[G.R. No. 124791.
February 10, 1999] with all the improvements thereon, covered by Transfer Certificates of
JOSE RAMON CARCELLER, petitioner, vs. COURT OF APPEALS
and STATE INVESTMENT HOUSES, INC., respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review of the Decision[1] dated September
21, 1995 of the Court of Appeals[2]in CA - G. R. CV No. 37520, as well
as its Resolution[3] dated April 25, 1996, denying both parties motion for
partial reconsideration or clarification. The assailed decision affirmed
with modification the judgment[4] of the Regional Trial Court of Cebu
City, Branch 5, in Civil Case No. CEB 4700, and disposed of the
controversy as follows:
However, We do not find it just that the appellee, in exercising his option
to buy, should pay appellant SIHI only P1,800,000.00. In fairness to
appellant SIHI, the purchase price must be based on the prevailing market
price of real property in Bulacao, Cebu City. (Emphasis supplied)
The factual background of this case is quite simple.
Private respondent State Investment Houses, Inc. (SIHI) is the
registered owner of two (2) parcels of land with a total area of 9,774 square
meters, including all the improvements thereon, located at Bulacao, Cebu
City, covered by Transfer Certificate of Titles Nos. T-89152 and T-89153
of the Registry of Deeds of Cebu City.
On January 10, 1985, petitioner and SIHI entered into a lease
contract with option to purchase[5] over said two parcels of land, at a
monthly rental of Ten Thousand (P10,000.00) pesos for a period of
eighteen (18) months, beginning on August 1, 1984 until January 30,
1986. The pertinent portion of the lease contract subject of the dispute
reads in part:
4. As part of the consideration of this agreement, the LESSOR hereby
grants unto the LESSEE the exclusive right, option and privilege to
purchase, within the lease period, the leased premises thereon for the
aggregate amount of P1,800,000.00 payable as follows:
a. Upon the signing of the Deed of Sale, the LESSEE shall immediately
pay P360,000.00.
b. The balance of P1,440,000.00 shall be paid in equal installments
of P41,425.87 over sixty (60) consecutive months computed with interest
at 24% per annum on the diminishing balance; Provided, that the LESSEE
shall have the right to accelerate payments at anytime in which event the
stipulated interest for the remaining installments shall no longer be
imposed.
x . . The option shall be exercised by a written notice to the LESSOR at
anytime within the option period and the document of sale over the afore-
described properties has to be consummated within the month
immediately following the month when the LESSEE exercised his option
under this contract.[6]
On January 7, 1986, or approximately three (3) weeks before the
expiration of the lease contract, SIHI notified petitioner of the impending
termination of the lease agreement, and of the short period of time left
within which he could still validly exercise the option. It likewise
requested petitioner to advise them of his decision on the option, on or
before January 20, 1986.[7]
In a letter dated January 15, 1986, which was received by SIHI on
January 29, 1986, petitioner requested for a six-month extension of the
lease contract, alleging that he needs ample time to raise sufficient funds
in order to exercise the option. To support his request, petitioner averred
that he had already made a substantial investment on the property, and had
been punctual in paying his monthly rentals. [8]
On February 14, 1986, SIHI notified petitioner that his request was
disapproved. Nevertheless, it offered to lease the same property to
petitioner at the rate of Thirty Thousand (P30,000.00) pesos a month, for
a period of one (1) year. It further informed the petitioner of its decision
to offer for sale said leased property to the general public. [9]
On February 18, 1986, petitioner notified SIHI of his decision to
exercise the option to purchase the property and at the same time he made
arrangements for the payment of the downpayment thereon in the amount
of Three Hundred Sixty Thousand (P360,000.00) pesos.[10]
On February 20, 1986, SIHI sent another letter to petitioner,
reiterating its previous stand on the latters offer, stressing that the period
within which the option should have been exercised had already
lapsed. SIHI asked petitioner to vacate the property within ten (10) days
from notice, and to pay rental and penalty due. [11]
Hence, on February 28, 1986, a complaint for specific performance
and damages[12] was filed by petitioner against SIHI before the Regional
Trial Court of Cebu City, to compel the latter to honor its commitment and
execute the corresponding deed of sale.
After trial, the court a quo promulgated its decision dated April 1,
1991, the dispositive portion of which reads:
In the light of the foregoing considerations, the Court hereby renders
judgment in Civil Case No. CEB 4700, ordering the defendant to execute
a deed of sale in favor of the plaintiff, covering the parcels of land together
Title Nos. 89152 and 89153 of the Registry of Deeds of Cebu City, in
accordance with the lease contract executed on January 10, 1984 between
the plaintiff and the defendant, but the purchase price may be by one shot
payment of P1,800,000.00; and the defendant to pay attorneys fee
of P20,000.00.
No damages awarded.[13]
Not satisfied with the judgment, SIHI elevated the case to the Court
of Appeals by way of a petition for review.
On September 21, 1995, respondent court rendered its decision,
affirming the trial courts judgment, but modified the basis for assessing
the purchase price. While respondent court affirmed appellees option to
buy the property, it added that, the purchase price must be based on the
prevailing market price of real property in Bulacao, Cebu City. [14]
Baffled by the modification made by respondent court, both parties
filed a motion for reconsideration and/or clarification, with petitioner, on
one hand, praying that the prevailing market price be the value of the
property in February 1986, the time when the sale would have been
consummated. SIHI, on the other hand, prayed that the market price of the
property be based on the prevailing price index at least 10 years later, that
is, 1996.
Respondent court conducted further hearings to clarify the matter,
but no agreement was reached by the parties. Thus, on April 25, 1996,
respondent court promulgated the assailed resolution, which denied both
parties motions, and directed the trial court to conduct further hearings to
ascertain the prevailing market value of real properties in Bulacao, Cebu
City and fix the value of the property subject of the controversy. 14a
Hence, the instant petition for review.
The fundamental issue to be resolved is, should petitioner be allowed
to exercise the option to purchase the leased property, despite the alleged
delay in giving the required notice to private respondent?
An option is a preparatory contract in which one party grants to the
other, for a fixed period and under specified conditions, the power to
decide, whether or not to enter into a principal contract. It binds the party
who has given the option, not to enter into the principal contract with any
other person during the period designated, and, within that period, to enter
into such contract with the one to whom the option was granted, if the
latter should decide to use the option.[15] It is a separate agreement distinct
from the contract which the parties may enter into upon the consummation
of the option.[16]
Considering the circumstances in this case, we find no reason to
disturb the findings of respondent court, that petitioners letter to SIHI,
dated January 15, 1986, was fair notice to the latter of the formers intent
to exercise the option, despite the request for the extension of the lease
contract. As stated in said letter to SIHI, petitioner was requesting for an
extension (of the contract) for six months to allow us to generate sufficient
funds in order to exercise our option to buy the subject property. [17] The
analysis by the Court of Appeals of the evidence on record and the process
by which it arrived at its findings on the basis thereof, impel this Courts
assent to said findings. They are consistent with the parties primary intent,
as hereafter discussed, when they executed the lease contract. As
respondent court ruled:
We hold that the appellee [herein petitioner] acted with honesty and good
faith. Verily, We are in accord with the trial court that he should be
allowed to exercise his option to purchase the lease property. In fact, SIHI
will not be prejudiced. A contrary ruling, however, will definitely cause
damage to the appellee, it appearing that he has introduced considerable
improvements on the property and has borrowed huge loan from the
Technology Resources Center.17a
The contracting parties primary intent in entering into said lease
contract with option to purchase confirms, in our view, the correctness of
respondent courts ruling. Analysis and construction, however, should not
be limited to the words used in the contract, as they may not accurately
reflect the parties true intent. The reasonableness of the result obtained,
after said analysis, ought likewise to be carefully considered.
It is well-settled in both law and jurisprudence, that contracts are the
law between the contracting parties and should be fulfilled, if their terms
are clear and leave no room for doubt as to the intention of the contracting
parties.[18] Further, it is well-settled that in construing a written agreement,
the reason behind and the circumstances surrounding its execution are of
paramount importance. Sound construction requires one to be placed
mentally in the situation occupied by the parties concerned at the time the
writing was executed. Thereby, the intention of the contracting parties
could be made to prevail, because their agreement has the force of law
between them.[19]
Moreover, to ascertain the intent of the parties in a contractual
relationship, it is imperative that the various stipulations provided for in
the contract be construed together, consistent with the parties
contemporaneous and subsequent acts as regards the execution of the
contract.[20] And once the intention of the parties has been ascertained, that
element is deemed as an integral part of the contract as though it has been
originally expressed in unequivocal terms.
As sufficiently established during the trial, SIHI, prior to its
negotiation with petitioner, was already beset with financial
problems. SIHI was experiencing difficulty in meeting the claims of its
creditors. Thus, in order to reprogram the companys financial investment
plan and facilitate its rehabilitation and viability, SIHI, being a quasi-
banking financial institution, had been placed under the supervision and
control of the Central Bank (CB). It was in dire need of liquidating its
assets, so to speak, in order to stay afloat financially.
Thus, SIHI was compelled to dispose some of its assets, among
which is the subject leased property, to generate sufficient funds to
augment its badly-depleted financial resources. This then brought about
the execution of the lease contract with option to purchase between SIHI
and the petitioner.
The lease contract provided that to exercise the option, petitioner had
to send a letter to SIHI, manifesting his intent to exercise said option
within the lease period ending January 30, 1986.However, what petitioner
did was to request on January 15, 1986, for a six-month extension of the
lease contract, for the alleged purpose of raising funds intended to
purchase the property subject of the option. It was only after the request
was denied on February 14, 1986, that petitioner notified SIHI of his desire
to exercise the option formally. This was by letter dated February 18,
1986. In private respondents view, there was already a delay of 18 days,
fatal to petitioners cause. But respondent court found the delay neither
substantial nor fundamental and did not amount to a breach that would
defeat the intention of the parties when they executed the lease contract
with option to purchase.20a
In allowing petitioner to exercise the option, however, both lower
courts are in accord in their decision, rationalizing that a contrary ruling
would definitely cause damage to the petitioner, as he had the whole place
renovated to make the same suitable and conducive for the business he
established there. Moreover, judging from the subsequent acts of the
parties, it is undeniable that SIHI really intended to dispose of said leased
property, which petitioner indubitably intended to buy.
SIHIs agreement to enter first into a lease contract with option to
purchase with herein petitioner, is a clear proof of its intent to promptly
dispose said property although the full financial returns may materialize
only in a years time. Furthermore, its letter dated January 7, 1986,
reminding the petitioner of the short period of time left within which to
consummate their agreement, clearly showed its desire to sell that
property. Also, SIHIs letter dated February 14, 1986 supported the
conclusion that it was bent on disposing said property. For this letter made
mention of the fact that, said property is now for sale to the general public.
Petitioners determination to purchase said property is equally
indubitable. He introduced permanent improvements on the leased
property, demonstrating his intent to acquire dominion in a years time. To
increase his chances of acquiring the property, he secured an P8 Million
loan from the Technology Resources Center (TRC), thereby augmenting
his capital. He averred that he applied for a loan since he planned to pay
the purchase price in one single payment, instead of paying in installment,
which would entail the payment of additional interest at the rate of 24%
per annum, compared to 7% per annum interest for the TRC loan. His
letter earlier requesting extension was premised, in fact, on his need for
time to secure the needed financing through a TRC loan.
In contractual relations, the law allows the parties reasonable leeway
on the terms of their agreement, which is the law between them. [21] Note
that by contract SIHI had given petitioner 4 periods: (a) the option to
purchase the property for P1,800,000.00 within the lease period, that is,
until January 30, 1986; (b) the option to be exercised within the option
period by written notice at anytime; (c) the document of sale...to be
consummated within the month immediately following the month when
petitioner exercises the option; and (d) the payment in equal installments
of the purchase price over a period of 60 months. In our view, petitioners
letter of January 15, 1986 and his formal exercise of the option on
February 18, 1986 were within a reasonable time-frame consistent with
periods given and the known intent of the parties to the agreement dated
January 10, 1985. A contrary view would be harsh and inequituous indeed.
In Tuason, Jr., etc. vs. De Asis,[22] this Court opined that in a contract
of lease, if the lessor makes an offer to the lessee to purchase the property
on or before the termination of the lease, and the lessee fails to accept or
make the purchase on time, the lessee losses the right to buy the property
later on the terms and conditions set in the offer. Thus, on one hand,
petitioner herein could not insist on buying the said property based on the
price agreed upon in the lease agreement, even if his option to purchase it
is recognized. On the other hand, SIHI could not take advantage of the
situation to increase the selling price of said property by nearly 90% of the
original price. Such leap in the price quoted would show an opportunistic
intent to exploit the situation as SIHI knew for a fact that petitioner badly
needed the property for his business and that he could afford to pay such
higher amount after having secured an P8 Million loan from the TRC. If
the courts were to allow SIHI to take advantage of the situation, the result
would have been an injustice to petitioner, because SIHI would be unjustly
enriched at his expense. Courts of law, being also courts of equity, may
not countenance such grossly unfair results without doing violence to its
solemn obligation to administer fair and equal justice for all.
WHEREFORE, the appealed decision of respondent court, insofar
as it affirms the judgment of the trial court in granting petitioner the
opportunity to exercise the option to purchase the subject property, is
hereby AFFIRMED. However the purchase price should be based on the
fair market value of real property in Bulacao, Cebu City, as of February
1986, when the contract would have been consummated. Further,
petitioner is hereby ordered to pay private respondent SIHI legal interest
on the said purchase price beginning February 1986 up to the time it is
actually paid, as well as the taxes due on said property, considering that
petitioner have enjoyed the beneficial use of said property. The case is
hereby remanded to Regional Trial Court of Cebu, Branch 5, for further
proceedings to determine promptly the fair market value of said real
property as of February 1986, in Bulacao, Cebu City.
Costs against private respondent.
SO ORDERED.
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.
CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva Ecija to
the Court of Appeals, which certified the case to Us, upon the ground that
it involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and
defendant Severina Rigos executed an instrument entitled "Option to
Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to
sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the
barrios of Abar and Sibot, municipality of San Jose, province of Nueva
Ecija, and more particularly described in Transfer Certificate of Title No.
NT-12528 of said province, within two (2) years from said date with the
understanding that said option shall be deemed "terminated and elapsed,"
if "Sanchez shall fail to exercise his right to buy the property" within the
stipulated period. Inasmuch as several tenders of payment of the sum of
Pl,510.00, made by Sanchez within said period, were rejected by Mrs.
Rigos, on March 12, 1963, the former deposited said amount with the
Court of First Instance of Nueva Ecija and commenced against the latter
the present action, for specific performance and damages.
After the filing of defendant's answer — admitting some allegations of the
complaint, denying other allegations thereof, and alleging, as special
defense, that the contract between the parties "is a unilateral promise to
sell, and the same being unsupported by any valuable consideration, by
force of the New Civil Code, is null and void" — on February 11, 1964,
both parties, assisted by their respective counsel, jointly moved for a
judgment on the pleadings. Accordingly, on February 28, 1964, the lower
court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the
sum judicially consigned by him and to execute, in his favor, the requisite
deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00,
as attorney's fees, and other costs. Hence, this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of
our Civil Code, which provides:
ART. 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.
In his complaint, plaintiff alleges that, by virtue of the option under
consideration, "defendant agreed and committed to sell" and "the plaintiff
agreed and committed to buy" the land described in the option, copy of
which was annexed to said pleading as Annex A thereof and is quoted on
the margin.1 Hence, plaintiff maintains that the promise contained in the
contract is "reciprocally demandable," pursuant to the first paragraph of
said Article 1479. Although defendant had really "agreed, promised and
committed" herself to sell the land to the plaintiff, it is not true that the
latter had, in turn, "agreed and committed himself " to buy said property.
Said Annex A does not bear out plaintiff's allegation to this effect. What
is more, since Annex A has been made "an integral part" of his complaint,
the provisions of said instrument form part "and parcel"2 of said pleading.
The option did not impose upon plaintiff the obligation to
purchase defendant's property. Annex A is not a "contract to buy and
sell." It merely granted plaintiff an "option" to buy. And both parties so
understood it, as indicated by the caption, "Option to Purchase," given by
them to said instrument. Under the provisions thereof, the defendant
"agreed, promised and committed" herself to sell the land therein
described to the plaintiff for P1,510.00, but there is nothing in the contract
to indicate that her aforementioned agreement, promise and undertaking
is supported by a consideration "distinct from the price" stipulated for
the sale of the land.
Relying upon Article 1354 of our Civil Code, the lower
court presumed the existence of said consideration, and this would seem
to be the main factor that influenced its decision in plaintiff's favor. It
should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the second
paragraph of Article 1479 refers to "sales" in particular, and, more
specifically, to "an accepted unilateral promise to buy or to sell." In other
words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the
promisor, Article 1479 requires the concurrence of a condition, namely,
that the promise be "supported by a consideration distinct from the price."
Accordingly, the promisee can not compel the promisor to comply with
the promise, unless the former establishes the existence of said distinct
consideration. In other words, the promisee has the burden of
proving such consideration. Plaintiff herein has not even alleged the
existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and
pleaded as a special defense, the absence of said consideration for her
promise to sell and, by joining in the petition for a judgment on the
pleadings, plaintiff has impliedly admitted the truth of said averment in
defendant's answer. Indeed as early as March 14, 1908, it had been held,
in Bauermann v. Casas,3 that:
One who prays for judgment on the pleadings without offering
proof as to the truth of his own allegations, and without giving
the opposing party an opportunity to introduce evidence, must
be understood to admit the truth of all the material and relevant
allegations of the opposing party, and to rest his motion for
judgment on those allegations taken together with such of his
own as are admitted in the pleadings. (La Yebana Company vs.
Sevilla, 9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la 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.
G.R. No. 106063 November 21, 1996
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO &
BAUERMANN, INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.
HERMOSISIMA, JR., J.:
Before us is a petition for review of the decision1 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 court3 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:
I
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.
G.R. No. 83759 July 12, 1991
SPOUSES CIPRIANO VASQUEZ and VALERIANA
GAYANELO, petitioners,
vs.
HONORABLE COURT OF APPEALS and SPOUSES MARTIN
VALLEJERA and APOLONIA OLEA,respondents.
Dionisio C. Isidto for petitioners.
Raymundo Lozada, Jr. for private respondents.
GUTIERREZ, JR., J.:
This petition seeks to reverse the decision of the Court of Appeals which
affirmed the earlier decision of the Regional Trial Court, 6th Judicial
Region, Branch 56, Himamaylan, Negros Occidental in Civil Case No.
839 (for specific performance and damages) ordering the petitioners
(defendants in the civil case) to resell Lot No. 1860 of the Cadastral Survey
of Himamaylan, Negros Occidental to the respondents (plaintiffs in the
civil case) upon payment by the latter of the amount of P24,000.00 as well
as the appellate court's resolution denying a motion for reconsideration. In
addition, the appellate court ordered the petitioners to pay the amount of
P5,000.00 as necessary and useful expenses in accordance with Article
1616 of the Civil Code.
The facts of the case are not in dispute. They are summarized by the
appellate court as follows:
On January 15, 1975, the plaintiffs-spouses (respondents herein)
filed this action against the defendants-spouses (petitioners
herein) seeking to redeem Lot No. 1860 of the Himamaylan
Cadastre which was previously sold by plaintiffs to defendants
on September 21, 1964.
The said lot was registered in the name of plaintiffs. On October
1959, the same was leased by plaintiffs to the defendants up to
crop year 1966-67, which was extended to crop year 1968-69.
After the execution of the lease, defendants took possession of
the lot, up to now and devoted the same to the cultivation of
sugar.
On September 21, 1964, the plaintiffs sold the lot to the
defendants under a Deed of Sale for the amount of P9,000.00.
The Deed of Sale was duly ratified and notarized. On the same
day and along with the execution of the Deed of Sale, a separate
instrument, denominated as Right to Repurchase (Exh. E), was
executed by the parties granting plaintiffs the right to repurchase
the lot for P12,000.00, said Exh. E likewise duly ratified and
notarized. By virtue of the sale, defendants secured TCT No. T-
58898 in their name. On January 2, 1969, plaintiffs sold the same
lot to Benito Derrama, Jr., after securing the defendants' title, for
the sum of P12,000.00. Upon the protestations of defendant,
assisted by counsel, the said second sale was cancelled after the
payment of P12,000.00 by the defendants to Derrama.
Defendants resisted this action for redemption on the premise
that Exh. E is just an option to buy since it is not embodied in the
same document of sale but in a separate document, and since
such option is not supported by a consideration distinct from the
price, said deed for right to repurchase is not binding upon them.
After trial, the court below rendered judgment against the
defendants, ordering them to resell lot No. 1860 of the
Himamaylan Cadastre to the plaintiffs for the repurchase price
of P24,000.00, which amount combines the price paid for the
first sale and the price paid by defendants to Benito Derrama, Jr.
Defendants moved for, but were denied reconsideration.
Excepting thereto, defendants-appealed, . . . (Rollo, pp. 44-45)
The petition was given due course in a resolution dated February 12, 1990.
The petitioners insist that they can not be compelled to resell Lot No. 1860
of the Himamaylan Cadastre. They contend that the nature of the sale over
the said lot between them and the private respondents was that of an
absolute deed of sale and that the right thereafter granted by them to the
private respondents (Right to Repurchase, Exhibit "E") can only be either
an option to buy or a mere promise on their part to resell the property.
They opine that since the "RIGHT TO REPURCHASE" was not
supported by any consideration distinct from the purchase price it is not
valid and binding on the petitioners pursuant to Article 1479 of the Civil
Code.
The document denominated as "RIGHT TO REPURCHASE" (Exhibit E)
provides:
RIGHT TO REPURCHASE
KNOW ALL MEN BY THESE PRESENTS:
I, CIPRIANO VASQUEZ, . . ., do hereby grant the spouses
Martin Vallejera and Apolonia Olea, their heirs and assigns, the
right to repurchase said Lot No. 1860 for the sum of TWELVE
THOUSAND PESOS (P12,000.00), Philippine Currency, within
the period TEN (10) YEARS from the agricultural year 1969-
1970 when my contract of lease over the property shall expire
and until the agricultural year 1979-1980.
IN WITNESS WHEREOF, I have hereunto signed my name at
Binalbagan, Negros Occidental, this 21st day of September,
1964.
SGD. CIPRIANO VASQUEZ
SGD. VALERIANA G. VASQUEZ SGD. FRANCISCO SANICAS
(Rollo, p. 47)
The Court of Appeals, applying the principles laid down in the case of
Sanchez v. Rigos, 45 SCRA 368 [1972] decided in favor of the private
respondents.
In the Sanchez case, plaintiff-appellee Nicolas Sanchez and defendant-
appellant Severino Rigos executed a document entitled "Option to
Purchase," whereby Mrs. Rigos "agreed, promised and committed . . . to
sell" to Sanchez for the sum of P1,510.00, a registered parcel of land
within 2 years from execution of the document with the condition that said
option shall be deemed "terminated and lapsed," if "Sanchez shall fail to
exercise his right to buy the property" within the stipulated period. In the
same document, Sanchez" . . . hereby agree and conform with all the
conditions set forth in the option to purchase executed in my favor, that I
bind myself with all the terms and conditions." (Emphasis supplied) The
notarized document was signed both by Sanchez and Rigos.
After several tenders of payment of the agreed sum of P1,510.00 made by
Sanchez within the stipulated period were rejected by Rigos, the former
deposited said amount with the Court of First Instance of Nueva Ecija and
filed an action for specific performance and damages against Rigos.
The lower court rendered judgment in favor of Sanchez and ordered Rigos
to accept the sum judicially consigned and to execute in Sanchez' favor
the requisite deed of conveyance. Rigos appealed the case to the Court of
Appeals which certified to this Court on the ground that it involves a pure
question of law.
This Court after deliberating on two conflicting principles laid down in the
cases of Southwestern Sugar and Molasses Co. v. Atlantic Gulf and Pacific
Co., (97 Phil. 249 [1955]) and Atkins, Kroll & Co., Inc. v. Cua Hian Tek,
102 Phil. 948 [1958]) arrived at the conclusion that Article 1479 of the
Civil Code which provides: ––
Art. 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissory if the
promise is supported by a consideration distinct from the price.
and Article 1324 thereof which provides:
Art. 1324. When the offerer has allowed the offerer a certain
period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, as something paid or
promised.
should be reconciled and harmonized to avoid a conflict between the two
provisions. In effect, the Court abandoned the ruling in the Southwestern
Sugar and Molasses Co. case and reiterated the ruling in the Atkins, Kroll
and Co. case, to wit:
However, this Court itself, in the case of Atkins, Kroll and Co.,
Inc. v. Cua Hian Tek, (102 Phil. 948, 951-952) decided later than
Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
Co., (supra) saw no distinction between Articles 1324 and 1479
of the Civil Code and applied the former where a unilateral
promise to sell similar to the one sued upon here was involved,
 treating such promise as an option which, although not binding
as a contract in itself for lack of separate consideration,
nevertheless generated a bilateral contract of purchase and sale
upon acceptance. Speaking through Associate Justice, later
Chief Justice, Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell
at the price fixed whenever the offeree should decide
to exercise his option within the specified time. After
accepting the promise and before he exercises his
option, the holder of the option is not bound to buy. He
is free either to buy or not to buy later. In this case
however, upon accepting herein petitioner's offer a
bilateral promise to sell and to buy ensued, and the
respondent ipso facto assumed the obligation of a
purchaser. He did not just get the right subsequently to
buy or not to buy. It was not a mere option then; it was
bilateral contract of sale.
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.)
This Court affirmed the lower court's decision although the promise to sell
was not supported by a consideration distinct from the price. It was
obvious that Sanchez, the promisee, accepted the option to buy before
Rigos, the promisor, withdrew the same. Under such circumstances, the
option to purchase was converted into a bilateral contract of sale which
bound both parties.
In the instant case and contrary to the appellate court's finding, it is clear
that the right to repurchase was not supported by a consideration distinct
from the price. The rule is that the promisee has the burden of proving
such consideration. Unfortunately, the private respondents, promisees in
the right to repurchase failed to prove such consideration. They did not
even allege the existence thereof in their complaint. (See Sanchez v.
Rigos supra)
Therefore, in order that the Sanchez case can be applied, the evidence must
show that the private respondents accepted the right to repurchase.
The record, however, does not show that the private respondents accepted
the "Right to Repurchase" the land in question. We disagree with the
appellate court's finding that the private respondents accepted the "right to
repurchase" under the following circumstances: . . as evidenced by the
annotation and registration of the same on the back of the transfer of
certificate of title in the name of appellants. As vividly appearing therein,
it was signed by appellant himself and witnessed by his wife so that for all
intents and purposes the Vasquez spouses are estopped from disregarding
its obvious purpose and intention."
The annotation and registration of the right to repurchase at the back of
the certificate of title of the petitioners can not be considered
as acceptance of the right to repurchase. Annotation at the back of the
certificate of title of registered land is for the purpose
of binding purchasers of such registered land. Thus, we ruled in the case
of Bel Air Village Association, Inc. v. Dionisio (174 SCRA 589
[1989]), citing Tanchoco v. Aquino (154 SCRA 1 [1987]),
and Constantino v. Espiritu (45 SCRA 557 [1972]) that purchasers of a
registered land are bound by the annotations found at the back of the
certificate of title covering the subject parcel of land. In effect, the
annotation of the right to repurchase found at the back of the certificate of
title over the subject parcel of land of the private respondents only served
as notice of the existence of such unilateral promise of the petitioners to
resell the same to the private respondents. This, however, can not be
equated with acceptance of such right to repurchase by the private
respondent.
Neither can the signature of the petitioners in the document called "right
to repurchase" signify acceptance of the right to repurchase. The
respondents did not sign the offer. Acceptance should be made by the
promisee, in this case, the private respondents and not the promisors, the
petitioners herein. It would be absurd to require the promisor of an option
to buy to accept his own offer instead of the promisee to whom the option
to buy is given.
Furthermore, the actions of the private respondents –– (a) filing a
complaint to compel re-sale and their demands for resale prior to filing of
the complaint cannot be considered acceptance. As stated in Vda. de
Zulueta v. Octaviano (121 SCRA 314 [1983]):
And even granting, arguendo that the sale was a pacto de
retro sale, the evidence shows that Olimpia, through her lawyer,
opted to repurchase the land only on 16 February 1962,
approximately two years beyond the stipulated period, that is not
later than May, 1960.
If Olimpia could not locate Aurelio, as she contends, and based
on her allegation that the contract between her was one of sale
with right to repurchase, neither, however, did she tender the
redemption price to private respondent Isauro, but merely wrote
him letters expressing her readiness to repurchase the property.
It is clear that the mere sending of letters by the vendor
expressing his desire to repurchase the property without
accompanying tender of the redemption price fell short of the
requirements of law. (Lee v. Court of Appeals, 68 SCRA 197
[1972])
Neither did petitioner make a judicial consignation of the
repurchase price within the agreed period.
In a contract of sale with a right of repurchase, the redemptioner
who may offer to make the repurchase on the option date of
redemption should deposit the full amount in court . . . (Rumbaoa
v. Arzaga, 84 Phil. 812 [1949])
To effectively exercise the right to repurchase the vendor a retro
must make an actual and simultaneous tender of payment or
consignation. (Catangcatang v. Legayada, 84 SCRA 51 [1978])
The private respondents' ineffectual acceptance of the option to buy
validated the petitioner's refusal to sell the parcel which can be considered
as a withdrawal of the option to buy.
We agree with the petitioners that the case of Vda. de Zulueta
v. Octaviano, (supra) is in point.
Stripped of non-essentials the facts of the Zulueta case are as follows: On
November 25, 1952 (Emphasis supplied) Olimpia Fernandez Vda. de
Zulueta, the registered owner of a 5.5 hectare riceland sold the lot to
private respondent Aurelio B. Octaviano for P8,600.00 subject to certain
terms and conditions. The contract was an absolute and definite sale. On
the same day, November 25, 1952, (Emphasis supplied) the vendee,
Aurelio signed another document giving the vendor Zulueta the "option to
repurchase" the property at anytime after May 1958 but not later than May
1960. When however, Zulueta tried to exercise her "option to buy" the
property, Aurelio resisted the same prompting Zulueta to commence suit
for recovery of ownership and possession of the property with the then
Court of First Instance of Iloilo.
The trial court ruled in favor of Zulueta. Upon appeal, however, the Court
of Appeals reversed the trial court's decision.
We affirmed the appellate court's decision and ruled:
The nature of the transaction between Olimpia and Aurelio, from
the context of Exhibit "E" is not a sale with right to repurchase.
Conventional redemption takes place "when the vendor reserves
the right to repurchase the thing sold, with the obligation to
comply with the provisions of Article 1616 and other stipulations
which may have been agreed upon. (Article 1601, Civil Code).
In this case, there was no reservation made by the vendor,
Olimpia, in the document Exhibit "E" the "option to repurchase"
was contained in a subsequent document and was made by the
vendee, Aurelio. Thus, it was more of an option to buy or a mere
promise on the part of the vendee, Aurelio, to resell the property
to the vendor, Olimpia. (10 Manresa, p. 311 cited in Padilla's
Civil Code Annotated, Vol. V, 1974 ed., p. 467) As held in
Villarica v. Court of Appeals (26 SCRA 189 [1968]):
The right of repurchase is not a right granted the
vendor by the vendee in a subsequent instrument, but
is a right reserved by the vendor in the same
instrument of sale as one of the stipulations of the
contract. Once the instrument of absolute sale is
executed, the vendor can no longer reserve the right to
repurchase, and any right thereafter granted the vendor
by the vendee in a separate instrument cannot be a right
of repurchase but some other right like the option to
buy in the instant case. . . (Emphasis supplied)
The appellate court rejected the application of the Zulueta case by stating:
. . . [A]s found by the trial court from which we quote with
approval below, the said cases involve the lapse of several days
for the execution of separate instruments after the execution of
the deed of sale, while the instant case involves the execution of
an instrument, separate as it is, but executed on the same day,
and notarized by the same notary public, to wit:
A close examination of Exh. "E" reveals that although it is a
separate document in itself, it is far different from the document
which was pronounced as an option by the Supreme Court in the
Villarica case. The option in the Villarica case was executed
several days after the execution of the deed of sale. In the present
case, Exh. "E" was executed and ratified by the same notary
public and the Deed of Sale of Lot No. 1860 by the plaintiffs to
 the defendants were notarized by the same notary public and
entered in the same page of the same notarial register . . .
