flores - - - --

P 30,000

26,648.40

231271

56,648.40

6. Norma
Quiambao ---

P 10,000

41,501.10

231279

51,501.10

7. Rosita
Tolentino - ---

P 10,000

22,126.08

231284

32,126.08

8. Jose
Sosa - - - - ----

P 10,000

14,861.31

231291

24,861.31

2. Renato
Gozun - - - -[son of Felix
Gozun
(deceased)]
3. Rosita
Hernandez --4.
Bienvenido
Tongol - - [Son of
Abundio
Tongol
(deceased)]

231281

P 30,621.54
106,000.00

P 19,374.24

9. Francisco
Tolentino,
Sr.

P 10,000

24,237.62

231283

34,237.62

34. Orlando
Florez

10,000

------

------

------

35. Aurelio
Flores

10,000

------

------

------

10. Emiliano
Laxamana -

P 10,000

11. Ruben
Torres - - - -[Son of
Mariano
Torres
(deceased)]

P 10,000

12. Meliton
Allanigue

P 10,000

12,944.77

231269

P
22,944.77

7. That on August 8, 1996, the defendants TIAMSON, et al.,


through Joven Mariano, replied that they are no longer
willing to pursue with the negotiations, and instead they gave
notice to the plaintiff that they will sell all their rights and
interests to the registered owners (defendants LACSONS).

P 5,000

22,269.02

231275

27,269.02

A copy of the letter is hereto attached as Annex "A" etc.;

10,000

------

------

------

15. Emiliano
Ramos

5,000

18,869.60

231280

23,869.60

16. Felino G.
Tolentino

10,000

------

------

------

17. Rica
Gozun

5,000

------

------

------

18. Perla
Gozun

10,000

------

------

------

19. Benigno
Tolentino

10,000

------

------

------

20. Rodolfo
Quiambao

10,000

------

------

------

21. Roman
Laxamana

10,000

------

------

------

22. Eddie
San Luis

10,000

------

------

------

23. Ricardo
Hernandez

10,000

------

------

------

24.
Nicenciana
Miranda

10,000

------

------

------

25. Jose
Gozun

10,000

------

------

------

5,000

------

------

------

10,000

------

------

------

28. Augusto
Tolentino

5,000

------

------

------

29. Sixto
Hernandez

10,000

------

------

------

30. Alex
Quiambao

10,000

------

------

------

31. Isidro
Tolentino

10,000

------

------

------

------

11,378.70

231270

------

10,000

------

------

------

13. Dominga
Laxamana
14.
Felicencia
de Leon

26. Alfredo
Sosa
27. Jose
Tiamson

32. Ceferino
de Leon
33. Alberto
Hernandez

------

P
33,587.31

------

------

------

P
43,587.31

6. That on July 24, 1996, the plaintiff wrote the defendants


TIAMSON, et al., inviting them for a meeting regarding the
negotiations/implementations of the terms of their Deeds of
Assignment;

8. That the defendants TIAMSON, et. al., have no right to


deal with the defendants LACSON or with any third persons
while their contracts with the plaintiff are subsisting;
defendants LACSONS are inducing or have induced the
defendants TIAMSON, et. al., to violate their contracts with
the plaintiff;
9. That by reason of the malicious acts of all the defendants,
plaintiff suffered moral damages in the forms of mental
anguish, mental torture and serious anxiety which in the sum
of P500,000.00 for which defendants should be held liable
jointly and severally.11
In support of his plea for injunctive relief, the petitioner, as
plaintiff, also alleged the following in his complaint:
11. That to maintain the status quo, the defendants
TIAMSON, et al., should be restrained from rescinding their
contracts with the plaintiff, and the defendants LACSONS
should also be restrained from accepting any offer of sale or
alienation with the defendants TIAMSON, et al., in whatever
form, the latters rights and interests in the properties
mentioned in paragraph 4 hereof; further, the LACSONS
should be restrained from encumbering/alienating the
subject properties covered by TCT No. 35922-R, 35923-R
and TCT No. 35925-R, Registry of Deeds of San Fernando,
Pampanga;
12. That the defendants TIAMSON, et al., threaten to rescind
their contracts with the plaintiff and are also bent on
selling/alienating their rights and interests over the subject
properties to their co-defendants (LACSONS) or any other
persons to the damage and prejudice of the plaintiff who
already invested much money, efforts and time in the said
transactions;
13. That the plaintiff is entitled to the reliefs being demanded
in the complaint;
14. That to prevent irreparable damages and prejudice to the
plaintiff, as the latter has no speedy and adequate remedy
under the ordinary course of law, it is essential that a Writ of
Preliminary Injunction be issued enjoining and restraining the
defendants TIAMSON, et al., from rescinding their contracts
with the plaintiff and from selling/alienating their properties to
the LACSONS or other persons;
15. That the plaintiff is willing and able to put up a
reasonable bond to answer for the damages which the
defendants would suffer should the injunction prayed for and
granted be found without basis.12

The petitioner prayed, that after the proceedings, judgment be


rendered as follows:
1. Pending the hearing, a Writ of Preliminary Injunction be
issued prohibiting, enjoining and restraining defendants Julio
Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido
Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino,
Jose Sosa, Francisco Tolentino Sr., Emiliano Laxamana,
Ruben Torres, Meliton Allanigue, Dominga Laxamana,
Felicencia de Leon, Emiliano Ramos, Felino G. Tolentino,
Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo
Quiambao, Roman Laxamana, Eddie San Luis, Ricardo
Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa,
Jose Tiamson, Augusto Tolentino, Ceferino de Leon, Alberto
Hernandez, Orlando Flores, and Aurelio Flores from
rescinding their contracts with the plaintiff and from
alienating their rights and interest over the aforementioned
properties in favor of defendants LACSONS or any other
third persons; and prohibiting the defendants LACSONS
from encumbering/alienating TCT Nos. 35922-R, 35923-R
and 35925-R of the Registry of Deeds of San Fernando,
Pampanga.
2. And pending the hearing of the Prayer for a Writ of
Preliminary Injunction, it is prayed that a restraining order be
issued restraining the aforementioned defendants
(TIAMSON, et al.) from rescinding their contracts with the
plaintiff and from alienating the subject properties to the
defendants LACSONS or any third persons; further,
restraining and enjoining the defendants LACSONS from
encumbering/selling the properties covered by TCT Nos.
35922-R, 35923-R, and 35925-R of the Registry of Deeds of
San Fernando, Pampanga.
3. Fixing the period within which plaintiff shall pay the
balance of the purchase price to the defendants TIAMSON,
et al., after the lapse of legal impediment, if any.
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants to pay the plaintiff the sum of
P500,000.00 as moral damages;
6. Ordering the defendants to pay the plaintiff attorneys fees
in the sum of P100,000.00 plus litigation expenses of
P50,000.00;
Plaintiff prays for such other relief as may be just and equitable under
the premises.13
In their answer to the complaint, the respondents as defendants
asserted that (a) the defendant Angelica Vda. de Lacson had died on
April 24, 1993; (b) twelve of the defendants were tenants/lessees of
respondents, but the tenancy status of the rest of the defendants was
uncertain; (c) they never induced the defendants Tiamson to violate
their contracts with the petitioner; and, (d) being merely tenants-tillers,
the defendants-tenants had no right to enter into any transactions
involving their properties without their knowledge and consent. They
also averred that the transfers or assignments of leasehold rights
made by the defendants-tenants to the petitioner is contrary to
Presidential Decree (P.D.) No. 27 and Republic Act No. 6657, the
Comprehensive Agrarian Reform Program (CARP).14 The respondents
interposed counterclaims for damages against the petitioner as
plaintiff.
The defendants-tenants Tiamson, et al., alleged in their answer with
counterclaim for damages, that the money each of them received from
the petitioner were in the form of loans, and that they were deceived
into signing the deeds of assignment:
a) That all the foregoing allegations in the Answer are hereby
repleaded and incorporated in so far as they are material
and relevant herein;

b) That the defendants Tiamson, et al., in so far as the


Deeds of Assignment are concern[ed] never knew that what
they did sign is a Deed of Assignment. What they knew was
that they were made to sign a document that will serve as a
receipt for the loan granted [to] them by the plaintiff;
c) That the Deeds of Assignment were signed through the
employment of fraud, deceit and false pretenses of plaintiff
and made the defendants believe that what they sign[ed]
was a mere receipt for amounts received by way of loans;
d) That the documents signed in blank were filled up and
completed after the defendants Tiamson, et al., signed the
documents and their completion and accomplishment was
done in the absence of said defendants and, worst of all,
defendants were not provided a copy thereof;
e) That as completed, the Deeds of Assignment reflected
that the defendants Tiamson, et al., did assign all their rights
and interests in the properties or landholdings they were
tilling in favor of the plaintiff. That if this is so, assuming
arguendo that the documents were voluntarily executed, the
defendants Tiamson, et al., do not have any right to transfer
their interest in the landholdings they are tilling as they have
no right whatsoever in the landholdings, the landholdings
belong to their co-defendants, Lacson, et al., and therefore,
the contract is null and void;
f) That while it is admitted that the defendants Tiamson, et
al., received sums of money from plaintiffs, the same were
received as approved loans granted by plaintiff to the
defendants Tiamson, et al., and not as part consideration of
the alleged Deeds of Assignment; and by way of:15
At the hearing of the petitioners plea for a writ of preliminary injunction,
the respondents counsel failed to appear. In support of his plea for a
writ of preliminary injunction, the petitioner adduced in evidence the
Deeds of Assignment,16 the receipts17 issued by the defendants-tenants
for the amounts they received from him; and the letter18 the petitioner
received from the defendants-tenants. The petitioner then rested his
case.
The respondents, thereafter, filed a Comment/Motion to dismiss/deny
the petitioners plea for injunctive relief on the following grounds: (a)
the Deeds of Assignment executed by the defendants-tenants were
contrary to public policy and P.D. No. 27 and Rep. Act No. 6657; (b)
the petitioner failed to prove that the respondents induced the
defendants-tenants to renege on their obligations under the "Deeds of
Assignment;" (c) not being privy to the said deeds, the respondents are
not bound by the said deeds; and, (d) the respondents had the
absolute right to sell and dispose of their property and to encumber the
same and cannot be enjoined from doing so by the trial court.
The petitioner opposed the motion, contending that it was premature
for the trial court to resolve his plea for injunctive relief, before the
respondents and the defendants-tenants adduced evidence in
opposition thereto, to afford the petitioner a chance to adduce rebuttal
evidence and prove his entitlement to a writ of preliminary injunction.
The respondents replied that it was the burden of the petitioner to
establish the requisites of a writ of preliminary injunction without any
evidence on their part, and that they were not bound to adduce any
evidence in opposition to the petitioners plea for a writ of preliminary
injunction.
On February 13, 1997, the court issued an Order19 denying the motion
of the respondents for being premature. It directed the hearing to
proceed for the respondents to adduce their evidence. The court ruled
that the petitioner, on the basis of the material allegations of the
complaint, was entitled to injunctive relief. It also held that before the
court could resolve the petitioners plea for injunctive relief, there was
need for a hearing to enable the respondents and the defendantstenants to adduce evidence to controvert that of the petitioner. The
respondents filed a motion for reconsideration, which the court denied
in its Order dated April 16, 1997. The trial court ruled that on the face
of the averments of the complaint, the pleadings of the parties and the

evidence adduced by the petitioner, the latter was entitled to injunctive


relief unless the respondents and the defendants-tenants adduced
controverting evidence.
The respondents, the petitioners therein, filed a petition for certiorari in
the Court of Appeals for the nullification of the February 13, 1997 and
April 16, 1997 Orders of the trial court. The case was docketed as CAG.R. SP No. 44883. The petitioners therein prayed in their petition that:
1. An order be issued declaring the orders of respondent
court dated February 13, 1997 and April 16, 1997 as null and
void;

defendants-tenants. The defendants-tenants were not yet owners of


the portions of the landholdings respectively tilled by them; as such,
they had nothing to assign to the petitioner. Finally, the CA ruled that
the deeds of assignment executed by the defendants-tenants were
contrary to P.D. No. 27 and Rep. Act No. 6657.
On August 4, 1998, the CA issued a Resolution denying the petitioners
motion for reconsideration.23
Hence, the petitioner filed his petition for review on certiorari before
this Court, contending as follows:
I

2. An order be issued directing the respondent court to issue


an order denying the application of respondent Herminio
Tayag for the issuance of a Writ of Preliminary Injunction
and/or restraining order.
3. In the meantime, a Writ of Preliminary Injunction be issued
against the respondent court, prohibiting it from issuing its
own writ of injunction against Petitioners, and thereafter
making said injunction to be issued by this Court permanent.
Such other orders as may be deemed just & equitable under the
premises also prayed for.20
The respondents asserted that the Deeds of Assignment executed by
the assignees in favor of the petitioner were contrary to paragraph 13
of P.D. No. 27 and the second paragraph of Section 70 of Rep. Act No.
6657, and, as such, could not be enforced by the petitioner for being
null and void. The respondents also claimed that the enforcement of
the deeds of assignment was subject to a supervening condition:
3. That this exclusive and absolute right given to the assignee shall be
exercised only when no legal impediments exist to the lot to effect the
smooth transfer of lawful ownership of the lot/property in the name of
the ASSIGNEE.21
The respondents argued that until such condition took place, the
petitioner would not acquire any right to enforce the deeds by
injunctive relief. Furthermore, the petitioners plea in his complaint
before the trial court, to fix a period within which to pay the balance of
the amounts due to the tenants under said deeds after the "lapse" of
any legal impediment, assumed that the deeds were valid, when, in
fact and in law, they were not. According to the respondents, they were
not parties to the deeds of assignment; hence, they were not bound by
the said deeds. The issuance of a writ of preliminary injunction would
restrict and impede the exercise of their right to dispose of their
property, as provided for in Article 428 of the New Civil Code. They
asserted that the petitioner had no cause of action against them and
the defendants-tenants.
On April 17, 1998, the Court of Appeals rendered its decision against
the petitioner, annulling and setting aside the assailed orders of the
trial court; and permanently enjoining the said trial court from
proceeding with Civil Case No. 10901. The decretal portion of the
decision reads as follows:
However, even if private respondent is denied of the injunctive relief he
demands in the lower court still he could avail of other course of action
in order to protect his interest such as the institution of a simple civil
case of collection of money against TIAMSON, et al.
For all the foregoing considerations, the orders dated 13 February
1997 and 16 April 1997 are hereby NULLIFIED and ordered SET
ASIDE for having been issued with grave abuse of discretion
amounting to lack or excess of jurisdiction. Accordingly, public
respondent is permanently enjoined from proceeding with the case
designated as Civil Case No. 10901.22
The CA ruled that the respondents could not be enjoined from
alienating or even encumbering their property, especially so since they
were not privies to the deeds of assignment executed by the

A MERE ALLEGATION IN THE ANSWER OF THE TENANTS COULD


NOT BE USED AS EVIDENCE OR BASIS FOR ANY CONCLUSION,
AS THIS ALLEGATION, IS STILL THE SUBJECT OF TRIAL IN THE
LOWER COURT (RTC).24
II
THE COURT OF APPEALS CANNOT ENJOIN THE HEARING OF A
PETITION FOR PRELIMINARY INJUNCTION AT A TIME WHEN THE
LOWER COURT (RTC) IS STILL RECEIVING EVIDENCE
PRECISELY TO DETERMINE WHETHER OR NOT THE WRIT OF
PRELIMINARY INJUNCTION BEING PRAYED FOR BY TAYAG
SHOULD BE GRANTED OR NOT.25
III
THE COURT OF APPEALS CANNOT USE "FACTS" NOT IN
EVIDENCE, TO SUPPORT ITS CONCLUSION THAT THE TENANTS
ARE NOT YET "AWARDEES OF THE LAND REFORM.26
IV
THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT
STOPPAGE OF THE ENTIRE PROCEEDINGS BELOW INCLUDING
THE TRIAL ON THE MERITS OF THE CASE CONSIDERING THAT
THE ISSUE INVOLVED ONLY THE PROPRIETY OF MAINTAINING
THE STATUS QUO.27
V
THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION
THE CASE OF THE OTHER 35 TENANTS WHO DO NOT QUESTION
THE JURISDICTION OF THE LOWER COURT (RTC) OVER THE
CASE AND WHO ARE IN FACT STILL PRESENTING THEIR
EVIDENCE TO OPPOSE THE INJUNCTION PRAYED FOR, AND TO
PROVE AT THE SAME TIME THE COUNTER-CLAIMS THEY FILED
AGAINST THE PETITIONER.28
VI
THE LOWER COURT (RTC) HAS JURISDICTION OVER THE CASE
FILED BY TAYAG FOR "FIXING OF PERIOD" UNDER ART. 1197 OF
THE NEW CIVIL CODE AND FOR "DAMAGES" AGAINST THE
LACSONS UNDER ART. 1314 OF THE SAME CODE. THIS CASE
CANNOT BE SUPPRESSED OR RENDERED NUGATORY
UNCEREMONIOUSLY.29
The petitioner faults the Court of Appeals for permanently enjoining the
trial court from proceeding with Civil Case No. 10910. He opines that
the same was too drastic, tantamount to a dismissal of the case. He
argues that at that stage, it was premature for the appellate court to
determine the merits of the case since no evidentiary hearing thereon
was conducted by the trial court. This, the Court of Appeals cannot do,
since neither party moved for the dismissal of Civil Case No. 10910.
The petitioner points out that the Court of Appeals, in making its
findings, went beyond the issue raised by the private respondents,
namely, whether or not the trial court committed a grave abuse of
discretion amounting to excess or lack of jurisdiction when it denied the

respondents motion for the denial/dismissal of the petitioners plea for


a writ of preliminary injunction. He, likewise, points out that the
appellate court erroneously presumed that the leaseholders were not
DAR awardees and that the deeds of assignment were contrary to law.
He contends that leasehold tenants are not prohibited from conveying
or waiving their leasehold rights in his favor. He insists that there is
nothing illegal with his contracts with the leaseholders, since the same
shall be effected only when there are no more "legal impediments."
At bottom, the petitioner contends that, at that stage, it was premature
for the appellate court to determine the merits of his case since no
evidentiary hearing on the merits of his complaint had yet been
conducted by the trial court.
The Comment/Motion of the
Respondents to Dismiss/Deny
Petitioners Plea for a Writ
of Preliminary Injunction
Was Not Premature.
Contrary to the ruling of the trial court, the motion of the respondents to
dismiss/deny the petitioners plea for a writ of preliminary injunction
after the petitioner had adduced his evidence, testimonial and
documentary, and had rested his case on the incident, was proper and
timely. It bears stressing that the petitioner had the burden to prove his
right to a writ of preliminary injunction. He may rely solely on the
material allegations of his complaint or adduce evidence in support
thereof. The petitioner adduced his evidence to support his plea for a
writ of preliminary injunction against the respondents and the
defendants-tenants and rested his case on the said incident. The
respondents then had three options: (a) file a motion to deny/dismiss
the motion on the ground that the petitioner failed to discharge his
burden to prove the factual and legal basis for his plea for a writ of
preliminary injunction and, if the trial court denies his motion, for them
to adduce evidence in opposition to the petitioners plea; (b) forgo their
motion and adduce testimonial and/or documentary evidence in
opposition to the petitioners plea for a writ of preliminary injunction; or,
(c) waive their right to adduce evidence and submit the incident for
consideration on the basis of the pleadings of the parties and the
evidence of the petitioner. The respondents opted not to adduce any
evidence, and instead filed a motion to deny or dismiss the petitioners
plea for a writ of preliminary injunction against them, on their claim that
the petitioner failed to prove his entitlement thereto. The trial court
cannot compel the respondents to adduce evidence in opposition to
the petitioners plea if the respondents opt to waive their right to
adduce such evidence. Thus, the trial court should have resolved the
respondents motion even without the latters opposition and the
presentation of evidence thereon.
The RTC Committed a Grave
Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders
In its February 13, 1997 Order, the trial court ruled that the petitioner
was entitled to a writ of preliminary injunction against the respondents
on the basis of the material averments of the complaint. In its April 16,
1997 Order, the trial court denied the respondents motion for
reconsideration of the previous order, on its finding that the petitioner
was entitled to a writ of preliminary injunction based on the material
allegations of his complaint, the evidence on record, the pleadings of
the parties, as well as the applicable laws:
For the record, the Court denied the LACSONS
COMMENT/MOTION on the basis of the facts culled from the evidence
presented, the pleadings and the law applicable unswayed by the
partisan or personal interests, public opinion or fear of criticism (Canon
3, Rule 3.02, Code of Judicial Ethics).30
Section 3, Rule 58 of the Rules of Court, as amended, enumerates the
grounds for the issuance of a writ of preliminary injunction, thus:
(a) That the applicant is entitled to the relief demanded, and
the whole or part of such relief consists in restraining the

commission or continuance of the act or acts complained of,


or in requiring the performance of an act or acts, either for a
limited period or perpetually;
(b) That the commission, continuance or non-performance of
the act or acts complained of during the litigation would
probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing,
threatening, or is attempting to do, or is procuring or
suffering to be done, some act or acts probably in violation of
the rights of the applicant respecting the subject of the action
or proceeding, and tending to render the judgment
ineffectual.
A preliminary injunction is an extraordinary event calculated to
preserve or maintain the status quo of things ante litem and is
generally availed of to prevent actual or threatened acts, until the
merits of the case can be heard. Injunction is accepted as the strong
arm of equity or a transcendent remedy.31 While generally the grant of
a writ of preliminary injunction rests on the sound discretion of the trial
court taking cognizance of the case, extreme caution must be
observed in the exercise of such discretion.32 Indeed, in Olalia v.
Hizon,33 we held:
It has been consistently held that there is no power the exercise of
which is more delicate, which requires greater caution, deliberation and
sound discretion, or more dangerous in a doubtful case, than the
issuance of an injunction. It is the strong arm of equity that should
never be extended unless to cases of great injury, where courts of law
cannot afford an adequate or commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon the
freedom of action of the defendant and should not be granted lightly or
precipitately. It should be granted only when the court is fully satisfied
that the law permits it and the emergency demands it.34
The very foundation of the jurisdiction to issue writ of injunction rests in
the existence of a cause of action and in the probability of irreparable
injury, inadequacy of pecuniary compensation and the prevention of
the multiplicity of suits. Where facts are not shown to bring the case
within these conditions, the relief of injunction should be refused.35
For the court to issue a writ of preliminary injunction, the petitioner was
burdened to establish the following: (1) a right in esse or a clear and
unmistakable right to be protected; (2) a violation of that right; (3) that
there is an urgent and permanent act and urgent necessity for the writ
to prevent serious damage.36 Thus, in the absence of a clear legal
right, the issuance of the injunctive writ constitutes a grave abuse of
discretion. Where the complainants right is doubtful or disputed,
injunction is not proper. Injunction is a preservative remedy aimed at
protecting substantial rights and interests. It is not designed to protect
contingent or future rights. The possibility of irreparable damage
without proof of adequate existing rights is not a ground for injunction. 37
We have reviewed the pleadings of the parties and found that, as
contended by the respondents, the petitioner failed to establish the
essential requisites for the issuance of a writ of preliminary injunction.
Hence, the trial court committed a grave abuse of its discretion
amounting to excess or lack of jurisdiction in denying the respondents
comment/motion as well as their motion for reconsideration.
First. The trial court cannot enjoin the respondents, at the instance of
the petitioner, from selling, disposing of and encumbering their
property. As the registered owners of the property, the respondents
have the right to enjoy and dispose of their property without any other
limitations than those established by law, in accordance with Article
428 of the Civil Code. The right to dispose of the property is the power
of the owner to sell, encumber, transfer, and even destroy the property.
Ownership also includes the right to recover the possession of the
property from any other person to whom the owner has not transmitted
such property, by the appropriate action for restitution, with the fruits,
and for indemnification for damages.38 The right of ownership of the
respondents is not, of course, absolute. It is limited by those set forth
by law, such as the agrarian reform laws. Under Article 1306 of the

New Civil Code, the respondents may enter into contracts covering
their property with another under such terms and conditions as they
may deem beneficial provided they are not contrary to law, morals,
good conduct, public order or public policy.
The respondents cannot be enjoined from selling or encumbering their
property simply and merely because they had executed Deeds of
Assignment in favor of the petitioner, obliging themselves to assign and
transfer their rights or interests as agricultural farmers/laborers/subtenants over the landholding, and granting the petitioner the exclusive
right to buy the property subject to the occurrence of certain conditions.
The respondents were not parties to the said deeds. There is no
evidence that the respondents agreed, expressly or impliedly, to the
said deeds or to the terms and conditions set forth therein. Indeed,
they assailed the validity of the said deeds on their claim that the same
were contrary to the letter and spirit of P.D. No. 27 and Rep. Act No.
6657. The petitioner even admitted when he testified that he did not
know any of the respondents, and that he had not met any of them
before he filed his complaint in the RTC. He did not even know that
one of those whom he had impleaded as defendant, Angelica Vda. de
Lacson, was already dead.

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


those documents as when they will pay?
A : We agreed to that, that I will pay them when there are no
legal impediment, sir.
Q : Many of the documents are unlattered (sic) and you want
to convey to this Honorable Court that prior to the execution
of these documents you have those tentative agreement for
instance that the amount or the cost of the price is to be paid
when there are no legal impediment, you are using the word
"legal impediment," do you know the meaning of that?
A : When there are (sic) no more legal impediment exist, sir.
Q : Did you make how (sic) to the effect that the meaning of
that phrase that you used the unlettered defendants?
A : We have agreed to that, sir.

Q: But you have not met any of these Lacsons?

ATTY. OCAMPO:

A: Not yet, sir.

May I ask, Your Honor, that the witness please answer my


question not to answer in the way he wanted it.

Q: Do you know that two (2) of the defendants are residents


of the United States?

COURT:

A: I do not know, sir.

Just answer the question, Mr. Tayag.

Q: You do not know also that Angela Tiotuvie (sic) Vda. de


Lacson had already been dead?

WITNESS:

A: I am aware of that, sir.39


We are one with the Court of Appeals in its ruling that:
We cannot see our way clear on how or why injunction should lie
against petitioners. As owners of the lands being tilled by TIAMSON, et
al., petitioners, under the law, have the right to enjoy and dispose of
the same. Thus, they have the right to possess the lands, as well as
the right to encumber or alienate them. This principle of law
notwithstanding, private respondent in the lower court sought to
restrain the petitioners from encumbering and/or alienating the
properties covered by TCT No. 35922-R, 35923-R and TCT No.
35925-R of the Registry of Deeds of San Fernando, Pampanga. This
cannot be allowed to prosper since it would constitute a limitation or
restriction, not otherwise established by law on their right of ownership,
more so considering that petitioners were not even privy to the alleged
transaction between private respondent and TIAMSON, et al.40
Second. A reading the averments of the complaint will show that the
petitioner clearly has no cause of action against the respondents for
the principal relief prayed for therein, for the trial court to fix a period
within which to pay to each of the defendants-tenants the balance of
the P50.00 per square meter, the consideration under the Deeds of
Assignment executed by the defendants-tenants. The respondents are
not parties or privies to the deeds of assignment. The matter of the
period for the petitioner to pay the balance of the said amount to each
of the defendants-tenants is an issue between them, the parties to the
deed.
Third. On the face of the complaint, the action of the petitioner against
the respondents and the defendants-tenants has no legal basis. Under
the Deeds of Assignment, the obligation of the petitioner to pay to each
of the defendants-tenants the balance of the purchase price was
conditioned on the occurrence of the following events: (a) the
respondents agree to sell their property to the petitioner; (b) the legal
impediments to the sale of the landholding to the petitioner no longer
exist; and, (c) the petitioner decides to buy the property. When he
testified, the petitioner admitted that the legal impediments referred to
in the deeds were (a) the respondents refusal to sell their property;
and, (b) the lack of approval of the Department of Agrarian Reform:

Yes, Your Honor.


ATTY. OCAMPO:
Q : Did you explain to them?
A : Yes, sir.
Q : What did you tell them?
A : I explain[ed] to them, sir, that the legal impediment then
especially if the Lacsons will not agree to sell their shares to
me or to us it would be hard to (sic) me to pay them in full.
And those covered by DAR. I explain[ed] to them and it was
clearly stated in the title that there is [a] prohibited period of
time before you can sell the property. I explained every detail
to them.41
It is only upon the occurrence of the foregoing conditions that the
petitioner would be obliged to pay to the defendants-tenants the
balance of the P50.00 per square meter under the deeds of
assignment. Thus:
2. That in case the ASSIGNOR and LANDOWNER will
mutually agree to sell the said lot to the ASSIGNEE, who is
given an exclusive and absolute right to buy the lot, the
ASSIGNOR shall receive the sum of FIFTY PESOS (P50.00)
per square meter as consideration of the total area actually
tilled and possessed by the ASSIGNOR, less whatever
amount received by the ASSIGNOR including commissions,
taxes and all allowable deductions relative to the sale of the
subject properties.
3. That this exclusive and absolute right given to the
ASSIGNEE shall be exercised only when no legal
impediments exist to the lot to effect the smooth transfer of
lawful ownership of the lot/property in the name of the
ASSIGNEE;

4. That the ASSIGNOR will remain in peaceful possession


over the said property and shall enjoy the fruits/earnings
and/or harvest of the said lot until such time that full payment
of the agreed purchase price had been made by the
ASSIGNEE.42
There is no showing in the petitioners complaint that the respondents
had agreed to sell their property, and that the legal impediments to the
agreement no longer existed. The petitioner and the defendantstenants had yet to submit the Deeds of Assignment to the Department
of Agrarian Reform which, in turn, had to act on and approve or
disapprove the same. In fact, as alleged by the petitioner in his
complaint, he was yet to meet with the defendants-tenants to discuss
the implementation of the deeds of assignment. Unless and until the
Department of Agrarian Reform approved the said deeds, if at all, the
petitioner had no right to enforce the same in a court of law by asking
the trial court to fix a period within which to pay the balance of the
purchase price and praying for injunctive relief.
We do not agree with the contention of the petitioner that the deeds of
assignment executed by the defendants-tenants are perfected option
contracts.43 An option is a contract by which the owner of the property
agrees with another person that he shall have the right to buy his
property at a fixed price within a certain time. It is a condition offered or
contract by which the owner stipulates with another that the latter shall
have the right to buy the property at a fixed price within a certain time,
or under, or in compliance with certain terms and conditions, or which
gives to the owner of the property the right to sell or demand a sale. It
imposes no binding obligation on the person holding the option, aside
from the consideration for the offer. Until accepted, it is not, properly
speaking, treated as a contract.44 The second party gets in praesenti,
not lands, not an agreement that he shall have the lands, but the right
to call for and receive lands if he elects.45 An option contract is a
separate and distinct contract from which the parties may enter into
upon the conjunction of the option.46
In this case, the defendants-tenants-subtenants, under the deeds of
assignment, granted to the petitioner not only an option but the
exclusive right to buy the landholding. But the grantors were merely the
defendants-tenants, and not the respondents, the registered owners of
the property. Not being the registered owners of the property, the
defendants-tenants could not legally grant to the petitioner the option,
much less the "exclusive right" to buy the property. As the Latin saying
goes, "NEMO DAT QUOD NON HABET."
Fourth. The petitioner impleaded the respondents as partiesdefendants solely on his allegation that the latter induced or are
inducing the defendants-tenants to violate the deeds of assignment,
contrary to the provisions of Article 1314 of the New Civil Code which
reads:
Art. 1314. Any third person who induces another to violate his contract
shall be liable for damages to the other contracting party.
In So Ping Bun v. Court of Appeals,47 we held that for the said law to
apply, the pleader is burdened to prove the following: (1) the existence
of a valid contract; (2) knowledge by the third person of the existence
of the contract; and (3) interference by the third person in the
contractual relation without legal justification.
Where there was no malice in the interference of a contract, and the
impulse behind ones conduct lies in a proper business interest rather
than in wrongful motives, a party cannot be a malicious interferer.
Where the alleged interferer is financially interested, and such interest
motivates his conduct, it cannot be said that he is an officious or
malicious intermeddler.48
In fine, one who is not a party to a contract and who interferes thereon
is not necessarily an officious or malicious intermeddler. The only
evidence adduced by the petitioner to prove his claim is the letter from
the defendants-tenants informing him that they had decided to sell their
rights and interests over the landholding to the respondents, instead of
honoring their obligation under the deeds of assignment because,
according to them, the petitioner harassed those tenants who did not
want to execute deeds of assignment in his favor, and because the

said defendants-tenants did not want to have any problem with the
respondents who could cause their eviction for executing with the
petitioner the deeds of assignment as the said deeds are in violation of
P.D. No. 27 and Rep. Act No. 6657.49 The defendants-tenants did not
allege therein that the respondents induced them to breach their
contracts with the petitioner. The petitioner himself admitted when he
testified that his claim that the respondents induced the defendantsassignees to violate contracts with him was based merely on what "he
heard," thus:
Q: Going to your last statement that the Lacsons induces
(sic) the defendants, did you see that the Lacsons were
inducing the defendants?
A: I heard and sometime in [the] first week of August, sir,
they went in the barrio (sic). As a matter of fact, that is the
reason why they sent me letter that they will sell it to the
Lacsons.
Q: Incidentally, do you knew (sic) these Lacsons
individually?
A: No, sir, it was only Mr. Espinosa who I knew (sic)
personally, the alleged negotiator and has the authority to
sell the property.50
Even if the respondents received an offer from the defendants-tenants
to assign and transfer their rights and interests on the landholding, the
respondents cannot be enjoined from entertaining the said offer, or
even negotiating with the defendants-tenants. The respondents could
not even be expected to warn the defendants-tenants for executing the
said deeds in violation of P.D. No. 27 and Rep. Act No. 6657. Under
Section 22 of the latter law, beneficiaries under P.D. No. 27 who have
culpably sold, disposed of, or abandoned their land, are disqualified
from becoming beneficiaries.
From the pleadings of the petitioner, it is quite evident that his purpose
in having the defendants-tenants execute the Deeds of Assignment in
his favor was to acquire the landholding without any tenants thereon, in
the event that the respondents agreed to sell the property to him. The
petitioner knew that under Section 11 of Rep. Act No. 3844, if the
respondents agreed to sell the property, the defendants-tenants shall
have preferential right to buy the same under reasonable terms and
conditions:
SECTION 11. Lessees Right of Pre-emption. In case the agricultural
lessor desires to sell the landholding, the agricultural lessee shall have
the preferential right to buy the same under reasonable terms and
conditions: Provided, That the entire landholding offered for sale must
be pre-empted by the Land Authority if the landowner so desires,
unless the majority of the lessees object to such acquisition: Provided,
further, That where there are two or more agricultural lessees, each
shall be entitled to said preferential right only to the extent of the area
actually cultivated by him. 51
Under Section 12 of the law, if the property was sold to a third person
without the knowledge of the tenants thereon, the latter shall have the
right to redeem the same at a reasonable price and consideration. By
assigning their rights and interests on the landholding under the deeds
of assignment in favor of the petitioner, the defendants-tenants thereby
waived, in favor of the petitioner, who is not a beneficiary under
Section 22 of Rep. Act No. 6657, their rights of preemption or
redemption under Rep. Act No. 3844. The defendants-tenants would
then have to vacate the property in favor of the petitioner upon full
payment of the purchase price. Instead of acquiring ownership of the
portions of the landholding respectively tilled by them, the defendantstenants would again become landless for a measly sum of P50.00 per
square meter. The petitioners scheme is subversive, not only of public
policy, but also of the letter and spirit of the agrarian laws. That the
scheme of the petitioner had yet to take effect in the future or ten years
hence is not a justification. The respondents may well argue that the
agrarian laws had been violated by the defendants-tenants and the
petitioner by the mere execution of the deeds of assignment. In fact,
the petitioner has implemented the deeds by paying the defendantstenants amounts of money and even sought their immediate

implementation by setting a meeting with the defendants-tenants. In


fine, the petitioner would not wait for ten years to evict the defendantstenants. For him, time is of the essence.
The Appellate Court Erred
In Permanently Enjoining
The Regional Trial Court
From Continuing with the
Proceedings in Civil Case No. 10910.
We agree with the petitioners contention that the appellate court erred
when it permanently enjoined the RTC from continuing with the
proceedings in Civil Case No. 10910. The only issue before the
appellate court was whether or not the trial court committed a grave
abuse of discretion amounting to excess or lack of jurisdiction in
denying the respondents motion to deny or dismiss the petitioners
plea for a writ of preliminary injunction. Not one of the parties prayed to
permanently enjoin the trial court from further proceeding with Civil
Case No. 10910 or to dismiss the complaint. It bears stressing that the
petitioner may still amend his complaint, and the respondents and the
defendants-tenants may file motions to dismiss the complaint. By
permanently enjoining the trial court from proceeding with Civil Case
No. 10910, the appellate court acted arbitrarily and effectively
dismissed the complaint motu proprio, including the counterclaims of
the respondents and that of the defendants-tenants. The defendantstenants were even deprived of their right to prove their special and
affirmative defenses.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The Decision of the Court of Appeals nullifying the
February 13, 1996 and April 16, 1997 Orders of the RTC is
AFFIRMED. The writ of injunction issued by the Court of Appeals
permanently enjoining the RTC from further proceeding with Civil Case
No. 10910 is hereby LIFTED and SET ASIDE. The Regional Trial Court
of Mabalacat, Pampanga, Branch 44, is ORDERED to continue with
the proceedings in Civil Case No. 10910 as provided for by the Rules
of Court, as amended.
SO ORDERED.

2. On July 28, 1988, Jose and Dominador Jimenez sold their share
consisting of one-half of said parcel of land, specifically the eastern
portion thereof, to herein petitioner pursuant to a "Kasulatan sa Bilihan
ng Lupa." 3Subsequently, a "Confirmatory Extrajudicial Partition
Agreement" 4 was executed by the Jimenezes, wherein the eastern
portion of the subject lot, with an area of 8,855 square meters was
adjudicated to Jose and Dominador Jimenez, while the western portion
was allocated to herein private respondents.
3. Thereafter, herein petitioner expressed interest in buying the
western portion of the property from private respondents. Accordingly,
on November 25, 1989, an "Exclusive Option to Purchase" 5 was
executed between petitioner and private respondents, under the
following terms and conditions:
1. The selling price of said 8,655 square meters of
the subject property is TWO MILLION EIGHT
HUNDRED FIFTY SIX THOUSAND ONE
HUNDRED FIFTY PESOS ONLY (P2,856,150.00)
2. The sum of P50,000.00 which we received from
ADELFA PROPERTIES, INC. as an option money
shall be credited as partial payment upon the
consummation of the sale and the balance in the
sum of TWO MILLION EIGHT HUNDRED SIX
THOUSAND ONE HUNDRED FIFTY PESOS
(P2,806,150.00) to be paid on or before November
30, 1989;
3. In case of default on the part of ADELFA
PROPERTIES, INC. to pay said balance in
accordance with paragraph 2 hereof, this option
shall be cancelled and 50% of the option money to
be forfeited in our favor and we will refund the
remaining 50% of said money upon the sale of
said property to a third party;

G.R. No. 111238 January 25, 1995


ADELFA PROPERTIES, INC., petitioner,
vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAEDA and
SALUD JIMENEZ, respondents.

REGALADO, J.:
The main issues presented for resolution in this petition for review
on certiorari of the judgment of respondent Court of appeals, dated
April 6, 1993, in CA-G.R. CV No. 34767 1 are (1) whether of not the
"Exclusive Option to Purchase" executed between petitioner Adelfa
Properties, Inc. and private respondents Rosario Jimenez-Castaeda
and Salud Jimenez is an option contract; and (2) whether or not there
was a valid suspension of payment of the purchase price by said
petitioner, and the legal effects thereof on the contractual relations of
the parties.
The records disclose the following antecedent facts which culminated
in the present appellate review, to wit:
1. Herein private respondents and their brothers, Jose and Dominador
Jimenez, were the registered co-owners of a parcel of land consisting
of 17,710 square meters, covered by Transfer Certificate of Title (TCT)
No. 309773, 2situated in Barrio Culasi, Las Pias, Metro Manila.

4. All expenses including the corresponding capital


gains tax, cost of documentary stamps are for the
account of the VENDORS, and expenses for the
registration of the deed of sale in the Registry of
Deeds are for the account of ADELFA
PROPERTIES, INC.
Considering, however, that the owner's copy of the certificate of title
issued to respondent Salud Jimenez had been lost, a petition for the
re-issuance of a new owner's copy of said certificate of title was filed in
court through Atty. Bayani L. Bernardo, who acted as private
respondents' counsel. Eventually, a new owner's copy of the certificate
of title was issued but it remained in the possession of Atty. Bernardo
until he turned it over to petitioner Adelfa Properties, Inc.
4. Before petitioner could make payment, it received summons 6 on
November 29, 1989, together with a copy of a complaint filed by the
nephews and nieces of private respondents against the latter, Jose
and Dominador Jimenez, and herein petitioner in the Regional Trial
Court of Makati, docketed as Civil Case No. 89-5541, for annulment of
the deed of sale in favor of Household Corporation and recovery of
ownership of the property covered by TCT No. 309773. 7
5. As a consequence, in a letter dated November 29, 1989, petitioner
informed private respondents that it would hold payment of the full
purchase price and suggested that private respondents settle the case
with their nephews and nieces, adding that ". . . if possible, although
November 30, 1989 is a holiday, we will be waiting for you and said
plaintiffs at our office up to 7:00 p.m." 8 Another letter of the same tenor
and of even date was sent by petitioner to Jose and Dominador

Jimenez. 9 Respondent Salud Jimenez refused to heed the suggestion


of petitioner and attributed the suspension of payment of the purchase
price to "lack of word of honor."
6. On December 7, 1989, petitioner caused to be annotated on the title
of the lot its option contract with private respondents, and its contract
of sale with Jose and Dominador Jimenez, as Entry No. 1437-4 and
entry No. 1438-4, respectively.
7. On December 14, 1989, private respondents sent Francisca
Jimenez to see Atty. Bernardo, in his capacity as petitioner's counsel,
and to inform the latter that they were cancelling the transaction. In
turn, Atty. Bernardo offered to pay the purchase price provided that
P500,000.00 be deducted therefrom for the settlement of the civil case.
This was rejected by private respondents. On December 22, 1989,
Atty. Bernardo wrote private respondents on the same matter but this
time reducing the amount from P500,000.00 to P300,000.00, and this
was also rejected by the latter.
8. On February 23, 1990, the Regional Trial Court of Makati dismissed
Civil Case No. 89-5541. Thus, on February 28, 1990, petitioner caused
to be annotated anew on TCT No. 309773 the exclusive option to
purchase as Entry No. 4442-4.
9. On the same day, February 28, 1990, private respondents executed
a Deed of Conditional Sale 10 in favor of Emylene Chua over the same
parcel of land for P3,029,250, of which P1,500,000.00 was paid to
private respondents on said date, with the balance to be paid upon the
transfer of title to the specified one-half portion.
10. On April 16, 1990, Atty. Bernardo wrote private respondents
informing the latter that in view of the dismissal of the case against
them, petitioner was willing to pay the purchase price, and he
requested that the corresponding deed of absolute sale be
executed. 11 This was ignored by private respondents.
11. On July 27, 1990, private respondents' counsel sent a letter to
petitioner enclosing therein a check for P25,000.00 representing the
refund of fifty percent of the option money paid under the exclusive
option to purchase. Private respondents then requested petitioner to
return the owner's duplicate copy of the certificate of title of respondent
Salud Jimenez. 12 Petitioner failed to surrender the certificate of title,
hence private respondents filed Civil Case No. 7532 in the Regional
Trial Court of Pasay City, Branch 113, for annulment of contract with
damages, praying, among others, that the exclusive option to purchase
be declared null and void; that defendant, herein petitioner, be ordered
to return the owner's duplicate certificate of title; and that the
annotation of the option contract on TCT No. 309773 be cancelled.
Emylene Chua, the subsequent purchaser of the lot, filed a complaint
in intervention.
12. The trial court rendered judgment 13 therein on September 5, 1991
holding that the agreement entered into by the parties was merely an
option contract, and declaring that the suspension of payment by
herein petitioner constituted a counter-offer which, therefore, was
tantamount to a rejection of the option. It likewise ruled that herein
petitioner could not validly suspend payment in favor of private
respondents on the ground that the vindicatory action filed by the
latter's kin did not involve the western portion of the land covered by
the contract between petitioner and private respondents, but the
eastern portion thereof which was the subject of the sale between
petitioner and the brothers Jose and Dominador Jimenez. The trial
court then directed the cancellation of the exclusive option to purchase,
declared the sale to intervenor Emylene Chua as valid and binding,
and ordered petitioner to pay damages and attorney's fees to private
respondents, with costs.

13. On appeal, respondent Court of appeals affirmed in toto the


decision of the court a quo and held that the failure of petitioner to pay
the purchase price within the period agreed upon was tantamount to
an election by petitioner not to buy the property; that the suspension of
payment constituted an imposition of a condition which was actually a
counter-offer amounting to a rejection of the option; and that Article
1590 of the Civil Code on suspension of payments applies only to a
contract of sale or a contract to sell, but not to an option contract which
it opined was the nature of the document subject of the case at bar.
Said appellate court similarly upheld the validity of the deed of
conditional sale executed by private respondents in favor of intervenor
Emylene Chua.
In the present petition, the following assignment of errors are raised:
1. Respondent court of appeals acted with grave abuse of discretion in
making its finding that the agreement entered into by petitioner and
private respondents was strictly an option contract;
2. Granting arguendo that the agreement was an option contract,
respondent court of Appeals acted with grave abuse of discretion in
grievously failing to consider that while the option period had not
lapsed, private respondents could not unilaterally and prematurely
terminate the option period;
3. Respondent Court of Appeals acted with grave abuse of discretion in
failing to appreciate fully the attendant facts and circumstances when it
made the conclusion of law that Article 1590 does not apply; and
4. Respondent Court of Appeals acted with grave abuse of discretion in
conforming with the sale in favor of appellee Ma. Emylene Chua and
the award of damages and attorney's fees which are not only
excessive, but also without in fact and in law. 14
An analysis of the facts obtaining in this case, as well as the evidence
presented by the parties, irresistibly leads to the conclusion that the
agreement between the parties is a contract to sell, and not an option
contract or a contract of sale.
I
1. In view of the extended disquisition thereon by respondent court, it
would be worthwhile at this juncture to briefly discourse on the
rationale behind our treatment of the alleged option contract as a
contract to sell, rather than a contract of sale. The distinction between
the two is important for in contract of sale, the title passes to the
vendee upon the delivery of the thing sold; whereas in a contract to
sell, by agreement the ownership is reserved in the vendor and is not
to pass until the full payment of the price. In a contract of sale, the
vendor has lost and cannot recover ownership until and unless the
contract is resolved or rescinded; whereas in a contract to sell, title is
retained by the vendor until the full payment of the price, such payment
being a positive suspensive condition and failure of which is not a
breach but an event that prevents the obligation of the vendor to
convey title from becoming effective. Thus, a deed of sale is
considered absolute in nature where there is neither a stipulation in the
deed that title to the property sold is reserved in the seller until the full
payment of the price, nor one giving the vendor the right to unilaterally
resolve the contract the moment the buyer fails to pay within a fixed
period. 15
There are two features which convince us that the parties never
intended to transfer ownership to petitioner except upon the full
payment of the purchase price. Firstly, the exclusive option to
purchase, although it provided for automatic rescission of the contract
and partial forfeiture of the amount already paid in case of default,

does not mention that petitioner is obliged to return possession or


ownership of the property as a consequence of non-payment. There is
no stipulation anent reversion or reconveyance of the property to
herein private respondents in the event that petitioner does not comply
with its obligation. With the absence of such a stipulation, although
there is a provision on the remedies available to the parties in case of
breach, it may legally be inferred that the parties never intended to
transfer ownership to the petitioner to completion of payment of the
purchase price.
In effect, there was an implied agreement that ownership shall not
pass to the purchaser until he had fully paid the price. Article 1478 of
the civil code does not require that such a stipulation be expressly
made. Consequently, an implied stipulation to that effect is considered
valid and, therefore, binding and enforceable between the parties. It
should be noted that under the law and jurisprudence, a contract which
contains this kind of stipulation is considered a contract to sell.
Moreover, that the parties really intended to execute a contract to sell,
and not a contract of sale, is bolstered by the fact that the deed of
absolute sale would have been issued only upon the payment of the
balance of the purchase price, as may be gleaned from petitioner's
letter dated April 16, 1990 16 wherein it informed private respondents
that it "is now ready and willing to pay you simultaneously with the
execution of the corresponding deed of absolute sale."
Secondly, it has not been shown there was delivery of the property,
actual or constructive, made to herein petitioner. The exclusive option
to purchase is not contained in a public instrument the execution of
which would have been considered equivalent to delivery. 17 Neither did
petitioner take actual, physical possession of the property at any given
time. It is true that after the reconstitution of private respondents'
certificate of title, it remained in the possession of petitioner's counsel,
Atty. Bayani L. Bernardo, who thereafter delivered the same to herein
petitioner. Normally, under the law, such possession by the vendee is
to be understood as a delivery. 18 However, private respondents
explained that there was really no intention on their part to deliver the
title to herein petitioner with the purpose of transferring ownership to it.
They claim that Atty. Bernardo had possession of the title only because
he was their counsel in the petition for reconstitution. We have no
reason not to believe this explanation of private respondents, aside
from the fact that such contention was never refuted or contradicted by
petitioner.
2. Irrefragably, the controverted document should legally be considered
as a perfected contract to sell. On this particular point, therefore, we
reject the position and ratiocination of respondent Court of Appeals
which, while awarding the correct relief to private respondents,
categorized the instrument as "strictly an option contract."
The important task in contract interpretation is always the
ascertainment of the intention of the contracting parties and that task
is, of course, to be discharged by looking to the words they used to
project that intention in their contract, all the words not just a particular
word or two, and words in context not words standing
alone. 19Moreover, judging from the subsequent acts of the parties
which will hereinafter be discussed, it is undeniable that the intention of
the parties was to enter into a contract to sell. 20 In addition, the title of
a contract does not necessarily determine its true nature. 21 Hence, the
fact that the document under discussion is entitled "Exclusive Option to
Purchase" is not controlling where the text thereof shows that it is a
contract to sell.
An option, as used in the law on sales, is a continuing offer or contract
by which the owner stipulates with another that the latter shall have the
right to buy the property at a fixed price within a certain time, or under,
or in compliance with, certain terms and conditions, or which gives to

the owner of the property the right to sell or demand a sale. It is also
sometimes called an "unaccepted offer." An option is not of itself a
purchase, but merely secures the privilege to buy. 22 It is not a sale of
property but a sale of property but a sale of the right to purchase. 23 It
is simply a contract by which the owner of property agrees with another
person that he shall have the right to buy his property at a fixed price
within a certain time. He does not sell his land; he does not then agree
to sell it; but he does sell something, that it is, the right or privilege to
buy at the election or option of the other party. 24 Its distinguishing
characteristic is that it imposes no binding obligation on the person
holding the option, aside from the consideration for the offer. Until
acceptance, it is not, properly speaking, a contract, and does not vest,
transfer, or agree to transfer, any title to, or any interest or right in the
subject matter, but is merely a contract by which the owner of property
gives the optionee the right or privilege of accepting the offer and
buying the property on certain terms. 25
On the other hand, a contract, like a contract to sell, involves a meeting
of minds two persons whereby one binds himself, with respect to the
other, to give something or to render some service. 26 Contracts, in
general, are perfected by mere consent, 27 which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be certain and the
acceptance absolute. 28
The distinction between an "option" and a contract of sale is that an
option is an unaccepted offer. It states the terms and conditions on
which the owner is willing to sell the land, if the holder elects to accept
them within the time limited. If the holder does so elect, he must give
notice to the other party, and the accepted offer thereupon becomes a
valid and binding contract. If an acceptance is not made within the time
fixed, the owner is no longer bound by his offer, and the option is at an
end. A contract of sale, on the other hand, fixes definitely the relative
rights and obligations of both parties at the time of its execution. The
offer and the acceptance are concurrent, since the minds of the
contracting parties meet in the terms of the agreement. 29
A perusal of the contract in this case, as well as the oral and
documentary evidence presented by the parties, readily shows that
there is indeed a concurrence of petitioner's offer to buy and private
respondents' acceptance thereof. The rule is that except where a
formal acceptance is so required, although the acceptance must be
affirmatively and clearly made and must be evidenced by some acts or
conduct communicated to the offeror, it may be made either in a formal
or an informal manner, and may be shown by acts, conduct, or words
of the accepting party that clearly manifest a present intention or
determination to accept the offer to buy or sell. Thus, acceptance may
be shown by the acts, conduct, or words of a party recognizing the
existence of the contract of sale. 30
The records also show that private respondents accepted the offer of
petitioner to buy their property under the terms of their contract. At the
time petitioner made its offer, private respondents suggested that their
transfer certificate of title be first reconstituted, to which petitioner
agreed. As a matter of fact, it was petitioner's counsel, Atty. Bayani L.
Bernardo, who assisted private respondents in filing a petition for
reconstitution. After the title was reconstituted, the parties agreed that
petitioner would pay either in cash or manager's check the amount of
P2,856,150.00 for the lot. Petitioner was supposed to pay the same on
November 25, 1989, but it later offered to make a down payment of
P50,000.00, with the balance of P2,806,150.00 to be paid on or before
November 30, 1989. Private respondents agreed to the counter-offer
made by petitioner. 31 As a result, the so-called exclusive option to
purchase was prepared by petitioner and was subsequently signed by
private respondents, thereby creating a perfected contract to sell
between them.

It cannot be gainsaid that the offer to buy a specific piece of land was
definite and certain, while the acceptance thereof was absolute and
without any condition or qualification. The agreement as to the object,
the price of the property, and the terms of payment was clear and welldefined. No other significance could be given to such acts that than
they were meant to finalize and perfect the transaction. The parties
even went beyond the basic requirements of the law by stipulating that
"all expenses including the corresponding capital gains tax, cost of
documentary stamps are for the account of the vendors, and expenses
for the registration of the deed of sale in the Registry of Deeds are for
the account of Adelfa properties, Inc." Hence, there was nothing left to
be done except the performance of the respective obligations of the
parties.
We do not subscribe to private respondents' submission, which was
upheld by both the trial court and respondent court of appeals, that the
offer of petitioner to deduct P500,000.00, (later reduced to
P300,000.00) from the purchase price for the settlement of the civil
case was tantamount to a counter-offer. It must be stressed that there
already existed a perfected contract between the parties at the time the
alleged counter-offer was made. Thus, any new offer by a party
becomes binding only when it is accepted by the other. In the case of
private respondents, they actually refused to concur in said offer of
petitioner, by reason of which the original terms of the contract
continued to be enforceable.
At any rate, the same cannot be considered a counter-offer for the
simple reason that petitioner's sole purpose was to settle the civil case
in order that it could already comply with its obligation. In fact, it was
even indicative of a desire by petitioner to immediately comply
therewith, except that it was being prevented from doing so because of
the filing of the civil case which, it believed in good faith, rendered
compliance improbable at that time. In addition, no inference can be
drawn from that suggestion given by petitioner that it was totally
abandoning the original contract.
More importantly, it will be noted that the failure of petitioner to pay the
balance of the purchase price within the agreed period was attributed
by private respondents to "lack of word of honor" on the part of the
former. The reason of "lack of word of honor" is to us a clear indication
that private respondents considered petitioner already bound by its
obligation to pay the balance of the consideration. In effect, private
respondents were demanding or exacting fulfillment of the obligation
from herein petitioner. with the arrival of the period agreed upon by the
parties, petitioner was supposed to comply with the obligation
incumbent upon it to perform, not merely to exercise an option or a
right to buy the property.
The obligation of petitioner on November 30, 1993 consisted of an
obligation to give something, that is, the payment of the purchase
price. The contract did not simply give petitioner the discretion to pay
for the property. 32It will be noted that there is nothing in the said
contract to show that petitioner was merely given a certain period
within which to exercise its privilege to buy. The agreed period was
intended to give time to herein petitioner within which to fulfill and
comply with its obligation, that is, to pay the balance of the purchase
price. No evidence was presented by private respondents to prove
otherwise.
The test in determining whether a contract is a "contract of sale or
purchase" or a mere "option" is whether or not the agreement could be
specifically enforced. 33 There is no doubt that the obligation of
petitioner to pay the purchase price is specific, definite and certain, and
consequently binding and enforceable. Had private respondents
chosen to enforce the contract, they could have specifically compelled
petitioner to pay the balance of P2,806,150.00. This is distinctly made
manifest in the contract itself as an integral stipulation, compliance with

which could legally and definitely be demanded from petitioner as a


consequence.
This is not a case where no right is as yet created nor an obligation
declared, as where something further remains to be done before the
buyer and seller obligate themselves. 34 An agreement is only an
"option" when no obligation rests on the party to make any payment
except such as may be agreed on between the parties as
consideration to support the option until he has made up his mind
within the time specified. 35 An option, and not a contract to purchase,
is effected by an agreement to sell real estate for payments to be
made within specified time and providing forfeiture of money paid upon
failure to make payment, where the purchaser does not agree to
purchase, to make payment, or to bind himself in any way other than
the forfeiture of the payments made. 36 As hereinbefore discussed, this
is not the situation obtaining in the case at bar.
While there is jurisprudence to the effect that a contract which provides
that the initial payment shall be totally forfeited in case of default in
payment is to be considered as an option contract, 37 still we are not
inclined to conform with the findings of respondent court and the
court a quo that the contract executed between the parties is an option
contract, for the reason that the parties were already contemplating
the payment of the balance of the purchase price, and were not merely
quoting an agreed value for the property. The term "balance," connotes
a remainder or something remaining from the original total sum already
agreed upon.
In other words, the alleged option money of P50,000.00 was actually
earnest money which was intended to form part of the purchase price.
The amount of P50,000.00 was not distinct from the cause or
consideration for the sale of the property, but was itself a part thereof.
It is a statutory rule that whenever earnest money is given in a contract
of sale, it shall be considered as part of the price and as proof of the
perfection of the contract. 38 It constitutes an advance payment and
must, therefore, be deducted from the total price. Also, earnest money
is given by the buyer to the seller to bind the bargain.
There are clear distinctions between earnest money and option
money, viz.: (a) earnest money is part of the purchase price, while
option money ids the money given as a distinct consideration for an
option contract; (b) earnest money is given only where there is already
a sale, while option money applies to a sale not yet perfected; and (c)
when earnest money is given, the buyer is bound to pay the balance,
while when the would-be buyer gives option money, he is not required
to buy. 39
The aforequoted characteristics of earnest money are apparent in the
so-called option contract under review, even though it was called
"option money" by the parties. In addition, private respondents failed to
show that the payment of the balance of the purchase price was only a
condition precedent to the acceptance of the offer or to the exercise of
the right to buy. On the contrary, it has been sufficiently established
that such payment was but an element of the performance of
petitioner's obligation under the contract to sell. 40
II
1. This brings us to the second issue as to whether or not there was
valid suspension of payment of the purchase price by petitioner and
the legal consequences thereof. To justify its failure to pay the
purchase price within the agreed period, petitioner invokes Article 1590
of the civil Code which provides:
Art. 1590. Should the vendee be disturbed in the
possession or ownership of the thing acquired, or
should he have reasonable grounds to fear such

disturbance, by a vindicatory action or a


foreclosure of mortgage, he may suspend the
payment of the price until the vendor has caused
the disturbance or danger to cease, unless the
latter gives security for the return of the price in a
proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee
shall be bound to make the payment. A mere act
of trespass shall not authorize the suspension of
the payment of the price.
Respondent court refused to apply the aforequoted provision of law on
the erroneous assumption that the true agreement between the parties
was a contract of option. As we have hereinbefore discussed, it was
not an option contract but a perfected contract to sell. Verily, therefore,
Article 1590 would properly apply.
Both lower courts, however, are in accord that since Civil Case No. 895541 filed against the parties herein involved only the eastern half of
the land subject of the deed of sale between petitioner and the
Jimenez brothers, it did not, therefore, have any adverse effect on
private respondents' title and ownership over the western half of the
land which is covered by the contract subject of the present case. We
have gone over the complaint for recovery of ownership filed in said
case 41 and we are not persuaded by the factual findings made by said
courts. At a glance, it is easily discernible that, although the complaint
prayed for the annulment only of the contract of sale executed between
petitioner and the Jimenez brothers, the same likewise prayed for the
recovery of therein plaintiffs' share in that parcel of land specifically
covered by TCT No. 309773. In other words, the plaintiffs therein were
claiming to be co-owners of the entire parcel of land described in TCT
No. 309773, and not only of a portion thereof nor, as incorrectly
interpreted by the lower courts, did their claim pertain exclusively to the
eastern half adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of
the balance of the purchase price by reason of the aforesaid
vindicatory action filed against it. The assurance made by private
respondents that petitioner did not have to worry about the case
because it was pure and simple harassment 42 is not the kind of
guaranty contemplated under the exceptive clause in Article 1590
wherein the vendor is bound to make payment even with the existence
of a vindicatory action if the vendee should give a security for the
return of the price.
2. Be that as it may, and the validity of the suspension of payment
notwithstanding, we find and hold that private respondents may no
longer be compelled to sell and deliver the subject property to
petitioner for two reasons, that is, petitioner's failure to duly effect the
consignation of the purchase price after the disturbance had ceased;
and, secondarily, the fact that the contract to sell had been validly
rescinded by private respondents.
The records of this case reveal that as early as February 28, 1990
when petitioner caused its exclusive option to be annotated anew on
the certificate of title, it already knew of the dismissal of civil Case No.
89-5541. However, it was only on April 16, 1990 that petitioner, through
its counsel, wrote private respondents expressing its willingness to pay
the balance of the purchase price upon the execution of the
corresponding deed of absolute sale. At most, that was merely a notice
to pay. There was no proper tender of payment nor consignation in this
case as required by law.
The mere sending of a letter by the vendee expressing the intention to
pay, without the accompanying payment, is not considered a valid
tender of payment. 43 Besides, a mere tender of payment is not
sufficient to compel private respondents to deliver the property and

execute the deed of absolute sale. It is consignation which is essential


in order to extinguish petitioner's obligation to pay the balance of the
purchase price. 44 The rule is different in case of an option contract 45 or
in legal redemption or in a sale with right to repurchase, 46 wherein
consignation is not necessary because these cases involve an
exercise of a right or privilege (to buy, redeem or repurchase) rather
than the discharge of an obligation, hence tender of payment would be
sufficient to preserve the right or privilege. This is because the
provisions on consignation are not applicable when there is no
obligation to pay. 47 A contract to sell, as in the case before us, involves
the performance of an obligation, not merely the exercise of a privilege
of a right. consequently, performance or payment may be effected not
by tender of payment alone but by both tender and consignation.
Furthermore, petitioner no longer had the right to suspend payment
after the disturbance ceased with the dismissal of the civil case filed
against it. Necessarily, therefore, its obligation to pay the balance
again arose and resumed after it received notice of such dismissal.
Unfortunately, petitioner failed to seasonably make payment, as in fact
it has deposit the money with the trial court when this case was
originally filed therein.
By reason of petitioner's failure to comply with its obligation, private
respondents elected to resort to and did announce the rescission of the
contract through its letter to petitioner dated July 27, 1990. That written
notice of rescission is deemed sufficient under the circumstances.
Article 1592 of the Civil Code which requires rescission either by
judicial action or notarial act is not applicable to a contract to
sell. 48 Furthermore, judicial action for rescission of a contract is not
necessary where the contract provides for automatic rescission in case
of breach, 49 as in the contract involved in the present controversy.
We are not unaware of the ruling in University of the Philippines vs. De
los Angeles, etc. 50 that the right to rescind is not absolute, being ever
subject to scrutiny and review by the proper court. It is our considered
view, however, that this rule applies to a situation where the
extrajudicial rescission is contested by the defaulting party. In other
words, resolution of reciprocal contracts may be made extrajudicially
unless successfully impugned in court. If the debtor impugns the
declaration, it shall be subject to judicial determination 51 otherwise, if
said party does not oppose it, the extrajudicial rescission shall have
legal effect. 52
In the case at bar, it has been shown that although petitioner was duly
furnished and did receive a written notice of rescission which specified
the grounds therefore, it failed to reply thereto or protest against it. Its
silence thereon suggests an admission of the veracity and validity of
private respondents' claim. 53 Furthermore, the initiative of instituting
suit was transferred from the rescinder to the defaulter by virtue of the
automatic rescission clause in the contract. 54 But then, the records
bear out the fact that aside from the lackadaisical manner with which
petitioner treated private respondents' latter of cancellation, it utterly
failed to seriously seek redress from the court for the enforcement of
its alleged rights under the contract. If private respondents had not
taken the initiative of filing Civil Case No. 7532, evidently petitioner had
no intention to take any legal action to compel specific performance
from the former. By such cavalier disregard, it has been effectively
estopped from seeking the affirmative relief it now desires but which it
had theretofore disdained.
WHEREFORE, on the foregoing modificatory premises, and
considering that the same result has been reached by respondent
Court of Appeals with respect to the relief awarded to private
respondents by the court a quo which we find to be correct, its assailed
judgment in CA-G.R. CV No. 34767 is hereby AFFIRMED.
SO ORDERED.

G.R. No. 97332 October 10, 1991


SPOUSES JULIO D. VILLAMOR AND MARINA
VILLAMOR, petitioners,
vs.
THE HON. COURT OF APPEALS AND SPOUSES MACARIA
LABINGISA REYES AND ROBERTO REYES,respondents.
Tranquilino F. Meris for petitioners.
Agripino G. Morga for private respondents.

MEDIALDEA, J.:p
This is a petition for review on certiorari of the decision of the Court of
Appeals in CA-G.R. No. 24176 entitled, "Spouses Julio Villamor and
Marina Villamor, Plaintiffs-Appellees, versus Spouses Macaria Labingisa Reyes and Roberto Reyes, Defendants-Appellants," which
reversed the decision of the Regional Trial Court (Branch 121) at
Caloocan City in Civil Case No. C-12942.

That I, with the conformity of my husband, Roberto


Reyes, have sold one-half thereof to the aforesaid
spouses Julio Villamor and Marina V. Villamor at
the price of P70.00 per sq. meter, which was
greatly higher than the actual reasonable
prevailing value of lands in that place at the time,
which portion, after segregation, is now covered
by TCT No. 39935 of the Register of Deeds for the
City of Caloocan, issued on August 17, 1971 in the
name of the aforementioned spouses vendees;
That the only reason why the Spouses-vendees
Julio Villamor and Marina V. Villamor, agreed to
buy the said one-half portion at the above-stated
price of about P70.00 per square meter, is
because I, and my husband Roberto Reyes, have
agreed to sell and convey to them the remaining
one-half portion still owned by me and now
covered by TCT No. 39935 of the Register of
Deeds for the City of Caloocan, whenever the
need of such sale arises, either on our part or on
the part of the spouses (Julio) Villamor and Marina
V. Villamor, at the same price of P70.00 per
square meter, excluding whatever improvement
may be found the thereon;

The facts of the case are as follows:


Macaria Labingisa Reyes was the owner of a 600-square meter lot
located at Baesa, Caloocan City, as evidenced by Transfer Certificate
of Title No. (18431) 18938, of the Register of Deeds of Rizal.
In July 1971, Macaria sold a portion of 300 square meters of the lot to
the Spouses Julio and Marina and Villamor for the total amount of
P21,000.00. Earlier, Macaria borrowed P2,000.00 from the spouses
which amount was deducted from the total purchase price of the 300
square meter lot sold. The portion sold to the Villamor spouses is now
covered by TCT No. 39935 while the remaining portion which is still in
the name of Macaria Labing-isa is covered by TCT No. 39934 (pars. 5
and 7, Complaint). On November 11, 1971, Macaria executed a "Deed
of Option" in favor of Villamor in which the remaining 300 square meter
portion (TCT No. 39934) of the lot would be sold to Villamor under the
conditions stated therein. The document reads:

That I am willing to have this contract to sell


inscribed on my aforesaid title as an encumbrance
upon the property covered thereby, upon payment
of the corresponding fees; and
That we, Julio Villamor and Marina V. Villamor,
hereby agree to, and accept, the above provisions
of this Deed of Option.
IN WITNESS WHEREOF, this Deed of Option is
signed in the City of Manila, Philippines, by all the
persons concerned, this 11th day of November,
1971.
JULIO VILLAMOR MACARIA LABINGISA

DEED OF OPTION

With My Conformity:

This Deed of Option, entered into in the City of


Manila, Philippines, this 11th day of November,
1971, by and between Macaria Labing-isa, of age,
married to Roberto Reyes, likewise of age, and
both resideing on Reparo St., Baesa, Caloocan
City, on the one hand, and on the other hand the
spouses Julio Villamor and Marina V. Villamor,
also of age and residing at No. 552 Reparo St.,
corner Baesa Road, Baesa, Caloocan City.

MARINA VILLAMOR ROBERTO REYES

WITNESSETH

REPUBLIC OF THE PHILIPPINES)


CITY OF MANILA ) S.S.

That, I Macaria Labingisa, am the owner in fee


simple of a parcel of land with an area of 600
square meters, more or less, more particularly
described in TCT No. (18431) 18938 of the Office
of the Register of Deeds for the province of Rizal,
issued in may name, I having inherited the same
from my deceased parents, for which reason it is
my paraphernal property;

Signed in the Presence Of:


MARIANO Z. SUNIGA
ROSALINDA S. EUGENIO
ACKNOWLEDGMENT

At the City of Manila, on the 11th day of


November, 1971, personally appeared before me
Roberto Reyes, Macaria Labingisa, Julio Villamor
and Marina Ventura-Villamor, known to me as the
same persons who executed the foregoing Deed
of Option, which consists of two (2) pages
including the page whereon this acknowledgement
is written, and signed at the left margin of the first
page and at the bottom of the instrument by the

parties and their witnesses, and sealed with my


notarial seal, and said parties acknowledged to me
that the same is their free act and deed. The
Residence Certificates of the parties were
exhibited to me as follows: Roberto Reyes, A22494, issued at Manila on Jan. 27, 1971, and B502025, issued at Makati, Rizal on Feb. 18, 1971;
Macaria Labingisa, A-3339130 and B-1266104,
both issued at Caloocan City on April 15, 1971,
their joint Tax Acct. Number being 3028-767-6;
Julio Villamor, A-804, issued at Manila on Jan. 14,
1971, and B-138, issued at Manila on March 1,
1971; and Marina Ventura-Villamor, A-803, issued
at Manila on Jan. 14, 1971, their joint Tax Acct.
Number being 608-202 6. ARTEMIO M. MALUBAY
Notary Public
Until December 31, 1972
PTR No. 338203, Manila
January 15, 1971

2. FAILING TO CONSIDER THAT THE DEED OF


OPTION CONTAINS OBSCURE WORDS AND
STIPULATIONS WHICH SHOULD BE
RESOLVED AGAINST THE PLAINTIFFAPPELLEES WHO UNILATERALLY DRAFTED
AND PREPARED THE SAME;

Doc. No. 1526;


Page No. 24;
Book No. 38;
Series of 1971. (pp. 25-29, Rollo)

5. FAILING TO CONSIDER THAT EQUITABLE


CONSIDERATION TILT IN FAVOR OF THE
DEFENDANT-APPELLANTS; and

According to Macaria, when her husband, Roberto Reyes, retired in


1984, they offered to repurchase the lot sold by them to the Villamor
spouses but Marina Villamor refused and reminded them instead that
the Deed of Option in fact gave them the option to purchase the
remaining portion of the lot.
The Villamors, on the other hand, claimed that they had expressed
their desire to purchase the remaining 300 square meter portion of the
lot but the Reyeses had been ignoring them. Thus, on July 13, 1987,
after conciliation proceedings in the barangay level failed, they filed a
complaint for specific performance against the Reyeses.
On July 26, 1989, judgment was rendered by the trial court in favor of
the Villamor spouses, the dispositive portion of which states:
WHEREFORE, and (sic) in view of the foregoing,
judgment is hereby rendered in favor of the
plaintiffs and against the defendants ordering the
defendant MACARIA LABING-ISA REYES and
ROBERTO REYES, to sell unto the plaintiffs the
land covered by T.C.T No. 39934 of the Register of
Deeds of Caloocan City, to pay the plaintiffs the
sum of P3,000.00 as and for attorney's fees and to
pay the cost of suit.
The counterclaim is hereby DISMISSED, for LACK
OF MERIT.
SO ORDERED. (pp. 24-25, Rollo)
Not satisfied with the decision of the trial court, the Reyes spouses
appealed to the Court of Appeals on the following assignment of errors:
1. HOLDING THAT THE DEED OF OPTION
EXECUTED ON NOVEMBER 11, 1971
BETWEEN THE PLAINTIFF-APPELLEES AND
DEFENDANT-APPELLANTS IS STILL VALID AND
BINDING DESPITE THE LAPSE OF MORE THAN
THIRTEEN (13) YEARS FROM THE EXECUTION
OF THE CONTRACT;

3. HOLDING THAT THE DEED OF OPTION


EXPRESSED THE TRUE INTENTION AND
PURPOSE OF THE PARTIES DESPITE
ADVERSE, CONTEMPORANEOUS AND
SUBSEQUENT ACTS OF THE PLAINTIFFAPPELLEES;
4. FAILING TO PROTECT THE DEFENDANTAPPELLANTS ON ACCOUNT OF THEIR
IGNORANCE PLACING THEM AT A
DISADVANTAGE IN THE DEED OF OPTION;

6. HOLDING DEFENDANT-APPELLANTS LIABLE


TO PAY PLAINTIFF-APPELLEES THE AMOUNT
OF P3,000.00 FOR AND BY WAY OF
ATTORNEY'S FEES. (pp. 31-32, Rollo)
On February 12, 1991, the Court of Appeals rendered a decision
reversing the decision of the trial court and dismissing the complaint.
The reversal of the trial court's decision was premised on the finding of
respondent court that the Deed of Option is void for lack of
consideration.
The Villamor spouses brought the instant petition for review on
certiorari on the following grounds:
I. THE COURT OF APPEALS GRAVELY ERRED
IN FINDING THAT THE PHRASE WHENEVER
THE NEED FOR SUCH SALE ARISES ON OUR
(PRIVATE RESPONDENT) PART OR ON THE
PART OF THE SPOUSES JULIO D. VILLAMOR
AND MARINA V. VILLAMOR' CONTAINED IN
THE DEED OF OPTION DENOTES A
SUSPENSIVE CONDITION;
II. ASSUMING FOR THE SAKE OF ARGUMENT
THAT THE QUESTIONED PHRASE IS INDEED A
CONDITION, THE COURT OF APPEALS ERRED
IN NOT FINDING, THAT THE SAID CONDITION
HAD ALREADY BEEN FULFILLED;
III. ASSUMING FOR THE SAKE OF ARGUMENT
THAT THE QUESTIONED PHRASE IS INDEED A
CONDITION, THE COURT OF APPEALS ERRED
IN HOLDING THAT THE IMPOSITION OF SAID
CONDITION PREVENTED THE PERFECTION
OF THE CONTRACT OF SALE DESPITE THE
EXPRESS OFFER AND ACCEPTANCE
CONTAINED IN THE DEED OF OPTION;
IV. THE COURT OF APPEALS ERRED IN
FINDING THAT THE DEED OF OPTION IS VOID
FOR LACK OF CONSIDERATION;

V. THE COURT OF APPEALS ERRED IN


HOLDING THAT A DISTINCT CONSIDERATION
IS NECESSARY TO SUPPORT THE DEED OF
OPTION DESPITE THE EXPRESS OFFER AND
ACCEPTANCE CONTAINED THEREIN. (p.
12, Rollo)
The pivotal issue to be resolved in this case is the validity of the Deed
of Option whereby the private respondents agreed to sell their lot to
petitioners "whenever the need of such sale arises, either on our part
(private respondents) or on the part of Julio Villamor and Marina
Villamor (petitioners)." The court a quo, rule that the Deed of Option
was a valid written agreement between the parties and made the
following conclusions:
xxx xxx xxx
It is interesting to state that the agreement
between the parties are evidence by a writing,
hence, the controverting oral testimonies of the
herein defendants cannot be any better than the
documentary evidence, which, in this case, is the
Deed of Option (Exh. "A" and "A-a")
The law provides that when the terms of an
agreement have been reduced to writing it is to be
considered as containing all such terms, and
therefore, there can be, between the parties and
their successors in interest no evidence of their
terms of the agreement, other than the contents of
the writing. ... (Section 7 Rule 130 Revised Rules
of Court) Likewise, it is a general and most
inflexible rule that wherever written instruments
are appointed either by the requirements of law, or
by the contract of the parties, to be the
repositories and memorials of truth, any other
evidence is excluded from being used, either as a
substitute for such instruments, or to contradict or
alter them. This is a matter both of principle and of
policy; of principle because such instruments are
in their nature and origin entitled to a much higher
degree of credit than evidence of policy, because it
would be attended with great mischief if those
instruments upon which man's rights depended
were liable to be impeached by loose collateral
evidence. Where the terms of an agreement are
reduced to writing, the document itself, being
constituted by the parties as the expositor of their
intentions, it is the only instrument of evidence in
respect of that agreement which the law will
recognize so long as it exists for the purpose of
evidence. (Starkie, EV, pp. 648, 655 cited in
Kasheenath vs. Chundy, W.R. 68, cited in
Francisco's Rules of Court, Vol. VII Part I p. 153)
(Emphasis supplied, pp. 126-127, Records).
The respondent appellate court, however, ruled that the said deed of
option is void for lack of consideration. The appellate court made the
following disquisitions:
Plaintiff-appellees say they agreed to pay P70.00
per square meter for the portion purchased by
them although the prevailing price at that time was
only P25.00 in consideration of the option to buy
the remainder of the land. This does not seem to
be the case. In the first place, the deed of sale
was never produced by them to prove their claim.

