G.R. No.
106063 November 21, 1996 for use by Mayfair as a motion picture theater and for a term of
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN,
INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.
HERMOSISIMA, JR., J.:
Before us is a petition for review of the decision 1 of the Court of
Appeals 2 involving questions in the resolution of which the respondent
appellate court analyzed and interpreted particular provisions of our
laws on contracts and sales. In its assailed decision, the respondent
court reversed the trial court 3 which, in dismissing the complaint for
specific performance with damages and annulment of contract, 4found
the option clause in the lease contracts entered into by private
respondent Mayfair Theater, Inc. (hereafter, Mayfair) and petitioner
Carmelo & Bauermann, Inc. (hereafter, Carmelo) to be impossible of
performance and unsupported by a consideration and the subsequent
sale of the subject property to petitioner Equatorial Realty Development,
Inc. (hereafter, Equatorial) to have been made without any breach of or
prejudice to, the said lease contracts. 5
We reproduce below the facts as narrated by the respondent court,
which narration, we note, is almost verbatim the basis of the statement
of facts as rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land, together with two 2-storey
buildings constructed thereon located at Claro M Recto
Avenue, Manila, and covered by TCT No. 18529 issued in its
name by the Register of Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease with
Mayfair for the latter's lease of a portion of Carmelo's property
particularly described, to wit:
A PORTION OF THE SECOND FLOOR of
the two-storey building, situated at C.M.
Recto Avenue, Manila, with a floor area of
1,610 square meters.
THE SECOND FLOOR AND MEZZANINE of
the two-storey building, situated at C.M.
Recto Avenue, Manila, with a floor area of
150 square meters.
twenty (20) years. Mayfair thereafter constructed on the leased
property a movie house known as "Maxim Theatre."
Two years later, on March 31, 1969, Mayfair entered into a
second contract of lease with Carmelo for the lease of another
portion of Carmelo's property, to wit:
A PORTION OF THE SECOND FLOOR of
the two-storey building, situated at C.M.
Recto Avenue, Manila, with a floor area of
1,064 square meters.
THE TWO (2) STORE SPACES AT THE
GROUND FLOOR and MEZZANINE of the
two-storey building situated at C.M. Recto
Avenue, Manila, with a floor area of 300
square meters and bearing street numbers
1871 and 1875,
for similar use as a movie theater and for a similar term of
twenty (20) years. Mayfair put up another movie house known
as "Miramar Theatre" on this leased property.
Both contracts of lease provides (sic) identically worded
paragraph 8, which reads:
That if the LESSOR should desire to sell the
leased premises, the LESSEE shall be given
30-days exclusive option to purchase the
same.
In the event, however, that the leased
premises is sold to someone other than the
LESSEE, the LESSOR is bound and
obligated, as it hereby binds and obligates
itself, to stipulate in the Deed of Sale hereof
that the purchaser shall recognize this lease
and be bound by all the terms and conditions
thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo
informed Mr. Henry Yang, President of Mayfair, through a
telephone conversation that Carmelo was desirous of selling
the entire Claro M. Recto property. Mr. Pascal told Mr. Yang
that a certain Jose Araneta was offering to buy the whole
property for US Dollars 1,200,000, and Mr. Pascal asked Mr.
Yang if the latter was willing to buy the property for Six to
Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his
decision. On August 23, 1974, Mayfair replied through a letter
stating as follows:
It appears that on August 19, 1974 your Mr.
Henry Pascal informed our client's Mr. Henry
Yang through the telephone that your
company desires to sell your above-
mentioned C.M. Recto Avenue property.
Under your company's two lease contracts
with our client, it is uniformly provided:
8. That if the LESSOR should desire to sell
the leased premises the LESSEE shall be
given 30-days exclusive option to purchase
the same. In the event, however, that the
leased premises is sold to someone other
than the LESSEE, the LESSOR is bound
and obligated, as it is (sic) herebinds (sic)
and obligates itself, to stipulate in the Deed
of Sale thereof that the purchaser shall
recognize this lease and be bound by all the
terms and conditions hereof (sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another letter to
Carmelo purporting to express interest in acquiring not only the
leased premises but "the entire building and other
improvements if the price is reasonable. However, both
Carmelo and Equatorial questioned the authenticity of the
second letter.
Four years later, on July 30, 1978, Carmelo sold its entire C.M.
Recto Avenue land and building, which included the leased
premises housing the "Maxim" and "Miramar" theatres, to
Equatorial by virtue of a Deed of Absolute Sale, for the total
sum of P11,300,000.00.
In September 1978, Mayfair instituted the action a quo for
specific performance and annulment of the sale of the leased
premises to Equatorial. In its Answer, Carmelo alleged as
special and affirmative defense (a) that it had informed Mayfair
of its desire to sell the entire C.M. Recto Avenue property and
offered the same to Mayfair, but the latter answered that it was
interested only in buying the areas under lease, which was
impossible since the property was not a condominium; and (b)
that the option to purchase invoked by Mayfair is null and void
for lack of consideration. Equatorial, in its Answer, pleaded as
special and affirmative defense that the option is void for lack
of consideration (sic) and is unenforceable by reason of its
impossibility of performance because the leased premises
could not be sold separately from the other portions of the land
and building. It counterclaimed for cancellation of the contracts
of lease, and for increase of rentals in view of alleged
supervening extraordinary devaluation of the currency.
Equatorial likewise cross-claimed against co-defendant
Carmelo for indemnification in respect of Mayfair's claims.
During the pre-trial conference held on January 23, 1979, the
parties stipulated on the following:
1. That there was a deed of sale of the
contested premises by the defendant
Carmelo . . . in favor of defendant Equatorial
. . .;
2. That in both contracts of lease there
appear (sic) the stipulation granting the
plaintiff exclusive option to purchase the
leased premises should the lessor desire to
sell the same (admitted subject to the
contention that the stipulation is null and
void);
3. That the two buildings erected on this land
are not of the condominium plan;
4. That the amounts stipulated and
mentioned in paragraphs 3 (a) and (b) of the
contracts of lease constitute the
consideration for the plaintiff's occupancy of
the leased premises, subject of the same
contracts of lease, Exhibits A and B;
xxx xxx xxx
6. That there was no consideration specified
in the option to buy embodied in the contract;
7. That Carmelo & Bauermann owned the
land and the two buildings erected thereon;
8. That the leased premises constitute only
the portions actually occupied by the
theaters; and
 9. That what was sold by Carmelo &
Bauermann to defendant Equatorial Realty is
the land and the two buildings erected
thereon.
xxx xxx xxx
After assessing the evidence, the court a quo rendered the
appealed decision, the decretal portion of which reads as
follows:
WHEREFORE, judgment is hereby
rendered:
(1) Dismissing the complaint with costs
against the plaintiff;
(2) Ordering plaintiff to pay defendant
Carmelo & Bauermann P40,000.00 by way
of attorney's fees on its counterclaim;
(3) Ordering plaintiff to pay defendant
Equatorial Realty P35,000.00 per month as
reasonable compensation for the use of
areas not covered by the contract (sic) of
lease from July 31, 1979 until plaintiff
vacates said area (sic) plus legal interest
from July 31, 1978; P70,000 00 per month
as reasonable compensation for the use of
the premises covered by the contracts (sic)
of lease dated (June 1, 1967 from June 1,
1987 until plaintiff vacates the premises plus
legal interest from June 1, 1987; P55,000.00
per month as reasonable compensation for
the use of the premises covered by the
contract of lease dated March 31, 1969 from
March 30, 1989 until plaintiff vacates the
premises plus legal interest from March 30,
1989; and P40,000.00 as attorney's fees;
(4) Dismissing defendant Equatorial's
crossclaim against defendant Carmelo &
Bauermann.
The contracts of lease dated June 1, 1967
and March 31, 1969 are declared expired
and all persons claiming rights under these
contracts are directed to vacate the
premises. 6
The trial court adjudged the identically worded paragraph 8 found in
both aforecited lease contracts to be an option clause which however
cannot be deemed to be binding on Carmelo because of lack of distinct
consideration therefor.
The court a quo ratiocinated:
Significantly, during the pre-trial, it was admitted by the parties
that the option in the contract of lease is not supported by a
separate consideration. Without a consideration, the option is
therefore not binding on defendant Carmelo & Bauermann to
sell the C.M. Recto property to the former. The option invoked
by the plaintiff appears in the contracts of lease . . . in effect
there is no option, on the ground that there is no consideration.
Article 1352 of the Civil Code, provides:
Contracts without cause or with unlawful
cause, produce no effect whatever. The
cause is unlawful if it is contrary to law,
morals, good custom, public order or public
policy.
Contracts therefore without consideration produce no effect
whatsoever. Article 1324 provides:
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
consideration, as something paid or
promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a determine thing
for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to
sell a determine thing for a price certain is
binding upon the promissor if the promise is
supported by a consideration distinct from
the price.
The plaintiff cannot compel defendant Carmelo to comply with
the promise unless the former establishes the existence of a
distinct consideration. In other words, the promisee has the
 burden of proving the consideration. The consideration cannot
be presumed as in Article 1354:
Although the cause is not stated in the
contract, it is presumed that it exists and is
lawful unless the debtor proves the contrary.
where consideration is legally presumed to exists. Article 1354
applies to contracts in general, whereas when it comes to an
option it is governed particularly and more specifically by
Article 1479 whereby the promisee has the burden of proving
the existence of consideration distinct from the price. Thus, in
the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the
Court said:
(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 promissor, Article 1479
requires the concurrence of a condition,
namely, that the promise be supported by a
consideration distinct from the price.
Accordingly, the promisee cannot compel the
promissor 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. 7
It follows that plaintiff cannot compel defendant Carmelo &
Bauermann to sell the C.M. Recto property to the former.
Mayfair taking exception to the decision of the trial court, the
battleground shifted to the respondent Court of Appeals. Respondent
appellate court reversed the court a quo and rendered judgment:
1. Reversing and setting aside the appealed Decision;
2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay
and return to Equatorial the amount of P11,300,000.00 within
fifteen (15) days from notice of this Decision, and ordering
Equatorial Realty Development, Inc. to accept such payment;
3. Upon payment of the sum of P11,300,000, directing
Equatorial Realty Development, Inc. to execute the deeds and
documents necessary for the issuance and transfer of
ownership to Mayfair of the lot registered under TCT Nos.
17350, 118612, 60936, and 52571; and
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to
pay the amount as adjudged, declaring the Deed of Absolute
Sale between the defendants-appellants Carmelo &
Bauermann, Inc. and Equatorial Realty Development, Inc. as
valid and binding upon all the parties. 8
Rereading the law on the matter of sales and option contracts,
respondent Court of Appeals differentiated between Article 1324 and
Article 1479 of the Civil Code, analyzed their application to the facts of
this case, and concluded that since paragraph 8 of the two lease
contracts does not state a fixed price for the purchase of the leased
premises, which is an essential element for a contract of sale to be
perfected, what paragraph 8 is, must be a right of first refusal and not an
option contract. It explicated:
Firstly, the court a quo misapplied the provisions of Articles
1324 and 1479, second paragraph, of the Civil Code.
Article 1324 speaks of an "offer" made by an offeror which the
offeree may or may not accept within a certain period. Under
this article, the offer may be withdrawn by the offeror before
the expiration of the period and while the offeree has not yet
accepted the offer. However, the offer cannot be withdrawn by
the offeror within the period if a consideration has been
promised or given by the offeree in exchange for the privilege
of being given that period within which to accept the offer. The
consideration is distinct from the price which is part of the offer.
The contract that arises is known as option. In the case
of Beaumont vs. Prieto, 41 Phil. 670, the Supreme court, citing
Bouvier, defined an option as follows: "A contract by virtue of
which A, in consideration of the payment of a certain sum to B,
acquires the privilege of buying from or selling to B, certain
securities or properties within a limited time at a specified
price," (pp. 686-7).
Article 1479, second paragraph, on the other hand,
contemplates of an "accepted unilateral promise to buy or to
sell a determinate thing for a price within (which) is binding
upon the promisee if the promise is supported by a
consideration distinct from the price." That "unilateral promise
to buy or to sell a determinate thing for a price certain" is called
an offer. An "offer", in laws, is a proposal to enter into a reasonable opportunity to accept or reject the offer, before
contract (Rosenstock vs. Burke, 46 Phil. 217). To constitute a offering to sell or selling the leased property to third parties.
legal offer, the proposal must be certain as to the object, the The right vested in Mayfair is analogous to the right of first
price and other essential terms of the contract (Art. 1319, Civil refusal, which means that Carmelo should have offered the
Code). sale of the leased premises to Mayfair before offering it to
other parties, or, if Carmelo should receive any offer from third
Based on the foregoing discussion, it is evident that the parties to purchase the leased premises, then Carmelo must
provision granting Mayfair "30-days exclusive option to first give Mayfair the opportunity to match that offer.
purchase" the leased premises is NOT AN OPTION in the
context of Arts. 1324 and 1479, second paragraph, of the Civil In fact, Mr. Pascal understood the provision as giving Mayfair a
Code. Although the provision is certain as to the object (the right of first refusal when he made the telephone call to Mr.
sale of the leased premises) the price for which the object is to Yang in 1974. Mr. Pascal thus testified:
be sold is not stated in the provision Otherwise stated, the
questioned stipulation is not by itself, an "option" or the "offer to Q Can you tell this
sell" because the clause does not specify the price for the Honorable Court how you
subject property. made the offer to Mr.
Henry Yang by telephone?
Although the provision giving Mayfair "30-days exclusive option
to purchase" cannot be legally categorized as an option, it is, A I have an offer from
nevertheless, a valid and binding stipulation. What the trial another party to buy the
court failed to appreciate was the intention of the parties property and having the
behind the questioned proviso. offer we decided to make
an offer to Henry Yang on
xxx xxx xxx a first-refusal basis. (TSN
November 8, 1983, p. 12.).
The provision in question is not of the pro-forma type
customarily found in a contract of lease. Even appellees have and on cross-examination:
recognized that the stipulation was incorporated in the two
Contracts of Lease at the initiative and behest of Mayfair. Q When you called Mr.
Evidently, the stipulation was intended to benefit and protect Yang on August 1974 can
Mayfair in its rights as lessee in case Carmelo should decide, you remember exactly
during the term of the lease, to sell the leased property. This what you have told him in
intention of the parties is achieved in two ways in accordance connection with that
with the stipulation. The first is by giving Mayfair "30-days matter, Mr. Pascal?
exclusive option to purchase" the leased property. The second
is, in case Mayfair would opt not to purchase the leased
property, "that the purchaser (the new owner of the leased A More or less, I told him
property) shall recognize the lease and be bound by all the that I received an offer
terms and conditions thereof." from another party to buy
the property and I was
offering him first choice of
In other words, paragraph 8 of the two Contracts of lease, the enter property. (TSN,
particularly the stipulation giving Mayfair "30-days exclusive November 29, 1983, p.
option to purchase the (leased premises)," was meant to 18).
provide Mayfair the opportunity to purchase and acquire the
leased property in the event that Carmelo should decide to
dispose of the property. In order to realize this intention, the We rule, therefore, that the foregoing interpretation best
implicit obligation of Carmelo once it had decided to sell the renders effectual the intention of the parties.9
leased property, was not only to notify Mayfair of such decision
to sell the property, but, more importantly, to make an offer to Besides the ruling that paragraph 8 vests in Mayfair the right of first
sell the leased premises to Mayfair, giving the latter a fair and refusal as to which the requirement of distinct consideration
indispensable in an option contract, has no application, respondent
appellate court also addressed the claim of Carmelo and Equatorial that
assuming arguendo that the option is valid and effective, it is impossible
of performance because it covered only the leased premises and not
the entire Claro M. Recto property, while Carmelo's offer to sell
pertained to the entire property in question. The Court of Appeals ruled
as to this issue in this wise:
We are not persuaded by the contentions of the defendants-
appellees. It is to be noted that the Deed of Absolute Sale
between Carmelo and Equatorial covering the whole Claro M.
Recto property, made reference to four titles: TCT Nos. 17350,
118612, 60936 and 52571. Based on the information submitted
by Mayfair in its appellant's Brief (pp. 5 and 46) which has not
been controverted by the appellees, and which We, therefore,
take judicial notice of the two theaters stand on the parcels of
land covered by TCT No. 17350 with an area of 622.10 sq. m
and TCT No. 118612 with an area of 2,100.10 sq. m. The
existence of four separate parcels of land covering the whole
Recto property demonstrates the legal and physical possibility
that each parcel of land, together with the buildings and
improvements thereof, could have been sold independently of
the other parcels.
At the time both parties executed the contracts, they were
aware of the physical and structural conditions of the buildings
on which the theaters were to be constructed in relation to the
remainder of the whole Recto property. The peculiar language
of the stipulation would tend to limit Mayfair's right under
paragraph 8 of the Contract of Lease to the acquisition of the
leased areas only. Indeed, what is being contemplated by the
questioned stipulation is a departure from the customary
situation wherein the buildings and improvements are included
in and form part of the sale of the subjacent land. Although this
situation is not common, especially considering the non-
condominium nature of the buildings, the sale would be valid
and capable of being performed. A sale limited to the leased
premises only, if hypothetically assumed, would have brought
into operation the provisions of co-ownership under which
Mayfair would have become the exclusive owner of the leased
premises and at the same time a co-owner with Carmelo of the
subjacent land in proportion to Mayfair's interest over the
premises sold to it. 10
Carmelo and Equatorial now comes before us questioning the
correctness and legal basis for the decision of respondent Court of
Appeals on the basis of the following assigned errors:
I On September 20, 1992, counsel for petitioner Equatorial
THE COURT OF APPEALS GRAVELY ERRED IN
CONCLUDING THAT THE OPTION CLAUSE IN THE
CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST
REFUSAL PROVISO. IN DOING SO THE COURT OF
APPEALS DISREGARDED THE CONTRACTS OF LEASE
WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR
AN OPTION, AND THE ADMISSION OF THE PARTIES OF
SUCH OPTION IN THEIR STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL,
THE COURT OF APPEALS ERRED IN DIRECTING
EQUATORIAL TO EXECUTE A DEED OF SALE EIGHTEEN
(18) YEARS AFTER MAYFAIR FAILED TO EXERCISE ITS
OPTION (OR, EVEN ITS RIGHT OF FIRST REFUSAL
ASSUMING IT WAS ONE) WHEN THE CONTRACTS
LIMITED THE EXERCISE OF SUCH OPTION TO 30 DAYS
FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT
DIRECTED IMPLEMENTATION OF ITS DECISION EVEN
BEFORE ITS FINALITY, AND WHEN IT GRANTED MAYFAIR
A RELIEF THAT WAS NOT EVEN PRAYED FOR IN THE
COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL
RULES IN THE ASSIGNMENT OF APPEALED CASES
WHEN IT ALLOWED THE SAME DIVISION XII,
PARTICULARLY JUSTICE MANUEL HERRERA, TO
RESOLVE ALL THE MOTIONS IN THE "COMPLETION
PROCESS" AND TO STILL RESOLVE THE MERITS OF THE
CASE IN THE "DECISION STAGE". 11
We shall first dispose of the fourth assigned error respecting alleged
irregularities in the raffle of this case in the Court of Appeals. Suffice it to
say that in our Resolution, 12 dated December 9, 1992, we already took
note of this matter and set out the proper applicable procedure to be the
following:
Realty Development, Inc. wrote a letter-complaint to this Court
alleging certain irregularities and infractions committed by
 certain lawyers, and Justices of the Court of Appeals and of
this Court in connection with case CA-G.R. CV No. 32918 (now
G.R. No. 106063). This partakes of the nature of an
administrative complaint for misconduct against members of
the judiciary. While the letter-complaint arose as an incident in
case CA-G.R. CV No. 32918 (now G.R. No. 106063), the
disposition thereof should be separate and independent from
Case G.R. No. 106063. However, for purposes of receiving the
requisite pleadings necessary in disposing of the administrative
complaint, this Division shall continue to have control of the
case. Upon completion thereof, the same shall be referred to
the Court En Banc for proper disposition. 13
This court having ruled the procedural irregularities raised in the fourth
assigned error of Carmelo and Equatorial, to be an independent and
separate subject for an administrative complaint based on misconduct
by the lawyers and justices implicated therein, it is the correct, prudent
and consistent course of action not to pre-empt the administrative
proceedings to be undertaken respecting the said irregularities.
Certainly, a discussion thereupon by us in this case would entail a
finding on the merits as to the real nature of the questioned procedures
and the true intentions and motives of the players therein.
In essence, our task is two-fold: (1) to define the true nature, scope and
efficacy of paragraph 8 stipulated in the two contracts of lease between
Carmelo and Mayfair in the face of conflicting findings by the trial court
and the Court of Appeals; and (2) to determine the rights and
obligations of Carmelo and Mayfair, as well as Equatorial, in the
aftermath of the sale by Carmelo of the entire Claro M. Recto property
to Equatorial.
Both contracts of lease in question provide the identically worded
paragraph 8, which reads:
That if the LESSOR should desire to sell the leased premises,
the LESSEE shall be given 30-days exclusive option to
purchase the same.
In the event, however, that the leased premises is sold to
someone other than the LESSEE, the LESSOR is bound and
obligated, as it hereby binds and obligates itself, to stipulate in
the Deed of Sale thereof that the purchaser shall recognize this
lease and be bound by all the terms and conditions thereof. 14
We agree with the respondent Court of Appeals that the aforecited
contractual stipulation provides for a right of first refusal in favor of
Mayfair. It is not an option clause or an option contract. It is a contract of
a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto, 15 unequivocal
was our characterization of an option contract as one necessarily
involving the choice granted to another for a distinct and separate
consideration as to whether or not to purchase a determinate thing at a
predetermined fixed price.
It is unquestionable that, by means of the document Exhibit E,
to wit, the letter of December 4, 1911, quoted at the beginning
of this decision, the defendant Valdes granted to the plaintiff
Borck the right to purchase the Nagtajan Hacienda belonging
to Benito Legarda, during the period of three months and for its
assessed valuation, a grant which necessarily implied the offer
or obligation on the part of the defendant Valdes to sell to
Borck the said hacienda during the period and for the price
mentioned . . . There was, therefore, a meeting of minds on the
part of the one and the other, with regard to the stipulations
made in the said document. But it is not shown that there was
any cause or consideration for that agreement, and this
omission is a bar which precludes our holding that the
stipulations contained in Exhibit E is a contract of option, for, . .
. there can be no contract without the requisite, among others,
of the cause for the obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier defines an
option as a contract, in the following language:
A contract by virtue of which A, in
consideration of the payment of a certain
sum to B, acquires the privilege of buying
from, or selling to B, certain securities or
properties within a limited time at a specified
price. (Story vs. Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and Phrases,"
citing the case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24
Am. St. Rep., 17) the following quotation has been taken:
An agreement in writing to give a person the
option to purchase lands within a given
time at a named price is neither a sale nor
an agreement to sell. It is simply a contract
by which the owner of property agrees with
another person that he shall have the right to
buy his property at a fixed price within a
certain time. He does not sell his land; he
does not then agree to sell it; but he does
sell something; that is, the right or privilege
to buy at the election or option of the other
party. The second party gets in praesenti,
not lands, nor an agreement that he shall
 have lands, but he does get something of
value; that is, the right to call for and receive
lands if he elects. The owner parts with his
right to sell his lands, except to the second
party, for a limited period. The second party
receives this right, or, rather, from his point
of view, he receives the right to elect to buy.
But the two definitions above cited refer to the contract of
option, or, what amounts to the same thing, to the case where
there was cause or consideration for the obligation, the subject
of the agreement made by the parties; while in the case at bar
there was no such cause or consideration. 16 (Emphasis ours.)
The rule so early established in this jurisdiction is that the deed of option
or the option clause in a contract, in order to be valid and enforceable,
must, among other things, indicate the definite price at which the person
granting the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy the leased
property for a named price per square meter upon failure to make the purchase
within the time specified; 17 in one other case we freed the landowner from her
promise to sell her land if the prospective buyer could raise P4,500.00 in three
weeks because such option was not supported by a distinct consideration; 18 in
the same vein in yet one other case, we also invalidated an instrument entitled,
"Option to Purchase" a parcel of land for the sum of P1,510.00 because of lack of
consideration; 19 and as an exception to the doctrine enumerated in the two
preceding cases, in another case, we ruled that the option to buy the leased
premises for P12,000.00 as stipulated in the lease contract, is not without
consideration for in reciprocal contracts, like lease, the obligation or promise of
each party is the consideration for that of the other. 20 In all these cases, the
selling price of the object thereof is always predetermined and specified in the
option clause in the contract or in the separate deed of option. We elucidated,
thus, in the very recent case of Ang Yu Asuncion vs. Court of Appeals 21 that:
. . . 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 in 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. . . .
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.
An accepted unilateral promise which specifies the thing to be
sold and the price to be paid, when coupled with a valuable
consideration distinct and separate from the price, is what may
properly be termed a perfected contract of option. This contract
is legally binding, and in sales, it conforms with the second
paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to
sell a determinate thing for a price certain is
binding upon the promisor if the promise is
supported by a consideration distinct from
the price. (1451a).
Observe, however, that the option is not the contract of sale
itself. 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.
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" deemed perfected, and it would be a breach of that
contract to withdraw the offer during the agreed period. The
option, however, is an independent contract by itself; and it is
to be distinguished from the projected main agreement (subject
matter of the option) which is obviously yet to be concluded. If,
in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree,
the latter may not sue for specific performance on the
proposed contract ("object" of the option) since it has failed to
reach its own stage of perfection. The optioner-offeror,
however, renders himself liable for damages for breach of the
opinion. . .
In the light of the foregoing disquisition and in view of the wording of the
questioned provision in the two lease contracts involved in the instant
case, we so hold that no option to purchase in contemplation of the
second paragraph of Article 1479 of the Civil Code, has been granted to
Mayfair under the said lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph 8
grants the right of first refusal to Mayfair and is not an option contract. It
also correctly reasoned that as such, the requirement of a separate
consideration for the option, has no applicability in the instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967 and
March 31, 1969 contracts which would bring them into the ambit of the
usual offer or option requiring an independent consideration.
An option is a contract granting a privilege to buy or sell within an
agreed time and at a determined price. 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. 22 In
the instant case, the right of first refusal is an integral part of the
contracts of lease. The consideration is built into the reciprocal
obligations of the parties.
To rule that a contractual stipulation such as that found in paragraph 8
of the contracts is governed by Article 1324 on withdrawal of the offer or
Article 1479 on promise to buy and sell would render in effectual or
"inutile" the provisions on right of first refusal so commonly inserted in
leases of real estate nowadays. The Court of Appeals is correct in
stating that Paragraph 8 was incorporated into the contracts of lease for
the benefit of Mayfair which wanted to be assured that it shall be given
the first crack or the first option to buy the property at the price which
Carmelo is willing to accept. It is not also correct to say that there is no
consideration in an agreement of right of first refusal. The stipulation is
part and parcel of the entire contract of lease. The consideration for the
lease includes the consideration for the right of first refusal. Thus,
Mayfair 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, Mayfair shall be given the right
to match the offered purchase price and to buy the property at that
price. As stated in Vda. De Quirino vs. Palarca, 23 in reciprocal contract,
the obligation or promise of each party is the consideration for that of
the other.
The respondent Court of Appeals was correct in ascertaining the true
nature of the aforecited paragraph 8 to be that of a contractual grant of
the right of first refusal to Mayfair.
We shall now determine the consequential rights, obligations and
liabilities of Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an
amplification of the precedent in Ang Yu Asuncion vs. Court of
Appeals. 24
First and foremost is that the petitioners acted in bad faith to render
Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in the event
Carmelo sells the leased premises. It is undisputed that Carmelo did
recognize this right of Mayfair, for it informed the latter of its intention to
sell the said property in 1974. There was an exchange of letters
evidencing the offer and counter-offers made by both parties. Carmelo,
however, did not pursue the exercise to its logical end. While it initially
recognized Mayfair's right of first refusal, Carmelo violated such right
when without affording its negotiations with Mayfair the full process to
ripen to at least an interface of a definite offer and a possible
corresponding acceptance within the "30-day exclusive option" time
granted Mayfair, Carmelo abandoned negotiations, kept a low profile for
some time, and then sold, without prior notice to Mayfair, the entire
Claro M Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it
of the property in question rescissible. We agree with respondent
Appellate Court that the records bear out the fact that Equatorial was
aware of the lease contracts because its lawyers had, prior to the sale,
studied the said contracts. As such, Equatorial cannot tenably claim to
be a purchaser in good faith, and, therefore, rescission lies.
. . . 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
reparation 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 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 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 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.
The petitioner insists that it was not aware of the right of first
priority granted by the Contract of Lease. Assuming this to be
true, we nevertheless agree with the observation of the
respondent court that:
If Guzman-Bocaling failed to inquire about
the terms of the Lease Contract, which
includes Par. 20 on priority right given to the
Bonnevies, it had only itself to blame. Having
known that the property it was buying was
under lease, it behooved it as a prudent
person to have required Reynoso or the
broker to show to it the Contract of Lease in
which Par. 20 is contained. 25
Petitioners assert the alleged impossibility of performance because the
entire property is indivisible property. It was petitioner Carmelo which
fixed the limits of the property it was leasing out. Common sense and
fairness dictate that instead of nullifying the agreement on that basis,
the stipulation should be given effect by including the indivisible
appurtenances in the sale of the dominant portion under the right of first
refusal. A valid and legal contract where the ascendant or the more
important of the two parties is the landowner should be given effect, if
possible, instead of being nullified on a selfish pretext posited by the
owner. Following the arguments of petitioners and the participation of
the owner in the attempt to strip Mayfair of its rights, the right of first
refusal should include not only the property specified in the contracts of
lease but also the appurtenant portions sold to Equatorial which are
claimed by petitioners to be indivisible. Carmelo acted in bad faith when
it sold the entire property to Equatorial without informing Mayfair, a clear
violation of Mayfair's rights. While there was a series of exchanges of
letters evidencing the offer and counter-offers between the parties,
Carmelo abandoned the negotiations without giving Mayfair full
opportunity to negotiate within the 30-day period.
Accordingly, even as it recognizes the right of first refusal, this Court
should also order that Mayfair be authorized to exercise its right of first
refusal under the contract to include the entirety of the indivisible
property. The boundaries of the property sold should be the boundaries
of the offer under the right of first refusal. As to the remedy to enforce
Mayfair's right, the Court disagrees to a certain extent with the
concluding part of the dissenting opinion of Justice Vitug. The doctrine
enunciated in Ang Yu Asuncion vs.Court of Appeals should be modified,
if not amplified under the peculiar facts of this case.
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 of lease prior to the sale. Equatorial's
knowledge of the stipulations therein should have cautioned it to look
further into the agreement to determine if it involved stipulations that
would prejudice its own interests.
Since Mayfair has 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. 26 The
sale of the subject real property by Carmelo to Equatorial 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 stipulated period. 27
This Court has always been against multiplicity of suits where all
remedies according to the facts and the law can be included. Since
Carmelo sold the property for P11,300,000.00 to Equatorial, the price at
which Mayfair could have purchased the property is, therefore, fixed. It
can neither be more nor less. There is no dispute over it. The damages
which Mayfair suffered are in terms of actual injury and lost
opportunities. The fairest solution would be to allow Mayfair to exercise
its right of first refusal at the price which it was entitled to accept or
reject which is P11,300,000.00. This is clear from the records.
To follow an alternative solution that Carmelo and Mayfair may resume
negotiations for the sale to the latter of the disputed property would be
unjust and unkind to Mayfair because it is once more compelled to
litigate to enforce its right. It is not proper to give it an empty or vacuous
victory in this case. From the viewpoint of Carmelo, it is like asking a
fish if it would accept the choice of being thrown back into the river. Why
should Carmelo be rewarded for and allowed to profit from, its
wrongdoing? Prices of real estate have skyrocketed. After having sold
the property for P11,300,000.00, why should it be given another chance
to sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court
stated that there was nothing to execute because a contract over the
right of first refusal belongs to a class of preparatory juridical relations
governed not by the law on contracts but by the codal provisions
on human relations. This may apply here if the contract is limited to the
buying and selling of the real property. However, the obligation of
Carmelo to first offer the property to Mayfair is embodied in a contract. It
is Paragraph 8 on the right of first refusal which created the obligation. It
should be enforced according to the law on contracts instead of the
panoramic and indefinite rule on human relations. The latter remedy
encourages multiplicity of suits. There is something to execute and that
is for Carmelo to comply with its obligation to the property under the
right of the first refusal according to the terms at which they should have
been offered then to Mayfair, at the price when that offer should have
been made. Also, Mayfair has to accept the offer. This juridical relation
is not amorphous nor is it merely preparatory. Paragraphs 8 of the two
leases can be executed according to their terms.
On the question of interest payments on the principal amount of
P11,300,000.00, it must be borne in mind that both Carmelo and
Equatorial acted in bad faith. Carmelo knowingly and deliberately broke
a contract entered into with Mayfair. It sold the property to Equatorial
with purpose and intend to withhold any notice or knowledge of the sale
coming to the attention of Mayfair. All the circumstances point to a
calculated and contrived plan of non-compliance with the agreement of
first refusal.
On the part of Equatorial, it cannot be a buyer in good faith because it
bought the property with notice and full knowledge that Mayfair had a
right to or interest in the property superior to its own. Carmelo and
Equatorial took unconscientious advantage of Mayfair.
Neither may Carmelo and Equatorial avail of considerations based on
equity which might warrant the grant of interests. The vendor received
as payment from the vendee what, at the time, was a full and fair price
for the property. It has used the P11,300,000.00 all these years earning
income or interest from the amount. Equatorial, on the other hand, has
received rents and otherwise profited from the use of the property
turned over to it by Carmelo. In fact, during all the years that this
controversy was being litigated, Mayfair paid rentals regularly to the
buyer who had an inferior right to purchase the property. Mayfair is
under no obligation to pay any interests arising from this judgment to
either Carmelo or Equatorial.