The latter case (Vda. de Zulueta v. Octaviano, supra), likewise
involved the execution of the separate document after an
intervention of several days and the question of laches was
decided therein, which is not present in the instant case. That
distinction is therefore crucial and We are of the opinion that the
appellee's right to repurchase has been adequately provided for
and reserved in conformity with Article 1601 of the Civil Code,
which states:
Conventional redemption shall take place when the vendor
reserves the right to repurchase the thing sold, with the
obligation to comply with the provision of Article 1616 and other
stipulations which may have been agreed upon. (Rollo, pp. 46-
47)
Obviously, the appellate court's findings are not reflected in the cited
decision.1âwphi1 As in the instant case, the option to repurchase involved
in the Zulueta case was executed in a separate document but on the same
date that the deed of definite sale was executed.
While it is true that this Court in the Zulueta case found Zulueta guilty of
laches, this, however, was not the primary reason why this Court
disallowed the redemption of the property by Zulueta. It is clear from the
decision that the ruling in the Zulueta case was based mainly on the finding
that the transaction between Zulueta and Octaviano was not a sale with
right to repurchase and that the "option to repurchase was but an option to
buy or a mere promise on the part of Octaviano to resell the property to
Zulueta.
In the instant case, since the transaction between the petitioners and
private respondents was not a sale with right to repurchase, the private
respondents cannot avail of Article 1601 of the Civil Code which provides
for conventional redemption.
WHEREFORE, the petition is GRANTED. The questioned decision and
resolution of the Court of Appeals are hereby REVERSED and SET
ASIDE. The complaint in Civil Case No. 839 of the then Court of First
Instance of Negros Occidental 12th Judicial District Branch 6 is
DISMISSED. No costs. SO ORDERED.
G.R. No. L-32873 August 18, 1972
AQUILINO NIETES, petitioner,
vs.
HON. COURT OF APPEALS & DR. PABLO C.
GARCIA, respondents.
Conrado V. del Rosario for petitioner.
Romeo D. Magat for private respondent.
CONCEPCION, C.J.:p
Petitioner Aquilino Nietes seeks a review on certiorari of a decision of the
Court of Appeals.
It appears that, on October 19, 1959, said petitioner and respondent Dr.
Pablo C. Garcia entered into a "Contract of Lease with Option to Buy,"
pursuant to the terms and conditions set forth in the deed Exhibits A and
A-1, (also, marked as Exhibit 2) namely:
That the LESSOR is an owner of the ANGELES
EDUCATIONAL INSTITUTE situated at Angeles, Pampanga,
a school which is duly recognized by the Government;
That the lessor agrees to lease the above stated school to the
LESSEE under the following terms and conditions:
1. That the term will be for a period of five (5) years;
2. That the price of the rent is FIVE THOUSAND PESOS
(P5,000) per year payable in the following manners:
a. That the amount of FIVE THOUSAND FIVE
HUNDRED PESOS (P5,500) will be paid upon the
execution of this Contract of Lease;
b. That the amount of FOUR THOUSAND FIVE
HUNDRED PESOS (P4,500) is payable on or before
the 30th day of October, 1959;
c. That the remaining balance of FIFTEEN
THOUSAND PESOS (P15,000) will be paid on or
before March 30, 1960;
3. That all improvements made during the lease by the LESSEE
will be owned by the LESSOR after the expiration of the term of
this Contract of Lease;
4. That the LESSOR agrees to give the LESSEE an option to buy
the land and the school building, for a price of ONE HUNDRED
THOUSAND PESOS (P100,000) within the period of the
Contract of Lease;
5. That should the LESSEE buy the lot, land and the school
building within the stipulated period, the unused payment for the
Contract of Lease will be considered as part payment for the sale
of the land and school;
6. That an inventory of all properties in the school will be made
on March 31, 1960;
6A. That the term of this Contract will commence in June 1960
and will terminate in June 1965;
7. That the LESSEE will be given full control and
responsibilities over all the properties of the school and over all
the supervisions and administrations of the school;
8. That the LESSEE agrees to help the LESSOR to collect the
back accounts of students incurred before the execution of this
contract.
Instead of paying the lessor in the manner set forth in paragraph 2 of said
contract, Nietes had, as of August 4, 1961, made payments as follows:
October 6,1960 ....................................... P18,957.00
(Exh. D)
November 23, 1960 ................................. 300.00 (Exh.
E)
December 21, 1960 ................................. 200.00 (Exh.
F)
January 14, 1961 ..................................... 500.00 (Exh.
G)
February 16, 1961 ................................... 3,000.00
(Exh. H)
March 12, 1961 ....................................... 1,000.00
(Exh. I)
March 13, 1961 ....................................... 700.00 (Exh.
J)
August 4, 1961 ........................................ 100.00 (Exh.
K) _________
TOTAL ..................................... P24,757.00
Moreover, Nietes maintains that, on September 4, 1961, and December
13, 1962, he paid Garcia the additional sums of P3,000 and P2,200,
respectively, for which Garcia issued receipts Exhibit B and C, reading:
Received the amount of (P3,000.00) Three Thousand
Pesos from Mrs. Nietes as per advance pay for the
school, the contract of lease being paid.
(Sgd.) PABLO GARCIA (Exh. B)
To Whom it May Concern:
This is to certify that I received the sum of Two
Thousand Two Hundred Pesos, Philippine Currency,
from Mrs. Catherine R. Nietes as the partial payment
on the purchase of the property as specified on the
original contract of "Contract of Lease with the First
Option to Buy" originally contracted and duly signed.
(Sgd.) DR. PABLO GARCIA (Exh. C)
On or about July 31, 1964, Dr. Garcia's counsel wrote to Nietes the letter
Exhibit 1 (also Exhibit V) stating:
The Director
Philippine Institute of Electronics
Angeles, Pampanga
Sir:
I regret to inform you that our client, Dr. Pablo Garcia, desires
to rescind your contract, dated 19 October 1959 because of the
following:
1. That you had not maintained the building, subject of the lease
contract in good condition.
2. That you had not been using the original name of the school
— Angeles Institute, thereby extinguishing its existence in the
eyes of the public and injuring its prestige.
3. That through your fault, no inventory has been made of all
properties of the school.
4. That up to this time, you had not collected or much less helped
in the collection of back accounts of former students.
This is to remind you that the foregoing obligations had been
one, if not, the principal moving factors which had induced the
lessor in agreeing with the terms embodied in your contract of
lease, without which fulfillment, said contract could not have
come into existence. It is not simply one of those reminders that
we make mention, that our client under the circumstances, is not
only entitled to a rescission of the contract. He is likewise
entitled to damages — actual, compensatory and exemplary.
In view of the serious nature of the breach which warrant and
sanction drastic legal remedies against you, we earnestly request
you to please see the undersigned at the above-named address
two days from receipt hereof. Otherwise, if we shall not hear
from you, the foregoing will serve notice on your part to vacate
the premises within five (5) days to be counted from date of
notice.
Very truly yours,
(Sgd.) VICTOR T. LLAMAS, JR.
to which counsel for Nietes replied in the following language:
Atty. Victor T. Llamas, Jr.
Victor Llamas Law Office
 Corner Rivera-Zamora Streets
Dagupan City
Dear Sir:
Your letter dated July 31, 1964 addressed to my client, the
Director of the Philippine Institute of Electronics, Angeles City,
has been referred to me and in reply, please, be informed that my
client has not violated any provision of the CONTRACT OF
LEASE WITH OPTION TO BUY, executed by him as LESSEE
and Dr. Pablo Garcia as LESSOR. For this reason, there is no
basis for rescission of the contract nor of the demands contained
in your letter.
In this connection, I am also serving this formal notice upon your
client Dr. Pablo Garcia, thru you, that my client Mr. AQUILINO
T. NIETES will exercise his OPTION to buy the land and
building subject matter of the lease and that my said client is
ready to pay the balance of the purchase price in accordance with
the contract. Please, inform Dr. Pablo Garcia to make available
the land title and execute the corresponding Deed of Sale
pursuant to this notice, and that if he fails to do so within fifteen
(15) days from the receipt of this letter, we shall take the
corresponding action to enforce the agreement.
Truly yours,
(Sgd.) CONRADO V. DEL ROSARIO
Counsel for Mr. Aquilino T. Nietes
Angeles City
On July 26, 1965, Nietes deposited with the branch office of the Agro-
Industrial Bank in Angeles City checks amounting to P84,860.50, as
balance of the purchase price of the property, but he withdrew said sum of
P84,860.50 on August 12, 1965, after the checks had been cleared. On
August 2, 1965, he commenced the present action, in the Court of First
Instance of Pampanga, for specific performance of Dr. Garcia's alleged
obligation to execute in his (Nietes') favor a deed of absolute sale of the
leased property, free from any lien or encumbrance whatsoever, he having
meanwhile mortgaged it to the People's Bank and Trust Company, and to
compel him (Garcia) to accept whatever balance of the purchase price is
due him, as well as to recover from him the aggregate sum of P90,000 by
way of damages, apart from attorney's fees and the costs.
Dr. Garcia filed an answer admitting some allegations of the complaint
and denying other allegations thereof, as well as setting up a counterclaim
for damages in the sum of P150,000.
After due trial, said court rendered its decision, the dispositive part of
which reads:
WHEREFORE, in view of the preponderance of evidence in
favor of the plaintiff and against the defendant, judgment is
hereby rendered ordering the latter to execute the Deed of
Absolute Sale of property originally leased together with the
school building and other improvements thereon which are
covered by the contract, Annex "A", upon payment of the former
of the balance (whatever be the amount) of the stipulated
purchase price; to free the said property from any mortgage or
encumbrance and deliver the title thereto to the plaintiff free
from any lien or encumbrance, and should said defendant fail to
do so, the proceeds from the purchase price be applied to the
payment of the encumbrance so that the title may be conveyed
to the plaintiff; to pay the plaintiff the sum of P1,000.00 as
attorney's fees, and the cost of this suit.
Both parties appealed to the Court of Appeals, Dr. Garcia insofar as the
trial court had neither dismissed the complaint nor upheld his counterclaim
and failed to order Nietes to vacate the property in question, and Nietes
insofar as the trial court had granted him no more than nominal damages
in the sum of P1,000, as attorney's fees.
After appropriate proceedings, a special division of Court of Appeals
rendered its decision, on October 18, 1969, affirming, in effect, that of the
trial court, except as regards said attorney's fees, which were eliminated.
The dispositive part of said decision of the Court of Appeals reads:
WHEREFORE, with the modification that the attorney's fees awarded by
the trial court in favor of the plaintiff is eliminated, the appealed judgment
is hereby affirmed in all other respects, and the defendant is ordered to
execute the corresponding deed of sale for the school building and lot in
question in favor of the plaintiff upon the latter's full payment of the
balance of the purchase price. The costs of this proceedings shall be taxed
against the defendant-appellant.
On motion for reconsideration of defendant Garcia, said special division
set aside its aforementioned decision and rendered another one,
promulgated on March 10, 1970 reversing the appealed decision of the
court of first instance, and dismissing the complaint of Nietes, with costs
again him. Hence, the present petition of Nietes for review certiorari of
the second decision of the Court of Appeals, dated March 10, 1970, to
which petition We gave due course.
Said decision of the Court of Appeals, reversing that of the Court of First
Instance, is mainly predicated upon the theory that, under the contract
between the parties, "the full purchase price must be paid before the option
counsel be exercised," because "there was no need nor sense providing
that "the unused payment for the Contract Lease will be considered as part
payment for the sale the land and school'" inasmuch as "otherwise there is
substantial amount from which such unused rental could be deducted";
that the statement in the letter, Exhibit L, of Nietes, dated August 7, 1964,
to the effect that he "will exercise his OPTION to buy the land and
building," indication that he did not consider the receipts, Exhibits B and
for P3,000 and P2,200, respectively, "as an effective exercise of his option
to buy"; that the checks for P84,860.50 deposited by Nietes with the Agro-
Industrial Development Bank, did not constitute a proper tender of
payment, which, at any rate, was "made beyond the stipulated 5-year
period"; that such deposit "was not seriously made, because on August 12,
1965, the same was withdrawn from the Bank and ostensibly remains in
the lessee's hand"; and that "the fact that such deposit was made by the
lessee shows that he himself believed that he should have paid the entire
amount of the purchase price before he could avail of the option to buy,
otherwise, the deposit was a senseless gesture ... ."
Dr. Garcia, in turn, maintained in his answer "that the sums paid" to him
"were part of the price of the contract of lease between the parties which
were paid late and not within the periods and/or schedules fixed by the
contract (Annex A.)." What is more, on the witness stand, Garcia claimed
that he did "not know" whether the signatures on Exhibits B and C — the
receipt for P3,000 and P2,200, respectively — were his, and even said that
he was "doubtful" about it.
This testimony is manifestly incredible, for a man of his intelligence — a
Doctor of Medicine and the owner of an educational institution — could
not possibly "not know" or entertain doubts as to whether or not the
aforementioned signatures are his and the payments therein acknowledged
had been received by him. His dubious veracity becomes even more
apparent when we consider the allegations in paragraph (4) of his answer
— referring to paragraphs 5 and 6 of the complaint alleging, inter alia, the
aforementioned partial payments of P3,000 and P2,200, on account of the
stipulated sale price — to the effect that said sums " paid to the herein
defendant were part of the price of the contract of lease." In other words,
payment of said sums of P3,000 and P2,200 is admitted in said answer.
Besides, the rentals for the whole period of the lease aggregated P25,000
only, whereas said sums of P3,000 and P2,200, when added to the
payments previously made by Nietes, give a grand total of P29,957.00, or
P4,957 in excess of the agreed rentals for the entire period of five years.
Thus, Dr. Garcia was less than truthful when he tried to cast doubt upon
the fact of payment of said sums of P3,000 and P2,200, as well as when
he claimed that the same were part of the rentals collectible by him.
We, likewise, find ourselves unable to share the view taken by the Court
of Appeals. Neither the tenor of the contract Exhibits A and A-1 (also
Exhibit 2) nor the behaviour of Dr. Garcia — as reflected in the receipts
Exhibits B and C — justifies such view. The contract does not say that
Nietes had to pay the stipulated price of P100,000 before exercising his
option to buy the property in question. Accordingly, said option is
governed by the general principles on obligations, pursuants to which:
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.1
In the case of an option to buy, the creditor may validly and effectively
exercise his right by merely advising the debtor of the former's decision to
buy and expressing his readiness to pay the stipulated price, provided that
the same is available and actually delivered to the debtor upon execution
and delivery by him of the corresponding deed of sale. Unless and until
the debtor shall have done this the creditor is not and cannot be in default
in the discharge of his obligation to pay. 2 In other words, notice of the
creditor's decision to exercise his option to buy need not be coupled with
actual payment of the price, so long as this is delivered to the owner of the
property upon performance of his part of the agreement. Nietes need not
have deposited, therefore, with the Agro-Industrial Bank checks
amounting altogether to P84,860.50 on July 26, 1965, and the withdrawal
thereof soon after does not and cannot affect his cause of action in the
present case. In making such deposit, he may have had the intent to show
his ability to pay the balance of the sum due to Dr. Garcia as the sale price
of his property. In short, said deposit and its subsequent withdrawal cannot
affect the result of the present case.
Nietes was entitled to exercise his option to buy "within the period of the
Contract of Lease," which — pursuant to paragraph 6-A of said contract
— commenced "in June 1960" and was to "terminate in June 1965." As
early as September 4, 1961, or well "within the period of the Contract of
Lease," Nietes had paid Dr. Garcia the following sums:
October 6, 1960 ............................ P18,957.00 (Exh. D)
November 23, 1960 ....................... 300.00 (Exh E)
December 21, 1960 ....................... 200.00 (Exh. F)
January 14, 1961 ........................... 500.00 (Exh. G)
February 16, 1961 ......................... 3,000.00 (Exh. H)
 March 12, 1961 ............................. 1,000.00 (Exh. I)
March 13, 1961 ............................. 700.00 (Exh. J)
August 4, 1961 ............................... 100.00 (Exh. K)
September 4, 1961 ......................... 3,000.00 (Exh. B)
________
TOTAL ............................... P27,757.00
It is true that Nietes was bound, under the contract, to pay P5,500 on
October 19, 1959, P4,500 on or before October 30, 1959, and P15,000 on
or before March 30, 1960, or the total sum of P25,000, from October 19,
1959 to March 30, 1960, whereas his first payment was not made until
October 10, 1960, when he delivered the sum of P18,957 to Dr. Garcia,
and the latter had by August 4, 1961, received from the former the
aggregate sum of P24,757. This is, however, P243.00 only less than the
P25,000 due as of March 30, 1960, so that Nietes may be considered as
having complied substantially with the terms agreed upon. Indeed, Dr.
Garcia seems to have either agreed thereto or not considered that Nietes
had thereby violated the contract, because the letter of the former, dated
July 31, 1964, demanding rescission of the contract, did not mention said
acts or omissions of Nietes among his alleged violations thereof
enumerated in said communication. In fact, when, on September 4, 1961,
Mrs. Nietes turned over the sum of P3,000 to Dr. Garcia, he issued the
receipt Exhibit B, stating that said payment had been made "as
per advance pay for the school, the Contract of Lease being paid" — in
other words, in accordance or conformity with said contract. Besides,
when, on December 13, 1962, Mrs. Nietes delivered the additional sum of
P2,200, Dr. Garcia issued a receipt accepting said amount "as the partial
payment on the purchase price of the property as specified on the original
contract," thus further indicating that the payment, in his
opinion, conformed with said contract, and that, accordingly, the same
was in full force and effect.
In any event, it is undisputed that, as of September 4, 1961, Dr. Garcia had
received the total sum of P27,757, or P2,757 in excess of the P25,000
representing the rentals for the entire period of the lease, and over
P21,200 in excess of the rentals for the unexpired portion of the lease,
from September 4, 1961 to June 1965. This circumstance indicates clearly
that Nietes had, on September 4, 1961, chosen to exercise and did exercise
then his option to buy. What is more, this is borne out by the receipt issued
by Dr. Garcia for the payment of P2,200, on December 13, 1962, to which
he referred therein as a "partial payment on the purchase of the property
as specified on the original contract of 'Contract of Lease with the First
Option to Buy' ... ."
Further confirmation is furnished by the letter of Nietes, Exhibit L, of
August 1964 — also, within the period of the lease — stating that he "will
exercise his OPTION to buy the land and building subject matter of the
lease." It is not correct to construe this expression — as did the appealed
decision — as implying that the option had not been or was not yet being
exercised, or as a mere announcement of the intent to avail of it at
some future time. This interpretation takes said expression out of the
context of Exhibit L, which positively states, also, that Nietes "is ready to
pay the balance of the purchase price in accordance with the contract," and
requests counsel for Dr. Garcia to inform or advise him "to make available
the land title and execute the corresponding Deed of Sale pursuant to this
notice, and that if he fails to do so within fifteen (15) days ... we shall take
the corresponding action to enforce the agreement." Such demand and said
readiness to pay the balance of the purchase price leave no room for doubt
that, as stated in Exhibit L, the same is "a formal notice" that Nietes had
exercised his option, and expected Dr. Garcia to comply, within fifteen
(15) days, with his part of the bargain. Surely, there would have been no
point for said demand and readiness to pay, if Nietes had not yet exercised
his option to buy.
The provision in paragraph 5 of the Contract, to the effect that "should the
LESSEE" choose to make use of his option to buy "the unused payment
for the Contract of Lease will be considered as payment for the sale of the
land and school, "simply means that the rental paid for the unused portion
of the lease shall be applied to and deducted from the sale price of
P100,000 to be paid by Nietes at the proper time — in other
words, simultaneously with the delivery to him of the corresponding deed
of sale, duly executed by Dr. Garcia.
It is, consequently, Our considered opinion that Nietes had validly and
effectively exercised his option to buy the property of Dr. Garcia, at least,
on December 13, 1962, when he acknowledged receipt from Mrs. Nietes
of the sum of P2,200 then delivered by her "in partial payment on the
purchase of the property" described in the "Contract of Lease with Option
to Buy"; that from the aggregate sum of P29,957.00 paid to him up to that
time, the sum of P12,708.33 should be deducted as rental for the period
from June 1960 to December 13, 1962, or roughly thirty (30) months and
a half, thereby leaving a balance of P17,248.67, consisting of P12,291.67,
representing the rentals for the unused period of the lease, plus P4,957.00
paid in excess of said rental and advanced solely on account of the
purchase price; that deducting said sum of P17,248.67 from the agreed
price of P100,000.00, there results a balance of P82,751.33 which should
be paid by Nietes to Dr. Garcia, upon execution by the latter of the
corresponding deed of absolute sale of the property in question, free from
any lien or encumbrance whatsoever, in favor of Nietes, and the delivery
to him of said deed of sale, as well as of the owner's duplicate of the
certificate of title to said property; and that Dr. Garcia should indemnify
Nietes in the sum of P2,500 as and for attorney's fees.
Thus modified, the decision of the Court of First Instance of Pampanga is
hereby affirmed in all other respects, and that of the Court of Appeals
reversed, with costs against respondent herein, Dr. Pablo C. Garcia. It is
so ordered.
G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY
DEVELOPMENT CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.
VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of
Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345 setting aside
and declaring without force and effect the orders of execution of the trial
court, dated 30 August 1991 and 27 September 1991, in Civil Case No.
87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific
Performance was filed by Ang Yu Asuncion and Keh Tiong, et
al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan
before the Regional Trial Court, Branch 31, Manila in Civil Case
No. 87-41058, alleging, among others, that plaintiffs are tenants
or lessees of residential and commercial spaces owned by
defendants described as Nos. 630-638 Ongpin Street, Binondo,
Manila; that they have occupied said spaces since 1935 and have
been religiously paying the rental and complying with all the
conditions of the lease contract; that on several occasions before
October 9, 1986, defendants informed plaintiffs that they are
offering to sell the premises and are giving them priority to
acquire the same; that during the negotiations, Bobby Cu
Unjieng offered a price of P6-million while plaintiffs made a
counter offer of P5-million; that plaintiffs thereafter asked the
defendants to put their offer in writing to which request
defendants acceded; that in reply to defendant's letter, plaintiffs
wrote them on October 24, 1986 asking that they specify the
terms and conditions of the offer to sell; that when plaintiffs did
not receive any reply, they sent another letter dated January 28,
1987 with the same request; that since defendants failed to
specify the terms and conditions of the offer to sell and because
of information received that defendants were about to sell the
property, plaintiffs were compelled to file the complaint to
compel defendants to sell the property to them.
Defendants filed their answer denying the material allegations of
the complaint and interposing a special defense of lack of cause
of action.
After the issues were joined, defendants filed a motion for
summary judgment which was granted by the lower court. The
trial court found that defendants' offer to sell was never accepted
by the plaintiffs for the reason that the parties did not agree upon
the terms and conditions of the proposed sale, hence, there was
no contract of sale at all. Nonetheless, the lower court ruled that
should the defendants subsequently offer their property for sale
at a price of P11-million or below, plaintiffs will have the right
of first refusal. Thus the dispositive portion of the decision
states:
WHEREFORE, judgment is hereby rendered in favor
of the defendants and against the plaintiffs summarily
dismissing the complaint subject to the aforementioned
condition that if the defendants subsequently decide to
offer their property for sale for a purchase price of
Eleven Million Pesos or lower, then the plaintiffs has
the option to purchase the property or of first refusal,
otherwise, defendants need not offer the property to the
plaintiffs if the purchase price is higher than Eleven
Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on
September 21, 1990 (penned by Justice Segundino G. Chua and
concurred in by Justices Vicente V. Mendoza and Fernando A.
Santiago), this Court affirmed with modification the lower
court's judgment, holding:
 In resume, there was no meeting of the minds between
the parties concerning the sale of the property. Absent
such requirement, the claim for specific performance
will not lie. Appellants' demand for actual, moral and
exemplary damages will likewise fail as there exists no
justifiable ground for its award. Summary judgment for
defendants was properly granted. Courts may render
summary judgment when there is no genuine issue as
to any material fact and the moving party is entitled to
a judgment as a matter of law (Garcia vs. Court of
Appeals, 176 SCRA 815). All requisites obtaining, the
decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the
judgment appealed from is hereby AFFIRMED, but
subject to the following modification: The court a
quo in the aforestated decision gave the plaintiffs-
appellants the right of first refusal only if the property
is sold for a purchase price of Eleven Million pesos or
lower; however, considering the mercurial and
uncertain forces in our market economy today. We find
no reason not to grant the same right of first refusal to
herein appellants in the event that the subject property
is sold for a price in excess of Eleven Million pesos.
No pronouncement as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by
petition for review on certiorari. The Supreme Court denied the
appeal on May 6, 1991 "for insufficiency in form and
substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was
pending consideration by this Court, the Cu Unjieng spouses
executed a Deed of Sale (Annex D, Petition) transferring the
property in question to herein petitioner Buen Realty and
Development Corporation, subject to the following terms and
conditions:
1. That for and in consideration of the sum of FIFTEEN
MILLION PESOS (P15,000,000.00), receipt of which
in full is hereby acknowledged, the VENDORS hereby
sells, transfers and conveys for and in favor of the
VENDEE, his heirs, executors, administrators or
assigns, the above-described property with all the
improvements found therein including all the rights
and interest in the said property free from all liens and
encumbrances of whatever nature, except the pending
ejectment proceeding;
2. That the VENDEE shall pay the Documentary
Stamp Tax, registration fees for the transfer of title in
his favor and other expenses incidental to the sale of
above-described property including capital gains tax
and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the
name of the Cu Unjieng spouses was cancelled and, in lieu
thereof, TCT No. 195816 was issued in the name of petitioner
on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject
property wrote a letter to the lessees demanding that the latter
vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating
that petitioner brought the property subject to the notice of lis
pendens regarding Civil Case No. 87-41058 annotated on TCT
No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991
of the Decision in Civil Case No. 87-41058 as modified by the
Court of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex
A, Petition) quoted as follows:
Presented before the Court is a Motion for Execution
filed by plaintiff represented by Atty. Antonio Albano.
Both defendants Bobby Cu Unjieng and Rose Cu
Unjieng represented by Atty. Vicente Sison and Atty.
Anacleto Magno respectively were duly notified in
today's consideration of the motion as evidenced by the
rubber stamp and signatures upon the copy of the
Motion for Execution.
The gist of the motion is that the Decision of the Court
dated September 21, 1990 as modified by the Court of
Appeals in its decision in CA G.R. CV-21123, and
elevated to the Supreme Court upon the petition for
review and that the same was denied by the highest
tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a
consequence, there was an Entry of Judgment by the
Supreme Court as of June 6, 1991, stating that the
aforesaid modified decision had already become final
and executory.
It is the observation of the Court that this property in
dispute was the subject of the Notice of Lis
Pendens and that the modified decision of this Court
promulgated by the Court of Appeals which had
become final to the effect that should the defendants
decide to offer the property for sale for a price of P11
Million or lower, and considering the mercurial and
uncertain forces in our market economy today, the
same right of first refusal to herein plaintiffs/appellants
in the event that the subject property is sold for a price
in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to
execute the necessary Deed of Sale of the property in
litigation in favor of plaintiffs Ang Yu Asuncion, Keh
Tiong and Arthur Go for the consideration of P15
Million pesos in recognition of plaintiffs' right of first
refusal and that a new Transfer Certificate of Title be
issued in favor of the buyer.
All previous transactions involving the same property
notwithstanding the issuance of another title to Buen
Realty Corporation, is hereby set aside as having been
executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order,
the dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution issue in
the above-entitled case directing the Deputy Sheriff
Ramon Enriquez of this Court to implement said Writ
of Execution ordering the defendants among others to
comply with the aforesaid Order of this Court within a
period of one (1) week from receipt of this Order and
for defendants to execute the necessary Deed of Sale of
the property in litigation in favor of the plaintiffs Ang
Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15,000,000.00 and ordering the
Register of Deeds of the City of Manila, to cancel and
set aside the title already issued in favor of Buen Realty
Corporation which was previously executed between
the latter and defendants and to register the new title in
favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh
Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of
execution (Annex C, Petition) was issued.1
On 04 December 1991, the appellate court, on appeal to it by private
respondent, set aside and declared without force and effect the above
questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen
Realty can be held bound by the writ of execution by virtue of the notice
of lis pendens, carried over on TCT No. 195816 issued in the name of
Buen Realty, at the time of the latter's purchase of the property on 15
November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of
such arrangements as the right of first refusal, a purchase option and a
contract to sell. For ready reference, we might point out some fundamental
precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156,
Civil Code). The obligation is constituted upon the concurrence of the
essential elements thereof, viz: (a) The vinculum juris or juridical
tie which is the efficient cause established by the various sources of
obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b)
the object which is the prestation or conduct; required to be observed (to
give, to do or not to do); and (c) the subject-persons who, viewed from the
demandability of the obligation, are the active (obligee) and the passive
(obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code),
which is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some
service (Art. 1305, Civil Code). A contract undergoes various stages that
include its negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time the
prospective contracting parties indicate interest in the contract to the time
the contract is concluded (perfected). The perfection of the contract takes
place upon the concurrence of the essential elements thereof. A contract
which is consensual as to perfection is so established upon a mere meeting
of minds, i.e., the concurrence of offer and acceptance, on the object and
on the cause thereof. A contract which requires, in addition to the above,
the delivery of the object of the agreement, as in a pledge or commodatum,
is commonly referred to as a real contract. In a solemn contract,
compliance with certain formalities prescribed by law, such as in a
donation of real property, is essential in order to make the act valid, the
prescribed form being thereby an essential element thereof. The stage
of consummation begins when the parties perform their respective
undertakings under the contract culminating in the extinguishment
thereof.
Until the contract is perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation. In sales, particularly, to
which the topic for discussion about the case at bench belongs, the contract
is perfected when a person, called the seller, obligates himself, for a price
certain, to deliver and to transfer ownership of a thing or right to another,
called the buyer, over which the latter agrees. Article 1458 of the Civil
Code provides:
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership of
and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to
Sell" where invariably the ownership of the thing sold is retained until the
fulfillment of a positive suspensive condition (normally, the full payment
of the purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force. 2 In Dignos
vs. Court of Appeals (158 SCRA 375), we have said that, although
denominated a "Deed of Conditional Sale," a sale is still absolute where
the contract is devoid of any proviso that title is reserved or the right to
unilaterally rescind is stipulated, e.g., until or unless the price is paid.
Ownership will then be transferred to the buyer upon actual or constructive
delivery (e.g., by the execution of a public document) of the property sold.
Where the condition is imposed upon the perfection of the contract itself,
the failure of the condition would prevent such perfection. 3 If the condition
is imposed on the obligation of a party which is not fulfilled, the other
party may either waive the condition or refuse to proceed with the sale
(Art. 1545, Civil Code).4
An unconditional mutual promise to buy and sell, as long as the object is
made determinate and the price is fixed, can be obligatory on the parties,
and compliance therewith may accordingly be exacted.5
An accepted unilateral promise which specifies the thing to be sold and
the price to be paid, when coupled with a valuable consideration
distinct and separate from the price, is what may properly be termed a
perfected contract 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
promissor if the promise is supported by a
consideration distinct from the price. (1451a)6
Observe, however, that the option is not the contract of sale itself.7 The
optionee has the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An
imperfect promise (policitacion) is merely an offer. Public advertisements
or solicitations and the like are ordinarily construed as mere invitations to
make offers or only as proposals. These relations, until a contract is
perfected, are not considered binding commitments. Thus, at any time
prior to the perfection of the contract, either negotiating party may stop
the negotiation. The offer, at this stage, may be withdrawn; the withdrawal
is effective immediately after its manifestation, such as by its mailing and
not necessarily when the offeree learns of the withdrawal (Laudico vs.
