SOUTHWESTERN SUGAR AND MOLASSES COMPANY vs.

ATLANTIC GULF & PACIFIC COMPANY [June 29, 1955]

This is an action for specific performance.

On March 24, 19 53, the Atlantic Gulf & Pacific Company of Manila, hereafter called Atlantic Gulf for short, granted
an option to Southwestern Sugar & Molasses Co. (Far East) Inc., hereafter called Southwestern Company, to buy its
barge No. 10 for the sum of P30,000 to be exercised within a period of ninety days.

On May 11, 1953, the Southwestern Company wrote to Atlantic Gulf advising the latter that it wanted "to exercise
our option at your earliest convenience" and requested that it be notified as soon as the barge was available.

On May 12, 1953, the Atlantic Gulf replied stating that their understanding was that the "offer of option" is to be a
cash transaction and to be effected "at the time the lighter is available", and, on June 25, 1953, reiterating the
unavailability of the barge, it further advised the Southwestern Company that since there is still further work for it,
and as this situation still applies" the barge could not be turned over to the latter company.

On June 27, 1953, in view if such vacillating attitude, the Southwestern Company instituted the present action to
compel the Atlantic Gulf to sell the barge in line with the option, depositing with the court a check covering the sum
of P30,000. This check however was later withdrawn with the approval of the court.

On June 29, 1953, the Atlantic Gulf withdraw its "offer of option" with due notices to the Southwestern Company
stating as reason therefor that the option was granted merely as a favor. The Atlantic Gulf set up as a defense the
option to sell made by it to the Southwestern Company is null and void because it is not supported by any
consideration.

After due trial, the lower court rendered judgment granting plaintiff's prayer for specific performance. It further
ordered the defendant to pay damages in an amount equivalent to 6 per centum per annum on the sum of P30,000
from the date of the filing of the complaint, and to pay the sum of P600 as attorney's fees, plus the costs of action.

The case before us on the assertion that the only issue involved is one of law.

The option granted by appellant to appellee is contained in a letter dated March 24, 1953 which reads as follows:

March 24, 1953

Southwestern Sugar & Molasses Co. Far East, Inc.

145 Muelle de Binondo
Manila, Philippines
Gentlemen:

This is to confirm our conversion of today whereby we offer you our Barge No. 10, which is 120' 00" long by
44"-0 wide and 9'-0" deep, for the sum of of P30,000. Barge to cleaned of creosote and fuel oil.

This option is to be good for ninety (90) days, or until June 30, 1953.

Yours very truly,

ATLANTIC, GULF & PACIFIC CO. OF MANILA
(Sgd.) W. H. SCHOENING

The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of
P30,000 under the terms stated above has no legal effect because it is not supported by any consideration and in
support thereof it invokes article 1479 of the new Civil Code. This article provides:

ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
 An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct from the price.

On the other hand, appellee contends that, even granting that the "offer of option" is not supported by any
consideration, that option became binding on appellant when the appellee gave notice to its acceptance, and that
having accepted it within the period of option, the offer can no longer be withdrawn and in any event such
withdrawal is ineffective. In support of this contention, appellee invokes article 1324 of the Civil Code which provides:

ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn
at any time before acceptance by communicating such withdrawal, except when the option is founded upon
consideration, as something paid or promised.

There is no question that under article 1479 of the new Civil Code "an option to sell", or a "promise to buy or to sell",
as used in said article, to be valid must be "supported by a consideration distinct from the price." This is clearly
inferred from the context of said article that a unilateral promise to buy or sell, even if accepted, is only binding if
supported by a consideration. In other words, "an accepted unilateral promise" can only have a binding effect if
supported by a consideration, which means that the option can still be withdrawn, even if accepted, if the same is
not supported by any consideration. Here it is not disputed that the option is without consideration. It can therefore
be withdrawn notwithstanding the acceptance made of it by appellee.

It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that, when
the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before
acceptance" except when the option is founded upon consideration, but this general rule must be interpreted as
modified by the provision of article 1479 above referred to, which applies to "a promise to buy and sell" specifically.
As already stated, this rule requires that a promise to sell to be valid must be supported by a consideration distinct
from the price.

We are not oblivious of the existence of American authorities which hold that an offer, once accepted, cannot be
withdrawn, regardless of whether it is supported or not by a consideration (12 Am. Jur. 528). These authorities, we
note, uphold the general rule applicable to offer and acceptance as contained in our new Civil Code. But we are
prevented from applying them in view of the specific provision embodied in article 1479. While under the "offer of
option" in question appellant has assumed a clear obligation to sell its barge to appellee and the option has been
exercised in accordance with its terms, and there appears to be no valid or justifiable reason for appellant to
withdraw its offer, this Court cannot adopt a different attitude because the law on the matter is clear. Our imperative
duty is to apply it unless modified by Congress.

Wherefore, the decision appealed from is reversed, without pronouncement as to costs.

NICOLAS SANCHEZ vs. SEVERINA RIGOS [June 14, 1972]

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

The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an
instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to sell" to
Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose,
province of Nueva Ecija, and more particularly described in Transfer Certificate of Title No. NT-12528 of said province,
within two (2) years from said date with the understanding that said option shall be deemed "terminated and
elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated period. Inasmuch as
several tenders of payment of the sum of Pl,510.00, made by Sanchez within said period, were rejected by Mrs.
Rigos, on March 12, 1963, the former deposited said amount with the Court of First Instance of Nueva Ecija and
commenced against the latter the present action, for specific performance and damages.

After the filing of defendant's answer — admitting some allegations of the complaint, denying other allegations
thereof, and alleging, as special defense, that the contract between the parties "is a unilateral promise to sell, and
the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and void" — on
February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment on the pleadings.
Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the
sum judicially consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was,
likewise, sentenced to pay P200.00, as attorney's fees, and other costs. Hence, this appeal by Mrs. Rigos.

This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides:

ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.

In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and committed
to sell" and "the plaintiff agreed and committed to buy" the land described in the option, copy of which was annexed
to said pleading as Annex A thereof and is quoted on the margin. 1 Hence, plaintiff maintains that the promise
contained in the contract is "reciprocally demandable," pursuant to the first paragraph of said Article 1479. Although
defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff, it is not true that the
latter had, in turn, "agreed and committed himself " to buy said property. Said Annex A does not bear out plaintiff's
allegation to this effect. What is more, since Annex A has been made "an integral part" of his complaint, the
provisions of said instrument form part "and parcel" 2 of said pleading.

The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a "contract
to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as indicated by the
caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof, the defendant
"agreed, promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there
is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a
consideration "distinct from the price" stipulated for the sale of the land.

Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and this
would seem to be the main factor that influenced its decision in plaintiff's favor. It should be noted, however, that:

(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales" in
particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words, Article 1479 is
controlling in the case at bar.

(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the concurrence of
a condition, namely, that the promise be "supported by a consideration distinct from the price." Accordingly, the
promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of
said distinct consideration. In other words, the promisee has the burden of proving such consideration. Plaintiff
herein has not even alleged the existence thereof in his complaint.

(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the absence of
said consideration for her promise to sell and, by joining in the petition for a judgment on the pleadings, plaintiff has
impliedly admitted the truth of said averment in defendant's answer. Indeed as early as March 14, 1908, it had been
held, in Bauermann v. Casas,3 that:

One who prays for judgment on the pleadings without offering proof as to the truth of his own
allegations, and without giving the opposing party an opportunity to introduce evidence, must be
understood to admit the truth of all the material and relevant allegations of the opposing party, and
to rest his motion for judgment on those allegations taken together with such of his own as are
admitted in the pleadings. (La Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis supplied.)

This view was reiterated in Evangelista v. De la Rosa4 and Mercy's Incorporated v. Herminia Verde.5

Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co.,6 from which We quote:

The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for
the sum of P30,000 under the terms stated above has no legal effect because it is not supported by
any consideration and in support thereof it invokes article 1479 of the new Civil Code. The article
provides:

"ART. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.

An accepted unilateral promise to buy or sell a determinate thing for a price certain
is binding upon the promisor if the promise is supported by a consideration distinct
from the price."

On the other hand, Appellee contends that, even granting that the "offer of option" is not supported
by any consideration, that option became binding on appellant when the appellee gave notice to it of
its acceptance, and that having accepted it within the period of option, the offer can no longer be
withdrawn and in any event such withdrawal is ineffective. In support this contention, appellee
invokes article 1324 of the Civil Code which provides:

"ART. 1324. When the offerer has allowed the offeree a certain period to accept, the
offer may be withdrawn any time before acceptance by communicating such
withdrawal, except when the option is founded upon consideration as something
paid or promised."

There is no question that under article 1479 of the new Civil Code "an option to sell," or "a promise
to buy or to sell," as used in said article, to be valid must be "supported by a consideration distinct
from the price." This is clearly inferred from the context of said article that a unilateral promise to
buy or to sell, even if accepted, is only binding if supported by consideration. In other words, "an
accepted unilateral promise can only have a binding effect if supported by a consideration which
means that the option can still be withdrawn, even if accepted, if the same is not supported by any
consideration. It is not disputed that the option is without consideration. It can therefore be
withdrawn notwithstanding the acceptance of it by appellee.

It is true that under article 1324 of the new Civil Code, the general rule regarding offer and
acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer may be
withdrawn at any time before acceptance" except when the option is founded upon consideration,
but this general rule must be interpreted as modified by the provision of article 1479 above referred
to, which applies to "a promise to buy and sell" specifically. As already stated, this rule requires that
a promise to sell to be valid must be supported by a consideration distinct from the price.
 We are not oblivious of the existence of American authorities which hold that an offer, once
accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration (12
Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and acceptance
as contained in our new Civil Code. But we are prevented from applying them in view of the specific
provision embodied in article 1479. While under the "offer of option" in question appellant has
assumed a clear obligation to sell its barge to appellee and the option has been exercised in
accordance with its terms, and there appears to be no valid or justifiable reason for appellant to
withdraw its offer, this Court cannot adopt a different attitude because the law on the matter is clear.
Our imperative duty is to apply it unless modified by Congress.

However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek,8 decided later that Southwestern
Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co.,9 saw no distinction between Articles 1324 and 1479 of the Civil
Code and applied the former where a unilateral promise to sell similar to the one sued upon here was involved,
treating such promise as an option which, although not binding as a contract in itself for lack of a separate
consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. Speaking through
Associate Justice, later Chief Justice, Cesar Bengzon, this Court said:

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

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

"If the option is given without a consideration, it is a mere offer of a contract of sale,
which is not binding until accepted. If, however, acceptance is made before a
withdrawal, it constitutes a binding contract of sale, even though the option was not
supported by a sufficient consideration. ... . (77 Corpus Juris Secundum, p. 652. See
also 27 Ruling Case Law 339 and cases cited.)

"It can be taken for granted, as contended by the defendant, that the option contract
was not valid for lack of consideration. But it was, at least, an offer to sell, which was
accepted by letter, and of the acceptance the offerer had knowledge before said
offer was withdrawn. The concurrence of both acts — the offer and the acceptance
— could at all events have generated a contract, if none there was before (arts. 1254
and 1262 of the Civil Code)." (Zayco vs. Serra, 44 Phil. 331.)

In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound by
his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes,
however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale.

This view has the advantage of avoiding a conflict between Articles 1324 — on the general principles on contracts —
and 1479 — on sales — of the Civil Code, in line with the cardinal rule of statutory construction that, in construing
different provisions of one and the same law or code, such interpretation should be favored as will reconcile or
harmonize said provisions and avoid a conflict between the same. Indeed, the presumption is that, in the process of
drafting the Code, its author has maintained a consistent philosophy or position. Moreover, the decision
in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324 is modified by Art. 1479
of the Civil Code, in effect, considers the latter as an exception to the former, and exceptions are not favored, unless
the intention to the contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What is more, the
reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or founded
upon a consideration, strongly suggests that the two (2) provisions intended to enforce or implement the same
principle.
Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the doctrine
laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent therewith, the view adhered to in
the Southwestern Sugar & Molasses Co. case should be deemed abandoned or modified.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant Severina Rigos.
It is so ordered.

Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur.

Castro, J., took no part.

SPS. JULIO AND MARINA VILLAMOR vs. CA and SPS. MACARIA AND ROBERTO REYES [October 10, 1991]
This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. No. 24176 entitled,
"Spouses Julio Villamor and Marina Villamor, Plaintiffs-Appellees, versus Spouses Macaria Labing-isa Reyes and
Roberto Reyes, Defendants-Appellants," which reversed the decision of the Regional Trial Court (Branch 121) at
Caloocan City in Civil Case No. C-12942.

The facts of the case are as follows:

Macaria Labingisa Reyes was the owner of a 600-square meter lot located at Baesa, Caloocan City, as evidenced by
Transfer Certificate of Title No. (18431) 18938, of the Register of Deeds of Rizal.

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

DEED OF OPTION

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

WITNESSETH

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

That I, with the conformity of my husband, Roberto Reyes, have sold one-half thereof to the aforesaid
spouses Julio Villamor and Marina V. Villamor at the price of P70.00 per sq. meter, which was greatly higher
than the actual reasonable prevailing value of lands in that place at the time, which portion, after
segregation, is now covered by TCT No. 39935 of the Register of Deeds for the City of Caloocan, issued on
August 17, 1971 in the name of the aforementioned spouses vendees;

That the only reason why the Spouses-vendees Julio Villamor and Marina V. Villamor, agreed to buy the said
one-half portion at the above-stated price of about P70.00 per square meter, is because I, and my husband
Roberto Reyes, have agreed to sell and convey to them the remaining one-half portion still owned by me and
now covered by TCT No. 39935 of the Register of Deeds for the City of Caloocan, whenever the need of such
sale arises, either on our part or on the part of the spouses (Julio) Villamor and Marina V. Villamor, at the
same price of P70.00 per square meter, excluding whatever improvement may be found the thereon;

That I am willing to have this contract to sell inscribed on my aforesaid title as an encumbrance upon the
property covered thereby, upon payment of the corresponding fees; and

That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept, the above provisions of this
Deed of Option.

IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila, Philippines, by all the persons
concerned, this 11th day of November, 1971.

JULIO VILLAMOR MACARIA LABINGISA

 With My Conformity:

MARINA VILLAMOR ROBERTO REYES

Signed in the Presence Of:

MARIANO Z. SUNIGA
ROSALINDA S. EUGENIO

ACKNOWLEDGMENT

REPUBLIC OF THE PHILIPPINES)

CITY OF MANILA ) S.S.

At the City of Manila, on the 11th day of November, 1971, personally appeared before me Roberto Reyes,
Macaria Labingisa, Julio Villamor and Marina Ventura-Villamor, known to me as the same persons who
executed the foregoing Deed of Option, which consists of two (2) pages including the page whereon this
acknowledgement is written, and signed at the left margin of the first page and at the bottom of the
instrument by the parties and their witnesses, and sealed with my notarial seal, and said parties
acknowledged to me that the same is their free act and deed. The Residence Certificates of the parties were
exhibited to me as follows: Roberto Reyes, A-22494, issued at Manila on Jan. 27, 1971, and B-502025, issued
at Makati, Rizal on Feb. 18, 1971; Macaria Labingisa, A-3339130 and B-1266104, both issued at Caloocan City
on April 15, 1971, their joint Tax Acct. Number being 3028-767-6; Julio Villamor, A-804, issued at Manila on
Jan. 14, 1971, and B-138, issued at Manila on March 1, 1971; and Marina Ventura-Villamor, A-803, issued at
Manila on Jan. 14, 1971, their joint Tax Acct. Number being 608-202-6.

ARTEMIO M. MALUBAY
Notary Public
Until December 31, 1972
PTR No. 338203, Manila
January 15, 1971

Doc. No. 1526;

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

According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to repurchase the lot sold by
them to the Villamor spouses but Marina Villamor refused and reminded them instead that the Deed of Option in
fact gave them the option to purchase the remaining portion of the lot.

The Villamors, on the other hand, claimed that they had expressed their desire to purchase the remaining 300 square
meter portion of the lot but the Reyeses had been ignoring them. Thus, on July 13, 1987, after conciliation
proceedings in the barangay level failed, they filed a complaint for specific performance against the Reyeses.

On July 26, 1989, judgment was rendered by the trial court in favor of the Villamor spouses, the dispositive portion of
which states:

WHEREFORE, and (sic) in view of the foregoing, judgment is hereby rendered in favor of the plaintiffs and
against the defendants ordering the defendant MACARIA LABING-ISA REYES and ROBERTO REYES, to sell unto
the plaintiffs the land covered by T.C.T No. 39934 of the Register of Deeds of Caloocan City, to pay the
plaintiffs the sum of P3,000.00 as and for attorney's fees and to pay the cost of suit.

The counterclaim is hereby DISMISSED, for LACK OF MERIT.

SO ORDERED. (pp. 24-25, Rollo)

Not satisfied with the decision of the trial court, the Reyes spouses appealed to the Court of Appeals on the following
assignment of errors:

1. HOLDING THAT THE DEED OF OPTION EXECUTED ON NOVEMBER 11, 1971 BETWEEN THE PLAINTIFF-
APPELLEES AND DEFENDANT-APPELLANTS IS STILL VALID AND BINDING DESPITE THE LAPSE OF MORE THAN
THIRTEEN (13) YEARS FROM THE EXECUTION OF THE CONTRACT;

2. FAILING TO CONSIDER THAT THE DEED OF OPTION CONTAINS OBSCURE WORDS AND STIPULATIONS
WHICH SHOULD BE RESOLVED AGAINST THE PLAINTIFF-APPELLEES WHO UNILATERALLY DRAFTED AND
PREPARED THE SAME;

3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE INTENTION AND PURPOSE OF THE PARTIES
DESPITE ADVERSE, CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE PLAINTIFF-APPELLEES;

4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON ACCOUNT OF THEIR IGNORANCE PLACING THEM

AT A DISADVANTAGE IN THE DEED OF OPTION;

5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION TILT IN FAVOR OF THE DEFENDANT-APPELLANTS;

and

6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY PLAINTIFF-APPELLEES THE AMOUNT OF P3,000.00 FOR

AND BY WAY OF ATTORNEY'S FEES. (pp. 31-32, Rollo)

On February 12, 1991, the Court of Appeals rendered a decision reversing the decision of the trial court and
dismissing the complaint. The reversal of the trial court's decision was premised on the finding of respondent court
that the Deed of Option is void for lack of consideration.

The Villamor spouses brought the instant petition for review on certiorari on the following grounds:

I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE PHRASE WHENEVER THE NEED FOR SUCH
SALE ARISES ON OUR (PRIVATE RESPONDENT) PART OR ON THE PART OF THE SPOUSES JULIO D. VILLAMOR
AND MARINA V. VILLAMOR' CONTAINED IN THE DEED OF OPTION DENOTES A SUSPENSIVE CONDITION;

II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED PHRASE IS INDEED A CONDITION, THE
COURT OF APPEALS ERRED IN NOT FINDING, THAT THE SAID CONDITION HAD ALREADY BEEN FULFILLED;

III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED PHRASE IS INDEED A CONDITION, THE
COURT OF APPEALS ERRED IN HOLDING THAT THE IMPOSITION OF SAID CONDITION PREVENTED THE
PERFECTION OF THE CONTRACT OF SALE DESPITE THE EXPRESS OFFER AND ACCEPTANCE CONTAINED IN THE
DEED OF OPTION;

IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE DEED OF OPTION IS VOID FOR LACK OF
CONSIDERATION;

V. THE COURT OF APPEALS ERRED IN HOLDING THAT A DISTINCT CONSIDERATION IS NECESSARY TO SUPPORT
THE DEED OF OPTION DESPITE THE EXPRESS OFFER AND ACCEPTANCE CONTAINED THEREIN. (p. 12, Rollo)

The pivotal issue to be resolved in this case is the validity of the Deed of Option whereby the private respondents
agreed to sell their lot to petitioners "whenever the need of such sale arises, either on our part (private respondents)
or on the part of Julio Villamor and Marina Villamor (petitioners)." The court a quo, rule that the Deed of Option was
a valid written agreement between the parties and made the following conclusions:

xxx xxx xxx

 It is interesting to state that the agreement between the parties are evidence by a writing, hence, the
controverting oral testimonies of the herein defendants cannot be any better than the documentary evidence,
which, in this case, is the Deed of Option (Exh. "A" and "A-a")

The law provides that when the terms of an agreement have been reduced to writing it is to be considered as
containing all such terms, and therefore, there can be, between the parties and their successors in interest
no evidence of their terms of the agreement, other than the contents of the writing. ... (Section 7 Rule 130
Revised Rules of Court) Likewise, it is a general and most inflexible rule that wherever written instruments
are appointed either by the requirements of law, or by the contract of the parties, to be the repositories and
memorials of truth, any other evidence is excluded from being used, either as a substitute for such
instruments, or to contradict or alter them. This is a matter both of principle and of policy; of principle
because such instruments are in their nature and origin entitled to a much higher degree of credit than
evidence of policy, because it would be attended with great mischief if those instruments upon which man's
rights depended were liable to be impeached by loose collateral evidence. Where the terms of an agreement
are reduced to writing, the document itself, being constituted by the parties as the expositor of their
intentions, it is the only instrument of evidence in respect of that agreement which the law will recognize so
long as it exists for the purpose of evidence. (Starkie, EV, pp. 648, 655 cited in Kasheenath vs. Chundy, W.R.
68, cited in Francisco's Rules of Court, Vol. VII Part I p. 153) (Emphasis supplied, pp. 126-127, Records).

The respondent appellate court, however, ruled that the said deed of option is void for lack of consideration. The
appellate court made the following disquisitions:

Plaintiff-appellees say they agreed to pay P70.00 per square meter for the portion purchased by them
although the prevailing price at that time was only P25.00 in consideration of the option to buy the
remainder of the land. This does not seem to be the case. In the first place, the deed of sale was never
produced by them to prove their claim. Defendant-appellants testified that no copy of the deed of sale had
ever been given to them by the plaintiff-appellees. In the second place, if this was really the condition of the
prior sale, we see no reason why it should be reiterated in the Deed of Option. On the contrary, the alleged
overprice paid by the plaintiff-appellees is given in the Deed as reason for the desire of the Villamors to
acquire the land rather than as a consideration for the option given to them, although one might wonder
why they took nearly 13 years to invoke their right if they really were in due need of the lot.

At all events, the consideration needed to support a unilateral promise to sell is a dinstinct one, not
something that is as uncertain as P70.00 per square meter which is allegedly 'greatly higher than the actual
prevailing value of lands.' A sale must be for a price certain (Art. 1458). For how much the portion conveyed
to the plaintiff-appellees was sold so that the balance could be considered the consideration for the promise
to sell has not been shown, beyond a mere allegation that it was very much below P70.00 per square meter.

The fact that plaintiff-appellees might have paid P18.00 per square meter for another land at the time of the
sale to them of a portion of defendant-appellant's lot does not necessarily prove that the prevailing market
price at the time of the sale was P18.00 per square meter. (In fact they claim it was P25.00). It is improbable
that plaintiff-appellees should pay P52.00 per square meter for the privilege of buying when the value of the
land itself was allegedly P18.00 per square meter. (pp. 34-35, Rollo)

As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the contracts, the essential reason
which moves the contracting parties to enter into the contract." The cause or the impelling reason on the part of
private respondent executing the deed of option as appearing in the deed itself is the petitioner's having agreed to
buy the 300 square meter portion of private respondents' land at P70.00 per square meter "which was greatly higher
than the actual reasonable prevailing price." This cause or consideration is clear from the deed which stated:

That the only reason why the spouses-vendees Julio Villamor and Marina V. Villamor agreed to buy the said
one-half portion at the above stated price of about P70.00 per square meter, is because I, and my husband
Roberto Reyes, have agreed to sell and convey to them the remaining one-half portion still owned by me ...
(p. 26, Rollo)
The respondent appellate court failed to give due consideration to petitioners' evidence which shows that in 1969
the Villamor spouses bough an adjacent lot from the brother of Macaria Labing-isa for only P18.00 per square meter
which the private respondents did not rebut. Thus, expressed in terms of money, the consideration for the deed of
option is the difference between the purchase price of the 300 square meter portion of the lot in 1971 (P70.00 per
sq.m.) and the prevailing reasonable price of the same lot in 1971. Whatever it is, (P25.00 or P18.00) though not
specifically stated in the deed of option, was ascertainable. Petitioner's allegedly paying P52.00 per square meter for
the option may, as opined by the appellate court, be improbable but improbabilities does not invalidate a contract
freely entered into by the parties.

The "deed of option" entered into by the parties in this case had unique features. Ordinarily, an optional contract is a
privilege existing in one person, for which he had paid a consideration and which gives him the right to buy, for
example, certain merchandise or certain specified property, from another person, if he chooses, at any time within
the agreed period at a fixed price (Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We look closely at the "deed of
option" signed by the parties, We will notice that the first part covered the statement on the sale of the 300 square
meter portion of the lot to Spouses Villamor at the price of P70.00 per square meter "which was higher than the
actual reasonable prevailing value of the lands in that place at that time (of sale)." The second part stated that the
only reason why the Villamor spouses agreed to buy the said lot at a much higher price is because the vendor
(Reyeses) also agreed to sell to the Villamors the other half-portion of 300 square meters of the land. Had the deed
stopped there, there would be no dispute that the deed is really an ordinary deed of option granting the Villamors
the option to buy the remaining 300 square meter-half portion of the lot in consideration for their having agreed to
buy the other half of the land for a much higher price. But, the "deed of option" went on and stated that the sale of
the other half would be made "whenever the need of such sale arises, either on our (Reyeses) part or on the part of
the Spouses Julio Villamor and Marina V. Villamor. It appears that while the option to buy was granted to the
Villamors, the Reyeses were likewise granted an option to sell. In other words, it was not only the Villamors who
were granted an option to buy for which they paid a consideration. The Reyeses as well were granted an option to
sell should the need for such sale on their part arise.

In the instant case, the option offered by private respondents had been accepted by the petitioner, the promise, in
the same document. The acceptance of an offer to sell for a price certain created a bilateral contract to sell and buy
and upon acceptance, the offer, ipso facto assumes obligations of a vendee (See Atkins, Kroll & Co. v. Cua Mian Tek,
102 Phil. 948). Demandabilitiy may be exercised at any time after the execution of the deed. In Sanchez v. Rigos, No.
L-25494, June 14, 1972, 45 SCRA 368, 376, We held:

In other words, since there may be no valid contract without a cause of consideration, the promisory is not
bound by his promise and may, accordingly withdraw it. Pending notice of its withdrawal, his accepted
promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract
of sale.

A contract of sale is, under Article 1475 of the Civil Code, "perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally
demand perform of contracts." Since there was, between the parties, a meeting of minds upon the object and the
price, there was already a perfected contract of sale. What was, however, left to be done was for either party to
demand from the other their respective undertakings under the contract. It may be demanded at any time either by
the private respondents, who may compel the petitioners to pay for the property or the petitioners, who may compel
the private respondents to deliver the property.

However, the Deed of Option did not provide for the period within which the parties may demand the performance
of their respective undertakings in the instrument. The parties could not have contemplated that the delivery of the
property and the payment thereof could be made indefinitely and render uncertain the status of the land. The failure
of either parties to demand performance of the obligation of the other for an unreasonable length of time renders
the contract ineffective.

Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought within ten (10) years. The
Deed of Option was executed on November 11, 1971. The acceptance, as already mentioned, was also accepted in
the same instrument. The complaint in this case was filed by the petitioners on July 13, 1987, seventeen (17) years
from the time of the execution of the contract. Hence, the right of action had prescribed. There were allegations by
the petitioners that they demanded from the private respondents as early as 1984 the enforcement of their rights
under the contract. Still, it was beyond the ten (10) years period prescribed by the Civil Code. In the case of Santos v.
Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and subscribing to the observations of the court a
quo held, thus:

... Assuming that Rosa Ganayo, the oppositor herein, had the right based on the Agreement to Convey and
Transfer as contained in Exhibits '1' and '1-A', her failure or the abandonment of her right to file an action
against Pulmano Molintas when he was still a co-owner of the on-half (1/2) portion of the 10,000 square
meters is now barred by laches and/or prescribed by law because she failed to bring such action within ten
(10) years from the date of the written agreement in 1941, pursuant to Art. 1144 of the New Civil Code, so
that when she filed the adverse claim through her counsel in 1959 she had absolutely no more right
whatsoever on the same, having been barred by laches.

It is of judicial notice that the price of real estate in Metro Manila is continuously on the rise. To allow the petitioner
to demand the delivery of the property subject of this case thirteen (13) years or seventeen (17) years after the
execution of the deed at the price of only P70.00 per square meter is inequitous. For reasons also of equity and in
consideration of the fact that the private respondents have no other decent place to live, this Court, in the exercise of
its equity jurisdiction is not inclined to grant petitioners' prayer.

ACCORDINGLY, the petition is DENIED. The decision of respondent appellate court is AFFIRMED for reasons cited in
this decision. Judgement is rendered dismissing the complaint in Civil Case No. C-12942 on the ground of prescription
and laches.

SO ORDERED.
LOURDES ONG LIMSON vs. CA, SPS. LORENZO and ASUNCION SANTOS-DE VERA, TOMAS CUENCA, JR. and SUNVAR
REALTY DEVELOPMENT CORPORATION [April 20, 2001]

Filed under Rule 45 of the Rules of Court this Petition for Review on Certiorari seeks to review, reverse and set aside
the Decision1 of the Court of Appeals dated 18 May 1998 reversing that of the Regional Trial Court dated 30 June
1993. The petitioner likewise assails the Resolution2 of the appellate court of 19 October 1998 denying
petitioner’s Motion for Reconsideration.

Petitioner Lourdes Ong Limson, in her 14 may 1979 Complaint filed before the trial court,3 alleged that in July 1978
respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera, through their agent Marcosa Sanchez, offered to
sell to petitioner a parcel of land consisting of 48, 260 square meters, more or less, situated in Barrio San Dionisio,
Parañaque, Metro Manila; that respondent spouses informed her that they were the owners of the subject property;
that on 31 July 1978 she agreed to buy the property at the price of P34.00 per square meter and gave the sum of
P20,000.00 to respondent spouses as "earnest money;" that respondent spouses signed a receipt therefor and gave
her a 10-day option period to purchase the property; that respondent Lorenzo de Vera then informed her that the
subject property was mortgaged to Emilio Ramos and Isidro Ramos; that respondent Lorenzo de Vera asked her to
pay the balance of the purchase price to enable him and his wife to settle their obligation with the
Ramoses.1âwphi1.nêt

Petitioner also averred that she agreed to meet respondent spouses and the Ramoses on 5 August 1978 at the Office
of the Registry of deeds of Makati, Metro Manila, to consummate the transaction but due to the failure of
respondent Asuncion Santos-de Vera and the Ramoses to appear, no transaction was formalized. In a second meeting
scheduled on 11 August 1978 she claimed that she was willing and ready to pay the balance of the purchase price
but the transaction again did not materialize as respondent spouses failed to pay the back taxes of subject property.
Subsequently, on 23 August 1978 petitioner allegedly gave respondent Lorenzo de Vera three (3) checks in the total
amount of P36, 170.00 for the settlement of the back taxes of the property and for the payment of the quitclaims of
the three (3) tenants of subject land. The amount was purportedly considered part of purchase price and respondent
Lorenzo de Vera signed the receipts therefor.

Petitioner alleged that on 5 September 1978 she was surprised to learn from the agent of respondent spouses that
the property was the subject of a negotiation for the sale to respondent Sunvar Realty Development Corporation
(SUNVAR) represented by respondent Tomas Cuenca, Jr. On 15 September 1978 petitioner discovered that although
respondent spouses purchased the property from the Ramoses on 20 March 1970 it was only on 15 September 1978
that TCT No. S-72946 covering the property was issued to respondent spouses. As a consequence, she file on the
same day an affidavit of Adverse Claim with the Office of the Registry of Deeds of Makati, Metro, which was
annotated on TCT No. S-72946. She also claimed that on the same day she informed respondent Cuenca of her
"contract" to purchase the property.

The Deed of Sale between respondent spouses and respondent SUNVAR was executed on 15 September 1978 and
TCT N0. S-72377 was issued in favor of the latter on 26 September 1978 with the adverse Claim of petitioner
annotated thereon. Petitioner claimed that when respondent spouses sold the property in dispute to SUNVAR, her
valid and legal right to purchase it was ignored if not violated. Moreover, she maintained that SUNVAR was in bad
faith, as it knew of her "contract" to purchase the subject property fro respondent spouse.

Finally, for the alleged unlawful and unjust acts of respondent spouses, which caused her damage, prejudice and
injury, petitioner claimed that the Deed of Sale, should be annuled and TCT No. S-72377 in the name of respondent
SUNVAR canceled and TCT No. S-72946 restored. She also insisted that a Deed of Sale between her an respondent
spouses be now executed upon her payment of the balance of the purchase price agreed upon, plus damages and
attorney’s fees.

In their Answer4 respondent spouses maintained that petitioner had no sufficient cause of action against them; that
she was not the real party in interest; that the option to buy the property had long expired; that there was no
perfected contract to sell between them; and, that petitioner had no legal capacity to sue. Additionally, respondent
spouses claimed actual, moral and exemplary damages, and attorney’s fees against petitioner.
On the other hand, respondents SUNVAR and Cuenca, in their Answer5 alleged that petitioner was not the proper
party in interest and/or had no cause of action against them. But, even assuming that petitioner was the proper party
in interest, they claimed that she could only be entitled to the return of any amount received by respondent spouses.
In the alternative, they argued that petitioner had lost her option to buy the property for failure to comply with the
terms and conditions of the agreement as embodied in the receipt issued therefor. Moreover, they contended that at
the time of the execution of the Deed of Sale and the payment of consideration to respondent spouses, they "did not
know nor was informed" of petitioner’s interest or claim over the subject property. They claimed furthermore that it
was only after the signing of the Deed of Sale and the payment of the corresponding amounts to respondent spouses
that they came to know of the claim of petitioner as it was only then that they were furnished copy to the title to the
properly where the Adverse Claim of petitioner was annotated. Consequently, they also instituted a Cross-
Claim against respondent spouses for bad faith in encouraging the negotiations between them without telling them
of the claim of petitioner. The same respondents maintained that had they known of the claim of petitioner, they
would not have initiated negotiations with respondent spouses for the purchase of the property. Thus, they prayed
for reimbursement of all amounts and monies received from them by respondent spouses, attorney’s fees and
expenses for litigation in the event that the trial court should annul the Deed of Sale and deprive them of their
ownership and possessio of the subject land.

In their Answer to the Cross-Claim6 of respondents SUNVAR and Cuenca, respondent spouses insisted that they
negotiated with the former only after expiration of the option period given to petitioner and her failure with her
commitments thereunder. Respondent spouses contended that they acted legally and validly, in all honesty and good
faith. According to them, respondent SUNVAR made a verification of the title with the office of the register of Deeds
of Metro Manila District IV before the execution of the Deed of Absolute Sale. Also, they claimed that the Cross-
Claim was written executed by respondent SUNVAR in their favor. Thus, respondent spouses prayed for actual
damages for the unjustified filling of the Cross-Claim, moral damages for the mental anguish and similar injuries they
suffered by reason thereof, exemplary damages "to prevent others from emulation the bad example" of respondents
SUNVAR and Cuenca, plus attorney’s fees.