Defendant-appellants testified that no copy of the


deed of sale had ever been given to them by the
plaintiff-appellees. In the second place, if this was
really the condition of the prior sale, we see no
reason why it should be reiterated in the Deed of
Option. On the contrary, the alleged overprice paid
by the plaintiff-appellees is given in the Deed as
reason for the desire of the Villamors to acquire
the land rather than as a consideration for the
option given to them, although one might wonder
why they took nearly 13 years to invoke their right
if they really were in due need of the lot.
At all events, the consideration needed to support
a unilateral promise to sell is a dinstinct one, not
something that is as uncertain as P70.00 per
square meter which is allegedly 'greatly higher
than the actual prevailing value of lands.' A sale
must be for a price certain (Art. 1458). For how
much the portion conveyed to the plaintiffappellees was sold so that the balance could be
considered the consideration for the promise to
sell has not been shown, beyond a mere
allegation that it was very much below P70.00 per
square meter.
The fact that plaintiff-appellees might have paid
P18.00 per square meter for another land at the
time of the sale to them of a portion of defendantappellant's lot does not necessarily prove that the
prevailing market price at the time of the sale was
P18.00 per square meter. (In fact they claim it was
P25.00). It is improbable that plaintiff-appellees
should pay P52.00 per square meter for the
privilege of buying when the value of the land itself
was allegedly P18.00 per square meter. (pp. 3435, Rollo)
As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is
"the why of the contracts, the essential reason which moves the
contracting parties to enter into the contract." The cause or the
impelling reason on the part of private respondent executing the deed
of option as appearing in the deed itself is the petitioner's having
agreed to buy the 300 square meter portion of private respondents'
land at P70.00 per square meter "which was greatly higher than the
actual reasonable prevailing price." This cause or consideration is clear
from the deed which stated:
That the only reason why the spouses-vendees
Julio Villamor and Marina V. Villamor agreed to
buy the said one-half portion at the above stated
price of about P70.00 per square meter, is
because I, and my husband Roberto Reyes, have
agreed to sell and convey to them the remaining
one-half portion still owned by me ... (p. 26, Rollo)
The respondent appellate court failed to give due consideration to
petitioners' evidence which shows that in 1969 the Villamor spouses
bough an adjacent lot from the brother of Macaria Labing-isa for only
P18.00 per square meter which the private respondents did not rebut.
Thus, expressed in terms of money, the consideration for the deed of
option is the difference between the purchase price of the 300 square
meter portion of the lot in 1971 (P70.00 per sq.m.) and the prevailing
reasonable price of the same lot in 1971. Whatever it is, (P25.00 or
P18.00) though not specifically stated in the deed of option, was
ascertainable. Petitioner's allegedly paying P52.00 per square meter
for the option may, as opined by the appellate court, be improbable but

improbabilities does not invalidate a contract freely entered into by the


parties.
The "deed of option" entered into by the parties in this case had unique
features. Ordinarily, an optional contract is a privilege existing in one
person, for which he had paid a consideration and which gives him the
right to buy, for example, certain merchandise or certain specified
property, from another person, if he chooses, at any time within the
agreed period at a fixed price (Enriquez de la Cavada v. Diaz, 37 Phil.
982). If We look closely at the "deed of option" signed by the parties,
We will notice that the first part covered the statement on the sale of
the 300 square meter portion of the lot to Spouses Villamor at the price
of P70.00 per square meter "which was higher than the actual
reasonable prevailing value of the lands in that place at that time (of
sale)." The second part stated that the only reason why the Villamor
spouses agreed to buy the said lot at a much higher price is because
the vendor (Reyeses) also agreed to sell to the Villamors the other
half-portion of 300 square meters of the land. Had the deed stopped
there, there would be no dispute that the deed is really an ordinary
deed of option granting the Villamors the option to buy the remaining
300 square meter-half portion of the lot in consideration for their having
agreed to buy the other half of the land for a much higher price. But,
the "deed of option" went on and stated that the sale of the other half
would be made "whenever the need of such sale arises, either on our
(Reyeses) part or on the part of the Spouses Julio Villamor and Marina
V. Villamor. It appears that while the option to buy was granted to the
Villamors, the Reyeses were likewise granted an option to sell. In other
words, it was not only the Villamors who were granted an option to buy
for which they paid a consideration. The Reyeses as well were granted
an option to sell should the need for such sale on their part arise.
In the instant case, the option offered by private respondents had been
accepted by the petitioner, the promise, in the same document. The
acceptance of an offer to sell for a price certain created a bilateral
contract to sell and buy and upon acceptance, the offer, ipso
facto assumes obligations of a vendee (See Atkins, Kroll & Co. v. Cua
Mian Tek, 102 Phil. 948). Demandabilitiy may be exercised at any time
after the execution of the deed. InSanchez v. Rigos, No. L-25494, June
14, 1972, 45 SCRA 368, 376, We held:
In other words, since there may be no valid
contract without a cause of consideration, the
promisory is not bound by his promise and may,
accordingly withdraw it. Pending notice of its
withdrawal, his accepted promise partakes,
however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale.
A contract of sale is, under Article 1475 of the Civil Code, "perfected at
the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price. From that moment, the
parties may reciprocally demand perform of contracts." Since there
was, between the parties, a meeting of minds upon the object and the
price, there was already a perfected contract of sale. What was,
however, left to be done was for either party to demand from the other
their respective undertakings under the contract. It may be demanded
at any time either by the private respondents, who may compel the
petitioners to pay for the property or the petitioners, who may compel
the private respondents to deliver the property.
However, the Deed of Option did not provide for the period within
which the parties may demand the performance of their respective
undertakings in the instrument. The parties could not have
contemplated that the delivery of the property and the payment thereof
could be made indefinitely and render uncertain the status of the land.
The failure of either parties to demand performance of the obligation of
the other for an unreasonable length of time renders the contract
ineffective.

Under Article 1144 (1) of the Civil Code, actions upon written contract
must be brought within ten (10) years. The Deed of Option was
executed on November 11, 1971. The acceptance, as already
mentioned, was also accepted in the same instrument. The complaint
in this case was filed by the petitioners on July 13, 1987, seventeen
(17) years from the time of the execution of the contract. Hence, the
right of action had prescribed. There were allegations by the petitioners
that they demanded from the private respondents as early as 1984 the
enforcement of their rights under the contract. Still, it was beyond the
ten (10) years period prescribed by the Civil Code. In the case
of Santos v. Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and
subscribing to the observations of the courta quo held, thus:
... Assuming that Rosa Ganayo, the oppositor
herein, had the right based on the Agreement to
Convey and Transfer as contained in Exhibits '1'
and '1-A', her failure or the abandonment of her
right to file an action against Pulmano Molintas
when he was still a co-owner of the on-half (1/2)
portion of the 10,000 square meters is now barred
by laches and/or prescribed by law because she
failed to bring such action within ten (10) years
from the date of the written agreement in 1941,
pursuant to Art. 1144 of the New Civil Code, so
that when she filed the adverse claim through her
counsel in 1959 she had absolutely no more right
whatsoever on the same, having been barred by
laches.
It is of judicial notice that the price of real estate in Metro Manila is
continuously on the rise. To allow the petitioner to demand the delivery
of the property subject of this case thirteen (13) years or seventeen
(17) years after the execution of the deed at the price of only P70.00
per square meter is inequitous. For reasons also of equity and in
consideration of the fact that the private respondents have no other
decent place to live, this Court, in the exercise of its equity jurisdiction
is not inclined to grant petitioners' prayer.
ACCORDINGLY, the petition is DENIED. The decision of respondent
appellate court is AFFIRMED for reasons cited in this decision.
Judgement is rendered dismissing the complaint in Civil Case No. C12942 on the ground of prescription and laches.
SO ORDERED.
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.

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

The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and
defendant Severina Rigos executed an instrument entitled "Option to
Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to
sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the
barrios of Abar and Sibot, municipality of San Jose, province of Nueva
Ecija, and more particularly described in Transfer Certificate of Title
No. NT-12528 of said province, within two (2) years from said date with
the understanding that said option shall be deemed "terminated and
elapsed," if "Sanchez shall fail to exercise his right to buy the property"
within the stipulated period. Inasmuch as several tenders of payment
of the sum of Pl,510.00, made by Sanchez within said period, were
rejected by Mrs. Rigos, on March 12, 1963, the former deposited said
amount with the Court of First Instance of Nueva Ecija and
commenced against the latter the present action, for specific
performance and damages.
After the filing of defendant's answer admitting some allegations of
the complaint, denying other allegations thereof, and alleging, as
special defense, that the contract between the parties "is a unilateral
promise to sell, and the same being unsupported by any valuable
consideration, by force of the New Civil Code, is null and void" on
February 11, 1964, both parties, assisted by their respective counsel,
jointly moved for a judgment on the pleadings. Accordingly, on
February 28, 1964, the lower court rendered judgment for Sanchez,
ordering Mrs. Rigos to accept the sum judicially consigned by him and
to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos
was, likewise, sentenced to pay P200.00, as attorney's fees, and other
costs. Hence, this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of
our Civil Code, which provides:
ART. 1479. A promise to buy and sell a
determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding
upon the promissor if the promise is supported by
a consideration distinct from the price.
In his complaint, plaintiff alleges that, by virtue of the option under
consideration, "defendant agreed and committed to sell" and "the
plaintiff agreed and committed to buy" the land described in the option,
copy of which was annexed to said pleading as Annex A thereof and is
quoted on the margin. 1 Hence, plaintiff maintains that the promise
contained in the contract is "reciprocally demandable," pursuant to the
first paragraph of said Article 1479. Although defendant had really
"agreed, promised and committed" herself to sell the land to the
plaintiff, it is not true that the latter had, in turn, "agreed and committed
himself " to buy said property. Said Annex A does not bear out plaintiff's
allegation to this effect. What is more, since Annex A has been made
"an integral part" of his complaint, the provisions of said instrument
form part "and parcel" 2 of said pleading.
The option did not impose upon plaintiff the obligation to
purchase defendant's property. Annex A is not a "contract to buy and
sell." It merely granted plaintiff an "option" to buy. And both parties so
understood it, as indicated by the caption, "Option to Purchase," given
by them to said instrument. Under the provisions thereof, the
defendant "agreed, promised and committed" herself to sell the land
therein described to the plaintiff for P1,510.00, but there is nothing in
the contract to indicate that her aforementioned agreement, promise
and undertaking is supported by a consideration "distinct from the
price" stipulated for the sale of the land.

Relying upon Article 1354 of our Civil Code, the lower


court presumed the existence of said consideration, and this would
seem to be the main factor that influenced its decision in plaintiff's
favor. It should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the second
paragraph of Article 1479 refers to "sales" in particular, and, more
specifically, to "an accepted unilateral promise to buy or to sell." In
other words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the
promisor, Article 1479 requires the concurrence of a condition, namely,
that the promise be "supported by a consideration distinct from the
price." Accordingly, the promisee can not compel the promisor to
comply with the promise, unless the former establishes the existence
of said distinct consideration. In other words, the promisee has the
burden of proving such consideration. Plaintiff herein has not even
alleged the existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer,
and pleaded as a special defense, the absence of said consideration
for her promise to sell and, by joining in the petition for a judgment on
the pleadings, plaintiff has impliedly admitted the truth of said averment
in defendant's answer. Indeed as early as March 14, 1908, it had been
held, in Bauermann v. Casas, 3 that:
One who prays for judgment on the pleadings
without offering proof as to the truth of his own
allegations, and without giving the opposing party
an opportunity to introduce evidence, must be
understood to admit the truth of all the material
and relevant allegations of the opposing party, and
to rest his motion for judgment on those
allegations taken together with such of his own as
are admitted in the pleadings. (La Yebana
Company vs. Sevilla, 9 Phil. 210). (Emphasis
supplied.)
This view was reiterated in Evangelista v. De la Rosa 4 and Mercy's
Incorporated v. Herminia Verde. 5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic
Gulf & Pacific Co., 6 from which We quote:
The main contention of appellant is that the option
granted to appellee to sell to it barge No. 10 for
the sum of P30,000 under the terms stated above
has no legal effect because it is not supported by
any consideration and in support thereof it invokes
article 1479 of the new Civil Code. The article
provides:
"ART. 1479. A promise to buy
and sell a determinate thing
for a price certain is
reciprocally demandable.
An accepted unilateral
promise to buy or sell a
determinate thing for a price
certain is binding upon the
promisor if the promise is
supported by a consideration
distinct from the price."

On the other hand, Appellee contends that, even


granting that the "offer of option" is not supported
by any consideration, that option became binding
on appellant when the appellee gave notice to it of
its acceptance, and that having accepted it within
the period of option, the offer can no longer be
withdrawn and in any event such withdrawal is
ineffective. In support this contention, appellee
invokes article 1324 of the Civil Code which
provides:
"ART. 1324. When the offerer
has allowed the offeree a
certain period to accept, the
offer may be withdrawn any
time before acceptance by
communicating such
withdrawal, except when the
option is founded upon
consideration as something
paid or promised."
There is no question that under article 1479 of the
new Civil Code "an option to sell," or "a promise to
buy or to sell," as used in said article, to be valid
must be "supported by a consideration distinct
from the price." This is clearly inferred from the
context of said article that a unilateral promise to
buy or to sell, even if accepted, is only binding if
supported by consideration. In other words, "an
accepted unilateral promise can only have a
binding effect if supported by a consideration
which means that the option can still be
withdrawn, even if accepted, if the same is not
supported by any consideration. It is not disputed
that the option is without consideration. It can
therefore be withdrawn notwithstanding the
acceptance of it by appellee.
It is true that under article 1324 of the new Civil
Code, the general rule regarding offer and
acceptance is that, when the offerer gives to the
offeree a certain period to accept, "the offer may
be withdrawn at any time before acceptance"
except when the option is founded upon
consideration, but this general rule must be
interpreted as modified by the provision of article
1479 above referred to, which applies to "a
promise to buy and sell" specifically. As already
stated, this rule requires that a promise to sell to
be valid must be supported by a consideration
distinct from the price.
We are not oblivious of the existence of American
authorities which hold that an offer, once
accepted, cannot be withdrawn, regardless of
whether it is supported or not by a consideration
(12 Am. Jur. 528). These authorities, we note,
uphold the general rule applicable to offer and
acceptance as contained in our new Civil Code.
But we are prevented from applying them in view
of the specific provision embodied in article 1479.
While under the "offer of option" in question
appellant has assumed a clear obligation to sell its
barge to appellee and the option has been
exercised in accordance with its terms, and there
appears to be no valid or justifiable reason for
appellant to withdraw its offer, this Court cannot

adopt a different attitude because the law on the


matter is clear. Our imperative duty is to apply it
unless modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v.
Cua Hian Tek, 8 decided later that Southwestern Sugar & Molasses Co.
v. Atlantic Gulf & Pacific Co., 9 saw no distinction between Articles 1324
and 1479 of the Civil Code and applied the former where a unilateral
promise to sell similar to the one sued upon here was involved, treating
such promise as an option which, although not binding as a contract in
itself for lack of a separate consideration, nevertheless generated a
bilateral contract of purchase and sale upon acceptance. Speaking
through Associate Justice, later Chief Justice, Cesar Bengzon, this
Court said:
Furthermore, an option is unilateral: a promise to
sell at the price fixed whenever the offeree should
decide to exercise his option within the specified
time. After accepting the promise and before he
exercises his option, the holder of the option is not
bound to buy. He is free either to buy or not to buy
later. In this case, however, upon accepting herein
petitioner's offer a bilateral promise to sell and to
buy ensued, and the respondent ipso
facto assumed the obligation of a purchaser. He
did not just get the right subsequently to buy or not
to buy. It was not a mere option then; it was a
bilateral contract of sale.
Lastly, even supposing that Exh. A granted an
option which is not binding for lack of
consideration, the authorities hold that:
"If the option is given without
a consideration, it is a mere
offer of a contract of sale,
which is not binding until
accepted. If, however,
acceptance is made before a
withdrawal, it constitutes a
binding contract of sale, even
though the option was not
supported by a sufficient
consideration. ... . (77 Corpus
Juris Secundum, p. 652. See
also 27 Ruling Case Law 339
and cases cited.)
"It can be taken for granted,
as contended by the
defendant, that the option
contract was not valid for lack
of consideration. But it was, at
least, an offer to sell, which
was accepted by letter, and of
the acceptance the offerer
had knowledge before said
offer was withdrawn. The
concurrence of both acts
the offer and the acceptance
could at all events have
generated a contract, if none
there was before (arts. 1254
and 1262 of the Civil Code)."
(Zayco vs. Serra, 44 Phil.
331.)

In other words, since there may be no valid contract without a cause or


consideration, the promisor is not bound by his promise and may,
accordingly, withdraw it. Pending notice of its withdrawal, his accepted
promise partakes, however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale.
This view has the advantage of avoiding a conflict between Articles
1324 on the general principles on contracts and 1479 on sales
of the Civil Code, in line with the cardinal rule of statutory
construction that, in construing different provisions of one and the
same law or code, such interpretation should be favored as will
reconcile or harmonize said provisions and avoid a conflict between
the same. Indeed, the presumption is that, in the process of drafting
the Code, its author has maintained a consistent philosophy or
position. Moreover, the decision in Southwestern Sugar & Molasses
Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324
is modified by Art. 1479 of the Civil Code, in effect, considers the latter
as an exception to the former, and exceptions are not favored, unless
the intention to the contrary is clear, and it is not so, insofar as said two
(2) articles are concerned. What is more, the reference, in both the
second paragraph of Art. 1479 and Art. 1324, to an option or promise
supported by or founded upon a consideration, strongly suggests that
the two (2) provisions intended to enforce or implement the same
principle.
Upon mature deliberation, the Court is of the considered opinion that it
should, as it hereby reiterates the doctrine laid down in the Atkins,
Kroll & Co. case, and that, insofar as inconsistent therewith, the view
adhered to in theSouthwestern Sugar & Molasses Co. case should be
deemed abandoned or modified.
WHEREFORE, the decision appealed from is hereby affirmed, with
costs against defendant-appellant Severina Rigos. It is so ordered.
G.R. No. L-51824 February 7, 1992
PERCELINO DIAMANTE, petitioner,
vs.
HON. COURT OF APPEALS and GERARDO
DEYPALUBUS, respondents.
Hernandez, Velicaria, Vibar & Santiago for petitioner.
Amancio B. Sorongon for private respondent.

DAVIDE, JR., J.:


Assailed in this petition for review is the Resolution of the respondent
Court of Appeals dated 21 March 1979 in C.A.-G.R. No. SP-04866
setting aside its earlier decision therein, promulgated on 6 December
1978, which reversed the decision of the then Court of First Instance
(now Regional Trial Court) of Iloilo City. The latter nullified the Orders
of the Secretary of the Department of Agriculture and Natural
Resources (DANR) dated 29 August 1969, 20 November 1969 and 21
April 1970, declared binding the Fishpond Lease Agreement (FLA)
issued to private respondent and disallowed petitioner from
repurchasing from private respondent a portion of the fishery lot
located at Dumangas, Iloilo, covered by the FLA.
The pleadings of the parties and the decision of the respondent Court
disclose the factual antecedents of this case.

A fishery lot, encompassing an area of 9.4 hectares and designated as


Lot No. 518-A of the Cadastral Survey of Dumangas, Iloilo, was
previously covered by Fishpond Permit No. F-2021 issued in the name
of Anecita Dionio. Upon Anecita's death, her heirs, petitioner Diamante
and Primitivo Dafeliz, inherited the property which they later divided
between themselves; petitioner got 4.4. hectares while Dafeliz got 5
hectares. It is the petitioner's share that is the subject of the present
controversy. Primitivo Dafeliz later sold his share to private respondent.
On 21 May 1959, petitioner sold to private respondent his leasehold
rights over the property in question for P8,000.00 with the right to
repurchase the same within three (3) years from said date.
On 16 August 1960, private respondent filed an application with the
Bureau of Fisheries, dated 12 July 1960, for a fishpond permit and a
fishpond lease agreement over the entire lot, submitting therewith the
deeds of sale executed by Dafeliz and the petitioner.
Pressed by urgent financial needs, petitioner, on 17 October 1960, sold
all his remaining rights over the property in question to the private
respondent for P4,000.00.
On 25 October 1960, private respondent, with his wife's consent,
executed in favor of the petitioner an Option to Repurchase the
property in question within ten (10) years from said date, with a tenyear grace period.
Private respondent submitted to the Bureau of Fisheries the definite
deed of sale; he did not, however, submit the Option to Repurchase.
Thereafter, on 2 August 1961, the Bureau of Fisheries issued to private
respondent Fishpond Permit No. 4953-Q; on 17 December 1962, it
approved FLA No. 1372 in the latter's favor.
On 11 December 1963, petitioner, contending that he has a valid
twenty-year option to repurchase the subject property, requested the
Bureau of Fisheries to nullify FLA No. 1372 insofar as the said property
is concerned. On 18 December 1964, his letter-complaint was
dismissed. Petitioner then sought a reconsideration of the dismissal;
the same was denied on 29 April 1965. His appeal to the Secretary of
the DANR was likewise dismissed on 30 October 1968. Again, on 20
November 1968, petitioner sought for a reconsideration; this time,
however, he was successful. On 29 August 1969, the DANR Secretary
granted his motion in an Order cancelling FLA No. 1372 and
stating, inter alia, that:
Evidently, the application as originally filed, could
not be favorably acted upon by reason of the
existing right of a third party over a portion thereof.
It was only the submission of the deed of absolute
sale which could eliminate the stumbling block to
the approval of the transfer and the issuance of a
permit or lease agreement. It was on the basis of
this deed of sale, in fact, the one entitled "option to
repurchase" executed barely a week from the
execution of the deed of absolute sale, (which)
reverted, in effect, the status of the land in
question to what it was after the execution of the
deed of sale with right to repurchase; that is, the
land was again placed under an encumbrance in
favor of a third party. Circumstantially, there is a
ground (sic) to believe that the deed of absolute
sale was executed merely with the end in view of
circumventing the requirements for the approval of
the transfer of leasehold rights of Diamante in
favor of Deypalubos; and the subsequent
execution of the "Option to Repurchase" was

made to assure the maintenance of a vendor a


retro's rights in favor of Diamante. There was,
therefore, a misrepresentation of an essential or
material fact committed by the lessee-appellee
(Deypalubos) in his application for the permit and
the lease agreement, without which the same
could not have been issued. 1
The Secretary based his action on Section 20 of Fisheries
Administrative Order No. 60, the second paragraph of which reads:
Any and all of the statements made in the
corresponding application shall be considered as
essential conditions and parts of the permit or
lease granted. Any false statements in the
application of facts or any alteration, change or
modification of any or all terms and conditions
made therein shall ipso factocause the
cancellation of the permit or lease.
Private respondent moved for a reconsideration of this last Order
arguing that the DANR Secretary's previous Order of 30 October 1968
dismissing petitioner's letter-complaint had already become final on the
ground that he (private respondent) was not served a copy of
petitioner's 20 November 1968 motion for reconsideration. On 20
November 1969, private respondent's motion for reconsideration was
denied; a second motion for reconsideration was likewise denied on 20
April 1970.
On 5 May 1970, private respondent filed with the Court of First
Instance of Iloilo City a special civil action forcertiorari with preliminary
injunction (docketed as Civil Case No. 8209), seeking to annul the
Secretary's Orders of 20 April 1970, 20 November 1969 and 29 August
1969 on the ground that the Secretary: (1) gravely abused his
discretion in not giving him the opportunity to be heard on the question
of whether or not the Option to Repurchase was forged; and (2) has no
jurisdiction to set aside FLA No. 1372 as the Order of the Bureau of
Fisheries dismissing petitioner's 11 December 1963 letter-complaint
had already become final.
After issuing a temporary restraining order and a writ of preliminary
injunction, the lower court tried the case jointly with Criminal Case No.
520 wherein both the petitioner and a certain Atty. Agustin Dioquino,
the Notary Public who notarized the 25 October 1960 Option to
Repurchase, were charged with falsification of a public document.
After due trial, the lower court acquitted the accused in the criminal
case and decided in favor of the private respondent in Civil Case No.
8209; the court ruled that: (1) the DANR Secretary abused his
discretion in issuing the questioned Orders, (2) petitioner cannot
repurchase the property in question as the Option to Repurchase is of
doubtful validity, and (3) FLA No. 1372 in the name of private
respondent is valid and binding.
Petitioner appealed to the respondent Court which, on 6 December
1978, reversed the decision of the trial court 2on the ground that no
grave abuse of discretion was committed by respondent Secretary
inasmuch as private respondent was given the opportunity to be heard
on his claim that the Option to Repurchase is spurious, and that the
trial court merely indulged in conjectures in not upholding its validity.
Said the respondent Court:
With all the foregoing arguments appellee had
exhaustively adduced to show the spuriousness of
the deed of "Option to Repurchase", appellee can
hardly complain of not having been given an
opportunity to be heard, which is all that is

necessary in relation to the requirement of notice


and hearing in administrative proceedings.
Moreover, appellee never asked for a formal
hearing at the first opportunity that he had to do
so, as when he filed his first motion for
reconsideration. He asked for a formal hearing
only in his second motion for reconsideration
evidently as a mere afterthought, upon realizing
that his arguments were futile without proofs to
support them.
The only remaining question, therefore, is whether
the Secretary acted with grave abuse of discretion
in giving weight to the alleged execution by
appellee of the deed of Option to Repurchase, on
the basis of the xerox copy of said deed as
certified by the Notary Public, Agustin Dioquino.
With such documentary evidence duly certified by
the Notary Public, which is in effect an affirmation
of the existence of the deed of "Option of
Repurchase" (sic) and its due execution, the
Secretary may not be said to have gravely abused
his discretion in giving the document enough
evidentiary weight to justify his action in applying
the aforequoted provisions of Fisheries Adm.
Order No. 60. This piece of evidence may be
considered substantial enough to support the
conclusion reached by the respondent Secretary,
which is all that is necessary to sustain an
administrative finding of fact (Ortua vs.
Encarnacion, 59 Phil. 635; Ang Tibay vs. CIR, 69
Phil. 635; Ramos vs. The Sec. of Agriculture and
Natural Resources, et al. L-29097, Jan. 28, 1974,
55 SCRA 330). Reviewing courts do not reexamine the sufficiency of the evidence in an
administrative case, if originally instituted as such,
nor are they authorized to receive additional
evidence that was not submitted to the
administrative agency concerned. For common
sense dictates that the question of whether the
administrative agency abused its discretion in
weighing evidence should be resolved solely on
the basis of the proof that the administrative
authorities had before them and no other
(Timbancaya vs. Vicente, L-19100, Dec. 27, 1963,
9 SCRA 852). In the instant case the evidence
presented for the first time before the court a
quo could be considered only for the criminal case
heard jointly with this case.
The lower court's action of acquitting the notary
public, Agustin Dioquino, and appellant Diamante
in Criminal Case No. 520 for falsification of public
document is in itself a finding that the alleged
forgery has not been conclusively established.
This finding is quite correct considering the
admission of the NBI handwriting expert that
admission of the NBI handwriting expert that he
cannot make any finding on the question of
whether appellee's signature on the deed of
"Option to Repurchase" is forged or not, because
of the lack of (sic) specimen signature of appellee
for comparative examination. The Secretary may
have such signature in the application papers of
appellee on file with the former's office upon which
to satisfy himself of (sic) the genuineness of
appellee's signature. It would be strange, indeed,

that appellee had not provided the NBI expert with


a specimen of his signature when his purpose was
to have an expert opinion that his signature on the
questioned document is forged.
On the other hand, as to the signature of his wife,
the latter herself admitted the same to be her own.
Thus
Q There is a signature below the typewritten words "with my
marital consent" and above the name Edelina Duyo, whose
signature is this?
A That is my signature. (T.s.n., Crim. Case No. 520, April 5,
1971, p. 14).
In not finding in favor of the perfect validity of the
"Option to Repurchase," the court a quo merely
indulged in conjectures. Thus, believing the
testimony of appellee that the later (sic) could not
have executed the deed of option to repurchase
after spending allegedly P12,000.00, and that if
there was really a verbal agreement upon the
execution of the deed of absolute sale, as alleged
by appellant, that appellant's right to repurchase,
as was stipulated in the earlier deed of sale, shall
be preserved, such agreement should have been
embodied in the deed of sale of October 17, 1960
(Exh. D), the court doubted the genuineness of the
deed of Option to Repurchase (sic).
It is highly doubtful if appellee had spent
P12,000.00 during the period from October 17,
1960 to October 25, 1960 when the deed of option
was executed. Likewise, the right to repurchase
could not have been embodied in the deed of
absolute sale since, as the Secretary of DANR
found, the purpose of the deed of absolute sale is
to circumvent the law and insure the approval of
appellee's application, as with his right to 4.4
hectares appearing to be subject to an
encumbrance, his application would not have been
given favorable action.
Above all, the speculation and conjectures as
indulged in by the court a quo cannot outweigh the
probative effect of the document itself, a certified
xerox copy thereof as issued by the Notary Public,
the non-presentation of the original having been
explained by its loss, as was the testimony of the
same Notary Public, who justly won acquittal when
charged with falsification of public document at the
instance of appellee. The fact that the spaces for
the document number, page and book numbers
were not filled up in the photostatic copy
presented by the representative of the Bureau of
Records Management does not militate against
the genuineness of the document. It simply means
that the copy sent to the said Bureau happens to
have those spaces unfilled up (sic). But the
sending of a copy of the document to the Bureau
of Records Management attests strongly to the
existence of such document, the original of which
was duly executed, complete with the aforesaid
data duly indicated thereon, as shown by the
xerox copy certified true by the Notary Public.

Indeed, in the absence of positive and convincing


proof of forgery, a public instrument executed with
the intervention of a Notary Public must be held in
high respect and accorded full integrity, if only
upon the presumption of the regularity of official
functions as in the nature of those upon the
presumption of the regularity of official functions as
in the nature of those of a notary public (Bautista
vs. Dy Bun Chin, 49 OG 179; El Hogar Filipino vs.
Olviga, 60 Phil. 17).
Subsequently, the respondent Court, acting on private respondent's
motion for reconsideration, promulgated on 21 March 1979 the
challenged Resolution 3 setting aside the earlier decision and
affirmed, in toto, the ruling of the trial court, thus:
. . . the respondent (DANR) Secretary had gone
beyond his statutory authority and had clearly
acted in abuse of discretion in giving due weight to
the alleged option to repurchase whose (sic)
genuiness (sic) and due execution had been
impugned and denied by petitioner-appellee
(Deypalubos). While the certified true copy of the
option to repurchase may have been the basis of
the respondent Secretary in resolving the motion
for reconsideration, the Court believes that he
should have first ordered the presentation of
evidence to resolve this factual issue considering
the conflicting claims of the parties. As earlier
pointed out, all that was submitted to the Bureau
of Fisheries and consequently to the respondent
Secretary, was a xerox copy of the questioned
document which was certified to by a notary public
to be a copy of a deed found in his notarial file
which did not bear any specimen of the signatures
of the contracting parties. And assuming that a
certification made by a notary public as to the
existence of a document should be deemed an
affirmation that such document actually exists.
Nevertheless, (sic) when such claim is impugned,
the one who assails the existence of a document
should be afforded the opportunity to prove such
claim, because, at most, the presumption of
regularity in the performance of official duties is
merely disputable and can be rebutted by
convincing and positive evidence to the contrary.
His motion for reconsideration having been denied, the petitioner filed
the instant petition for review.
Petitioner contends that the Rules of Court should not be strictly
applied to administrative proceedings and that the findings of fact of
administrative bodies, absent a showing of arbitrariness, should be
accorded respect.
While the petition has merit, petitioner's victory is hollow and illusory
for, as shall hereafter be shown, even as We reverse the assailed
resolution of the respondent Court of Appeals, the questioned decision
of the Secretary must, nevertheless, be set aside on the basis of an
erroneous conclusion of law with respect to the Option to Repurchase.
The respondent Court correctly held in its decision of 6 December
1978 that the respondent Secretary provided the private respondent
sufficient opportunity to question the authenticity of the Option to
Repurchase and committed no grave abuse of discretion in holding
that the same was in fact executed by private respondent. We thus find
no sufficient legal and factual moorings for respondent Court's sudden

turnabout in its resolution of 21 March 1979. That private respondent


and his wife executed the Option to Repurchase in favor of petitioner
on 25 October 1960 is beyond dispute. As determined by the
respondent Court in its decision of 6 December 1978, private
respondent's wife, Edelina Duyo, admitted having affixed her signature
to the said document. Besides, the trial court itself in Criminal Case
No. 520 which was jointly tried with the civil case, acquitted both the
petitioners and the notary public, before whom the Option to
Repurchase was acknowledged, of the crime of falsification of said
document.
We hold, however, that the respondent Secretary gravely erred in
holding that private respondent's non-disclosure and suppression of
the fact that 4.4 hectares of the area subject of the application is
burdened with or encumbered by the Option to Repurchase constituted
a falsehood or a misrepresentation of an essential or material fact
which, under the second paragraph of Section 29 of Fisheries
Administrative Order No. 60 earlier quoted, "shall ipso facto cause the
cancellation of the permit or lease." In short, the Secretary was of the
opinion that the Option to Repurchase was an encumbrance on the
property which affected the absolute and exclusive character of private
respondent's ownership over the 4.4 hectares sold to him by petitioner.
This is a clear case of a misapplication of the law on conventional
redemption and a misunderstanding of the effects of a right to
repurchase granted subsequently in an instrument different from the
original document of sale.
Article 1601 of the Civil Code provides:
Conventional redemption shall take place when
the vendor reserves the right to repurchase the
thing sold, with the obligation to comply with the
provisions of article 1616 and other stipulations
which may have been agreed upon.
In Villarica, et al. vs. Court of Appeals, et al., 4 decided on 29
November 1968, or barely seven (7) days before the respondent Court
promulgated its decision in this case, this Court, interpreting the above
Article, held:
The right of repurchase is not a right granted the
vendor by the vendee in a subsequent instrument,
but is a right reserved by the vendor in the same
instrument of sale as one of the stipulations of the
contract. Once the instrument of absolute sale is
executed, the vendor can no longer reserve the
right to repurchase, and any right thereafter
granted the vendor by the vendee in a separate
instrument cannot be a right of repurchase but
some other right like the option to buy in the
instant case. . . .
In the earlier case of Ramos, et al. vs. Icasiano, et al., 5 decided in
1927, this Court had already ruled that "an agreement to repurchase
becomes a promise to sell when made after the sale, because when
the sale is made without such an agreement, the purchaser acquires
the thing sold absolutely, and if he afterwards grants the vendor the
right to repurchase, it is a new contract entered into by the purchaser,
as absolute owner already of the object. In that case the vendor has
not reserved to himself the right to repurchase."
In Vda. de Cruzo, et al. vs. Carriaga, et al., 6 this Court found another
occasion to apply the foregoing principle.
Hence, the Option to Repurchase executed by private respondent in
the present case, was merely a promise to sell, which must be
governed by Article 1479 of the Civil Code which reads as follows:

Art. 1479. A promise to buy and sell a


determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding
upon the promissor if the promise is supported by
a consideration distinct from the price.
A copy of the so-called Option to Repurchase is neither attached to the
records nor quoted in any of the pleadings of the parties. This Court
cannot, therefore, properly rule on whether the promise was accepted
and a consideration distinct from the price, supports the option.
Undoubtedly, in the absence of either or both acceptance and separate
consideration, the promise to sell is not binding upon the promissor
(private respondent).
A unilateral promise to buy or sell is a mere offer,
which is not converted into a contract except at the
moment it is accepted. Acceptance is the act that
gives life to a juridical obligation, because, before
the promise is accepted, the promissor may
withdraw it at any time. Upon acceptance,
however, a bilateral contract to sell and to buy is
created, and the offeree ipso facto assumes the
obligations of a purchaser; the offeror, on the other
hand, would be liable for damages if he fails to
deliver the thing he had offered for sale.
xxx xxx xxx
. . . The contract of option is a separate and
distinct contract from the contract which the
parties may enter into upon the consummation of
the option, and a consideration for an optional
contract is just as important as the consideration
for any other kind of contract. Thus, a distinction
should be drawn between the consideration for the
option to repurchase, and the consideration for the
contract of repurchase itself. 7
Even if the promise was accepted, private respondent was not bound
thereby in the absence of a distinct consideration. 8
It may be true that the foregoing issues were not squarely raised by the
parties. Being, however, intertwined with the issue of the correctness of
the decision of the respondent Secretary and, considering further that
the determination of said issues is essential and indispensable for the
rendition of a just decision in this case, this Court does not hesitate to
rule on them.
In Hernandez vs. Andal, 9 this Court held:
If the appellants' assignment of error be not
considered a direct challenge to the decision of
the court below, we still believe that the objection
takes a narrow view of practice and procedure
contrary to the liberal spirit which pervades the
Rules of Court. The first injunction of the new
Rules (Rule 1, section 2) is that they "shall be
liberally construed in order to promote their object
and to assist the parties in obtaining just, speedy,
and inexpensive determination of every action and
proceeding." In line with the modern trends of
procedure, we are told that, "while an assignment
of error which is required by law or rule of court

has been held essential to appellate review, and


only those assigned will be considered, there are a
number of cases which appear to accord to the
appellate court a broad discretionary power to
waive the lack of proper assignment of errors and
consider errors not assigned. And an unassigned
error closely related to an error properly assigned,
or upon which the determination of the question
raised by the error properly assigned is
dependent, will be considered by the appellate
court notwithstanding the failure to assign it as
error." (4 C.J.S., 1734; 3 C.J., 1341, footnote 77).
At the least, the assignment of error, viewed in this
light, authorizes us to examine and pass upon the
decision of the court below.

IT IS SO ORDERED.
G.R. No. 126454

November 26, 2004

BIBLE BAPTIST CHURCH and PASTOR REUBEN


BELMONTE, petitioners,
vs.
COURT OF APPEALS and MR. & MRS. ELMER TITO MEDINA
VILLANUEVA, respondents.

DECISION

In Insular Life Assurance Co., Ltd. Employees Association-NATU vs.


Insular Life Assurance Co., Ltd., 10 this Court ruled:
. . . (t)he Supreme Court has ample authority to
review and resolve matter not assigned and
specified as errors by either of the parties in the
appeal if it finds the consideration and
determination of the same essential and
indispensable in order to arrive at a just decision in
the case. 11 This Court, thus, has the authority to
waive the lack of proper assignment of errors if the
unassigned errors closely relate to errors properly
pinpointed out or if the unassigned errors refer to
matters upon which the determination of the
questions raised by the errors properly assigned
depend. 12
The same also applies to issues not specifically
raised by the parties. The Supreme Court,
likewise, has broad discretionary power, in the
resolution of a controversy, to take into
consideration matters on record which the parties
fail to submit to the Court as specific questions for
determination. 13 Where the issues already raised
also rest on other issues not specifically
presented, as long as the latter issues bear
relevance and close relation to the former and as
long as they arise from matters on record, the
Court has the authority to include them in its
discussion of the controversy as well as to pass
upon them. In brief, in those cases wherein
questions not particularly raised by the parties
surface as necessary for the complete
adjudication of the rights and obligations of the
parties and such questions fall within the issues
already framed by the parties, the interests of
justice dictate that the Court consider and resolve
them.
WHEREFORE, the instant petition is GRANTED. The Resolution of
respondent Court of Appeals of 21 March 1979 in C.A.-G.R. No. SP04866 and the Decision of the trial court in Civil Case No. 8209, insofar
as they declare, for the reasons therein given, Fishpond Lease
Agreement No. 1372, valid and binding, are hereby REVERSED and
SET ASIDE. The challenged Orders of the respondent Secretary of
Agriculture and Natural Resources of 29 August 1969, 20 November
1969 and 21 April 1970 are likewise REVERSED and SET ASIDE and
Fishpond Lease Agreement No. 1372 is ordered REINSTATED.
No pronouncement as to costs.

AZCUNA, J.:
This petition for review on certiorari seeks to annul the Decision1 dated
August 7, 1996, of the Court of Appeals in CA-G.R. CV No. 45956, and
its Resolution2 dated September 12, 1996, denying reconsideration of
the decision. In the questioned issuances, the Court of Appeals
affirmed the Decision3 dated June 8, 1993, of the Regional Trial Court
of Manila, Branch 3, in Civil Case No. 90-55437.
The antecedents are:
On June 7, 1985, the Bible Baptist Church (petitioner Baptist Church)
entered into a contract of lease4 with Mr. & Mrs. Elmer Tito Medina
Villanueva (respondent spouses Villanueva). The latter are the
registered owners of a property located at No. 2436 (formerly 2424)
Leon Guinto St., Malate, Manila. The pertinent stipulations in the lease
contract were:
1. That the LESSOR lets and leases to the LESSEE a store
space known as 2424 Leon Guinto Sr. St., Malate, Manila, of
which property the LESSOR is the registered owner in
accordance with the Land Registration Act.
2. That the lease shall take effect on June 7, 1985 and shall
be for the period of Fifteen (15) years.
3. That LESSEE shall pay the LESSOR within five (5) days
of each calendar month, beginning Twelve (12) months from
the date of this agreement, a monthly rental of Ten Thousand
Pesos (P10,000.00) Philippine Currency, plus 10%
escalation clause per year starting on June 7, 1988.
4. That upon signing of the LEASE AGREEMENT, the
LESSEE shall pay the sum of Eighty Four Thousand Pesos
(P84,000.00) Philippine Currency. Said sum is to be paid
directly to the Rural Bank, Valenzuela, Bulacan for the
purpose of redemption of said property which is mortgaged
by the LESSOR.
5. That the title will remain in the safe keeping of the Bible
Baptist Church, Malate, Metro Manila until the expiration of
the lease agreement or the leased premises be purchased
by the LESSEE, whichever comes first. In the event that the
said title will be lost or destroyed while in the possession of
the LESSEE, the LESSEE agrees to pay all costs involved
for the re-issuance of the title.
6. That the leased premises may be renovated by the
LESSEE, to the satisfaction of the LESSEE to be fit and
usable as a Church.

7. That the LESSOR will remove all other tenants from the
leased premises no later than March 15, 1986. It is further
agreed that if those tenants are not vacated by June 1, 1986,
the rental will be lowered by the sum of Three Thousand
Pesos (P3,000.00) per month until said tenants have left the
leased premises.
8. That the LESSEE has the option to buy the leased
premises during the Fifteen (15) years of the lease. If the
LESSEE decides to purchase the premises the terms will be:
A) A selling Price of One Million Eight Hundred Thousand
Pesos (P1.8 million), Philippine Currency. B) A down
payment agreed upon by both parties. C) The balance of the
selling price may be paid at the rate of One Hundred Twenty
Thousand Pesos (P120,000.00), Philippine Currency, per
year.
x x x.5
The foregoing stipulations of the lease contract are the subject of the
present controversy.
Although the same lease contract resulted in several cases6 filed
between the same parties herein, petitioner submits, for this Court's
review, only the following errors allegedly committed by the Court of
Appeals:
a) Respondent Court of Appeals erred in finding that the
option to buy granted the petitioner Baptist Church under its
contract of lease with the Villanuevas did not have a
consideration and, therefore, did not bind the latter;
b) [R]espondent court again also erred in finding that the
option to buy did not have a fixed price agreed upon by the
parties for the purchase of the property; and
c) [F]inally, respondent court erred in not awarding
petitioners Baptist Church and its pastor attorney's fees.7
In sum, this Court has three issues to resolve: 1) Whether or not the
option to buy given to the Baptist Church is founded upon a
consideration; 2) Whether or not by the terms of the lease agreement,
a price certain for the purchase of the land had been fixed; and 3)
Whether or not the Baptist Church is entitled to an award for attorney's
fees.
The stipulation in the lease contract which purportedly gives the lessee
an option to buy the leased premises at any time within the duration of
the lease, is found in paragraph 8 of the lease contract, viz:
8. That the LESSEE has the option to buy the leased
premises during the Fifteen (15) years of the lease. If the
LESSEE decides to purchase the premises the terms will be:
A) A selling Price of One Million Eight Hundred Thousand
Pesos (P1.8 million), Philippine Currency. B) A down
payment agreed upon by both parties. C) The balance of the
selling price may be paid at the rate of One Hundred Twenty
Thousand Pesos (P120,000.00), Philippine Currency, per
year.
Under Article 1479 of the Civil Code, it is provided:
Art. 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price.
The second paragraph of Article 1479 provides for the definition and
consequent rights and obligations under an option contract. For an

option contract to be valid and enforceable against the promissor, there


must be a separate and distinct consideration that supports it.
In this case, petitioner Baptist Church seeks to buy the leased
premises from the spouses Villanueva, under the option given to them.
Petitioners claim that the Baptist Church "agreed to advance the large
amount needed for the rescue of the property but, in exchange, it
asked the Villanuevas to grant it a long term lease and an option to buy
the property for P1.8 million."8 They argue that the consideration
supporting the option was their agreement to pay off the Villanueva's
P84,000 loan with the bank, thereby freeing the subject property from
the mortgage encumbrance. They state further that the Baptist Church
would not have agreed to advance such a large amount as it did to
rescue the property from bank foreclosure had it not been given an
enforceable option to buy that went with the lease agreement.
In the petition, the Baptist Church states that "[t]rue, the Baptist Church
did not pay a separate and specific sum of money to cover the option
alone. But the P84,000 it paid the Villanuevas in advance should be
deemed consideration for the one contract they entered into the
lease with option to buy."9 They rely on the case ofTeodoro v. Court of
Appeals10 to support their stand.
This Court finds no merit in these contentions.
First, petitioners cannot insist that the P84,000 they paid in order to
release the Villanuevas' property from the mortgage should be deemed
the separate consideration to support the contract of option. It must be
pointed out that said amount was in fact apportioned into monthly
rentals spread over a period of one year, at P7,000 per month. Thus,
for the entire period of June 1985 to May 1986, petitioner Baptist
Church's monthly rent had already been paid for, such that it only again
commenced paying the rentals in June 1986. This is shown by the
testimony of petitioner Pastor Belmonte where he states that the
P84,000 was advance rental equivalent to monthly rent of P7,000 for
one year, such that for the entire year from 1985 to 1986 the Baptist
Church did not pay monthly rent.11
This Court agrees with respondents that the amount of P84,000 has
been fully exhausted and utilized by their occupation of the premises
and there is no separate consideration to speak of which could support
the option.12
Second, petitioners' reliance on the case of Teodoro v. Court of
Appeals13 is misplaced. The facts of the Teodoro case reveal that
therein respondent Ariola was the registered lessee of a property
owned by the Manila Railroad Co. She entered into an agreement
whereby she allowed Teodoro to occupy a portion of the rented
property and gave Teodoro an option to buy the same, should Manila
Railroad Co. decide to sell the property to Ariola. In addition, Teodoro,
who was occupying only a portion of the subject rented property, also
undertook to pay the Manila Railroad Co., the full amount of the rent
supposed to be paid by the registered lessor Ariola. Consequently,
unlike this case, Teodoro paid over and above the amount due for her
own occupation of a portion of the property. That amount, which should
have been paid by Ariola as lessor, and for her own occupation of the
property, was deemed by the Court as sufficient consideration for the
option to buy which Ariola gave to Teodoro upon Ariola's acquiring the
property.
Hence, in Teodoro, this Court was able to find that a separate
consideration supported the option contract and thus, its enforcement
may be demanded. Petitioners, therefore, cannot rely on Teodoro, for
the case even supports the respondents' stand that a consideration
that is separate and distinct from the purchase price is required to
support an option contract.
Petitioners further insist that a consideration need not be a separate
sum of money. They posit that their act of advancing the money to
"rescue" the property from mortgage and impending foreclosure,
should be enough consideration to support the option.
In Villamor v. Court of Appeals,14 this Court defined consideration as
"the why of the contracts, the essential reason which moves the
contracting parties to enter into the contract."15 This definition illustrates

that the consideration contemplated to support an option contract need


not be monetary. Actual cash need not be exchanged for the option.
However, by the very nature of an option contract, as defined in Article
1479, the same is an onerous contract for which the consideration
must be something of value, although its kind may vary.

This Court also notes that in the present case both the Regional Trial
Court and the Court of Appeals agree that the option was not founded
upon a separate and distinct consideration and that, hence,
respondents Villanuevas cannot be compelled to sell their property to
petitioner Baptist Church.

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


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

The Regional Trial Court found that "[a]ll payments made under the
contract of lease were for rentals. No money [was] ever exchanged for
and in consideration of the option." Hence, the Regional Trial Court
found the action of the Baptist Church to be "premature and without
basis to compel the defendant to sell the leased premises." The
Regional Trial Court consequently ruled:

It can be seen that the Court found that the buyer/optionee had parted
with something of value, which was the amount he paid over and
above the actual prevailing price of the land. Such amount, different
from the price of the land subject of the option, was deemed sufficient
and distinct consideration supporting the option contract. Moreover, the
parties stated the same in their contract.
Villamor is distinct from the present case because, First, this Court
cannot find that petitioner Baptist Church parted with anything of value,
aside from the amount of P84,000 which was in fact eventually utilized
as rental payments. Second, there is no document that contains an
agreement between the parties that petitioner Baptist Church's
supposed rescue of the mortgaged property was the consideration
which the parties contemplated in support of the option clause in the
contract. As previously stated, the amount advanced had been fully
utilized as rental payments over a period of one year. While the
Villanuevas may have them to thank for extending the payment at a
time of need, this is not the separate consideration contemplated by
law.

WHEREFORE, judgment is rendered:


1) Denying plaintiffs' application for writ of
injunction;
2) That defendant cannot be compelled to sell to
plaintiffs the leased premises in accordance with
par. 8 of the contract of lease;
3) Defendant is hereby ordered to reimburse
plaintiffs the sum of P15, 919.75 plus 12% interest
representing real estate taxes, plaintiffs paid the
City Treasurer's Office of Manila;
4) Declaring that plaintiff made a valid and legal
consignation to the Court of the initial amount of
P18,634.00 for the month of November and
December 1990 and every month thereafter.
All other claims of the plaintiffs are hereby dismissed for lack
of merit.
No pronouncement as to costs.
SO ORDERED. 21

Noting that the option clause was part of a lease contract, this Court
looked into its previous ruling in the early case of Vda. De Quirino v.
Palarca,17 where the Court did say that "in reciprocal contracts, like the
one in question,18 the obligation or promise of each party is the
consideration for that of the other."19 However, it must be noted that in
that case, it was also expressly stated in the deed that should there be
failure to exercise the option to buy the property, the optionee
undertakes to sell the building and/or improvements he has made on
the premises. In addition, the optionee had also been paying an
amount of rent that was quite high and in fact turned out to be too
burdensome that there was a subsequent agreement to reduce said
rentals. The Court found that "the amount of rentals agreed upon x x x
which amount turned out to be so burdensome upon the lessee, that
the lessor agreed, five years later, to reduce it as well as the building
and/or improvements contemplated to be constructed and/or
introduced by the lessee, were, undoubtedly, part of the consideration
for his option to purchase the leased premises."20
Again, this Court notes that the parties therein clearly stipulated in their
contract that there was an undertaking on the part of the optionee to
sell the improvements made on the property if the option was not
exercised. Such is a valuable consideration that could support the
option contract. Moreover, there was the excessive rental payments
that the optionee paid for five years, which the Court also took into
account in deciding that there was a separate consideration supporting
the option.
To summarize the rules, an option contract needs to be supported by a
separate consideration. The consideration need not be monetary but
could consist of other things or undertakings. However, if the
consideration is not monetary, these must be things or undertakings of
value, in view of the onerous nature of the contract of option.
Furthermore, when a consideration for an option contract is not
monetary, said consideration must be clearly specified as such in the
option contract or clause.

On appeal, the Court of Appeals agreed with the Regional Trial Court
and found that the option to buy the leased premises was not binding
upon the Villanuevas for non-compliance with Article 1479. It found that
said option was not supported by a consideration as "no money was
ever really exchanged for and in consideration of the option." In
addition, the appellate court determined that in the instant case, "the
price for the object is not yet certain." Thus, the Court of Appeals
affirmed the Regional Trial Court decision and dismissed the appeal for
lack of merit.22
Having found that the option to buy granted to the petitioner Baptist
Church was not founded upon a separate consideration, and hence,
not enforceable against respondents, this Court finds no need to
discuss whether a price certain had been fixed as the purchase price.
Anent the claim for attorney's fees, it is stipulated in paragraph 13 of
the lease agreement that in the event of failure of either of the parties
to comply with any of the conditions of the agreement, the aggrieved
party can collect reasonable attorney's fees.23
In view of this Court's finding that the option contract is not enforceable
for being without consideration, the respondents Villanueva spouses'
refusal to comply with it cannot be the basis of a claim for attorney's
fees.
Hence, this Court agrees with as the Court of Appeals, which affirmed
the findings of the Regional Trial Court, that such claim is to be
dismissed for lack of factual and legal basis.
WHEREFORE, the Decision and Resolution of the Court of Appeals
subject of the petition are hereby AFFIRMED.

No costs.

the said second sale was cancelled after the


payment of P12,000.00 by the defendants to
Derrama.

SO ORDERED.

Defendants resisted this action for redemption on


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

G.R. No. 83759 July 12, 1991


SPOUSES CIPRIANO VASQUEZ and VALERIANA
GAYANELO, petitioners,
vs.
HONORABLE COURT OF APPEALS and SPOUSES MARTIN
VALLEJERA and APOLONIA OLEA,respondents.

After trial, the court below rendered judgment


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

Dionisio C. Isidto for petitioners.


Raymundo Lozada, Jr. for private respondents.

GUTIERREZ, JR., J.:p


This petition seeks to reverse the decision of the Court of Appeals
which affirmed the earlier decision of the Regional Trial Court, 6th
Judicial Region, Branch 56, Himamaylan, Negros Occidental in Civil
Case No. 839 (for specific performance and damages) ordering the
petitioners (defendants in the civil case) to resell Lot No. 1860 of the
Cadastral Survey of Himamaylan, Negros Occidental to the
respondents (plaintiffs in the civil case) upon payment by the latter of
the amount of P24,000.00 as well as the appellate court's resolution
denying a motion for reconsideration. In addition, the appellate court
ordered the petitioners to pay the amount of P5,000.00 as necessary
and useful expenses in accordance with Article 1616 of the Civil Code.
The facts of the case are not in dispute. They are summarized by the
appellate court as follows:
On January 15, 1975, the plaintiffs-spouses
(respondents herein) filed this action against the
defendants-spouses (petitioners herein) seeking to
redeem Lot No. 1860 of the Himamaylan Cadastre
which was previously sold by plaintiffs to
defendants on September 21, 1964.

Defendants moved for, but were denied


reconsideration. Excepting thereto, defendantsappealed, . . . (Rollo, pp. 44-45)
The petition was given due course in a resolution dated February 12,
1990.
The petitioners insist that they can not be compelled to resell Lot No.
1860 of the Himamaylan Cadastre. They contend that the nature of the
sale over the said lot between them and the private respondents was
that of an absolute deed of sale and that the right thereafter granted by
them to the private respondents (Right to Repurchase, Exhibit "E") can
only be either an option to buy or a mere promise on their part to resell
the property. They opine that since the "RIGHT TO REPURCHASE"
was not supported by any consideration distinct from the purchase
price it is not valid and binding on the petitioners pursuant to Article
1479 of the Civil Code.
The document denominated as "RIGHT TO REPURCHASE" (Exhibit
E) provides:
RIGHT TO REPURCHASE

The said lot was registered in the name of


plaintiffs. On October 1959, the same was leased
by plaintiffs to the defendants up to crop year
1966-67, which was extended to crop year 196869. After the execution of the lease, defendants
took possession of the lot, up to now and devoted
the same to the cultivation of sugar.
On September 21, 1964, the plaintiffs sold the lot
to the defendants under a Deed of Sale for the
amount of P9,000.00. The Deed of Sale was duly
ratified and notarized. On the same day and along
with the execution of the Deed of Sale, a separate
instrument, denominated as Right to Repurchase
(Exh. E), was executed by the parties granting
plaintiffs the right to repurchase the lot for
P12,000.00, said Exh. E likewise duly ratified and
notarized. By virtue of the sale, defendants
secured TCT No. T-58898 in their name. On
January 2, 1969, plaintiffs sold the same lot to
Benito Derrama, Jr., after securing the defendants'
title, for the sum of P12,000.00. Upon the
protestations of defendant, assisted by counsel,

KNOW ALL MEN BY THESE PRESENTS:


I, CIPRIANO VASQUEZ, . . ., do hereby grant the
spouses Martin Vallejera and Apolonia Olea, their
heirs and assigns, the right to repurchase said Lot
No. 1860 for the sum of TWELVE THOUSAND
PESOS (P12,000.00), Philippine Currency, within
the period TEN (10) YEARS from the agricultural
year 1969-1970 when my contract of lease over
the property shall expire and until the agricultural
year 1979-1980.
IN WITNESS WHEREOF, I have hereunto signed
my name at Binalbagan, Negros Occidental, this
21st day of September, 1964.
SGD. CIPRIANO VASQUEZ
SGD. VALERIANA G. VASQUEZ SGD. FRANCISCO SANICAS
(Rollo, p. 47)

The Court of Appeals, applying the principles laid down in the case of
Sanchez v. Rigos, 45 SCRA 368 [1972] decided in favor of the private
respondents.
In the Sanchez case, plaintiff-appellee Nicolas Sanchez and
defendant-appellant Severino Rigos executed a document entitled
"Option to Purchase," whereby Mrs. Rigos "agreed, promised and
committed . . . to sell" to Sanchez for the sum of P1,510.00, a
registered parcel of land within 2 years from execution of the document
with the condition that said option shall be deemed "terminated and
lapsed," if "Sanchez shall fail to exercise his right to buy the property"
within the stipulated period. In the same document,
Sanchez" . . . hereby agree and conform with all the conditions set
forth in the option to purchase executed in my favor, that I bind myself
with all the terms and conditions." (Emphasis supplied) The notarized
document was signed both by Sanchez and Rigos.

promise as an option which, although not binding


as a contract in itself for lack of separate
consideration, nevertheless generated a bilateral
contract of purchase and sale upon acceptance.
Speaking through Associate Justice, later Chief
Justice, Cesar Bengzon, this Court said:

The lower court rendered judgment in favor of Sanchez and ordered


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

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

This Court after deliberating on two conflicting principles laid down in


the cases of Southwestern Sugar and Molasses Co. v. Atlantic Gulf
and Pacific Co., (97 Phil. 249 [1955]) and Atkins, Kroll & Co., Inc. v.
Cua Hian Tek, 102 Phil. 948 [1958]) arrived at the conclusion that
Article 1479 of the Civil Code which provides:

Lastly, even supposing that


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

After several tenders of payment of the agreed sum of P1,510.00


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

Art. 1479. A promise to buy and sell a determinate


thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding
upon the promissory if the promise is supported by
a consideration distinct from the price.
and Article 1324 thereof which provides:
Art. 1324. When the offerer has allowed the offerer
a certain period to accept, the offer may be
withdrawn at any time before acceptance by
communicating such withdrawal, except when the
option is founded upon a consideration, as
something paid or promised.
should be reconciled and harmonized to avoid a conflict between the
two provisions. In effect, the Court abandoned the ruling in the
Southwestern Sugar and Molasses Co. case and reiterated the ruling
in the Atkins, Kroll and Co. case, to wit:
However, this Court itself, in the case of Atkins,
Kroll and Co., Inc. v. Cua Hian Tek, (102 Phil. 948,
951-952) decided later than Southwestern Sugar
& Molasses Co. v. Atlantic Gulf & Pacific Co.,
(supra) saw no distinction between Articles 1324
and 1479 of the Civil Code and applied the former
where a unilateral promise to sell similar to the
one sued upon here was involved, treating such

If the option is given without a


consideration, it is a mere
offer of a contract of sale,
which is not binding until
accepted. If, however,
acceptance is made before a
withdrawal, it constitutes a
binding contract of sale, even
though the option was not
supported by a sufficient
consideration . . . (77 Corpus
Juris Secundum p.
652. See also 27 Ruling Case
Law 339 and cases cited.)
This Court affirmed the lower court's decision although the promise to
sell was not supported by a consideration distinct from the price. It was
obvious that Sanchez, the promisee, accepted the option to buy before
Rigos, the promisor, withdrew the same. Under such circumstances,
the option to purchase was converted into a bilateral contract of sale
which bound both parties.
In the instant case and contrary to the appellate court's finding, it is
clear that the right to repurchase was not supported by a consideration
distinct from the price. The rule is that the promisee has the burden of
proving such consideration. Unfortunately, the private respondents,
promisees in the right to repurchase failed to prove such consideration.
They did not even allege the existence thereof in their complaint.
(See Sanchez v. Rigos supra)

Therefore, in order that the Sanchez case can be applied, the evidence
must show that the private respondents accepted the right to
repurchase.
The record, however, does not show that the private respondents
accepted the "Right to Repurchase" the land in question. We disagree
with the appellate court's finding that the private respondents accepted
the "right to repurchase" under the following circumstances: . . as
evidenced by the annotation and registration of the same on the back
of the transfer of certificate of title in the name of appellants. As vividly
appearing therein, it was signed by appellant himself and witnessed by
his wife so that for all intents and purposes the Vasquez spouses are
estopped from disregarding its obvious purpose and intention."
The annotation and registration of the right to repurchase at the back
of the certificate of title of the petitioners can not be considered
as acceptance of the right to repurchase. Annotation at the back of the
certificate of title of registered land is for the purpose
of binding purchasers of such registered land. Thus, we ruled in the
case of Bel Air Village Association, Inc. v. Dionisio (174 SCRA 589
[1989]), citing Tanchoco v. Aquino (154 SCRA 1 [1987]),
and Constantino v. Espiritu (45 SCRA 557 [1972]) that purchasers of a
registered land are bound by the annotations found at the back of the
certificate of title covering the subject parcel of land. In effect, the
annotation of the right to repurchase found at the back of the certificate
of title over the subject parcel of land of the private respondents only
served as notice of the existence of such unilateral promise of the
petitioners to resell the same to the private respondents. This,
however, can not be equated with acceptance of such right to
repurchase by the private respondent.
Neither can the signature of the petitioners in the document called
"right to repurchase" signify acceptance of the right to repurchase. The
respondents did not sign the offer. Acceptance should be made by the
promisee, in this case, the private respondents and not the promisors,
the petitioners herein. It would be absurd to require the promisor of an
option to buy to accept his own offer instead of the promisee to whom
the option to buy is given.
Furthermore, the actions of the private respondents (a) filing a
complaint to compel re-sale and their demands for resale prior to filing
of the complaint cannot be considered acceptance. As stated in Vda.
de Zulueta v. Octaviano (121 SCRA 314 [1983]):
And even granting, arguendo that the sale was
a pacto de retro sale, the evidence shows that
Olimpia, through her lawyer, opted to repurchase
the land only on 16 February 1962, approximately
two years beyond the stipulated period, that is not
later than May, 1960.
If Olimpia could not locate Aurelio, as she
contends, and based on her allegation that the
contract between her was one of sale with right to
repurchase, neither, however, did she tender the
redemption price to private respondent Isauro, but
merely wrote him letters expressing her readiness
to repurchase the property.
It is clear that the mere sending of letters by the
vendor expressing his desire to repurchase the
property without accompanying tender of the
redemption price fell short of the requirements of
law. (Lee v. Court of Appeals, 68 SCRA 197
[1972])

Neither did petitioner make a judicial consignation


of the repurchase price within the agreed period.
In a contract of sale with a right of repurchase, the
redemptioner who may offer to make the
repurchase on the option date of redemption
should deposit the full amount in court . . .
(Rumbaoa v. Arzaga, 84 Phil. 812 [1949])
To effectively exercise the right to repurchase the
vendor a retro must make an actual and
simultaneous tender of payment or consignation.
(Catangcatang v. Legayada, 84 SCRA 51 [1978])
The private respondents' ineffectual acceptance of the option to buy
validated the petitioner's refusal to sell the parcel which can be
considered as a withdrawal of the option to buy.
We agree with the petitioners that the case of Vda. de Zulueta
v. Octaviano, (supra) is in point.
Stripped of non-essentials the facts of the Zulueta case are as
follows: On November 25, 1952 (Emphasis supplied) Olimpia
Fernandez Vda. de Zulueta, the registered owner of a 5.5 hectare
riceland sold the lot to private respondent Aurelio B. Octaviano for
P8,600.00 subject to certain terms and conditions. The contract was an
absolute and definite sale. On the same day, November 25,
1952, (Emphasis supplied) the vendee, Aurelio signed another
document giving the vendor Zulueta the "option to repurchase" the
property at anytime after May 1958 but not later than May 1960. When
however, Zulueta tried to exercise her "option to buy" the property,
Aurelio resisted the same prompting Zulueta to commence suit for
recovery of ownership and possession of the property with the then
Court of First Instance of Iloilo.
The trial court ruled in favor of Zulueta. Upon appeal, however, the
Court of Appeals reversed the trial court's decision.
We affirmed the appellate court's decision and ruled:
The nature of the transaction between Olimpia and
Aurelio, from the context of Exhibit "E" is not a
sale with right to repurchase. Conventional
redemption takes place "when the vendor reserves
the right to repurchase the thing sold, with the
obligation to comply with the provisions of Article
1616 and other stipulations which may have been
agreed upon. (Article 1601, Civil Code).
In this case, there was no reservation made by the
vendor, Olimpia, in the document Exhibit "E" the
"option to repurchase" was contained in a
subsequent document and was made by the
vendee, Aurelio. Thus, it was more of an option to
buy or a mere promise on the part of the vendee,
Aurelio, to resell the property to the vendor,
Olimpia. (10 Manresa, p. 311 cited in Padilla's Civil
Code Annotated, Vol. V, 1974 ed., p. 467) As held
in Villarica v. Court of Appeals (26 SCRA 189
[1968]):
The right of repurchase is not a right granted the
vendor by the vendee in a subsequent
instrument, but is a right reserved by the vendor in
the same instrument of sale as one of the
stipulations of the contract. Once the instrument of

absolute sale is executed, the vendor can no


longer reserve the right to repurchase, and any
right thereafter granted the vendor by the vendee
in a separate instrument cannot be a right of
repurchase but some other right like the option to
buy in the instant case. . . (Emphasis supplied)
The appellate court rejected the application of the Zulueta case by
stating:

respondents cannot avail of Article 1601 of the Civil Code which


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

. . . [A]s found by the trial court from which we


quote with approval below, the said cases involve
the lapse of several days for the execution of
separate instruments after the execution of the
deed of sale, while the instant case involves the
execution of an instrument, separate as it is, but
executed on the same day, and notarized by the
same notary public, to wit:

G.R. No. 183612

March 15, 2010

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, Petitioner,


vs.
GOLDEN HORIZON REALTY CORPORATION, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x

A close examination of Exh. "E" reveals that


although it is a separate document in itself, it is far
different from the document which was
pronounced as an option by the Supreme Court in
the Villarica case. The option in the Villarica case
was executed several days after the execution of
the deed of sale. In the present case, Exh. "E" was
executed and ratified by the same notary public
and the Deed of Sale of Lot No. 1860 by the
plaintiffs to the defendants were notarized by the
same notary public and entered in the same page
of the same notarial register . . .
The latter case (Vda. de Zulueta v.
Octaviano, supra), likewise involved the execution
of the separate document after an intervention of
several days and the question of laches was
decided therein, which is not present in the instant
case. That distinction is therefore crucial and We
are of the opinion that the appellee's right to
repurchase has been adequately provided for and
reserved in conformity with Article 1601 of the Civil
Code, which states:
Conventional redemption shall take place when
the vendor reserves the right to repurchase the
thing sold, with the obligation to comply with the
provision of Article 1616 and other stipulations
which may have been agreed upon. (Rollo, pp. 4647)
Obviously, the appellate court's findings are not reflected in the cited
decision. As in the instant case, the option to repurchase involved in
the Zulueta case was executed in a separate document but on the
same date that the deed of definite sale was executed.
While it is true that this Court in the Zulueta case found Zulueta guilty
of laches, this, however, was not the primary reason why this Court
disallowed the redemption of the property by Zulueta. It is clear from
the decision that the ruling in the Zulueta case was based mainly on
the finding that the transaction between Zulueta and Octaviano was
not a sale with right to repurchase and that the "option to repurchase
was but an option to buy or a mere promise on the part of Octaviano to
resell the property to Zulueta.
In the instant case, since the transaction between the petitioners and
private respondents was not a sale with right to repurchase, the private

G.R. No. 184260


NATIONAL DEVELOPMENT COMPANY, Petitioner,
vs.
GOLDEN HORIZON REALTY CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
The above-titled consolidated petitions filed under Rule 45 of the 1997
Rules of Civil Procedure, as amended, seek to reverse the
Decision1 dated June 25, 2008 and Resolution dated August 22, 2008
of the Court of Appeals (CA) in CA-G.R. CV No. 84399 which affirmed
the Decision2 dated November 25, 2004 of the Regional Trial Court
(RTC) of Makati City, Branch 144 in Civil Case No. 88-2238.
The undisputed facts are as follows:
Petitioner National Development Company (NDC) is a governmentowned and controlled corporation, created under Commonwealth Act
No. 182, as amended by Com. Act No. 311 and Presidential Decree
(P.D.) No. 668. Petitioner Polytechnic University of the Philippines
(PUP) is a public, non-sectarian, non-profit educational institution
created in 1978 by virtue of P.D. No. 1341.
In the early sixties, NDC had in its disposal a ten (10)-hectare property
located along Pureza St., Sta. Mesa, Manila. The estate was popularly
known as the NDC Compound and covered by Transfer Certificate of
Title Nos. 92885, 110301 and 145470.
On September 7, 1977, NDC entered into a Contract of Lease (C-3377) with Golden Horizon Realty Corporation (GHRC) over a portion of
the property, with an area of 2,407 square meters for a period of ten
(10) years, renewable for another ten (10) years with mutual consent of
the parties.3
On May 4, 1978, a second Contract of Lease (C-12-78) was executed
between NDC and GHRC covering 3,222.80 square meters, also
renewable upon mutual consent after the expiration of the ten (10)year lease period. In addition, GHRC as lessee was granted the
"option to purchase the area leased, the price to be negotiated and
determined at the time the option to purchase is exercised."4

Under the lease agreements, GHRC was obliged to construct at its


own expense buildings of strong material at no less than the stipulated
cost, and other improvements which shall automatically belong to the
NDC as lessor upon the expiration of the lease period. Accordingly,
GHRC introduced permanent improvements and structures as required
by the terms of the contract. After the completion of the industrial
complex project, for which GHRC spentP5 million, it was leased to
various manufacturers, industrialists and other businessmen thereby
generating hundreds of jobs.5

bill of attainder. In the alternative, should the trial court adjudge the
memorandum order as valid, GHRC contended that its existing right
must still be respected by allowing it to purchase the leased
premises.13

On June 13, 1988, before the expiration of the ten (10)-year period
under the second lease contract, GHRC wrote a letter to NDC
indicating its exercise of the option to renew the lease for another ten
(10) years. As no response was received from NDC, GHRC sent
another letter on August 12, 1988, reiterating its desire to renew the
contract and also requesting for priority to negotiate for its purchase
should NDC opt to sell the leased premises.6 NDC still did not reply but
continued to accept rental payments from GHRC and allowed the latter
to remain in possession of the property.

On November 14, 2001, this Court rendered a decision in G.R. Nos.


143513 (Polytechnic University of the Philippines v. Court of Appeals)
and 143590 (National Development Corporation v. Firestone
Ceramics, Inc.),15which declared that the sale to PUP by NDC of the
portion leased by Firestone pursuant to Memorandum Order No. 214
violated the right of first refusal granted to Firestone under its third
lease contract with NDC. We thus decreed:

Sometime after September 1988, GHRC discovered that NDC had


decided to secretly dispose the property to a third party. On October
21, 1988, GHRC filed in the RTC a complaint for specific performance,
damages with preliminary injunction and temporary restraining order.7
In the meantime, then President Corazon C. Aquino issued
Memorandum Order No. 214 dated January 6, 1989, ordering the
transfer of the whole NDC Compound to the National Government,
which in turn would convey the said property in favor of PUP at
acquisition cost. The memorandum order cited the serious need of
PUP, considered the "Poor Mans University," to expand its campus,
which adjoins the NDC Compound, to accommodate its growing
student population, and the willingness of PUP to buy and of NDC to
sell its property. The order of conveyance of the 10.31-hectare property
would automatically result in the cancellation of NDCs total obligation
in favor of the National Government in the amount of P57,193,201.64.8
On February 20, 1989, the RTC issued a writ of preliminary injunction
enjoining NDC and its attorneys, representatives, agents and any other
persons assisting it from proceeding with the sale and disposition of
the leased premises.9
On February 23, 1989, PUP filed a motion to intervene as party
defendant, claiming that as a purchaser pendente lite of a property
subject of litigation it is entitled to intervene in the proceedings. The
RTC granted the said motion and directed PUP to file its Answer-inIntervention.10
PUP also demanded that GHRC vacate the premises, insisting that the
latters lease contract had already expired. Its demand letter unheeded
by GHRC, PUP filed an ejectment case (Civil Case No. 134416) before
the Metropolitan Trial Court (MeTC) of Manila on January 14, 1991.11
Due to this development, GHRC filed an Amended and/or
Supplemental Complaint to include as additional defendants PUP,
Honorable Executive Secretary Oscar Orbos and Judge Ernesto A.
Reyes of the Manila MeTC, and to enjoin the afore-mentioned
defendants from prosecuting Civil Case No. 134416 for ejectment. A
temporary restraining order was subsequently issued by the RTC
enjoining PUP from prosecuting and Judge Francisco Brillantes, Jr.
from proceeding with the ejectment case.12
In its Second Amended and/or Supplemental Complaint, GHRC argued
that Memorandum Order No. 214 is a nullity, for being violative of the
writ of injunction issued by the trial court, apart from being an
infringement of the Constitutional prohibition against impairment of
obligation of contracts, an encroachment on legislative functions and a

Pre-trial was set but was suspended upon agreement of the parties to
await the final resolution of a similar case involving NDC, PUP and
another lessee of NDC, Firestone Ceramics, Inc. (Firestone), then
pending before the RTC of Pasay City.14

WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590
are DENIED. Inasmuch as the first contract of lease fixed the area of
the leased premises at 2.90118 hectares while the second contract
placed it at 2.60 hectares, let a ground survey of the leased premises
be immediately conducted by a duly licensed, registered surveyor at
the expense of private respondent FIRESTONE CERAMICS, INC.,
within two (2) months from the finality of the judgment in this case.
Thereafter, private respondent FIRESTONE CERAMICS, INC., shall
have six (6) months from receipt of the approved survey within which
to exercise its right to purchase the leased property at P1,500.00 per
square meter, and petitioner Polytechnic University of the Philippines is
ordered to reconvey the property to FIRESTONE CERAMICS, INC., in
the exercise of its right of first refusal upon payment of the purchase
price thereof.
SO ORDERED.16
The RTC resumed the proceedings and when mediation and pre-trial
failed to settle the case amicably, trial on the merits ensued.17
On November 25, 2004, the RTC rendered its decision upholding the
right of first refusal granted to GHRC under its lease contract with NDC
and ordering PUP to reconvey the said portion of the property in favor
of GHRC. The dispositive portion reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and against the defendants ordering the plaintiff to
cause immediate ground survey of the premises subject of the leased
contract under Lease Contract No. C-33-77 and C-12-78 measuring
2,407 and 3,222.8 square meters respectively, by a duly licensed and
registered surveyor at the expense of the plaintiff within two months
from receipt of this Decision and thereafter, the plaintiff shall have six
(6) months from receipt of the approved survey within which to
exercise its right to purchase the leased property at P554.74 per
square meter. And finally, the defendant PUP, in whose name the
property is titled, is hereby ordered to reconvey the aforesaid property
to the plaintiff in the exercise of its right of its option to buy or first
refusal upon payment of the purchase price thereof.
The defendant NDC is hereby further ordered to pay the plaintiff
attorneys fees in the amount of P100,000.00.
The case against defendant Executive Secretary is dismissed and this
decision shall bind defendant Metropolitan Trial Court, Branch 20 of
Manila.
With costs against defendants NDC and PUP.

SO ORDERED.18
NDC and PUP separately appealed the decision to the CA.19 By
Decision of June 25, 2008, the CA affirmed in toto the decision of the
RTC.20
Both the RTC and the CA applied this Courts ruling in Polytechnic
University of the Philippines v. Court of Appeals (supra), considering
that GHRC is similarly situated as a lessee of NDC whose right of first
refusal under the lease contract was violated by the sale of the
property to PUP without NDC having first offered to sell the same to
GHRC despite the latters request for the renewal of the lease and/or
to purchase the leased premises prior to the expiration of the second
lease contract. The CA further agreed with the RTCs finding that there
was an implied renewal of the lease upon the failure of NDC to act on
GHRCs repeated requests for renewal of the lease contract, both
verbal and written, and continuing to accept monthly rental payments
from GHRC which was allowed to continue in possession of the leased
premises.
The CA also rejected the argument of NDC and PUP that even
assuming that GHRC had the right of first refusal, said right pertained
only to the second lease contract, C-12-78 covering 3,222.80 square
meters, and not to the first lease contract, C-33-77 covering 2,407
square meters, which had already expired. It sustained the RTCs
finding that the two (2) lease contracts were interrelated because each
formed part of GHRCs industrial complex, such that business
operations would be rendered useless and inoperative if the first
contract were to be detached from the other, as similarly held in the
afore-mentioned case of Polytechnic University of the Philippines v.
Court of Appeals.
Petitioner PUP argues that respondents right to exercise the option to
purchase had expired with the termination of the original contract of
lease and was not carried over to the subsequent implied new lease
between respondent and petitioner NDC. As testified to by their
witnesses Leticia Cabantog and Atty. Rhoel Mabazza, there was no
agreement or document to the effect that respondents request for
extension or renewal of the subject contracts of lease for another ten
(10) years was approved by NDC. Hence, respondent can no longer
exercise the option to purchase the leased premises when the same
were conveyed to PUP pursuant to Memorandum Order No. 214 dated
January 6, 1989, long after the expiration of C-33-77 and C-12-78 in
September 1988.21
Petitioner PUP further contends that while it is conceded that there
was an implied new lease between respondent and petitioner NDC
after the expiration of the lease contracts, the same did not include the
right of first refusal originally granted to respondent. The CA should
have applied the ruling in Dizon v. Magsaysay22 that the lessee cannot
any more exercise its option to purchase after the lapse of the one (1)year period of the lease contract. With the implicit renewal of the lease
on a monthly basis, the other terms of the original contract of lease
which are revived in the implied new lease under Article 1670 of
the Civil Code are only those terms which are germane to the lessees
right of continued enjoyment of the property leased. The provision
entitling the lessee the option to purchase the leased premises is not
deemed incorporated in the impliedly renewed contract because it is
alien to the possession of the lessee. Consequently, as in this case,
respondents right of option to purchase the leased premises was not
violated despite the impliedly renewed contract of lease with NDC.
Respondent cannot favorably invoke the decision in G.R. Nos. 143513
and 143590 (Polytechnic University of the Philippines v. Court of
Appeals) for the simple reason, among others, that unlike in said
cases, the contracts of lease of respondent with NDC were not
mutually extended or renewed for another ten (10) years. Thus, when
the leased premises were conveyed to PUP, respondent did not any

more have any right of first refusal, which incidentally appears only in
the second lease contract and not in the first lease contract.23
On its part, petitioner NDC assails the CA in holding that the contracts
of lease were impliedly renewed for another ten (10)-year period. The
provisions of C-33-77 and C-12-78 clearly state that the lessee is
granted the option "to renew for another ten (10) years with the mutual
consent of both parties." As regards the continued receipt of rentals by
NDC and possession by the respondent of the leased premises, the
impliedly renewed lease was only month-to-month and not ten (10)
years since the rentals are being paid on a monthly basis, as held
inDizon v. Magsaysay.24
Petitioner NDC further faults the CA in sustaining the RTCs decision
which erroneously granted respondent the option to purchase the
leased premises at the rate of P554.74 per square meter, the same
rate for which NDC sold the property to petitioner PUP and/or the
National Government, which is the mere acquisition cost thereof. It
must be noted that such consideration or rate was imposed by
Memorandum Order No. 214 under the premise that it shall, in effect,
be a sale and/or purchase from one (1) government agency to another.
It was intended merely as a transfer of one (1) user of the National
Government to another, with the beneficiary, PUP in this case, merely
returning to the petitioner/transferor the cost of acquisition thereof, as
appearing on its accounting books. It does not in any way reflect the
true and fair market value of the property, nor was it a price a "willing
seller" would demand and accept for parting with his real property.
Such benefit, therefore, cannot be extended to respondent as a private
entity, as the latter does not share the same pocket, so to speak, with
the National Government.25
The issue to be resolved is whether or not our ruling in Polytechnic
University of the Philippines v. Court of Appeals applies in this case
involving another lessee of NDC who claimed that the option to
purchase the portion leased to it was similarly violated by the sale of
the NDC Compound in favor of PUP pursuant to Memorandum Order
No. 214.
We rule in the affirmative.
The second lease contract contained the following provision:
III. It is mutually agreed by the parties that this Contract of Lease shall
be in full force and effect for a period of ten (10) years counted from
the effectivity of the payment of rental as provided under subparagraph (b) of Article I, with option to renew for another ten (10)
years with the mutual consent of both parties. In no case should the
rentals be increased by more than 100% of the original amount fixed.
Lessee shall also have the option to purchase the area leased, the
price to be negotiated and determined at the time the option to
purchase is exercised. [emphasis supplied]
An option is a contract by which the owner of the property agrees with
another person that the latter shall have the right to buy the formers
property at a fixed price within a certain time. It is a condition offered or
contract by which the owner stipulates with another that the latter shall
have the right to buy the property at a fixed price within a certain time,
or under, or in compliance with certain terms and conditions; or which
gives to the owner of the property the right to sell or demand a sale. 26 It
binds the party, who has given the option, not to enter into the principal
contract with any other person during the period designated, and,
within that period, to enter into such contract with the one to whom the
option was granted, if the latter should decide to use the
option.271avvphi1

Upon the other hand, a right of first refusal is a contractual grant, not of
the sale of a property, but of the first priority to buy the property in the
event the owner sells the same.28 As distinguished from an option
contract, in a right of first refusal, while the object might be made
determinate, the exercise of the right of first refusal would be
dependent not only on the owners eventual intention to enter into a
binding juridical relation with another but also on terms, including the
price, that are yet to be firmed up.29

of Appeals pointing out that the case of lessee Firestone Ceramics,


Inc. is different because the lease contract therein had not yet expired
while in this case respondents lease contracts have already expired
and never renewed. The date of the expiration of the lease contract in
said case is December 31, 1989 which is prior to the issuance of
Memorandum Order No. 214 on January 6, 1989. In contrast,
respondents lease contracts had already expired (September 1988) at
the time said memorandum order was issued.31

As the option to purchase clause in the second lease contract has no


definite period within which the leased premises will be offered for sale
to respondent lessee and the price is made subject to negotiation and
determined only at the time the option to buy is exercised, it is
obviously a mere right of refusal, usually inserted in lease contracts to
give the lessee the first crack to buy the property in case the lessor
decides to sell the same. That respondent was granted a right of first
refusal under the second lease contract appears not to have been
disputed by petitioners. What petitioners assail is the CAs erroneous
conclusion that such right of refusal subsisted even after the expiration
of the original lease period, when respondent was allowed to continue
staying in the leased premises under an implied renewal of the lease
and without the right of refusal carried over to such month-to-month
lease. Petitioners thus maintain that no right of refusal was violated by
the sale of the property in favor of PUP pursuant to Memorandum
Order No. 214.