Arias, 43 Phil. 270). Where a period is given to the offeree within which
to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration,
the offeror is still free and has the right to withdraw the offer before its
acceptance, or, if an acceptance has been made, before the offeror's
coming to know of such fact, by communicating that withdrawal to the
offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua,
102 Phil. 948, holding that this rule is applicable to a unilateral promise to
sell under Art. 1479, modifying the previous decision in South Western
Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural
Bank of 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" is
deemed perfected, and it would be a breach of that contract to withdraw
the offer during the agreed period. The option, however, is an independent
contract by itself, and it is to be distinguished from the projected main
agreement (subject matter of the option) which is obviously yet to be
concluded. If, in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the 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 option. In these cases, care should be taken of the real nature of
the consideration given, for if, in fact, it has been intended to be part of
the consideration for the main contract with a right of withdrawal on the
part of the optionee, the main contract could be deemed perfected; a
similar instance would be an "earnest money" in a contract of sale that can
evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative
juridical relation. Needless to point out, it cannot be deemed a perfected
contract of sale under Article 1458 of the Civil Code. Neither can the right
of first refusal, understood in its normal concept, per se be brought within
the purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 13199 of the same Code.
An option or an offer would require, among other things,10 a clear certainty
on both the object and the cause or consideration of the envisioned
contract. In a right of first refusal, while the object might be made
determinate, the exercise of the right, however, would be dependent not
only on the grantor's eventual intention to enter into a binding juridical
relation with another but also on terms, including the price, that obviously
are yet to be later firmed up. Prior thereto, it can at best be so described as
merely belonging to a class of preparatory juridical relations governed not
by contracts (since the essential elements to establish the vinculum
juris would still be indefinite and inconclusive) but by, among other laws
of general application, the pertinent scattered provisions of the Civil Code
on human conduct.
Even on the premise that such right of first refusal has been decreed under
a final judgment, like here, its breach cannot justify correspondingly an
issuance of a writ of execution under a judgment that merely recognizes
its existence, nor would it sanction an action for specific performance
without thereby negating the indispensable element of consensuality in the
perfection of contracts.11 It is not to say, however, that the right of first
refusal would be inconsequential for, such as already intimated above, an
unjustified disregard thereof, given, for instance, the circumstances
expressed in Article 1912 of the Civil Code, can warrant a recovery for
damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has
merely accorded a "right of first refusal" in favor of petitioners. The
consequence of such a declaration entails no more than what has
heretofore been said. In fine, if, as it is here so conveyed to us, petitioners
are aggrieved by the failure of private respondents to honor the right of
first refusal, the remedy is not a writ of execution on the judgment, since
there is none to execute, but an action for damages in a proper forum for
the purpose.
Furthermore, whether private respondent Buen Realty Development
Corporation, the alleged purchaser of the property, has acted in good faith
or bad faith and whether or not it should, in any case, be considered bound
to respect the registration of the lis pendens in Civil Case No. 87-41058
are matters that must be independently addressed in appropriate
proceedings. Buen Realty, not having been impleaded in Civil Case No.
87-41058, cannot be held subject to the writ of execution issued by
respondent Judge, let alone ousted from the ownership and possession of
the property, without first being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has
erred in holding that the writ of execution varies the terms of the judgment
in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The
Court of Appeals, in this regard, has observed:
Finally, the questioned writ of execution is in variance with the
decision of the trial court as modified by this Court. As already
stated, there was nothing in said decision 13 that decreed the
execution of a deed of sale between the Cu Unjiengs and
respondent lessees, or the fixing of the price of the sale, or the
cancellation of title in the name of petitioner (Limpin vs. IAC,
147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC,
143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs.
CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-
41058 could not have decreed at the time the execution of any deed of sale
between the Cu Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting
aside the questioned Orders, dated 30 August 1991 and 27 September
1991, of the court a quo. Costs against petitioners.
SO ORDERED.
G.R. No. 111538 February 26, 1997
PARAÑAQUE KINGS ENTERPRISES,
INCORPORATED, petitioner,
vs.
COURT OF APPEALS, CATALINA L. SANTOS, represented by her
attorney-in-fact, LUZ B. PROTACIO, and DAVID A.
RAYMUNDO, respondents.
PANGANIBAN, J.:
Do allegations in a complaint showing violation of a contractual right of
"first option or priority to buy the properties subject of the lease" constitute
a valid cause of action? Is the grantee of such right entitled to be offered
the same terms and conditions as those given to a third party who
eventually bought such properties? In short, is such right of first refusal
enforceable by an action for specific performance?
These questions are answered in the affirmative by this Court in resolving
this petition for review under Rule 45 of the Rules of Court challenging
the Decision 1 of the Court of Appeals 2 promulgated on March 29, 1993,
in CA-G.R. CV No. 34987 entitled "Parañaque Kings Enterprises, Inc. vs.
Catalina L. Santos, et al.," which affirmed the order 3of September 2,
1991, of the Regional Trial Court of Makati, Branch 57, 4 dismissing Civil
Case No. 91-786 for lack of a valid cause of action.
Facts of the Case
On March 19, 1991, herein petitioner filed before the Regional Trial Court
of Makati a complaint, 5 which is reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and existing under
and by virtue of the laws of the Philippines, with principal place
of business of (sic) Dr. A. Santos Avenue, Parañaque, Metro
Manila, while defendant Catalina L. Santos, is of legal age,
widow, with residence and postal address at 444 Plato Street, Ct.,
Stockton, California, USA, represented in this action by her
attorney-in-fact, Luz B. Protacio, with residence and postal
address at No, 12, San Antonio Street, Magallanes Village,
Makati, Metro Manila, by virtue of a general power of attorney.
Defendant David A. Raymundo, is of legal age, single, with
residence and postal address at 1918 Kamias Street, Damariñas
Village, Makati, Metro Manila, where they (sic) may be served
with summons and other court processes. Xerox copy of the
general power of attorney is hereto attached as Annex "A".
2. Defendant Catalina L. Santos is the owner of eight (8) parcels
of land located at (sic) Parañaque, Metro Manila with transfer
certificate of title nos. S-19637, S-19638 and S-19643 to S-
19648. Xerox copies of the said title (sic) are hereto attached as
Annexes "B" to "I", respectively.
3. On November 28, 1977, a certain Frederick Chua leased the
above-described property from defendant Catalina L. Santos, the
said lease was registered in the Register of Deeds. Xerox copy
of the lease is hereto attached as Annex "J".
4. On February 12, 1979, Frederick Chua assigned all his rights
and interest and participation in the leased property to Lee Ching
Bing, by virtue of a deed of assignment and with the conformity
of defendant Santos, the said assignment was also registered.
Xerox copy of the deed of assignment is hereto attached as
Annex "K".
5. On August 6, 1979, Lee Ching Bing also assigned all his rights
and interest in the leased property to Parañaque Kings
Enterprises, Incorporated by virtue of a deed of assignment and
with the conformity of defendant Santos, the same was duly
registered, Xerox copy of the deed of assignment is hereto
attached as Annex "L".
6. Paragraph 9 of the assigned leased (sic) contract provides
among others that:
"9. That in case the properties subject of the lease
agreement are sold or encumbered, Lessors shall
impose as a condition that the buyer or mortgagee
thereof shall recognize and be bound by all the terms
and conditions of this lease agreement and shall respect
this Contract of Lease as if they are the LESSORS
thereof and in case of sale, LESSEE shall have the first
option or priority to buy the properties subject of the
lease;"
7. On September 21, 1988, defendant Santos sold the eight
parcels of land subject of the lease to defendant David
Raymundo for a consideration of FIVE MILLION
(P5,000,000.00) PESOS. The said sale was in contravention of
the contract of lease, for the first option or priority to buy was
not offered by defendant Santos to the plaintiff. Xerox copy of
the deed of sale is hereto attached as Annex "M".
8. On March 5, 1989, defendant Santos wrote a letter to the
plaintiff informing the same of the sale of the properties to
defendant Raymundo, the said letter was personally handed by
the attorney-in-fact of defendant Santos, Xerox copy of the letter
is hereto attached as Annex "N".
9. Upon learning of this fact plaintiff's representative wrote a
letter to defendant Santos, requesting her to rectify the error and
consequently realizing the error, she had it reconveyed to her for
the same consideration of FIVE MILLION (P5,000,000.00)
PESOS. Xerox copies of the letter and the deed of reconveyance
are hereto attached as Annexes "O" and "P".
10. Subsequently the property was offered for sale to plaintiff by
the defendant for the sum of FIFTEEN MILLION
(P15,000,000.00) PESOS. Plaintiff was given ten (10) days to
make good of the offer, but therefore (sic) the said period expired
another letter came from the counsel of defendant Santos,
containing the same tenor of (sic) the former letter. Xerox copies
of the letters are hereto attached as Annexes "Q" and "R".
11. On May 8, 1989, before the period given in the letter offering
the properties for sale expired, plaintiff's counsel wrote counsel
of defendant Santos offering to buy the properties for FIVE
MILLION (P5,000,000.00) PESOS. Xerox copy of the letter is
hereto attached as Annex "S".
12. On May 15, 1989, before they replied to the offer to
purchase, another deed of sale was executed by defendant Santos
(in favor of) defendant Raymundo for a consideration of NINE
MILLION (P9,000,000.00) PESOS. Xerox copy of the second
deed of sale is hereto attached as Annex "T".
13. Defendant Santos violated again paragraph 9 of the contract
of lease by executing a second deed of sale to defendant
Raymundo.
14. It was only on May 17, 1989, that defendant Santos replied
to the letter of the plaintiff's offer to buy or two days after she
sold her properties. In her reply she stated among others that the
period has lapsed and the plaintiff is not a privy (sic) to the
contract. Xerox copy of the letter is hereto attached as Annex
"U".
15. On June 28, 1989, counsel for plaintiff informed
counsel of defendant Santos of the fact that plaintiff is
the assignee of all rights and interest of the former
lessor. Xerox copy of the letter is hereto attached as
Annex "V".
16. On July 6, 1989, counsel for defendant Santos informed the
plaintiff that the new owner is defendant Raymundo. Xerox copy
of the letter is hereto attached as Annex "W".
17. From the preceding facts it is clear that the sale was simulated
and that there was a collusion between the defendants in the sales
of the leased properties, on the ground that when plaintiff wrote
a letter to defendant Santos to rectify the error, she immediately
have (sic) the property reconveyed it (sic) to her in a matter of
twelve (12) days.
18. Defendants have the same counsel who represented both of
them in their exchange of communication with plaintiff's
counsel, a fact that led to the conclusion that a collusion exist
(sic) between the defendants.
19. When the property was still registered in the name of
defendant Santos, her collector of the rental of the leased
properties was her brother-in-law David Santos and when it was
transferred to defendant Raymundo the collector was still David
Santos up to the month of June, 1990. Xerox copies of cash
vouchers are hereto attached as Annexes "X" to "HH",
respectively.
20. The purpose of this unholy alliance between defendants
Santos and Raymundo is to mislead the plaintiff and make it
appear that the price of the leased property is much higher than
its actual value of FIVE MILLION (P5,000,000.00) PESOS, so
that plaintiff would purchase the properties at a higher price.
21. Plaintiff has made considerable investments in the said
leased property by erecting a two (2) storey, six (6) doors
commercial building amounting to THREE MILLION
(P3,000,000.00) PESOS. This considerable improvement was
made on the belief that eventually the said premises shall be sold
to the plaintiff.
22. As a consequence of this unlawful act of the defendants,
plaintiff will incurr (sic) total loss of THREE MILLION
(P3,000,000.00) PESOS as the actual cost of the building and as
such defendants should be charged of the same amount for actual
damages.
23. As a consequence of the collusion, evil design and illegal acts
of the defendants, plaintiff in the process suffered mental
anguish, sleepless nights, bismirched (sic) reputation which
entitles plaintiff to moral damages in the amount of FIVE
MILLION (P5,000,000.00) PESOS.
 24. The defendants acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner and as a deterrent to the
commission of similar acts, they should be made to answer for
exemplary damages, the amount left to the discretion of the
Court.
25. Plaintiff demanded from the defendants to rectify their
unlawful acts that they committed, but defendants refused and
failed to comply with plaintiffs just and valid and (sic) demands.
Xerox copies of the demand letters are hereto attached as
Annexes "KK" to "LL", respectively.
26. Despite repeated demands, defendants failed and refused
without justifiable cause to satisfy plaintiff's claim, and was
constrained to engaged (sic) the services of undersigned counsel
to institute this action at a contract fee of P200,000.00, as and for
attorney's fees, exclusive of cost and expenses of litigation.
PRAYER
WHEREFORE, it is respectfully prayed, that judgment be
rendered in favor of the plaintiff and against defendants and
ordering that:
a. The Deed of Sale between defendants dated May 15,
1989, be annulled and the leased properties be sold to
the plaintiff in the amount of P5,000,000.00;
b. Dependants (sic) pay plaintiff the sum of
P3,000,000.00 as actual damages;
c. Defendants pay the sum of P5,000,000.00 as moral
damages;
d. Defendants pay exemplary damages left to the
discretion of the Court;
e. Defendants pay the sum of not less than P200,000.00
as attorney's fees.
Plaintiff further prays for other just and equitable
reliefs plus cost of suit.
Instead of filing their respective answers, respondents filed motions to
dismiss anchored on the grounds of lack of cause of action, estoppel and
laches.
On September 2, 1991, the trial court issued the order dismissing the
complaint for lack of a valid cause of action. It ratiocinated thus:
Upon the very face of the plaintiff's Complaint itself, it therefore
indubitably appears that the defendant Santos had verily
complied with paragraph 9 of the Lease Agreement by twice
offering the properties for sale to the plaintiff for ~1 5 M. The
said offers, however, were plainly rejected by the plaintiff which
scorned the said offer as "RIDICULOUS". There was therefore
a definite refusal on the part of the plaintiff to accept the offer of
defendant Santos. For in acquiring the said properties back to her
name, and in so making the offers to sell both by herself
(attorney-in-fact) and through her counsel, defendant Santos was
indeed conscientiously complying with her obligation under
paragraph 9 of the Lease Agreement. . . . .
xxx xxx xxx
This is indeed one instance where a Complaint, after barely
commencing to create a cause of action, neutralized itself by its
subsequent averments which erased or extinguished its earlier
allegations of an impending wrong. Consequently, absent any
actionable wrong in the very face of the Complaint itself, the
plaintiffs subsequent protestations of collusion is bereft or
devoid of any meaning or purpose. . . . .
The inescapable result of the foregoing considerations point to
no other conclusion than that the Complaint actually does not
contain any valid cause of action and should therefore be as it is
hereby ordered DISMISSED. The Court finds no further need to
consider the other grounds of estoppel and laches inasmuch as
this resolution is sufficient to dispose the matter. 6
Petitioners appealed to the Court of Appeals which affirmed in toto the
ruling of the trial court, and further reasoned that:
. . . . Appellant's protestations that the P15 million price quoted
by appellee Santos was reduced to P9 million when she later
resold the leased properties to Raymundo has no valid legal
moorings because appellant, as a prospective buyer, cannot
dictate its own price and forcibly ram it against appellee Santos,
as owner, to buy off her leased properties considering the total
absence of any stipulation or agreement as to the price or as to
how the price should be computed under paragraph 9 of the lease
contract, . . . . 7
Petitioner moved for reconsideration but was denied in an order dated
August 20, 1993. 8
Hence this petition. Subsequently, petitioner filed an "Urgent Motion for
the Issuance of Restraining Order and/or Writ of Preliminary Injunction
and to Hold Respondent David A. Raymundo in Contempt of
Court." 9 The motion sought to enjoin respondent Raymundo and his
counsel from pursuing the ejectment complaint filed before the barangay
captain of San Isidro, Parañaque, Metro Manila; to direct the dismissal of
said ejectment complaint or of any similar action that may have been filed;
and to require respondent Raymundo to explain why he should not be held
in contempt of court for forum-shopping. The ejectment suit initiated by
respondent Raymundo against petitioner arose from the expiration of the
lease contract covering the property subject of this case. The ejectment
suit was decided in favor of Raymundo, and the entry of final judgment in
respect thereof renders the said motion moot and academic.
Issue
The principal legal issue presented before us for resolution is whether the
aforequoted complaint alleging breach of the contractual right of "first
option or priority to buy" states a valid cause of action.
Petitioner contends that the trial court as well as the appellate tribunal
erred in dismissing the complaint because it in fact had not just one but at
least three (3) valid causes of action, to wit: (1) breach of contract, (2) its
right of first refusal founded in law, and (3) damages.
Respondents Santos and Raymundo, in their separate comments, aver that
the petition should be denied for not raising a question of law as the issue
involved is purely factual — whether respondent Santos complied with
paragraph 9 of the lease agreement — and for not having complied with
Section 2, Rule 45 of the Rules of Court, requiring the filing of twelve (12)
copies of the petitioner's brief. Both maintain that the complaint filed by
petitioner before the Regional Trial Court of Makati stated no valid cause
of action and that petitioner failed to substantiate its claim that the lower
courts decided the same "in a way not in accord with law and applicable
decisions of the Supreme Court"; or that the Court of Appeals has
"sanctioned departure by a trial court from the accepted and usual course
of judicial proceedings" so as to merit the exercise by this Court of the
power of review under Rule 45 of the Rules of Court. Furthermore, they
reiterate estoppel and laches as grounds for dismissal, claiming that
petitioner's payment of rentals of the leased property to respondent
Raymundo from June 15, 1989, to June 30, 1990, was an acknowledgment
of the latter's status as new owner-lessor of said property, by virtue of
which petitioner is deemed to have waived or abandoned its first option to
purchase.
Private respondents likewise contend that the deed of assignment of the
lease agreement did not include the assignment of the option to purchase.
Respondent Raymundo further avers that he was not privy to the contract
of lease, being neither the lessor nor lessee adverted to therein, hence he
could not be held liable for violation thereof.
The Court's Ruling
Preliminary Issue: Failure to File
Sufficient Copies of Brief
We first dispose of the procedural issue raised by respondents, particularly
petitioner's failure to file twelve (12) copies of its brief. We have ruled that
when non-compliance with the Rules was not intended for delay or did not
result in prejudice to the adverse party, dismissal of appeal on mere
technicalities — in cases where appeal is a matter of right — may be
stayed, in the exercise of the court's equity jurisdiction. 10 It does not
appear that respondents were unduly prejudiced by petitioner's
nonfeasance. Neither has it been shown that such failure was intentional.
Main Issue: Validity of Cause of Action
We do not agree with respondents' contention that the issue involved
is purely factual. The principal legal question, as stated earlier, is whether
the complaint filed by herein petitioner in the lower court states a valid
cause of action. Since such question assumes the facts alleged in the
complaint as true, it follows that the determination thereof is one of law,
and not of facts. There is a question of law in a given case when the doubt
or difference arises as to what the law is on a certain state of facts, and
there is a question of fact when the doubt or difference arises as to the truth
or the falsehood of alleged facts. 11
At the outset, petitioner concedes that when the ground for a motion to
dismiss is lack of cause of action, such ground must appear on the face of
the complaint; that to determine the sufficiency of a cause of action, only
the facts alleged in the complaint and no others should be considered; and
that the test of sufficiency of the facts alleged in a petition or complaint to
constitute a cause of action is whether, admitting the facts alleged, the
court could render a valid judgment upon the same in accordance with the
prayer of the petition or complaint.
A cause of action exists if the following elements are present: (1) a right
in favor of the plaintiff by whatever means and under whatever law it
arises or is created; (2) an obligation on the part of the named defendant
to respect or not to violate such right, and (3) an act or omission on the
part of such defendant violative of the right of plaintiff or constituting a
breach of the obligation of defendant to the plaintiff for which the latter
may maintain an action for recovery of damages. 12
In determining whether allegations of a complaint are sufficient to support
a cause of action, it must be borne in mind that the complaint does not
have to establish or allege facts proving the existence of a cause of action
at the outset; this will have to be done at the trial on the merits of the case.
To sustain a motion to dismiss for lack of cause of action, the complaint
must show that the claim for relief does not exist, rather than that a claim
has been defectively stated, or is ambiguous, indefinite or uncertain. 13
Equally important, a defendant moving to dismiss a complaint on the
ground of lack of cause of action is regarded as having hypothetically
admitted all the averments thereof. 14
A careful examination of the complaint reveals that it sufficiently alleges
an actionable contractual breach on the part of private respondents. Under
paragraph 9 of the contract of lease between respondent Santos and
petitioner, the latter was granted the "first option or priority" to purchase
the leased properties in case Santos decided to sell. If Santos never decided
to sell at all, there can never be a breach, much less an enforcement of such
"right." But on September 21, 1988, Santos sold said properties to
Respondent Raymundo without first offering these to petitioner. Santos
indeed realized her error, since she repurchased the properties after
petitioner complained. Thereafter, she offered to sell the properties to
petitioner for P15 million, which petitioner, however, rejected because of
the "ridiculous" price. But Santos again appeared to have violated the same
provision of the lease contract when she finally resold the properties to
respondent Raymundo for only P9 million without first offering them to
petitioner at such price. Whether there was actual breach which entitled
petitioner to damages and/or other just or equitable relief, is a question
which can better be resolved after trial on the merits where each party can
present evidence to prove their respective allegations and defenses. 15
The trial and appellate courts based their decision to sustain respondents'
motion to dismiss on the allegations of Parañaque Kings Enterprises that
Santos had actually offered the subject properties for sale to it prior to the
final sale in favor of Raymundo, but that the offer was rejected. According
to said courts, with such offer, Santos had verily complied with her
obligation to grant the right of first refusal to petitioner.
We hold, however, that in order to have full compliance with the
contractual right granting petitioner the first option to purchase, the sale
of the properties for the amount of P9 million, the price for which they
were finally sold to respondent Raymundo, should have likewise been first
offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of,
and obligations under, a right of first refusal in the case of Guzman,
Bocaling & Co. vs. Bonnevie. 16 In that case, under a contract of lease, the
lessees (Raul and Christopher Bonnevie) were given a "right of first
priority" to purchase the leased property in case the lessor (Reynoso)
decided to sell. The selling price quoted to the Bonnevies was 600,000.00
to be fully paid in cash, less a mortgage lien of P100,000.00. On the other
hand, the selling price offered by Reynoso to and accepted by Guzman
was only P400,000.00 of which P137,500.00 was to be paid in cash while
the balance was to be paid only when the property was cleared of
occupants. We held that even if the Bonnevies could not buy it at the price
quoted (P600,000.00), nonetheless, Reynoso could not sell it to another
for a lower price and under more favorable terms and conditions without
first offering said favorable terms and price to the Bonnevies as well. Only
if the Bonnevies failed to exercise their right of first priority could
Reynoso thereafter lawfully sell the subject property to others, and only
under the same terms and conditions previously offered to the Bonnevies.
Of course, under their contract, they specifically stipulated that the
Bonnevies could exercise the right of first priority, "all things and
conditions being equal." This Court interpreted this proviso to mean that
there should be identity of terms and conditions to be offered to the
Bonnevies and all other prospective buyers, with the Bonnevies to enjoy
the right of first priority. We hold that the same rule applies even without
the same proviso if the right of first refusal (or the first option to buy) is
not to be rendered illusory.
From the foregoing, the basis of the right of first refusal* must be
the current offer to sell of the seller or offer to purchase of any prospective
buyer. Only after the optionee fails to exercise its right of first priority
under the same terms and within the period contemplated, could the owner
validly offer to sell the property to a third person, again, under the same
terms as offered to the optionee.
This principle was reiterated in the very recent case of Equatorial Realty
vs. Mayfair Theater, Inc. 17 which was decided en banc. This Court
upheld the right of first refusal of the lessee Mayfair, and rescinded the
sale of the property by the lessor Carmelo to Equatorial Realty
"considering that Mayfair, which had substantial interest over the subject
property, was prejudiced by its sale to Equatorial without Carmelo
conferring to Mayfair every opportunity to negotiate within the 30-day
stipulated period" (emphasis supplied).
In that case, two contracts of lease between Carmelo and Mayfair provided
"that if the LESSOR should desire to sell the leased premises, the LESSEE
shall be given 30 days exclusive option to purchase the same." Carmelo
initially offered to sell the leased property to Mayfair for six to seven
million pesos. Mayfair indicated interest in purchasing the property
though it invoked the 30-day period. Nothing was heard thereafter from
Carmelo. Four years later, the latter sold its entire Recto Avenue property,
including the leased premises, to Equatorial for P11,300,000.00 without
priorly informing Mayfair. The Court held that both Carmelo and
Equatorial acted in bad faith: Carmelo for knowingly violating the right of
first option of Mayfair, and Equatorial for purchasing the property despite
being aware of the contract stipulation. In addition to rescission of the
contract of sale, the Court ordered Carmelo to allow Mayfair to buy the
subject property at the same price of P11,300,000.00.
No cause of action
under P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or the Urban Land
Reform Law, as another source of its right of first refusal. It claims to be
covered under said law, being the "rightful occupant of the land and its
structures" since it is the lawful lessee thereof by reason of contract. Under
the lease contract, petitioner would have occupied the property for
fourteen (14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a beneficiary under
said law, suffice it to say that this Court has previously ruled that under
Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the
exercise of the lessee's right of first refusal to purchase shall be determined
by the Urban Zone Expropriation and Land Management Committee.
Hence, . . . . certain prerequisites must be complied with by anyone who
wishes to avail himself of the benefits of the decree." 19There being no
allegation in its complaint that the prerequisites were complied with, it is
clear that the complaint did fail to state a cause of action on this ground.
Deed of Assignment included
the option to purchase
Neither do we find merit in the contention of respondent Santos that the
assignment of the lease contract to petitioner did not include the option to
purchase. The provisions of the deeds of assignment with regard to matters
assigned were very clear. Under the first assignment between Frederick
Chua as assignor and Lee Ching Bing as assignee, it was expressly stated
that:
. . . . the ASSIGNOR hereby CEDES, TRANSFERS and
ASSIGNS to herein ASSIGNEE, all his rights, interest and
participation over said premises afore-described, . . .
. 20 (emphasis supplied)
And under the subsequent assignment executed between Lee Ching Bing
as assignor and the petitioner, represented by its Vice President Vicenta
Lo Chiong, as assignee, it was likewise expressly stipulated that;
. . . . the ASSIGNOR hereby sells, transfers and assigns all his
rights, interest and participation over said leased premises, . . .
. 21 (emphasis supplied)
One of such rights included in the contract of lease and, therefore, in the
assignments of rights was the lessee's right of first option or priority to buy
the properties subject of the lease, as provided in paragraph 9 of the
assigned lease contract. The deed of assignment need not be very specific
as to which rights and obligations were passed on to the assignee. It is
understood in the general provision aforequoted that all specific rights
and obligationscontained in the contract of lease are those referred to as
being assigned. Needless to state, respondent Santos gave her unqualified
conformity to both assignments of rights.
Respondent Raymundo privy
to the Contract of Lease
With respect to the contention of respondent Raymundo that he is not
privy to the lease contract, not being the lessor nor the lessee referred to
therein, he could thus not have violated its provisions, but he is
nevertheless a proper party. Clearly, he stepped into the shoes of the
owner-lessor of the land as, by virtue of his purchase, he assumed all the
obligations of the lessor under the lease contract. Moreover, he received
benefits in the form of rental payments. Furthermore, the complaint, as
well as the petition, prayed for the annulment of the sale of the properties
to him. Both pleadings also alleged collusion between him and respondent
Santos which defeated the exercise by petitioner of its right of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo
was a necessary, if not indispensable, party to the case. 22 A favorable
judgment for the petitioner will necessarily affect the rights of respondent
Raymundo as the buyer of the property over which petitioner would like
to assert its right of first option to buy.
Having come to the conclusion that the complaint states a valid cause of
action for breach of the right of first refusal and that the trial court should
thus not have dismissed the complaint, we find no more need to pass upon
the question of whether the complaint states a cause of action for damages
or whether the complaint is barred by estoppel or laches. As these matters
require presentation and/or determination of facts, they can be best
resolved after trial on the merits.
While the lower courts erred in dismissing the complaint, private
respondents, however, cannot be denied their day in court. While, in the
resolution of a motion to dismiss, the truth of the facts alleged in the
complaint are theoretically admitted, such admission is merely
hypothetical and only for the purpose of resolving the motion. In case of
denial, the movant is not to be deprived of the right to submit its own case
and to submit evidence to rebut the allegations in the complaint. Neither
will the grant of the motion by a trial court and the ultimate reversal thereof
by an appellate court have the effect of stifling such right. 23 So too, the
trial court should be given the opportunity to evaluate the evidence, apply
the law and decree the proper remedy. Hence, we remand the instant case
to the trial court to allow private respondents to have their day in court.
WHEREFORE, the petition is GRANTED. The assailed decisions of the
trial court and Court of Appeals are hereby REVERSED and SET ASIDE.
The case is REMANDED to the Regional Trial Court of Makati for further
proceedings.
SO ORDERED.
G.R. No. 106837 August 4, 1993
HENRY MACION and ANGELES MACION, petitioners,
vs.
HON. JAPAL M. GUIANI, in his capacity as Presiding Judge of the
Regional Trial Court Branch 14, Cotabato City and DELA VIDA
INSTITUTE represented by MS. JOSEPHINE
LANZADERAS, respondents.
Leonardo J. Rendon for petitioners.
Mama Dalandag for private respondent Dela Vida Institute.
ROMERO, J.:
The subject of this litigation revolves around two (2) parcels of adjoining
lots owned by petitioners which are the proposed extension sites of De La
Vida Institute, an educational institution located in Cotabato City.
On April 26, 1991, the petitioners and private respondent entered into a
contract to sell under which terms, private respondent, as president of De
la Vida Institute, assured petitioners that they would buy the said
properties on or before July 31, 1991 in the amount of P1,750,000.00. In
the meantime, petitioners surrendered the physical possession of the two
lots to private respondent who promptly built an edifice worth
P800,000.00.1
But on July 31, 1991, the sale did not materialize. Consequently,
petitioners filed a complaint for unlawful detainer against private
respondent (MTCC Civil Case No. 2739). In retaliation, private
respondent filed a complaint for reformation of the contract to sell
executed on April 26, 1991 (Civil Case 592).2 Afterwards, the parties met
to settle their differences.
On February 6, 1992, the parties entered into a compromise agreement
which stipulated among others that petitioners would give private
respondent five (5) months to raise the amount of P2,060,000.00; 3 that in
the event of failure to raise the said amount within the designated period,
private respondent would vacate the premises immediately. The
compromise agreement, inter alia, provided:
6. that upon the execution of this agreement, the defendant will
furnish the plaintiff with xerox copy of the land title for each lot
which the latter may use for the purpose of providing
information in securing a loan from any financing or banking
institution of their choice.
7. that if within the period of five (5) months from and after
February 6, 1992, the plaintiff succeeds in obtaining funds for
the purpose of settling their obligations with defendants in the
total sum of P2,060,000.00 the latter shall oblige themselves to
execute, sign and deliver to the former the corresponding Deed
of Sale for the two (2) lots which is the subject of this case and
turn-over to said plaintiff the owner's duplicate copy of TCT
Nos. T-22004 and T-22005 of the Registry of Deeds for the City
of Cotabato.
In affirmation of the compromise agreement, the Board of Trustees of De
La Vida College passed thereafter a resolution expressing full support to
the said agreement entered into between the parties.4
On March 10, 1992, private respondent wrote petitioners that "the
compromise agreement we have had in the presence of Judge Guiani is not
the same as per attached xerox copy you gave us." In that letter, which
essentially was a counter proposal, private respondent said that the price
of P2,060,000.00 was higher than they were willing to pay in the amount
of P2,000,000.00 only.5 Other matters taken up in the letter were: De la
Vida Institute would admit students and hold classes until July 6, 1992 but
in case they (private respondent) fail to deliver the said amount, they
would voluntarily vacate the premises and that "in the event that the bank
and other lending institutions give its nod and approval to our loan and
require the submission of other documents, you will give to us the Deed
of Sale and Owner's copies of the Titles of the two (2) to t expedite release
of the amount concerned."6
On March 25, 1992, the trial court approved the compromise agreement
dated February 6, 1992.