After a protracted trial and reconstitution of the court records due to the fire that razed the Pasay City Hall on 18
January 1992, the Regional Trial Court rendered its 30 June 1993 Decision 7 in favor of petitioner. It ordered (a) the
annulment and rescission of the Deed of Absolute Sale executed on 15 September 1978 by respondent spouses in
favor of respondent SUNVAR; (b) the cancellation and revocation of TCT No. S-75377 of the Registry of Deeds,
Makati, Metro Manila, issued in the name of respondent Sunvar Realty Development Corporation, and the
restoration or reinstatement of TCT No. S-72946 of the same Registry issued in the name of respondent spouses; (c)
respondent spouses to execute a deed of sale conveying ownership of the property covered by TCT No. S-72946 in
favor of petitioner upon her payment of the balance of the purchase price agreed upon; and, (d) respondent spouses
to pay petitioner P50,000.00 as and for attorney’s fees, and to pay the costs.

On appeal, the Court of Appeals completely reversed the decision of the trial court. It ordered (a) the Register of
Deeds of Makati City to lift the Adverse Claim and such other encumbrances petitioner might have filed or caused to
be annotated on TCT No. S-75377; and, (b) petitioner to pay (1) respondent SUNVAR P50,000.00 as nominal
damages, P30,000.00 as exemplary damages and P20,000 as attorney’s fees; (2) respondent spouses, P15,000.00 as
nominal damages, P10,000.00 as exemplary damages and P10,000.00 as attorney’s fees; and, (3) the costs.

Petitioner timely filed a Motion for Reconsideration which was denied by the Court of Appeals on 19 October 1998.
Hence, this petition.

At issue for resolution by the Court is the nature of the contract entered into between petitioner Lourdes Ong Limson
on one hand, and respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera on the other.

The main argument of petitioner is that there was a perfected contract to sell between her and respondent spouses.
On the other hand, respondent spouses and respondents SUNVAR and Cuenca argue that what was perfected
between petitioner and respondent spouses was a mere option.

A scrutiny of the facts as well as the evidence of the parties overwhelmingly leads to the conclusion that the
agreement between the parties was a contract of option and not a contract to sell.
An option, as used in the law of sales, is a continuing offer or contract by which the owner sitpulates with another
that the latter shall have the right to buy the property at a fixed price within a time certain, or under, or in
compliance with, certain terms and conditions, or which gives to the owner of the property the right to sell or
demand a sale. It is also sometimes called an "unaccepted offer." An option is not itself a purchase, but merely
secures the privilege to buy.8 It is not a sale of property but a sale of right to purchase. 9 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 not sell
something, i.e., the right or privilege to buy at the election or option of the other party. 10 Its distinguishing
characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration
for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer,
any title to, or any interest or right in the subject matter, but is merely a contract by which the owner of the property
gives the optionee the right or privilege of accepting the offer and buying the property on certain terms. 11

On the other hand, a contract, like a contract to sell, involves the meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to render some service. 12 Contracts, in general, are
perfected by mere consent,13 which is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. 14

The Receipt15 that contains the contract between petitioner and respondent spouses provides –

Received from Lourdes Limson the sum of Twenty Thousand Peso (P20,000.00) under Check No. 22391 dated
July 31, 1978 as earnest money with option to purchase a parcel of land owned by Lorenzo de Vera located at
Barrio San Dionisio, Municipality of Parañaque, Province of Rizal with an area of forty eight thousand two
hundred sixty square meters more or less at the price of Thirty Four Pesos (34.00) 16 cash subject to the
condition and stipulation that have been agreed upon by the buyer and me which will form part of the
receipt. Should the transaction of the property not materialize not on the fault of the buyer, I obligate myself
to return the full amount of P20,000.00 earnest money with option to buy or forfeit on the fault of the buyer. I
guarantee to notify the buyer Lourdes Limson or her representative and get her conformity should I sell or
encumber this property to a third person. This option to buy is good within ten (10) days until the absolute
deed of sale is finally signed by the parties or the failure of the buyer to comply with the terms of the option
to buy as herein attached.

In the interpretation of contracts, the ascertainment of the intention of the contracting parties is to be discharged by
looking to the words they used to project that intention in their contracts, all the words standing alone. 17 The
above Receipt readily shows that respondent spouses and petitioner only entered into a contract of option; a
contract by which respondent spouses agreed with petitioner that the latter shall have the right to buy the former's
property at a fixed price of P34.00 per square meter within ten (10) days from 31 July 1978. Respondent spouses did
not sell their property; they did not also agree to sell it; but they sold something, i.e., the privilege to buy at the
election or option of petitioner. The agreement imposed no binding obligation on petitioner, aside from the
consideration for the offer.

The consideration of P20,000.00 paid by petitioner to respondent spouses was referred to as "earnest money."
However, a careful examination of the words used indicated that the money is not earnest money but option
money."Earnest money" and "option money" are not the same but distinguished thus; (a) earnest money is part of
the purchase price, while option money is the money given as a distinct consideration for an option contract; (b)
earnest money given only where there is already a sale, while option money applies to a sale not yet perfected; and,
(c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option
money, he is not required to buy,18 but may even forfeit it depending on the terms of the option.

There is nothing in the Receipt which indicates that the P20,000.00 was part of the purchase price. Moreover, it was
not shown that there was a perfected sale between the parties where earnest money was given. Finally, when
petitioner gave the "earnest money" the Receipt did not reveal that she was bound to pay the balance of the
purchase price. In fact, she could even forfeit the money given if the terms of the option were not met. Thus, the
P20,000.00 could only be money given as consideration for the option contract. That the contract between the
parties is one of option is buttressed by the provision therein that should the transaction of the provision therein that
should the transaction of the property not materialize without fault of petitioner as buyer, respondent Lorenzo de
Vera obligates himself to return the full amount of P20,000.00 "earnest money" with option to buy or forfeit the
same on the fault of petitioner. It is further bolstered by the provision therein that guarantees petitioner that she or
her representative would be notified in case the subject property was sold or encumbered to a third person. Finally,
the Receipt provided for a period within which the option to buy was to be exercised, i.e., "within ten (10) days" from
31 July 1978.

Doubtless, the agreement between respondent spouses and petitioner was an "option contract" or what is
sometimes called an "unaccepted offer." During the option period the agreement was not converted into a bilateral
promise to sell and to buy where both respondent spouses and petitioner were then reciprocally bound to comply
with their respective undertakings as petitioner did not timely, affirmatively and clearly accept the offer of
respondent spouses.

The rule is that except where a formal acceptance is not required, although the acceptance must be affirmatively and
clearly made and evidenced by some acts or conduct communicated to the offeror, it may be made either in a formal
or an informal manner, and may be shown by acts, conduct or words by the accepting party that clearly manifest a
present intention or determination to accept the offer to buy the property of respondent spouses within the 10-day
option period. The only occasion within the option period when petitioner could have demonstrated her acceptance
was on 5 August 1978 when, according to her, she agreed to meet respondent spouses and the Ramoses at the Office
of the Registrar of Deeds of Makati. Petitioner’s agreement to meet with respondent spouses presupposes an
invitation from the latter, which only emphasizes their persistence in offering the property to the former. But whether
that showed acceptance by petitioner of the offer is hazy and dubious.

On or before 10 August 1978, the last day of the option period, no affirmative or clear manifestation was made by
petitioner to accept the offer. Certainly, there was no concurrence of private respondent spouses’ offer and
petitioner’s acceptance thereof within the option period. Consequently, there was no perfected contract to sell
between the parties.

On 11 August 1978 the option period expired and the exclusive right of petitioner to buy the property of respondent
spouses ceased. The subsequent meetings and negotiations, specifically on 11 and 23 August 1978, between the
parties only showed the desire of respondent spouses to sell their property to petitioner. Also, on 14 September
1978 when respondent spouses sent a telegram to petitioner demanding full payment of the purchase price on even
date simply demonstrated an inclination to give her preference to buy subject property. Collectively, these instances
did not indicate that petitioner still had the exclusive right to purchase subject property. Verily, the commencement
of negotiations between respondent spouses and respondent SUNVAR clearly manifested that their offer to sell
subject property to petitioner was no longer exclusive to her.

We cannot subscribe to the argument of petitioner that respondent spouses extended the option period when they
extended the authority of their until 31 August 1978. The extension of the contract of agency could not operate to
extend the option period between the parties in the instant case. The extension must not be implied but categorical
and must show the clear intention of the parties.1âwphi1.nêt

As to whether respondent spouses were at fault for the non-consummation of their contract with petitioner, we
agree with the appellate court that they were not to be blammed. First, within the option period, or on 4 August
1978, it was respondent spouses and not petitioner who initiated the meeting at the Office of The Register of Deeds
of Makati. Second, that the Ramoses filed to appear on 4 August 1978 was beyond the control of respondent
spouses. Third,the succeeding meetings that transpired to consummate the contract were all beyond the option
period and, as declared by the Court of Appeals, the question of who was at fault was already
immaterial. Fourth, even assuming that the meetings were within the option period, the presence of petitioner was
not enough as she was not even prepared to pay the purchase price in cash as agreed upon. Finally, even without the
presence of the Ramoses, petitioner could have easily made the necessary payment in cash as the price of the
property was already set at P34.00 per square meter and payment of the mortgage could every well be left to
respondent spouses.

Petitioner further claims that when respondent spouses sent her a telegram demanding full payment of the purchase
price on 14 September 1978 it was an acknowledgment of their contract to sell, thus denying them the right to claim
otherwise.
We do not agree. As explained above, there was no contract to sell between petitioner and respondent spouses to
speak of. Verily, the telegram could not operate to estop them from claiming that there was such contract between
them and petitioner. Neither could it mean that respondent spouses extended the option period. The telegram only
showed that respondent spouses were willing to give petitioner a chance to buy subject property even if it no longer
exclusive.

The option period having expired and acceptance was not effectively made by petitioner, the purchase of subject
property by respondent SUNVAR was perfectly valid and entered into in good faith. Petitioner claims that in August
1978 Hermigildo Sanchez, the son of respondent spouses’ agent, Marcosa Snachez, informed Marixi Prieto, a
member of the Board of Directors of respondent SUNVAR, that the property was already sold to petitioner. Also,
petitioner maintains that on 5 September 1978 respondent Cuenca met with her and offered to buy the property
from her at P45.00 per square meter. Petitioner contends that these incidents, including the annotation of
her Adverse Claim on the title of subject property on 15 September 1978 show that respondent SUNVAR was aware
of the perfected sale between her and respondent spouses, thus making respondent SUNVAR a buyer in bad faith.

Petitioner is not correct. The dates mentioned, at least 5 and 15 September 1978, are immaterial as they were
beyond the option period given to petitioner. On the other hand, the referral to sometime in August 1978 in the
testimony of Hermigildo Sanchez as emphasized by petitioner in her petition is very vague. It could be within or
beyond the option period. Clearly then, even assuming that the meeting with Marixi Prieto actually transpired, it
could not necessarily mean that she knew of the agreement between petitioner and respondent spouses for the
purchase of subject property as the meeting could have occurred beyond the option period. In which case, no bad
faith could be attributed to respondent SUNVAR. If, on the other hand, the meeting was within the option period,
petitioner was remiss in her duty to prove so. Necessarily, we are left with the conclusion that respondent SUNVAR
bought subject property from respondent spouses in good faith, for value and without knowledge of any flaw or
defect in its title.

The appellate court awarded nominal and exemplary damages plus attorney’s fees to respondent spouses and
respondent SUNVAR. But nominal damages are adjudicated to vindicate or recognize the right of the plaintiff that has
been violated or invaded by the defendant. 19 In the instant case, the Court recognizes the rights of all the parties and
finds no violation or invasion of the rights of respondents by petitioner. Petitioner, in filing her complaint, only seeks
relief, in good faith, for what she believes she was entitled to and should not be awarded to respondents as they are
imposed only by way of example or correction for the public good and only in addition to the moral, temperate,
liquidated or compensatory damages.20 No such kinds of damages were awarded by the Court of Appeals, only
nominal, which was not justified in this case. Finally, attorney’s fees could not also be recovered as the Court does
not deem it just and equitable under the circumtances.

WHEREFORE, the petition is DENIED. The decision of the Court of Appeals ordering the Register of Deeds of Makati
City to lift the adverse claim and such other encumbrances petitioners Lourdes Ong Limson may have filed or caused
to be annotated on TCT No. S-75377 is AFFIRMED, with the MODIFICATION that the award of nominal and exemplary
damages as well as attorney’s fees is DELETED.

SO ORDERED.
RIVIERA FILIPINA, INC. vs. CA, JUAN REYES, (now deceased), substituted by his heirs, namely, Estefania Reyes,
Juanita de la Rosa, Juan Reyes, Jr. and Fidel Reyes, PHILIPPINE CYPRESS CONSTRUCTION & DEVELOPMENT
CORPORATION, CORNHILL TRADING CORPORATION and URBAN DEVELOPMENT BANK [April 5, 2002]

Before us is a petition for review on certiorari of the Decision 1 of the Court of Appeals2 dated June 6, 1994 in CA-G.R.
CV No. 26513 affirming the Decision 3 dated March 20, 1990 of the Regional Trial Court of Quezon City, Branch 89
dismissing Civil Case No. Q-89-3371.

Civil Case No. Q-89-3371 is a suit instituted by Riviera Filipina, Inc. (Riviera) on August 31, 1989 4 to compel the
defendants therein Juan L. Reyes, now deceased, Philippine Cypress Construction & Development Corporation
(Cypress), Cornhill Trading Corporation (Cornhill) and Urban Development Bank to transfer the title covering a 1,018
square meter parcel of land located along EDSA, Quezon City for alleged violation of Riviera’s right of first refusal.

It appears that on November 23, 1982, respondent Juan L. Reyes (Reyes, for brevity) executed a Contract of Lease
with Riviera. The ten-year (10) renewable lease of Riviera, which started on August 1, 1982, involved a 1,018 square
meter parcel of land located along Edsa, Quezon City, covered and described in Transfer Certificate of Title No.
186326 of the Registry of Deeds of Quezon City in the name of Juan L. Reyes. 5

The said parcel of land was subject of a Real Estate Mortgage executed by Reyes in favor of Prudential Bank. Since the
loan with Prudential Bank remained unpaid upon maturity, the mortgagee bank extrajudicially foreclosed the
mortgage thereon. At the public auction sale, the mortgagee bank emerged as the highest bidder. The redemption
period was set to expire on March 7, 1989. Realizing that he could not possibly raise in time the money needed to
redeem the subject property, Reyes decided to sell the same. 6

Since paragraph 11 of the lease contract expressly provided that the "LESSEE shall have the right of first refusal
should the LESSOR decide to sell the property during the term of the lease,"7 Reyes offered to sell the subject property
to Riviera, through its President Vicente C. Angeles, for Five Thousand Pesos (P5,000.00) per square meter. However,
Angeles bargained for Three Thousand Five Hundred Pesos (P3,500.00) per square meter. Since Reyes was not
amenable to the said price and insisted on Five Thousand Pesos (P5,000.00) per square meter, Angeles requested
Reyes to allow him to consult the other members of the Board of Directors of Riviera. 8

Seven (7) months later, or sometime in October 1988, Angeles communicated with Reyes Riviera’s offer to purchase
the subject property for Four Thousand Pesos (P4,000.00) per square meter. However, Reyes did not accept the offer.
This time he asked for Six Thousand Pesos (P6,000.00) per square meter since the value of the property in the area
had appreciated in view of the plans of Araneta to develop the vicinity. 9

In a letter dated November 2, 1988, Atty. Irineo S. Juan, acting as counsel for Reyes, informed Riviera that Reyes was
selling the subject property for Six Thousand Pesos (P6,000.00) per square meter, net of capital gains and transfer
taxes, registration fees, notarial fees and all other attendant charges. He further stated therein that:

In this connection, conformably to the provisions stipulated in Paragraph/Item No. 11 of your CONTRACT OF
LEASE (Doc. No. 365, Page No. 63, Book No. X, Series of 1982, of the Notarial Registry of Notary Public
Leovillo S. Agustin), notice is served upon your goodselves for you to exercise "the right of first refusal" in the
sale of said property, for which purpose you are hereby given a period of ten (10) days from your receipt
hereof within which to thus purchase the same under the terms and conditions aforestated, and failing
which you shall be deemed to have thereby waived such pre-emptive right and my client shall thereafter be
absolutely free to sell the subject property to interested buyers. 10

To answer the foregoing letter and confirm their telephone conversation on the matter, Riviera sent a letter dated
November 22, 1988 to Atty. Juan, counsel for Reyes, expressing Riviera’s interest to purchase the subject property
and that Riviera is already negotiating with Reyes which will take a couple of days to formalize. 11 Riviera increased its
offer to Five Thousand Pesos (P5,000.00) per square meter but Reyes did not accede to said price as it was still lower
than his quoted price of Six Thousand Pesos (P6,000.00) per square meter. 12 Angeles asked Reyes to give him until the
end of November 1988 for Riviera’s final decision. 1âwphi1.nêt
In a letter dated December 2, 1988, Angeles wrote Reyes confirming Riviera’s intent to purchase the subject property
for the fixed and final13 price of Five Thousand Pesos (P5,000.00) per square meter, complete payment within sixty
(60) to ninety (90) days which "offer is what we feel should be the market price of your property." Angeles asked that
the decision of Reyes and his written reply to the offer be given within fifteen (15) days since there are also other
properties being offered to them at the moment. 14

In response to the foregoing letter, Atty. Juan sent a letter to Riviera dated December 5, 1988 informing Riviera that
Riviera’s offer is not acceptable to his client. He further expressed, "let it be made clear that, much as it is the earnest
desire of my client to really give you the preference to purchase the subject property, you have unfortunately failed to
take advantage of such opportunity and thus lost your right of first refusal in sale of said property."15

Meanwhile, on December 4, 1988, Reyes confided to Rolando P. Traballo, a close family friend and President of
Cypress, his predicament about the nearing expiry date of the redemption period of the foreclosed mortgaged
property with Prudential Bank, the money for which he could not raise on time thereby offering the subject property
to him for Six Thousand Pesos (P6,000.00) per square meter. Traballo expressed interest in buying the said property,
told Reyes that he will study the matter and suggested for them to meet the next day. 16

They met the next day, December 5, 1988, at which time Traballo bargained for Five Thousand Three Hundred Pesos
(P5,300.00) per square meter. After considering the reasons cited by Traballo for his quoted price, Reyes accepted the
same. However, since Traballo did not have the amount with which to pay Reyes, he told the latter that he will look
for a partner for that purpose.17 Reyes told Traballo that he had already afforded Riviera its right of first refusal but
they cannot agree because Riviera’s final offer was for Five Thousand Pesos (P5,000.00) per square meter. 18

Sometime in January 1989, apprehensive of the impending expiration in March 1989 of the redemption period of the
foreclosed mortgaged property with Prudential Bank and the deal between Reyes and Traballo was not yet formally
concluded, Reyes decided to approach anew Riviera. For this purpose, he requested his nephew, Atty. Estanislao
Alinea, to approach Angeles and find out if the latter was still interested in buying the subject property and ask him
to raise his offer for the purchase of the said property a little higher. As instructed, Atty. Alinea met with Angeles and
asked the latter to increase his offer of Five Thousand Pesos (P5,000.00) per square meter but Angeles said that his
offer is Five Thousand Pesos (P5,000.00) per square meter. 19

Following the meeting, Angeles sent a letter dated February 4, 1989 to Reyes, through Atty. Alinea, that his offer is
Five Thousand Pesos (P5,000.00) per square meter payment of which would be fifty percent (50%) down within thirty
(30) days upon submission of certain documents in three (3) days, the balance payable in five (5) years in equal
monthly installments at twelve percent (12%) interest in diminishing balance. 20 With the terms of this second offer,
Angeles admittedly downgraded the previous offer of Riviera on December 2, 1988. 21

Atty. Alinea conveyed to Reyes Riviera’s offer of Five Thousand Pesos (P5,000.00) per square meter but Reyes did not
agree. Consequently, Atty. Alinea contacted again Angeles and asked him if he can increase his price. Angeles,
however, said he cannot add anymore.22 Reyes did not expressly offer his subject property to Riviera at the price of
Five Thousand Three Hundred Pesos (₱5,300.00) per square meter. 23

Sometime in February 1989, Cypress and its partner in the venture, Cornhill Trading Corporation, were able to come
up with the amount sufficient to cover the redemption money, with which Reyes paid to the Prudential Bank to
redeem the subject property.24 On May 1, 1989, a Deed of Absolute Sale covering the subject property was executed
by Reyes in favor of Cypress and Cornhill for the consideration of Five Million Three Hundred Ninety Five Thousand
Four Hundred Pesos (₱5,395,400.00).25 On the same date, Cypress and Cornhill mortgaged the subject property to
Urban Development Bank for Three Million Pesos (₱3,000,000.00). 26

Thereafter, Riviera sought from Reyes, Cypress and Cornhill a resale of the subject property to it claiming that its right
of first refusal under the lease contract was violated. After several unsuccessful attempts, 27 Riviera filed the suit to
compel Reyes, Cypress, Cornhill and Urban Development Bank to transfer the disputed title to the land in favor of
Riviera upon its payment of the price paid by Cypress and Cornhill.
Following trial on the merits, the trial court dismissed the complaint of Riviera as well as the counterclaims and cross-
claims of the other parties.28 It ruled that the defendants therein did not violate Riviera’s right of first refusal,
ratiocinating in this wise:

Resolving the first issue, this Court takes note that since the beginning of the negotiation between the
plaintiff and defendant Reyes for the purchase of the property, in question, the plaintiff was firm and
steadfast in its position, expressed in writing by its President Vicente Angeles, that it was not willing to buy
the said property higher than ₱5,000.00, per square meter, which was far lower than the asking price of
defendant Reyes for ₱6,000.00, per square meter, undoubtedly, because, in its perception, it would be
difficult for other parties to buy the property, at a higher price than what it was offering, since it is in
occupation of the property, as lessee, the term of which was to expire after about four (4) years more.

On the other hand, it was obvious, upon the basis of the last ditch effort of defendant Reyes, thru his
nephew, Atty. Alinea, to have the plaintiff buy the property, in question, that he was willing to sell the said
property at a price less than ₱6,000.00 and a little higher than ₱5,000.00, per square meter, precisely,
because Atty. Alinea, in behalf of his uncle, defendant Reyes, sought plaintiff’s Angeles and asked him to raise
his price a little higher, indicating thereby the willingness of defendant Reyes to sell said property at less than
his offer of ₱6,000.00, per square meter.

This being the case, it can hardly be validly said by the plaintiff that he was deprived of his right of first
refusal to buy the subject property at a price of ₱5,300.00, per square meter which is the amount defendants
Cypress/Cornhill bought the said property from defendant Reyes. For, it was again given such an opportunity
to exercise its right of first refusal by defendant Reyes had it only signified its willingness to increase a little
higher its purchase price above ₱5,000.00, per square meter, when its President, Angeles, was asked by Atty.
Alinea to do so, instead of adamantly sticking to its offer of only ₱5,000.00 per square meter, by reason of
which, therefore, the plaintiff had lost, for the second time, its right of first refusal, even if defendant Reyes
did not expressly offer to sell to it the subject land at ₱5,300.00, per square meter, considering that by the
plea of Atty. Alinea, in behalf of defendant Reyes, for it to increase its price a little, the plaintiff is to be
considered as having forfeited again its right of first refusal, it having refused to budged from its regid (sic)
offer to buy the subject property at no more than ₱5,000.00, per square meter.

As such, this Court holds that it was no longer necessary for the defendant Reyes to expressly and
categorically offer to the plaintiff the subject property at ₱5,300.00, per square meter, in order that he can
comply with his obligation to give first refusal to the plaintiff as stipulated in the Contract of Lease, the
plaintiff having had already lost its right of first refusal, at the first instance, by refusing to buy the said
property at ₱6,000.00, per square meter, which was the asking price of defendant Reyes, since to do so
would be a useless ceremony and would only be an exercise in futility, considering the firm and unbending
position of the plaintiff, which defendant Reyes already knew, that the plaintiff, at any event, was not
amenable to increasing its price at over ₱5,000.00, per square meter.

Dissatisfied with the decision of the trial court, both parties appealed to the Court of Appeals. 29 However, the
appellate court, through its Special Seventh Division, rendered a Decision dated June 6, 1994 which affirmed the
decision of the trial court in its entirety. 30 In sustaining the decision of the trial court, the Court of Appeals adopted
the above-quoted ratiocination of the trial court and further added:

To put things in its proper perspective in accordance with the peculiar attendant circumstances herein,
particular stress should be given to RIVIERA’s uncompromising counter offer of only ₱5,000.00 per square
meter on all the occasions when REYES offered the subject property to it. RIVIERA, in its letter to REYES dated
December 2, 1988 (Exhibit "D", p. 68, Rollo) justified its rigid offer by saying that "the above offer is what we
feel should be the market price of your property." If that be the case, We are convinced, the same manner
that REYES was, that RIVIERA was unwilling to increase its counter offer at any present or future time.
RIVIERA’s unilateral valuation of the subject property thus binds him, it cannot now be heard to claim that it
could have upped its offer had it been informed of CYPRESS’ and CORNHILL’S offer of ₱5,000.00 (sic) per
square meter. Defendants CYPRESS and CORNHILL were therefore right in saying that:
 On the basic assumption that RIVIERA really meant what it said in its letter, DR. REYES could not be
faulted for believing that RIVIERA was definitely NOT WILLING TO PAY MORE THAN P5,000.00 PER
SQUARE METER ON HIS PROPERTY. The fault lies with the deceptive and insincere words of RIVIERA.
Injustice (sic) and equity, RIVIERA must be deemed in estoppel in now belatedly asserting that it
would have been willing to pay a price higher than ₱5,000.00 x x x." (Defendants-Appellees Cypress’
and Cornhill’s Brief, p. 8)

For this reason, no adverse inference can be drawn from REYES’ failure to disclose to RIVIERA the intervening
counter-offer of CYPRESS and CORNHILL.

It would have been far different had REYES’ non-disclosure of CYPRESS’ and CORNHILL’s counter-offer to
RIVIERA resulted in the sale of the subject property at equal or less than RIVIERA’s offer; in which case, REYES
would have been rightly accused of cunningly circumventing RIVIERA’s right of first refusal. But the
incontrovertible antecedents obtaining here clearly reveal REYES’ earnest efforts in respecting RIVIERA’s
contractual right to initially purchase the subject property. Not only once – but twice – did REYES approach
RIVIERA, the last one being the most telling indication of REYES’ sincerest intention in RIVIERA eventually
purchasing the subject property if only the latter would increase a little its offer of ₱5,000.00 per square
meter. And to this REYES was desperately willing to accede to despite the financial quandary he was then in
as the expiration of the redemption period drew closer and closer, and despite the better offer of CYPRESS
and CORNHILL. REYES unquestionably had displayed good faith. Can the same be said of RIVIERA? We do not
think so. It appears that RIVIERA all along was trying to push REYES’ back against the wall, for RIVIERA was
well-aware of REYES’ precarious financial needs at that time, and by clinging to its offer, REYES might
eventually succumb to its offer out of sheer desperation. RIVIERA was, to be frank, whimsically exercising its
contractual right to the prejudice of REYES who had commendably given RIVIERA extra leeway in exercising
it. And to this We say that no amount of jurisprudence RIVIERA might avail of for the purpose of construing
the right of first refusal, however enlightening and persuasive they may be, will cover-up for its arrogant
exercise of its right as can be gleaned from the factual premises. Equity in this case tilts in favor of defendants
REYES, CYPRESS and CORNHILL that the consummated sale between them concerning the subject property
be given this Court’s imprimatur, for if RIVIERA lost its opportunity to acquire it, it has only itself to blame.
For after all, REYES’ fundamental and intrinsic right of ownership which necessarily carries with it the
exclusive right to dispose of it to whoever he pleases, must ultimately prevail over RIVIERA’s right of first
refusal which it unscrupulously tried to exercise.

From this decision, Riviera filed a motion for reconsideration, 31 but the appellate court denied the same in a
Resolution dated September 22, 1994.32

Hence, Riviera interposed the instant petition anchored on the following errors: 33

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK
OR EXCESS OF ITS JURISDICTION IN RULING THAT PETITIONER RIVIERA FILIPINA, INC. ALREADY LOST ITS
RIGHT OF FIRST REFUSAL.

II

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK
OR EXCESS OF ITS JURISDICTION IN NOT FINDING THAT IT WAS THE PETITIONER, NOT RESPONDENT JUAN L.
REYES, WHICH HAD BEEN THOROUGHLY DECEIVED BY THE LATTER OUT OF ITS RIGHTS TO ITS CONTINUING
PREJUDICE.

III

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK
OR EXCESS OF ITS JURISDICTION IN DENYING RECONSIDERATION.
 IV

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK
OR EXCESS OF ITS JURISDICTION IN DECIDING PETITIONER’S APPEAL AT A TIME WHEN THE PRINCIPAL
APPELLEE IS ALLEGEDLY DEAD AND NO PROPER SUBSTITUTION OF THE ALLEGED DECEASED PARTY HAS BEEN
MADE; HENCE, THE DECISION OF THE COURT OF APPEALS AND ITS RESOLUTION DENYING
RECONSIDERATION, IS NULL AND VOID.

At the outset, we note that, while Riviera alleges that the Court of Appeals committed grave abuse of discretion
amounting to lack or excess of jurisdiction, the instant petition is, as it should be, treated as a petition for review
under Rule 45 and not as a special civil action for certiorari under Rule 65 of the Revised Rules of Court, now the
1997 Rules of Civil Procedure.

The distinctions between Rule 45 and 65 are far and wide, the most notable of which is that errors of jurisdiction are
best reviewed in a special civil action for certiorari under Rule 65, while errors of judgment are correctible only by
appeal in a petition for review under Rule 45. 34 The rationale for the distinction is simple. When a court exercises its
jurisdiction an error committed while so engaged does not deprive it of the jurisdiction being exercised when the
error is committed. If it did, every error committed by a court would deprive it of its jurisdiction and every erroneous
judgment would be a void judgment. This cannot be allowed. The administration of justice would not countenance
such a rule. Thus, an error of judgment that the court may commit in the exercise of its jurisdiction is not correctible
through the original special civil action of certiorari. 35 Appeal from a final disposition of the Court of Appeals, as in the
case at bar, is by way of a petition for review under Rule 45. 36

In the petition at bar, Riviera posits the view that its right of first refusal was totally disregarded or violated by Reyes
by the latter’s sale of the subject property to Cypress and Cornhill. It contends that the right of first refusal principally
amounts to a right to match in the sense that it needs another offer for the right to be exercised.

The concept and interpretation of the right of first refusal and the consequences of a breach thereof evolved in
Philippine juristic sphere only within the last decade. It all started in 1992 with Guzman, Bocaling & Co. v.
Bonnevie37 where the Court held that a lease with a proviso granting the lessee the right of first priority "all things
and conditions being equal" meant that there should be identity of the terms and conditions to be offered to the
lessee and all other prospective buyers, with the lessee to enjoy the right of first priority. A deed of sale executed in
favor of a third party who cannot be deemed a purchaser in good faith, and which is in violation of a right of first
refusal granted to the lessee is not voidable under the Statute of Frauds but rescissible under Articles 1380 to 1381
(3) of the New Civil Code.

Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals,38 the Court en banc departed from the
doctrine laid down in Guzman, Bocaling & Co. v. Bonnevie and refused to rescind a contract of sale which violated
the right of first refusal. The Court held that the so-called "right of first refusal" cannot be deemed a perfected
contract of sale under Article 1458 of the New Civil Code and, as such, a breach thereof decreed under a final
judgment does not entitle the aggrieved party to a writ of execution of the judgment but to an action for damages in
a proper forum for the purpose.

In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,39 the Court en banc reverted back
to the doctrine in Guzman Bocaling & Co. v. Bonnevie stating that rescission is a relief allowed for the protection of
one of the contracting parties and even third persons from all injury and damage the contract may cause or to
protect some incompatible and preferred right by the contract.

Thereafter in 1997, in Parañaque Kings Enterprises, Inc. v. Court of Appeals,40 the Court affirmed the nature of and
the concomitant rights and obligations of parties under a right of first refusal. The Court, summarizing the rulings
in Guzman, Bocaling & Co. v. Bonnevie and Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., held that
in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of
the properties for the price for which they were finally sold to a third person should have likewise been first offered
to the former. Further, there should be identity of terms and conditions to be offered to the buyer holding a right of
first refusal if such right is not to be rendered illusory. Lastly, the basis of the right of first refusal must be the current
offer to sell of the seller or offer to purchase of any prospective buyer.
Thus, the prevailing doctrine is that a right of first refusal means identity of terms and conditions to be offered to the
lessee and all other prospective buyers and a contract of sale entered into in violation of a right of first refusal of
another person, while valid, is rescissible.

However, we must remember that general propositions do not decide specific cases. Rather, laws are interpreted in
the context of the peculiar factual situation of each proceeding. Each case has its own flesh and blood and cannot be
ruled upon on the basis of isolated clinical classroom principles. 41 Analysis and construction should not be limited to
the words used in the contract, as they may not accurately reflect the parties’ true intent. 42 The court must read a
contract as the average person would read it and should not give it a strained or forced construction. 43

In the case at bar, the Court finds relevant and significant the cardinal rule in the interpretation of contracts that the
intention of the parties shall be accorded primordial consideration and in case of doubt, their contemporaneous and
subsequent acts shall be principally considered. 44 Where the parties to a contract have given it a practical
construction by their conduct as by acts in partial performance, such construction may be considered by the court in
construing the contract, determining its meaning and ascertaining the mutual intention of the parties at the time for
contracting. The parties’ practical construction of their contract has been characterized as a clue or index to, or as
evidence of, their intention or meaning and as an important, significant, convincing, persuasive, or influential factor
in determining the proper construction of the contract. 45

An examination of the attendant particulars of the case do not persuade us to uphold Riviera’s view. As clearly shown
by the records and transcripts of the case, the actions of the parties to the contract of lease, Reyes and Riviera,
shaped their understanding and interpretation of the lease provision "right of first refusal" to mean simply that
should the lessor Reyes decide to sell the leased property during the term of the lease, such sale should first be
offered to the lessee Riviera. And that is what exactly ensued between Reyes and Riviera, a series of negotiations on
the price per square meter of the subject property with neither party, especially Riviera, unwilling to budge from his
offer, as evidenced by the exchange of letters between the two contenders.

It can clearly be discerned from Riviera’s letters dated December 2, 1988 and February 4, 1989 that Riviera was so
intractable in its position and took obvious advantage of the knowledge of the time element in its negotiations with
Reyes as the redemption period of the subject foreclosed property drew near. Riviera strongly exhibited a "take-it or
leave-it" attitude in its negotiations with Reyes. It quoted its "fixed and final" price as Five Thousand Pesos
(P5,000.00) and not any peso more. It voiced out that it had other properties to consider so Reyes should decide and
make known its decision "within fifteen days." Riviera, in its letter dated February 4, 1989, admittedly, even
downgraded its offer when Reyes offered anew the property to it, such that whatever amount Reyes initially receives
from Riviera would absolutely be insufficient to pay off the redemption price of the subject property. Naturally, Reyes
had to disagree with Riviera’s highly disadvantageous offer.

Nary a howl of protest or shout of defiance spewed forth from Riviera’s lips, as it were, but a seemingly whimper of
acceptance when the counsel of Reyes strongly expressed in a letter dated December 5, 1989 that Riviera had lost its
right of first refusal. Riviera cannot now be heard that had it been informed of the offer of Five Thousand Three
Hundred Pesos (P5,300.00) of Cypress and Cornhill it would have matched said price. Its stubborn approach in its
negotiations with Reyes showed crystal-clear that there was never any need to disclose such information and doing
so would be just a futile effort on the part of Reyes. Reyes was under no obligation to disclose the same. Pursuant to
Article 133946 of the New Civil Code, silence or concealment, by itself, does not constitute fraud, unless there is a
special duty to disclose certain facts, or unless according to good faith and the usages of commerce the
communication should be made.47 We apply the general rule in the case at bar since Riviera failed to convincingly
show that either of the exceptions are relevant to the case at bar.