WHEREFORE, the petition for review of the decision of the Court of

Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY
DENIED. The Deed of Absolute Sale between petitioners Equatorial
Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby
deemed rescinded; petitioner Carmelo & Bauermann is ordered to
return to petitioner Equatorial Realty Development the purchase price.
The latter is directed to execute the deeds and documents necessary to
return ownership to Carmelo and Bauermann of the disputed lots.
Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc. to buy
the aforesaid lots for P11,300,000.00.

SO ORDERED.
G.R. No. 91901 June 3, 1991 Official Receipt (OR) No. 988474 K issued by Bank of the
Philippine Islands (BPI), Ayala (Main). Further, the seller
SPOUSES LEONCIO G. CIFRA and AURORA R. JONGCO- promises to secure at the shortest possible time the
CIFRA, petitioners, certification of balance or up to date statement of account from
vs. the SSS and deliver the same to the buyer.
COURT OF APPEALS and MANUEL G. YU CHUA, respondents.
If and when the buyer purchases the property according to the
Niceforo S. Agaton for petitioners. terms and conditions above specified, the herein earnest
Marcelino P. Arias for private respondent. money shall form a part of the purchase price otherwise the
same shall be forfeited in favor of the seller.

IN WITNESS, WHEREOF. the parties executed this instrument

at the Municipality of Mandaluyong, Metro-Manila, Philippines,
this 27th day of December 1985.
GANCAYCO, J.:

Earnest money received Earnest money paid

The interpretation of a contract to sell or a promise to sell real property is in issue
in this case.
by the sellers: by the buyer:
On December 27, 1985, petitioners spouses, represented by their attorney-in-fact
Benedicto Catalan, entered into an agreement with private respondent
denominated "Earnest Money" which provides as follows: LEONCIO G. CIFRA JR.

and
EARNEST MONEY
AURORA R. JONGCO-CIFRA (s/t) MANUEL G. YU CHUA,
Received from Dr. Manuel G. Yu Chua the cash sum of FIVE By:
THOUSAND PESOS (P5,000.00) Philippine currency as
earnest money for the house and lot owned by the spouses (s/t) BENEDICTO F. CATALAN
Leoncio G. Cifra, Jr. and Aurora R. Jongco-Cifra. The property Attorney-in-Fact
is located at 665 Boni Avenue, Mandaluyong, Metro-Manila,
SIGNED IN THE PRESENCE OF: (s/t) LOURDES J. CATALAN (s/t
Philippines and more particularly described in the Transfer
Certificate of Title (TCT) No. 490040 (6093).
EARNEST MONEY
The above property is presently mortgaged with the Social
Security System (SSS) with an outstanding balance of more or (on Page 2)
less FORTY THOUSAND PESOS (P40,000.00) as
of November, 1985. The agreed purchase price being ONE Addendum:
MILLION and ONE HUNDRED THOUSAND PESOS (1.1 M)
shall be payable as follows: The sum equivalent to the above
purchase price minus the outstanding mortgage balance with In the event that the buyer shall fail to purchase the
the SSS and the above earnest money shall be paid by the property after he is formally notified by the seller of
buyer to the seller upon the removal of the present tenant or the surrender of the premises by the present tenant or
occupant from the premises and upon the execution of the occupant, in addition to the forfeiture of the earnest
Deed of Absolute Sale. money the buyer binds himself to pay the seller the
sum of TWENTY THOUSAND PESOS (P20,000.00)
Philippine currency plus the attorney's fees and other
It is the understanding of the parties that the buyer shall costs for any court case that may arise.
assume the mortgage or obligation of the seller with the SSS
as of November 1985. The monthly amortization was last paid
by the seller on November 13, 1985 as evidenced by the
 On the other hand, if the seller shall not make good
his promise to sell the above property even after the
present tenant, William Lim Valencia, shall have
surrendered the premises the seller binds himself to
return the earnest money and in addition pay the
buyer the sum of TWENTY THOUSAND PESOS
(P20,000.00) Philippine currency plus the attorney's
fees and other costs of any court case that may arise.
(s/t) BENEDICTO F. CATALAN <(s/t) MANUEL G. YU CHUA,
M.D.br />
(s/t) LOURDES J. CATALAN (s/t) Illegible1
On May 25, 1986, Catalan informed private respondent of the
desire of petitioners to rescind the contract by a letter which
reads:
May 25, 1986
Dr. Manuel G. Yu Chua
649-D Boni Avenue
Mandaluyong, M.M.
Dear Dr. Yu Chua:
I regret to inform you that my sister-in law, Mrs.
Aurora Cifra, has asked me to request for a rescission
of her offer to sell their property at 665 Born Avenue.
The negotiations for the sale of the house and lot
have taken such a long time without your fault nor
their fault and they have now missed the opportunity
for which they wanted to apply the proceeds of the
sale.
I intend to see you on May 31, 1986 to return the
earnest money that you gave us. I would like to
personally apologize for the way thing turned out.
Very truly yours,
(s/t) Benedicto F. Catalan2
Atty. Marcelino Arias replied in behalf of private respondent:
MR. BENEDICTO F. CATALAN
12 T. Evangelista, B.F. Homes
Paraaque, Metro Manila
Dear Mr. Catalan:
This is in behalf of my client, Dr. Manuel G. Yu Chua, of 649-D Boni Ave.,
Mandaluyong, Metro Manila.
Your letter dated May 25, 1986 sent through registered mail to my client was
received by my client today, May 29, 1986 and immediately referred the same to
my office for proper legal comment.
My client shall pursue the agreement you have entered into and my client is
willing to buy the property right now at 1.1 Million Pesos minus of course the Five
Thousand (P5,000.00) Pesos earnest money and the outstanding SSS mortgage
account over the premises which my client had assumed to pay.
You have stated of course, that it is not the fault of my client nor the fault of your
principal and there being no fault of any of them, then there is no reason why the
contract of agreement to sell shall not be pushed through.
My client is even willing to pay the amount of 1.1 Million Pesos as per agreement
even if the present tenant in the premises is still occupying the said premises.
Please take note that the contract of lease executed by and between your
principal and the present tenant clearly provides that the tenant shall vacate the
premises within ninety (90) days from notice of the sale of the property in
question to any other third person.
Off hand, my client shall certainly take this matter to court to enforce his right and
should this happen, then we shall be asking for proper damages.
Consequently, we reiterate that we are willing to buy the property now in the
agreed amount as previously agreed upon. [sic]
You are aware also that my client was deprived to buy a cheaper property of 614
sq. m. located at the corner of Boni and Mayon Sts. also in Mandaluyong for Nine
Hundred Thousand (P900,000.00) Pesos only in order to buy your property at 1.1
Million Pesos. Now, the property at the corner of Boni and Mayon Sts. is no
longer for sale to the damage and prejudice of my client.
Furthermore, my client had deposited the 1.1 Million Pesos in a bank earning
only the usual interest instead of a higher yielding business venture because he
was anticipating for the consummation of your agreement to sell the property to
my client.
I hope we shall not meet in court to enforce my client's right over the premises to
avoid extra unnecessary expenses in court litigation.
Very truly yours,
(s/t) MARCELINO P. ARIAS
(Original reply received May 31, 1986 by (s/t) B.F. Catalan) 3
This was followed by another letter:
June 13, 1986
R. BENEDICTO F. CATALAN
12 T. Evangelists, B.F. Homes
Paraaque, Metro Manila
Dear Mr. Catalan:
This is a reiteration of our letter dated May 29, 1986 and received by you on May
31, 1986. Up to now, we have not received any response from you. We will give
you ten (10) days from receipt hereof within which to tell us in clear terms
whether you will still proceed with the sale of the property to my client, Dr.
Manuel G. Yu Chua or not.
Your silence would be interpreted by us to mean that you want us to take this
matter to court to vindicate the rights of our client and should this happen, it will
be an additional unnecessary expenses on your part and on our part, but most of
all, on your part as we will file an action for damages aside from attorney's fees.
I hope we shall not go to court to avoid unnecessary expenses. We shall wait for
your answer.
(s/t) MARCELINO P. ARIAS4
Private respondent himself wrote a letter to Catalan dated June 18, 1986:
MR. & MRS. BENEDICTO CATALAN
12 Evangelista Street BF Homes,
Paraaque, Metro Manila
Dear Mr. & Mrs. Catalan:
At the outset, you knew I disliked attending court trials, that is why to avoid such
possibility with your tenant, I agreed to the stiff price of P1.1 Million for the
property at 665 Boni Avenue, Mandaluyong in exchange for your assurance that
you will take care of ejecting your tenant. We signed our agreement to this effect
last Dec. 27, 1985. You gave your tenant a 90-day notice to vacate so that gave
him up to the end of March 1986 to look for another residence. Then suddenly, at
the end of the 90-day period, you told me that the tenant had just offered you a
better price for the property and you were considering it. That was bad faith, loud
and clear! The tenant had waived any right to the property to all of us personally
during the negotiations; and again, he confirmed this when he accepted the 90
day notice to vacate. Without showing my indignation at this trampling of my
rights, I told you I was ready to buy the property even while the tenant was still
residing there. In other words, I was willing now to suffer the inconvenience and
added costs of trying to eject the tenant. You answered that you had to consult
with your principal first and this would take about two weeks. The 2 weeks
extended to two (2) months and last May 29, 1986 1 received your letter
rescinding our contract. So any undue delay has been on your part and
deliberately at that. What you kept referring to as lengthy negotiations were
simply delaying tactics on your part.
As I write this letter, you may have received my lawyer's second letter. Now as
then, let me say again that I do not like going to court if I can help it. But I feel
you have done me a grave injustice and a court suit is the only civilized way to
get a redress. My lawyer said the law is on my side and the court can compel you
to sell me the property, aside from making you pay for the trial expenses, the
damages and attorney's fees. At this late stage, I am still hoping you would
change your mind and decide to proceed with the sale without court intervention.
Atty. Mar Arias gave you 10 days to reply. You can reach him at his address or at
his radio program at DZME, 7:00 to 8:00 A.M., Monday to Friday. Please reply
favorably but do it soon.
Sincerely yours,
(s/t) Dr. MANUEL G. YU CHUN5
On June 20,1986, Atty. Narciso Tadeo, representative of petitioners replied
thereto:
Dr. Manuel G. Yu Chua
649-D Boni Avenue,
Mandaluyong, Metro Manila
Dear Dr. Yu Chua:
Our clients, Mr. & Mrs. Leoncio Cifra, thru their attorney-in-fact,
Mr. Benedicto F. Catalan have endorsed to us the letter of your
lawyer, Atty. Marcelino P. Arias dated May 29, 1986 relative to
the cancellation of the sale agreement on their property
situated at 665 Boni Avenue, Mandaluyong, Metro Manila.
You will kindly note that you paid on December 27, 1985 an
earnest money of P5,000.00. Under your said agreement, the
balance of the agreed consideration of ONE MILLION ONE
HUNDRED THOUSAND PESOS (P1,100,000.00) shall be paid
to the seller (our clients) upon removal of the present tenant of
occupant from the premises and upon the execution of the
Deed of Absolute Sale. As correctly pointed out by your
counsel, the contract of lease between our clients and the
 present tenant provides, among others, that the tenant shall
vacate the premises within ninety (90) days from notice of the
sale of the property to any third party.
To date, the tenant of the premises is still occupying the
premises in question. The tenant's refusal to comply with his
contractual obligation to vacate the premises within the said
period is certainly not the fault of our clients nor yourself.
However, the unexpected delay had caused our clients' lost
opportunity to apply the proceeds of the sale to a business
venture abroad. This matter was relayed to you by our clients'
attorney-in-fact in his letter dated May 25, 1986.
Under the foregoing circumstances, we believe that the
rescission of our client's offer to sell their said property is
reasonable and justified. Our clients' attorney-in-fact is ready to
refund the P5,000.00 earnest money.
Very truly yours,
(s/t) NARCISO A. TADEO6
On July 3, 1986 private respondent filed an action for specific performance of the
above agreement in the Regional Trial Court at Pasig, Rizal, wherein after the
issues were joined and the trial on the merits a decision was rendered on May
25, 1987, the dispositive part of which reads:
IN VIEW OF THE FOREGOING, this Court renders judgment in favor of
the plaintiff and against the defendant ordering the said defendants:
a) To execute the corresponding deed of absolute sale in favor of
plaintiff Manuel Yu Chua, over a parcel of land, together with all the
improvements found and existing thereon, located at 665 Boni Avenue,
Mandaluyong, Metro Manila, covered by Transfer Certificate of Title
(TCT) No. 490040 of the Registry of Deeds of Pasig, Metro Manila,
upon payment by the plaintiff of the amount of ONE MILLION ONE
HUNDRED THOUSAND PESOS (P1,100,000.00), minus the earnest
money of P5,000.00 and the outstanding mortgage balance with the
Social Security System;
b) Pay to the plaintiff the amount of P100,000.00 by way of moral
damages;
c) Pay to the said plaintiff the amount of P50,000.00 as attorney's fees;
and
d) Pay the costs of this suit.7
Acting on a motion for reconsideration filed by petitioners the trial court modified
its decision by absolving Catalan, the agent, from paying moral damages,
attorney's fees and costs of the suit.
Petitioners interposed an appeal to the Court of Appeals wherein in due course a
decision was rendered on December 20, 1989 which affirmed the appealed
judgment with the modification deleting the award of moral damages. A motion
for reconsideration filed by petitioners was denied on January 30, 1990.
Hence, this petition for review on certiorari which presents two legal issues:
1) The major legal issue can be framed as follows:
Q DOES CHUA, THE RESPONDENT BUYER, HAVE THE
RIGHT TO DEMAND SPECIFIC PERFORMANCE FROM THE
PETITIONERS TO SELL THE HOUSE AND LOT TO HIM
DESPITE THE FACT THAT HE HAD AGREED TO A WAIVER
OF SUCH A RIGHT WHEN HE CONSENTED TO THE
ADDENDUM STIPULATION RECOGNIZING THE RIGHT ON
THE PART OF THE PETITIONERS TO CANCEL OR
ABROGATE THE SALE FOR ANY REASON BY PAYING THE
LIQUIDATED DAMAGES AGES STIPULATED THEREIN?
2) The minor legal issue may be framed as follows:
Q IS THE AWARD OF ATTORNEY'S FEES FOR
P50,000.00 PROPER DESPITE THE FACT THAT THE
OBLIGATION TO SELL IS COUPLED WITH A PENAL
CLAUSE IN CASE OF FAILURE TO PERFORM, WHICH
PENALTY IS CONSIDERED IN LAW A SUBSTITUTE FOR
THE INDEMNITY OF WHATEVER KIND OF DAMAGES
PURSUANT TO THE EXPRESS PROVISIONS OF ARTICLE
1226 OF THE CIVIL CODE?8
The petition is impressed with merit.
The provisions of Articles 1370 to 1375 of the Civil Code on the interpretation of
contracts are squarely applicable to this case:
Art. 1370. If the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of its
stipulations shall control.
If the words appear to be contrary to the evident intention of the parties,
the latter shall prevail over the former.
Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
 Art. 1372. However generally the terms of a contract may be, they shall
not be understood to comprehend things that are distinct and cases that
are different from those upon which the parties intended to agree.
Art. 1373. If some stipulation of any contract should admit of several
meanings, it shall be understood as bearing that import which is most
adequate to render it effectual.
Art. 1374. The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result
from all of them taken jointly.
Art. 1375. Words which may have different significations shall be
understood in that which is most in keeping with the nature and object of
the contract.
A reading of the subject contract which the parties labeled as "Earnest money"
shows that it is an agreement to sell the real property described therein for the
amount of P1.1 M with assumption of the P40,000.00 mortgage, by which
P5,000.00 was paid upon signing of the agreement by private respondent to
petitioner as earnest money, which is part of the consideration. The balance of
the consideration shall be paid upon the removal of the tenant or occupant from
the premises and upon the execution of the deed of absolute sale.
irrespective of whether or not the occupant of the premises had vacated the
same. This stipulation is the law between the parties.
Consequently, the action for specific performance must fail. For the rescission of
the contract, petitioners must return the P5,000.00 earnest money and pay
P20,000.00 to the private respondent. However, they are not liable for attorneys
fees, for it was private respondent who brought the case to court as a result of
which petitioners unnecessarily incurred expenses of litigation.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals
dated December 20, 1989 and its resolution dated January 30, 1990 are hereby
REVERSED and SET ASIDE. Another judgment is hereby rendered dismissing
the complaint and rescinding the subject contract to sell dated December 27,
1985 upon the petitioners reimbursing to private respondent the P5,000.00
earnest money and paying them P20,000.00 as damages according to the same
agreement. No costs in this instance.
SO ORDERED.

In the addendum to the agreement it is stipulated that in case the buyer fails to
purchase the property after the seller formally notified him of the surrender of the
premises by the tenant or occupant, in addition to the forfeiture of the earnest
money, the buyer must pay the seller P20,000.00 plus attorney's fees and other
costs in case of litigation. On the other hand, if the seller does not make good his
promise to sell the property even after the present tenant shall have surrendered
the premises, the seller binds himself to return the earnest money and in addition
pay the buyer P20,000.00 plus the attorney's fees and other costs in case of
litigation.

This is the literal and clear agreement of the parties.1wphi1 From their
contemporaneous and subsequent acts it also appears that the proceeds of the
sale of the property by petitioners were intended to apply to a proposed business
venture of petitioners abroad. As said proposed business did not prosper and the
tenants/occupants of the premises have not yet vacated the premises, petitioners
decided to rescind the contract of sale in accordance with the agreement.