Such contention does not hold water. As already mentioned, the


reckoning point of the offer of sale to a third party was not the issuance
of Memorandum Order No. 214 on January 6, 1989 but the
commencement of such negotiations as early as July 1988 when
respondents right of first refusal was still subsisting and the lease
contracts still in force. Petitioner NDC did not bother to respond to
respondents letter of June 13, 1988 informing it of respondents
exercise of the option to renew and requesting to discuss further the
matter with NDC, nor to the subsequent letter of August 12, 1988
reiterating the request for renewing the lease for another ten (10) years
and also the exercise of the option to purchase under the lease
contract. Petitioner NDC had dismissed these letters as "mere
informative in nature, and a request at its best."32

Petitioners position is untenable.

August 12, 1988

When a lease contract contains a right of first refusal, the lessor has
the legal duty to the lessee not to sell the leased property to anyone at
any price until after the lessor has made an offer to sell the property to
the lessee and the lessee has failed to accept it. Only after the lessee
has failed to exercise his right of first priority could the lessor sell the
property to other buyers under the same terms and conditions offered
to the lessee, or under terms and conditions more favorable to the
lessor.30

HON. ANTONIO HENSON


General Manager

Records showed that during the hearing on the application for a writ of
preliminary injunction, respondent adduced in evidence a letter of
Antonio A. Henson dated 15 July 1988 addressed to Mr. Jake C.
Lagonera, Director and Special Assistant to Executive Secretary
Catalino Macaraeg, reviewing a proposed memorandum order
submitted to President Corazon C. Aquino transferring the whole NDC
Compound, including the premises leased by respondent, in favor of
petitioner PUP. This letter was offered in evidence by respondent to
prove the existence of documents as of that date and even prior to the
expiration of the second lease contract or the lapse of the ten (10)-year
period counted from the effectivity of the rental payment -- that is, one
hundred and fifty (150) days from the signing of the contract (May 4,
1978), as provided in Art. I, paragraph (b) of C-12-78, or on October 1,
1988.
Respondent thus timely exercised its option to purchase on August 12,
1988. However, considering that NDC had been negotiating through
the National Government for the sale of the property in favor of PUP as
early as July 15, 1988 without first offering to sell it to respondent and
even when respondent communicated its desire to exercise the option
to purchase granted to it under the lease contract, it is clear that NDC
violated respondents right of first refusal. Under the premises, the
matter of the right of refusal not having been carried over to the
impliedly renewed month-to-month lease after the expiration of the
second lease contract on October 21, 1988 becomes irrelevant since
at the time of the negotiations of the sale to a third party, petitioner
PUP, respondents right of first refusal was still subsisting.
Petitioner NDC in its memorandum contended that the CA erred in
applying the ruling in Polytechnic University of the Philippines v. Court

Perusal of the letter dated August 12, 1988, however, belies such claim
of petitioner NDC that it was merely informative, thus:

NATIONAL DEVELOPMENT COMPANY


377 Se(n). Gil J. Puyat Avenue
Makati, Metro Manila
REF: Contract of Lease
Nos. C-33-77 & C-12-78
Dear Sir:
This is further to our earlier letter dated June 13, 1988 formally
advising your goodselves of our intention to exercise our option
for another ten (10) years. Should the National Development
Company opt to sell the property covered by said leases, we
also request for priority to negotiate for its purchase at terms
and/or conditions mutually acceptable.
As a backgrounder, we wish to inform you that since the start of our
lease, we have improved on the property by constructing bodega-type
buildings which presently house all legitimate trading and
manufacturing concerns. These business are substantial taxpayers,
employ not less than 300 employees and contribute even foreign
earnings.
It is in this context that we are requesting for the extension of the
lease contract to prevent serious economic disruption and
dislocation of the business concerns, as well as provide
ourselves, the lessee, an opportunity to recoup our investments
and obtain a fair return thereof.
Your favorable consideration on our request will be very much
appreciated.
very truly yours,

TIU HAN TENG


President33
As to petitioners argument that respondents right of first refusal can
be invoked only with respect to the second lease contract which
expressly provided for the option to purchase by the lessee, and not in
the first lease contract which contained no such clause, we sustain the
RTC and CA in finding that the second contract, covering an area of
3,222.80 square meters, is interrelated to and inseparable from the first
contract over 2,407 square meters. The structures built on the leased
premises, which are adjacent to each other, form part of an integrated
system of a commercial complex leased out to manufacturers,
fabricators and other businesses. Petitioners submitted a sketch plan
and pictures taken of the driveways, in an effort to show that the
leased premises can be used separately by respondent, and that the
two (2) lease contracts are distinct from each other.34 Such was a
desperate attempt to downplay the commercial purpose of
respondents substantial improvements which greatly contributed to the
increased value of the leased premises. To prove that petitioner NDC
had considered the leased premises as a single unit, respondent
submitted evidence showing that NDC issued only one (1) receipt for
the rental payments for the two portions.35 Respondent further
presented the blueprint plan prepared by its witness, Engr. Alejandro E.
Tinio, who supervised the construction of the structures on the leased
premises, to show the building concept as a one-stop industrial site
and integrated commercial complex.36
In fine, the CA was correct in declaring that there exists no justifiable
reason not to apply the same rationale inPolytechnic University of the
Philippines v. Court of Appeals in the case of respondent who was
similarly prejudiced by petitioner NDCs sale of the property to PUP, as
to entitle the respondent to exercise its option to purchase until
October 1988 inasmuch as the May 4, 1978 contract embodied the
option to renew the lease for another ten (10) years upon mutual
consent and giving respondent the option to purchase the leased
premises for a price to be negotiated and determined at the time such
option was exercised by respondent. It is to be noted that
Memorandum Order No. 214 itself declared that the transfer is "subject
to such liens/leases existing [on the subject property]." Thus:
...we now proceed to determine whether FIRESTONE should be
allowed to exercise its right of first refusal over the property. Such
right was expressly stated by NDC and FIRESTONE in par. XV of
their third contract denominated as A-10-78 executed on 22
December 1978 which, as found by the courts a quo, was
interrelated to and inseparable from their first contract
denominated as C-30-65 executed on 24 August 1965 and their
second contract denominated as C-26-68 executed on 8 January
1969. Thus Should the LESSOR desire to sell the leased premises during the term
of this Agreement, or any extension thereof, the LESSOR shall first
give to the LESSEE, which shall have the right of first option to
purchase the leased premises subject to mutual agreement of both
parties.
In the instant case, the right of first refusal is an integral and indivisible
part of the contract of lease and is inseparable from the whole contract.
The consideration for the right is built into the reciprocal obligations of
the parties. Thus, it is not correct for petitioners to insist that there was
no consideration paid by FIRESTONE to entitle it to the exercise of the
right, inasmuch as the stipulation is part and parcel of the contract of
lease making the consideration for the lease the same as that for the
option.
It is a settled principle in civil law that when a lease contract contains a
right of first refusal, the lessor is under a legal duty to the lessee not to

sell to anybody at any price until after he has made an offer to sell to
the latter at a certain price and the lessee has failed to accept it. The
lessee has a right that the lessors first offer shall be in his favor.
The option in this case was incorporated in the contracts of lease
by NDC for the benefit of FIRESTONE which, in view of the total
amount of its investments in the property, wanted to be assured
that it would be given the first opportunity to buy the property at a
price for which it would be offered. Consistent with their
agreement, it was then implicit for NDC to have first offered the
leased premises of 2.60 hectares to FIRESTONE prior to the sale
in favor of PUP. Only if FIRESTONE failed to exercise its right of
first priority could NDC lawfully sell the property to petitioner
PUP.37 [emphasis supplied]
As we further ruled in the afore-cited case, the contractual grant of a
right of first refusal is enforceable, and following an earlier ruling
in Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,38 the
execution of such right consists in directing the grantor to comply with
his obligation according to the terms at which he should have offered
the property in favor of the grantee and at that price when the offer
should have been made. We then determined the proper rate at which
the leased portion should be reconveyed to respondent by PUP, to
whom the lessor NDC sold it in violation of respondent lessees right of
first refusal, as follows:
It now becomes apropos to ask whether the courts a quo were correct
in fixing the proper consideration of the sale at P1,500.00 per square
meter. In contracts of sale, the basis of the right of first refusal must be
the current offer of the seller to sell or the offer to purchase of the
prospective buyer. Only after the lessee-grantee fails to exercise its
right under the same terms and within the period contemplated can the
owner validly offer to sell the property to a third person, again, under
the same terms as offered to the grantee. It appearing that the whole
NDC compound was sold to PUP for P554.74 per square meter, it
would have been more proper for the courts below to have ordered the
sale of the property also at the same price. However, since
FIRESTONE never raised this as an issue, while on the other hand
it admitted that the value of the property stood at P1,500.00 per
square meter, then we see no compelling reason to modify the
holdings of the courts a quo that the leased premises be sold at
that price.39 [emphasis supplied]
In the light of the foregoing, we hold that respondent, which did not
offer any amount to petitioner NDC, andneither disputed the P1,500.00
per square meter actual value of NDCs property at that time it was
sold to PUP atP554.74 per square meter, as duly considered by this
Court in the Firestone case, should be bound by such determination.
Accordingly, the price at which the leased premises should be sold to
respondent in the exercise of its right of first refusal under the lease
contract with petitioner NDC, which was pegged by the RTC
at P554.74 per square meter, should be adjusted to P1,500.00 per
square meter, which more accurately reflects its true value at that time
of the sale in favor of petitioner PUP.
Indeed, basic is the rule that a party to a contract cannot unilaterally
withdraw a right of first refusal that stands upon valuable
consideration.40 We have categorically ruled that it is not correct to say
that there is no consideration for the grant of the right of first refusal if
such grant is embodied in the same contract of lease. Since the
stipulation forms part of the entire lease contract, the consideration for
the lease includes the consideration for the grant of the right of first
refusal. In entering into the contract, the lessee is in effect stating that
it consents to lease the premises and to pay the price agreed upon
provided the lessor also consents that, should it sell the leased
property, then, the lessee shall be given the right to match the offered
purchase price and to buy the property at that price.41

We have further stressed that not even the avowed public welfare or
the constitutional priority accorded to education, invoked by petitioner
PUP in the Firestone case, would serve as license for us, and any
party for that matter, to destroy the sanctity of binding obligations.
While education may be prioritized for legislative and budgetary
purposes, it is doubtful if such importance can be used to confiscate
private property such as the right of first refusal granted to a lessee of
petitioner NDC.42 Clearly, no reversible error was committed by the CA
in sustaining respondents contractual right of first refusal and ordering
the reconveyance of the leased portion of petitioner NDCs property in
its favor.
WHEREFORE, the petitions are DENIED. The Decision dated
November 25, 2004 of the Regional Trial Court of Makati City, Branch
144 in Civil Case No. 88-2238, as affirmed by the Court of Appeals in
its Decision dated June 25, 2008 in CA-G.R. CV No. 84399, is
hereby AFFIRMED with MODIFICATION in that the price to be paid by
respondent Golden Horizon Realty Corporation for the leased portion
of the NDC Compound under Lease Contract Nos. C-33-77 and C-1278 is hereby increased to P1,500.00 per square meter.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY
DEVELOPMENT CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.

VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of
Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345 setting
aside and declaring without force and effect the orders of execution of
the trial court, dated 30 August 1991 and 27 September 1991, in Civil
Case No. 87-41058.
The antecedents are recited in good detail by the appellate court
thusly:
On July 29, 1987 a Second Amended Complaint for Specific
Performance was filed by Ang Yu Asuncion and Keh Tiong, et al.,
against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before
the Regional Trial Court, Branch 31, Manila in Civil Case No. 8741058, alleging, among others, that plaintiffs are tenants or
lessees of residential and commercial spaces owned by
defendants described as Nos. 630-638 Ongpin Street, Binondo,
Manila; that they have occupied said spaces since 1935 and have
been religiously paying the rental and complying with all the
conditions of the lease contract; that on several occasions before
October 9, 1986, defendants informed plaintiffs that they are
offering to sell the premises and are giving them priority to acquire
the same; that during the negotiations, Bobby Cu Unjieng offered
a price of P6-million while plaintiffs made a counter offer of P5million; that plaintiffs thereafter asked the defendants to put their
offer in writing to which request defendants acceded; that in reply

to defendant's letter, plaintiffs wrote them on October 24, 1986


asking that they specify the terms and conditions of the offer to
sell; that when plaintiffs did not receive any reply, they sent
another letter dated January 28, 1987 with the same request; that
since defendants failed to specify the terms and conditions of the
offer to sell and because of information received that defendants
were about to sell the property, plaintiffs were compelled to file the
complaint to compel defendants to sell the property to them.
Defendants filed their answer denying the material allegations of
the complaint and interposing a special defense of lack of cause
of action.
After the issues were joined, defendants filed a motion for
summary judgment which was granted by the lower court. The
trial court found that defendants' offer to sell was never accepted
by the plaintiffs for the reason that the parties did not agree upon
the terms and conditions of the proposed sale, hence, there was
no contract of sale at all. Nonetheless, the lower court ruled that
should the defendants subsequently offer their property for sale at
a price of P11-million or below, plaintiffs will have the right of first
refusal. Thus the dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor of the
defendants and against the plaintiffs summarily dismissing the
complaint subject to the aforementioned condition that if the
defendants subsequently decide to offer their property for sale for
a purchase price of Eleven Million Pesos or lower, then the
plaintiffs has the option to purchase the property or of first refusal,
otherwise, defendants need not offer the property to the plaintiffs
if the purchase price is higher than Eleven Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September
21, 1990 (penned by Justice Segundino G. Chua and concurred
in by Justices Vicente V. Mendoza and Fernando A. Santiago),
this Court affirmed with modification the lower court's judgment,
holding:
In resume, there was no meeting of the minds between the
parties concerning the sale of the property. Absent such
requirement, the claim for specific performance will not lie.
Appellants' demand for actual, moral and exemplary damages will
likewise fail as there exists no justifiable ground for its award.
Summary judgment for defendants was properly granted. Courts
may render summary judgment when there is no genuine issue as
to any material fact and the moving party is entitled to a judgment
as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815).
All requisites obtaining, the decision of the court a quo is legally
justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment
appealed from is hereby AFFIRMED, but subject to the following
modification: The court a quo in the aforestated decision gave the
plaintiffs-appellants the right of first refusal only if the property is
sold for a purchase price of Eleven Million pesos or lower;
however, considering the mercurial and uncertain forces in our
market economy today. We find no reason not to grant the same
right of first refusal to herein appellants in the event that the
subject property is sold for a price in excess of Eleven Million
pesos. No pronouncement as to costs.
SO ORDERED.

The decision of this Court was brought to the Supreme Court by


petition for review on certiorari. The Supreme Court denied the
appeal on May 6, 1991 "for insufficiency in form and substances"
(Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was
pending consideration by this Court, the Cu Unjieng spouses
executed a Deed of Sale (Annex D, Petition) transferring the
property in question to herein petitioner Buen Realty and
Development Corporation, subject to the following terms and
conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION
PESOS (P15,000,000.00), receipt of which in full is hereby
acknowledged, the VENDORS hereby sells, transfers and
conveys for and in favor of the VENDEE, his heirs, executors,
administrators or assigns, the above-described property with all
the improvements found therein including all the rights and
interest in the said property free from all liens and encumbrances
of whatever nature, except the pending ejectment proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax,
registration fees for the transfer of title in his favor and other
expenses incidental to the sale of above-described property
including capital gains tax and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the
name of the Cu Unjieng spouses was cancelled and, in lieu
thereof, TCT No. 195816 was issued in the name of petitioner on
December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject
property wrote a letter to the lessees demanding that the latter
vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating
that petitioner brought the property subject to the notice of lis
pendens regarding Civil Case No. 87-41058 annotated on TCT
No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of
the Decision in Civil Case No. 87-41058 as modified by the Court
of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A,
Petition) quoted as follows:
Presented before the Court is a Motion for Execution filed by
plaintiff represented by Atty. Antonio Albano. Both defendants
Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty.
Vicente Sison and Atty. Anacleto Magno respectively were duly
notified in today's consideration of the motion as evidenced by the
rubber stamp and signatures upon the copy of the Motion for
Execution.
The gist of the motion is that the Decision of the Court dated
September 21, 1990 as modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated to the Supreme
Court upon the petition for review and that the same was denied
by the highest tribunal in its resolution dated May 6, 1991 in G.R.
No.
L-97276, had now become final and executory. As a
consequence, there was an Entry of Judgment by the Supreme
Court as of June 6, 1991, stating that the aforesaid modified
decision had already become final and executory.

It is the observation of the Court that this property in dispute was


the subject of theNotice of Lis Pendens and that the modified
decision of this Court promulgated by the Court of Appeals which
had become final to the effect that should the defendants decide
to offer the property for sale for a price of P11 Million or lower, and
considering the mercurial and uncertain forces in our market
economy today, the same right of first refusal to herein
plaintiffs/appellants in the event that the subject property is sold
for a price in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to execute the
necessary Deed of Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs' right
of first refusal and that a new Transfer Certificate of Title be
issued in favor of the buyer.
All previous transactions involving the same property
notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in bad
faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order,
the dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution issue in the aboveentitled case directing the Deputy Sheriff Ramon Enriquez of this
Court to implement said Writ of Execution ordering the defendants
among others to comply with the aforesaid Order of this Court
within a period of one (1) week from receipt of this Order and for
defendants to execute the necessary Deed of Sale of the property
in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong
and Arthur Go for the consideration of P15,000,000.00 and
ordering the Register of Deeds of the City of Manila, to cancel and
set aside the title already issued in favor of Buen Realty
Corporation which was previously executed between the latter
and defendants and to register the new title in favor of the
aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of
execution (Annex C, Petition) was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private
respondent, set aside and declared without force and effect the above
questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen
Realty can be held bound by the writ of execution by virtue of the
notice of lis pendens, carried over on TCT No. 195816 issued in the
name of Buen Realty, at the time of the latter's purchase of the
property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption
of such arrangements as the right of first refusal, a purchase option
and a contract to sell. For ready reference, we might point out some
fundamental precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art.
1156, Civil Code). The obligation is constituted upon the concurrence

of the essential elements thereof, viz: (a) The vinculum juris or juridical
tie which is the efficient cause established by the various sources of
obligations (law, contracts, quasi-contracts, delicts and quasi-delicts);
(b) the object which is the prestation or conduct; required to be
observed (to give, to do or not to do); and (c) the subject-persons who,
viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects.

An accepted unilateral promise which specifies the thing to be sold


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

Among the sources of an obligation is a contract (Art. 1157, Civil


Code), which is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render
some service (Art. 1305, Civil Code). A contract undergoes various
stages that include its negotiation or preparation, its perfection and,
finally, its consummation. Negotiation covers the period from the time
the prospective contracting parties indicate interest in the
contract to the time the contract is concluded (perfected).
The perfection of the contract takes place upon the concurrence of the
essential elements thereof. A contract which is consensual as to
perfection is so established upon a mere meeting of minds, i.e., the
concurrence of offer and acceptance, on the object and on the cause
thereof. A contract which requires, in addition to the above, the delivery
of the object of the agreement, as in a pledge or commodatum, is
commonly referred to as a real contract. In a solemn contract,
compliance with certain formalities prescribed by law, such as in a
donation of real property, is essential in order to make the act valid, the
prescribed form being thereby an essential element thereof. The stage
ofconsummation begins when the parties perform their respective
undertakings under the contract culminating in the extinguishment
thereof.
Until the contract is perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation. In sales, particularly, to
which the topic for discussion about the case at bench belongs, the
contract is perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer ownership of a
thing or right to another, called the buyer, over which the latter agrees.
Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to
Sell" where invariably the ownership of the thing sold is retained until
the fulfillment of a positive suspensive condition (normally, the full
payment of the purchase price), the breach of the condition will prevent
the obligation to convey title from acquiring an obligatory
force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said
that, although denominated a "Deed of Conditional Sale," a sale is still
absolute where the contract is devoid of any proviso that title is
reserved or the right to unilaterally rescind is stipulated, e.g., until or
unless the price is paid. Ownership will then be transferred to the buyer
upon actual or constructive delivery (e.g., by the execution of a public
document) of the property sold. Where the condition is imposed upon
the perfection of the contract itself, the failure of the condition would
prevent such perfection. 3 If the condition is imposed on the obligation
of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object
is made determinate and the price is fixed, can be obligatory on the
parties, and compliance therewith may accordingly be exacted. 5

An accepted unilateral promise to buy or to sell a


determinate thing for a price certain is binding
upon the promissor if the promise is supported by
a consideration distinct from the price. (1451a) 6
Observe, however, that the option is not the contract of sale itself. 7 The
optionee has the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of the
option, a bilateral promise to sell and to buy ensues and both parties
are then reciprocally bound to comply with their respective
undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An
imperfect promise (policitacion) is merely an offer. Public
advertisements or solicitations and the like are ordinarily construed as
mere invitations to make offers or only as proposals. These relations,
until a contract is perfected, are not considered binding commitments.
Thus, at any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. The offer, at this stage, may
be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the
offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270).
Where a period is given to the offeree within which to accept the offer,
the following rules generally govern:
(1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to withdraw the
offer before its acceptance, or, if an acceptance has been made,
before the offeror's coming to know of such fact, by communicating
that withdrawal to the offeree (see Art. 1324, Civil Code; see also
Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is
applicable to a unilateral promise to sell under Art. 1479, modifying the
previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil.
249; see also Art. 1319, Civil Code; Rural Bank of Paraaque, Inc., vs.
Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The
right to withdraw, however, must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage claim under Article
19 of the Civil Code which ordains that "every person must, in the
exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is
deemed perfected, and it would be a breach of that contract to
withdraw the offer during the agreed period. The option, however, is an
independent contract by itself, and it is to be distinguished from the
projected main agreement (subject matter of the option) which is
obviously yet to be concluded. If, in fact, the optioner-offeror withdraws
the offer before its acceptance(exercise of the option) by the optioneeofferee, the latter may not sue for specific performance on the
proposed contract ("object" of the option) since it has failed to reach its
own stage of perfection. The optioner-offeror, however, renders himself
liable for damages for breach of the option. In these cases, care should
be taken of the real nature of the consideration given, for if, in fact, it
has been intended to be part of the consideration for the main contract
with a right of withdrawal on the part of the optionee, the main contract
could be deemed perfected; a similar instance would be an "earnest
money" in a contract of sale that can evidence its perfection (Art. 1482,
Civil Code).

In the law on sales, the so-called "right of first refusal" is an innovative


juridical relation. Needless to point out, it cannot be deemed a
perfected contract of sale under Article 1458 of the Civil Code. Neither
can the right of first refusal, understood in its normal concept, per
se be brought within the purview of an option under the second
paragraph of Article 1479, aforequoted, or possibly of an offer under
Article 1319 9 of the same Code. An option or an offer would require,
among other things, 10 a clear certainty on both the object and the
cause or consideration of the envisioned contract. In a right of first
refusal, while the object might be made determinate, the exercise of
the right, however, would be dependent not only on the grantor's
eventual intention to enter into a binding juridical relation with another
but also on terms, including the price, that obviously are yet to be later
firmed up. Prior thereto, it can at best be so described as merely
belonging to a class of preparatory juridical relations governed not by
contracts (since the essential elements to establish the vinculum
juris would still be indefinite and inconclusive) but by, among other
laws of general application, the pertinent scattered provisions of the
Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed
under a final judgment, like here, its breach cannot justify
correspondingly an issuance of a writ of execution under a judgment
that merely recognizes its existence, nor would it sanction an action for
specific performance without thereby negating the indispensable
element of consensuality in the perfection of contracts. 11 It is not to
say, however, that the right of first refusal would be inconsequential for,
such as already intimated above, an unjustified disregard thereof,
given, for instance, the circumstances expressed in Article 19 12 of the
Civil Code, can warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed,
has merely accorded a "right of first refusal" in favor of petitioners. The
consequence of such a declaration entails no more than what has
heretofore been said. In fine, if, as it is here so conveyed to us,
petitioners are aggrieved by the failure of private respondents to honor
the right of first refusal, the remedy is not a writ of execution on the
judgment, since there is none to execute, but an action for damages in
a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development
Corporation, the alleged purchaser of the property, has acted in good
faith or bad faith and whether or not it should, in any case, be
considered bound to respect the registration of the lis pendens in Civil
Case No. 87-41058 are matters that must be independently addressed
in appropriate proceedings. Buen Realty, not having been impleaded in
Civil Case No. 87-41058, cannot be held subject to the writ of
execution issued by respondent Judge, let alone ousted from the
ownership and possession of the property, without first being duly
afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals
has erred in holding that the writ of execution varies the terms of the
judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV21123. The Court of Appeals, in this regard, has observed:
Finally, the questioned writ of execution is in
variance with the decision of the trial court as
modified by this Court. As already stated, there
was nothing in said decision 13 that decreed the
execution of a deed of sale between the Cu
Unjiengs and respondent lessees, or the fixing of
the price of the sale, or the cancellation of title in
the name of petitioner (Limpin vs. IAC, 147 SCRA
516; Pamantasan ng Lungsod ng Maynila vs. IAC,
143 SCRA 311; De Guzman vs. CA, 137 SCRA
730; Pastor vs. CA, 122 SCRA 885).

It is likewise quite obvious to us that the decision in Civil Case No. 8741058 could not have decreed at the time the execution of any deed of
sale between the Cu Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting
aside the questioned Orders, dated 30 August 1991 and 27 September
1991, of the court a quo. Costs against petitioners.
SO ORDERED.
G.R. No. 111538 February 26, 1997
PARAAQUE KINGS ENTERPRISES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS, CATALINA L. SANTOS, represented by her
attorney-in-fact, LUZ B. PROTACIO, and DAVID A.
RAYMUNDO, respondents.

PANGANIBAN, J.:
Do allegations in a complaint showing violation of a contractual right of
"first option or priority to buy the properties subject of the lease"
constitute a valid cause of action? Is the grantee of such right entitled
to be offered the same terms and conditions as those given to a third
party who eventually bought such properties? In short, is such right of
first refusal enforceable by an action for specific performance?
These questions are answered in the affirmative by this Court in
resolving this petition for review under Rule 45 of the Rules of Court
challenging the Decision 1 of the Court of Appeals 2 promulgated on
March 29, 1993, in CA-G.R. CV No. 34987 entitled "Paraaque Kings
Enterprises, Inc. vs. Catalina L. Santos, et al.," which affirmed the
order 3 of September 2, 1991, of the Regional Trial Court of Makati,
Branch 57, 4 dismissing Civil Case No. 91-786 for lack of a valid cause
of action.
Facts of the Case
On March 19, 1991, herein petitioner filed before the Regional Trial
Court of Makati a complaint, 5 which is reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and
existing under and by virtue of the laws of the
Philippines, with principal place of business of (sic)
Dr. A. Santos Avenue, Paraaque, Metro Manila,
while defendant Catalina L. Santos, is of legal age,
widow, with residence and postal address at 444
Plato Street, Ct., Stockton, California, USA,
represented in this action by her attorney-in-fact,
Luz B. Protacio, with residence and postal address
at No, 12, San Antonio Street, Magallanes Village,
Makati, Metro Manila, by virtue of a general power
of attorney. Defendant David A. Raymundo, is of
legal age, single, with residence and postal
address at 1918 Kamias Street, Damarias
Village, Makati, Metro Manila, where they (sic)
may be served with summons and other court
processes. Xerox copy of the general power of
attorney is hereto attached as Annex "A".

2. Defendant Catalina L. Santos is the owner of


eight (8) parcels of land located at (sic)
Paraaque, Metro Manila with transfer certificate
of title nos. S-19637, S-19638 and S-19643 to S19648. Xerox copies of the said title (sic) are
hereto attached as Annexes "B" to "I", respectively.
3. On November 28, 1977, a certain Frederick
Chua leased the above-described property from
defendant Catalina L. Santos, the said lease was
registered in the Register of Deeds. Xerox copy of
the lease is hereto attached as Annex "J".
4. On February 12, 1979, Frederick Chua
assigned all his rights and interest and
participation in the leased property to Lee Ching
Bing, by virtue of a deed of assignment and with
the conformity of defendant Santos, the said
assignment was also registered. Xerox copy of the
deed of assignment is hereto attached as Annex
"K".
5. On August 6, 1979, Lee Ching Bing also
assigned all his rights and interest in the leased
property to Paraaque Kings Enterprises,
Incorporated by virtue of a deed of assignment
and with the conformity of defendant Santos, the
same was duly registered, Xerox copy of the deed
of assignment is hereto attached as Annex "L".
6. Paragraph 9 of the assigned leased (sic)
contract provides among others that:
"9. That in case the properties
subject of the lease
agreement are sold or
encumbered, Lessors shall
impose as a condition that the
buyer or mortgagee thereof
shall recognize and be bound
by all the terms and
conditions of this lease
agreement and shall respect
this Contract of Lease as if
they are the LESSORS
thereof and in case of sale,
LESSEE shall have the first
option or priority to buy the
properties subject of the
lease;"
7. On September 21, 1988, defendant Santos sold
the eight parcels of land subject of the lease to
defendant David Raymundo for a consideration of
FIVE MILLION (P5,000,000.00) PESOS. The said
sale was in contravention of the contract of lease,
for the first option or priority to buy was not offered
by defendant Santos to the plaintiff. Xerox copy of
the deed of sale is hereto attached as Annex "M".
8. On March 5, 1989, defendant Santos wrote a
letter to the plaintiff informing the same of the sale
of the properties to defendant Raymundo, the said
letter was personally handed by the attorney-infact of defendant Santos, Xerox copy of the letter
is hereto attached as Annex "N".

9. Upon learning of this fact plaintiff's


representative wrote a letter to defendant Santos,
requesting her to rectify the error and
consequently realizing the error, she had it
reconveyed to her for the same consideration of
FIVE MILLION (P5,000,000.00) PESOS. Xerox
copies of the letter and the deed of reconveyance
are hereto attached as Annexes "O" and "P".
10. Subsequently the property was offered for sale
to plaintiff by the defendant for the sum of
FIFTEEN MILLION (P15,000,000.00) PESOS.
Plaintiff was given ten (10) days to make good of
the offer, but therefore (sic) the said period expired
another letter came from the counsel of defendant
Santos, containing the same tenor of (sic) the
former letter. Xerox copies of the letters are hereto
attached as Annexes "Q" and "R".
11. On May 8, 1989, before the period given in the
letter offering the properties for sale expired,
plaintiff's counsel wrote counsel of defendant
Santos offering to buy the properties for FIVE
MILLION (P5,000,000.00) PESOS. Xerox copy of
the letter is hereto attached as Annex "S".
12. On May 15, 1989, before they replied to the
offer to purchase, another deed of sale was
executed by defendant Santos (in favor of)
defendant Raymundo for a consideration of NINE
MILLION (P9,000,000.00) PESOS. Xerox copy of
the second deed of sale is hereto attached as
Annex "T".
13. Defendant Santos violated again paragraph 9
of the contract of lease by executing a second
deed of sale to defendant Raymundo.
14. It was only on May 17, 1989, that defendant
Santos replied to the letter of the plaintiff's offer to
buy or two days after she sold her properties. In
her reply she stated among others that the period
has lapsed and the plaintiff is not a privy (sic) to
the contract. Xerox copy of the letter is hereto
attached as Annex "U".
15. On June 28, 1989, counsel for plaintiff
informed counsel of defendant Santos of the fact
that plaintiff is the assignee of all rights and
interest of the former lessor. Xerox copy of the
letter is hereto attached as Annex "V".
16. On July 6, 1989, counsel for defendant Santos
informed the plaintiff that the new owner is
defendant Raymundo. Xerox copy of the letter is
hereto attached as Annex "W".
17. From the preceding facts it is clear that the
sale was simulated and that there was a collusion
between the defendants in the sales of the leased
properties, on the ground that when plaintiff wrote
a letter to defendant Santos to rectify the error,
she immediately have (sic) the property
reconveyed it (sic) to her in a matter of twelve (12)
days.

18. Defendants have the same counsel who


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

PRAYER

19. When the property was still registered in the


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

a. The Deed of Sale between defendants dated


May 15, 1989, be annulled and the leased
properties be sold to the plaintiff in the amount of
P5,000,000.00;

20. The purpose of this unholy alliance between


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

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


moral damages;

21. Plaintiff has made considerable investments in


the said leased property by erecting a two (2)
storey, six (6) doors commercial building
amounting to THREE MILLION (P3,000,000.00)
PESOS. This considerable improvement was
made on the belief that eventually the said
premises shall be sold to the plaintiff.
22. As a consequence of this unlawful act of the
defendants, plaintiff will incurr (sic) total loss of
THREE MILLION (P3,000,000.00) PESOS as the
actual cost of the building and as such defendants
should be charged of the same amount for actual
damages.
23. As a consequence of the collusion, evil design
and illegal acts of the defendants, plaintiff in the
process suffered mental anguish, sleepless nights,
bismirched (sic) reputation which entitles plaintiff
to moral damages in the amount of FIVE MILLION
(P5,000,000.00) PESOS.
24. The defendants acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner and as
a deterrent to the commission of similar acts, they
should be made to answer for exemplary
damages, the amount left to the discretion of the
Court.
25. Plaintiff demanded from the defendants to
rectify their unlawful acts that they committed, but
defendants refused and failed to comply with
plaintiffs just and valid and (sic) demands. Xerox
copies of the demand letters are hereto attached
as Annexes "KK" to "LL", respectively.
26. Despite repeated demands, defendants failed
and refused without justifiable cause to satisfy
plaintiff's claim, and was constrained to engaged
(sic) the services of undersigned counsel to
institute this action at a contract fee of
P200,000.00, as and for attorney's fees, exclusive
of cost and expenses of litigation.

WHEREFORE, it is respectfully prayed, that


judgment be rendered in favor of the plaintiff and
against defendants and ordering that:

b. Dependants (sic) pay plaintiff the sum of


P3,000,000.00 as actual damages;

d. Defendants pay exemplary damages left to the


discretion of the Court;
e. Defendants pay the sum of not less than
P200,000.00 as attorney's fees.
Plaintiff further prays for other just and equitable
reliefs plus cost of suit.
Instead of filing their respective answers, respondents filed motions to
dismiss anchored on the grounds of lack of cause of action, estoppel
and laches.
On September 2, 1991, the trial court issued the order dismissing the
complaint for lack of a valid cause of action. It ratiocinated thus:
Upon the very face of the plaintiff's Complaint
itself, it therefore indubitably appears that the
defendant Santos had verily complied with
paragraph 9 of the Lease Agreement by twice
offering the properties for sale to the plaintiff for ~1
5 M. The said offers, however, were plainly
rejected by the plaintiff which scorned the said
offer as "RIDICULOUS". There was therefore a
definite refusal on the part of the plaintiff to accept
the offer of defendant Santos. For in acquiring the
said properties back to her name, and in so
making the offers to sell both by herself (attorneyin-fact) and through her counsel, defendant
Santos was indeed conscientiously complying with
her obligation under paragraph 9 of the Lease
Agreement. . . . .
xxx xxx xxx
This is indeed one instance where a Complaint,
after barely commencing to create a cause of
action, neutralized itself by its subsequent
averments which erased or extinguished its earlier
allegations of an impending wrong. Consequently,
absent any actionable wrong in the very face of
the Complaint itself, the plaintiffs subsequent
protestations of collusion is bereft or devoid of any
meaning or purpose. . . . .
The inescapable result of the foregoing
considerations point to no other conclusion than
that the Complaint actually does not contain any

valid cause of action and should therefore be as it


is hereby ordered DISMISSED. The Court finds no
further need to consider the other grounds of
estoppel and laches inasmuch as this resolution is
sufficient to dispose the matter. 6
Petitioners appealed to the Court of Appeals which affirmed in toto the
ruling of the trial court, and further reasoned that:
. . . . Appellant's protestations that the P15 million
price quoted by appellee Santos was reduced to
P9 million when she later resold the leased
properties to Raymundo has no valid legal
moorings because appellant, as a prospective
buyer, cannot dictate its own price and forcibly ram
it against appellee Santos, as owner, to buy off her
leased properties considering the total absence of
any stipulation or agreement as to the price or as
to how the price should be computed under
paragraph 9 of the lease contract, . . . . 7
Petitioner moved for reconsideration but was denied in an order dated
August 20, 1993. 8
Hence this petition. Subsequently, petitioner filed an "Urgent Motion for
the Issuance of Restraining Order and/or Writ of Preliminary Injunction
and to Hold Respondent David A. Raymundo in Contempt of
Court." 9 The motion sought to enjoin respondent Raymundo and his
counsel from pursuing the ejectment complaint filed before the
barangay captain of San Isidro, Paraaque, Metro Manila; to direct the
dismissal of said ejectment complaint or of any similar action that may
have been filed; and to require respondent Raymundo to explain why
he should not be held in contempt of court for forum-shopping. The
ejectment suit initiated by respondent Raymundo against petitioner
arose from the expiration of the lease contract covering the property
subject of this case. The ejectment suit was decided in favor of
Raymundo, and the entry of final judgment in respect thereof renders
the said motion moot and academic.
Issue
The principal legal issue presented before us for resolution is whether
the aforequoted complaint alleging breach of the contractual right of
"first option or priority to buy" states a valid cause of action.
Petitioner contends that the trial court as well as the appellate tribunal
erred in dismissing the complaint because it in fact had not just one but
at least three (3) valid causes of action, to wit: (1) breach of contract,
(2) its right of first refusal founded in law, and (3) damages.
Respondents Santos and Raymundo, in their separate comments, aver
that the petition should be denied for not raising a question of law as
the issue involved is purely factual whether respondent Santos
complied with paragraph 9 of the lease agreement and for not
having complied with Section 2, Rule 45 of the Rules of Court,
requiring the filing of twelve (12) copies of the petitioner's brief. Both
maintain that the complaint filed by petitioner before the Regional Trial
Court of Makati stated no valid cause of action and that petitioner failed
to substantiate its claim that the lower courts decided the same "in a
way not in accord with law and applicable decisions of the Supreme
Court"; or that the Court of Appeals has "sanctioned departure by a
trial court from the accepted and usual course of judicial proceedings"
so as to merit the exercise by this Court of the power of review under
Rule 45 of the Rules of Court. Furthermore, they reiterate estoppel and
laches as grounds for dismissal, claiming that petitioner's payment of
rentals of the leased property to respondent Raymundo from June 15,
1989, to June 30, 1990, was an acknowledgment of the latter's status

as new owner-lessor of said property, by virtue of which petitioner is


deemed to have waived or abandoned its first option to purchase.
Private respondents likewise contend that the deed of assignment of
the lease agreement did not include the assignment of the option to
purchase. Respondent Raymundo further avers that he was not privy
to the contract of lease, being neither the lessor nor lessee adverted to
therein, hence he could not be held liable for violation thereof.
The Court's Ruling
Preliminary Issue: Failure to File
Sufficient Copies of Brief
We first dispose of the procedural issue raised by respondents,
particularly petitioner's failure to file twelve (12) copies of its brief. We
have ruled that when non-compliance with the Rules was not intended
for delay or did not result in prejudice to the adverse party, dismissal of
appeal on mere technicalities in cases where appeal is a matter of
right may be stayed, in the exercise of the court's equity
jurisdiction. 10 It does not appear that respondents were unduly
prejudiced by petitioner's nonfeasance. Neither has it been shown that
such failure was intentional.
Main Issue: Validity of Cause of Action
We do not agree with respondents' contention that the issue involved
is purely factual. The principal legal question, as stated earlier, is
whether the complaint filed by herein petitioner in the lower court
states a valid cause of action. Since such question assumes the facts
alleged in the complaint as true, it follows that the determination
thereof is one of law, and not of facts. There is a question of law in a
given case when the doubt or difference arises as to what the law is on
a certain state of facts, and there is a question of fact when the doubt
or difference arises as to the truth or the falsehood of alleged facts. 11
At the outset, petitioner concedes that when the ground for a motion to
dismiss is lack of cause of action, such ground must appear on the
face of the complaint; that to determine the sufficiency of a cause of
action, only the facts alleged in the complaint and no others should be
considered; and that the test of sufficiency of the facts alleged in a
petition or complaint to constitute a cause of action is whether,
admitting the facts alleged, the court could render a valid judgment
upon the same in accordance with the prayer of the petition or
complaint.
A cause of action exists if the following elements are present: (1) a
right in favor of the plaintiff by whatever means and under whatever
law it arises or is created; (2) an obligation on the part of the named
defendant to respect or not to violate such right, and (3) an act or
omission on the part of such defendant violative of the right of plaintiff
or constituting a breach of the obligation of defendant to the plaintiff for
which the latter may maintain an action for recovery of damages. 12
In determining whether allegations of a complaint are sufficient to
support a cause of action, it must be borne in mind that the complaint
does not have to establish or allege facts proving the existence of a
cause of action at the outset; this will have to be done at the trial on the
merits of the case. To sustain a motion to dismiss for lack of cause of
action, the complaint must show that the claim for relief does not exist,
rather than that a claim has been defectively stated, or is ambiguous,
indefinite or uncertain. 13
Equally important, a defendant moving to dismiss a complaint on the
ground of lack of cause of action is regarded as having hypothetically
admitted all the averments thereof. 14

A careful examination of the complaint reveals that it sufficiently


alleges an actionable contractual breach on the part of private
respondents. Under paragraph 9 of the contract of lease between
respondent Santos and petitioner, the latter was granted the "first
option or priority" to purchase the leased properties in case Santos
decided to sell. If Santos never decided to sell at all, there can never
be a breach, much less an enforcement of such "right." But on
September 21, 1988, Santos sold said properties to Respondent
Raymundo without first offering these to petitioner. Santos indeed
realized her error, since she repurchased the properties after petitioner
complained. Thereafter, she offered to sell the properties to petitioner
for P15 million, which petitioner, however, rejected because of the
"ridiculous" price. But Santos again appeared to have violated the
same provision of the lease contract when she finally resold the
properties to respondent Raymundo for only P9 million without first
offering them to petitioner at such price. Whether there was actual
breach which entitled petitioner to damages and/or other just or
equitable relief, is a question which can better be resolved after trial on
the merits where each party can present evidence to prove their
respective allegations and defenses. 15
The trial and appellate courts based their decision to sustain
respondents' motion to dismiss on the allegations of Paraaque Kings
Enterprises that Santos had actually offered the subject properties for
sale to it prior to the final sale in favor of Raymundo, but that the offer
was rejected. According to said courts, with such offer, Santos had
verily complied with her obligation to grant the right of first refusal to
petitioner.
We hold, however, that in order to have full compliance with the
contractual right granting petitioner the first option to purchase, the
sale of the properties for the amount of P9 million, the price for which
they were finally sold to respondent Raymundo, should have likewise
been first offered to petitioner.
The Court has made an extensive and lengthy discourse on the
concept of, and obligations under, a right of first refusal in the case
of Guzman, Bocaling & Co. vs. Bonnevie. 16 In that case, under a
contract of lease, the lessees (Raul and Christopher Bonnevie) were
given a "right of first priority" to purchase the leased property in case
the lessor (Reynoso) decided to sell. The selling price quoted to the
Bonnevies was 600,000.00 to be fully paid in cash, less a mortgage
lien of P100,000.00. On the other hand, the selling price offered by
Reynoso to and accepted by Guzman was only P400,000.00 of which
P137,500.00 was to be paid in cash while the balance was to be paid
only when the property was cleared of occupants. We held that even if
the Bonnevies could not buy it at the price quoted (P600,000.00),
nonetheless, Reynoso could not sell it to another for a lower price and
under more favorable terms and conditions without first offering said
favorable terms and price to the Bonnevies as well. Only if the
Bonnevies failed to exercise their right of first priority could Reynoso
thereafter lawfully sell the subject property to others, and only under
the same terms and conditions previously offered to the Bonnevies.
Of course, under their contract, they specifically stipulated that the
Bonnevies could exercise the right of first priority, "all things and
conditions being equal." This Court interpreted this proviso to mean
that there should be identity of terms and conditions to be offered to
the Bonnevies and all other prospective buyers, with the Bonnevies to
enjoy the right of first priority. We hold that the same rule applies even
without the same proviso if the right of first refusal (or the first option to
buy) is not to be rendered illusory.
From the foregoing, the basis of the right of first refusal* must be
the current offer to sell of the seller or offer to purchase of any
prospective buyer. Only after the optionee fails to exercise its right of
first priority under the same terms and within the period contemplated,

could the owner validly offer to sell the property to a third person,
again, under the same terms as offered to the optionee.
This principle was reiterated in the very recent case of Equatorial
Realty vs. Mayfair Theater, Inc. 17 which was decided en banc. This
Court upheld the right of first refusal of the lessee Mayfair, and
rescinded the sale of the property by the lessor Carmelo to Equatorial
Realty "considering that Mayfair, which had substantial interest over
the subject property, was prejudiced by its sale to Equatorial without
Carmelo conferring to Mayfair every opportunity to negotiate within the
30-day stipulated period" (emphasis supplied).
In that case, two contracts of lease between Carmelo and Mayfair
provided "that if the LESSOR should desire to sell the leased
premises, the LESSEE shall be given 30 days exclusive option to
purchase the same." Carmelo initially offered to sell the leased
property to Mayfair for six to seven million pesos. Mayfair indicated
interest in purchasing the property though it invoked the 30-day period.
Nothing was heard thereafter from Carmelo. Four years later, the latter
sold its entire Recto Avenue property, including the leased premises, to
Equatorial for P11,300,000.00 without priorly informing Mayfair. The
Court held that both Carmelo and Equatorial acted in bad faith:
Carmelo for knowingly violating the right of first option of Mayfair, and
Equatorial for purchasing the property despite being aware of the
contract stipulation. In addition to rescission of the contract of sale, the
Court ordered Carmelo to allow Mayfair to buy the subject property at
the same price of P11,300,000.00.
No cause of action
under P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or the Urban
Land Reform Law, as another source of its right of first refusal. It
claims to be covered under said law, being the "rightful occupant of the
land and its structures" since it is the lawful lessee thereof by reason of
contract. Under the lease contract, petitioner would have occupied the
property for fourteen (14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a beneficiary under
said law, suffice it to say that this Court has previously ruled that under
Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the
exercise of the lessee's right of first refusal to purchase shall be
determined by the Urban Zone Expropriation and Land Management
Committee. Hence, . . . . certain prerequisites must be complied with
by anyone who wishes to avail himself of the benefits of the
decree." 19 There being no allegation in its complaint that the
prerequisites were complied with, it is clear that the complaint did fail to
state a cause of action on this ground.
Deed of Assignment included
the option to purchase
Neither do we find merit in the contention of respondent Santos that
the assignment of the lease contract to petitioner did not include the
option to purchase. The provisions of the deeds of assignment with
regard to matters assigned were very clear. Under the first assignment
between Frederick Chua as assignor and Lee Ching Bing as assignee,
it was expressly stated that:
. . . . the ASSIGNOR hereby CEDES,
TRANSFERS and ASSIGNS to herein ASSIGNEE,
all his rights, interest and participation over said
premises afore-described, . . . . 20 (emphasis
supplied)

And under the subsequent assignment executed between Lee Ching


Bing as assignor and the petitioner, represented by its Vice President
Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated
that;
. . . . the ASSIGNOR hereby sells, transfers and
assigns all his rights, interest and participation
over said leased premises, . . . . 21 (emphasis
supplied)
One of such rights included in the contract of lease and, therefore, in
the assignments of rights was the lessee's right of first option or priority
to buy the properties subject of the lease, as provided in paragraph 9
of the assigned lease contract. The deed of assignment need not be
very specific as to which rights and obligations were passed on to the
assignee. It is understood in the general provision aforequoted that all
specific rights and obligationscontained in the contract of lease are
those referred to as being assigned. Needless to state, respondent
Santos gave her unqualified conformity to both assignments of rights.
Respondent Raymundo privy
to the Contract of Lease
With respect to the contention of respondent Raymundo that he is not
privy to the lease contract, not being the lessor nor the lessee referred
to therein, he could thus not have violated its provisions, but he is
nevertheless a proper party. Clearly, he stepped into the shoes of the
owner-lessor of the land as, by virtue of his purchase, he assumed all
the obligations of the lessor under the lease contract. Moreover, he
received benefits in the form of rental payments. Furthermore, the
complaint, as well as the petition, prayed for the annulment of the sale
of the properties to him. Both pleadings also alleged collusion between
him and respondent Santos which defeated the exercise by petitioner
of its right of first refusal.
In order then to accord complete relief to petitioner, respondent
Raymundo was a necessary, if not indispensable, party to the
case. 22 A favorable judgment for the petitioner will necessarily affect
the rights of respondent Raymundo as the buyer of the property over
which petitioner would like to assert its right of first option to buy.
Having come to the conclusion that the complaint states a valid cause
of action for breach of the right of first refusal and that the trial court
should thus not have dismissed the complaint, we find no more need to
pass upon the question of whether the complaint states a cause of
action for damages or whether the complaint is barred by estoppel or
laches. As these matters require presentation and/or determination of
facts, they can be best resolved after trial on the merits.
While the lower courts erred in dismissing the complaint, private
respondents, however, cannot be denied their day in court. While, in
the resolution of a motion to dismiss, the truth of the facts alleged in
the complaint are theoretically admitted, such admission is merely
hypothetical and only for the purpose of resolving the motion. In case
of denial, the movant is not to be deprived of the right to submit its own
case and to submit evidence to rebut the allegations in the complaint.
Neither will the grant of the motion by a trial court and the ultimate
reversal thereof by an appellate court have the effect of stifling such
right. 23 So too, the trial court should be given the opportunity to
evaluate the evidence, apply the law and decree the proper remedy.
Hence, we remand the instant case to the trial court to allow private
respondents to have their day in court.
WHEREFORE, the petition is GRANTED. The assailed decisions of
the trial court and Court of Appeals are hereby REVERSED and SET
ASIDE. The case is REMANDED to the Regional Trial Court of Makati
for further proceedings.

SO ORDERED.
G.R. No. 140479 March 8, 2001
ROSENCOR DEVELOPMENT CORPORATION and RENE
JOAQUIN, petitioners,
vs.
PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN,
FERNANDO MAGBANUA and LIZZA TIANGCO, respondents.
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court seeking reversal of the Decision1 of the Court of Appeals dated
June 25, 1999 in CA-G.R. CV No. 53963. The Court of Appeals
decision reversed and set aside the Decision2 dated May 13, 1996 of
Branch 217 of the Regional Trial Court of Quezon City in Civil Case
No. Q-93-18582.1wphi1.nt
The case was originally filed on December 10, 1993 by Paterno
Inquing, Irene Guillermo and Federico Bantugan, herein respondents,
against Rosencor Development Corporation (hereinafter "Rosencor"),
Rene Joaquin, and Eufrocina de Leon. Originally, the complaint was
one for annulment of absolute deed of sale but was later amended to
one for rescission of absolute deed of sale. A complaint-for intervention
was thereafter filed by respondents Fernando Magbanua and Danna
Lizza Tiangco. The complaint-in-intervention was admitted by the trial
court in an Order dated May 4, 1994.3
The facts of the case, as stated by the trial court and adopted by the
appellate court, are as follows:
"This action was originally for the annulment of the Deed of
Absolute Sale dated September 4, 1990 between
defendants Rosencor and Eufrocina de Leon but later
amended (sic) praying for the rescission of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the
lessees since 1971 of a two-story residential apartment
located at No. 150 Tomas Morato Ave., Quezon City covered
by TCT No. 96161 and owned by spouses Faustino and
Cresencia Tiangco. The lease was not covered by any
contract. The lessees were renting the premises then for
P150.00 a month and were allegedly verbally granted by the
lessors the pre-emptive right to purchase the property if ever
they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the
management of the property was adjudicated to their heirs
who were represented by Eufrocina de Leon. The lessees
were allegedly promised the same pre-emptive right by the
heirs of Tiangcos since the latter had knowledge that this
right was extended to the former by the late spouses
Tiangcos. The lessees continued to stay in the premises and
allegedly spent their own money amounting from P50,000.00
to P100,000.00 for its upkeep. These expenses were never
deducted from the rentals which already increased to
P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda
Aguila demanding that they vacate the premises so that the
demolition of the building be undertaken. They refused to
leave the premises. In that same month, de Leon refused to
accept the lessees rental payment claiming that they have
run out of receipts and that a new collector has been
assigned to receive the payments. Thereafter, they received

a letter from Eufrocina de Leon offering to sell to them the


property they were leasing for P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for the
amount of P1,000,000.00. De Leon told them that she will be
submitting the offer to the other heirs. Since then, no answer
was given by de Leon as to their offer to buy the property.
However, in November 1990, Rene Joaquin came to the
leased premises introducing himself as its new owner.
In January 1991, the lessees again received another letter
from Atty. Aguila demanding that they vacate the premises. A
month thereafter, the lessees received a letter from de Leon
advising them that the heirs of the late spouses Tiangcos
have already sold the property to Rosencor. The following
month Atty. Aguila wrote them another letter demanding the
rental payment and introducing herself as counsel for
Rosencor/Rene Joaquin, the new owners of the premises.
The lessees requested from de Leon why she had
disregarded the pre-emptive right she and the late Tiangcos
have promised them. They also asked for a copy of the deed
of sale between her and the new owners thereof but she
refused to heed their request. In the same manner, when
they asked Rene Joaquin a copy of the deed of sale, the
latter turned down their request and instead Atty. Aguila
wrote them several letters demanding that they vacate the
premises. The lessees offered to tender their rental payment
to de Leon but she refused to accept the same.
In April 1992 before the demolition can be undertaken by the
Building Official, the barangay interceded between the
parties herein after which Rosencor raised the issue as to
the rental payment of the premises. It was also at this
instance that the lessees were furnished with a copy of the
Deed of Sale and discovered that they were deceived by de
Leon since the sale between her and Rene
Joaquin/Rosencor took place in September 4, 1990 while de
Leon made the offer to them only in October 1990 or after
the sale with Rosencor had been consummated. The
lessees also noted that the property was sold only for
P726,000.00.
The lessees offered to reimburse de Leon the selling price of
P726,000.00 plus an additional P274,000.00 to complete
their P1,000.000.00 earlier offer. When their offer was
refused, they filed the present action praying for the
following: a) rescission of the Deed of Absolute Sale
between de Leon and Rosencor dated September 4, 1990;
b) the defendants Rosencor/Rene Joaquin be ordered to
reconvey the property to de Leon; and c) de Leon be
ordered to reimburse the plaintiffs for the repairs of the
property, or apply the said amount as part of the price for the
purchase of the property in the sum of P100,000.00."4
After trial on the merits, the Regional Trial Court rendered a
Decision5 dated May 13, 1996 dismissing the complaint. The trial court
held that the right of redemption on which the complaint. The trial court
held that the right of redemption on which the complaint was based
was merely an oral one and as such, is unenforceable under the law.
The dispositive portion of the May 13, 1996 Decision is as follows:
"WHEREFORE, in view of the foregoing, the Court
DISMISSES the instant action. Plaintiffs and plaintiffsintervenors are hereby ordered to pay their respective
monthly rental of P1,000.00 per month reckoned from May
1990 up to the time they leave the premises. No costs.

SO ORDERED."6
Not satisfied with the decision of the trial court, respondents herein
filed a Notice of Appeal dated June 3, 1996. On the same date, the trial
court issued an Order for the elevation of the records of the case to the
Court of Appeals. On August 8, 1997, respondents filed their appellate
brief before the Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its
decision7 reversing the decision of the trial court. The dispositive
portion of the June 25, 1999 decision is as follows:
"WHEREFORE, premises considered, the appealed decision
(dated May 13, 1996) of the Regional Trial Court (Branch
217) in Quezon City in Case No. Q-93-18582 is hereby
REVERSED and SET ASIDE. In its stead, a new one is
rendered ordering:
(1) The rescission of the Deed of Absolute Sale
executed between the appellees on September 4,
1990;
(2) The reconveyance of the subject premises to
appellee Eufrocina de Leon;
(3) The heirs of Faustino and Crescencia Tiangco,
thru appellee Eufrocina de Leon, to afford the
appellants thirty days within which to exercise their
right of first refusal by paying the amount of ONE
MILLION PESOS (P1,000,000.00) for the subject
property; and
(4) The appellants to, in turn, pay the appellees
back rentals from May 1990 up to the time this
decision is promulgated.
No pronouncement as to costs.
SO ORDERED".8
Petitioners herein filed a Motion for Reconsideration of the decision of
the Court of Appeals but the same was denied in a Resolution dated
October 15, 1999.9
Hence, this petition for review on certiorari where petitioners Rosencor
Development Corporation and Rene Joaquin raise the following
assignment of errors10:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT
ORDERED THE RESCISSION OF THE ABSOLUTE DEED
OF SALE BETWEEN EUFROCINA DE LEON AND
PETITIONER ROSENCOR.
II.
THE COURT OF APPEALS COMMTITED MANIFEST
ERROR IN MANDATING THAT EUFROCINA DE LEON
AFFORD RESPONDENTS THE OPPORTUNITY TO
EXERCISE THEIR RIGHT OF FIRST REFUSAL.
III.

THE COURT OF APPEALS GRIEVOUSLY ERRED IN


CONCLUDING THAT RESPONDENTS HAVE
ESTABLISHED THEIR RIGHT OF FIRST REFUSAL
DESPITE PETITIONERS RELIANCE ON THEIR DEFENSE
BASED ON THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the spouses
Faustino and Crescencia Tiangco, did not appeal the decision of the
Court of Appeals.
At the onset, we not that both the Court of Appeals and the Regional
Trial Court relied on Article 1403 of the New Civil Code, more
specifically the provisions on the statute of frauds, in coming out with
their respective decisions. The trial court, in denying the petition for
reconveyance, held that right of first refusal relied upon by petitioners
was not reduced to writing and as such, is unenforceable by virtue of
the said article. The Court of Appeals, on the other hand, also held that
the statute of frauds governs the "right of first refusal" claimed by
respondents. However, the appellate court ruled that respondents had
duly proven the same by reason of petitioners waiver of the protection
of the statute by reason of their failure to object to the presentation of
oral evidence of the said right.
Both the appellate court and the trial court failed to discuss, however,
the threshold issue of whether or not a right of first refusal is indeed
covered by the provisions of the New Civil Code on the statute of
frauds. The resolution of the issue on the applicability of the statute of
frauds is important as it will determine the type of evidence which may
be considered by the trial court as proof of the alleged right of first
refusal.
The term "statute of frauds" is descriptive of statutes which require
certain classes of contracts to be in writing. This statute does not
deprive the parties of the right to contract with respect to the matters
therein involved, but merely regulates the formalities of the contract
necessary to render it enforceable. Thus, they are included in the
provisions of the New Civil Code regarding unenforceable contracts,
more particularly Art. 1403, paragraph 2. Said article provides, as
follows:
"Art. 1403. The following contracts are unenforceable, unless
they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as
set forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing,
and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received
without the writing, or a secondary evidence of its contents:
a) An agreement that by its terms is not to be
performed within a year from the making thereof;
b) A special promise to answer for the debt,
default, or miscarriage of another;
c) An agreement made in consideration of
marriage, other than a mutual promise to marry;
d) An agreement for the sale of goods, chattels or
things in action, at a price not less than five
hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the

evidences, or some of them, of such things in


action, or pay at the time some part of the
purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount
and kind of property sold, terms of sale, price,
names of purchasers and person on whose
account the sale is made, it is a sufficient
memorandum;
e) An agreement for the leasing of a longer period
than one year, or for the sale of real property or of
an interest therein;
f) A representation to the credit of a third person."
The purpose of the statute is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence on the
unassisted memory of witnesses by requiring certain enumerated
contracts and transactions to be evidenced by a writing signed by the
party to be charged.11 Moreover, the statute of frauds refers to specific
kinds of transactions and cannot apply to any other transaction that is
not enumerated therein.12 The application of such statute presupposes
the existence of a perfected contract.13
The question now is whether a "right of first refusal" is among those
enumerated in the list of contracts covered by the Statute of Frauds.
More specifically, is a right of first refusal akin to "an agreement for the
leasing of a longer period than one year, or for the sale of real property
or of an interest therein" as contemplated by Article 1403, par. 2(e) of
the New Civil Code.
We have previously held that not all agreements "affecting land" must
be put into writing to attain enforceability.14Thus, we have held that the
setting up of boundaries,15 the oral partition of real property16, and an
agreement creating a right of way17 are not covered by the provisions of
the statute of frauds. The reason simply is that these agreements are
not among those enumerated in Article 1403 of the New Civil Code.
A right of first refusal is not among those listed as unenforceable under
the statute of frauds. Furthermore, the application of Article 1403, par.
2(e) of the New Civil Code presupposes the existence of a perfected,
albeit unwritten, contract of sale.18 A right of first refusal, such as the
one involved in the instant case, is not by any means a perfected
contract of sale of real property. At best, it is a contractual grant, not of
the sale of the real property involved, but of the right of first refusal
over the property sought to be sold19.
It is thus evident that the statute of frauds does not contemplate cases
involving a right of first refusal. As such, a right of first refusal need not
be written to be enforceable and may be proven by oral evidence.
The next question to be ascertained is whether or not respondents
have satisfactorily proven their right of first refusal over the property
subject of the Deed of Absolute Sale dated September 4, 1990
between petitioner Rosencor and Eufrocina de Leon.
On this point, we agree with the factual findings of the Court of Appeals
that respondents have adequately proven the existence of their right of
first refusal. Federico Bantugan, Irene Guillermo, and Paterno Inquing
uniformly testified that they were promised by the late spouses
Faustino and Crescencia Tiangco and, later on, by their heirs a right of
first refusal over the property they were currently leasing should they
decide to sell the same. Moreover, respondents presented a letter20
dated October 9, 1990 where Eufrocina de Leon, the representative of
the heirs of the spouses Tiangco, informed them that they had received

an offer to buy the disputed property for P2,000,000.00 and offered to


sell the same to the respondents at the same price if they were
interested. Verily, if Eufrocina de Leon did not recognize respondents
right of first refusal over the property they were leasing, then she would
not have bothered to offer the property for sale to the respondents.
It must be noted that petitioners did not present evidence before the
trial court contradicting the existence of the right of first refusal of
respondents over the disputed property. They only presented petitioner
Rene Joaquin, the vice-president of petitioner Rosencor, who admitted
having no personal knowledge of the details of the sales transaction
between Rosencor and the heirs of the spouses Tiangco21. They also
dispensed with the testimony of Eufrocina de Leon22 who could have
denied the existence or knowledge of the right of first refusal. As such,
there being no evidence to the contrary, the right of first refusal claimed
by respondents was substantially proven by respondents before the
lower court.
Having ruled upon the question as to the existence of respondents
right of first refusal, the next issue to be answered is whether or not the
Court of Appeals erred in ordering the rescission of the Deed of
Absolute Sale dated September 4, 1990 between Rosencor and
Eufrocina de Leon and in decreeing that the heirs of the spouses
Tiangco should afford respondents the exercise of their right of first
refusal. In other words, may a contract of sale entered into in violation
of a third partys right of first refusal be rescinded in order that such
third party can exercise said right?
The issue is not one of first impression.
In Guzman, Bocaling and Co, Inc. vs. Bonnevie23, the Court upheld the
decision of a lower court ordering the rescission of a deed of sale
which violated a right of first refusal granted to one of the parties
therein. The Court held:
"xxx Contract of Sale was not voidable but rescissible. Under
Article 1380 to 1381 (3) of the Civil Code, a contract
otherwise valid may nonetheless be subsequently rescinded
by reason of injury to third persons, like creditors. The status
of creditors could be validly accorded the Bonnevies for they
had substantial interests that were prejudiced by the sale of
the subject property to the petitioner without recognizing
their right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by
law to the contracting parties and even to third persons, to
secure reparations for damages caused to them by a
contract, even if this should be valid, by means of the
restoration of things to their condition at the moment prior to
the celebration of said contract. It is a relief allowed for the
protection of one of the contracting parties and even third
persons from all injury and damage the contract may cause,
or to protect some incompatible and preferent right created
by the contract. Rescission implies a contract which, even if
initially valid, produces a lesion or pecuniary damage to
someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property
subject of the contract is an obstacle to the action for its
rescission where it is shown that such third person is in
lawful possession of the subject of the contract and that he
did not act in bad faith. However, this rule is not applicable in
the case before us because the petitioner is not considered
a third party in relation to the Contract of Sale nor may its
possession of the subject property be regarded as acquired
lawfully and in good faith.

Indeed, Guzman, Bocaling and Co. was the vendee in the


Contract of Sale. Moreover, the petitioner cannot be deemed
a purchaser in good faith for the record shows that it
categorically admitted that it was aware of the lease in favor
of the Bonnevies, who were actually occupying the subject
property at the time it was sold to it. Although the occupying
the subject property at the time it was sold to it. Although the
Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso and
Africa Reynoso, the petitioner cannot deny actual knowledge
of such lease which was equivalent to and indeed more
binding than presumed notice by registration.
A purchaser in good faith and for value is one who buys the
property of another without notice that some other person
has a right to or interest in such property without and pays a
full and fair price for the same at the time of such purchase
or before he has notice of the claim or interest of some other
person in the property. Good faith connotes an honest
intention to abstain from taking unconscientious advantage
of another. Tested by these principles, the petitioner cannot
tenably claim to be a buyer in good faith as it had notice of
the lease of the property by the Bonnevies and such
knowledge should have cautioned it to look deeper into the
agreement to determine if it involved stipulations that would
prejudice its own interests."
Subsequently24 in Equatorial Realty and Development, Inc. vs. Mayfair
Theater, Inc.25, the Court, en banc, with three justices
dissenting,26 ordered the rescission of a contract entered into in
violation of a right of first refusal. Using the ruling in Guzman Bocaling
& Co., Inc. vs. Bonnevie as basis, the Court decreed that since
respondent therein had a right of first refusal over the said property, it
could only exercise the said right if the fraudulent sale is first set aside
or rescinded. Thus:
"What Carmelo and Mayfair agreed to, by executing the two
lease contracts, was that Mayfair will have the right of first
refusal in the event Carmelo sells the leased premises. It is
undisputed that Carmelo did recognize this right of Mayfair,
for it informed the latter of its intention to sell the said
property in 1974. There was an exchange of letters
evidencing the offer and counter-offers made by both parties.
Carmelo, however, did not pursue the exercise to its logical
end. While it initially recognized Mayfairs right of first
refusal, Carmelo violated such right when without affording
its negotiations with Mayfair the full process to ripen to at
least an interface of a definite offer and a possible
corresponding acceptance within the "30-day exclusive
option" time granted Mayfair, Carmelo abandoned
negotiations, kept a low profile for some time, and then sold,
without prior notice to Mayfair, the entire Claro M. Recto
property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders
the sale to it of the property in question, rescissible. We
agree with respondent Appellate Court that the records bear
out the fact that Equatorial was aware of the lease contracts
because its lawyers had, prior to the sale, studied the said
contracts. As such, Equatorial cannot tenably claim that to
be a purchaser in good faith, and, therefore, rescission lies.
XXX
As also earlier emphasized, the contract of sale between
Equatorial and Carmelo is characterized by bad faith, since it
was knowingly entered into in violation of the rights of and to

the prejudice of Mayfair. In fact, as correctly observed by the


Court of Appeals, Equatorial admitted that its lawyers had
studied the contract or lease prior to the sale. Equatorials
knowledge of the stipulations therein should have cautioned
it to look further into the agreement to determine if it involved
stipulations that would prejudice its own interests.
Since Mayfair had a right of first refusal, it can exercise the
right only if the fraudulent sale is first set aside or rescinded.
All of these matters are now before us and so there should
be no piecemeal determination of this case and leave
festering sores to deteriorate into endless litigation. The facts
of the case and considerations of justice and equity require
that we order rescission here and now. Rescission is a relief
allowed for the protection of one of the contracting parties
and even third persons from all injury and damage the
contract may cause or to protect some incompatible and
preferred right by the contract. The sale of the subject real
property should now be rescinded considering that Mayfair,
which had substantial interest over the subject property, was
prejudiced by the sale of the subject property to Equatorial
without Carmelo conferring to Mayfair every opportunity to
negotiate within the 30-day stipulate periond.27
In Paranaque Kings Enterprises, Inc. vs. Court of Appeals,28 the Court
held that the allegations in a complaint showing violation of a
contractual right of "first option or priority to buy the properties subject
of the lease" constitute a valid cause of action enforceable by an action
for specific performance. Summarizing the rulings in the two previously
cited cases, the Court affirmed the nature of and concomitant rights
and obligations of parties under a right of first refusal. Thus:
"We hold however, that in order to have full compliance with
the contractual right granting petitioner the first option to
purchase, the sale of the properties for the amount of
P9,000,000.00, the price for which they were finally sold to
respondent Raymundo, should have likewise been offered to
petitioner.
The Court has made an extensive and lengthy discourse on
the concept of, and obligations under, a right of first refusal
in the case of Guzman, Bocaling & Co. vs. Bonnevie. In that
case, under a contract of lease, the lessees (Raul and
Christopher Bonnevie) were given a "right of first priority" to
purchase the leased property in case the lessor (Reynoso)
decided to sell. The selling price quoted to the Bonnevies
was 600,000.00 to be fully paid in cash, less a mortgage lien
of P100,000.00. On the other hand, the selling price offered
by Reynoso to and accepted by Guzman was only
P400,000.00 of which P137,500.00 was to be paid in cash
while the balance was to be paid only when the property was
cleared of occupants. We held that even if the Bonnevies
could not buy it at the price quoted (P600,000.00),
nonetheless, Reynoso could not sell it to another for a lower
price and under more favorable terms and conditions without
first offering said favorable terms and price to the Bonnevies
as well. Only if the Bonnevies failed to exercise their right of
first priority could Reynoso thereafter lawfully sell the subject
property to others, and only under the same terms and
conditions previously offered to the Bonnevies.

by the lessor Carmelo to Equatorial Realty "considering that


Mayfair, which had substantial interest over the subject
property, was prejudiced by its sale to Equatorial without
Carmelo conferring to Mayfair every opportunity to negotiate
within the 30-day stipulated period"
In that case, two contracts of lease between Carmelo and
Mayfair provided "that if the LESSOR should desire to sell
the leased premises, the LESSEE shall be given 30 days
exclusive option to purchase the same." Carmelo initially
offered to sell the leased property to Mayfair for six to seven
million pesos. Mayfair indicated interest in purchasing the
property though it invoked the 30-day period. Nothing was
heard thereafter from Carmelo. Four years later, the latter
sold its entire Recto Avenue property, including the leased
premises, to Equatorial for P11,300,000.00 without priorly
informing Mayfair. The Court held that both Carmelo and
Equatorial acted in bad faith: Carmelo or knowingly violating
the right of first option of Mayfair, and Equatorial for
purchasing the property despite being aware of the contract
stipulation. In addition to rescission of the contract of sale,
the Court ordered Carmelo to allow Mayfair to buy the
subject property at the same price of P11,300,000.00.
In the recent case of Litonjua vs L&R Corporation,29 the Court, also
citing the case of Guzman, Bocaling & Co. vs. Bonnevie, held that the
sale made therein in violation of a right of first refusal embodied in a
mortgage contract, was rescissible. Thus:
"While petitioners question the validity of paragraph 8 of their
mortgage contract, they appear to be silent insofar as
paragraph 9 thereof is concerned. Said paragraph 9 grants
upon L&R Corporation the right of first refusal over the
mortgaged property in the event the mortgagor decides to
sell the same. We see nothing wrong in this provision. The
right of first refusal has long been recognized as valid in our
jurisdiction. The consideration for the loan mortgage includes
the consideration for the right of first refusal. L&R
Corporation is in effect stating that it consents to lend out
money to the spouses Litonjua provided that in case they
decide to sell the property mortgaged to it, then L&R
Corporation shall be given the right to match the offered
purchase price and to buy the property at that price. Thus,
while the spouses Litonjua had every right to sell their
mortgaged property to PWHAS without securing the prior
written consent of L&R Corporation, they had the obligation
under paragraph 9, which is a perfectly valid provision, to
notify the latter of their intention to sell the property and give
it priority over other buyers. It is only upon the failure of L&R
Corporation to exercise its right of first refusal could the
spouses Litonjua validly sell the subject properties to the
others, under the same terms and conditions offered to L&R
Corporation.
What then is the status of the sale made to PWHAS in
violation of L & R Corporations contractual right of first
refusal? On this score, we agree with the Amended Decision
of the Court of Appeals that the sale made to PWHAS is
rescissible. The case of Guzman, Bocaling & Co. v.
Bonnevie is instructive on this point.

XXX

XXX

This principle was reiterated in the very recent case


of Equatorial Realty vs. Mayfair Theater, Inc. which was
decided en banc. This Court upheld the right of first refusal
of the lessee Mayfair, and rescinded the sale of the property

It was then held that the Contract of Sale there, which


violated the right of first refusal, was rescissible.

In the case at bar, PWHAS cannot claim ignorance of the


right of first refusal granted to L & R Corporation over the
subject properties since the Deed of Real Estate Mortgage
containing such a provision was duly registered with the
Register of Deeds. As such, PWHAS is presumed to have
been notified thereof by registration, which equates to notice
to the whole world.
XXX
All things considered, what then are the relative rights and
obligations of the parties? To recapitulate: the sale between
the spouses Litonjua and PWHAS is valid, notwithstanding
the absence of L & R Corporations prior written consent
thereto. Inasmuch as the sale to PWHAS was valid, its offer
to redeem and its tender of the redemption price, as
successor-in-interest of the spouses Litonjua, within the oneyear period should have been accepted as valid by the L & R
Corporation. However, while the sale is, indeed, valid, the
same is rescissible because it ignored L & R Corporations
right of first refusal."
Thus, the prevailing doctrine, as enunciated in the cited cases, is that a
contract of sale entered into in violation of a right of first refusal of
another person, while valid, is rescissible.
There is, however, a circumstance which prevents the application of
this doctrine in the case at bench. In the cases cited above, the Court
ordered the rescission of sales made in violation of a right of first
refusal precisely because the vendees therein could not have acted in
good faith as they were aware or should have been aware of the right
of first refusal granted to another person by the vendors therein. The
rationale for this is found in the provisions of the New Civil Code on
rescissible contracts. Under Article 1381 of the New Civil Code,
paragraph 3, a contract validly agreed upon may be rescinded if it is
"undertaken in fraud of creditors when the latter cannot in any manner
collect the claim due them." Moreover, under Article 1385, rescission
shall not take place "when the things which are the object of the
contract are legally in the possession of third persons who did not act
in bad faith."30
It must be borne in mind that, unlike the cases cited above, the right of
first refusal involved in the instant case was an oral one given to
respondents by the deceased spouses Tiangco and subsequently
recognized by their heirs. As such, in order to hold that petitioners were
in bad faith, there must be clear and convincing proof that petitioners
were made aware of the said right of first refusal either by the
respondents or by the heirs of the spouses Tiangco.
It is axiomatic that good faith is always presumed unless contrary
evidence is adduced.31 A purchaser in good faith is one who buys the
property of another without notice that some other person has a right
or interest in such a property and pays a full and fair price at the time
of the purchase or before he has notice of the claim or interest of some
other person in the property.32 In this regard, the rule on constructive
notice would be inapplicable as it is undisputed that the right of first
refusal was an oral one and that the same was never reduced to
writing, much less registered with the Registry of Deeds. In fact, even
the lease contract by which respondents derive their right to possess
the property involved was an oral one.
On this point, we hold that the evidence on record fails to show that
petitioners acted in bad faith in entering into the deed of sale over the
disputed property with the heirs of the spouses Tiangco. Respondents
failed to present any evidence that prior to the sale of the property on
September 4, 1990, petitioners were aware or had notice of the oral
right of first refusal.