In sum, the Court finds that in the interpretation of the right of first refusal as understood by the parties herein, the
question as to what is to be included therein or what is meant by the same, as in all other provisions of the contract,
is for the parties and not for the court to determine, and this question may not be resolved by what the parties might
have provided had they thought about it, which is evident from Riviera claims, or by what the court might conclude
regarding abstract fairness.48

The Court would be rewriting the contract of Reyes and Riviera under the guise of construction were we to interpret
the right of first refusal as Riviera propounds it, despite a contrary construction as exhibited by its actions. A court,
even the Supreme Court, has no right to make new contracts for the parties or ignore those already made by them,
simply to avoid seeming hardships. Neither abstract justice nor the rule of liberal construction justifies the creation of
a contract for the parties which they did not make themselves or the imposition upon one party to a contract of an
obligation not assumed.49

On the last error attributed to the Court of Appeals which is the effect on the jurisdiction of the appellate court of the
non-substitution of Reyes, who died during the pendency of the appeal, the Court notes that when Riviera filed its
petition with this Court and assigned this error, it later filed on October 27, 1994 a Manifestation 50 with the Court of
Appeals stating that it has discovered that Reyes is already dead, in view of which the appellate court issued a
Resolution dated December 16, 1994 which noted the manifestation of Riviera and directed the counsel of Reyes to
submit a copy of the latter’s death certificate and to file the proper motion for substitution of party. 51 Complying
therewith, the necessary motion for substitution of deceased Reyes, who died on January 7, 1994, was filed by the
heirs, namely, Estefania B. Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel B. Reyes. 52 Acting on the motion for
substitution, the Court of Appeals granted the same. 53

Notwithstanding the foregoing, Section 1654 and 1755 of Rule 3 of the Revised Rules of Court, upon which Riviera
anchors its argument, has already been amended by the 1997 Rules of Civil Procedure. 56 Even applying the old Rules,
the failure of a counsel to comply with his duty under Section 16 of Rule 3 of the Revised Rules of Court, to inform
the court of the death of his client and no substitution of such is effected, will not invalidate the proceedings and the
judgment thereon if the action survives the death of such party, 57 as this case does, since the death of Reyes did not
extinguish his civil personality. The appellate court was well within its jurisdiction to proceed as it did with the case
since the death of a party is not subject to its judicial notice. Needless to stress, the purpose behind the rule on
substitution of parties is the protection of the right of every party to due process. This purpose has been adequately
met in this case since both parties argued their respective positions through their pleadings in the trial court and the
appellate court. Besides, the Court has already acquired jurisdiction over the heirs of Reyes by voluntarily submitting
themselves to our jurisdiction.58

In view of all the foregoing, the Court is convinced that the appellate court committed no reversible error in its
challenged Decision.1âwphi1.nêt

WHEREFORE, the instant petition is hereby DENIED, and the Decision of the Court of Appeals dated June 6, 1994 in
CA-G.R. CV No. 26513 is AFFIRMED. No pronouncement as to costs.

SO ORDERED.
SEN PO EK MARKETING CORPORATION vs. TEODORA PRICE MARTINEZ, JUANITO TIU UYPING, JR., NELSON TIU
UYPING and LEONCIO TIU UYPING [February 9, 2000]

Before us is a petition for review on certiorari assailing the Decision1 and Resolution2 dated October 13, 1997 and
May 18, 1998, respectively, of the Court of Appeals 3 which reversed and set aside the Decision 4 of the Regional Trial
Court (RTC) of Palo, Leyte, Branch 8, rescinding the Deed of Absolute Sale over two (2) parcels of land executed by
private respondent Teodora P. Martinez in favor of private respondent brothers Juanito, Nelson and Leoncio, all
surnamed Tiu Uyping and declaring that petitioner Sen Po Ek Marketing Corporation (hereafter Sen Po Ek) has the
first preference to buy said land.

The pertinent facts are:

Sofia P. Martinez was the registered owner of two (2) parcels of land, known as Lot Nos. 50 and 106 of the Tacloban
City Cadastre, located at No. 84 Justice Romualdez St., formerly Gran Capitan, Tacloban City. The said parcels of land
are covered and described by Transfer Certificate of Title (TCT) No. 2915. 5

On October 25, 1961, Sofia leased the lots to Yu Siong, father of the president and stockholders of petitioner Sen Po
Ek for a period of ten (10) years.6 The lease contract required the lessee to construct a commercial building on the
leased property which shall become the property of Sofia upon the expiration of the lease. The building which was
constructed sometime in 1963 was declared, for taxation purposes, in the name of petitioner Sen Po Ek under Tax
Declaration No. 19487.1âwphi1.nêt

On October 25, 1971, the contract of lease expired.

On September 20, 1973, the lease contract 7 was renewed between Sofia and Yu Siong's wife, Lim Hua, who
succeeded him, as lessee, upon his death. Said contract explicitly states that "as of October 1, 1973, the lessor shall
be the absolute owner of a building located at Lot Nos. 50 and 106 of the Tacloban Cadastre." 8 The lease underwent
several renewals. The last written contract of lease was executed on March 24, 1982 for a term of five (5) years
expiring on January 1, 1987.9

Meantime, Sofia sold the lots and the building to her daughter, private respondent Teodora P. Martinez. The deed of
sale was executed sometime in 1979 but was notarized only on November 5, 1985. 10

After the lease contract expired in January 1987, it was no longer renewed by the parties. Petitioner Sen Po Ek,
however, continued to possess and occupy the leased properties, and regularly paid the monthly rentals to Sofia until
her death in August 1989. After the latter's death, the rentals were paid to the heirs of Sofia through private
respondent Teodora P. Martinez.

On November 11, 1989, Teodora sent a letter to petitioner Sen Po Ek informing it of her intention to sell the leased
premises and authorizing Mrs. Remedios Petilla to negotiate the sale "with any and all interested parties." 11 The
letter reads, viz.:

Quezon City

November 11, 1989

SIN [sic] PO EK COMMERCIAL

Tacloban City

Gentlemen:

Please take notice that we are selling the two (2) lots, including the building hereon, covered by Transfer
Certificate of Title No. T-2915, with a total area of Three Hundred Thirteen (313) square meters, situated at
Tacloban City and presently occupied by your establishment.
 Please contact Mrs. REMEDIOS L. PETILLA who is authorized to negotiate the sale with any and all interested
parties.

Cordially yours,
(sgd.) TEODORA P. MARTINEZ

But petitioner Sen Po Ek received the letter only on December 12, 1989. 12 It sought to purchase the properties at six
thousand pesos (P6,000.00) per square meter, and the Yu Siongs were able to contact private respondent Teodora P.
Martinez who advised them to formalize the offer of petitioner Sen Po Ek in writing. This was done in a letter dated
December 27, 1989 by Consorcio Yu Siong. 13

Meantime, sometime in December 1989, private respondent Juanito Tiu Uyping, Jr. was informed by a certain Mr.
Militante that the subject leased premises were for sale and that the sale was being brokered by Mrs. Remedios
Petilla.14 Juanito contacted his two (2) other brothers, and together, they went to the office of Governor Leopoldo
Petilla, the husband of Remedios Petilla, and inquired about the property. 15

On January 9, 1990, petitioner Sen Po Ek filed a verified complaint against Teodora in the RTC of Palo, Leyte, for the
annulment of the Deed of Sale executed by her mother, Sofia, in her favor and notarized on November 5, 1985.
Petitioner invoked its alleged right of first refusal or preferential right to buy the leased premises based on Republic
Act (R.A.) No. 1162,16 as amended, in relation to Presidential Decree (P.D.) No. 1517. 17

On January 12, 1990, Teodora sold the property to the respondent Tiu Uyping brothers. 18 As a result, TCT No. T-
3223919 was issued in the names of Juanito Tiu Uyping, Nelson Tiu Uyping and Leoncio Tiu Uyping. On March 5, 1990,
an amended complaint20 was filed to include the respondents Tiu Uyping brothers and also praying for the nullity of
the second sale transaction.

On February 27, 1992, the trial court rendered a decision in favor of petitioner Sen Po Ek, the dispositive portion of
which reads, viz.:

WHEREFORE, upon the preponderance of evidence this Court renders judgment in favor of the plaintiffs [sic]
SEN PO EK MARKETING CORPORATION represented by Consorcio Yusiong, and against the defendants —

1. Declaring, as ordering the rescission of the Deed of Absolute Sale executed by defendant Teodora
P. Martinez on 12 January 1990 in favor of the brother defendants Juanito Tiu Uyping Jr., Nelson Tiu
Uyping and Leoncio Tiu Uyping, Exhibit "2";

2. Declaring that the plaintiffs [sic] have a first preference to buy Lot Nos. 50 and 106 of the Tacloban
Cadastre as well as the building erected thereon as of December, 1989, hence, commanding
defendant Teodora P. Martinez and her brothers and sisters to sell the aforementioned properties to
the plaintiff corporation at the price of Six Thousand (P6,000.00) Pesos per square meter as offered
in the letter dated 11 November 1989 and as appearing to have been quoted by Teodora P. Martinez'
agent, Mrs. Remedios L. Petilla;

3. Ordering the defendant Teodora P. Martinez to return to his [sic] co-defendants Tiu Uyping
brothers the sum of EIGHT HUNDRED THOUSAND (P800,000.00) Pesos, appearing to be the total
selling price of the property in question;

4. Ordering defendant Teodora P. Martinez to pay the plaintiff corporation the sum of TEN
THOUSAND PESOS (P10,000.00) in the concept of attorney's fees and THREE THOUSAND PESOS
(P3,000.00) in that of litigation expenses.

Costs of this suit jointly and severally against all defendants.

SO ORDERED.21

Private respondents appealed from the said decision to the Court of Appeals.
On October 13, 1997, the Court of Appeals rendered a decision reversing the trial court. It held:

It is noteworthy that although the CORPORATION included the sale by Sofia of the subject property to her
daughter, Teodora, as one of the deeds it prayed to be declared void or annulled the trial court did not nullify
the deed. It, therefore, remains valid and binding. And, indeed, the trial court could not have granted what
was prayed for, notwithstanding the late notarization of the deed and its other perceived defects, not only
because neither Sofia nor her heirs complained, and on the contrary, the said heirs acknowledged its validity,
but more importantly, a contract is valid in whatever form it may have been entered into unless form is
essential for its validity, which is not so in this case. The Corporation's protestation that the sale is invalid
since it was not informed of it, has no basis in law.

Being the owner of the property in suit, Teodora had the right to exercise all the attributes of ownership, to
wit:jus possidendi, jus utendi, jus fruendi, jus abutendi, jus disponendi and jus vindicandi. With respect to jus
disponendi, she may dispose of the property to whomsoever and in whatsoever manner and for whatever
consideration she wishes, although at a loss or even for free and no one can complain, except as may
otherwise be provided by law, like the limitations on donation and in the case of sale, the right of pre-
emption of an adjoining owner and the right of first refusal under the Urban Land Reform-Law (P.D. No.
1517) when the area is proclaimed as an urban land reform zone.

In the case on hand, the appellee Corporation is neither an adjoining owner of the property in suit nor a
qualified tenant of a residential land in a duly proclaimed urban land reform zone, there being no proof of
such proclamation in Tacloban City. Its claim to first priority to buy the disputed property is merely derived
from the following postulation:

We believe that in this particular case, plaintiff-appellee should be accorded the first priority to buy
the questioned properties, being its actual possessor and occupant. Even under equal circumstances,
plaintiff-appellee should have been given the preference to purchase the property over third
persons. More so, in this case for the plaintiff-appellee accepted the offer to buy for an amount more
than double the price for which defendants-appellant Uyping brothers paid the same properties for.

The claim is, however, utterly bereft of any foundation in law. It is noteworthy that the Corporation does not
cite any specific piece of legislation or even any decisional law that is supportive of its stance. This is simply
because there is none. Deserving of some examination, if at all, is only the last part of the Corporation's
formulation, to wit: that it accepted Teodora's offer to sell.

Teodora, however, made no offer to sell the property, much less to the Corporation in particular. She merely
gave notice to the Corporation of her intention to sell. . . . . . . . . .

Clearly, no offer to sell was made. If ever there was any semblance of an offer, it was merely for the
Corporation to contact Mrs. Remedios Petilla who was authorized to negotiate the sale "with any and all
interested parties." But the Corporation did not promptly react. On the contrary, the Uypings, upon learning
somehow that the property was up for sale, were the ones who immediately made inquiries from Governor
Leopoldo Petilla, the husband of Remedios, and, thereupon, made an offer to buy. Still, to be considerate to
the Corporation, which was a long-time lessee of the property, the Governor called up its representative,
Alfredo Yu Siong, to find out if they were interested in buying the property but after mulling over the matter
for sometime, Alfredo informed the Governor that they were not interested. So, on December 23, 1989,
Teodora accepted the offer of the Uypings and executed in their favor the Option to Purchase after the latter
had paid her one-half of the agreed purchase price of P800,000.00. Then on January 12, 1990, upon payment
of the balance of P400,000.00, she executed the corresponding deed of absolute sale.

The Corporation discredits the testimony of Governor Petilla in this regard and, not without malediction asks,
"Is it because Gov. Petilla is a lawyer, and consequently is more eloquent in narrating defendants-appellants
distorted version of the facts?" For being a lawyer and, hence, an officer of the court, we readily give full faith
and credence to the testimony of Governor Petilla as against Alfredo Yu Siong's whom we found to be lying
through his teeth for, in his testimony on April 26, 1991, he declared that upon receiving Teodora's notice of
intention to sell, he and his brother, Consorico Yu Siong, went to see Mrs. Petilla at Palo, Leyte, because they
know that the Petillas reside there.

xxx xxx xxx

But on December 6, 1991, in rebutting Governor Petilla's testimony, he perjuriously executed a turn about
and declared that he did not go to the Governor's residence in Palo as he did not know that they reside
there.

xxx xxx xxx

In any event, even if Teodora's letter of November 11, 1989, were construed as an offer or promise to sell the
property to the Corporation, the latter did not thereby acquire any enforceable or actionable right for the
simple reason that the letter did not quote any price and is, therefore, not the offer contemplated by law. In
this regard, Article 1479 of the Civil Code provides:

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.

Thus, although the Yu Siong brothers and sisters, who own the Corporation, allegedly decided among
themselves to buy the property upon receipt of Teodora's letter on December 12, 1989, still Consorcio and
Alfredo Yu Siong had to seek out Mrs. Remedios Petilla, about three (3) to four (4) days thereafter, to find out
the selling price.

xxx xxx xxx

But Consorcio and Alfredo Yu Siong could not make any decision on the price without first consulting their
brothers and sisters. After the consultation, they sent Alfredo to Manila to see Teodora, who was residing
there, to clarify if she was really selling the property.

xxx xxx xxx

Alfredo allegedly met with Teodora on December 26, 1989, who told him to reduce into writing their offer to
buy.

xxx xxx xxx

On December 27, 1989, Consorcio Yu Siong wrote their letter of acceptance and on December 28, sent it by
registered mail to Teodora in Quezon City with a copy furnished Remedios Petilla in Palo, Leyte. Teodora
received the letter on January 12, 1990 while Remedios got her copy on January 2, 1990.

But the letter of acceptance was too late since, as aforestated, on December 23, 1989, Teodora already
executed an option to purchase in favor of the Uypings upon her receipt of their initial payment of
P400,000.00. It bears stressing in this connection that Teodora's notice of intention to sell became an offer to
sell to the Corporation only on December 15 or 16, 1989, (three or four days after it received the notice on
December 12, 1989) when Mrs. Remedios Petilla quoted the price of P6,000.00 per square meter to
Consorcio and Alfredo Yu Siong. However, the latter did not then signify their acceptance and, instead,
according to Consorcio himself, they took their time to make up their minds. In the interim, Teodora
committed to sell to the Uypings on December 23, 1989. At that point in time, there could not have been any
perfected contract between Teodora and the Corporation since there was no meeting of the minds between
them on the consideration. As Article 1475 of the Civil Code provides:
 Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price.

At most, there was only an offer or promise to sell which was not binding on Teodora as it was not then
accepted, and even if accepted, the acceptance was not supported by a consideration distinct from the
promise. Teodora was, therefore, at complete liberty to convey the property to the Uypings.

And when Alfredo Yu Siong went to see her on December 26, 1989, pleading that they be allowed to buy the
property, she refused, telling him that she had already committed it to other people. Thus, she was surprised
to receive in January 1990, a letter from the Corporation offering to buy the property for P6,000.00 per
square meter.

Understandably, Alfredo Yu Siong gave the lie to Teodora's testimony.

xxx xxx xxx

He even went further to flatly contradict and make a liar out of his own brother, Consorcio Yu Siong, by
asserting that in their meeting with Mrs. Remedios Petilla on December 15 or 16, 1989, they already agreed
on the latter's price quotation of P6,000.00 per square meter.

xxx xxx xxx

Alfredo Yu Siong, however, is hopelessly wanting in credibility. As we pointed out earlier, he caught himself in
irretrievable inconsistency in his attempt to discredit Governor Petilla. Now, he can not even spare his own
brother from his penchant for prevarication for the sake of advancing their cause.

From our viewpoint, the Corporation, upon the instigation of Alfredo Yu Siong, conceived of the plot of
belatedly offering to buy the property in suit at P6,000.00 per square meter, or the total price of
P1,878,000.00 in order to make the accepted offer of the Uypings in the amount of P800,000.00 appear a
pittance, in a calculated move to start a lawsuit and thereby prolong their stay on the premises. So far, they
have succeeded. But to us, it is downright unthinkable that Teodora could have agreed to back out from her
commitment to the Uypings. That is too foolhardy an adventure to go into and too farfetched to merit belief.

To repeat, under the facts, no contractual or juridical relation whatsoever has been established between
Teodora and the Corporation as seller and buyer, respectively, of the property in dispute. Even the trial court
conspicuously failed to point out any. Nonetheless, it inscrutably ordered the "rescission" of the deed of
absolute sale between Teodora and the Uypings, and "commanded" Teodora and her brothers and sisters to
sell the property to the Corporation on the basis of Article 19 of the Civil Code.

xxx xxx xxx

We are at a loss as to why the court below decreed the rescission of the deed of sale between Teodora and
the Uypings when the Corporation prayed for the declaration of its nullity and/or annulment. There is a
whale of a difference between rescission and declaration of nullity or annulment of contracts. The grounds
for the first are those enumerated in Article 1381 of the Civil Code while those for the second are found in
Article 1409 while the grounds for annulment are stated in Article 1390. In any case violation of Article 19 of
the same Code is not a ground for rescission, declaration of nullity or annulment. The appealed judgment
has, therefore, no leg both in fact and in law to stand on. 22

The dispositive portion of the foregoing decision reads, thus:

WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and another is rendered DISMISSING the
complaint of plaintiff-appellee CORPORATION, with costs against the latter. 23

Petitioner Sen Po Ek moved for reconsideration of the decision of the Court of Appeals, but the latter denied the
motion.24
Hence, this petition.

Petitioner Sen Po Ek raises the following issues:

WHETHER OR NOT THE COURT OF APPEALS HAS DECIDED IN A WAY NOT IN ACCORD WITH LAW AND
JURISPRUDENCE, DISREGARDING CLEAR EVIDENCE ON RECORD, WHEN IT HELD THAT THE SALE OF THE
PROPERTY IN QUESTION BY THE LATE SOFIA MARTINEZ TO HER DAUGHTER TEODORA WAS VALID, AND NOT
VOID AS FOUND BY THE TRIAL COURT.

II

WHETHER OR NOT THE COURT OF APPEALS HAS DECIDED ARBITRARILY AND CAPRICIOUSLY, IN A WAY NOT IN
ACCORD WITH JUSTICE AND EQUITY, WHEN IT HELD THAT THE PETITIONER HAS NO LEGAL AND EQUITABLE
RIGHT TO PURCHASE THE PROPERTY IN QUESTION, AS AGAINST THE TIU UYPINGS.

III

WHETHER OR NOT THE COURT OF APPEALS HAS DECIDED ARBITRARILY AND CAPRICIOUSLY IN A WAY NOT IN
ACCORD WITH LAW AND JURISPRUDENCE, IN UPHOLDING THE VALIDITY OF THE DEED OF SALE BETWEEN
TEODORA AND THE TIU UYPINGS.

IV

WHETHER OR NOT THE COURT OF APPEALS HAS ACTED ARBITRARILY AND CAPRICIOUSLY IN GIVING TOO
MUCH WEIGHT TO THE TESTIMONY OF RESPONDENTS' WITNESS LEOPOLD PETILLA AND DISCREDITING THAT
OF PETITIONER'S ALFREDO YU SIONG, CONSIDERING THAT THE FORMER DID NOT EVEN HAD [sic] THE LEGAL
AUTHORITY TO SELL OR NEGOTIATE THE SALE OF THE PROPERTY IN QUESTION. 25

We deny the petition.

First. Private respondent Teodora P. Martinez had the right, as lawful owner of the leased premises, to sell the same
to private respondent Tiu Uyping brothers.

The first sale between mother and daughter, Sofia and Teodora, was void for being fictitious. Under Art. 1409 (2) of
the New Civil Code, one type of contract which can be declared void and inexistent is that which is absolutely
simulated or fictitious, and this was established by several badges of simulation proving that the sale between Sofia
and Teodora was not intended to have any legal effect between them. 26

Immediately suspect is the Contract of Sale itself which was executed sometime in 1979 but was notarized only on
November 5, 1985, six (6) years later. Said sale all the more inspires doubt when upon close reading of the lease
contracts executed thereafter, Teodora signed not as owner but merely as an instrumental witness.

If Teodora was really the owner of the leased premised as transferee-vendee under the 1979 Deed of Sale, she
should have signed in that capacity and not in any other. Moreover, this clearly indicates that Sofia retained
enjoyment and control of the leased premises as lessor-owner thereof so much so that Teodora never asserted her
alleged right of ownership over the leased premises. Indeed the most protuberant index of simulation is the absence
of an attempt in any manner in the past of the alleged vendee-owner to exercise his rights as such over the subject
property.27

Finally, Sofia continued receiving the rentals until her demise in August 1989. This was admitted by Teodora herself
during the trial:

Q — So, the rentals were actually intended and received by Sofia P. Martinez?
 A — Yes, sir.

Q — And it was at this happening that Sofia Martinez have been receiving the rentals in the year 1979
when you were already allegedly the owner up to her death in August, 1989? Is that correct?

A — Yes, sir, it was Sofia Martinez.28

The combination of all of these events leads one to the inescapable conclusion that the first sale transaction was
absolutely simulated, hence void.

Nonetheless, the sale between private respondents Teodora P. Martinez and the Tiu Uyping brothers, is valid.

Teodora, as only one of the co-heirs of Sofia, had no authority to sell the entire lot to the Tiu Uyping brothers. She
can only sell her undivided portion of the property. Thus, when she sold the leased premises to private respondent
brothers Tiu Uyping, the sale is unenforceable having been entered into by Teodora in behalf of her co-heirs who,
however, gave no authority or legal representation. However, such a contract is susceptible of ratification. 29 In this
case, the ratification came in the form of "Confirmation of Sale of Land and Improvements" 30 executed by the other
heirs of Sofia.31 Since the sale by private respondent Teodora Martinez of the leased premises to private respondents
Tiu Uyping brothers was ratified by her co-heirs, then the sale is considered valid and binding.

Second. Petitioner Sen Po Ek does not have a right of first refusal to assert against private respondents. Neither any
law nor any contract grants it preference in the purchase of the leased premises.

Petitioner cites P.D. No. 1517, R.A. No. 1162 and Article 1622 of the New Civil Code, but they are not applicable to
the case at bar. P.D. No. 1517, otherwise known as "The Urban Land Reform Act", pertains to areas proclaimed as
urban land reform zones. Lot Nos. 50 and 106 are both located in Tacloban City, which has not been declared as an
urban land reform zone. R.A. No. 1162, on the other hand, only deals with expropriation of parcels of land located in
the City of Manila, which the leased premises are not. Finally, Article 1622 of the New Civil Code, which provides
that:

Whenever a piece of urban land which is so small and so situated that a major portion thereof cannot be
used for any practical purpose within a reasonable time, having been bought merely for speculation, is about
to be re-sold, the owner of the adjoining land shall have the right of redemption, also at a reasonable price.

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 in question appears best justified shall be preferred,

only deals with small urban lands that are bought for speculation where only adjoining lot owners can exercise the
right of pre-emption or redemption. Petitioner Sen Po Ek is not an adjoining lot owner, but a lessee trying to buy the
land that it was leasing.

Indeed the right of first refusal may be provided for in a lease contract. 32 However in this case, such right was never
stipulated in any of the several lease contracts between petitioner and Sofia. Petitioner claims that it was Teodora
herself who assured them that they can have the first priority to buy the subject parcels of land, but there is
absolutely no proof of this. Such grant of the right of first refusal must be clearly embodied in a written contract, but
there is none in the present case.

WHEREFORE, the petition is hereby DENIED. No costs.

SO ORDERED.1âwphi1.nêt

Bellosillo, Mendoza, Quisumbing and Buena, JJ., concur.

VILLONCO REALTY COMPANY and EDITH PEREZ DE TAGLE vs. BORMAHECO, INC., FRANCISCO CERVANTES and
ROSARIO CERVANTES [July 25, 1975]

This action was instituted by Villonco Realty Company against Bormaheco, Inc. and the spouses Francisco N.
Cervantes and Rosario N. Cervantes for the specific performance of a supposed contract for the sale of land and the
improvements thereon for one million four hundred thousand pesos. Edith Perez de Tagle, as agent, intervened in
order to recover her commission. The lower court enforced the sale. Bormaheco, Inc. and the Cervantes spouses, as
supposed vendors, appealed.

This Court took cognizance of the appeal because the amount involved is more than P200,000 and the appeal was
perfected before Republic Act No. 5440 took effect on September 9, 1968. The facts are as follows:

Francisco N. Cervantes and his wife, Rosario P. Navarra-Cervantes, are the owners of lots 3, 15 and 16 located at 245
Buendia Avenue, Makati, Rizal with a total area of three thousand five hundred square meters (TCT Nos. 43530,
43531 and 43532, Exh. A, A-1 and A-2). The lots were mortgaged to the Development Bank of the Phil (DBP) on April
21, 1959 as security for a loan of P441,000. The mortgage debt was fully paid on July 10, 1969.

Cervantes is the president of Bormaheco, Inc., a dealer and importer of industrial and agricultural machinery. The
entire lots are occupied by the building, machinery and equipment of Bormaheco, Inc. and are adjacent to the
property of Villonco Realty Company situated at 219 Buendia Avenue.

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

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

During the negotiations, Villonco Realty Company assumed that the lots belonged to Bormaheco, Inc. and that
Cervantes was duly authorized to sell the same. Cervantes did not disclose to the broker and to Villonco Realty
Company that the lots were conjugal properties of himself and his wife and that they were mortgaged to the DBP.

Bormaheco, Inc., through Cervantes, made a written offer dated February 12, 1964, to Romeo Villonco for the sale of
the property. The offer reads (Exh. B):

BORMAHECO, INC.

February 12,1964

Mr. Romeo
Villonco Villonco Building
Buendia Avenue
Makati, Rizal.

Dear Mr. Villonco:

This is with reference to our telephone conversation this noon on the matter of the sale of our
propertylocated at Buendia Avenue, with a total area of 3,500 sq. m., under the following conditions:

(1) That we are offering to sell to you the above property at the price of P400.00 per
square meter;
 (2) That a deposit of P100,000.00 must be placed as earnest money on the purchase
of the above property which will become part payment of the property in the event
that the sale is consummated;

(3) That this sale is to be consummated only after I shall have also consummated my
purchase of another property located at Sta. Ana, Manila;

(4) That if my negotiations with said property will not be consummated by reason
beyond my control, I will return to you your deposit of P100,000 and the sale of my
property to you will not also be consummated; and

(5) That final negotiations on both properties can be definitely known after 45 days.

If the above terms is (are) acceptable to your Board, please issue out the said earnest money in favor
of Bormaheco, Inc., and deliver the same thru the bearer, Miss Edith Perez de Tagle.

Very truly yours,

SGD. FRANCISCO N. CERVANTES

President

The property mentioned in Bormaheco's letter was the land of the National Shipyards & Steel Corporation (Nassco),
with an area of twenty thousand square meters, located at Punta, Sta. Ana, Manila. At the bidding held on January
17, 1964 that land was awarded to Bormaheco, Inc., the highest bidder, for the price of P552,000. The Nassco Board
of Directors in its resolution of February 18, 1964 authorized the General Manager to sign the necessary contract
(Exh. H).

On February 28, 1964, the Nassco Acting General Manager wrote a letter to the Economic Coordinator, requesting
approval of that resolution. The Acting Economic Coordinator approved the resolution on March 24, 1964 (Exh. 1).

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

VILLONCO REALTY COMPANY

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

March 4, 1964

Mr. Francisco Cervantes.

Bormaheco, Inc.
245 Buendia Avenue
Makati, Rizal

Dear Mr. Cervantes:

In reference to the letter of Miss E. Perez de Tagle dated February 12th and 26, 1964 in respect to the
terms and conditions on the purchase of your property located at Buendia Ave., Makati, Rizal, with a
total area of 3,500 sq. meters., we hereby revise our offer, as follows:

1. That the price of the property shall be P400.00 per sq. m., including the improvements thereon;
 2. That a deposit of P100,000.00 shall be given to you as earnest money which will become as part
payment in the event the sale is consummated;

3. This sale shall be cancelled, only if your deal with another property in Sta. Ana shall not be
consummated and in such case, the P100,000-00 earnest money will be returned to us with a 10%
interest p.a. However, if our deal with you is finalized, said P100,000.00 will become as part payment
for the purchase of your property without interest:

4. The manner of payment shall be as follows:

a. P100,000.00 earnest money and

650,000.00 as part of the down payment, or
P750,000.00 as total down payment

b. The balance is payable as follows:

P100,000.00 after 3 months
125,000.00 -do-
212,500.00 -do-
P650,000.00 Total

As regards to the other conditions which we have discussed during our last conference on February
27, 1964, the same shall be finalized upon preparation of the contract to sell.*

If the above terms and conditions are acceptable to you, kindly sign your conformity hereunder.
Enclosed is our check for ONE HUNDRED THOUSAND (P100,000.00) PESOS, MBTC Check No. 448314,
as earnest money.

Very truly yours,

VILLONCO REALTY COMPANY

(Sgd.) TEOFILO VILLONCO

CONFORME:

BORMAHECO, INC.
(Sgd.) FRANCISCO CERVANTES

That this sale shall be subject to favorable consummation of a property in Sta. Ana we are
negotiating.

(Sgd.) FRANCISCO CERVANTES

The check for P100,000 (Exh. E) mentioned in the foregoing letter-contract was delivered by Edith Perez de Tagle to
Bormaheco, Inc. on March 4, 1964 and was received by Cervantes. In the voucher-receipt evidencing the delivery the
broker indicated in her handwriting that the earnest money was "subject to the terms and conditions embodied in
Bormaheco's letter" of February 12 and Villonco Realty Company's letter of March 4, 1964 (Exh. E-1; 14 tsn).

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

Cervantes in his letter of April 6, 1964, a reply to Miss Tagle's letter, alleged that the forty-five day period had already
expired and the sale to Bormaheco, Inc. of the Punta property had not been consummated. Cervantes said that his
letter was a "manifestation that we are no longer interested to sell" the Buendia Avenue property to Villonco Realty
Company (Annex I of Stipulation of Facts). The latter was furnished with a copy of that letter.

In a letter dated April 7, 1964 Villonco Realty Company returned the two checks to Bormaheco, Inc., stating that the
condition for the cancellation of the contract had not arisen and at the same time announcing that an action for
breach of contract would be filed against Bormaheco, Inc. (Annex G of Stipulation of Facts).1äwphï1.ñët

On that same date, April 7, 1964 Villonco Realty Company filed the complaint (dated April 6) for specific performance
against Bormaheco, Inc. Also on that same date, April 7, at eight-forty-five in the morning, a notice of lis pendens was
annotated on the titles of the said lots.

Bormaheco, Inc. in its answers dated May 5 and 25, 1964 pleaded the defense that the perfection of the contract of
sale was subject to the conditions (a) "that final acceptance or not shall be made after 45 days" (sic) and (b) that
Bormaheco, Inc. "acquires the Sta. Ana property".

On June 2, 1964 or during the pendency of this case, the Nassco Acting General Manager wrote to Bormaheco, Inc.,
advising it that the Board of Directors and the Economic Coordinator had approved the sale of the Punta lot to
Bormaheco, Inc. and requesting the latter to send its duly authorized representative to the Nassco for the signing of
the deed of sale (Exh. 1).

The deed of sale for the Punta land was executed on June 26, 1964. Bormaheco, Inc. was represented by Cervantes
(Exh. J. See Bormaheco, Inc. vs. Abanes, L-28087, July 31, 1973, 52 SCRA 73).

In view of the disclosure in Bormaheco's amended answer that the three lots were registered in the names of the
Cervantes spouses and not in the name of Bormaheco, Inc., Villonco Realty Company on July 21, 1964 filed an
amended complaint impleading the said spouses as defendants. Bormaheco, Inc. and the Cervantes spouses filed
separate answers.

As of January 15, 1965 Villonco Realty Company had paid to the Manufacturers' Bank & Trust Company the sum of
P8,712.25 as interests on the overdraft line of P100,000 and the sum of P27.39 as interests daily on the same loan
since January 16, 1965. (That overdraft line was later settled by Villonco Realty Company on a date not mentioned in
its manifestation of February 19, 1975).

Villonco Realty Company had obligated itself to pay the sum of P20,000 as attorney's fees to its lawyers. It claimed
that it was damaged in the sum of P10,000 a month from March 24, 1964 when the award of the Punta lot to
Bormaheco, Inc. was approved. On the other hand, Bormaheco, Inc. claimed that it had sustained damages of
P200,000 annually due to the notice of lis pendens which had prevented it from constructing a multi-story building
on the three lots. (Pars. 18 and 19, Stipulation of Facts).1äwphï1.ñët

Miss Tagle testified that for her services Bormaheco, Inc., through Cervantes, obligated itself to pay her a three
percent commission on the price of P1,400,000 or the amount of forty-two thousand pesos (14 tsn).

After trial, the lower court rendered a decision ordering the Cervantes spouses to execute in favor of Bormaheco, Inc.
a deed of conveyance for the three lots in question and directing Bormaheco, Inc. (a) to convey the same lots to
Villonco Realty Company, (b) to pay the latter, as consequential damages, the sum of P10,000 monthly from March
24, 1964 up to the consummation of the sale, (c) to pay Edith Perez de Tagle the sum of P42,000 as broker's
commission and (d) pay P20,000 as to attorney's fees (Civil Case No. 8109).

Bormaheco, Inc. and the Cervantes spouses appealed. Their principal contentions are (a) that no contract of sale was
perfected because Cervantes made a supposedly qualified acceptance of the revised offer contained in Exhibit D,
which acceptance amounted to a counter-offer, and because the condition that Bormaheco, inc. would acquire the
Punta land within the forty-five-day period was not fulfilled; (2) that Bormaheco, Inc. cannot be compelled to sell the
land which belongs to the Cervantes spouses and (3) that Francisco N. Cervantes did not bind the conjugal
partnership and his wife when, as president of Bormaheco, Inc., he entered into negotiations with Villonco Realty
Company regarding the said land.

We hold that the appeal, except as to the issue of damages, is devoid of merit.