Under the addendum to the same agreement, both parties are given the freedom
to back out of the transaction provided that, in tie case of the seller, he must
return the earnest money in addition to being liable to the buyer for P20,000.00,
plus attorney's fees and other costs in case of litigation; and in case of the buyer,
the earnest money is forfeited, and he is liable to pay the seller P20,000.00 in
damages plus attorneys fees and other costs in case of litigation to the seller.
This right which is afforded to both parties may be availed of by them,
G.R. No. L-27136 April 30, 1973
HEIRS OF JOSE A. ARCHES, plaintiffs-appellants,
vs.
MARIA B. VDA. DE DIAZ, defendant-appellee.
Ramon Quisumbing, Jr. and Claro A. Arches for plaintiffs-appellants.
Rafael Declare for defendant-appellee.
MAKALINTAL, Actg. C.J.:
This is an appeal from the order dated September 8, 1966 of the Court of First
Instance of Capiz dismissing the complaint in its Civil Case No. V-2903 and from
the order dated October 3, 1966 denying the motion for reconsideration.
On July 6, 1966 the heirs of Jose A. Arches filed a complaint against Maria B.
Vda. de Diaz in the court a quo, alleging inter alia: that on January 21, 1954 the
defendant executed in favor of the late Jose A. Arches a deed of sale with pacto
de retro * over a parcel of land known as Lot No. 2706 of the Cadastral Survey of
Capiz for and in consideration of P12,500.00 that Jose A. Arches during his
lifetime filed a petition on November 20, 1958 in Cadastral Case No. 6, L.R.C.
Record No. 338 of the Court of First Instance of Capiz, to consolidate ownership
over the lot; that the defendant opposed the petition alleging among other things
that the said deed of sale with pacto de retro did not express the true intention of
the parties, which was merely to constitute a mortgage on the proper security for
a loan; that after hearing the case on the merit trial court, in its order dated March
8, 1960, denied the petition holding in effect that the contract was an equitable
mortgage; that Jose A. Arches appealed to the Court of Appeals, which on
December 29, 1964 rendered judgment affirming the order of the trial court; that
Jose A. Arches filed in this Court a petition for certiorari to review the decision of
the appellate court, but in a resolution dated March 29, 1965, which became final
and executory on May 29, 1965, this Court dismissed the petition on the ground
that the issues involved were factual; that in addition to the sum of P12,500.00,
the consideration mentioned in the deed of sale a retro, Jose A. Arches spent
P1,543.70 in connection with the reconstitution of the title to Lot No. 2706 in the
name of the vendor and in paying the real estate taxes on said lot for the years
1951 to 1960; that Jose A. Arches died on August 18, 1965, before he could file
an action in court for the collection of the aforestated sums from the defendant;
that on May 31, 1966, the petitioners, as forced heirs of the deceased Jose A.
Arches, demanded by registered letter from defendant the payment of the sum of
P12,500.00, the consideration mentioned in the sale a retro, and reimbursement
of the sum of P1,543.70; and that the defendant failed and refused to pay. They,
therefore, prayed among things that the defendant be ordered to pay the
aforementioned sums, plus damages.
Instead of answering the complaint the defendant moved to dismiss it on the
ground that the first cause of action recovery of the sum of P12,500.00 was
barred by the statute limitations and that the second cause of action for
reimbursement of the sum of P1,543.70, standing alone not within the jurisdiction
of the trial court. The plaintiffs filed their opposition. The court overruled the plea
of prescription, stating that the ten-year prescriptive commenced on August 29,
1965, when the resolution of this Court dismissing the petition for certiorari filed
by the late Jose A. Arches became final and executory, and not from January 21,
1955, the date the one-year period of repurchase expired, as claimed by the
defendant. The defendant moved to reconsider, alleging res judicata and
multiplicity of suits as additional grounds for dismissal. In an order dated
September 8, 1966, the trial court set aside its previous order and dismissed the
complaint. Said the court:
When an action is barred by a prior judgment, by res
judicata and estoppel, such action in effect is devoid of cause.
Failure to specifically invoke it in the motion to dismiss does
not operate as waiver or abandonment thereof. This should be
more so, inasmuch as the facts are apparent from the
complaint itself.
For it appears that when the late Jose A. Arches, father and
predecessor in interest of plaintiffs herein, petitioned this Court
on November 20, 1958, to consolidate in his name ownership
and title over Lot 2706, Capiz Cadastre, by virtue of the alleged
sale a retro executed by defendant herein in his favor on
January 21, 1954, with reservation of vendor's right to
repurchase in one year, said Jose A. Arches, had two
remedies, inconsistent though they certainly were (a) to
consolidate title and ownership, and (b) to foreclose in the
event the deed of sale a retro be declared one of equitable
mortgage.
Said Jose A. Arches elected to consolidate without
alternatively opting to foreclose. When he opted to consolidate
and prosecuted his option to a final determination he was
thereby barred from pursuing the other alternative and
inconsistent remedy of foreclosure of mortgage or collection of
debt.
Having failed to obtain a reconsideration of the order of dismissal, the plaintiffs
instituted the instant appeal.
We find the appeal well taken. In the first place, res judicata as a ground to
dismiss was waived by the appellee when she failed to include it in her motion for
that purpose. Rule 15, Section 8, of the Rules of Court provides that "(A) motion
attacking a pleading or proceeding shall include all objections then available, and
all objections not so included shall be deemed waived." Secondly, the decision of
the cadastral court, holding in effect that the sale with pacto de retro was an
equitable mortgage and consequently dismissing the petition to consolidate
ownership, did not constitute an adjudication of the right to foreclose the
mortgage or to collect the indebtedness. In the case of Correa vs. Mateo and
Icasiano, 1 wherein an unrecorded pacto de retro sale was construed as an
equitable mortgage, it was ruled that the plaintiff had the right "within sixty days
after final judgment, for a failure to pay the amount due and owing him, to
foreclose his mortgage in a proper proceeding and sell all or any part of the ten
parcels of land to satisfy his debt." In effect this Court recognized the right of the
plaintiff to enforce his lien in a separate proceeding notwithstanding the fact that
he had failed to obtain judgment declaring him the sole and absolute owner of
the parcels of land in question.

The law abhors injustice. It would be unjust in this case to allow the defendant to
escape payment of his debt and, worse still, to rationalize such a result by his
very claim that he is a debtor and not, as the plaintiff says, a vendor of property
in favor of the latter. Strictly speaking, where the petition of the vendee in a pacto
de retro sale is for a judicial order pursuant to Article 1607 of the Civil Code, so
that consolidation of ownership by virtue of the failure of the vendor to redeem
may be recorded in the Registry of Property, the right of action to foreclose the
mortgage or to collect the indebtedness arises from the judgment of the court
declaring the contract as equitable mortgage. Although an alternative prayer to
this effect may be made in the petition, the same cannot but be conditional, that
is, only in the event such a declaration made, contrary to the plaintiff's claim and
the principal relief he seeks. His failure to make that alternative prayer, and the
failure of the court to grant it in the judgment dismissing the petition, should not
be considered as a bar to collecting the indebtedness in a proper action for that
purpose.

Wherefore, the orders appealed from are hereby reversed and the case
remanded to the trial court for further proceedings. Costs against defendant-
appellee.

Zaldivar, Fernando, Teehankee, Makasiar, Antonio and Esguerra, JJ., concur.

Castro, J., took no part.

G.R. No. L-26096 February 27, 1979
THE DIRECTOR OF LANDS, petitioner,
vs.
SILVERETRA ABABA, ET AL., claimants, JUAN LARRAZABAL, MARTA C.
DE LARRAZABAL, MAXIMO ABAROQUEZ and ANASTACIA CABIGAS,
petitioners-appellants, ALBERTO FERNANDEZ, adverse claimant-appellee.
Juanito Ll. Abao for petitioners-appellants.
Alberto R Fernandez in his own behalf.
MAKASIAR, J.:
This is an appeal from the order of the Court of First Instance of Cebu dated
March 19, 1966 denying the petition for the cancellation of an adverse claim
registered by the adverse claimant on the transfer certificate of title of the
petitioners.
The adverse claimant, Atty. Alberto B. Fernandez was retained as counsel by
petitioner, Maximo Abarquez, in Civil Case No. R-6573 of the Court of First
Instance of Cebu, entitled "Maximo Abarquez vs. Agripina Abarquez", for the
annulment of a contract of sale with right of repurchase and for the recovery of
the land which was the subject matter thereof. The Court of First Instance of
Cebu rendered a decision on May 29, 1961 adverse to the petitioner and so he
appealed to the Court of Appeals.
Litigating as a pauper in the lower court and engaging the services of his lawyer
on a contingent basis, petitioner, liable to compensate his lawyer whom he also
retained for his appeal executed a document on June 10, 1961 in the Cebuano-
Visayan dialect whereby he obliged himself to give to his lawyer one-half (1/2) of
whatever he might recover from Lots 5600 and 5602 should the appeal prosper.
The contents of the document as translated are as follows:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
That I, MAXIMO ABARQUEZ, Plaintiff in Case No. R-6573 of
the Court of First Instance of Cebu, make known through this
agreement that for the services rendered by Atty. Alberto B.
Fernandez who is my lawyer in this case, if the appeal is won
up to the Supreme Court, I Promise and will guarantee that I
win give to said lawyer one-half (1/2) of what I may recover
from the estate of my father in Lots No. 5600 and 5602 which
are located at Bulacao Pardo, City of Cebu. That with respect
to any money which may be adjudged to me from Agripina
Abarquez, except 'Attorney's Fees', the same shall pertain to
me and not to said lawyer.
IN WITNESS WHEREOF, I have caused my right thumb. mark
to be affixed hereto this 10th of June, 1961, at the City of
Cebu.
(p. 5, Petitioner-Appellant's Brief, p. 26, rec.)
The real Property sought to be recovered in Civil Case No. R6573 was actually
the share of the petitioner in Lots 5600 and 5602, which were part of the estate of
his deceased parents and which were partitioned the heirs which included
petitioner Maximo Abarquez and his elder sister Agripina Abarquez, the
defendant in said civil case.
This partition was made pursuant to a project of partition approved by the Court
which provided am other that Lots Nos. 5600 and 5602 were to be divided into
three equal Parts, one third of which shall be given to Maximo Abarquez.
However, Agripina Abarquez the share of her brother stating that the latter
executed an instrument ofpacto de retro prior to the partition conveying to her
any or all rights in the estate of their parents. Petitioner discovered later that the
claim of his sister over his share was based on an instrument he was believe all
along to be a mere acknowledgment of the receipt of P700.00 which his sister
gave to him as a consideration for g care of their father during the latter's illness
and never an instrument of pacto de retro. Hence, he instituted an action to annul
the alleged instrument of pacto de retro.
The Court of Appeals in a decision promulgated on August 27, 1963 reversed the
decision of the lower court and annulled the dead of pacto de retro. Appellee
Agripina Abarquez filed a motion for reconsideration but the same was denied in
a resolution dated January 7, 1964 (p. 66, Record on Appeal; p. 13, Rec.) and
the judgment became final and executory on January 22,1964.
Subsequently, Transfer Certificate of Title No. 31841 was issued on May 19,1965
in the name of Maximo Abarquez, married to Anastacia Cabigas, over his
adjudged share in Lots Nos. 5600 and 5602 containing an area of 4,085 square
meters (p. 110, ROA; p. 13, rec.). These parcels of land later by the subject
matter of the adverse claim filed by the claimant.
The case having been resolved and title having been issued to petitioner,
adverse claimant waited for petitioner to comply with ha obligation under the
document executed by him on June 10, 1961 by delivering the one-half ()
portion of the said parcels of land.
Petitioner refused to comply with his obligation and instead offered to sell the
whole parcels of land covered by TCT No. 31841 to petitioner-spouses Juan
Larrazabal and Marta C. de Larrazabal. Upon being informed of the intention of
the petitioner, adverse t claimant immediately took stops to protect his interest by
filing with the trial court a motion to annotate Ins attorney's lien on TCT No.
31841 on June 10, 1965 and by notifying the prospective buyers of his claim over
the one-half portion of the parcels of land.
Realizing later that the motion to annotate attorney's lien was a wrong remedy,
as it was not within the purview of Section 37, rule 138 of the Revised Rule of
Court, but before the same was by the trial court, adverse t by an affidavit of
adverse claim on July 19, 1965 with the Register of Deeds of Cebu (p. 14, ROA;
p. 13, rec.). By virtue of the petition of mid affidavit the adverse claim for one-half
() of the lots covered by the June 10, 1961 document was annotated on TCT
No. 31841.
Notwithstanding the annotation of the adverse claim, petitioner-spouse Maximo
Abarquez and Anastacia Cabigas conveyed by deed of absolute sale on July 29,
1965 two-thirds (2/3) of the lands covered by TCT No. 31841 to petitioner-
spouses Juan Larrazabal and Marta C. de Larrazabal. When the new transfer
certificate of title No. 32996 was issued, the annotation of adverse claim on TCT
No. 31841 necessarily had to appear on the new transfer certificate of title. This
adverse claim on TCT No. 32996 became the subject of cancellation
proceedings filed by herein petitioner-spouses on March 7, 1966 with the Court
of First Instance of Cebu (p. 2 ROA; p. 13, rec.). The adverse claimant, Atty.
Alberto B. Fernandez, filed his opposition to the petition for cancellation on March
18, 1966 (p. 20, ROA; p. 13 rec.). The trial court resolved the issue on March 19,
1966, when it declared that:
...the petition to cancel the adverse claim should be denied.
The admission by the petitioners that the lawyers (Attys.
Fernandez and Batiguin) are entitled to only one-third of the lot
described in Transfer Certificate of Title No. 32966 is the best
proof of the authority to maintain said adverse claim (p. 57,
ROA; p. 13, rec.).
Petitioner-spouses decided to appeal the order of dismissal to this Court and
correspondingly filed the notice of appeal on April 1, 1966 with the trial court. On
April 2, 1966, petitioner-spouses filed the appeal bond and subsequently filed the
record on appeal on April 6, 1966. The records of the case were forwarded to this
Court through the Land Registration Commission of Manila and were received by
this Court on May 5, 1966.
Counsel for the petitioner-spouses filed the printed record on appeal on July 12,
1966. Required to file the appellants' brief, counsel filed one on August 29, 1966
while that of the appellee was filed on October 1, 1966 after having been granted
an extension to file his brief.
The case was submitted for decision on December 1, 1966. Counsel for the
petitioners filed a motion to expunge appellees' brief on December 8, 1966 for
having been filed beyond the reglementary period, but the same was denied by
this Court in a resolution dated February 13, 1967.
The pivotal issue to be resolved in the instant case is the validity or nullity of the
registration of the adverse claim of Atty. Fernandez, resolution of which in turn
hinges on the question of whether or not the contract for a contingent fee, basis
of the interest of Atty. Fernandez, is prohibited by the Article 1491 of the New
Civil Code and Canon 13 of the Canons of Professional Ethics.
Petitioners contend that a contract for a contingent fee violates Article 1491
because it involves an assignment of a property subject of litigation. That article
provides:
Article 1491. The following persons cannot acquire by
purchase even at a public or judicial auction, either in person
or through the petition of another.
xxx xxx xxx
(5) Justices, judges, prosecuting attorneys, clerks of superior
and inferior and other o and employees connected with the
administration of justice, the property and rights in litigation or
levied upon an execution before the court within whose
jurisdiction or territory they exercise their respective
functions;this prohibition includes the act of acquiring by
assignment and shall apply to lawyers, with respect to the
property and rights which may be the object of any litigation in
which they may take part by virtue of their
profession (Emphasis supplied).
This contention is without merit. Article 1491 prohibits only the sale or
assignment between the lawyer and his client, of property which is the subject of
litigation. As WE have already stated. "The prohibition in said article a only to
applies stated: " The prohibition in said article applies only to a sale or
assignment to the lawyer by his client of the property which is the subject of
litigation. In other words, for the prohibition to operate, the sale or t of the
property must take place during the pendency of the litigation involving the
property" (Rosario Vda. de Laig vs. Court of Appeals, et al., L-26882, November
21, 1978).
Likewise, under American Law, the prohibition does not apply to "cases where
after completion of litigation the lawyer accepts on account of his fee, an interest
the assets realized by the litigation" (Drinker, Henry S., Legal Ethics, p. 100
[1953], citing App. A, 280; N.Y. Ciu 714). "There is a clear distraction between
such cases and one in which the lawyer speculates on the outcome of the matter
in which he is employed" (Drinker, supra, p. 100 citing A.B.A. Op. 279).
A contract for a contingent fee is not covered by Article 1491 because the tranfer
or assignment of the property in litigation takes effect only after the finality of a
favorable judgment. In the instant case, the attorney's fees of Atty. Fernandez,
consisting of one-half (1/2) of whatever Maximo Abarquez might recover from his
share in the lots in question, is contingent upon the success of the appeal.
Hence, the payment of the attorney's fees, that is, the transfer or assignment of
one-half (1/2) of the property in litigation will take place only if the appeal
prospers. Therefore, the tranfer actually takes effect after the finality of a
favorable judgment rendered on appeal and not during the pendency of the
litigation involving the property in question. Consequently, the contract for a
contingent fee is not covered by Article 1491.
While Spanish civilists differ in their views on the above issue whether or not a
contingent fee contract (quota litis agreement) is covered by Article 1491 with
Manresa advancing that it is covered, thus:
Se ha discutido si en la incapacidad de Ion Procumdam y
Abogados asta o el pecto de quota litis. Consiste este, como
es sabido, en la estipulacion de que el Abogado o el
Procurador ban de hacer suyos una parte alicuota de In cona
que se li m la son es favorable. Con es te concepto a la vista,
es para nosortros que el articulo que comentamos no
menciona ese pacto; pero como la incapacidad de los
Abogados y Procuradores se extinede al acto de adquirir por
cesion; y la efectividad del pacto de quota litis implica
necesariamente una cesion, estimamos que con solo el num. 5
del articulo 1459 podria con exito la nulidad de ese pacto
tradicionalmente considerado como ilicito.
xxx xxx xxx
Debe tenerse tambien en cuenta, respecto del ultimo parrafo
del articulo 1459, la sentencia del Tribunal Supreme de 25
Enero de 1902, que delcara que si bien el procurador no
puede adquirir para si los bienes, en cuanto a los cuales tiene
incapacidad, puede adquirirlos para otra persona en quien no
concurra incapacidad alguna (Manresa, Comentarios al
Codigo Civil Espaol, Tomo X, p. 110 [4a ed., 1931] emphasis
supplied).
Castan, maintaining that it is not covered, opines thus;
C. Prohibiciones impuestas a las personas encargadas, mas o
menos directamente, de la administracion de justicia.El
mismo art. 1,459 del Codigo civil prohibe a los Magistrados,
Jueces, individuos del Minesterio fiscal, Secretarios de
Tribunales y Juzgados y Oficiales de Justicia adquirir por
compra (aunque sea en subasta publica o judicial, por si ni por
persona alguna intermedia). 'Los bienes y derechos que
estuviesen en litigio ante el Tribunal en cuya jurisdicion on
teritorio ejercieran sus respectivas funciones, extendiendo se
esta prohibicion al acto de adquirir por cesion', y siendo
tambien extensiva ' Alos Abogados y Procuradores respecto
a los bienes y derecho que fueran objeto del un litigio en que
intervengan pos su profession y oficio.'
El fundamento de esta prohibicion es clarismo. No solo se
tratadice Manresade quitar la ocasion al fraude;
persiguese, ademas, el proposito de rodear a las personas
que intervienen en la administracion de justicia de todos los
prestigios que necesitan para ejercer su ministerio, librando los
de toda sospecha, que, aunque fuere infundada, redundaria en
descredito de la institucion.
Por no dor lugar a recelos de ninguna clase, admite el Codigo
(en el apartado penutimo del art. 1.459) algunos casos en que,
por excepcion, no se aplica el pricipio prohibitivo de que
venimos hablando. Tales son los de que se trate de acciones
hereditarias entre coheredero, de cesion en pago de creditos,
o de garantia de los bienes que posean los funcionarios de
justicia.
Algunos autores (Goyena, Manresa,
Valverde) creen que en la prohibicion del art.
1.459 esta comprendido el pacto de quota
litis (o sea el convenio por el cual se
concede al Abogado o Procurador, para el
caso de obtener sentencia favorable una
parte alicuota de la cosa o cantidad que se
litiga), porque dicho pacto supone la venta o
cesion de una parte de la cosa o drecho que
es objecto del litigio. Pero Mucius
Scaevola oberva, conrazon, que en el
repetido pacto no hay propiamente caso de
compraventa ni de cesion de derechos, y
bastan para estimario nulo otros preceptos
del Codigo como los relativos a la ilicitud de
la causa (Castan, Derecho Civil Espol,
Tomo 4, pp. 68-69, [9a ed., 1956], emphasis
supplied).
The Supreme Court of Spain, in its sentencia of 12 November 1917, has ruled
that Article 1459 of the Spanish Civil Code (Article 1491 of our Civil Code) does
not apply to a contract for a contingent fee because it is not contrary to morals or
to law, holding that:
... que no es susceptible de aplicarse el precepto contenido en
el num. 5 del art. 1.459 a un contrato en el que se restrigen los
honorarios de un Abogado a un tanto por ciento de lo que se
obtuviera en el litigio, cosa no repudiada por la moral ni por la
ley (Tolentino, Civil Code of the Philippines, p. 35, Vol. V
[1959]; Castan, supra; Manresa, supra).
In the Philippines, among the Filipino commentators, only Justice Capistrano
ventured to state his view on the said issue, thus:
 The incapacity to purchase or acquire by assignment, which
the law also extends to lawyers with t to the property and rights
which may be the object of any litigation in which they may
take part by virtue of their profession, also covers contracts for
professional services quota litis. Such contracts, however,
have been declared valid by the Supreme Court" (Capistrano,
Civil Code of the Philippines, p. 44, Vol. IV [1951]).
Dr. Tolentino merely restated the views of Castan and Manresa as well as the
state of jurisprudence in Spain, as follows:
Attorneys-at-lawSome writers, like Goyena, Manresa and
Valverde believe that this article covers quota litis agreements,
under which a lawyer is to be given an aliquot part of the
property or amount in litigation if he should win the case for his
client. Scaevola and Castan, however, believe that such a
contract does not involve a sale or assignment of right but it
may be void under other articles of the Code, such as those
referring to illicit cause- On the other hand the Spanish
Supreme Court has held that this article is not applicable to a
contract which limits the fees of a lawyer to a certain
percentage of what may be recovered in litigation, as this is not
contrary to moral or to law. (Tolentino, Civil Code of the
Philippines, p. 35, Vol. V [1959]; Castan, supra, Emphasis
supplied).
Petitioners her contend that a contract for a contingent fee violates the Canons of
Professional Ethics. this is likewise without merit This posture of petitioners
overlooked Canon 13 of the Canons which expressly contingent fees by way of
exception to Canon 10 upon which petitioners relied. For while Canon 10
prohibits a lawyer from purchasing ...any interest in the subject matter of the
litigation which he is conducting", Canon 13, on the other hand, allowed a
reasonable contingent fee contract, thus: "A contract for a con. tangent fee where
sanctioned by law, should be reasonable under all the circumstances of the ca
including the risk and uncertainty of the compensation, but should always be
subject to the supervision of a court, as to its reasonableness." As pointed out by
an authority on Legal Ethics:
Every lawyer is intensely interested in the successful outcome
of his case, not only as affecting his reputation, but also his
compensation. Canon 13 specifically permits the lawyer to
contract for a con tangent fee which of itself, negatives the
thought that the Canons preclude the lawyer's having a stake
in his litigation. As pointed out by Professor Cheatham on page
170 n. of his Case Book, there is an inescapable conflict of
interest between lawyer and client in the matter of
fees. Nor despite some statements to the con in Committee
opinions, is it believed that, particularly in view of Canon 13,
Canon 10 precludes in every case an arrangement to make the
lawyer's fee payable only out of the results of the litigation. The
distinction is between buying an interest in the litigation as a
speculation which Canon 10 condemns and agreeing, in a
case which the lawyer undertakes primarily in his professional
capacity, to accept his compensation contingent on the
outcome (Drinker, Henry S Legal Ethics, p. 99, [1953],
Emphasis supplied).
These Canons of Professional Ethics have already received "judicial recognition
by being cited and applied by the Supreme Court of the Philippines in its opinion"
Malcolm, Legal and Judicial Ethics, p. 9 [1949]). And they have likewise been
considered sources of Legal Ethics. More importantly, the American Bar
Association, through Chairman Howe of the Ethics Committee, opined that "The
Canons of Professional Ethics are legislative expressions of professional opinion
ABA Op. 37 [1912])" [See footnote 25, Drinker, Legal Ethics, p. 27]. Therefore,
the Canons have some binding effect
Likewise, it must be noted that this Court has already recognized this type of a
contract as early as the case of Ulanday vs. Manila Railroad Co. (45 PhiL 540
[1923]), where WE held that "contingent fees are not prohibited in the Philippines,
and since impliedly sanctioned by law 'Should be under the supervision of the
court in order that clients may be protected from unjust charges' (Canons of
Profession 1 Ethics)". The same doctrine was subsequently reiterated in Grey vs.
Insular Lumber Co. (97 PhiL 833 [1955]) and Recto vs. Harden (100 PhiL 427
[1956]).
In the 1967 case of Albano vs. Ramos (20 SCRA 171 [19671), the attorney was
allowed to recover in a separate action her attomey's fee of one-third (1/3) of the
lands and damages recovered as stipulated in the contingent fee contract. And
this Court in the recent case of Rosario Vda de Laig vs. Court of Appeals, et al.
(supra), which involved a contingent fee of one-half () of the property in
question, held than ,contingent fees are recognized in this i jurisdiction (Canon
13 of the Canons of Professional Ethics adopted by the Philippine Bar
association in 1917 [Appendix B, Revised Rules of Court)), which contingent fees
may be a portion of the property in litigation."
Contracts of this nature are permitted because they redound to the benefit of the
poor client and the lawyer "especially in cases where the client has meritorious
cause of action, but no means with which to pay for legal services unless he can,
with the sanction of law, make a contract for a contingent fee to be paid out of the
proceeds of the litigation" (Francisco, Legal Ethics, p. 294 [1949], citing Lipscomb
vs. Adams 91 S.W. 1046, 1048 [1949]). Oftentimes, contingent fees are the only
means by which the poor and helpless can redress for injuries sustained and
have their rights vindicated. Thus:
The reason for allowing compensation for professional services
based on contingent fees is that if a person could not secure
counsel by a promise of large fees in case of success, to be
derived from the subject matter of the suit, it would often place
the poor in such a condition as to amount to a practical denial
of justice. It not infrequently happens that person are injured
 through the negligence or willful misconduct of others, but by
reason of poverty are unable to employ counsel to assert their
rights. In such event their only means of redress lies in
gratuitous service, which is rarely given, or in their ability to find
some one who will conduct the case for a contingent fee. That
relations of this king are often abused by speculative attorneys
or that suits of this character are turned into a sort of
commercial traffic by the lawyer, does not destroy the
beneficial result to one who is so poor to employ counsel (id, at
p. 293, citing Warvelle, Legal Ethics, p. 92, Emphasis
supplied).
Justice George Malcolm, writing on contingent fees, also stated that:
... the system of contingent compensation has the merit of
affording to certain classes of persons the opportunity to
procure the prosecution of their claims which otherwise would
be beyond their means. In many cases in the United States
and the Philippines, the contingent fee is socially
necessary (Malcolm, Legal and Judicial Ethics, p. 55 [1949],
emphasis supplied).
Stressing further the importance of contingent fees, Professor Max Radin of the
University of California, said that:
The contingent fee certainly increases the possibility that
vexatious and unfounded suits will be brought. On the other
hand, it makes possible the enforcement of legitimate claims
which otherwise would be abandoned because of the poverty
of the claimants. Of these two possibilities, the social
advantage seems clearly on the side of the contingent fee. It
may in fact be added by way of reply to the first objection that
vexations and unfounded suits have been brought by men who
could and did pay substantial attorney's fees for that purpose
(Radin, Contingent Fees in California, 28 Cal. L. Rev. 587, 589
[1940], emphasis supplied).
Finally, a contingent fee contract is always subject to the supervision of the
courts with respect to the stipulated amount and may be reduced or nullified. So
that in the event that there is any undue influence or fraud in the execution of the
contract or that the fee is excessive, the client is not without remedy because the
court will amply protect him. As held in the case of Grey vs. Insular Lumber
Co., supra, citing the case of Ulanday vs. Manila Railroad Co., supra:
Where it is shown that the contract for a contingent fee was
obtained by any undue influence of the attorney over the client,
or by any fraud or imposition, or that the compensation is so
clearly excessive as to amount to extortion, the court win in a
proper case protect the aggrieved party.
In the present case, there is no iota of proof to show that Atty. Fernandez had
exerted any undue influence or had Perpetrated fraud on, or had in any manner
taken advantage of his client, Maximo Abarquez. And, the compensation of one-
half of the lots in question is not excessive nor unconscionable considering the
contingent nature of the attorney's fees.
With these considerations, WE find that the contract for a contingent fee in
question is not violative of the Canons of Professional Ethics. Consequently, both
under the provisions of Article 1491 and Canons 10 and 13 of the Canons of
Profession Ethics, a contract for a contingent fee is valid
In resolving now the issue of the validity or nullity for the registration of the
adverse claim, Section 110 of the Land Registration Act (Act 496) should be
considered. Under d section, an adverse claim may be registered only by..
Whoever claims any part or interest in registered land adverse
to the registered owner, arising subsequent to the date of the o
registration ... if no other provision is made in this Act for
registering the same ...
The contract for a contingent fee, being valid, vested in Atty Fernandez an
interest or right over the lots in question to the extent of one-half thereof. Said
interest became vested in Atty. Fernandez after the case was won on appeal
because only then did the assignment of the one-half () portion of the lots in
question became effective and binding. So that when he filed his affidavit of
adverse claim his interest was already an existing one. There was therefore a
valid interest in the lots to be registered in favor of Atty. Fernandez adverse to
Mo Abarquez.
Moreover, the interest or claim of Atty. Fernandez in the lots in question arose
long after the original petition which took place many years ago. And, there is no
other provision of the Land Registration Act under which the interest or claim
may be registered except as an adverse claim under Section 110 thereof. The
interest or claim cannot be registered as an attorney's charging lien. The lower
court was correct in denying the motion to annotate the attomey's lien. A
charging lien under Section 37, Rule 138 of the Revised Rules of Court is limited
only to money judgments and not to judgments for the annulment of a contract or
for delivery of real property as in the instant case. Said Section provides that:
Section 37. An attorney shall have a lien upon the funds,
documents and papers of his client which have lawfully come
into his oppossession and may retain the same until his lawful
fees and disbursements have been paid, and may apply such
funds to the satisfaction thereof. He shall also have a lien to
the same extent upon all judgments, for the payment of money,
and executions issued in pursuance of such judgments, which
he has secured in a litigation of his client ... (emphasis
supplied).
Therefore, as an interest in registered land, the only adequate remedy open to
Atty. Fernandez is to register such interest as an adverse claim. Consequently,
there being a substantial compliance with Section 110 of Act 496, the registration
of the adverse claim is held to be valid. Being valid, its registration should not be
cancelled because as WE have already stated, "it is only when such claim is
found unmeritorious that the registration thereof may be cancelled" (Paz Ty Sin
Tei vs. Jose Lee Dy Piao 103 Phil. 867 [1958]).