Respondents point to the letter dated June 1, 199033 as indicative of


petitioners knowledge of the said right. In this letter, a certain Atty.
Erlinda Aguila demanded that respondent Irene Guillermo vacate the
structure they were occupying to make way for its demolition.
We fail to see how the letter could give rise to bad faith on the part of
the petitioner. No mention is made of the right of first refusal granted to
respondents. The name of petitioner Rosencor or any of it officers did
not appear on the letter and the letter did not state that Atty. Aguila was
writing in behalf of petitioner. In fact, Atty. Aguila stated during trial that
she wrote the letter in behalf of the heirs of the spouses Tiangco.
Moreover, even assuming that Atty. Aguila was indeed writing in behalf
of petitioner Rosencor, there is no showing that Rosencor was aware
at that time that such a right of first refusal existed.
Neither was there any showing that after receipt of this June 1, 1990
letter, respondents notified Rosencor or Atty. Aguila of their right of first
refusal over the property. Respondents did not try to communicate with
Atty. Aguila and inform her about their preferential right over the
disputed property. There is even no showing that they contacted the
heirs of the spouses Tiangco after they received this letter to remind
them of their right over the property.
Respondents likewise point to the letter dated October 9, 1990 of
Eufrocina de Leon, where she recognized the right of first refusal of
respondents, as indicative of the bad faith of petitioners. We do not
agree. Eufrocina de Leon wrote the letter on her own behalf and not on
behalf of petitioners and, as such, it only shows that Eufrocina de Leon
was aware of the existence of the oral right of first refusal. It does not
show that petitioners were likewise aware of the existence of the said
right. Moreover, the letter was made a month after the execution of the
Deed of Absolute Sale on September 4, 1990 between petitioner
Rosencor and the heirs of the spouses Tiangco. There is no showing
that prior to the date of the execution of the said Deed, petitioners were
put on notice of the existence of the right of first refusal.
Clearly, if there was any indication of bad faith based on respondents
evidence, it would only be on the part of Eufrocina de Leon as she was
aware of the right of first refusal of respondents yet she still sold the
disputed property to Rosencor. However, bad faith on the part of
Eufrocina de Leon does not mean that petitioner Rosencor likewise
acted in bad faith. There is no showing that prior to the execution of the
Deed of Absolute Sale, petitioners were made aware or put on notice
of the existence of the oral right of first refusal. Thus, absent clear and
convincing evidence to the contrary, petitioner Rosencor will be
presumed to have acted in good faith in entering into the Deed of
Absolute Sale over the disputed property.
Considering that there is no showing of bad faith on the part of the
petitioners, the Court of Appeals thus erred in ordering the rescission
of the Deed of Absolute Sale dated September 4, 1990 between
petitioner Rosencor and the heirs of the spouses Tiangco. The
acquisition by Rosencor of the property subject of the right of first
refusal is an obstacle to the action for its rescission where, as in this
case, it was shown that Rosencor is in lawful possession of the subject
of the contract and that it did not act in bad faith.34
This does not mean however that respondents are left without any
remedy for the unjustified violation of their right of first refusal. Their
remedy however is not an action for the rescission of the Deed of
Absolute Sale but an action for damages against the heirs of the
spouses Tiangco for the unjustified disregard of their right of first
refusal35.
WHEREFORE, premises considered, the decision of the Court of
Appeals dated June 25, 1999 is REVERSED and SET ASIDE. The
Decision dated May 13, 1996 of the Quezon City Regional Trial Court,

Branch 217 is hereby REINSTATED insofar as it dismisses the action


for rescission of the Deed of Absolute Sale dated September 4, 1990
and orders the payment of monthly rentals of P1,000.00 per month
reckoned from May 1990 up to the time respondents leave the
premises.
SO ORDERED.
G.R. No. 149734

November 19, 2004

DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners,


vs.
AYALA CORPORATION, respondent.

development plan within three (3) years from the date of this
Agreement. x x x"
5.15. The BUYER agrees to give the SELLERS a first option
to purchase four developed lots next to the "Retained Area"
at the prevailing market price at the time of the purchase."
The parties are agreed that the development plan referred to
in paragraph 5.7 is not Conduit's development plan, but
Ayala's amended development plan which was still to be
formulated as of the time of the MOA. While in the Conduit
plan, the 4 lots to be offered for sale to the Vasquez Spouses
were in the first phase thereof or Village 1, in the Ayala plan
which was formulated a year later, it was in the third phase,
or Phase II-c.
Under the MOA, the Vasquez spouses made several
express warranties, as follows:

DECISION

"3.1. The SELLERS shall deliver to the BUYER:


xxx
3.1.2. The true and complete list, certified by the Secretary
and Treasurer of the Company showing:

TINGA, J.:
The rise in value of four lots in one of the country's prime residential
developments, Ayala Alabang Village in Muntinlupa City, over a period
of six (6) years only, represents big money. The huge price difference
lies at the heart of the present controversy. Petitioners insist that the
lots should be sold to them at 1984 prices while respondent maintains
that the prevailing market price in 1990 should be the selling price.

xxx
D. A list of all persons and/or entities with whom the
Company has pending contracts, if any.
xxx

Dr. Daniel Vazquez and Ma. Luisa Vazquez filed this Petition for
Review on Certiorari2 dated October 11, 2001 assailing the Decision3 of
the Court of Appeals dated September 6, 2001 which reversed the
Decision4 of the Regional Trial Court (RTC) and dismissed their
complaint for specific performance and damages against Ayala
Corporation.
Despite their disparate rulings, the RTC and the appellate court agree
on the following antecedents:5
On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa
M. Vasquez (hereafter, Vasquez spouses) entered into a
Memorandum of Agreement (MOA) with Ayala Corporation
(hereafter, AYALA) with AYALA buying from the Vazquez
spouses, all of the latter's shares of stock in Conduit
Development, Inc. (hereafter, Conduit). The main asset of
Conduit was a 49.9 hectare property in Ayala Alabang,
Muntinlupa, which was then being developed by Conduit
under a development plan where the land was divided into
Villages 1, 2 and 3 of the "Don Vicente Village." The
development was then being undertaken for Conduit by G.P.
Construction and Development Corp. (hereafter, GP
Construction).

3.1.5. Audited financial statements of the Company as at


Closing date.
4. Conditions Precedent
All obligations of the BUYER under this Agreement are
subject to fulfillment prior to or at the Closing, of the following
conditions:
4.1. The representations and warranties by the SELLERS
contained in this Agreement shall be true and correct at the
time of Closing as though such representations and
warranties were made at such time; and
xxx
6. Representation and Warranties by the SELLERS
The SELLERS jointly and severally represent and warrant to
the BUYER that at the time of the execution of this
Agreement and at the Closing:

Under the MOA, Ayala was to develop the entire property,


less what was defined as the "Retained Area" consisting of
18,736 square meters. This "Retained Area" was to be
retained by the Vazquez spouses. The area to be developed
by Ayala was called the "Remaining Area". In this
"Remaining Area" were 4 lots adjacent to the "Retained
Area" and Ayala agreed to offer these lots for sale to the
Vazquez spouses at the prevailing price at the time of
purchase. The relevant provisions of the MOA on this point
are:

6.2.3. There are no actions, suits or proceedings pending, or


to the knowledge of the SELLERS, threatened against or
affecting the SELLERS with respect to the Shares or the
Property; and

"5.7. The BUYER hereby commits that it will develop the


'Remaining Property' into a first class residential subdivision
of the same class as its New Alabang Subdivision, and that it
intends to complete the first phase under its amended

7.1. With respect to the Audited Financial Statements


required to be submitted at Closing in accordance with Par.
3.1.5 above, the SELLER jointly and severally warrant to the
BUYER that:

xxx

7. Additional Warranties by the SELLERS

7.1.1 The said Audited Financial Statements shall show that


on the day of Closing, the Company shall own the
"Remaining Property", free from all liens and encumbrances
and that the Company shall have no obligation to any party
except for billings payable to GP Construction &
Development Corporation and advances made by Daniel
Vazquez for which BUYER shall be responsible in
accordance with Par. 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the
Audited Financial Statements of the Company as of Closing,
and those disclosed to BUYER, the Company as of the date
thereof, has no liabilities of any nature whether accrued,
absolute, contingent or otherwise, including, without
limitation, tax liabilities due or to become due and whether
incurred in respect of or measured in respect of the
Company's income prior to Closing or arising out of
transactions or state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to
know of any basis for any assertion against the Company as
at closing or any liability of any nature and in any amount not
fully reflected or reserved against such Audited Financial
Statements referred to above, and those disclosed to
BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing
on or before the Closing, the Company is not engaged in or
a party to, or to the best of the knowledge of the SELLERS,
threatened with, any legal action or other proceedings before
any court or administrative body, nor do the SELLERS know
or have reasonable grounds to know of any basis for any
such action or proceeding or of any governmental
investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or
breach exists in the due performance and observance by the
Company of any term, covenant or condition of any
instrument or agreement to which the company is a party or
by which it is bound, and no condition exists which, with
notice or lapse of time or both, will constitute such default or
breach."
After the execution of the MOA, Ayala caused the
suspension of work on Village 1 of the Don Vicente Project.
Ayala then received a letter from one Maximo Del Rosario of
Lancer General Builder Corporation informing Ayala that he
was claiming the amount of P1,509,558.80 as the
subcontractor of G.P. Construction...
G.P. Construction not being able to reach an amicable
settlement with Lancer, on March 22, 1982, Lancer sued
G.P. Construction, Conduit and Ayala in the then Court of
First Instance of Manila in Civil Case No. 82-8598. G.P.
Construction in turn filed a cross-claim against Ayala. G.P.
Construction and Lancer both tried to enjoin Ayala from
undertaking the development of the property. The suit was
terminated only on February 19, 1987, when it was
dismissed with prejudice after Ayala paid both Lancer and
GP Construction the total of P4,686,113.39.
Taking the position that Ayala was obligated to sell the 4 lots
adjacent to the "Retained Area" within 3 years from the date
of the MOA, the Vasquez spouses sent several "reminder"
letters of the approaching so-called deadline. However, no
demand after April 23, 1984, was ever made by the Vasquez
spouses for Ayala to sell the 4 lots. On the contrary, one of
the letters signed by their authorized agent, Engr. Eduardo
Turla, categorically stated that they expected "development
of Phase 1 to be completed by February 19, 1990, three
years from the settlement of the legal problems with the
previous contractor."

By early 1990 Ayala finished the development of the vicinity


of the 4 lots to be offered for sale. The four lots were then
offered to be sold to the Vasquez spouses at the prevailing
price in 1990. This was rejected by the Vasquez spouses
who wanted to pay at 1984 prices, thereby leading to the suit
below.
After trial, the court a quo rendered its decision, the
dispositive portion of which states:
"THEREFORE, judgment is hereby rendered in favor of
plaintiffs and against defendant, ordering defendant to sell to
plaintiffs the relevant lots described in the Complaint in the
Ayala Alabang Village at the price of P460.00 per square
meter amounting to P1,349,540.00; ordering defendant to
reimburse to plaintiffs attorney's fees in the sum of
P200,000.00 and to pay the cost of the suit."
In its decision, the court a quo concluded that the Vasquez
spouses were not obligated to disclose the potential claims
of GP Construction, Lancer and Del Rosario; Ayala's
accountants should have opened the records of Conduit to
find out all claims; the warranty against suit is with respect to
"the shares of the Property" and the Lancer suit does not
affect the shares of stock sold to Ayala; Ayala was obligated
to develop within 3 years; to say that Ayala was under no
obligation to follow a time frame was to put the Vasquezes at
Ayala's mercy; Ayala did not develop because of a slump in
the real estate market; the MOA was drafted and prepared
by the AYALA who should suffer its ambiguities; the option to
purchase the 4 lots is valid because it was supported by
consideration as the option is incorporated in the MOA
where the parties had prestations to each other. [Emphasis
supplied]
Ayala Corporation filed an appeal, alleging that the trial court erred in
holding that petitioners did not breach their warranties under the
MOA6 dated April 23, 1981; that it was obliged to develop the land
where the four (4) lots subject of the option to purchase are located
within three (3) years from the date of the MOA; that it was in delay;
and that the option to purchase was valid because it was incorporated
in the MOA and the consideration therefor was the commitment by
Ayala Corporation to petitioners embodied in the MOA.
As previously mentioned, the Court of Appeals reversed the RTC
Decision. According to the appellate court, Ayala Corporation was
never informed beforehand of the existence of the Lancer claim. In
fact, Ayala Corporation got a copy of the Lancer subcontract only on
May 29, 1981 from G.P. Construction's lawyers. The Court of Appeals
thus held that petitioners violated their warranties under the MOA when
they failed to disclose Lancer's claims. Hence, even conceding that
Ayala Corporation was obliged to develop and sell the four (4) lots in
question within three (3) years from the date of the MOA, the obligation
was suspended during the pendency of the case filed by Lancer.
Interpreting the MOA's paragraph 5.7 above-quoted, the appellate
court held that Ayala Corporation committed to develop the first phase
of its own amended development plan and not Conduit's development
plan. Nowhere does the MOA provide that Ayala Corporation shall
follow Conduit's development plan nor is Ayala Corporation prohibited
from changing the sequence of the phases of the property it will
develop.
Anent the question of delay, the Court of Appeals ruled that there was
no delay as petitioners never made a demand for Ayala Corporation to
sell the subject lots to them. According to the appellate court, what
petitioners sent were mere reminder letters the last of which was dated
prior to April 23, 1984 when the obligation was not yet demandable. At
any rate, the Court of Appeals found that petitioners in fact waived the
three (3)-year period when they sent a letter through their agent, Engr.
Eduardo Turla, stating that they "expect that the development of Phase
I will be completed by 19 February 1990, three years from the
settlement of the legal problems with the previous contractor."7

The appellate court likewise ruled that paragraph 5.15 above-quoted is


not an option contract but a right of first refusal there being no separate
consideration therefor. Since petitioners refused Ayala Corporation's
offer to sell the subject lots at the reduced 1990 price of P5,000.00 per
square meter, they have effectively waived their right to buy the same.

of the case. Likewise, the letter dated March 4, 1984 was merely an
inquiry as to the date when the development of Phase 1 will be
completed. More importantly, their letter dated June 27, 1988 through
Engr. Eduardo Turla expressed petitioners' expectation that Phase 1
will be completed by February 19, 1990.

In the instant Petition, petitioners allege that the appellate court erred
in ruling that they violated their warranties under the MOA; that Ayala
Corporation was not obliged to develop the "Remaining Property"
within three (3) years from the execution of the MOA; that Ayala was
not in delay; and that paragraph 5.15 of the MOA is a mere right of first
refusal. Additionally, petitioners insist that the Court should review the
factual findings of the Court of Appeals as they are in conflict with
those of the trial court.

Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is


a right of first refusal and not an option contract.

Ayala Corporation filed a Comment on the Petition8 dated March 26,


2002, contending that the petition raises questions of fact and seeks a
review of evidence which is within the domain of the Court of Appeals.
Ayala Corporation maintains that the subcontract between GP
Construction, with whom Conduit contracted for the development of the
property under a Construction Contract dated October 10, 1980, and
Lancer was not disclosed by petitioners during the negotiations.
Neither was the liability for Lancer's claim included in the Audited
Financial Statements submitted by petitioners after the signing of the
MOA. These justify the conclusion that petitioners breached their
warranties under the afore-quoted paragraphs of the MOA. Since the
Lancer suit ended only in February 1989, the three (3)-year period
within which Ayala Corporation committed to develop the property
should only be counted thence. Thus, when it offered the subject lots to
petitioners in 1990, Ayala Corporation was not yet in delay.
In response to petitioners' contention that there was no action or
proceeding against them at the time of the execution of the MOA on
April 23, 1981, Ayala Corporation avers that the facts and
circumstances which gave rise to the Lancer claim were already extant
then. Petitioners warranted that their representations under the MOA
shall be true and correct at the time of "Closing" which shall take place
within four (4) weeks from the signing of the MOA.9 Since the MOA
was signed on April 23, 1981, "Closing" was approximately the third
week of May 1981. Hence, Lancer's claims, articulated in a letter which
Ayala Corporation received on May 4, 1981, are among the liabilities
warranted against under paragraph 7.1.2 of the MOA.
Moreover, Ayala Corporation asserts that the warranties under the
MOA are not just against suits but against all kinds of liabilities not
reflected in the Audited Financial Statements. It cannot be faulted for
relying on the express warranty that except for billings payable to GP
Construction and advances made by petitioner Daniel Vazquez in the
amount of P38,766.04, Conduit has no other liabilities. Hence,
petitioners cannot claim that Ayala Corporation should have examined
and investigated the Audited Financial Statements of Conduit and
should now assume all its obligations and liabilities including the
Lancer suit and the cross-claim of GP Construction.
Furthermore, Ayala Corporation did not make a commitment to
complete the development of the first phase of the property within
three (3) years from the execution of the MOA. The provision refers to
a mere declaration of intent to develop the first phase of its (Ayala
Corporation's) own development plan and not Conduit's. True to its
intention, Ayala Corporation did complete the development of the first
phase (Phase II-A) of its amended development plan within three (3)
years from the execution of the MOA. However, it is not obliged to
develop the third phase (Phase II-C) where the subject lots are located
within the same time frame because there is no contractual stipulation
in the MOA therefor. It is free to decide on its own the period for the
development of Phase II-C. If petitioners wanted to impose the same
three (3)-year timetable upon the third phase of the amended
development plan, they should have filed a suit to fix the time table in
accordance with Article 119710 of the Civil Code. Having failed to do so,
Ayala Corporation cannot be declared to have been in delay.
Ayala Corporation further contends that no demand was made on it for
the performance of its alleged obligation. The letter dated October 4,
1983 sent when petitioners were already aware of the Lancer suit did
not demand the delivery of the subject lots by April 23, 1984. Instead, it
requested Ayala Corporation to keep petitioners posted on the status

Petitioners filed their Reply11 dated August 15, 2002 reiterating the
arguments in their Petition and contending further that they did not
violate their warranties under the MOA because the case was filed by
Lancer only on April 1, 1982, eleven (11) months and eight (8) days
after the signing of the MOA on April 23, 1981. Ayala Corporation
admitted that it received Lancer's claim before the "Closing" date. It
therefore had all the time to rescind the MOA. Not having done so, it
can be concluded that Ayala Corporation itself did not consider the
matter a violation of petitioners' warranty.
Moreover, petitioners submitted the Audited Financial Statements of
Conduit and allowed an acquisition audit to be conducted by Ayala
Corporation. Thus, the latter bought Conduit with "open eyes."
Petitioners also maintain that they had no knowledge of the impending
case against Conduit at the time of the execution of the MOA. Further,
the MOA makes Ayala Corporation liable for the payment of all billings
of GP Construction. Since Lancer's claim was actually a claim against
GP Construction being its sub-contractor, it is Ayala Corporation and
not petitioners which is liable.
Likewise, petitioners aver that although Ayala Corporation may change
the sequence of its development plan, it is obliged under the MOA to
develop the entire area where the subject lots are located in three (3)
years.
They also assert that demand was made on Ayala Corporation to
comply with their obligation under the MOA. Apart from their reminder
letters dated January 24, February 18 and March 5, 1984, they also
sent a letter dated March 4, 1984 which they claim is a categorical
demand for Ayala Corporation to comply with the provisions of the
MOA.
The parties were required to submit their respective memoranda in the
Resolution12 dated November 18, 2002. In compliance with this
directive, petitioners submitted their Memorandum13 dated February
14, 2003 on even date, while Ayala Corporation filed its
Memorandum14 dated February 14, 2003 on February 17, 2003.
We shall first dispose of the procedural question raised by the instant
petition.
It is well-settled that the jurisdiction of this Court in cases brought to it
from the Court of Appeals by way of petition for review under Rule 45
is limited to reviewing or revising errors of law imputed to it, its findings
of fact being conclusive on this Court as a matter of general principle.
However, since in the instant case there is a conflict between the
factual findings of the trial court and the appellate court, particularly as
regards the issues of breach of warranty, obligation to develop and
incurrence of delay, we have to consider the evidence on record and
resolve such factual issues as an exception to the general rule.15 In any
event, the submitted issue relating to the categorization of the right to
purchase granted to petitioners under the MOA is legal in character.
The next issue that presents itself is whether petitioners breached their
warranties under the MOA when they failed to disclose the Lancer
claim. The trial court declared they did not; the appellate court found
otherwise.
Ayala Corporation summarizes the clauses of the MOA which
petitioners allegedly breached when they failed to disclose the Lancer
claim:

a) Clause 7.1.1. that Conduit shall not be obligated to


anyone except to GP Construction for P38,766.04, and for
advances made by Daniel Vazquez;
b) Clause 7.1.2. that except as reflected in the audited
financial statements Conduit had no other liabilities whether
accrued, absolute, contingent or otherwise;

7.2 SELLERS do not know or have no reasonable ground to


know of any basis for any assertion against the Company as
at Closing of any liability of any nature and in any amount
not fully reflected or reserved against such Audited Financial
Statements referred to above, and those disclosed to
BUYER.
xxx xxx xxx

c) Clause 7.2. that there is no basis for any assertion


against Conduit of any liability of any value not reflected or
reserved in the financial statements, and those disclosed to
Ayala;
d) Clause 7.6.3. that Conduit is not threatened with any
legal action or other proceedings; and
e) Clause 7.6.4. that Conduit had not breached any term,
condition, or covenant of any instrument or agreement to
which it is a party or by which it is bound.16
The Court is convinced that petitioners did not violate the foregoing
warranties.
The exchanges of communication between the parties indicate that
petitioners substantially apprised Ayala Corporation of the Lancer claim
or the possibility thereof during the period of negotiations for the sale of
Conduit.
In a letter17 dated March 5, 1984, petitioner Daniel Vazquez reminded
Ayala Corporation's Mr. Adolfo Duarte (Mr. Duarte) that prior to the
completion of the sale of Conduit, Ayala Corporation asked for and was
given information that GP Construction sub-contracted, presumably to
Lancer, a greater percentage of the project than it was allowed.
Petitioners gave this information to Ayala Corporation because the
latter intimated a desire to "break the contract of Conduit with GP."
Ayala Corporation did not deny this. In fact, Mr. Duarte's letter18 dated
March 6, 1984 indicates that Ayala Corporation had knowledge of the
Lancer subcontract prior to its acquisition of Conduit. Ayala
Corporation even admitted that it "tried to explorelegal basis to
discontinue the contract of Conduit with GP" but found this "not
feasible when information surfaced about the tacit consent of Conduit
to the sub-contracts of GP with Lancer."
At the latest, Ayala Corporation came to know of the Lancer claim
before the date of Closing of the MOA. Lancer's letter19 dated April 30,
1981 informing Ayala Corporation of its unsettled claim with GP
Construction was received by Ayala Corporation on May 4, 1981, well
before the "Closing"20 which occurred four (4) weeks after the date of
signing of the MOA on April 23, 1981, or on May 23, 1981.
The full text of the pertinent clauses of the MOA quoted hereunder
likewise indicate that certain matters pertaining to the liabilities of
Conduit were disclosed by petitioners to Ayala Corporation although
the specifics thereof were no longer included in the MOA:
7.1.1 The said Audited Financial Statements shall show that
on the day of Closing, the Company shall own the
"Remaining Property", free from all liens and encumbrances
and that the Company shall have no obligation to any party
except for billings payable to GP Construction &
Development Corporation and advances made by Daniel
Vazquez for which BUYER shall be responsible in
accordance with Paragraph 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the
Audited Financial Statements of the Company as of Closing,
and those disclosed to BUYER, the Company as of the date
hereof, has no liabilities of any nature whether accrued,
absolute, contingent or otherwise, including, without
limitation, tax liabilities due or to become due and whether
incurred in respect of or measured in respect of the
Company's income prior to Closing or arising out of
transactions or state of facts existing prior thereto.

7.6.3 Except as otherwise disclosed to the BUYER in writing


on or before the Closing, the Company is not engaged in or
a party to, or to the best of the knowledge of the SELLERS,
threatened with, any legal action or other proceedings before
any court or administrative body, nor do the SELLERS know
or have reasonable grounds to know of any basis for any
such action or proceeding or of any governmental
investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or
breach exists in the due performance and observance by the
Company of any term, covenant or condition of any
instrument or agreement to which the Company is a party or
by which it is bound, and no condition exists which, with
notice or lapse of time or both, will constitute such default or
breach."21 [Emphasis supplied]
Hence, petitioners' warranty that Conduit is not engaged in, a party to,
or threatened with any legal action or proceeding is qualified by Ayala
Corporation's actual knowledge of the Lancer claim which was
disclosed to Ayala Corporation before the "Closing."
At any rate, Ayala Corporation bound itself to pay all billings payable to
GP Construction and the advances made by petitioner Daniel Vazquez.
Specifically, under paragraph 2 of the MOA referred to in paragraph
7.1.1, Ayala Corporation undertook responsibility "for the payment of all
billings of the contractor GP Construction & Development Corporation
after the first billing and any payments made by the company and/or
SELLERS shall be reimbursed by BUYER on closing which advances
to date is P1,159,012.87."22
The billings knowingly assumed by Ayala Corporation necessarily
include the Lancer claim for which GP Construction is liable. Proof of
this is Ayala Corporation's letter23 to GP Construction dated before
"Closing" on May 4, 1981, informing the latter of Ayala Corporation's
receipt of the Lancer claim embodied in the letter dated April 30, 1981,
acknowledging that it is taking over the contractual responsibilities of
Conduit, and requesting copies of all sub-contracts affecting the
Conduit property. The pertinent excerpts of the letter read:

In this connection, we wish to inform you that this morning


we received a letter from Mr. Maximo D. Del Rosario,
President of Lancer General Builders Corporation apprising
us of the existence of subcontracts that they have with your
corporation. They have also furnished us with a copy of their
letter to you dated 30 April 1981.
Since we are taking over the contractual responsibilities of
Conduit Development, Inc., we believe that it is necessary, at
this point in time, that you furnish us with copies of all your
subcontracts affecting the property of Conduit, not only with
Lancer General Builders Corporation, but all subcontracts
with other parties as well24
Quite tellingly, Ayala Corporation even attached to its Pre-Trial
Brief25 dated July 9, 1992 a copy of the letter26dated May 28, 1981 of
GP Construction's counsel addressed to Conduit furnishing the latter
with copies of all sub-contract agreements entered into by GP
Construction. Since it was addressed to Conduit, it can be presumed
that it was the latter which gave Ayala Corporation a copy of the letter
thereby disclosing to the latter the existence of the Lancer subcontract.

The ineluctable conclusion is that petitioners did not violate their


warranties under the MOA. The Lancer sub-contract and claim were
substantially disclosed to Ayala Corporation before the "Closing" date
of the MOA. Ayala Corporation cannot disavow knowledge of the claim.
Moreover, while in its correspondence with petitioners, Ayala
Corporation did mention the filing of the Lancer suit as an obstacle to
its development of the property, it never actually brought up nor sought
redress for petitioners' alleged breach of warranty for failure to disclose
the Lancer claim until it filed its Answer27 dated February 17, 1992.
We now come to the correct interpretation of paragraph 5.7 of the
MOA. Does this paragraph express a commitment or a mere intent on
the part of Ayala Corporation to develop the property within three (3)
years from date thereof? Paragraph 5.7 provides:
5.7. The BUYER hereby commits that it will develop the
'Remaining Property' into a first class residential subdivision
of the same class as its New Alabang Subdivision, and that it
intends to complete the first phase under its amended
development plan within three (3) years from the date of this
Agreement.28
Notably, while the first phrase of the paragraph uses the word
"commits" in reference to the development of the "Remaining Property"
into a first class residential subdivision, the second phrase uses the
word "intends" in relation to the development of the first phase of the
property within three (3) years from the date of the MOA. The variance
in wording is significant. While "commit"29 connotes a pledge to do
something, "intend"30 merely signifies a design or proposition.
Atty. Leopoldo Francisco, former Vice President of Ayala Corporation's
legal division who assisted in drafting the MOA, testified:
COURT
You only ask what do you mean by that intent. Just answer
on that point.

Q: Now, turning to Section 5.7 of this Memorandum of Agreement, it is


stated as follows: "The Buyer hereby commits that to develop the
remaining property into a first class residential subdivision of the same
class as New Alabang Subdivision, and that they intend to complete
the first phase under its amended development plan within three years
from the date of this agreement."
Now, my question to you, Dr. Vasquez is that there is no dispute that
the amended development plan here is the amended development
plan of Ayala?
A: Yes, sir.
Q: In other words, it is not Exhibit "D-5" which is the original
plan of Conduit?
A: No, it is not.
Q: This Exhibit "D-5" was the plan that was being followed by
GP Construction in 1981?
A: Yes, sir.
Q: And point of fact during your direct examination as of the
date of the agreement, this amended development plan was
still to be formulated by Ayala?
A: Yes, sir.32
As correctly held by the appellate court, this admission is crucial
because while the subject lots to be sold to petitioners were in the first
phase of the Conduit development plan, they were in the third or last
phase of the Ayala Corporation development plan. Hence, even
assuming that paragraph 5.7 expresses a commitment on the part of
Ayala Corporation to develop the first phase of its amended
development plan within three (3) years from the execution of the
MOA, there was no parallel commitment made as to the timeframe for
the development of the third phase where the subject lots are located.

ATTY. BLANCO
Don't talk about standard.
WITNESS
A Well, the word intent here, your Honor, was used to
emphasize the tentative character of the period of
development because it will be noted that the sentence
refers to and I quote "to complete the first phase under its
amended development plan within three (3) years from the
date of this agreement, at the time of the execution of this
agreement, your Honor." That amended development plan
was not yet in existence because the buyer had manifested
to the seller that the buyer could amend the subdivision plan
originally belonging to the seller to conform with its own
standard of development and second, your Honor,
(interrupted)31
It is thus unmistakable that this paragraph merely expresses an
intention on Ayala Corporation's part to complete the first phase under
its amended development plan within three (3) years from the
execution of the MOA. Indeed, this paragraph is so plainly worded that
to misunderstand its import is deplorable.
More focal to the resolution of the instant case is paragraph 5.7's clear
reference to the first phase of Ayala Corporation's amended
development plan as the subject of the three (3)-year intended
timeframe for development. Even petitioner Daniel Vazquez admitted
on cross-examination that the paragraph refers not to Conduit's but to
Ayala Corporation's development plan which was yet to be formulated
when the MOA was executed:

Lest it be forgotten, the point of this petition is the alleged failure of


Ayala Corporation to offer the subject lots for sale to petitioners within
three (3) years from the execution of the MOA. It is not that Ayala
Corporation committed or intended to develop the first phase of its
amended development plan within three (3) years. Whether it did or did
not is actually beside the point since the subject lots are not located in
the first phase anyway.
We now come to the issue of default or delay in the fulfillment of the
obligation.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur
in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary
in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the
contract; or
(3) When demand would be useless, as when the obligor
has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does


not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins.
In order that the debtor may be in default it is necessary that the
following requisites be present: (1) that the obligation be demandable
and already liquidated; (2) that the debtor delays performance; and (3)
that the creditor requires the performance judicially or extrajudicially.33
Under Article 1193 of the Civil Code, obligations for whose fulfillment a
day certain has been fixed shall be demandable only when that day
comes. However, no such day certain was fixed in the MOA.
Petitioners, therefore, cannot demand performance after the three (3)
year period fixed by the MOA for the development of the first phase of
the property since this is not the same period contemplated for the
development of the subject lots. Since the MOA does not specify a
period for the development of the subject lots, petitioners should have
petitioned the court to fix the period in accordance with Article 119734 of
the Civil Code. As no such action was filed by petitioners, their
complaint for specific performance was premature, the obligation not
being demandable at that point. Accordingly, Ayala Corporation cannot
likewise be said to have delayed performance of the obligation.
Even assuming that the MOA imposes an obligation on Ayala
Corporation to develop the subject lots within three (3) years from date
thereof, Ayala Corporation could still not be held to have been in delay
since no demand was made by petitioners for the performance of its
obligation.
As found by the appellate court, petitioners' letters which dealt with the
three (3)-year timetable were all dated prior to April 23, 1984, the date
when the period was supposed to expire. In other words, the letters
were sent before the obligation could become legally demandable.
Moreover, the letters were mere reminders and not categorical
demands to perform. More importantly, petitioners waived the three
(3)-year period as evidenced by their agent, Engr. Eduardo Turla's
letter to the effect that petitioners agreed that the three (3)-year period
should be counted from the termination of the case filed by Lancer.
The letter reads in part:
I. Completion of Phase I
As per the memorandum of Agreement also dated April 23,
1981, it was undertaken by your goodselves to complete the
development of Phase I within three (3) years. Dr. & Mrs.
Vazquez were made to understand that you were unable to
accomplish this because of legal problems with the previous
contractor. These legal problems were resolved as of
February 19, 1987, and Dr. & Mrs. Vazquez therefore expect
that the development of Phase I will be completed by
February 19, 1990, three years from the settlement of the
legal problems with the previous contractor. The reason for
this is, as you know, that security-wise, Dr. & Mrs. Vazquez
have been advised not to construct their residence till the
surrounding area (which is Phase I) is developed and
occupied. They have been anxious to build their residence
for quite some time now, and would like to receive assurance
from your goodselves regarding this, in compliance with the
agreement.
II. Option on the adjoining lots
We have already written your goodselves regarding the
intention of Dr. & Mrs. Vazquez to exercise their option to
purchase the two lots on each side (a total of 4 lots) adjacent
to their "Retained Area". They are concerned that although
over a year has elapsed since the settlement of the legal
problems, you have not presented them with the size,
configuration, etc. of these lots. They would appreciate being
provided with these at your earliest convenience.35
Manifestly, this letter expresses not only petitioners' acknowledgement
that the delay in the development of Phase I was due to the legal
problems with GP Construction, but also their acquiescence to the

completion of the development of Phase I at the much later date of


February 19, 1990. More importantly, by no stretch of semantic
interpretation can it be construed as a categorical demand on Ayala
Corporation to offer the subject lots for sale to petitioners as the letter
merely articulates petitioners' desire to exercise their option to
purchase the subject lots and concern over the fact that they have not
been provided with the specifications of these lots.
The letters of petitioners' children, Juan Miguel and Victoria Vazquez,
dated January 23, 198436 and February 18, 198437 can also not be
considered categorical demands on Ayala Corporation to develop the
first phase of the property within the three (3)-year period much less to
offer the subject lots for sale to petitioners. The letter dated January
23, 1984 reads in part:
You will understand our interest in the completion of the
roads to our property, since we cannot develop it till you
have constructed the same. Allow us to remind you of our
Memorandum of Agreement, as per which you committed to
develop the roads to our property "as per the original plans
of the company", and that
1. The back portion should have been developed before the
front portion which has not been the case.
2. The whole project front and back portions be completed
by 1984.38
The letter dated February 18, 1984 is similarly worded. It
states:
In this regard, we would like to remind you of Articles 5.7 and 5.9 of our
Memorandum of Agreement which states respectively:39
Even petitioner Daniel Vazquez' letter40 dated March 5, 1984 does not
make out a categorical demand for Ayala Corporation to offer the
subject lots for sale on or before April 23, 1984. The letter reads in
part:
and that we expect from your goodselves compliance with
our Memorandum of Agreement, and a definite date as to
when the road to our property and the development of Phase
I will be completed.41
At best, petitioners' letters can only be construed as mere reminders
which cannot be considered demands for performance because it must
appear that the tolerance or benevolence of the creditor must have
ended.42
The petition finally asks us to determine whether paragraph 5.15 of the
MOA can properly be construed as an option contract or a right of first
refusal. Paragraph 5.15 states:
5.15 The BUYER agrees to give the SELLERS first option to
purchase four developed lots next to the "Retained Area" at
the prevailing market price at the time of the purchase.43
The Court has clearly distinguished between an option contract and a
right of first refusal. An option is a preparatory contract in which one
party grants to another, for a fixed period and at a determined price,
the privilege to buy or sell, or to decide whether or not to enter into a
principal contract. It binds the party who has given the option not to
enter into the principal contract with any other person during the period
designated, and within that period, to enter into such contract with the
one to whom the option was granted, if the latter should decide to use
the option. It is a separate and distinct contract from that which the
parties may enter into upon the consummation of the option. It must be
supported by consideration.44
In a right of first refusal, on the other hand, while the object might be
made determinate, the exercise of the right would be dependent not
only on the grantor's eventual intention to enter into a binding juridical

relation with another but also on terms, including the price, that are yet
to be firmed up.45
Applied to the instant case, paragraph 5.15 is obviously a mere right of
first refusal and not an option contract. Although the paragraph has a
definite object, i.e., the sale of subject lots, the period within which they
will be offered for sale to petitioners and, necessarily, the price for
which the subject lots will be sold are not specified. The phrase "at the
prevailing market price at the time of the purchase" connotes that there
is no definite period within which Ayala Corporation is bound to reserve
the subject lots for petitioners to exercise their privilege to purchase.
Neither is there a fixed or determinable price at which the subject lots
will be offered for sale. The price is considered certain if it may be
determined with reference to another thing certain or if the
determination thereof is left to the judgment of a specified person or
persons.46
Further, paragraph 5.15 was inserted into the MOA to give petitioners
the first crack to buy the subject lots at the price which Ayala
Corporation would be willing to accept when it offers the subject lots for
sale. It is not supported by an independent consideration. As such it is
not governed by Articles 1324 and 1479 of the Civil Code, viz:
Art. 1324. When the offeror has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time
before acceptance by communicating such withdrawal,
except when the option is founded upon a consideration, as
something paid or promised.
Art. 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for
a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.
Consequently, the "offer" may be withdrawn anytime by communicating
the withdrawal to the other party.47
In this case, Ayala Corporation offered the subject lots for sale to
petitioners at the price of P6,500.00/square meter, the prevailing
market price for the property when the offer was made on June 18,
1990.48 Insisting on paying for the lots at the prevailing market price in
1984 of P460.00/square meter, petitioners rejected the offer. Ayala
Corporation reduced the price to P5,000.00/square meter but again,
petitioners rejected the offer and instead made a counter-offer in the
amount of P2,000.00/square meter.49 Ayala Corporation rejected
petitioners' counter-offer. With this rejection, petitioners lost their right
to purchase the subject lots.

Petitioner Tanay Recreation Center and Development Corp. (TRCDC)


is the lessee of a 3,090-square meter property located in Sitio Gayas,
Tanay, Rizal, owned by Catalina Matienzo Fausto,1 under a Contract of
Lease executed on August 1, 1971. On this property stands the Tanay
Coliseum Cockpit operated by petitioner. The lease contract provided
for a 20-year term, subject to renewal within sixty days prior to its
expiration. The contract also provided that should Fausto decide to sell
the property, petitioner shall have the "priority right" to purchase the
same.2
On June 17, 1991, petitioner wrote Fausto informing her of its intention
to renew the lease.3 However, it was Faustos daughter, respondent
Anunciacion F. Pacunayen, who replied, asking that petitioner remove
the improvements built thereon, as she is now the absolute owner of
the property.4 It appears that Fausto had earlier sold the property to
Pacunayen on August 8, 1990, for the sum of P10,000.00 under
a "Kasulatan ng Bilihan Patuluyan ng Lupa,"5 and title has already
been transferred in her name under Transfer Certificate of Title (TCT)
No. M-35468.6
Despite efforts, the matter was not resolved. Hence, on September 4,
1991, petitioner filed an Amended Complaint for Annulment of Deed of
Sale, Specific Performance with Damages, and Injunction, docketed as
Civil Case No. 372-M.7
In her Answer, respondent claimed that petitioner is estopped from
assailing the validity of the deed of sale as the latter acknowledged her
ownership when it merely asked for a renewal of the lease. According
to respondent, when they met to discuss the matter, petitioner did not
demand for the exercise of its option to purchase the property, and it
even asked for grace period to vacate the premises.8
After trial on the merits, the Regional Trial Court of Morong, Rizal
(Branch 78), rendered judgment extending the period of the lease for
another seven years from August 1, 1991 at a monthly rental
of P10,000.00, and dismissed petitioners claim for damages.9
On appeal, docketed as CA-G.R. CV No. 43770, the Court of Appeals
(CA) affirmed with modifications the trial courts judgment per its
Decision dated June 14, 1999.10 The dispositive portion of the decision
reads:
WHEREFORE, the appealed decision is AFFIRMED AND
ACCORDINGLY MODIFIED AS DISCUSSED.

It cannot, therefore, be said that Ayala Corporation breached


petitioners' right of first refusal and should be compelled by an action
for specific performance to sell the subject lots to petitioners at the
prevailing market price in 1984.

Furthermore, we resolved:

WHEREFORE, the instant petition is DENIED. No pronouncement as


to costs.

2.0. To GRANT the motion of Pacunayen to allow her to withdraw the


amount of P320,000.00, deposited according to records, with this
court.

1.0. That TRCDC VACATE the leased premises immediately;

G.R. No. 140182. April 12, 2005


TANAY RECREATION CENTER AND DEVELOPMENT
CORP., Petitioners,
vs.
CATALINA MATIENZO FAUSTO* and ANUNCIACION FAUSTO
PACUNAYEN, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:

3.0. To order TRCDC to MAKE THE NECESSARY ACCOUNTING


regarding the amounts it had already deposited (for unpaid rentals for
the extended period of seven [7] years of the contract of lease). In
case it had not yet completed its deposit, to immediately pay the
remaining balance to Pacunayen.
4.0. To order TRCDC to PAY the amount of P10,000.00 as monthly
rental, with regard to its continued stay in the leased premises even
after the expiration of the extended period of seven (7) years,
computed from August 1, 1998, until it finally vacates therefrom.
SO ORDERED.11

In arriving at the assailed decision, the CA acknowledged the priority


right of TRCDC to purchase the property in question. However, the CA
interpreted such right to mean that it shall be applicable only in case
the property is sold to strangers and not to Faustos relative. The CA
stated that "(T)o interpret it otherwise as to comprehend all sales
including those made to relatives and to the compulsory heirs of the
seller at that would be an absurdity," and "her (Faustos) only motive
for such transfer was precisely one of preserving the property within
her bloodline and that someone administer the property."12 The CA also
ruled that petitioner already acknowledged the transfer of ownership
and is deemed to have waived its right to purchase the property.13 The
CA even further went on to rule that even if the sale is annulled,
petitioner could not achieve anything because the property will be
eventually transferred to Pacunayen after Faustos death.14
Petitioner filed a motion for reconsideration but it was denied per
Resolution dated September 14, 1999.15
Dissatisfied, petitioner elevated the case to this Court on petition for
review on certiorari, raising the following grounds:
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
REVERSIBLE ERROR IN HOLDING THAT THE CONTRACTUAL
STIPULATION GIVING PETITIONER THE PRIORITY RIGHT TO
PURCHASE THE LEASED PREMISES SHALL ONLY APPLY IF THE
LESSOR DECIDES TO SELL THE SAME TO STRANGERS;
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
REVERSIBLE ERROR IN HOLDING THAT PETITIONERS PRIORITY
RIGHT TO PURCHASE THE LEASED PREMISES IS
INCONSEQUENTIAL.16
The principal bone of contention in this case refers to petitioners
priority right to purchase, also referred to as the right of first refusal.
Petitioners right of first refusal in this case is expressly provided for in
the notarized "Contract of Lease" dated August 1, 1971, between
Fausto and petitioner, to wit:
7. That should the LESSOR decide to sell the leased premises, the
LESSEE shall have the priority right to purchase the same;17
When a lease contract contains a right of first refusal, the lessor is
under a legal duty to the lessee not to sell to anybody at any price until
after he has made an offer to sell to the latter at a certain price and the
lessee has failed to accept it. The lessee has a right that the lessor's
first offer shall be in his favor.18 Petitioners right of first refusal is an
integral and indivisible part of the contract of lease and is inseparable
from the whole contract. The consideration for the lease includes the
consideration for the right of first refusal19 and is built into the reciprocal
obligations of the parties.
It was erroneous for the CA to rule that the right of first refusal does not
apply when the property is sold to Faustos relative.20 When the terms
of an agreement have been reduced to writing, it is considered as
containing all the terms agreed upon. As such, there can be, between
the parties and their successors in interest, no evidence of such terms
other than the contents of the written agreement, except when it fails to
express the true intent and agreement of the parties.21 In this case, the
wording of the stipulation giving petitioner the right of first refusal is
plain and unambiguous, and leaves no room for interpretation. It simply
means that should Fausto decide to sell the leased property during the
term of the lease, such sale should first be offered to petitioner. The
stipulation does not provide for the qualification that such right may be
exercised only when the sale is made to strangers or persons other
than Faustos kin. Thus, under the terms of petitioners right of first

refusal, Fausto has the legal duty to petitioner not to sell the property
to anybody, even her relatives, at any price until after she has made an
offer to sell to petitioner at a certain price and said offer was rejected
by petitioner. Pursuant to their contract, it was essential that Fausto
should have first offered the property to petitioner before she sold it to
respondent. It was only after petitioner failed to exercise its right of first
priority could Fausto then lawfully sell the property to respondent.
The rule is that a sale made in violation of a right of first refusal is valid.
However, it may be rescinded, or, as in this case, may be the subject of
an action for specific performance.22 In Riviera Filipina, Inc. vs. Court
of Appeals,23 the Court discussed the concept and interpretation of the
right of first refusal and the consequences of a breach thereof, to wit:
. . . It all started in 1992 with Guzman, Bocaling & Co. v.
Bonnevie where the Court held that a lease with a proviso granting the
lessee the right of first priority "all things and conditions being equal"
meant that there should be identity of the terms and conditions to be
offered to the lessee and all other prospective buyers, with the lessee
to enjoy the right of first priority. A deed of sale executed in favor of a
third party who cannot be deemed a purchaser in good faith, and which
is in violation of a right of first refusal granted to the lessee is not
voidable under the Statute of Frauds but rescissible under Articles
1380 to 1381 (3) of the New Civil Code.
Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of
Appeals, the Court en banc departed from the doctrine laid down
in Guzman, Bocaling & Co. v. Bonnevie and refused to rescind a
contract of sale which violated the right of first refusal. The Court held
that the so-called "right of first refusal" cannot be deemed a perfected
contract of sale under Article 1458 of the New Civil Code and, as such,
a breach thereof decreed under a final judgment does not entitle the
aggrieved party to a writ of execution of the judgment but to an action
for damages in a proper forum for the purpose.
In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair
Theater, Inc., the Court en banc reverted back to the doctrine
in Guzman Bocaling & Co. v. Bonnevie stating that rescission is a
relief allowed for the protection of one of the contracting parties and
even third persons from all injury and damage the contract may cause
or to protect some incompatible and preferred right by the contract.
Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v. Court of
Appeals, the Court affirmed the nature of and the concomitant rights
and obligations of parties under a right of first refusal. The Court,
summarizing the rulings in Guzman, Bocaling & Co. v. Bonnevie and
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., held
that in order to have full compliance with the contractual right granting
petitioner the first option to purchase, the sale of the properties for the
price for which they were finally sold to a third person should have
likewise been first offered to the former. Further, there should be
identity of terms and conditions to be offered to the buyer holding a
right of first refusal if such right is not to be rendered illusory. Lastly,
the basis of the right of first refusal must be the current offer to sell of
the seller or offer to purchase of any prospective buyer.
The prevailing doctrine therefore, is that a right of first refusal means
identity of terms and conditions to be offered to the lessee and all other
prospective buyers and a contract of sale entered into in violation of a
right of first refusal of another person, while valid, is rescissible. 24
It was also incorrect for the CA to rule that it would be useless to annul
the sale between Fausto and respondent because the property would
still remain with respondent after the death of her mother by virtue of
succession, as in fact, Fausto died in March 1996, and the property
now belongs to respondent, being Faustos heir.25

For one, Fausto was bound by the terms and conditions of the lease
contract. Under the right of first refusal clause, she was obligated to
offer the property first to petitioner before selling it to anybody else.
When she sold the property to respondent without offering it to
petitioner, the sale while valid is rescissible so that petitioner may
exercise its option under the contract.
With the death of Fausto, whatever rights and obligations she had over
the property, including her obligation under the lease contract, were
transmitted to her heirs by way of succession, a mode of acquiring the
property, rights and obligation of the decedent to the extent of the
value of the inheritance of the heirs. Article 1311 of the Civil Code
provides:
ART. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the
value of the property he received from the decedent.
A lease contract is not essentially personal in character.26 Thus, the
rights and obligations therein are transmissible to the heirs. The
general rule is that heirs are bound by contracts entered into by their
predecessors-in-interest except when the rights and obligations arising
therefrom are not transmissible by (1) their nature, (2) stipulation or (3)
provision of law.27
In this case, the nature of the rights and obligations are, by their
nature, transmissible. There is also neither contractual stipulation nor
provision of law that makes the rights and obligations under the lease
contract intransmissible. The lease contract between petitioner and
Fausto is a property right, which is a right that passed on to respondent
and the other heirs, if any, upon the death of Fausto.
In DKC Holdings Corporation vs. Court of Appeals,28 the Court held
that the Contract of Lease with Option to Buy entered into by the late
Encarnacion Bartolome with DKC Holdings Corporation was binding
upon her sole heir, Victor, even after her demise and it subsists even
after her death. The Court ruled that:
. . . Indeed, being an heir of Encarnacion, there is privity of interest
between him and his deceased mother. He only succeeds to what
rights his mother had and what is valid and binding against her is
also valid and binding as against him. This is clear from Paraaque
Kings Enterprises vs. Court of Appeals, where this Court rejected a
similar defenseWith respect to the contention of respondent Raymundo that he is not
privy to the lease contract, not being the lessor nor the lessee referred
to therein, he could thus not have violated its provisions, but he is
nevertheless a proper party. Clearly, he stepped into the shoes of the
owner-lessor of the land as, by virtue of his purchase, he assumed all
the obligations of the lessor under the lease contract. Moreover, he
received benefits in the form of rental payments. Furthermore, the
complaint, as well as the petition, prayed for the annulment of the sale
of the properties to him. Both pleadings also alleged collusion between
him and respondent Santos which defeated the exercise by petitioner
of its right of first refusal.
In order then to accord complete relief to petitioner, respondent
Raymundo was a necessary, if not indispensable, party to the case. A
favorable judgment for the petitioner will necessarily affect the rights of
respondent Raymundo as the buyer of the property over which
petitioner would like to assert its right of first option to buy.29(Emphasis
supplied)

Likewise in this case, the contract of lease, with all its concomitant
provisions, continues even after Faustos death and her heirs merely
stepped into her shoes.30 Respondent, as an heir of Fausto, is
therefore bound to fulfill all its terms and conditions.
There is no personal act required from Fausto such that respondent
cannot perform it. Faustos obligation to deliver possession of the
property to petitioner upon the exercise by the latter of its right of first
refusal may be performed by respondent and the other heirs, if any.
Similarly, nonperformance is not excused by the death of the party
when the other party has a property interest in the subject matter of the
contract.31
The CA likewise found that petitioner acknowledged the legitimacy of
the sale to respondent and it is now barred from exercising its right of
first refusal. According to the appellate court:
Second, when TRCDC, in a letter to Fausto, signified its intention to
renew the lease contract, it was Pacunayen who answered the letter
on June 19, 1991. In that letter Pacunayen demanded that TRCDC
vacate the leased premises within sixty (60) days and informed it of her
ownership of the leased premises. The pertinent portion of the letter
reads:
Furtherly, please be advised that the land is no longer under the
absolute ownership of my mother and the undersigned is now the real
and absolute owner of the land.
Instead of raising a howl over the contents of the letter, as would be its
expected and natural reaction under the circumstances, TRCDC
surprisingly kept silent about the whole thing. As we mentioned in the
factual antecedents of this case, it even invited Pacunayen to its
special board meeting particularly to discuss with her the renewal of
the lease contract. Again, during that meeting, TRCDC did not mention
anything that could be construed as challenging Pacunayens
ownership of the leased premises. Neither did TRCDC assert its
priority right to purchase the same against Pacunayen.32
The essential elements of estoppel are: (1) conduct of a party
amounting to false representation or concealment of material facts or
at least calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (2) intent, or at least expectation, that
this conduct shall be acted upon by, or at least influence, the other
party; and (3) knowledge, actual or constructive, of the real facts.33
The records are bereft of any proposition that petitioner waived its right
of first refusal under the contract such that it is now estopped from
exercising the same. In a letter dated June 17, 1991, petitioner wrote
to Fausto asking for a renewal of the term of lease.34 Petitioner cannot
be faulted for merely seeking a renewal of the lease contract because
obviously, it was working on the assumption that title to the property is
still in Faustos name and the latter has the sole authority to decide on
the fate of the property. Instead, it was respondent who replied,
advising petitioner to remove all the improvements on the property, as
the lease is to expire on the 1st of August 1991. Respondent also
informed petitioner that her mother has already sold the property to
her.35 In order to resolve the matter, a meeting was called among
petitioners stockholders, including respondent, on July 27, 1991,
where petitioner, again, proposed that the lease be renewed.
Respondent, however, declined. While petitioner may have sought the
renewal of the lease, it cannot be construed as a relinquishment of its
right of first refusal. Estoppel must be intentional and unequivocal. 36
Also, in the excerpts from the minutes of the special meeting, it was
further stated that the possibility of a sale was likewise
considered.37 But respondent also refused to sell the land, while the

improvements, "if for sale shall be subject for appraisal."38 After


respondent refused to sell the land, it was then that petitioner filed the
complaint for annulment of sale, specific performance and
damages.39 Petitioners acts of seeking all possible avenues for the
amenable resolution of the conflict do not amount to an intentional and
unequivocal abandonment of its right of first refusal.
Respondent was well aware of petitioners right to priority of sale, and
that the sale made to her by her mother was merely for her to be able
to take charge of the latters affairs. As admitted by respondent in her
Appellees Brief filed before the CA, viz.:
After June 19, 1991, TRCDC invited Pacunayen to meeting with the
officers of the corporation. . . . In the same meeting, Pacunayens
attention was called to the provision of the Contract of Lease had
by her mother with TRCDC, particularly paragraph 7 thereof, which
states:
7. That should the lessor decide to sell the leased premises, the
LESSEE shall have the priority right to purchase the same.
Of course, in the meeting she had with the officers of TRCDC,
Pacunayen explained that the sale made in her favor by her mother
was just a formality so that she may have the proper representation
with TRCDC in the absence of her parents, more so that her father had
already passed away, and there was no malice in her mine (sic) and
that of her mother, or any intention on their part to deceive TRCDC. All
these notwithstanding, and for her to show their good faith in dealing
with TRCDC, Pacunayen started the ground work to reconvey
ownership over the whole land, now covered by Transfer Certificare
(sic) of Title No. M-259, to and in the name of her mother (Fausto), but
the latter was becoming sickly, old and weak, and they found no time
to do it as early as they wanted to.40 (Emphasis supplied)
Given the foregoing, the "Kasulatan ng Bilihan Patuluyan ng Lupa"
dated August 8, 1990 between Fausto and respondent must be
rescinded. Considering, however, that Fausto already died on
March 16, 1996, during the pendency of this case with the CA, her
heirs should have been substituted as respondents in this case.
Considering further that the Court cannot declare respondent
Pacunayen as the sole heir, as it is not the proper forum for that
purpose, the right of petitioner may only be enforced against the heirs
of the deceased Catalina Matienzo Fausto, represented by respondent
Pacunayen.
In Paraaque Kings Enterprises, Inc. vs. Court of Appeals,41 it was
ruled that the basis of the right of the first refusal must be the current
offer to sell of the seller or offer to purchase of any prospective buyer. It
is only after the grantee fails to exercise its right of first priority under
the same terms and within the period contemplated, could the owner
validly offer to sell the property to a third person, again, under the
same terms as offered to the grantee. The circumstances of this case,
however, dictate the application of a different ruling. An offer of the
property to petitioner under identical terms and conditions of the offer
previously given to respondent Pacunayen would be inequitable. The
subject property was sold in 1990 to respondent Pacunayen for a
measly sum ofP10,000.00. Obviously, the value is in a small amount
because the sale was between a mother and daughter. As admitted by
said respondent, "the sale made in her favor by her mother was just a
formality so that she may have the proper representation with TRCDC
in the absence of her parents"42 Consequently, the offer to be made
to petitioner in this case should be under reasonable terms and
conditions, taking into account the fair market value of the property at
the time it was sold to respondent.
In its complaint, petitioner prayed for the cancellation of TCT No. M35468 in the name of respondent Pacunayen,43 which was issued by

the Register of Deeds of Morong on February 7, 1991.44 Under


ordinary circumstances, this would be the logical effect of the
rescission of the "Kasulatan ng Bilihan Patuluyan ng Lupa" between
the deceased Fausto and respondent Pacunayen. However, the
circumstances in this case are not ordinary. The buyer of the subject
property is the sellers own daughter. If and when the title (TCT No. M35468) in respondent Pacunayens name is cancelled and reinstated in
Faustos name, and thereafter negotiations between petitioner and
respondent Pacunayen for the purchase of the subject property break
down, then the subject property will again revert to respondent
Pacunayen as she appears to be one of Faustos heirs. This would
certainly be a winding route to traverse. Sound reason therefore
dictates that title should remain in the name of respondent Pacunayen,
for and in behalf of the other heirs, if any, to be cancelled only when
petitioner successfully exercises its right of first refusal and purchases
the subject property.
Petitioner further seeks the award of the following damages in its favor:
(1) P100,000.00 as actual damages; (2)P1,100,000.00 as
compensation for lost goodwill or reputation; (3) P100,000.00 as moral
damages; (4)P100,000.00 as exemplary damages; (5) P50,000.00 as
attorneys fees; (6) P1,000.00 appearance fee per hearing; and (7) the
costs of suit.45
According to petitioner, respondents act in fencing the property led to
the closure of the Tanay Coliseum Cockpit and petitioner was unable to
conduct cockfights and generate income of not less than P100,000.00
until the end of September 1991, aside from the expected rentals from
the cockpit space lessees in the amount ofP11,000.00.46
Under Article 2199 of the Civil Code, it is provided that:
Except as provided by law or by stipulation, one is entitled to an
adequate compensation only for such pecuniary loss suffered by
him as he has duly proved. Such compensation is referred to as
actual or compensatory damages. (Emphasis supplied)
The rule is that actual or compensatory damages cannot be presumed,
but must be proved with reasonable degree of certainty. A court cannot
rely on speculations, conjectures, or guesswork as to the fact and
amount of damages, but must depend upon competent proof that they
have been suffered by the injured party and on the best obtainable
evidence of the actual amount thereof. It must point out specific facts,
which could afford a basis for measuring whatever compensatory or
actual damages are borne.47
In the present case, there is no question that the Tanay Coliseum
Cockpit was closed for two months and TRCDC did not gain any
income during said period. But there is nothing on record to
substantiate petitioners claim that it was bound to lose
some P111,000.00 from such closure. TRCDCs president, Ambrosio
Sacramento, testified that they suffered income losses with the closure
of the cockpit from August 2, 1991 until it re-opened on October 20,
1991.48 Mr. Sacramento, however, cannot state with certainty the
amount of such unrealized income.49Meanwhile, TRCDCs accountant,
Merle Cruz, stated that based on the corporations financial statement
for the years 1990 and 1991,50 they derived the amount
of P120,000.00 as annual income from rent.51 From said financial
statement, it is safe to presume that TRCDC generated a monthly
income of P10,000.00 a month (P120,000.00 annual income divided by
12 months). At best therefore, whatever actual damages that petitioner
suffered from the cockpits closure for a period of two months can be
reasonably summed up only to P20,000.00.
Such award of damages shall earn interest at the legal rate of six
percent (6%) per annum, which shall be computed from the time of the
filing of the Complaint on August 22, 1991, until the finality of this

decision. After the present decision becomes final and executory, the
rate of interest shall increase to twelve percent (12%) per annum from
such finality until its satisfaction, this interim period being deemed to be
equivalent to a forbearance of credit.52 This is in accord with the
guidelines laid down by the Court in Eastern Shipping Lines, Inc. vs.
Court of Appeals,53 regarding the manner of computing legal
interest, viz.:

that there has been such loss. For instance, injury to one's commercial
credit or to the goodwill of a business firm is often hard to show
certainty in terms of money. Should damages be denied for that
reason? The judge should be empowered to calculate moderate
damages in such cases, rather than that the plaintiff should suffer,
without redress from the defendant's wrongful act. (Araneta v. Bank of
America, 40 SCRA 144, 145)57

II. With regard particularly to an award of interest in the concept of


actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:

In this case, aside from the nebulous allegation of petitioner in its


amended complaint, there is no evidence on record, whether
testimonial or documentary, to adequately support such claim. Hence,
it must be denied.

1. When the obligation is breached, and it consists in the payment of a


sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial
or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time quantification of
damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be
on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.54
Petitioner also claims the amount of P1,100,000.00 as compensation
for lost goodwill or reputation. It alleged that "with the unjust and
wrongful conduct of the defendants as above-described, plaintiff
stands to lose its goodwill and reputation established for the past 20
years."55
An award of damages for loss of goodwill or reputation falls under
actual or compensatory damages as provided in Article 2205 of the
Civil Code, to wit:
Art. 2205. Damages may be recovered:
(1) For loss or impairment of earning capacity in cases of temporary or
permanent personal injury;
(2) For injury to the plaintiffs business standing or commercial credit.
Even if it is not recoverable as compensatory damages, it may still be
awarded in the concept of temperate or moderate damages.56 In
arriving at a reasonable level of temperate damages to be awarded,
trial courts are guided by the ruling that:
. . . There are cases where from the nature of the case, definite proof
of pecuniary loss cannot be offered, although the court is convinced

Petitioners claim for moral damages must likewise be denied. The


award of moral damages cannot be granted in favor of a corporation
because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses. It cannot,
therefore, experience physical suffering and mental anguish, which can
be experienced only by one having a nervous system.58 Petitioner
being a corporation,59 the claim for moral damages must be denied.
With regard to the claim for exemplary damages, it is a requisite in the
grant thereof that the act of the offender must be accompanied by bad
faith or done in wanton, fraudulent or malevolent manner.60 Moreover,
where a party is not entitled to actual or moral damages, an award of
exemplary damages is likewise baseless.61 In this case, petitioner
failed to show that respondent acted in bad faith, or in wanton,
fraudulent or malevolent manner.
Petitioner likewise claims the amount of P50,000.00 as attorneys fees,
the sum of P1,000.00 for every appearance of its counsel, plus costs of
suit. It is well settled that no premium should be placed on the right to
litigate and not every winning party is entitled to an automatic grant of
attorney's fees. The party must show that he falls under one of the
instances enumerated in Article 2208 of the Civil Code. In this case,
since petitioner was compelled to engage the services of a lawyer and
incurred expenses to protect its interest and right over the subject
property, the award of attorneys fees is proper. However there are
certain standards in fixing attorney's fees, to wit: (1) the amount and
the character of the services rendered; (2) labor, time and trouble
involved; (3) the nature and importance of the litigation and business in
which the services were rendered; (4) the responsibility imposed; (5)
the amount of money and the value of the property affected by the
controversy or involved in the employment; (6) the skill and the
experience called for in the performance of the services; (7) the
professional character and the social standing of the attorney; and (8)
the results secured, it being a recognized rule that an attorney may
properly charge a much larger fee when it is contingent than when it is
not.62 Considering the foregoing, the award of P10,000.00 as attorneys
fees, including the costs of suit, is reasonable under the
circumstances.
WHEREFORE, the instant Petition for Review is PARTIALLY
GRANTED. The Court of Appeals Decision dated June 14, 1999 in
CA-G.R. CV No. 43770 is MODIFIED as follows:
(1) the "Kasulatan ng Bilihan Patuluyan ng Lupa" dated August 8, 1990
between Catalina Matienzo Fausto and respondent Anunciacion
Fausto Pacunayen is hereby deemed rescinded;
(2) The Heirs of the deceased Catalina Matienzo Fausto who are
hereby deemed substituted as respondents, represented by
respondent Anunciacion Fausto Pacunayen, are ORDERED to
recognize the obligation of Catalina Matienzo Fausto under the
Contract of Lease with respect to the priority right of petitioner Tanay
Recreation Center and Development Corp. to purchase the subject
property under reasonable terms and conditions;

(3) Transfer Certificate of Title No. M-35468 shall remain in the name
of respondent Anunciacion Fausto Pacunayen, which shall be
cancelled in the event petitioner successfully purchases the subject
property;

such registration, title to the properties were consolidated in favor of


respondent bank. Consequently, TCT Nos. T-8595 and T-8350 were
cancelled and TCT Nos. 111058 and 111059 were issued in the name
of respondent bank.5

(4) Respondent is ORDERED to pay petitioner Tanay Recreation


Center and Development Corporation the amount of Twenty Thousand
Pesos (P20,000.00) as actual damages, plus interest thereon at the
legal rate of six percent (6%) per annum from the filing of the
Complaint until the finality of this Decision. After this Decision becomes
final and executory, the applicable rate shall be twelve percent (12%)
per annum until its satisfaction; and,

Despite the lapse of the redemption period and consolidation of title in


respondent bank, petitioner offered to repurchase the properties. While
the respondent bank considered petitioner's offer to repurchase, there
was no repurchase contract executed. The present controversy was
fuelled by petitioner's stance that a verbal repurchase/compromise
agreement was actually reached and implemented by the parties.

(5) Respondent is ORDERED to pay petitioner the amount of Ten


Thousand Pesos (P10,000.00) as attorneys fees, and to pay the costs
of suit.
(6) Let the case be remanded to the Regional Trial Court, Morong,
Rizal (Branch 78) for further proceedings on the determination of the
"reasonable terms and conditions" of the offer to sell by respondents to
petitioner, without prejudice to possible mediation between the parties.
The rest of the unaffected dispositive portion of the Court of Appeals
Decision is AFFIRMED.
SO ORDERED.
G.R. No. 177783

January 23, 2013

HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D. IGNACIOMANALO, MILFA D. IGNACIO-MANALO AND FAUSTINO D.
IGNACIO, Petitioners,
vs.
HOME BANKERS SAVINGS AND TRUST COMPANY, SPOUSES
PHILLIP AND THELMA RODRIGUEZ, CATHERINE, REYNOLD &
JEANETTE, all surnamed ZUNIGA, Respondents.

In the meantime, respondent bank made the following dispositions of


the foreclosed properties already titled in its name:
TCT No. 111059 (Subdivided into six lots with individual titles - TCT
Nos. 117771, 117772, 117773, 117774, 117775 and 117776)
A. TCT No. 117771 (16,350 sq.ms.) - Sold to Fermin
Salvador and Bella Salvador under Deed of Absolute Sale
dated May 23, 1984 for the price of P150,000.00
B. TCT No. 11772 (82,569 sq.ms. subdivided into 2 portions
1) Lot 3-B-1 (35,447 sq.ms.) - Sold to Dr. Oscar
Remulla and Natividad Pagtakhan, Dr. Edilberto
Torres and Dra. Rebecca Amores under Deed of
Absolute Sale dated April 17, 1985 for the price
ofP150,000.00
2) Lot 3-B-2 covered by separate title TCT No.
124660 (Subdivided into 3 portions Lot 3-B-2-A (15,000 sq.ms.) - Sold to Dr.
Myrna del Carmen Reyes under Deed of
Absolute Sale dated March 23, 1987 for
the price of P150,000.00

DECISION
VILLARAMA, JR., J.:
Before the Court is a Petition for Review on Certiorari under Rule 45
assailing the Decision1 dated July 18, 2006 and Resolution2 dated May
2, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 73551. The
CA reversed the Decision3 dated June 15, 1999 of the Regional Trial
Court (RTC) of Pasig City, Branch 151 in Civil Case No. 58980.
The factual antecedents:
In August 1981, petitioner Fausto C. Ignacio mortgaged two parcels of
land to Home Savings Bank and Trust Company, the predecessor of
respondent Home Bankers Savings and Trust Company, as security for
theP500,000.00 loan extended to him by said bank. These properties
which are located in Cabuyao, Laguna are covered by Transfer
Certificate of Title Nos. (T-40380) T-8595 and (T-45804) T-8350
containing an area of 83,303 square meters and 120,110 square
meters, respectively.4
When petitioner defaulted in the payment of his loan obligation,
respondent bank proceeded to foreclose the real estate mortgage. At
the foreclosure sale held on January 26, 1983, respondent bank was
the highest bidder for the sum of P764,984.67. On February 8, 1983,
the Certificate of Sale issued to respondent bank was registered with
the Registry of Deeds of Calamba, Laguna. With the failure of
petitioner to redeem the foreclosed properties within one year from

Lot 3-B-2-B (15,000 sq.ms.) - Sold to Dr.


Rodito Boquiren under Deed of Absolute
Sale dated March 23, 1987 for the price
of P150,000.00
Lot 3-B-2-C (17,122 sq.ms.) covered by
TCT No. T-154568 C. TCT No.117773 (17,232 sq.ms.) - Sold to Rizalina
Pedrosa under Deed of Absolute Sale dated June 4, 1984
for the price of P150,000.00
The expenses for the subdivision of lots covered by TCT No. 111059
and TCT No. 117772 were shouldered by petitioner who likewise
negotiated the above-mentioned sale transactions. The properties
covered by TCT Nos. T-117774 to 117776 are still registered in the
name of respondent bank.6
In a letter addressed to respondent bank dated July 25, 1989,
petitioner expressed his willingness to pay the amount of P600,000.00
in full, as balance of the repurchase price, and requested respondent
bank to release to him the remaining parcels of land covered by TCT
Nos. 111058 and T-154658 ("subject properties").7Respondent bank
however, turned down his request. This prompted petitioner to cause
the annotation of an adverse claim on the said titles on September 18,
1989.8

Prior to the annotation of the adverse claim, on August 24, 1989, the
property covered by TCT No. 154658 was sold by respondent bank to
respondent spouses Phillip and Thelma Rodriguez, without informing
the petitioner. On October 6, 1989, again without petitioner's
knowledge, respondent bank sold the property covered by TCT No T111058 to respondents Phillip and Thelma Rodriguez, Catherine M.
Zuiga, Reynold M. Zuiga and Jeannette M. Zuiga.9
On December 27, 1989, petitioner filed an action for specific
performance and damages in the RTC against the respondent bank.
As principal relief, petitioner sought in his original complaint the
reconveyance of the subject properties after his payment
of P600,000.00.10 Respondent bank filed its Answer denying the
allegations of petitioner and asserting that it was merely exercising its
right as owner of the subject properties when the same were sold to
third parties.
For failure of respondent bank to appear during the pre-trial
conference, it was declared as in default and petitioner was allowed to
present his evidence ex parte on the same date (September 3, 1990).
Petitioner simultaneously filed an "Ex-Parte Consignation" tendering
the amount of P235,000.00 as balance of the repurchase price.11 On
September 7, 1990, the trial court rendered judgment in favor of
petitioner. Said decision, as well as the order of default, were
subsequently set aside by the trial court upon the filing of a motion for
reconsideration by the respondent bank.12
In its Order dated November 19, 1990, the trial court granted the
motion for intervention filed by respondents Phillip and Thelma
Rodriguez, Catherine Zuiga, Reynold Zuiga and Jeannette Zuiga.
Said intervenors asserted their status as innocent purchasers for value
who had no notice or knowledge of the claim or interest of petitioner
when they bought the properties already registered in the name of
respondent bank. Aside from a counterclaim for damages against the
petitioner, intervenors also prayed that in the event respondent bank is
ordered to reconvey the properties, respondent bank should be
adjudged liable to the intervenors and return all amounts paid to it. 13
On July 8, 1991, petitioner amended his complaint to include as
alternative relief under the prayer for reconveyance the payment by
respondent bank of the prevailing market value of the subject
properties "less whatever remaining obligation due the bank by reason
of the mortgage under the terms of the compromise agreement.14
On June 15, 1999, the trial court rendered its Decision, the dispositive
portion of which reads:
WHEREFORE, findings [sic] the facts aver[r]ed in the complaint
supported by preponderance of evidences adduced, judgment is
hereby rendered in favor of the plaintiff and against the defendant and
intervenors by:
1. Declaring the two Deeds of Sale executed by the
defendant in favor of the intervenors as null and void and the
Register of Deeds in Calamba, Laguna is ordered to cancel
and/or annul the two Transfer Certificate of Titles No. T154658 and TCT No. T-111058 issued to the intervenors.
2. Ordering the defendant to refund the amount
of P1,004,250.00 to the intervenors as the consideration of
the sale of the two properties.
3. Ordering the defendant to execute the appropriate Deed
of Reconveyance of the two (2) properties in favor of the
plaintiff after the plaintiff pays in full the amount
of P600,000.00 as balance of the repurchase price.

4. Ordering the defendant bank to pay plaintiff the sum


of P50,000.00 as attorney's fees.
5. Dismissing the counterclaim of the defendant and
intervenors against the plaintiff.
Costs against the defendant.
SO ORDERED.15
The trial court found that respondent bank deliberately disregarded
petitioner's substantial payments on the total repurchase consideration.
Reference was made to the letter dated March 22, 1984 (Exhibit
"I")16 as the authority for petitioner in making the installment payments
directly to the Universal Properties, Inc. (UPI), respondent bank's
collecting agent. Said court concluded that the compromise agreement
amounts to a valid contract of sale between petitioner, as Buyer, and
respondent bank, as Seller. Hence, in entertaining other buyers for the
same properties already sold to petitioner with intention to increase its
revenues, respondent bank acted in bad faith and is thus liable for
damages to the petitioner. Intervenors were likewise found liable for
damages as they failed to exercise due diligence before buying the
subject properties.
Respondent bank appealed to the CA which reversed the trial court's
ruling, as follows:
WHEREFORE, the foregoing premises considered, the instant appeal
is hereby GRANTED. Accordingly, the assailed decision is hereby
REVERSED and SET ASIDE.
SO ORDERED.17
The CA held that by modifying the terms of the offer contained in the
March 22, 1984 letter of respondent bank, petitioner effectively
rejected the original offer with his counter-offer. There was also no
written conformity by respondent bank's officers to the amended
conditions for repurchase which were unilaterally inserted by petitioner.
Consequently, no contract of repurchase was perfected and
respondent bank acted well within its rights when it sold the subject
properties to herein respondents-intervenors.
As to the receipts presented by petitioner allegedly proving the
installment payments he had completed, the CA said that these were
not payments of the repurchase price but were actually remittances of
the payments made by petitioner's buyers for the purchase of the
foreclosed properties already titled in the name of respondent bank. It
was noted that two of these receipts (Exhibits "K" and "K-1")18 were
issued to Fermin Salvador and Rizalina Pedrosa, the vendees of two
subdivided lots under separate Deeds of Absolute Sale executed in
their favor by the respondent bank. In view of the attendant
circumstances, the CA concluded that petitioner acted merely as a
broker or middleman in the sales transactions involving the foreclosed
properties. Lastly, the respondents-intervenors were found to be
purchasers who bought the properties in good faith without notice of
petitioner's interest or claim. Nonetheless, since there was no
repurchase contract perfected, the sale of the subject properties to
respondents-intervenors remains valid and binding, and the issue of
whether the latter were innocent purchasers for value would be of no
consequence.
Petitioner's motion for reconsideration was likewise denied by the
appellate court.
Hence, this petition alleging that:

A.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT THERE WAS A
PERFECTED CONTRACT TO REPURCHASE BETWEEN
PETITIONER AND RESPONDENT-BANK.
B.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT PETITIONER DID
NOT ACT AS BROKER IN THE SALE OF THE
FORECLOSED PROPERTIES AND THUS FAILED TO
CONSIDER THE EXISTENCE OF OFFICIAL RECEIPTS
ISSUED IN THE NAME OF THE PETITIONER THAT ARE
DULY NOTED FOR HIS ACCOUNT.
C.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT RESPONDENTBANK DID NOT HAVE THE RIGHT TO DISPOSE THE
SUBJECT PROPERTIES.

must be certain. To convert the offer into a contract, the acceptance


must be absolute and must not qualify the terms of the offer; it must be
plain, unequivocal, unconditional, and without variance of any sort from
the proposal. A qualified acceptance, or one that involves a new
proposal, constitutes a counter-offer and is a rejection of the original
offer. Consequently, when something is desired which is not exactly
what is proposed in the offer, such acceptance is not sufficient to
generate consent because any modification or variation from the terms
of the offer annuls the offer.22
The acceptance must be identical in all respects with that of the offer
so as to produce consent or meeting of the minds.23 Where a party sets
a different purchase price than the amount of the offer, such
acceptance was qualified which can be at most considered as a
counter-offer; a perfected contract would have arisen only if the other
party had accepted this counter-offer.24 In Villanueva v. Philippine
National Bank25 this Court further elucidated on the meaning of
unqualified acceptance, as follows:
While it is impossible to expect the acceptance to echo every
nuance of the offer, it is imperative that it assents to those points in the
offer which, under the operative facts of each contract, are not only
material but motivating as well. Anything short of that level of mutuality
produces not a contract but a mere counter-offer awaiting acceptance.
More particularly on the matter of the consideration of the contract, the
offer and its acceptance must be unanimous both on the rate of the
payment and on its term. An acceptance of an offer which agrees to
the rate but varies the term is ineffective.26 (Emphasis supplied)

D.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT RESPONDENTSINTERVENORS ARE NOT INNOCENT PURCHASERS FOR
VALUE IN GOOD FAITH.19

Petitioner submitted as evidence of a perfected contract of repurchase


the March 22, 1984 letter (Exhibit "I")27from Rita B. Manuel, then
President of UPI, a corporation formed by respondent bank to dispose
of its acquired assets, with notations handwritten by petitioner himself.
Said letter reads:
March 22, 1984

It is to be noted that the above issues raised by petitioner alleged


grave abuse of discretion committed by the CA, which is proper in a
petition for certiorari under Rule 65 of the 1997 Rules of Civil
Procedure, as amended, but not in the present petition for review on
certiorari under Rule 45.