"By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a
determining thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be
absolute or conditional" (Art. 1458, Civil Code).

"The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts" (Art. 1475, Ibid.).

"Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law" (Art. 1315, Civil Code).

"Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer" (Art. 1319, Civil Code). "An acceptance may be express or implied" (Art. 1320, Civil Code).

Bormaheco's acceptance of Villonco Realty Company's offer to purchase the Buendia Avenue property, as shown in
Teofilo Villonco's letter dated March 4, 1964 (Exh. D), indubitably proves that there was a meeting of minds upon the
subject matter and consideration of the sale. Therefore, on that date the sale was perfected. (Compare with
McCullough vs. Aenlle & Co., 3 Phil. 285; Goyena vs. Tambunting, 1 Phil. 490). Not only that Bormaheco's acceptance
of the part payment of one hundred ,thousand pesos shows that the sale was conditionally consummated or partly
executed subject to the purchase by Bormaheco, Inc. of the Punta property. The nonconsummation of that purchase
would be a negative resolutory condition (Taylor vs. Uy Tieng Piao, 43 Phil. 873).

On February 18, 1964 Bormaheco's bid for the Punta property was already accepted by the Nassco which had
authorized its General Manager to sign the corresponding deed of sale. What was necessary only was the approval of
the sale by the Economic Coordinator and a request for that approval was already pending in the office of that
functionary on March 4, 1964.

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

That contention is not well-taken. It should be stressed that there is no evidence as to what changes were made by
Cervantes in Villonco's revised offer. And there is no evidence that Villonco Realty Company did not assent to the
supposed changes and that such assent was never made known to Cervantes.

What the record reveals is that the broker, Miss Tagle, acted as intermediary between the parties. It is safe to assume
that the alleged changes or qualifications made by Cervantes were approved by Villonco Realty Company and that
such approval was duly communicated to Cervantes or Bormaheco, Inc. by the broker as shown by the fact that
Villonco Realty Company paid, and Bormaheco, Inc. accepted, the sum of P100,000 as earnest money or down
payment. That crucial fact implies that Cervantes was aware that Villonco Realty Company had accepted the
modifications which he had made in Villonco's counter-offer. Had Villonco Realty Company not assented to those
insertions and annotations, then it would have stopped payment on its check for P100,000. The fact that Villonco
Realty Company allowed its check to be cashed by Bormaheco, Inc. signifies that the company was in conformity with
the changes made by Cervantes and that Bormaheco, Inc. was aware of that conformity. Had those insertions not
been binding, then Bormaheco, Inc. would not have paid interest at the rate of ten percent per annum, on the
earnest money of P100,000.

The truth is that the alleged changes or qualifications in the revised counter — offer (Exh. D) are not material or are
mere clarifications of what the parties had previously agreed upon.

Thus, Cervantes' alleged insertion in his handwriting of the figure and the words "12th and" in Villonco's counter-
offer is the same as the statement found in the voucher-receipt for the earnest money, which reads: "subject to the
terms and conditions embodied in Bormaheco's letter of Feb. 12, 1964 and your letter of March 4, 1964" (Exh. E-1).

Cervantes allegedly crossed out the word "Nassco" in paragraph 3 of Villonco's revised counter-offer and substituted
for it the word "another" so that the original phrase, "Nassco's property in Sta. Ana", was made to read as "another
property in Sta. Ana". That change is trivial. What Cervantes did was merely to adhere to the wording of paragraph 3
of Bormaheco's original offer (Exh. B) which mentions "another property located at Sta. Ana." His obvious purpose
was to avoid jeopardizing his negotiation with the Nassco for the purchase of its Sta. Ana property by unduly
publicizing it.

It is noteworthy that Cervantes, in his letter to the broker dated April 6, 1964 (Annex 1) or after the Nassco property
had been awarded to Bormaheco, Inc., alluded to the "Nassco property". At that time, there was no more need of
concealing from the public that Bormaheco, Inc. was interested in the Nassco property.

Similarly, Cervantes' alleged insertion of the letters "PA" ( per annum) after the word "interest" in that same
paragraph 3 of the revised counter-offer (Exh. D) could not be categorized as a major alteration of that counter-offer
that prevented a meeting of the minds of the parties. It was understood that the parties had contemplated a rate of
ten percent per annum since ten percent a month or semi-annually would be usurious.

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

That contention is not correct. There is no incompatibility between Bormaheco's offer of February 12, 1964 (Exh. B)
and Villonco's counter-offer of March 4, 1964 (Exh. D). The revised counter-offer merely amplified Bormaheco's
original offer.

The controlling fact is that there was agreement between the parties on the subject matter, the price and the mode
of payment and that part of the price was paid. "Whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the perfection of the contract" (Art. 1482, Civil Code).

"It is true that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding
acceptance. 'So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the
offer, whether such request is granted or not, a contract is formed.' " (Stuart vs. Franklin Life Ins. Co., 165 Fed. 2nd
965, citing Sec. 79, Williston on Contracts).

Thus, it was held that the vendor's change in a phrase of the offer to purchase, which change does not essentially
change the terms of the offer, does not amount to a rejection of the offer and the tender of a counter-offer (Stuart
vs. Franklin Life Ins. Co., supra).

The instant case is not governed by the rulings laid down in Beaumont vs. Prieto, 41 Phil. 670, 985, 63 L. Ed. 770,
and Zayco vs. Serra, 44 Phil. 326. In those two cases the acceptance radically altered the offer and, consequently,
there was no meeting of the minds of the parties.

Thus, in the Zayco case, Salvador Serra offered to sell to Lorenzo Zayco his sugar central for P1,000,000 on condition
that the price be paid in cash, or, if not paid in cash, the price would be payable within three years provided security
is given for the payment of the balance within three years with interest. Zayco, instead of unconditionally accepting
those terms, countered that he was going to make a down payment of P100,000, that Serra's mortgage obligation to
the Philippine National Bank of P600,000 could be transferred to Zayco's account and that he (plaintiff) would give a
bond to secure the payment of the balance of the price. It was held that the acceptance was conditional or was a
counter-offer which had to be accepted by Serra. There was no such acceptance. Serra revoked his offer. Hence, there
was no perfected contract.

In the Beaumont case, Benito Valdes offered to sell to W Borck the Nagtahan Hacienda owned by Benito Legarda,
who had empowered Valdes to sell it. Borck was given three months from December 4, 1911 to buy the hacienda for
P307,000. On January 17, 1912 Borck wrote to Valdes, offering to purchase the hacienda for P307,000 payable on
May 1, 1912. No reply was made to that letter. Borck wrote other letters modifying his proposal. Legarda refused to
convey the property.

It was held that Borck's January 17th letter plainly departed from the terms of the offer as to the time of payment
and was a counter-offer which amounted to a rejection of Valdes' original offer. A subsequent unconditional
acceptance could not revive that offer.

The instant case is different from Laudico and Harden vs. Arias Rodriguez, 43 Phil. 270 where the written offer to sell
was revoked by the offer or before the offeree's acceptance came to the offeror's knowledge.

Appellants' next contention is that the contract was not perfected because the condition that Bormaheco, Inc. would
acquire the Nassco land within forty-five days from February 12, 1964 or on or before March 28, 1964 was not
fulfilled. This contention is tied up with the following letter of Bormaheco, Inc. (Exh. F):

BORMAHECO, INC.

March 30, 1964

Villonco Realty Company

V.R.C. Building
219 Buendia Ave.,
Makati, Rizal

Gentlemen:

We are returning herewith your earnest money together with interest thereon at 10% per annum.
Please be informed that despite the lapse of the 45 days from February 12, 1964 there is no certainty
yet for us to acquire a substitute property, hence the return of the earnest money as agreed upon.

Very truly yours,

SGD. FRANCISCO N. CERVANTES

President

Encl.: P.N.B. Check No. 112994 J

P.N.B. Check No. 112996J

That contention is predicated on the erroneous assumption that Bormaheco, Inc. was to acquire the Nassco land
within forty-five days or on or before March 28, 1964.

The trial court ruled that the forty-five-day period was merely an estimate or a forecast of how long it would take
Bormaheco, Inc. to acquire the Nassco property and it was not "a condition or a deadline set for the defendant
corporation to decide whether or not to go through with the sale of its Buendia property".

The record does not support the theory of Bormaheco, Inc. and the Cervantes spouses that the forty-five-day period
was the time within which (a) the Nassco property and two Pasong Tamo lots should be acquired, (b) when Cervantes
would secure his wife's consent to the sale of the three lots and (c) when Bormaheco, Inc. had to decide what to do
with the DBP encumbrance.
Cervantes in paragraph 3 of his offer of February 12, 1964 stated that the sale of the Buendia lots would be
consummated after he had consummated the purchase of the Nassco property. Then, in paragraph 5 of the same
offer he stated "that final negotiations on both properties can be definitely known after forty-five days" (See Exh. B).

It is deducible from the tenor of those statements that the consummation of the sale of the Buendia lots to Villonco
Realty Company was conditioned on Bormaheco's acquisition of the Nassco land. But it was not spelled out that such
acquisition should be effected within forty-five days from February 12, 1964. Had it been Cervantes' intention that
the forty-five days would be the period within which the Nassco land should be acquired by Bormaheco, then he
would have specified that period in paragraph 3 of his offer so that paragraph would read in this wise: "That this sale
is to be consummated only after I shall have consummated my purchase of another property located at Sta. Ana,
Manila within forty-five days from the date hereof ." He could have also specified that period in his "conforme" to
Villonco's counter-offer of March 4, 1964 (Exh. D) so that instead of merely stating "that this sale shall be subject to
favorable consummation of a property in Sta. Ana we are negotiating" he could have said: "That this sale shall be
subject to favorable consummation within forty-five days from February 12, 1964 of a property in Sta. Ana we are
negotiating".

No such specification was made. The term of forty-five days was not a part of the condition that the Nassco property
should be acquired. It is clear that the statement "that final negotiations on both property can be definitely known
after 45 days" does not and cannot mean that Bormaheco, Inc. should acquire the Nassco property within forty-five
days from February 12, 1964 as pretended by Cervantes. It is simply a surmise that after forty-five days (in fact when
the forty-five day period should be computed is not clear) it would be known whether Bormaheco, Inc. would be able
to acquire the Nassco property and whether it would be able to sell the Buendia property. That aforementioned
paragraph 5 does not even specify how long after the forty-five days the outcome of the final negotiations would be
known.

It is interesting to note that in paragraph 6 of Bormaheco's answer to the amended complaint, which answer was
verified by Cervantes, it was alleged that Cervantes accepted Villonco's revised counter-offer of March 4, 1964
subject to the condition that "the final negotiations (acceptance) will have to be made by defendant within 45
daysfrom said acceptance" (31 Record on Appeal). If that were so, then the consummation of Bormaheco's purchase
of the Nassco property would be made within forty-five days from March 4, 1964.

What makes Bormaheco's stand more confusing and untenable is that in its three answers it invariably articulated
the incoherent and vague affirmative defense that its acceptance of Villonco's revised counter-offer was conditioned
on the circumstance "that final acceptance or not shall be made after 45 days" whatever that means. That affirmative
defense is inconsistent with the other aforequoted incoherent statement in its third answer that "the final
negotiations (acceptance) will have to be made by defendant within 45 days from said acceptance" (31 Record on
Appeal).1äwphï1.ñët

Thus, Bormaheco's three answers and paragraph 5 of his offer of February 12, 1964 do not sustain at all its theory
that the Nassco property should be acquired on or before March 28, 1964. Its rescission or revocation of its
acceptance cannot be anchored on that theory which, as articulated in its pleadings, is quite equivocal and unclear.

It should be underscored that the condition that Bormaheco, Inc. should acquire the Nassco property was fulfilled. As
admitted by the appellants, the Nassco property was conveyed to Bormaheco, Inc. on June 26, 1964. As early as
January 17, 1964 the property was awarded to Bormaheco, Inc. as the highest bidder. On February 18, 1964 the
Nassco Board authorized its General Manager to sell the property to Bormaheco, Inc. (Exh. H). The Economic
Coordinator approved the award on March 24, 1964. It is reasonable to assume that had Cervantes been more
assiduous in following up the transaction, the Nassco property could have been transferred to Bormaheco, Inc. on or
before March 28, 1964, the supposed last day of the forty-five-day period.

The appellants, in their fifth assignment of error, argue that Bormaheco, Inc. cannot be required to sell the three lots
in question because they are conjugal properties of the Cervantes spouses. They aver that Cervantes in dealing with
the Villonco brothers acted as president of Bormaheco, Inc. and not in his individual capacity and, therefore, he did
not bind the conjugal partnership nor Mrs. Cervantes who was allegedly opposed to the sale.
Those arguments are not sustainable. It should be remembered that Cervantes, in rescinding the contract of sale and
in returning the earnest money, cited as an excuse the circumstance that there was no certainty in Bormaheco's
acquisition of the Nassco property (Exh. F and Annex 1). He did not say that Mrs. Cervantes was opposed to the sale
of the three lots. He did not tell Villonco Realty Company that he could not bind the conjugal partnership. In truth, he
concealed the fact that the three lots were registered "in the name of FRANCISCO CERVANTES, Filipino, of legal age,
married to Rosario P. Navarro, as owner thereof in fee simple". He certainly led the Villonco brothers to believe that
as president of Bormaheco, Inc. he could dispose of the said lots. He inveigled the Villoncos into believing that he had
untrammelled control of Bormaheco, Inc., that Bormaheco, Inc. owned the lots and that he was invested with
adequate authority to sell the same.

Thus, in Bormaheco's offer of February 12, 1964, Cervantes first identified the three lots as "our property" which "we
are offering to sell ..." (Opening paragraph and par. 1 of Exh. B). Whether the prounoun "we" refers to himself and his
wife or to Bormaheco, Inc. is not clear. Then, in paragraphs 3 and 4 of the offer, he used the first person and said: "I
shall have consummated my purchase" of the Nassco property; "... my negotiations with said property" and "I will
return to you your deposit". Those expressions conveyed the impression and generated the belief that the Villoncos
did not have to deal with Mrs. Cervantes nor with any other official of Bormaheco, Inc.

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

Villonco Realty Company, in paragraph 2 of its original complaint, alleged that "on February 12, 1964, after some
prior negotiations, the defendant (Bormaheco, Inc.) made a formal offer to sell to the plaintiff the property of the
said defendant situated at the abovenamed address along Buendia Avenue, Makati, Rizal, under the terms of the
letter-offer, a copy of which is hereto attached as Annex A hereof", now Exhibit B (2 Record on Appeal).

That paragraph 2 was not, repeat, was not denied by Bormaheco, Inc. in its answer dated May 5, 1964. It did not
traverse that paragraph 2. Hence, it was deemed admitted. However, it filed an amended answer dated May 25, 1964
wherein it denied that it was the owner of the three lots. It revealed that the three lots "belong and are registered in
the names of the spouses Francisco N. Cervantes and Rosario N. Cervantes."

The three answers of Bormaheco, Inc. contain the following affirmative defense:

13. That defendant's insistence to finally decide on the proposed sale of the land in question after 45
days had not only for its purpose the determination of its acquisition of the said Sta. Ana (Nassco)
property during the said period, but also to negotiate with the actual and registered owner of the
parcels of land covered by T.C.T. Nos. 43530, 43531 and 43532 in question which plaintiff was fully
aware that the same were not in the name of the defendant (sic; Par. 18 of Answer to Amended
Complaint, 10, 18 and 34, Record on Appeal).

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

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

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

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

But that defense must have been an afterthought or was evolved post litem motam since it was never disclosed in
Cervantes' letter of rescission and in his letter to Miss Tagle (Exh. F and Annex 1). Moreover, Mrs. Cervantes did not
testify at the trial to fortify that defense which had already been waived for not having been pleaded (See sec. 2, Rule
9, Rules of Court).

Taking into account the situation of Cervantes vis-a-vis Bormaheco, Inc. and his wife and the fact that the three lots
were entirely occupied by Bormaheco's building, machinery and equipment and were mortgaged to the DBP as
security for its obligation, and considering that appellants' vague affirmative defenses do not include Mrs. Cervantes'
alleged opposition to the sale, the plea that Cervantes had no authority to sell the lots strains the rivets of credibility
(Cf. Papa and Delgado vs. Montenegro, 54 Phil. 331; Riobo vs. Hontiveros, 21 Phil. 31).

"Obligations arising from contracts have the force of law between the contracting parties and should be complied
with in good faith" (Art. 1159, Civil Code). Inasmuch as the sale was perfected and even partly executed, Bormaheco,
Inc., and the Cervantes spouses, as a matter of justice and good faith, are bound to comply with their contractual
commitments.

Parenthetically, it may be observed that much misunderstanding could have been avoided had the broker and the
buyer taken the trouble of making some research in the Registry of Deeds and availing themselves of the services of a
competent lawyer in drafting the contract to sell.

Bormaheco, Inc. and the Cervantes spouses in their sixth assignment of error assail the trial court's award to Villonco
Realty Company of consequential damage amounting to ten thousand pesos monthly from March 24, 1964 (when
the Economic Coordinator approved the award of the Nassco property to Bormaheco, Inc.) up to the consummation
of the sale. The award was based on paragraph 18 of the stipulation of facts wherein Villonco Realty Company
"submits that the delay in the consummation of the sale" has caused it to suffer the aforementioned damages.

The appellants contend that statement in the stipulation of facts simply means that Villonco Realty Company
speculates that it has suffered damages but it does not mean that the parties have agreed that Villonco Realty
Company is entitled to those damages.

Appellants' contention is correct. As rightly observed by their counsel, the damages in question were not specifically
pleaded and proven and were "clearly conjectural and speculative".

However, appellants' view in their seventh assignment of error that the trial court erred in ordering Bormaheco, Inc.
to pay Villonco Realty Company the sum of twenty thousand pesos as attorney's fees is not tenable. Under the facts
of the case, it is evident that Bormaheco, Inc. acted in gross and evident bad faith in refusing to satisfy the valid and
just demand of Villonco Realty Company for specific performance. It compelled Villonco Realty Company to incure
expenses to protect its interest. Moreover, this is a case where it is just and equitable that the plaintiff should recover
attorney's fees (Art. 2208, Civil Code).

The appellants in their eighth assignment of error impugn the trial court's adjudication of forty-two thousand pesos
as three percent broker's commission to Miss Tagle. They allege that there is no evidence that Bormaheco, Inc.
engaged her services as a broker in the projected sale of the three lots and the improvements thereon. That
allegation is refuted by paragraph 3 of the stipulation of facts and by the documentary evidence. It was stipulated
that Miss Tagle intervened in the negotiations for the sale of the three lots. Cervantes in his original offer of February
12, 1964 apprised Villonco Realty Company that the earnest money should be delivered to Miss Tagle, the bearer of
the letter-offer. See also Exhibit G and Annex I of the stipulation of facts.
We hold that the trial court did not err in adjudging that Bormaheco, Inc. should pay Miss Tagle her three percent
commission.

WHEREFORE, the trial court's decision is modified as follows:

1. Within ten (10) days from the date the defendants-appellants receive notice from the clerk of the lower court that
the records of this case have been received from this Court, the spouses Francisco N. Cervantes and Rosario P.
Navarra-Cervantes should execute a deed conveying to Bormaheco, Inc. their three lots covered by Transfer
Certificate of Title Nos. 43530, 43531 and 43532 of the Registry of Deeds of Rizal.

2. Within five (5) days from the execution of such deed of conveyance, Bormaheco, Inc. should execute in favor of
Villonco Realty Company, V. R. C. Building, 219 Buendia Avenue, Makati, Rizal a registerable deed of sale for the said
three lots and all the improvements thereon, free from all lien and encumbrances, at the price of four hundred pesos
per square meter, deducting from the total purchase price the sum of P100,000 previously paid by Villonco Realty
Company to Bormaheco, Inc.

3. Upon the execution of such deed of sale, Villonco Realty Company is obligated to pay Bormaheco, Inc. the balance
of the price in the sum of one million three hundred thousand pesos (P1,300,000).

4. Bormaheco, Inc. is ordered (a) to pay Villonco Realty Company twenty thousand pesos (P20,000) as attorney's fees
and (b) to pay Edith Perez de Tagle the sum of forty-two thousand pesos (P42,000) as commission. Costs against the
defendants-appellants.

SO ORDERED.

EMILLA URACA, CONCORDIA CHING and ONG SENG, represented by ENEDINO H. FERRER vs. CA, JACINTO VELEZ,
JR., CARMEN VELEZ TING, AVENUE MERCHANDISING, INC., FELIX TING AND ALFREDO GO [September 5, 1997]
Novation is never presumed; it must be sufficiently established that a valid new agreement or obligation has
extinguished or changed an existing one. The registration of a later sale must be done in good faith to entitle the
registrant to priority in ownership over the vendee in an earlier sale.

Statement of the Case

These doctrines are stressed by this Court as it resolves the instant petition challenging the December 28, 1993
Decision1 of Respondent Court of Appeals2 in CA-G.R. SP No. 33307, which reversed and set aside the judgment of
the Regional Trial Court of Cebu City, Branch 19, and entered a new one dismissing the petitioners' complaint. The
dispositive portion of the RTC decision reads: 3

WHEREFORE, judgment is hereby rendered:

1) declaring as null and void the three (3) deeds of sale executed by the Velezes to Felix C. Ting,
Manuel Ting and Alfredo Go;

2) ordering Carmen Velez Ting and Jacinto M. Velez, Jr. to execute a deed of absolute sale in favor of
Concordia D. Ching and Emilia M. Uraca for the properties in question for P1,400,000.00, which sum
must be delivered by the plaintiffs to the Velezes immediately after the execution of said contract;

3) ordering Carmen Velez Ting and Jacinto M. Velez, Jr. to reimburse Felix C. Ting, Manuel C. Ting and
Alfredo Go whatever amount the latter had paid to the former;

4) ordering Felix C. Ting, Manuel C. Ting and Alfredo Go to deliver the properties in question to the
plaintiffs within fifteen (15) days from receipt of a copy of this decision;

5) ordering all the defendants to pay, jointly and severally, the plaintiffs the sum of P20,000.00 as
attorney's fees.

SO ORDERED.

The Antecedent Facts

The facts narrated by the Court of Appeals are as follows: 4

The Velezes (herein private respondents) were the owners of the lot and commercial building in
question located at Progreso and M.C. Briones Streets in Cebu City.

Herein (petitioners) were the lessees of said commercial building. 5

On July 8, 1985, the Velezes through Carmen Velez Ting wrote a letter to herein (petitioners) offering
to sell the subject property for P1,050,000.00 and at the same time requesting (herein petitioners) to
reply in three days.

On July 10, 1985, (herein petitioners) through Atty. Escolastico Daitol sent a reply-letter to the
Velezes accepting the aforesaid offer to sell.

On July 11, 1985, (herein petitioner) Emilia Uraca went to see Carmen Ting about the offer to sell but
she was told by the latter that the price was P1,400,000.00 in cash or manager's check and not
P1,050,000.00 as erroneously stated in their letter-offer after some haggling. Emilia Uraca agreed to
the price of P1,400,000.00 but counter-proposed that payment be paid in installments with a down
payment of P1,000,000.00 and the balance of P400,000 to be paid in 30 days. Carmen Velez Ting did
not accept the said counter-offer of Emilia Uraca although this fact is disputed by Uraca.

No payment was made by (herein petitioners) to the Velezes on July 12, 1985 and July 13, 1985.
 On July 13, 1985, the Velezes sold the subject lot and commercial building to the Avenue Group
(Private Respondent Avenue Merchandising Inc.) for P1,050,000.00 net of taxes, registration fees,
and expenses of the sale.

At the time the Avenue Group purchased subject property on July 13, 1985 from the Velezes, the
certificate of title of the said property was clean and free of any annotation of adverse claims or lis
pendens.

On July 31, 1985 as aforestated, herein (petitioners) filed the instant complaint against the Velezes.

On August 1, 1985, (herein petitioners) registered a notice of lis pendens over the property in
question with the Office of the Register of Deeds. 6

On October 30, 1985, the Avenue Group filed an ejectment case against (herein petitioners) ordering
the latter to vacate the commercial building standing on the lot in question.

Thereafter, herein (petitioners) filed an amended complaint impleading the Avenue Group as new
defendants (after about 4 years after the filing of the original complaint).

The trial court found two perfected contracts of sale between the Velezes and the petitioners involving the real
property in question. The first sale was for P1,050,000.00 and the second was for P1,400,000.00. In respect to the
first sale, the trial court held that "[d]ue to the unqualified acceptance by the plaintiffs within the period set by the
Velezes, there consequently came about a meeting of the minds of the parties not only as to the object certain but
also as to the definite consideration or cause of the contract." 7 And even assuming arguendo that the second sale
was not perfected, the trial court ruled that the same still constituted a mere modificatory novation which did not
extinguish the first sale. Hence, the trial court held that "the Velezes were not free to sell the properties to the
Avenue Group."8 It also found that the Avenue Group purchased the property in bad faith. 9

Private respondents appealed to the Court of Appeals. As noted earlier, the CA found the appeal meritorious. Like the
trial court, the public respondent held that there was a perfected contract of sale of the property for P1,050,000.00
between the Velezes and herein petitioners. It added, however, that such perfected contract of sale was
subsequently novated. Thus, it ruled: "Evidence shows that that was the original contract. However, the same was
mutually withdrawn, cancelled and rescinded by novation, and was therefore abandoned by the parties when
Carmen Velez Ting raised the consideration of the contract [by] P350,000.00, thus making the price P1,400,000.00
instead of the original price of P1,050,000.00. Since there was no agreement as to the 'second' price offered, there
was likewise no meeting of minds between the parties, hence, no contract of sale was perfected." 10 The Court of
Appeals added that, assuming there was agreement as to the price and a second contract was perfected, the later
contract would be unenforceable under the Statute of Frauds. It further held that such second agreement, if there
was one, constituted a mere promise to sell which was not binding for lack of acceptance or a separate
consideration. 11

The Issues

Petitioners allege the following "errors" in the Decision of Respondent Court:

Since it ruled in its decision that there was no meeting of the minds on the "second" price offered
(P1,400,000.00), hence no contract of sale was perfected, the Court of Appeals erred in not holding
that the original written contract to buy and sell for P1,050,000.00 the Velezes property continued to
be valid and enforceable pursuant to Art. 1279 in relation with Art. 1479, first paragraph, and Art.
1403, subparagraph 2 (e) of the Civil Code.

II
 The Court of Appeals erred in not ruling that petitioners have better rights to buy and own the
Velezes' property for registering their notice of lis pendens ahead of the Avenue Group's registration
of their deeds of sale taking into account Art. 1544, 2nd paragraph, of the Civil Code. 12

The Court's Ruling

The petition is meritorious.

First Issue: No Extinctive Novation

The lynchpin of the assailed Decision is the public respondent's conclusion that the sale of the real property in
controversy, by the Velezes to petitioners for P1,050,000.00, was extinguished by novation after the said parties
negotiated to increase the price to P1,400,000.00. Since there was no agreement on the sale at the increased price,
then there was no perfected contract to enforce. We disagree.

The Court notes that the petitioners accepted in writing and without qualification the Velezes' written offer to sell at
P1,050,000.00 within the three-day period stipulated therein. Hence, from the moment of acceptance on July 10,
1985, a contract of sale was perfected since undisputedly the contractual elements of consent, object certain and
cause concurred. 13 Thus, this question is posed for our resolution: Was there a novation of this perfected contract?

Article 1600 of the Civil Code provides that "(s)ales are extinguished by the same causes as all other obligations, . . . ."
Article 1231 of the same Code states that novation is one of the ways to wipe out an obligation. Extinctive novation
requires: (1) the existence of a previous valid obligation; (2) the agreement of all the parties to the new contract; (3)
the extinguishment of the old obligation or contract; and (4) the validity of the new one. 14 The foregoing clearly
show that novation is effected only when a new contract has extinguished an earlier contract between the same
parties. In this light, novation is never presumed; it must be proven as a fact either by express stipulation of the
parties or by implication derived from an irreconcilable incompatibility between old and new obligations or
contracts. 15 After a thorough review of the records, we find this element lacking in the case at bar.

As aptly found by the Court of Appeals, the petitioners and the Velezes did not reach an agreement on the new price
of P1,400,000.00 demanded by the latter. In this case, the petitioners and the Velezes clearly did not perfect a new
contract because the essential requisite of consent was absent, the parties having failed to agree on the terms of the
payment. True, petitioners made a qualified acceptance of this offer by proposing that the payment of this higher
sale price be made by installment, with P1,000,000.00 as down payment and the balance of P400,000.00 payable
thirty days thereafter. Under Article 1319 of the Civil Code, 16 such qualified acceptance constitutes a counter-offer
and has the ineludible effect of rejecting the Velezes' offer. 17 Indeed, petitioners' counter-offer was not accepted by
the Velezes. It is well-settled that "(a)n offer must be clear and definite, while an acceptance must be unconditional
and unbounded, in order that their concurrence can give rise to a perfected contract." 18 In line with this basic
postulate of contract law, "a definite agreement on the manner of payment of the price is an essential element in the
formation of a binding and enforceable contract of sale." 19 Since the parties failed to enter into a new contract that
could have extinguished their previously perfected contract of sale, there can be no novation of the latter.
Consequently, the first sale of the property in controversy, by the Velezes to petitioners for P1,050,000.00, remained
valid and existing.

In view of the validity and subsistence of their original contract of sale as previously discussed, it is unnecessary to
discuss public respondent's theses that the second agreement is unenforceable under the Statute of Frauds and that
the agreement constitutes a mere promise to sell.

Second Issue: Double Sale of an Immovable

The foregoing holding would have been simple and straightforward. But Respondent Velezes complicated the matter
by selling the same property to the other private respondents who were referred to in the assailed Decision as the
Avenue Group.

Before us therefore is a classic case of a double sale — first, to the petitioner; second, to the Avenue Group. Thus, the
Court is now called upon to determine which of the two groups of buyers has a better right to said property.
Article 1544 of the Civil Code provides the statutory solution:

xxx xxx xxx

Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first
in the possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith.

Under the foregoing, the prior registration of the disputed property by the second buyer does not by itself confer
ownership or a better right over the property. Article 1544 requires that such registration must be coupled with good
faith. Jurisprudence teaches us that "(t)he governing principle is primus tempore, potior jure (first in time, stronger in
right). Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights except where the
second buyer registers in good faith the second sale ahead of the first, as provided by the Civil Code. Such knowledge
of the first buyer does not bar her from availing of her rights under the law, among them, to register firsther
purchase as against the second buyer. But in converso, knowledge gained by the second buyer of the first sale defeats
his rights even if he is first to register the second sale, since such knowledge taints his prior registration with bad
faith. This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first
buyer; that before the second buyer can obtain priority over the first, he must show that he acted in good faith
throughout (i.e, in ignorance of the first sale and of the first buyer's rights) — from the time of acquisition until the
title is transferred to him by registration or failing registration, by delivery of possession." 20 (Emphasis supplied)

After a thorough scrutiny of the records of the instant case, the Court finds that bad faith tainted the Avenue Group's
purchase on July 13, 1985 of the Velezes' real property subject of this case, and the subsequent registration thereof
on August 1, 1995. The Avenue Group had actual knowledge of the Velezes' prior sale of the same property to the
petitioners, a fact antithetical to good faith. For a second buyer like the Avenue Group to successfully invoke the
second paragraph, Article 1544 of the Civil Code, it must possess good faith from the time of the sale in its favor until
the registration of the same. This requirement of good faith the Avenue Group sorely failed to meet. That it had
knowledge of the prior sale, a fact undisputed by the Court of Appeals, is explained by the trial court thus:

The Avenue Group, whose store is close to the properties in question, had known the plaintiffs to be
the lessee-occupants thereof for quite a time. Felix Ting admitted to have a talk with Ong Seng in
1983 or 1984 about the properties. In the cross-examination, Manuel Ting also admitted that about a
month after Ester Borromeo allegedly offered the sale of the properties Felix Ting went to see Ong
Seng again. If these were so, it can be safely assumed that Ong Seng had consequently told Felix
about plaintiffs' offer on January 11, 1985 to buy the properties for P1,000,000.00 and of their timely
acceptance on July 10, 1985 to buy the same at P1,050,000.00.

The two aforesaid admissions by the Tings, considered together with Uraca's positive assertion that
Felix Ting met with her on July 11th and who was told by her that the plaintiffs had transmitted
already to the Velezes their decision to buy the properties at P1,050,000.00, clinches the proof that
the Avenue Group had prior knowledge of plaintiffs' interest. Hence, the Avenue Group defendants,
earlier forewarned of the plaintiffs' prior contract with the Velezes, were guilty of bad faith when
they proceeded to buy the properties to the prejudice of the plaintiffs. 21

The testimony of Petitioner Emilia Uraca supports this finding of the trial court. The salient portions of her testimony
follow:

BY ATTY. BORROMEO: (To witness)

Q According to Manuel Ting in his testimony, even if they know, referring to the
Avenue Group, that you were tenants of the property in question and they were
neighbors to you, he did not inquire from you whether you were interested in buying
the property, what can you say about that?
 A It was Felix Ting who approached me and asked whether I will buy the property,
both the house and the land and that was on July 10, 1985.

ATTY BORROMEO: (To witness)

Q What was your reply, if any?

A Yes, sir, I said we are going to buy this property because we have stayed for a long
time there already and we have a letter from Carmen Ting asking us whether we are
going to buy the property and we have already given our answer that we are willing
to buy.

COURT: (To witness)

Q What do you mean by that, you mean you told Felix Ting and you showed him that
letter of Carmen Ting?

WITNESS:

A We have a letter of Carmen Ting where she offered to us for sale the house and lot
and I told him that I have already agreed with Concordia Ching, Ong Seng and my self
that we buy the land. We want to buy the land and the building. 22

We see no reason to disturb the factual finding of the trial court that the Avenue Group, prior to the registration of
the property in the Registry of Property, already knew of the first sale to petitioners. It is hornbook doctrine that
"findings of facts of the trial court, particularly when affirmed by the Court of Appeals, are binding upon this
Court" 23save for exceptional
circumstances 24 which we do not find in the factual milieu of the present case. True, this doctrine does not apply
where there is a variance in the factual findings of the trial court and the Court of Appeals. In the present case, the
Court of Appeals did not explicitly sustain this particular holding of the trial court, but neither did it controvert the
same. Therefore, because the registration by the Avenue Group was in bad faith, it amounted to no "inscription" at
all. Hence, the third and not the second paragraph of Article 1544 should be applied to this case. Under this
provision, petitioners are entitled to the ownership of the property because they were first in actual possession,
having been the property's lessees and possessors for decades prior to the sale.

Having already ruled that petitioners' actual knowledge of the first sale tainted their registration, we find no more
reason to pass upon the issue of whether the annotation of lis pendens automatically negated good faith in such
registration.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is hereby SET ASIDE and the
dispositive portion of the trial court's decision dated October 19, 1990 is REVIVED with the following MODIFICATION
— the consideration to be paid under par. 2 of the disposition is P1,050,000.00 and not P1,400,000.00. No Costs.

SO ORDERED.

SAN MIGUEL PROPERTIES PHILIPPINES, INC. vs. SPOUSES ALFREDO HUANG and GRACE HUANG [July 31, 2000]
This is a petition for review of the decision,1 dated April 8, 1997, of the Court of Appeals which reversed the decision
of the Regional Trial Court, Branch 153, Pasig City dismissing the complaint brought by respondents against petitioner
for enforcement of a contract of sale.

The facts are not in dispute.

Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the purchase and sale of real
properties. Part of its inventory are two parcels of land totalling 1, 738 square meters at the corner of Meralco
Avenue and General Capinpin Street, Barrio Oranbo, Pasig City, which are covered by TCT Nos. PT-82395 and PT-
82396 of the Register of Deeds of Pasig City.