Two (2) months after, private respondents, alleging that they had
negotiated a loan from the Bank of the Philippine Islands, wrote letters
dated May 19, 20 and 26 requesting petitioners to execute with them a
contract to sell in their favor. On May 28, 1992, private respondent filed
with the trial court an urgent motion for an order directing petitioners to
execute a contract to sell in private respondent's favor in accordance with
paragraph 7 of the compromise agreement.7
On July 8, 1992, petitioners filed a motion for execution of judgement
alleging that after a lapse of five (5) months from February 6, 1992, private
respondent have failed to settle their obligations with petitioners. 8
In its order dated August 6, 1992, respondent judge denied the motion for
execution and directed petitioners to execute the required contract to sell
in favor of private respondent. Respondent judge opined that the
proximate cause of private respondent's failure to comply with the
compromise agreement was the refusal of petitioners to execute a contract
to sell as required under the agreement. Respondent judge added that
petitioners should have executed the contract to sell because anyway they
would not be prejudiced since there was no transfer of ownership involved
in a contract to sell.9
Hence this instant petition for certiorari, with prayer for a temporary
restraining order enjoining respondent judge from enforcing its August 6,
1992 order.
On October 7, 1992, petitioners filed an Omnibus Urgent Motion praying
that private respondent be ordered to consign with the court below
P135,000.00 representing rentals from May 1991 to January 1992. In our
resolution dated November 18, 1992, we granted said prayer. On March
9, 1992, private respondent consigned with the Office of the Clerk of
Court the sum of P135,000.00. On March 29, 1993, petitioners filed with
the lower court a motion to withdraw the consigned amount and on April
5, 1993, the trial court released the consigned amount to petitioners. 10
The issue in the case at bar is whether or not respondent judge committed
grave abuse of discretion in ordering petitioner to execute a contract to sell
in favor of private respondent.
We dismiss the petition.
The resolution of this case hinges on whether the compromise agreement
gives private respondent-buyer the right to demand from petitioner-sellers
the execution of a contract to sell in favor of the former.
Apparently, paragraph 7 of the compromise agreement does not give such
right to private respondent-buyer. To wit:
7. that if within the period of five (5) months from and after
February 6, 1992, the plaintiff succeeds in obtaining funds for
the purpose of settling their obligations with defendants in the
total sum of P2,060,000.00 the latter shall oblige themselves to
execute, sign and deliver to the former the corresponding Deed
of Sale for the two (2) lots which is the subject of this case and
turn-over to said plaintiff the owner's duplicate copy of TCT
Nos. T-22004 and T-22005 of the Registry of Deeds for the City
of Cotabato. (Italics provided).
From the aforecited paragraph, it is clear that the seller is obliged to
execute a Deed of Sale and not a Contract to Sell upon payment of the full
price of P2.06 million. Thereafter, the sellers would turn over to the
buyers, respondents herein, the owner's duplicate copy of Transfer
Certificate of Title Nos. T-22004 and T-22005.
However, in the interpretation of the compromise agreement, we must
delve in the contemporaneous and subsequent acts of the parties to fathom
the real intention of the parties. 11 A review of the facts reveal that even
prior to the signing of the compromise agreement and the filing of Civil
Case No. 592 before the trial court, the parties had already entered into a
contract to sell. Thereafter, when the transaction failed to materialize, the
parties filed suits against each other; petitioners, their unlawful detainer
case, and private respondent a complaint for reformation of contract,
alleging that petitioners in fact had caused the preparation of the contract
to sell dated April 26, 1991 with the understanding that the land would be
used as a collateral in obtaining a loan with DBP.
Said contract to sell was superseded by the compromise agreement entered
into on February 6, 1992 containing the abovequoted paragraph. It must
be recalled that private respondent was given five (5) months from
February 6, 1992, i. e., on or before July 6, 1992 to secure the purchase
price of the two (2) lots. We note that within the time frame agreed upon
by the parties, private respondents wrote three (3) letters dated may 19, 20
and 26 requesting petitioners to execute a contract to sell in its favor.
Under these factual circumstances, we opine that the compromise
agreement must be interpreted as bestowing upon private respondent-
buyer the power to demand a contract to sell from petitioner-sellers.
Where the seller promised to execute a deed of absolute sale upon
completing payment of the price, it is a contract to sell. 12 In the case at
bar, the sale is still in the executory stage since the passing of title is
subject to a suspensive condition, namely, that if private respondent is able
to secure the needed funds to be used in the purchased of the two (2) lots
owned by petitioners. A mere executory sale, one where the sellers merely
promise to transfer the property at some future date, or where some
conditions have to be fulfilled before the contract is converted from an
executory to an executed one, does not pass ownership over the real estate
being sold. 13
In our jurisdiction, it has been that an accepted bilateral promise to buy
and sell is in a sense similar to, but not exactly the same, as a perfected
contract of sale because there is already a meeting of minds upon the thing
which is the object of the contract and upon the price. 14 But a contract of
sale is consummated only upon the delivery and payment. It cannot be
denied that the compromise agreement, having been signed by both
parties, is tantamount to a bilateral promise to buy and sell a certain thing
for a price certain. Hence, this gives the contracting parties rights in
personam, such that each has the right to demand from the other the
fulfillment of their respective undertakings. 15 Demandability may be
exercised at any time after the execution of the Deed. 16
The order of respondent judge directing petitioners to issue a contract to
sell does not place petitioners in any danger of losing their property
without consideration, for, to repeat, in a contract to sell there is no
immediate transfer of ownership. In contracts to sell, payment is a positive
suspensive condition, failure of which does not constitute a breach but an
event that prevents the obligation of the vendor to convey title from
materializing, in accordance with Article 1184 of the Civil
Code. 17 Petitioners as promisors were never obliged to convey title before
the happening of the suspensive condition. In fact, nothing stood in the
way of their selling the property to another after a unsuccessful demand
for said price upon the expiration of the time agreed upon.
Since the period given by the petitioners under the compromise agreement
has already lapsed, we order the trial court to fix anew a period within
which private respondents could secure the needed funds for the purchase
of the
land. 18 Moreover, considering that private respondents have only
consigned rentals from May 1991 to January 1992 and have since accepted
students for the present school year, it is only proper that they be ordered
to deposit the monthly rentals collected thereafter with the trial court.
WHEREFORE, the instant petition is DISMISSED. Petitioners are hereby
ordered to EXECUTE a contract to sell in favor of private respondents.
On the other hand, private respondent is ordered to DEPOSIT with the
trial court current rentals pending consummation of the transaction
between the parties. The trial court is ordered to FIX anew the period
within which private respondents may be given the opportunity to raise
funds for the purchase of the two (2) adjoining lots owned by petitioners.
SO ORDERED.
G.R. No. 157493 February 5, 2007
RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and
FERNANDO, ERNESTO, LEONORA, BIBIANO, JR., LIBRADO
and ENRIQUETA, all surnamed OESMER, Petitioners,
vs.
PARAISO DEVELOPMENT CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of
the 1997 Revised Rules of Civil Procedure seeking to reverse and set aside
the Court of Appeals Decision1 dated 26 April 2002 in CA-G.R. CV No.
53130 entitled, Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado,
Enriqueta, Adolfo, and Jesus, all surnamed Oesmer vs. Paraiso
Development Corporation, as modified by its Resolution 2 dated 4 March
2003, declaring the Contract to Sell valid and binding with respect to the
undivided proportionate shares of the six signatories of the said document,
herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino,
Bibiano, Jr., and Leonora (all surnamed Oesmer); and ordering them to
execute the Deed of Absolute Sale concerning their 6/8 share over the
subject parcels of land in favor of herein respondent Paraiso Development
Corporation, and to pay the latter the attorney’s fees plus costs of the suit.
The assailed Decision, as modified, likewise ordered the respondent to
tender payment to the petitioners in the amount of ₱3,216,560.00
representing the balance of the purchase price of the subject parcels of
land.
The facts of the case are as follows:
Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and
Enriqueta, all surnamed Oesmer, together with Adolfo Oesmer (Adolfo)
and Jesus Oesmer (Jesus), are brothers and sisters, and the co-owners of
undivided shares of two parcels of agricultural and tenanted land situated
in Barangay Ulong Tubig, Carmona, Cavite, identified as Lot 720 with an
area of 40,507 square meters (sq. m.) and Lot 834 containing an area of
14,769 sq. m., or a total land area of 55,276 sq. m. Both lots are
unregistered and originally owned by their parents, Bibiano Oesmer and
Encarnacion Durumpili, who declared the lots for taxation purposes under
Tax Declaration No. 34383(cancelled by I.D. No. 6064-A) for Lot 720 and
Tax Declaration No. 34374 (cancelled by I.D. No. 5629) for Lot 834.
When the spouses Oesmer died, petitioners, together with Adolfo and
Jesus, acquired the lots as heirs of the former by right of succession.
Respondent Paraiso Development Corporation is known to be engaged in
the real estate business.
Sometime in March 1989, Rogelio Paular, a resident and former
Municipal Secretary of Carmona, Cavite, brought along petitioner Ernesto
to meet with a certain Sotero Lee, President of respondent Paraiso
Development Corporation, at Otani Hotel in Manila. The said meeting was
for the purpose of brokering the sale of petitioners’ properties to
respondent corporation.
Pursuant to the said meeting, a Contract to Sell5 was drafted by the
Executive Assistant of Sotero Lee, Inocencia Almo. On 1 April 1989,
petitioners Ernesto and Enriqueta signed the aforesaid Contract to Sell. A
check in the amount of ₱100,000.00, payable to Ernesto, was given as
option money. Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and
Librado also signed the said Contract to Sell. However, two of the
brothers, Adolfo and Jesus, did not sign the document.
On 5 April 1989, a duplicate copy of the instrument was returned to
respondent corporation. On 21 April 1989, respondent brought the same
to a notary public for notarization.
In a letter6 dated 1 November 1989, addressed to respondent corporation,
petitioners informed the former of their intention to rescind the Contract
to Sell and to return the amount of ₱100,000.00 given by respondent as
option money.
Respondent did not respond to the aforesaid letter. On 30 May 1991,
herein petitioners, together with Adolfo and Jesus, filed a Complaint 7 for
Declaration of Nullity or for Annulment of Option Agreement or Contract
to Sell with Damages before the Regional Trial Court (RTC) of Bacoor,
Cavite. The said case was docketed as Civil Case No. BCV-91-49.
During trial, petitioner Rizalino died. Upon motion of petitioners, the trial
court issued an Order,8 dated 16 September 1992, to the effect that the
deceased petitioner be substituted by his surviving spouse, Josefina O.
Oesmer, and his children, Rolando O. Oesmer and Fernando O. Oesmer.
However, the name of Rizalino was retained in the title of the case both in
the RTC and the Court of Appeals.
After trial on the merits, the lower court rendered a Decision 9 dated 27
March 1996 in favor of the respondent, the dispositive portion of which
reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of herein [respondent] Paraiso Development Corporation. The
assailed Contract to Sell is valid and binding only to the undivided
proportionate share of the signatory of this document and recipient of the
check, [herein petitioner] co-owner Ernesto Durumpili Oesmer. The latter
is hereby ordered to execute the Contract of Absolute Sale concerning his
1/8 share over the subject two parcels of land in favor of herein
[respondent] corporation, and to pay the latter the attorney’s fees in the
sum of Ten Thousand (₱10,000.00) Pesos plus costs of suit.
The counterclaim of [respondent] corporation is hereby Dismissed for lack
of merit.10
Unsatisfied, respondent appealed the said Decision before the Court of
Appeals. On 26 April 2002, the appellate court rendered a Decision
modifying the Decision of the court a quo by declaring that the Contract
to Sell is valid and binding with respect to the undivided proportionate
shares of the six signatories of the said document, herein petitioners,
namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora
(all surnamed Oesmer). The decretal portion of the said Decision states
that:
WHEREFORE, premises considered, the Decision of the court a quo is
hereby MODIFIED. Judgment is hereby rendered in favor of herein
[respondent] Paraiso Development Corporation. The assailed Contract to
Sell is valid and binding with respect to the undivided proportionate share
of the six (6) signatories of this document, [herein petitioners], namely,
Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer). The said [petitioners] are hereby ordered to execute
the Deed of Absolute Sale concerning their 6/8 share over the subject two
parcels of land and in favor of herein [respondent] corporation, and to pay
the latter the attorney’s fees in the sum of Ten Thousand Pesos
(₱10,000.00) plus costs of suit.11
Aggrieved by the above-mentioned Decision, petitioners filed a Motion
for Reconsideration of the same on 2 July 2002. Acting on petitioners’
Motion for Reconsideration, the Court of Appeals issued a Resolution
dated 4 March 2003, maintaining its Decision dated 26 April 2002, with
the modification that respondent tender payment to petitioners in the
amount of ₱3,216,560.00, representing the balance of the purchase price
of the subject parcels of land. The dispositive portion of the said
Resolution reads:
WHEREFORE, premises considered, the assailed Decision is hereby
modified.1awphi1.net Judgment is hereby rendered in favor of herein
[respondent] Paraiso Development Corporation. The assailed Contract to
Sell is valid and binding with respect to the undivided proportionate shares
of the six (6) signatories of this document, [herein petitioners], namely,
Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer). The said [petitioners] are hereby ordered to execute
the Deed of Absolute Sale concerning their 6/8 share over the subject two
parcels of land in favor of herein [respondent] corporation, and to pay the
latter attorney’s fees in the sum of Ten Thousand Pesos (₱10,000.00) plus
costs of suit. Respondent is likewise ordered to tender payment to the
above-named [petitioners] in the amount of Three Million Two Hundred
Sixteen Thousand Five Hundred Sixty Pesos (₱3,216,560.00) representing
the balance of the purchase price of the subject two parcels of land. 12
Hence, this Petition for Review on Certiorari.
Petitioners come before this Court arguing that the Court of Appeals erred:
I. On a question of law in not holding that, the supposed Contract
to Sell (Exhibit D) is not binding upon petitioner Ernesto
Oesmer’s co-owners (herein petitioners Enriqueta, Librado,
Rizalino, Bibiano, Jr., and Leonora).
II. On a question of law in not holding that, the supposed
Contract to Sell (Exhibit D) is void altogether considering that
respondent itself did not sign it as to indicate its consent to be
bound by its terms. Moreover, Exhibit D is really a unilateral
promise to sell without consideration distinct from the price, and
hence, void.
Petitioners assert that the signatures of five of them namely: Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora, on the margins of the
supposed Contract to Sell did not confer authority on petitioner Ernesto as
agent to sell their respective shares in the questioned properties, and hence,
for lack of written authority from the above-named petitioners to sell their
respective shares in the subject parcels of land, the supposed Contract to
Sell is void as to them. Neither do their signatures signify their consent to
directly sell their shares in the questioned properties. Assuming that the
signatures indicate consent, such consent was merely conditional. The
effectivity of the alleged Contract to Sell was subject to a suspensive
condition, which is the approval of the sale by all the co-owners.
Petitioners also assert that the supposed Contract to Sell (Exhibit D),
contrary to the findings of the Court of Appeals, is not couched in simple
language.
They further claim that the supposed Contract to Sell does not bind the
respondent because the latter did not sign the said contract as to indicate
its consent to be bound by its terms. Furthermore, they maintain that the
supposed Contract to Sell is really a unilateral promise to sell and the
option money does not bind petitioners for lack of cause or consideration
distinct from the purchase price.
The Petition is bereft of merit.
It is true that the signatures of the five petitioners, namely: Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora, on the Contract to Sell did
not confer authority on petitioner Ernesto as agent authorized to sell their
respective shares in the questioned properties because of Article 1874 of
the Civil Code, which expressly provides that:
Art. 1874. When a sale of a piece of land or any interest therein is through
an agent, the authority of the latter shall be in writing; otherwise, the sale
shall be void.
The law itself explicitly requires a written authority before an agent can
sell an immovable. The conferment of such an authority should be in
writing, in as clear and precise terms as possible. It is worth noting that
petitioners’ signatures are found in the Contract to Sell. The Contract is
absolutely silent on the establishment of any principal-agent relationship
between the five petitioners and their brother and co-petitioner Ernesto as
to the sale of the subject parcels of land. Thus, the Contract to Sell,
although signed on the margin by the five petitioners, is not sufficient to
confer authority on petitioner Ernesto to act as their agent in selling their
shares in the properties in question.
However, despite petitioner Ernesto’s lack of written authority from the
five petitioners to sell their shares in the subject parcels of land, the
supposed Contract to Sell remains valid and binding upon the latter.
As can be clearly gleaned from the contract itself, it is not only petitioner
Ernesto who signed the said Contract to Sell; the other five petitioners also
personally affixed their signatures thereon. Therefore, a written authority
is no longer necessary in order to sell their shares in the subject parcels of
land because, by affixing their signatures on the Contract to Sell, they were
not selling their shares through an agent but, rather, they were selling the
same directly and in their own right.
The Court also finds untenable the following arguments raised by
petitioners to the effect that the Contract to Sell is not binding upon them,
except to Ernesto, because: (1) the signatures of five of the petitioners do
not signify their consent to sell their shares in the questioned properties
since petitioner Enriqueta merely signed as a witness to the said Contract
to Sell, and that the other petitioners, namely: Librado, Rizalino, Leonora,
and Bibiano, Jr., did not understand the importance and consequences of
their action because of their low degree of education and the contents of
the aforesaid contract were not read nor explained to them; and (2)
assuming that the signatures indicate consent, such consent was merely
conditional, thus, the effectivity of the alleged Contract to Sell was subject
to a suspensive condition, which is the approval by all the co-owners of
the sale.
It is well-settled that contracts are perfected by mere consent, upon the
acceptance by the offeree of the offer made by the offeror. From that
moment, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law. To produce
a contract, the acceptance must not qualify the terms of the offer.
However, the acceptance may be express or implied. For a contract to
arise, the acceptance must be made known to the offeror. Accordingly, the
acceptance can be withdrawn or revoked before it is made known to the
offeror.13
In the case at bar, the Contract to Sell was perfected when the petitioners
consented to the sale to the respondent of their shares in the subject parcels
of land by affixing their signatures on the said contract. Such signatures
show their acceptance of what has been stipulated in the Contract to Sell
and such acceptance was made known to respondent corporation when the
duplicate copy of the Contract to Sell was returned to the latter bearing
petitioners’ signatures.
As to petitioner Enriqueta’s claim that she merely signed as a witness to
the said contract, the contract itself does not say so. There was no single
indication in the said contract that she signed the same merely as a witness.
The fact that her signature appears on the right-hand margin of the
Contract to Sell is insignificant. The contract indisputably referred to the
"Heirs of Bibiano and Encarnacion Oesmer," and since there is no showing
that Enriqueta signed the document in some other capacity, it can be safely
assumed that she did so as one of the parties to the sale.
Emphasis should also be given to the fact that petitioners Ernesto and
Enriqueta concurrently signed the Contract to Sell. As the Court of
Appeals mentioned in its Decision,14 the records of the case speak of the
fact that petitioner Ernesto, together with petitioner Enriqueta, met with
the representatives of the respondent in order to finalize the terms and
conditions of the Contract to Sell. Enriqueta affixed her signature on the
said contract when the same was drafted. She even admitted that she
understood the undertaking that she and petitioner Ernesto made in
connection with the contract. She likewise disclosed that pursuant to the
terms embodied in the Contract to Sell, she updated the payment of the
real property taxes and transferred the Tax Declarations of the questioned
properties in her name.15 Hence, it cannot be gainsaid that she merely
signed the Contract to Sell as a witness because she did not only actively
participate in the negotiation and execution of the same, but her
subsequent actions also reveal an attempt to comply with the conditions in
the said contract.
With respect to the other petitioners’ assertion that they did not understand
the importance and consequences of their action because of their low
degree of education and because the contents of the aforesaid contract
were not read nor explained to them, the same cannot be sustained.
We only have to quote the pertinent portions of the Court of Appeals
Decision, clear and concise, to dispose of this issue. Thus,
First, the Contract to Sell is couched in such a simple language which is
undoubtedly easy to read and understand. The terms of the Contract,
specifically the amount of ₱100,000.00 representing the option money
paid by [respondent] corporation, the purchase price of ₱60.00 per square
meter or the total amount of ₱3,316,560.00 and a brief description of the
subject properties are well-indicated thereon that any prudent and mature
man would have known the nature and extent of the transaction
encapsulated in the document that he was signing.
Second, the following circumstances, as testified by the witnesses and as
can be gleaned from the records of the case clearly indicate the
[petitioners’] intention to be bound by the stipulations chronicled in the
said Contract to Sell.
As to [petitioner] Ernesto, there is no dispute as to his intention to effect
the alienation of the subject property as he in fact was the one who initiated
the negotiation process and culminated the same by affixing his signature
on the Contract to Sell and by taking receipt of the amount of ₱100,000.00
which formed part of the purchase price.
xxxx
As to [petitioner] Librado, the [appellate court] finds it preposterous that
he willingly affixed his signature on a document written in a language
(English) that he purportedly does not understand. He testified that the
document was just brought to him by an 18 year old niece named Baby
and he was told that the document was for a check to be paid to him. He
readily signed the Contract to Sell without consulting his other siblings.
Thereafter, he exerted no effort in communicating with his brothers and
sisters regarding the document which he had signed, did not inquire what
the check was for and did not thereafter ask for the check which is
purportedly due to him as a result of his signing the said Contract to Sell.
(TSN, 28 September 1993, pp. 22-23)
The [appellate court] notes that Librado is a 43 year old family man (TSN,
28 September 1993, p. 19). As such, he is expected to act with that
ordinary degree of care and prudence expected of a good father of a family.
His unwitting testimony is just divinely disbelieving.
The other [petitioners] (Rizalino, Leonora and Bibiano Jr.) are likewise
bound by the said Contract to Sell. The theory adopted by the [petitioners]
that because of their low degree of education, they did not understand the
contents of the said Contract to Sell is devoid of merit. The [appellate
court] also notes that Adolfo (one of the co-heirs who did not sign) also
possess the same degree of education as that of the signing co-heirs (TSN,
15 October 1991, p. 19). He, however, is employed at the Provincial
Treasury Office at Trece Martirez, Cavite and has even accompanied
Rogelio Paular to the Assessor’s Office to locate certain missing
documents which were needed to transfer the titles of the subject
properties. (TSN, 28 January 1994, pp. 26 & 35) Similarly, the other co-
heirs [petitioners], like Adolfo, are far from ignorant, more so, illiterate
that they can be extricated from their obligations under the Contract to Sell
which they voluntarily and knowingly entered into with the [respondent]
corporation.
The Supreme Court in the case of Cecilia Mata v. Court of Appeals (207
SCRA 753 [1992]), citing the case of Tan Sua Sia v. Yu Baio Sontua (56
Phil. 711), instructively ruled as follows:
"The Court does not accept the petitioner’s claim that she did not
understand the terms and conditions of the transactions because she only
reached Grade Three and was already 63 years of age when she signed the
documents. She was literate, to begin with, and her age did not make her
senile or incompetent. x x x.
At any rate, Metrobank had no obligation to explain the documents to the
petitioner as nowhere has it been proven that she is unable to read or that
the contracts were written in a language not known to her. It was her
responsibility to inform herself of the meaning and consequence of the
contracts she was signing and, if she found them difficult to comprehend,
to consult other persons, preferably lawyers, to explain them to her. After
all, the transactions involved not only a few hundred or thousand pesos
but, indeed, hundreds of thousands of pesos.
As the Court has held:
x x x The rule that one who signs a contract is presumed to know its
contents has been applied even to contracts of illiterate persons on the
ground that if such persons are unable to read, they are negligent if they
fail to have the contract read to them. If a person cannot read the
instrument, it is as much his duty to procure some reliable persons to read
and explain it to him, before he signs it, as it would be to read it before he
signed it if he were able to do and his failure to obtain a reading and
explanation of it is such gross negligence as will estop from avoiding it on
the ground that he was ignorant of its contents."16
That the petitioners really had the intention to dispose of their shares in
the subject parcels of land, irrespective of whether or not all of the heirs
consented to the said Contract to Sell, was unveiled by Adolfo’s testimony
as follows:
ATTY. GAMO: This alleged agreement between you and your other
brothers and sisters that unless everybody will agree, the properties would
not be sold, was that agreement in writing?
WITNESS: No sir.
ATTY. GAMO: What you are saying is that when your brothers and sisters
except Jesus and you did not sign that agreement which had been marked
as [Exhibit] "D", your brothers and sisters were grossly violating your
agreement.
WITNESS: Yes, sir, they violated what we have agreed upon. 17
We also cannot sustain the allegation of the petitioners that assuming the
signatures indicate consent, such consent was merely conditional, and that,
the effectivity of the alleged Contract to Sell was subject to the suspensive
condition that the sale be approved by all the co-owners. The Contract to
Sell is clear enough. It is a cardinal rule in the interpretation of contracts
that if the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulation
shall control.18 The terms of the Contract to Sell made no mention of the
condition that before it can become valid and binding, a unanimous
consent of all the heirs is necessary. Thus, when the language of the
contract is explicit, as in the present case, leaving no doubt as to the
intention of the parties thereto, the literal meaning of its stipulation is
controlling.
In addition, the petitioners, being owners of their respective undivided
shares in the subject properties, can dispose of their shares even without
the consent of all the co-heirs. Article 493 of the Civil Code expressly
provides:
Article 493. Each co-owner shall have the full ownership of his part and
of the fruits and benefits pertaining thereto, and he may therefore alienate,
assign or mortgage it, and even substitute another person in its enjoyment,
except when personal rights are involved. But the effect of the alienation
or the mortgage, with respect to the co-owners, shall be limited to the
portion which may be allotted to him in the division upon the termination
of the co-ownership. [Emphases supplied.]
Consequently, even without the consent of the two co-heirs, Adolfo and
Jesus, the Contract to Sell is still valid and binding with respect to the 6/8
proportionate shares of the petitioners, as properly held by the appellate
court.
Therefore, this Court finds no error in the findings of the Court of Appeals
that all the petitioners who were signatories in the Contract to Sell are
bound thereby.
The final arguments of petitioners state that the Contract to Sell is void
altogether considering that respondent itself did not sign it as to indicate
its consent to be bound by its terms; and moreover, the Contract to Sell is
really a unilateral promise to sell without consideration distinct from the
price, and hence, again, void. Said arguments must necessarily fail.
The Contract to Sell is not void merely because it does not bear the
signature of the respondent corporation. Respondent corporation’s consent
to be bound by the terms of the contract is shown in the uncontroverted
facts which established that there was partial performance by respondent
of its obligation in the said Contract to Sell when it tendered the amount
of ₱100,000.00 to form part of the purchase price, which was accepted and
acknowledged expressly by petitioners. Therefore, by force of law,
respondent is required to complete the payment to enforce the terms of the
contract. Accordingly, despite the absence of respondent’s signature in the
Contract to Sell, the former cannot evade its obligation to pay the balance
of the purchase price.
As a final point, the Contract to Sell entered into by the parties is not a
unilateral promise to sell merely because it used the word option money
when it referred to the amount of ₱100,000.00, which also form part of the
purchase price.
Settled is the rule that in the interpretation of contracts, the ascertainment
of the intention of the contracting parties is to be discharged by looking to
the words they used to project that intention in their contract, all the words,
not just a particular word or two, and words in context, not words standing
alone.19
In the instant case, the consideration of ₱100,000.00 paid by respondent
to petitioners was referred to as "option money." However, a careful
examination of the words used in the contract indicates that the money is
not option money but earnest money. "Earnest money" and "option
money" are not the same but distinguished thus: (a) earnest money is part
of the purchase price, while option money is the money given as a distinct
consideration for an option contract; (b) earnest money is given only
where there is already a sale, while option money applies to a sale not yet
perfected; and, (c) when earnest money is given, the buyer is bound to pay
the balance, while when the would-be buyer gives option money, he is not
required to buy, but may even forfeit it depending on the terms of the
option.20
The sum of ₱100,000.00 was part of the purchase price. Although the same
was denominated as "option money," it is actually in the nature of earnest
money or down payment when considered with the other terms of the
contract. Doubtless, the agreement is not a mere unilateral promise to sell,
but, indeed, it is a Contract to Sell as both the trial court and the appellate
court declared in their Decisions.
WHEREFORE, premises considered, the Petition is DENIED, and the
Decision and Resolution of the Court of Appeals dated 26 April 2002 and
4 March 2003, respectively, are AFFIRMED, thus, (a) the Contract to
Sell is DECLARED valid and binding with respect to the undivided
proportionate shares in the subject parcels of land of the six signatories of
the said document, herein petitioners Ernesto, Enriqueta, Librado,
Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer); (b) respondent
is ORDERED to tender payment to petitioners in the amount of
₱3,216,560.00 representing the balance of the purchase price for the
latter’s shares in the subject parcels of land; and (c) petitioners are
further ORDERED to execute in favor of respondent the Deed of
Absolute Sale covering their shares in the subject parcels of land after
receipt of the balance of the purchase price, and to pay respondent
attorney’s fees plus costs of the suit. Costs against petitioners.
SO ORDERED.
G.R. No. 71694 August 16, 1991
NYCO SALES CORPORATION, petitioner,
vs.
BA FINANCE CORPORATION, JUDGE ROSALIO A. DE LEON—
REGIONAL TRIAL COURT, BR. II, INTERMEDIATE
APPELLATE COURT, FIRST CIVIL CASES
DIVISION, respondents.
ABC Law Offices for petitioner.
Valera, Urmeneta & Associates for private respondent.
PARAS, J.:
In this petition for review on certiorari, petitioner challenges the April 22,
1985 decision* and the July 16, 1985 resolution * of the then Intermediate
Appellate Court in AC-G.R. CV No. 02553 entitled "BA Finance
Corporation v. Nyco Sales Corporation, et al." which affirmed with
modification the July 20, 1983 decision ** of the Regional Trial Court,
National Capital Region, Manila, Branch II in the same case docketed as
Civil Case No. 125909 ordering petitioner to pay respondent the amount
of P60,000.00 as principal obligation plus corresponding interest, the sum
of P10,000.00 as and for, attomey's fees and 1/3 of the costs of suit.
It appears on record that petitioner Nyco Sales Corporation (hereinafter
referred to as Nyco) whose president and general manager is Rufino Yao,
is engaged in the business of selling construction materials with principal
office in Davao City. Sometime in 1978, the brothers Santiago and Renato
Fernandez (hereinafter referred to as the Fernandezes), both acting in
behalf of Sanshell Corporation, approached Rufino Yao for credit
accommodation. They requested Nyco, thru Yao, to grant Sanshell
discounting privileges which Nyco had with BA Finance Corporation
(hereinafter referred to as BA Finance). Yao apparently acquiesced, hence
on or about November 15, 1978, the Fernandezes went to Yao for the
purpose of discounting Sanshell's post-dated check which was a BPI-
Davao Branch Check No. 499648 dated February 17, 1979 for the amount
of P60,000.00. The said check was payable to Nyco. Following the
discounting process agreed upon, Nyco, thru Yao, endorsed the check in
favor of BA Finance. Thereafter, BA Finance issued a check payable to
Nyco which endorsed it in favor of Sanshell. Sanshell then made use of
and/or negotiated the check. Accompanying the exchange of checks was
a Deed of Assignment executed by Nyco in favor of BA Finance with the
conformity of Sanshell. Nyco was represented by Rufino Yao, while
Sanshell was represented by the Fernandez brothers. Under the said Deed,
the subject of the discounting was the aforecited check (Rollo, pp- 26-28).
At the back thereof and of every deed of assignment was the Continuing
Suretyship Agreement whereby the Fernandezes unconditionally
guaranteed to BA Finance the full, faithful and prompt payment and
discharge of any and all indebtedness of Nyco (Ibid., pp. 36, 46). The BPI
check, however, was dishonored by the drawee bank upon presentment for
payment. BA Finance immediately reported the matter to the Fernandezes
who thereupon issued a substitute check dated February 19,1979 for the
same amount in favor of BA Finance. It was a Security Bank and Trust
Company check bearing the number 183157, which was again dishonored
when it was presented for payment. Despite repeated demands, Nyco and
the Fernandezes failed to settle the obligation with BA Finance, thus
prompting the latter to institute an action in court (Ibid., p 28). Nyco and
the Fernandezes, despite having been served with summons and copies of
the complaint, failed to file their answer and were consequently declared
in default. On May 16, 1980, the lower court ruled in favor of BA Finance
ordering them to pay the former jointly and severally, the sum of
P65,536.67 plus 14% interest per annum from July 1, 1979 and attorney's
fees in the amount of P3, 000. 00 as well as the costs of suit (Rollo, pp.