The one-half () interest of Atty. Fernandez in the lots in question should

therefore be respected. Indeed, he has a better right than petitioner-spouses,
Juan Larrazabal and Marta C. de Larrazabal. They purchased their two-thirds
(2/3) interest in the lots in question with the knowledge of the adverse claim of
Atty. Fernandez. The adverse claim was annotated on the old transfer certificate
of title and was later annotated on the new transfer certificate of title issued to
them. As held by this Court:

The annotation of an adverse claim is a measure designed to

protect the interest of a person over a piece of real property
where the registration of such interest or right is not otherwise
provided for by the Land Registration Act, and serves as a
notice and warning to third parties dealing with said property
that someone is claiming an interest on the same or a better
right than the registered owner thereof (Sanchez, Jr. vs. Court
of Appeals, 69 SCRA 332 [1976]; Paz Ty Sin Tei vs. Jose Le
Dy Piao supra).

Having purchased the property with the knowledge of the adverse claim, they are
therefore in bad faith. Consequently, they are estopped from questioning the
validity of the adverse claim.

WHEREFORE, THE DECISION OF THE LOWER COURT DENYING THE

PETITION FOR THE CANCELLATION OF THE ADVERSE CLAIM SHOULD BE,
AS IT IS HEREBY AFFIRMED, WITH COSTS AGAINST PETITIONER-
APPELLANTS JUAN LARRAZABAL AND MARTA C. DE LARRAZABAL.

SO ORDERED.
G.R. No. L-39877 February 20, 1976
FIDELA C. LEGASPI, petitioner,
vs.
COURT OF APPEALS, ROMANA YAP VDA. DE AGUILAR, substituted by
her heirs, namely: DOMINADOR JR., FELICIANO, EVANGELINA
ADORACION, TERESITA, OFELIA and MANUEL, all surnamed AGUILAR,
CLARO PESTEJO, MARIA PESTEJO and ANTONIO PESTEJO, respondents.
A. K Reyes & R. R. Rapanut for petitioner.
C. D. Francisco for private respondents.
ESGUERRA, J.:
Petition for review on certiorari of the decision of the Court of Appeals in its C.A.-
G.R. No. 52907-R, reversing the judgment of the Court of First Instance of
Cavite, Branch III.
The factual background of the case is as follows:
On December 14, 1971, petitioner instituted a civil suit against the private
respondents herein, for legal redemption and damages, alleging among others
the following:
2. That plaintiff is the owner in fee simple of NINETY SEVEN
(97) SQUARE METERS, Western portion, of Lot No. 267 of the
Cadastral Survey of Kawit, located at Binakayan, Kawit,
Cavite, which parcel of land is bounded as follows, to wit:
Northeast Lot No. 266.
Southeast Lot No. 266 and an alley
Southwest Lots Nos. 272,271 and 268
3. That the aforesaid portion owned by the plaintiff abuts Lot
No. 268 of the Cadastral Survey of Kawit, Cavite, with an area
of FIFTY-NINE (59) SQUARE METERS;
4. That the quondam owner of the aforesaid Lot No. 268 was
the late Lucia Daplas, and in virtue of successional rights
defendants Claro, Maria and Antonio, all surnamed Pestejo,
became the owners thereof;
5. That a portion of the ancestral house of plaintiff is erected on
a portion of Lot No. 268, remodeled in 1969, because it was
believed that the same belonged to the parents of plaintiff, until
it was found out that it belonged to defendants Claro, Maria
and Antonio, all surnamed Pestejo;
6. That upon agreement, defendants Claro, Maria and Antonio,
all surnamed Pestejo, allowed plaintiff to let a portion of her
house remain in a part of the aforesaid Lot No. 268, with the
knowledge of defendant Romana Yap Vda. de Aguilar;
7. That sometime in 1963, plaintiff made representation with
defendants Claro, Maria and Antonio, all surnamed Pestejo, for
her to exercise the right of pre-emption by offering to buy Lot
No. 268 in the event that they would sell it;
8. That albeit there was an agreement for plaintiff to buy and
for defendants, Claro, Maria and Antonio, all surnamed
Pestejo, to sell, yet the projected sale was not pushed through
because the consideration asked for was the staggering sum
of NINE THOUSAND PESOS (P9,000.00), Philippine
Currency, for Lot No. 269, situated in the interior and with an
area of 59 sq. m. only;
9. That very recently, sans notice to plaintiff, she learned that
the aforesaid Lot was sold and vended to defendant Romano
Yap Vda. de Aguilar for the sum of P1,500.00 only;
10. That plaintiff, availing herself of the right of redemption,
demanded from defendants that she be subrogated to the
rights of defendant Romana Yap Vda. de Aguilar over Lot No.
268 by reimbursing the consideration paid by her, but they
dishonored her demand and still refuse to honor it;
11. That plaintiff has a better use of the aforesaid Lot No. 268
inasmuch as a portion of her house is erected thereat than
defendant Romana Yap Vda. de Aguilar;
12. That in bringing this suit plaintiff would have to spend the
sum of FIVE HUNDRED PESOS (P500.00), Philippine
Currency, for legal fees and incidental expenses, and the
further sum of ONE THOUSAND FIVE HUNDRED PESOS
(P1,500.00), Philippine Currency, as agreed attorney's fees.
On January 3, 1972, respondents moved to dismiss the civil complaint for alleged
lack of cause of action. Petitioner opposed the said motion to dismiss on January
11, 1972, averring therein that petitioner, having been denied her right of pre-
emption, is resorting to legal redemption under Article 1622 of the New Civil
Code, claiming that she has a "better use and utility" of Lot No. 268 as her house
occupies a portion thereof. The trial court issued an order dated January 11,
1972, postponing the resolution of the motion to dismiss until after the evidence
of the parties shall have been actually presented, which order reads as follows:
xxx xxx xxx
The real question here now is who among the adjoining-
owners has a better right to buy this small piece of land
measuring 59 square meters, where by admission of parties
part of the house of the plaintiff is standing. Should it be the
plaintiff who has part of her house standing on the same lot or
the other three adjoining owners including the buyer now co-
defendant, Romana Yap Vda. de Aguilar, who has no
improvement standing on the lot? This being the case it is clear
that it is evidentiary in nature rather than argumentative that
should control the validity of the motion to dismiss. The Court
is of the opinion and so holds that the resolution of this motion
to dismiss should be postponed up to the time when enough
evidence shall have been presented to have the Court decide
as to the real issues involved, factual and legal.
WHEREFORE, the motion to dismiss not being indubitable, the
resolution thereto is hereby postponed after the evidence of
parties shall have been actually presented; and upon petition
of the movant, defendants are given 10 days from today to file
the corresponding pleadings.
Respondents thereafter filed their Answer With Counterclaim denying the
material allegations of the complaint and alleging that notice to adjacent owners
of the sale is not necessary; that by reason of the frivolous and unfounded action
by the plaintiff, they stand to suffer actual damages and the amount of P1,000.00
as attorney's fees. In answer to the counterclaim, petitioner denies the same and
avers that her suit is supported by law and anchored on equity.
Issues having been joined, trial of the case ensued, and on February 2, 1973, the
Court of First Instance of Cavite, Branch 111, rendered judgment for the
petitioner, the dispositive portion of which reads as follows:
WHEREFORE, in view of all the foregoing considerations the
Court is of the opinion and so holds that the evidence is
overwhelmingly in favor of the plaintiff, and for which reason,
the defendant Romana Yap Vda. de Aguilar, and upon her
death her heirs, are hereby ordered to execute a deed of
reconveyance in favor of the plaintiff Fidela C. Legaspi of the
59 square meters covered by TCT No. T-55612 in her name in
favor of Fidela C. Legaspi, after the plaintiff shall have
reimbursed to her or her forced heirs the amount of P1,500.00
she paid to her co-defendants, the Pestejos, by of redemption;
the defendants to pay to the plaintiff P500.00 by way of
expenses of litigation; the amount of P1,000.00 by way of
attorney's fees; and, the costs of proceedings.
Not satisfied with the judgment of the trial court, respondents appealed to the
respondent Court of Appeals which rendered judgment on November 11, 1974,
for the respondents, the dispositive portion of which reads as follows:
IN VIEW WHEREOF, this Court is constrained to reverse, as it
now reverses, case is dismissed, no more pronouncement as
to costs.
Motion for reconsideration having been denied, petitioner interposed the instant
petition for review and reversal of the decision of the Court of Appeals dated
November 11, 1974.
There is no dispute that both petitioner and respondent Romana Yap Vda. de
Aguilar (substituted by her heirs and hereinafter referred to as respondent
Aguilar, are adjoining owners of Lot No. 268; that lot 268 was sold by the
Pestejos to respondent Aguilar; that prior to the sale of lot 268, petitioner tried to
exercise her right of pre- emption over the said lot, as early as 1963, from
respondents Pestejos as a portion of her ancestral home occupies a part of the
same, but she failed as the price demanded was exorbitant and was fixed at
P9,000.00; that sometime in July 1971, respondent Aguilar bought lot 268 from
her co-respondents, the Pestejos, for only P1,500.00; that immediately upon
learning of the sale of lot 268, petitioner sought the redemption of the property in
her favor from the private respondents but it was flatly denied.
From the foregoing uncontroverted facts of the case, arises the issue as to
Who between the contending adjoining lot owners has the
better right over the 59-square meter piece of land under
litigation.
Considering that in the case at bar the findings of the Court of Appeals are
contrary to those of the trial court, a minute scrutiny by this Court is in order, and
resort to duly proven evidence becomes necessary. (Tolentino vs. De Jesus, et
al., L-32797, March 27, 1974, 56 SCRA 167)
It may not be amiss to state that the trial court found the weight of the evidence
heavily in favor of the petitioner. In its decision under date of February 2, 1973,
the trial court said:
It is proven that when in 1969 after the defendant Pestejos
discovered that a portion of the house of the plaintiff is
standing on a portion of Lot 268 they tolerated her ion thereof;
and, later in 1969 when she decided to make improvements on
the said house by way of reconstruction they allowed her to do
so unconditionally. It is further proven that in order to exercise
her right of pre-emption, the herein plaintiff offered to buy the
 said Lot 268 for P3,000.00 but that the Pestejos deliberately
refused the same and exacted thereof the staggering amount
of P9,000.00. But much later about July of 1971 defendant
Pestejos upon maneuvers of their co-defendant Romana Yap
Vda. de Aguilar finally sold to the latter the same lot 268 for
P1,500.00; and that by reason thereof on November 16, 1971,
defendant Romana Yap Vda. de Aguilar was able to secure
Transfer certificate of Title No. T-55612 in her name from the
Register of Deeds even without complying with the legal
provision to the effect that in connection with the said issuance
of the aforementioned Transfer Certificate of Title No. T-55612
there should have been filed with the office of the Register of
Deeds the corresponding affidavit to the effect that before
allowing said Romana Yap Vda. de Aguilar the right of pre-
emption that they have notified in writing the abutting land
owners, particularly, Fidela C. Legaspi, the herein plaintiff, of
their decision to sell said Lot 268 in favor of Romana Yap Vda.
de Aguilar who has lesser right to pre-emption than the herein
plaintiff. This further shows bad faith on the part of defendants
in securing this latest Transfer Certificate of Title covering Lot
268. Inasmuch as the said Transfer Certificate of Title was
already issued in the name of Romana Yap Vda. de Aguilar
and she having already died, the duty of executing the
corresponding Deed of Reconveyance in favor of the plaintiff
must necessarily fall on her forced heirs.
There is no denying that the parcels of land involved in the case at bar are all
urban land. Not only are the lots concerned situated in a thickly populated area in
Binakayan, Kawit, Cavite, but also they are actually used for residential
purposes. That it is urban land has been decided by this Court in numerous
similar cases. To this situation, the provision of law governing the parties is
Article 1622 of the New Civil Code, a new provision introduced in our present
Civil Code covering specifically the rights of pre-emption and redemption of
adjoining owners of urban land, more specially the third paragraph thereof which
provides as follows:
ART. 1622. Whenever a piece of urban land ...
xxx xxx xxx
When two or more owners of adjoining lands wish to exercise
the right of pre-emption or redemption, the owner whose
intended use of the land question appears best justified shall
be preferred.
We take judicious note of the finding of the trial court that "in 1969 after the
defendant Pastejos (co-respondents herein) discovered that a portion of the
house of the plaintiff (now petitioner) is standing on a portion of Lot 268 they
tolerated her possession thereof; and, later in 1969 when she decided to make
improvements on the said house by way of reconstruction they allowed her to do
so unconditionally. It is further proven that in order to exercise her right of pre-
emption, the herein plaintiff (petitioner) offered to buy the said Lot 268 for
P3,000.00 but that the Pestejos deliberately refused the same and exacted
thereof the staggering amount of P9,000.00". Clearly, therefore, years before the
sale of the lot in question to respondent Yap, petitioner availed herself of her right
of pre-emption, not only because she is an adjoining owner but also because a
portion of her ancestral home occupies, without any fault on her part, a portion of
Lot 268 with the knowledge and consent of the Pestejos. Such is not the situation
in Ortega vs. Orcine, 38 SCRA 276, cited by the private respondents. Besides,
the piece of urban land subject of litigation in the aforecited Ortega case is rather
big, consisting of 4,452 square meters in area, whereas the lot in question in the
case at bar is quite too small,only 59 square meters of residential lot.
Considering further that Lot 268 was inherited by the Pestejos, to require
petitioner, as what the respondent appellate court would want her to do, to prove
that said lot was acquired for speculation by the Pestejos would be exacting
compliance with the impossible and inequitable (City of Butuan vs. Ortiz, et al., 3
SCRA 659; Philippine Engineering Corporation vs. CIR, et al., 41 SCRA 89).
Respondent Aguilar, to whom Lot 268 was sold, being likewise an adjoining
owner, the determinative factor should be that provided for in paragraph 3 of
Article 1622 of the Civil Code the intended use that appears best justified
and not whether the said lot was acquired for speculative purposes. And this
brings Us back to the primordial issue as to who has the preferential right of pre-
emption or redemption among the contending adjoining owners in regard to their
intended use of the land in question.
It is Our considered opinion that under the facts and circumstances of the instant
case the petitioner has the preferential right of pre-emption and/or redemption
over Lot 268 as against private respondent Aguilar. Were We to uphold the
dismissal of the instant case under the circumstances above set forth by
sustaining the respondent court's decision, We would be sanctioning something
iniquitous to the petitioner.
WHEREFORE, the decision of the Court of Appeals in its CA-G.R. No. 52907-R,
dated November 11, 1974, is hereby reversed and set aside and that judgment of
the Court of First Instance of Cavite dated February 2, 1973, is hereby reinstated
and affirmed. The heirs or successors in interest of the deceased, Romana Yap
Vda. de Aguilar, shall deliver Transfer Certificate of Title No. T-55612 or any
subsequent Transfer Certificate of Title issued therefore to the Clerk of the Court
of First Instance of Cavite within thirty (30) days after the finality of this decision
for said Clerk of Court to execute the corresponding deed of redemption for Lot
No. 268 in favor of petitioner Fidela Legaspi who shall in turn within said period of
thirty (30) days deposit with the Clerk of Court the sum of P1,500.00 as
redemption price for said lot to be delivered by the latter to the heirs or
successors in interest of Romana Yap Vda. de Aguilar; it being understood that
said Certificate of Title shall be deemed cancelled if not so delivered to the Clerk
of Court within the thirty-day period herein provided.
No special pronouncement as to costs. SO ORDERED.
G.R. No. 72873 May 28, 1987
CARLOS ALONZO and CASIMIRA ALONZO, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and TECLA PADUA, respondents.
Perpetuo L.B. Alonzo for petitioners.
Luis R. Reyes for private respondent.
CRUZ, J.:
The question is sometimes asked, in serious inquiry or in curious conjecture,
whether we are a court of law or a court of justice. Do we apply the law even if it
is unjust or do we administer justice even against the law? Thus queried, we do
not equivocate. The answer is that we do neither because we are a court both of
law and of justice. We apply the law with justice for that is our mission and
purpose in the scheme of our Republic. This case is an illustration.
Five brothers and sisters inherited in equal pro indiviso shares a parcel of land
registered in 'the name of their deceased parents under OCT No. 10977 of the
Registry of Deeds of Tarlac. 1
On March 15, 1963, one of them, Celestino Padua, transferred his undivided
share of the herein petitioners for the sum of P550.00 by way of absolute
sale. 2 One year later, on April 22, 1964, Eustaquia Padua, his sister, sold her
own share to the same vendees, in an instrument denominated "Con Pacto de
Retro Sale," for the sum of P 440.00. 3
By virtue of such agreements, the petitioners occupied, after the said sales, an
area corresponding to two-fifths of the said lot, representing the portions sold to
them. The vendees subsequently enclosed the same with a fence. In 1975, with
their consent, their son Eduardo Alonzo and his wife built a semi-concrete house
on a part of the enclosed area. 4
On February 25, 1976, Mariano Padua, one of the five coheirs, sought to redeem
the area sold to the spouses Alonzo, but his complaint was dismissed when it
appeared that he was an American citizen . 5 On May 27, 1977, however, Tecla
Padua, another co-heir, filed her own complaint invoking the same right of
redemption claimed by her brother. 6
The trial court * also dismiss this complaint, now on the ground that the right had
lapsed, not having been exercised within thirty days from notice of the sales in
1963 and 1964. Although there was no written notice, it was held
that actual knowledge of the sales by the co-heirs satisfied the requirement of the
law. 7
In truth, such actual notice as acquired by the co-heirs cannot be plausibly
denied. The other co-heirs, including Tecla Padua, lived on the same lot, which
consisted of only 604 square meters, including the portions sold to the petitioners
. 8 Eustaquia herself, who had sold her portion, was staying in the same house
with her sister Tecla, who later claimed redemption petition. 9 Moreover, the
petitioners and the private respondents were close friends and neighbors whose
children went to school together. 10
It is highly improbable that the other co-heirs were unaware of the sales and that
they thought, as they alleged, that the area occupied by the petitioners had
merely been mortgaged by Celestino and Eustaquia. In the circumstances just
narrated, it was impossible for Tecla not to know that the area occupied by the
petitioners had been purchased by them from the other. co-heirs. Especially
significant was the erection thereon of the permanent semi-concrete structure by
the petitioners' son, which was done without objection on her part or of any of the
other co-heirs.
The only real question in this case, therefore, is the correct interpretation and
application of the pertinent law as invoked, interestingly enough, by both the
petitioners and the private respondents. This is Article 1088 of the Civil Code,
providing as follows:
Art. 1088. Should any of the heirs sell his hereditary rights to a
stranger before the partition, any or all of the co-heirs may be
subrogated to the rights of the purchaser by reimbursing him
for the price of the sale, provided they do so within the period
of one month from the time they were notified in writing of the
sale by the vendor.
In reversing the trial court, the respondent court ** declared that the notice
required by the said article was written notice and that actual notice would not
suffice as a substitute. Citing the same case of De Conejero v. Court of
Appeals 11 applied by the trial court, the respondent court held that that decision,
interpreting a like rule in Article 1623, stressed the need for written notice
although no particular form was required.
Thus, according to Justice J.B.L. Reyes, who was the ponente of the Court,
furnishing the co-heirs with a copy of the deed of sale of the property subject to
redemption would satisfy the requirement for written notice. "So long, therefore,
as the latter (i.e., the redemptioner) is informed in writing of the sale and the
particulars thereof," he declared, "the thirty days for redemption start running. "
In the earlier decision of Butte v. UY, 12 " the Court, speaking through the same
learned jurist, emphasized that the written notice should be given by the vendor
and not the vendees, conformably to a similar requirement under Article 1623,
reading as follows:
Art. 1623. The right of legal pre-emption or redemption shall
not be exercised except within thirty days from the notice in
 writing by the prospective vendor, or by the vendors, as the
case may be. The deed of sale shall not be recorded in the
Registry of Property, unless accompanied by an affidavit of the
vendor that he has given written notice thereof to all possible
redemptioners.
The right of redemption of co-owners excludes that of the
adjoining owners.
As "it is thus apparent that the Philippine legislature in Article 1623 deliberately
selected a particular method of giving notice, and that notice must be deemed
exclusive," the Court held that notice given by the vendees and not
the vendor would not toll the running of the 30-day period.
The petition before us appears to be an illustration of the Holmes dictum that
"hard cases make bad laws" as the petitioners obviously cannot argue against
the fact that there was really no written notice given by the vendors to their co-
heirs. Strictly applied and interpreted, Article 1088 can lead to only one
conclusion, to wit, that in view of such deficiency, the 30 day period for
redemption had not begun to run, much less expired in 1977.
But as has also been aptly observed, we test a law by its results; and likewise,
we may add, by its purposes. It is a cardinal rule that, in seeking the meaning of
the law, the first concern of the judge should be to discover in its provisions the in
tent of the lawmaker. Unquestionably, the law should never be interpreted in
such a way as to cause injustice as this is never within the legislative intent. An
indispensable part of that intent, in fact, for we presume the good motives of the
legislature, is to render justice.
Thus, we interpret and apply the law not independently of but in consonance with
justice. Law and justice are inseparable, and we must keep them so. To be sure,
there are some laws that, while generally valid, may seem arbitrary when applied
in a particular case because of its peculiar circumstances. In such a situation, we
are not bound, because only of our nature and functions, to apply them just the
same, in slavish obedience to their language. What we do instead is find a
balance between the word and the will, that justice may be done even as the law
is obeyed.
As judges, we are not automatons. We do not and must not unfeelingly apply the
law as it is worded, yielding like robots to the literal command without regard to
its cause and consequence. "Courts are apt to err by sticking too closely to the
words of a law," so we are warned, by Justice Holmes again, "where these words
import a policy that goes beyond them." 13 While we admittedly may not
legislate, we nevertheless have the power to interpret the law in such a way as to
reflect the will of the legislature. While we may not read into the law a purpose
that is not there, we nevertheless have the right to read out of it the reason for its
enactment. In doing so, we defer not to "the letter that killeth" but to "the spirit
that vivifieth," to give effect to the law maker's will.
The spirit, rather than the letter of a statute determines its
construction, hence, a statute must be read according to its
spirit or intent. For what is within the spirit is within the letter
but although it is not within the letter thereof, and that which is
within the letter but not within the spirit is not within the statute.
Stated differently, a thing which is within the intent of the
lawmaker is as much within the statute as if within the letter;
and a thing which is within the letter of the statute is not within
the statute unless within the intent of the lawmakers. 14
In requiring written notice, Article 1088 seeks to ensure that the
redemptioner is properly notified of the sale and to indicate the
date of such notice as the starting time of the 30-day period of
redemption. Considering the shortness of the period, it is really
necessary, as a general rule, to pinpoint the precise date it is
supposed to begin, to obviate any problem of alleged delays,
sometimes consisting of only a day or two.
The instant case presents no such problem because the right of redemption was
invoked not days but years after the sales were made in 1963 and 1964. The
complaint was filed by Tecla Padua in 1977, thirteen years after the first sale and
fourteen years after the second sale. The delay invoked by the petitioners
extends to more than a decade, assuming of course that there was a valid notice
that tolled the running of the period of redemption.
Was there a valid notice? Granting that the law requires the notice to be written,
would such notice be necessary in this case? Assuming there was a valid notice
although it was not in writing. would there be any question that the 30-day period
for redemption had expired long before the complaint was filed in 1977?
In the face of the established facts, we cannot accept the private respondents'
pretense that they were unaware of the sales made by their brother and sister in
1963 and 1964. By requiring written proof of such notice, we would be closing
our eyes to the obvious truth in favor of their palpably false claim of ignorance,
thus exalting the letter of the law over its purpose. The purpose is clear enough:
to make sure that the redemptioners are duly notified. We are satisfied that in this
case the other brothers and sisters were actually informed, although not in
writing, of the sales made in 1963 and 1964, and that such notice was sufficient.
Now, when did the 30-day period of redemption begin?
While we do not here declare that this period started from the dates of such sales
in 1963 and 1964, we do say that sometime between those years and 1976,
when the first complaint for redemption was filed, the other co-heirs were actually
informed of the sale and that thereafter the 30-day period started running and
ultimately expired. This could have happened any time during the interval of
thirteen years, when none of the co-heirs made a move to redeem the properties
sold. By 1977, in other words, when Tecla Padua filed her complaint, the right of
redemption had already been extinguished because the period for its exercise
had already expired.
The following doctrine is also worth noting: Fernan and Feliciano, JJ., are on leave.