Honorable Judge Fausto Ignacio


412 Bagumbayan Street, Pateros
Metro Manila
Dear Judge Ignacio:

The core issue for resolution is whether a contract for the repurchase
of the foreclosed properties was perfected between petitioner and
respondent bank.
The Court sustains the decision of the CA.
Contracts are perfected by mere consent, which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract.20 The requisite acceptance of the
offer is expressed in Article 1319 of the Civil Code which states:
ART. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
In Palattao v. Court of Appeals,21 this Court held that if the acceptance
of the offer was not absolute, such acceptance is insufficient to
generate consent that would perfect a contract. Thus:
Contracts that are consensual in nature, like a contract of sale, are
perfected upon mere meeting of the minds. Once there is concurrence
between the offer and the acceptance upon the subject matter,
consideration, and terms of payment, a contract is produced. The offer

Your proposal to repurchase your foreclosed properties located at


Cabuyao, Laguna consisting of a total area of 203,413 square meters
has been favorably considered subject to the following terms and
conditions:
1) Total Selling Price shall be P950,000.00
2) Downpayment of P150,00000 with the balance
Payable in Three (3) equal installments
as follows:
1st Installment - P 266,667 - on or before May 31,
'84
2nd Installment - P 266,667 - on or before Sept.
31, '84
3rd Installment - P 266,666 - on or before Jan. 30,
'85
TOTAL - P 800,000.00

3) All expenses pertinent to the subdivision of the parcel of


land consisting of 120,110 square meters shall be for your
account.
Thank you,
Very truly yours,
RITA B. MANUEL
President
According to petitioner, he wrote the notations in the presence of a
certain Mr. Lazaro, the representative of Mrs. Manuel (President), and
a certain Mr. Fajardo, which notations supposedly represent their
"compromise agreement."28 These notations indicate that the
repurchase price would be P900,000.00 which shall be paid as
follows: P150,000 - end of May '84; P150,000 - end of June '84;
Balance - "Depending on financial position". Petitioner further alleged
the following conditions of the verbal agreement: (1) respondent bank
shall release the equivalent land area for payments made by petitioner
who shall shoulder the expenses for subdivision of the land; (2) in case
any portion of the subdivided land is sold by petitioner, a separate
document of sale would be executed directly to the buyer; (3) the
remaining portion of the properties shall not be subject of respondent
bank's transaction without the consent and authority of petitioner; (4)
the petitioner shall continue in possession of the properties and
whatever portion still remaining, and attending to the needs of its
tenants; and (5) payments shall be made directly to UPI.29
The foregoing clearly shows that petitioner's acceptance of the
respondent bank's terms and conditions for the repurchase of the
foreclosed properties was not absolute. Petitioner set a different
repurchase price and also modified the terms of payment, which even
contained a unilateral condition for payment of the balance (P600,000),
that is, depending on petitioner's "financial position." The CA thus
considered the qualified acceptance by petitioner as a counterproposal which must be accepted by respondent bank. However, there
was no evidence of any document or writing showing the conformity of
respondent bank's officers to this counter-proposal.
Petitioner contends that the receipts issued by UPI on his installment
payments are concrete proof -- despite denials to the contrary by
respondent bank -- that there was an implied acceptance of his
counter-proposal and that he did not merely act as a broker for the sale
of the subdivided portions of the foreclosed properties to third parties.
Since all these receipts, except for two receipts issued in the name of
Fermin Salvador and Rizalina Pedrosa, were issued in the name of
petitioner instead of the buyers themselves, petitioner emphasizes that
the payments were made for his account. Moreover, petitioner asserts
that the execution of the separate deeds of sale directly to the buyers
was in pursuance of the perfected repurchase agreement with
respondent bank, such an arrangement being "an accepted practice to
save on taxes and shortcut paper works."
The Court is unconvinced.
In Adelfa Properties, Inc. v. CA,30 the Court ruled that:
x x x The rule is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly made and
must be evidenced by some acts or conduct communicated to the
offeror, it may be made either in a formal or an informal manner, and
may be shown by acts, conduct, or words of the accepting party that
clearly manifest a present intention or determination to accept the offer
to buy or sell. Thus, acceptance may be shown by the acts, conduct, or
words of a party recognizing the existence of the contract of sale.31

Even assuming that the bank officer or employee whom petitioner


claimed he had talked to regarding the March 22, 1984 letter had
acceded to his own modified terms for the repurchase, their supposed
verbal exchange did not bind respondent bank in view of its corporate
nature. There was no evidence that said Mr. Lazaro or Mr. Fajardo was
authorized by respondent bank's Board of Directors to accept
petitioner's counter-proposal to repurchase the foreclosed properties at
the price and terms other than those communicated in the March 22,
1984 letter. As this Court ruled in AF Realty & Development, Inc. v.
Dieselman Freight Services, Co.32
Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the board of
directors. Just as a natural person may authorize another to do certain
acts in his behalf, so may the board of directors of a corporation validly
delegate some of its functions to individual officers or agents appointed
by it.1wphi1 Thus, contracts or acts of a corporation must be made
either by the board of directors or by a corporate agent duly authorized
by the board. Absent such valid delegation/authorization, the rule is
that the declarations of an individual director relating to the affairs of
the corporation, but not in the course of, or connected with, the
performance of authorized duties of such director, are held not binding
on the corporation.33
Thus, a corporation can only execute its powers and transact its
business through its Board of Directors and through its officers and
agents when authorized by a board resolution or its by-laws. 34
In the absence of conformity or acceptance by properly authorized
bank officers of petitioner's counter-proposal, no perfected repurchase
contract was born out of the talks or negotiations between petitioner
and Mr. Lazaro and Mr. Fajardo. Petitioner therefore had no legal right
to compel respondent bank to accept the P600,000 being tendered by
him as payment for the supposed balance of repurchase price.
A contract of sale is consensual in nature and is perfected upon mere
meeting of the minds. When there is merely an offer by one party
without acceptance of the other, there is no contract.35 When the
contract of sale is not perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation between the parties. 36
In sum, we find the ruling of the CA more in accord with the established
facts and applicable law and jurisprudence. Petitioner's claim of utmost
accommodation by respondent bank of his own terms for the
repurchase of his foreclosed properties are simply contrary to normal
business practice. As aptly observed by the appellate court:
The submission of the plaintiff-appellee is unimpressive.
First, if the counter-proposal was mutually agreed upon by both the
plaintiff-appellee and defendant-appellant, how come not a single
signature of the representative of the defendant-appellant was affixed
thereto. Second, it is inconceivable that an agreement of such great
importance, involving two personalities who are both aware and
familiar of the practical and legal necessity of reducing agreements into
writing, the plaintiff-appellee, being a lawyer and the defendantappellant, a banking institution, not to formalize their repurchase
agreement. Third, it is quite absurd and unusual that the defendantappellant could have acceded to the condition that the balance of the
payment of the repurchase price would depend upon the financial
position of the plaintiff-appellee. Such open[-]ended and indefinite
period for payment is hardly acceptable to a banking institution like the
defendant-appellant whose core existence fundamentally depends
upon its financial arrangements and transactions which, most, if not all
the times are intended to bear favorable outcome to its business. Last,
had there been a repurchase agreement, then, there should have been

titles or deeds of conveyance issued in favor of the plaintiff-appellee.


But as it turned out, the plaintiff-appellee never had any land deeded or
titled in his name as a result of the alleged repurchase agreement. All
these, reinforce the conclusion that the counter-proposal was
unilaterally made and inserted by the plaintiff-appellee in Exhibit "I" and
could not have been accepted by the defendant-appellant, and that a
different agreement other than a repurchase agreement was perfected
between them.37

adjacent to the property of Villonco Realty Company situated at 219


Buendia Avenue.

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


was substituted by his heirs, namely: Marfel D. Ignacio-Manalo, Milfa
D. Ignacio-Manalo and Faustino D. Ignacio.

In the course of the negotiations, the brothers Romeo Villonco and


Teofilo Villonco conferred with Cervantes in his office to discuss the
price and terms of the sale. Later, Cervantes "went to see Villonco for
the same reason until some agreement" was arrived at. On a
subsequent occasion, Cervantes, accompanied by Edith Perez de
Tagle, discussed again the terms of the sale with Villonco.

WHEREFORE, the petition for review on certiorari is DENIED. The


Decision dated July 18, 2006 and Resolution dated May 2, 2007 of the
Court of Appeals in CA-G.R. CV No. 73551 are hereby AFFIRMED.
With costs against the petitioners.
SO ORDERED.
G.R. No. L-26872 July 25, 1975
VILLONCO REALTY COMPANY, plaintiff-appellee and EDITH PEREZ
DE TAGLE, intervenor-appellee,
vs.
BORMAHECO, INC., FRANCISCO N. CERVANTES and ROSARIO
N. CERVANTES, defendants-appellants. Meer, Meer & Meer
for plaintiff-appellee.
J. Villareal, Navarro and Associates for defendants-appellants.
P. P. Gallardo and Associates for intervenor-appellee.

In the early part of February, 1964 there were negotiations for the sale
of the said lots and the improvements thereon between Romeo
Villonco of Villonco Realty Company "and Bormaheco, Inc.,
represented by its president, Francisco N. Cervantes, through the
intervention of Edith Perez de Tagle, a real estate broker".

During the negotiations, Villonco Realty Company assumed that the


lots belonged to Bormaheco, Inc. and that Cervantes was duly
authorized to sell the same. Cervantes did not disclose to the broker
and to Villonco Realty Company that the lots were conjugal properties
of himself and his wife and that they were mortgaged to the DBP.
Bormaheco, Inc., through Cervantes, made a written offer dated
February 12, 1964, to Romeo Villonco for the sale of the property. The
offer reads (Exh. B):
BORMAHECO, INC.
February 12,1964
Mr. Romeo
Villonco Villonco Building
Buendia Avenue
Makati, Rizal.
Dear Mr. Villonco:

AQUINO, J.:
This action was instituted by Villonco Realty Company against
Bormaheco, Inc. and the spouses Francisco N. Cervantes and Rosario
N. Cervantes for the specific performance of a supposed contract for
the sale of land and the improvements thereon for one million four
hundred thousand pesos. Edith Perez de Tagle, as agent, intervened in
order to recover her commission. The lower court enforced the sale.
Bormaheco, Inc. and the Cervantes spouses, as supposed vendors,
appealed.
This Court took cognizance of the appeal because the amount involved
is more than P200,000 and the appeal was perfected before Republic
Act No. 5440 took effect on September 9, 1968. The facts are as
follows:
Francisco N. Cervantes and his wife, Rosario P. Navarra-Cervantes,
are the owners of lots 3, 15 and 16 located at 245 Buendia Avenue,
Makati, Rizal with a total area of three thousand five hundred square
meters (TCT Nos. 43530, 43531 and 43532, Exh. A, A-1 and A-2). The
lots were mortgaged to the Development Bank of the Phil (DBP) on
April 21, 1959 as security for a loan of P441,000. The mortgage debt
was fully paid on July 10, 1969.
Cervantes is the president of Bormaheco, Inc., a dealer and importer of
industrial and agricultural machinery. The entire lots are occupied by
the building, machinery and equipment of Bormaheco, Inc. and are

This is with reference to our telephone


conversation this noon on the matter of the sale
of our property located at Buendia Avenue, with a
total area of 3,500 sq. m., under the following
conditions:
(1) That we are offering to sell to you the above
property at the price of P400.00 per square meter;
(2) That a deposit of P100,000.00 must be placed
as earnest money on the purchase of the above
property which will become part payment of the
property in the event that the sale is
consummated;
(3) That this sale is to be consummated only after I
shall have also consummated my purchase of
another property located at Sta. Ana, Manila;
(4) That if my negotiations with said property will
not be consummated by reason beyond my
control, I will return to you your deposit of
P100,000 and the sale of my property to you will
not also be consummated; and
(5) That final negotiations on both properties can
be definitely known after 45 days.

If the above terms is (are) acceptable to your


Board, please issue out the said earnest money in
favor of Bormaheco, Inc., and deliver the same
thru the bearer, Miss Edith Perez de Tagle. Very
truly yours,SGD. FRANCISCO N. CERVANTES
President
The property mentioned in Bormaheco's letter was the land of the
National Shipyards & Steel Corporation (Nassco), with an area of
twenty thousand square meters, located at Punta, Sta. Ana, Manila. At
the bidding held on January 17, 1964 that land was awarded to
Bormaheco, Inc., the highest bidder, for the price of P552,000. The
Nassco Board of Directors in its resolution of February 18, 1964
authorized the General Manager to sign the necessary contract (Exh.
H).

payment for the purchase of your property without


interest:
4. The manner of payment shall be as follows:
a. P100,000.00 earnest money and
650,000.00 as part of the down payment, or
P750,000.00 as total down payment
b. The balance is payable as follows:
P100,000.00 after 3 months
125,000.00 -do212,500.00 -doP650,000.00 Total

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


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

As regards to the other conditions which we have


discussed during our last conference on February
27, 1964, the same shall be finalized upon
preparation of the contract to sell.*

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


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

If the above terms and conditions are acceptable


to you, kindly sign your conformity hereunder.
Enclosed is our check for ONE HUNDRED
THOUSAND (P100,000.00) PESOS, MBTC Check
No. 448314, as earnest money.
Very truly yours,VILLONCO REALTY COMPANY
(Sgd.) TEOFILO VILLONCO
CONFORME:

VILLONCO REALTY COMPANY


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

BORMAHECO, INC.
(Sgd.) FRANCISCO CERVANTES

March 4, 1964

That this sale shall be subject to favorable


consummation of a property in Sta. Ana we are
negotiating.

Mr. Francisco Cervantes.


Bormaheco, Inc.
245 Buendia Avenue
Makati, Rizal

(Sgd.) FRANCISCO CERVANTES

Dear Mr. Cervantes:


In reference to the letter of Miss E. Perez de Tagle
dated February 12th and 26, 1964 in respect to
the terms and conditions on the purchase of your
property located at Buendia Ave., Makati, Rizal,
with a total area of 3,500 sq. meters., we hereby
revise our offer, as follows:
1. That the price of the property shall be P400.00
per sq. m., including the improvements thereon;
2. That a deposit of P100,000.00 shall be given to
you as earnest money which will become as part
payment in the event the sale is consummated;
3. This sale shall be cancelled, only if your deal
with another property in Sta. Ana shall not be
consummated and in such case, the P100,000-00
earnest money will be returned to us with a 10%
interest p.a. However, if our deal with you is
finalized, said P100,000.00 will become as part

The check for P100,000 (Exh. E) mentioned in the foregoing lettercontract was delivered by Edith Perez de Tagle to Bormaheco, Inc. on
March 4, 1964 and was received by Cervantes. In the voucher-receipt
evidencing the delivery the broker indicated in her handwriting that the
earnest money was "subject to the terms and conditions embodied in
Bormaheco's letter" of February 12 and Villonco Realty Company's
letter of March 4, 1964 (Exh. E-1; 14 tsn).
Then, unexpectedly, in a letter dated March 30, 1964, or twenty-six
days after the signing of the contract of sale, Exhibit D, Cervantes
returned the earnest money, with interest amounting to P694.24 (at ten
percent per annum). Cervantes cited as an excuse the circumstance
that "despite the lapse of 45 days from February 12, 1964 there is no
certainty yet" for the acquisition of the Punta property (Exh. F; F-I and
F-2). Villonco Realty Company refused to accept the letter and the
checks of Bormaheco, Inc. Cervantes sent them by registered mail.
When he rescinded the contract, he was already aware that the Punta
lot had been awarded to Bormaheco, Inc. (25-26 tsn).
Edith Perez de Tagle, the broker, in a letter to Cervantes dated March
31, 1964 articulated her shock and surprise at Bormaheco's turnabout.
She reviewed the history of the deal and explained why Romeo
Villonco could not agree to the rescission of the sale (Exh. G).**

Cervantes in his letter of April 6, 1964, a reply to Miss Tagle's letter,


alleged that the forty-five day period had already expired and the sale
to Bormaheco, Inc. of the Punta property had not been consummated.
Cervantes said that his letter was a "manifestation that we are no
longer interested to sell" the Buendia Avenue property to Villonco
Realty Company (Annex I of Stipulation of Facts). The latter was
furnished with a copy of that letter.
In a letter dated April 7, 1964 Villonco Realty Company returned the
two checks to Bormaheco, Inc., stating that the condition for the
cancellation of the contract had not arisen and at the same time
announcing that an action for breach of contract would be filed against
Bormaheco, Inc. (Annex G of Stipulation of Facts).1wph1.t
On that same date, April 7, 1964 Villonco Realty Company filed the
complaint (dated April 6) for specific performance against Bormaheco,
Inc. Also on that same date, April 7, at eight-forty-five in the morning, a
notice of lis pendens was annotated on the titles of the said lots.
Bormaheco, Inc. in its answers dated May 5 and 25, 1964 pleaded the
defense that the perfection of the contract of sale was subject to the
conditions (a) "that final acceptance or not shall be made after 45
days" (sic) and (b) that Bormaheco, Inc. "acquires the Sta. Ana
property".
On June 2, 1964 or during the pendency of this case, the Nassco
Acting General Manager wrote to Bormaheco, Inc., advising it that the
Board of Directors and the Economic Coordinator had approved the
sale of the Punta lot to Bormaheco, Inc. and requesting the latter to
send its duly authorized representative to the Nassco for the signing of
the deed of sale (Exh. 1).
The deed of sale for the Punta land was executed on June 26, 1964.
Bormaheco, Inc. was represented by Cervantes (Exh. J. See
Bormaheco, Inc. vs. Abanes, L-28087, July 31, 1973, 52 SCRA 73).
In view of the disclosure in Bormaheco's amended answer that the
three lots were registered in the names of the Cervantes spouses and
not in the name of Bormaheco, Inc., Villonco Realty Company on July
21, 1964 filed an amended complaint impleading the said spouses as
defendants. Bormaheco, Inc. and the Cervantes spouses filed
separate answers.
As of January 15, 1965 Villonco Realty Company had paid to the
Manufacturers' Bank & Trust Company the sum of P8,712.25 as
interests on the overdraft line of P100,000 and the sum of P27.39 as
interests daily on the same loan since January 16, 1965. (That
overdraft line was later settled by Villonco Realty Company on a date
not mentioned in its manifestation of February 19, 1975).
Villonco Realty Company had obligated itself to pay the sum of
P20,000 as attorney's fees to its lawyers. It claimed that it was
damaged in the sum of P10,000 a month from March 24, 1964 when
the award of the Punta lot to Bormaheco, Inc. was approved. On the
other hand, Bormaheco, Inc. claimed that it had sustained damages of
P200,000 annually due to the notice of lis pendens which had
prevented it from constructing a multi-story building on the three lots.
(Pars. 18 and 19, Stipulation of Facts).1wph1.t
Miss Tagle testified that for her services Bormaheco, Inc., through
Cervantes, obligated itself to pay her a three percent commission on
the price of P1,400,000 or the amount of forty-two thousand pesos (14
tsn).
After trial, the lower court rendered a decision ordering the Cervantes
spouses to execute in favor of Bormaheco, Inc. a deed of conveyance

for the three lots in question and directing Bormaheco, Inc. (a) to
convey the same lots to Villonco Realty Company, (b) to pay the latter,
as consequential damages, the sum of P10,000 monthly from March
24, 1964 up to the consummation of the sale, (c) to pay Edith Perez de
Tagle the sum of P42,000 as broker's commission and (d) pay P20,000
as to attorney's fees (Civil Case No. 8109).
Bormaheco, Inc. and the Cervantes spouses appealed. Their principal
contentions are (a) that no contract of sale was perfected because
Cervantes made a supposedly qualified acceptance of the revised offer
contained in Exhibit D, which acceptance amounted to a counter-offer,
and because the condition that Bormaheco, inc. would acquire the
Punta land within the forty-five-day period was not fulfilled; (2) that
Bormaheco, Inc. cannot be compelled to sell the land which belongs to
the Cervantes spouses and (3) that Francisco N. Cervantes did not
bind the conjugal partnership and his wife when, as president of
Bormaheco, Inc., he entered into negotiations with Villonco Realty
Company regarding the said land.
We hold that the appeal, except as to the issue of damages, is devoid
of merit.
"By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determining thing, and the
other to pay therefor a price certain in money or its equivalent. A
contract of sale may be absolute or conditional" (Art. 1458, Civil Code).
"The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the
price. From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form of
contracts" (Art. 1475, Ibid.).
"Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law" (Art. 1315,
Civil Code).
"Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer" (Art. 1319, Civil Code). "An
acceptance may be express or implied" (Art. 1320, Civil Code).
Bormaheco's acceptance of Villonco Realty Company's offer to
purchase the Buendia Avenue property, as shown in Teofilo Villonco's
letter dated March 4, 1964 (Exh. D), indubitably proves that there was
a meeting of minds upon the subject matter and consideration of the
sale. Therefore, on that date the sale was perfected. (Compare with
McCullough vs. Aenlle & Co., 3 Phil. 285; Goyena vs. Tambunting, 1
Phil. 490). Not only that Bormaheco's acceptance of the part payment
of one hundred ,thousand pesos shows that the sale was conditionally
consummated or partly executed subject to the purchase by
Bormaheco, Inc. of the Punta property. The nonconsummation of that
purchase would be a negative resolutory condition (Taylor vs. Uy Tieng
Piao, 43 Phil. 873).
On February 18, 1964 Bormaheco's bid for the Punta property was
already accepted by the Nassco which had authorized its General
Manager to sign the corresponding deed of sale. What was necessary
only was the approval of the sale by the Economic Coordinator and a
request for that approval was already pending in the office of that
functionary on March 4, 1964.

Bormaheco, Inc. and the Cervantes spouses contend that the sale was
not perfected because Cervantes allegedly qualified his acceptance of
Villonco's revised offer and, therefore, his acceptance amounted to a
counter-offer which Villonco Realty Company should accept but no
such acceptance was ever transmitted to Bormaheco, Inc. which,
therefore, could withdraw its offer.

Appellants Bormaheco, Inc. and Cervantes further contend that


Cervantes, in clarifying in the voucher for the earnest money of
P100,000 that Bormaheco's acceptance thereof was subject to the
terms and conditions embodied in Bormaheco's letter of February 12,
1964 and your (Villonco's) letter of March 4, 1964" made Bormaheco's
acceptance "qualified and conditional".

That contention is not well-taken. It should be stressed that there is no


evidence as to what changes were made by Cervantes in Villonco's
revised offer. And there is no evidence that Villonco Realty Company
did not assent to the supposed changes and that such assent was
never made known to Cervantes.

That contention is not correct. There is no incompatibility between


Bormaheco's offer of February 12, 1964 (Exh. B) and Villonco's
counter-offer of March 4, 1964 (Exh. D). The revised counter-offer
merely amplified Bormaheco's original offer.

What the record reveals is that the broker, Miss Tagle, acted as
intermediary between the parties. It is safe to assume that the alleged
changes or qualifications made by Cervantes were approved by
Villonco Realty Company and that such approval was duly
communicated to Cervantes or Bormaheco, Inc. by the broker as
shown by the fact that Villonco Realty Company paid, and Bormaheco,
Inc. accepted, the sum of P100,000 as earnest money or down
payment. That crucial fact implies that Cervantes was aware that
Villonco Realty Company had accepted the modifications which he had
made in Villonco's counter-offer. Had Villonco Realty Company not
assented to those insertions and annotations, then it would have
stopped payment on its check for P100,000. The fact that Villonco
Realty Company allowed its check to be cashed by Bormaheco, Inc.
signifies that the company was in conformity with the changes made by
Cervantes and that Bormaheco, Inc. was aware of that conformity. Had
those insertions not been binding, then Bormaheco, Inc. would not
have paid interest at the rate of ten percent per annum, on the earnest
money of P100,000.
The truth is that the alleged changes or qualifications in the revised
counter offer (Exh. D) are not material or are mere clarifications of
what the parties had previously agreed upon.
Thus, Cervantes' alleged insertion in his handwriting of the figure and
the words "12th and" in Villonco's counter-offer is the same as the
statement found in the voucher-receipt for the earnest money, which
reads: "subject to the terms and conditions embodied in Bormaheco's
letter of Feb. 12, 1964 and your letter of March 4, 1964" (Exh. E-1).
Cervantes allegedly crossed out the word "Nassco" in paragraph 3 of
Villonco's revised counter-offer and substituted for it the word "another"
so that the original phrase, "Nassco's property in Sta. Ana", was made
to read as "another property in Sta. Ana". That change is trivial. What
Cervantes did was merely to adhere to the wording of paragraph 3 of
Bormaheco's original offer (Exh. B) which mentions "another property
located at Sta. Ana." His obvious purpose was to avoid jeopardizing his
negotiation with the Nassco for the purchase of its Sta. Ana property by
unduly publicizing it.
It is noteworthy that Cervantes, in his letter to the broker dated April 6,
1964 (Annex 1) or after the Nassco property had been awarded to
Bormaheco, Inc., alluded to the "Nassco property". At that time, there
was no more need of concealing from the public that Bormaheco, Inc.
was interested in the Nassco property.
Similarly, Cervantes' alleged insertion of the letters "PA" ( per annum)
after the word "interest" in that same paragraph 3 of the revised
counter-offer (Exh. D) could not be categorized as a major alteration of
that counter-offer that prevented a meeting of the minds of the parties.
It was understood that the parties had contemplated a rate of ten
percent per annum since ten percent a month or semi-annually would
be usurious.

The controlling fact is that there was agreement between the parties on
the subject matter, the price and the mode of payment and that part of
the price was paid. "Whenever earnest money is given in a contract of
sale, it shall be considered as part of the price and as proof of the
perfection of the contract" (Art. 1482, Civil Code).
"It is true that an acceptance may contain a request for certain
changes in the terms of the offer and yet be a binding acceptance. 'So
long as it is clear that the meaning of the acceptance is positively and
unequivocally to accept the offer, whether such request is granted or
not, a contract is formed.' " (Stuart vs. Franklin Life Ins. Co., 165 Fed.
2nd 965, citing Sec. 79, Williston on Contracts).
Thus, it was held that the vendor's change in a phrase of the offer to
purchase, which change does not essentially change the terms of the
offer, does not amount to a rejection of the offer and the tender of a
counter-offer (Stuart vs. Franklin Life Ins. Co., supra).
The instant case is not governed by the rulings laid down in Beaumont
vs. Prieto, 41 Phil. 670, 985, 63 L. Ed. 770, and Zayco vs. Serra, 44
Phil. 326. In those two cases the acceptance radically altered the offer
and, consequently, there was no meeting of the minds of the parties.
Thus, in the Zayco case, Salvador Serra offered to sell to Lorenzo
Zayco his sugar central for P1,000,000 on condition that the price be
paid in cash, or, if not paid in cash, the price would be payable within
three years provided security is given for the payment of the balance
within three years with interest. Zayco, instead of unconditionally
accepting those terms, countered that he was going to make a down
payment of P100,000, that Serra's mortgage obligation to the
Philippine National Bank of P600,000 could be transferred to Zayco's
account and that he (plaintiff) would give a bond to secure the payment
of the balance of the price. It was held that the acceptance was
conditional or was a counter-offer which had to be accepted by Serra.
There was no such acceptance. Serra revoked his offer. Hence, there
was no perfected contract.
In the Beaumont case, Benito Valdes offered to sell to W Borck the
Nagtahan Hacienda owned by Benito Legarda, who had empowered
Valdes to sell it. Borck was given three months from December 4, 1911
to buy the hacienda for P307,000. On January 17, 1912 Borck wrote to
Valdes, offering to purchase the hacienda for P307,000 payable on
May 1, 1912. No reply was made to that letter. Borck wrote other
letters modifying his proposal. Legarda refused to convey the property.
It was held that Borck's January 17th letter plainly departed from the
terms of the offer as to the time of payment and was a counter-offer
which amounted to a rejection of Valdes' original offer. A subsequent
unconditional acceptance could not revive that offer.
The instant case is different from Laudico and Harden vs. Arias
Rodriguez, 43 Phil. 270 where the written offer to sell was revoked by
the offer or before the offeree's acceptance came to the offeror's
knowledge.

Appellants' next contention is that the contract was not perfected


because the condition that Bormaheco, Inc. would acquire the Nassco
land within forty-five days from February 12, 1964 or on or before
March 28, 1964 was not fulfilled. This contention is tied up with the
following letter of Bormaheco, Inc. (Exh. F):
BORMAHECO, INC.
March 30, 1964
Villonco Realty Company
V.R.C. Building
219 Buendia Ave.,
Makati, Rizal
Gentlemen:
We are returning herewith your earnest money
together with interest thereon at 10% per annum.
Please be informed that despite the lapse of the
45 days from February 12, 1964 there is no
certainty yet for us to acquire a substitute property,
hence the return of the earnest money as agreed
upon.
Very truly yours,SGD. FRANCISCO N.
CERVANTES
President
Encl.: P.N.B. Check No. 112994 J
P.N.B. Check No. 112996J
That contention is predicated on the erroneous assumption that
Bormaheco, Inc. was to acquire the Nassco land within forty-five days
or on or before March 28, 1964.
The trial court ruled that the forty-five-day period was merely an
estimate or a forecast of how long it would take Bormaheco, Inc. to
acquire the Nassco property and it was not "a condition or a deadline
set for the defendant corporation to decide whether or not to go
through with the sale of its Buendia property".
The record does not support the theory of Bormaheco, Inc. and the
Cervantes spouses that the forty-five-day period was the time within
which (a) the Nassco property and two Pasong Tamo lots should be
acquired, (b) when Cervantes would secure his wife's consent to the
sale of the three lots and (c) when Bormaheco, Inc. had to decide what
to do with the DBP encumbrance.
Cervantes in paragraph 3 of his offer of February 12, 1964 stated that
the sale of the Buendia lots would be consummated after he had
consummated the purchase of the Nassco property. Then, in
paragraph 5 of the same offer he stated "that final negotiations on both
properties can be definitely known after forty-five days" (See Exh. B).
It is deducible from the tenor of those statements that the
consummation of the sale of the Buendia lots to Villonco Realty
Company was conditioned on Bormaheco's acquisition of the Nassco
land. But it was not spelled out that such acquisition should be effected
within forty-five days from February 12, 1964. Had it been Cervantes'
intention that the forty-five days would be the period within which the
Nassco land should be acquired by Bormaheco, then he would have
specified that period in paragraph 3 of his offer so that paragraph
would read in this wise: "That this sale is to be consummated only after
I shall have consummated my purchase of another property located at

Sta. Ana, Manila within forty-five days from the date hereof ." He could
have also specified that period in his "conforme" to Villonco's counteroffer of March 4, 1964 (Exh. D) so that instead of merely stating "that
this sale shall be subject to favorable consummation of a property in
Sta. Ana we are negotiating" he could have said: "That this sale shall
be subject to favorable consummation within forty-five days from
February 12, 1964 of a property in Sta. Ana we are negotiating".
No such specification was made. The term of forty-five days was not a
part of the condition that the Nassco property should be acquired. It is
clear that the statement "that final negotiations on both property can be
definitely known after 45 days" does not and cannot mean that
Bormaheco, Inc. should acquire the Nassco property within forty-five
days from February 12, 1964 as pretended by Cervantes. It is simply a
surmise that after forty-five days (in fact when the forty-five day period
should be computed is not clear) it would be known whether
Bormaheco, Inc. would be able to acquire the Nassco property and
whether it would be able to sell the Buendia property. That
aforementioned paragraph 5 does not even specify how long after the
forty-five days the outcome of the final negotiations would be known.
It is interesting to note that in paragraph 6 of Bormaheco's answer to
the amended complaint, which answer was verified by Cervantes, it
was alleged that Cervantes accepted Villonco's revised counter-offer of
March 4, 1964 subject to the condition that "the final negotiations
(acceptance) will have to be made by defendant within 45 daysfrom
said acceptance" (31 Record on Appeal). If that were so, then the
consummation of Bormaheco's purchase of the Nassco property would
be made within forty-five days from March 4, 1964.
What makes Bormaheco's stand more confusing and untenable is that
in its three answers it invariably articulated the incoherent and vague
affirmative defense that its acceptance of Villonco's revised counteroffer was conditioned on the circumstance "that final acceptance or not
shall be made after 45 days" whatever that means. That affirmative
defense is inconsistent with the other aforequoted incoherent
statement in its third answer that "the final negotiations (acceptance)
will have to be made by defendant within 45 days from said
acceptance" (31 Record on Appeal).1wph1.t
Thus, Bormaheco's three answers and paragraph 5 of his offer of
February 12, 1964 do not sustain at all its theory that the Nassco
property should be acquired on or before March 28, 1964. Its
rescission or revocation of its acceptance cannot be anchored on that
theory which, as articulated in its pleadings, is quite equivocal and
unclear.
It should be underscored that the condition that Bormaheco, Inc.
should acquire the Nassco property was fulfilled. As admitted by the
appellants, the Nassco property was conveyed to Bormaheco, Inc. on
June 26, 1964. As early as January 17, 1964 the property was
awarded to Bormaheco, Inc. as the highest bidder. On February 18,
1964 the Nassco Board authorized its General Manager to sell the
property to Bormaheco, Inc. (Exh. H). The Economic Coordinator
approved the award on March 24, 1964. It is reasonable to assume
that had Cervantes been more assiduous in following up the
transaction, the Nassco property could have been transferred to
Bormaheco, Inc. on or before March 28, 1964, the supposed last day
of the forty-five-day period.
The appellants, in their fifth assignment of error, argue that
Bormaheco, Inc. cannot be required to sell the three lots in question
because they are conjugal properties of the Cervantes spouses. They
aver that Cervantes in dealing with the Villonco brothers acted as
president of Bormaheco, Inc. and not in his individual capacity and,
therefore, he did not bind the conjugal partnership nor Mrs. Cervantes
who was allegedly opposed to the sale.

Those arguments are not sustainable. It should be remembered that


Cervantes, in rescinding the contract of sale and in returning the
earnest money, cited as an excuse the circumstance that there was no
certainty in Bormaheco's acquisition of the Nassco property (Exh. F
and Annex 1). He did not say that Mrs. Cervantes was opposed to the
sale of the three lots. He did not tell Villonco Realty Company that he
could not bind the conjugal partnership. In truth, he concealed the fact
that the three lots were registered "in the name of FRANCISCO
CERVANTES, Filipino, of legal age, married to Rosario P. Navarro, as
owner thereof in fee simple". He certainly led the Villonco brothers to
believe that as president of Bormaheco, Inc. he could dispose of the
said lots. He inveigled the Villoncos into believing that he had
untrammelled control of Bormaheco, Inc., that Bormaheco, Inc. owned
the lots and that he was invested with adequate authority to sell the
same.

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


forty- five days within which to acquire the Nassco property and "to
negotiate" with the registered owner of the three lots. The absurdity of
that pretension stands out in bold relief when it is borne in mind that
the answers of Bormaheco, Inc. were verified by Cervantes and that
the registered owner of the three lots is Cervantes himself. That
affirmative defense means that Cervantes as president of Bormaheco,
Inc. needed forty-five days in order to "negotiate" with himself
(Cervantes).

Thus, in Bormaheco's offer of February 12, 1964, Cervantes first


identified the three lots as "our property" which "we are offering to
sell ..." (Opening paragraph and par. 1 of Exh. B). Whether the
prounoun "we" refers to himself and his wife or to Bormaheco, Inc. is
not clear. Then, in paragraphs 3 and 4 of the offer, he used the first
person and said: "I shall have consummated my purchase" of the
Nassco property; "... my negotiations with said property" and "I will
return to you your deposit". Those expressions conveyed the
impression and generated the belief that the Villoncos did not have to
deal with Mrs. Cervantes nor with any other official of Bormaheco, Inc.

It is significant to note that Bormaheco, Inc. in its three answers, which


were verified by Cervantes, never pleaded as an affirmative defense
that Mrs. Cervantes opposed the sale of the three lots or that she did
not authorize her husband to sell those lots. Likewise, it should be
noted that in their separate answer the Cervantes spouses never
pleaded as a defense that Mrs. Cervantes was opposed to the sale of
three lots or that Cervantes could not bind the conjugal partnership.
The appellants were at first hesitant to make it appear that Cervantes
had committed the skullduggery of trying to sell property which he had
no authority to alienate.

The pleadings disclose that Bormaheco, Inc. and Cervantes


deliberately and studiously avoided making the allegation that
Cervantes was not authorized by his wife to sell the three lots or that
he acted merely as president of Bormaheco, Inc. That defense was not
interposed so as not to place Cervantes in the ridiculous position of
having acted under false pretenses when he negotiated with the
Villoncos for the sale of the three lots.

It was only during the trial on May 17, 1965 that Cervantes declared on
the witness stand that his wife was opposed to the sale of the three
lots, a defense which, as already stated, was never interposed in the
three answers of Bormaheco, Inc. and in the separate answer of the
Cervantes spouses. That same viewpoint was adopted in defendants'
motion for reconsideration dated November 20, 1965.

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


alleged that "on February 12, 1964, after some prior negotiations, the
defendant (Bormaheco, Inc.) made a formal offer to sell to the plaintiff
the property of the said defendant situated at the abovenamed address
along Buendia Avenue, Makati, Rizal, under the terms of the letteroffer, a copy of which is hereto attached as Annex A hereof", now
Exhibit B (2 Record on Appeal).
That paragraph 2 was not, repeat, was not denied by Bormaheco, Inc.
in its answer dated May 5, 1964. It did not traverse that paragraph 2.
Hence, it was deemed admitted. However, it filed an amended answer
dated May 25, 1964 wherein it denied that it was the owner of the three
lots. It revealed that the three lots "belong and are registered in the
names of the spouses Francisco N. Cervantes and Rosario N.
Cervantes."
The three answers of Bormaheco, Inc. contain the following affirmative
defense:
13. That defendant's insistence to finally decide on
the proposed sale of the land in question after 45
days had not only for its purpose the determination
of its acquisition of the said Sta. Ana (Nassco)
property during the said period, but also to
negotiate with the actual and registered owner of
the parcels of land covered by T.C.T. Nos. 43530,
43531 and 43532 in question which plaintiff was
fully aware that the same were not in the name of
the defendant (sic; Par. 18 of Answer to Amended
Complaint, 10, 18 and 34, Record on Appeal).

The incongruous stance of the Cervantes spouses is also patent in


their answer to the amended complaint. In that answer they disclaimed
knowledge or information of certain allegations which were well-known
to Cervantes as president of Bormaheco, Inc. and which were admitted
in Bormaheco's three answers that were verified by Cervantes.

But that defense must have been an afterthought or was evolved post
litem motam since it was never disclosed in Cervantes' letter of
rescission and in his letter to Miss Tagle (Exh. F and Annex 1).
Moreover, Mrs. Cervantes did not testify at the trial to fortify that
defense which had already been waived for not having been pleaded
(See sec. 2, Rule 9, Rules of Court).
Taking into account the situation of Cervantes vis-a-vis Bormaheco,
Inc. and his wife and the fact that the three lots were entirely occupied
by Bormaheco's building, machinery and equipment and were
mortgaged to the DBP as security for its obligation, and considering
that appellants' vague affirmative defenses do not include Mrs.
Cervantes' alleged opposition to the sale, the plea that Cervantes had
no authority to sell the lots strains the rivets of credibility (Cf. Papa and
Delgado vs. Montenegro, 54 Phil. 331; Riobo vs. Hontiveros, 21 Phil.
31).
"Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith" (Art.
1159, Civil Code). Inasmuch as the sale was perfected and even partly
executed, Bormaheco, Inc., and the Cervantes spouses, as a matter of
justice and good faith, are bound to comply with their contractual
commitments.
Parenthetically, it may be observed that much misunderstanding could
have been avoided had the broker and the buyer taken the trouble of
making some research in the Registry of Deeds and availing
themselves of the services of a competent lawyer in drafting the
contract to sell.
Bormaheco, Inc. and the Cervantes spouses in their sixth assignment
of error assail the trial court's award to Villonco Realty Company of
consequential damage amounting to ten thousand pesos monthly from

March 24, 1964 (when the Economic Coordinator approved the award
of the Nassco property to Bormaheco, Inc.) up to the consummation of
the sale. The award was based on paragraph 18 of the stipulation of
facts wherein Villonco Realty Company "submits that the delay in the
consummation of the sale" has caused it to suffer the aforementioned
damages.
The appellants contend that statement in the stipulation of facts simply
means that Villonco Realty Company speculates that it has suffered
damages but it does not mean that the parties have agreed that
Villonco Realty Company is entitled to those damages.
Appellants' contention is correct. As rightly observed by their counsel,
the damages in question were not specifically pleaded and proven and
were "clearly conjectural and speculative".
However, appellants' view in their seventh assignment of error that the
trial court erred in ordering Bormaheco, Inc. to pay Villonco Realty
Company the sum of twenty thousand pesos as attorney's fees is not
tenable. Under the facts of the case, it is evident that Bormaheco, Inc.
acted in gross and evident bad faith in refusing to satisfy the valid and
just demand of Villonco Realty Company for specific performance. It
compelled Villonco Realty Company to incure expenses to protect its
interest. Moreover, this is a case where it is just and equitable that the
plaintiff should recover attorney's fees (Art. 2208, Civil Code).
The appellants in their eighth assignment of error impugn the trial
court's adjudication of forty-two thousand pesos as three percent
broker's commission to Miss Tagle. They allege that there is no
evidence that Bormaheco, Inc. engaged her services as a broker in the
projected sale of the three lots and the improvements thereon. That
allegation is refuted by paragraph 3 of the stipulation of facts and by
the documentary evidence. It was stipulated that Miss Tagle intervened
in the negotiations for the sale of the three lots. Cervantes in his
original offer of February 12, 1964 apprised Villonco Realty Company
that the earnest money should be delivered to Miss Tagle, the bearer
of the letter-offer. See also Exhibit G and Annex I of the stipulation of
facts.

4. Bormaheco, Inc. is ordered (a) to pay Villonco Realty Company


twenty thousand pesos (P20,000) as attorney's fees and (b) to pay
Edith Perez de Tagle the sum of forty-two thousand pesos (P42,000)
as commission. Costs against the defendants-appellants.
SO ORDERED.
G.R. No. 157493

February 5, 2007

RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and


FERNANDO, ERNESTO, LEONORA, BIBIANO, JR., LIBRADO and
ENRIQUETA, all surnamed OESMER, Petitioners,
vs.
PARAISO DEVELOPMENT CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of
the 1997 Revised Rules of Civil Procedure seeking to reverse and set
aside the Court of Appeals Decision1 dated 26 April 2002 in CA-G.R.
CV No. 53130 entitled, Rizalino, Ernesto, Leonora, Bibiano, Jr.,
Librado, Enriqueta, Adolfo, and Jesus, all surnamed Oesmer vs.
Paraiso Development Corporation, as modified by its Resolution2 dated
4 March 2003, declaring the Contract to Sell valid and binding with
respect to the undivided proportionate shares of the six signatories of
the said document, herein petitioners, namely: Ernesto, Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer);
and ordering them to execute the Deed of Absolute Sale concerning
their 6/8 share over the subject parcels of land in favor of herein
respondent Paraiso Development Corporation, and to pay the latter the
attorneys fees plus costs of the suit. The assailed Decision, as
modified, likewise ordered the respondent to tender payment to the
petitioners in the amount of P3,216,560.00 representing the balance of
the purchase price of the subject parcels of land.
The facts of the case are as follows:

We hold that the trial court did not err in adjudging that Bormaheco,
Inc. should pay Miss Tagle her three percent commission.
WHEREFORE, the trial court's decision is modified as follows:
1. Within ten (10) days from the date the defendants-appellants receive
notice from the clerk of the lower court that the records of this case
have been received from this Court, the spouses Francisco N.
Cervantes and Rosario P. Navarra-Cervantes should execute a deed
conveying to Bormaheco, Inc. their three lots covered by Transfer
Certificate of Title Nos. 43530, 43531 and 43532 of the Registry of
Deeds of Rizal.
2. Within five (5) days from the execution of such deed of conveyance,
Bormaheco, Inc. should execute in favor of Villonco Realty Company,
V. R. C. Building, 219 Buendia Avenue, Makati, Rizal a registerable
deed of sale for the said three lots and all the improvements thereon,
free from all lien and encumbrances, at the price of four hundred pesos
per square meter, deducting from the total purchase price the sum of
P100,000 previously paid by Villonco Realty Company to Bormaheco,
Inc.
3. Upon the execution of such deed of sale, Villonco Realty Company
is obligated to pay Bormaheco, Inc. the balance of the price in the sum
of one million three hundred thousand pesos (P1,300,000).

Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and


Enriqueta, all surnamed Oesmer, together with Adolfo Oesmer (Adolfo)
and Jesus Oesmer (Jesus), are brothers and sisters, and the coowners of undivided shares of two parcels of agricultural and tenanted
land situated in Barangay Ulong Tubig, Carmona, Cavite, identified as
Lot 720 with an area of 40,507 square meters (sq. m.) and Lot 834
containing an area of 14,769 sq. m., or a total land area of 55,276 sq.
m. Both lots are unregistered and originally owned by their parents,
Bibiano Oesmer and Encarnacion Durumpili, who declared the lots for
taxation purposes under Tax Declaration No. 34383(cancelled by I.D.
No. 6064-A) for Lot 720 and Tax Declaration No. 34374 (cancelled by
I.D. No. 5629) for Lot 834. When the spouses Oesmer died,
petitioners, together with Adolfo and Jesus, acquired the lots as heirs
of the former by right of succession.
Respondent Paraiso Development Corporation is known to be
engaged in the real estate business.
Sometime in March 1989, Rogelio Paular, a resident and former
Municipal Secretary of Carmona, Cavite, brought along petitioner
Ernesto to meet with a certain Sotero Lee, President of respondent
Paraiso Development Corporation, at Otani Hotel in Manila. The said
meeting was for the purpose of brokering the sale of petitioners
properties to respondent corporation.

Pursuant to the said meeting, a Contract to Sell5 was drafted by the


Executive Assistant of Sotero Lee, Inocencia Almo. On 1 April 1989,
petitioners Ernesto and Enriqueta signed the aforesaid Contract to
Sell. A check in the amount of P100,000.00, payable to Ernesto, was
given as option money. Sometime thereafter, Rizalino, Leonora,
Bibiano, Jr., and Librado also signed the said Contract to Sell.
However, two of the brothers, Adolfo and Jesus, did not sign the
document.
On 5 April 1989, a duplicate copy of the instrument was returned to
respondent corporation. On 21 April 1989, respondent brought the
same to a notary public for notarization.
In a letter6 dated 1 November 1989, addressed to respondent
corporation, petitioners informed the former of their intention to rescind
the Contract to Sell and to return the amount of P100,000.00 given by
respondent as option money.
Respondent did not respond to the aforesaid letter. On 30 May 1991,
herein petitioners, together with Adolfo and Jesus, filed a
Complaint7 for Declaration of Nullity or for Annulment of Option
Agreement or Contract to Sell with Damages before the Regional Trial
Court (RTC) of Bacoor, Cavite. The said case was docketed as Civil
Case No. BCV-91-49.
During trial, petitioner Rizalino died. Upon motion of petitioners, the
trial court issued an Order,8 dated 16 September 1992, to the effect
that the deceased petitioner be substituted by his surviving spouse,
Josefina O. Oesmer, and his children, Rolando O. Oesmer and
Fernando O. Oesmer. However, the name of Rizalino was retained in
the title of the case both in the RTC and the Court of Appeals.
After trial on the merits, the lower court rendered a Decision9 dated 27
March 1996 in favor of the respondent, the dispositive portion of which
reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of herein [respondent] Paraiso Development Corporation. The
assailed Contract to Sell is valid and binding only to the undivided
proportionate share of the signatory of this document and recipient of
the check, [herein petitioner] co-owner Ernesto Durumpili Oesmer. The
latter is hereby ordered to execute the Contract of Absolute Sale
concerning his 1/8 share over the subject two parcels of land in favor
of herein [respondent] corporation, and to pay the latter the attorneys
fees in the sum of Ten Thousand (P10,000.00) Pesos plus costs of
suit.
The counterclaim of [respondent] corporation is hereby Dismissed for
lack of merit.10
Unsatisfied, respondent appealed the said Decision before the Court of
Appeals. On 26 April 2002, the appellate court rendered a Decision
modifying the Decision of the court a quo by declaring that the Contract
to Sell is valid and binding with respect to the undivided proportionate
shares of the six signatories of the said document, herein petitioners,
namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and
Leonora (all surnamed Oesmer). The decretal portion of the said
Decision states that:
WHEREFORE, premises considered, the Decision of the court a quo is
hereby MODIFIED. Judgment is hereby rendered in favor of herein
[respondent] Paraiso Development Corporation. The assailed Contract
to Sell is valid and binding with respect to the undivided proportionate
share of the six (6) signatories of this document, [herein petitioners],
namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and
Leonora (all surnamed Oesmer). The said [petitioners] are hereby

ordered to execute the Deed of Absolute Sale concerning their 6/8


share over the subject two parcels of land and in favor of herein
[respondent] corporation, and to pay the latter the attorneys fees in the
sum of Ten Thousand Pesos (P10,000.00) plus costs of suit.11
Aggrieved by the above-mentioned Decision, petitioners filed a Motion
for Reconsideration of the same on 2 July 2002. Acting on petitioners
Motion for Reconsideration, the Court of Appeals issued a Resolution
dated 4 March 2003, maintaining its Decision dated 26 April 2002, with
the modification that respondent tender payment to petitioners in the
amount of P3,216,560.00, representing the balance of the purchase
price of the subject parcels of land. The dispositive portion of the said
Resolution reads:
WHEREFORE, premises considered, the assailed Decision is hereby
modified.1awphi1.net Judgment is hereby rendered in favor of herein
[respondent] Paraiso Development Corporation. The assailed Contract
to Sell is valid and binding with respect to the undivided proportionate
shares of the six (6) signatories of this document, [herein petitioners],
namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and
Leonora (all surnamed Oesmer). The said [petitioners] are hereby
ordered to execute the Deed of Absolute Sale concerning their 6/8
share over the subject two parcels of land in favor of herein
[respondent] corporation, and to pay the latter attorneys fees in the
sum of Ten Thousand Pesos (P10,000.00) plus costs of suit.
Respondent is likewise ordered to tender payment to the above-named
[petitioners] in the amount of Three Million Two Hundred Sixteen
Thousand Five Hundred Sixty Pesos (P3,216,560.00) representing the
balance of the purchase price of the subject two parcels of land. 12
Hence, this Petition for Review on Certiorari.
Petitioners come before this Court arguing that the Court of Appeals
erred:
I. On a question of law in not holding that, the supposed
Contract to Sell (Exhibit D) is not binding upon petitioner
Ernesto Oesmers co-owners (herein petitioners Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora).
II. On a question of law in not holding that, the supposed
Contract to Sell (Exhibit D) is void altogether considering that
respondent itself did not sign it as to indicate its consent to
be bound by its terms. Moreover, Exhibit D is really a
unilateral promise to sell without consideration distinct from
the price, and hence, void.
Petitioners assert that the signatures of five of them namely: Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora, on the margins of the
supposed Contract to Sell did not confer authority on petitioner Ernesto
as agent to sell their respective shares in the questioned properties,
and hence, for lack of written authority from the above-named
petitioners to sell their respective shares in the subject parcels of land,
the supposed Contract to Sell is void as to them. Neither do their
signatures signify their consent to directly sell their shares in the
questioned properties. Assuming that the signatures indicate consent,
such consent was merely conditional. The effectivity of the alleged
Contract to Sell was subject to a suspensive condition, which is the
approval of the sale by all the co-owners.
Petitioners also assert that the supposed Contract to Sell (Exhibit D),
contrary to the findings of the Court of Appeals, is not couched in
simple language.
They further claim that the supposed Contract to Sell does not bind the
respondent because the latter did not sign the said contract as to

indicate its consent to be bound by its terms. Furthermore, they


maintain that the supposed Contract to Sell is really a unilateral
promise to sell and the option money does not bind petitioners for lack
of cause or consideration distinct from the purchase price.
The Petition is bereft of merit.
It is true that the signatures of the five petitioners, namely: Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora, on the Contract to Sell did
not confer authority on petitioner Ernesto as agent authorized to sell
their respective shares in the questioned properties because of Article
1874 of the Civil Code, which expressly provides that:
Art. 1874. When a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.
The law itself explicitly requires a written authority before an agent can
sell an immovable. The conferment of such an authority should be in
writing, in as clear and precise terms as possible. It is worth noting that
petitioners signatures are found in the Contract to Sell. The Contract is
absolutely silent on the establishment of any principal-agent
relationship between the five petitioners and their brother and copetitioner Ernesto as to the sale of the subject parcels of land. Thus,
the Contract to Sell, although signed on the margin by the five
petitioners, is not sufficient to confer authority on petitioner Ernesto to
act as their agent in selling their shares in the properties in question.
However, despite petitioner Ernestos lack of written authority from the
five petitioners to sell their shares in the subject parcels of land, the
supposed Contract to Sell remains valid and binding upon the latter.
As can be clearly gleaned from the contract itself, it is not only
petitioner Ernesto who signed the said Contract to Sell; the other five
petitioners also personally affixed their signatures thereon. Therefore,
a written authority is no longer necessary in order to sell their shares in
the subject parcels of land because, by affixing their signatures on the
Contract to Sell, they were not selling their shares through an agent
but, rather, they were selling the same directly and in their own right.
The Court also finds untenable the following arguments raised by
petitioners to the effect that the Contract to Sell is not binding upon
them, except to Ernesto, because: (1) the signatures of five of the
petitioners do not signify their consent to sell their shares in the
questioned properties since petitioner Enriqueta merely signed as a
witness to the said Contract to Sell, and that the other petitioners,
namely: Librado, Rizalino, Leonora, and Bibiano, Jr., did not
understand the importance and consequences of their action because
of their low degree of education and the contents of the aforesaid
contract were not read nor explained to them; and (2) assuming that
the signatures indicate consent, such consent was merely conditional,
thus, the effectivity of the alleged Contract to Sell was subject to a
suspensive condition, which is the approval by all the co-owners of the
sale.
It is well-settled that contracts are perfected by mere consent, upon the
acceptance by the offeree of the offer made by the offeror. From that
moment, the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and
law. To produce a contract, the acceptance must not qualify the terms
of the offer. However, the acceptance may be express or implied. For a
contract to arise, the acceptance must be made known to the offeror.
Accordingly, the acceptance can be withdrawn or revoked before it is
made known to the offeror.13

In the case at bar, the Contract to Sell was perfected when the
petitioners consented to the sale to the respondent of their shares in
the subject parcels of land by affixing their signatures on the said
contract. Such signatures show their acceptance of what has been
stipulated in the Contract to Sell and such acceptance was made
known to respondent corporation when the duplicate copy of the
Contract to Sell was returned to the latter bearing petitioners
signatures.
As to petitioner Enriquetas claim that she merely signed as a witness
to the said contract, the contract itself does not say so. There was no
single indication in the said contract that she signed the same merely
as a witness. The fact that her signature appears on the right-hand
margin of the Contract to Sell is insignificant. The contract indisputably
referred to the "Heirs of Bibiano and Encarnacion Oesmer," and since
there is no showing that Enriqueta signed the document in some other
capacity, it can be safely assumed that she did so as one of the parties
to the sale.
Emphasis should also be given to the fact that petitioners Ernesto and
Enriqueta concurrently signed the Contract to Sell. As the Court of
Appeals mentioned in its Decision,14 the records of the case speak of
the fact that petitioner Ernesto, together with petitioner Enriqueta, met
with the representatives of the respondent in order to finalize the terms
and conditions of the Contract to Sell. Enriqueta affixed her signature
on the said contract when the same was drafted. She even admitted
that she understood the undertaking that she and petitioner Ernesto
made in connection with the contract. She likewise disclosed that
pursuant to the terms embodied in the Contract to Sell, she updated
the payment of the real property taxes and transferred the Tax
Declarations of the questioned properties in her name.15 Hence, it
cannot be gainsaid that she merely signed the Contract to Sell as a
witness because she did not only actively participate in the negotiation
and execution of the same, but her subsequent actions also reveal an
attempt to comply with the conditions in the said contract.
With respect to the other petitioners assertion that they did not
understand the importance and consequences of their action because
of their low degree of education and because the contents of the
aforesaid contract were not read nor explained to them, the same
cannot be sustained.
We only have to quote the pertinent portions of the Court of Appeals
Decision, clear and concise, to dispose of this issue. Thus,
First, the Contract to Sell is couched in such a simple language which
is undoubtedly easy to read and understand. The terms of the
Contract, specifically the amount of P100,000.00 representing the
option money paid by [respondent] corporation, the purchase price
of P60.00 per square meter or the total amount ofP3,316,560.00 and a
brief description of the subject properties are well-indicated thereon
that any prudent and mature man would have known the nature and
extent of the transaction encapsulated in the document that he was
signing.
Second, the following circumstances, as testified by the witnesses and
as can be gleaned from the records of the case clearly indicate the
[petitioners] intention to be bound by the stipulations chronicled in the
said Contract to Sell.
As to [petitioner] Ernesto, there is no dispute as to his intention to
effect the alienation of the subject property as he in fact was the one
who initiated the negotiation process and culminated the same by
affixing his signature on the Contract to Sell and by taking receipt of
the amount of P100,000.00 which formed part of the purchase price.
xxxx

As to [petitioner] Librado, the [appellate court] finds it preposterous that


he willingly affixed his signature on a document written in a language
(English) that he purportedly does not understand. He testified that the
document was just brought to him by an 18 year old niece named Baby
and he was told that the document was for a check to be paid to him.
He readily signed the Contract to Sell without consulting his other
siblings. Thereafter, he exerted no effort in communicating with his
brothers and sisters regarding the document which he had signed, did
not inquire what the check was for and did not thereafter ask for the
check which is purportedly due to him as a result of his signing the said
Contract to Sell. (TSN, 28 September 1993, pp. 22-23)
The [appellate court] notes that Librado is a 43 year old family man
(TSN, 28 September 1993, p. 19). As such, he is expected to act with
that ordinary degree of care and prudence expected of a good father of
a family. His unwitting testimony is just divinely disbelieving.
The other [petitioners] (Rizalino, Leonora and Bibiano Jr.) are likewise
bound by the said Contract to Sell. The theory adopted by the
[petitioners] that because of their low degree of education, they did not
understand the contents of the said Contract to Sell is devoid of merit.
The [appellate court] also notes that Adolfo (one of the co-heirs who
did not sign) also possess the same degree of education as that of the
signing co-heirs (TSN, 15 October 1991, p. 19). He, however, is
employed at the Provincial Treasury Office at Trece Martirez, Cavite
and has even accompanied Rogelio Paular to the Assessors Office to
locate certain missing documents which were needed to transfer the
titles of the subject properties. (TSN, 28 January 1994, pp. 26 & 35)
Similarly, the other co-heirs [petitioners], like Adolfo, are far from
ignorant, more so, illiterate that they can be extricated from their
obligations under the Contract to Sell which they voluntarily and
knowingly entered into with the [respondent] corporation.
The Supreme Court in the case of Cecilia Mata v. Court of Appeals
(207 SCRA 753 [1992]), citing the case of Tan Sua Sia v. Yu Baio
Sontua (56 Phil. 711), instructively ruled as follows:
"The Court does not accept the petitioners claim that she did not
understand the terms and conditions of the transactions because she
only reached Grade Three and was already 63 years of age when she
signed the documents. She was literate, to begin with, and her age did
not make her senile or incompetent. x x x.
At any rate, Metrobank had no obligation to explain the documents to
the petitioner as nowhere has it been proven that she is unable to read
or that the contracts were written in a language not known to her. It
was her responsibility to inform herself of the meaning and
consequence of the contracts she was signing and, if she found them
difficult to comprehend, to consult other persons, preferably lawyers, to
explain them to her. After all, the transactions involved not only a few
hundred or thousand pesos but, indeed, hundreds of thousands of
pesos.

heirs consented to the said Contract to Sell, was unveiled by Adolfos


testimony as follows:
ATTY. GAMO: This alleged agreement between you and your other
brothers and sisters that unless everybody will agree, the properties
would not be sold, was that agreement in writing?
WITNESS: No sir.
ATTY. GAMO: What you are saying is that when your brothers and
sisters except Jesus and you did not sign that agreement which had
been marked as [Exhibit] "D", your brothers and sisters were grossly
violating your agreement.
WITNESS: Yes, sir, they violated what we have agreed upon.17
We also cannot sustain the allegation of the petitioners that assuming
the signatures indicate consent, such consent was merely conditional,
and that, the effectivity of the alleged Contract to Sell was subject to
the suspensive condition that the sale be approved by all the coowners. The Contract to Sell is clear enough. It is a cardinal rule in the
interpretation of contracts that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulation shall control.18 The terms of the Contract to
Sell made no mention of the condition that before it can become valid
and binding, a unanimous consent of all the heirs is necessary. Thus,
when the language of the contract is explicit, as in the present case,
leaving no doubt as to the intention of the parties thereto, the literal
meaning of its stipulation is controlling.
In addition, the petitioners, being owners of their respective undivided
shares in the subject properties, can dispose of their shares even
without the consent of all the co-heirs. Article 493 of the Civil Code
expressly provides:
Article 493. Each co-owner shall have the full ownership of his part and
of the fruits and benefits pertaining thereto, and he may
therefore alienate, assign or mortgage it, and even substitute
another person in its enjoyment, except when personal rights are
involved. But the effect of the alienation or the mortgage, with respect
to the co-owners, shall be limited to the portion which may be allotted
to him in the division upon the termination of the co-ownership.
[Emphases supplied.]
Consequently, even without the consent of the two co-heirs, Adolfo and
Jesus, the Contract to Sell is still valid and binding with respect to the
6/8 proportionate shares of the petitioners, as properly held by the
appellate court.
Therefore, this Court finds no error in the findings of the Court of
Appeals that all the petitioners who were signatories in the Contract to
Sell are bound thereby.

As the Court has held:


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

The final arguments of petitioners state that the Contract to Sell is void
altogether considering that respondent itself did not sign it as to
indicate its consent to be bound by its terms; and moreover, the
Contract to Sell is really a unilateral promise to sell without
consideration distinct from the price, and hence, again, void. Said
arguments must necessarily fail.
The Contract to Sell is not void merely because it does not bear the
signature of the respondent corporation. Respondent corporations
consent to be bound by the terms of the contract is shown in the
uncontroverted facts which established that there was partial
performance by respondent of its obligation in the said Contract to Sell
when it tendered the amount of P100,000.00 to form part of the

purchase price, which was accepted and acknowledged expressly by


petitioners. Therefore, by force of law, respondent is required to
complete the payment to enforce the terms of the contract.
Accordingly, despite the absence of respondents signature in the
Contract to Sell, the former cannot evade its obligation to pay the
balance of the purchase price.
As a final point, the Contract to Sell entered into by the parties is not a
unilateral promise to sell merely because it used the word option
money when it referred to the amount of P100,000.00, which also form
part of the purchase price.
Settled is the rule that in the interpretation of contracts, the
ascertainment of the intention of the contracting parties is to be
discharged by looking to the words they used to project that intention in
their contract, all the words, not just a particular word or two, and
words in context, not words standing alone.19
In the instant case, the consideration of P100,000.00 paid by
respondent to petitioners was referred to as "option money." However,
a careful examination of the words used in the contract indicates that
the money is not option money but earnest money. "Earnest money"
and "option money" are not the same but distinguished thus: (a)
earnest money is part of the purchase price, while option money is the
money given as a distinct consideration for an option contract; (b)
earnest money is given only where there is already a sale, while option
money applies to a sale not yet perfected; and, (c) when earnest
money is given, the buyer is bound to pay the balance, while when the
would-be buyer gives option money, he is not required to buy, but may
even forfeit it depending on the terms of the option.20
The sum of P100,000.00 was part of the purchase price. Although the
same was denominated as "option money," it is actually in the nature of
earnest money or down payment when considered with the other terms
of the contract. Doubtless, the agreement is not a mere unilateral
promise to sell, but, indeed, it is a Contract to Sell as both the trial
court and the appellate court declared in their Decisions.
WHEREFORE, premises considered, the Petition is DENIED, and the
Decision and Resolution of the Court of Appeals dated 26 April 2002
and 4 March 2003, respectively, are AFFIRMED, thus, (a) the Contract
to Sell isDECLARED valid and binding with respect to the undivided
proportionate shares in the subject parcels of land of the six
signatories of the said document, herein petitioners Ernesto, Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer); (b)
respondent is ORDERED to tender payment to petitioners in the
amount ofP3,216,560.00 representing the balance of the purchase
price for the latters shares in the subject parcels of land; and (c)
petitioners are further ORDERED to execute in favor of respondent the
Deed of Absolute Sale covering their shares in the subject parcels of
land after receipt of the balance of the purchase price, and to pay
respondent attorneys fees plus costs of the suit. Costs against
petitioners.
SO ORDERED.
G.R. No. 160132

April 17, 2009

SERAFIN, RAUL, NENITA, NAZARETO, NEOLANDA, all surnamed


NARANJA, AMELIA NARANJA-RUBINOS, NILDA NARANJALIMANA, and NAIDA NARANJA-GICANO, Petitioners,
vs.
COURT OF APPEALS, LUCILIA P. BELARDO, represented by her
Attorney-in-Fact, REBECCA CORDERO, and THE LOCAL
REGISTER OF DEEDS, BACOLOD CITY, Respondents.

DECISION
NACHURA, J.:
This petition seeks a review of the Court of Appeals (CA)
Decision1 dated September 13, 2002 and Resolution2dated September
24, 2003 which upheld the contract of sale executed by petitioners
predecessor, Roque Naranja, during his lifetime, over two real
properties.
Roque Naranja was the registered owner of a parcel of land,
denominated as Lot No. 4 in Consolidation-Subdivision Plan (LRC)
Pcs-886, Bacolod Cadastre, with an area of 136 square meters and
covered by Transfer Certificate of Title (TCT) No. T-18764. Roque was
also a co-owner of an adjacent lot, Lot No. 2, of the same subdivision
plan, which he co-owned with his brothers, Gabino and Placido
Naranja. When Placido died, his one-third share was inherited by his
children, Nenita, Nazareto, Nilda, Naida and Neolanda, all surnamed
Naranja, herein petitioners. Lot No. 2 is covered by TCT No. T-18762
in the names of Roque, Gabino and the said children of Placido. TCT
No. T-18762 remained even after Gabino died. The other petitioners
Serafin Naranja, Raul Naranja, and Amelia Naranja-Rubinos are the
children of Gabino.3
The two lots were being leased by Esso Standard Eastern, Inc. for 30
years from 1962-1992. For his properties, Roque was being
paid P200.00 per month by the company.4
In 1976, Roque, who was single and had no children, lived with his half
sister, Lucilia P. Belardo (Belardo), in Pontevedra, Negros Occidental.
At that time, a catheter was attached to Roques body to help him
urinate. But the catheter was subsequently removed when Roque was
already able to urinate normally. Other than this and the influenza prior
to his death, Roque had been physically sound.5
Roque had no other source of income except for the P200.00 monthly
rental of his two properties. To show his gratitude to Belardo, Roque
sold Lot No. 4 and his one-third share in Lot No. 2 to Belardo on
August 21, 1981, through a Deed of Sale of Real Property which was
duly notarized by Atty. Eugenio Sanicas. The Deed of Sale reads:
I, ROQUE NARANJA, of legal age, single, Filipino and a resident of
Bacolod City, do hereby declare that I am the registered owner of Lot
No. 4 of the Cadastral Survey of the City of Bacolod, consisting of 136
square meters, more or less, covered by Transfer Certificate of Title
No. T-18764 and a co-owner of Lot No. 2, situated at the City of
Bacolod, consisting of 151 square meters, more or less, covered by
Transfer Certificate of Title No. T-18762 and my share in the aforesaid
Lot No. 2 is one-third share.
That for and in consideration of the sum of TEN THOUSAND PESOS
(P10,000.00), Philippine Currency, and other valuable consideration,
receipt of which in full I hereby acknowledge to my entire satisfaction,
by these presents, I hereby transfer and convey by way of absolute
sale the above-mentioned Lot No. 4 consisting of 136 square meters
covered by Transfer Certificate of Title No. T-18764 and my one-third
share in Lot No. 2, covered by Transfer Certificate of Title No. T-18762,
in favor of my sister LUCILIA P. BELARDO, of legal age, Filipino
citizen, married to Alfonso D. Belardo, and a resident of Pontevedra,
Negros Occidental, her heirs, successors and assigns.
IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of
August, 1981 at Bacolod City, Philippines.
(SGD.)
ROQUE NARANJA6

Roques copies of TCT No. T-18764 and TCT No. T-18762 were
entrusted to Atty. Sanicas for registration of the deed of sale and
transfer of the titles to Belardo. But the deed of sale could not be
registered because Belardo did not have the money to pay for the
registration fees.7
Belardos only source of income was her store and coffee shop.
Sometimes, her children would give her money to help with the
household expenses, including the expenses incurred for Roques
support. At times, she would also borrow money from Margarita Demaala, a neighbor.8 When the amount of her loan reached P15,000.00,
Dema-ala required a security. On November 19, 1983, Roque
executed a deed of sale in favor of Dema-ala, covering his two
properties in consideration of the P15,000.00 outstanding loan and an
additional P15,000.00, for a total ofP30,000.00. Dema-ala explained
that she wanted Roque to execute the deed of sale himself since the
properties were still in his name. Belardo merely acted as a witness.
The titles to the properties were given to Dema-ala for safekeeping.9
Three days later, or on December 2, 1983, Roque died of influenza.
The proceeds of the loan were used for his treatment while the rest
was spent for his burial.10
In 1985, Belardo fully paid the loan secured by the second deed of
sale. Dema-ala returned the certificates of title to Belardo, who, in turn,
gave them back to Atty. Sanicas.11

annotation of the Deed of Sale on TCT No. T-18762. This case was
docketed as Civil Case No. 7214.
On March 5, 1997, the RTC rendered a Decision in the consolidated
cases in favor of petitioners. The trial court noted that the Deed of Sale
was defective in form since it did not contain a technical description of
the subject properties but merely indicated that they were Lot No. 4,
covered by TCT No. T-18764 consisting of 136 square meters, and
one-third portion of Lot No. 2 covered by TCT No. T-18762. The trial
court held that, being defective in form, the Deed of Sale did not vest
title in private respondent. Full and absolute ownership did not pass to
private respondent because she failed to register the Deed of Sale.
She was not a purchaser in good faith since she acted as a witness to
the second sale of the property knowing that she had already
purchased the property from Roque. Whatever rights private
respondent had over the properties could not be superior to the rights
of petitioners, who are now the registered owners of the parcels of
land. The RTC disposed, thus:
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered:
1. Dismissing Civil Case No. 7144.
2. Civil Case No. 7214.
a) Declaring the Deed of Sale dated August 21,
1981, executed by Roque Naranja, covering his
one-third (1/3) share of Lot 2 of the consolidationsubdivision plan (LRC) Pcs-886, being a portion of
the consolidation of Lots 240-A, 240-B, 240-C and
240-D, described on plan, Psd-33443 (LRC)
GLRO Cad. Rec. No. 55 in favor of Lucilia
Belardo, and entered as Doc. No. 80, Page 17,
Book No. XXXVI, Series of 1981 of Notary Public
Eugenio Sanicas of Bacolod City, as null and void
and of no force and effect;

Unknown to Belardo, petitioners, the children of Placido and Gabino


Naranja, executed an Extrajudicial Settlement Among Heirs12 on
October 11, 1985, adjudicating among themselves Lot No. 4. On
February 19, 1986, petitioner Amelia Naranja-Rubinos, accompanied
by Belardo, borrowed the two TCTs, together with the lease agreement
with Esso Standard Eastern, Inc., from Atty. Sanicas on account of the
loan being proposed by Belardo to her. Thereafter, petitioners had the
Extrajudicial Settlement Among Heirs notarized on February 25, 1986.
With Roques copy of TCT No. T-18764 in their possession, they
succeeded in having it cancelled and a new certificate of title, TCT No.
T-140184, issued in their names.13

b) Ordering the Register of Deeds of Bacolod City


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

In 1987, Belardo decided to register the Deed of Sale dated August 21,
1981. With no title in hand, she was compelled to file a petition with the
RTC to direct the Register of Deeds to annotate the deed of sale even
without a copy of the TCTs. In an Order dated June 18, 1987, the RTC
granted the petition. But she only succeeded in registering the deed of
sale in TCT No. T-18762 because TCT No. T-18764 had already been
cancelled.14
On December 11, 1989, Atty. Sanicas prepared a certificate of
authorization, giving Belardos daughter, Jennelyn P. Vargas, the
authority to collect the payments from Esso Standard Eastern, Inc. But
it appeared from the companys Advice of Fixed Payment that payment
of the lease rental had already been transferred from Belardo to Amelia
Naranja-Rubinos because of the Extrajudicial Settlement Among Heirs.
On June 23, 1992, Belardo,15 through her daughter and attorney-infact, Rebecca Cordero, instituted a suit for reconveyance with
damages. The complaint prayed that judgment be rendered declaring
Belardo as the sole legal owner of Lot No. 4, declaring null and void
the Extrajudicial Settlement Among Heirs, and TCT No. T-140184, and
ordering petitioners to reconvey to her the subject property and to pay
damages. The case was docketed as Civil Case No. 7144.
Subsequently, petitioners also filed a case against respondent for
annulment of sale and quieting of title with damages, praying, among
others, that judgment be rendered nullifying the Deed of Sale, and
ordering the Register of Deeds of Bacolod City to cancel the

c) Ordering Lucilia Belardo or her successors-ininterest to pay plaintiffs the sum of P20,000.00 as
attorneys fees, the amount of P500.00 as
appearance fees.
Counterclaims in both Civil Cases Nos. 7144 and 7214 are hereby
DISMISSED.
SO ORDERED.16
On September 13, 2002, the CA reversed the RTC Decision. The CA
held that the unregisterability of a deed of sale will not undermine its
validity and efficacy in transferring ownership of the properties to
private respondent. The CA noted that the records were devoid of any
proof evidencing the alleged vitiation of Roques consent to the sale;
hence, there is no reason to invalidate the sale. Registration is only
necessary to bind third parties, which petitioners, being the heirs of
Roque Naranja, are not. The trial court erred in applying Article 1544 of
the Civil Code to the case at bar since petitioners are not purchasers of
the said properties. Hence, it is not significant that private respondent
failed to register the deed of sale before the extrajudicial settlement
among the heirs. The dispositive portion of the CA Decision reads:

WHEREFORE, the decision dated March 5, 1997 in Civil Cases Nos.


7144 and 7214 is hereby REVERSED and SET ASIDE. In lieu thereof,
judgment is hereby rendered as follows:
1. Civil Case No. 7214 is hereby ordered DISMISSED for
lack of cause of action.
2. In Civil Case No. 7144, the extrajudicial settlement
executed by the heirs of Roque Naranja adjudicating among
themselves Lot No. 4 of the consolidation-subdivision plan
(LRC) Pcs 886 of the Bacolod Cadastre is hereby declared
null and void for want of factual and legal basis. The
certificate of title issued to the heirs of Roque Naranja
(Transfer Certificate of [T]i[t]le No. T-140184) as a
consequence of the void extra-judicial settlement is hereby
ordered cancelled and the previous title to Lot No. 4,
Transfer Certificate of Title No. T-18764, is hereby ordered
reinstated. Lucilia Belardo is hereby declared the sole and
legal owner of said Lot No. 4, and one-third of Lot No. 2 of
the same consolidation-subdivision plan, Bacolod Cadastre,
by virtue of the deed of sale thereof in her favor dated
August 21, 1981.
SO ORDERED.17
The CA denied petitioners motion for reconsideration on September
24, 2003.18 Petitioners filed this petition for review, raising the following
issues:
1. WHETHER OR NOT THE HONORABLE RESPONDENT
COURT OF APPEALS IS CORRECT IN IGNORING THE
POINT RAISED BY [PETITIONERS] THAT THE DEED OF
SALE WHICH DOES NOT COMPL[Y] WITH THE
PROVISIONS OF ACT NO. 496 IS [NOT] VALID.
2. WHETHER OR NOT THE ALLEGED DEED OF SALE [OF
REAL PROPERTIES] IS VALID CONSIDERING THAT THE
CONSENT OF THE LATE ROQUE NARANJA HAD BEEN
VITIATED; x x x THERE [IS] NO CONCLUSIVE SHOWING
THAT THERE WAS CONSIDERATION AND THERE [ARE]
SERIOUS IRREGULARITIES IN THE NOTARIZATION OF
THE SAID DOCUMENTS.19
In her Comment, private respondent questioned the Verification and
Certification of Non-Forum Shopping attached to the Petition for
Review, which was signed by a certain Ernesto Villadelgado without a
special power of attorney. In their reply, petitioners remedied the defect
by attaching a Special Power of Attorney signed by them.
Pursuant to its policy to encourage full adjudication of the merits of an
appeal, the Court had previously excused the late submission of a
special power of attorney to sign a certification against forumshopping.20 But even if we excuse this defect, the petition nonetheless
fails on the merits.
The Court does not agree with petitioners contention that a deed of
sale must contain a technical description of the subject property in
order to be valid. Petitioners anchor their theory on Section 127 of Act
No. 496,21 which provides a sample form of a deed of sale that
includes, in particular, a technical description of the subject property.
To be valid, a contract of sale need not contain a technical description
of the subject property. Contracts of sale of real property have no
prescribed form for their validity; they follow the general rule on
contracts that they may be entered into in whatever form, provided all
the essential requisites for their validity are present.22 The requisites of

a valid contract of sale under Article 1458 of the Civil Code are: (1)
consent or meeting of the minds; (2) determinate subject matter; and
(3) price certain in money or its equivalent.
The failure of the parties to specify with absolute clarity the object of a
contract by including its technical description is of no moment. What is
important is that there is, in fact, an object that is determinate or at
least determinable, as subject of the contract of sale. The form of a
deed of sale provided in Section 127 of Act No. 496 is only a
suggested form. It is not a mandatory form that must be strictly
followed by the parties to a contract.
In the instant case, the deed of sale clearly identifies the subject
properties by indicating their respective lot numbers, lot areas, and the
certificate of title covering them. Resort can always be made to the
technical description as stated in the certificates of title covering the
two properties.
On the alleged nullity of the deed of sale, we hold that petitioners failed
to submit sufficient proof to show that Roque executed the deed of sale
under the undue influence of Belardo or that the deed of sale was
simulated or without consideration.1avvphi1
A notarized document carries the evidentiary weight conferred upon it
with respect to its due execution, and documents acknowledged before
a notary public have in their favor the presumption of regularity. It must
be sustained in full force and effect so long as he who impugns it does
not present strong, complete, and conclusive proof of its falsity or
nullity on account of some flaws or defects provided by law.23
Petitioners allege that Belardo unduly influenced Roque, who was
already physically weak and senile at that time, into executing the deed
of sale. Belardo allegedly took advantage of the fact that Roque was
living in her house and was dependent on her for support.
There is undue influence when a person takes improper advantage of
his power over the will of another, depriving the latter of a reasonable
freedom of choice.24 One who alleges any defect, or the lack of
consent to a contract by reason of fraud or undue influence, must
establish by full, clear and convincing evidence, such specific acts that
vitiated the partys consent; otherwise, the latters presumed consent to
the contract prevails.25 For undue influence to be present, the influence
exerted must have so overpowered or subjugated the mind of a
contracting party as to destroy his free agency, making him express
the will of another rather than his own.26
Petitioners adduced no proof that Roque had lost control of his mental
faculties at the time of the sale. Undue influence is not to be inferred
from age, sickness, or debility of body, if sufficient intelligence
remains.27 The evidence presented pertained more to Roques physical
condition rather than his mental condition. On the contrary, Atty.
Sanicas, the notary public, attested that Roque was very healthy and
mentally sound and sharp at the time of the execution of the deed of
sale. Atty. Sanicas said that Roque also told him that he was a Law
graduate.28
Neither was the contract simulated. The late registration of the Deed of
Sale and Roques execution of the second deed of sale in favor of
Dema-ala did not mean that the contract was simulated. We are
convinced with the explanation given by respondents witnesses that
the deed of sale was not immediately registered because Belardo did
not have the money to pay for the fees. This explanation is, in fact,
plausible considering that Belardo could barely support herself and her
brother, Roque. As for the second deed of sale, Dema-ala, herself,
attested before the trial court that she let Roque sign the second deed
of sale because the title to the properties were still in his name.

Finally, petitioners argue that the Deed of Sale was not supported by a
consideration since no receipt was shown, and it is incredulous that
Roque, who was already weak, would travel to Bacolod City just to be
able to execute the Deed of Sale.
The Deed of Sale which states "receipt of which in full I hereby
acknowledge to my entire satisfaction" is an acknowledgment receipt in
itself. Moreover, the presumption that a contract has sufficient
consideration cannot be overthrown by a mere assertion that it has no
consideration.29
Heirs are bound by contracts entered into by their predecessors-ininterest.30 As heirs of Roque, petitioners are bound by the contract of
sale that Roque executed in favor of Belardo. Having been sold
already to Belardo, the two properties no longer formed part of
Roques estate which petitioners could have inherited. The deed of
extrajudicial settlement that petitioners executed over Lot No. 4 is,
therefore, void, since the property subject thereof did not become part
of Roques estate.

(a) Ordering the defendants to deliver to the


plaintiff the parcel of land subject of this case,
declared in the name of Segundo Dalion
previously under Tax Declaration No. 11148 and
lately under Tax Declaration No. 2297 (1974) and
to execute the corresponding formal deed of
conveyance in a public document in favor of the
plaintiff of the said property subject of this case,
otherwise, should defendants for any reason fail to
do so, the deed shall be executed in their behalf
by the Provincial Sheriff or his Deputy;
(b) Ordering the defendants to pay plaintiff the
amount of P2,000.00 as attorney's fees and P
500.00 as litigation expenses, and to pay the
costs; and
(c) Dismissing the counter-claim. (p. 38, Rollo)
The facts of the case are as follows:

WHEREFORE, premises considered, the petition is DENIED. The


Court of Appeals Decision dated September 13, 2002 and Resolution
dated September 24, 2003 are AFFIRMED.
SO ORDERED.
G.R. No. 78903 February 28, 1990
SPS. SEGUNDO DALION AND EPIFANIA SABESAJEDALION, petitioners,
vs.
THE HONORABLE COURT OF APPEALS AND RUPERTO
SABESAJE, JR., respondents.
Francisco A. Puray, Sr. for petitioners.
Gabriel N. Duazo for private respondent.