51-52). Nyco, however, moved to set aside the order of default, to have its
answer admitted and to be able to implead Sanshell. The prayer was
granted through an order dated June 23, 1980, wherein the decision of the
court was set aside only as regards Nyco. Trial ensued once more until the
court reached a second decision which states:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendant Nyco Sales Corporation by
ordering the latter to pay the former the following:
1) P60,000.00 as principal obligation, plus interest thereon at the
rate of 14% per annum from February 1, 1979 until fully paid;
2) The amount of P100,000.00 as and for attorney's fees; and
3) One-third (1/3) of the costs of this suit.
With respect to defendants Santiago and Renato Fernandez, the
decision of May 16, 1980 stands.
The cross-claim of defendant Nyco Sales Corporation against
codefendants Santiago B. Fernandez and Renato B. Fernandez is
hereby denied, as there is no showing that Nyco's Answer with
cross-claim dated May 29, 1980 was ever received by said
Fernandez brothers, even as it is noted that the latter have not
been declared in default with respect to said cross-claim, nor
were evidence adduced in connection therewith.
As to the would-be litigant Sanshell Construction and
Development Corporation, defendant Nyco Sales Corporation
did not properly implead said corporation which should have
been by way of a third-party complaint instead of a mere cross-
claim. The same observations are noted as regard this cross-
claim against Sanshell as those made with respect to the
Fernandez brothers.
SO ORDERED.
On appeal, the appellate court also upheld BA Finance but modified the
lower court's decision by ordering that the interest should run from
February 19, 1979 until paid and not from February 1, 1979. Nyco's
subsequent motion for reconsideration was denied (Ibid., pp. 33, 62).
Hence, the present recourse.
The crux of the controversy is whether or not the assignor is liable to its
assignee for its dishonored checks.
For its defense, Nyco anchors its arguments on the following premises: a)
that the appellate court erred in affirming its liability for the BPI check
despite a similar finding of liability for the SBTC check rendered by the
same lower court; b) that it was actually discharged of its liability over the
SBTC check when BA Finance failed to give it a notice of dishonor; c)
that there was novation when BA Finance accepted the SBTC check in
replacement of the BPI check; and d) that it cannot be held liable for its
Presidents unauthorized acts.
The petition is devoid of merit.
An assignment of credit is the process of transferring the right of the
assignor to the assignee, who would then be allowed to proceed against
the debtor. It may be done either gratuitously or generously, in which case,
the assignment has an effect similar to that of a sale.
According to Article 1628 of the Civil Code, the assignor-vendor warrants
both the credit itself (its existence and legality) and the person of the
debtor (his solvency), if so stipulated, as in the case at bar. Consequently,
if there be any breach of the above warranties, the assignor-vendor should
be held answerable therefor. There is no question then that the assignor-
vendor is indeed liable for the invalidity of whatever he as signed to the
assignee-vendee.
Considering now the facts of the case at bar, it is beyond dispute that Nyco
executed a deed of assignment in favor of BA Finance with Sanshell
Corporation as the debtor-obligor. BA Finance is actually enforcing said
deed and the check covered thereby is merely an incidental or collateral
matter. This particular check merely evidenced the credit which was
actually assigned to BA Finance. Thus, the designation is immaterial as it
could be any other check. Both the lower and the appellate courts
recognized this and so it is utterly misplaced to say that Nyco is being held
liable for both the BPI and the SBTC checks. It is only what is represented
by the said checks that Nyco is being asked to pay. Indeed, nowhere in the
dispositive parts of the decisions of the courts can it be gleaned that BA
Finance may recover from the two checks.
Nyco's pretension that it had not been notified of the fact of dishonor is
belied not only by the formal demand letter but also by the findings of the
trial court that Rufino Yao of Nyco and the Fernandez Brothers of Sanshell
had frequent contacts before, during and after the dishonor (Rollo, p. 40).
More importantly, it fails to realize that for as long as the credit remains
outstanding, it shall continue to be liable to BA Finance as its assignor.
The dishonor of an assigned check simply stresses its liability and the
failure to give a notice of dishonor will not discharge it from such liability.
This is because the cause of action stems from the breach of the warranties
embodied in the Deed of Assignment, and not from the dishonoring of the
check alone (See Art. 1628, Civil Code).
Novation is the third defense set up by petitioner Nyco.1âwphi1 It insists
that novation took place when BA Finance accepted the SBTC check in
replacement of the BPI cheek. Such is manifestly untenable.
There are only two ways which indicate the presence of novation and
thereby produce the effect of extinguishing an obligation by another which
substitutes the same. First, novation must be explicitly stated and declared
in unequivocal terms as novation is never presumed (Mondragon v.
Intermediate Appellate Court, G.R. No. 71889, April 17, 1990; Caneda Jr.
v. Court of Appeals, G.R. No. 81322, February 5, 1990). Secondly, the old
and the new obligations must be incompatible on every point. The test of
incompatibility is whether or not the two obligations can stand together,
each one having its independent existence If they cannot, they are
incompatible and the latter obligation novates the first (Mondragon v.
Intermediate Appellate Court, supra; Caneda Jr. v. Court of
Appeals, supra). In the instant case, there was no express agreement that
BA Finance's acceptance of the SBTC check will discharge Nyco from
liability. Neither is there incompatibility because both checks were given
precisely to terminate a single obligation arising from Nyco's sale of credit
to BA Finance. As novation speaks of two distinct obligations, such is
inapplicable to this case.
Finally, Nyco disowns its President's acts claiming that it never authorized
Rufino Yao (Nyco's President) to even apply to BA Finance for credit
accommodation. It supports its argument with the fact that it did not issue
a Board resolution giving Yao such authority. However, the very evidence
on record readily belies Nyco's contention. Its corporate By-Laws clearly
provide for the powers of its President, which include, inter alia,
executing contracts and agreements, borrowing money, signing, indorsing
and delivering checks, all in behalf of the corporation. Furthermore, the
appellate court correctly adopted the lower court's observation that there
was already a previous transaction of discounting of checks involving the
same personalities wherein any enabling resolution from Nyco was
dispensed with and yet BA Finance was able to collect from Nyco and
Sanshell was able to discharge its own undertakings. Such effectively
places Nyco under estoppel in pais which arises when one, by his acts,
representations or admissions, or by his silence when he ought to speak
out, intentionally or through culpable negligence, induces another to
believe certain facts to exist and such other rightfully relies and acts on
such belief, so that he will be prejudiced if the former is permitted to deny
the existence of such facts (Panay Electric Co., Inc. v. Court of Appeals,
G.R. No. 81939, June 29,1989). Nyco remained silent in the course of the
transaction and spoke out only later to escape liability. This cannot be
countenanced. Nyco is estopped from denying Rufino Yao's authority as
far as the latter's transactions with BA Finance are concerned.
PREMISES CONSIDERED, the decision appealed from is AFFIRMED.
SO ORDERED.
G.R. No. 112212 March 2, 1998
GREGORIO FULE, petitioner,
vs.
COURT OF APPEALS, NINEVETCH CRUZ and JUAN
BELARMINO, respondents.
ROMERO, J.:
This petition for review on certiorari questions the affirmance by the
Court of Appeals of the decision 1 of the Regional Trial Court of San Pablo
City, Branch 30, dismissing the complaint that prayed for the nullification
of a contract of sale of a 10-hectare property in Tanay, Rizal in
consideration of the amount of P40,000.00 and a 2.5 carat emerald-cut
diamond (Civil Case No. SP-2455). The lower court's decision disposed
of the case as follows:
WHEREFORE, premises considered, the Court hereby renders
judgment dismissing the complaint for lack of merit and ordering
plaintiff to pay:
1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as
and for moral damages and the sum of P100,000.00 as and for
exemplary damages;
2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as
and for moral damages and the sum of P150,000.00 as and for
exemplary damages;
3. Defendant Dra. Cruz and Atty. Belarmino the sum of
P25,000.00 each as and for attorney's fees and litigation
expenses; and
4. The costs of suit.
SO ORDERED.
As found by the Court of Appeals and the lower court, the antecedent facts
of this case are as follows:
Petitioner Gregorio Fule, a banker by profession and a jeweler at the same
time, acquired a 10-hectare property in Tanay, Rizal (hereinafter "Tanay
property"), covered by Transfer Certificate of Title No. 320725 which
used to be under the name of Fr. Antonio Jacobe. The latter had mortgaged
it earlier to the Rural Bank of Alaminos (the Bank), Laguna, Inc. to secure
a loan in the amount of P10,000.00, but the mortgage was later foreclosed
and the property offered for public auction upon his default.
In July 1984, petitioner, as corporate secretary of the bank, asked Remelia
Dichoso and Oliva Mendoza to look for a buyer who might be interested
in the Tanay property. The two found one in the person of herein private
respondent Dr. Ninevetch Cruz. It so happened that at the time, petitioner
had shown interest in buying a pair of emerald-cut diamond earrings
owned by Dr. Cruz which he had seen in January of the same year when
his mother examined and appraised them as genuine. Dr. Cruz, however,
declined petitioner's offer to buy the jewelry for P100,000.00. Petitioner
then made another bid to buy them for US$6,000.00 at the exchange rate
of $1.00 to P25.00. At this point, petitioner inspected said jewelry at the
lobby of the Prudential Bank branch in San Pablo City and then made a
sketch thereof. Having sketched the jewelry for twenty to thirty minutes,
petitioner gave them back to Dr. Cruz who again refused to sell them since
the exchange rate of the peso at the time appreciated to P19.00 to a dollar.
Subsequently, however, negotiations for the barter of the jewelry and the
Tanay property ensued. Dr. Cruz requested herein private respondent Atty.
Juan Belarmino to check the property who, in turn, found out that no sale
or barter was feasible because the one-year period for redemption of the
said property had not yet expired at the time.
In an effort to cut through any legal impediment, petitioner executed on
October 19, 1984, a deed of redemption on behalf of Fr. Jacobe
purportedly in the amount of P15,987.78, and on even date, Fr. Jacobe sold
the property to petitioner for P75,000.00. The haste with which the two
deeds were executed is shown by the fact that the deed of sale was
notarized ahead of the deed of redemption. As Dr. Cruz had already agreed
to the proposed barter, petitioner went to Prudential Bank once again to
take a look at the jewelry.
In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at
the latter's residence to prepare the documents of sale. 2 Dr. Cruz herself
was not around but Atty. Belarmino was aware that she and petitioner had
previously agreed to exchange a pair of emerald-cut diamond earrings for
the Tanay property. Atty. Belarmino accordingly caused the preparation
of a deed of absolute sale while petitioner and Dr. Cruz attended to the
safekeeping of the jewelry.
The following day, petitioner, together with Dichoso and Mendoza,
arrived at the residence of Atty. Belarmino to finally execute a deed of
absolute sale. Petitioner signed the deed and gave Atty. Belarmino the
amount of P13,700.00 for necessary expenses in the transfer of title over
the Tanay property. Petitioner also issued a certification to the effect that
the actual consideration of the sale was P200,000.00 and not P80,000.00
as indicated in the deed of absolute sale. The disparity between the actual
contract price and the one indicated on the deed of absolute sale was
purportedly aimed at minimizing the amount of the capital gains tax that
petitioner would have to shoulder. Since the jewelry was appraised only
at P160,000.00, the parties agreed that the balance of P40,000.00 would
just be paid later in cash.
As pre-arranged, petitioner left Atty. Belarmino's residence with Dichoso
and Mendoza and headed for the bank, arriving there at past 5:00 p.m. Dr.
Cruz also arrived shortly thereafter, but the cashier who kept the other key
to the deposit box had already left the bank. Dr. Cruz and Dichoso,
therefore, looked for said cashier and found him having a haircut. As soon
as his haircut was finished, the cashier returned to the bank and arrived
there at 5:48 p.m., ahead of Dr. Cruz and Dichoso who arrived at 5:55 p.m.
Dr. Cruz and the cashier then opened the safety deposit box, the former
retrieving a transparent plastic or cellophane bag with the jewelry inside
and handing over the same to petitioner. The latter took the jewelry from
the bag, went near the electric light at the bank's lobby, held the jewelry
against the light and examined it for ten to fifteen minutes. After a while,
Dr. Cruz asked, "Okay na ba iyan?" Petitioner expressed his satisfaction
by nodding his head.
For services rendered, petitioner paid the agents, Dichoso and Mendoza,
the amount of US$300.00 and some pieces of jewelry. He did not,
however, give them half of the pair of earrings in question which he had
earlier promised.
Later, at about 8:00 o'clock in the evening of the same day, petitioner
arrived at the residence of Atty. Belarmino complaining that the jewelry
given to him was fake. He then used a tester to prove the alleged fakery.
Meanwhile, at 8:30 p.m., Dichoso and Mendoza went to the residence of
Dr. Cruz to borrow her car so that, with Atty. Belarmino, they could
register the Tanay property. After Dr. Cruz had agreed to lend her car,
Dichoso called up Atty. Belarmino. The latter, however, instructed
Dichoso to proceed immediately to his residence because petitioner was
there. Believing that petitioner had finally agreed to give them half of the
pair of earrings, Dichoso went posthaste to the residence of Atty.
Belarmino only to find petitioner already demonstrating with a tester that
the earrings were fake. Petitioner then accused Dichoso and Mendoza of
deceiving him which they, however, denied. They countered that
petitioner could not have been fooled because he had vast experience
regarding jewelry. Petitioner nonetheless took back the US$300.00 and
jewelry he had given them.
Thereafter, the group decided to go to the house of a certain Macario
Dimayuga, a jeweler, to have the earrings tested. Dimayuga, after taking
one look at the earrings, immediately declared them counterfeit. At around
9:30 p.m., petitioner went to one Atty. Reynaldo Alcantara residing at
Lakeside Subdivision in San Pablo City, complaining about the fake
jewelry. Upon being advised by the latter, petitioner reported the matter to
the police station where Dichoso and Mendoza likewise executed sworn
statements.
On October 26, 1984, petitioner filed a complaint before the Regional
Trial Court of San Pablo City against private respondents praying, among
other things, that the contract of sale over the Tanay property be declared
null and void on the ground of fraud and deceit.
On October 30, 1984, the lower court issued a temporary restraining order
directing the Register of Deeds of Rizal to refrain from acting on the
pertinent documents involved in the transaction. On November 20, 1984,
however, the same court lifted its previous order and denied the prayer for
a writ of preliminary injunction.
After trial, the lower court rendered its decision on March 7, 1989.
Confronting the issue of whether or not the genuine pair of earrings used
as consideration for the sale was delivered by Dr. Cruz to petitioner, the
lower court said:
The Court finds that the answer is definitely in the affirmative.
Indeed, Dra. Cruz delivered (the) subject jewelries (sic) into the
hands of plaintiff who even raised the same nearer to the lights
of the lobby of the bank near the door. When asked by Dra. Cruz
if everything was in order, plaintiff even nodded his satisfaction
(Hearing of Feb. 24, 1988). At that instance, plaintiff did not
protest, complain or beg for additional time to examine further
the jewelries (sic). Being a professional banker and engaged in
the jewelry business plaintiff is conversant and competent to
detect a fake diamond from the real thing. Plaintiff was accorded
the reasonable time and opportunity to ascertain and inspect the
jewelries (sic) in accordance with Article 1584 of the Civil Code.
Plaintiff took delivery of the subject jewelries (sic) before 6:00
p.m. of October 24, 1984. When he went at 8:00 p.m. that same
day to the residence of Atty. Belarmino already with a tester
complaining about some fake jewelries (sic), there was already
undue delay because of the lapse of a considerable length of time
since he got hold of subject jewelries (sic). The lapse of two (2)
hours more or less before plaintiff complained is considered by
the Court as unreasonable delay.3
The lower court further ruled that all the elements of a valid contract under
Article 1458 of the Civil Code were present, namely: (a) consent or
meeting of the minds; (b) determinate subject matter, and (c) price certain
in money or its equivalent. The same elements, according to the lower
court, were present despite the fact that the agreement between petitioner
and Dr. Cruz was principally a barter contract. The lower court explained
thus:
. . . . Plaintiff's ownership over the Tanay property passed unto
Dra. Cruz upon the constructive delivery thereof by virtue of the
Deed of Absolute Sale (Exh. D). On the other hand, the
ownership of Dra. Cruz over the subject jewelries (sic)
transferred to the plaintiff upon her actual personal delivery to
him at the lobby of the Prudential Bank. It is expressly provided
by law that the thing sold shall be understood as delivered, when
it is placed in the control and possession of the vendee (Art.
1497, Civil Code; Kuenzle & Straff vs. Watson & Co. 13 Phil.
26). The ownership and/or title over the jewelries (sic) was
transmitted immediately before 6:00 p.m. of October 24, 1984.
Plaintiff signified his approval by nodding his head. Delivery or
tradition, is one of the modes of acquiring ownership (Art. 712,
Civil Code).
Similarly, when Exhibit D was executed, it was equivalent to the
delivery of the Tanay property in favor of Dra. Cruz. The
execution of the public instrument (Exh. D) operates as a formal
or symbolic delivery of the Tanay property and authorizes the
buyer, Dra. Cruz to use the document as proof of ownership
(Florendo v. Foz, 20 Phil. 399). More so, since Exhibit D does
not contain any proviso or stipulation to the effect that title to the
property is reserved with the vendor until full payment of the
purchase price, nor is there a stipulation giving the vendor the
right to unilaterally rescind the contract the moment the vendee
fails to pay within a fixed period (Taguba v. Vda. De Leon, 132
SCRA 722; Luzon Brokerage Co. Inc. vs. Maritime Building Co.
Inc. 86 SCRA 305; Froilan v. Pan Oriental Shipping Co. et al. 12
SCRA 276). 4
Aside from concluding that the contract of barter or sale had in fact been
consummated when petitioner and Dr. Cruz parted ways at the bank, the
trial court likewise dwelt on the unexplained delay with which petitioner
complained about the alleged fakery. Thus:
. . . . Verily, plaintiff is already estopped to come back after the
lapse of considerable length of time to claim that what he got
was fake. He is a Business Management graduate of La Salle
University, Class 1978-79, a professional banker as well as a
jeweler in his own right. Two hours is more than enough time to
make a switch of a Russian diamond with the real diamond. It
must be remembered that in July 1984 plaintiff made a sketch of
the subject jewelries (sic) at the Prudential Bank. Plaintiff had a
tester at 8:00 p.m. at the residence of Atty. Belarmino. Why then
did he not bring it out when he was examining the subject
jewelries (sic) at about 6:00 p.m. in the bank's lobby? Obviously,
he had no need for it after being satisfied of the genuineness of
the subject jewelries (sic). When Dra. Cruz and plaintiff left the
bank both of them had fully performed their respective
prestations. Once a contract is shown to have been consummated
or fully performed by the parties thereto, its existence and
binding effect can no longer be disputed. It is irrelevant and
immaterial to dispute the due execution of a contract if both of
them have in fact performed their obligations thereunder and
their respective signatures and those of their witnesses appear
upon the face of the document (Weldon Construction v. CA G.R.
No. L-35721, Oct. 12, 1987).5
Finally, in awarding damages to the defendants, the lower court remarked:
The Court finds that plaintiff acted in wanton bad faith. Exhibit
2-Belarmino purports to show that the Tanay property is worth
P25,000.00. However, also on that same day it was executed, the
property's worth was magnified at P75,000.00 (Exh. 3-
Belarmino). How could in less than a day (Oct. 19, 1984) the
value would (sic) triple under normal circumstances? Plaintiff,
with the assistance of his agents, was able to exchange the Tanay
property which his bank valued only at P25,000.00 in exchange
for a genuine pair of emerald cut diamond worth P200,000.00
belonging to Dra. Cruz. He also retrieved the US$300.00 and
jewelries (sic) from his agents. But he was not satisfied in being
able to get subject jewelries for a song. He had to file a malicious
and unfounded case against Dra. Cruz and Atty. Belarmino who
are well known, respected and held in high esteem in San Pablo
City where everybody practically knows everybody. Plaintiff
came to Court with unclean hands dragging the defendants and
soiling their clean and good name in the process. Both of them
are near the twilight of their lives after maintaining and nurturing
their good reputation in the community only to be stunned with
a court case. Since the filing of this case on October 26, 1984 up
to the present they were living under a pall of doubt. Surely, this
affected not only their earning capacity in their practice of their
respective professions, but also they suffered besmirched
reputations. Dra. Cruz runs her own hospital and defendant
Belarmino is a well respected legal practitioner. The length of
time this case dragged on during which period their reputation
were (sic) tarnished and their names maligned by the pendency
of the case, the Court is of the belief that some of the damages
they prayed for in their answers to the complaint are reasonably
proportionate to the sufferings they underwent (Art. 2219, New
Civil Code). Moreover, because of the falsity, malice and
baseless nature of the complaint defendants were compelled to
litigate. Hence, the award of attorney's fees is warranted under
the circumstances (Art. 2208, New Civil Code).6
From the trial court's adverse decision, petitioner elevated the matter to
the Court of Appeals. On October 20, 1992, the Court of Appeals,
however, rendered a decision 7 affirming in toto the lower court's
decision. His motion for reconsideration having been denied on October
19, 1993, petitioner now files the instant petition alleging that:
I. THE TRIAL COURT ERRED IN DISMISSING
PLAINTIFF'S COMPLAINT AND IN HOLDING THAT THE
PLAINTIFF ACTUALLY RECEIVED A GENUINE PAIR OF
EMERALD CUT DIAMOND EARRING(S) FROM
DEFENDANT CRUZ . . . ;
II. THE TRIAL COURT ERRED IN AWARDING MORAL
AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES
IN FAVOR OF DEFENDANTS AND AGAINST THE
PLAINTIFF IN THIS CASE; and
III. THE TRIAL, COURT ERRED IN NOT DECLARING THE
DEED OF SALE OF THE TANAY PROPERTY (EXH. "D")
AS NULL AND VOID OR IN NOT ANNULLING THE
SAME, AND IN FAILING TO GRANT REASONABLE
DAMAGES IN FAVOR OF THE PLAINTIFF.8
As to the first allegation, the Court observes that petitioner is essentially
raising a factual issue as it invites us to examine and weigh anew the facts
regarding the genuineness of the earrings bartered in exchange for the
Tanay property. This, of course, we cannot do without unduly
transcending the limits of our review power in petitions of this nature
which are confined merely to pure questions of law. We accord, as a
general rule, conclusiveness to a lower court's findings of fact unless it is
shown, inter alia, that: (1) the conclusion is a finding grounded on
speculations, surmises or conjectures; (2) the inference is manifestly
mistaken, absurd and impossible; (3) when there is a grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of fact are conflicting; and (6) when the Court of
Appeals, in making its findings, went beyond the issues of the case and
the same is contrary to the admission of both parties. 9 We find nothing,
however, that warrants the application of any of these exceptions.
Consequently, this Court upholds the appellate court's findings of fact
especially because these concur with those of the trial court which, upon
a thorough scrutiny of the records, are firmly grounded on evidence
presented at the trial. 10 To reiterate, this Court's jurisdiction is only
limited to reviewing errors of law in the absence of any showing that
the findings complained of are totally devoid of support in the record
or that they are glaringly erroneous as to constitute serious abuse of
discretion. 11
Nonetheless, this Court has to closely delve into petitioner's allegation that
the lower court's decision of March 7, 1989 is a "ready-made" one because
it was handed down a day after the last date of the trial of the
case. 12 Petitioner, in this regard, finds it incredible that Judge J. Ausberto
Jaramillo was able to write a 12-page single-spaced decision, type it and
release it on March 7, 1989, less than a day after the last hearing on March
6, 1989. He stressed that Judge Jaramillo replaced Judge Salvador de
Guzman and heard only his rebuttal testimony.
This allegation is obviously no more than a desperate effort on the part of
petitioner to disparage the lower court's findings of fact in order to
convince this Court to review the same. It is noteworthy that Atty.
Belarmino clarified that Judge Jaramillo had issued the first order in the
case as early as March 9, 1987 or two years before the rendition of the
decision. In fact, Atty. Belarmino terminated presentation of evidence on
October 13, 1987, while Dr. Cruz finished hers on February 4, 1989, or
more than a month prior to the rendition of the judgment. The March 6,
1989 hearing was conducted solely for the presentation of petitioner's
rebuttal testimony. 13 In other words, Judge Jaramillo had ample time to
study the case and write the decision because the rebuttal evidence would
only serve to confirm or verify the facts already presented by the parties.
The Court finds nothing anomalous in the said situation. No proof has been
adduced that Judge Jaramillo was motivated by a malicious or sinister
intent in disposing of the case with dispatch. Neither is there proof that
someone else wrote the decision for him. The immediate rendition of the
decision was no more than Judge Jaramillo's compliance with his duty as
a judge to "dispose of the court's business promptly and decide cases
within the required periods." 14 The two-year period within which Judge
Jaramillo handled the case provided him with all the time to study it and
even write down its facts as soon as these were presented to court. In fact,
this Court does not see anything wrong in the practice of writing a decision
days before the scheduled promulgation of judgment and leaving the
dispositive portion for typing at a time close to the date of promulgation,
provided that no malice or any wrongful conduct attends its
adoption. 15The practice serves the dual purposes of safeguarding the
confidentiality of draft decisions and rendering decisions with
promptness. Neither can Judge Jaramillo be made administratively
answerable for the immediate rendition of the decision. The acts of a judge
which pertain to his judicial functions are not subject to disciplinary power
unless they are committed with fraud, dishonesty, corruption or bad
faith. 16Hence, in the absence of sufficient proof to the contrary, Judge
Jaramillo is presumed to have performed his job in accordance with law
and should instead be commended for his close attention to duty.
Having disposed of petitioner's first contention, we now come to the core
issue of this petition which is whether the Court of Appeals erred in
upholding the validity of the contract of barter or sale under the
circumstances of this case.
The Civil Code provides that contracts are perfected by mere consent.
From this 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. 17 A contract of sale is perfected at the moment there is a meeting of
the minds upon the thing which is the object of the contract and upon the
price. 18 Being consensual, a contract of sale has the force of law between
the contracting parties and they are expected to abide in good faith by their
respective contractual commitments. Article 1358 of the Civil Code which
requires the embodiment of certain contracts in a public instrument, is only
for convenience, 19 and registration of the instrument only adversely
affects third parties. 20 Formal requirements are, therefore, for the benefit
of third parties. Non-compliance therewith does not adversely affect the
validity of the contract nor the contractual rights and obligations of the
parties thereunder.
It is evident from the facts of the case that there was a meeting of the minds
between petitioner and Dr. Cruz. As such, they are bound by the contract
unless there are reasons or circumstances that warrant its nullification.
Hence, the problem that should be addressed in this case is whether or not
under the facts duly established herein, the contract can be voided in
accordance with law so as to compel the parties to restore to each other
the things that have been the subject of the contract with their fruits, and
the price with interest.21
Contracts that are voidable or annullable, even though there may have
been no damage to the contracting parties are: (1) those where one of the
parties is incapable of giving consent to a contract; and (2) those where
the consent is vitiated by mistake, violence, intimidation, undue influence
or fraud. 22 Accordingly, petitioner now stresses before this Court that he
entered into the contract in the belief that the pair of emerald-cut diamond
earrings was genuine. On the pretext that those pieces of jewelry turned
out to be counterfeit, however, petitioner subsequently sought the
nullification of said contract on the ground that it was, in fact, "tainted
with fraud" 23 such that his consent was vitiated.
There is fraud when, through the insidious words or machinations of one
of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. 24 The records,
however, are bare of any evidence manifesting that private respondents
employed such insidious words or machinations to entice petitioner into
entering the contract of barter. Neither is there any evidence showing that
Dr. Cruz induced petitioner to sell his Tanay property or that she cajoled
him to take the earrings in exchange for said property. On the contrary,
Dr. Cruz did not initially accede to petitioner's proposal to buy the said
jewelry. Rather, it appears that it was petitioner, through his agents, who
led Dr. Cruz to believe that the Tanay property was worth exchanging for
her jewelry as he represented that its value was P400,000.00 or more than
double that of the jewelry which was valued only at P160,000.00. If indeed
petitioner's property was truly worth that much, it was certainly contrary
to the nature of a businessman-banker like him to have parted with his real
estate for half its price. In short, it was in fact petitioner who resorted to
machinations to convince Dr. Cruz to exchange her jewelry for the Tanay
property.
Moreover, petitioner did not clearly allege mistake as a ground for
nullification of the contract of sale. Even assuming that he did, petitioner
cannot successfully invoke the same. To invalidate a contract, mistake
must "refer to the substance of the thing that is the object of the contract,
or to those conditions which have principally moved one or both parties
to enter into the contract." 25 An example of mistake as to the object of the
contract is the substitution of a specific thing contemplated by the parties
with another. 26 In his allegations in the complaint, petitioner insinuated
that an inferior one or one that had only Russian diamonds was substituted
for the jewelry he wanted to exchange with his 10-hectare land. He,
however, failed to prove the fact that prior to the delivery of the jewelry
to him, private respondents endeavored to make such substitution.
Likewise, the facts as proven do not support the allegation that petitioner
himself could be excused for the "mistake." On account of his work as a
banker-jeweler, it can be rightfully assumed that he was an expert on
matters regarding gems. He had the intellectual capacity and the business
acumen as a banker to take precautionary measures to avert such a
mistake, considering the value of both the jewelry and his land. The fact
that he had seen the jewelry before October 24, 1984 should not have
precluded him from having its genuineness tested in the presence of Dr.
Cruz. Had he done so, he could have avoided the present situation that he
himself brought about. Indeed, the finger of suspicion of switching the
genuine jewelry for a fake inevitably points to him. Such a mistake caused
by manifest negligence cannot invalidate a juridical act. 27 As the Civil
Code provides, "(t)here is no mistake if the party alleging it knew the
doubt, contingency or risk affecting the object of the contract."28
Furthermore, petitioner was afforded the reasonable opportunity required
in Article 1584 of the Civil Code within which to examine the jewelry as
he in fact accepted them when asked by Dr. Cruz if he was satisfied with
the same. 29 By taking the jewelry outside the bank, petitioner executed an
act which was more consistent with his exercise of ownership over it. This
gains credence when it is borne in mind that he himself had earlier
delivered the Tanay property to Dr. Cruz by affixing his signature to the
contract of sale. That after two hours he later claimed that the jewelry was
not the one he intended in exchange for his Tanay property, could not sever
the juridical tie that now bound him and Dr. Cruz. The nature and value of
the thing he had taken preclude its return after that supervening period
within which anything could have happened, not excluding the alteration
of the jewelry or its being switched with an inferior kind.
Both the trial and appellate courts, therefore, correctly ruled that there
were no legal bases for the nullification of the contract of sale. Ownership
over the parcel of land and the pair of emerald-cut diamond earrings had
been transferred to Dr. Cruz and petitioner, respectively, upon the actual
and constructive delivery thereof. 30 Said contract of sale being absolute
in nature, title passed to the vendee upon delivery of the thing sold since
there was no stipulation in the contract that title to the property sold has
been reserved in the seller until full payment of the price or that the vendor
has the right to unilaterally resolve the contract the moment the buyer fails
to pay within a fixed period. 31 Such stipulations are not manifest in the
contract of sale.
While it is true that the amount of P40,000.00 forming part of the
consideration was still payable to petitioner, its nonpayment by Dr. Cruz
is not a sufficient cause to invalidate the contract or bar the transfer of
ownership and possession of the things exchanged considering the fact
that their contract is silent as to when it becomes due and demandable. 32
Neither may such failure to pay the balance of the purchase price result in
the payment of interest thereon. Article 1589 of the Civil Code prescribes
the payment of interest by the vendee "for the period between the delivery
of the thing and the payment of the price" in the following cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or income;
(3) Should he be in default, from the time of judicial or
extrajudicial demand for the payment of the price.
Not one of these cases obtains here. This case should, of course,
be distinguished from De la Cruz v. Legaspi, 33 where the court
held that failure to pay the consideration after the notarization of
the contract as previously promised resulted in the vendee's
liability for payment of interest. In the case at bar, there is no
stipulation for the payment of interest in the contract of sale nor
proof that the Tanay property produced fruits or income. Neither
did petitioner demand payment of the price as in fact he filed an
action to nullify the contract of sale.
All told, petitioner appears to have elevated this case to this Court for the
principal reason of mitigating the amount of damages awarded to both
private respondents which petitioner considers as "exorbitant." He
contends that private respondents do not deserve at all the award of
damages. In fact, he pleads for the total deletion of the award as regards
private respondent Belarmino whom he considers a mere "nominal party"
because "no specific claim for damages against him" was alleged in the
complaint. When he filed the case, all that petitioner wanted was that Atty.