On February 21, 1994, the properties were offered for sale for ₱52,140,000.00 in cash. The offer was made to Atty.
Helena M. Dauz who was acting for respondent spouses as undisclosed principals. In a letter 2 dated March 24, 1994,
Atty. Dauz signified her clients’ interest in purchasing the properties for the amount for which they were offered by
petitioner, under the following terms: the sum of ₱500,000.00 would be given as earnest money and the balance
would be paid in eight equal monthly installments from May to December, 1994. However, petitioner refused the
counter-offer.

On March 29, 1994, Atty. Dauz wrote another letter 3 proposing the following terms for the purchase of the
properties, viz:

This is to express our interest to buy your-above-mentioned property with an area of 1, 738 sq. meters. For this
purpose, we are enclosing herewith the sum of ₱1,000,000.00 representing earnest-deposit money, subject to the
following conditions.

1. We will be given the exclusive option to purchase the property within the 30 days from date of your
acceptance of this offer.

2. During said period, we will negotiate on the terms and conditions of the purchase; SMPPI will secure the
necessary Management and Board approvals; and we initiate the documentation if there is mutual
agreement between us.

3. In the event that we do not come to an agreement on this transaction, the said amount of ₱1,000,000.00
shall be refundable to us in full upon demand. . . .

Isidro A. Sobrecarey, petitioner’s vice-president and operations manager for corporate real estate, indicated his
conformity to the offer by affixing his signature to the letter and accepted the "earnest-deposit" of ₱1 million. Upon
request of respondent spouses, Sobrecarey ordered the removal of the "FOR SALE" sign from the properties.

Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April 8, 1994, Sobrecarey
informed Atty. Dauz that petitioner was willing to sell the subject properties on a 90-day term. Atty. Dauz countered
with an offer of six months within which to pay.

On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz that petitioner had not yet
acted on her counter-offer. This prompted Atty. Dauz to propose a four-month period of amortization.

On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to June 13, 1994 within which to
exercise her option to purchase the property, adding that within that period, "[we] hope to finalize [our] agreement
on the matter."4 Her request was granted.

On July 7, 1994, petitioner, through its president and chief executive officer, Federico Gonzales, wrote Atty. Dauz
informing her that because the parties failed to agree on the terms and conditions of the sale despite the extension
granted by petitioner, the latter was returning the amount of ₱1 million given as "earnest-deposit." 5
On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the execution within five days
of a deed of sale covering the properties. Respondents attempted to return the "earnest-deposit" but petitioner
refused on the ground that respondents’ option to purchase had already expired.

On August 16, 1994, respondent spouses filed a complaint for specific performance against petitioner before the
Regional Trial Court, Branch 133, Pasig City where it was docketed as Civil Case No. 64660.

Within the period for filing a responsive pleading, petitioner filed a motion to dismiss the complaint alleging that (1)
the alleged "exclusive option" of respondent spouses lacked a consideration separate and distinct from the purchase
price and was thus unenforceable and (2) the complaint did not allege a cause of action because there was no
"meeting of the minds" between the parties and, therefore, no perfected contract of sale. The motion was opposed
by respondents.

On December 12, 1994, the trial court granted petitioner’s motion and dismissed the action. Respondents filed a
motion for reconsideration, but it was denied by the trial court. They then appealed to the Court of Appeals which,
on April 8, 1997, rendered a decision 6 reversing the judgment of the trial court. The appellate court held that all the
requisites of a perfected contract of sale had been complied with as the offer made on March 29, 1994, in connection
with which the earnest money in the amount of ₱1 million was tendered by respondents, had already been accepted
by petitioner. The court cited Art. 1482 of the Civil Code which provides that "[w]henever earnest money is given in a
contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract." The fact the
parties had not agreed on the mode of payment did not affect the contract as such is not an essential element for its
validity. In addition, the court found that Sobrecarey had authority to act in behalf of petitioner for the sale of the
properties.7

Petitioner moved for reconsideration of the trial court’s decision, but its motion was denied. Hence, this petition.

Petitioner contends that the Court of Appeals erred in finding that there was a perfected contract of sale between
the parties because the March 29, 1994 letter of respondents, which petitioner accepted, merely resulted in an
option contract, albeit it was unenforceable for lack of a distinct consideration. Petitioner argues that the absence of
agreement as to the mode of payment was fatal to the perfection of the contract of sale. Petitioner also disputes the
appellate court’s ruling that Isidro A. Sobrecarey had authority to sell the subject real properties. 8

Respondents were required to comment within ten (10) days from notice. However, despite 13 extensions totalling
142 days which the Court had given to them, respondents failed to file their comment. They were thus considered to
have waived the filing of a comment.

The petition is meritorious.

In holding that there is a perfected contract of sale, the Court of Appeals relied on the following findings: (1) earnest
money was allegedly given by respondents and accepted by petitioner through its vice-president and operations
manager, Isidro A. Sobrecarey; and (2) the documentary evidence in the records show that there was a perfected
contract of sale.

With regard to the alleged payment and acceptance of earnest money, the Court holds that respondents did not give
the ₱1 million as "earnest money" as provided by Art. 1482 of the Civil Code. They presented the amount merely as a
deposit of what would eventually become the earnest money or downpayment should a contract of sale be made by
them. The amount was thus given not as a part of the purchase price and as proof of the perfection of the contract of
sale but only as a guarantee that respondents would not back out of the sale. Respondents in fact described the
amount as an "earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals,9 it was held:

. . . While the ₱5,000 might have indeed been paid to Carlos in October, 1967, there is nothing to show that the same
was in the concept of the earnest money contemplated in Art. 1482 of the Civil Code, invoked by petitioner, as
signifying perfection of the sale. Viewed in the backdrop of the factual milieu thereof extant in the record, We are
more inclined to believe that the said ₱5,000.00 were paid in the concept of earnest money as the term was
understood under the Old Civil Code, that is, as a guarantee that the buyer would not back out, considering that it is
not clear that there was already a definite agreement as to the price then and that petitioners were decided to buy
6/7 only of the property should respondent Javellana refuse to agree to part with her 1/7 share. 10

In the present case, the ₱1 million "earnest-deposit" could not have been given as earnest money as contemplated in
Art. 1482 because, at the time when petitioner accepted the terms of respondents’ offer of March 29, 1994, their
contract had not yet been perfected. This is evident from the following conditions attached by respondents to their
letter, to wit: (1) that they be given the exclusive option to purchase the property within 30 days from acceptance of
the offer; (2) that during the option period, the parties would negotiate the terms and conditions of the purchase;
and (3) petitioner would secure the necessary approvals while respondents would handle the documentation.

The first condition for an option period of 30 days sufficiently shows that a sale was never perfected.1âwphi1 As
petitioner correctly points out, acceptance of this condition did not give rise to a perfected sale but merely to an
option or an accepted unilateral promise on the part of respondents to buy the subject properties within 30 days
from the date of acceptance of the offer. Such option giving respondents the exclusive right to buy the properties
within the period agreed upon is separate and distinct from the contract of sale which the parties may enter. 11 All that
respondents had was just the option to buy the properties which privilege was not, however, exercised by them
because there was a failure to agree on the terms of payment. No contract of sale may thus be enforced by
respondents.

Furthermore, even the option secured by respondents from petitioner was fatally defective. Under the second
paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding
upon the promisor only if the promise is supported by a distinct consideration. Consideration in an option contract
may be anything of value, unlike in sale where it must be the price certain in money or its equivalent. There is no
showing here of any consideration for the option. Lacking any proof of such consideration, the option is
unenforceable.

Equally compelling as proof of the absence of a perfected sale is the second condition that, during the option period,
the parties would negotiate the terms and conditions of the purchase. The stages of a contract of sale are as follows:
(1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract
to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential
elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the
price; and (3) consummation, which begins when the parties perform their respective undertakings under the
contract of sale, culminating in the extinguishment thereof. 12 In the present case, the parties never got past the
negotiation stage. The alleged "indubitable evidence"13 of a perfected sale cited by the appellate court was nothing
more than offers and counter-offers which did not amount to any final arrangement containing the essential
elements of a contract of sale. While the parties already agreed on the real properties which were the objects of the
sale and on the purchase price, the fact remains that they failed to arrive at mutually acceptable terms of payment,
despite the 45-day extension given by petitioner.

The appellate court opined that the failure to agree on the terms of payment was no bar to the perfection of the sale
because Art. 1475 only requires agreement by the parties as to the price of the object. This is error. In Navarro v.
Sugar Producers Cooperative Marketing Association, Inc.,14 we laid down the rule that the manner of payment of the
purchase price is an essential element before a valid and binding contract of sale can exist. Although the Civil Code
does not expressly state that the minds of the parties must also meet on the terms or manner of payment of the
price, the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of Appeals,15 agreement on
the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a
failure to agree on the price.16 In Velasco v. Court of Appeals,17 the parties to a proposed sale had already agreed on
the object of sale and on the purchase price. By the buyer’s own admission, however, the parties still had to agree on
how and when the downpayment and the installments were to be paid. It was held:

. . . Such being the situation, it can not, therefore, be said that a definite and firm sales agreement between the
parties had been perfected over the lot in question. Indeed, this Court has already ruled before that a definite
agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and
enforceable contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum of P10,000
as part of the down-payment that they had to pay cannot be considered as sufficient proof of the perfection of any
purchase and sale agreement between the parties herein under Art. 1482 of the new Civil Code, as the petitioners
themselves admit that some essential matter - the terms of the payment - still had to be mutually covenanted.18

Thus, it is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the
contract of sale which establishes the existence of a perfected sale.

In the absence of a perfected contract of sale, it is immaterial whether Isidro A. Sobrecarey had the authority to enter
into a contract of sale in behalf of petitioner. This issue, therefore, needs no further discussion.

WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents’ complaint is DISMISSED.

SO ORDERED.
A. A. ADDISON vs. MARCIANA FELIX and BALBINO TIOCO [August 3, 1918]

By a public instrument dated June 11, 1914, the plaintiff sold to the defendant Marciana Felix, with the consent of
her husband, the defendant Balbino Tioco, four parcels of land, described in the instrument. The defendant Felix
paid, at the time of the execution of the deed, the sum of P3,000 on account of the purchase price, and bound
herself to pay the remainder in installments, the first of P2,000 on July 15, 1914, and the second of P5,000 thirty days
after the issuance to her of a certificate of title under the Land Registration Act, and further, within ten years from
the date of such title P10, for each coconut tree in bearing and P5 for each such tree not in bearing, that might be
growing on said four parcels of land on the date of the issuance of title to her, with the condition that the total price
should not exceed P85,000. It was further stipulated that the purchaser was to deliver to the vendor 25 per centum
of the value of the products that she might obtain from the four parcels "from the moment she takes possession of
them until the Torrens certificate of title be issued in her favor."

It was also covenanted that "within one year from the date of the certificate of title in favor of Marciana Felix, this
latter may rescind the present contract of purchase and sale, in which case Marciana Felix shall be obliged to return
to me, A. A. Addison, the net value of all the products of the four parcels sold, and I shall obliged to return to her,
Marciana Felix, all the sums that she may have paid me, together with interest at the rate of 10 per cent per annum."

In January, 1915, the vendor, A. A. Addison, filed suit in Court of First Instance of Manila to compel Marciana Felix to
make payment of the first installment of P2,000, demandable in accordance with the terms of the contract of sale
aforementioned, on July 15, 1914, and of the interest in arrears, at the stipulated rate of 8 per cent per annum. The
defendant, jointly with her husband, answered the complaint and alleged by way of special defense that the plaintiff
had absolutely failed to deliver to the defendant the lands that were the subject matter of the sale, notwithstanding
the demands made upon him for this purpose. She therefore asked that she be absolved from the complaint, and
that, after a declaration of the rescission of the contract of the purchase and sale of said lands, the plaintiff be
ordered to refund the P3,000 that had been paid to him on account, together with the interest agreed upon, and to
pay an indemnity for the losses and damages which the defendant alleged she had suffered through the plaintiff's
non-fulfillment of the contract.

The evidence adduced shows that after the execution of the deed of the sale the plaintiff, at the request of the
purchaser, went to Lucena, accompanied by a representative of the latter, for the purpose of designating and
delivering the lands sold. He was able to designate only two of the four parcels, and more than two-thirds of these
two were found to be in the possession of one Juan Villafuerte, who claimed to be the owner of the parts so
occupied by him. The plaintiff admitted that the purchaser would have to bring suit to obtain possession of the land
(sten. notes, record, p. 5). In August, 1914, the surveyor Santamaria went to Lucena, at the request of the plaintiff
and accompanied by him, in order to survey the land sold to the defendant; but he surveyed only two parcels, which
are those occupied mainly by the brothers Leon and Julio Villafuerte. He did not survey the other parcels, as they
were not designated to him by the plaintiff. In order to make this survey it was necessary to obtain from the Land
Court a writ of injunction against the occupants, and for the purpose of the issuance of this writ the defendant, in
June, 1914, filed an application with the Land Court for the registration in her name of four parcels of land described
in the deed of sale executed in her favor by the plaintiff. The proceedings in the matter of this application were
subsequently dismissed, for failure to present the required plans within the period of the time allowed for the
purpose.

The trial court rendered judgment in behalf of the defendant, holding the contract of sale to be rescinded and
ordering the return to the plaintiff the P3,000 paid on account of the price, together with interest thereon at the rate
of 10 per cent per annum. From this judgment the plaintiff appealed.

In decreeing the rescission of the contract, the trial judge rested his conclusion solely on the indisputable fact that up
to that time the lands sold had not been registered in accordance with the Torrens system, and on the terms of the
second paragraph of clause (h) of the contract, whereby it is stipulated that ". . . within one year from the date of the
certificate of title in favor of Marciana Felix, this latter may rescind the present contract of purchase and sale . . . ."

The appellant objects, and rightly, that the cross-complaint is not founded on the hypothesis of the conventional
rescission relied upon by the court, but on the failure to deliver the land sold. He argues that the right to rescind the
contract by virtue of the special agreement not only did not exist from the moment of the execution of the contract
up to one year after the registration of the land, but does not accrue until the land is registered. The wording of the
clause, in fact, substantiates the contention. The one year's deliberation granted to the purchaser was to be counted
"from the date of the certificate of title ... ." Therefore the right to elect to rescind the contract was subject to a
condition, namely, the issuance of the title. The record show that up to the present time that condition has not been
fulfilled; consequently the defendant cannot be heard to invoke a right which depends on the existence of that
condition. If in the cross-complaint it had been alleged that the fulfillment of the condition was impossible for
reasons imputable to the plaintiff, and if this allegation had been proven, perhaps the condition would have been
considered as fulfilled (arts. 1117, 1118, and 1119, Civ. Code); but this issue was not presented in the defendant's
answer.

However, although we are not in agreement with the reasoning found in the decision appealed from, we consider it
to be correct in its result. The record shows that the plaintiff did not deliver the thing sold. With respect to two of the
parcels of land, he was not even able to show them to the purchaser; and as regards the other two, more than two-
thirds of their area was in the hostile and adverse possession of a third person.

The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered
when it is placed "in the hands and possession of the vendee." (Civ. Code, art. 1462.) It is true that the same article
declares that the execution of a public instruments is equivalent to the delivery of the thing which is the object of the
contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor
shall have had such control over the thing sold that, at the moment of the sale, its material delivery could have been
made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must
be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of
the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is
sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and
material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and
enjoyment are opposed by the interposition of another will, then fiction yields to reality — the delivery has not been
effected.

As Dalloz rightly says (Gen. Rep., vol. 43, p. 174) in his commentaries on article 1604 of the French Civil code, "the
word "delivery" expresses a complex idea . . . the abandonment of the thing by the person who makes the delivery
and the taking control of it by the person to whom the delivery is made."

The execution of a public instrument is sufficient for the purposes of the abandonment made by the vendor; but it is
not always sufficient to permit of the apprehension of the thing by the purchaser.

The supreme court of Spain, interpreting article 1462 of the Civil Code, held in its decision of November 10, 1903,
(Civ. Rep., vol. 96, p. 560) that this article "merely declares that when the sale is made through the means of a public
instrument, the execution of this latter is equivalent to the delivery of the thing sold: which does not and cannot
mean that this fictitious tradition necessarily implies the real tradition of the thing sold, for it is incontrovertible that,
while its ownership still pertains to the vendor (and with greater reason if it does not), a third person may be in
possession of the same thing; wherefore, though, as a general rule, he who purchases by means of a public
instrument should be deemed . . . to be the possessor in fact, yet this presumption gives way before proof to the
contrary."

It is evident, then, in the case at bar, that the mere execution of the instrument was not a fulfillment of the vendors'
obligation to deliver the thing sold, and that from such non-fulfillment arises the purchaser's right to demand, as she
has demanded, the rescission of the sale and the return of the price. (Civ. Code, arts. 1506 and 1124.)

Of course if the sale had been made under the express agreement of imposing upon the purchaser the obligation to
take the necessary steps to obtain the material possession of the thing sold, and it were proven that she knew that
the thing was in the possession of a third person claiming to have property rights therein, such agreement would be
perfectly valid. But there is nothing in the instrument which would indicate, even implicitly, that such was the
agreement. It is true, as the appellant argues, that the obligation was incumbent upon the defendant Marciana Felix
to apply for and obtain the registration of the land in the new registry of property; but from this it cannot be
concluded that she had to await the final decision of the Court of Land Registration, in order to be able to enjoy the
property sold. On the contrary, it was expressly stipulated in the contract that the purchaser should deliver to the
vendor one-fourth "of the products ... of the aforesaid four parcels from the moment when she takes possession of
them until the Torrens certificate of title be issued in her favor." This obviously shows that it was not forseen that the
purchaser might be deprived of her possession during the course of the registration proceedings, but that the
transaction rested on the assumption that she was to have, during said period, the material possession and
enjoyment of the four parcels of land.

Inasmuch as the rescission is made by virtue of the provisions of law and not by contractual agreement, it is not the
conventional but the legal interest that is demandable.

It is therefore held that the contract of purchase and sale entered into by and between the plaintiff and the
defendant on June 11, 1914, is rescinded, and the plaintiff is ordered to make restitution of the sum of P3,000
received by him on account of the price of the sale, together with interest thereon at the legal rate of 6 per annum
from the date of the filing of the complaint until payment, with the costs of both instances against the appellant. So
ordered.
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC. vs. MAYFAIR THEATER, INC.,
[November 21, 1996]

Before us is a petition for review of the decision 1 of the Court of Appeals2 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, 4 found 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.

for use by Mayfair as a motion picture theater and for a term of 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 contract (Rosenstock vs. Burke, 46 Phil. 217). To constitute a legal offer, the proposal
must be certain as to the object, the price and other essential terms of the contract (Art. 1319, Civil
Code).

Based on the foregoing discussion, it is evident that the provision granting Mayfair "30-days exclusive
option to purchase" the leased premises is NOT AN OPTION in the context of Arts. 1324 and 1479,
second paragraph, of the Civil Code. Although the provision is certain as to the object (the sale of the
leased premises) the price for which the object is to be sold is not stated in the provision Otherwise
stated, the questioned stipulation is not by itself, an "option" or the "offer to sell" because the clause
does not specify the price for the subject property.

Although the provision giving Mayfair "30-days exclusive option to purchase" cannot be legally
categorized as an option, it is, nevertheless, a valid and binding stipulation. What the trial court failed
to appreciate was the intention of the parties behind the questioned proviso.

xxx xxx xxx

 The provision in question is not of the pro-forma type customarily found in a contract of lease. Even
appellees have recognized that the stipulation was incorporated in the two Contracts of Lease at the
initiative and behest of Mayfair. Evidently, the stipulation was intended to benefit and protect
Mayfair in its rights as lessee in case Carmelo should decide, during the term of the lease, to sell the
leased property. This intention of the parties is achieved in two ways in accordance with the
stipulation. The first is by giving Mayfair "30-days 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 property) shall recognize the lease and be bound by all the terms and
conditions thereof."

In other words, paragraph 8 of the two Contracts of lease, particularly the stipulation giving Mayfair
"30-days exclusive option to purchase the (leased premises)," was meant to 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 implicit obligation of Carmelo once it
had decided to sell the leased property, was not only to notify Mayfair of such decision to sell the
property, but, more importantly, to make an offer to sell the leased premises to Mayfair, giving the
latter a fair and reasonable opportunity to accept or reject the offer, before offering to sell or selling
the leased property to third parties. The right vested in Mayfair is analogous to the right of first
refusal, which means that Carmelo should have offered the sale of the leased premises to Mayfair
before offering it to other parties, or, if Carmelo should receive any offer from third parties to
purchase the leased premises, then Carmelo must first give Mayfair the opportunity to match that
offer.

In fact, Mr. Pascal understood the provision as giving Mayfair a right of first refusal when he made
the telephone call to Mr. Yang in 1974. Mr. Pascal thus testified:

Q Can you tell this Honorable Court how you made the offer to Mr.
Henry Yang by telephone?

A I have an offer from another party to buy the property and having
the offer we decided to make an offer to Henry Yang on a first-
refusal basis. (TSN November 8, 1983, p. 12.).

and on cross-examination:

Q When you called Mr. Yang on August 1974 can you remember
exactly what you have told him in connection with that matter, Mr.
Pascal?

A More or less, I told him that I received an offer from another party
to buy the property and I was offering him first choice of the enter
property. (TSN, November 29, 1983, p. 18).

We rule, therefore, that the foregoing interpretation best renders effectual the intention of the
parties.9

Besides the ruling that paragraph 8 vests in Mayfair the right of first 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:

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:
 On September 20, 1992, counsel for petitioner Equatorial 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 Appeals21 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 Parañaque,
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.
SAMPAGUITA PICTURES, INC. vs. JALWINDOR MANUFACTURERS, INC. [October 11, 1979]

This case was certified to this Court by the Court of Appeals pursuant to the provisions of Section 17, paragraph (6) in
relation to Section 31 of the Judiciary Act of 1948.

Plaintiff-appellant Sampaguita Pictures, Inc. (hereinafter referred to as Sampaguita) is the owner of the Sampaguita
Pictures Building located at the corner of General Araneta and General Roxas Streets, Cubao, Quezon City. The
roofdeck of the building and all existing improvements thereon were leased by Sampaguita to Capitol "300" Inc.
(Capitol for short), and it was agreed, among other things, that the premises shall be used by said club for social
purposes exclusively for its members and guests; that all permanent improvements made by the lessee on the leased
premises shall belong to the lessor without any obligation on the part of the lessor to reimburse the lessee for the
sum spent for said improvements; that the improvements made by lessee have been considered as part of the
consideration of the monthly rental and said improvements belong to the lessor; that any remodelling, alterations
and/or addition to the premises shall be at the expense of the lessee and such improvements belong to the lessor,
without any obligation to reimburse the lessee of any sum spent for said improvements. (pp. 29-32, Record on
Appeal).

Capitol "300" purchased on credit from defendant-appellee Jalwindor Manufacturers, Inc. (hereinafter referred to as
Jalwindor) glass and wooden jalousies which were delivered and installed in the leased premises by Jalwindor
replacing the existing windows. On June 1, 1964, Jalwindor filed with the Court of First Instance of Rizal, Quezon City,
an action for collection of a sum of money with a petition for preliminary attachment against Capitol for its failure to
pay its purchases. The parties submitted to the trial court a Compromise Agreement wherein Capitol acknowledged
its indebtedness to Jalwindor in the amount of P9,531.09, exclusive of attorney's fees and interest, payable in
monthly installments of at least P300.00 a month beginning December 15, 1964; and pending liquidation of the said
obligation, all the materials purchased by Capitol will be considered as security for such undertaking. (p. 13, Record
on Appeal).

In the meantime, Capitol "300" was not able to pay rentals to Sampaguita from March 1, 1964 to April 30, 1965,
water, electric and telephone services. Sampaguita filed a complaint for ejectment and for collection of a sum of
money against Capitol and on June 8, 1965, the City Court of Quezon City rendered judgment ordering Capitol to
vacate the premises and to pay Sampaguita.

On the other hand, Capitol likewise failed to comply with the terms of the Compromise Agreement, and on July 31,
1965, the Sheriff of Quezon City made levy on the glass and wooden jalousies in question. Sampaguita filed a third
party claim alleging that it is the owner of said materials and not Capitol, Jalwindor however, filed an indemnity bond
in favor of the Sheriff and the items were sold et public auction on August 30, 1965 with Jalwindor as the highest
bidder for P6,000.00.

Sampaguita filed with the Court of First Instance of Rizal, Branch IV of Quezon City, an action to nullify the Sheriff's
Sale and for the issuance of a writ of preliminary injunction against Jalwindor from detaching the glass and wooden
jalousies. Jalwindor was ordered to maintain the status quo pending final determination of the case. No actual
hearing was held and the parties submitted the following stipulation of facts for the consideration of the court.

1. That plaintiff and defendant are both domestic corporations duly organized and existing by and
under the laws of the Philippines:

2. That plaintiff leased to the CAPITOL "300", Inc. the roofdeck of the Sampaguita building and all the
existing improvements thereon for a monthly, rental of P650.00; that the parties to the lease
contract agreed that all permanent improvements made by the lessee on the leased premises shall
belong to the lessor without any obligation on the part of the lessor to reimburse the lessee for the
sum spent for said improvements; that it was agreed upon by the parties that the improvements
made by the lessee have been considered as part of the consideration of the monthly rental;

3. That CAPITOL "300", Inc. made alterations on the leased premises; that it removed the then
existing windows and replaced 'them with the following items bought on credit from the JALWINDOR
MANUFACTURERS INC.. valued at P9,531.09, to wit:
 J-21(lever-type) Solex Bluepane

Glass Jaluosies

11 Sets 15'-1 3/4" x 47-7/8" (5 units)

4 Sets 13'-5 3/4" x 47-7/8" (5 units)

3 Sets 10'-9 3/4" x 47-7/7" (4 units)

2 Sets 18'-1 3/3" x 56-3/8" (6 units)

1 Set 9'-1 3/4" x 65-3/8" (3 units)

115 Pcs. Roto Operators for J-21

MODEL J-21 (Roto-type) Glass

and Wood Jalousies

8 Sets 32-1/2" x 60" Solex Bluepane

19 Sets 31-1/4" x 48" Solex Bluepane

18 Sets 34" x 48" Wood

4. That after the CAPITOL "300", Inc. failed to pay the price of the items mentioned in the preceding
paragraph, JALWINDOR MANUFACTURERS, Inc, filed a case for collection of a sum of money against
CAPITOL "300", Inc. with the Court of First Instance of Rizal (Branch IV Quezon City), Civil Case No. Q-
8040; that by virtue of a Compromise Agreement, CAPITOL "300", Inc. acknowledged indebtedness in
favor of JALWINDOR in the amount of P9,531,09, with a stipulation in the said Compromise
Agreement, that the items forming part of the improvements will form as security for such an
undertaking;

5. That due to non-compliance by CAPITOL "300", Inc., JALWINDOR executed judgment that the
Sheriff of Quezon City made levy on the items above-stated in paragraph 3 hereof and sold them at a
public auction to JALWINDOR MANUFACTURERS, INC. as the highest bidder, on August 30, 1965, for
the total amount of P 6,000.00:

6. That after CAPITOL "300", Inc. failed to pay the rentals in arrears from March 1, 1964 to April 30,
1965, water, electric and telephone services amounting to P 10,772.90, the plaintiff SAMPAGUITA
PICTURES, INC. filed with the City Court of Quezon City, Civil Case No. 11-13161 for ejectment and
collection of a sum of money against the CAPITOL "300", Inc,; that the City Court rendered judgment
in favor of the Sampaguita Pictures, Inc., on June 8, 1965, ordering the CAPITOL "300", Inc. to vacate
the premises located at the Sampaguita Building and to pay the Sampaguita Pictures, Inc.;

7. That after the Sheriff of Quezon City made levy on the items above-stated in paragraph 3 hereof
situated on the roofdeck of the Sampaguita Building, plaintiff filed a Third Party Claim stated in its
affidavit on the ground of its right and title to the possession of the items and that CAPITOL "300",
Inc. has no right or title whatsoever to the possession over said items; that defendant filed a bond to
indemnify the Sheriff against the claim, and the Sheriff sold the items to the defendant; that the
JALWINDOR MANUFACTURERS, Inc., being the highest bidder and the execution creditor, considered
itself paid to the amount of P6,000.00;

8. That the parties herein agree that the matter of attorney's fees be left to the sound discretion of
the Court, which shall not be less than P500.00. (Record on Appeal, pp. 11-14).
On October 20, 1967, based on said Stipulation of Facts, the lower court dismissed the complaint and ordered
Sampaguita to pay Jalwindor the amount of P500.00 as attorney's fees. Sampaguita filed a motion for reconsideration
which was likewise denied, hence, the instant appeal.

Petitioner-appellant raised the following assignment of errors:

The lower court erred in holding that Capitol "300" Inc. could not legally transfer or assign the glass
and wooden jalousies in question to the plaintiff-appellant.

II

The lower court erred in not holding that plaintiff-appellant was the rightful owner of the glass and
wooden jalousies when they were sold by the Sheriff at the public auction,

III

The lower court erred in not declaring as null and void the levy on execution and the Sheriff's sale at
public auction of the glass and wooden jalousies.

IV

The lower court erred in holding that defendant-appellee became the rightful owner of the glass and
wooden jalousies.

When the glass and wooden jalousies in question were delivered and installed in the leased premises, Capitol
became the owner thereof. Ownership is not transferred by perfection of the contract but by delivery, either actual
or constructive. This is true even if the purchase has been made on credit, as in the case at bar. Payment of the
purchase price is not essential to the transfer of ownership as long as the property sold has been delivered.
Ownership is acquired from the moment the thing sold was delivered to vendee, as when it is placed in his control
and possession. (Arts. 1477, 1496 and 1497, Civil Code of the Phil.)

Capitol entered into a lease Contract with Sampaguita in 1964, and the latter became the owner of the items in
question by virtue of the agreement in said contract "that all permanent improvements made by lessee shall belong
to the lessor and that said improvements have been considered as part of the monthly rentals." When levy or said
items was made on July 31, 1965, Capitol, the judgment debtor, was no longer the owner thereof.

The action taken by Sampaguita to protect its interest is sanctioned by Section 17, Rule 39 of the Rules of Court,
which reads:

Section 17, Proceedings where property claimed by third person.

... The officer is not liable for damages for the taking or keeping of the property to any third-party
claimant unless a claim is made by the latter and unless an action for damages is brought by him
against the officer within one hundred twenty (120) days from the date of the filing of the bond. But
nothing herein contained shall prevent claimant from vindicating his claim to the property by any
action.

It is, likewise, recignized in the case of Bayer Phil., Inc. vs. Agana, et al., 63 SCRA 358, wherein the Court declared,
"that the rights of third party claimants over certain properties levied upon by the sheriff to satisfy the judgment,
may not be taken up in the case where such claims are presented but in a separate and independent action instituted
by claimants. ... and should a third-party appear to claim is denied, the remedy contemplated by the rules in the
filing by said party of a reinvicatiry action against the execution creditor or the purchaser of the property after the
sale is completed or that a complaint for damages to be charged against the bond filed by the creditor in favor of the
sheriff. ... Thus, when a property levied upon by the sheriff pursuant to a writ of execution is claimed by a third
person in a sworn statement of ownership thereof, as prescribed by the rules, an entirely different matter calling for a
new adjudication arises."

The items in question were illegally levied upon since they do not belong to the judgemnt debtor. The power of the
Court in execution of judgment extends only to properties unquestionably belonging to the judgment debtor. The
fact that Capitol failed to pay Jalwindor the purchase price of the items levied upon did not prevent the transfer of
ownership to Capitol. The complaint of Sampaguita to nullify the Sheriff's sale well-founded, and should prosper.
Execution sales affect the rights of judgment debtor only, and the purchaser in the auction sale acquires only the
right as the debtor has at the time of sale. Since the items already belong to Sampaguita and not to Capitol, the
judgment debtor, the levy and auction sale are, accordingly, null and void. It is well-settled in this jurisdiction that the
sheriff is not authorized to attach property not belonging to the judgment debtor. (Arabay, Inc. vs. Salvador, et al., 3
PHILAJUR, 413 [1978], Herald Publishing vs. Ramos, 88 Phil. 94, 100).

WHEREFORE, the decision appealed from is hereby reversed, and plaintiff-appellant Sampaguita is declared the
lawful owner of the disputed glass and wooden jalousies. Defendant-appellee Jalwindor is permanently enjoined
from detaching said items from the roofdeck of the Sampaguita Pictures Building, and is also ordered to pay plaintiff-
appellant the sum of P1,000.00 for and as attorney's fees, and costs.

SO ORDERED.
A. W. BEAN, administrator of the estate of George Case v. THE B. W. CADWALLADER COMPANY [March
26, 1908]

On the 4th day of June, 1906, the plaintiff brought an action in the Court of First Instance of the city of Manila to
recover of the defendant the following sums:chanrob1es virtual 1aw library

(a) The sum of P7,356.80, with interest thereon at the rate of 6 per cent per annum, from the 6th day of December,
1905, being the balance due for timber sold and delivered by the plaintiff to the defendant, under and pursuant to
the contract set out in Exhibit A of the complaint.

(b) The sum of P2,782.75, the balance due for timber sold and delivered by the plaintiff to the defendant, under and
pursuant to the agreement set out in Exhibit B of the complaint.

(c) The sum of P810, the actual damage suffered by the plaintiff by reason of the violation of said agreements (a) and
(b), and for such other damages as the proof at the trial may show the plaintiff had suffered, etc.

Said Exhibit A is as follows:

"MANILA, September 6, 1905.

"Mr. GEORGE CASE, Manila, P. I.

"DEAR SIR: We wish to confirm our acceptance of your verbal offer to furnish us a cargo of ipil and molave (the
molave to consist of 10 logs, more or less), said cargo to comprise from eight thousand to ten thousand cubic feet,
English measurement, and the same to be delivered alongside our vessel at Basilan, for the sum of sixty cents (60
cents), Philippine currency, per English cubic foot. It is understood that we are to pay the forestry dues at Manila, the
same to be charged against you, and it is also understood that delivery is to be made within three months from date
of this letter, you notify us by telegraph when delivery can be made.

"Very respectfully,

"THE B. W. CADWALLADER CO.,

"By B. W. CADWALLADER, President.

"It is understood that the timber is to be round and that allowance will be made in measurement of same for the
bark, which is to be removed.

"B. W. C."cralaw virtua1aw library

Exhibit B is as follows:jgc:chanrobles.com.ph

"MANILA. P. I., January 3, 1905.

"THE B. W. CADWALLADER CO., Manila, P. I.

"DEAR SIRS: I propose to furnish you the following native timber at the prices and under the conditions herein
expressed, viz:jgc:chanrobles.com.ph

"Calantas, at twenty-five (25) cents per English cubic foot, all forestry charges to be paid by me.

"Calantas, short and crooked, at ten (10) cents per English cubic foot, all forestry charges to be paid by you.

"Ipil, at sixty (60) cents per English cubic foot, all forestry charges to be paid by me.

"Ipil, short pieces, at fifteen (15) cents per English cubic foot, all forestry charges to be paid by you.
"Mangachupay, No. 1, at twenty-five (25) cents per English cubic foot, all forestry charges to be paid by me.

"These prices are in the Philippine currency and include delivery alongside ship or barge at Basilan, I to furnish the
necessary men to load same, and you to furnish steam gear to assist in loading; the cargo to be mixed and consisting
of approximately fifteen thousand cubic feet. Delivery to be made within three months from this date.