MEDIALDEA, J.:
This is a petition to annul and set aside the decision of the Court of
Appeals rendered on May 26, 1987, upholding the validity of the sale
of a parcel of land by petitioner Segundo Dalion (hereafter, "Dalion") in
favor of private respondent Ruperto Sabesaje, Jr. (hereafter,
"Sabesaje"), described thus:
A parcel of land located at Panyawan, Sogod,
Southern Leyte, declared in the name of Segundo
Dalion, under Tax Declaration No. 11148, with an
area of 8947 hectares, assessed at P 180.00, and
bounded on the North, by Sergio Destriza and
Titon Veloso, East, by Feliciano Destriza, by
Barbara Bonesa (sic); and West, by Catalino
Espina. (pp. 36-37, Rollo)
The decision affirms in toto the ruling of the trial court 1 issued on
January 17, 1984, the dispositive portion of which provides as follows:
WHEREFORE, IN VIEW OF THE FOREGOING,
the Court hereby renders judgment.

On May 28, 1973, Sabesaje sued to recover ownership of a parcel of


land, based on a private document of absolute sale, dated July 1, 1965
(Exhibit "A"), allegedly executed by Dalion, who, however denied the
fact of sale, contending that the document sued upon is fictitious, his
signature thereon, a forgery, and that subject land is conjugal property,
which he and his wife acquired in 1960 from Saturnina Sabesaje as
evidenced by the "Escritura de Venta Absoluta" (Exhibit "B"). The
spouses denied claims of Sabesaje that after executing a deed of sale
over the parcel of land, they had pleaded with Sabesaje, their relative,
to be allowed to administer the land because Dalion did not have any
means of livelihood. They admitted, however, administering since
1958, five (5) parcels of land in Sogod, Southern Leyte, which
belonged to Leonardo Sabesaje, grandfather of Sabesaje, who died in
1956. They never received their agreed 10% and 15% commission on
the sales of copra and abaca, respectively. Sabesaje's suit, they
countered, was intended merely to harass, preempt and forestall
Dalion's threat to sue for these unpaid commissions.
From the adverse decision of the trial court, Dalion appealed,
assigning errors some of which, however, were disregarded by the
appellate court, not having been raised in the court below. While the
Court of Appeals duly recognizes Our authority to review matters even
if not assigned as errors in the appeal, We are not inclined to do so
since a review of the case at bar reveals that the lower court has
judicially decided the case on its merits.
As to the controversy regarding the identity of the land, We have no
reason to dispute the Court of Appeals' findings as follows:
To be sure, the parcel of land described in Exhibit
"A" is the same property deeded out in Exhibit "B".
The boundaries delineating it from adjacent lots
are identical. Both documents detail out the
following boundaries, to wit:
On the North-property of Sergio Destriza and Titon
Veloso;
On the East-property of Feliciano Destriza;
On the South-property of Barbara Boniza and
On the West-Catalino Espina.

(pp. 41-42, Rollo)


The issues in this case may thus be limited to: a) the validity of the
contract of sale of a parcel of land and b) the necessity of a public
document for transfer of ownership thereto.
The appellate court upheld the validity of the sale on the basis of Secs.
21 and 23 of Rule 132 of the Revised Rules of Court.
SEC. 21. Private writing, its execution and
authenticity, how proved.-Before any private
writing may be received in evidence, its due
execution and authenticity must be proved either:
(a) By anyone who saw the writing executed;
(b) By evidence of the genuineness of the
handwriting of the maker; or
(c) By a subscribing witness
xxx xxx xxx
SEC. 23. Handwriting, how proved. The
handwriting of a person may be proved by any
witness who believes it to be the handwriting of
such person, and has seen the person write, or
has seen writing purporting to be his upon which
the witness has acted or been charged, and has
thus acquired knowledge of the handwriting of
such person. Evidence respecting the handwriting
may also be given by a comparison, made by the
witness or the court, with writings admitted or
treated as genuine by the party against whom the
evidence is offered, or proved to be genuine to the
satisfaction of the judge. (Rule 132, Revised Rules
of Court)
And on the basis of the findings of fact of the trial court as follows:

own affirmative allegations (Section 1, Rule 131,


Rules of Court). Furthermore, it is presumed that a
person is innocent of a crime or wrong (Section 5
(a), Idem), and defense should have come forward
with clear and convincing evidence to show that
plaintiff committed forgery or caused said forgery
to be committed, to overcome the presumption of
innocence. Mere denial of having signed, does not
suffice to show forgery.
In addition, a comparison of the questioned
signatories or specimens (Exhs. A-2 and A-3) with
the admitted signatures or specimens (Exhs. X
and Y or 3-C) convinces the court that Exhs. A-2
or Z and A-3 were written by defendant Segundo
Dalion who admitted that Exhs. X and Y or 3-C are
his signatures. The questioned signatures and the
specimens are very similar to each other and
appear to be written by one person.
Further comparison of the questioned signatures
and the specimens with the signatures Segundo
D. Dalion appeared at the back of the summons
(p. 9, Record); on the return card (p. 25, Ibid.);
back of the Court Orders dated December 17,
1973 and July 30, 1974 and for October 7, 1974
(p. 54 & p. 56, respectively, Ibid.), and on the open
court notice of April 13, 1983 (p. 235, Ibid.) readily
reveal that the questioned signatures are the
signatures of defendant Segundo Dalion.
It may be noted that two signatures of Segundo D.
Dalion appear on the face of the questioned
document (Exh. A), one at the right corner bottom
of the document (Exh. A-2) and the other at the left
hand margin thereof (Exh. A-3). The second
signature is already a surplusage. A forger would
not attempt to forge another signature, an
unnecessary one, for fear he may commit a
revealing error or an erroneous stroke. (Decision,
p. 10) (pp. 42-43, Rollo)

Here, people who witnessed the execution of


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

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

xxx xxx xxx

Assuming authenticity of his signature and the genuineness of the


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

Against defendant's mere denial that he signed the


document, the positive testimonies of the
instrumental Witnesses Ogsoc and Espina, aside
from the testimony of the plaintiff, must prevail.
Defendant has affirmatively alleged forgery, but he
never presented any witness or evidence to prove
his claim of forgery. Each party must prove his

Appellate courts have consistently subscribed to


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

This argument is misplaced. The provision of Art. 1358 on the


necessity of a public document is only for convenience, not for validity
or enforceability. It is not a requirement for the validity of a contract of
sale of a parcel of land that this be embodied in a public instrument.
A contract of sale is a consensual contract, which means that the sale
is perfected by mere consent. No particular form is required for its
validity. Upon perfection of the contract, the parties may reciprocally
demand performance (Art. 1475, NCC), i.e., the vendee may compel
transfer of ownership of the object of the sale, and the vendor may
require the vendee to pay the thing sold (Art. 1458, NCC).
The trial court thus rightly and legally ordered Dalion to deliver to
Sabesaje the parcel of land and to execute corresponding formal deed
of conveyance in a public document. Under Art. 1498, NCC, when the
sale is made through a public instrument, the execution thereof is
equivalent to the delivery of the thing. Delivery may either be actual
(real) or constructive. Thus delivery of a parcel of land may be done by
placing the vendee in control and possession of the land (real) or by
embodying the sale in a public instrument (constructive).
As regards petitioners' contention that the proper action should have
been one for specific performance, We believe that the suit for
recovery of ownership is proper. As earlier stated, Art. 1475 of the Civil
Code gives the parties to a perfected contract of sale the right to
reciprocally demand performance, and to observe a particular form, if
warranted, (Art. 1357). The trial court, aptly observed that Sabesaje's
complaint sufficiently alleged a cause of action to compel Dalion to
execute a formal deed of sale, and the suit for recovery of ownership,
which is premised on the binding effect and validity inter partes of the
contract of sale, merely seeks consummation of said contract.
... . A sale of a real property may be in a private
instrument but that contract is valid and binding
between the parties upon its perfection. And a
party may compel the other party to execute a
public instrument embodying their contract
affecting real rights once the contract appearing in
a private instrument hag been perfected (See Art.
1357).
... . (p. 12, Decision, p. 272, Records)
ACCORDINGLY, the petition is DENIED and the decision of the Court
of Appeals upholding the ruling of the trial court is hereby AFFIRMED.
No costs.

for specific performance and damages against private respondents


Bank of Philippine Island (BPI) and National Book Store (NBS).
Petitioner Limketkai Sons Milling, Inc., opposed the motion and filed its
Consolidated Comment, to which private respondent NBS filed a
Reply. Thereafter, petitioner filed its Manifestation and Motion for the
voluntary inhibition of Chief Justice Andres R. Narvasa from taking part
in any "subsequent deliberations in this case". The Honorable Chief
Justice declined. 1
The Court is swayed to reconsider.
The bottom line issue is whether or not a contract of sale of the subject
parcel of land existed between the petitioner and respondent BPI. A reevaluation of the attendant facts and the evidence on record,
specifically petitioner's Exhibits "A" to "I", yields the negative. To
elaborate:
Exhibit "A" 2 is a Deed of Trust dated May 14, 1976, entered into
between Philippine Remnants Co., Inc., as grantor, and respondent
BPI, as trustee, stating that subject property covered by TCT 493122
(formerly TCT No. 27324) 3 "has [been] assigned, transferred,
conveyed and set over unto the Trustee" 4 expressly authorizing and
empowering the same "in its own name to sell and dispose of said trust
property or any lot or parcel thereof 5 and "to facilitate [the] sale of the
trust property, the Trustee may engage the services of real estate
broker or brokers, under such terms and conditions which the Trustee
may deem proper, to sell the Trust property or any lot or parcel
thereof." 6
Exhibit "B" is a Letter of Authority for the petitioner issued by
respondent BPI to Pedro A. Revilla, Jr., a real estate broker, to sell the
property pursuant to the Deed of Trust. The full text of Exhibit "B" is
hereby quoted:
Trust Account No. 75-09
23 June 1988
ASSETRADE CO.
70 San Francisco St.
Capitol Subdivision
Pasig, Metro Manila
Attention: Mr. Pedro P. Revilla, Jr.
Managing Partner

SO ORDERED.
-----------------------G.R. No. 118509 March 29, 1996
LIMKETKAI SONS MILLING INC., petitioner,
vs.
COURT OF APPEALS, ET AL., respondents.
RESOLUTION

Gentlemen:
This will serve as your authority to sell on an "as is" "where
is" basis the property located at Pasig Blvd., Bagong Ilog,
Pasig, Metro Manila, under the following details and basic
terms and conditions:
TCT No. : 493122 in the name of BPI as trustee of
Philippine Remnants Co., Inc.

FRANCISCO, J.:p
In this motion for reconsideration, the Court * is called upon to take a
second hard look on its December 1, 1995 decision reversing and
setting aside respondent Court of Appeals' judgment of August 12,
1994 that dismissed petitioner Limketkai Sons Milling Inc.'s complaint

Area : 33,056.0 square meters (net of 890


sq. m. sold to the Republic of the
Philippines due to the widening of
Pasig Blvd.)

Price : P1,100.00 per sq. m. or P36,361,600.00


Terms : Cash
Broker's Commission : 2%
Others : a) Documentary (sic) stamps to be
affixed to Deed of Absolute Sale,
transfer tax, registration expenses,
and other titling expenses for account
of the Buyer.
b) Capital gains tax, if payable, and
real estate taxes up to 30 June 1988
shall be for the account of the Seller.
This authority which is good for thirty (30) days only from
date hereof is non-exclusive and on a "first-come" "firstserve" basis.
Very truly yours,
BANK OF THE PHILIPPINE ISLANDS
as trustee of
Philippine Remnants Co., Inc.
(Sgd.) (Sgd.)
FERNANDO J. SISON, III ALFONSO R. ZAMORA
Assistant Vice-President Vice President
[Note: Emphasis supplied]

security guard on duty at subject property to allow him


(Revilla, Jr.) and his companion to conduct an ocular
inspection of the premises. 7
Exhibit "D" is a letter addressed by Pedro Revilla, Jr. to respondent BPI
informing the latter that he has procured a prospective buyer. 8
Exhibit "E" is the written proposal submitted by Alfonso Y. Lim in behalf
of petitioner Limketkai Sons Milling, Inc., offering to buy the subject
property at P1,000.00/sq. m. 9
Exhibit "F" is respondent BPI's letter addressed to petitioner pointing
out that petitioner's proposal embodied in its Letter (Exhibit "E") has
been rejected by the respondent BPI's Trust Committee. 10
Exhibit "G" is petitioner's letter dated July 22, 1988 reiterating its offer
to buy the subject property at P1,000/sq. m. but now on cash basis. 11
Exhibit "H" refers to respondent BPI's another rejection of petitioner's
offer to buy the property at P1,000/sq. m. 12
And finally, Exhibit "I" is a letter by petitioner addressed to respondent
BPI claiming the existence of a perfected contract of sale of the subject
property between them. 13

These exhibits, either scrutinized singly or collectively, do not reveal a


perfection of the purported contract of sale. Article 1458 of the Civil
Code defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
Article 1475 of the same code specifically provides when a
contract of sale is deemed perfected, to wit:
Art. 1475. The contract of sale is perfected at the
moment there is 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.
The Court in Toyota Shaw, Inc. v. Court of Appeals 14 had
already ruled that a definite agreement on the manner of
payment of the price is an essential element in the formation
of a binding and enforceable contract of sale. Petitioner's
exhibits did not establish any definitive agreement or
meeting of the minds between the concerned parties as
regards the price or term of payment. Instead, what merely
appears therefrom is respondent BPI's repeated rejection of
the petitioner's proposal to buy the property at P1,000/sq.
m. 15 In addition, even on the assumption that Exhibit "E"
reflects that respondent BPI offered to sell the disputed
property for P1,000/sq. m., petitioner's acceptance of the
offer is conditioned upon or qualified by its proposed
terms 16 to which respondent BPI must first agree with.
On the subject of consent as an essential element of contracts, Article
1319 of the Civil Code has this to say:
Art. 1319. Consent is manifested by the meeting of
the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute.
A qualified acceptance constitutes a counter-offer.
xxx xxx xxx
The acceptance of an offer must therefor be unqualified and
absolute. In other words, it must be identical in all respects
with that of the offer so as to produce consent or meeting of
the minds. This was not the case herein considering that
petitioner's acceptance of the offer was qualified, which
amounts to a rejection of the original offer. 17 And contrary to
petitioner's assertion that its offer was accepted by
respondent BPI, there was no showing that petitioner
complied with the terms and conditions explicitly laid down
by respondent BPI for prospective buyers. 18 Neither was the
petitioner able to prove that its offer to buy the subject
property was formally approved by the beneficial owner of
the property and the Trust Committee of the Bank; an
essential requirement for the acceptance of the offer which
was clearly specified in Exhibits F and H. Even more telling
is petitioner's unexplained failure to reduce in writing the

alleged acceptance of its offer to buy the property at


P1,000/sq. m.

notes to prove the existence of a perfected oral


contract of sale when in truth there is none.

The Court also finds as unconvincing petitioner's representation under


Exhibits "E", "G", and "I" that its proposal to buy the subject property
for P1,000/sq. m. has been accepted by respondent BPI, considering
that none of the said Exhibits contained the signature of any
responsible official of respondent bank.

In adherence to the provisions of the Statute of


Frauds, the examination and evaluation of the
notes or memoranda adduced by the appellee
was confined and limited to within the four corners
of the documents. To go beyond what appears on
the face of the documents constituting the notes
or memoranda, stretching their import beyond
what is written in black and white, would certainly
be uncalled for, if not violative of the Statute of
Frauds and opening the doors to fraud, the very
evil sought to be avoided by the statute. In fine,
considering that the documents adduced by the
appellee do not embody the essentials of the
contract of sale aside from not having been
subscribed by the party charged or its agent, the
transaction involved definitely falls within the ambit
of the Statute of Frauds. 20

It is therefore evident from the foregoing that petitioner's documentary


evidence floundered in establishing its claim of a perfected contract of
sale.
Moreover, petitioner's case failed to hurdle the strict requirements of
the Statute of Frauds. Article 1403 of the Civil Code states:
Art. 1403. The following contracts are
unenforceable, unless they are ratified:
xxx xxx xxx

[Note: Emphasis added]


(2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the following
cases an agreement thereafter made shall be
unenforceable by action, unless the same, or
some note or memorandum, thereof, be in writing,
and subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement
cannot be received without the writing, or a
secondary evidence of its contents:
xxx xxx xxx
(e) An agreement for the leasing for a long period
than one year, or for the sale of real property or of
an interest therein.
xxx xxx xxx
In this case there is a patent absence of any deed of sale
categorically conveying the subject property from respondent
BPI to petitioner. Exhibits "E", "G", "I" which petitioner claims
as proof of perfected contract of sale between it and
respondent BPI were not subscribed by the party
charged, i.e., BPI and did not constitute the memoranda or
notes that the law speaks of. 19 To consider them sufficient
compliance with the Statute of Frauds is to betray the
avowed purpose of the law to prevent fraud and perjury in
the enforcement of obligations. We share, in this connection,
respondent Court of Appeals' observation when it said:
. . . The requirement that the notes or memoranda
be subscribed by BPI or its agents, as the party
charged, is very vital for the strict compliance with
the avowed purpose of the Statute of Frauds
which is to prevent fraud and perjury in the
enforcement of obligations depending for their
evidence on the unassisted memory of witnesses
by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed
by the party to be charged (Asia Production Co.,
Inc. vs. Pano, 205 SCRA 458). It cannot be
gainsaid that a shrewd person could easily
concoct a story in his letters addressed to the
other party and present the letters to the court as

Corrolarily, as the petitioner's exhibits failed to establish the perfection


of the contract of sale, oral testimony cannot take their place without
violating the parol evidence rule. 21 It was therefore irregular for the trial
court to have admitted in evidence testimony to prove the existence of
a contract of sale of a real property between the parties despite the
persistent objection made by private respondents' counsels as early as
the first scheduled hearing. While said counsels cross-examined the
witnesses, this, to our view, did not constitute a waiver of the parol
evidence rule. The Talosig v. Vda.de Nieba, 22 and Abrenica v. Gonda
and de Gracia 23 cases cited by the Court in its initial decision, which
ruled to the effect that an objection against the admission of any
evidence must be made at the proper time, i.e., ". . . at the time
question is asked", 24 and that if not so made it will be understood to
have been waived, do not apply as these two cases involved
facts 25 different from the case at bench. More importantly, here, the
direct testimonies of the witnesses were presented in "affidavit-form"
where prompt objection to inadmissible evidence is hardly possible,
whereas the direct testimonies in these cited cases were delivered
orally in open court. The best that counsels could have done, and
which they did, under the circumstances was to preface the crossexamination with objection. Thus:
ATTY. VARGAS:
Before I proceed with the cross-examination of the witness, your
Honor, may we object to the particular portion of the affidavit
which attempt to prove the existence of a verbal contract to
sell more specifically the answers contained in page 3. Par. 1,
the whole of the answer.
xxx xxx xxx
COURT:
Objection overruled.
ATTY. VARGAS:
Your Honor, what has been denied by the Court was the motion
for preliminary hearing on affirmative defenses. The statement
made by the witness to prove that there was a verbal contract to
sell is inadmissible in evidence in this case because an
agreement must be in writing.

COURT:
Go ahead, that has been already overruled.
ATTY. VARGAS:
So may we reiterate our objection with regards to all other
portions of the affidavit which deal on the verbal contract. (TSN,
Feb. 28, 1989, pp. 3-5: Emphasis supplied.) 26
xxx xxx xxx
ATTY. CORNAGO:
Before we proceed, we would like to make of record our
continuing objection in so far as questions and answers
propounded to Pedro Revilla dated February 27, 1989, in so far
as questions would illicit (sic) answers which would be violative
of the best evidence rule in relation to Art. 1403. I refer to
questions nos. 8, 13, 16 and 19 of the affidavit of this witness
which is considered as his direct testimony. (T.S.N., June 29,
1990, p. 2)
ATTY. CORNAGO:
May we make of record our continued objection on the testimony
which is violative of the best evidence rule in relation to Art. 1403
as contained in the affidavit particularly questions Nos. 12, 14 19
and 20 of the affidavit of Alfonso Lim executed on February 24,
1989. . . . (T.S.N., June 28, 1990, p. 8). 27
Counsels should not be blamed and, worst, penalized for taking
the path of prudence by choosing to cross-examine the
witnesses instead of keeping mum and letting the inadmissible
testimony in "affidavit form" pass without challenge. We thus
quote with approval the observation of public respondent Court
of Appeals on this point:
As a logical consequence of the above findings, it follows
that the court a quo erred in allowing the appellee to introduce
parol evidence to prove the existence of a perfected contract of
sale over and above the objection of the counsel for the
defendant-appellant. The records show that the court a quo
allowed the direct testimony of the witnesses to be in affidavit
form subject to cross-examination by the opposing counsel. If
the purpose thereof was to prevent the opposing counsel from
objecting timely to the direct testimony, the scheme failed for as
early as the first hearing of the case on February 28, 1989
during the presentation of the testimony in affidavit form of
Pedro Revilla, Jr., plaintiff-appellee's first witness, the
presentation of such testimony was already objected to as
inadmissible. 28
[Emphasis supplied.]
WHEREFORE, in view of the foregoing premises, the Court hereby
GRANTS the motion for reconsideration, and SETS ASIDE its
December 1, 1995 decision. Accordingly, the petition is DENIED and
the Court of Appeals' decision dated August 12, 1994, appealed from is
AFFIRMED in toto.
SO ORDERED.
G.R. No. 105647*

July 31, 2001

HEIRS OF ERNESTO BIONA, NAMELY: EDITHA B. BLANCAFLOR,


MARIANITA D. DE JESUS, VILMA B. BLANCAFLOR, ELSIE B.
RAMOS and PERLITA B. CARMEN, petitioners,
vs.
THE COURT OF APPEALS and LEOPOLDO HILAJOS, respondents.
KAPUNAN, J.:
Before us is a petition for review on certiorari under Rule 45 of the
Decision of the Court of Appeals dated March 31, 1992, reversing the
decision of the Regional Trial Court, 11th Judicial region, Branch 26,
Surallah, South Cotabato and the Resolution dated May 26, 1992,
denying the subsequent motion for reconsideration.
Quoting from the decision of the Court of Appeals, the antecedent facts
are as follows:
On October 23, 1953, the late Ernesto Biona, married to
plaintiff-appellee Soledad Biona, was awarded Homestead
Patent No. V-840 over the property subject of this suit, a
parcel of agricultural land denominated as lot 177 of PLS285-D, located in Bo. 3, Banga, Cotabato, containing an
area of ten (10) hectares, forty-three (43) acres and sixtyeight (68) centares, Original Certificate of Title No. (V-2323)
P-3831 was issued in his name by the Register of Deeds of
Cotabato (Exh. C). On June 3, 1954, Ernesto and Soledad
Biona obtained a loan from the then Rehabilitation Finance
Corporation (now the Development Bank of the Philippines)
and put up as collateral the subject property (Exh. 4). On
June 12, 1956, Ernesto Biona died (Exh. B) leaving as his
heirs herein plaintiffs-appellees, namely, his wife, Soledad
Estrobillo Vda. De Biona, and five daughters, Editha B.
Blancaflor, Marianita B. de Jesus, Vilma B. Blancaflor, Elsie
B. Ramos and Perlita B. Carmen.
On March 1, 1960, plaintiff-appellee Soledad Biona obtained
a loan from defendant-appellant in the amount of P1,000 and
as security therefore, the subject property was mortgaged. It
was further agreed upon by the contracting parties that for a
period of two years until the debt is paid, defendantappellant shall occupy the land in dispute and enjoy the
usufruct thereof.
The two-year period elapsed but Soledad Biona was not
able to pay her indebtedness. Defendant-appellant
continued occupying and cultivating the subject property
without protest from plaintiffs-appellees.
On July 3, 1962, defendant-appellant paid the sum of
P1,400.00 to the Development Bank of the Philippines to
cancel the mortgage previously constituted by the Biona
spouses on June 3, 1953 (Exhs. 4 and 6).
Thereafter, and for a period of not less than twenty-five
years, defendant-appellant continued his peaceful and public
occupation of the property, declaring it in his name for
taxation purposes (Exhs. 10 and 11), paying real estate
property taxes thereon (Exhs. 12, 13, 13-a to 13-e, F, G, H
and I), and causing the same to be tenanted (Exhs. 7, 8, 9).
On June 19, 1985, plaintiffs-appellees, filed a complaint for
recovery of ownership, possession, accounting and
damages, with a prayer for a writ of preliminary mandatory
injunction and/ or restraining order against defendantappellant alleging, among others, that the latter had
unlawfully been depriving them of the use, possession and
enjoyment of the subject property; that the entire parcel of
land, which was devoted and highly suited to palay and corn,
was yielding three harvests annually, with an average of one
hundred twenty (120) sacks of corn and eighty cavans of rice
per hectare; that plaintiffs-appellees were deprived of its total

produce amounting to P150,000.00. Plaintiffs-appellees


prayed for the award of moral damages in the sum of
P50,000.00, exemplary damages in the amount of
P20,000,00 and litigation expenses in the amount of
P2,000.00.
On September 19, 1986, defendant-appellant filed his
answer with counterclaim traversing the material allegations
in the complaint and alleging, by way of affirmative and
special defenses, that: on September 11, 1961, Soledad
Biona, after obtaining the loan of P1,000.00 from defendantappellant, approached and begged the latter to buy the
whole of Lot No. 177 since it was then at the brink of
foreclosure by the Development Bank of the Philippines and
she had no money to redeem the same nor the resources to
support herself and her five small children; that defendantappellant agreed to buy the property for the amount of
P4,300.00, which consideration was to include the
redemption price to be paid to the Development Bank of the
Philippines; that the purchase price paid by defendant far
exceeded the then current market value of the property and
defendant had to sell his own eight-hectare parcel of land in
Surallah to help Soledad Biona; that to evidence the
transaction, a deed of sale was handwritten by Soledad
Biona and signed by her and the defendant; that at the time
of the sale, half of the portion of the property was already
submerged in water and from the years 1969 to 1984, two
and one-half hectares thereof were eroded by the Allah
River; that by virtue of his continuous and peaceful
occupation of the property from the time of its sale and for
more than twenty- five years thereafter, defendant
possesses a better right thereto subject only to the rights of
the tenants whom he had allowed to cultivate the land under
the Land Reform Program of the government; that the
complaint states no cause of action; that plaintiff's alleged
right, if any, is barred by the statutes of fraud. As
counterclaim, defendant-appellant prayed that plaintiffsappellees be ordered to execute a formal deed of sale over
the subject property and to pay him actual, moral and
exemplary damages as the trial court may deem proper. He
likewise prayed for the award of attorney's fees in the sum of
P10,000.00.
During the hearing of the case, plaintiffs-appellees presented
in evidence the testimonies of Editha Biona Blancaflor and
Vilma Biona Blancaflor, and documentary exhibits A to G and
their submarkings.
Defendant-appellant, for his part, presented the testimonies
of himself and Mamerto Famular, including documentary
exhibits 1 to 13, F, G, H, I, and their submarkings.1
On January 31, 1990, the RTC rendered a decision with the following
dispositive portion:
I (SIC) VIEW OF THE FOREGOING, decision is hereby
rendered:
1. ordering the defendant to vacate possession of the lot in
question to the extent of six-tenths (6/10) of the total area
thereof and to deliver the same to the plaintiff Soledad
Estrobillo Biona upon the latter's payment of the sum of
P1,000.00 TO THE FORMER IN REDEMPTION OF ITS
MORTGAGE CONSTITUTED UNDER exh. "1" of defendant;
2. ordering the defendant to vacate the possession of the
remaining four-tenths (4/10) of the area of the lot in question,
representing the shares of the children of the late Ernesto
Biona and deliver the same to said plaintiffs; the defendant
shall render an accounting of the net produce of the area
ordered returned to the co-plaintiffs of Soledad Biona
commencing from the date of the filing of the complaint until
possession thereto has been delivered to said co-plaintiffs
and to deliver or pay 25% of said net produce to said coplaintiffs;

3. ordering the defendant to pay the costs of this suit.


The defendant's counter-claim are dismissed for lack of
merit.
SO ORDERED.2
Dissatisfied, herein private respondent appealed to the Court of
Appeals which reversed the trial court's ruling. The dispositive portion
reads as follows:
WHEREFORE, premises considered, the judgment
appealed from is set aside and a new one entered
dismissing the complaint, and the plaintiffs-appellees are
ordered to execute a registrable deed of conveyance of the
subject property in favor of the defendant-appellant within
ten (10) days from the finality of this decision. With costs
against plaintiffs-appellees.3
Hence, the instant petition where the following assignment of errors
were made:
I. - RESPONDENT COURT OF APPEALS ERRED IN
CONCLUDING THAT THE SIGNATURE OF SOLEDAD
ESTROBILLO IN THE DEED OF SALE (EXHIBIT "2"), A
PRIVATE DOCUMENT, IS GENUINE.
II - RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT THE DEED OF SALE (EXHIBIT 2) IS
VALID AND COULD LEGALLY CONVEY TO PRIVATE
RESPONDENT OWNERSHIP AND TITLE OVER THE
SUBJECT PROPERTY.
III - RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT HEREIN PETITIONERS HAD LOST THEIR
RIGHT TO RECOVER THE SUBJECT PROPERTY BY
VIRTUE OF THE EQUITABLE PRINCIPLE OF LACHES.
IV - RESPONDENT COURT OF APPEALS ERRED IN NOT
HOLDING THAT PRIVATE RESPONDENT'S RIGHT OF
ACTION UNDER THE DEED OF SALE (EXHIBIT "2") HAD
PRESCRIBED.4
As correctly pointed out by the Court of Appeals, the pivotal issue in
the instant case is whether or not the deed of sale is valid and if it
effectively conveyed to the private respondents the subject property.
In ruling in favor of the petitioners, the trial court refused to give weight
to the evidence of private respondent which consisted of (1) the
handwritten and unnotarized deed of sale executed by Soledad Biona
in favor of the private respondent; and (2) the corresponding
acknowledgment receipt of the amount of P3,500.00 as partial
payment for the land in dispute. To the mind of the trial court, the
signature of Soledad Biona on the deed of sale was not genuine.
There was no direct evidence to prove that Soledad Biona herself
signed the document. Moreover, the deed of sale was not notarized
and therefore, did not convey any rights to the vendee. The trial court
also ruled that petitioners' rights over the land have not allegedly
prescribed.
On the other hand, the respondent Court of Appeals accepted as
genuine the deed of sale (Exh. 2) which "sets forth in unmistakable
terms that Soledad Biona agreed for the consideration of P4,500.00, to
transfer to defendant-appellant Lot 177. The fact that payment was
made is evidenced by the acknowledgment receipt for P3,500.00 (Exh.
3) signed by Soledad Biona, and private respondent previous delivery
of P1,000.00 to her pursuant to the Mutual Agreement (Exh. 1). The
contract of sale between the contracting parties was consummated by
the delivery of the subject land to private respondent who since then
had occupied and cultivated the same continuously and peacefully until
the institution of this suit."5

Given the contrary findings of the trial court and the respondent court,
there is a need to re-examine the evidence altogether. After a careful
study, we are inclined to agree with the findings and conclusions of the
respondent court as they are more in accord with the law and evidence
on record.
As to the authenticity of the deed of sale, we subscribe to the Court of
Appeals' appreciation of evidence that private respondent has
substantially proven that Soledad Biona indeed signed the deed of sale
of the subject property in his favor. His categorical statement in the trial
court that he himself saw Soledad Estrobillo affix her signature on the
deed of sale lends credence. This was corroborated by another
witness, Mamerto Famular. Although the petitioners consider such
testimony as self-serving and biased,6 it can not, however, be denied
that private respondent has shown by competent proof that a contract
of sale where all the essential elements are present for its validity was
executed between the parties.7 The burden is on the petitioners to
prove the contrary which they have dismally failed to do. As aptly
stated by the Court of Appeals:
Having established the due execution of the subject deed of
sale and the receipt evidencing payment of the
consideration, the burden now shifted to plaintiffs-appellees
to prove by contrary evidence that the property was not so
transferred. They were not able to do this since the very
person who could deny the due execution of the document,
Soledad Biona, did not testify. She similarly failed to take the
witness stand in order to deny her signatures on Exhs. 2 and
3. Admitting as true that she was under medication in Manila
while the hearing of the case was underway, it was easy
enough to get her deposition. Her non-presentation gives
rise to the presumption that if her testimony was taken, the
same would be adverse to the claim by plaintiffsappellees.1wphi1.nt
It must also be noted that under Sec. 22 Rule 132 of our
procedural law, evidence respecting handwriting may also be
given by a comparison, made by the witness or the court,
with writings admitted or treated as genuine by the party
against whom the evidence is offered. Our own close
scrutiny of the signature of Soledad Biona appearing on Exh.
1, the document admitted by the contending parties, reveals
that it is the same as the signatures appearing on Exhs. 2
and 3, the documents in dispute. Admittedly, as was pointed
out by the trial court, the "S" in Exhs. 2 and 3 were written in
printed type while that in Exh. 1 is in handwriting type. But a
careful look at the text of Exh. 2 would reveal that Soledad
Biona alternately wrote the letter "S" in longhand and printed
form. Thus, the words "Sum" and "Sept.," found in the
penultimate and last paragraphs of the document,
respectively, were both written in longhand, while her name
appearing on first part of the document, as well as the
erased word "Sept." in the last paragraph thereof were
written in printed form. Moreover, all doubts about the
genuineness of Soledad Biona's signatures on Exhs. 2 and 3
are removed upon their comparison to her signature
appearing on the special power of attorney (Exh. A)
presented in evidence by plaintiffs-appellees during trial. In
said document, Soledad Biona signed her name using the
same fact that Soledad Estrobillo Biona wrote her entire
name on Exh. 2 while she merely affixed her maiden name
on the other two documents may have been due to the
lesser options left to her when the lawyers who drafted the
two documents (Exhs. 2 and 3) already had typewritten the
names "SOLEDAD ESTROBILLO" thereon whereas in Exh.
2, it was Soledad Biona herself who printed and signed her
own name. Thus, in the special power of attorney (Exh. A),
Soledad Biona signed her name in the same manner it was
typewritten on the document.8
We agree with the private respondent that all the requisites for a valid
contract of sale are present in the instant case. For a valuable
consideration of P4,500.00, Soledad Biona agreed to sell and actually
conveyed the subject property to private respondent. The fact that the
deed of sale was not notarized does not render the agreement null and
void and without any effect. The provision of Article 1358 of the Civil
Code9 on the necessity of a public document is only for convenience,

and not for validity or enforceability.10 The observance of which is only


necessary to insure its efficacy, so that after the existence of said
contract had been admitted, the party bound may be compelled to
execute the proper document.11 Undeniably, a contract has been
entered into by Soledad Biona and the private respondent. Regardless
of its form, it was valid, binding and enforceable between the parties.
We quote with favor the respondent court's ratiocination on the matter:
xxx The trial court cannot dictate the manner in which the
parties may execute their agreement, unless the law
otherwise provides for a prescribed form, which is not so in
this case. The deed of sale so executed, although a private
document, is effective as between the parties themselves
and also as the third persons having no better title, and
should be admitted in evidence for the purpose of showing
the rights and relations of the contracting parties (Carbonell
v. Court of Appeals, 69 SCRA 99; Elumbaring v. Elumbaring,
12 Phil. 384). Under Art. 1356 of the Civil Code, contracts
shall be obligatory in whatever form they may have been
entered into provided all the essential requisites for their
necessary elements for a valid contract of sale were met
when Soledad Biona agreed to sell and actually conveyed
Lot 177 to defendant-appellant who paid the amount of
P4,500.00 therefore. The deed of sale (Exh. 2) is not made
ineffective merely because it is not notarized or does not
appear in a public document. The contract is binding upon
the contracting parties, defendant-appellant and Soledad
Biona, including her successors-in-interest. Pursuant to Art.
1357, plaintiffs-appellees may be compelled by defendantappellant to execute a public document to embody their valid
and enforceable contract and for the purpose of registering
the property in the latter's name (Clarin v. Rulona, 127 SCRA
512; Heirs of Amparo v. Santos, 108 SCRA 43; Araneta v.
Montelibano, 14 Phil. 117).12
Finally, we find no merit in petitioners' contention that their right over
the land has not prescribed. The principle of laches was properly
applied against petitioner. Laches has been defined as the failure or
neglect, for an unreasonable and unexplained length of time, to do that
which by exercising due diligence could or should have been done
earlier, it is negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it has
either abandoned it or declined to assert it.13 In the instant case, the
Court of Appeals point to the circumstances that warrant the principle
to come into play:
Laches had been defined to be such neglect or omission to
assert a right taken in conjunction with the lapse of time and
other circumstances causing prejudice to an adverse party,
as will bar him in equity (Heirs of Batiog Lacamen v. Heirs of
Laruan, 65 SCRA 605, 609-610). In the instant suit, Soledad
Biona, at the time of the execution of the deed of sale (Exh.
2) on September 11, 1961, could only alienate that portion of
Lot 177 belonging to her, which is seven-twelfths of the
entire property. She had no power or authority to dispose of
the shares of her co-owners, the five daughters of the
deceased Ernesto Biona, who were entitled to an indivisible
five-twelfths portion of the whole property. It is not disputed,
however, that as early as 1960, when Soledad Biona
borrowed money from defendant-appellant (Exh. L), the
latter entered, possessed and started occupying the same in
the concept of an owner. He caused its cultivation through
various tenants under Certificates of Land Transfer (Exhs. 79), declared the property in his name, religiously paid taxes
thereon, reaped benefits therefrom, and executed other acts
of dominion without any protest or interference from
plaintiffs-appellees for more than twenty-five years. Even
when the five daughters of the deceased Ernesto Biona
were way past the age of majority, when they could have
already asserted their right to their share, no sale in
defendant-appellant's favor was ever brought or any other
action was taken by them to recover their share. Instead,
they allowed defendant-appellant to peacefully occupy the
property without protest. Although it is true that no title to
registered land in derogation of that of the registered owner
shall be acquired by prescription or adverse possession as
the right to recover possession of registered land is
imprescriptible, jurisprudence has laid down the rule that a

person and his heirs may lose their right to recover back the
possession of such property and title thereto by reason of
laches. (Victoriano v. Court of Appeals, 194 SCRA 19; Lola v.
CA, 145 SCRA 439, 449). Indeed, it has been ruled in the
case of Miguel v. Catalino, 26 SCRA 234, 239, that:
'Courts can not look with favor at parties who, by
their silence, delay and inaction, knowingly induce
another to spend time, effort and expense in
cultivating the land, paying taxes and making
improvements thereof for 30 long years, only to
spring from ambush and claim title when the
possessor's efforts and the rise of land values
offer an opportunity to make easy profit at his
expense.'
Thus, notwithstanding the invalidity of the sale with respect
to the share of plaintiffs-appellees, the daughters of the late
Ernesto Biona, they [allowed] the vendee, defendantappellant herein, to enter, occupy and possess the property
in the concept of an owner without demurrer and molestation
for a long period of time, never claiming the land as their
own until 1985 when the property has greatly appreciated in
value. Vigilantibus non dormientibus sequitas subvenit.14
WHEREFORE, the Petition is DENIED and the assailed Decision of
the Court of Appeals is AFFIRMED.

2. Ordering the plaintiffs to vacate the premises in question


and turn over the possession of the same to the defendant
Gerarda Selma;
3. Requiring the plaintiffs to pay defendant the sum of
P20,000 as moral damages, according to Art. 2217,
attorney's fees of P15,000.00, litigation expenses of
P5,000.00 pursuant to Art. 2208 No. 11 and to pay the costs
of this suit.1wphi1.nt
SO ORDERED.4
Likewise challenged is the October 14, 1998 CA Resolution which
denied petitioners' Motion for Reconsideration.5
The Facts
The present Petition is rooted in an action for quieting of title filed
before the RTC by Benigna, Miguel, Marcelino, Corazon, Rufina,
Bernardino, Natividad, Gliceria and Purita all surnamed Secuya
against Gerarda M. vda. de Selma. Petitioners asserted ownership
over the disputed parcel of land, alleging the following facts:
xxx

xxx

xxx

SO ORDERED.
G.R. No. 136021

February 22, 2000

BENIGNA SECUYA, MIGUEL SECUYA, MARCELINO SECUYA,


CORAZON SECUYA, RUFINA SECUYA, BERNARDINO SECUYA,
NATIVIDAD SECUYA, GLICERIA SECUYA and PURITA
SECUYA, petitioners,
vs.
GERARDA M. VDA. DE SELMA, respondent.
PANGANIBAN, J.:
In action for quieting of title, the plaintiff must show not only that there
is a cloud or contrary interest over the subject real property, but that
the have a valid title to it. In the present case, the action must fail,
because petitioners failed to show the requisite title.
The Case
Before us is a Petition for Review seeking to set aside the July 30,
1998 Decision of the Court of Appeals (CA) in CA-G.R. CV No.
38580,1 which affirmed the judgment2 of the Regional Trial Court (RTC)
of Cebu City. The CA ruled:
WHEREFORE, [there being] no error in the appealed
decision, the same is hereby AFFIRMED in toto.3
The decretal portion of the trial court Decision reads as follows:
WHEREFORE, in view of all the foregoing [evidence] and
considerations, this court hereby finds the preponderance of
evidence to be in favor of the defendant Gerarda Selma as
judgment is rendered:
1. Dismissing this Complaint for Quieting of title,
Cancellation of Certificate of Title of Gerarda vda. de Selma
and damages,

8. The parcel of land subject of this case is a PORTION of


Lot 5679 of the Talisay-Minglanilla Friar Lands Estate,
referred to and covered [o]n Page 279, Friar Lands Sale
Certificate Register of the Bureau of Lands (Exh. "K"). The
property was originally sold, and the covering patent issued,
to Maxima Caballero Vda. de Cario (Exhs. "K-1"; "K-2). Lot
5679 has an area of 12,750 square meters, more or less;
9. During the lifetime of Maxima Caballero, vendee and
patentee of Lot 5679, she entered into that AGREEMENT
OF PARTITION dated January 5, 1938 with Paciencia
Sabellona, whereby the former bound herself and parted
[with] one-third (1/3) portion of Lot 5679 in favor of the latter
(Exh. "D"). Among others it was stipulated in said agreement
of partition that the said portion of one-third so ceded will be
located adjoining the municipal road (par. 5. Exh "D");
10. Paciencia Sabellona took possession and occupation of
that one-third portion of Lot 5679 adjudicated to her. Later,
she sold the three thousand square meter portion thereof to
Dalmacio Secuya on October 20, 1953, for a consideration
of ONE THOUSAND EIGHT HUNDRED FIFTY PESOS
(P1,850.00), by means of a private document which was lost
(p. 8, tsn., 8/8/89-Calzada). Such sale was admitted and
confirmed by Ramon Sabellona, only heir of Paciencia
Sabellona, per that instrument denominated
CONFIRMATION OF SALE OF UNDIVIDED SHARES,
dated September 28, 1976(Exh. "B");
11. Ramon Sabellona was the only [or] sole voluntary heir of
Paciencia Sabellona, per that KATAPUSAN NGA KABUT-ON
UG PANUGON NI PACIENCIA SABELLONA (Last Will and
Testament of Paciencia Sabellona), dated July 9, 1954,
executed and acknowledged before Notary Public Teodoro P.
Villarmina (Exh. "C"). Pursuant to such will, Ramon
Sabellona inherited all the properties left by Paciencia
Sabellona;
12. After the purchase [by] Dalmacio Secuya, predecessor-in
interest of plaintiffs of the property in litigation on October 20,
1953, Dalmacio, together with his brothers and sisters he

being single took physical possession of the land and


cultivated the same. In 1967, Edilberto Superales married
Rufina Secuya, niece of Dalmacio Secuya. With the
permission and tolerance of the Secuyas, Edilberto
Superales constructed his house on the lot in question in
January 1974 and lived thereon continuously up to the
present (p. 8., tsn 7/25/88 Daclan). Said house is inside
Lot 5679-C-12-B, along lines 18-19-20 of said lot, per
Certification dated August 10, 1985, by Geodetic Engineer
Celestino R. Orozco (Exh. "F");
13. Dalmacio Secuya died on November 20, 1961. Thus his
heirs brothers, sisters, nephews and nieces are the
plaintiffs in Civil Case No. CEB-4247 and now the
petitioners;
14. In 1972, defendant-respondent Gerarda Selma bought a
1,000 square-meter portion of Lot 5679, evidenced by
Exhibit "P". Then on February 19, 1975, she bought the
bigger bulk of Lot 5679, consisting of 9,302 square meters,
evidenced by that deed of absolute sale, marked as Exhibit
"5". The land in question, a 3,000-square meter portion of
Lot 5679, is embraced and included within the boundary of
the later acquisition by respondent Selma;
15. Defendant-respondent Gerarda Selma lodged a
complaint, and had the plaintiffs-petitioners summoned,
before the Barangay Captain of the place, and in the
confrontation and conciliation proceedings at the Lupong
Tagapayapa, defendant-respondent Selma was asserting
ownership over the land inherited by plaintiffs-petitioners
from Dalmacio Secuya of which they had long been in
possession . . . in concept of owner. Such claim of
defendant-respondent Selma is a cloud on the title of
plaintiffs-petitioners, hence, their complaint (Annex "C").6
Respondent Selma's version of the facts, on the other hand, was
summarized by the appellate court as follows:
She is the registered owner of Lot 5679-C-120 consisting of
9,302 square meters as evidenced by TCT No. T-35678
(Exhibit "6", Record, p. 324), having bought the same
sometime in February 1975 from Cesaria Caballero as
evidenced by a notarized Deed of Sale (Exhibit "5", Record,
p. 323) and ha[ve] been in possession of the same since
then. Cesaria Caballero was the widow of Silvestre Aro,
registered owner of the mother lot, Lot. No. 5679 with an
area of 12,750 square meters of the Talisay-Minglanilla Friar
Lands Estate, as shown by Transfer Certificate of Title No.
4752 (Exhibit "10", Record, p. 340). Upon Silvestre Aro's
demise, his heirs executed an "Extrajudicial Partition and
Deed of Absolute Sale" (Exhibit "11", Record, p. 341)
wherein one-half plus one-fifth of Lot No. 5679 was
adjudicated to the widow, Cesaria Caballero, from whom
defendant-appellee derives her title.7
The CA Ruling
In affirming the trial court's ruling, the appellate court debunked
petitioners' claim of ownership of the land and upheld Respondent
Selma's title thereto. It held that respondent's title can be traced to a
valid TCT. On the other hand, it ruled that petitioners anchor their claim
on an "Agreement of Partition" which is void for being violative of the
Public Land Act. The CA noted that the said law prohibited the
alienation or encumbrance of land acquired under a free patent or
homestead patent, for a period of five years from the issuance of the
said patent.

Hence, this Petition.8


The Issues
In their Memorandum, petitioners urge the Court to resolve the
following questions:
1. Whether or not there was a valid transfer or conveyance
of one-third (1/3) portion of Lot 5679 by Maxima Caballero in
favor of Paciencia Sabellona, by virtue of [the] Agreement of
Partition dated January 5, 1938[;] and
2. Whether or not the trial court, as well as the court,
committed grave abuse of discretion amounting to lack of
jurisdiction in not making a finding that respondent Gerarda
M. vda. de Selma [was] a buyer in bad faith with respect to
the land, which is a portion of Lot 5679.9
For a clearer understanding of the above matters, we will divide the
issues into three: first, the implications of the Agreement of
Partition; second, the validity of the Deed of Confirmation of Sale
executed in favor of the petitioners; and third, the validity of private
respondent's title.
The Court's Ruling
The Petition fails to show any reversible error in the assailed Decision.
Preliminary Matter:
The Action for Quieting of Title
In an action to quiet title, the plaintiffs or complainants must
demonstrate a legal or an equitable title to, or an interest in, the subject
real property.10 Likewise, they must show that the deed, claim,
encumbrance or proceeding that purportedly casts a cloud on their title
is in fact invalid or inoperative despite its prima facieappearance of
validity or legal efficacy.11 This point is clear from Article 476 of the Civil
Code, which reads:
Whenever there is cloud on title to real property or any
interest therein, by reason of any instrument, record, claim,
encumbrance or proceeding which is apparently valid or
effective but is in truth and in fact invalid, ineffective,
voidable or unenforceable, and may be prejudicial to said
title, an action may be brought to remove such cloud or to
quiet title.
An action may also be brought to prevent a cloud from being
cast upon title to real property or any interest therein.
In the case at bar, petitioners allege that TCT No. 5679-C-120, issued
in the name of Private Respondent Selma, is a cloud on their title as
owners and possessors of the subject property, which is a 3,000
square-meter portion of Lot No. 5679-C-120 covered by the TCT. But
the underlying question is, do petitioners have the requisite title that
would enable them to avail themselves of the remedy of quieting of
title?
Petitioners anchor their claim of ownership on two documents: the
Agreement of Partition executed by Maxima Caballero and Paciencia
Sabellona and the Deed of Confirmation of Sale executed by Ramon
Sabellona. We will now examine these two documents.
First Issue:
The Real Nature of the "Agreement of Partition"

The duly notarized Agreement of Partition dated January 5, 1938; is


worded as follows:

application is clear from the terms of the Agreement. Likewise, it is


evident that Paciencia acquiesced to the covenant and is thus bound
to fulfill her obligation therein.

AGREEMENT OF PARTITION
I, MAXIMA CABALLERO, Filipina, of legal age, married to
Rafael Cario, now residing and with postal address in the
Municipality of Dumaguete, Oriental Negros, depose the
following and say:
1. That I am the applicant of vacant lot No. 5679 of the
Talisay-Minglanilla Estate and the said application has
already been indorsed by the District Land Officer, Talisay,
Cebu, for private sale in my favor;
2. That the said Lot 5679 was formerly registered in the
name of Felix Abad y Caballero and the sale certificate of
which has already been cancelled by the Hon. Secretary of
Agriculture and Commerce;
3. That for and in representation of my brother, Luis
Caballero, who is now the actual occupant of said lot I deem
it wise to have the said lot paid by me, as Luis Caballero has
no means o[r] any way to pay the government;
4. That as soon as the application is approved by the
Director of Lands, Manila, in my favor, I hereby bind myself
to transfer the one-third (l/3) portion of the above mentioned
lot in favor of my aunt, Paciencia Sabellana y Caballero, of
legal age, single, residing and with postal address in
Tungkop, Minglanilla, Cebu. Said portion of one-third (1/3)
will be subdivided after the approval of said application and
the same will be paid by her to the government [for] the
corresponding portion.
5. That the said portion of one-third (1/3) will be located
adjoining the municipal road;
6. I, Paciencia Sabellana y Caballero, hereby accept and
take the portion herein adjudicated to me by Mrs. Maxima
Caballero of Lot No. 5679 Talisay-Minglanilla Estate and will
pay the corresponding portion to the government after the
subdivision of the same;
IN WITNESS WHEREOF, we have hereunto set our hands
this 5th day of January, 1988, at Talisay, Cebu."12

As a result of the Agreement, Maxima Caballero held the portion


specified therein as belonging to Paciencia Sabellona when the
application was eventually approved and a sale certificate was issued
in her name.15 Thus, she should have transferred the same to the
latter, but she never did so during her lifetime. Instead, her heirs sold
the entire Lot No. 5679 to Silvestre Aro in 1955.
From 1954 when the sale certificate was issued until 1985 when
petitioners filed their Complaint, Paciencia and her successors-ininterest did not do anything to enforce their proprietary rights over the
disputed property or to consolidate their ownership over the same. In
fact, they did not even register the said Agreement with the Registry of
Property or pay the requisite land taxes. While petitioners had been
doing nothing, the disputed property, as part of Lot No. 5679, had been
the subject of several sales transactions16 and covered by several
transfer certificates of title.
The Repudiation of the Express Trust
While no time limit is imposed for the enforcement of rights under
express trusts,17 prescription may, however, bar a beneficiary's action
for recovery, if a repudiation of the trust is proven by clear and
convincing evidence and made known to the beneficiary.18
There was a repudiation of the express trust when the heirs of Maxima
Caballero failed to deliver or transfer the property to Paciencia
Sabellona, and instead sold the same to a third person not privy to the
Agreement. In the memorandum of incumbrances of TCT No.
308719 issued in the name of Maxima, there was no notation of the
Agreement between her and Paciencia. Equally important, the
Agreement was not registered; thus, it could not bind third persons.
Neither was there any allegation that Silvestre Aro, who purchased the
property from Maxima's heirs, knew of it. Consequently, the
subsequent sales transactions involving the land in dispute and the
titles covering it must be upheld, in the absence of proof that the said
transactions were fraudulent and irregular.
Second Issue:
The Purported Sale to Dalmacio Secuya
Even granting that the express trust subsists, petitioners have not
proven that they are the rightful successors-in-interest of Paciencia
Sabellona.

The Agreement: An Express Trust, Not a Partition

The Absence of the Purported Deed of Sale

Notwithstanding its purported nomenclature, this Agreement is not one


of partition, because there was no property to partition and the parties
were not co-owners. Rather, it is in the nature of a trust agreement.

Petitioners insist that Paciencia sold the disputed property to Dalmacio


Secuya on October 20, 1953, and that the sale was embodied in a
private document. However, such document, which would have been
the best evidence of the transaction, was never presented in court,
allegedly because it had been lost. While a sale of a piece of land
appearing in a private deed is binding between the parties, it cannot be
considered binding on third persons, if it is not embodied in a public
instrument and recorded in the Registry of Property.20

Trust is the right to the beneficial enjoyment of property, the legal title
to which is vested in another. It is a fiduciary relationship that obliges
the trustee to deal with the property for the benefit of the
beneficiary.13 Trust relations between parties may either be express or
implied. An express trust is created by the intention of the trustor or of
the parties. An implied trust comes into being by operation of law.14
The present Agreement of Partition involves an express trust. Under
Article 1444 of the Civil Code, "[n]o particular words are required for
the creation of an express trust, it being sufficient that a trust is clearly
intended." That Maxima Caballero bound herself to give one third of
Lot No. 5629 to Paciencia Sabellona upon the approval of the former's

Moreover, while petitioners could not present the purported deed


evidencing the transaction between Paciencia Sabellona and Dalmacio
Secuya, petitioners' immediate predecessor-in-interest, private
respondent in contrast has the necessary documents to support her
claim to the disputed property.
The Questionable Value of the Deed

Executed by Ramon Sabellona


To prove the alleged sale of the disputed property to Dalmacio,
petitioners instead presented the testimony of Miguel Secuya, one of
the petitioners; and a Deed21 confirming the sale executed by Ramon
Sabellona, Paciencia's alleged heir. The testimony of Miguel was a
bare assertion that the sale had indeed taken place and that the
document evidencing it had been destroyed. While the Deed executed
by Ramon ratified the transaction, its probative value is doubtful. His
status as heir of Paciencia was not affirmatively established. Moreover,
he was not presented in court and was thus not quizzed on his
knowledge or lack thereof of the 1953 transaction.

Granting arguendo that private respondent knew that petitioners,


through Superales and his family, were actually occupying the disputed
lot, we must stress that the vendor, Cesaria Caballero, assured her
that petitioners were just tenants on the said lot. Private respondent
cannot be faulted for believing this representation, considering that
petitioners' claim was not noted in the certificate of the title covering
Lot No. 5679.
Moreover, the lot, including the disputed portion, had been the subject
of several sales transactions. The title thereto had been transferred
several times, without any protestation or complaint from the
petitioners. In any case, private respondent's title is amply supported
by clear evidence, while petitioners' claim is barren of proof.

Petitioners' Failure to Exercise Owners'


Rights to the Property
Petitioners insist that they had been occupying the disputed property
for forty-seven years before they filed their Complaint for quieting of
title. However, there is no proof that they had exercised their rights and
duties as owners of the same. They argue that they had been
gathering the fruits of such property; yet, it would seem that they had
been remiss in their duty to pay the land taxes. If petitioners really
believed that they owned the property, they have should have been
more vigilant in protecting their rights thereto. As noted earlier, they did
nothing to enforce whatever proprietary rights they had over the
disputed parcel of land.
Third Issue:
The Validity of Private Respondent's Title
Petitioners debunk Private Respondent Selma's title to the disputed
property, alleging that she was aware of their possession of the
disputed properties. Thus, they insist that she could not be regarded as
a purchaser in good faith who is entitled to the protection of the Torrens
system.
Indeed, a party who has actual knowledge of facts and circumstances
that would move a reasonably cautious man to make an inquiry will not
be protected by the Torrens system. In Sandoval v. Court of
Appeals,22 we held:
It is settled doctrine that one who deals with property
registered under the Torrens system need not go beyond the
same, but only has to rely on the title. He is charged with
notice only of such burdens and claims as are annotated on
the title.
The aforesaid principle admits of an unchallenged exception:
that a person dealing with registered land has a right to rely
on the Torrens certificate of title and to dispense without the
need of inquiring further except when the party has actual
knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry, or when the
purchaser has knowledge of a defect or the lack of title in his
vendor or of sufficient facts to induce a reasonably prudent
man to inquire into the status of title of the property in
litigation. The presence of anything which excites or arouses
suspicion should then prompt the vendee to look beyond the
certificate and investigate the title of the vendor appearing
on the face of the certificate. One who falls within the
exception can neither be denominated an innocent
purchaser for value purchaser in good faith; and hence does
not merit the protection of the law.

Clearly, petitioners do not have the requisite title to pursue an action


for quieting of title.1wphi1.nt
WHEREFORE, the Petition is hereby DENIED and the assailed
Decision AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. No. L-55048 May 27, 1981
SUGA SOTTO YUVIENCO, BRITANIA SOTTO, and MARCELINO
SOTTO, petitioners,
vs.
HON. AUXENCIO C. DACUYCUY, Judge of the CFI of Leyte, DELY
RODRIGUEZ, FELIPE ANG CRUZ, CONSTANCIA NOGAR,
MANUEL GO, INOCENTES DIME, WILLY JULIO, JAIME YU, OSCAR
DY, DY CHIU SENG, BENITO YOUNG, FERNANDO YU, SEBASTIAN
YU, CARLOS UY, HOC CHUAN and MANUEL DY,respondents.

BARREDO, J.:1wph1.t
Petition for certiorari and prohibition to declare void for being in grave
abuse of discretion the orders of respondent judge dated November 2,
1978 and August 29, 1980, in Civil Case No. 5759 of the Court of First
Instance of Leyte, which denied the motion filed by petitioners to
dismiss the complaint of private respondents for specific performance
of an alleged agreement of sale of real property, the said motion being
based on the grounds that the respondents' complaint states no cause
of action and/or that the claim alleged therein is unenforceable under
the Statute of Frauds.
Finding initially prima facie merit in the petition, We required
respondents to answer and We issued a temporary restraining order
on October 7, 1980 enjoining the execution of the questioned orders.
In essence, the theory of petitioners is that while it is true that they did
express willingness to sell to private respondents the subject property
for P6,500,000 provided the latter made known their own decision to
buy it not later than July 31, 1978, the respondents' reply that they
were agreeable was not absolute, so much so that when ultimately
petitioners' representative went to Cebu City with a prepared and duly
signed contract for the purpose of perfecting and consummating the
transaction, respondents and said representative found variance
between the terms of payment stipulated in the prepared document
and what respondents had in mind, hence the bankdraft which
respondents were delivering to petit loners' representative was
returned and the document remained unsigned by respondents. Hence
the action below for specific performance.

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

PROPOSAL ACCEPTED ARRIVING TUESDAY


MORNING WITH CONTRACT PREPARE
PAYMENT BANK DRAFT 1wph1.tATTY.
GAMBOA

Mr. Yao King Ong


(Page 10, Id.)
Life Bakery
Now, Paragraph 10 of the complaint below of respondents
alleges: 1wph1.t

Tacloban City
Dear Mr. Yao: 1wph1.t
This refers to the Sotto property (land and
building) situated at Tacloban City. My clients are
willing to sell them at a total price of
P6,500,000.00.
While there are other parties who are interested to
buy the property, I am giving you and the other
occupants the preference, but such priority has to
be exercised within a given number of days as I do
not want to lose the opportunity if you are not
interested. I am therefore gluing you and the rest
of the occupants until July 31, 1978 within it which
to decide whether you want to buy the property. If I
do not hear from you by July 31, I will offer or
close the deal with the other interested buyer.
Thank you so much for the hospitality extended to
me during my last trip to Tacloban, and I hope to
hear from you very soon. 1wph1.tVery truly
yours,Pedro C. Gamboa 1
(Page 9, Record.)
Reacting to the foregoing letter, the following
telegram was sent by "Yao King Ong & tenants" to
Atty. Pedro Gamboa in Cebu City:
Atty. Pedro Gamboa
Room 314, Maria Cristina Bldg.
Osmea Boulevard, Cebu City
Reurlet dated July 12 inform Dra. Yuvienco we
agree to buy property proceed Tacloban to
negotiate details 1wph1.tYao King Ong &
tenants
(Page 10, Record.)
Likewise uncontroverted is the fact that under date
of July 27, 1978, Atty. Gamboa wired Yao King
Ong in Tacloban City as follows:
NLT
YAO KING ONG
LIFE BAKERY
TACLOBAN CITY

10. That on August 1, 1978, defendant Pedro


Gamboa arrived Tacloban City bringing with him
the prepared contract to purchase and to sell
referred to in his telegram dated July 27, 1978
(Annex 'D' hereof) for the purpose of closing the
transactions referred to in paragraphs 8 and 9
hereof, however, to the complete surprise of
plaintiffs, the defendant (except def. Tacloban City
Ice Plant, Inc.) without giving notice to plaintiffs,
changed the mode of payment with respect to the
balance of P4,500,000.00 by imposing upon
plaintiffs to pay same amount within thirty (30)
days from execution of the contract instead of the
former term of ninety (90) days as stated in
paragraph 8 hereof. (Pp. 10-11, Record.)
Additionally and to reenforce their position, respondents alleged further
in their complaint: 1wph1.t
8. That on July 12, 1978, defendants (except
defendant Tacloban City Ice Plant, Inc.) finally sent
a telegram letter to plaintiffs- tenants, through
same Mr. Yao King Ong, notifying them that
defendants are willing to sell the properties (lands
and building) at a total price of P6,500,000.00,
which herein plaintiffs-tenants have agreed to buy
the said properties for said price; a copy of which
letter is hereto attached as integral part hereof and
marked as Annex 'C', and plaintiffs accepted the
offer through a telegram dated July 25, 1978, sent
to defendants (through defendant Pedro C.
Gamboa), a copy of which telegram is hereto
attached as integral part hereof and marked as
Annex C-1 and as a consequence hereof. plaintiffs
except plaintiff Tacloban - merchants' Realty
Development Corporation) and defendants (except
defendant Tacloban City Ice Plant. Inc.) agreed to
the following terms and conditions respecting the
payment of said purchase price, to
wit: 1wph1.t
P2,000,000.00 to be paid in
full on the date of the
execution of the contract; and
the balance of P4,500,000.00
shall be fully paid within ninety
(90) days thereafter;
9. That on July 27, 1978, defendants sent a
telegram to plaintiff- tenants, through the latter's
representative Mr. Yao King Ong, reiterating their
acceptance to the agreement referred to in the
next preceding paragraph hereof and notifying
plaintiffs-tenants to prepare payment by bank
drafts; which the latter readily complied with; a
copy of which telegram is hereto attached as

integral part hereof and marked as Annex "D"; (Pp


49-50, Record.)
It was on the basis of the foregoing facts and allegations that herein
petitioners filed their motion to dismiss alleging as main
grounds: 1wph1.t
I. That plaintiff, TACLOBAN MERCHANTS'
REALTY DEVELOPMENT CORPORATION,
amended complaint, does not state a cause of
action and the claim on which the action is
founded is likewise unenforceable under the
provisions of the Statute of Frauds.
II. That as to the rest of the plaintiffs, their
amended complaint does not state a cause of
action and the claim on which the action is
founded is likewise unenforceable under the
provisions of the Statute of Frauds. (Page 81,
Record.)
With commendable knowledgeability and industry, respondent judge
ruled negatively on the motion to dismiss, discoursing at length on the
personality as real party-in-interest of respondent corporation, while
passing lightly, however, on what to Us are the more substantial and
decisive issues of whether or not the complaint sufficiently states a
cause of action and whether or not the claim alleged therein is
unenforceable under the Statute of Frauds, by holding
thus: 1wph1.t
The second ground of the motion to dismiss is that
plaintiffs' claim is unenforceable under the Statute
of Frauds. The defendants argued against this
motion and asked the court to reject the objection
for the simple reason that the contract of sale sued
upon in this case is supported by letters and
telegrams annexed to the complaint and other
papers which will be presented during the trial.
This contention of the defendants is not well taken.
The plaintiffs having alleged that the contract is
backed up by letters and telegrams, and the same
being a sufficient memorandum, the complaint
states a cause of action and they should be given
a day in court and allowed to substantiate their
allegations (Paredes vs. Espino, 22 SCRA 1000).
To take a contract for the sale of land out of the
Statute of Frauds a mere note or memorandum in
writing subscribed by the vendor or his agent
containing the name of the parties and a summary
statement of the terms of the sale either expressly
or by reference to something else is all that is
required. The statute does not require a formal
contract drawn up with technical exactness for the
language of Par. 2 of Art. 1403 of the Philippine
Civil Code is' ... an agreement ... or some note or
memorandum thereof,' thus recognizing a
difference between the contract itself and the
written evidence which the statute requires (Berg
vs. Magdalena Estate, Inc., 92 Phil. 110; Ill Moran,
Comments on the Rules of Court, 1952 ed. p.
187). See also Bautista's Monograph on the
Statute of Frauds in 21 SCRA p. 250. (Pp. 110111, Record)
Our first task then is to dwell on the issue of whether or not in the light
of the foregoing circumstances, the complaint in controversy states

sufficiently a cause of action. This issue necessarily entails the


determination of whether or not the plaintiffs have alleged facts
adequately showing the existence of a perfected contract of sale
between herein petitioners and the occupant represented by
respondent Yao King Ong.
In this respect, the governing legal provision is, of course, Article 1319
of the Civil Code which provides:1wph1.t
ART. 1319. Consent is manifested by the meeting
of the offer and the acceptance upon the thing and
the cause which are constitute the contract. The
offer must be certain the acceptance absolute. A
qualified acceptance constitute a counter-offer.
Acceptance made by letter or telegram does not
bind offerer except from the time it came to his
knowledge. The contract, in a case, is presumed
to have been entered into in the place where the
offer was made.
In the instant case, We can lay aside, for the moment, petitioners'
contention that the letter of July 12, 1978 of Atty. Pedro C. Gamboa to
respondents Yao King Ong and his companions constitute an offer that
is "certain", although the petitioners claim that it was a mere
expression of willingness to sell the subject property and not a direct
offer of sale to said respondents. What We consider as more important
and truly decisive is what is the correct juridical significance of the
telegram of respondents instructing Atty. Gamboa to "proceed to
Tacloban tonegotiate details." We underline the word "negotiate"
advisedly because to Our mind it is the key word that negates and
makes it legally impossible for Us to hold that respondents' acceptance
of petitioners' offer, assuming that it was a "certain" offer indeed, was
the "absolute" one that Article 1319 above-quoted requires.
Dictionally, the implication of "to negotiate" is practically the opposite of
the Idea that an agreement has been reached. Webster's Third
International Dictionary, Vol. II (G. & C. Merriam Co., 1971 Philippine
copyright) gives the meaning of negotiate as "to communicate or
confer with another so as to arrive at the settlement of some matter;
meet with another so as to arrive through discussion at some kind of
agreement or compromise about something; to arrange for or bring
about through conference or discussion; work at or arrive at or settle
upon by meetings and agreements or compromises ". Importantly, it
must be borne in mind that Yao King Ong's telegram simply says "we
agree to buy property". It does not necessarily connote acceptance of
the price but instead suggests that the details were to be subject of
negotiation.
Respondents now maintain that what the telegram refers to as "details"
to be "negotiated" are mere "accidental elements", not the essential
elements of the contract. They even invite attention to the fact that they
have alleged in their complaint (Par. 6) that it was as early as "in the
month of October, 1977 (that) negotiations between plaintiffs and
defendants for the purchase and sale (in question) were made, thus
resulting to offers of same defendants and counter-offer of plaintiffs".
But to Our mind such alleged facts precisely indicate the failure of any
meeting of the minds of the parties, and it is only from the letter and
telegrams above-quoted that one can determine whether or not such
meeting of the minds did materialize. As We see it, what such
allegations bring out in bold relief is that it was precisely because of
their past failure to arrive at an agreement that petitioners had to put
an end to the uncertainty by writing the letter of July 12, 1978. On the
other hand, that respondents were all the time agreeable to buy the
property may be conceded, but what impresses Us is that instead of
"absolutely" accepting the "certain" offer if there was one of the
petitioners, they still insisted on further negotiation of details. For

anyone to read in the telegram of Yao that they accepted the price of
P6,500,000.00 would be an inference not necessarily warranted by the
words "we agree to buy" and "proceed Tacloban to negotiate details". If
indeed the details being left by them for further negotiations were
merely accidental or formal ones, what need was there to say in the
telegram that they had still "to negotiate (such) details", when, being
unessential per their contention, they could have been just easily
clarified and agreed upon when Atty. Gamboa would reach Tacloban?
Anent the telegram of Atty. Gamboa of July 27, 1978, also quoted
earlier above, We gather that it was in answer to the telegram of Yao.
Considering that Yao was in Tacloban then while Atty. Gamboa was in
Cebu, it is difficult to surmise that there was any communication of any
kind between them during the intervening period, and none such is
alleged anyway by respondents. Accordingly, the claim of respondents
in paragraph 8 of their complaint below that there was an agreement of
a down payment of P2 M, with the balance of P4.5M to be paid within
90 days afterwards is rather improbable to imagine to have actually
happened.
Respondents maintain that under existing jurisprudence relative to a
motion to dismiss on the ground of failure of the complaint to state a
cause of action, the movant-defendant is deemed to admit the factual
allegations of the complaint, hence, petitioners cannot deny, for
purposes of their motion, that such terms of payment had indeed been
agreed upon.
While such is the rule, those allegations do not detract from the fact
that under Article 1319 of the Civil Code above-quoted, and judged in
the light of the telegram-reply of Yao to Atty. Gamboa's letter of July 12,
1978, there was not an absolute acceptance, hence from that point of
view, petitioners' contention that the complaint of respondents state no
cause of action is correct.
Nonetheless, the alleged subsequent agreement about the P2 M down
and P4.5 M in 90 days may at best be deemed as a distinct cause of
action. And placed against the insistence of petitioners, as
demonstrated in the two deeds of sale taken by Atty. Gamboa to
Tacloban, Annexes 9 and 10 of the answer of herein respondents, that
there was no agreement about 90 days, an issue of fact arose, which
could warrant a trial in order for the trial court to determine whether or
not there was such an agreement about the balance being payable in
90 days instead of the 30 days stipulated in Annexes 9 and 10 abovereferred to. Our conclusion, therefore, is that although there was no
perfected contract of sale in the light of the letter of Atty. Gamboa of
July 12, 1978 and the letter-reply thereto of Yao; it being doubtful
whether or not, under Article 1319 of the Civil Code, the said letter may
be deemed as an offer to sell that is "certain", and more, the Yao
telegram is far from being an "absolute" acceptance under said article,
still there appears to be a cause of action alleged in Paragraphs 8 to
12 of the respondents' complaint, considering it is alleged therein that
subsequent to the telegram of Yao, it was agreed that the petitioners
would sell the property to respondents for P6.5 M, by paving P2 M
down and the balance in 90 days and which agreement was allegedly
violated when in the deeds prepared by Atty. Gamboa and taken to
Tacloban, only 30 days were given to respondents.
But the foregoing conclusion is not enough to carry the day for
respondents. It only brings Us to the question of whether or not the
claim for specific performance of respondents is enforceable under the
Statute of Frauds. In this respect, We man, view the situation at hand
from two angles, namely, (1) that the allegations contained in
paragraphs 8 to 12 of respondents' complaint should be taken together
with the documents already aforementioned and (2) that the said
allegations constitute a separate and distinct cause of action. We hold
that either way We view the situation, the conclusion is inescapable e
that the claim of respondents that petitioners have unjustifiably refused

to proceed with the sale to them of the property v in question is


unenforceable under the Statute of Frauds.
It is nowhere alleged in said paragraphs 8 to 12 of the complaint that
there is any writing or memorandum, much less a duly signed
agreement to the effect that the price of P6,500,000 fixed by petitioners
for the real property herein involved was agreed to be paid not in cash
but in installments as alleged by respondents. The only documented
indication of the non-wholly-cash payment extant in the record is that
stipulated in Annexes 9 and 10 above-referred to, the deeds already
signed by the petitioners and taken to Tacloban by Atty. Gamboa for
the signatures of the respondents. In other words, the 90-day term for
the balance of P4.5 M insisted upon by respondents choices not
appear in any note, writing or memorandum signed by either the
petitioners or any of them, not even by Atty. Gamboa. Hence, looking
at the pose of respondents that there was a perfected agreement of
purchase and sale between them and petitioners under which they
would pay in installments of P2 M down and P4.5 M within ninety 90)
days afterwards it is evident that such oral contract involving the "sale
of real property" comes squarely under the Statute of Frauds (Article
1403, No. 2(e), Civil Code.)
On the other score of considering the supposed agreement of paying
installments as partly supported by the letter and t telegram earlier
quoted herein, His Honor declared with well studied ratiocination, albeit
legally inaccurate, that: 1wph1.t
The next issue relate to the State of Frauds. It is
contended that plaintiffs' action for specific
performance to compel the defendants to execute
a good and sufficient conveyance of the property
in question (Sotto land and building) is
unenforceable because there is no other note
memorandum or writing except annexes "C", "C-l"
and "D", which by themselves did not give birth to
a contract to sell. The argument is not well
founded. The rules of pleading limit the statement
of the cause of action only to such operative facts
as give rise to the right of action of the plaintiff to
obtain relief against the wrongdoer. The details of
probative matter or particulars of evidence,
statements of law, inferences and arguments need
not be stated. Thus, Sec. 1 of Rule 8 provides that
'every pleading shall contain in a methodical and
logical form, a plain concise and direct statement
of the ultimate facts on which the party pleading
relies for his claim or defense, as the case may
be, omitting the statement of mere evidentiary
facts.' Exhibits need not be attached. The contract
of sale sued upon in this case is supported by
letters and telegrams annexed to the complaint
and plaintiffs have announced that they will
present additional evidences during the trial to
prove their cause of action. The plaintiffs having
alleged that the contract is backed up by letters
and telegrams, and the same being sufficient
memorandum, the complaint states a cause of
action and they should be given their day in court
and allowed to substantiate their allegations
(Parades vs. Espino, 22 SCRA 1000). (Pp 165166, Record.)
The foregoing disquisition of respondent judge misses at least two (2)
juridical substantive aspects of the Statute of Frauds insofar as sale of
real property is concerned. First, His Honor assumed that the
requirement of perfection of such kind of contract under Article 1475 of
the Civil Code which provides that "(t)he contract of sale is perfected at
the moment there is a meeting of the minds upon the thing which is the

object of the contract and upon the price", the Statute would no longer
apply as long as the total price or consideration is mentioned in some
note or memorandum and there is no need of any indication of the
manner in which such total price is to be paid.
We cannot agree. In the reality of the economic world and the exacting
demands of business interests monetary in character, payment on
installments or staggered payment of the total price is entirely a
different matter from cash payment, considering the unpredictable
trends in the sudden fluctuation of the rate of interest. In other words, it
is indisputable that the value of money - varies from day to day, hence
the indispensability of providing in any sale of the terms of payment
when not expressly or impliedly intended to be in cash.
Thus, We hold that in any sale of real property on installments, the
Statute of Frauds read together with the perfection requirements of
Article 1475 of the Civil Code must be understood and applied in the
sense that the idea of payment on installments must be in the requisite
of a note or memorandum therein contemplated. Stated otherwise, the
inessential elements" mentioned in the case of Parades vs. Espino, 22
SCRA 1000, relied upon by respondent judge must be deemed to
include the requirement just discussed when it comes to installment
sales. There is nothing in the monograph re the Statute of Frauds
appearing in 21 SCRA 250 also cited by His Honor indicative of any
contrary view to this ruling of Ours, for the essence and thrust of the
said monograph refers only to the form of the note or memorandum
which would comply with the Statute, and no doubt, while such note or
memorandum need not be in one single document or writing and it can
be in just sufficiently implicit tenor, imperatively the separate notes
must, when put together', contain all the requisites of a perfected
contract of sale. To put it the other way, under the Statute of Frauds,
the contents of the note or memorandum, whether in one writing or in
separate ones merely indicative for an adequate understanding of all
the essential elements of the entire agreement, may be said to be the
contract itself, except as to the form.
Secondly, We are of the considered opinion that under the rules on
proper pleading, the ruling of the trial court that, even if the allegation
of the existence of a sale of real property in a complaint is challenged
as barred from enforceability by the Statute of Frauds, the plaintiff may
simply say there are documents, notes or memoranda without either
quoting them in or annexing them to the complaint, as if holding an ace
in the sleeves is not correct. To go directly to the point, for Us to
sanction such a procedure is to tolerate and even encourage undue
delay in litigation, for the simple reason that to await the stage of trial
for the showing or presentation of the requisite documentary proof
when it already exists and is asked to be produced by the adverse
party would amount to unnecessarily postponing, with the concomitant
waste of time and the prolongation of the proceedings, something that
can immediately be evidenced and thereby determinable with
decisiveness and precision by the court without further delay.
In this connection, Moran observes that unlike when the ground of
dismissal alleged is failure of the complaint to state a cause of action, a
motion to dismiss invoking the Statute of Frauds may be filed even if
the absence of compliance does not appear an the face of the
complaint. Such absence may be the subject of proof in the motion
stage of the proceedings. (Moran, Comment on the Rules of Court,
Vol. 1, p. 494, 1979 ed.) It follows then that when such a motion is filed
and all the documents available to movant are before the court, and
they are insufficient to comply with the Statute, it becomes incumbent
upon the plaintiff, for the reasons of policy We have just' indicated
regarding speedy administration of justice, to bring out what note or
memorandum still exists in his possession in order to enable the court
to expeditiously determine then and there the need for further
proceedings. In other words, it would be inimical to the public interests
in speedy justice for plaintiff to play hide and seek at his own
convenience, particularly, when, as is quite apparent as in the instant

case that chances are that there are no more writings, notes or
memoranda of the installment agreement alleged by respondents. We
cannot divine any reason why any such document would be withheld if
they existed, except the unpermissible desire of the respondents to
force the petitioners to undergo the ordeals, time, effort and expenses
of a futile trial.
In the foregoing premises, We find no alternative than to render
judgment in favor of petitioners in this certiorari and prohibition case. If
at all, appeal could be available if the petitioners subjected themselves
to the trial ruled to be held by the trial court. We foresee even at this
point, on the basis of what is both extant and implicit in the records,
that no different result can be probable. We consider it as sufficiently a
grave abuse of discretion warranting the special civil actions herein the
failure of respondent judge to properly apply the laws on perfection of
contracts in relation to the Statute of Frauds and the pertinent rules of
pleading and practice, as We have discussed above.
ACCORDINGLY, the impugned orders of respondent judge of
November 2, 1978 and August 29, 1980 are hereby set aside and
private respondents' amended complaint, Annex A of the petition, is
hereby ordered dismissed and the restraining order heretofore issued
by this Court on October 7, 1980 is declared permanent. Costs against
respondents.
G.R. No. 85240 July 12, 1991
HEIRS OF CECILIO (also known as BASILIO) CLAUDEL, namely,
MODESTA CLAUDEL, LORETA HERRERA, JOSE CLAUDEL,
BENJAMIN CLAUDEL, PACITA CLAUDEL, CARMELITA CLAUDEL,
MARIO CLAUDEL, ROBERTO CLAUDEL, LEONARDO CLAUDEL,
ARSENIA VILLALON, PERPETUA CLAUDEL and FELISA
CLAUDEL, petitioners,
vs.
HON. COURT OF APPEALS, HEIRS OF MACARIO, ESPERIDIONA,
RAYMUNDA and CELESTINA, all surnamed
CLAUDEL, respondents.
Ricardo L. Moldez for petitioners.
Juan T. Aquino for private respondents

SARMIENTO, J.:p
This petition for review on certiorari seeks the reversal of the decision
rendered by the Court of Appeals in CA-G.R. CV No. 04429 1 and the
reinstatement of the decision of the then Court of First Instance (CFI)
of Rizal, Branch CXI, in Civil Case No. M-5276-P, entitled. "Heirs of
Macario Claudel, et al. v. Heirs of Cecilio Claudel, et al.," which
dismissed the complaint of the private respondents against the
petitioners for cancellation of titles and reconveyance with damages. 2
As early as December 28, 1922, Basilio also known as "Cecilio"
Claudel, acquired from the Bureau of Lands, Lot No. 1230 of the
Muntinlupa Estate Subdivision, located in the poblacion of Muntinlupa,
Rizal, with an area of 10,107 square meters; he secured Transfer
Certificate of Title (TCT) No. 7471 issued by the Registry of Deeds for
the Province of Rizal in 1923; he also declared the lot in his name, the
latest Tax Declaration being No. 5795. He dutifully paid the real estate
taxes thereon until his death in 1937. 3 Thereafter, his widow "Basilia"
and later, her son Jose, one of the herein petitioners, paid the taxes.