Belarmino should return to him the owner's duplicate copy of TCT No.
320725, the deed of sale executed by Fr. Antonio Jacobe, the deed of
redemption and the check alloted for expenses. Petitioner alleges further
that Atty. Belarmino should not have delivered all those documents to Dr.
Cruz because as the "lawyer for both the seller and the buyer in the sale
contract, he should have protected the rights of both parties." Moreover,
petitioner asserts that there was no firm basis for damages except for Atty.
Belarmino's uncorroborated testimony.34
Moral and exemplary damages may be awarded without proof of
pecuniary loss. In awarding such damages, the court shall take into
account the circumstances obtaining in the case said assess damages
according to its discretion.35 To warrant the award of damages, it must be
shown that the person to whom these are awarded has sustained injury. He
must likewise establish sufficient data upon which the court can properly
base its estimate of the amount of damages.36 Statements of facts should
establish such data rather than mere conclusions or opinions of
witnesses. 37 Thus:
. . . . For moral damages to be awarded, it is essential that the
claimant must have satisfactorily proved during the trial the
existence of the factual basis of the damages and its causal
connection with the adverse party's acts. If the court has no proof
or evidence upon which the claim for moral damages could be
based, such indemnity could not be outrightly awarded. The
same holds true with respect to the award of exemplary damages
where it must be shown that the party acted in a wanton,
oppressive or malevolent manner. 38
In this regard, the lower court appeared to have awarded damages on a
ground analogous to malicious prosecution under Article 2219 (8) of the
Civil Code 39 as shown by (1) petitioner's "wanton bad faith" in bloating
the value of the Tanay property which he exchanged for "a genuine pair
of emerald-cut diamond worth P200,00.00;" and (2) his filing of a
"malicious and unfounded case" against private respondents who were
"well known, respected and held in high esteem in San Pablo City where
everybody practically knows everybody" and whose good names in the
"twilight of their lives" were soiled by petitioner's coming to court with
"unclean hands," thereby affecting their earning capacity in the exercise
of their respective professions and besmirching their reputation.
For its part, the Court of Appeals affirmed the award of damages to private
respondents for these reasons:
The malice with which Fule filed this case is apparent. Having
taken possession of the genuine jewelry of Dra. Cruz, Fule now
wishes to return a fake jewelry to Dra. Cruz and, more than that,
get back the real property, which his bank owns. Fule has
obtained a genuine jewelry which he could sell anytime,
anywhere and to anybody, without the same being traced to the
original owner for practically nothing. This is plain and simple,
unjust enrichment.40
While, as a rule, moral damages cannot be recovered from a person who
has filed a complaint against another in good faith because it is not sound
policy to place a penalty on the right to litigate, 41 the same, however,
cannot apply in the case at bar. The factual findings of the courts a quo to
the effect that petitioner filed this case because he was the victim of fraud;
that he could not have been such a victim because he should have
examined the jewelry in question before accepting delivery thereof,
considering his exposure to the banking and jewelry businesses; and that
he filed the action for the nullification of the contract of sale with unclean
hands, all deserve full faith and credit to support the conclusion that
petitioner was motivated more by ill will than a sincere attempt to protect
his rights in commencing suit against respondents.
As pointed out earlier, a closer scrutiny of the chain of events immediately
prior to and on October 24, 1984 itself would amply demonstrate that
petitioner was not simply negligent in failing to exercise due diligence to
assure himself that what he was taking in exchange for his property were
genuine diamonds. He had rather placed himself in a situation from which
it preponderantly appears that his seeming ignorance was actually just a
ruse. Indeed, he had unnecessarily dragged respondents to face the travails
of litigation in speculating at the possible favorable outcome of his
complaint when he should have realized that his supposed predicament
was his own making. We, therefore, see here no semblance of an honest
and sincere belief on his part that he was swindled by respondents which
would entitle him to redress in court. It must be noted that before petitioner
was able to convince Dr. Cruz to exchange her jewelry for the Tanay
property, petitioner took pains to thoroughly examine said jewelry, even
going to the extent of sketching their appearance. Why at the precise
moment when he was about to take physical possession thereof he failed
to exert extra efforts to check their genuineness despite the large
consideration involved has never been explained at all by petitioner. His
acts thus failed to accord with what an ordinary prudent man would have
done in the same situation. Being an experienced banker and a
businessman himself who deliberately skirted a legal impediment in the
sale of the Tanay property and to minimize the capital gains tax for its
exchange, it was actually gross recklessness for him to have merely
conducted a cursory examination of the jewelry when every opportunity
for doing so was not denied him. Apparently, he carried on his person a
tester which he later used to prove the alleged fakery but which he did not
use at the time when it was most needed. Furthermore, it took him two
more hours of unexplained delay before he complained that the jewelry he
received were counterfeit. Hence, we stated earlier that anything could
have happened during all the time that petitioner was in complete
possession and control of the jewelry, including the possibility of
substituting them with fake ones, against which respondents would have a
great deal of difficulty defending themselves. The truth is that petitioner
even failed to successfully prove during trial that the jewelry he received
from Dr. Cruz were not genuine. Add to that the fact that he had been
shrewd enough to bloat the Tanay property's price only a few days after
he purchased it at a much lower value. Thus, it is our considered view that
if this slew of circumstances were connected, like pieces of fabric sewn
into a quilt, they would sufficiently demonstrate that his acts were not
merely negligent but rather studied and deliberate.
We do not have here, therefore, a situation where petitioner's complaint
was simply found later to be based on an erroneous ground which, under
settled jurisprudence, would not have been a reason for awarding moral
and exemplary damages. 42 Instead, the cause of action of the instant case
appears to have been contrived by petitioner himself. In other words, he
was placed in a situation where he could not honestly evaluate whether his
cause of action has a semblance of merit, such that it would require the
expertise of the courts to put it to a test. His insistent pursuit of such case
then coupled with circumstances showing that he himself was guilty in
bringing about the supposed wrongdoing on which he anchored his cause
of action would render him answerable for all damages the defendant may
suffer because of it. This is precisely what took place in the petition at bar
and we find no cogent reason to disturb the findings of the courts below
that respondents in this case suffered considerable damages due to
petitioner's unwarranted action.
WHEREFORE, the decision of the Court of Appeals dated October 20,
1992 is hereby AFFIRMED in toto. Dr. Cruz, however, is ordered to pay
petitioner the balance of the purchase price of P40,000.00 within ten (10)
days from the finality of this decision. Costs against petitioner.
SO ORDERED.
G.R. No. 78903 February 28, 1990
SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-
DALION, petitioners,
vs.
THE HONORABLE COURT OF APPEALS AND RUPERTO
SABESAJE, JR., respondents.
Francisco A. Puray, Sr. for petitioners.
Gabriel N. Duazo for private respondent.
MEDIALDEA, J.:
This is a petition to annul and set aside the decision of the Court of Appeals
rendered on May 26, 1987, upholding the validity of the sale of a parcel
of land by petitioner Segundo Dalion (hereafter, "Dalion") in favor of
private respondent Ruperto Sabesaje, Jr. (hereafter, "Sabesaje"), described
thus:
A parcel of land located at Panyawan, Sogod, Southern Leyte,
declared in the name of Segundo Dalion, under Tax Declaration
No. 11148, with an area of 8947 hectares, assessed at P 180.00,
and bounded on the North, by Sergio Destriza and Titon Veloso,
East, by Feliciano Destriza, by Barbara Bonesa (sic); and West,
by Catalino Espina. (pp. 36-37, Rollo)
The decision affirms in toto the ruling of the trial court 1 issued on January
17, 1984, the dispositive portion of which provides as follows:
WHEREFORE, IN VIEW OF THE FOREGOING, the Court
hereby renders judgment.
(a) Ordering the defendants to deliver to the plaintiff the parcel
of land subject of this case, declared in the name of Segundo
Dalion previously under Tax Declaration No. 11148 and lately
under Tax Declaration No. 2297 (1974) and to execute the
corresponding formal deed of conveyance in a public document
in favor of the plaintiff of the said property subject of this case,
otherwise, should defendants for any reason fail to do so, the
deed shall be executed in their behalf by the Provincial Sheriff
or his Deputy;
(b) Ordering the defendants to pay plaintiff the amount of
P2,000.00 as attorney's fees and P 500.00 as litigation expenses,
and to pay the costs; and
(c) Dismissing the counter-claim. (p. 38, Rollo)
The facts of the case are as follows:
On May 28, 1973, Sabesaje sued to recover ownership of a parcel of land,
based on a private document of absolute sale, dated July 1, 1965 (Exhibit
"A"), allegedly executed by Dalion, who, however denied the fact of sale,
contending that the document sued upon is fictitious, his signature thereon,
a forgery, and that subject land is conjugal property, which he and his wife
acquired in 1960 from Saturnina Sabesaje as evidenced by the "Escritura
de Venta Absoluta" (Exhibit "B"). The spouses denied claims of Sabesaje
that after executing a deed of sale over the parcel of land, they had pleaded
with Sabesaje, their relative, to be allowed to administer the land because
Dalion did not have any means of livelihood. They admitted, however,
administering since 1958, five (5) parcels of land in Sogod, Southern
Leyte, which belonged to Leonardo Sabesaje, grandfather of Sabesaje,
who died in 1956. They never received their agreed 10% and 15%
commission on the sales of copra and abaca, respectively. Sabesaje's suit,
they countered, was intended merely to harass, preempt and forestall
Dalion's threat to sue for these unpaid commissions.
From the adverse decision of the trial court, Dalion appealed, assigning
errors some of which, however, were disregarded by the appellate court,
not having been raised in the court below. While the Court of Appeals duly
recognizes Our authority to review matters even if not assigned as errors
in the appeal, We are not inclined to do so since a review of the case at bar
reveals that the lower court has judicially decided the case on its merits.
As to the controversy regarding the identity of the land, We have no reason
to dispute the Court of Appeals' findings as follows:
To be sure, the parcel of land described in Exhibit "A" is the
same property deeded out in Exhibit "B". The boundaries
delineating it from adjacent lots are identical. Both documents
detail out the following boundaries, to wit:
On the North-property of Sergio Destriza and Titon Veloso;
On the East-property of Feliciano Destriza;
On the South-property of Barbara Boniza and
On the West-Catalino Espina.
(pp. 41-42, Rollo)
The issues in this case may thus be limited to: a) the validity of the contract
of sale of a parcel of land and b) the necessity of a public document for
transfer of ownership thereto.
The appellate court upheld the validity of the sale on the basis of Secs. 21
and 23 of Rule 132 of the Revised Rules of Court.
SEC. 21. Private writing, its execution and authenticity, how
proved.-Before any private writing may be received in evidence,
its due execution and authenticity must be proved either:
(a) By anyone who saw the writing executed;
(b) By evidence of the genuineness of the handwriting of the
maker; or
(c) By a subscribing witness
xxx xxx xxx
SEC. 23. Handwriting, how proved. — The handwriting of a
person may be proved by any witness who believes it to be the
handwriting of such person, and has seen the person write, or has
seen writing purporting to be his upon which the witness has
acted or been charged, and has thus acquired knowledge of the
handwriting of such person. Evidence respecting the handwriting
may also be given by a comparison, made by the witness or the
court, with writings admitted or treated as genuine by the party
against whom the evidence is offered, or proved to be genuine to
the satisfaction of the judge. (Rule 132, Revised Rules of Court)
And on the basis of the findings of fact of the trial court as follows:
Here, people who witnessed the execution of subject deed
positively testified on the authenticity thereof. They
categorically stated that it had been executed and signed by the
signatories thereto. In fact, one of such witnesses, Gerardo M.
Ogsoc, declared on the witness stand that he was the one who
prepared said deed of sale and had copied parts thereof from the
"Escritura De Venta Absoluta" (Exhibit B) by which one
Saturnina Sabesaje sold the same parcel of land to appellant
Segundo Dalion. Ogsoc copied the bounderies thereof and the
name of appellant Segundo Dalion's wife, erroneously written as
"Esmenia" in Exhibit "A" and "Esmenia" in Exhibit "B". (p. 41,
Rollo)
xxx xxx xxx
Against defendant's mere denial that he signed the document, the
positive testimonies of the instrumental Witnesses Ogsoc and
Espina, aside from the testimony of the plaintiff, must prevail.
Defendant has affirmatively alleged forgery, but he never
presented any witness or evidence to prove his claim of forgery.
Each party must prove his own affirmative allegations (Section
1, Rule 131, Rules of Court). Furthermore, it is presumed that a
person is innocent of a crime or wrong (Section 5 (a),Idem), and
defense should have come forward with clear and convincing
evidence to show that plaintiff committed forgery or caused said
forgery to be committed, to overcome the presumption of
innocence. Mere denial of having signed, does not suffice to
show forgery.
In addition, a comparison of the questioned signatories or
specimens (Exhs. A-2 and A-3) with the admitted signatures or
specimens (Exhs. X and Y or 3-C) convinces the court that Exhs.
A-2 or Z and A-3 were written by defendant Segundo Dalion
who admitted that Exhs. X and Y or 3-C are his signatures. The
questioned signatures and the specimens are very similar to each
other and appear to be written by one person.
Further comparison of the questioned signatures and the
specimens with the signatures Segundo D. Dalion appeared at
the back of the summons (p. 9, Record); on the return card (p.
25, Ibid.); back of the Court Orders dated December 17, 1973
and July 30, 1974 and for October 7, 1974 (p. 54 & p. 56,
respectively, Ibid.), and on the open court notice of April 13,
1983 (p. 235, Ibid.) readily reveal that the questioned signatures
are the signatures of defendant Segundo Dalion.
It may be noted that two signatures of Segundo D. Dalion appear
on the face of the questioned document (Exh. A), one at the right
corner bottom of the document (Exh. A-2) and the other at the
left hand margin thereof (Exh. A-3). The second signature is
already a surplusage. A forger would not attempt to forge
another signature, an unnecessary one, for fear he may commit a
revealing error or an erroneous stroke. (Decision, p. 10) (pp. 42-
43, Rollo)
We see no reason for deviating from the appellate court's ruling (p. 44,
Rollo) as we reiterate that
Appellate courts have consistently subscribed to the principle
that conclusions and findings of fact by the trial courts are
entitled to great weight on appeal and should not be disturbed
unless for strong and cogent reasons, since it is undeniable that
the trial court is in a more advantageous position to examine real
evidence, as well as to observe the demeanor of the witnesses
while testifying in the case (Chase v. Buencamino, Sr., G.R. No.
L-20395, May 13, 1985, 136 SCRA 365; Pring v. Court of
Appeals, G.R. No. L-41605, August 19, 1985, 138 SCRA 185)
Assuming authenticity of his signature and the genuineness of the
document, Dalion nonetheless still impugns the validity of the sale on the
ground that the same is embodied in a private document, and did not thus
convey title or right to the lot in question since "acts and contracts which
have for their object the creation, transmission, modification or extinction
of real rights over immovable property must appear in a public instrument"
(Art. 1358, par 1, NCC).
This argument is misplaced. The provision of Art. 1358 on the necessity
of a public document is only for convenience, not for validity or
enforceability. It is not a requirement for the validity of a contract of sale
of a parcel of land that this be embodied in a public instrument.
A contract of sale is a consensual contract, which means that the sale is
perfected by mere consent. No particular form is required for its validity.
Upon perfection of the contract, the parties may reciprocally demand
performance (Art. 1475, NCC), i.e., the vendee may compel transfer of
ownership of the object of the sale, and the vendor may require the vendee
to pay the thing sold (Art. 1458, NCC).
The trial court thus rightly and legally ordered Dalion to deliver to
Sabesaje the parcel of land and to execute corresponding formal deed of
conveyance in a public document. Under Art. 1498, NCC, when the sale
is made through a public instrument, the execution thereof is equivalent to
the delivery of the thing. Delivery may either be actual (real) or
constructive. Thus delivery of a parcel of land may be done by placing the
vendee in control and possession of the land (real) or by embodying the
sale in a public instrument (constructive).
As regards petitioners' contention that the proper action should have been
one for specific performance, We believe that the suit for recovery of
ownership is proper. As earlier stated, Art. 1475 of the Civil Code gives
the parties to a perfected contract of sale the right to reciprocally demand
performance, and to observe a particular form, if warranted, (Art. 1357).
The trial court, aptly observed that Sabesaje's complaint sufficiently
alleged a cause of action to compel Dalion to execute a formal deed of
sale, and the suit for recovery of ownership, which is premised on the
binding effect and validity inter partes of the contract of sale, merely
seeks consummation of said contract.
... . A sale of a real property may be in a private instrument but
that contract is valid and binding between the parties upon its
perfection. And a party may compel the other party to execute a
public instrument embodying their contract affecting real rights
once the contract appearing in a private instrument hag been
perfected (See Art. 1357).
... . (p. 12, Decision, p. 272, Records)
ACCORDINGLY, the petition is DENIED and the decision of the Court
of Appeals upholding the ruling of the trial court is hereby AFFIRMED.
No costs.
SO ORDERED.
G.R. No. L-23351 March 13, 1968
CIRILO PAREDES, plaintiff-appellant,
vs.
JOSE L. ESPINO, defendant-appellee.
Simeon Capule for plaintiff-appellant.
Iñigo R. Peña for defendant-appellee.
REYES, J.B.L., Actg. C.J.:
Appeal from an order of the Court of First Instance of Palawan in
its Civil Case No. 453, granting a motion to dismiss the complaint.
Appellant Cirilo Parades had filed an action to compel defendant-
appellee Jose L. Espino to execute a deed of sale and to pay damages. The
complaint alleged that the defendant "had entered into the sale" to plaintiff
of Lot No. 67 of the Puerto Princesa Cadastre at P4.00 a square meter; that
the deal had been "closed by letter and telegram" but the actual execution
of the deed of sale and payment of the price were deferred to the arrival of
defendant at Puerto Princesa; that defendant upon arrival had refused to
execute the deed of sale altho plaintiff was able and willing to pay the
price, and continued to refuse despite written demands of plaintiff; that as
a result, plaintiff had lost expected profits from a resale of the property,
and caused plaintiff mental anguish and suffering, for which reason the
complaint prayed for specific performance and damages.
Defendant filed a motion to dismiss upon the ground that the
complaint stated no cause of action, and that the plaintiff's claim upon
which the action was founded was unenforceable under the Statute of
Frauds.
Plaintiff opposed in writing the motion to dismiss and annexed to
his opposition a copy of a letter purportedly signed by defendant (Annex
"A"), wherein it was stated (Record on Appeal, pp. 19-20) —
106 GonzagaSt.
Tuguegarao,Cagayan
May18,1964
Mr.CiriloParedes
Pto.Princesa,Palawan
Dear Mr. Paredes:
So far I received two letters from you, one dated April 17
and the other April 29, both 1964. In reply thereto, please be
informed that after consulting with my wife, we both decided to
accept your last offer of Four (P4.00) pesos per square meter of
the lot which contains 1826 square meters and on cash basis.
In order that we can facilitate the transaction of the sale in
question, we (Mrs. Espino and I), are going there (Puerto
Princess, Pal.) to be there during the last week of the month,
May. I will send you a telegram, as per your request, when I will
reach Manila before taking the boat for Pto. Princess. As it is
now, there is no schedule yet of the boats plying between Manila
and Pto. Princess for next week.
Plaintiff also appended as Annex "A-1", a telegram apparently from
defendant advising plaintiff of his arrival by boat about the last week of
May 1964 (Annex "A-1" Record on Appeal, p. 21), as well as a previous
letter of defendant (Appendix B, Record on Appeal, p. 35) referring to the
lot as the one covered by Certificate of Title No. 62.
These allegations and documents notwithstanding, the Court below
dismissed the complaint on the ground that there being no written contract,
under Article 1403 of the Civil Code of the Philippines —
Although the contract is valid in itself, the same can not
be enforced by virtue of the Statute of Frauds. (Record on
Appeal, p. 37).1äwphï1.ñët
Plaintiff duly appealed to this Court.
The sole issue here is whether enforcement of the contract pleaded
in the complaint is barred by the Statute of Frauds; and the Court a
quo plainly erred in holding that it was unenforceable.
The Statute of Frauds, embodied in Article 1403 of the Civil Code
of the Philippines, does not require that the contract itself be in writing.
The plain text of Article 1403, paragraph (2) is clear that a written note or
memorandum, embodying the essentials of the contract and signed by the
party charged, or his agent, suffices to make the verbal agreement
enforceable, taking it out of the operation of the statute.
Art. 1403. — The following contracts are unenforceable,
unless they are ratified:
(1) . . .
(2) Those that do not comply with the Statute of Frauds as set
forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
xxx xxx xxx
(e) An agreement for the leasing for a longer period
than one year, or for the sale of real property or of an
interest therein.1äwphï1.ñët
xxx xxx xxx
In the case at bar, the complaint in its paragraph 3 pleads that the
deal had been closed by letter and telegram" (Record on Appeal, p. 2), and
the letter referred to was evidently the one copy of which was appended
as Exhibit A to plaintiff's opposition to the motion dismiss. This letter,
transcribed above in part, together with that one marked as Appendix B,
constitute an adequate memorandum of the transaction. They are signed
by the defendant-appellee; refer to the property sold as a lot in Puerto
Princesa, Palawan, covered, by TCT No. 62; give its area as 1826 square
meters and the purchase price of four (P4.00) pesos per square meter
payable in cash. We have in them therefore, all the essential terms of the
contract, and they satisfy the requirements of the Statute of Frauds. We
have ruled in Berg vs. Magdalena Estate, Inc., 92 Phil. 110, 115, that a
sufficient memorandum may be contained in two or more documents.
Defendant-appellee argues that the authenticity of the letters has not
been established. That is not necessary for the purpose of showing prima
facie that the contract is enforceable. For as ruled by us in Shaffer vs.
Palma, L-24115, March 1, 1968, whether the agreement is in writing or
not, is a question of evidence; and the authenticity of the writing need not
be established until the trial is held. The plaintiff having alleged that the
contract is backed by letter and telegram, and the same being a sufficient
memorandum, his cause of action is thereby established, especially since
the defendant has not denied the letters in question. At any rate, if the
Court below entertained any doubts about the existence of the written
memorandum, it should have called for a preliminary hearing on that
point, and not dismissed the complaint.
WHEREFORE, the appealed order is hereby set aside, and the case
remanded to the Court of origin for trial and decision. Costs against
defendant-appellee Jose L. Espino. So ordered.
G.R. No. L-55048 May 27, 1981
SUGA SOTTO YUVIENCO, BRITANIA SOTTO, and
MARCELINO SOTTO, petitioners,
vs.
HON. AUXENCIO C. DACUYCUY, Judge of the CFI of Leyte,
DELY RODRIGUEZ, FELIPE ANG CRUZ, CONSTANCIA
NOGAR, MANUEL GO, INOCENTES DIME, WILLY JULIO,
JAIME YU, OSCAR DY, DY CHIU SENG, BENITO YOUNG,
FERNANDO YU, SEBASTIAN YU, CARLOS UY, HOC CHUAN
and MANUEL DY, respondents.
BARREDO, J.:1äwphï1.ñët
Petition for certiorari and prohibition to declare void for being in grave
abuse of discretion the orders of respondent judge dated November 2,
1978 and August 29, 1980, in Civil Case No. 5759 of the Court of First
Instance of Leyte, which denied the motion filed by petitioners to dismiss
the complaint of private respondents for specific performance of an
alleged agreement of sale of real property, the said motion being based on
the grounds that the respondents' complaint states no cause of action
and/or that the claim alleged therein is unenforceable under the Statute of
Frauds.
Finding initially prima facie merit in the petition, We required
respondents to answer and We issued a temporary restraining order on
October 7, 1980 enjoining the execution of the questioned orders.
In essence, the theory of petitioners is that while it is true that they did
express willingness to sell to private respondents the subject property for
P6,500,000 provided the latter made known their own decision to buy it
not later than July 31, 1978, the respondents' reply that they were
agreeable was not absolute, so much so that when ultimately petitioners'
representative went to Cebu City with a prepared and duly signed contract
for the purpose of perfecting and consummating the transaction,
respondents and said representative found variance between the terms of
payment stipulated in the prepared document and what respondents had in
mind, hence the bankdraft which respondents were delivering to petit
loners' representative was returned and the document remained unsigned
by respondents. Hence the action below for specific performance.
To be more specific, the parties do not dispute that on July 12, 1978,
petitioners, thru a certain Pedro C. Gamboa, sent to respondents the
following letter:
Mr. Yao King Ong
Life Bakery
Tacloban City
Dear Mr. Yao: 1äwphï1.ñët
This refers to the Sotto property (land and building)
situated at Tacloban City. My clients are willing to sell
them at a total price of P6,500,000.00.
While there are other parties who are interested to buy
the property, I am giving you and the other occupants
the preference, but such priority has to be exercised
within a given number of days as I do not want to lose
the opportunity if you are not interested. I am therefore
gluing you and the rest of the occupants until July 31,
1978 within it which to decide whether you want to buy
the property. If I do not hear from you by July 31, I will
offer or close the deal with the other interested buyer.
Thank you so much for the hospitality extended to me
during my last trip to Tacloban, and I hope to hear from
you very soon. 1äwphï1.ñët
 purpose of closing the transactionsu referred to in
paragraphs 8 and 9 hereof, however,l to the complete
surprise of plaintiffs, the ydefendant (except def.
Tacloban City Ice Plant, Inc.) without
y giving notice to
plaintiffs, changed the mode ofo payment with respect
to the balance of P4,500,000.00 u by imposing upon
plaintiffs to pay same amount rwithin thirty (30) days
from execution of the contracts instead of the former
term of ninety (90) days as stated , in paragraph 8 hereof.
(Pp. 10-11, Record.) P
Additionally and to reenforce their position, respondents
e alleged further in
their complaint: 1äwphï1.ñët d
8. That on July 12, 1978, defendants
r (except defendant
Tacloban City Ice Plant, Inc.) ofinally sent a telegram
letter to plaintiffs- tenants, through
C same Mr. Yao King
Ong, notifying them that defendants. are willing to sell
the properties (lands and building)G at a total price of
P6,500,000.00, which herein aplaintiffs-tenants have
agreed to buy the said properties m for said price; a copy
of which letter is hereto attached b as integral part hereof
and marked as Annex 'C', andoplaintiffs accepted the
offer through a telegram dateda July 25, 1978, sent to
defendants (through defendant Pedro C. Gamboa), a
1
copy of which telegram is hereto attached as integral
(Page 9, Record.) part hereof and marked as Annex C-1 and as a
Reacting to the foregoing letter, the following telegram consequence hereof. plaintiffs except plaintiff
was sent by "Yao King Ong & tenants" to Atty. Pedro Tacloban - merchants' Realty Development
Gamboa in Cebu City: Corporation) and defendants (except defendant
Atty. Pedro Gamboa Tacloban City Ice Plant. Inc.) agreed to the following
Room 314, Maria Cristina Bldg. terms and conditions respecting the payment of said
Osmeña Boulevard, Cebu City purchase price, to wit: 1äwphï1.ñët
Reurlet dated July 12 inform Dra. Yuvienco we agree P2,000,000.00 to be paid in full on
to buy property proceed Tacloban to negotiate the date of the execution of the
details 1äwphï1.ñët contract; and the balance of
P4,500,000.00
Y shall be fully paid
within ninety
a (90) days thereafter;
9. That on July 27, 1978, defendants
o sent a telegram to
plaintiff- tenants, through the latter's
K representative Mr.
Yao King Ong, reiterating their i acceptance to the
agreement referred to in the next n preceding paragraph
hereof and notifying plaintiffs-tenants
g to prepare
payment by bank drafts; which O the latter readily
complied with; a copy of which n telegram is hereto
attached as integral part hereofg and marked as Annex
"D"; (Pp 49-50, Record.) &
It was on the basis of the foregoing facts and tallegations that herein
petitioners filed their motion to dismisse alleging as main
grounds: 1äwphï1.ñët n
I. That plaintiff, TACLOBAN MERCHANTS' a REALTY
DEVELOPMENT CORPORATION, amended n complaint, does
not state a cause of action and the claimt on which the action is
founded is likewise unenforceable under s the provisions of the
(Page 10, Record.) Statute of Frauds.
Likewise uncontroverted is the fact that under date of II. That as to the rest of the plaintiffs, their amended complaint
July 27, 1978, Atty. Gamboa wired Yao King Ong in does not state a cause of action and the claim on which the action
Tacloban City as follows: is founded is likewise unenforceable under the provisions of the
NLT Statute of Frauds. (Page 81, Record.)
YAO KING ONG With commendable knowledgeability and industry, respondent judge
LIFE BAKERY ruled negatively on the motion to dismiss, discoursing at length on the
TACLOBAN CITY personality as real party-in-interest of respondent corporation, while
PROPOSAL ACCEPTED ARRIVING TUESDAY passing lightly, however, on what to Us are the more substantial and
MORNING WITH CONTRACT PREPARE decisive issues of whether or not the complaint sufficiently states a cause
PAYMENT BANK DRAFT 1äwphï1.ñët of action and whether or not the claim alleged therein is unenforceable
under the Statute of Frauds, by holding thus: 1äwphï1.ñët
A
The second ground of the motion to dismiss T is that plaintiffs'
claim is unenforceable under the Statute T of Frauds. The
defendants argued against this motion Y and asked the court to
reject the objection for the simple reason. that the contract of sale
sued upon in this case is supported byG letters and telegrams
annexed to the complaint and other Apapers which will be
presented during the trial. This contention M of the defendants is
not well taken. The plaintiffs having alleged B that the contract is
backed up by letters and telegrams, and O the same being a
sufficient memorandum, the complaint A states a cause of action
(Page 10, Id.) and they should be given a day in court and allowed to
Now, Paragraph 10 of the complaint below of respondents substantiate their allegations (Paredes vs. Espino, 22 SCRA
alleges: 1äwphï1.ñët 1000).
10. That on August 1, 1978, defendant Pedro Gamboa To take a contract for the sale of land out of the Statute of Frauds
arrived Tacloban City bringing with him the prepared a mere note or memorandum in writing subscribed by the vendor
contract to purchase and to sell referred to in his or his agent containing the name of the parties and a summary
telegram dated July 27, 1978 (Annex 'D' hereof) for the statement of the terms of the sale either expressly or by reference
 to something else is all that is required. The statute does not
require a formal contract drawn up with technical exactness for
the language of Par. 2 of Art. 1403 of the Philippine Civil Code
is' ... an agreement ... or some note or memorandum thereof,' thus
recognizing a difference between the contract itself and the
written evidence which the statute requires (Berg vs. Magdalena
Estate, Inc., 92 Phil. 110; Ill Moran, Comments on the Rules of
Court, 1952 ed. p. 187). See also Bautista's Monograph on the
Statute of Frauds in 21 SCRA p. 250. (Pp. 110-111, Record)
Our first task then is to dwell on the issue of whether or not in the light of
the foregoing circumstances, the complaint in controversy states
sufficiently a cause of action. This issue necessarily entails the
determination of whether or not the plaintiffs have alleged facts
adequately showing the existence of a perfected contract of sale between
herein petitioners and the occupant represented by respondent Yao King
Ong.
In this respect, the governing legal provision is, of course, Article 1319 of
the Civil Code which provides:1äwphï1.ñët
ART. 1319. Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are
constitute the contract. The offer must be certain the acceptance
absolute. A qualified acceptance constitute a counter-offer.
Acceptance made by letter or telegram does not bind offerer
except from the time it came to his knowledge. The contract, in
a case, is presumed to have been entered into in the place where
the offer was made.
In the instant case, We can lay aside, for the moment, petitioners'
contention that the letter of July 12, 1978 of Atty. Pedro C. Gamboa to
respondents Yao King Ong and his companions constitute an offer that is
"certain", although the petitioners claim that it was a mere expression of
willingness to sell the subject property and not a direct offer of sale to said
respondents. What We consider as more important and truly decisive is
what is the correct juridical significance of the telegram of respondents
instructing Atty. Gamboa to "proceed to Tacloban to negotiate details."
We underline the word "negotiate" advisedly because to Our mind it is the
key word that negates and makes it legally impossible for Us to hold that
respondents' acceptance of petitioners' offer, assuming that it was a
"certain" offer indeed, was the "absolute" one that Article 1319 above-
quoted requires.