"Very respectfully,

"GEORGE CASE."cralaw virtua1aw library

"MANILA, P. I., January 3, 1905.

"MR. GEORGE CASE, Manila, P. I.

"DEAR SIR: We beg to acknowledge receipt of your favor of even date proposing to furnish us calantas, ipil, and
mangachupay, and state that we hereby accept the prices and conditions therein mentioned.

"Very respectfully,

"THE B. W. CADWALLADER CO.,

"By B. W. CADWALLADER, President.

On February 6, 1906, the defendant and appellant wrote the following letter to George Case:jgc:chanrobles.com.ph

"MANILA, February 6, 1906.

"MR. GEO. CASE, Manila.

"DEAR SIR: Conforming our conversation of this morning, we will make you a further advance of P1,000 for the logs
at your cuttings on Basilan islands, Approximating 30,000 English cubic feet, more or less. It is understood that this
timber is not otherwise encumbered, and that this payment of P2,500 on December 29, 1905, shall draw interest at
the rate of 10 per cent per annum, each from date of payment, until sufficient timber has been delivered to us under
our contract to cover the amount.

"It is further understood that these two payment are part payments on the entire 30,000 English cubic feet, more or
less, and that the timber shall be held subject to our order.

"If this is satisfactory to you, please confirm the same.

"Yours, faithfully,

"THE B. W. CADWALLADER CO.,

"By B. W. CADWALLADER, President.

"MANILA, P. I., February 6, 1906.

"I hereby confirm acceptance of the above.

"GEO. CASE."cralaw virtua1aw library

The plaintiff alleged and undertook to prove that, in accordance with the said agreement as represented by Exhibit A,
he did, within three months from said 6th day of September, 1905, deliver at the port of Basilan, P. I., a cargo of
native logs, consisting of 16,428 English cubic feet of ipil, and duly notified the defendant by telegram of such
delivery; that the value of said logs so delivered at the price stipulated was P9,856.50; that on the 29th day of
December, 1905, the defendant paid to the plaintiff the sum of P2,500 to apply on the said account, and that there
was still due from the defendant to the plaintiff, upon said contract as represented by Exhibit A, the sum of
P7,356.80, with interest at the rate of 6 per cent from the 6th day of December, 1905.

The plaintiff also alleged and attempted to prove that he did, in pursuance of the terms of the contract represented
by Exhibit B, within three months from the said 3d day of January, 1906, deliver at the port of Basilan, P. I., 15,131
English cubic feet of mangachupay and calantas, and did notify the defendant of such delivery; that the value of said
timber so delivered at the price agreed upon in said contract as represented by Exhibit B was P3,782.75; that on the
6th day of February, 1906, the defendant paid to the plaintiff, to apply on said account, the sum of P1,000, and that
there is still due and owing to the plaintiff by the defendant the sum of P2,782.75, with interest at the rate of 6 per
cent from the 3d day of April, 1906.

The plaintiff further alleges that, by reason of the violation on the part of the defendant of said contracts as
represented by Exhibits A and B, he, the said plaintiff, was obliged to borrow money from third persons and incur
expenses in travelling, amounting to the sum of P810, and that, by reason of the violation of the said contracts on the
part of the defendant, this sum was due and payable as damages by the defendant to the plaintiff.

On the 16th day of July, 1906, the defendant answered the complaint of the plaintiff and admitted the execution and
delivery of the said contracts, but alleged that the plaintiff had make certain misrepresentations concerning the
character of the costs of the Island of Basilan; that the plaintiff had represented that the harbor of said Island of
Basilan, where said logs were to be delivered, was a safe harbor, and that it was easily practicable for a vessel to
come alongside the land, whereas, in fact, said harbor was unsafe, and that it was impossible for the defendant to
enter said harbor with the boats and to load said logs.

The defendant further alleged that the plaintiff had not, as a matter of fact, delivered to it the logs or timber, nor any
part of the same, as represented by said contracts, and asked for a judgment against the plaintiff for the sum of
P3,500, the money paid by the defendant to the plaintiff, and interest on the sum of P2,500 from the 29th of
December, 1905, and interest on P1,000 from the 6th of February, 1906, at the rate of 10 per cent.

The cause was duly tried in the Court of First Instance of the city of Manila, and on the 27th day of June, 1907, the
court rendered a judgment in favor of the plaintiff and against the defendant for the sum of P10,033.39, with interest
at 6 per cent from the 3d day of April, 1906, and costs.

After hearing the evidence adduced during the trial of the cause, the lower court made the following findings of fact:

"First. That on September 6, 1906 [1905], the plaintiff and the defendants erred into a written contract (Exhibit A), by
virtue of which the former bound himself to furnish and sell to the latter a cargo of pieces of native wood, about
eight to ten thousand (8,000 to 10,000) cubic feet, for the sum of sixty (60) cents, Philippine currency, per English
cubic foot, and also bound himself to deliver said pieces of wood to the defendants alongside the latter’s ship at
Basilan, which delivery was to be effected within three months from the date of the contract, and the same plaintiff
was to wire the defendants regarding the date on which the above delivery could be made.

"Second. That on January 3 of the following year, 1906, the plaintiff and the defendant entered into another contract,
by which the former bound to himself to deliver and sell to the defendants another cargo of native lumber consisting
of calantas, ipil, and mangachupay, at the various prices mentioned in the same contract (Exhibit B), for a cubic foot,
and agreeing also to deliver it to the defendants alongside the latter’s vessel at Basilan, within the period of three
months from the said date.

"Third. That, for the fulfillment of the first contract, the plaintiff cut a great quantity of lumber, sufficient for the
purpose, and placed the same on the near the beach at Punta Matanal, Island of Basilan, where his cuttings were
established, and had the lumber ready for delivery to the defendants within the period fixed in the above-mentioned
Exhibit A; that on November 17 of the same year, 1905 — that is, two months and eleven days after the date of the
contract, and therefore within the fixed term of three months — he informed the defendants by a telegram (Exhibit
2), that the said cargo of lumber could be shipped on about December 6, a date within the period agreed to, and
added that good and strong halyards were required; that some pieces weighed eight tons; and he asked the said
defendants to wire him immediately the probable date on which their steamer would leave Manila for his port and
the probable date her arrival in Basilan. To this communication the defendants replied by telegrams also, on the
same date, stating that they could not fix the probable date of the departure of the steamer until after the 24th, and
asked the plaintiff whether he was able to make contracts for transportation at Basilan, and at what rate. The plaintiff
replied to this cable on the following day, the 18th, stating that he was unable to obtain the transportation there, and
again requested the defendants to wire the probable date on which their steamer would arrive at Basilan.

"Fourth. That the defendants advised the plaintiff in Basilan, by telegram on December 8, that the ship Lilly-bonne
was dismasted, that they had no means of transportation, and that they wished him to telegraph them the quantity
of lumber ready for shipment, and to inform them if he could obtain transportation from there. The said plaintiff,
after giving in his reply the particulars relating to the quantity and prices of lumber referred to by the defendants in
their previous telegram, reported on the 18th of the same month that, as stated by the captain of the S. S. Robert K,
the defendants might contract for transportation with the Atlantic, Gulf and Pacific Co., that they might leave the
lighter Quince (Jan) at the starting point with a motor engine, which was very necessary, and pointed out, moreover,
in the same telegram, that the defendants were very late in furnishing the transportation. The defendants, on the
20th of the same month of December, wired to the plaintiff again, stating that the Atlantic, Gulf and Pacific Co. could
not supply them with transportation, and that there was at the time no others available way to secure it. (Exhibit B
1.)

"Fifth. That the plaintiff, having come to Manila on or about Christmas day of the same year, interviewed Mr. B. W.
Cadwallader, the agent of the defendant company, for the purpose of getting a boat for Basilan in order to take away
the lumber there ready for shipment, and, after an inquiry made by him at the office of the Atlantic, Gulf and Pacific
Company, it was agreed by the defendants and the said Atlantic, Gulf and Pacific Company, that the lighter Primera,
towed by the S. S. Robert K., would be sent there for the transportation of the lumber.

"Sixth. That the lighter Primera, towed by the S. S. Robert K, having arrived, on January 22, 1906, at the point of the
eastern shore of Basilan where the cargo of lumber prepared by the plaintiff was to be shipped, it happened that,
after the said lighter had been placed in the proper position for loading, and when a portion of the lumber was put
on rafts (balsas) in order to be delivered alongside the said lighter Primera, the latter grounded on the beach on
account of the breaking of the anchor chain, the said lighter thereby becoming useless for the shipment of the
lumber.

"Seventh. That new steps were taken by the plaintiff, together with the defendants, about the beginning of February,
1906, in order to make arrangements with the Atlantic, Gulf and Pacific Company of this city for the transportation of
said lumber from Basilan to Manila, when the logs covered by the second contract were cut and ready at Basilan, and
the Atlantic Gulf furnished the lighter Juanita, towed also by the same S. S. Robert K. That the lighter, after having
appeared first on March 23 at the place for the shipment of the lumber, without making any attempt at loading, on
account of the unsettled condition of the sea, did attempt to effect the shipment during the early part of the
following month of April, by anchoring near the place where the logs were placed on rafts ready for delivery; but on
placing the gang planks necessary for loading, the anchor chain was broken at the moment when operations began,
which resulted in the suspension of the shipment, and the return of the lumber to its original place on shore. The
lighter Juanita, towed by the S. S. Robert K. left the place, and since that date no action has been taken or efforts
made by the defendants for the purpose of taking away the two cargoes of lumber, purchased from the plaintiff, who
had already received from the defendants P2,500 on December 29, 1905, and a further P1,000 on February 6, 1906,
as an advance payment on the mentioned cargoes, and had bound himself to pay the same defendants interest at
the rate of 10 per cent per annum of the above amounts."cralaw virtua1aw library

From this judgment the defendant appealed and made a number of assignments of error, which are more specifically
included within the following:chanrob1es virtual 1aw library

First. The defendant has never received or accepted the timber which is the object of the contracts.

Second. If the defendant has defaulted in receiving the property, the law has provided remedies and the plaintiff
must pursue those remedies or fail.

Third. There has been no default upon the part of the defendant.

Fourth. The plaintiff has never had said timber ready for delivery at ship’s side.

Fifth. The conditions at Punta Matanal are such that the plaintiff can not make delivery at ship’s side, and the default
is therefore on the part of the plaintiff and not on the part of the defendant.

Under the first above-noted assignment of error the defendant and appellant argues that the contract between the
parties was a contract de compraventa under the Civil Code, or an executory contract under the common law, and
cites various provisions of the Civil Code as well as of the Commercial Code for the purpose of showing that, under a
contract of this kind, an absolute and manual delivery of the property sold is necessary before the contract becomes
an executed one upon which an action can be based. It will be remembered that, under the terms of the contract,
the logs in question were only to be delivered by the plaintiff "alongside our (defendant’s) vessel at Basilan, within
three months from the date of this letter" (September 6, 1905). There is nothing in the contract which in any way
required the plaintiff to do more than to place said logs alongside a vessel to be sent to the point of delivery by the
defendant. To the above contention of the defendant and appellant the plaintiff and appellee contends that the
following propositions are clearly established by the testimony:chanrob1es virtual 1aw library

(a) That the plaintiff cut the logs required by the contract.

(b) That plaintiff transported said logs to the beach.

(c) That plaintiff had said logs measured by the representative of the Forestry Bureau of Government of the
Philippine Islands.

(d) That plaintiff placed said logs in rafts to be floated alongside a vessel to be sent to the point of delivery by the
defendant.

(e) That plaintiff did actually place the said logs along-side the vessel known as the Juanita in the month of April,
1906.

(f) That the crew of the Juanita did in fact actually proceed to place said logs on board said vessel, but failed because
the anchor chain was not strong enough to sustain a 1 ½ ton skid, which the crew were trying to pull in place.

The plaintiff and appellee insists that he had done all that was required of him by the contract.

The evidence shows that at least on one occasion, if not more, the plaintiff had about eighty men at the point of
delivery of said logs, for the purpose of assisting the defendant and appellant in loading said logs.

The evidence shows beyond peradventure of doubt that at the time the said Juanita, the vessel of the defendant, was
at Basilan, some of the logs were placed alongside of the vessel, in accordance with the terms of the contract. It is
denied that all of the logs to be furnished by the plaintiff under the terms of the contract were placed in rafts in the
water at or near the point of delivery. Certainty the plaintiff can not be required to show that he placed each log
alongside the vessel, after he has shown that he had all the logs rafted in the water at the point of delivery and had
placed some of them alongside the vessel in accordance with the terms of the contract. He could not be required to
place others alongside the vessel until after the first had been loaded. (Whitcomb v. Whitney, 24 Mich., 485.) The fact
is not disputed that the plaintiff duly notified the defendant, within the period prescribed in the contract, that the
said logs were ready for delivery.

Actual manual delivery of an article sold is not essential to the passing of the title thereto (art 1450, Civil Code)
unless made so by the terms of the contract or by an understanding of the parties. The parties to the contract may
agree when and on what conditions the property in the subject of the contract was passed to the prospective owner.
(Andrews v. Durant, 11 N. Y., 42.) In the present case the parties agreed that the delivery of the logs should be made
alongside a vessel of the defendant. That was done by the plaintiff. The vessel of the defendant was sent to the point
of delivery and the said defendant attempted to load on said vessel the logs delivered along its side by the plaintiff. It
is a rule well established that a mere contract for the sale of goods, where nothing remains to be done by the seller
before making delivery, transfers the right of property, although the price has not been paid, nor the thing sold
actually delivered to the purchaser. (Olyphant v. Baker, 5 Denio, N.Y., 379; art. 1450, Civil Code.)

Suppose, for example, that after the vessel of the defendant had arrived at the point where the logs were delivered
along its side, and the logs had actually been delivered at the side, as is claimed by the plaintiff in the present case,
the plaintiff had thereafter sold the said logs to third persons. Could the defendant have maintained replevin for the
same? If the title had not passed, he could not. If it had, he could. If the title had not passed at that moment the
plaintiff might have sold said logs to a third person in the very presence of the defendant, even after defendant’s
vessel had arrived to take the logs away. If the title had not passed, the plaintiff would thus have subjected himself to
an action for damages upon his contract upon a failure to perform it. We are of the opinion, however, that, if the
plaintiff had sold said logs to a third person after the arrival of the vessel of the defendant, the defendant, the
defendant, the defendant might have claimed and recovered said logs upon the theory that have properly said to
another purchaser of said logs: "These logs are mine; they have been delivered to me under a contract; everything
has been done under said contract which the circumstances will permit of for the passing of the title of the same to
me, and whoever buys said logs buys something which has not only been previously bought by me but which has
been set apart for me ands placed at my disposal by the most unequivocal acts, and I am, therefore, vested with the
title to the same which I have a right to maintain and enforce." And we believe that the law would have sustained the
defendant in this contention. (Whitcomb v. Whitney, 24 Mich., 485; Hatch v. Oil Company, 100 U.S., 124 art. 339,
Code of Commerce; Noyes v. Marlott, 156 Fed. Rep., 753.)

The evidence shows that, when the Juanita arrived at the point of delivery, the parties in charge of said boat placed
or attempted to place skids on said boat for the purpose of loading the logs. Certainly they believed that the logs had
been delivered, or else why would they have actually made preparation for the loading of the same? The logs were
fully at the disposal of the defendant, and the latter thereby became liable for the price of the same under the
contract. (Art. 339, Code of Commerce; Noyes v. Marlott, 156 Fed. Rep., 753.

It was held in the case of Nicholas v. Morse (100 Mass., 523) that in an action for goods sold and delivered, if the
plaintiff proves delivery at the place agreed and that there remained nothing further for him to do, he need not show
actual acceptance by the defendant. The mere fact that the defendant, by reason of the improper equipment of the
vessel, was unable to take said logs aboard such vessel, can not relieve the latter from responsibility under the
contract. No burden rested upon the plaintiff to furnish proper equipment for the vessel of the defendant with which
to put on board said logs. That was the responsibility of the defendant. The responsibility of the plaintiff ceased
when he placed the logs alongside the vessel of the defendant.

Under the second above assignment of error the defendant and appellant claims that the plaintiff, in bringing the
form of action which was brought in this case, did not pursue the proper remedy afforded him by the law, and cites
articles 325, 332, and 339 of the Commercial Code in support of this view. To this contention of the defendant and
appellant the plaintiff replies that he is entitled to recover under the contract price by virtue of article 1451 of the
Civil Code, insisting that the delivery of the logs in question had actually been made, and cites a letter of the
defendant and appellant directed to the plaintiff, dated the 6th day of February, 1906, in which the defendant after
referring to the advancements which he had made, said that "it was further understood . . .that the logs should be
held subject to our (defendant’s) order." This letter of the defendant would seem to clearly indicate that the latter, at
least, believed that the title to said logs had passed.

With reference to the third and fourth above-noted assignments of error, it would seem that we have said all that is
necessary upon that question under the first above-noted assignment of error.

With reference to the fifth above-noted assignment of error, there is considerable conflict among the witnesses with
reference to the conditions at the point where the logs were to be delivered. The witnesses for the defendant state
that it was impossible to load logs at said point, while witnesses for the plaintiff assert that during several months of
the year, at least it was perfectly possible and feasible to load logs on boats such as were furnished by the defendant
at the place designated for the delivery of the said logs. It will be noted, from reading the testimony of the witnesses
for the defendant, that many of them had no experience whatever concerning the general conditions of the sea in
and about the point where the said logs were to be delivered, except on the particular occasions when they were
there with boats of the defendant to receive the delivery of said logs; whereas, upon the contrary, the plaintiff
presented some four or five witnesses, the experience of whom had covered several years, and who all testified that
during several months of the year especially during the months of December, January, and February, it was perfectly
feasible and practicable by means of proper apparatus, to take on board cargo at the point where the logs were to be
delivered. And it must not be forgotten that, under the terms of the contract, the defendant undertook to receive
and put on board its vessel the logs in question at a time beyond the time provided for by the terms of the contract.
Our conclusion is that a large preponderance of the evidence shows that it was perfectly feasible of the defendant,
with proper apparatus, to take on board the logs in question at the point of delivery. We presume that at almost
every point upon the coast of the Philippine Archipelago there are days when conditions are such as to prevent the
loading of cargo upon vessels. This is true even in the Bay of Manila. However, it would not be just to conclude that,
because on certain days it is impossible to load and unload ships might be loaded and unloaded in said bay had made
misrepresentations, because of the fact that on a particular day ships could not be loaded or unloaded by reason of
the conditions of the sea resulting from wind or storm.

We are of the opinion, and so hold, under all of the facts, that the plaintiff is entitled to a confirmation of the
judgment of the lower court. It is therefore, hereby ordered that a judgment be entered in favor of the plaintiff and
against the defendant for the sum of P10,033.39, with interest at the rate of 6 per cent per annum from the 3d day of
April, 1906, and costs. So ordered.
EDCA PUBLISHING & DISTRIBUTING CORP. vs. SPS. LEONOR and GERARDO SANTOS, doing business under the
name and style of "SANTOS BOOKSTORE," and CA [April 26, 1990]

The case before us calls for the interpretation of Article 559 of the Civil Code and raises the particular question of
when a person may be deemed to have been "unlawfully deprived" of movable property in the hands of another. The
article runs in full as follows:

Art. 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one
who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in
possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived has acquired it in
good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.

The movable property in this case consists of books, which were bought from the petitioner by an impostor who sold
it to the private respondents. Ownership of the books was recognized in the private respondents by the Municipal
Trial Court, 1 which was sustained by the Regional Trial Court, 2 which was in turn sustained by the Court of
Appeals. 3 The petitioner asks us to declare that all these courts have erred and should be reversed.

This case arose when on October 5, 1981, a person identifying himself as Professor Jose Cruz placed an order by
telephone with the petitioner company for 406 books, payable on delivery. 4 EDCA prepared the corresponding
invoice and delivered the books as ordered, for which Cruz issued a personal check covering the purchase price of
P8,995.65. 5 On October 7, 1981, Cruz sold 120 of the books to private respondent Leonor Santos who, after verifying
the seller's ownership from the invoice he showed her, paid him P1,700.00. 6

Meanwhile, EDCA having become suspicious over a second order placed by Cruz even before clearing of his first
check, made inquiries with the De la Salle College where he had claimed to be a dean and was informed that there
was no such person in its employ. Further verification revealed that Cruz had no more account or deposit with the
Philippine Amanah Bank, against which he had drawn the payment check. 7 EDCA then went to the police, which set
a trap and arrested Cruz on October 7, 1981. Investigation disclosed his real name as Tomas de la Peña and his sale of
120 of the books he had ordered from EDCA to the private respondents. 8

On the night of the same date, EDCA sought the assistance of the police in Precinct 5 at the UN Avenue, which forced
their way into the store of the private respondents and threatened Leonor Santos with prosecution for buying stolen
property. They seized the 120 books without warrant, loading them in a van belonging to EDCA, and thereafter
turned them over to the petitioner. 9

Protesting this high-handed action, the private respondents sued for recovery of the books after demand for their
return was rejected by EDCA. A writ of preliminary attachment was issued and the petitioner, after initial refusal,
finally surrendered the books to the private respondents. 10 As previously stated, the petitioner was successively
rebuffed in the three courts below and now hopes to secure relief from us.

To begin with, the Court expresses its disapproval of the arbitrary action of the petitioner in taking the law into its
own hands and forcibly recovering the disputed books from the private respondents. The circumstance that it did so
with the assistance of the police, which should have been the first to uphold legal and peaceful processes, has
compounded the wrong even more deplorably. Questions like the one at bar are decided not by policemen but by
judges and with the use not of brute force but of lawful writs.

Now to the merits

It is the contention of the petitioner that the private respondents have not established their ownership of the
disputed books because they have not even produced a receipt to prove they had bought the stock. This is
unacceptable. Precisely, the first sentence of Article 559 provides that "the possession of movable property acquired
in good faith is equivalent to a title," thus dispensing with further proof.
The argument that the private respondents did not acquire the books in good faith has been dismissed by the lower
courts, and we agree. Leonor Santos first ascertained the ownership of the books from the EDCA invoice showing
that they had been sold to Cruz, who said he was selling them for a discount because he was in financial need.
Private respondents are in the business of buying and selling books and often deal with hard-up sellers who urgently
have to part with their books at reduced prices. To Leonor Santos, Cruz must have been only one of the many such
sellers she was accustomed to dealing with. It is hardly bad faith for any one in the business of buying and selling
books to buy them at a discount and resell them for a profit.

But the real issue here is whether the petitioner has been unlawfully deprived of the books because the check issued
by the impostor in payment therefor was dishonored.

In its extended memorandum, EDCA cites numerous cases holding that the owner who has been unlawfully deprived
of personal property is entitled to its recovery except only where the property was purchased at a public sale, in
which event its return is subject to reimbursement of the purchase price. The petitioner is begging the question. It is
putting the cart before the horse. Unlike in the cases invoked, it has yet to be established in the case at bar that EDCA
has been unlawfully deprived of the books.

The petitioner argues that it was, because the impostor acquired no title to the books that he could have validly
transferred to the private respondents. Its reason is that as the payment check bounced for lack of funds, there was a
failure of consideration that nullified the contract of sale between it and Cruz.

The contract of sale is consensual and is perfected once agreement is reached between the parties on the subject
matter and the consideration. According to the Civil Code:

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which
is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts.

xxx xxx xxx

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive
delivery thereof.

Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has
fully paid the price.

It is clear from the above provisions, particularly the last one quoted, that ownership in the thing sold shall not pass
to the buyer until full payment of the purchase only if there is a stipulation to that effect. Otherwise, the rule is that
such ownership shall pass from the vendor to the vendee upon the actual or constructive delivery of the thing
sold even if the purchase price has not yet been paid.

Non-payment only creates a right to demand payment or to rescind the contract, or to criminal prosecution in the
case of bouncing checks. But absent the stipulation above noted, delivery of the thing sold will effectively transfer
ownership to the buyer who can in turn transfer it to another.

In Asiatic Commercial Corporation v. Ang,11 the plaintiff sold some cosmetics to Francisco Ang, who in turn sold them
to Tan Sit Bin. Asiatic not having been paid by Ang, it sued for the recovery of the articles from Tan, who claimed he
had validly bought them from Ang, paying for the same in cash. Finding that there was no conspiracy between Tan
and Ang to deceive Asiatic the Court of Appeals declared:

Yet the defendant invoked Article 464 12 of the Civil Code providing, among other things that "one who has
been unlawfully deprived of personal property may recover it from any person possessing it." We do not
believe that the plaintiff has been unlawfully deprived of the cartons of Gloco Tonic within the scope of this
legal provision. It has voluntarily parted with them pursuant to a contract of purchase and sale. The
 circumstance that the price was not subsequently paid did not render illegal a transaction which was valid
and legal at the beginning.

In Tagatac v. Jimenez,13 the plaintiff sold her car to Feist, who sold it to Sanchez, who sold it to Jimenez. When the
payment check issued to Tagatac by Feist was dishonored, the plaintiff sued to recover the vehicle from Jimenez on
the ground that she had been unlawfully deprived of it by reason of Feist's deception. In ruling for Jimenez, the Court
of Appeals held:

The point of inquiry is whether plaintiff-appellant Trinidad C. Tagatac has been unlawfully deprived of her car.
At first blush, it would seem that she was unlawfully deprived thereof, considering that she was induced to
part with it by reason of the chicanery practiced on her by Warner L. Feist. Certainly, swindling, like robbery,
is an illegal method of deprivation of property. In a manner of speaking, plaintiff-appellant was "illegally
deprived" of her car, for the way by which Warner L. Feist induced her to part with it is illegal and is punished
by law. But does this "unlawful deprivation" come within the scope of Article 559 of the New Civil Code?

xxx xxx xxx

. . . The fraud and deceit practiced by Warner L. Feist earmarks this sale as a voidable contract (Article 1390
N.C.C.). Being a voidable contract, it is susceptible of either ratification or annulment. If the contract is
ratified, the action to annul it is extinguished (Article 1392, N.C.C.) and the contract is cleansed from all its
defects (Article 1396, N.C.C.); if the contract is annulled, the contracting parties are restored to their
respective situations before the contract and mutual restitution follows as a consequence (Article 1398,
N.C.C.).

However, as long as no action is taken by the party entitled, either that of annulment or of ratification, the
contract of sale remains valid and binding. When plaintiff-appellant Trinidad C. Tagatac delivered the car to
Feist by virtue of said voidable contract of sale, the title to the car passed to Feist. Of course, the title that
Feist acquired was defective and voidable. Nevertheless, at the time he sold the car to Felix Sanchez, his title
thereto had not been avoided and he therefore conferred a good title on the latter, provided he bought the
car in good faith, for value and without notice of the defect in Feist's title (Article 1506, N.C.C.). There being
no proof on record that Felix Sanchez acted in bad faith, it is safe to assume that he acted in good faith.

The above rulings are sound doctrine and reflect our own interpretation of Article 559 as applied to the case before
us.

Actual delivery of the books having been made, Cruz acquired ownership over the books which he could then validly
transfer to the private respondents. The fact that he had not yet paid for them to EDCA was a matter between him
and EDCA and did not impair the title acquired by the private respondents to the books.

One may well imagine the adverse consequences if the phrase "unlawfully deprived" were to be interpreted in the
manner suggested by the petitioner. A person relying on the seller's title who buys a movable property from him
would have to surrender it to another person claiming to be the original owner who had not yet been paid the
purchase price therefor. The buyer in the second sale would be left holding the bag, so to speak, and would be
compelled to return the thing bought by him in good faith without even the right to reimbursement of the amount
he had paid for it.

It bears repeating that in the case before us, Leonor Santos took care to ascertain first that the books belonged to
Cruz before she agreed to purchase them. The EDCA invoice Cruz showed her assured her that the books had been
paid for on delivery. By contrast, EDCA was less than cautious — in fact, too trusting in dealing with the impostor.
Although it had never transacted with him before, it readily delivered the books he had ordered (by telephone) and
as readily accepted his personal check in payment. It did not verify his identity although it was easy enough to do
this. It did not wait to clear the check of this unknown drawer. Worse, it indicated in the sales invoice issued to him,
by the printed terms thereon, that the books had been paid for on delivery, thereby vesting ownership in the buyer.

Surely, the private respondent did not have to go beyond that invoice to satisfy herself that the books being offered
for sale by Cruz belonged to him; yet she did. Although the title of Cruz was presumed under Article 559 by his mere
possession of the books, these being movable property, Leonor Santos nevertheless demanded more proof before
deciding to buy them.

It would certainly be unfair now to make the private respondents bear the prejudice sustained by EDCA as a result of
its own negligence.1âwphi1 We cannot see the justice in transferring EDCA's loss to the Santoses who had acted in
good faith, and with proper care, when they bought the books from Cruz.

While we sympathize with the petitioner for its plight, it is clear that its remedy is not against the private respondents
but against Tomas de la Peña, who has apparently caused all this trouble. The private respondents have themselves
been unduly inconvenienced, and for merely transacting a customary deal not really unusual in their kind of
business. It is they and not EDCA who have a right to complain.

WHEREFORE, the challenged decision is AFFIRMED and the petition is DENIED, with costs against the petitioner.

ROSARIO CARBONELL vs. CA, JOSE PONCIO, EMMA INFANTE and RAMON INFANTE [January 26, 1976]
Petitioner seeks a review of the resolution of the Court of Appeals (Special Division of Five) dated October 30, 1968,
reversing its decision of November 2, 1967 (Fifth Division), and its resolution of December 6, 1968 denying
petitioner's motion for reconsideration.

The dispositive part of the challenged resolution reads:

Wherefore, the motion for reconsideration filed on behalf of appellee Emma Infante, is hereby
granted and the decision of November 2, 1967, is hereby annulled and set aside. Another judgement
shall be entered affirming in toto that of the court a quo, dated January 20, 1965, which dismisses
the plaintiff's complaint and defendant's counterclaim.

Without costs.

The facts of the case as follows:

Prior to January 27, 1955, respondent Jose Poncio, a native of the Batanes Islands, was the owner of the parcel of
land herein involve with improvements situated at 179 V. Agan St., San Juan, Rizal, having an area of some one
hundred ninety-five (195) square meters, more or less, covered by TCT No. 5040 and subject to mortgage in favor of
the Republic Savings Bank for the sum of P1,500.00. Petitioner Rosario Carbonell, a cousin and adjacent neighbor of
respondent Poncio, and also from the Batanes Islands, lived in the adjoining lot at 177 V. Agan Street.

Both petitioners Rosario Carbonell and respondent Emma Infante offered to buy the said lot from Poncio (Poncio's
Answer, p. 38, rec. on appeal).

Respondent Poncio, unable to keep up with the installments due on the mortgage, approached petitioner one day
and offered to sell to the latter the said lot, excluding the house wherein respondent lived. Petitioner accepted the
offer and proposed the price of P9.50 per square meter. Respondent Poncio, after having secured the consent of his
wife and parents, accepted the price proposed by petitioner, on the condition that from the purchase price would
come the money to be paid to the bank.

Petitioner and respondent Jose Poncio then went to the Republic Savings Bank and secured the consent of the
President thereof for her to pay the arrears on the mortgage and to continue the payment of the installments as they
fall due. The amount in arrears reached a total sum of P247.26. But because respondent Poncio had previously told
her that the money, needed was only P200.00, only the latter amount was brought by petitioner constraining
respondent Jose Poncio to withdraw the sum of P47.00 from his bank deposit with Republic Savings Bank. But the
next day, petitioner refunded to Poncio the sum of P47.00.

On January 27, 1955, petitioner and respondent Poncio, in the presence of a witness, made and executed a
document in the Batanes dialect, which, translated into English, reads:

CONTRACT FOR ONE HALF LOT WHICH I BOUGHT FROM

JOSE PONCIO

Beginning today January 27, 1955, Jose Poncio can start living on the lot sold by him to me, Rosario
Carbonell, until after one year during which time he will not pa anything. Then if after said one can
he could not find an place where to move his house, he could still continue occupying the site but he
should pay a rent that man, be agreed.

(Sgd) JOSE PONCIO

(Sgd.) ROSARIO CARBONELL
(Sgd) CONSTANCIO MEONADA
Witness

(Pp. 6-7 rec. on appeal).

Thereafter, petitioner asked Atty. Salvador Reyes, also from the Batanes Islands, to prepare the formal deed of sale,
which she brought to respondent Poncio together with the amount of some P400.00, the balance she still had to pay
in addition to her assuming the mortgaged obligation to Republic Savings Bank.

Upon arriving at respondent Jose Poncio's house, however, the latter told petitioner that he could not proceed any
more with the sale, because he had already given the lot to respondent Emma Infants; and that he could not
withdraw from his deal with respondent Mrs. Infante, even if he were to go to jail. Petitioner then sought to contact
respondent Mrs. Infante but the latter refused to see her.

On February 5, 1955, petitioner saw Emma Infante erecting a all around the lot with a gate.

Petitioner then consulted Atty. Jose Garcia, who advised her to present an adverse claim over the land in question
with the Office of the Register of Deeds of Rizal. Atty. Garcia actually sent a letter of inquiry to the Register of Deeds
and demand letters to private respondents Jose Poncio and Emma Infante.

In his answer to the complaint Poncio admitted "that on January 30, 1955, Mrs. Infante improved her offer and he
agreed to sell the land and its improvements to her for P3,535.00" (pp. 38-40, ROA).

In a private memorandum agreement dated January 31, 1955, respondent Poncio indeed bound himself to sell to his
corespondent Emma Infante, the property for the sum of P2,357.52, with respondent Emma Infante still assuming
the existing mortgage debt in favor of Republic Savings Bank in the amount of P1,177.48. Emma Infante lives just
behind the houses of Poncio and Rosario Carbonell.

On February 2, 1955, respondent Jose Poncio executed the formal deed of sale in favor of respondent Mrs. Infante in
the total sum of P3,554.00 and on the same date, the latter paid Republic Savings Bank the mortgage indebtedness
of P1,500.00. The mortgage on the lot was eventually discharged.

Informed that the sale in favor of respondent Emma Infante had not yet been registered, Atty. Garcia prepared an
adverse claim for petitioner, who signed and swore to an registered the same on February 8, 1955.

The deed of sale in favor of respondent Mrs. Infante was registered only on February 12, 1955. As a consequence
thereof, a Transfer Certificate of Title was issued to her but with the annotation of the adverse claim of petitioner
Rosario Carbonell.

Respondent Emma Infante took immediate possession of the lot involved, covered the same with 500 cubic meters of
garden soil and built therein a wall and gate, spending the sum of P1,500.00. She further contracted the services of
an architect to build a house; but the construction of the same started only in 1959 — years after the litigation
actually began and during its pendency. Respondent Mrs. Infante spent for the house the total amount of
P11,929.00.

On June 1, 1955, petitioner Rosario Carbonell, thru counsel, filed a second amended complaint against private
respondents, praying that she be declared the lawful owner of the questioned parcel of land; that the subsequent
sale to respondents Ramon R. Infante and Emma L. Infante be declared null and void, and that respondent Jose
Poncio be ordered to execute the corresponding deed of conveyance of said land in her favor and for damages and
attorney's fees (pp. 1-7, rec. on appeal in the C.A.).

Respondents first moved to dismiss the complaint on the ground, among others, that petitioner's claim is
unenforceable under the Statute of Frauds, the alleged sale in her favor not being evidenced by a written document
(pp. 7-13, rec. on appeal in the C.A.); and when said motion was denied without prejudice to passing on the question
raised therein when the case would be tried on the merits (p. 17, ROA in the C.A.), respondents filed separate
answers, reiterating the grounds of their motion to dismiss (pp. 18-23, ROA in the C.A.).