The same piece of land purchased by Cecilio would, however, become


the subject of protracted litigation thirty-nine years after his death.
Two branches of Cecilio's family contested the ownership over the
land-on one hand the children of Cecilio, namely, Modesto, Loreta,
Jose, Benjamin, Pacita, Carmelita, Roberto, Mario, Leonardo, Nenita,
Arsenia Villalon, and Felisa Claudel, and their children and
descendants, now the herein petitioners (hereinafter referred to as
HEIRS OF CECILIO), and on the other, the brother and sisters of
Cecilio, namely, Macario, Esperidiona, Raymunda, and Celestina and
their children and descendants, now the herein private respondents
(hereinafter referred to as SIBLINGS OF CECILIO). In 1972, the
HEIRS OF CECILIO partitioned this lot among themselves and
obtained the corresponding Transfer Certificates of Title on their
shares, as follows:

alleged sale took place in 1930, the action filed by


the plaintiffs herein for the recovery of the same
more than thirty years after the cause of action
has accrued has already prescribed.
WHEREFORE, the Court renders judgment
dismissing the complaint, without pronouncement
as to costs.
SO ORDERED. 5
On appeal, the following errors 6 were assigned by the SIBLINGS OF
CECILIO:
1. THE TRIAL COURT ERRED IN DISMISSING
PLAINTIFFS' COMPLAINT DESPITE
CONCLUSIVE EVIDENCE SHOWING THE
PORTION SOLD TO EACH OF PLAINTIFFS'
PREDECESSORS.

TCT No. 395391 1,997 sq. m. Jose Claudel


TCT No. 395392 1,997 sq. m. Modesta Claudel
and children

2. THE TRIAL COURT ERRED IN HOLDING


THAT PLAINTIFFS FAILED TO PROVE ANY
DOCUMENT EVIDENCING THE ALLEGED SALE.

TCT No. 395393 1,997 sq. m. Armenia C.


Villalon
TCT No. 395394 1,997 sq. m. Felisa Claudel

3. THE TRIAL COURT ERRED IN NOT GIVING


CREDIT TO THE PLAN, EXHIBIT A, SHOWING
THE PORTIONS SOLD TO EACH OF THE
PLAINTIFFS' PREDECESSORS-IN-INTEREST.

Four years later, on December 7, 1976, private respondents SIBLINGS


OF CECILIO, filed Civil Case No. 5276-P as already adverted to at the
outset, with the then Court of First Instance of Rizal, a "Complaint for
Cancellation of Titles and Reconveyance with Damages," alleging that
46 years earlier, or sometime in 1930, their parents had purchased
from the late Cecilio Claudel several portions of Lot No. 1230 for the
sum of P30.00. They admitted that the transaction was verbal.
However, as proof of the sale, the SIBLINGS OF CECILIO presented a
subdivision plan of the said land, dated March 25, 1930, indicating the
portions allegedly sold to the SIBLINGS OF CECILIO.
As already mentioned, the then Court of First Instance of Rizal, Branch
CXI, dismissed the complaint, disregarding the above sole evidence
(subdivision plan) presented by the SIBLINGS OF CECILIO, thus:
Examining the pleadings as well as the evidence
presented in this case by the parties, the Court
can not but notice that the present complaint was
filed in the name of the Heirs of Macario,
Espiridiona, Raymunda and Celestina, all
surnamed Claudel, without naming the different
heirs particularly involved, and who wish to
recover the lots from the defendants. The Court
tried to find this out from the evidence presented
by the plaintiffs but to no avail. On this point alone,
the Court would not be able to apportion the
property to the real party in interest if ever they are
entitled to it as the persons indicated therein is in
generic term (Section 2, Rule 3). The Court has
noticed also that with the exception of plaintiff
Lampitoc and (sic) the heirs of Raymunda Claudel
are no longer residing in the property as they have
(sic) left the same in 1967. But most important of
all the plaintiffs failed to present any document
evidencing the alleged sale of the property to their
predecessors in interest by the father of the
defendants. Considering that the subject matter of
the supposed sale is a real property the absence
of any document evidencing the sale would
preclude the admission of oral testimony (Statute
of Frauds). Moreover, considering also that the

4. THE TRIAL COURT ERRED IN NOT


DECLARING PLAINTIFFS AS OWNERS OF THE
PORTION COVERED BY THE PLAN, EXHIBIT A.
5. THE TRIAL COURT ERRED IN NOT
DECLARING TRANSFER CERTIFICATES OF
TITLE NOS. 395391, 395392, 395393 AND
395394 OF THE REGISTER OF DEEDS OF
RIZAL AS NULL AND VOID.
The Court of Appeals reversed the decision of the trial court on the
following grounds:
1. The failure to bring and prosecute the action in the name of the real
party in interest, namely the parties themselves, was not a fatal
omission since the court a quo could have adjudicated the lots to the
SIBLINGS OF CECILIO, the parents of the herein respondents, leaving
it to them to adjudicate the property among themselves.
2. The fact of residence in the disputed properties by the herein
respondents had been made possible by the toleration of the deceased
Cecilio.
3. The Statute of Frauds applies only to executory contracts and not to
consummated sales as in the case at bar where oral evidence may be
admitted as cited in Iigo v. Estate of Magtoto 7 and Diana, et
al. v. Macalibo. 8
In addition,
. . . Given the nature of their relationship with one
another it is not unusual that no document to
evidence the sale was executed, . . ., in their blind
faith in friends and relatives, in their lack of
experience and foresight, and in their ignorance,

men, in spite of laws, will make and continue to


make verbal contracts. . . . 9
4. The defense of prescription cannot be set up against the herein
petitioners despite the lapse of over forty years from the time of the
alleged sale in 1930 up to the filing of the "Complaint for Cancellation
of Titles and Reconveyance . . ." in 1976.
According to the Court of Appeals, the action was not for the recovery
of possession of real property but for the cancellation of titles issued to
the HEIRS OF CECILIO in 1973. Since the SIBLINGS OF CECILIO
commenced their complaint for cancellation of titles and reconveyance
with damages on December 7, 1976, only four years after the HEIRS
OF CECILIO partitioned this lot among themselves and obtained the
corresponding Transfer Certificates of Titles, then there is no
prescription of action yet.
Thus the respondent court ordered the cancellation of the Transfer
Certificates of Title Nos. 395391, 395392, 395393, and 395394 of the
Register of Deeds of Rizal issued in the names of the HEIRS OF
CECILIO and corollarily ordered the execution of the following deeds of
reconveyance:
To Celestina Claudel, Lot 1230-A with an area of
705 sq. m.
To Raymunda Claudel, Lot 1230-B with an area of
599 sq. m.
To Esperidiona Claudel, Lot 1230-C with an area
of 597 sq. m.

The rule of thumb is that a sale of land, once consummated, is valid


regardless of the form it may have been entered into. 11 For nowhere
does law or jurisprudence prescribe that the contract of sale be put in
writing before such contract can validly cede or transmit rights over a
certain real property between the parties themselves.
However, in the event that a third party, as in this case, disputes the
ownership of the property, the person against whom that claim is
brought can not present any proof of such sale and hence has no
means to enforce the contract. Thus the Statute of Frauds was
precisely devised to protect the parties in a contract of sale of real
property so that no such contract is enforceable unless certain
requisites, for purposes of proof, are met.
The provisions of the Statute of Frauds pertinent to the present
controversy, state:
Art. 1403 (Civil Code). The following contracts are
unenforceable, unless they are ratified:
xxx xxx xxx
2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the following
cases, an agreement hereafter made shall be
unenforceable by action unless the same, or some
note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be
received without the writing, or a secondary
evidence of its contents:
xxx xxx xxx

To Macario Claudel, Lot 1230-D, with an area of


596 sq. m. 10
The respondent court also enjoined that this disposition is without
prejudice to the private respondents, as heirs of their deceased
parents, the SIBLINGS OF CECILIO, partitioning among themselves in
accordance with law the respective portions sold to and herein
adjudicated to their parents.

e) An agreement for the leasing for a longer period


than one year, or for the sale of real property or of
an interest therein;
xxx xxx xxx
(Emphasis supplied.)

The rest of the land, lots 1230-E and 1230-F, with an area of 598 and
6,927 square meters, respectively would go to Cecilio or his heirs, the
herein petitioners. Beyond these apportionments, the HEIRS OF
CECILIO would not receive anything else.
The crux of the entire litigation is whether or not the Court of Appeals
committed a reversible error in disposing the question of the true
ownership of the lots.
And the real issues are:
1. Whether or not a contract of sale of land may be
proven orally:
2. Whether or not the prescriptive period for filing
an action for cancellation of titles and
reconveyance with damages (the action filed by
the SIBLINGS OF CECILIO) should be counted
from the alleged sale upon which they claim their
ownership (1930) or from the date of the issuance
of the titles sought to be cancelled in favor of the
HEIRS OF CECILIO (1976).

The purpose of the Statute of Frauds is to prevent fraud and perjury in


the enforcement of obligations depending for their evidence upon the
unassisted memory of witnesses by requiring certain enumerated
contracts and transactions to be evidenced in Writing. 12
The provisions of the Statute of Frauds originally appeared under the
old Rules of Evidence. However when the Civil Code was re-written in
1949 (to take effect in 1950), the provisions of the Statute of Frauds
were taken out of the Rules of Evidence in order to be included under
the title on Unenforceable Contracts in the Civil Code. The transfer
was not only a matter of style but to show that the Statute of Frauds is
also a substantive law.
Therefore, except under the conditions provided by the Statute of
Frauds, the existence of the contract of sale made by Cecilio with his
siblings 13 can not be proved.
On the second issue, the belated claim of the SIBLINGS OF CECILIO
who filed a complaint in court only in 1976 to enforce a light acquired
allegedly as early as 1930, is difficult to comprehend.
The Civil Code states:

Art. 1145. The following actions must be


commenced within six years:
(1) Upon an oral contract . . . (Emphasis supplied).
If the parties SIBLINGS OF CECILIO had allegedly derived their right
of action from the oral purchase made by their parents in 1930, then
the action filed in 1976 would have clearly prescribed. More than six
years had lapsed.
We do not agree with the parties SIBLINGS OF CECILIO when they
reason that an implied trust in favor of the SIBLINGS OF CECILIO was
established in 1972, when the HEIRS OF CECILIO executed a
contract of partition over the said properties.
But as we had pointed out, the law recognizes the superiority of the
torrens title.
Above all, the torrens title in the possession of the HEIRS OF CECILIO
carries more weight as proof of ownership than the survey or
subdivision plan of a parcel of land in the name of SIBLINGS OF
CECILIO.
The Court has invariably upheld the indefeasibility of the torrens title.
No possession by any person of any portion of the land could defeat
the title of the registered owners thereof. 14
A torrens title, once registered, cannot be
defeated, even by adverse, open and notorious
possession. A registered title under the torrens
system cannot be defeated by prescription. The
title, once registered, is notice to the world. All
persons must take notice. No one can plead
ignorance of the registration. 15
xxx xxx xxx
Furthermore, a private individual may not bring an
action for reversion or any action which would
have the effect of cancelling a free patent and the
corresponding certificate of title issued on the
basis thereof, with the result that the land covered
thereby will again form part of the public domain,
as only the Solicitor General or the officer acting in
his stead may do so. 16
It is true that in some instances, the Court did away with the
irrevocability of the torrens title, but the circumstances in the case at
bar varied significantly from these cases.
In Bornales v. IAC, 17 the defense of indefeasibility of a certificate of
title was disregarded when the transferee who took it had notice of the
flaws in the transferor's title. No right passed to a transferee from a
vendor who did not have any in the first place. The transferees bought
the land registered under the torrens system from vendors who
procured title thereto by means of fraud. With this knowledge, they can
not invoke the indefeasibility of a certificate of title against the private
respondent to the extent of her interest. This is because the torrens
system of land registration, though indefeasible, should not be used as
a means to perpetrate fraud against the rightful owner of real property.
Mere registration of the sale is not good enough, good faith must
concur with registration. Otherwise registration becomes an exercise in
futility. 18

In Amerol v. Bagumbaran, 19 we reversed the decision of the trial court.


In this case, the title was wrongfully registered in another person's
name. An implied trust was therefore created. This trustee was
compelled by law to reconvey property fraudulently acquired
notwithstanding the irrevocability of the torrens title. 20
In the present case, however, the facts belie the claim of ownership.
For several years, when the SIBLINGS OF CECILIO, namely, Macario,
Esperidiona Raymunda, and Celestina were living on the contested
premises, they regularly paid a sum of money, designated as "taxes" at
first, to the widow of Cecilio, and later, to his heirs. 21 Why their
payments were never directly made to the Municipal Government of
Muntinlupa when they were intended as payments for "taxes" is difficult
to square with their claim of ownership. We are rather inclined to
consider this fact as an admission of non-ownership. And when we
consider also that the petitioners HEIRS OF CECILIO had individually
paid to the municipal treasury the taxes corresponding to the particular
portions they were occupying, 22 we can readily see the superiority of
the petitioners' position.
Renato Solema and Decimina Calvez, two of the respondents who
derive their right from the SIBLINGS OF CLAUDEL, bought a portion of
the lot from Felisa Claudel, one of the HEIRS OF CLAUDEL. 23 The
Calvezes should not be paying for a lot that they already owned and if
they did not acknowledge Felisa as its owner.
In addition, before any of the SIBLINGS OF CECILIO could stay on
any of the portions of the property, they had to ask first the permission
of Jose Claudel again, one of the HEIRS OF CECILIO. 24 In fact the
only reason why any of the heirs of SIBLINGS OF CECILIO could stay
on the lot was because they were allowed to do so by the HEIRS OF
CECILIO. 25
In view of the foregoing, we find that the appellate court committed a
reversible error in denigrating the transfer certificates of title of the
petitioners to the survey or subdivision plan proffered by the private
respondents. The Court generally recognizes the profundity of
conclusions and findings of facts reached by the trial court and hence
sustains them on appeal except for strong and cogent reasons
inasmuch as the trial court is in a better position to examine real
evidence and observe the demeanor of witnesses in a case.
No clear specific contrary evidence was cited by the respondent
appellate court to justify the reversal of the lower court's findings. Thus,
in this case, between the factual findings of the trial court and the
appellate court, those of the trial court must prevail over that of the
latter. 26
WHEREFORE, the petition is GRANTED We REVERSE and SET
ASIDE the decision rendered in CA-G.R. CV No. 04429, and we
hereby REINSTATE the decision of the then Court of First Instance of
Rizal (Branch 28, Pasay City) in Civil Case No. M-5276-P which ruled
for the dismissal of the Complaint for Cancellation of Titles and
Reconveyance with Damages filed by the Heirs of Macario,
Esperidiona Raymunda, and Celestina, all surnamed CLAUDEL. Costs
against the private respondents.
SO ORDERED.
G.R. No. 144225

June 17, 2003

SPOUSES GODOFREDO ALFREDO and CARMEN LIMON


ALFREDO, SPOUSES ARNULFO SAVELLANO and EDITHA B.
SAVELLANO, DANTON D. MATAWARAN, SPOUSES DELFIN F.
ESPIRITU, JR. and ESTELA S. ESPIRITU and ELIZABETH

TUAZON, Petitioners,
vs.
SPOUSES ARMANDO BORRAS and ADELIA LOBATON
BORRAS, Respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review assailing the Decision1 of the Court of
Appeals dated 26 November 1999 affirming the decision2 of the
Regional Trial Court of Bataan, Branch 4, in Civil Case No. DH-256-94.
Petitioners also question the Resolution of the Court of Appeals dated
26 July 2000 denying petitioners motion for reconsideration.
The Antecedent Facts
A parcel of land measuring 81,524 square meters ("Subject Land") in
Barrio Culis, Mabiga, Hermosa, Bataan is the subject of controversy in
this case. The registered owners of the Subject Land were petitioner
spouses, Godofredo Alfredo ("Godofredo") and Carmen Limon Alfredo
("Carmen"). The Subject Land is covered by Original Certificate of Title
No. 284 ("OCT No. 284") issued to Godofredo and Carmen under
Homestead Patent No. V-69196.
On 7 March 1994, the private respondents, spouses Armando Borras
("Armando") and Adelia Lobaton Borras ("Adelia"), filed a complaint for
specific performance against Godofredo and Carmen before the
Regional Trial Court of Bataan, Branch 4. The case was docketed as
Civil Case No. DH-256-94.
Armando and Adelia alleged in their complaint that Godofredo and
Carmen mortgaged the Subject Land forP7,000.00 with the
Development Bank of the Philippines ("DBP"). To pay the debt,
Carmen and Godofredo sold the Subject Land to Armando and Adelia
for P15,000.00, the buyers to pay the DBP loan and its accumulated
interest, and the balance to be paid in cash to the sellers.
Armando and Adelia gave Godofredo and Carmen the money to pay
the loan to DBP which signed the release of mortgage and returned
the owners duplicate copy of OCT No. 284 to Godofredo and Carmen.
Armando and Adelia subsequently paid the balance of the purchase
price of the Subject Land for which Carmen issued a receipt dated 11
March 1970. Godofredo and Carmen then delivered to Adelia the
owners duplicate copy of OCT No. 284, with the document of
cancellation of mortgage, official receipts of realty tax payments, and
tax declaration in the name of Godofredo. Godofredo and Carmen
introduced Armando and Adelia, as the new owners of the Subject
Land, to the Natanawans, the old tenants of the Subject Land.
Armando and Adelia then took possession of the Subject Land.
In January 1994, Armando and Adelia learned that hired persons had
entered the Subject Land and were cutting trees under instructions of
allegedly new owners of the Subject Land. Subsequently, Armando
and Adelia discovered that Godofredo and Carmen had re-sold
portions of the Subject Land to several persons.
On 8 February 1994, Armando and Adelia filed an adverse claim with
the Register of Deeds of Bataan. Armando and Adelia discovered that
Godofredo and Carmen had secured an owners duplicate copy of
OCT No. 284 after filing a petition in court for the issuance of a new
copy. Godofredo and Carmen claimed in their petition that they lost
their owners duplicate copy. Armando and Adelia wrote Godofredo and

Carmen complaining about their acts, but the latter did not reply. Thus,
Armando and Adelia filed a complaint for specific performance.
On 28 March 1994, Armando and Adelia amended their complaint to
include the following persons as additional defendants: the spouses
Arnulfo Savellano and Editha B. Savellano, Danton D. Matawaran, the
spouses Delfin F. Espiritu, Jr. and Estela S. Espiritu, and Elizabeth
Tuazon ("Subsequent Buyers"). The Subsequent Buyers, who are also
petitioners in this case, purchased from Godofredo and Carmen the
subdivided portions of the Subject Land. The Register of Deeds of
Bataan issued to the Subsequent Buyers transfer certificates of title to
the lots they purchased.
In their answer, Godofredo and Carmen and the Subsequent Buyers
(collectively "petitioners") argued that the action is unenforceable
under the Statute of Frauds. Petitioners pointed out that there is no
written instrument evidencing the alleged contract of sale over the
Subject Land in favor of Armando and Adelia. Petitioners objected to
whatever parole evidence Armando and Adelia introduced or offered
on the alleged sale unless the same was in writing and subscribed by
Godofredo. Petitioners asserted that the Subsequent Buyers were
buyers in good faith and for value. As counterclaim, petitioners sought
payment of attorneys fees and incidental expenses.
Trial then followed. Armando and Adelia presented the following
witnesses: Adelia, Jesus Lobaton, Roberto Lopez, Apolinario
Natanawan, Rolando Natanawan, Tomas Natanawan, and Mildred
Lobaton. Petitioners presented two witnesses, Godofredo and
Constancia Calonso.
On 7 June 1996, the trial court rendered its decision in favor of
Armando and Adelia. The dispositive portion of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of plaintiffs, the spouses Adelia Lobaton Borras and Armando F.
Borras, and against the defendant-spouses Godofredo Alfredo and
Carmen Limon Alfredo, spouses Arnulfo Sabellano and Editha B.
Sabellano, spouses Delfin F. Espiritu, Jr. and Estela S. Espiritu, Danton
D. Matawaran and Elizabeth Tuazon, as follows:
1. Declaring the Deeds of Absolute Sale of the disputed
parcel of land (covered by OCT No. 284) executed by the
spouses Godofredo Alfredo and Camen Limon Alfredo in
favor of spouses Arnulfo Sabellano and Editha B. Sabellano,
spouses Delfin F. Espiritu, Danton D. Matawaran and
Elizabeth Tuazon, as null and void;
2. Declaring the Transfer Certificates of Title Nos. T-163266
and T-163267 in the names of spouses Arnulfo Sabellano
and Editha B. Sabellano; Transfer Certificates of Title Nos. T163268 and 163272 in the names of spouses Delfin F.
Espiritu, Jr. and Estela S. Espiritu; Transfer Certificates of
Title Nos. T-163269 and T-163271 in the name of Danton D.
Matawaran; and Transfer Certificate of Title No. T-163270 in
the name of Elizabeth Tuazon, as null and void and that the
Register of Deeds of Bataan is hereby ordered to cancel
said titles;
3. Ordering the defendant-spouses Godofredo Alfredo and
Carmen Limon Alfredo to execute and deliver a good and
valid Deed of Absolute Sale of the disputed parcel of land
(covered by OCT No. 284) in favor of the spouses Adelia
Lobaton Borras and Armando F. Borras within a period of ten
(10) days from the finality of this decision;

4. Ordering defendant-spouses Godofredo Alfredo and


Carmen Limon Alfredo to surrender their owners duplicate
copy of OCT No. 284 issued to them by virtue of the Order
dated May 20, 1992 of the Regional Trial Court of Bataan,
Dinalupihan Branch, to the Registry of Deeds of Bataan
within ten (10) days from the finality of this decision, who, in
turn, is directed to cancel the same as there exists in the
possession of herein plaintiffs of the owners duplicate copy
of said OCT No. 284 and, to restore and/or reinstate OCT
No. 284 of the Register of Deeds of Bataan to its full force
and effect;
5. Ordering the defendant-spouses Godofredo Alfredo and
Carmen Limon Alfredo to restitute and/or return the amount
of the respective purchase prices and/or consideration of
sale of the disputed parcels of land they sold to their codefendants within ten (10) days from the finality of this
decision with legal interest thereon from date of the sale;
6. Ordering the defendants, jointly and severally, to pay
plaintiff-spouses the sum of P20,000.00 as and for attorneys
fees and litigation expenses; and
7. Ordering defendants to pay the costs of suit.
Defendants counterclaims are hereby dismissed for lack of merit.
SO ORDERED.3

receipts of realty tax payments in the name of Godofredo; and (4) the
DBP cancelled the mortgage on the Subject Property upon payment of
the loan of Godofredo and Carmen. Moreover, the receipt of payment
issued by Carmen served as an acknowledgment, if not a ratification,
of the verbal sale between the sellers and the buyers. The trial court
ruled that the Statute of Frauds is not applicable because in this case
the sale was perfected.
The trial court concluded that the Subsequent Buyers were not
innocent purchasers. Not one of the Subsequent Buyers testified in
court on how they purchased their respective lots. The Subsequent
Buyers totally depended on the testimony of Constancia Calonso
("Calonso") to explain the subsequent sale. Calonso, a broker,
negotiated with Godofredo and Carmen the sale of the Subject Land
which Godofredo and Carmen subdivided so they could sell anew
portions to the Subsequent Buyers.
Calonso admitted that the Subject Land was adjacent to her own lot.
The trial court pointed out that Calonso did not inquire on the nature of
the tenancy of the Natanawans and on who owned the Subject Land.
Instead, she bought out the tenants for P150,000.00. The buy out was
embodied in a Kasunduan. Apolinario Natanawan ("Apolinario")
testified that he and his wife accepted the money and signed the
Kasunduan because Calonso and the Subsequent Buyers threatened
them with forcible ejectment. Calonso brought Apolinario to the
Agrarian Reform Office where he was asked to produce the documents
showing that Adelia is the owner of the Subject Land. Since Apolinario
could not produce the documents, the agrarian officer told him that he
would lose the case. Thus, Apolinario was constrained to sign the
Kasunduan and accept the P150,000.00.

Petitioners appealed to the Court of Appeals.


On 26 November 1999, the Court of Appeals issued its Decision
affirming the decision of the trial court, thus:
WHEREFORE, premises considered, the appealed decision in Civil
Case No. DH-256-94 is hereby AFFIRMED in its entirety. Treble costs
against the defendants-appellants.
SO ORDERED.4
On 26 July 2000, the Court of Appeals denied petitioners motion for
reconsideration.
The Ruling of the Trial Court
The trial court ruled that there was a perfected contract of sale
between the spouses Godofredo and Carmen and the spouses
Armando and Adelia. The trial court found that all the elements of a
contract of sale were present in this case. The object of the sale was
specifically identified as the 81,524-square meter lot in Barrio Culis,
Mabigas, Hermosa, Bataan, covered by OCT No. 284 issued by the
Registry of Deeds of Bataan. The purchase price was fixed
at P15,000.00, with the buyers assuming to pay the sellers P7,000.00
DBP mortgage loan including its accumulated interest. The balance of
the purchase price was to be paid in cash to the sellers. The last
payment of P2,524.00 constituted the full settlement of the purchase
price and this was paid on 11 March 1970 as evidenced by the receipt
issued by Carmen.
The trial court found the following facts as proof of a perfected contract
of sale: (1) Godofredo and Carmen delivered to Armando and Adelia
the Subject Land; (2) Armando and Adelia treated as their own tenants
the tenants of Godofredo and Carmen; (3) Godofredo and Carmen
turned over to Armando and Adelia documents such as the owners
duplicate copy of the title of the Subject Land, tax declaration, and the

Another indication of Calonsos bad faith was her own admission that
she saw an adverse claim on the title of the Subject Land when she
registered the deeds of sale in the names of the Subsequent Buyers.
Calonso ignored the adverse claim and proceeded with the registration
of the deeds of sale.
The trial court awarded P20,000.00 as attorneys fees to Armando and
Adelia. In justifying the award of attorneys fees, the trial court invoked
Article 2208 (2) of the Civil Code which allows a court to award
attorneys fees, including litigation expenses, when it is just and
equitable to award the same. The trial court ruled that Armando and
Adelia are entitled to attorneys fees since they were compelled to file
this case due to petitioners refusal to heed their just and valid demand.
The Ruling of the Court of Appeals
The Court of Appeals found the factual findings of the trial court well
supported by the evidence. Based on these findings, the Court of
Appeals also concluded that there was a perfected contract of sale and
the Subsequent Buyers were not innocent purchasers.
The Court of Appeals ruled that the handwritten receipt dated 11 March
1970 is sufficient proof that Godofredo and Carmen sold the Subject
Land to Armando and Adelia upon payment of the balance of the
purchase price. The Court of Appeals found the recitals in the receipt
as "sufficient to serve as the memorandum or note as a writing under
the Statute of Frauds."5 The Court of Appeals then reiterated the ruling
of the trial court that the Statute of Frauds does not apply in this case.
The Court of Appeals gave credence to the testimony of a witness of
Armando and Adelia, Mildred Lobaton, who explained why the title to
the Subject Land was not in the name of Armando and Adelia. Lobaton
testified that Godofredo was then busy preparing to leave for Davao.
Godofredo promised that he would sign all the papers once they were
ready. Since Armando and Adelia were close to the family of Carmen,
they trusted Godofredo and Carmen to honor their commitment.

Armando and Adelia had no reason to believe that their contract of sale
was not perfected or validly executed considering that they had
received the duplicate copy of OCT No. 284 and other relevant
documents. Moreover, they had taken physical possession of the
Subject Land.

Buyers, innocent purchasers in good faith and for value whose


individual titles to their respective lots are absolute and indefeasible,
are valid.

The Court of Appeals held that the contract of sale is not void even if
only Carmen signed the receipt dated 11 March 1970. Citing Felipe v.
Heirs of Maximo Aldon,6 the appellate court ruled that a contract of sale
made by the wife without the husbands consent is not void but merely
voidable. The Court of Appeals further declared that the sale in this
case binds the conjugal partnership even if only the wife signed the
receipt because the proceeds of the sale were used for the benefit of
the conjugal partnership. The appellate court based this conclusion on
Article 1617 of the Civil Code.

Whether petitioners are liable to pay Armando and Adelia P20,0000.00


as attorneys fees and litigation expenses and the treble costs, where
the claim of Armando and Adelia is clearly unfounded and baseless.

The Subsequent Buyers of the Subject Land cannot claim that they are
buyers in good faith because they had constructive notice of the
adverse claim of Armando and Adelia. Calonso, who brokered the
subsequent sale, testified that when she registered the subsequent
deeds of sale, the adverse claim of Armando and Adelia was already
annotated on the title of the Subject Land. The Court of Appeals
believed that the act of Calonso and the Subsequent Buyers in forcibly
ejecting the Natanawans from the Subject Land buttresses the
conclusion that the second sale was tainted with bad faith from the
very beginning.
Finally, the Court of Appeals noted that the issue of prescription was
not raised in the Answer. Nonetheless, the appellate court explained
that since this action is actually based on fraud, the prescriptive period
is four years, with the period starting to run only from the date of the
discovery of the fraud. Armando and Adelia discovered the fraudulent
sale of the Subject Land only in January 1994. Armando and Adelia
lost no time in writing a letter to Godofredo and Carmen on 2 February
1994 and filed this case on 7 March 1994. Plainly, Armando and Adelia
did not sleep on their rights or lose their rights by prescription.
The Court of Appeals sustained the award of attorneys fees and
imposed treble costs on petitioners.
The Issues
Petitioners raise the following issues:
I
Whether the alleged sale of the Subject Land in favor of Armando and
Adelia is valid and enforceable, where (1) it was orally entered into and
not in writing; (2) Carmen did not obtain the consent and authority of
her husband, Godofredo, who was the sole owner of the Subject Land
in whose name the title thereto (OCT No. 284) was issued; and (3) it
was entered into during the 25-year prohibitive period for alienating the
Subject Land without the approval of the Secretary of Agriculture and
Natural Resources.
II
Whether the action to enforce the alleged oral contract of sale brought
after 24 years from its alleged perfection had been barred by
prescription and by laches.
III
Whether the deeds of absolute sale and the transfer certificates of title
over the portions of the Subject Land issued to the Subsequent

IV

V
Whether petitioners are entitled to the counterclaim for attorneys fees
and litigation expenses, where they have sustained such expenses by
reason of institution of a clearly malicious and unfounded action by
Armando and Adelia.8
The Courts Ruling
The petition is without merit.
In a petition for review on certiorari under Rule 45, this Court reviews
only errors of law and not errors of facts.9The factual findings of the
appellate court are generally binding on this Court.10 This applies with
greater force when both the trial court and the Court of Appeals are in
complete agreement on their factual findings.11 In this case, there is no
reason to deviate from the findings of the lower courts. The facts relied
upon by the trial and appellate courts are borne out by the record. We
agree with the conclusions drawn by the lower courts from these facts.
Validity and Enforceability of the Sale
The contract of sale between the spouses Godofredo and Carmen and
the spouses Armando and Adelia was a perfected contract. A contract
is perfected once there is consent of the contracting parties on the
object certain and on the cause of the obligation.12 In the instant case,
the object of the sale is the Subject Land, and the price certain
is P15,000.00. The trial and appellate courts found that there was a
meeting of the minds on the sale of the Subject Land and on the
purchase price of P15,000.00. This is a finding of fact that is binding on
this Court. We find no reason to disturb this finding since it is
supported by substantial evidence.
The contract of sale of the Subject Land has also been consummated
because the sellers and buyers have performed their respective
obligations under the contract. In a contract of sale, the seller obligates
himself to transfer the ownership of the determinate thing sold, and to
deliver the same, to the buyer who obligates himself to pay a price
certain to the seller.13 In the instant case, Godofredo and Carmen
delivered the Subject Land to Armando and Adelia, placing the latter in
actual physical possession of the Subject Land. This physical delivery
of the Subject Land also constituted a transfer of ownership of the
Subject Land to Armando and Adelia.14Ownership of the thing sold is
transferred to the vendee upon its actual or constructive
delivery.15 Godofredo and Carmen also turned over to Armando and
Adelia the documents of ownership to the Subject Land, namely the
owners duplicate copy of OCT No. 284, the tax declaration and the
receipts of realty tax payments.
On the other hand, Armando and Adelia paid the full purchase price as
evidenced by the receipt dated 11 March 1970 issued by Carmen.
Armando and Adelia fulfilled their obligation to provide the P7,000.00 to
pay the Dir obliagtion rmen. rchase pricend Adelia . fredo and Carmen
do not deny the existence of the cBP loan of Godofredo and Carmen,
and to pay the latter the balance of P8,000.00 in cash. The P2,524.00
paid under the receipt dated 11 March 1970 was the last installment to

settle fully the purchase price. Indeed, upon payment to DBP of


the P7,000.00 and the accumulated interests, the DBP cancelled the
mortgage on the Subject Land and returned the owners duplicate copy
of OCT No. 284 to Godofredo and Carmen.

voidable subject to annulment by the husband. Following petitioners


argument that Carmen sold the land to Armando and Adelia without the
consent of Carmens husband, the sale would only be voidable and not
void.

The trial and appellate courts correctly refused to apply the Statute of
Frauds to this case. The Statute of Frauds16 provides that a contract for
the sale of real property shall be unenforceable unless the contract or
some note or memorandum of the sale is in writing and subscribed by
the party charged or his agent. The existence of the receipt dated 11
March 1970, which is a memorandum of the sale, removes the
transaction from the provisions of the Statute of Frauds.

However, Godofredo can no longer question the sale. Voidable


contracts are susceptible of ratification.24Godofredo ratified the sale
when he introduced Armando and Adelia to his tenants as the new
owners of the Subject Land. The trial court noted that Godofredo failed
to deny categorically on the witness stand the claim of the
complainants witnesses that Godofredo introduced Armando and
Adelia as the new landlords of the tenants.25 That Godofredo and
Carmen allowed Armando and Adelia to enjoy possession of the
Subject Land for 24 years is formidable proof of Godofredos
acquiescence to the sale. If the sale was truly unauthorized, then
Godofredo should have filed an action to annul the sale. He did not.
The prescriptive period to annul the sale has long lapsed. Godofredos
conduct belies his claim that his wife sold the Subject Land without his
consent.

The Statute of Frauds applies only to executory contracts and not to


contracts either partially or totally performed.17 Thus, where one party
has performed ones obligation, oral evidence will be admitted to prove
the agreement.18 In the instant case, the parties have consummated
the sale of the Subject Land, with both sellers and buyers performing
their respective obligations under the contract of sale. In addition, a
contract that violates the Statute of Frauds is ratified by the acceptance
of benefits under the contract.19 Godofredo and Carmen benefited from
the contract because they paid their DBP loan and secured the
cancellation of their mortgage using the money given by Armando and
Adelia. Godofredo and Carmen also accepted payment of the balance
of the purchase price.
Godofredo and Carmen cannot invoke the Statute of Frauds to deny
the existence of the verbal contract of sale because they have
performed their obligations, and have accepted benefits, under the
verbal contract. 20Armando and Adelia have also performed their
obligations under the verbal contract. Clearly, both the sellers and the
buyers have consummated the verbal contract of sale of the Subject
Land. The Statute of Frauds was enacted to prevent fraud.21 This law
cannot be used to advance the very evil the law seeks to prevent.
Godofredo and Carmen also claim that the sale of the Subject Land to
Armando and Adelia is void on two grounds. First, Carmen sold the
Subject Land without the marital consent of Godofredo. Second, the
sale was made during the 25-year period that the law prohibits the
alienation of land grants without the approval of the Secretary of
Agriculture and Natural Resources.
These arguments are without basis.
The Family Code, which took effect on 3 August 1988, provides that
any alienation or encumbrance made by the husband of the conjugal
partnership property without the consent of the wife is void. However,
when the sale is made before the effectivity of the Family Code, the
applicable law is the Civil Code.22
Article 173 of the Civil Code provides that the disposition of conjugal
property without the wifes consent is not void but merely voidable.
Article 173 reads:
The wife may, during the marriage, and within ten years from the
transaction questioned, ask the courts for the annulment of any
contract of the husband entered into without her consent, when such
consent is required, or any act or contract of the husband which tends
to defraud her or impair her interest in the conjugal partnership
property. Should the wife fail to exercise this right, she or her heirs,
after the dissolution of the marriage, may demand the value of property
fraudulently alienated by the husband.
In Felipe v. Aldon,23 we applied Article 173 in a case where the wife
sold some parcels of land belonging to the conjugal partnership without
the consent of the husband. We ruled that the contract of sale was

Moreover, Godofredo and Carmen used most of the proceeds of the


sale to pay their debt with the DBP. We agree with the Court of Appeals
that the sale redounded to the benefit of the conjugal partnership.
Article 161 of the Civil Code provides that the conjugal partnership
shall be liable for debts and obligations contracted by the wife for the
benefit of the conjugal partnership. Hence, even if Carmen sold the
land without the consent of her husband, the sale still binds the
conjugal partnership.
Petitioners contend that Godofredo and Carmen did not deliver the title
of the Subject Land to Armando and Adelia as shown by this portion of
Adelias testimony on cross-examination:
Q -- No title was delivered to you by Godofredo Alfredo?
A -- I got the title from Julie Limon because my sister told me.26
Petitioners raise this factual issue for the first time. The Court of
Appeals could have passed upon this issue had petitioners raised this
earlier. At any rate, the cited testimony of Adelia does not convincingly
prove that Godofredo and Carmen did not deliver the Subject Land to
Armando and Adelia. Adelias cited testimony must be examined in
context not only with her entire testimony but also with the other
circumstances.
Adelia stated during cross-examination that she obtained the title of the
Subject Land from Julie Limon ("Julie"), her classmate in college and
the sister of Carmen. Earlier, Adelias own sister had secured the title
from the father of Carmen. However, Adelias sister, who was about to
leave for the United States, gave the title to Julie because of the
absence of the other documents. Adelias sister told Adelia to secure
the title from Julie, and this was how Adelia obtained the title from
Julie.
It is not necessary that the seller himself deliver the title of the property
to the buyer because the thing sold is understood as delivered when it
is placed in the control and possession of the vendee.27 To repeat,
Godofredo and Carmen themselves introduced the Natanawans, their
tenants, to Armando and Adelia as the new owners of the Subject
Land. From then on, Armando and Adelia acted as the landlords of the
Natanawans. Obviously, Godofredo and Carmen themselves placed
control and possession of the Subject Land in the hands of Armando
and Adelia.
Petitioners invoke the absence of approval of the sale by the Secretary
of Agriculture and Natural Resources to nullify the sale. Petitioners

never raised this issue before the trial court or the Court of Appeals.
Litigants cannot raise an issue for the first time on appeal, as this
would contravene the basic rules of fair play, justice and due
process.28 However, we will address this new issue to finally put an end
to this case.
The sale of the Subject Land cannot be annulled on the ground that
the Secretary did not approve the sale, which was made within 25
years from the issuance of the homestead title. Section 118 of the
Public Land Act (Commonwealth Act No. 141) reads as follows:
SEC. 118. Except in favor of the Government or any of its branches,
units, or institutions or legally constituted banking corporation, lands
acquired under free patent or homestead provisions shall not be
subject to encumbrance or alienation from the date of the approval of
the application and for a term of five years from and after the date of
the issuance of the patent or grant.
xxx
No alienation, transfer, or conveyance of any homestead after 5 years
and before twenty-five years after the issuance of title shall be valid
without the approval of the Secretary of Agriculture and Commerce,
which approval shall not be denied except on constitutional and legal
grounds.
A grantee or homesteader is prohibited from alienating to a private
individual a land grant within five years from the time that the patent or
grant is issued.29 A violation of this prohibition renders a sale
void.30 This prohibition, however, expires on the fifth year. From then on
until the next 20 years31 the land grant may be alienated provided the
Secretary of Agriculture and Natural Resources approves the
alienation. The Secretary is required to approve the alienation unless
there are "constitutional and legal grounds" to deny the approval. In
this case, there are no apparent constitutional or legal grounds for the
Secretary to disapprove the sale of the Subject Land.
The failure to secure the approval of the Secretary does not ipso facto
make a sale void.32 The absence of approval by the Secretary does not
nullify a sale made after the expiration of the 5-year period, for in such
event the requirement of Section 118 of the Public Land Act becomes
merely directory33 or a formality.34 The approval may be secured later,
producing the effect of ratifying and adopting the transaction as if the
sale had been previously authorized.35 As held in Evangelista v.
Montano:36
Section 118 of Commonwealth Act No. 141, as amended, specifically
enjoins that the approval by the Department Secretary "shall not be
denied except on constitutional and legal grounds." There being no
allegation that there were constitutional or legal impediments to the
sales, and no pretense that if the sales had been submitted to the
Secretary concerned they would have been disapproved, approval was
a ministerial duty, to be had as a matter of course and demandable if
refused. For this reason, and if necessary, approval may now be
applied for and its effect will be to ratify and adopt the transactions as if
they had been previously authorized. (Emphasis supplied)
Action Not Barred by Prescription and Laches
Petitioners insist that prescription and laches have set in. We disagree.
The Amended Complaint filed by Armando and Adelia with the trial
court is captioned as one for Specific Performance. In reality, the
ultimate relief sought by Armando and Adelia is the reconveyance to
them of the Subject Land. An action for reconveyance is one that
seeks to transfer property, wrongfully registered by another, to its

rightful and legal owner.37 The body of the pleading or complaint


determines the nature of an action, not its title or heading.38 Thus, the
present action should be treated as one for reconveyance.39
Article 1456 of the Civil Code provides that a person acquiring property
through fraud becomes by operation of law a trustee of an implied trust
for the benefit of the real owner of the property. The presence of fraud
in this case created an implied trust in favor of Armando and Adelia.
This gives Armando and Adelia the right to seek reconveyance of the
property from the Subsequent Buyers.40
To determine when the prescriptive period commenced in an action for
reconveyance, plaintiffs possession of the disputed property is
material. An action for reconveyance based on an implied trust
prescribes in ten years.41 The ten-year prescriptive period applies only
if there is an actual need to reconvey the property as when the plaintiff
is not in possession of the property.42 However, if the plaintiff, as the
real owner of the property also remains in possession of the property,
the prescriptive period to recover title and possession of the property
does not run against him.43 In such a case, an action for reconveyance,
if nonetheless filed, would be in the nature of a suit for quieting of title,
an action that is imprescriptible.44
In this case, the appellate court resolved the issue of prescription by
ruling that the action should prescribe four years from discovery of the
fraud. We must correct this erroneous application of the four-year
prescriptive period. In Caro v. Court of Appeals,45 we explained why an
action for reconveyance based on an implied trust should prescribe in
ten years. In that case, the appellate court also erroneously applied the
four-year prescriptive period. We declared in Caro:
We disagree. The case of Liwalug Amerol, et al. v. Molok Bagumbaran,
G.R. No. L-33261, September 30, 1987,154 SCRA 396 illuminated
what used to be a gray area on the prescriptive period for an action to
reconvey the title to real property and, corollarily, its point of reference:
xxx It must be remembered that before August 30, 1950, the date of
the effectivity of the new Civil Code, the old Code of Civil Procedure
(Act No. 190) governed prescription. It provided:
SEC. 43. Other civil actions; how limited.- Civil actions other than for
the recovery of real property can only be brought within the following
periods after the right of action accrues:
xxx

xxx

xxx

3. Within four years: xxx An action for relief on the ground of fraud, but
the right of action in such case shall not be deemed to have accrued
until the discovery of the fraud;
xxx

xxx

xxx

In contrast, under the present Civil Code, we find that just as an


implied or constructive trust is an offspring of the law (Art. 1456, Civil
Code), so is the corresponding obligation to reconvey the property and
the title thereto in favor of the true owner. In this context, and vis-a-vis
prescription, Article 1144 of the Civil Code is applicable.
Article 1144. The following actions must be brought within ten years
from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;

(3) Upon a judgment.


xxx

xxx

xxx

(Emphasis supplied).
An action for reconveyance based on an implied or constructive
trust must perforce prescribe in ten years and not otherwise. A
long line of decisions of this Court, and of very recent vintage at that,
illustrates this rule. Undoubtedly, it is now well-settled that an
action for reconveyance based on an implied or constructive trust
prescribes in ten years from the issuance of the Torrens title over
the property. The only discordant note, it seems, is Balbin vs. Medalla
which states that the prescriptive period for a reconveyance action is
four years. However, this variance can be explained by the erroneous
reliance on Gerona vs. de Guzman. But in Gerona, the fraud was
discovered on June 25,1948, hence Section 43(3) of Act No. 190, was
applied, the new Civil Code not coming into effect until August 30,
1950 as mentioned earlier. It must be stressed, at this juncture, that
article 1144 and article 1456, are new provisions. They have no
counterparts in the old Civil Code or in the old Code of Civil Procedure,
the latter being then resorted to as legal basis of the four-year
prescriptive period for an action for reconveyance of title of real
property acquired under false pretenses.
An action for reconveyance has its basis in Section 53, paragraph 3 of
Presidential Decree No. 1529, which provides:
In all cases of registration procured by fraud, the owner may pursue all
his legal and equitable remedies against the parties to such fraud
without prejudice, however, to the rights of any innocent holder of the
decree of registration on the original petition or application, xxx
This provision should be read in conjunction with Article 1456 of the
Civil Code, which provides:
Article 1456. If property is acquired through mistake or fraud, the
person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the property
comes.
The law thereby creates the obligation of the trustee to reconvey the
property and the title thereto in favor of the true owner. Correlating
Section 53, paragraph 3 of Presidential Decree No. 1529 and Article
1456 of the Civil Code with Article 1144(2) of the Civil Code, supra, the
prescriptive period for the reconveyance of fraudulently registered real
property is ten (10) years reckoned from the date of the issuance of the
certificate of title xxx (Emphasis supplied)46
Following Caro, we have consistently held that an action for
reconveyance based on an implied trust prescribes in ten years.47 We
went further by specifying the reference point of the ten-year
prescriptive period as the date of the registration of the deed or the
issuance of the title.48
Had Armando and Adelia remained in possession of the Subject Land,
their action for reconveyance, in effect an action to quiet title to
property, would not be subject to prescription. Prescription does not
run against the plaintiff in actual possession of the disputed land
because such plaintiff has a right to wait until his possession is
disturbed or his title is questioned before initiating an action to
vindicate his right.49 His undisturbed possession gives him the
continuing right to seek the aid of a court of equity to determine the
nature of the adverse claim of a third party and its effect on his title. 50

Armando and Adelia lost possession of the Subject Land when the
Subsequent Buyers forcibly drove away from the Subject Land the
Natanawans, the tenants of Armando and Adelia.51 This created an
actual need for Armando and Adelia to seek reconveyance of the
Subject Land. The statute of limitation becomes relevant in this case.
The ten-year prescriptive period started to run from the date the
Subsequent Buyers registered their deeds of sale with the Register of
Deeds.
The Subsequent Buyers bought the subdivided portions of the Subject
Land on 22 February 1994, the date of execution of their deeds of sale.
The Register of Deeds issued the transfer certificates of title to the
Subsequent Buyers on 24 February 1994. Armando and Adelia filed
the Complaint on 7 March 1994. Clearly, prescription could not have
set in since the case was filed at the early stage of the ten-year
prescriptive period.
Neither is the action barred by laches. We have defined laches as the
failure or neglect, for an unreasonable time, to do that which, by the
exercise of due diligence, could or should have been done earlier.52 It
is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has
abandoned it or declined to assert it.53 Armando and Adelia discovered
in January 1994 the subsequent sale of the Subject Land and they filed
this case on 7 March 1994. Plainly, Armando and Adelia did not sleep
on their rights.
Validity of Subsequent Sale of Portions of the Subject Land
Petitioners maintain that the subsequent sale must be upheld because
the Subsequent Buyers, the co-petitioners of Godofredo and Carmen,
purchased and registered the Subject Land in good faith. Petitioners
argue that the testimony of Calonso, the person who brokered the
second sale, should not prejudice the Subsequent Buyers. There is no
evidence that Calonso was the agent of the Subsequent Buyers and
that she communicated to them what she knew about the adverse
claim and the prior sale. Petitioners assert that the adverse claim
registered by Armando and Adelia has no legal basis to render
defective the transfer of title to the Subsequent Buyers.
We are not persuaded. Godofredo and Carmen had already sold the
Subject Land to Armando and Adelia. The settled rule is when
ownership or title passes to the buyer, the seller ceases to have any
title to transfer to any third person.54 If the seller sells the same land to
another, the second buyer who has actual or constructive knowledge of
the prior sale cannot be a registrant in good faith.55 Such second buyer
cannot defeat the first buyers title.56 In case a title is issued to the
second buyer, the first buyer may seek reconveyance of the property
subject of the sale.57
Thus, to merit protection under the second paragraph of Article
154458 of the Civil Code, the second buyer must act in good faith in
registering the deed.59 In this case, the Subsequent Buyers good faith
hinges on whether they had knowledge of the previous sale.
Petitioners do not dispute that Armando and Adelia registered their
adverse claim with the Registry of Deeds of Bataan on 8 February
1994. The Subsequent Buyers purchased their respective lots only on
22 February 1994 as shown by the date of their deeds of sale.
Consequently, the adverse claim registered prior to the second sale
charged the Subsequent Buyers with constructive notice of the defect
in the title of the sellers,60 Godofredo and Carmen.
It is immaterial whether Calonso, the broker of the second sale,
communicated to the Subsequent Buyers the existence of the adverse
claim. The registration of the adverse claim on 8 February 1994
constituted, by operation of law, notice to the whole world.61 From that
date onwards, the Subsequent Buyers were deemed to have

constructive notice of the adverse claim of Armando and Adelia. When


the Subsequent Buyers purchased portions of the Subject Land on 22
February 1994, they already had constructive notice of the adverse
claim registered earlier.62 Thus, the Subsequent Buyers were not
buyers in good faith when they purchased their lots on 22 February
1994. They were also not registrants in good faith when they registered
their deeds of sale with the Registry of Deeds on 24 February 1994.
The Subsequent Buyers individual titles to their respective lots are not
absolutely indefeasible. The defense of indefeasibility of the Torrens
Title does not extend to a transferee who takes the certificate of title
with notice of a flaw in his title.63 The principle of indefeasibility of title
does not apply where fraud attended the issuance of the titles as in this
case.64
Attorneys Fees and Costs
We sustain the award of attorneys fees. The decision of the court must
state the grounds for the award of attorneys fees. The trial court
complied with this requirement.65 We agree with the trial court that if it
were not for petitioners unjustified refusal to heed the just and valid
demands of Armando and Adelia, the latter would not have been
compelled to file this action.
The Court of Appeals echoed the trial courts condemnation of
petitioners fraudulent maneuverings in securing the second sale of the
Subject Land to the Subsequent Buyers. We will also not turn a blind
eye on petitioners brazen tactics. Thus, we uphold the treble costs
imposed by the Court of Appeals on petitioners.
WHEREFORE, the petition is DENIED and the appealed decision is
AFFIRMED. Treble costs against petitioners.
SO ORDERED.
G.R. No. 133895

October 2, 2001

ZENAIDA M. SANTOS, petitioner,


vs.
CALIXTO SANTOS, ALBERTO SANTOS, ROSA SANTOSCARREON and ANTONIO SANTOS, respondents.
QUISUMBING, J.:
This petition for review1 seeks to annul and set aside the decision date
March 10, 1998 of the Court of Appeals that affirmed the decision of
the Regional Trial Court of Manila, Branch 48, dated March 17, 1993.
Petitioner also seeks to annul the resolution that denied her motion for
reconsideration.
Petitioner Zenaida M. Santos is the widow of Salvador Santos, a
brother of private respondents Calixto, Alberto, Antonio, all surnamed
Santos and Rosa Santos-Carreon.
The spouses Jesus and Rosalia Santos owned a parcel of land
registered under TCT No. 27571 with an area of 154 square meters,
located at Sta. Cruz Manila. On it was a four-door apartment
administered by Rosalia who rented them out. The spouses had five
children, Salvador, Calixto, Alberto, Antonio and Rosa.
On January 19, 1959, Jesus and Rosalia executed a deed of sale of
the properties in favor of their children Salvador and Rosa. TCT No.
27571 became TCT No. 60819. Rosa in turn sold her share to
Salvador on November 20, 1973 which resulted in the issuance of a
new TCT No. 113221. Despite the transfer of the property to Salvador,

Rosalia continued to lease receive rentals form the apartment


units.1wphi1.nt
On November 1, 1979, Jesus died. Six years after or on January 9,
1985, Salvador died, followed by Rosalia who died the following
month. Shortly after, petitioner Zenaida, claiming to be Salvador's heir,
demanded the rent from Antonio Hombrebueno,2 a tenant of Rosalia.
When the latter refused to pay, Zenaida filed and ejectment suit
against him with the Metropolitan Trial Court of Manila, Branch 24,
which eventually decided in Zenaida's favor.
On January 5, 1989, private respondents instituted an action for
reconveyance of property with preliminary injunction against petitioner
in the Regional Trial Court of Manila, where they alleged that the two
deeds of sale executed on January 19, 1959 and November 20, 1973
were simulated for lack of consideration. They were executed to
accommodate Salvador in generation funds for his business and
providing him with greater business flexibility.
In her Answer, Zenaida denied the material allegations in the complaint
as special and affirmative defenses, argued that Salvador was the
registered owner of the property, which could only be subjected to
encumbrances or liens annotated on the title; that the respondents'
right to reconveyance was already barred by prescription and laches;
and that the complaint state no cause of action.
On March 17, 1993, the trial court decided in private respondents'
favor, thus:
WHEREFORE, viewed from all the foregoing considerations,
judgment is hereby made in favor of the plaintiffs and against
the defendants:
a) Declaring Exh. "B", the deed of sale executed by Rosalia
Santos and Jesus Santos on January 19, 1959, as entirely
null and void for being fictitious or stimulated and inexistent
and without any legal force and effect:
b) Declaring Exh. "D", the deed of sale executed by Rosa
Santos in favor of Salvador Santos on November 20, 1973,
also as entirely null and void for being likewise fictitious or
stimulated and inexistent and without any legal force and
effect;
c) Directing the Register of Deeds of Manila to cancel
Transfer Certificate of Title No. T-113221 registered in the
name of Salvador Santos, as well as, Transfer Certificate of
Title No. 60819 in the names of Salvador Santos, Rosa
Santos, and consequently thereafter, reinstating with the
same legal force and effect as if the same was not
cancelled, and which shall in all respects be entitled to like
faith and credit; Transfer Certificate of Title No. T-27571
registered in the name of Rosalia A. Santos, married to
Jesus Santos, the same to be partitioned by the heirs of the
said registered owners in accordance with law; and
d) Making the injunction issued in this case permanent.
Without pronouncement as to costs.
SO OREDERED.3
The trial court reasoned that notwithstanding the deeds of sale
transferring the property to Salvador, the spouses Rosalia and Jesus
continued to possess the property and to exercise rights of ownership

not only by receiving the monthly rentals, but also by paying the realty
taxes. Also, Rosalia kept the owner's duplicate copy of the title even
after it was already in the name of Salvador. Further, the spouses had
no compelling reason in 1959 to sell the property and Salvador was not
financially capable to purchase it. The deeds of sale were therefore
fictitious. Hence, the action to assail the same does not prescribe. 4
Upon appeal, the Court of Appeals affirmed the trial court's decision
dated March 10, 1998. It held that in order for the execution of a public
instrument to effect tradition, as provided in Article 1498 of the Civil
Code,5 the vendor shall have had control over the thing sold, at the
moment of sale. It was not enough to confer upon the purchaser the
ownership and the right of possession. The thing sold must be placed
in his control. The subject deeds of sale did not confer upon Salvador
the ownership over the subject property, because even after the sale,
the original vendors remained in dominion, control, and possession
thereof. The appellate court further said that if the reason for
Salvador's failure to control and possess the property was due to his
acquiescence to his mother, in deference to Filipino custom, petitioner,
at least, should have shown evidence to prove that her husband
declared the property for tax purposes in his name or paid the land
taxes, acts which strongly indicate control and possession. The
appellate court disposed:
WHEREFORE, finding no reversible error in the decision
appealed from, the same is hereby AFFIRMED. No
pronouncement as to costs.
SO ORDERED.6
Hence, this petition where petitioner avers that the Court of Appeals
erred in:
I.
HOLDING THAT THE OWNERSHIP OVER THE
LITIGATED PROPERTY BY THE LATE HUSBAND OF
DEFENDANT-APPELLANT WAS AFFECTED BY HIS
FAILURE TO EXERCISE CERTAIN ATTRIBUTES OF
OWNERSHIP.
II.
HOLDING THAT DUE EXECUTION OF A PUBLIC
INSTRUMENT IS NOT EQUIVALENT TO DELIVERY OF
THE LAND IN DISPUTE.
III.
NOT FINDING THAT THE CAUSE OF ACTION OF
ROSALIA SANTOS HAD PRESCRIBED AND/OR BARRED
BY LACHES.
IV.
IGNORING PETITIONER'S ALLEGATION TO THE
EFFECT THAT PLAINTIFF DR. ROSA [S.] CARREON IS
NOT DISQUALIFIED TO TESTIFY AS TO THE
QUESTIONED DEEDS OF SALE CONSIDERING THAT
SALVADOR SANTOS HAS LONG BEEN DEAD.7
In this petition, we are asked to resolve the following:
1. Are payments of realty taxes and retention of possession
indications of continued ownership by the original owners?

2. Is a sale through a public instrument tantamount to


delivery of the thing sold?
3. Did the cause of action of Rosalia Santos and her heirs
prescribe?
4. Can petitioner invoke the "Dead Man's Statute?"8
On the first issue, petitioner contends that the Court of Appeals erred in
holding that despite the deeds of sale in Salvador's favor, Jesus and
Rosalia still owned the property because the spouses continued to pay
the realty taxes and possess the property. She argues that tax
declarations are not conclusive evidence of ownership when not
supported by evidence. She avers that Salvador allowed his mother to
possess the property out of respect to her in accordance with Filipino
values.
It is true that neither tax receipts nor declarations of ownership for
taxation purposes constitute sufficient proof of ownership. They must
be supported by other effective proofs.9 These requisite proofs we find
present in this case. As admitted by petitioner, despite the sale, Jesus
and Rosalia continued to possess and administer the property and
enjoy its fruits by leasing it to third persons.10 Both Rosa and Salvador
did not exercise any right of ownership over it.11 Before the second
deed of sale to transfer her share over the property was executed by
Rosa, Salvador still sought she permission of his mother.12 Further,
after Salvador registered the property in his name, he surrendered the
title to his mother.13 These are clear indications that ownership still
remained with the original owners. In Serrano vs. CA, 139 SCRA 179,
189 (1985), we held that the continued collection of rentals from the
tenants by the seller of realty after execution of alleged deed of sale is
contrary to the notion of ownership.
Petitioner argues that Salvador, in allowing her mother to use the
property even after the sale, did so out of respect for her and out of
generosity, a factual matter beyond the province of this
Court.14 Significantly, in Alcos vs. IAC 162 SCRA 823, 837 (1988), we
noted that the buyer's immediate possession and occupation of the
property corroborated the truthfulness and authenticity of the deed of
sale. Conversely, the vendor's continued possession of the property
makes dubious the contract of sale between the parties.
On the second issue, is a sale through a public instrument tantamount
to delivery of the thing sold? Petitioner in her memorandum invokes
Article 147715 of the Civil Code which provides that ownership of the
thing sold is transferred to the vendee upon its actual or constructive
delivery. Article 1498, in turn, provides that when the sale is made
through a public instrument, its execution is equivalent to the delivery
of the thing subject of the contract. Petitioner avers that applying said
provisions to the case, Salvador became the owner of the subject
property by virtue of the two deeds of sale executed in his favor.
Nowhere in the Civil Code, however, does it provide that execution of a
deed of sale is a conclusive presumption of delivery of possession.
The Code merely said that the execution shall be equivalent to
delivery. The presumption can be rebutted by clear and convincing
evidence.16 Presumptive delivery can be negated by the failure of the
vendee to take actual possession of the land sold.17
In Danguilan vs. IAC, 168 SCRA 22, 32 (1988), we held that for the
execution of a public instrument to effect tradition, the purchaser must
be placed in control of the thing sold. When there is no impediment to
prevent the thing sold from converting to tenancy of the purchaser by
the sole will of the vendor, symbolic delivery through the execution of a
public instrument is sufficient. But if, notwithstanding the execution of
the instrument, the purchaser cannot have the enjoyment and material

tenancy nor make use of it himself or through another in his name,


then delivery has not been effected.

no adverse effect on the petitioner to make respondents guilty of


laches.

As found by both the trial and appellate courts and amply supported by
the evidence on record, Salvador was never placed in control of the
property. The original sellers retained their control and possession.
Therefore, there was no real transfer of ownership.

Lastly, petitioner in her memorandum seeks to expunge the testimony


of Rosa Santos-Carreon before the trial court in view of Sec. 23, Rule
130 of the Revised Rules of Court, otherwise known as the "Dead
Man's Statute."19It is too late for petitioner, however, to invoke said rule.
The trial court in its order dated February 5, 1990, denied petitioner's
motion to disqualify respondent Rosa as a witness. Petitioner did not
appeal therefrom. Trial ensued and Rosa testified as a witness for
respondents and was cross-examined by petitioner's counsel. By her
failure to appeal from the order allowing Rosa to testify, she waived her
right to invoke the dean man's statute. Further, her counsel crossexamined Rosa on matters that occurred during Salvadors' lifetime.
In Goi vs. CA, 144 SCRA 222, 231 (1986) we held that protection
under the dead man's statute is effectively waived when a counsel for
a petitioner cross-examines a private respondent on matters occurring
during the deceased's lifetime. The Court of appeals cannot be faulted
in ignoring petitioner on Rosa's disqualification.1wphi1.nt

Moreover, in Norkis Distributors, Inc. vs. CA, 193 SCRA 694, 698-699
(1991), citing the land case of Abuan vs. Garcia, 14 SCRA 759 (1965),
we held that the critical factor in the different modes of effecting
delivery, which gives legal effect to the act is the actual intention of the
vendor to deliver, and its acceptance by the vendee. Without that
intention, there is no tradition. In the instant case, although the
spouses Jesus and Rosalia executed a deed of sale, they did not
deliver the possession and ownership of the property to Salvador and
Rosa. They agreed to execute a deed of sale merely to accommodate
Salvador to enable him to generate funds for his business venture.
On the third issue, petitioner argues that from the date of the sale from
Rosa to Salvador on November 20, 1973, up to his death on January
9, 1985, more or less twelve years had lapsed, and from his death up
to the filing of the case for reconveyance in the court a quo on January
5, 1989, four years had lapsed. In other words, it took respondents
about sixteen years to file the case below. Petitioner argues that an
action to annul a contract for lack of consideration prescribes in ten
years and even assuming that the cause of action has not prescribed,
respondents are guilty of laches for their inaction for a long period of
time.
Has respondents' cause of action prescribed? In Lacsamana vs. CA,
288 SCRA 287, 292 (1998), we held that the right to file an action for
reconveyance on the ground that the certificate of title was obtained by
means of a fictitious deed of sale is virtually an action for the
declaration of its nullity, which does not prescribe. This applies
squarely to the present case. The complaint filed by respondent in the
court a quo was for the reconveyance of the subject property to the
estate of Rosalia since the deeds of sale were simulated and fictitious.
The complaint amounts to a declaration of nullity of a void contract,
which is imprescriptible. Hence, respondents' cause of action has not
prescribed.
Neither is their action barred by laches. The elements of laches are: 1)
conduct on the part of the defendant, or of one under whom he claims,
giving rise to the situation of which the complaint seeks a remedy; 2)
delay in asserting the complainant's rights, the complainant having had
knowledge or notice of the defendant's conduct as having been
afforded an opportunity to institute a suit; 3) lack of knowledge or
notice on the part of the defendant that the complainant would assert
the right in which he bases his suit; and 4) injury or prejudice to the
defendant in the event relief is accorded to the complainant, or the suit
is not held barred.18 These elements must all be proved positively. The
conduct which caused the complaint in the court a quo was petitioner's
assertion of right of ownership as heir of Salvador. This started in
December 1985 when petitioner demanded payment of the lease
rentals from Antonio Hombrebueno, the tenant of the apartment units.
From December 1985 up to the filing of the complaint for
reconveyance on January 5, 1989, only less than four years had
lapsed which we do not think is unreasonable delay sufficient to bar
respondents' cause of action. We likewise find the fourth element
lacking. Neither petitioner nor her husband made considerable
investments on the property from the time it was allegedly transferred
to the latter. They also did not enter into transactions involving the
property since they did not claim ownership of it until December 1985.
Petitioner stood to lose nothing. As we held in the same case
of Lacsamana vs. CA, cited above, the concept of laches is not
concerned with the lapse of time but only with the effect of unreasonble
lapse. In this case, the alleged 16 years of respondents' inaction has

WHEREFORE, the instant petition is DENIED. The assailed decision


dated March 10, 1998 of the Court of Appeals, which sustained the
judgment of the Regional Trial Court dated March 17, 1993, in favor of
herein private respondents, is AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 92989 July 8, 1991
PERFECTO DY, JR. petitioner,
vs.
COURT OF APPEALS, GELAC TRADING INC., and ANTONIO V.
GONZALES, respondents.
Zosa & Quijano Law Offices for petitioner.
Expedito P. Bugarin for respondent GELAC Trading, Inc.

GUTIERREZ, JR., J.:p


This is a petition for review on certiorari seeking the reversal of the
March 23, 1990 decision of the Court of Appeals which ruled that the
petitioner's purchase of a farm tractor was not validly consummated
and ordered a complaint for its recovery dismissed.
The facts as established by the records are as follows:
The petitioner, Perfecto Dy and Wilfredo Dy are brothers. Sometime in
1979, Wilfredo Dy purchased a truck and a farm tractor through
financing extended by Libra Finance and Investment Corporation
(Libra). Both truck and tractor were mortgaged to Libra as security for
the loan.
The petitioner wanted to buy the tractor from his brother so on August
20, 1979, he wrote a letter to Libra requesting that he be allowed to
purchase from Wilfredo Dy the said tractor and assume the mortgage
debt of the latter.
In a letter dated August 27, 1979, Libra thru its manager, Cipriano Ares
approved the petitioner's request.

Thus, on September 4, 1979, Wilfredo Dy executed a deed of absolute


sale in favor of the petitioner over the tractor in question.
At this time, the subject tractor was in the possession of Libra Finance
due to Wilfredo Dy's failure to pay the amortizations.
Despite the offer of full payment by the petitioner to Libra for the
tractor, the immediate release could not be effected because Wilfredo
Dy had obtained financing not only for said tractor but also for a truck
and Libra insisted on full payment for both.
The petitioner was able to convince his sister, Carol Dy-Seno, to
purchase the truck so that full payment could be made for both. On
November 22, 1979, a PNB check was issued in the amount of
P22,000.00 in favor of Libra, thus settling in full the indebtedness of
Wilfredo Dy with the financing firm. Payment having been effected
through an out-of-town check, Libra insisted that it be cleared first
before Libra could release the chattels in question.
Meanwhile, Civil Case No. R-16646 entitled "Gelac Trading,
Inc. v. Wilfredo Dy", a collection case to recover the sum of P12,269.80
was pending in another court in Cebu.
On the strength of an alias writ of execution issued on December 27,
1979, the provincial sheriff was able to seize and levy on the tractor
which was in the premises of Libra in Carmen, Cebu. The tractor was
subsequently sold at public auction where Gelac Trading was the lone
bidder. Later, Gelac sold the tractor to one of its stockholders, Antonio
Gonzales.
It was only when the check was cleared on January 17, 1980 that the
petitioner learned about GELAC having already taken custody of the
subject tractor. Consequently, the petitioner filed an action to recover
the subject tractor against GELAC Trading with the Regional Trial
Court of Cebu City.
On April 8, 1988, the RTC rendered judgment in favor of the petitioner.
The dispositive portion of the decision reads as follows:
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff and against the defendant,
pronouncing that the plaintiff is the owner of the
tractor, subject matter of this case, and directing
the defendants Gelac Trading Corporation and
Antonio Gonzales to return the same to the
plaintiff herein; directing the defendants jointly and
severally to pay to the plaintiff the amount of
P1,541.00 as expenses for hiring a tractor;
P50,000 for moral damages; P50,000 for
exemplary damages; and to pay the cost. (Rollo,
pp. 35-36)
On appeal, the Court of Appeals reversed the decision of the RTC and
dismissed the complaint with costs against the petitioner. The Court of
Appeals held that the tractor in question still belonged to Wilfredo Dy
when it was seized and levied by the sheriff by virtue of the alias writ of
execution issued in Civil Case No. R-16646.
The petitioner now comes to the Court raising the following questions:
A.
WHETHER OR NOT THE HONORABLE COURT
OF APPEALS MISAPPREHENDED THE FACTS
AND ERRED IN NOT AFFIRMING THE TRIAL

COURT'S FINDING THAT OWNERSHIP OF THE


FARM TRACTOR HAD ALREADY PASSED TO
HEREIN PETITIONER WHEN SAID TRACTOR
WAS LEVIED ON BY THE SHERIFF PURSUANT
TO AN ALIAS WRIT OF EXECUTION ISSUED IN
ANOTHER CASE IN FAVOR OF RESPONDENT
GELAC TRADING INC.
B.
WHETHER OR NOT THE HONORABLE COURT
OF APPEALS EMBARKED ON MERE
CONJECTURE AND SURMISE IN HOLDING
THAT THE SALE OF THE AFORESAID
TRACTOR TO PETITIONER WAS DONE IN
FRAUD OF WILFREDO DY'S CREDITORS,
THERE BEING NO EVIDENCE OF SUCH FRAUD
AS FOUND BY THE TRIAL COURT.
C.
WHETHER OR NOT THE HONORABLE COURT
OF APPEALS MISAPPREHENDED THE FACTS
AND ERRED IN NOT SUSTAINING THE FINDING
OF THE TRIAL COURT THAT THE SALE OF THE
TRACTOR BY RESPONDENT GELAC TRADING
TO ITS CO-RESPONDENT ANTONIO V.
GONZALES ON AUGUST 2, 1980 AT WHICH
TIME BOTH RESPONDENTS ALREADY KNEW
OF THE FILING OF THE INSTANT CASE WAS
VIOLATIVE OF THE HUMAN RELATIONS
PROVISIONS OF THE CIVIL CODE AND
RENDERED THEM LIABLE FOR THE MORAL
AND EXEMPLARY DAMAGES SLAPPED
AGAINST THEM BY THE TRIAL COURT. (Rollo,
p. 13)
The respondents claim that at the time of the execution of the deed of
sale, no constructive delivery was effected since the consummation of
the sale depended upon the clearance and encashment of the check
which was issued in payment of the subject tractor.
In the case of Servicewide Specialists Inc. v. Intermediate Appellate
Court. (174 SCRA 80 [1989]), we stated that:
xxx xxx xxx
The rule is settled that the chattel mortgagor
continues to be the owner of the property, and
therefore, has the power to alienate the same;
however, he is obliged under pain of penal liability,
to secure the written consent of the mortgagee.
(Francisco, Vicente, Jr., Revised Rules of Court in
the Philippines, (1972), Volume IV-B Part 1, p.
525). Thus, the instruments of mortgage are
binding, while they subsist, not only upon the
parties executing them but also upon those who
later, by purchase or otherwise, acquire the
properties referred to therein.
The absence of the written consent of the
mortgagee to the sale of the mortgaged property
in favor of a third person, therefore, affects not the
validity of the sale but only the penal liability of the
mortgagor under the Revised Penal Code and the

binding effect of such sale on the mortgagee


under the Deed of Chattel Mortgage.
xxx xxx xxx
The mortgagor who gave the property as security under a chattel
mortgage did not part with the ownership over the same. He had the
right to sell it although he was under the obligation to secure the
written consent of the mortgagee or he lays himself open to criminal
prosecution under the provision of Article 319 par. 2 of the Revised
Penal Code. And even if no consent was obtained from the mortgagee,
the validity of the sale would still not be affected.
Thus, we see no reason why Wilfredo Dy, as the chattel mortgagor can
not sell the subject tractor. There is no dispute that the consent of Libra
Finance was obtained in the instant case. In a letter dated August 27,
1979, Libra allowed the petitioner to purchase the tractor and assume
the mortgage debt of his brother. The sale between the brothers was
therefore valid and binding as between them and to the mortgagee, as
well.
Article 1496 of the Civil Code states that the ownership of the thing
sold is acquired by the vendee from the moment it is delivered to him
in any of the ways specified in Articles 1497 to 1501 or in any other
manner signing an agreement that the possession is transferred from
the vendor to the vendee. We agree with the petitioner that Articles
1498 and 1499 are applicable in the case at bar.
Article 1498 states:
Art. 1498. When the sale is made through a public
instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the
object of the contract, if from the deed the contrary
does not appear or cannot clearly be inferred.
xxx xxx xxx
Article 1499 provides:
Article 1499. The delivery of movable property
may likewise be made by the mere consent or
agreement of the contracting parties, if the thing
sold cannot be transferred to the possession of the
vendee at the time of the sale, or if the latter
already had it in his possession for any other
reason. (1463a)
In the instant case, actual delivery of the subject tractor could not be
made. However, there was constructive delivery already upon the
execution of the public instrument pursuant to Article 1498 and upon
the consent or agreement of the parties when the thing sold cannot be
immediately transferred to the possession of the vendee. (Art. 1499)
The respondent court avers that the vendor must first have control and
possession of the thing before he could transfer ownership by
constructive delivery. Here, it was Libra Finance which was in
possession of the subject tractor due to Wilfredo's failure to pay the
amortization as a preliminary step to foreclosure. As mortgagee, he
has the right of foreclosure upon default by the mortgagor in the
performance of the conditions mentioned in the contract of mortgage.
The law implies that the mortgagee is entitled to possess the
mortgaged property because possession is necessary in order to
enable him to have the property sold.

While it is true that Wilfredo Dy was not in actual possession and


control of the subject tractor, his right of ownership was not divested
from him upon his default. Neither could it be said that Libra was the
owner of the subject tractor because the mortgagee can not become
the owner of or convert and appropriate to himself the property
mortgaged. (Article 2088, Civil Code) Said property continues to
belong to the mortgagor. The only remedy given to the mortgagee is to
have said property sold at public auction and the proceeds of the sale
applied to the payment of the obligation secured by the mortgagee.
(See Martinez v. PNB, 93 Phil. 765, 767 [1953]) There is no showing
that Libra Finance has already foreclosed the mortgage and that it was
the new owner of the subject tractor. Undeniably, Libra gave its
consent to the sale of the subject tractor to the petitioner. It was aware
of the transfer of rights to the petitioner.
Where a third person purchases the mortgaged property, he
automatically steps into the shoes of the original mortgagor.
(See Industrial Finance Corp. v. Apostol, 177 SCRA 521 [1989]). His
right of ownership shall be subject to the mortgage of the thing sold to
him. In the case at bar, the petitioner was fully aware of the existing
mortgage of the subject tractor to Libra. In fact, when he was obtaining
Libra's consent to the sale, he volunteered to assume the remaining
balance of the mortgage debt of Wilfredo Dy which Libra undeniably
agreed to.
The payment of the check was actually intended to extinguish the
mortgage obligation so that the tractor could be released to the
petitioner. It was never intended nor could it be considered as payment
of the purchase price because the relationship between Libra and the
petitioner is not one of sale but still a mortgage. The clearing or
encashment of the check which produced the effect of payment
determined the full payment of the money obligation and the release of
the chattel mortgage. It was not determinative of the consummation of
the sale. The transaction between the brothers is distinct and apart
from the transaction between Libra and the petitioner. The contention,
therefore, that the consummation of the sale depended upon the
encashment of the check is untenable.
The sale of the subject tractor was consummated upon the execution
of the public instrument on September 4, 1979. At this time
constructive delivery was already effected. Hence, the subject tractor
was no longer owned by Wilfredo Dy when it was levied upon by the
sheriff in December, 1979. Well settled is the rule that only properties
unquestionably owned by the judgment debtor and which are not
exempt by law from execution should be levied upon or sought to be
levied upon. For the power of the court in the execution of its judgment
extends only over properties belonging to the judgment debtor.
(Consolidated Bank and Trust Corp. v. Court of Appeals, G.R. No.
78771, January 23, 1991).
The respondents further claim that at that time the sheriff levied on the
tractor and took legal custody thereof no one ever protested or filed a
third party claim.
It is inconsequential whether a third party claim has been filed or not by
the petitioner during the time the sheriff levied on the subject tractor. A
person other than the judgment debtor who claims ownership or right
over levied properties is not precluded, however, from taking other
legal remedies to prosecute his claim. (Consolidated Bank and Trust
Corp. v. Court of Appeals, supra) This is precisely what the petitioner
did when he filed the action for replevin with the RTC.
Anent the second and third issues raised, the Court accords great
respect and weight to the findings of fact of the trial court. There is no
sufficient evidence to show that the sale of the tractor was in fraud of
Wilfredo and creditors. While it is true that Wilfredo and Perfecto are
brothers, this fact alone does not give rise to the presumption that the

sale was fraudulent. Relationship is not a badge of fraud (Goquiolay v.