Dictionally, the implication of "to negotiate" is practically the opposite of
the Idea that an agreement has been reached. Webster's Third International
Dictionary, Vol. II (G. & C. Merriam Co., 1971 Philippine copyright)
gives the meaning of negotiate as "to communicate or confer with another
so as to arrive at the settlement of some matter; meet with another so as to
arrive through discussion at some kind of agreement or compromise about
something; — to arrange for or bring about through conference or
discussion; work at or arrive at or settle upon by meetings and agreements
or compromises — ". Importantly, it must be borne in mind that Yao King
Ong's telegram simply says "we agree to buy property". It does not
necessarily connote acceptance of the price but instead suggests that the
details were to be subject of negotiation.
Respondents now maintain that what the telegram refers to as "details" to
be "negotiated" are mere "accidental elements", not the essential elements
of the contract. They even invite attention to the fact that they have alleged
in their complaint (Par. 6) that it was as early as "in the month of October,
1977 (that) negotiations between plaintiffs and defendants for the purchase
and sale (in question) — were made, thus resulting to offers of same
defendants and counter-offer of plaintiffs". But to Our mind such alleged
facts precisely indicate the failure of any meeting of the minds of the
parties, and it is only from the letter and telegrams above-quoted that one
can determine whether or not such meeting of the minds did materialize.
As We see it, what such allegations bring out in bold relief is that it was
precisely because of their past failure to arrive at an agreement that
petitioners had to put an end to the uncertainty by writing the letter of July
12, 1978. On the other hand, that respondents were all the time agreeable
to buy the property may be conceded, but what impresses Us is that instead
of "absolutely" accepting the "certain" offer — if there was one — of the
petitioners, they still insisted on further negotiation of details. For anyone
to read in the telegram of Yao that they accepted the price of
P6,500,000.00 would be an inference not necessarily warranted by the
words "we agree to buy" and "proceed Tacloban to negotiate details". If
indeed the details being left by them for further negotiations were merely
accidental or formal ones, what need was there to say in the telegram that
they had still "to negotiate (such) details", when, being unessential per
their contention, they could have been just easily clarified and agreed upon
when Atty. Gamboa would reach Tacloban?
Anent the telegram of Atty. Gamboa of July 27, 1978, also quoted earlier
above, We gather that it was in answer to the telegram of Yao. Considering
that Yao was in Tacloban then while Atty. Gamboa was in Cebu, it is
difficult to surmise that there was any communication of any kind between
them during the intervening period, and none such is alleged anyway by
respondents. Accordingly, the claim of respondents in paragraph 8 of their
complaint below that there was an agreement of a down payment of P2 M,
with the balance of P4.5M to be paid within 90 days afterwards is rather
improbable to imagine to have actually happened.
Respondents maintain that under existing jurisprudence relative to a
motion to dismiss on the ground of failure of the complaint to state a cause
of action, the movant-defendant is deemed to admit the factual allegations
of the complaint, hence, petitioners cannot deny, for purposes of their
motion, that such terms of payment had indeed been agreed upon.
While such is the rule, those allegations do not detract from the fact that
under Article 1319 of the Civil Code above-quoted, and judged in the light
of the telegram-reply of Yao to Atty. Gamboa's letter of July 12, 1978,
there was not an absolute acceptance, hence from that point of view,
petitioners' contention that the complaint of respondents state no cause of
action is correct.
Nonetheless, the alleged subsequent agreement about the P2 M down and
P4.5 M in 90 days may at best be deemed as a distinct cause of action.
And placed against the insistence of petitioners, as demonstrated in the
two deeds of sale taken by Atty. Gamboa to Tacloban, Annexes 9 and 10
of the answer of herein respondents, that there was no agreement about 90
days, an issue of fact arose, which could warrant a trial in order for the
trial court to determine whether or not there was such an agreement about
the balance being payable in 90 days instead of the 30 days stipulated in
Annexes 9 and 10 above-referred to. Our conclusion, therefore, is that
although there was no perfected contract of sale in the light of the letter of
Atty. Gamboa of July 12, 1978 and the letter-reply thereto of Yao; it being
doubtful whether or not, under Article 1319 of the Civil Code, the said
letter may be deemed as an offer to sell that is "certain", and more, the Yao
telegram is far from being an "absolute" acceptance under said article, still
there appears to be a cause of action alleged in Paragraphs 8 to 12 of the
respondents' complaint, considering it is alleged therein that subsequent to
the telegram of Yao, it was agreed that the petitioners would sell the
property to respondents for P6.5 M, by paving P2 M down and the balance
in 90 days and which agreement was allegedly violated when in the deeds
prepared by Atty. Gamboa and taken to Tacloban, only 30 days were given
to respondents.
But the foregoing conclusion is not enough to carry the day for
respondents. It only brings Us to the question of whether or not the claim
for specific performance of respondents is enforceable under the Statute
of Frauds. In this respect, We man, view the situation at hand from two
angles, namely, (1) that the allegations contained in paragraphs 8 to 12 of
respondents' complaint should be taken together with the documents
already aforementioned and (2) that the said allegations constitute a
separate and distinct cause of action. We hold that either way We view the
situation, the conclusion is inescapable e that the claim of respondents that
petitioners have unjustifiably refused to proceed with the sale to them of
the property v in question is unenforceable under the Statute of Frauds.
It is nowhere alleged in said paragraphs 8 to 12 of the complaint that there
is any writing or memorandum, much less a duly signed agreement to the
effect that the price of P6,500,000 fixed by petitioners for the real property
herein involved was agreed to be paid not in cash but in installments as
alleged by respondents. The only documented indication of the non-
wholly-cash payment extant in the record is that stipulated in Annexes 9
and 10 above-referred to, the deeds already signed by the petitioners and
taken to Tacloban by Atty. Gamboa for the signatures of the respondents.
In other words, the 90-day term for the balance of P4.5 M insisted upon
by respondents choices not appear in any note, writing or memorandum
signed by either the petitioners or any of them, not even by Atty. Gamboa.
Hence, looking at the pose of respondents that there was a perfected
agreement of purchase and sale between them and petitioners under which
they would pay in installments of P2 M down and P4.5 M within ninety
90) days afterwards it is evident that such oral contract involving the "sale
of real property" comes squarely under the Statute of Frauds (Article 1403,
No. 2(e), Civil Code.)
On the other score of considering the supposed agreement of paying
installments as partly supported by the letter and t telegram earlier quoted
herein, His Honor declared with well studied ratiocination, albeit legally
inaccurate, that: 1äwphï1.ñët
The next issue relate to the State of Frauds. It is contended that
plaintiffs' action for specific performance to compel the
defendants to execute a good and sufficient conveyance of the
property in question (Sotto land and building) is unenforceable
because there is no other note memorandum or writing except
annexes "C", "C-l" and "D", which by themselves did not give
birth to a contract to sell. The argument is not well founded. The
rules of pleading limit the statement of the cause of action only
to such operative facts as give rise to the right of action of the
plaintiff to obtain relief against the wrongdoer. The details of
probative matter or particulars of evidence, statements of law,
inferences and arguments need not be stated. Thus, Sec. 1 of
Rule 8 provides that 'every pleading shall contain in a methodical
 and logical form, a plain concise and direct statement of
the ultimate facts on which the party pleading relies for his claim
or defense, as the case may be, omitting the statement of mere
evidentiary facts.' Exhibits need not be attached. The contract of
sale sued upon in this case is supported by letters and telegrams
annexed to the complaint and plaintiffs have announced that they
will present additional evidences during the trial to prove their
cause of action. The plaintiffs having alleged that the contract is
backed up by letters and telegrams, and the same being sufficient
memorandum, the complaint states a cause of action and they
should be given their day in court and allowed to substantiate
their allegations (Parades vs. Espino, 22 SCRA 1000). (Pp 165-
166, Record.)
The foregoing disquisition of respondent judge misses at least two (2)
juridical substantive aspects of the Statute of Frauds insofar as sale of real
property is concerned. First, His Honor assumed that the requirement of
perfection of such kind of contract under Article 1475 of the Civil Code
which provides that "(t)he contract of sale is perfected at the moment there
is a meeting of the minds upon the thing which is the object of the contract
and upon the price", the Statute would no longer apply as long as the total
price or consideration is mentioned in some note or memorandum and
there is no need of any indication of the manner in which such total price
is to be paid.
We cannot agree. In the reality of the economic world and the exacting
demands of business interests monetary in character, payment on
installments or staggered payment of the total price is entirely a different
matter from cash payment, considering the unpredictable trends in the
sudden fluctuation of the rate of interest. In other words, it is indisputable
that the value of money - varies from day to day, hence the indispensability
of providing in any sale of the terms of payment when not expressly or
impliedly intended to be in cash.
Thus, We hold that in any sale of real property on installments, the Statute
of Frauds read together with the perfection requirements of Article 1475
of the Civil Code must be understood and applied in the sense that the idea
of payment on installments must be in the requisite of a note or
memorandum therein contemplated. Stated otherwise, the inessential
elements" mentioned in the case of Parades vs. Espino, 22 SCRA 1000,
relied upon by respondent judge must be deemed to include the
requirement just discussed when it comes to installment sales. There is
nothing in the monograph re — the Statute of Frauds appearing in 21
SCRA 250 also cited by His Honor indicative of any contrary view to this
ruling of Ours, for the essence and thrust of the said monograph refers only
to the form of the note or memorandum which would comply with the
Statute, and no doubt, while such note or memorandum need not be in one
single document or writing and it can be in just sufficiently implicit tenor,
imperatively the separate notes must, when put together', contain all the
requisites of a perfected contract of sale. To put it the other way, under the
Statute of Frauds, the contents of the note or memorandum, whether in one
writing or in separate ones merely indicative for an adequate
understanding of all the essential elements of the entire agreement, may
be said to be the contract itself, except as to the form.
Secondly, We are of the considered opinion that under the rules on proper
pleading, the ruling of the trial court that, even if the allegation of the
existence of a sale of real property in a complaint is challenged as barred
from enforceability by the Statute of Frauds, the plaintiff may simply say
there are documents, notes or memoranda without either quoting them in
or annexing them to the complaint, as if holding an ace in the sleeves is
not correct. To go directly to the point, for Us to sanction such a procedure
is to tolerate and even encourage undue delay in litigation, for the simple
reason that to await the stage of trial for the showing or presentation of the
requisite documentary proof when it already exists and is asked to be
produced by the adverse party would amount to unnecessarily postponing,
with the concomitant waste of time and the prolongation of the
proceedings, something that can immediately be evidenced and thereby
determinable with decisiveness and precision by the court without further
delay.
In this connection, Moran observes that unlike when the ground of
dismissal alleged is failure of the complaint to state a cause of action, a
motion to dismiss invoking the Statute of Frauds may be filed even if the
absence of compliance does not appear an the face of the complaint. Such
absence may be the subject of proof in the motion stage of the proceedings.
(Moran, Comment on the Rules of Court, Vol. 1, p. 494, 1979 ed.) It
follows then that when such a motion is filed and all the documents
available to movant are before the court, and they are insufficient to
comply with the Statute, it becomes incumbent upon the plaintiff, for the
reasons of policy We have just' indicated regarding speedy administration
of justice, to bring out what note or memorandum still exists in his
possession in order to enable the court to expeditiously determine then and
there the need for further proceedings. In other words, it would be inimical
to the public interests in speedy justice for plaintiff to play hide and seek
at his own convenience, particularly, when, as is quite apparent as in the
instant case that chances are that there are no more writings, notes or
memoranda of the installment agreement alleged by respondents. We
cannot divine any reason why any such document would be withheld if
they existed, except the unpermissible desire of the respondents to force
the petitioners to undergo the ordeals, time, effort and expenses of a futile
trial.
In the foregoing premises, We find no alternative than to render judgment
in favor of petitioners in this certiorari and prohibition case. If at all, appeal
could be available if the petitioners subjected themselves to the trial ruled
to be held by the trial court. We foresee even at this point, on the basis of
what is both extant and implicit in the records, that no different result can
be probable. We consider it as sufficiently a grave abuse of discretion
warranting the special civil actions herein the failure of respondent judge
to properly apply the laws on perfection of contracts in relation to the
Statute of Frauds and the pertinent rules of pleading and practice, as We
have discussed above.
ACCORDINGLY, the impugned orders of respondent judge of November
2, 1978 and August 29, 1980 are hereby set aside and private respondents'
amended complaint, Annex A of the petition, is hereby ordered dismissed
and the restraining order heretofore issued by this Court on October 7,
1980 is declared permanent. Costs against respondents.
G.R. No. 118509 September 5, 1996
LIMKETKAI SONS MILLING, INC., petitioner,
vs.
COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS
and NATIONAL BOOK STORE, respondents.
FRANCISCO, J.:
Motion of petitioner Limketkai Sons Milling, Inc., for
reconsideration of the Court's resolution of March 29, 1996,
which set aside the Court's December 1, 1995 decision and
affirmed in toto the Court of Appeals' decision dated August 12,
1994.
It is argued, albeit erroneously, that the case should be referred
to the Court En Banc as the doctrines laid down in Abrenica v.
Gonda and De Garcia, 34 Phil. 739, Talosig v. Vda. de Nieba,
43 SCRA 473, and Villonco Realty Co. v. Bormaheco, Inc., et
al., 65 SCRA 352, have been modified or reversed. A more
circumspect analysis of these cases vis-a-vis the case at bench
would inevitably lead petitioner to the conclusion that there was
neither reversal nor modification of the doctrines laid down in
the Abrenica, Talosig and Villonco cases. In fact, the
inapplicability of the principle enunciated in Abrenica and
Talosig to this case has already been extensively discussed in the
Court's resolution, hence the same will not be addressed anew.
As regard the case of Villonco, petitioner mistakenly assumes
that its case has a similar factual milicu with the former. The
Court finds no further need to elaborate on the issue, but will
simply point out the significant fact that the offer of the buyer in
Villonco, unlike in this case, was accepted by the seller,
Bormaheco, Inc.; and Villonco involves a perfected contract, a
factor crucially absent in the instant case as there was no meeting
of the minds between the parties.
What petitioner bewails the most is the present composition of
the Third Division which deliverated on private respondents'
motions for reconsideration and by a majority vote reversed the
unanimous decision of December 1, 1995. More specifically,
petitioner questions the assumption of Chief Justice Narvasa of
the chairmanship of the Third Division and arrogantly rams its
idea on how each Division should be chaired, i.e., the First
Division should have been chaired by Chief Justice Narvasa, the
Second Division by Mr. Justice Padilla, the next senior Justice,
and the Third Division by Mr. Justice Regalado, the third in line.
We need only to stress that the change in the membership of the
three divisions of the Court was inevitable by reason of Mr.
Justice Feliciano's retirement. Such reorganization is purely an
internal matter of the Court to which petitioner certainly has no
business at all. In fact, the current "staggered" set-up in the
chairmanships of the Divisions is similar to that adopted in 1988.
In that year, the Court's Third Division was likewise chaired by
then Chief Justice Fernan, while the First and Second Divisions
were headed by the next senior Justices — Justices Narvasa and
Melencio-Herrera, respectively.
Moreover, the Court invites the petitioner's attention to its Manifestation
and Motion for Voluntary Inhibition, dated March 8, 1996 (Rollo, pp. 386-
388), where it noted, without objection, the transfer of Mr. Chief Justice
Narvasa, Mr. Justice Davide, Jr., and Mr. Justice Francisco to the Court's
Third Division. In this Manifestation, petitioner merely moved for the
inhibition of the Chief Justice on the ground that the Chief Justice
previously acted as counsel for one of the respondents, which allegation
the Chief Justice vehemently denied by saying that the information upon
which the petitioner relied "it utterly without foundation in fact and is
nothing but pure speculation or wistful yearning" 1 It was only after the
rendition of the Court's March 29, 1996 resolution of the Court's March
29, 1996 resolution of the Court's March 29, 1996 resolution when
petitioner unprecedentedly objected to the composition of the Third
Division. Suffice it to say that the Court with its new membership is not
obliged to follow blindly a decision upholding a party's case when, after
its re-examination, the same calls for a rectification. "Indeed", said the
Court in Kilosbayan, Inc. vs. Morato, et al., 250 SCRA 130, 136, "a
change in the composition of the Court could prove the means of undoing
an erroneous decision". And it is precisely in recognition of the fact that
the Court is far from infallible that parties are duly accorded a remedy
under the Rules of Court to bring to the Court's attention any error in the
judgment by way of, among others, a motion for reconsideration. "More
importantly than anything else", in the words of Mr. Justice Malcolm, "is
that the court should be right" and to render justice where justice is due. It
is therefore unfair, if not uncalled for, to brand the instant case as "one of
utmost uniqueness in the annals of our judiciary."2
Counsel for the petitioner additionally insinuates that
the ponente employed a "double standard" in deciding the case
and professes bewilderment at the ponente's act of purportedly
taking a position in the ponencia contrary to ponente's act of
purportedly taking a position in the ponencia contrary
to ponente's stand in his book.3 It is quite unfortunate that to
strengthen his unmeritorious posture, the counsel for the
petitioner would resort to such unfounded insinuations, conduct
which to the ponente's mind borders on contempt and is
inappropriate for one who belongs to the legal profession. Be
that as it may, the ponente wishes to state that he has not and has
never "used a double standard"4 in his entire career in the
judiciary in the adjudication of cases. And contrary to petitioner's
misimpression, the ponente never took a "questionable position
in his ponencia"5 different from "his authoritative reference and
textbook6 which cited the case of Abrenica v. Gonda and De
Gracia precisely because of the inherent factual differences of
this case with that of Abrenica. Had counsel for the petitioner
been meticulous, he would not have overlooked the fact that
counsels for the other party never waived their right to object to
the admission of an inadmissible evidence. The fact is that
counsels for private respondents raised their persistent
objections as early as the initial hearing and, when
unceremoniously rebuffed for no apparent reason, registered
their continuing objections. This is borne out by the records
which the Court in its March 29, 1996 resolution cited. Thus:
ATTY. VARGAS:
Before I proceed with the cross-examination of the
witness, your Honor, may we object to the particular
portion of the affidavit which attempt to prove the
existence of a verbal contract to sell more specifically
the answers contained in pag. 3. Par. 1, the whole of
the answer.
xxx xxx xxx
COURT:
Objection overruled.
ATTY. VARGAS:
Your Honor, what has been denied by the Court was
the motion for preliminary hearing of affirmative
defenses. The statement made by the witness to prove
that there was a verbal contract to sell is inadmissible
an evidence in this case because an agreement must be
in writing.
COURT:
Go ahead, that has been already overruled.
ATTY. VARGAS:
So may we reiterate our objection with regard to all
other portions of the affidavit which deal on the verbal
contract. (TSN, Feb. 28, 1989, pp. 3-5: Underscoring
supplied.)7
xxx xxx xxx
ATTY. CORNAGO:
Before we proceed, we would like to make of record
our continuing objection in so far as questions and
answers propounded to Pedro Revilla dated February
29, 1989, in so far as questions would illicit (sic)
answers which would be violative of the best evidence
rule in relation to Art. 1403. I refer to questions nos. 8,
13, 16 and 19 of the affidavit of this witness which is
considered as his direct testimony. (T.S.N., June 29,
1990, p. 2)
ATTY. CORNAGO:
May we make of record our continued objection on the
testimony which is violative of the best evidence rule
in relation to Art. 1403 as contained in the affidavit
particularly questions Nos. 12, 14, 19 and 20 of the
affidavit of Alfonso Lim executed on February 24,
1989. . . (T.S.N., June 28, 1990, p. 8). 8
Petitioner may not now feign ignorance of these pertinent
objections. The Court finds no cogent reason to depart from its
ruling in its March 29, 1996 resolution. To reiterate:
Corollarily, as the petitioner's exhibits failed to
establish the perfection of the contract of the sale, oral
testimony cannot take their place without violating the
parol evidence rule.9 It was therefore irregular for the
trial court to have admitted in evidence testimony to
prove the existence of a contract of sale of a real
property between the parties despite the persistent
objection made by private respondent's counsels as
early as the first scheduled hearing. While said
counsels cross-examined the witnesses, this, to our
view, did not constitute a waiver of the parol evidence
rule. The Talosig v. Vda. de Nieba,10and Abrenica v.
Gonda and de Gracia11 cases cited by the Court in its
initial decision, which ruled to the effect that on
objection against the admission of any evidence must
be made at the proper time, i.e., ". . . at the time
question is asked",12 and that if not so made it will be
understood to have been waived, do not apply as these
two cases involved facts13 different from the case at
bench. More importantly, here, the direct testimonies
of the witnesses were presented in "affidavit-form"
where prompt objection to inadmissible evidence is
hardly possible, whereas the direct testimonies in these
cited cases were delivered orally in open court. The
best that counsels could have done, and which they did,
under the circumstances was to preface the cross-
examination with objection.
xxx xxx xxx
Counsels should not be blamed and, worst, penalized
for taking the pat of prudence by choosing the cross-
examine the witnesses instead of keeping mum and
letting the inadmissible testimony in "affidavit form"
pass without challenge. We thus quote with approval
the observation of public respondent Court of Appeals
on this point:
As a logical consequence of the above
findings, it follows that the court a quo erred
in allowing the appellee to introduce parol
evidence to prove the existence of a perfected
contract of sale over and above the objection
of the counsel for the defendant-appellant.
The records shows that the court a
quo allowed the direct testimony of the
witnesses to be in affidavit form subject to
cross-examination by the opposing counsel.
If the purpose thereof was to prevent the
opposing counsel from objecting timely to
the direct testimony, the scheme failed for as
early as the first hearing of the case on
February 28, 1989 during the presentation of
the testimony in affidavit form of Pedro
Revilla, Jr., plaintiff-appellee's first witness,
the presentation of such testimony was
already objected to as inadmissible.14
[Emphasis in the original]
The other points raised by petitioner need no further discussion
as they have already been considered in the resolution sought to
be reconsidered, and no compelling reason is shown to urge this
compelling reason is shown to urge this Court to change its
stand.
ACCORDINGLY, petitioner's motion for reconsideration and
motion to refer the case to the Court En Banc are hereby
DENIED WITH FINALITY, without prejudice to any and all
appropriate actions that the Court may take not only against
counsel on record for the petitioner for his irresponsible remarks,
but also against other persons responsible for the reckless
publicity anent this case calculated to maliciously erode the
people's faith and confidence in the integrity of this Court.
SO ORDERED.
G.R. No. L-11311 May 28, 1958
MARTA C. ORTEGA, plaintiff-appellant,
vs.
DANIEL LEONARDO, defendant-appellee.
Jose Ma. Reyes for appellant.
Tomas A. Leonardo for appellee.
BENGZON, J.:
Well known is the general rule in the Statute of Frauds precluding
enforcement of oral contracts for the sale of land. Not so well known is
exception concerning the partially executed contracts1 — least our
jurisprudence offers few, if any, apposite illustrations. This appeal
exemplifies such exception.
Alleging partial performance, plaintiff sought to compel defendant to
comply with their oral contract of sale of a parcel of land. Upon a motion
to dismiss, the Manila court of first instance ordered dismissal following
the above general rule.
Hence this appeal. It should be sustained if the allegations of the complaint
— which the motion to dismiss admitted — set out an instance of partial
performance.
Stripped of non-essentials, the complaint averred that long before and until
her house had been completely destroyed during the liberation of the City
of Manila, plaintiff occupied a parcel of land, designated as Lot 1, Block
3 etc. (hereinafter called Lot I) located at San Andres Street, Malate,
Manila; that after liberation she re-occupied it; that when the
administration and disposition of the said Lot I (together with other lots in
the Ana Sarmiento Estate) were assigned by the Government to the Rural
Progress Administration2 plaintiff asserted her right thereto (as occupant)
for purposes of purchase; that defendant also asserted a similar right,
alleging occupancy of a portion of the land subsequent to plaintiff's; that
during the investigation of such conflicting interests, defendant asked
plaintiff to desist from pressing her claim and definitely promised that if
and when he succeeded in getting title to Lot I3 , he would sell to her a
portion thereof with an area of 55.60 square meters (particularly
described) at the rate of P25.00 per square meter, provided she paid for the
surveying and subdivision of the Lot and provided further that after he
acquired title, she could continue holding the lot as tenant by paying a
monthly rental of P10.00 until said portion shall have been segregated and
the purchase price fully paid; that plaintiff accepted defendant's offer, and
desisted from further claiming Lot I; that defendant finally acquired title
thereto; that relying upon their agreement, plaintiff caused the survey and
segregation of the portion which defendant had promised to sell incurring
expenses therefor, said portion being now designated as Lot I-B in a duly
prepared and approved subdivision plan; that in remodelling her son's
house constructed on a lot adjoining Lot I she extended it over said Lot I-
B; that after defendant had acquired Lot I plaintiff regularly paid him the
monthly rental of P10.00; that in July 1954, after the plans of subdivision
and segregation of the lot had been approved by the Bureau of Lands,
plaintiff tendered to defendant the purchase price which the latter refused
to accept, without cause or reason.
The court below explained in its order of dismissal:
It is admitted by both parties that an oral agreement to sell a piece
of land is not enforceable. (Art. 1403, Civil Code, Section 21,
Rule 123, Rules of Court.) Plaintiff, however, argues that the
contract in question, although verbal, was partially performed
because plaintiff desisted from claiming the portion of lot I in
question due to the promise of defendant to transfer said portion
to her after the issuance of title to defendant. The court thinks
that even granting that plaintiff really desisted to claim not on
oral promise to sell made by defendant, the oral promise to sell
cannot be enforced. The desistance to claim is not a part of the
contract of sale of the land. Only in essential part of the
executory contract will, if it has already been performed, make
the verbal contract enforceable, payment of price being an
essential part of the contract of sale.
If the above means that partial performance of a sale contract
occurs only when part of the purchase price is paid, it surely constitutes a
defective statement of the law. American Jurisprudence in its title "Statute
of Frauds" lists other acts of partial performance, such as possession, the
making of improvements, rendition of services, payment of taxes,
relinquishment of rights, etc.
Thus, it is stated that "The continuance in possession may, in a proper case,
be sufficiently referable to the parol contract of sale to constitute a part
performance thereof. There may be additional acts or peculiar
circumstances which sufficiently refer the possession to the contract. . . .
Continued possession under an oral contract of sale, by one already in
possession as a tenant, has been held a sufficient part performance, where
accompanied by other acts which characterize the continued possession
and refer it to the contract of purchase. Especially is this true where the
circumstances of the case include the making of substantial, permanent,
and valuable improvements." (49 American Jurisprudence — 44)
It is also stated that "The making of valuable permanent improvements on
the land by the purchaser, in pursuance of the agreement and with the
knowledge of the vendor, has been said to be the strongest and the most
unequivocal act of part performance by which a verbal contract to sell land
is taken out of the statute of frauds, and is ordinarily an important element
in such part performance. . . . Possession by the purchaser under a parol
contract for the purchase of real property, together with his making
valuable and permanent improvements on the property which are referable
exclusively to the contract, in reliance on the contract, in the honest belief
that he has a right to make them, and with the knowledge and consent or
acquiescence of the vendor, is deemed a part performance of the contract.
The entry into possession and the making of the improvements are held on
amount to such an alteration in the purchaser's position as will warrant the
court's entering a degree of specific performance." (49 American
Jurisprudence p.755, 756.)
Again, it is stated that "A tender or offer of payment, declined by the
vendor, has been said to be equivalent to actual payment, for the purposes
of determining whether or not there has been a part performance of the
contract. This is apparently true where the tender is by a purchaser who
has made improvements. But the doctrine now generally accepted, that not
even the payment of the purchase price, without something more, . . . is a
sufficient part performance. (49 American Jurisprudence p. 772.)
And the relinquishment of rights or the compromise thereof has likewise
been held to constitute part performance. (See same title secs. 473, 474,
475.)
In the light of the above four paragraphs, it would appear that the
complaint in this case described several circumstance indicating partial
performance: relinquishment of rights4 continued possession, building of
improvements, tender of payment plus the surveying of the lot at plaintiff's
expense and the payment of rentals.
We shall not take, time to discuss whether one or the other or any two or
three of them constituted sufficient performance to take the matter away
from the operation of the Statute of Frauds. Enough to hold that the
combination of all of them amounted to partial performance; and we do so
line with the accepted basis of the doctrine, that it would be a fraud upon
the plaintiff if the defendant were permitted to oppose performance of his
part after he has allowed or induced the former to perform in reliance upon
the agreement. (See 49 American Jurisprudence p. 725.)
The paragraph immediately preceding will serve as our comment on the
appellee's quotations from American Jurisprudence itself to the effect that
"relinquishment" is not part performance, and that neither "surveying the
land"5nor tender of payment is sufficient. The precedents hereinabove
transcribed oppose or explain away or qualify the appellee's citations. And
at the risk of being repetitious we say: granting that none of the three
circumstances indicated by him, (relinquishment, survey, tender)
would separately suffice, still the combination of the three with the others
already mentioned, amounts to more than enough.
Hence, as there was partial performance, the principle excluding parol
contracts for the sale of realty, does not apply.
The judgment will accordingly be reversed and the record remanded for
further proceedings. With costs against appellee.
G.R. No. 85240 July 12, 1991
HEIRS OF CECILIO (also known as BASILIO) CLAUDEL, namely,
MODESTA CLAUDEL, LORETA HERRERA, JOSE CLAUDEL,
BENJAMIN CLAUDEL, PACITA CLAUDEL, CARMELITA
CLAUDEL, MARIO CLAUDEL, ROBERTO CLAUDEL,
LEONARDO CLAUDEL, ARSENIA VILLALON, PERPETUA
CLAUDEL and FELISA CLAUDEL, petitioners,
vs.
HON. COURT OF APPEALS, HEIRS OF MACARIO,
ESPERIDIONA, RAYMUNDA and CELESTINA, all surnamed
CLAUDEL, respondents.
Ricardo L. Moldez for petitioners.
Juan T. Aquino for private respondents
SARMIENTO, J.:
This petition for review on certiorari seeks the reversal of the decision
rendered by the Court of Appeals in CA-G.R. CV No. 044291 and the
reinstatement of the decision of the then Court of First Instance (CFI) of
Rizal, Branch CXI, in Civil Case No. M-5276-P, entitled. "Heirs of
Macario Claudel, et al. v. Heirs of Cecilio Claudel, et al.," which dismissed
the complaint of the private respondents against the petitioners for
cancellation of titles and reconveyance with damages. 2
As early as December 28, 1922, Basilio also known as "Cecilio" Claudel,
acquired from the Bureau of Lands, Lot No. 1230 of the Muntinlupa Estate
Subdivision, located in the poblacion of Muntinlupa, Rizal, with an area
of 10,107 square meters; he secured Transfer Certificate of Title (TCT)
No. 7471 issued by the Registry of Deeds for the Province of Rizal in
1923; he also declared the lot in his name, the latest Tax Declaration being
No. 5795. He dutifully paid the real estate taxes thereon until his death in
1937.3 Thereafter, his widow "Basilia" and later, her son Jose, one of the
herein petitioners, paid the taxes.
The same piece of land purchased by Cecilio would, however, become the
subject of protracted litigation thirty-nine years after his death.
Two branches of Cecilio's family contested the ownership over the land-
on one hand the children of Cecilio, namely, Modesto, Loreta, Jose,
Benjamin, Pacita, Carmelita, Roberto, Mario, Leonardo, Nenita, Arsenia
Villalon, and Felisa Claudel, and their children and descendants, now the
herein petitioners (hereinafter referred to as HEIRS OF CECILIO), and on
the other, the brother and sisters of Cecilio, namely, Macario, Esperidiona,
Raymunda, and Celestina and their children and descendants, now the
herein private respondents (hereinafter referred to as SIBLINGS OF
CECILIO). In 1972, the HEIRS OF CECILIO partitioned this lot among
themselves and obtained the corresponding Transfer Certificates of Title
on their shares, as follows:
TCT No. 395391 1,997 sq. m. –– Jose Claudel
TCT No. 395392 1,997 sq. m. –– Modesta Claudel and children
TCT No. 395393 1,997 sq. m. –– Armenia C. Villalon
TCT No. 395394 1,997 sq. m. –– Felisa Claudel4
Four years later, on December 7, 1976, private respondents SIBLINGS
OF CECILIO, filed Civil Case No. 5276-P as already adverted to at the
outset, with the then Court of First Instance of Rizal, a "Complaint for
Cancellation of Titles and Reconveyance with Damages," alleging that 46
years earlier, or sometime in 1930, their parents had purchased from the
late Cecilio Claudel several portions of Lot No. 1230 for the sum of
P30.00. They admitted that the transaction was verbal. However, as proof
of the sale, the SIBLINGS OF CECILIO presented a subdivision plan of
the said land, dated March 25, 1930, indicating the portions allegedly sold
to the SIBLINGS OF CECILIO.