During the trial, when petitioner started presenting evidence of the sale of the land in question to her by respondent
Poncio, part of which evidence was the agreement written in the Batanes dialect aforementioned, respondent
Infantes objected to the presentation by petitioner of parole evidence to prove the alleged sale between her and
respondent Poncio. In its order of April 26, 1966, the trial court sustained the objection and dismissed the complaint
on the ground that the memorandum presented by petitioner to prove said sale does not satisfy the requirements of
the law (pp. 31-35, ROA in the C.A.).

From the above order of dismissal, petitioner appealed to the Supreme Court (G.R. No. L-11231) which ruled in a
decision dated May 12, 1958, that the Statute of Frauds, being applicable only to executory contracts, does not apply
to the alleged sale between petitioner and respondent Poncio, which petitioner claimed to have been partially
performed, so that petitioner is entitled to establish by parole evidence "the truth of this allegation, as well as the
contract itself." The order appealed from was thus reversed, and the case remanded to the court a quo for further
proceedings (pp. 26-49, ROA in the C.A.).

After trial in the court a quo; a decision was, rendered on December 5, 1962, declaring the second sale by
respondent Jose Poncio to his co-respondents Ramon Infante and Emma Infante of the land in question null and void
and ordering respondent Poncio to execute the proper deed of conveyance of said land in favor of petitioner after
compliance by the latter of her covenants under her agreement with respondent Poncio (pp. 5056, ROA in the C.A.).

On January 23, 1963, respondent Infantes, through another counsel, filed a motion for re-trial to adduce evidence for
the proper implementation of the court's decision in case it would be affirmed on appeal (pp. 56-60, ROA in the C.A.),
which motion was opposed by petitioner for being premature (pp. 61-64, ROA in the C.A.). Before their motion for re-
trial could be resolved, respondent Infantes, this time through their former counsel, filed another motion for new
trial, claiming that the decision of the trial court is contrary to the evidence and the law (pp. 64-78, ROA in the C.A.),
which motion was also opposed by petitioner (pp. 78-89, ROA in the C.A.).

The trial court granted a new trial (pp. 89-90, ROA in the C.A.), at which re-hearing only the respondents introduced
additional evidence consisting principally of the cost of improvements they introduced on the land in question (p. 9,
ROA in the C.A.).

After the re-hearing, the trial court rendered a decision, reversing its decision of December 5, 1962 on the ground
that the claim of the respondents was superior to the claim of petitioner, and dismissing the complaint (pp. 91-95,
ROA in the C.A.), From this decision, petitioner Rosario Carbonell appealed to the respondent Court of Appeals (p.
96, ROA in the C.A.).

On November 2, 1967, the Court of Appeals (Fifth Division composed of Justices Magno Gatmaitan, Salvador V.
Esguerra and Angle H. Mojica, speaking through Justice Magno Gatmaitan), rendered judgment reversing the
decision of the trial court, declaring petitioner therein, to have a superior right to the land in question, and
condemning the defendant Infantes to reconvey to petitioner after her reimbursement to them of the sum of
P3,000.00 plus legal interest, the land in question and all its improvements (Appendix "A" of Petition).

Respondent Infantes sought reconsideration of said decision and acting on the motion for reconsideration, the
Appellate Court, three Justices (Villamor, Esguerra and Nolasco) of Special Division of Five, granted said motion,
annulled and set aside its decision of November 2, 1967, and entered another judgment affirming in toto the decision
of the court a quo, with Justices Gatmaitan and Rodriguez dissenting (Appendix "B" of Petition).

Petitioner Rosario Carbonell moved to reconsider the Resolution of the Special Division of Five, which motion was
denied by Minute Resolution of December 6, 1968 (but with Justices Rodriguez and Gatmaitan voting for
reconsideration) [Appendix "C" of Petition].

Hence, this appeal by certiorari.

Article 1544, New Civil Code, which is decisive of this case, recites:

If the same thing should have been sold to different vendees, the ownership shall be transferred to
the person who may have first taken possession thereof in good faith, if it should movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.
 Should there be no inscription, the ownership shall pertain to the person who in good faith was first
in the possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith (emphasis supplied).

It is essential that the buyer of realty must act in good faith in registering his deed of sale to merit the protection of
the second paragraph of said Article 1544.

Unlike the first and third paragraphs of said Article 1544, which accord preference to the one who first takes
possession in good faith of personal or real property, the second paragraph directs that ownership of immovable
property should be recognized in favor of one "who in good faith first recorded" his right. Under the first and third
paragraph, good faith must characterize the act of anterior registration (DBP vs. Mangawang, et al., 11 SCRA 405;
Soriano, et al. vs. Magale, et al., 8 SCRA 489).

If there is no inscription, what is decisive is prior possession in good faith. If there is inscription, as in the case at bar,
prior registration in good faith is a pre-condition to superior title.

When Carbonell bought the lot from Poncio on January 27, 1955, she was the only buyer thereof and the title of
Poncio was still in his name solely encumbered by bank mortgage duly annotated thereon. Carbonell was not aware
— and she could not have been aware — of any sale of Infante as there was no such sale to Infante then. Hence,
Carbonell's prior purchase of the land was made in good faith. Her good faith subsisted and continued to exist when
she recorded her adverse claim four (4) days prior to the registration of Infantes's deed of sale. Carbonell's good faith
did not cease after Poncio told her on January 31, 1955 of his second sale of the same lot to Infante. Because of that
information, Carbonell wanted an audience with Infante, which desire underscores Carbonell's good faith. With an
aristocratic disdain unworthy of the good breeding of a good Christian and good neighbor, Infante snubbed Carbonell
like a leper and refused to see her. So Carbonell did the next best thing to protect her right — she registered her
adversed claim on February 8, 1955. Under the circumstances, this recording of her adverse claim should be deemed
to have been done in good faith and should emphasize Infante's bad faith when she registered her deed of sale four
(4) days later on February 12, 1955.

Bad faith arising from previous knowledge by Infante of the prior sale to Carbonell is shown by the following facts,
the vital significance and evidenciary effect of which the respondent Court of Appeals either overlooked of failed to
appreciate:

(1) Mrs. Infante refused to see Carbonell, who wanted to see Infante after she was informed by Poncio that he sold
the lot to Infante but several days before Infante registered her deed of sale. This indicates that Infante knew — from
Poncio and from the bank — of the prior sale of the lot by Poncio to Carbonell. Ordinarily, one will not refuse to see a
neighbor. Infante lives just behind the house of Carbonell. Her refusal to talk to Carbonell could only mean that she
did not want to listen to Carbonell's story that she (Carbonell) had previously bought the lot from Poncio.

(2) Carbonell was already in possession of the mortgage passbook [not Poncio's saving deposit passbook — Exhibit
"1" — Infantes] and Poncio's copy of the mortgage contract, when Poncio sold the lot Carbonell who, after paying the
arrearages of Poncio, assumed the balance of his mortgaged indebtedness to the bank, which in the normal course of
business must have necessarily informed Infante about the said assumption by Carbonell of the mortgage
indebtedness of Poncio. Before or upon paying in full the mortgage indebtedness of Poncio to the Bank. Infante
naturally must have demanded from Poncio the delivery to her of his mortgage passbook as well as Poncio's
mortgage contract so that the fact of full payment of his bank mortgage will be entered therein; and Poncio, as well
as the bank, must have inevitably informed her that said mortgage passbook could not be given to her because it was
already delivered to Carbonell.

If Poncio was still in possession of the mortgage passbook and his copy of the mortgage contract at the time he
executed a deed of sale in favor of the Infantes and when the Infantes redeemed his mortgage indebtedness from
the bank, Poncio would have surrendered his mortgage passbook and his copy of the mortgage contract to the
Infantes, who could have presented the same as exhibits during the trial, in much the same way that the Infantes
were able to present as evidence Exhibit "1" — Infantes, Poncio's savings deposit passbook, of which Poncio
necessarily remained in possession as the said deposit passbook was never involved in the contract of sale with
assumption of mortgage. Said savings deposit passbook merely proves that Poncio had to withdraw P47.26, which
amount was tided to the sum of P200.00 paid by Carbonell for Poncio's amortization arrearages in favor of the bank
on January 27, 1955; because Carbonell on that day brought with her only P200.00, as Poncio told her that was the
amount of his arrearages to the bank. But the next day Carbonell refunded to Poncio the sum of P47.26.

(3) The fact that Poncio was no longer in possession of his mortgage passbook and that the said mortgage passbook
was already in possession of Carbonell, should have compelled Infante to inquire from Poncio why he was no longer
in possession of the mortgage passbook and from Carbonell why she was in possession of the same (Paglago, et. al
vs. Jara et al 22 SCRA 1247, 1252-1253). The only plausible and logical reason why Infante did not bother anymore to
make such injury , w because in the ordinary course of business the bank must have told her that Poncio already sold
the lot to Carbonell who thereby assumed the mortgage indebtedness of Poncio and to whom Poncio delivered his
mortgage passbook. Hoping to give a semblance of truth to her pretended good faith, Infante snubbed Carbonell's
request to talk to her about the prior sale to her b Poncio of the lot. As aforestated, this is not the attitude expected
of a good neighbor imbued with Christian charity and good will as well as a clear conscience.

(4) Carbonell registered on February 8, 1955 her adverse claim, which was accordingly annotated on Poncio's title,
four [4] days before Infante registered on February 12, 1955 her deed of sale executed on February 2, 1955. Here she
was again on notice of the prior sale to Carbonell. Such registration of adverse claim is valid and effective (Jovellanos
vs. Dimalanta, L-11736-37, Jan. 30, 1959, 105 Phil. 1250-51).

(5) In his answer to the complaint filed by Poncio, as defendant in the Court of First Instance, he alleged that both
Mrs. Infante and Mrs. Carbonell offered to buy the lot at P15.00 per square meter, which offers he rejected as he
believed that his lot is worth at least P20.00 per square meter. It is therefore logical to presume that Infante was told
by Poncio and consequently knew of the offer of Carbonell which fact likewise should have put her on her guard and
should have compelled her to inquire from Poncio whether or not he had already sold the property to Carbonell.

As recounted by Chief Justice Roberto Concepcion, then Associate Justice, in the preceding case of Rosario Carbonell
vs. Jose Poncio, Ramon Infante and Emma Infante (1-11231, May 12, 1958), Poncio alleged in his answer:

... that he had consistently turned down several offers, made by plaintiff, to buy the land in question,
at P15 a square meter, for he believes that it is worth not less than P20 a square meter; that Mrs.
Infante, likewise, tried to buy the land at P15 a square meter; that, on or about January 27, 1955,
Poncio was advised by plaintiff that should she decide to buy the property at P20 a square meter, she
would allow him to remain in the property for one year; that plaintiff then induced Poncio to sign a
document, copy of which if probably the one appended to the second amended complaint; that
Poncio signed it 'relying upon the statement of the plaintiff that the document was a permit for him
to remain in the premises in the event defendant decided to sell the property to the plaintiff at
P20.00 a square meter'; that on January 30, 1955, Mrs. Infante improved her offer and agreed to sell
the land and its improvement to her for P3,535.00; that Poncio has not lost 'his mind,' to sell his
property, worth at least P4,000, for the paltry sum P1,177.48, the amount of his obligation to the
Republic Saving s Bank; and that plaintiff's action is barred by the Statute of Frauds. ... (pp. 38-40,
ROA, emphasis supplied).

II

EXISTENCE OF THE PRIOR SALE TO CARBONELL

DULY ESTABLISHED

(1) In his order dated April 26, 1956 dismissing the complaint on the ground that the private document Exhibit "A"
executed by Poncio and Carbonell and witnessed by Constancio Meonada captioned "Contract for One-half Lot which
I Bought from Jose Poncio," was not such a memorandum in writing within the purview of the Statute of Frauds, the
trial judge himself recognized the fact of the prior sale to Carbonell when he stated that "the memorandum in
question merely states that Poncio is allowed to stay in the property which he had sold to the plaintiff. There is no
mention of the reconsideration, a description of the property and such other essential elements of the contract of
sale. There is nothing in the memorandum which would tend to show even in the slightest manner that it was
intended to be an evidence of contract sale. On the contrary, from the terms of the memorandum, it tends to show
that the sale of the property in favor of the plaintiff is already an accomplished act. By the very contents of the
memorandum itself, it cannot therefore, be considered to be the memorandum which would show that a sale has
been made by Poncio in favor of the plaintiff" (p. 33, ROA, emphasis supplied). As found by the trial court, to repeat
the said memorandum states "that Poncio is allowed to stay in the property which he had sold to the plaintiff ..., it
tends to show that the sale of the property in favor of the plaintiff is already an accomplished act..."

(2) When the said order was appealed to the Supreme Court by Carbonell in the previous case of Rosario Carbonell
vs. Jose Poncio, Ramon Infante and Emma Infante
(L-11231, supra), Chief Justice Roberto Concepcion, then Associate Justice, speaking for a unanimous Court, reversed
the aforesaid order of the trial court dismissing the complaint, holding that because the complaint alleges and the
plaintiff claims that the contract of sale was partly performed, the same is removed from the application of the
Statute of Frauds and Carbonell should be allowed to establish by parol evidence the truth of her allegation of partial
performance of the contract of sale, and further stated:

Apart from the foregoing, there are in the case at bar several circumstances indicating that plaintiff's
claim might not be entirely devoid of factual basis. Thus, for instance, Poncio admitted in his answer
that plaintiff had offered several times to purchase his land.

Again, there is Exhibit A, a document signed by the defendant. It is in the Batanes dialect, which,
according to plaintiff's uncontradicted evidence, is the one spoken by Poncio, he being a native of
said region. Exhibit A states that Poncio would stay in the land sold by him to plaintiff for one year,
from January 27, 1955, free of charge, and that, if he cannot find a place where to transfer his house
thereon, he may remain upon. Incidentally, the allegation in Poncio's answer to the effect that he
signed Exhibit A under the belief that it "was a permit for him to remain in the premises in the" that
"he decided to sell the property" to the plaintiff at P20 a sq. m." is, on its face, somewhat difficult to
believe. Indeed, if he had not decided as yet to sell the land to plaintiff, who had never increased her
offer of P15 a square meter, there was no reason for Poncio to get said permit from her. Upon the
other hand, if plaintiff intended to mislead Poncio, she would have caused Exhibit A to be drafted,
probably, in English , instead of taking the trouble of seeing to it that it was written precisely in his
native dialect, the Batanes. Moreover, Poncio's signature on Exhibit A suggests that he is neither
illiterate nor so ignorant as to sign document without reading its contents, apart from the fact that
Meonada had read Exhibit A to him and given him a copy thereof, before he signed thereon,
according to Meonada's uncontradicted testimony.

Then, also, defendants say in their brief:

The only allegation in plaintiff's complaint that bears any relation to her claim that
there has been partial performance of the supposed contract of sale, is the notation
of the sum of P247.26 in the bank book of defendant Jose Poncio. The noting or
jotting down of the sum of P247.26 in the bank book of Jose Poncio does not prove
the fact that the said amount was the purchase price of the property in question. For
all we knew, the sum of P247.26 which plaintiff claims to have paid to the Republic
Savings Bank for the account of the defendant, assuming that the money paid to the
Republic Savings Bank came from the plaintiff, was the result of some usurious loan
or accomodation, rather than earnest money or part payment of the land. Neither is
it competent or satisfactory evidence to prove the conveyance of the land in
question the fact that the bank book account of Jose Poncio happens to be in the
possession of the plaintiff. (Defendants-Appellees' brief, pp. 25-26).

How shall We know why Poncio's bank deposit book is in plaintiffs possession, or whether there is any
relation between the P247.26 entry therein and the partial payment of P247.26 allegedly made by
plaintiff to Poncio on account of the price of his land, if we do not allow the plaintiff to explain it on
the witness stand? Without expressing any opinion on the merits of plaintiff's claim, it is clear,
therefore, that she is entitled , legally as well as from the viewpoint of equity, to an opportunity to
introduce parol evidence in support of the allegations of her second amended complaint. (pp. 46-49,
ROA, emphasis supplied).
(3) In his first decision of December 5, 1962 declaring null and void the sale in favor of the Infantes and ordering
Poncio to execute a deed of conveyance in favor of Carbonell, the trial judge found:

... A careful consideration of the contents of Exh. 'A' show to the satisfaction of the court that the sale
of the parcel of land in question by the defendant Poncio in favor of the plaintiff was covered therein
and that the said Exh. "a' was also executed to allow the defendant to continue staying in the
premises for the stated period. It will be noted that Exh. 'A' refers to a lot 'sold by him to me' and
having been written originally in a dialect well understood by the defendant Poncio, he signed the
said Exh. 'A' with a full knowledge and consciousness of the terms and consequences thereof. This
therefore, corroborates the testimony of the plaintiff Carbonell that the sale of the land was made by
Poncio. It is further pointed out that there was a partial performance of the verbal sale executed by
Poncio in favor of the plaintiff, when the latter paid P247.26 to the Republic Savings Bank on account
of Poncio's mortgage indebtedness. Finally, the possession by the plaintiff of the defendant Poncio's
passbook of the Republic Savings Bank also adds credibility to her testimony. The defendant contends
on the other hand that the testimony of the plaintiff, as well as her witnesses, regarding the sale of
the land made by Poncio in favor of the plaintiff is inadmissible under the provision of the Statute of
Fraud based on the argument that the note Exh. "A" is not the note or memorandum referred to in
the to in the Statute of Fraud. The defendants argue that Exh. "A" fails to comply with the
requirements of the Statute of Fraud to qualify it as the note or memorandum referred to therein
and open the way for the presentation of parole evidence to prove the fact contained in the note or
memorandum. The defendant argues that there is even no description of the lot referred to in the
note, especially when the note refers to only one half lot. With respect to the latter argument of the
Exhibit 'A', the court has arrived at the conclusion that there is a sufficient description of the lot
referred to in Exh. 'A' as none other than the parcel of land occupied by the defendant Poncio and
where he has his improvements erected. The Identity of the parcel of land involved herein is
sufficiently established by the contents of the note Exh. "A". For a while, this court had that similar
impression but after a more and thorough consideration of the context in Exh. 'A' and for the reasons
stated above, the Court has arrived at the conclusion stated earlier (pp. 52-54, ROA, emphasis
supplied).

(4) After re-trial on motion of the Infantes, the trial Judge rendered on January 20, 1965 another decision dismissing
the complaint, although he found

1. That on January 27, 1955, the plaintiff purchased from the defendant Poncio a parcel of land with
an area of 195 square meters, more or less, covered by TCT No. 5040 of the Province of Rizal, located
at San Juan del Monte, Rizal, for the price of P6.50 per square meter;

2. That the purchase made by the plaintiff was not reduced to writing except for a short note or
memorandum Exh. A, which also recited that the defendant Poncio would be allowed to continue his
stay in the premises, among other things, ... (pp. 91-92, ROA, emphasis supplied).

From such factual findings, the trial Judge confirms the due execution of Exhibit "A", only that his legal conclusion is
that it is not sufficient to transfer ownership (pp. 93-94, ROA).

(5) In the first decision of November 2, 1967 of the Fifth Division of the Court of Appeals composed of Justices
Esguerra (now Associate Justice of the Supreme Court), Gatmaitan and Mojica, penned by Justice Gatmaitan, the
Court of Appeals found that:

... the testimony of Rosario Carbonell not having at all been attempted to be disproved by
defendants, particularly Jose Poncio, and corroborated as it is by the private document in Batanes
dialect, Exhibit A, the testimony being to the effect that between herself and Jose there had been
celebrated a sale of the property excluding the house for the price of P9.50 per square meter, so
much so that on faith of that, Rosario had advanced the sum of P247.26 and binding herself to pay
unto Jose the balance of the purchase price after deducting the indebtedness to the Bank and since
the wording of Exhibit A, the private document goes so far as to describe their transaction as one of
sale, already consummated between them, note the part tense used in the phrase, "the lot sold by
 him to me" and going so far even as to state that from that day onwards, vendor would continue to
live therein, for one year, 'during which time he will not pay anything' this can only mean that
between Rosario and Jose, there had been a true contract of sale, consummated by delivery
constitutum possession, Art. 1500, New Civil Code;vendor's possession having become converted
from then on, as a mere tenant of vendee, with the special privilege of not paying rental for one year,
— it is true that the sale by Jose Poncio to Rosario Carbonell corroborated documentarily only by
Exhibit A could not have been registered at all, but it was a valid contract nonetheless, since under
our law, a contract sale is consensual, perfected by mere consent, Couto v. Cortes, 8 Phil 459, so
much so that under the New Civil Code, while a sale of an immovable is ordered to be reduced to a
public document, Art. 1358, that mandate does not render an oral sale of realty invalid, but merely
incapable of proof, where still executory and action is brought and resisted for its performance, 1403,
par. 2, 3; but where already wholly or partly executed or where even if not yet, it is evidenced by a
memorandum, in any case where evidence to further demonstrate is presented and admitted as the
case was here, then the oral sale becomes perfectly good, and becomes a good cause of action not
only to reduce it to the form of a public document, but even to enforce the contract in its entirety, Art.
1357; and thus it is that what we now have is a case wherein on the one hand Rosario Carbonell has
proved that she had an anterior sale, celebrated in her favor on 27 January, 1955, Exhibit
A, annotated as an adverse claim on 8 February, 1955, and on other, a sale is due form in favor of
Emma L. Infante on 2 February, 1955, Exhibit 3-Infante, and registered in due form with title unto her
issued on 12 February, 1955; the vital question must now come on which of these two sales should
prevail; ... (pp. 74-76, rec., emphasis supplied).

(6) In the resolution dated October 30, 1968 penned by then Court of Appeals Justice Esguerra (now a member of
this Court), concurred in by Justices Villamor and Nolasco, constituting the majority of a Special Division of Five, the
Court of Appeals, upon motion of the Infantes, while reversing the decision of November 2, 1967 and affirming the
decision of the trial court of January 20, 1965 dismissing plaintiff's complaint, admitted the existence and
genuineness of Exhibit "A", the private memorandum dated January 27, 1955, although it did not consider the same
as satisfying "the essential elements of a contract of sale," because it "neither specifically describes the property and
its boundaries, nor mention its certificate of title number, nor states the price certain to be paid, or contrary to the
express mandate of Articles 1458 and 1475 of the Civil Code.

(7) In his dissent concurred in by Justice Rodriguez, Justice Gatmaitan maintains his decision of November 2, 1967 as
well as his findings of facts therein, and reiterated that the private memorandum Exhibit "A", is a perfected sale, as a
sale is consensual and consummated by mere consent, and is binding on and effective between the parties. This
statement of the principle is correct [pp. 89-92, rec.].

III

ADEQUATE CONSIDERATION OR PRICE FOR THE SALE

IN FAVOR OF CARBONELL

It should be emphasized that the mortgage on the lot was about to be foreclosed by the bank for failure on the part
of Poncio to pay the amortizations thereon. To forestall the foreclosure and at the same time to realize some money
from his mortgaged lot, Poncio agreed to sell the same to Carbonell at P9.50 per square meter, on condition that
Carbonell [1] should pay (a) the amount of P400.00 to Poncio and 9b) the arrears in the amount of P247.26 to the
bank; and [2] should assume his mortgage indebtedness. The bank president agreed to the said sale with assumption
of mortgage in favor of Carbonell an Carbonell accordingly paid the arrears of P247.26. On January 27, 1955, she paid
the amount of P200.00 to the bank because that was the amount that Poncio told her as his arrearages and Poncio
advanced the sum of P47.26, which amount was refunded to him by Carbonell the following day. This conveyance
was confirmed that same day, January 27, 1955, by the private document, Exhibit "A", which was prepared in the
Batanes dialect by the witness Constancio Meonada, who is also from Batanes like Poncio and Carbonell.

The sale did not include Poncio's house on the lot. And Poncio was given the right to continue staying on the land
without paying any rental for one year, after which he should pay rent if he could not still find a place to transfer his
house. All these terms are part of the consideration of the sale to Carbonell.
It is evident therefore that there was ample consideration, and not merely the sum of P200.00, for the sale of Poncio
to Carbonell of the lot in question.

But Poncio, induced by the higher price offered to him by Infante, reneged on his commitment to Carbonell and told
Carbonell, who confronted him about it, that he would not withdraw from his deal with Infante even if he is sent to
jail The victim, therefore, "of injustice and outrage is the widow Carbonell and not the Infantes, who without moral
compunction exploited the greed and treacherous nature of Poncio, who, for love of money and without remorse of
conscience, dishonored his own plighted word to Carbonell, his own cousin.

Inevitably evident therefore from the foregoing discussion, is the bad faith of Emma Infante from the time she
enticed Poncio to dishonor his contract with Carbonell, and instead to sell the lot to her (Infante) by offering Poncio a
much higher price than the price for which he sold the same to Carbonell. Being guilty of bad faith, both in taking
physical possession of the lot and in recording their deed of sale, the Infantes cannot recover the value of the
improvements they introduced in the lot. And after the filing by Carbonell of the complaint in June, 1955, the
Infantes had less justification to erect a building thereon since their title to said lot is seriously disputed by Carbonell
on the basis of a prior sale to her.

With respect to the claim of Poncio that he signed the document Exhibit "A" under the belief that it was a permit for
him to remain in the premises in ease he decides to sell the property to Carbonell at P20.00 per square meter, the
observation of the Supreme Court through Mr. Chief Justice Concepcion in G.R. No. L-11231, supra, bears repeating:

... Incidentally, the allegation in Poncio's answer to the effect that he signed Exhibit A under the
belief that it 'was a permit for him to remain in the premises in the event that 'he decided to sell the
property' to the plaintiff at P20.00 a sq. m is, on its face, somewhat difficult to believe. Indeed, if he
had not decided as yet to sell that land to plaintiff, who had never increased her offer of P15 a square
meter, there as no reason for Poncio to get said permit from her. Upon the they if plaintiff intended
to mislead Poncio, she would have Exhibit A to be drafted, probably, in English, instead of taking the
trouble of seeing to it that it was written precisely in his native dialect, the Batanes. Moreover,
Poncio's signature on Exhibit A suggests that he is neither illiterate nor so ignorant as to sign a
document without reading its contents, apart from the fact that Meonada had read Exhibit A to him-
and given him a copy thereof, before he signed thereon, according to Meonada's uncontradicted
testimony. (pp. 46-47, ROA).

As stressed by Justice Gatmaitan in his first decision of November 2, 1965, which he reiterated in his dissent from the
resolution of the majority of the Special Division. of Five on October 30, 1968, Exhibit A, the private document in the
Batanes dialect, is a valid contract of sale between the parties, since sale is a consensual contract and is perfected by
mere consent (Couto vs. Cortes, 8 Phil. 459). Even an oral contract of realty is all between the parties and accords to
the vendee the right to compel the vendor to execute the proper public document As a matter of fact, Exhibit A,
while merely a private document, can be fully or partially performed, to it from the operation of the statute of frauds.
Being a all consensual contract, Exhibit A effectively transferred the possession of the lot to the vendee Carbonell
by constitutum possessorium (Article 1500, New Civil Code); because thereunder the vendor Poncio continued to
retain physical possession of the lot as tenant of the vendee and no longer as knew thereof. More than just the
signing of Exhibit A by Poncio and Carbonell with Constancio Meonada as witness to fact the contract of sale, the
transition was further confirmed when Poncio agreed to the actual payment by at Carbonell of his mortgage
arrearages to the bank on January 27, 1955 and by his consequent delivery of his own mortgage passbook to
Carbonell. If he remained owner and mortgagor, Poncio would not have surrendered his mortgage passbook to'
Carbonell.

IV

IDENTIFICATION AND DESCRIPTION OF THE DISPUTED LOT IN THE MEMORANDUM EXHIBIT "A"

The claim that the memorandum Exhibit "A" does not sufficiently describe the disputed lot as the subject matter of
the sale, was correctly disposed of in the first decision of the trial court of December 5, 1962, thus: "The defendant
argues that there is even no description of the lot referred to in the note (or memorandum), especially when the
note refers to only one-half lot. With respect to the latter argument of the defendant, plaintiff points out that one-
half lot was mentioned in Exhibit 'A' because the original description carried in the title states that it was formerly
part of a bigger lot and only segregated later. The explanation is tenable, in (sic) considering the time value of the
contents of Exh. 'A', the court has arrived at the conclusion that there is sufficient description of the lot referred to in
Exh. As none other than the parcel of lot occupied by the defendant Poncio and where he has his improvements
erected. The Identity of the parcel of land involved herein is sufficiently established by the contents of the note Exh.
'A'. For a while, this court had that similar impression but after a more and through consideration of the context in
Exh. 'A' and for the reasons stated above, the court has arrived to (sic) the conclusion stated earlier" (pp. 53-54,
ROA).

Moreover, it is not shown that Poncio owns another parcel with the same area, adjacent to the lot of his cousin
Carbonell and likewise mortgaged by him to the Republic Savings Bank. The transaction therefore between Poncio
and Carbonell can only refer and does refer to the lot involved herein. If Poncio had another lot to remove his house,
Exhibit A would not have stipulated to allow him to stay in the sold lot without paying any rent for one year and
thereafter to pay rental in case he cannot find another place to transfer his house.

While petitioner Carbonell has the superior title to the lot, she must however refund to respondents Infantes the
amount of P1,500.00, which the Infantes paid to the Republic Savings Bank to redeem the mortgage.

It appearing that the Infantes are possessors in bad faith, their rights to the improvements they introduced op the
disputed lot are governed by Articles 546 and 547 of the New Civil Code. Their expenses consisting of P1,500.00 for
draining the property, filling it with 500 cubic meters of garden soil, building a wall around it and installing a gate and
P11,929.00 for erecting a b ' bungalow thereon, are useful expenditures, for they add to the value of the property
(Aringo vs. Arenas, 14 Phil. 263; Alburo vs. Villanueva, 7 Phil. 277; Valencia vs. Ayala de Roxas, 13 Phil. 45).

Under the second paragraph of Article 546, the possessor in good faith can retain the useful improvements unless
the person who defeated him in his possession refunds him the amount of such useful expenses or pay him the
increased value the land may have acquired by reason thereof. Under Article 547, the possessor in good faith has also
the right to remove the useful improvements if such removal can be done without damage to the land, unless the
person with the superior right elects to pay for the useful improvements or reimburse the expenses therefor under
paragraph 2 of Article 546. These provisions seem to imply that the possessor in bad faith has neither the right of
retention of useful improvements nor the right to a refund for useful expenses.

But, if the lawful possessor can retain the improvements introduced by the possessor in bad faith for pure luxury or
mere pleasure only by paying the value thereof at the time he enters into possession (Article 549 NCC), as a matter of
equity, the Infantes, although possessors in bad faith, should be allowed to remove the aforesaid improvements,
unless petitioner Carbonell chooses to pay for their value at the time the Infantes introduced said useful
improvements in 1955 and 1959. The Infantes cannot claim reimbursement for the current value of the said useful
improvements; because they have been enjoying such improvements for about two decades without paying any rent
on the land and during which period herein petitioner Carbonell was deprived of its possession and use.

WHEREFORE, THE DECISION OF THE SPECIAL DIVISION OF FIVE OF THE COURT OF APPEALS OF OCTOBER 30, 1968 IS
HEREBY REVERSED; PETITIONER ROSARIO CARBONELL IS HEREBY DECLARED TO HAVE THE SUPERIOR RIGHT TO THE
LAND IN QUESTION AND IS HEREBY DIRECTED TO REIMBURSE TO PRIVATE RESPONDENTS INFANTES THE SUM OF ONE
THOUSAND FIVE HUNDRED PESOS (P1,500.00) WITHIN THREE (3) MONTHS FROM THE FINALITY OF THIS DECISION;
AND THE REGISTER OF DEEDS OF RIZAL IS HEREBY DIRECTED TO CANCEL TRANSFER CERTIFICATE OF TITLE NO. 37842
ISSUED IN FAVOR OF PRIVATE RESPONDENTS INFANTES COVERING THE DISPUTED LOT, WHICH CANCELLED TRANSFER
CERTIFICATE OF TITLE NO. 5040 IN THE NAME OF JOSE PONCIO, AND TO ISSUE A NEW TRANSFER CERTIFICATE OF
TITLE IN FAVOR OF PETITIONER ROSARIO CARBONELL UPON PRESENTATION OF PROOF OF PAYMENT BY HER TO THE
INFANTES OF THE AFORESAID AMOUNT OF ONE THOUSAND FIVE HUNDRED PESOS (P1,500.00).

PRIVATE RESPONDENTS INFANTES MAY REMOVE THEIR AFOREMENTIONED USEFUL IMPROVEMENTS FROM THE LOT
WITHIN THREE (3) MONTHS FROM THE FINALITY OF THIS DECISION, UNLESS THE PETITIONER ROSARIO CARBONELL
ELECTS TO ACQUIRE THE SAME AND PAYS THE INFANTES THE AMOUNT OF THIRTEEN THOUSAND FOUR HUNDRED
TWENTY-NINE PESOS (P13,429.00) WITHIN THREE (3) MONTHS FROM THE FINALITY OF THIS DECISION. SHOULD
PETITIONER CARBONELL FAIL TO PAY THE SAID AMOUNT WITHIN THE AFORESTATED PERIOD OF THREE (3) MONTHS
FROM THE FINALITY OF THIS DECISION, THE PERIOD OF THREE (3) MONTHS WITHIN WHICH THE RESPONDENTS
INFANTES MAY REMOVE THEIR AFOREMENTIONED USEFUL IMPROVEMENTS SHALL COMMENCE FROM THE
EXPIRATION OF THE THREE (3) MONTHS GIVEN PETITIONER CARBONELL TO PAY FOR THE SAID USEFUL
IMPROVEMENTS.

WITH COSTS AGAINST PRIVATE RESPONDENTS.

EVARISTO SALVORO and GAUDENCIA SALVORO vs. PABLO TAÑEGA and JOSEFA TAÑEGA, JUAN TISMO and DOLORES
TISMO [December 29, 1978]
This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G. R. No. L-32811-R,
entitled "Evaristo Salvoro, et al., plaintiffs-appellants, versus Pablo D. Tañega, et al., defendants-appellees; Juan
Tismo, et al., defendants-in-counterclaim," promulgated on October 28, 1970, the dispositive part of which reads:

IN VIEW OF ALL THE FOREGOING, the decision of the lower court is hereby AFFIRMED. Furthermore,
the Register of Deeds of the Province of Leyte is hereby ordered to cancel Transfer Certificate of Title
No. 848 in the name of Juan and Dolores Tismo and, in lieu thereof, to issue a new transfer certificate
of title in the name of the appellees, Pablo and Josefa Tañega. Costs in both instances against the
appellants.

SO ORDERED. 1

On September 5, 1960 the spouses Evaristo Salvoro's and Gaudencia C. Salvoro commenced in the Court of First
Instance of Leyte an action principally to annul a deed of sale of land dated August 9, 1959 executed by them in favor
of the defendants, the spouses Pablo D. Tañega and Josefa Tañega. The plaintiffs alleged that the said deed of sale
should be annulled because the defendants failed to comply with certain resolutory conditions imposed in the
contract. The action was docketed as Civil Case No. 2826. 2

The sale in favor of the defendants was executed in 1959 but the same was not registered. However, the defendants
immediately took possession of the land upon the sale thereof to them.

The defendants filed on April 15, 1961 an amended answer with a counterclaim including the spouses Juan Tismo
and Dolores Tismo allegedly because after issues had been joined, the plaintiffs sold and conveyed their interests in
the property in question to said spouses, resulting in the issuance of a certificate of title in favor of the latter. 3

The plaintiffs actually sold the property in question in favor of the Tismo's on August 26, 1960.