Sycip, 9 SCRA 663 [1963]). Moreover, fraud can not be presumed; it
must be established by clear convincing evidence.
We agree with the trial court's findings that the actuations of GELAC
Trading were indeed violative of the provisions on human relations. As
found by the trial court, GELAC knew very well of the transfer of the
property to the petitioners on July 14, 1980 when it received summons
based on the complaint for replevin filed with the RTC by the petitioner.
Notwithstanding said summons, it continued to sell the subject tractor
to one of its stockholders on August 2, 1980.
WHEREFORE, the petition is hereby GRANTED. The decision of the
Court of Appeals promulgated on March 23, 1990 is SET ASIDE and
the decision of the Regional Trial Court dated April 8, 1988 is
REINSTATED.
SO ORDERED.
G.R. No. L-12342

August 3, 1918

A. A. ADDISON, plaintiff-appellant,
vs.
MARCIANA FELIX and BALBINO TIOCO, defendants-appellees.
Thos. D. Aitken for appellant.
Modesto Reyes and Eliseo Ymzon for appellees.
FISHER, J.:
By a public instrument dated June 11, 1914, the plaintiff sold to the
defendant Marciana Felix, with the consent of her husband, the
defendant Balbino Tioco, four parcels of land, described in the
instrument. The defendant Felix paid, at the time of the execution of
the deed, the sum of P3,000 on account of the purchase price, and
bound herself to pay the remainder in installments, the first of P2,000
on July 15, 1914, and the second of P5,000 thirty days after the
issuance to her of a certificate of title under the Land Registration Act,
and further, within ten years from the date of such title P10, for each
coconut tree in bearing and P5 for each such tree not in bearing, that
might be growing on said four parcels of land on the date of the
issuance of title to her, with the condition that the total price should not
exceed P85,000. It was further stipulated that the purchaser was to
deliver to the vendor 25 per centum of the value of the products that
she might obtain from the four parcels "from the moment she takes
possession of them until the Torrens certificate of title be issued in her
favor."
It was also covenanted that "within one year from the date of the
certificate of title in favor of Marciana Felix, this latter may rescind the
present contract of purchase and sale, in which case Marciana Felix
shall be obliged to return to me, A. A. Addison, the net value of all the
products of the four parcels sold, and I shall obliged to return to her,
Marciana Felix, all the sums that she may have paid me, together with
interest at the rate of 10 per cent per annum."
In January, 1915, the vendor, A. A. Addison, filed suit in Court of First
Instance of Manila to compel Marciana Felix to make payment of the
first installment of P2,000, demandable in accordance with the terms of
the contract of sale aforementioned, on July 15, 1914, and of the
interest in arrears, at the stipulated rate of 8 per cent per annum. The
defendant, jointly with her husband, answered the complaint and
alleged by way of special defense that the plaintiff had absolutely failed
to deliver to the defendant the lands that were the subject matter of the
sale, notwithstanding the demands made upon him for this purpose.
She therefore asked that she be absolved from the complaint, and that,

after a declaration of the rescission of the contract of the purchase and


sale of said lands, the plaintiff be ordered to refund the P3,000 that had
been paid to him on account, together with the interest agreed upon,
and to pay an indemnity for the losses and damages which the
defendant alleged she had suffered through the plaintiff's nonfulfillment of the contract.
The evidence adduced shows that after the execution of the deed of
the sale the plaintiff, at the request of the purchaser, went to Lucena,
accompanied by a representative of the latter, for the purpose of
designating and delivering the lands sold. He was able to designate
only two of the four parcels, and more than two-thirds of these two
were found to be in the possession of one Juan Villafuerte, who
claimed to be the owner of the parts so occupied by him. The plaintiff
admitted that the purchaser would have to bring suit to obtain
possession of the land (sten. notes, record, p. 5). In August, 1914, the
surveyor Santamaria went to Lucena, at the request of the plaintiff and
accompanied by him, in order to survey the land sold to the defendant;
but he surveyed only two parcels, which are those occupied mainly by
the brothers Leon and Julio Villafuerte. He did not survey the other
parcels, as they were not designated to him by the plaintiff. In order to
make this survey it was necessary to obtain from the Land Court a writ
of injunction against the occupants, and for the purpose of the
issuance of this writ the defendant, in June, 1914, filed an application
with the Land Court for the registration in her name of four parcels of
land described in the deed of sale executed in her favor by the plaintiff.
The proceedings in the matter of this application were subsequently
dismissed, for failure to present the required plans within the period of
the time allowed for the purpose.
The trial court rendered judgment in behalf of the defendant, holding
the contract of sale to be rescinded and ordering the return to the
plaintiff the P3,000 paid on account of the price, together with interest
thereon at the rate of 10 per cent per annum. From this judgment the
plaintiff appealed.
In decreeing the rescission of the contract, the trial judge rested his
conclusion solely on the indisputable fact that up to that time the lands
sold had not been registered in accordance with the Torrens system,
and on the terms of the second paragraph of clause (h) of the contract,
whereby it is stipulated that ". . . within one year from the date of the
certificate of title in favor of Marciana Felix, this latter may rescind the
present contract of purchase and sale . . . ."
The appellant objects, and rightly, that the cross-complaint is not
founded on the hypothesis of the conventional rescission relied upon
by the court, but on the failure to deliver the land sold. He argues that
the right to rescind the contract by virtue of the special agreement not
only did not exist from the moment of the execution of the contract up
to one year after the registration of the land, but does not accrue until
the land is registered. The wording of the clause, in fact, substantiates
the contention. The one year's deliberation granted to the purchaser
was to be counted "from the date of the certificate of title ... ."
Therefore the right to elect to rescind the contract was subject to a
condition, namely, the issuance of the title. The record show that up to
the present time that condition has not been fulfilled; consequently the
defendant cannot be heard to invoke a right which depends on the
existence of that condition. If in the cross-complaint it had been alleged
that the fulfillment of the condition was impossible for reasons
imputable to the plaintiff, and if this allegation had been proven,
perhaps the condition would have been considered as fulfilled (arts.
1117, 1118, and 1119, Civ. Code); but this issue was not presented in
the defendant's answer.
However, although we are not in agreement with the reasoning found
in the decision appealed from, we consider it to be correct in its result.
The record shows that the plaintiff did not deliver the thing sold. With
respect to two of the parcels of land, he was not even able to show

them to the purchaser; and as regards the other two, more than twothirds of their area was in the hostile and adverse possession of a third
person.
The Code imposes upon the vendor the obligation to deliver the thing
sold. The thing is considered to be delivered when it is placed "in the
hands and possession of the vendee." (Civ. Code, art. 1462.) It is true
that the same article declares that the execution of a public
instruments is equivalent to the delivery of the thing which is the object
of the contract, but, in order that this symbolic delivery may produce
the effect of tradition, it is necessary that the vendor shall have had
such control over the thing sold that, at the moment of the sale, its
material delivery could have been made. It is not enough to confer
upon the purchaser the ownership and theright of possession. The
thing sold must be placed in his control. When there is no impediment
whatever to prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic delivery through the
execution of a public instrument is sufficient. But if, notwithstanding the
execution of the instrument, the purchaser cannot have the enjoyment
and material tenancy of the thing and make use of it himself or through
another in his name, because such tenancy and enjoyment are
opposed by the interposition of another will, then fiction yields to reality
the delivery has not been effected.
As Dalloz rightly says (Gen. Rep., vol. 43, p. 174) in his commentaries
on article 1604 of the French Civil code, "the word "delivery" expresses
a complex idea . . . the abandonment of the thing by the person who
makes the delivery and the taking control of it by the person to whom
the delivery is made."
The execution of a public instrument is sufficient for the purposes of
the abandonment made by the vendor; but it is not always sufficient to
permit of the apprehension of the thing by the purchaser.
The supreme court of Spain, interpreting article 1462 of the Civil Code,
held in its decision of November 10, 1903, (Civ. Rep., vol. 96, p. 560)
that this article "merely declares that when the sale is made through
the means of a public instrument, the execution of this latter is
equivalent to the delivery of the thing sold: which does not and cannot
mean that this fictitious tradition necessarily implies the real tradition of
the thing sold, for it is incontrovertible that, while its ownership still
pertains to the vendor (and with greater reason if it does not), a third
person may be in possession of the same thing; wherefore, though, as
a general rule, he who purchases by means of a public instrument
should be deemed . . . to be the possessor in fact, yet this presumption
gives way before proof to the contrary."
It is evident, then, in the case at bar, that the mere execution of the
instrument was not a fulfillment of the vendors' obligation to deliver the
thing sold, and that from such non-fulfillment arises the purchaser's
right to demand, as she has demanded, the rescission of the sale and
the return of the price. (Civ. Code, arts. 1506 and 1124.)
Of course if the sale had been made under the express agreement of
imposing upon the purchaser the obligation to take the necessary
steps to obtain the material possession of the thing sold, and it were
proven that she knew that the thing was in the possession of a third
person claiming to have property rights therein, such agreement would
be perfectly valid. But there is nothing in the instrument which would
indicate, even implicitly, that such was the agreement. It is true, as the
appellant argues, that the obligation was incumbent upon the
defendant Marciana Felix to apply for and obtain the registration of the
land in the new registry of property; but from this it cannot be
concluded that she had to await the final decision of the Court of Land
Registration, in order to be able to enjoy the property sold. On the
contrary, it was expressly stipulated in the contract that the purchaser
should deliver to the vendor one-fourth "of the products ... of the

aforesaid four parcels from the moment when she takes possession of
them until the Torrens certificate of title be issued in her favor." This
obviously shows that it was not forseen that the purchaser might be
deprived of her possession during the course of the registration
proceedings, but that the transaction rested on the assumption that
she was to have, during said period, the material possession and
enjoyment of the four parcels of land.
Inasmuch as the rescission is made by virtue of the provisions of law
and not by contractual agreement, it is not the conventional but the
legal interest that is demandable.
It is therefore held that the contract of purchase and sale entered into
by and between the plaintiff and the defendant on June 11, 1914, is
rescinded, and the plaintiff is ordered to make restitution of the sum of
P3,000 received by him on account of the price of the sale, together
with interest thereon at the legal rate of 6 per annum from the date of
the filing of the complaint until payment, with the costs of both
instances against the appellant. So ordered.
G.R. No. L-69970 November 28, 1988
FELIX DANGUILAN, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, APOLONIA MELAD, assisted
by her husband, JOSE TAGACAY,respondents.
Pedro R. Perez, Jr. for petitioner.
Teodoro B. Mallonga for private respondent.

CRUZ, J.:
The subject of this dispute is the two lots owned by Domingo Melad
which is claimed by both the petitioner and the respondent. The trial
court believed the petitioner but the respondent court, on appeal,
upheld the respondent. The case is now before us for a resolution of
the issues once and for all.
On January 29, 1962, the respondent filed a complaint against the
petitioner in the then Court of First Instance of Cagayan for recovery of
a farm lot and a residential lot which she claimed she had purchased
from Domingo Melad in 1943 and were now being unlawfully withheld
by the defendant. 1 In his answer, the petitioner denied the allegation
and averred that he was the owner of the said lots of which he had
been in open, continuous and adverse possession, having acquired
them from Domingo Melad in 1941 and 1943. 2 The case was
dismissed for failure to prosecute but was refiled in 1967. 3
At the trial, the plaintiff presented a deed of sale dated December 4,
1943, purportedly signed by Domingo Melad and duly notarized, which
conveyed the said properties to her for the sum of P80.00. 4 She said
the amount was earned by her mother as a worker at the Tabacalera
factory. She claimed to be the illegitimate daughter of Domingo Melad,
with whom she and her mother were living when he died in 1945. She
moved out of the farm only when in 1946 Felix Danguilan approached
her and asked permission to cultivate the land and to stay therein. She
had agreed on condition that he would deliver part of the harvest from
the farm to her, which he did from that year to 1958. The deliveries
having stopped, she then consulted the municipal judge who advised
her to file the complaint against Danguilan. The plaintiff 's mother, her
only other witness, corroborated this testimony. 5

For his part, the defendant testified that he was the husband of Isidra
Melad, Domingo's niece, whom he and his wife Juana Malupang had
taken into their home as their ward as they had no children of their
own. He and his wife lived with the couple in their house on the
residential lot and helped Domingo with the cultivation of the farm.
Domingo Melad signed in 1941 a private instrument in which he gave
the defendant the farm and in 1943 another private instrument in which
he also gave him the residential lot, on the understanding that the latter
would take care of the grantor and would bury him upon his
death. 6 Danguilan presented three other witnesses 7 to corroborate his
statements and to prove that he had been living in the land since his
marriage to Isidra and had remained in possession thereof after
Domingo Melad's death in 1945. Two of said witnesses declared that
neither the plaintiff nor her mother lived in the land with Domingo
Melad. 8
The decision of the trial court was based mainly on the issue of
possession. Weighing the evidence presented by the parties, the
judge 9 held that the defendant was more believable and that the
plaintiff's evidence was "unpersuasive and unconvincing." It was held
that the plaintiff's own declaration that she moved out of the property in
1946 and left it in the possession of the defendant was contradictory to
her claim of ownership. She was also inconsistent when she testified
first that the defendant was her tenant and later in rebuttal that he was
her administrator. The decision concluded that where there was doubt
as to the ownership of the property, the presumption was in favor of the
one actually occupying the same, which in this case was the
defendant. 10
The review by the respondent court 11 of this decision was manifestly
less than thorough. For the most part it merely affirmed the factual
findings of the trial court except for an irrelevant modification, and it
was only toward the end that it went to and resolved what it considered
the lone decisive issue.
The respondent court held that Exhibits 2-b and 3-a, by virtue of which
Domingo Melad had conveyed the two parcels of land to the petitioner,
were null and void. The reason was that they were donations of real
property and as such should have been effected through a public
instrument. It then set aside the appealed decision and declared the
respondents the true and lawful owners of the disputed property.
The said exhibits read as follows:
EXHIBIT 2-b is quoted as follows: 12
I, DOMINGO MELAD, of legal age, married, do
hereby declare in this receipt the truth of my giving
to Felix Danguilan, my agricultural land located at
Barrio Fugu-Macusi, Penablanca, Province of
Cagayan, Philippine Islands; that this land is
registered under my name; that I hereby declare
and bind myself that there is no one to whom I will
deliver this land except to him as he will be the
one responsible for me in the event that I will die
and also for all other things needed and necessary
for me, he will be responsible because of this land
I am giving to him; that it is true that I have nieces
and nephews but they are not living with us and
there is no one to whom I will give my land except
to Felix Danguilan for he lives with me and this is
the length175 m. and the width is 150 m.
IN WITNESS WHEREOF, I hereby sign my name
below and also those present in the execution of
this receipt this 14th day of September 1941.

Penablanca Cagayan, September 14, 1941.


(SGD.) DOMINGO MELAD
WITNESSES:
1. (T.M.) ISIDRO MELAD
2. (SGD.) FELIX DANGUILAN
3. (T.M.) ILLEGIBLE
EXHIBIT 3-a is quoted as follows: 13
I, DOMINGO MELAD, a resident of Centro,
Penablanca, Province of Cagayan, do hereby
swear and declare the truth that I have delivered
my residential lot at Centro, Penablanca,
Cagayan, to Felix Danguilan, my son-in-law
because I have no child; that I have thought of
giving him my land because he will be the one to
take care of SHELTERING me or bury me when I
die and this is why I have thought of executing this
document; that the boundaries of this lot ison
the east, Cresencio Danguilan; on the north,
Arellano Street; on the south by Pastor Lagundi
and on the west, Pablo Pelagio and the area of
this lot is 35 meters going south; width and length
beginning west to east is 40 meters.
IN WITNESS HEREOF, I hereby sign this receipt
this 18th day of December 1943.
(SGD.) DOMINGO MELAD
WITNESSES:
(SGD.) ILLEGIBLE
(SGD.) DANIEL ARAO
It is our view, considering the language of the two instruments, that
Domingo Melad did intend to donate the properties to the petitioner, as
the private respondent contends. We do not think, however, that the
donee was moved by pure liberality. While truly donations, the
conveyances were onerous donations as the properties were given to
the petitioner in exchange for his obligation to take care of the donee
for the rest of his life and provide for his burial. Hence, it was not
covered by the rule in Article 749 of the Civil Code requiring donations
of real properties to be effected through a public instrument. The case
at bar comes squarely under the doctrine laid down in Manalo v. De
Mesa, 14 where the Court held:
There can be no doubt that the donation in
question was made for a valuable consideration,
since the donors made it conditional upon the
donees' bearing the expenses that might be
occasioned by the death and burial of the donor
Placida Manalo, a condition and obligation which
the donee Gregorio de Mesa carried out in his own
behalf and for his wife Leoncia Manalo; therefore,
in order to determine whether or not said donation
is valid and effective it should be sufficient to
demonstrate that, as a contract, it embraces the
conditions the law requires and is valid and
effective, although not recorded in a public
instrument.
The private respondent argues that as there was no equivalence
between the value of the lands donated and the services for which they

were being exchanged, the two transactions should be considered


pure or gratuitous donations of real rights, hence, they should have
been effected through a public instrument and not mere private
writings. However, no evidence has been adduced to support her
contention that the values exchanged were disproportionate or
unequal.
On the other hand, both the trial court and the respondent court have
affirmed the factual allegation that the petitioner did take care of
Domingo Melad and later arranged for his burial in accordance with the
condition imposed by the donor. It is alleged and not denied that he
died when he was almost one hundred years old, 15which would mean
that the petitioner farmed the land practically by himself and so
provided for the donee (and his wife) during the latter part of Domingo
Melad's life. We may assume that there was a fair exchange between
the donor and the donee that made the transaction an onerous
donation.
Regarding the private respondent's claim that she had purchased the
properties by virtue of a deed of sale, the respondent court had only
the following to say: "Exhibit 'E' taken together with the documentary
and oral evidence shows that the preponderance of evidence is in
favor of the appellants." This was, we think, a rather superficial way of
resolving such a basic and important issue.
The deed of sale was allegedly executed when the respondent was
only three years old and the consideration was supposedly paid by her
mother, Maria Yedan from her earnings as a wage worker in a
factory. 16 This was itself a suspicious circumstance, one may well
wonder why the transfer was not made to the mother herself, who was
after all the one paying for the lands. The sale was made out in favor of
Apolonia Melad although she had been using the surname Yedan her
mother's surname, before that instrument was signed and in fact even
after she got married. 17 The averment was also made that the contract
was simulated and prepared after Domingo Melad's death in 1945. 18 It
was also alleged that even after the supposed execution of the said
contract, the respondent considered Domingo Melad the owner of the
properties and that she had never occupied the same. 19
Considering these serious challenges, the appellate court could have
devoted a little more time to examining Exhibit "E" and the
circumstances surrounding its execution before pronouncing its validity
in the manner described above. While it is true that the due execution
of a public instrument is presumed, the presumption is disputable and
will yield to contradictory evidence, which in this case was not refuted.
At any rate, even assuming the validity of the deed of sale, the record
shows that the private respondent did not take possession of the
disputed properties and indeed waited until 1962 to file this action for
recovery of the lands from the petitioner. If she did have possession,
she transferred the same to the petitioner in 1946, by her own sworn
admission, and moved out to another lot belonging to her stepbrother. 20 Her claim that the petitioner was her tenant (later changed to
administrator) was disbelieved by the trial court, and properly so, for its
inconsistency. In short, she failed to show that she consummated the
contract of sale by actual delivery of the properties to her and her
actual possession thereof in concept of purchaser-owner.
As was held in Garchitorena v. Almeda: 21
Since in this jurisdiction it is a fundamental and
elementary principle that ownership does not pass
by mere stipulation but only by delivery (Civil
Code, Art. 1095; Fidelity and Surety Co. v. Wilson,
8 Phil. 51), and the execution of a public document
does not constitute sufficient delivery where the
property involved is in the actual and adverse

possession of third persons (Addison vs. Felix, 38


Phil. 404; Masallo vs. Cesar, 39 Phil. 134), it
becomes incontestable that even if included in the
contract, the ownership of the property in dispute
did not pass thereby to Mariano Garchitorena. Not
having become the owner for lack of delivery,
Mariano Garchitorena cannot presume to recover
the property from its present possessors. His
action, therefore, is not one of revindicacion, but
one against his vendor for specific performance of
the sale to him.
In the aforecited case of Fidelity and Deposit Co. v. Wilson, 22 Justice
Mapa declared for the Court:
Therefore, in our Civil Code it is a fundamental
principle in all matters of contracts and a wellknown doctrine of law that "non mudis pactis sed
traditione dominia rerum transferuntur". In
conformity with said doctrine as established in
paragraph 2 of article 609 of said code, that "the
ownership and other property rights are acquired
and transmitted by law, by gift, by testate or
intestate succession, and, in consequence of
certain contracts, by tradition". And as the logical
application of this disposition article 1095
prescribes the following: "A creditor has the rights
to the fruits of a thing from the time the obligation
to deliver it arises. However, he shall not acquire a
real right" (and the ownership is surely such) "until
the property has been delivered to him."
In accordance with such disposition and provisions
the delivery of a thing constitutes a necessary and
indispensable requisite for the purpose of
acquiring the ownership of the same by virtue of a
contract. As Manresa states in his Commentaries
on the Civil Code, volume 10, pages 339 and 340:
"Our law does not admit the doctrine of the
transfer of property by mere consent but limits the
effect of the agreement to the due execution of the
contract. ... The ownership, the property right, is
only derived from the delivery of a thing ... "
As for the argument that symbolic delivery was effected through the
deed of sale, which was a public instrument, the Court has held:
The Code imposes upon the vendor the obligation
to deliver the thing sold. The thing is considered to
be delivered when it is placed "in the hands and
possession of the vendee." (Civil Code, art. 1462).
It is true that the same article declares that the
execution of a public instrument is equivalent to
the delivery of the thing which is the object of the
contract, but, in order that this symbolic delivery
may produce the effect of tradition, it is necessary
that the vendor shall have had such control over
the thing sold that, at the moment of the sale, its
material delivery could have been made. It is not
enough to confer upon the purchaser
the ownership and the right of possession. The
thing sold must be placed in his control. When
there is no impediment whatever to prevent the
thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic
delivery through the execution of a public
instrument is sufficient. But if, notwithstanding the
execution of the instrument, the purchaser cannot

have the enjoyment and material tenancy of the


thing and make use of it himself or through
another in his name, because such tenancy and
enjoyment are opposed by the interposition of
another will, then fiction yields to realitythe
delivery has not been effected. 23
There is no dispute that it is the petitioner and not the private
respondent who is in actual possession of the litigated properties. Even
if the respective claims of the parties were both to be discarded as
being inherently weak, the decision should still incline in favor of the
petitioner pursuant to the doctrine announced in Santos & Espinosa v.
Estejada 24 where the Court announced:
If the claim of both the plaintiff and the defendant
are weak, judgment must be for the defendant, for
the latter being in possession is presumed to be
the owner, and cannot be obliged to show or prove
a better right.
WHEREFORE, the decision of the respondent court is SET ASIDE and
that of the trial court REINSTATED, with costs against the private
respondent. It is so ordered.
G.R. No. 120820

August 1, 2000

SPS. FORTUNATO SANTOS and ROSALINDA R SANTOS,


petitioners,
vs.
COURT OF APPEALS, SPS. MARIANO R. CASEDA and CARMEN
CASEDA, respondents.
QUISUMBING, J.:
For review on certiorari is the decision of the Court of Appeals, dated
March 28, 1995, in CA-G.R. CV No. 30955, which reversed and set
aside the judgment of the Regional Trial Court of Makati, Branch 133,
in Civil Case No. 89-4759. Petitioners (the Santoses) were the owners
of a house and lot informally sold, with conditions, to herein private
respondents (the Casedas). In the trial court, the Casedas had
complained that the Santoses refused to deliver said house and lot
despite repeated demands. The trial court dismissed the complaint for
specific performance and damages, but in the Court of Appeals, the
dismissal was reversed, as follows:
"WHEREFORE, in view of the foregoing, the decision
appealed from is hereby REVERSED and SET ASIDE and a
new one entered:
"1. GRANTING plaintiffs-appellants a period of NINETY (90)
DAYS from the date of the finality of judgment within which
to pay the balance of the obligation in accordance with their
agreement;
"2. Ordering appellees to restore possession of the subject
house and lot to the appellants upon receipt of the full
amount of the balance due on the purchase price; and
"3. No pronouncement as to costs.
"SO ORDERED."1
The undisputed facts of this case are as follows:

The spouses Fortunato and Rosalinda Santos owned the house and
lot consisting of 350 square meters located at Lot 7, Block 8, Better
Living Subdivision, Paraaque, Metro Manila, as evidenced by TCT (S11029) 28005 of the Register of Deeds of Paraaque. The land
together with the house, was mortgaged with the Rural Bank of
Salinas, Inc., to secure a loan of P150,000.00 maturing on June 16,
1987.
Sometime in 1984, Rosalinda Santos met Carmen Caseda, a fellow
market vendor of hers in Pasay City and soon became very good
friends with her. The duo even became kumadres when Carmen stood
as a wedding sponsor of Rosalinda's nephew.
On June 16, 1984, the bank sent Rosalinda Santos a letter demanding
payment of P16,915.84 in unpaid interest and other charges. Since the
Santos couple had no funds, Rosalinda offered to sell the house and
lot to Carmen. After inspecting the real property, Carmen and her
husband agreed.
Sometime that month of June, Carmen and Rosalinda
signed a document, which reads:
"Received the amount of P54,100.00 as a partial payment of
Mrs. Carmen Caseda to the (total) amount of 350,000.00
(house and lot) that is own (sic) by Mrs. Rosalinda R.
Santos.
(Sgd.) Carmen H. Caseda
direct buyer
Mrs. Carmen Caseda
"(Sgd.) Rosalinda Del R. Santos
Owner
Mrs. Rosalinda R. Santos
House and Lot
Better Living Subd. Paraaque, Metro Manila
Section V Don Bosco St."2
The other terms and conditions that the parties agreed upon were for
the Caseda spouses to pay: (1) the balance of the mortgage loan with
the Rural bank amounting to P135,385.18; (2) the real estate taxes; (3)
the electric and water bills; and (4) the balance of the cash price to be
paid not later than June 16, 1987, which was the maturity date of the
loan.3
The Casedas gave an initial payment of P54,100.00 and immediately
took possession of the property, which they then leased out. They also
paid in installments, P81,696.84 of the mortgage loan. The Casedas,
however, failed to pay the remaining balance of the loan because they
suffered bankruptcy in 1987. Notwithstanding the state of their
finances, Carmen nonetheless paid in March 1990, the real estate
taxes on the property for 1981-1984. She also settled the electric bills
from December 12, 1988 to July 12, 1989. All these payments were
made in the name of Rosalinda Santos.
In January 1989, the Santoses, seeing that the Casedas lacked the
means to pay the remaining installments and/or amortization of the

loan, repossessed the property. The Santoses then collected the


rentals from the tenants.
In February 1989, Carmen Caseda sold her fishpond in Batangas. She
then approached petitioners and offered to pay the balance of the
purchase price for the house and lot. The parties, however, could not
agree, and the deal could not push through because the Santoses
wanted a higher price. For understandably, the real estate boom in
Metro Manila at this time, had considerably jacked up realty values. On
August 11, 1989, the Casedas filed Civil Case No. 89-4759, with the
RTC of Makati, to have the Santoses execute the final deed of
conveyance over the property, or in default thereof, to reimburse the
amount of P180,000.00 paid in cash and P249,900.00 paid to the rural
bank, plus interest, as well as rentals for eight months amounting to
P32,000.00, plus damages and costs of suit.1wphi1.nt
After trial on the merits, the lower court disposed of the case as
follows:
"WHEREFORE, judgment is hereby ordered:
(a) dismissing plaintiff's (Casedas') complaint; and
(b) declaring the agreement; marked as Annex "C" of the
complaint rescinded. Costs against plaintiffs.

last amount to the bank to save the property from


foreclosure. Logically, plaintiffs must share in the burden
arising from their failure to liquidate the loan per their
contractual commitment. Hence, the amount of P25,794.64
as their share in the defendants' damages in the form of
increased loan-amount, is reasonable."6
On appeal, the appellate court, as earlier noted, reversed the lower
court. The appellate court held that rescission was not justified under
the circumstances and allowed the Caseda spouses a period of ninety
days within which to pay the balance of the agreed purchase price.
Hence, this instant petition for review on certiorari filed by the
Santoses.
Petitioners now submit the following issues for our consideration:
WHETHER OR NOT THE COURT OF APPEALS, HAS
JURISDICTION TO DECIDE PRIVATE RESPONDENT'S
APPEAL INTERPOSING PURELY QUESTIONS OF LAW.
WHETHER THE SUBJECT TRANSACTION IS NOT A
CONTRACT OF ABSOLUTE SALE BUT A MERE ORAL
CONTRACT TO SELL IN WHICH CASE JUDICIAL
DEMAND FOR RESCISSION (ART. 1592,7 CIVIL CODE) IS
NOT APPLICABLE.

"SO ORDERED."4
Said judgment of dismissal is mainly based on the trial court's finding
that:
"Admittedly, the purchase price of the house and lot was
P485,385.18, i.e. P350,000.00 as cash payment and
P135,385.18, assumption of mortgage. Of it plaintiffs
[Casedas] paid the following: (1) P54,100.00 down payment;
and (2) P81,694.64 installment payments to the bank on the
loan (Exhs. E to E-19) or a total of P135,794.64. Thus,
plaintiffs were short of the purchase price. They cannot,
therefore, demand specific performance."5
The trial court further held that the Casedas were not entitled to
reimbursement of payments already made, reasoning that:
"As earlier mentioned, plaintiffs made a total payment of
P135,794.64 out of the purchase price of P485,385.18. The
property was in plaintiffs' possession from June 1984 to
January 1989 or a period of fifty-five months. During that
time, plaintiffs leased the property. Carmen said the property
was rented for P25.00 a day or P750.00 a month at the start
and in 1987 it was increased to P2,000.00 and P4,000 a
month. But the evidence is not precise when the different
amounts of rental took place. Be that as it may, fairness
demands that plaintiffs must pay defendants for the exercise
of dominical rights over the property by renting it to others.
The amount of P2,000.00 a month would be reasonable
based on the average of P750.00, P2,000.00, P4,000.00
lease-rentals charged. Multiply P2,000 by 55 months, the
plaintiffs must pay defendants P110,000 for the use of the
property. Deducting this amount from the P135,794.64
payment of the plaintiffs on the property the difference is
P25,794.64. Should the plaintiffs be entitled to a
reimbursement of this amount? The answer is in the
negative. Because of failure of plaintiffs to liquidated the
mortgage loan on time, it had ballooned from its original
figure of P135,384.18 as of June 1984 to P337,280.78 as of
December 31, 1988. Defendants [Santoses] had to pay the

ASSUMING ARGUENDO THAT A JUDICIAL DEMAND FOR


RESCISSION IS REQUIRED, WHETHER PETITIONERS'
DEMAND AND PRAYER FOR RESCISSION CONTAINED
IN THEIR ANSWER FILED BEFORE THE TRIAL
SATISFIED THE SAID REQUIREMENT.
WHETHER OR NOT THE NON-PAYMENT OF MORE THAN
HALF OF THE ENTIRE PURCHASE PRICE INCLUDING
THE NON-COMPLIANCE WITH THE STIPULATION TO
LIQUIDATE THE MORTGAGE LOAN ON TIME WHICH
CAUSED GRAVE DAMAGE AND PREJUDICE TO
PETITIONERS, CONSTITUTE SUBSTANTIAL BREACH TO
JUSTIFY RESCISSION OF A CONTRACT TO SELL UNDER
ARTICLE 1191 8(CIVIL CODE).
On the first issue, petitioners argue that, since both the parties and the
apellate court adopted the findings of trial court,9 no questions of fact
were raised before the Court of Appeals. According to petitioners, CAG.R. CV No. 30955, involved only pure questions of law. They aver
that the court a quo had no jurisdiction to hear, much less decide, CAG.R. CV No. 30955, without running afoul of Supreme Court Circular
No. 290 (4) [c].10
There is a question of law in a given case when the doubt or difference
arises as to how the law is on a certain set of facts, and there is a
question of fact when the doubt or difference arises as to the truth or
falsehood of the alleged facts.11 But we note that the first assignment of
error submitted by respondents for consideration by the appellate court
dealt with the trial court's finding that herein petitioners got back the
property in question because respondents did not have the means to
pay the installments and/or amortization of the loan.12 The resolution of
this question involved an evaluation of proof, and not only a
consideration of the applicable statutory and case laws. Clearly, C.A.G.R. CV No. 30955 did not involve pure questions of law, hence the
Court of Appeals had jurisdiction and there was no violation of our
Circular No. 2-90.
Moreover, we find that petitioners took an active part in the
proceedings before the Court of Appeals, yet they did not raise there

the issue of jurisdiction. They should have raised this issue at the
earliest opportunity before the Court of Appeals. A party taking part in
the proceedings before the appellate court and submitting his case for
its decision ought not to later on attack the court's decision for want of
jurisdiction because the decision turns out to be adverse to him.13
The second and third issues deal with the question: Did the Court of
Appeals err in holding that a judicial rescission of the agreement was
necessary? In resolving both issues, we must first make a preliminary
determination of the nature of the contract in question: Was it a
contract of sale, as insisted by the respondents or a mere contract to
sell, as contended by petitioners?
Petitioners argue that the transaction between them and respondents
was a mere contract to sell, and not a contract of sale, since the sole
documentary evidence (Exh. D, receipt) referring to their agreement
clearly showed that they did not transfer ownership of the property in
question simultaneous with its delivery and hence remained its owners,
pending fulfillment of the other suspensive conditions, i.e. full payment
of the balance of the purchase price and the loan amortizations.
Petitioners point to Manuel v. Rodriguez, 109 Phil. 1 (1960) and Luzon
Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93 (1972),
where he held that article 1592 of the Civil Code is inapplicable to a
contract to sell. They charge the court a quo with reversible error in
holding that petitioners should have judicially rescinded the agreement
with respondents when the latter failed to pay the amortizations on the
bank loan.
Respondents insist that there was a perfected contract of sale, since
upon their partial payment of the purchase price, they immediately took
possession of the property as vendees, and subsequently leased it,
thus exercising all the rights of ownership over the property. This
showed that transfer of ownership was simultaneous with the delivery
of the realty sold, according to respondents.
It must be emphasized from the outset that a contract is what the law
defines it to be, taking into consideration its essential elements, and
not what the contracting parties call it.14 Article 145815 of the Civil Code
defines a contract of sale. Note that the said article expressly obliges
the vendor to transfer the ownership of the thing sold as an essential
element of a contract of sale.16 We have carefully examined the
contents of the unofficial receipt, Exh. D, with the terms and conditions
informally agreed upon by the parties, as well as the proofs submitted
to support their respective contentions. We are far from persuaded that
there was a transfer of ownership simultaneously with the delivery of
the property purportedly sold. The records clearly show that,
notwithstanding the fact that the Casedas first took then lost
possession of the disputed house and lot, the title to the property, TCT
No. 28005 (S-11029) issued by the Register of Deeds of Paraaque,
has remained always in the name of Rosalinda Santos.17 Note further
that although the parties agreed that the Casedas would assume the
mortgage, all amortization payments made by Carmen Caseda to the
bank were in the name of Rosalinda Santos.18 We likewise find that the
bank's cancellation and discharge of mortgage dated January 20,
1990, was made in favor of Rosalinda Santos.19 The foregoing
circumstances categorically and clearly show that no valid transfer of
ownership was made by the Santoses to the Casedas. Absent this
essential element, their agreement cannot be deemed a contract of
sale. We agree with petitioner's averment that the agreement between
Rosalinda Santos and Carmen Caseda is a contract to sell. In
contracts to sell, ownership is reserved the by the vendor and is not to
pass until full payment of the purchase price. This we find fully
applicable and understandable in this case, given that the property
involved is a titled realty under mortgage to a bank and would require
notarial and other formalities of law before transfer thereof could be
validly effected.

In view of our finding in the present case that the agreement between
the parties is a contract to sell, it follows that the appellate court erred
when it decreed that a judicial rescission of said agreement was
necessary. This is because there was no rescission to speak of in the
first place. As we earlier pointed, in a contract to sell, title remains with
the vendor and does not pass on to the vendee until the purchase
price is paid in full, Thus, in contract to sell, the payment of the
purchase price is a positive suspensive condition. Failure to pay the
price agreed upon is not a mere breach, casual or serious, but a
situation that prevents the obligation of the vendor to convey title from
acquiring an obligatory force.20 This is entirely different from the
situation in a contract of sale, where non-payment of the price is a
negative resolutory condition. The effects in law are not identical. In a
contract of sale, the vendor has lost ownership of the thing sold and
cannot recover it, unless the contract of sale is rescinded and set
aside.21 In a contract to sell, however, the vendor remains the owner for
as long as the vendee has not complied fully with the condition of
paying the purchase. If the vendor should eject the vendee for failure
to meet the condition precedent, he is enforcing the contract and not
rescinding it. When the petitioners in the instant case repossessed the
disputed house and lot for failure of private respondents to pay the
purchase price in full, they were merely enforcing the contract and not
rescinding it. As petitioners correctly point out the Court of Appeals
erred when it ruled that petitioners should have judicially rescinded the
contract pursuant to Articles 1592 and 1191 of the Civil Code. Article
1592 speaks of non-payment of the purchase price as a resolutory
condition. It does not apply to a contract to sell.22 As to Article 1191, it
is subordinated to the provisions of Article 1592 when applied to sales
of immovable property.23 Neither provision is applicable in the present
case.
As to the last issue, we need not tarry to make a determination of
whether the breach of contract by private respondents is so substantial
as to defeat the purpose of the parties in entering into the agreement
and thus entitle petitioners to rescission. Having ruled that there is no
rescission to speak of in this case, the question is moot.
WHEREFORE, the instant petition is GRANTED and the assailed
decision of the Court of Appeals in CA-G.R. CV No. 30955
is REVERSED and SET ASIDE. The judgment of the Regional Trial
Court of Makati, Branch 133, with respect to the DISMISSAL of the
complaint in Civil Case No. 89-4759, is hereby REINSTATED. No
pronouncement as to costs.1wphi1.nt
SO ORDERED.
G.R. No. 168499

November 26, 2012

SPOUSES EROSTO SANTIAGO and NELSIE


SANTIAGO, Petitioners,
vs.
MANCER VILLAMOR, CARLOS VILLAMOR, JOHN VILLAMOR and
DOMINGO VILLAMOR, JR., Respondents.
DECISION
BRION, J.:
We resolve the petition for review on certiorari1 tiled by spouses Eros
to Santiago and Nelsie Santiago (petitioners) to challenge the August
10, 2004 decision2 and the June 8, 2005 resolution3of the Court of
Appeals (CA) in CA-G.R. CV No. 59112. The CA decision set aside the
May 28, 1997 decision4 of the Regional Trial Court (RTC) of San
Jacinto, Masbate, Branch 50, in Civil Case No. 201. The CA resolution
denied the petitioners' subsequent motion for reconsideration.

THE FACTUAL ANTECEDENTS


In January 1982,5 the spouses Domingo Villamor, Sr. and Trinidad
Gutierrez Villamor (spouses Villamor, Sr.), the parents of Mancer
Villamor, Carlos Villamor and Domingo Villamor, Jr. (respondents) and
the grandparents of respondent John Villamor, mortgaged their 4.5hectare coconut land in Sta. Rosa, San Jacinto, Masbate, known as
Lot No. 1814, to the Rural Bank of San Jacinto (Masbate), Inc. (San
Jacinto Bank) as security for a P10,000.00 loan.
For non-payment of the loan, the San Jacinto Bank extrajudicially
foreclosed the mortgage, and, as the highest bidder at the public
auction, bought the land. When the spouses Villamor, Sr. failed to
redeem the property within the prescribed period, the San Jacinto
Bank obtained a final deed of sale in its favor sometime in 1991. The
San Jacinto Bank then offered the land for sale to any interested
buyer.6
a. The Specific Performance Case
Since the respondents had been in possession and cultivation of the
land, they decided, together with their sister Catalina Villamor
Ranchez, to acquire the land from the San Jacinto Bank. The San
Jacinto Bank agreed with the respondents and Catalina to a
P65,000.00 sale, payable in installments. The respondents and
Catalina made four (4) installment payments of P28,000.00,
P5,500.00, P7,000.00 and P24,500.00 on November 4, 1991,
November 23, 1992, April 26, 1993 and June 8, 1994, respectively.7
When the San Jacinto Bank refused to issue a deed of conveyance in
their favor despite full payment, the respondents and Catalina filed a
complaint against the San Jacinto Bank (docketed as Civil Case No.
200) with the RTC on October 11, 1994. The complaint was for specific
performance with damages.
The San Jacinto Bank claimed that it already issued a deed of
repurchase in favor of the spouses Villamor, Sr.; the payments made
by the respondents and Catalina were credited to the account of
Domingo, Sr. since the real buyers of the land were the spouses
Villamor, Sr.8
In a February 10, 2004 decision, the RTC dismissed the specific
performance case. It found that the San Jacinto Bank acted in good
faith when it executed a deed of "repurchase" in the spouses Villamor,
Sr.s names since Domingo, Sr., along with the respondents and
Catalina, was the one who transacted with the San Jacinto Bank to
redeem the land.9
The CA, on appeal, set aside the RTCs decision.10 The CA found that
the respondents and Catalina made the installment payments on their
own behalf and not as representatives of the spouses Villamor, Sr. The
San Jacinto Bank mistakenly referred to the transaction as a
"repurchase" when the redemption period had already lapsed and the
title had been transferred to its name; the transaction of the
respondents and Catalina was altogether alien to the spouses Villamor,
Sr.s loan with mortgage. Thus, it ordered the San Jacinto Bank to
execute the necessary deed of sale in favor of the respondents and
Catalina, and to pay P30,000.00 as attorneys fees.11 No appeal
appears to have been taken from this decision.
b. The Present Quieting of Title Case
On July 19, 1994 (or prior to the filing of the respondents and
Catalinas complaint for specific performance, as narrated above), the
San Jacinto Bank issued a deed of sale in favor of Domingo, Sr.12 On

July 21, 1994, the spouses Villamor, Sr. sold the land to the petitioners
for P150,000.00.13
After the respondents and Catalina refused the petitioners demand to
vacate the land, the petitioners filed on October 20, 1994 a complaint
for quieting of title and recovery of possession against the
respondents.14 This is the case that is now before us.
The respondents and Catalina assailed the San Jacinto Banks
execution of the deed of sale in favor of Domingo, Sr., claiming that the
respondents and Catalina made the installment payments on their own
behalf.15
In its May 28, 1997 decision,16 the RTC declared the petitioners as the
legal and absolute owners of the land, finding that the petitioners were
purchasers in good faith; the spouses Villamor, Sr.s execution of the
July 21, 1994 notarized deed of sale in favor of the petitioners resulted
in the constructive delivery of the land. Thus, it ordered the
respondents to vacate and to transfer possession of the land to the
petitioners, and to pay P10,000.00 as moral damages.17
On appeal, the CA, in its August 10, 2004 decision, found that the
petitioners action to quiet title could not prosper because the
petitioners failed to prove their legal or equitable title to the land. It
noted that there was no real transfer of ownership since neither the
spouses Villamor, Sr. nor the petitioners were placed in actual
possession and control of the land after the execution of the deeds of
sale. It also found that the petitioners failed to show that the
respondents and Catalinas title or claim to the land was invalid or
inoperative, noting the pendency of the specific performance case, at
that time on appeal with the CA. Thus, it set aside the RTC decision
and ordered the dismissal of the complaint, without prejudice to the
outcome of the specific performance case.18
When the CA denied19 the motion for reconsideration20 that followed,
the petitioners filed the present Rule 45 petition.
THE PETITION
The petitioners argue that the spouses Villamor, Sr.s execution of the
July 21, 1994 deed of sale in the petitioners favor was equivalent to
delivery of the land under Article 1498 of the Civil Code; the petitioners
are purchasers in good faith since they had no knowledge of the
supposed transaction between the San Jacinto Bank and the
respondents and Catalina; and the respondents and Catalinas
possession of the land should not be construed against them
(petitioners) since, by tradition and practice in San Jacinto, Masbate,
the children use their parents property.
THE CASE FOR THE RESPONDENTS
The respondents and respondent John submit that they hold legal title
to the land since they perfected the sale with the San Jacinto Bank as
early as November 4, 1991, the first installment payment, and are in
actual possession of the land; the petitioners are not purchasers in
good faith since they failed to ascertain why the respondents were in
possession of the land.
THE ISSUE
The case presents to us the issue of whether the CA committed a
reversible error when it set aside the RTC decision and dismissed the
petitioners complaint for quieting of title and recovery of possession.
OUR RULING

The petition lacks merit.


Quieting of title is a common law remedy for the removal of any cloud,
doubt or uncertainty affecting title to real property. The plaintiffs must
show not only that there is a cloud or contrary interest over the subject
real property,21 but that they have a valid title to it.22 Worth stressing, in
civil cases, the plaintiff must establish his cause of action by
preponderance of evidence; otherwise, his suit will not prosper.23

burden of investigating the rights of the respondents and respondent


John who were then in actual possession of the land. The petitioners
cannot take refuge behind the allegation that, by custom and tradition
in San Jacinto, Masbate, the children use their parents' property, since
they offered no proof supporting their bare allegation. The burden of
proving the status of a purchaser in good faith lies upon the party
asserting that status and cannot be discharged by reliance on the legal
presumption of good faith.28 The petitioners failed to discharge this
burden.

The petitioners anchor their claim over the disputed land on the July
21, 1994 notarized deed of sale executed in their favor by the spouses
Villamor, Sr. who in turn obtained a July 19, 1994 notarized deed of
sale from the San Jacinto Bank. On the other hand, the respondents
and respondent John claim title by virtue of their installment payments
to the San Jacinto Bank from November 4, 1991 to June 8, 1994 and
their actual possession of the disputed land.

Lastly, since the specific performance case already settled the


respondents and respondent John's claim over the disputed land, the
dispositive portion of the CA decision (dismissing the complaint without
prejudice to the outcome of the specific performance case29) is
modified to reflect this fact; we thus dismiss for lack of merit the
complaint for quieting of title and recovery of possession.

After considering the parties evidence and arguments, we agree with


the CA that the petitioners failed to prove that they have any legal or
equitable title over the disputed land.

WHEREFORE, we hereby DENY the petition and ORDER the


DISMISSAL of Civil Case No. 201 before the Regional Trial Court of
San Jacinto, Masbate, Branch 50.

Execution of the deed of sale only a

Costs against the petitioners.

prima facie presumption of delivery.

SO ORDERED.

Article 1477 of the Civil Code recognizes that the "ownership of the
thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof." Related to this article is Article 1497
which provides that "the thing sold shall be understood as delivered,
when it is placed in the control and possession of the vendee."

G.R. No. 194785

With respect to incorporeal property, Article 1498 of the Civil Code lays
down the general rule: the execution of a public instrument "shall be
equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot
clearly be inferred." However, the execution of a public instrument
gives rise only to a prima facie presumption of delivery, which is
negated by the failure of the vendee to take actual possession of the
land sold.24 "A person who does not have actual possession of the
thing sold cannot transfer constructive possession by the execution
and delivery of a public instrument."25
In this case, no constructive delivery of the land transpired upon the
execution of the deed of sale since it was not the spouses Villamor, Sr.
but the respondents who had actual possession of the land. The
presumption of constructive delivery is inapplicable and must yield to
the reality that the petitioners were not placed in possession and
control of the land.
The petitioners are not purchasers in
good faith.
The petitioners can hardly claim to be purchasers in good faith.
"A purchaser in good faith is one who buys property without notice that
some other person has a right to or interest in such property and pays
its fair price before he has notice of the adverse claims and interest of
another person in the same property."26 However, where the land sold
is in the possession of a person other than the vendor, the purchaser
must be wary and must investigate the rights of the actual possessor;
without such inquiry, the buyer cannot be said to be in good faith and
cannot have any right over the property.27
In this case, the spouses Villamor, Sr. were not in possession of the
land.1wphi1 The petitioners, as prospective vendees, carried the

July 11, 2012

VIRGILIO S. DAVID, Petitioner,


vs.
MISAMIS OCCIDENTAL II ELECTRIC COOPERATIVE,
INC., Respondent.
DECISION
MENDOZA, J.:
Before this Court is a petition for review under Rule 45 of the Rules of
Court assailing the July 8, 2010 Decision1of the Court of Appeals (CA),
in CA-G.R. CR No. 91839, which affirmed the July 17, 2008
Decision2 of the Regional Trial Court, Branch VIII, Manila (RTC) in Civil
Case No. 94-69402, an action for specific performance and damages.
The Facts:
Petitioner Virgilio S. David (David) was the owner or proprietor of VSD
Electric Sales, a company engaged in the business of supplying
electrical hardware including transformers for rural electric
cooperatives like respondent Misamis Occidental II Electric
Cooperative, Inc. (MOELCI), with principal office located in Ozamis
City.
To solve its problem of power shortage affecting some areas within its
coverage, MOELCI expressed its intention to purchase a 10 MVA
power transformer from David. For this reason, its General Manager,
Engr. Reynaldo Rada (Engr. Rada), went to meet David in the latters
office in Quezon City. David agreed to supply the power transformer
provided that MOELCI would secure a board resolution because the
item would still have to be imported.
On June 8, 1992, Engr. Rada and Director Jose Jimenez (Jimenez),
who was in-charge of procurement, returned to Manila and presented
to David the requested board resolution which authorized the purchase
of one 10 MVA power transformer. In turn, David presented his
proposal for the acquisition of said transformer. This proposal was the
same proposal that he would usually give to his clients.

After the reading of the proposal and the discussion of terms, David
instructed his then secretary and bookkeeper, Ellen M. Wong, to type
the names of Engr. Rada and Jimenez at the end of the proposal. Both
signed the document under the word "conforme." The board resolution
was thereafter attached to the proposal.
As stated in the proposal, the subject transformer, together with the
basic accessories, was valued at P5,200,000.00. It was also stipulated
therein that 50% of the purchase price should be paid as
downpayment and the remaining balance to be paid upon delivery.
Freight handling, insurance, customs duties, and incidental expenses
were for the account of the buyer.
The Board Resolution, on the other hand, stated that the purchase of
the said transformer was to be financed through a loan from the
National Electrification Administration (NEA). As there was no
immediate action on the loan application, Engr. Rada returned to
Manila in early December 1992 and requested David to deliver the
transformer to them even without the required downpayment. David
granted the request provided that MOELCI would pay interest at 24%
per annum. Engr. Rada acquiesced to the condition. On December 17,
1992, the goods were shipped to Ozamiz City via William Lines. In the
Bill of Lading, a sales invoice was included which stated the agreed
interest rate of 24% per annum.
When nothing was heard from MOELCI for sometime after the
shipment, Emanuel Medina (Medina), Davids Marketing Manager,
went to Ozamiz City to check on the shipment. Medina was able to
confer with Engr. Rada who told him that the loan was not yet released
and asked if it was possible to withdraw the shipped items. Medina
agreed.
When no payment was made after several months, Medina was
constrained to send a demand letter, dated September 15, 1993, which
MOELCI duly received. Engr. Rada replied in writing that the goods
were still in the warehouse of William Lines again reiterating that the
loan had not been approved by NEA. This prompted Medina to head
back to Ozamiz City where he found out that the goods had already
been released to MOELCI evidenced by the shipping companys copy
of the Bill of Lading which was stamped "Released," and with the
notation that the arrastre charges in the amount of P5,095.60 had been
paid. This was supported by a receipt of payment with the
corresponding cargo delivery receipt issued by the Integrated Port
Services of Ozamiz, Inc.
Subsequently, demand letters were sent to MOELCI demanding the
payment of the whole amount plus the balance of previous purchases
of other electrical hardware. Aside from the formal demand letters,
David added that several statements of accounts were regularly sent
through the mails by the company and these were never disputed by
MOELCI.

denied by the RTC to abbreviate proceedings and for the parties to


proceed to trial and avoid piecemeal resolution of issues. The order
denying its motion was raised with the CA, and then with this Court.
Both courts sustained the RTC ruling.
Trial ensued. By reason of MOELCIs continued failure to appear
despite notice, David was allowed to present his testimonial and
documentary evidence ex parte, pursuant to Rule 18, Section 5 of the
Rules. A Very Urgent Motion to Allow Defendant to Present Evidence
was filed by MOELCI, but was denied.
In its July 17, 2008 Decision, the RTC dismissed the complaint. It
found that although a contract of sale was perfected, it was not
consummated because David failed to prove that there was indeed a
delivery of the subject item and that MOELCI received it.3
Aggrieved, David appealed his case to the CA.
On July 8, 2010, the CA affirmed the ruling of the RTC. In the assailed
decision, the CA reasoned out that although David was correct in
saying that MOELCI was deemed to have admitted the genuineness
and due execution of the "quotation letter" (Exhibit A), wherein the
signatures of the Chairman and the General Manager of MOELCI
appeared, he failed to offer any textual support to his stand that it was
a contract of sale instead of a mere price quotation agreed to by
MOELCI representatives. On this score, the RTC erred in stating that a
contract of sale was perfected between the parties despite the
irregularities that tainted their transaction. Further, the fact that
MOELCIs representatives agreed to the terms embodied in the
agreement would not preclude the finding that said contract was at
best a mere contract to sell.
A motion for reconsideration was filed by David but it was denied.4
Hence, this petition.
Before this Court, David presents the following issues for
consideration:
I.
WHETHER OR NOT THERE WAS A PERFECTED
CONTRACT OF SALE.
II.
WHETHER OR NOT THERE WAS A DELIVERY THAT
CONSUMMATED THE CONTRACT.
The Court finds merit in the petition.

On February 17, 1994, David filed a complaint for specific performance


with damages with the RTC. In response, MOECLI moved for its
dismissal on the ground that there was lack of cause of action as there
was no contract of sale, to begin with, or in the alternative, the said
contract was unenforceable under the Statute of Frauds. MOELCI
argued that the quotation letter could not be considered a binding
contract because there was nothing in the said document from which
consent, on its part, to the terms and conditions proposed by David
could be inferred. David knew that MOELCIs assent could only be
obtained upon the issuance of a purchase order in favor of the bidder
chosen by the Canvass and Awards Committee.
Eventually, pursuant to Rule 16, Section 5 of the Rules of Court,
MOELCI filed its Motion for Preliminary Hearing of Affirmative
Defenses and Deferment of the Pre-Trial Conference which was

I.
On the issue as to whether or not there was a perfected contract of
sale, this Court is required to delve into the evidence of the case. In a
petition for review on certiorari under Rule 45 of the Rules of Court, the
issues to be threshed out are generally questions of law only, and not
of fact.
This was reiterated in the case of Buenaventura v. Pascual,5 where it
was written:
Time and again, this Court has stressed that its jurisdiction in a petition
for review on certiorari under Rule 45 of the Rules of Court is limited to

reviewing only errors of law, not of fact, unless the findings of fact
complained of are devoid of support by the evidence on record, or the
assailed judgment is based on the misapprehension of facts. The trial
court, having heard the witnesses and observed their demeanor and
manner of testifying, is in a better position to decide the question of
their credibility. Hence, the findings of the trial court must be accorded
the highest respect, even finality, by this Court.

development may occur may even be obvious from statements in the


agreement itself, that go beyond just "captions." Thus, the appellant
opens with, "WE are pleased to submit our quotation xxx." The
purported contract also ends with. "Thank you for giving us the
opportunity to quote on your requirements and we hope to receive your
order soon" apparently referring to a purchase order which MOELCI
contends to be a formal requirement for the entire transaction.8

That being said, the Court is not unmindful, however, of the recognized
exceptions well-entrenched in jurisprudence. It has always been
stressed that when supported by substantial evidence, the findings of
fact of the CA are conclusive and binding on the parties and are not
reviewable by this Court, unless the case falls under any of the
following recognized exceptions:

In other words, the CA was of the position that Exhibit A was at best a
contract to sell.

(1) When the conclusion is a finding grounded entirely on


speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd
or impossible;
(3) Where there is a grave abuse of discretion:
(4) When the judgment is based on a misapprehension of
facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary to
the admissions of both appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are without citation of specific
evidence on which the conclusions are based;
(9) When the facts set forth in the petition as well as in the
petitioners main and reply briefs are not disputed by the
respondents; and
(10) When the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and
contradicted by the evidence on record. 6 [Emphasis
supplied]
In this case, the CA and the RTC reached different conclusions on the
question of whether or not there was a perfected contract of sale. The
RTC ruled that a contract of sale was perfected although the same was
not consummated because David failed to show proof of delivery.7
The CA was of the opposite view. The CA wrote:
Be that as it may, it must be emphasized that the appellant failed to
offer any textual support to his insistence that Exhibit "A" is a contract
of sale instead of a mere price quotation conformed to by MOELCI
representatives. To that extent, the trial court erred in laying down the
premise that "indeed a contract of sale is perfected between the parties
despite the irregularities attending the transaction." x x x
That representatives of MOELCI conformed to the terms embodied in
the agreement does not preclude the finding that such contract is, at
best, a mere contract to sell with stipulated costs quoted should it
ultimately ripen into one of sale. The conditions upon which that

A perusal of the records persuades the Court to hold otherwise.


The elements of a contract of sale are, to wit: a) Consent or meeting of
the minds, that is, consent to transfer ownership in exchange for the
price; b) Determinate subject matter; and c) Price certain in money or
its equivalent.9 It is the absence of the first element which distinguishes
a contract of sale from that of a contract to sell.
In a contract to sell, the prospective seller explicitly reserves the
transfer of title to the prospective buyer, meaning, the prospective
seller does not as yet agree or consent to transfer ownership of the
property subject of the contract to sell until the happening of an event,
such as, in most cases, the full payment of the purchase price. What
the seller agrees or obliges himself to do is to fulfill his promise to sell
the subject property when the entire amount of the purchase price is
delivered to him. In other words, the full payment of the purchase price
partakes of a suspensive condition, the non-fulfillment of which
prevents the obligation to sell from arising and, thus, ownership is
retained by the prospective seller without further remedies by the
prospective buyer.10
In a contract of sale, on the other hand, the title to the property passes
to the vendee upon the delivery of the thing sold. Unlike in a contract to
sell, 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. However, if the suspensive condition is
fulfilled, the contract of sale is thereby perfected, such that if there had
already been previous delivery of the property subject of the sale to the
buyer, ownership thereto automatically transfers to the buyer by
operation of law without any further act having to be performed by the
seller. The vendor loses ownership over the property and cannot
recover it until and unless the contract is resolved or rescinded.11
An examination of the alleged contract to sell, "Exhibit A," despite its
unconventional form, would show that said document, with all the
stipulations therein and with the attendant circumstances surrounding
it, was actually a Contract of Sale. The rule is that it is not the title of
the contract, but its express terms or stipulations that determine the
kind of contract entered into by the parties.12 First, there was meeting
of minds as to the transfer of ownership of the subject matter. The
letter (Exhibit A), though appearing to be a mere price
quotation/proposal, was not what it seemed. It contained terms and
conditions, so that, by the fact that Jimenez, Chairman of the
Committee on Management, and Engr. Rada, General Manager of
MOELCI, had signed their names under the word "CONFORME," they,
in effect, agreed with the terms and conditions with respect to the
purchase of the subject 10 MVA Power Transformer. As correctly
argued by David, if their purpose was merely to acknowledge the
receipt of the proposal, they would not have signed their name under
the word "CONFORME."
Besides, the uncontroverted attending circumstances bolster the fact
that there was consent or meeting of minds in the transfer of
ownership. To begin with, a board resolution was issued authorizing
the purchase of the subject power transformer. Next, armed with the

said resolution, top officials of MOELCI visited Davids office in Quezon


City three times to discuss the terms of the purchase. Then, when the
loan that MOELCI was relying upon to finance the purchase was not
forthcoming, MOELCI, through Engr. Rada, convinced David to do
away with the 50% downpayment and deliver the unit so that it could
already address its acute power shortage predicament, to which David
acceded when it made the delivery, through the carrier William
Lines, as evidenced by a bill of lading.
Second, the document specified a determinate subject matter which
was one (1) Unit of 10 MVA Power Transformer with corresponding KV
Line Accessories. And third, the document stated categorically the
price certain in money which was P5,200,000.00 for one (1) unit of 10
MVA Power Transformer and P2,169,500.00 for the KV Line
Accessories.
In sum, since there was a meeting of the minds, there was consent on
the part of David to transfer ownership of the power transformer to
MOELCI in exchange for the price, thereby complying with the first
element. Thus, the said document cannot just be considered a contract
to sell but rather a perfected contract of sale.
II.
Now, the next question is, was there a delivery?
MOELCI, in denying that the power transformer was delivered to it,
argued that the Bill of Lading which David was relying upon was not
conclusive. It argued that although the bill of lading was stamped
"Released," there was nothing in it that indicated that said power
transformer was indeed released to it or delivered to its possession.
For this reason, it is its position that it is not liable to pay the purchase
price of the 10 MVA power transformer.
This Court is unable to agree with the CA that there was no delivery of
the items. On the contrary, there was delivery and release.
To begin with, among the terms and conditions of the proposal to which
MOELCI agreed stated:
2. Delivery Ninety (90) working days upon receipt of your purchase
order and downpayment.
C&F Manila, freight, handling, insurance, custom duties and incidental
expenses shall be for the account of MOELCI II. 13 (Emphasis supplied)
On this score, it is clear that MOELCI agreed that the power
transformer would be delivered and that the freight, handling,
insurance, custom duties, and incidental expenses shall be shouldered
by it.
On the basis of this express agreement, Article 1523 of the Civil Code
becomes applicable.1wphi1 It provides:
Where, in pursuance of a contract of sale, the seller is authorized or
required to send the goods to the buyer delivery of the goods to a
carrier, whether named by the buyer or not, for the purpose of
transmission to the buyer is deemed to be a delivery of the goods to
the buyer, except in the cases provided for in Article 1503, first, second
and third paragraphs, or unless a contrary intent appears. (Emphasis
supplied)
Thus, the delivery made by David to William Lines, Inc., as evidenced
by the Bill of Lading, was deemed to be a delivery to MOELCI. David

was authorized to send the power transformer to the buyer pursuant to


their agreement. When David sent the item through the carrier, it
amounted to a delivery to MOELCI.
Furthermore, in the case of Behn, Meyer & Co. (Ltd.) v. Yangco,14 it
was pointed out that a specification in a contract relative to the
payment of freight can be taken to indicate the intention of the parties
with regard to the place of delivery. So that, if the buyer is to pay the
freight, as in this case, it is reasonable to suppose that the subject of
the sale is transferred to the buyer at the point of shipment. In other
words, the title to the goods transfers to the buyer upon shipment or
delivery to the carrier.
Of course, Article 1523 provides a mere presumption and in order to
overcome said presumption, MOELCI should have presented evidence
to the contrary. The burden of proof was shifted to MOELCI, who had
to show that the rule under Article 1523 was not applicable. In this
regard, however, MOELCI failed.
There being delivery and release, said fact constitutes partial
performance which takes the case out of the protection of the Statute
of Frauds. It is elementary that the partial execution of a contract of
sale takes the transaction out of the provisions of the Statute of Frauds
so long as the essential requisites of consent of the contracting parties,
object and cause of the obligation concur and are clearly established to
be present.15
That being said, the Court now comes to Davids prayer that MOELCI
be made to pay the total sum of P5,472,722.27 plus the stipulated
interest at 24% per annum from the filing of the complaint. Although the
Court agrees that MOELCI should pay interest, the stipulated rate is,
however, unconscionable and should be equitably reduced. While
there is no question that parties to a loan agreement have wide latitude
to stipulate on any interest rate in view of the Central Bank Circular No.
905 s. 1982 which suspended the Usury Law ceiling on interest
effective January 1, 1983, it is also worth stressing that interest rates
whenever unconscionable may still be reduced to a reasonable and
fair level. There is nothing in the said circular which grants lenders
carte blanche authority to raise interest rates to levels which will either
enslave their borrowers or lead to a hemorrhaging of their
assets.16 Accordingly, the excessive interest of 24% per annum
stipulated in the sales invoice should be reduced to 12% per annum.
Indeed, David was compelled to file an action against MOELCI but this
reason alone will not warrant an award of attorneys fees. It is settled
that the award of attorney's fees is the exception rather than the rule.
Counsel's fees are not awarded every time a party prevails in a suit
because of the policy that no premium should be placed on the right to
litigate. Attorney's fees, as part of damages, are not necessarily
equated to the amount paid by a litigant to a lawyer. In the ordinary
sense, attorney's fees represent the reasonable compensation paid to
a lawyer by his client for the legal services he has rendered to the
latter; while in its extraordinary concept, they may be awarded by the
court as indemnity for damages to be paid by the losing party to the
prevailing party. Attorney's fees as part of damages are awarded only
in the instances specified in Article 2208 of the Civil Code 17 which
demands factual, legal, and equitable justification. Its basis cannot be
left to speculation or conjecture. In this regard, none was proven.
Moreover, in the absence of stipulation, a winning party may be
awarded attorney's fees only in case plaintiffs action or defendant's
stand is so untenable as to amount to gross and evident bad faith.18 is
MOELCI's case cannot be similarly classified.
Also, David's claim for the balance of P73,059.76 plus the stipulated
interest is denied for being unsubstantiated.

WHEREFORE, the petition Is GRANTED. The July 8, 2010 Decision of


the Court of Appeals Is REVERSED and SET ASIDE. Respondent
Misamis Occidental II Electric Cooperative, Inc. is ordered to pay
petitioner Virgilio S. David the total sum of P5,472,722.27 with interest
at the rate of 12o/o per annum reckoned from the filing of the complaint
until fully paid.

goodwill, trade-marks, accounts receivable, together with all vouchers,


entries, and other proofs of the indebtedness, such as the books of
account, etc., were sold to one of the intervenors herein, John
Bordman, by the direction and under the supervision of the said Alien
Property Custodian, in accordance with the provisions of the Alien
Enemy Act, for the sum of P660,000, as shown by the letters and bills
of sale, Exhibits B, C, D, and E.

SO ORDERED.
G.R. No. L-22537

December 8, 1924

BEHN, MEYER & CO., plaintiff,


vs.
J.S. STANLEY, ET AL., defendants.
And
LAZARUS G. JOSEPH and A.N. JUREIDINI & BROS., appellants,
vs.
JOHN BORDMAN, J.M. MENZI, and THE BANK OF THE
PHILIPPINE ISLANDS, intervenors-appellees.
Schwarzkopf and Ohnick for appellants Joseph and Jureidini and Bros.
Araneta and Zaragoza for intervenor Bank of the Philippine Islands.
Crossfield and O'Brien for intervenor Bordman.

OSTRAND, J.:
There is particularly no dispute as to the facts in this case. On January
23, 1917, Behn, Meyer & Co., Ltd., a foreign corporation with a branch
in the Philippine Islands, brought an action against the Collector of
Customs to recover the possession of certain merchandise imported
into the Islands and then in the hands of the Collector. A.N. Jureidini &
Bros. intervened in the case and claimed title to the merchandise
under a sale of the same ordered by the British Admiralty Court of
Alexandria, Egypt, in prize court proceedings.
The Court of First Instance on February 28, 1918, rendered judgment
in favor of Behn, Meyer & Co., on the ground that the title to the
merchandise originally rested in Behn, Meyer & Co., Ltd., and that no
record on the prize court proceedings showing that Behn, Meyer & Co.,
Ltd., had been divested of the title had been presented in evidence. On
appeal to the Supreme Court the judgment was reversed and the case
remanded to the court below with instructions to allow Jureidini & Bros.
a reasonable time within which to obtain a duly certified copy of the
decision of the Admiralty Court of Alexandria, in which the court
declared that the merchandise constituted lawful prize. 1 A new trial
was held on February 24, 1922, after which a judgment was entered in
favor of A.N. Jureidini & Bros. and against Behn, Meyer & Co., Ltd., for
the sum of P1,988 in damages for the further sum of P1,988 for the
value of the merchandise in default of delivery to Jureidini & Bros.
In the meantime, on the 16th day of February, 1918, all the business,
property, and assets of every nature of the firm of Behn, Meyer & Co.,
Ltd., were taken over by the Alien Property Custodian of the United
States under the provisions of the Trading with the Enemy Act and by
direction of the said Alien Property Custodian, one W.D. Pemberton
was appointed receiver and placed in full charge of the business and
assets of the firm.
During the month of January, 1919, the business of the Philippine
branch of Behn, Meyer & Co., Ltd., was liquidated and the property
and assets of the corporation in the Philippine Islands, including the

The intervenor herein the Bank of the Philippine Islands, advanced to


Bordman the sum of P660,000 with which to purchase the said
business, property, and assets of the said Behn, Meyer & Co., Ltd.,
which sum was turned over to W.D. Pemberton, the receiver appointed
by the Alien Property Custodian.
On the 21st of February, 1919, Behn, Meyer & Co., Ltd., was declared
by the Alien Property Custodian to be an enemy not holding a license
granted by the President, and on the same date demand was made on
the receiver to convey, transfer, assign, deliver, and pay over to the
Alien Property Custodian the bet proceeds of the sale and liquidation
of the business, property, and assets aforesaid, and by virtue of that
demand, the said net proceeds in the sum of P392,674.96 was on
February 28, 1919, delivered to the managing director of the office of
the Alien Property Custodian in the Philippine Islands, as shown by
Exhibits F and G, which sum as far as the record shows, is still in
possession of the Alien Property Custodian.
Execution of the judgment of February 24, 1922, in favor of A.N.
Jureidini & Bros, having been issued and returned unsatisfied, Jureidini
& Bros. on August 8, 1922, filed an ex-parte petition in the same case
praying that a receiver be appointed by the court to take charge of the
estate and effects of Behn, Meyer & Co., Ltd., and on August 10, 1922,
the Court of First Instance issued an order appointing Lazarus G.
Joseph receiver of the property, assets and estate of the said firm,
upon giving a bond in the sum of P1,000.
On the 4th of September, 1923, the said Lazarus G. Joseph, as such
receiver, commenced an action in the Court of First Instance of Manila
against the Bank of the Philippine Islands and J.M. Menzi, being civil
case No. 24892 of said court, to annul the aforesaid sale of the
business, property, and assets, etc., of the said Behn, & Co., Ltd., to
John Bordman and to recover back the property sold as property of the
said Behn, Meyer & Co., Ltd., and for an accounting and other relief.
On the 5th of September, 1923, the said Lazarus G. Joseph, in his
capacity of receiver, appeared in the present case in the Court of First
Instance and obtained an order directed to the said J.M. Menzi citing
him to appear before the court on a certain date to show cause why he
should not turn over to the said receiver the books of account of the
said Behn, Meyer & Co., Ltd.
On September 14, 1923, John Bordman, J.M. Menzi, and the Bank of
the Philippine Islands filed in the same case a motion for permission to
intervene in the receivership proceedings solely for the purpose of
vacating the order of August 10, 1922, appointing a receiver for the
property, assets, and estate of the said Behn, Meyer & Co., Ltd., and
alleging in support thereof that they had a legal interest in the subjectmatter of said receivership and an interest against that of the parties to
said proceedings.lawphi1.net
At the same time the intervenors filed a verified motion setting forth the
facts hereinabove stated asking that the said order of August 10, 1922,
appointing the said Lazarus G. Joseph, receiver of the said Behn,
Meyer & Co. Ltd., be vacated and set aside on the ground that
Jureidini & Bros., under the facts and circumstances stated, had no
legal right to such receivership and that the court had no jurisdiction to
make such appointment, and that consequently its order to that effect
was null and void.

Upon hearing, the Court of First Instance, under date of September 26,
1923, entered an order, the dispositive part of which reads as follows:
For the foregoing and the interests of J.M. Menzi, John
Bordman and the Bank of the Philippine Islands in this
proceeding having, in the opinion of the court, been shown,
that of Bordman consisting in his having in his acquired
through purchase for the sum of P660,000 all the interests,
rights, choses in action, books, vouchers of the herein
plaintiff; that of J.M. Menzi in his having been designated by
said Bordman to take charge of said properties and books in
his name; and that of the Bank of the Philippine Islands in its
having furnished the sum of money with which said Bordman
made the purchase, it is hereby adjudged to permit said
parties, as they are hereby permitted and authorized, to
intervene in this case; and the court having reached the
conclusion that it has not, and did not have, any jurisdiction
to appoint a receiver in view of the fact that all of the
properties of the said plaintiff had been sold by the Alien
Property Custodian in accordance with the Act of Congress
hereinbefore mentioned; it is hereby adjudged that the order
of this court of August 10, 1922, appointing Lazarus G.
Joseph, receiver, should be, as it hereby is, set aside. Let
the bond given by said receiver to secure the faithful
performance of his duties be cancelled, and J.M. Menzi is
held to be under no obligation to deliver to the aforesaid
Lazarus G. Joseph, the books under said Menzi's charge
which formerly belonged to the plaintiff Behn, Meyer & Co.,
Ltd.
No exception was taken to this order neither by the receiver nor by
Jureidini Bros., but on October 1, 1923, their counsel filed the following
motion for reconsideration:
Come now the Receiver and A.N. Jureidini & Bros. in the
above entitled case and move this court that the court
reconsider the resolution of this court dated September 26,
1923, and, thereafter order the delivery of the books to the
said receiver.
On December 3, 1923, the motion for reconsideration was denied,
exception duly taken and the case is now before us upon appeal from
the two orders last mentioned.
The appellants contend that the court below erred in permitting the
appellees to intervene inasmuch as (a) a final judgment had been
entered in the case and (b) the appellees had no legal interest in the
matter in litigation. Neither of these points is, in our opinion, well taken.
The appellees intervene only in the receivership proceedings which still
were an open issue and did not attempt to interfere in the part of the
case which was covered by the final judgment. They claimed no
interest in the controversy between Jureidini & Bros., and Behn, Meyer
& Co., Ltd., but that Bordman and the Bank of the Philippine Islands
had a vital interest in the subsequent receivership is clearly shown by
the fact that one of the first actions of the receiver appears to have
been the institution of an action against them to annul the sale made
by the Alien Property Custodian to Bordman, thus disturbing the latter
in his ' property rights and threatening the lien held by the bank upon
the property sold. As to the appellee Menzi, it is sufficient to say that he
was brought into the present case by the receiver himself on the order
to show cause why he did not turn over and deliver to said receiver the
books of account of Behn, Meyer & Co., Ltd. We fail to find any error or
abuse of discretion on the part of the court below in permitting the
intervention.
Appellants further maintain that the court erred in holding that the
appointment of the receiver was in excess of its jurisdiction. This

contention is also untenable. As soon as Behn, Meyer & Co., Ltd., was
an "enemy not holding a license granted by the President of the United
States," it became the duty of the Alien Property Custodian to take
possession of its business and all its assets within United States
territory, and we must presume that this duty was duly performed and
that all such assets are now either actually or constructively in the
possession of the Alien Property Custodian and under his control. If so,
they are beyond the jurisdiction and control of the Philippine Courts.
Section 7 of the Trading with Enemy Act as amended provides as
follows:
"The sole relief and remedy of any person having any claim
to any money or other property heretofore or hereafter
conveyed, transferred, assigned, delivered, or paid over to
the Alien Property Custodian, or required so to be, or seized
by him shall be that provided by the terms of this Act, and in
the event of sale or other disposition of such property by the
Alien Property Custodian, shall be limited to and enforced
against the net proceeds received therefrom and held by the
Alien Property Custodian or by the Treasurer of the United
States."lawphi1.net
Section 9 of the Act provides that anyone "not an enemy or ally of
enemy claiming any interest, right, or title in any money of other
property so requested and held, may give notice of his claim and
institute a suit in equity against the Custodian or the Treasurer, as the
case may be, to establish and enforce his claim, and where suit is
brought, the money or property is to be retained by the Custodian or in
the Treasury, to abide the final decree. The same section further
provides:
Except as herein provided, the money or other property
conveyed, transferred, assigned, delivered, or paid to the
Alien Property Custodian shall not be liable to lien,
attachment, garnishment, trustee, process, or execution,
or subject to any order to decree of any court.
Section 17 of the same Act provides:
That the district courts of the United States are hereby given
jurisdiction to make and enter all such rules as to notice and
otherwise, and all such orders and decrees, and to issue
such process as may be necessary and proper in the
premises to enforce the provisions of this Act, with a right of
appeal from the final order or decree of such court as
provided in sections one hundred and twenty-eight and two
hundred and thirty-eight of the Act of March third, nineteen
hundred and eleven, entitled "An Act to codify, revise, and
amend the laws relating to the judiciary."
The only jurisdiction given to the Courts of First Instance of the
Philippine Islands is in regard to criminal offenses under said Act, as
shown by section 18 thereof. Had it been the intention of Congress to
give the Philippine courts jurisdiction over civil litigation in regard to
property under the control of the Alien Property Custodian, the Act
would, of course, have so stated.
The orders appealed from are affirmed, with the costs against the
appellants. So ordered.
G.R. No. L-24069

June 28, 1968

LA FUERZA, INC., petitioner,


vs.
THE HON. COURT OF APPEALS and ASSOCIATED ENGINEERING
CO., INC., respondents.

Sycip, Salazar, Luna and Associates for respondent Associated


Engineering Co., Inc.
De Santos and Delfino for petitioner.
CONCEPCION, C.J.:
Ordinary action for the recovery of a sum of money. In due course, the
Court of First Instance of Manila rendered judgment for defendant, La
Fuerza, Inc. hereinafter referred to as La Fuerza which was at
first affirmed by the Court of Appeals. On motion for reconsideration,
the latter, however, set aside its original decision and sentenced La
Fuerza to pay to the plaintiff, Associated Engineering Co.,
hereinafter referred to as the Plaintiff the sum of P8,250.00, with
interest at the rate of 1% per month, from July, 1960 until fully paid,
plus P500 as attorney's fees and the costs. Hence, this Petition for
review on certiorari.
The facts, as found by the Court of First Instance and adopted by the
Court of Appeals, are:
The plaintiff (Associated Engineering, Co., Inc.) is a
corporation engaged in the manufacture and installation of
flat belt conveyors. The defendant (La Fuerza, Inc.) is also a
corporation engaged in the manufacture of wines. Sometime
in the month of January, 1960, Antonio Co, the manager of
the plaintiff corporation, who is an engineer, called the office
of the defendant located at 399 Muelle de Binondo, Manila
and told Mariano Lim, the President and general manager of
the defendant that he had just visited the defendant's plant at
Pasong Tamo, Makati, Rizal and was impressed by its size
and beauty but he believed it needed a conveyor system to
convey empty bottles from the storage room in the plant to
the bottle washers in the production room thereof. He
therefore offered his services to manufacture and install a
conveyor system which, according to him, would increase
production and efficiency of his business. The president of
the defendant corporation did not make up his mind then but
suggested to Antonio Co to put down his offer in writing.
Effectively, on February 4, 1960, marked as Exhibit A in this
case. Mariano Lim did not act on the said offer until February
11, 1960, when Antonio Co returned to inquire about the
action of the defendant on his said offer. The defendants
president and general manager then expressed his
conformity to the offer made in Exhibit A by writing at the foot
thereof under the word "confirmation" his signature. He
caused, however, to be added to this offer at the foot a note
which reads: "All specifications shall be in strict accordance
with the approved plan made part of this agreement hereof."
A few days later, Antonio Co made the demand for the down
payment of P5,000.00 which was readily delivered by the
defendant in the form of a check for the said amount. After
that agreement, the plaintiff started to prepare the premises
for the installations