While the general rule is, that to charge a party with laches in
the assertion of an alleged right it is essential that he should
have knowledge of the facts upon which he bases his claim,
yet if the circumstances were such as should have induced
inquiry, and the means of ascertaining the truth were readily
available upon inquiry, but the party neglects to make it, he will
be chargeable with laches, the same as if he had known the
facts. 15

It was the perfectly natural thing for the co-heirs to wonder why the spouses
Alonzo, who were not among them, should enclose a portion of the inherited lot
and build thereon a house of strong materials. This definitely was not the act of a
temporary possessor or a mere mortgagee. This certainly looked like an act of
ownership. Yet, given this unseemly situation, none of the co-heirs saw fit to
object or at least inquire, to ascertain the facts, which were readily available. It
took all of thirteen years before one of them chose to claim the right of
redemption, but then it was already too late.

We realize that in arriving at our conclusion today, we are deviating from the
strict letter of the law, which the respondent court understandably applied
pursuant to existing jurisprudence. The said court acted properly as it had no
competence to reverse the doctrines laid down by this Court in the above-cited
cases. In fact, and this should be clearly stressed, we ourselves are not
abandoning the De Conejero and Buttle doctrines. What we are doing simply is
adopting an exception to the general rule, in view of the peculiar circumstances
of this case.

The co-heirs in this case were undeniably informed of the sales although no
notice in writing was given them. And there is no doubt either that the 30-day
period began and ended during the 14 years between the sales in question and
the filing of the complaint for redemption in 1977, without the co-heirs exercising
their right of redemption. These are the justifications for this exception.

More than twenty centuries ago, Justinian defined justice "as the constant and
perpetual wish to render every one his due." 16 That wish continues to motivate
this Court when it assesses the facts and the law in every case brought to it for
decision. Justice is always an essential ingredient of its decisions. Thus when the
facts warrants, we interpret the law in a way that will render justice, presuming
that it was the intention of the lawmaker, to begin with, that the law be dispensed
with justice. So we have done in this case.

WHEREFORE, the petition is granted. The decision of the respondent court is

REVERSED and that of the trial court is reinstated, without any pronouncement
as to costs. It is so ordered.

Teehankee, C.J., Yap, Narvasa, Melencio-Herrera Gutierrez, Jr., Paras,

Gancayco, Padilla, Bidin, Sarmiento and Cortes, JJ., concur.
G.R. No. L-15499 February 28, 1962
ANGELA M. BUTTE, plaintiff-appellant,
vs.
MANUEL UY and SONS, INC., defendant-appellee.
Delgado, Flores and Macapagal for plaintiff-appellant.
Pelaez and Jalandoni for defendant-appellee.
REYES, J.B.L., J.:
Appeal from a decision of the Court of First instance of Manila dismissing the
action for legal redemption filed by plaintiff-appellant.
It appears that Jose V. Ramirez, during his lifetime, was a co-owner of a house
and lot located at Sta. Cruz, Manila, as shown by Transfer Certificate of Title No.
52789, issued in the name of the following co-owners: Marie Garnier Vda. de
Ramirez, 1/6; Jose V. Ramirez, 1/6; Jose E. Ramirez, 1/6; Rita de Ramirez, 1/6;
and Jose Ma. Ramirez, 1/6.
On October 20, 1951, Jose V. Ramirez died. Subsequently, Special Proceeding
No. 15026 was instituted to settle his estate, that included the one-sixth (1/6)
undivided share in the aforementioned property. And although his last will and
testament, wherein he bequeathed his estate to his children and grandchildren
and one-third (1/3) of the free portion to Mrs. Angela M. Butte, hereinafter
referred to as plaintiff-appellant, has been admitted to probate, the estate
proceedings are still pending up to the present on account of the claims of
creditors which exceed the assets of the deceased. The Bank of the Philippine
Islands was appointed judicial administrator.
Meanwhile, on December 9, 1958, Mrs. Marie Garnier Vda. de Ramirez, one of
the co-owners of the late Jose V. Ramirez in the Sta. Cruz property, sold her
undivided 1/6 share to Manuel Uy & Sons, Inc. defendant-appellant herein, for
the sum of P500,000.00. After the execution by her attorney-in-fact, Mrs. Elsa R.
Chambers, of an affidavit to the effect that formal notices of the sale had been
sent to all possible redemptioners, the deed of sale was duly registered and
Transfer Certificate of Title No. 52789 was cancelled in lieu of which a new one
was issued in the name of the vendee and the other-co-owners.
On the same day (December 9, 1958), Manuel Uy & Sons, Inc. sent a letter to
the Bank of the Philippine Islands as judicial administrator of the estate of the late
Jose V. Ramirez informing it of the above-mentioned sale. This letter, together
with that of the bank, was forwarded by the latter to Mrs. Butte c/o her counsel
Delgado, Flores & Macapagal, Escolta, Manila, and having received the same on
December 10, 1958, said law office delivered them to plaintiff-appellant's son, Mr.
Miguel Papa, who in turn personally handed the letters to his mother, Mrs. Butte,
on December 11 and 12, 1958. Aside from this letter of defendant-appellant, the
vendor, thru her attorney-in-fact Mrs. Chambers, wrote said bank on December
11, 1958 confirming vendee's letter regarding the sale of her 1/6 share in the Sta.
Cruz property for the sum of P500,000.00. Said letter was received by the bank
on December 15, 1958 and having endorsed it to Mrs. Butte's counsel, the latter
received the same on December 16, 1958. Appellant received the letter on
December 19, 1958.
On January 15, 1959, Mrs. Angela M. Butte, thru Atty. Resplandor Sobretodo,
sent a letter and a Philippine National Bank cashier's check in the amount of
P500,000.00 to Manuel Uy & Sons, Inc. offering to redeem the 1/6 share sold by
Mrs. Marie Garnier Vda. de Ramirez. This tender having been refused, plaintiff
on the same day consigned the amount in court and filed the corresponding
action for legal redemption. Without prejudice to the determination by the court of
the reasonable and fair market value of the property sold which she alleged to be
grossly excessive, plaintiff prayed for conveyance of the property, and for actual,
moral and exemplary damages.
After the filing by defendant of its answer containing a counterclaim, and
plaintiff's reply thereto, trial was held, after which the court rendered decision on
May 13, 1959, dismissing plaintiff's complaint on the grounds that she has no
right to redeem the property and that, if ever she had any, she exercised the
same beyond the statutory 30-day period for legal redemptions provided by the
Civil Code. The counterclaim of defendant for damages was likewise dismissed
for not being sufficiently established. Both parties appealed directly to this Court.
Based on the foregoing facts, the main issues posed in this appeal are: (1)
whether or not plaintiff-appellant, having been bequeathed 1/3 of the free portion
of the estate of Jose V. Ramirez, can exercise the right of legal redemption over
the 1/6 share sold by Mrs. Marie Garnier Vda. de Ramirez despite the presence
of the judicial administrator and pending the final distribution of her share in the
testate proceedings; and (2) whether or not she exercised the right of legal
redemption within the period prescribed by law.
The applicable law involved in the present case is contained in Articles 1620, p.
1, and 1623 of the Civil Code of the Philippines, which read as follows:
ART. 1620. A co-owner of a thing may exercise the right of redemption
in case the shares of all the other-co-owners or of any of them, are sold
to a third person. If the price of the alienation is grossly excessive, the
redemptioner shall pay only a reasonable one.
Should two or more co-owners desire to exercise the right of
redemption, they may only do so in proportion to the share they may
respectively have in the thing owned in common. (1522a)
ART. 1623. The right of legal predemption or redemption shall not be
exercised except within thirty days from the notice in writing by the
respective vendor, or by the vendor, as the case may be. The deed of
sale shall not be accorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that he has given written
notice thereof at all possible redemptioners.
 The right of redemption of co-owners excludes that of adjoining owners.
(1524a)
That the appellant Angela M. Butte is entitled to exercise the right of legal
redemption is clear. As testamentary heir of the estate of J.V. Ramirez, she and
her co-heirs acquired an interest in the undivided one-sixth (1/6) share owned by
her predecessor (causante) in the Santa Cruz property, from the moment of the
death of the aforesaid co-owner, J.V. Ramirez. By law, the rights to the
succession of a deceased persons are transmitted to his heirs from the moment
of his death, and the right of succession includes all property rights and
obligations that survive the decedent.
ART. 776. The inheritance includes all the property, rights and
obligations of a person which are not extinguished by his death. (659)
ART. 777. The rights to the succession are transmitted from the
moment of the death of the decedent. (657a)
ART. 947. The legatee or devisee acquires a right to the pure and
simple legacies or devisees from the death of the testator, and transmits
it to his heirs. (881a)
The principle of transmission as of the time of the predecessor's death is basic in
our Civil Code, and is supported by other related articles. Thus, the capacity of
the heir is determined as of the time the decedent died (Art. 1034); the legitime is
to be computed as of the same moment(Art. 908), and so is the in officiousness
of the donation inter vivos (Art. 771). Similarly, the legacies of credit and
remission are valid only in the amount due and outstanding at the death of the
testator (Art. 935),and the fruits accruing after that instant are deemed to pertain
to the legatee (Art. 948).
As a consequence of this fundamental rule of succession, the heirs of Jose V.
Ramirez acquired his undivided share in the Sta. Cruz property from the moment
of his death, and from that instant, they became co-owners in the aforesaid
property, together with the original surviving co-owners of their decedent
(causante). A co-owner of an undivided share is necessarily a co-owner of the
whole. Wherefore, any one of the Ramirez heirs, as such co-owner, became
entitled to exercise the right of legal redemption (retracto de comuneros) as soon
as another co-owner (Maria Garnier Vda. de Ramirez) had sold her undivided
share to a stranger, Manuel Uy & Sons, Inc. This right of redemption vested
exclusively in consideration of the redemptioner's share which the law nowhere
takes into account.
The situation is in no wise altered by the existence of a judicial administrator of
the estate of Jose V. Ramirez while under the Rules of Court the administrator
has the right to the possession of the real and personal estate of the deceased,
so far as needed for the payment of the decedent's debts and the expenses of
administration (sec. 3, Rule 85), and the administrator may bring or defend
actions for the recovery or protection of the property or rights of the deceased
(sec. 2, Rule 88), such rights of possession and administration do not include the
right of legal redemption of the undivided share sold to Uy & Company by Mrs.
Garnier Ramirez. The reason is obvious: this right of legal redemption only came
into existence when the sale to Uy & Sons, Inc. was perfected, eight (8) years
after the death of Jose V. Ramirez, and formed no part of his estate. The
redemption right vested in the heirs originally, in their individual capacity, they did
not derivatively acquire it from their decedent, for when Jose V. Ramirez died,
none of the other co-owners of the Sta. Cruz property had as yet sold his
undivided share to a stranger. Hence, there was nothing to redeem and no right
of redemption; and if the late Ramirez had no such right at his death, he could
not transmit it to his own heirs. Much less could Ramirez acquire such right of
redemption eight years after his death, when the sale to Uy & Sons, Inc. was
made; because death extinguishes civil personality, and, therefore, all further
juridical capacity to acquire or transmit rights and obligations of any kind (Civil
Code of the Phil., Art. 42).
It is argued that the actual share of appellant Mrs. Butte in the estate of Jose V.
Ramirez has not been specifically determined as yet, that it is still contingent; and
that the liquidation of estate of Jose V. Ramirez may require the alienation of the
decedent's undivided portion in the Sta. Cruz property, in which event Mrs. Butte
would have no interest in said undivided portion. Even if it were true, the fact
would remain that so long as that undivided share remains in the estate, the heirs
of Jose V. Ramirez own it, as the deceased did own it before his demise, so that
his heirs are now as much co-owners of the Sta. Cruz property as Jose V.
Ramirez was himself a co-owner thereof during his lifetime. As co-owners of the
property, the heirs of Jose V. Ramirez, or any one of them, became personally
vested with right of legal redemption as soon as Mrs. Garnier sold her own pro-
indiviso interest to Uy & Sons. Even if subsequently, the undivided share of
Ramirez (and of his heirs) should eventually be sold to satisfy the creditors of the
estate, it would not destroy their ownership of it before the sale, but would only
convey or transfer it as in turn sold (of it actually is sold) to pay his creditors.
Hence, the right of any of the Ramirez heirs to redeem the Garnier share will not
be retroactively affected. All that the law requires is that the legal redemptioner
should be a co-owner at the time the undivided share of another co-owner is sold
to a stranger. Whether or not the redemptioner will continue being a co-owner
after exercising the legal redemptioner is irrelevant for the purposes of law.
Nor it can be argued that if the original share of Ramirez is sold by the
administrator, his heirs would stand in law as never having acquired that share.
This would only be true if the inheritance is repudiated or the heir's quality as
such is voided. But where the heirship is undisputed, the purchaser of hereditary
property is not deemed to have acquired the title directly from the deceased
Ramirez, because a dead man can not convey title, nor from the administrator
who owns no part of the estate; the purchaser can only derive his title from the
Ramirez heirs, represented by the administrator, as their trustee or legal
representative.
The right of appellant Angela M. Butte to make the redemption being established,
the next point of inquiry is whether she had made or tendered the redemption
price within the 30 days from notices as prescribed by law. This period, be it
noted, is peremptory, because the policy of the law is not to leave the
purchaser's title in uncertainty beyond the established 30-day period. In
considering whether or not the offer to redeem was timely, we think that the
notice given by the vendee (buyer) should not be taken into account. The text of
Article 1623 clearly and expressly prescribes that the thirty days for making the
redemption are to be counted from notice in writing by the vendor. Under the old
law (Civ. Code of 1889, Art. 1524), it was immaterial who gave the notice; so
long as the redeeming co-owner learned of the alienation in favor of the stranger,
the redemption period began to run. It is thus apparent that the Philippine
legislature in Article 1623 deliberately selected a particular method of giving
notice, and that method must be deemed exclusive (39 Am. Jur., 237; Payne vs.
State, 12 S.W. [2d] 528). As ruled in Wampler vs. Lecompte, 150 Atl. 458 (affd. in
75 Law Ed. [U.S.] 275)
Why these provisions were inserted in the statute we are not informed,
but we may assume until the contrary is shown, that a state of facts in
respect thereto existed, which warranted the legislature in so legislating.
The redemption and consignation having been properly made, the Uy
counterclaim for damages and attorney's fees predicated on the assumption that
plaintiff's action was clearly unfounded, becomes untenable.
PREMISES CONSIDERED, the judgment appealed from is hereby reversed and
set aside, and another one entered:
(a) Declaring the consignation of P500,000,00 made by appellant
Angela M. Butte duly and properly made;
(b) Declaring that said appellant properly exercised in due time the legal
redemption of the one-sixth (1/6) undivided portion of the land covered
by Certificate of Title No. 59363 of the Office of the Register of Deeds of
the City of Manila, sold on December 9, 1958 by Marie Garnier Vda. de
Ramirez to appellant Manuel Uy & Sons, Inc.

The reasons for requiring that the notice should be given by the seller, and not by (c) Ordering appellant Manuel Uy & Sons, Inc. to accept the consigned
the buyer, are easily divined. The seller of an undivided interest is in the best price and to convey to Angela M. Butte the undivided portion above
position to know who are his co-owners that under the law must be notified of the referred to, within 30 days from the time our decision becomes final, and
sale. Also, the notice by the seller removes all doubts as to the fact of the sale, subsequently to account for the rentals and fruits of the redeemed share
its perfection; and its validity, the notice being a reaffirmation thereof, so that the from and after January 15, 1958, until its conveyance; and.
party need not entertain doubt that the seller may still contest the alienation. This
assurance would not exist if the notice should be given by the buyer. (d) Ordering the return of the records to the court of origin for further
proceedings conformable to this opinion.
The notice which became operative is that given by Mrs. Chambers, in her
capacity as attorney-in-fact of the vendor Marie Garnier Vda. de Ramirez. Under Without finding as to costs.
date of December 11, 1958, she wrote the Administrator Bank of the Philippine
Islands that her principal's one-sixth (1/6) share in the Sta. Cruz property had
been sold to Manuel Uy & Sons, Inc. for P500,000.00. The Bank received this
notice on December 15, 1958, and on the same day endorsed it to Mrs. Butte,
care of Delgado, Flores and Macapagal (her attorneys), who received the same
on December 16, 1958. Mrs. Butte tendered redemption and upon the vendee's
refusal, judicially consigned the price of P500,000.00 on January 15, 1959. The
latter date was the last one of the thirty days allowed by the Code for the
redemption, counted by excluding December 16, 1958 and including January 15,
1959, pursuant to Article 13 of the Civil Code. Therefore, the redemption was
made in due time.

The date of receipt of the vendor's notice by the Administrator Bank (December
15) can not be counted as determining the start of thirty days; for the
Administrator of the estate was not a proper redemptioner, since, as previously
shown, the right to redeem the share of Marie Garnier did not form part of the
estate of Jose V. Ramirez.