Meanwhile, the defendants, Pablo D. Tañega and Josefa Tañega, had registered on September 15, 1960 a notice of lis
pendens on the land in question with the Register of Deeds of Leyte. However, despite said notice of lis pendens, the
second vendees, Juan Tismo and Dolores Tismo, were able to register the sale in their favor in December 1960 and to
secure the issuance to them of Transfer Certificate of Title No. 848 which cancelled Transfer Certificate of Title No. T-
900 in the name of Evaristo Salvoro and Gaudencia C. Salvoro.

On March 8, 1962, the parties entered into the following:

STIPULATION OF FACTS

COME NOW the parties and their undersigned attorneys, and unto this Honorable Court, respectfully
submit the following stipulation of facts:

1. That the plaintiffs were the owners of that certain parcel of land together with its improvements at
P. Zamora street, Tacloban City, and more particularly described under Certificate of Title No. T-900;

2. That the said plaintiffs on December 19, 1951 mortgaged the aforementioned properties to the
Development Bank of the Philippines for P27,000.00, copy of said mortgage contract is herein
attached as Exhibit 'A';

3. That on June 7, 1955 the plaintiffs executed a deed of sale in favor of the defendants of a portion
of the property above-mentioned in consideration of the sum of P30,000.00, P3,000.00 of which was
to be paid in cash upon the execution of the document and P27,000.00 representing the balance due
on the loan of plaintiffs to the Development Bank of the Philippines which was to be assumed by the
defendants, copy of the deed of sale is herein attached as Exhibit 'B';

4. That on March 23, 1959, the defendants executed a deed of absolute sale, copy of which is herein
attached as Exhibit 'C', in favor of the plaintiffs of a portion of that parcel of land designated as Lot
No. 520, situated in Tacloban City in consideration of the sum of P10,000.00, which consideration
was part of the purchase price in the deed of sale referred to as Exhibit 'B' and as amended by the
deed of sale referred to as Exhibit 'D', and the aforementioned deed of sale (Exhibit 'C') was legalized
on August 9, 1959;

5. That on the same date the plaintiffs executed in favor of the defendants an absolute deed of sale
covering the entire property mentioned in paragraph 3 hereof and the consideration for the said sale
was increased from P30,000.00 to P35,000.00, copy of the said deed of sale is herein attached as
Exhibit 'D'.

6. That of the various instruments executed by the plaintiffs and the defendants none of them had
been registered under the provisions of the Registration Law although the execution of Exhibits 'B'
and 'D' were known to the Development Bank of the Philippines, Tacloban City Branch;

7. That the defendants did not and have not paid the plaintiffs the sum of P3,000.00 herein above-
mentioned which was part of the consideration of the deed of sale on June 7, 1955, and which was
made payable within three (3) years from the said date, in spite of repeated demands made by the
plaintiffs prior to August 25, 1960;

8. That in the deed of sale executed by the defendants over Lot No. 520 (Transfer Certificate of Title
No. 160), they made it appear that the said properties were free from any lien or encumbrance when
in fact it was mortgaged to the Philippine National Bank for P4,320.00 on, November 25, 1955, and
that mortgage is still subsisting up to the present, according to the plaintiffs, which assertion
defendants deny;

9. That the Development Bank of the Philippines did not approve the assumption by the defendants
of the mortgage of plaintiffs for the reasons stated in the communication of Mr. Luis Fabella Branch
Manager, Development Bank of the Philippines, to the Chairman, Development Bank of the
Philippines, dated September 7, 1960, copy of which is herein attached as Exhibit F;

10. That the defendants from June 14, 1955, to July 25, 1959 paid the sum of P20,583.16 to the
Development Bank of the Philippines, which payments were receipted for in the name of the
plaintiffs;

11. That the failure of the defendants to pay the obligation of the plaintiffs with the Development
Bank of the Philippines, the latter foreclosed the mortgage of the plaintiffs and sold the same at
public auction on August 25, 1959, of which the said Bank was the successful bidder;

12. That as a result of the foreclosure of the mortgage and the subsequent sale at public auction of
the mortgaged properties under Act 3135 of which the Bank was the highest bidder, on August 26,
1960 under a special power of attorney executed by the plaintiffs in favor of the said bank, the
Development Bank of the Philippines executed in its favor a deed of sale over the properties
foreclosed, which sale was made a day after the period of redemption had expired, a copy of which is
herein attached as Exhibit 'G';

13. That the plaintiffs repurchased the properties aforementioned from the Development Bank of
the Philippines for P28,197.87, copy of the deed of repurchase dated October 25, 1960 is herein
attached as Exhibit 'H';

14. That the plaintiffs executed in favor of the spouses Juan S. Tismo and Dolores D. Tismo a deed of
sale over the aforesaid property dated August 26, 1960, after the former had deposited the
repurchase price with the local branch of the Development Bank of the Philippines; copy of which is
hereto attached as Exhibit 'I'.

15. That on September 7, 1960, the defendants filed a civil suit against the plaintiffs for breach of
contract with damages, which was docketed as Civil Case No. 2825, copy of which is herein attached
as Exhibit 'J', and in connection with the said case a notice of lis pendens was registered by the
defendants, (plaintiffs in the said case), copy of which is herein attached as Exhibit 'J-1'.

16. That the said complaint was made under oath and the defendants never claimed to be the
owners of the properties above-mentioned;

17. That the defendants (plaintiffs in Civil Case No. 2825) asked for the dismissal of the said Civil Case
No. 2825, which was granted by the Honorable Court;

18. That after the filing of the present case, on September 15, 1960 the defendants registered a
notice of lis pendens in connection herewith, copy of which is herein attached as Exhibit 'K';

19. That the defendants have been in possession of the building and the land occupied by the same
subject of this controversy since June, 1955 up to the present without paying any rentals therefor to
the plaintiffs or the intervenors;

20. That Juan S. Tismo and Dolores D. Tismo had demanded from the defendants the Possession of
the property but the defendants have refused and continue to refuse to deliver the same to the
former;

21. That on January 12, 1961, the said Juan S. Tismo and Dolores D. Tismo filed Civil Case No. R-541
for unlawful detainer;

22. That on August 8,1961,the Honorable Municipal Court of the City of Tacloban rendered judgment
against the defendants and from which decision the defendants appealed;

23. That in the aforesaid decision of the Honorable Municipal Court of Tacloban City, the monthly
rentals to be paid by the defendants was fixed at P500.00, a copy of which is herein attached as
Exhibit 'L', but the amount was reduced on the order of the Court to P460.00.

WHEREFORE, it is most respectfully prayed that the foregoing stipulation of facts together with the
exhibits attached therein be made a part of evidence of the parties and after trial an the issue not
herein stipulated upon judgment be rendered.

EVARISTO SALVORO PABLO TAÑEGA Plaintiff Defendant

JUAN S. TISMO

Defendant

(Counterclaim)

GAUDENCIA C. SALVORO JOSEFA TAÑEGA Plaintiff Defendant

DOLORES D. TISMO

Defendant

(Counterclaim)

SEGUNDO M. ZOSA ANTONIO MONTILLA Counsel for plaintiffs & Counsel for defendants 4defendants
in counterclaim
The trial court rendered a decision dated November 29, 1962 dismissing the complaint and ordering the defendants
to reimburse the plaintiffs in the sum of P28,197.80, with legal interest from August 26, 1960 until the total amount
was paid. 5

The plaintiffs appealed from the judgment to the Court of Appeals. 6

The appeal was docketed as CA-G.R. No. 32811-R.

The Special Third Division of the Court of Appeals promulgated its decision on October 28, 1970, affirming the
judgment of the trial court and ordering the Register of Deeds of the Province of Leyte to cancel Transfer Certificate
of Title No. 848 in the name of Juan and Dolores Tismo, and, in lieu thereof, to issue a new transfer certificate of title
in the name of appellees, Pablo and Josefa Tañega, with costs in both instances against the appellants.

In their brief, the petitioners assign the following errors:

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE DEFENDANTS-IN-COUNTERCLAIM,

TISMO, SPOUSES, THE SECOND BUYERS OF THE SUBJECT PROPERTY, WERE VENDEES IN BAD FAITH
OR WITH NOTICE SOLELY IN VIEW OF THE LIS PENDENS FILED BY APPELLEES ON SEPTEMBER 15, 1960
THIS DESPITE THE FACT THAT THE TISMO, SPOUSES BOUGHT SAID PROPERTY BEFORE THE
AFORESAID DATE, MORE SPECIFICALLY ON AUGUST 26, 1960, AND DESPITE THE COMPLETE ABSENCE
OF ANY EVIDENCE OF BAD FAITH OR NOTICE ON THEIR PART REGARDING THE PRIOR SALE IN FAVOR
OF DEFENDANTS TAÑEGAS.

II

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE SALE MADE BY THE PLAINTIFFS
SALVORO'S TO THE TISMO, SPOUSES 'CANNOT PROSPER' AND THAT THE FIRST SALE TO THE
DEFENDANTS TAÑEGAS SHOULD BE PREFERRED-DESPITE THE UNDISPUTED FACTS THAT (A) THE
TISMOS REGISTERED THE SALE IN THEIR FAVOR WHEREAS THE TAÑEGAS NEGLECTED AND FAILED TO
REGISTER THEIR PURCHASE; (B) THE LAND INVOLVED IS A REGISTERED PROPERTY; AND (C) THE
TISMOS HAD NO NOTICE OF THE FIRST SALE AT THE TIME THEY BOUGHT THE PROPERTY.

III

THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING THAT, AS INNOCENT PURCHASERS FOR
VALUE, THE TISMOS SHOULD BE THE PREFERRED VENDEES IN ACCORDANCE WITH ARTICLE 1544 OF
THE CIVIL CODE.

IV

THE HONORABLE COURT OF APPEALS ERRED IN ORDERING THE REGISTER OF DEEDS OF LEYTE TO
CANCEL T.C.T. NO. 848 IN THE NAME OF THE TISMO, SPOUSES AND IN LIEU THEREOF, TO ISSUE A
NEW TRANSFER CERTIFICATE OF TITLE IN THE NAME OF THE TAÑEGAS. 7

The main issue is: When real property is sold to two different persons by the same vendor, the first immediately
taking possession of the property as owner but neglecting to register the sale to him while the second vendee had
the document in his favor duly registered, who, as between the two vendees, has the better right over the property
under Article 1544 of the Civil Code of the Philippines?

The facts, as found by the Court of Appeals are:

The plaintiffs, as the owners of a parcel of land as well as of the building and improvements thereon,
located at Padre Zamora Street, Tacloban City, and evidenced by Transfer Certificate of Title No. T-
900, mortgaged on December 19, 1951 said parcel of land and its improvements to the Development
Bank of the Philippines (then Rehabilitation Finance Corporation) for P27,000.00. Plaintiffs failed to
pay any amount to the Development Bank; hence, in June, 1955, the said Bank gave notice to
foreclose the mortgage.

On June 7, 1955, plaintiffs executed in favor of the defendants a Deed of Absolute Sale over a portion
of the above-described land including the building of strong materials constructed thereon, in
consideration of the sum of Thirty Thousand (P30,000.00) Pesos. The sum of P30,000.00 mentioned
in said Deed of Absolute Sale was agreed to be payable within three (3) years from June 7, 1955.

On the same date when the said Deed of Absolute Sale was executed, defendants immediate took
possession of the land and building and exercised acts of ownership over them. The building,
however, was not ready for occupancy since the construction was not yet fully completed at the
time, thereby compelling defendants to make necessary improvements thereon for which they spent
P7,000.00.

Under their assumption of the mortgage under the Deed of Absolute Sale of June 7, 1959,
defendants made several payments in the name of plaintiffs to the Development Bank covering the
period from June 15, 1955 to July 24, 1959 in the total sum of P20,583.16.

Plaintiffs executed on August 9. 1959, another Deed of Absolute Sale whereby they conveyed
absolutely and unconditionally in favor of defendants the ownership of the entire land and building
and improvements described and covered by Transfer Certificate of Title No. T-900 in consideration
of the sum of Thirty-Five Thousand (P35,000.00) Pesos. The cash consideration of P8,000.00,
representing the difference between P35,000.00 in the said second Deed of Absolute Sale, was
agreed to be paid for by the consideration of a Deed of Absolute Sale executed by defendants in
favor of plaintiffs on March 23, 1959 over a portion of a parcel of land containing an area of 795
square meters and designated as Lot 520, in the sum of P10,000.00.

On August 25, 1959, or sixteen (16) days after plaintiffs executed the said second Deed of Absolute
Sale of August 9, 1959, and before the Development Bank could act on the assumption by the
defendants of the mortgage of plaintiffs, the said Bank foreclosed the mortgage and, at the public
auction sale, the Development Bank was the sole and highest bidder.

On August 26, 1960, the plaintiffs redeemed the property from the Development Bank pursuant to
the provisions of Act No. 3135 by paying the sum of P28,197.87. Thereafter, and before the Deed of
Repurchase could be executed by said Bank, plaintiffs executed a deed of sale in favor of the
defendants-in-counterclaim Juan Tismo and his wife Dolores Tismo allegedly for the amount of
P40,000.00. This was the same land and building which they had previously sold to defendants and
covered by Transfer Certificate of Title No. T-900.

On August 27, 1960, the day following the repurchase by plaintiffs above- mentioned, defendant
Pablo Tañega, upon his arrival from Manila, tendered payment of the repurchase price plus 2%, but
plaintiffs refused to accept the same.

On September 5, 1960, plaintiffs filed the present complaint and on September 15, 1960, defendants
filed a notice of lis pendens with the Register of Deeds of Leyte. Notwithstanding said notice,
defendants-in- counterclaim Juan Tismo and Dolores Tismo were able to register the sale in their
favor on December 19, 1960, and to secure Transfer Certificate of Title No. 848 in lieu of Transfer
Certificate of Title No. T-900 which was cancelled.

In the complaint filed on September 5, 1960 against defendants, plaintiffs prayed for annulment of
the contract of sale of real property, with damages, on the ground that the conditions thereof had
not been complied with, and claiming the property as owner both by rescission and as redemptioner
from the judgment buyer thereof, mortgage creditor Development Bank of the Philippines (DBP).
Defendants answered alleging to be the owners of the property because the sale to them by
plaintiffs was absolute and because while plaintiffs only acquired the right to be reimbursed what
 they had paid to the Development Bank of the Philippines, plaintiffs had unjustly refused
reimbursement from the defendants. Defendants prayed for dismissal of the complaint, for damages,
attorney's fees and expense of litigation.

On April 15, 1961, defendants filed a motion to bring in spouses Juan and Dolores Tismo as second
vendees of the property from the plaintiffs, and buyers in bad faith. Said Motion was granted by
Court Order of April 22, 1961. 8

The petitioners have correctly stated that "This case involves double sale of the same real property to different
vendees; hence, Article 1544 of the New Civil Code applies." 9

Article 1544 of the Civil Code of the Philippines provides:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first
in the possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith.

The undisputed facts are that the sale to the Tañega spouses was not registered but that they immediately took
possession of the property and introduced improvements thereon; that the second sale to the Tismo spouses was
executed on August 26, 1960; that the Tañega spouses caused to be recorded with the Register of Deeds of Leyte a
notice of lis pendens on the property in question on September 15, 1960; that the Tismo spouses registered the deed
of sale in their favor in December 1960; and that Transfer Certificate of Title No. 848, covering the land in question,
was issued to said Tismo spouses.

To be entitled to preference, the Tismo spouses must have registered the deed of sale in their favor in good faith.

The petitioners contend that the notice of lis pendens could not have affected the presumption of good faith of the
Tismo spouses because the deed of sale in their favor was executed on August 26, 1960, prior to the registration of
the notice of lis pendens on September 15, 1960.

The undisputed fact, however, is that when the deed of sale in favor of the Tismo spouses was executed on August
26, 1960 the Tañega spouses were already in possession of the land in question and had introduced valuable
improvements thereon. The actual possession of the Tañega spouses is admitted in the following portions of the
Stipulation of Facts:

19. That the defendants have been in possession of the building and the land occupied by the same
subject of this controversy since June, 1955 up to the present without paying any rentals therefor to
the plaintiffs or the intervenors;

20. That Juan S. Tismo and Dolores D. Tismo had demanded from the defendants the possession of
the property but the defendants have refused and continue to refuse to deliver the same to the
former; 10

Indeed, the Court of Appeals has found that the Tañega spouses bought the property on August 9, 1959 and
immediately took actual physical possession of the property, finishing the uncompleted improvements thereon; that
as stipulated in the sale, the Tañega's made payments to the DBP in the name of and for the account of the Salvoro's,
the vendors, while the application for the assumption of the mortgage by the vendees remained unacted by the
Board of the Development Bank of the Philippines; that the mortgage was foreclosed by the DBP and the latter then
acquired the property as highest bidder in the public auction on August 26, 1959; and that one year after the auction
sale, or on August 26, 1960, the Salvoro's reacquired it from the DBP and on the same day sold the property for the
second time to Juan Tismo and his wife Dolores D. Tismo.

The undisputed fact which militates against the claim of lack of knowledge on the part of the second vendees of the
prior sale of the property is that the same was, at the time of the second sale, peaceably possessed by the first
vendees, the Tañegas. This fact alone should have made the Tismo spouses inquire into the true status of the
immovable they were proposing to buy. They should have investigated why the Tañega spouses were in possession of
the land. If the Tismo's failed to exercise the ordinary care expected of a buyer of real estate, they must suffer the
consequences. The rule of caveat emptor requires the purchaser to be aware of the supposed title of the vendor and
one who buys without checking the vendor's title takes all the risks and losses consequent to such failure. 11

This Court has held in one case, 12 that the basic premise of the preferential rights established by Article 1473, Civil
Code, (now Article 1544) is good faith. To enjoy the preferential right, the second vendee must not only have a prior
recording of his sale but must, above all, have acted in good faith, that is, without knowledge or notice of the
previous and existing alienation made by his vendor to another. Contrary to the contention of the herein petitioners
that good faith at the time of purchase was sufficient, this Court has ruled that the rights given under this law do not
accrue with the mere inscription of the deed of conveyance unless such inscription is done in good faith. 13 The trial
court as well as the appellate court have both held that when the Tismo's on December 19, 1960 registered the deed
of sale executed in their favor of the property previously sold to the Tañega's, they could not have failed to know the
existence of the lis pendens then annotated on the title of the property. In short, when they were about to register
the deed of sale in their favor, they acquired knowledge that the land had been previously sold to the Tañega
spouses. Indubitably there was bad faith on the part of the Tismo spouses when they went ahead with the
registration despite such knowledge. This Court had occasions to rule that if a vendee in a double sale registers the
sale after he has acquired knowledge that there was a previous sale of the same property to a third party, or that
another person claims said property in a previous sale, the registration will constitute a registration in bad faith and
will not confer upon him any right. It is as if there had been no registration, and the vendee who first took possession
of the real property in good faith shall be preferred. 14

Applying the foregoing rulings to the present case, this Court holds that the Respondents-Appellees Pablo D. Tañega
and his spouse Josefa Tañega are the owners of the land in question inasmuch as they, in good faith, were first in
possession of said land.

In Carbonell vs. Court of Appeals, 15 this Court said:

Article 1544, New Civil Code, which is decisive of this case, recites:

If the same thing should have been sold to different vendees, the ownership shall be transferred to
the person who may have first taken possession thereof in good faith, if it should be movable
property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first
in the possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith (Emphasis supplied).

It is essential that the buyer of realty must act in good faith in registering his deed of sale to merit
the protection of the second paragraph of said Article 1544.

Unlike the first and third paragraphs of said Article 1544, which accord preference to the one who
first takes possession in good faith of personal or real property, the second paragraph directs that
ownership of immovable property should be recognized in favor of one who in good faith first
recorded' his right. Under the first and third paragraphs, good faith must characterize the prior
possession. Under the second paragraph, good faith must characterize the act of anterior registration
(DBP vs. Mangawang, et al., Magale et al., 8 SCRA 489).
 If there is no inscription, what is decisive is prior possession in good faith. If there is inscription, as in
the case at bar, prior registration in good faith is a pre-condition to superior title.

Since the Tismo's were registrants in bad faith, the situation is as if there was no registration at all Therefore, the
vendees who first took possession of the property in good faith shall be preferred.

It is to be noted that only the plaintiffs, Evaristo Salvoro and Gaudencia C. Salvoro, petitioners herein, had appealed
from the decision of the Court of First Instance of Leyte. The Tismo spouses cannot be joined as petitioners in this
case inasmuch as they did not appeal. They cannot assail the decision of the Court of Appeals.

The petition for review was filed out of time. On this ground alone this case may be dismissed.

WHEREFORE, the petition is hereby denied and the decision of the Court of Appeals sought to be reviewed is
affirmed, with costs against petitioners.

SO ORDERED.

TOMASA QUIMSON and MARCOS SANTOS vs. FRANCISCO ROSETE [August 9, 1950]
This is an appeal by certiorari from a decision of the Court of Appeals reversing the judgment of the Court of First
Instance of Zambales. The case involves s dispute over a parcel of land sold to two different persons.

The Facts as found by the Court of Appeals are these:

Esta finca pertenecia originalmente al hoy difunto Dionisio Quimson, quien, en 7 de junio de 1932, otorgo la
escritura Exhibit A de trespaso de la misma a favor de su hija Tomasa Quimson, pero continuo en su posesion
y goce. La vendio a los esposos Magno Agustin y Paulina Manzano en 3 de Mayo de 1935, con pacto de
recomprar dentro del plazo de seis años; y dos años escasos despues, en 5 de abril de 1937, la volvio a
vender a Francisco Rosete, tambien con pacto de retro por el termino de cinco años, despues de haber
verificado su recompra de Agustin y Manzano, con dinero que le habla facilitado Rosete, otorgandose a este
facto la escritura de venta Exhibit 1. Desde entoces Rosete es el que esta en su posesion y disfrute, de una
manera pacifica y quieta, aun despues de la muerte de Dionisio Quimson, ocurrida en 6 de junio de 1939,
hasta el enero de 1943, en que Tomasa Quimson acudio al Juez de Paz de San Marcelino , Zambales, para que
este interviniera en un arreglo con Rosete sobre dicha finca, cuyo fracaso motivo una carrera hacia Iba, la
capital de Zambales, para ganar la prioridad del registro e inscripcion de las escrituras de venta Exhibits A y 1
que Dionisio Quimson otorgara a favor de Tomasa Quimson y Francisco Rosete, respectivamente, carreraque
aquella gano por haber llegado a la meta una hora antes, a las 9:30 a.m. del 17 de febrero de 1943, en tanto
que este la alcanzo a las 10:30 a.m. de ese mismo dia.

Two questions are raised: (1) What were the effects of the registration of plaintiff's document? and (2) Who was prior
in possession? The Court of Appeals' answer to the question is , None, and to the second, the defendant or second
purchaser.

We do not deem it necessary to pass upon the first issue in the light of the view we take of the last, to which we will
address ourselves presently.

Articles 1462 and 1473 of the Civil Code provide:

ART. 1462. The thing sold shall be deemed delivered, when it is placed in the control and possession of the
vendee.

When the sale is made by means of a public instrument, the execution thereof shall be equivalent to the
delivery of the thing which is the object of the contract, if from the said instrument the contrary does not
appear or may not be clearly inferred.

ART. 1473. If the same thing should have been sold to different vendees, the ownership shall be transferred
to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who first recorded it
in the registry.

Should there be no inscription, the ownership shall belong to the person who in good faith was first in the
possession; and, in the absence of this, to the person who represents the oldest title, provided there is good
faith.

In the case of Buencamino vs. Viceo (13 Phil., 97), Mr. Justice Willard, speaking for the court and citing article 1462
says: "Upon a sale of real estate the execution of a notarial document of sale is a sufficient delivery of the property
sold.".

In the case of Florendo vs. Foz (20 Phil., 388), the court, through Mr. Chief Justice Arellano, rules that "When the sale
is made by menas of a public instrument, the execution thereof is tantamount to conveyance of the subject matter,
unless the contrary clearly follows or be deduced from such instrument itself, and in the absence of this condition
such execution by the vendor is per se a formal or symbolical conveyance of the property sold, that is, the vedor in
the instrument itself authorizes the purchaser to used the title of ownership as proof that latter is thenceforth the
owner of the property."
More decisive of the case at the bar, being almost on all fours with it, is the case of Sanchez vs. Ramon (40 Phil., 614).
There. appeared that one Fernandez sold a piece of land to Marcelino Gomez and Narcisa Sanchez underpacto de
retro in a public instrument. The purchasers neither recorded the deed in the registry of property nor ever took
materials possession of the land. Later, Fernandez sold the same property by means of a private document to Ramos
who immediately entered upon the possession of it. It was held that, according to article 1473 of the Civil Code,
Gomez and Sanchez were the first in possession and. consequently, that the sale in their favor was superior. Says the
court, through Mr. Justice Avanceña, later chief justice:

To what kind of possession is acquired by the materials occupancy of the thing or right possessed, or by the
fact that the latter is subjected to the action of our will, or by the appropriate acts and legal formalities
established for acquiring possession (art. 438, Civil Code). by a simple reasoning, it appears that, because the
law does not mention to which of these kinds of the possession the article refers, it must be understood that
it refers to all of these kinds. The proposition that this article, according to its letter, refers to the materials
possession and excludes the symbolic does not seem to be founded upon a solid ground. It is said that the
law, in the first possession and then the date of the date of the title and as a public instruments is a title, it is
claimed that the inference is that the law has deliberately intented to place the symbolic possession, which
the execution of the public document implies, after the materials possession. This argument, however, would
only be forceful if the title, mentioned by this article, includes public instruments, and this would only be
true if public instruments are not included in the idea of the possession spoken of in said article. In other
words the strength of the arguments rests in that this possession is precisely the materials and does not
include the symbolic. Consequently, the argument is deficient for it is begging the same question, because if
this possession includes the symbolic, which is acquired by the execution of a public instruments, it should
be understood that the title, mentioned by the law as the next cause of preference, does not include
instruments.

Furthermore, our interpretation of this article 1473 is more in consonance with the principles of the justice.
The execution of the public instrument is equivalent to the delivery of the realty sold (art. 1462, Civil Code )
and its possession by the vedee (art. 438).Under these conditions the sale is considered consummated and
completely transfers to the vendee all of the thing. the vendee by virtue of this sale has acquired everything
and nothing, absolutely nothing, is left to the vendor. Form this moment the vendor is a stranger to the thing
sold like any other who has never been its owner. As the obligation of even delivering it. If he continues
taking materials possession of it, is simply on account of the vendee's tolerance and, in this sense, his
possession is vendor's possession. And if the latter should have to ask him for the delivery of this materials
possession it would not be by virtue of the sale, because this has been already consummated and has
produced all its effects, but by virtue of the vendee's ownership, in the same were not the vendor. This
means that after the sale of the realty by means of a public instruments, the vendor, who resells it to
another, does not transmitted anything to this second sale, takes materials possession of the thing, he does it
as mere detainer, and it would be unjust to protect this detention against the rights to the thing lawfully
acquired by the first vendee.

We are of the opinion that the possession mentioned in the article 1473 (for determining who has better
right when the same piece of land has been sold several times by the vendor ) includes not the materials but
also the symbolic possession, which is acquired by the execution of a public instrument.

The Supreme Court of Spain and Mr. Manresa are of the same opinion. On pp. 157 ,158 Vol. X, of his treatise on the
Spanish Civil Code. Manresa comments:

II. Observacion comun a la venta de muebles y a la de inmuebles. — Hemos interpretado el precepto de

articulo 1.473, en sus parrafos 1. y 3. en el sentido mas racional mas racional, aunque no tal vez en el mas
adecuado a las palabras que se emplean. Las palabras tomar posesion, y primero en la posesion las hemos
considerado como equivalentes a la de la tradicion real o fingida a que se refieren los articulos 1.462 al 1. 464
porque si la posesion materials del objeto puede otorgar preferencia e cuestiones de possesion y asi lo re-
conoe el articulo 445. no debe darla nunca en cuestiones de propiedad y de la propiedad habla
expresamente el articulo 1.473. Asi en nuestra opinion, robustecida por la doctrine que rectamente se deriva
de la sentencia de 24 de Novembre de 1894, vendida una finca A. en escritura publica despues a B., aunque
se incate materialmente este del inmueble, la etrega de la cosa elvendedor carecia ya de la facultad de
disponer de ella .
The statement of Sr. Manresa which is said to sustain the theory of the Court of Appeals, expresses, as we under
stand that statement, the literal meaning of article 1473, for the decision of November 24, 1894 reflects, according to
the learned author, the intention of the lawmaker and is in the conformity with the principles of justice. now under
both the a Spanish and Philippine rules of interpretation, the spirit, the intent, the law prevails over its letter.

Counsel for defendant denies that the land was sold to plaintiff's Tomasa Quimson or that the Court of Appeals so
founds. All that latter court declared, he says, was that a deed of the land was executed by the original owner on
June 7, 1932.

The findings that a deed of conveyance was made by Dionisio Quimson in favor of his daughter could have no other
meaning, in the absence of any qualifying statement , that the land was sold by the father to his daughter.
Furthermore, this was the trial court's explicit finding which was not reversed by the Court of Appeals and stand as
the fact of the case. Looking into the documents itself Exhibits A states categorically that the vendor received form
the vendee the consideration of sale, P 250, acknowledge before the notary public the notary public having executed
the instruments of his own free will.

The expression in the court's decision in the case of Cruzado vs. Escaler (34 Phil., 17), cited by the Court of Appeals,
Apparently to the effect that physical possession by the purchaser is essential to the consummation of a sale of real
of estate, is at best obiter dictum; for the court distinctly found that the sale to plaintiff's Cruzado's father was a
sham, execution with the sole purpose of enabling the senior Cruzado to mortgage the property and
becomeprocurador. And with reference to the failure of the second vendee, Escaler, to register his purchase, the
court disregarded the omission as well as the entry of the first sale in the registry because that entry was made by
the plaintiff, son and heir of the first supposed vendee, more than a score years after the alleged transaction, when
the plaintiff was no longer or had any right therein (in the land). Because it already belonged to the defendant
Escaler, its lawful owner." When Escaler, the second purchase was sued he had become the owner of the land by
prescription. The defendant's possession in the present case fell far short of having ripened into title by prescription
when the plaintiff commenced her action.

For the reasons above stated, we are constrained to set aside the decision of the Court of Appeals. Because the
Appellate Court found for the defendant, it made no findings on damages for the latter's used of the property in
controversy. Not being authorized in this appeal to examine the evidence we have to accept the trials court's
appraisal of the damages. Judge Llanes assessed the damages of P 180 for the occupation of the agricultural years
143-44,1944-45 and 1945-46, and P 60 a year thereafter until the possession of the property was restituted to the
plaintiffs.

Let judgment be entered in accordance with the tenor of this decision, with costs against the defendant.

LAWYERS COOPERATIVE PUBLISHING COMPANY vs. PERFECTO TABORA [April 30, 1965]
On May 3, 1955, Perfecto A. Tabora bought from the Lawyers Cooperative Publishing Company one complete set of
American Jurisprudence consisting of 48 volumes with 1954 pocket parts, plus one set of American Jurisprudence,
General Index, consisting of 4 volumes, for a total price of P1,675.50 which, in addition to the cost of freight of P6.90,
makes a total of P1,682.40. Tabora made a partial payment of P300.00, leaving a balance of P1,382.40. The books
were duly delivered and receipted for by Tabora on May 15, 1955 in his law office Ignacio Building, Naga City.

In the midnight of the same date, however, a big fire broke out in that locality which destroyed and burned all the
buildings standing on one whole block including at the law office and library of Tabora As a result, the books bought
from the company as above stated, together with Tabora's important documents and papers, were burned during the
conflagration. This unfortunate event was immediately reported by Tabora to the company in a letter he sent on May
20, 1955. On May 23, the company replied and as a token of goodwill it sent to Tabora free of charge volumes 75, 76,
77 and 78 of the Philippine Reports. As Tabora failed to pay he monthly installments agreed upon on the balance of
the purchase price notwithstanding the long time that had elapsed, the company demanded payment of the
installments due, and having failed, to pay the same, it commenced the present action before the Court of First
Instance of Manila for the recovery of the balance of the obligation. Plaintiff also prayed that defendant be ordered
to pay 25% of the amount due as liquidated damages, and the cost of action.

Defendant, in his answer, pleaded force majeure as a defense. He alleged that the books bought from the plaintiff
were burned during the fire that broke out in Naga City on May 15, 1955, and since the loss was due to force
majeure he cannot be held responsible for the loss. He prayed that the complaint be dismissed and that he be
awarded moral damages in the amount of P15,000.00.

After due hearing, the court a quo rendered judgment for the plaintiff. It ordered the defendant to pay the sum of
P1,382.40, with legal interest thereon from the filing of the complaint, plus a sum equivalent to 25% of the total
amount due as liquidated damages, and the cost of action.

Defendant took the case to the Court of Appeals, but the same is now before us by virtue of a certification issued by
that Court that the case involves only questions of law.

Appellant bought from appellee one set of American Jurisprudence, including one set of general index, payable on
installment plan. It was provided in the contract that "title to and ownership of the books shall remain with the seller
until the purchase price shall have been fully paid. Loss or damage to the books after delivery to the buyer shall be
borne by the buyer." The total price of the books, including the cost of freight, amounts to P1,682.40. Appellant only
made a down payment of P300.00 thereby leaving a balance of P1,382.40. This is now the import of the present
action aside from liquidated damages.

Appellant now contends that since it was agreed that the title to and the ownership of the books shall remain with
the seller until the purchase price shall have been fully paid, and the books were burned or destroyed immediately
after the transaction, appellee should be the one to bear the loss for, as a result, the loss is always borne by the
owner. Moreover, even assuming that the ownership of the books were transferred to the buyer after the perfection
of the contract the latter should not answer for the loss since the same occurred through force majeure. Here, there
is no evidence that appellant has contributed in any way to the occurrence of the conflagration.1äwphï1.ñët

This contention cannot be sustained. While as a rule the loss of the object of the contract of sale is borne by the
owner or in case of force majeure the one under obligation to deliver the object is exempt from liability, the
application of that rule does not here obtain because the law on the contract entered into on the matter argues
against it. It is true that in the contract entered into between the parties the seller agreed that the ownership of the
books shall remain with it until the purchase price shall have been fully paid, but such stipulation cannot make the
seller liable in case of loss not only because such was agreed merely to secure the performance by the buyer of his
obligation but in the very contract it was expressly agreed that the "loss or damage to the books after delivery to the
buyer shall be borne by the buyer." Any such stipulation is sanctioned by Article 1504 of our Civil Code, which in part
provides:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been retained by the seller merely to secure performance by
 the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such
delivery.

Neither can appellant find comfort in the claim that since the books were destroyed by fire without any fault on his
part he should be relieved from the resultant obligation under the rule that an obligor should be held exempt from
liability when the loss occurs thru a fortuitous event. This is because this rule only holds true when the obligation
consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous
event. Here these qualifications are not present. The obligation does not refer to a determinate thing, but is
pecuniary in nature, and the obligor bound himself to assume the loss after the delivery of the goods to him. In other
words, the obligor agreed to assume any risk concerning the goods from the time of their delivery, which is an
exception to the rule provided for in Article 1262 of our Civil Code.

Appellant likewise contends that the court a quo erred in sentencing him to pay attorney's fees. This is merely the
result of a misapprehension for what the court a quo ordered appellant to pay is not 25% of the amount due as
attorney's fees, but as liquidated damages, which is in line with an express stipulation of the contract. We believe,
however, that the appellant should not be made to pay any damages because his denial to pay the balance of the
account is not due to bad faith.

WHEREFORE, the decision appealed from is modified by eliminating that portion which refers to liquidated damages.
No costs.