We find no jurisdiction for appellant's claim that the P500,000,00. paid by Uy &
Sons, Inc. for the Garnier share is grossly excessive. Gross excess cannot be
predicated on mere individual estimates of market price by a single realtor.
G.R. No. L-21812 April 29, 1966
PAZ TORRES DE CONEJERO and ENRIQUE CONEJERO, petitioners,
vs.
COURT OF APPEALS, VISITACION A. DE RAFFIAN and ENRIQUE
TORRES, respondents.
Recto Law Offices for petitioners.
Quintin Paredes and Nicolas Belmonte for respondents.
REYES, J.B.L., J.:
Petitioners, spouses Paz Torres and Enrique Conejero, petitioned for the review
and setting aside a decision rendered by the Court of Appeals, in its Case CA-
G.R. No. 19634-R, dismissing their action to compel respondents Miguel
Raffian and his wife, Visitacion A. de Raffian, to permit redemption of an
undivided half interest in a property in Cebu City which had been sold to said
respondents by their co-respondent, Enrique Torres, brother and co-owner of
petitioner Paz Torres de Conejero.
Shorn of unessentials, the facts found by the Court of Appeals, in its decision
under review, are that Paz Torres and Enrique Torres were co-owners pro
indiviso of a lot and building in Cebu City, covered by Transfer Certificate of Title
No. 197-A1230 (T-3827), that both had inherited from their deceased parents. As
of September 15, 1949, Enrique Torres sold his half interest to the Raffian
spouses for P13,000, with right to repurchase within one year. Subsequent
advances by the vendees a retro increased their claims against Enrique Torres,
and finally, on April 3, 1951 (six months after the expiration of the right to
repurchase), said Enrique executed a deed of absolute sale of the same half
interest in the property in favor of the Raffians for P28,000. This deed of
absolute sale (Exhibit "3-A") had not been brought to the attention of Enrique's
sister and co-owner, Paz Torres de Conejero, nor of her husband, until August
19, 1952, when Enrique Torres showed his brother-in-law, Enrique Conejero1, a
copy of the deed of absolute sale (Exhibit "C") of his share of the property in
favor of the Raffians. Conejero forthwith went to the buyers, offering to redeem
his brother-in-law's share, which offer he latter raised to P29,000.00 and
afterwards to P34,000.
Amicable settlement not having been attained, the Conejeros filed, on October 4,
1952, a complaint in the Court of First Instance of Cebu, seeking to be declared
entitled to redeem the half interest of Enrique Torres; to which the Raffians
made answer, claiming absolute title to the property in dispute and pleading that
plaintiffs lost their right of redemption because they failed to exercise it within the
statutory period.
The court of first instance found the deed of sale to be an equitable mortgage,
and declared the plaintiffs Conejero entitled to redeem Enrique's half interest for
P34,000. Upon appeal by the defendants, the Court of Appeals reversed the
decision of the court of first instance, found that the deed in favor of the Raffians
was a true sale, and declared as follows:
The pertinent provision of the law reads:
"The right of legal re-emption or redemption shall not be
exercised except within thirty days from the notice in writing by
the prospective vendor, or by the vendor, as the case may be.
The deed of sale shall not be recorded in the Registry of
Property, unless accompanied by an affidavit of the vendor that
he has given written notice thereof to all possible
redemptioners.
"The right of redemption of co-owners excludes that of
adjoining owners" (Art. 1623).
Appellants claim appellees denying that a written notice of the sale had
been sent to the latter. We will concede that the evidence does not sufficiently
show that a written notice was in fact given to the appellees; but this point is not
decisive for the reason that ultimately, according to appellees, themselves, they
came to know of the sale on August 19, 1952, on which date they immediately
made an offer to redeem the property. Appellees argue that their offer to redeem
the property on the first day they came to know of the sale on August 19, 1952,
and subsequently on September 7 and 8, 1952, has preserved their right of legal
redemption as the 30-day period provided for by law had not lapsed. On the
other hand, the appellants claim that as early as April 3, 1951, the date of the
absolute sale of the property by Enrique Torres in favor of the Raffians, the
appellees already know of the sale, so that when the offer to redeem was made
on August 19, 1952, the 30-day period provided by law had already lapsed.
Taken together, all the circumstances we find in the case indeed will guide us
into forming the conclusion that while appellees might not have received a written
notice they could not have failed to have actual and personal knowledge of the
sale much earlier than August 19, 1952. But in view of our opinion directed at
another phase of the question involved, we will not rule on their respective claims
as to whether or not there was notice within the 30-day period. To us, this point is
inconsequential.
Under the circumstances, what is more substantial and decisive is was there a
valid and effective offer to redeem? The law grants unto the co-owner of a
property the right of redemption. But in so granting that right, the law intended
that the offer must be valid and effective, accompanied by an actual tender of an
acceptable redemption price. In the case at bar, the evidence shows that the
appellees had offered only P10,000.00 in check with which to redeem the
property with a promise to pay the balance by means of a loan which they would
apply for and obtain from the bank. We hold that the offer was not in pursuance
of a legal and effective exercise of the right of redemption as contemplated by
law; hence, refusal of the offer on the part of the appellants is justified. The
conditions precedent for the valid exercise of the right do not exist.
We are now asked by petitioners Conejero to reverse and set aside the foregoing
decision of the Court of Appeals, on the basis of two propositions advanced by
them, to wit: (a) that no written notice of the sale to the Raffians having been
given by Enrique Torres to his sister and co-owner, Paz T. de Conejero, the
latter's light to exercise legal redemption has not expired, in fact, it has not even
started to run; and (b) that in legal redemption no tender of the redemption price
is required, mere demand to allow redemption being sufficient to preserve the
redemptioner's right.
With regard to the written notice, we agree with petitioners that such notice is
indispensable, and that, in view of the terms in which Article of the Philippine Civil
Code is couched, mere knowledge of the sale, acquired in some other manner by
the redemptioner, does not satisfy the statute. The written notice was obviously
exacted by the Code to remove all uncertainty as to the sale, its terms and its
validity, and to quiet any doubts that the alienation is not definitive. The statute
not having provided for any alternative, the method of notification prescribed
remains exclusive.
Upon the other hand, Article 1623 does not prescribe any particular form of
notice, nor any distinctive method for notifying the redemptioner. So long,
therefore, as the latter is informed in writing of the sale and the particulars
thereof, the 30 days for redemption start running, and the redemptioner has no
real cause to complain. In the case at bar, the redemptioners (now petitioners)
admit that on August 19, 1952 the co-owner-vendor, Enrique Torres, showed and
gave Enrique Conejero (who was acting for and on behalf of his wife, Paz Torres)
a copy of the 1951 deed of sale in favor of respondents Raffian. The furnishing
of this copy was equivalent to the giving of written notice required by law: it came
from the vendor and made available in writing the details and finality of the sale.
In fact, as argued for the respondents at bar, it served all the purposes of the
written notice, in a more authentic manner than any other writing could have
done. As a necessary consequence, the 30-day period for the legal redemption
by co-owner Paz Torres (retracto de comuneros) began to run its coursed from
and after August 19, 1952, ending on September 18, of the same year.
The next query is: did petitioners effectuate all the steps required for the
redemption? We agree with the Court of Appeals that they did not, for they failed
to make a valid tender of the price of the sale paid by the Raffians within the
period fixed by law. Conejero merely offered a check for P10,000, which was not
even legal tender and which the Raffians rejected, in lieu of the price of P28,000
recited by the deed of sale. The factual finding of the Court of Appeals to this
effect is final and conclusive. Nor were the vendees obligated to accept
Conejero's promise to pay the balance by means of a loan to be obtained in
future from a bank. Bona fide redemption necessarily imports a seasonable and
valid tender of the entire repurchase price, and this was not done. There is no
cogent reason for requiring the vendee to accept payment by installments from a
redemptioner, as it would ultimately result in an indefinite extension of the 30-day
redemption period, when the purpose of the law in fixing a short and definite term
is clearly to avoid prolonged and anti-economic uncertainty as to ownership of
the thing sold (Cf.Torrijos vs. Crisologo, et al., G.R. No. L-1773, Sept. 29, 1962).
Petitioners Conejero urge that, under the provisions of the Civil Code of the
Philippines, a valid tender of the redemption (or repurchase) price is not required,
citing De la Cruz vs. Marcelino, 84 Phil. 709, and Torio vs. Rosario, 93 Phil. 800.
Close scrutiny of these cases reveals that the Supreme Court held therein that a
judicial demand, by action filed within the redemption period and accompanied by
consignation in Court of the redemption price, can take the place of a personal
tender to the vendee of the redemption money under the Civil Code of 1889,
because the nine-day redemption period allowed thereunder was so short as to
render it impractical that in every case the redemptioner should be required to
seek out and offer the redemption price personally to the buyer. Under the
present Civil Code, the urgency is greatly lessened by the prolongation of the
redemption period to 30 days, instead of the 9 previously allowed; and the
petitioners herein have neither filed suit within the 30-day redemption period nor
made consignation of the price. While they received copy of the deed of sale on
August 19, 1952, complaint was only filed on October 4, 1952.
It is, likewise, argued that tender of the price is excused because Article 1620 of
the new Civil Code allows the redemptioner to pay only a reasonable price if the
price of alienation is grossly excessive, and that the reasonableness of the price
to be paid can only be determined by the courts. We think that the right of a
redemptioner to pay a reasonable price under Article 1620 does not excuse him
from the duty to make proper tender of the price that can be honestly deemed
reasonable under the circumstances, without prejudice to final arbitration by the
courts; nor does it authorize said redemptioner to demand that the vendee
accept payment by installments, as petitioners have sought to do. At any rate,
the petitioners, in making their offer to redeem, never contested the
reasonableness of the price recited in the deed of sale. In fact, they even offered
more, and were willing to pay as much as P34,000.
It is not difficult to discern why the redemption price should either be fully offered
in legal tender or else validly consigned in court. Only by such means can the
buyer become certain that the offer to redeem is one made seriously and in good
faith. A buyer can not be expected to entertain an offer of redemption without
attendant evidence that the redemptioner can, and is willing to accomplish the
repurchase immediately. A different rule would leave the buyer open to
harassment by speculators or crackpots, as well as to unnecessary prolongation
of the redemption period, contrary to the policy of the law. While consignation of
the tendered price is not always necessary because legal redemption is not
made to discharge a pre-existing debt (Asturias Sugar Central vs. Cane
Molasses Co., 60 Phil. 253), a valid tender is indispensable, for the reasons
already stated. Of course, consignation of the price would remove all controversy
as to the redemptioner's ability to pay at the proper time.1wph1.t
We find no substantial error in the decision appealed from, and the same is
hereby affirmed. Petitioners Conejero shall pay the costs.
Bengzon, C.J., Bautista Angelo, Concepcion, Barrera, Dizon, Regala, Makalintal,
Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.
 [G.R. No. 137552. June 16, 2000]
ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z.
LAFORTEZA, DENNIS Z. LAFORTEZA, and LEA Z. LAFORTEZA, petitioners,
vs.ALONZO MACHUCA, respondent.
DECISION
GONZAGA_REYES, J.:
This Petition for Review on Certiorari seeks the reversal of the Decision of the
Court of Appeals[1] in CA G.R. CV No. 47457 entitled "ALONZO MACHUCA
versus ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, LEA ZULUETA-
LAFORTEZA MICHAEL Z. LAFORTEZA, and DENNIS Z. LAFORTEZA".
The following facts as found by the Court of Appeals are undisputed:
"The property involved consists of a house and lot located at
No. 7757 Sherwood Street, Marcelo Green Village, Paraaque,
Metro Manila, covered by Transfer Certificate of Title (TCT)
No. (220656) 8941 of the Registered of Deeds of Paraaque
(Exhibit "D", Plaintiff, record, pp. 331-332). The subject
property is registered in the name of the late Francisco Q.
Laforteza, although it is conjugal in nature (Exhibit "8",
Defendants, record pp. 331-386).
On August 2, 1988, defendant Lea Zulueta-Laforteza executed
a Special Power of Attorney in favor of defendants Roberto Z.
Laforteza and Gonzalo Z. Laforteza, Jr., appointing both as her
Attorney-in-fact authorizing them jointly to sell the subject
property and sign any document for the settlement of the
estate of the late Francisco Q. Laforteza (Exh. "A", Plaintiff,
record, pp. 323-325).
Likewise on the same day, defendant Michael Z. Laforteza
executed a Special Power of Attorney in favor of defendants
Roberto Z. Laforteza and Gonzalo Laforteza, Jr., likewise,
granting the same authority (Exh. "B", record, pp. 326-328).
Both agency instruments contained a provision that in any
document or paper to exercise authority granted, the signature
of both attorneys-in-fact must be affixed.
On October 27, 1988, defendant Dennis Z. Laforteza executed
a Special Power of Attorney in favor of defendant Roberto Z.
Laforteza for the purpose of selling the subject property (Exh.
"C", Plaintiff, record, pp. 329-330). A year later, on October 30,
1989, Dennis Z. Laforteza executed another Special Power of
Attorney in favor of defendants Roberto Z. Laforteza and
Gonzalo Laforteza, Jr. naming both attorneys-in-fact for the
purpose of selling the subject property and signing any
document for the settlement of the estate of the late Francisco
Q. Laforteza. The subsequent agency instrument (Exh. "2",
record, pp. 371-373) contained similar provisions that both
attorneys-in-fact should sign any document or paper executed
in the exercise of their authority.
In the exercise of the above authority, on January 20, 1989,
the heirs of the late Francisco Q. Laforteza represented by
Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into
a Memorandum of Agreement (Contract to Sell) with the
plaintiff[2] over the subject property for the sum of SIX
HUNDRED THIRTY THOUSAND PESOS (P630,000.00)
payable as follows:
(a) P30,000.00 as earnest money, to be forfeited in favor of the
defendants if the sale is not effected due to the fault of the
plaintiff;
(b) P600,000.00 upon issuance of the new certificate of title in
the name of the late Francisco Q. Laforteza and upon
execution of an extra-judicial settlement of the decedents
estate with sale in favor of the plaintiff (Par. 2, Exh. "E", record,
pp. 335-336).
Significantly, the fourth paragraph of the Memorandum of
Agreement (Contract to Sell) dated January 20, 1989 (Exh.
"E", supra.) contained a provision as follows:
xxx. Upon issuance by the proper Court of the new
title, the BUYER-LESSEE shall be notified in writing
and said BUYER-LESSEE shall have thirty (30) days
to produce the balance of P600,000.00 which shall be
paid to the SELLER-LESSORS upon the execution of
the Extrajudicial Settlement with sale.
On January 20, 1989, plaintiff paid the earnest money of
THIRTY THOUSAND PESOS (P30,000.00), plus rentals for
the subject property (Exh. "F", Plaintiff, record, p. 339).
On September 18, 1998[3], defendant heirs, through their
counsel wrote a letter (Exh. 1, Defendants, record, p. 370) to
the plaintiff furnishing the latter a copy of the reconstituted title
to the subject property, advising him that he had thirty (3) days
to produce the balance of SIX HUNDRED PESOS (sic)
(P600,000.00) under the Memorandum of Agreement which
plaintiff received on the same date.
On October 18, 1989, plaintiff sent the defendant heirs a letter
requesting for an extension of the THIRTY (30) DAYS deadline
up to November 15, 1989 within which to produce the balance
of SIX HUNDRED THOUSAND PESOS (P600,000.00) (Exh.
"G", Plaintiff, record, pp. 341-342). Defendant Roberto Z.
Laforteza, assisted by his counsel Atty. Romeo L. Gutierrez,
signed his conformity to the plaintiffs letter request (Exh. "G-1
and "G-2", Plaintiff, record, p. 342). The extension, however,
does not appear to have been approved by Gonzalo Z.
Laforteza, the second attorney-in-fact as his conformity does
not appear to have been secured.
On November 15, 1989, plaintiff informed the defendant heirs,
through defendant Roberto Z. Laforteza, that he already had
the balance of SIX HUNDRED THOUSAND PESOS
(P600,000.00) covered by United Coconut Planters Bank
Managers Check No. 000814 dated November 15, 1989 (TSN,
August 25, 1992, p. 11; Exhs. "H", record, pp. 343-344; "M",
records p. 350; and "N", record, p. 351). However, the
defendants, refused to accept the balance (TSN, August 24,
1992, p. 14; Exhs. "M-1", Plaintiff, record, p. 350; and "N-1",
Plaintiff, record, p. 351). Defendant Roberto Z. Laforteza had
told him that the subject property was no longer for sale (TSN,
October 20, 1992, p. 19; Exh. "J", record, p. 347).
On November 20, 1998[4], defendants informed the plaintiff that
they were canceling the Memorandum of Agreement (Contract
to Sell) in view of the plaintiffs failure to comply with his
contractual obligations (Exh. "3").
Thereafter, plaintiff reiterated his request to tender payment of
the balance of SIX HUNDRED THOUSAND PESOS
(P600,000.00). Defendants, however, insisted on the
rescission of the Memorandum of Agreement. Thereafter,
plaintiff filed the instant action for specific performance. The
lower court rendered judgment on July 6, 1994 in favor of the
plaintiff, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor
of plaintiff Alonzo Machuca and against the defendant
heirs of the late Francisco Q. Laforteza, ordering the
said defendants.
(a) To accept the balance of P600,000.00 as full payment of
the consideration for the purchase of the house and lot located
at No. 7757 Sherwood Street, Marcelo Green Village,
Paraaque, Metro Manila, covered by Transfer Certificate of
Title No. (220656) 8941 of the Registry of Deeds of Rizal
Paraaque, Branch;
(b) To execute a registrable deed of absolute sale over the
subject property in favor of the plaintiff;
(c) Jointly and severally to pay the plaintiff the sum of
P20,000.00 as attorneys fees plus cost of suit.
SO ORDERED. (Rollo, pp. 74-75)."[5]
Petitioners appealed to the Court of Appeals, which affirmed with modification the
decision of the lower court; the dispositive portion of the Decision reads:
"WHEREFORE, the questioned decision of the lower court is
hereby AFFIRMED with the MODIFICATION that defendant
heirs Lea Zulueta-Laforteza, Michael Z. Laforteza, Dennis Z.
Laforteza and Roberto Z. Laforteza including Gonzalo Z.
Laforteza, Jr. are hereby ordered to pay jointly and severally
the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral
damages.
SO ORDERED."[6]
Motion for Reconsideration was denied but the Decision was modified so as to
absolve Gonzalo Z. Laforteza, Jr. from liability for the payment of moral
damages.[7] Hence this petition wherein the petitioners raise the following issues:
"I. WHETHER THE TRIAL AND APPELLATE COURTS
CORRECTLY CONSTRUED THE MEMORANDUM OF
AGREEMENT AS IMPOSING RECIPROCAL OBLIGATIONS.
II. WHETHER THE COURTS A QUO CORRECTLY RULED
THAT RESCISSION WILL NOT LIE IN THE INSTANT CASE.
III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL
FROM RAISING THE ALLEGED DEFECT IN THE SPECIAL
POWER OF ATTORNEY DATED 30 OCTOBER 1989
EXECUTED BY DENNIS LAFORTEZA.
IV. SUPPOSING EX GRATIA ARGUMENTI THE
MEMORANDUM OF AGREEMENT IMPOSES RECIPROCAL
OBLIGATIONS, WHETHER THE PETITIONERS MAY BE
COMPELLED TO SELL THE SUBJECT PROPERTY WHEN
THE RESPONDENT FAILED TO MAKE A JUDICIAL
CONSIGNATION OF THE PURCHASE PRICE?
V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO
TO AS MAKE THEM LIABLE FOR MORAL DAMAGES?"[8]
The petitioners contend that the Memorandum of Agreement is merely a lease
agreement with "option to purchase". As it was merely an option, it only gave the
respondent a right to purchase the subject property within a limited period without
imposing upon them any obligation to purchase it. Since the respondents tender
of payment was made after the lapse of the option agreement, his tender did not
give rise to the perfection of a contract of sale.
It is further maintained by the petitioners that the Court of Appeals erred in ruling
that rescission of the contract was already out of the question. Rescission implies
that a contract of sale was perfected unlike the Memorandum of Agreement in
question which as previously stated is allegedly only an option contract.
Petitioner adds that at most, the Memorandum of Agreement (Contract to Sell) is
a mere contract to sell, as indicated in its title. The obligation of the petitioners to
sell the property to the respondent was conditioned upon the issuance of a new
certificate of title and the execution of the extrajudicial partition with sale and
payment of the P600,000.00. This is why possession of the subject property was
not delivered to the respondent as the owner of the property but only as the
lessee thereof. And the failure of the respondent to pay the purchase price in full
prevented the petitioners obligation to convey title from acquiring obligatory force.
Petitioners also allege that assuming for the sake of argument that a contract of
sale was indeed perfected, the Court of Appeals still erred in holding that
respondents failure to pay the purchase price of P600,000.00 was only a "slight
or casual breach".
The petitioners also claim that the Court of Appeals erred in ruling that they were
not ready to comply with their obligation to execute the extrajudicial settlement.
The Power of Attorney to execute a Deed of Sale made by Dennis Z. Laforteza
was sufficient and necessarily included the power to execute an extrajudicial
settlement. At any rate, the respondent is estopped from claiming that the
petitioners were not ready to comply with their obligation for he acknowledged
the petitioners ability to do so when he requested for an extension of time within
which to pay the purchase price. Had he truly believed that the petitioners were
not ready, he would not have needed to ask for said extension.
Finally, the petitioners allege that the respondents uncorroborated testimony that
third persons offered a higher price for the property is hearsay and should not be
given any evidentiary weight. Thus, the order of the lower court awarding moral
damages was without any legal basis.
The appeal is bereft of merit.
A perusal of the Memorandum Agreement shows that the transaction between
the petitioners and the respondent was one of sale and lease. The terms of the
agreement read:
"1. For and in consideration of the sum of PESOS: SIX
HUNDRED THIRTY THOUSAND (P630,000.00) payable in a
manner herein below indicated, SELLER-LESSOR hereby
agree to sell unto BUYER-LESSEE the property described in
the first WHEREAS of this Agreement within six (6) months
from the execution date hereof, or upon issuance by the Court
of a new owners certificate of title and the execution of
extrajudicial partition with sale of the estate of Francisco
Laforteza, whichever is earlier;
2. The above-mentioned sum of PESOS: SIX HUNDRED
THIRTY THOUSAND (P630,000.00) shall be paid in the
following manner:
P30,000.00- as earnest money and as consideration
for this Agreement, which amount shall be forfeited in
favor of SELLER-LESSORS if the sale is not effected
because of the fault or option of BUYER-LESSEE;
P600,000.00- upon the issuance of the new certificate
of title in the name of the late Francisco Laforteza and
upon the execution of an Extrajudicial Settlement of
his estate with sale in favor of BUYER-LESSEE free
from lien or any encumbrances.
3. Parties reasonably estimate that the issuance of a new title
in place of the lost one, as well as the execution of extrajudicial
settlement of estate with sale to herein BUYER-LESSEE will
be completed within six (6) months from the execution of this
Agreement. It is therefore agreed that during the six months
period, BUYER-LESSEE will be leasing the subject property
for six months period at the monthly rate of PESOS: THREE
THOUSAND FIVE HUNDRED (P3,500.00). Provided however,
that if the issuance of new title and the execution of
Extrajudicial Partition is completed prior to the expiration of the
six months period, BUYER-LESSEE shall only be liable for
rentals for the corresponding period commencing from his
occupancy of the premises to the execution and completion of
the Extrajudicial Settlement of the estate, provided further that
if after the expiration of six (6) months, the lost title is not yet
replaced and the extra judicial partition is not executed,
BUYER-LESSEE shall no longer be required to pay rentals
and shall continue to occupy, and use the premises until
subject condition is complied by SELLER-LESSOR;
4. It is hereby agreed that within reasonable time from the
execution of this Agreement and the payment by BUYER-
LESSEE of the amount of P30,000.00 as herein above
provided, SELLER-LESSORS shall immediately file the
corresponding petition for the issuance of a new title in lieu of
the lost one in the proper Courts. Upon issuance by the proper
Courts of the new title, the BUYER-LESSEE shall have thirty
 (30) days to produce the balance of P600,000.00 which shall
be paid to the SELLER-LESSORS upon the execution of the
Extrajudicial Settlement with sale."[9]
A contract of sale is a consensual contract and 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.[10] From that moment the parties may reciprocally demand
performance subject to the provisions of the law governing the form of
contracts.[11] The elements 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. [12]
In the case at bench, there was a perfected agreement between the petitioners
and the respondent whereby the petitioners obligated themselves to transfer the
ownership of and deliver the house and lot located at 7757 Sherwood St.,
Marcelo Green Village, Paraaque and the respondent to pay the price amounting
to six hundred thousand pesos (P600,000.00). All the elements of a contract of
sale were thus present. However, the balance of the purchase price was to be
paid only upon the issuance of the new certificate of title in lieu of the one in the
name of the late Francisco Laforteza and upon the execution of an extrajudicial
settlement of his estate. Prior to the issuance of the "reconstituted" title, the
respondent was already placed in possession of the house and lot as lessee
thereof for six months at a monthly rate of three thousand five hundred pesos
(P3,500.00). It was stipulated that should the issuance of the new title and the
execution of the extrajudicial settlement be completed prior to expiration of the
six-month period, the respondent would be liable only for the rentals pertaining to
the period commencing from the date of the execution of the agreement up to the
execution of the extrajudicial settlement. It was also expressly stipulated that if
after the expiration of the six month period, the lost title was not yet replaced and
the extrajudicial partition was not yet executed, the respondent would no longer
be required to pay rentals and would continue to occupy and use the premises
until the subject condition was complied with by the petitioners.
The six-month period during which the respondent would be in possession of the
property as lessee, was clearly not a period within which to exercise an option.
An option is a contract granting a privilege to buy or sell within an agreed time
and at a determined price. An option contract is a separate and distinct contract
from that which the parties may enter into upon the consummation of the
option.[13] An option must be supported by consideration.[14] An option contract is
governed by the second paragraph of Article 1479 of the Civil Code [15], which
reads:
"Article 1479. xxx
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the
price."
In the present case, the six-month period merely delayed the demandability of
the contract of sale and did not determine its perfection for after the expiration of
the six-month period, there was an absolute obligation on the part of the
petitioners and the respondent to comply with the terms of the sale. The parties
made a "reasonable estimate" that the reconstitution of the lost title of the house
and lot would take approximately six months and thus presumed that after six
months, both parties would be able to comply with what was reciprocally
incumbent upon them. The fact that after the expiration of the six-month period,
the respondent would retain possession of the house and lot without need of
paying rentals for the use therefor, clearly indicated that the parties contemplated
that ownership over the property would already be transferred by that time.
The issuance of the new certificate of title in the name of the late Francisco
Laforteza and the execution of an extrajudicial settlement of his estate was not a
condition which determined the perfection of the contract of sale. Petitioners
contention that since the condition was not met, they no longer had an obligation
to proceed with the sale of the house and lot is unconvincing. The petitioners fail
to distinguish between a condition imposed upon the perfection of the contract
and a condition imposed on the performance of an obligation. Failure to comply
with the first condition results in the failure of a contract, while the failure to
comply with the second condition only gives the other party the option either to
refuse to proceed with the sale or to waive the condition. Thus, Art. 1545 of the
Civil Code states:
"Art. 1545. Where the obligation of either party to a contract of
sale is subject to any condition which is not performed, such
party may refuse to proceed with the contract or he may waive
performance of the condition. If the other party has promised
that the condition should happen or be performed, such first
mentioned party may also treat the nonperformance of the
condition as a breach of warranty.
Where the ownership in the things has not passed, the buyer
may treat the fulfillment by the seller of his obligation to deliver
the same as described and as warranted expressly or by
implication in the contract of sale as a condition of the
obligation of the buyer to perform his promise to accept and
pay for the thing."[16]
In the case at bar, there was already a perfected contract. The condition was
imposed only on the performance of the obligations contained therein.
Considering however that the title was eventually "reconstituted" and that the
petitioners admit their ability to execute the extrajudicial settlement of their
fathers estate, the respondent had a right to demand fulfillment of the petitioners
obligation to deliver and transfer ownership of the house and lot.
What further militates against petitioners argument that they did not enter into a
contract of sale is the fact that the respondent paid thirty thousand pesos
(P30,000.00) as earnest money. Earnest money is something of value to show
that the buyer was really in earnest, and given to the seller to bind the
bargain.[17] Whenever earnest money is given in a contract of sale, it is
considered as part of the purchase price and proof of the perfection of the
contract.[18]
We do not subscribe to the petitioners view that the Memorandum Agreement
was a contract to sell. There is nothing contained in the Memorandum
Agreement from which it can reasonably be deduced that the parties intended to
enter into a contract to sell, i.e. one whereby the prospective seller would
explicitly reserve 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 full payment of the price, such
payment being a positive suspensive condition, the failure of which is not
considered a breach, casual or serious, but simply an event which prevented the
obligation from acquiring any obligatory force.[19]There is clearly no express
reservation of title made by the petitioners over the property, or any provision
which would impose non-payment of the price as a condition for the contracts
entering into force. Although the memorandum agreement was also denominated
as a "Contract to Sell", we hold that the parties contemplated a contract of sale.
A deed of sale is absolute in nature although denominated a conditional sale in
the absence of a stipulation reserving title in the petitioners until full payment of
the purchase price.[20] In such cases, ownership of the thing sold passes to the
vendee upon actual or constructive delivery thereof. [21] The mere fact that the
obligation of the respondent to pay the balance of the purchase price was made
subject to the condition that the petitioners first deliver the reconstituted title of
the house and lot does not make the contract a contract to sell for such condition
is not inconsistent with a contract of sale.[22]
The next issue to be addressed is whether the failure of the respondent to pay
the balance of the purchase price within the period allowed is fatal to his right to
enforce the agreement.
We rule in the negative.
Admittedly, the failure of the respondent to pay the balance of the purchase price
was a breach of the contract and was a ground for rescission thereof. The
extension of thirty (30) days allegedly granted to the respondent by Roberto Z.
Laforteza (assisted by his counsel Attorney Romeo Gutierrez) was correctly
found by the Court of Appeals to be ineffective inasmuch as the signature of
Gonzalo Z. Laforteza did not appear thereon as required by the Special Powers
of Attorney.[23] However, the evidence reveals that after the expiration of the six-
month period provided for in the contract, the petitioners were not ready to
comply with what was incumbent upon them, i.e. the delivery of the reconstituted
title of the house and lot. It was only on September 18, 1989 or nearly eight
months after the execution of the Memorandum of Agreement when the
petitioners informed the respondent that they already had a copy of the
reconstituted title and demanded the payment of the balance of the purchase
price. The respondent could not therefore be considered in delay for in reciprocal
obligations, neither party incurs in delay if the other party does not comply or is
not ready to comply in a proper manner with what was incumbent upon him. [24]
Even assuming for the sake of argument that the petitioners were ready to
comply with their obligation, we find that rescission of the contract will still not
prosper. The rescission of a sale of an immovable property is specifically
governed by Article 1592 of the New Civil Code, which reads:
"In the sale of immovable property, even though it may have
been stipulated that upon failure to pay the price at the time
agreed upon the rescission of the contract shall of right take
place, the vendee may pay, even after the expiration of the
period, as long as no demand for rescission of the contract has
been made upon him either judicially or by a notarial act. After
the demand, the court may not grant him a new term."[25]
It is not disputed that the petitioners did not make a judicial or notarial demand
for rescission. The November 20, 1989 letter of the petitioners informing the
respondent of the automatic rescission of the agreement did not amount to a
demand for rescission, as it was not notarized.[26] It was also made five days after
the respondents attempt to make the payment of the purchase price. This offer to
pay prior to the demand for rescission is sufficient to defeat the petitioners right
under article 1592 of the Civil Code.[27] Besides, the Memorandum Agreement
between the parties did not contain a clause expressly authorizing the automatic
cancellation of the contract without court intervention in the event that the terms
thereof were violated. A seller cannot unilaterally and extrajudicially rescind a
contract of sale where there is no express stipulation authorizing him to
extrajudicially rescind.[28] Neither was there a judicial demand for the rescission
thereof. Thus, when the respondent filed his complaint for specific performance,
the agreement was still in force inasmuch as the contract was not yet rescinded.
At any rate, considering that the six-month period was merely an approximation
of the time it would take to reconstitute the lost title and was not a condition
imposed on the perfection of the contract and considering further that the delay in
payment was only thirty days which was caused by the respondents justified but
mistaken belief that an extension to pay was granted to him, we agree with the
Court of Appeals that the delay of one month in payment was a mere casual
breach that would not entitle the respondents to rescind the contract. Rescission
of a contract will not be permitted for a slight or casual breach, but only such
substantial and fundamental breach as would defeat the very object of the parties
in making the agreement.[29]
Petitioners insistence that the respondent should have consignated the amount is
not determinative of whether respondents action for specific performance will lie.
Petitioners themselves point out that the effect of consignation is to extinguish
the obligation. It releases the debtor from responsibility therefor. [30] The failure of
the respondent to consignate the P600,000.00 is not tantamount to a breach of
the contract for by the fact of tendering payment, he was willing and able to
comply with his obligation.
The Court of Appeals correctly found the petitioners guilty of bad faith and
awarded moral damages to the respondent. As found by the said Court, the
petitioners refused to comply with their obligation for the reason that they were
offered a higher price therefor and the respondent was even offered P100,000.00
by the petitioners lawyer, Attorney Gutierrez, to relinquish his rights over the
property. The award of moral damages is in accordance with Article 1191 [31] of
the Civil Code pursuant to Article 2220 which provides that moral damages may
be awarded in case of a breach of contract where the defendant acted in bad
faith. The amount awarded depends on the discretion of the court based on the
circumstances of each case.[32] Under the circumstances, the award given by the
Court of Appeals amounting to P50,000.00 appears to us to be fair and
reasonable.

ACCORDINGLY, the decision of the Court of Appeals in CA G.R. CV No. 47457

is AFFIRMED and the instant petition is hereby DENIED.

No pronouncement as to costs.

SO ORDERED.
G.R. No. L-45349 August 15, 1988
NEWTON JISON and SALVACION I. JOSUE petitioners,
vs.
COURT OF APPEALS and ROBERT 0. PHILLIPS & SONS, INC., respondents.
Ledesma, Saludo & Associates for petitioners.
Domicador L. Reyes and Magtanggol C. Gunigundo for respondents.
CORTES, J.:
The instant petition for review of the decision of the Court of Appeals poses the
issue of the validity of the rescission of a contract to sell a subdivision lot due to
the failure of the lot buyer to pay monthly installments on their due dates and the
forfeiture of the amounts already paid.
The case is not one of first impression, and neither is it exceptional. On the
contrary, it unambiguous. the common plight of countless subdivision lot buyers.
Petitioners, the spouses Newton and Salvacion Jison, entered into a Contract to
Sell with private respondent, Robert O. Phillips & Sons, Inc., whereby the latter
agreed to sell to the former a lot at the Victoria Valley Subdivision in Antipolo,
Rizal for the agreed price of P55,000.00, with interest at 8,1965 per annum,
payable on an installment basis.
Pursuant to the contract, petitioners paid private respondents a down payment of
P11,000.00 on October 20, 1961 and from October 27, 1961; to May 8, 1965 a
monthly installment of P533.85.
Thereafter, due to the failure of petitioners to build a house as provided in the
contract, the stipulated penalty of P5.00 per square meter was imposed to the
effect that the monthly amortization was increased to P707.24.
On January 1, 1966, February 1, 1966 and March 1, 1966, petitioners failed to
pay the monthly installments due on said dates although petitioners subsequently
paid the amounts due and these were accepted by private respondent.
Again on October 1, 1966, November 1, 1966, December 1, 1966 and January 1,
1967, petitioners failed to pay. On January 11, 1967, private respondent sent a
letter (Exh. "3") to petitioners calling their attention to the fact that their account
was four months overdue. This letter was followed up by another letter dated
February 27, 1967 (Exh. "3") where private respondent reminded petitioner of the
automatic rescission clause of the contract. Petitioners eventually paid on March
1, 1967.
Petitioners again failed to pay the monthly installments due on February 1, 1967,
March 1, 1967 and April 1, 1967. Thus, in a letter dated April 6, 1967 (Exh. "D"),
private respondent returned petitioners' check and informed them that the
contract was cancelled when on April 1, 1987 petitioners failed to pay the
monthly installment due, thereby making their account delinquent for three
months.
On April 19, 1967, petitioners tendered payment for all the installments already
due but the tender was refused. Thus, petitioners countered by filing a complaint
for specific performance with the Court of First Instance of Rizal on May 4, 1967
and consigning the monthly installments due with the court.
Following the hearing of the case, wherein the parties entered into a stipulation of
facts, the trial court on January 9, 1969 rendered judgment in favor of private
respondent, dismissing the complaint and declaring the contract cancelled and all
payments already made by petitioner franchise. ordering petitioners to pay
P1,000.00 as and for attorney's fees; and declaring the consignation and tender
of payment made by petitioners as not amounting to payment of the
corresponding monthly installments.
Not satisfied with the decision of the trial court, petitioners appealed to the Court
of Appeals. Agreeing with the findings and conclusions of the trial court, the
Court of Appeals on November 4, 1976 affirmed the former's decision.
Thus, the instant petition for review.
In assailing the decision of the Court of Appeals, petitioners attributed the
following errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT
PETITIONERS HAVE SUBSTANTIALLY, COMPLIED WITH THE TERMS OF
THEIR AGREEMENT WITH PRIVATE RESPONDENTS.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
CONTRACT TO SELL MAY BE AUTOMATICALLY RESCINDED AND PRIVATE
RESPONDENT MAY UNILATERALLY RESCINDED SAID CONTRACT AND
REJECT THE CONSIGNATION OF PAYMENTS MADE BY PETITIONERS,
WHICH ACTIONS OF PRIVATE RESPONDENT ARE HIGHLY INIQUITOUS
AND UNCONSCIONABLE.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT
PRIVATE RESPONDENT'S ACT OF FORFEITING ALL PREVIOUS PAYMENTS
MADE BY PETITIONERS IS CONTRARY TO LAW, HIGHLY INIQUITOUS AND
UNCONSCIONABLE. [Petitioners' Brief, pp. 13-27.]
As stated at the outset, the principal issue in this case is the legality of the
rescission of the contract and the forfeiture of the payments already made by
petitioners.
To support the rescission and forfeiture private respondent falls back on
paragraph 3 of the contract which reads:
This contract shall be considered automatically rescinded and
cancelled and of no further force and effect, upon the failure of
the Vendee to pay when due Three (3) or more consecutive
monthly installments mentioned in Paragraph 2 of this
Contract, or to comply with any of the terms and conditions
hereof, in which case the Vendor shall have the right to resell
the said parcel of land to any Vendee and any amount derived
from the sale on account hereof shall be forfeited in favor of
the Vendor as liquidated damages for the breach of the
Contract by the Vendee, the latter hereby renouncing and
reconveying absolutely and forever in favor of the Vendor all
rights and claims to and for all the amount paid by the Vendee
on account of the Contract, as well as to and for all
compensation of any kind, hereby also agreeing in this
connection, to forthwith vacate the said property or properties
peacefully without further advise of any kind.
Since the contract was executed and cancelled prior to the effectivity of Republic
Act No. 65856, (the Realty Installment Buyers', Protection Act) and Presidential
Decree No. 957 (the Subdivision and Condominium Buyers' Protective Decree), it
becomes necessary to resort to jurisprudence and the general provisions of law
to resolve the controversy.
The decision in the recent case of Palay, Inc. v. Clave [G.R. No. L-56076,
September 21, 1983, 124 SCRA 7,1969, factions the resolution of the
controversy. In deciding whether the rescission of the contract to sell a
subdivision lot after the lot buyer has failed to pay several installments was valid,
the Court said:
Well settled is the rule, as held in previous k.- [Torralba v. De
los Angeles, 96 SCRA 69, Luzon Brokerage Co., Inc. v.
Maritime Building Co., 43 SCRA 93 and 86 SCRA 305; Lopez
v. Commissioner of Customs, 37 SCRA 327; U.P. v. De los
Angeles, 35 SCRA 102; Ponce Enrile v. CA, 29 SCRA 504;
Froilan v. Pan Oriental Shipping Co., 12 SCRA 276; Taylor v.
Uy Tieng Piao; 43 Phil. 896, that judicial action for the
rescission of a contract is not necessary where the contract
provides that it may be cancelled for violation of any of its
terms and conditions. However, even in the cited cases, there
was at least a written notice sent to the degeneration,
informing him of the rescission. As stressed in University of the
Philippines v. Walfrido de los Angeles [35 SCRA 102] the act
of a party in treating a contract as cancelled should be made
known to the other....
xxx xxx xxx
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.
In this case, private respondent has denied that rescission is
justified and has resorted to judicial action. It is now for the
Court to determine whether resolution of the contract by
petitioner was warranted.
We hold that resolution by petitioners of the contract was
ineffective and inoperative against private respondent for lack
of notice of resolution, as held in the U.P. v.
Angeles case, supra.
xxx xxx xxx
The indispensability of notice of cancellation to the buyer was
to be later underscored in Republic Act No. 65856, entitled "An
Act to Provide Protection to Buyers of Real Estate on
Installment Payments." which took effect on September 14-15).
when it specifically provided:
Sec. 3 (b) ... the actual cataract, of the contract shall take place
thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value
to the buyer.
There is no denying that in the instant case the resolution or rescission of the
Contract to Sell was valid. Neither can it be said that the cancellation of the
contract was ineffective for failure of private respondents to give petitioners
notice thereof as petitioners were informed cancelled private respondent that the
contract was cancelled in the letter dated April 6, 1967 (Exh. "D"). As R.A. No.
65856, was not yet effective, the notice of cancellation need not be by notarial
act, private respondent's letter being sufficient compliance with the legal
requirement.
The facts of 'fee instant case should be distinguished from those in the Palay
Inc. case, as such distinction will explain why the Court in said case invalidated
the resolution of the contract. In said case, the subdivision developer, without
informing the buyer of the cancellation of the contract, resold the lot to another
person. The lot buyer in said case was only informed of the resolution of the liability from the stipulated P12,000.00 to Plaintiffs after finding that he had
contract some six years later after the developer, rejected his request for partially performed his obligation to complete at least fifty percent (50%) of his
authority to assign his rights under the contract. Such a situation does not obtain house within two (2) years from March 31, 1961, fifty percent (50%) of the house
illness: the instant case. In fact, petitioners were informed of the cancellation of having been completed by the end of April 1961.
their contract in April 1967, when private respondent wrote them the letter dated
April 6, 1967 (Exh. "D"), and within a month they were able to file a complaint WHEREFORE, the Decision of the Court of Appeals is hereby MODIFIED as to
against Private respondent. the amount forfeited which is reduced to fifty percent (50%) of the amount
already paid or P23,656.32 and AFFIRMED as to all other respects.
While the resolution of the contract and the forfeiture of the amounts already paid
are valid and binding upon petitioners, the Court is convinced that the forfeiture Private respondent is ordered to refund to petitioners the excess of P23,656.32
of the amount of P5.00 although it includes the accumulated fines for petitioners' within thirty (30) days from the date of finality of this judgment.
failure to construct a house as required by the contract, is clearly iniquitous
considering that the contract price is only P6,173.15 The forfeiture of fifty percent
(50%) of the amount already paid, or P3,283.75 appears to be a fair settlement. SO ORDERED.
In arriving at this amount the Court gives weight to the fact that although
petitioners have been delinquent in paying their amortizations several times to
the prejudice of private respondent, with the cancellation of the contract the
possession of the lot review.... to private respondent who is free to resell it to
another party. Also, had R.A. No. 65856, been applicable to the instant case, the
same percentage of the amount already paid would have been forfeited [Torralba
3(b).]

The Court's decision to reduce the amount forfeited finds support in the Civil
Code. As stated in paragraph 3 of the contract, in case the contract is cancelled,
the amounts already paid shall be forfeited in favor of the vendor as liquidated
damages. The Code provides that liquidated damages, whether intended as an
indemnity or a penalty, shall be equitably reduced if they are iniquitous or
unconscionable [Art. 2227.]

Further, in obligations with a penal clause, the judge shall equitably reduce the
penalty when the principal obligation has been partly or irregularly complied with
by the debtor [Art. 1229; Hodges v. Javellana, G.R. No. L-17247, April 28, 1962,
4 SCRA 1228]. In this connection, the Court said:

It follows that, in any case wherein there has been a partial or

irregular compliance with the provisions in a contract for
special indemnification in the event of failure to comply with its
terms, courts will rigidly apply the doctrine of strict construction
and against the enforcement in its entirety of the industry.'
where it is clear from the terms of the contract that the amount
or character of the indemnity is fixed without regard to the
probable damages which might be anticipated as a result of a
breach of the terms of the contract; or, in other words, where
the indemnity provided for is essentially a mere penalty having
for its principal object the enforcement of compliance with the
corporations; (Laureano v. Kilayco, 32 Phil. 194 (1943).

This principle was reiterated in Makati Development Corp. v. Empire Insurance

Co. [G.R. No. L-21780, June 30, 1967, 20 SCRA 557] where the Court affirmed
the judgment of the Court of First Instance reducing the subdivision lot buyer's
G.R. No. L-26882 November 21, 1978
ROSARIO VDA. DE LAIG, ROMEO, JOSE, NESTOR and BENITO,
JR., all surnamed LAIG, minors, assisted by Rosario Vda. de
Laig, their Guardian, Ad Litem, petitioners,
vs.
COURT OF APPEALS, CARMEN VERSO, PETRE GALERO, THE
REGISTER OF DEEDS OF CAMARINES NORTE, THE DIRECTOR
OF LANDS, AND THE SECRETARY OF AGRICULTURE AND
NATURAL RESOURCES, respondents.
MAKASIAR, J.:
A motion dated May 5, 1978 was filed on May 10, 1978 by
respondent Carmen Verso thru counsel Atty. Pedro A. Venida for the
reconsideration of the decision promulgated on April 5, 1978.
On May 31, 1978, a petition was filed by Atty. Jose Lapak in his
behalf and in behalf of his father, praying for the recall of said
decision.
Required to comment, petitioner herein, the heirs of Atty. Benito Laig,
thru counsel, filed on June 22, 1978 their comment on respondent
Verso's motion for reconsideration while their comment on the
petition of Atty. Jose Lapak was filed on July 5,1978.
On July 14, 1978, a supplementary motion for reconsideration of
respondent Verso was filed by Atty. Jose Lapak (Atty. Jose Lapak
signed the supplementary motion in this manner:
PEDRO A. VENIDA AND JOSE LOZADA LAPAK
By: (Sgd.) Jose Lozada Lapak Counsels for respondent Carmen
Verso
On the same day, Atty. Jose Lapak filed a rejoinder (reply) to
petitioner's comment on his petition.
On July 24, 1978, respondent Verso replied to petitioner's comment
on her motion for reconsideration.
Petitioners filed on August 7, 1978 their comment to respondent
Verso's supplementary motion for reconsideration and rejoinder to
Atty. Jose Lapak's rejoinder (reply) to their comment, to which Atty.
Lapak replied on August 14, 1978.
I
Re: Motion for reconsideration of respondent Carmen Verso
In her motion for reconsideration, respondent Carmen Verso
interposed the following grounds: (1) that the decision of this Court is
contrary to law, and (2) that certain facts were overlooked by this
Court and were substituted by hypotheses, assumptions and
conjectures.
1. Respondent Verso contends that there is no double sale in this
case within the context of Article 1544, paragraph 2, of the New Civil
Code; because the first sale of the property in question made by
Petre Galero in favor of Atty. Benito Laig was void ab initio, for being
in violation of Article 1491, paragraph 5, of the New Civil Code.
This ground was not raised by respondents Verso and Galero in the
trial court. It was raised, though not squarely, in the Court of Appeals,
which regarded it as not worthy of consideration, for it is clearly
without merit (pp. 31-37, Brief for Respondent-Appellee Carmen
Verso, CA rec.). If it were meritorious, because crucial or decisive of
the case, the Court of Appeals would have devoted the necessary
time space to discuss it.
But to satisfy respondent Verso, WE shall discuss it.
That Article provides:
Article 1491. The following persons cannot acquire by
purchase, even at a public or judicial action, either in
person or through the mediation of another:
xxx xxx xxx
(5) Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts and other officers and
employees connected with the administration of
justice, the property and rights in litigation or levied
 upon an execution before the court within whose
jurisdiction or territory they exercise their respective
functions; this prohibition includes the act of acquiring
by assignment and shall apply to lawyers, with
respect to the property and right which may be the
object of any litigation in which they may take part by
virtue of their profession. (Emphasis supplied).
At the outset, it must be noted that only one-half [1/2] of the property
in question was sold by Petre Galero to Atty. Laig; because the other
one-half () was given to him as contingent attorney's fees for his
legal services as counsel of Petre Galero.
The first sale of the one-half () of the property in question in favor of
Atty. Laig was not in violation of Art. 1491, paragraph 5. The
prohibition in said article applies only to a sale or assignment to the
lawyer by his client of the property which is the subject of litigation. In
other words, for the prohibition to operate, the sale or assignment of
the property must take place during the pendency of the litigation
involving the properly.
In the case at bar, Atty. Laig was the lawyer of Petre Galero in Civil
Case No. 164-R-14 entitled, "Petre Galero vs. Mario Esucta and
Florencio Caramoan," for the recovery of the property in question
which was then in the possession of the defendants therein. The case
was decided in favor of Petre Galero and became final on March 27,
1948 as alleged by the petitioners, which was not disputed by the
respondents. And as stated by the Court of Appeals in its decision of
December 2, 1954 affirming the conviction of Petre Galero in Criminal
Case No. 533, entitled "People of the Philippines vs. Petre Galero":
Benito K. Laig fue el abogado del apelante Petre
Galero en cierta causa civil que se incoo durante la
ocupacion japonesa, en el Juzgado de Primera
Instancia de Camarines Norte y despues se apelo a
la Corte de Apelaciones donde se fallo
definitivamente a favor del apelante el ao 1948 (Al
Pueblo de Filipinas, Querellante-Apelado vs. Petre
Galero, Acusado-Apelante, CA-G.R. No. 12043-R;
Emphasis supplied).
If said decision in the civil case was not yet final when one-half of the
property was sold to Benito Laig in 1948, then Petre Galero would
have interposed it as a defense in the criminal case against him at
least insofar as the said one-half was concerned.
Thus, when the one-half portion of the property in question was sold
by Petre Galero to Atty. Laig on June 1, 1948, the decision in Civil
Case No. 164-R-14 was already final and therefore the property in
question was no longer subject of litigation. Hence Atty. Laig was no
longer prohibited from buying the property in question because
"attorneys are only prohibited from buying their clients' property which
is the subject of litigation"(Araneta vs. Tuazon, et al., 91 Phil. 786
[1952]; Emphasis supplied).
Consequently, the sale having taken place after the finality of the
favorable judgment in the said civil case and not during the pendency
of the litigation, there was no violation of Article 1491, paragraph 5.
Hence, the first sale to Atty. Laig of the property in question is valid.
Furthermore, any question on the validity of the sale of the one-half of
the property in question has been foreclosed by the final decision in
Criminal Case No. 533 which upheld the genuineness and in effect
the validity of the sale made by Petre Galero in favor of Atty. Laig. In
the criminal case, the testimony of Petre Galero and his witnesses
were not believed by the trial court and the Court of Appeals by
reason of facts and circumstances revealed by their testimonies as
well as their exhibits. For one, the Court of Appeals noted that from
the signature of Petre Galero, there is no indication that he is
unlettered. It likewise noted the incredibility of the claim that Atty. Laig
agreed to collect his attorney's fees from the fruits of the coconut and
wait for at least seven years instead of acquiring the same,
In said criminal case, the Court of Appeals stated:
La defense trato de probar, por medio de los
testimonios del acusado y de su testigo Claudio
Moratalia, de que dicho acusado nunca vendio al
abogado Benito K. Laig el terreno en cuestion. El
apelante, en sinteis, declaro que el no firmo ningun
documento de venta a favor del abogado Benito K.
Laig sobre el citado terreno; que el no comparecio
ante el notario publico Manuel Moreno; que el mes de
junio de 1948 el firmo un documento, que es el
mismo exhibit A, en la casa de Carmen Verso que,
segun el abogado K. Laig, era un contrato en que el
(apelante ) se obligaba a dar dicho abogado cierta
participacion en los productos de los cocos y otras
plantas que llegue sembrar en el terreno en cuestion,
como pago de los honorarios del citado abogado; y
que al firmar el referido documento no se entero de
su contenido puesto que el no sabe leer y no se le
habia leido el mismo.
El testigo Claudio Moratalia trato de corrobor la
declaracion del apelante y, entre otras cosas, dijo que
el estuvo presente cuando se otorgo un contrato en la
casa de Carmen Verso, entre el apelante y su
abogado Benito K. Laig, en el que aquel se obligaba
a dar participacion al ultimo de los productos del
terreno en cuestion, en concepto de honorarios
profesionales; que el referido contrato es el mismo
exhibit a en donde aparece sur firma como uno de los
testigos instrumentales; que el tambien firmo otro
contrato delebrado entre el y el apelante, en virtud del
cual el trabajaria como aparcero en el terreno en
cuestion, donde a dicho apelante cierta participacion
de los productos que pueda cosechar, cuyo
documentos es el exhibit F; y que el no se entero
tanto del contenido del exhibit A como del exhibit F
porque el no sabe leer y dichos documentos no se los
habian leido.
No estamos convencidos de la veracidad de las
declaraciones del apelante y de su testigo ya
mencionado. Sospechamos de que ambos faltaron a
la veredad al afirmar de que ellos no saben leer y por
esto no se enteraron del contenido del documento
exhibit A pues notamos que sus firmas estan
bastante bien hechas y no se parecen a la de un
analfabeto. Segun ellos dos, en vista de que el
apelante no tenia dinero para pagar los honorarios
que le habia requirido el abogado Laig, dicho
apelante se comprometio a mandar cultivar su terreno
y de los productos de los cocoteros y otras plantas
que se siembran en el mismo se pagarian,
paulatinamente, dichos honorarios del abogado Laig;
y que este les hizo creer entonces que el documento
exhibit A, que se firmo en la casa de Carmen Verso,
contenia el referido contrato. Como ha dicho muy
bien el juez sentenciador, esta declaracion es
fantastica, pues es increible de que el abogado Laig,
despues de haber trabajado por varios aos por el
asunto del apelante, que lo habia ganado, hiciera una
proposicion tan descabellada, a saber, de que el
tendria que esperar hasta que los cocos que se
siembren en el terreno diesen frutos (unos siete aos)
a fin de que pueda cobrar sus honorarios. Pero aun
siguendo la misma teroria de la defenda, se ve la
mala fe del apelante, pues antes de poder cumplir
con susupuesta obligacion sobre el pago de los
honorarios de su abogado, ya habia vendido su
terreno con el evidente proposito de defraudar a los
herederos de este.
La declaracion del testigo Claudio Moratalia es aun
mas increible. Segun el, el mismo dia en que firmo
como testigo en el documento Exhibit A, tambien
firmo un contrato con el apelante de trabajar comon
aparcero en el terreno en cuestion, cuyo contrato es
el mismo exhibit F. Esta declaracion es
manifiestamente falsa, puesto que el exhibit A se
otorgo el 1.o de junio de 1948 y el exhibit F se otorgo
el 26 de dicho mes, que es un contrato de aparceria
entre el testigo y el finado abogado Laig de cuyo
contrato no tenia ninguna participacion el apelante.
Otro testigo de la defense, Arsenio C. Camino declaro
de que el abogado Laig le mando ratificar la escritura
de venta exhibit A, sin la presencia del aqui apelante
Petre Galero, pero cuando el se fijo de que en la
clausula de ratificacion aparece el nombre del
municipio de Daet, el se nego a ratificarlo puesto que
su comision, como notario publico, no se extendia a
dicho municipio. Esta declaracion carece de
importancia, pues el testigo dijo que el no pudo leer el
cuerpo del documento y bajo este supuesto es
increible que el pueda estar seguro de que el referido
documento fuese el mismo exhibit A.
Sestenemos pues que las pruebas de la defensa son
insuficientes para desvirtuar la presuncion legal de
que la escritura de venta exhibit A es genuina. Esta
presuncion esta robustecido por la circunstancia de
que algunos dias despues del otorgamiento de dicha
escritura, el finado abogado Laig celebre contratos
con Claudio Moratalia (exhibit F) y Florencio Octavio
(exh. F-1) para que estos dos trabajon como
aparceros suyos en el terreno en cuestion, lo cual
demuestra que el citado abogado compro realsante
dicho terreno del aqui apelante y por este tomo
posesion del mismo por medio de sus citados
aparceros.
En relacion con la alegacion, en la solicitud exhibit D,
de que el apelante perdio, durante la ocupacion
japonesa, el duplicado para el dueo del certificado
original de titulo No. 1097, el apelante dio de
entender de que el hizo dicha alegacion porque no
sabia donde se encontraba el citado titulo. El declaro
de que antes de la guerra otorgo una escritura de
venta a favor de un tal Macario Isocta sobre el terreno
objeto del citado certificado original de titulo, pero no
se acuerda si el incluyo este certificado con la citada
escritura cunado la misma fue entregada a dicho
Macario Isocta. Este ujeto fue uno de los adversarios
del apelante en la causa civil referente al terreno en
cuestion. Aun admitiendo, como cierta, la declaracion
del apelante de que el ya no se acordo del paradero
del certificado de titulo en cuestion, sostenemos que
el mismo cometio una falsedad al afirmar de que
dicho certificado de titulo le tuvo en su poder y lo
perdio durante la ocupacion japonesa. Teniendo en
cuenta todas las circunstancias del caso por lo
menos, sabia de que el no tuvo en su poder el
mencionado certificado de titulo, y que al afirmar de
que lo habia perdido durante la ocupacion japonesa
lo hizo, de mala fe, con el proposito de inducir al
juzgado para que ordene la expedicion de un nuevo
duplicado para el dueo de dicho certificado de titulo,
a fin de que el logre su proposito de poder vender el
terreno en cuestion a otra persona, defraudando de
este modo a los herederos del finado Benito K.
Laig (pp. 4-7, el Pueblo de Filipinas, Querellante-
Apelado vs. Petre Galero, Acusado-Apelante, CA-
G.R. No. 12043-R, December 2, 1954; emphasis
supplied).
With respect to the other one-half (1/2) of the property in question,
which was given to Atty. Laig as his attorney's fees on a contingent
basis, WE find nothing wrong in this for the reason that contingent
fees are recognized in this jurisdiction (Canon 13 of the Canons of
Professional Ethics adopted by the Philippine Bar Association in 1917
[Appendix B, Revised Rules of Court]), which contingent fees may be
a portion of the property in litigation.
In the case of Albano vs. Ramos (20 SCRA 171 [1967]), where the
contingent fees agreed upon was one-third (1/3) of whatever lands
and damages might be recovered, this Court said that "the question
of how Atty. Coloma may recover her share in the lands awarded to
plaintiffs is a closed one, and was settled by the Court of Appeals in
its decision affirming the order of the lower court a quo to the effect
that the recovery of such share should be the subject of a separate
action" (see also Coto Labor Union [NLU] vs. Espinas, 15 SCRA 109
[1965]; Recto vs. Harden, 100 Phil. 427 [1956]; Grey vs. Insular
Lumber Co., 97 Phil. 833 [1955]; Magno vs. Viola and Sotto, 61 Phil.
80 [1934]; Quitoriano and Velasco vs. Centeno, 59 Phil. 646 [1936];
Lutero vs. Esler, 52 Phil. 218 [1928]; Felices vs. Madridejos and
Bantigui, 51 Phil. 24 [1927]; Ulanday vs. Manila Railroad Co., 45 Phil.
540 [1923]).
2. The second contention of the counsel for respondent Verso that
OUR main decision was based on hypotheses, assumptions and
conjectures, finds no support in the records. The alleged hypotheses,
assumptions and conjectures are disputed by the facts and
circumstances delineated in OUR main decision from which natural
and logical inferences and conclusions were drawn. WE find no
cogent reason to reconsider the challenged findings and conclusions.
The issues and arguments raised in the supplementary motion for
reconsideration of respondent Verso filed by Atty. Jose Lapak are
likewise without merit, for they are substantially Identical with the
issues and arguments raised by respondent Verso in her motion for
reconsideration filed by Atty. Pedro A. Venida.
II
Re: Petition of Atty. Jose Lapak in his behalf and in behalf of his late
father, respondent Atty. Baldomero Lapak.
 A. Re: Respondent Register of Deeds Atty.
Baldomero Lapak.
In his petition (which is practically a motion for reconsideration) for
himself and on behalf of his father, Atty. Baldomero Lapak, as
defendant Register of Deeds, Atty. Jose Lapak claims that his father
was denied due process by this Court.
This claim is baseless and respondent Atty. Baldomero M. Lapak has
no personality to file even a motion for reconsideration; because he
was declared in default for failure to file his answer in the trial court
aside from the other facts and circumstances appearing of record.
Petitioner Rosario Vda. de Laig, together with her minor children, filed
the original complaint on April 13, 1954 before the Court of First
Instance of Camarines Norte against respondents Carmen Verso,
Petre Galero, the Register of Deeds of Camarines Norte, the Director
of Lands and the Secretary of Agriculture and Natural Resources for
the annulment of the sale in favor of Carmen Verso, or in the
alternative, for the reconveyance of the property in question to the
petitioners.
This original complaint included as defendant the Register of Deeds
of Camarines Norte in the title of the case and in paragraph II thereof
without specifying his name (pp. 2-3, ROA, pp. 76-77, rec.); but
paragraphs XII, XIII and XV of the same original complaint referred to
him "... as defendant Register of Deeds B.M. Lapak ..." (pp. 7-9,
ROA, pp. 79-80, rec.; Emphasis supplied).
In the amended complaint of November 8, 1958, the name
Baldomero Lapak was already specifically stated in paragraph II (pp.
63-64, ROA; p. 107, rec.) and in paragraphs XII, XIII and XV (pp. 67-
69, ROA, pp. 109-110, rec.), which are re-estatements of the same
paragraphs XII, XIII and XV of the original complaint.
Both the original and amended complaints imputed malice and
conspiracy to Atty. Baldomero Lapak, assisted by his son, Atty. Jose
L. Lapak, in facilitating the issuance of a second owner's duplicate
copy of Certificate of Title No. 1097 in favor of respondent Petre
Galero and in cancelling Original Certificate of Title No. 1097 and
issuing in lieu thereof Transfer Certificate of Title No. T-1055 in favor
of respondent Carmen Verso. This participation of Atty. Baldomero
Lapak is clearly alleged in both the original and amended complaints
which prayed, among others, "... That the defendants be ordered to
pay jointly and severally, the herein plaintiffs the sum of P5,000.00 as
liquidated damages and attorney's fees ... and the costs of this suit
..." (pp. 10, 70-71, ROA; pp. 80, 110-111, rec.; Emphasis supplied).
The original complaint alleges:
II
That defendant Carmen Verso is of legal age, single,
and a resident of, and with postal address at, Labo,
Camarines Norte, the place where she may be served
with summons; defendant Petre Galero is likewise of
age, married, and a resident of and with postal
address at Labo, Camarines Norte, the place where
he may be served with summons; defendant the
Register of Deeds may be served with summons in
Daet, Camarines Norte; defendant, the Director of
Lands may be served with summons in Manila;
defendant the Secretary of Agriculture and Natural
Resources may also be served with summons in
Manila, Philippines;
xxx xxx xxx
XII
That at the time defendant Petre Galero, by means of
false representations, applied for the issuance of
another Owner's Duplicate Certificate of Title
of HOMESTEAD PATENT NO. 1097, before this
Honorable Court, defendant Register of Deeds B.M.
Lapak, a relative of Atty. Jose L. Lapak, officially knew
that the land in question was purchased by the late
Benito K. Laig on June 1, 1948; yet notwithstanding
such official knowledge, in order to facilitate and help
his co-defendants Petre Galero and Carmen Verso,
assisted by said Atty. Jose L. Lapak, in
consummating the unlawful sale, refrained from
objecting to the issuance of another Owner's
Duplicate Certificate of Title of HOMESTEAD
PATENT NO. 1097, which it was his duty to do;
 XIII
That notwithstanding his official knowledge that the
property in question was already sold to the deceased
Benito K. Laig, when the sale which he, by acts and
omission facilitated in favor of defendant Carmen
Verso was presented for registration, the defendant
Register of Deeds Mr. B.M. Lapak, caused,
knowingly, the cancellation of Original Certificate of
Title No. 1097 (Homestead Patent) in the name of
defendant Petre Galero and the issuance in lieu
thereof of Transfer Certificate of Title No. T-1055 in
favor of defendant Carmen Verso on October 14,
1952;
xxx xxx xxx
XV
That the sale of the property in question by defendant
Petre Galero in favor of his co-defendant Carmen
Verso, the recommendation by co-defendant Director
of Lands and its subsequent approval by the co-
defendant Secretary of Agriculture and Natural
Resources, and the cancellation of Original Certificate
of Title No. 1097 and the issuance in lieu thereof
Transfer Certificate of Title No. T-1055 by the
defendant Register of Deeds B.M. Lapak in favor of
defendant Carmen Verso are fraudulent and unlawful
and should be declared null and void (pp. 2-9, ROA;
pp. 76-80, rec., italics supplied).
The above allegations were reiterated in the amended complaint
which specifically mentioned Atty. Baldomero Lapak by name as the
defendant Register of Deeds in paragraph II thereof, to wit:
"... defendant Baldomero Lapak, as Register of Deeds may be served
with summons in Daet, Camarines Norte ..." (pp. 63-64, ROA, p. 107,
rec.; Emphasis supplied) as well as in paragraphs XII, XIII and XV
(pp. 67-69, ROA; pp. 109-110, rec.), which restated the same
paragraphs XII, XIII and XV of the original complaint.
These imputations of malice and conspiracy regarding the
participation of Atty. Baldomero Lapak as Register of Deeds (and of
his son, Atty. Jose L. Lapak) were known to Atty. Baldomero M.
Lapak and Atty. Jose L. Lapak. As counsel of Carmen Verso, Atty.
Jose L. Lapak filed an answer in her behalf. Copies of both original
and amended complaints were likewise sent to his father, Atty.
Baldomero Lapak, who failed to file his answer and was accordingly
declared in default by the lower court (pp. 72-74, ROA, pp. 111-112,
rec.).
Since Atty. Baldomero Lapak knew of the imputations against him in
both original and amended complaints as he was served a copy of
the complaint together with the summons, he should have answered
the complaint. Or, at least, his son, Atty. Jose Lapak, who knew that
his father was made co-defendant in the case, should have likewise
filed an answer in behalf of his father. If Atty. Jose Lapak could
defend Carmen Verso who is not related to him, then there is no
reason why he could not defend his father, who was alleged to have
connived with Petre Galero and Carmen Verso, with his active
assistance. Atty. Jose Lapak did not even file a motion to set aside
the order of default against his father, so that he could file an answer
in his behalf. Such failure or omission on the part of father and son,
both lawyers, can only signify their waiver of their right to due
process.
It cannot therefore be claimed that there was a denial of due process
with respect to Baldomero Lapak, because he had all the opportunity
to defend himself. He was summoned and was served a copy of the
complaint, but he failed to file an answer and therefore he was
declared in default on June 15, 1959 (p. 73, ROA; p. 112, rec.). Even
after he was declared in default, he failed to seek the appropriate
remedy to set aside the order of default. And even his son, Atty. Jose
Lapak, who also had all the opportunity to defend him, failed to do so.
He waited until his father was found liable by this Court before filing
his instant petition on May 31, 1978 over 24 years from the filing of
the original complaint on April 13, 1954 and the filing of the answer of
Carmen Verso on May 3, 1954 as well as over 18 years from the time
his father was declared in default on June 15, 1959.
Before his father was declared in default on June 15, 1959, he and
his father had over five years to file his answer to the original
complaint which was filed on April 13, 1954, or over 6 months from
the filing on November 28, 1958 of the amended complaint.
Having been declared in default, Baldomero Lapak lost his standing
in court. For WE have already ruled that "a defendant in default loses
his standing in court and consequently cannot appear in court,
adduce evidence, and be heard, and is not entitled to notice. The only
exception is when the defendant in default files a motion to set aside
the order of default on the grounds provided for in Section 3, Rule 18,
'in which event he is entitled to notice of all further proceedings
regardless of whether the order of default is set aside or not' "
(Republic vs. Court of First Instance of Manila, 68 SCRA 231 [1975];
Tan vs. Dimayuga, 5 SCRA 712 [1962]; Lim Toco vs. Go Fay, 80
Phil. 166 [1948]; Section 9, Rule 13, Rules of Court).
Not having filed a motion to set aside the order of default, Baldomero
Lapak never regained his standing in court and therefore he is no
longer entitled to appear in court; nor to be heard; nor is he entitled to
notice of the proceedings. If he is not entitled to notice of the
proceedings in the case and to be heard in the trial court he is also
not entitled to notice of the proceedings nor to be heard on appeal as
appellee. Thus, he would still be in the same position on appeal as
where he was in the lower court. He would have no better right than
what he had in the court below. Consequently, he cannot claim lack
of due process. As held by this Court in the case of Lim Toco vs. Go
Fay:
The reason why the defaulting defendant is not
entitled to notice is because it would be useless or of
no purpose to do so, since the defendant cannot
appear and be heard in the suit in anyway. If the
defendant in default has the right to appear and be
heard on appeal, there would be no reason why he
should not be given notice of the proceedings in order
that he may have exercised said right as appellant or
appellee. There is absolutely no reason for denying a
defaulted defendant the right to be heard before, and
granting him that right after, the judgment on the
merits. If he is out of or has no standing in court
before judgment on the merits, he cannot be
considered as no longer in default after said
judgment. And if he Can not appear and be heard in
the suit he can not ... appear and be heard as
appellee, because an appeal is a continuation of the
same case or suit commenced in the lower court. The
jurisdiction of the latter is, by appeal, transferred to
the appellate court. The rendition of the judgment by
the trial court and the appeal therefrom by the
adverse party does not confer upon any of them more
right than he had before the judgment in so far as
their standing in court or intervention in the
proceeding is concerned (80 Phil. 166, 169-170;
Emphasis supplied).
In sum, therefore, a party declared in default who never regained his
standing in court cannot successfully invoke denial of due process;
because his deprivation of the right to a hearing was but the legal
consequence of the order of default caused by his very own omission
to file an answer and motion to lift the order of default.
The claim of Atty. Jose L. Lapak that the decision of the Court of
Appeals affirming the decision of the Court of First Instance,
particularly that portion absolving the late Atty. Baldomero M. Lapak
from any liability, became final by reason of the fact that the petition
filed by petitioner Laig in the Supreme Court did not include Atty.
Baldomero M. Lapak is clearly unfounded. The caption of the petition
clearly includes Atty. Baldomero M. Lapak because he is included in
the term "et als." The caption reads:
Rosario Vda, de Laig et als., Petitioners,
versus G.R. No. L-26882
Court of Appeals and Carmen Verso, et als.,
Respondents.
And the allegations in the body of the petition for review before the
Supreme Court clearly shows that the pronouncement of the Court of
First Instance as affirmed by the Court of Appeals that Atty.
Baldomero M. Lapak has no liability was being questioned in the
petition, thus:
Lastly, we contend and so respectfully submit that the
Court of Appeals erred in not finding Atty. Baldomero
Lapak guilty of malice and/or gross negligence in the
performance of his duties as Register of Deeds of
Camarines Norte because -
(a) As Register of Deeds, he was informed that the
parcel of land in question was sold by Petre Galero to
Atty. Benito K. Laig (Exhs. K, B, B-1, p. 38, appellants'
brief );
 (b) His son, Atty. Jose L. Lapak, personally served
him with a copy of the petition of Petre Galero, his
client, much later, praying the court to cancel the
owner's copy of Original Certificate of Title No. 1097
on the ground that he lost it during the Japanese
Occupation;
(c) It was his duty to inform the court of the fact that
petitioner Rosario Vda. de Laig informed his office
that Petre Galero had sold the land to Atty. Benito K.
Laig and that the owner's copy of the title was not
really lost and/or to inform petitioner Rosario Vda. de
Laig of such petition filed by his own son, and/or to
inform his own son, Atty. Jose L. Lapak, that there
was such claim covering the property, subject-matter
of his petition;
(d) It was his duty to the court as officer of the law and
as Register of Deeds to inform the court of the
information he received which might guide the court in
acting on the petition of Petre Galero, failing in
which, he cannot exempt himself from liability;
(e) In fact, Atty. Baldomero M. Lapak was declared in
default because he did not even bother to answer the
complaint' (pp. 14-15, Petition for Review on
Certiorari, pp. 20-21, rec.; Emphasis supplied).
And also in the prayer of the petition, thus:
IN VIEW OF THE FOREGOING, your petitioners
most respectfully pray that a writ of certiorari be
issued directing the respondent Court of Appeals to
certify and send the records of the case to this
Honorable Tribunal for review; and that after due
hearing, the judgment of the Court of Appeals be
reversed, and another one be issued ... finding
respondents public officials guilty of negligence and
ordering them to pay the petitioners jointly and
severally damages the amount of which is left to the
sound discretion of the court, plus costs; ... (p. 22,
Petition for Review on Certiorari, p. 28, rec.;
Emphasis supplied).
And this liability of Atty. Baldomero M. Lapak was extensively
discussed in the petitioners' brief filed before this Court.
It must also be noted that in the Court of Appeals, the appeal was
captioned also as Rosario Vda. de Laig et als., Plaintiffs- Appellants,
vs. Carmen Verso, et als., Defendants-Appellees; and the brief for the
Plaintiffs-Appellants raised as her second and fifth assignments of
error the actuations, inaction and negligence of Atty. Baldomero M.
Lapak with respect to the petition for the issuance and the
subsequent issuance of the second owner's duplicate certificate of
title; and the Court of Appeals in disposing of the appeal, ruled upon
them and affirmed the trial courts exoneration of Atty. Baldomero M.
Lapak (see pp. 32, 49-51, 129, 132-134, 149-154, rec.).
B. Re: Atty. Jose L. Lapak.
With respect to his own petition, it must be noted that Atty. Jose L.
Lapak has likewise no personality to intervene and participate
because he is not a party in this case. The findings of this Court in
this case affecting him were necessary, for the allegations in the
original and amended complaint and the evidence of record clearly
show that his participation was essential to the success of Petre
Galero in securing the second owner's duplicate certificate of title and
of Verso in registering the sale in her favor and in securing the
issuance of a new transfer certificate of title in her name by his father,
Atty. Baldomero M. Lapak, the then Register of Deeds.
But this notwithstanding, WE will pass upon his plaints and deal with
his pretended hurt feelings, innocence, nobility and concern for his
father's honor.
OUR finding with respect to the liability of Atty. Jose L. Lapak is
based on the averments in the complaints and the proof extant in the
record. However, because he was not a party to the case and
therefore was not able to present his side, he was not included in the
dispositive part of the decision. Said findings with respect to him are
preparatory to the filing of the appropriate action against him, in which
he will have the chance to be heard in his defense.
From the time he received a copy of the complaint as counsel for
respondent Verso, Atty. Jose L. Lapak was already on notice that he
should defend himself, because of his participation as alleged in
paragraphs VI, VIII, IX, XI and XII of the original and amended
complaints quoted hereunder
VI
That after the sale of the parcel of land in question in
favor of Benito K. Laig, defendant Petre Galero,
assisted by his lawyer Jose L. Lapak, executed sworn
statements and declared under oath before this
Honorable Court, that the Owner's Duplicate
Certificate of Title of HOMESTEAD PATENT NO.
1097 was lost in his possession during the war, and
because of such misrepresentations, the said
defendant was able to secure another Owner's
Duplicate Certificate of Title of HOMESTEAD
PATENT NO. 1097;
xxx xxx xxx
VIII
That the sale in favor of defendant Carmen Verso was
prepared by, and acknowledged before Notary Public
Jose L. Lapak, the same lawyer who represented
defendant Petre Galero in obtaining another Owner's
Duplicate Certificate of Title of HOMESTEAD.
PATENT NO. 1097, and the same lawyer who
defended the defendant Petre Galero before this
Honorable Court in Criminal Case No. 533, entitled
'People of the Philippines vs. Petre Galero.
IX
That the defendant Carmen Verso, assisted by Atty.
Jose L. Lapak, on August 8, 1952, requested the
defendant Director of Lands and the defendant
Secretary of Agriculture and Natural Resources for
the approval of the sale in her favor; that such request
was subsequent to the request of the herein plaintiffs
for the approval of the sale covering the same
property in favor; of the late Benito K. Laig;
XI
That defendant Carmen Verso, with full knowledge of
the fact that the property she bought from defendant
Petre Galero was already the property of the late
Benito K. Laig, and that the sale, was fraudulent sale,
once in possession of the approval of the defendant
Secretary of Agriculture and Natural
Resources, assisted by attorney and notary public
Jose L Lapak, she registered the deed of sale
executed in her favor by defendant Petre Galero on or
about the latter part of 1952;
XII
That at the time defendant Petre Galero, by means of
false representations, applied for the issuance of
another Owner's Duplicate Certificate of Title of
HOMESTEAD PATENT NO. 1097, before this
Honorable Court, defendant Register of Deeds B.M.
Lapak, a relative of Atty, Jose L. Lapak, officially knew
that the land in question was purchased by the late
Benito K. Laig on June 1, 1948; yet notwithstanding
such official knowledge, in order to facilitate and help
his defendants Petre Galero and Carmen Verso,
assisted by said Atty. Jose L. Lapak, in
consummating the unlawful sale, refrained from
objecting to the issuance of another Owner's
Duplicate Certificate of Title of HOMESTEAD
PATENT NO. 1097, which it was his duty to do; ...
(pp. 4-7, 65-68, ROA; pp. 77-79, 108- 109, rec.;
Emphasis supplied.)
When he filed on May 3, 1954 the answer of Verso, he should have
immediately taken the necessary action to protect himself instead of
remaining silent. His inaction and silence cast doubt on his pretended
innocence with respect to the actuations of Galero, Verso and his
father, Atty. Baldomero M. Lapak, the then Register of Deeds. He is a
lawyer, not a layman.
The following undisputed facts and circumstances on record show
made more convincing by his silence and inaction and failure to
defend his own father and himself in the trial and on appeal the
connivance of Atty. Jose L. Lapak with his father, Atty. Baldomero M.
Lapak, Carmen Verso and Petre Galero.
1. Atty. Jose L. Lapak assisted Petre Galero in his petition for the
issuance of a second duplicate owner's certificate of title, falsely
declaring under oath as ground thereof that "... the Owner's Duplicate
Certificate of Title ... was lost in his possession during the war ..."
Because of this misrepresentation - aided by the silence of Atty.
Baldomero M. Lapak, who had notice of the petition and had
knowledge of the prior sale between Petre Galero and Carmen Verso
owner's certificate of title (par. VI, pp. 4, 65, ROA; pp. 77, 108,
rec.).
2. Thereafter, Atty. Jose L. Lapak prepared and notarized the deed of
sale for the price of only P600.00 of 21.9949 hectares land with
coconut trees covered by the aforesaid title between Petre Galero
and Carmen Verso (par. VIII, pp. 5, 66, ROA; pp. 78,108, rec.).
3. Then, Atty. Jose L. Lapak helped Carmen Verso in seeking the
approval of the Secretary of Agriculture and Natural Resources of the
said sale (par. IX, pp. 5, 66, ROA; pp. 78,108, rec.) as obviously
shown by the fact that in her letter sent to the Secretary for that
purpose, she gave her address as "c/o Atty. Jose L. Lapak, Daet,
Camarines Norte". (pp. 22, 107, Folder of Exhibits, Civil Case No.
577).
4. After the approval, Atty. Jose L. Lapak aided Carmen Verso and
registered the questionable Deed of Sale with the then incumbent
Register of Deeds Atty. Baldomero M. Lapak, his father, who allowed
it. (par. XI, pp. 6, 67 ROA; pp. 78, 109, rec.),
The presence and participation of Atty. Jose L. Lapak in all the
aforesaid proceedings and transactions that finally led to the
fraudulent issuance of Transfer Certificate of Title No. T-1055 in favor
of respondent Carmen Verso and to the prejudice of the heirs of the
late Benito K. Laig, herein petitioners, over the said land of about 22
hectares with coconut trees point to the collusion aforestated. Atty.
Baldomero M. Lapak, who officially knew of the prior sale between
Petre Galero and Carmen Verso, should have reacted accordingly as
Register of Deeds and as a lawyer to protect the integrity of torrens
title as well as his own integrity and that of his office. His oath as a
member of the Philippine Bar required him to "do no falsehood, nor
consent to the doing of any in court x x" nor "... wittingly or willingly
promote or sue any groundless, false or unlawful suit, nor give aid nor
consent to the same ..." (Sec. 3, Rule 138, Rules of Court). If there
were no collusion, then Atty. Baldomero M. Lapak should have
frustrated the fraudulent scheme with respect to the said land in the
four clear opportunities he had: First, in the petition for issuance of a
second owner's duplicate certificate of title; Second, in the application
for registration of the fraudulent deed of sale which was filed in his
own office; Third, in the application for the cancellation of Original
Certificate of Title No. 1097 in the name of Petre Galero; and Fourth,
the issuance in lieu thereof of transfer certificate of title over the said
parcel of almost 22 hectares with coconut trees in the name of
Carmen Verso.
Moreover, the silence and inaction of Atty. Baldomero M. Lapak while
all these things were taking place fortify our conclusion on their
collusion; because no well-intentioned lawyer-father would permit his
lawyer-son to participate in the aforestated dubious scheme; if no
connivance existed. At the very least, Atty. Baldomero M. Lapak
should have informed his son of the prior sale of Petre Galero to Atty.
Benito Laig over the same land of close to 22 hectares with coconut
trees; so that his son, Atty. Jose L. Lapak, should not have
participated in that illegal transaction between Petre Galero and
Carmen Verso, who was shown in the main decision to have
knowledge of the prior sale by Petre Galero to Atty. Benito Laig.
5. WE find significant the fact that Atty. Jose L. Lapak, after serving
several months, resigned from his position as clerk of court of the
Court of First Instance of Camarines Norte, to act as defense counsel
of Petre Galero in Criminal Case No. 533 for estafa through
falsification of public document (p. 1, t.s.n. of Crim. Case No. 533).
Atty. Baldomero M. Lapak represented Petre Galero during the
preliminary investigation of said criminal case while his son, Atty.
Jose L. Lapak, represented Petre Galero during the trial of the case
(pp. 15 & 17, Crim. Case wrapper, Vol. II of crim. Case No. 533). In
said criminal case, the subject matter of the offense of estafa through
falsification of public document was the deed of sale entered into by
and between Petre Galero and Carmen Verso, which deed of sale
was effected and consummated with the active participation of Atty.
Jose L. Lapak, who assisted Petre Galero in filing the petition for the
issuance of a second owner's duplicate certificate of title (Exh. E, p.
7, Folder of Exhibits, Civil Case No. 577).
The above reactions of Atty. Jose L. Lapak and his concern for Petre
Galero resigning from his job only to act as defense counsel for
Galero as well as the concern of Atty. Baldomero M. Lapak
representing Petre Galero in the preliminary investigation are of
dubious implications. Were they making sure that Petre Galero who
as aforestated fraudulently sold in 1952 to Carmen Verso the coconut
land of about 22 hectares for the very low price of P600.00, with the
assistance of Atty. Jose L. Lapak would not implicate them
father and son?
Petre Galero died in 1958 while serving sentence for estafa thru
falsification of public document before the trial of this civil case began
on August 4, 1960. He filed answer without any lawyer assisting him.
Moreover, it is curious why the provincial fiscal did not include Atty.
Baldomero M. Lapak and Atty. Jose L. Lapak in the prosecution of
Petre Galero in the criminal case, despite the existence of a prima
facie case against them.
6. The collusion among the aforesaid respondents is further revealed
by the gross inadequacy of the purchase price paid by respondent
Verso to Petre Galero which is a badge of fraud. In the first sale of
the same parcel of land, of almost 22 hectares with coconut trees,
Atty. Laig paid the amount of P1,500.00 for the one half of the land
the consideration of the other half being the legal services rendered
by him to Petre Galero. Obviously then, the other half was likewise
worth that much. Hence, the entire land of about 22 hectares with
coconut trees was worth no less than P3,000.00 on June 1, 1948.
More than four years thereafter, on July 19, 1952, respondent Verso,
in the second sale made by Petre Galero, paid the measly sum
of P600.00 for the entire lot, or approximately P28.00 per hectare,
much less than the government price then for uncultivated or
unimproved public lands.
A note on the present posture of Atty. Jose Lozada Lapak. His
sudden protestation of concern for the name, honor and integrity of
his late father Atty. Baldomero M. Lapak and of his own would seem
hollow, if not hypocritical.
As heretofore stated, as early as May 3, 1954 when he assisted
respondent Carmen Verso in the filing of her answer to the complaint
filed by the Laigs, he had already knowledge of the imputations of
malice and connivance earlier enumerated, against him and his
father, Atty. Baldomero M. Lapak. He should have filed the necessary
answer for his father and then and there deny and rebut the
aforestated imputations of malice and conspiracy, as well as take the
necessary actions to protect himself from any adverse inferences that
may arise from the aforesaid imputations against him by filing either a
motion to intervene in the case or to strike out the allegations of the
complaint imputing malice and conspiracy to him not being a party
to the case. But what did he do? After filing on May 3, 1954 the
answer for respondent Verso to the complaint, he disappeared from
the case without any formal withdrawal; and Atty. Pedro A. Venida
took over the defense of Verso during the trial and on appeal. Despite
the serious allegations of malice and conspiracy against him and his
father, he conveniently remained quiet for over 24 years from the
filing of the complaint on April 13, 1954 and the filing of Verso's
answer to the complaint on May 3, 1954. And now that this Court,
upon review, not only found as true the acts imputed to his late father,
Atty. Baldomero M. Lapak, but also his (Atty. Jose L. Lapak's) own
involvement, he appears to be touched to the quick, with profuse
protestation of injured feelings because his and his father's name,
honor and integrity had been assailed in the challenged decision,
spiced with professions of his paternal loyalty, nobility and innocence
which he could have properly and timely demonstrated twenty-four
years ago, when his father was still alive through several avenues
then opened to him.
As hereinbefore intimated, the silence of Atty. Baldomero M. Lapak
despite receipt of the original and amended complaint is intriguing as
it invites unflattering questions.
On the surface, the aforesaid failure of Atty. Jose L. Lapak to secure
a lawyer for himself and his father, in the face of his ability to defend
the cause of respondent Verso, who is not his relative, defies
understanding, if it does not merit condemnation by his own father
and by the other members of their family or clan.
WHEREFORE, THE MOTION FOR RECONSIDERATION OF
RESPONDENT CARMEN VERSO AND THE PETITION OF ATTY.
JOSE LOZADA LAPAK ARE HEREBY DENIED, FOR LACK OF
MERIT.
SO ORDERED.