As already mentioned, the then Court of First Instance of Rizal, Branch
CXI, dismissed the complaint, disregarding the above sole evidence
(subdivision plan) presented by the SIBLINGS OF CECILIO, thus:
Examining the pleadings as well as the evidence presented in this
case by the parties, the Court can not but notice that the present
complaint was filed in the name of the Heirs of Macario,
Espiridiona, Raymunda and Celestina, all surnamed Claudel,
without naming the different heirs particularly involved, and
who wish to recover the lots from the defendants. The Court tried
to find this out from the evidence presented by the plaintiffs but
to no avail. On this point alone, the Court would not be able to
apportion the property to the real party in interest if ever they are
entitled to it as the persons indicated therein is in generic term
(Section 2, Rule 3). The Court has noticed also that with the
exception of plaintiff Lampitoc and (sic) the heirs of Raymunda
Claudel are no longer residing in the property as they have (sic)
left the same in 1967. But most important of all the plaintiffs
failed to present any document evidencing the alleged sale of the
property to their predecessors in interest by the father of the
defendants. Considering that the subject matter of the supposed
sale is a real property the absence of any document evidencing
the sale would preclude the admission of oral testimony (Statute
of Frauds). Moreover, considering also that the alleged sale took
place in 1930, the action filed by the plaintiffs herein for the
recovery of the same more than thirty years after the cause of
action has accrued has already prescribed.
WHEREFORE, the Court renders judgment dismissing the
complaint, without pronouncement as to costs.
SO ORDERED.5
On appeal, the following errors6 were assigned by the SIBLINGS OF
CECILIO:
1. THE TRIAL COURT ERRED IN DISMISSING
PLAINTIFFS' COMPLAINT DESPITE CONCLUSIVE
EVIDENCE SHOWING THE PORTION SOLD TO EACH OF
PLAINTIFFS' PREDECESSORS.
2. THE TRIAL COURT ERRED IN HOLDING THAT
PLAINTIFFS FAILED TO PROVE ANY DOCUMENT
EVIDENCING THE ALLEGED SALE.
3. THE TRIAL COURT ERRED IN NOT GIVING CREDIT TO
THE PLAN, EXHIBIT A, SHOWING THE PORTIONS SOLD
TO EACH OF THE PLAINTIFFS' PREDECESSORS-IN-
INTEREST.
4. THE TRIAL COURT ERRED IN NOT DECLARING
PLAINTIFFS AS OWNERS OF THE PORTION COVERED
BY THE PLAN, EXHIBIT A.
5. THE TRIAL COURT ERRED IN NOT DECLARING
TRANSFER CERTIFICATES OF TITLE NOS. 395391,
395392, 395393 AND 395394 OF THE REGISTER OF DEEDS
OF RIZAL AS NULL AND VOID.
The Court of Appeals reversed the decision of the trial court on the
following grounds:
1. The failure to bring and prosecute the action in the name of the real
party in interest, namely the parties themselves, was not a fatal omission
since the court a quo could have adjudicated the lots to the SIBLINGS OF
CECILIO, the parents of the herein respondents, leaving it to them to
adjudicate the property among themselves.
2. The fact of residence in the disputed properties by the herein
respondents had been made possible by the toleration of the deceased
Cecilio.
3. The Statute of Frauds applies only to executory contracts and not to
consummated sales as in the case at bar where oral evidence may be
admitted as cited in Iñigo v. Estate of Magtoto7 and Diana, et al. v.
Macalibo.8
In addition,
. . . Given the nature of their relationship with one another it is
not unusual that no document to evidence the sale was executed,
. . ., in their blind faith in friends and relatives, in their lack of
experience and foresight, and in their ignorance, men, in spite of
laws, will make and continue to make verbal contracts. . . .9
4. The defense of prescription cannot be set up against the herein
petitioners despite the lapse of over forty years from the time of the alleged
sale in 1930 up to the filing of the "Complaint for Cancellation of Titles
and Reconveyance . . ." in 1976.
According to the Court of Appeals, the action was not for the recovery of
possession of real property but for the cancellation of titles issued to the
HEIRS OF CECILIO in 1973. Since the SIBLINGS OF CECILIO
commenced their complaint for cancellation of titles and reconveyance
with damages on December 7, 1976, only four years after the HEIRS OF
CECILIO partitioned this lot among themselves and obtained the
corresponding Transfer Certificates of Titles, then there is no prescription
of action yet.
Thus the respondent court ordered the cancellation of the Transfer
Certificates of Title Nos. 395391, 395392, 395393, and 395394 of the
Register of Deeds of Rizal issued in the names of the HEIRS OF CECILIO
and corollarily ordered the execution of the following deeds of
reconveyance:
To Celestina Claudel, Lot 1230-A with an area of 705 sq. m.
To Raymunda Claudel, Lot 1230-B with an area of 599 sq. m.
To Esperidiona Claudel, Lot 1230-C with an area of 597 sq. m.
To Macario Claudel, Lot 1230-D, with an area of 596 sq. m.10
The respondent court also enjoined that this disposition is without
prejudice to the private respondents, as heirs of their deceased parents, the
SIBLINGS OF CECILIO, partitioning among themselves in accordance
with law the respective portions sold to and herein adjudicated to their
parents.
The rest of the land, lots 1230-E and 1230-F, with an area of 598 and 6,927
square meters, respectively would go to Cecilio or his heirs, the herein
petitioners. Beyond these apportionments, the HEIRS OF CECILIO
would not receive anything else.
The crux of the entire litigation is whether or not the Court of Appeals
committed a reversible error in disposing the question of the true
ownership of the lots.
And the real issues are:
1. Whether or not a contract of sale of land may be proven orally:
2. Whether or not the prescriptive period for filing an action for
cancellation of titles and reconveyance with damages (the action
filed by the SIBLINGS OF CECILIO) should be counted from
the alleged sale upon which they claim their ownership (1930)
or from the date of the issuance of the titles sought to be
cancelled in favor of the HEIRS OF CECILIO (1976).
The rule of thumb is that a sale of land, once consummated, is valid
regardless of the form it may have been entered into. 11 For nowhere does
law or jurisprudence prescribe that the contract of sale be put in writing
before such contract can validly cede or transmit rights over a certain real
property between the parties themselves.
However, in the event that a third party, as in this case, disputes the
ownership of the property, the person against whom that claim is brought
can not present any proof of such sale and hence has no means to enforce
the contract. Thus the Statute of Frauds was precisely devised to protect
the parties in a contract of sale of real property so that no such contract is
enforceable unless certain requisites, for purposes of proof, are met.
The provisions of the Statute of Frauds pertinent to the present
controversy, state:
Art. 1403 (Civil Code). The following contracts are
unenforceable, unless they are ratified:
xxx xxx xxx
2) Those that do not comply with the Statute of Frauds as set
forth in this number. In the following cases, an agreement
hereafter made shall be unenforceable by action unless the same,
or some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
xxx xxx xxx
e) An agreement for the leasing for a longer period than one year,
or for the sale of real property or of an interest therein;
xxx xxx xxx
(Emphasis supplied.)
The purpose of the Statute of Frauds is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence upon the
unassisted memory of witnesses by requiring certain enumerated contracts
and transactions to be evidenced in Writing.12
The provisions of the Statute of Frauds originally appeared under the old
Rules of Evidence. However when the Civil Code was re-written in 1949
(to take effect in 1950), the provisions of the Statute of Frauds were taken
out of the Rules of Evidence in order to be included under the title on
Unenforceable Contracts in the Civil Code. The transfer was not only a
matter of style but to show that the Statute of Frauds is also a substantive
law.
Therefore, except under the conditions provided by the Statute of Frauds,
the existence of the contract of sale made by Cecilio with his siblings13 can
not be proved.
On the second issue, the belated claim of the SIBLINGS OF CECILIO
who filed a complaint in court only in 1976 to enforce a light acquired
allegedly as early as 1930, is difficult to comprehend.
The Civil Code states:
Art. 1145. The following actions must be commenced within six
years:
(1) Upon an oral contract . . . (Emphasis supplied).
If the parties SIBLINGS OF CECILIO had allegedly derived their right of
action from the oral purchase made by their parents in 1930, then the
action filed in 1976 would have clearly prescribed. More than six years
had lapsed.
We do not agree with the parties SIBLINGS OF CECILIO when they
reason that an implied trust in favor of the SIBLINGS OF CECILIO was
established in 1972, when the HEIRS OF CECILIO executed a contract of
partition over the said properties.
But as we had pointed out, the law recognizes the superiority of the torrens
title.
Above all, the torrens title in the possession of the HEIRS OF CECILIO
carries more weight as proof of ownership than the survey or subdivision
plan of a parcel of land in the name of SIBLINGS OF CECILIO.
The Court has invariably upheld the indefeasibility of the torrens title. No
possession by any person of any portion of the land could defeat the title
of the registered owners thereof.14
A torrens title, once registered, cannot be defeated, even by
adverse, open and notorious possession. A registered title under
the torrens system cannot be defeated by
prescription.1âwphi1 The title, once registered, is notice to the
world. All persons must take notice. No one can plead ignorance
of the registration.15
xxx xxx xxx
Furthermore, a private individual may not bring an action for
reversion or any action which would have the effect of cancelling
a free patent and the corresponding certificate of title issued on
the basis thereof, with the result that the land covered thereby
will again form part of the public domain, as only the Solicitor
General or the officer acting in his stead may do so.16
It is true that in some instances, the Court did away with the irrevocability
of the torrens title, but the circumstances in the case at bar varied
significantly from these cases.
In Bornales v. IAC, 17 the defense of indefeasibility of a certificate of title
was disregarded when the transferee who took it had notice of the flaws in
the transferor's title. No right passed to a transferee from a vendor who did
not have any in the first place. The transferees bought the land registered
under the torrens system from vendors who procured title thereto by means
of fraud. With this knowledge, they can not invoke the indefeasibility of a
certificate of title against the private respondent to the extent of her
interest. This is because the torrens system of land registration, though
indefeasible, should not be used as a means to perpetrate fraud against the
rightful owner of real property.
Mere registration of the sale is not good enough, good faith must concur
with registration. Otherwise registration becomes an exercise in futility. 18
In Amerol v. Bagumbaran,19 we reversed the decision of the trial court. In
this case, the title was wrongfully registered in another person's name. An
implied trust was therefore created. This trustee was compelled by law to
reconvey property fraudulently acquired notwithstanding the
irrevocability of the torrens title.20
In the present case, however, the facts belie the claim of ownership.
For several years, when the SIBLINGS OF CECILIO, namely, Macario,
Esperidiona Raymunda, and Celestina were living on the contested
premises, they regularly paid a sum of money, designated as "taxes" at
first, to the widow of Cecilio, and later, to his heirs.21 Why their payments
were never directly made to the Municipal Government of Muntinlupa
when they were intended as payments for "taxes" is difficult to square with
their claim of ownership. We are rather inclined to consider this fact as an
admission of non-ownership. And when we consider also that the
petitioners HEIRS OF CECILIO had individually paid to the municipal
treasury the taxes corresponding to the particular portions they were
occupying,22 we can readily see the superiority of the petitioners' position.
Renato Solema and Decimina Calvez, two of the respondents who derive
their right from the SIBLINGS OF CLAUDEL, bought a portion of the lot
from Felisa Claudel, one of the HEIRS OF CLAUDEL.23 The Calvezes
should not be paying for a lot that they already owned and if they did not
acknowledge Felisa as its owner.
In addition, before any of the SIBLINGS OF CECILIO could stay on any
of the portions of the property, they had to ask first the permission of Jose
Claudel again, one of the HEIRS OF CECILIO.24 In fact the only reason
why any of the heirs of SIBLINGS OF CECILIO could stay on the lot was
because they were allowed to do so by the HEIRS OF CECILIO. 25
In view of the foregoing, we find that the appellate court committed a
reversible error in denigrating the transfer certificates of title of the
petitioners to the survey or subdivision plan proffered by the private
respondents. The Court generally recognizes the profundity of conclusions
and findings of facts reached by the trial court and hence sustains them on
appeal except for strong and cogent reasons inasmuch as the trial court is
in a better position to examine real evidence and observe the demeanor of
witnesses in a case.
No clear specific contrary evidence was cited by the respondent appellate
court to justify the reversal of the lower court's findings. Thus, in this case,
between the factual findings of the trial court and the appellate court, those
of the trial court must prevail over that of the latter.26
WHEREFORE, the petition is GRANTED We REVERSE and SET
ASIDE the decision rendered in CA-G.R. CV No. 04429, and we hereby
REINSTATE the decision of the then Court of First Instance of Rizal
(Branch 28, Pasay City) in Civil Case No. M-5276-P which ruled for the
dismissal of the Complaint for Cancellation of Titles and Reconveyance
with Damages filed by the Heirs of Macario, Esperidiona Raymunda, and
Celestina, all surnamed CLAUDEL. Costs against the private respondents.
SO ORDERED.
REPUBLIC ACT NO. 8792 June 14, 2000
AN ACT PROVIDING FOR THE RECOGNITION AND USE OF
ELECTRONIC COMMERCIAL AND NON-COMMERCIAL
TRANSACTIONS AND DOCUMENTS, PENALTIES FOR
UNLAWFUL USE THEREOF, AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the
Philippines in Congress assembled:
PART I
SHORT TITLE AND DECLARATION OF POLICY
Section 1. Short Title - This Act shall be known as the "Electronic
Commerce Act of 2000."
Section 2. Declaration of Policy - The State recognizes the vital role of
information and communications technology (ICT) in nation-building; the
need to create an information-friendly environment which supports and
ensures the availability, diversity and affordability of ICT products and
services; the primary responsibility of the private sector in contributing
investments and services in telecommunications and information
technology; the need to develop, with appropriate training programs and
institutional policy changes, human resources for the information
technology age, a labor force skilled in the use of ICT and a population
capable of operating and utilizing electronic appliances and computers; its
obligation to facilitate the transfer and promotion of technology; to ensure
network security, connectivity and neutrality of technology for the
national benefit; and the need to marshal, organize and deploy national
information infrastructures, comprising in both telecommunications
network and strategic information services, including their
interconnection to the global information networks, with the necessary and
appropriate legal, financial, diplomatic and technical framework, systems
and facilities.
PART II
ELECTRONIC COMMERCE IN GENERAL
CHAPTER I
GENERAL PROVISIONS
Section 3. Objective - This Act aims to facilitate domestic and
international dealings, transactions, arrangements agreements, contracts
and exchanges and storage of information through the utilization of
electronic, optical and similar medium, mode, instrumentality and
technology to recognize the authenticity and reliability of electronic
documents related to such activities and to promote the universal use of
electronic transaction in the government and general public.
Section 4. Sphere of Application - This Act shall apply to any kind of data
message and electronic document used in the context of commercial and
non-commercial activities to include domestic and international dealings,
transactions, arrangements, agreements contracts and exchanges and
storage of information.
Section 5. Definition of Terms - For the purposes of this Act, the following
terms are defined, as follows:
(a) "Addressee" refers to a person who is intended by the
originator to receive the electronic data message or electronic
document. The term does not include a person acting as an
 intermediary with respect to that electronic data message or
electronic data document.
(b) "Computer" refers to any device or apparatus which, by
electronic, electro-mechanical, or magnetic impulse, or by other
means, is capable of receiving, recording, transmitting, storing,
processing, retrieving, or producing information, data, figures,
symbols or other modes of written expression according to
mathematical and logical rules or of performing any one or more
of these functions.
(c) "Electronic Data Message" refers to information generated,
sent, received or stored by electronic, optical or similar means.
(d) "Information and Communications System" refers to a
system intended for and capable of generating, sending,
receiving, storing, or otherwise processing electronic data
messages or electronic documents and includes the computer
system or other similar device by or in which data is recorded or
stored and any procedures related to the recording or storage of
electronic data message or electronic document.
(e) "Electronic Signature" refers to any distinctive mark,
characteristic and/or sound in electronic form, representing the
identity of a person and attached to or logically associated with
the electronic data message or electronic document or any
methodology or procedures employed or adopted by a person
and executed or adopted by such person with the intention of
authenticating or approving an electronic data message or
electronic document.
(f) "Electronic Document" refers to information or the
representation of information, data, figures, symbols or other
modes of written expression, described or however represented,
by which a right is established or an obligation extinguished, or
by which a fact may be prove and affirmed, which is receive,
recorded, transmitted, stored, processed, retrieved or produced
electronically.
(g) "Electronic Key" refers to a secret code which secures and
defends sensitive information that cross over public channels
into a form decipherable only with a matching electronic key.
(h) "Intermediary" refers to a person who in behalf of another
person and with respect to a particular electronic document
sends, receives and/or stores provides other services in respect
of that electronic data message or electronic document.
(i) "Originator" refers to a person by whom, or on whose behalf,
the electronic document purports to have been created, generated
and/or sent. The term does not include a person acting as an
intermediary with respect to that electronic document.
(j) "Service provider" refers to a provider of -
i. On-line services or network access or the operator of
facilities therefor, including entities offering the
transmission, routing, or providing of connections for
online communications, digital or otherwise, between
or among points specified by a user, of electronic
documents of the user's choosing; or
ii. The necessary technical means by which electronic
documents of an originator may be stored and made
accessible to designated or undesignated third party.
Such service providers shall have no authority to modify or alter the
content of the electronic data message or electronic document received or
to make any entry therein on behalf of the originator, addressee or any
third party unless specifically authorized to do so, and who shall retain the
electronic document in accordance with the specific request or as
necessary for the purpose of performing the services it was engaged to
perform.
CHAPTER II
LEGAL RECOGNITION OF ELECTRONIC WRITING
OR DOCUMENT AND DATA MESSAGES
Section 6. Legal Recognition of Electronic Data Messages - Information
shall not be denied legal effect, validity or enforceability solely on the
grounds that it is in the data message purporting to give rise to such legal
effect, or that it is merely referred to in that electronic data message.
Section 7. Legal Recognition of Electronic Documents - Electronic
documents shall have the legal effect, validity or enforceability as any
other document or legal writing, and -
(a) Where the law requires a document to be in writing, that
requirement is met by an electronic document if the said
electronic document maintains its integrity and reliability and
can be authenticated so as to be usable for subsequent reference,
in that -
i. The electronic document has remained complete and
unaltered, apart from the addition of any endorsement
and any authorized change, or any change which arises
in the normal course of communication, storage and
display; and
ii. The electronic document is reliable in the light of the
purpose for which it was generated and in the light of
all relevant circumstances.
(b) Paragraph (a) applies whether the requirement therein is in
the form of an obligation or whether the law simply provides
consequences for the document not being presented or retained
in its original from.
(c) Where the law requires that a document be presented or
retained in its original form, that requirement is met by an
electronic document if -
i. There exists a reliable assurance as to the integrity of
the document from the time when it was first generated
in its final form; and
ii. That document is capable of being displayed to the
person to whom it is to be presented: Provided, That no
provision of this Act shall apply to vary any and all
requirements of existing laws on formalities required
in the execution of documents for their validity.
For evidentiary purposes, an electronic document shall be the functional
equivalent of a written document under existing laws.
This Act does not modify any statutory rule relating to admissibility of
electronic data massages or electronic documents, except the rules relating
to authentication and best evidence.
Section 8. Legal Recognition of Electronic Signatures. - An electronic
signature on the electronic document shall be equivalent to the signature
of a person on a written document if that signature is proved by showing
that a prescribed procedure, not alterable by the parties interested in the
electronic document, existed under which -
(a) A method is used to identify the party sought to be bound and
to indicate said party's access to the electronic document
necessary for his consent or approval through the electronic
signature;
(b) Said method is reliable and appropriate for the purpose for
which the electronic document was generated or communicated,
in the light of all circumstances, including any relevant
agreement;
(c) It is necessary for the party sought to be bound, in or order to
proceed further with the transaction, to have executed or
provided the electronic signature; and
(d) The other party is authorized and enabled to verify the
electronic signature and to make the decision to proceed with the
transaction authenticated by the same.
Section 9. Presumption Relating to Electronic Signatures - In any
proceedings involving an electronic signature, it shall be presumed that -
(a) The electronic signature is the signature of the person to
whom it correlates; and
(b) The electronic signature was affixed by that person with the
intention of signing or approving the electronic document unless
the person relying on the electronically signed electronic
document knows or has noticed of defects in or unreliability of
the signature or reliance on the electronic signature is not
reasonable under the circumstances.
Section 10. Original Documents. -
(1) Where the law requires information to be presented or
retained in its original form, that requirement is met by an
electronic data message or electronic document if;
(a) the integrity of the information from the time when
it was first generated in its final form, as an electronic
data message or electronic document is shown by
evidence aliunde or otherwise; and
(b) where it is required that information be resented,
that the information is capable of being displayed to the
person to whom it is to be presented.
(2) Paragraph (1) applies whether the requirement therein is in
the form of an obligation or whether the law simply provides
consequences for the information not being presented or retained
in its original form.
(3) For the purpose of subparagraph (a) of paragraph (1):
(a) the criteria for assessing integrity shall be whether
the information has remained complete and unaltered,
apart from the addition of any endorsement and any
change which arises in the normal course of
communication, storage and display ; and
(b) the standard of reliability required shall be assessed
in the light of purposed for which the information was
generated and in the light of all the relevant
circumstances.
Section 11. Authentication of Electronic Data Messages and Electronic
Documents. - Until the Supreme Court by appropriate rules shall have so
provided, electronic documents, electronic data messages and electronic
signatures, shall be authenticated by demonstrating, substantiating and
validating a claimed identity of a user, device, or another entity is an
information or communication system, among other ways, as follows;
(a) The electronic signature shall be authenticated by proof than
a letter , character, number or other symbol in electronic form
representing the persons named in and attached to or logically
associated with an electronic data message, electronic document,
or that the appropriate methodology or security procedures,
when applicable, were employed or adopted by such person,
with the intention of authenticating or approving in an electronic
data message or electronic document;
(b) The electronic data message or electronic document shall be
authenticated by proof that an appropriate security procedure,
when applicable was adopted and employed for the purpose of
verifying the originator of an electronic data message and/or
electronic document, or detecting error or alteration in the
communication, content or storage of an electronic document or
electronic data message from a specific point, which, using
algorithm or codes, identifying words or numbers, encryptions,
answers back or acknowledgement procedures, or similar
security devices.
The supreme court may adopt such other authentication procedures,
including the use of electronic notarization systems as necessary and
advisable, as well as the certificate of authentication on printed or hard
copies of the electronic document or electronic data messages by
electronic notaries, service providers and other duly recognized or
appointed certification authorities.
The person seeking to introduce an electronic data message or electronic
document in any legal proceeding has the burden of proving its
authenticity by evidence capable of supporting a finding that the electronic
data message or electronic document is what the person claims it be.
In the absence of evidence to the contrary, the integrity of the information
and communication system in which an electronic data message or
electronic document is recorded or stored may be established in any legal
proceeding -
a.) By evidence that at all material times the information and
communication system or other similar device was operating in
a manner that did not affect the integrity of the electronic data
message and/or electronic document, and there are no other
reasonable grounds to doubt the integrity of the information and
communication system,
b.) By showing that the electronic data message and/or electronic
document was recorded or stored by a party to the proceedings
who is adverse in interest to the party using it; or
c.) By showing that the electronic data message and/or electronic
document was recorded or stored in the usual and ordinary
course of business by a person who is not a party to the
proceedings and who did not act under the control of the party
using the record.
Section 12. Admissibility and Evidential Weight of Electronic Data
Message or Electronic Document. - In any legal proceedings, nothing in
the application of the rules on evidence shall deny the admissibility of an
electronic data message or electronic document in evidence -
(a) On the sole ground that it is in electronic form; or
(b) On the ground that it is not in the standard written form, and
the electronic data message or electronic document meeting, and
complying with the requirements under Sections 6 or 7 hereof
shall be the best evidence of the agreement and transaction
contained therein.
In assessing the evidential weight of an electronic data message or
electronic document, the reliability of the manner in which it was
generated, stored or communicated, the reliability of the manner in which
its originator was identified, and other relevant factors shall be given due
regard.
Section 13. Retention of Electronic Data Message or Electronic
Document. - Notwithstanding any provision of law, rule or regulation to
the contrary -
(a) The requirement in any provision of law that certain
documents be retained in their original form is satisfied by
retaining them in the form of an electronic data message or
electronic document which -
(i) Remains accessible so as to be usable for subsequent
reference;
(ii) Is retained in the format in which it was generated,
sent or received, or in a format which can be
demonstrated to accurately represent the electronic
data message or electronic document generated, sent or
received;
(iii) Enables the identification of its originator and
addressee, as well as the determination of the date and
the time it was sent or received.
(b) The requirement referred to in paragraph (a) is satisfied by
using the services of a third party, provided that the conditions
set fourth in subparagraph s (i), (ii) and (iii) of paragraph (a) are
met.
Section 14. Proof by Affidavit. - The matters referred to in Section 12, on
admissibility and Section 9, on the presumption of integrity, may be
presumed to have been established by an affidavit given to the best of the
deponent's knowledge subject to the rights of parties in interest as defined
in the following section.
Section 15. Cross - Examination.
(1) A deponent of an affidavit referred to in Section 14 that has
been introduced in evidence may be cross-examined as of right
by a party to the proceedings who is adverse in interest to the
party who has introduced the affidavit or has caused the affidavit
to be introduced.
(2) Any party to the proceedings has the right to cross-examine
a person referred to in section 11, paragraph 4, sub paragraph c.
CHAPTER III.
COMMUNICATION OF ELECTRONIC DATA MESSAGES OR
ELECTRONIC DOCUMENTS
Section 16. Formation of Validity of Electronic Contracts.
(1) Except as otherwise agreed by the parties, an offer, the
acceptance of an offer and such other elements required under
existing laws for the formation of contracts may be expressed in,
demonstrated and proved by means of electronic data messages
or electronic documents and no contract shall be denied validity
or enforceability on the sole ground that it is in the form of an
electronic data message or electronic document, or that any or
all of the elements required under existing laws for the formation
of contracts is expressed, demonstrated and proved by means of
electronic data messages or electronic documents.
(2) Electronic transactions made through networking among
banks, or linkages thereof with other entities or networks, and
vice versa, shall be deemed consummated upon the actual
dispensing of cash or the debit of one account and the
corresponding credit to another, whether such transaction is
initiated by the depositor or by an authorized collecting party:
Provided, that the obligation of one bank, entity, or person
similarly situated to another arising therefrom shall be
considered absolute and shall not be subjected to the process of
preference of credits.
Section 17. Recognition by Parties of Electronic Data Message or
Electronic Document. - As between the originator and the addressee of an
electronic data message or electronic document, a declaration of will or
other statement shall not be denied legal effect, validity or enforceability
solely on the ground that it is in the form of an electronic data message.
Section 18. Attribution of Electronic Data Message. -
(1) An electronic data message or electronic document is that of
the originator if it was sent by the originator himself.
(2) As between the originator and the addressee, an electronic
data message or electronic document is deemed to be that of the
originator if it was sent:
(a) by a person who had the authority to act on behalf
of the originator with respect to that electronic data
message or electronic document; or
(b) by an information system programmed by, or on
behalf of the originator to operate automatically.
(3) As between the originator and the addressee, an addressee is
entitled to regard an electronic data message or electronic
document as being that of the originator, and to act on that
assumption, if:
(a) in order to ascertain whether the electronic data
message or electronic document was that of the
originator, the addressee properly applied a procedure
previously agreed to by the originator for that purpose;
or
(b) the electronic data message or electronic document
as received by the addressee resulted from the actions
of a person whose relationship with the originator or
with any agent of the originator enabled that person to
gain access to a method used by the originator to
identify electronic data messages as his own.
(4) Paragraph (3) does not apply:
(a) as of the time when the addressee has both received
notice from the originator that the electronic data
message or electronic document is not that of the
originator, and has reasonable time to act accordingly;
or
(b) in a case within paragraph (3) sub-paragraph (b), at
any time when the addressee knew or should have
known, had it exercised reasonable care of used any
 agreed procedure, that the electronic data message or
electronic document was not that of the originator.
(5) Where an electronic data message or electronic document is
that of the originator or is deemed to be that of the originator, or
the addressee is entitled to act on that assumption, then, as
between the originator and the addressee, the addressee is
entitled to regard the electronic data message or electronic
document as received as being what the originator intended to
send, and to act on that assumption. The addressee is not so
entitled when it knew or should have known, had it exercised
treasonable care or used any agreed procedure, that the
transmission resulted in any error in the electronic data message
or electronic document as received.
(6) The addressee is entitled to regard each electronic data
message or electronic document received as a separate electronic
data message or electronic document and to act on that
assumption, except to the extent that it duplicates another
electronic data message or electronic document and the
addressee knew or should have known, had it exercised
reasonable care or used any agreed procedure, that the electronic
data message or electronic document was a duplicate.
Section 19. Error on Electronic Data Message or Electronic Document. -
The addressee is entitled to regard the electronic data message or
electronic document received as that which the originator intended to send,
and to act on that assumption, unless the addressee knew or should have
known, had the addressee exercised reasonable care or used the
appropriate procedure -
(a) That the transmission resulted in any error therein or in the
electronic document when the electronic data message or
electronic document enters the designated information system,
or
(b) That electronic data message or electronic document is sent
to an information system which is not so designated by the
addressee for the purposes.
Section 20. Agreement on Acknowledgement of Receipt of Electronic
Data Messages or Electronic Documents. - The following rules shall
apply where, on or before sending an electronic data message or electronic
document, the originator and the addressee have agreed, or in that
electronic document or electronic data message, the originator has
requested, that receipt of the electronic document or electronic data
message be acknowledged:
a.) Where the originator has not agreed with the addressee that
the acknowledgement be given in a particular form or by a
particular method, an acknowledgement may be given by or
through any communication by the addressee, automated or
otherwise, or any conduct of the addressee, sufficient to indicate
to the originator that the electronic data message or electronic
document has been received.
b.) Where the originator has stated that the effect or significance
of the electronic data message or electronic document is
conditional on receipt of the acknowledgement thereof, the
electronic data message or electronic document is treated as
though it has never been sent, until the acknowledgement is
received.
c.) Where the originator has not stated that the effect or
significance of the electronic data message or electronic
document is conditional on receipt of the acknowledgement, and
the acknowledgement has not been received by the originator
within the time specified or agreed or, if no time has been
specified or agreed, within the reasonable time, the originator
may give notice to the addressee stating that no
acknowledgement has been received and specifying a reasonable
time by which the acknowledgement must be received; and if the
acknowledgement is not received within the time specified in
subparagraph (c), the originator may, upon notice to the
addressee, treat the electronic document or electronic data as
though it had never been sent, or exercise any other rights it may
have.
Section 21. Time of Dispatch of Electronic Data Messages or Electronic
Documents. - Unless otherwise agreed between the originator and the
addressee, the dispatch of an electronic data message or electronic
document occurs when it enters an information system outside the control
of the originator or of the person who sent the electronic data message or
electronic document on behalf of the originator.
Section 22. Time of Receipt of Electronic Data Messages or Electronic
Documents. - Unless otherwise agreed between the originator and the
addressee, the time of receipt of an electronic data message or electronic
document is as follows:
a.) If the addressee has designated an information system for the
purpose of receiving electronic data message or electronic
document, receipt occurs at the time when the electronic data
message or electronic document enters the designated
information system: Provide, however, that if the originator and
the addressee are both participants in the designated information
system, receipt occurs at the time when the electronic data
message or electronic document is retrieved by the addressee;
b.) If the electronic data message or electronic document is sent
to an information system of the addressee that is not the
designated information system, receipt occurs at the time when
the electronic data message or electronic document is retrieved
by the addressee;
c.) If the addressee has not designated an information system,
receipt occurs when the electronic data message or electronic
document enters an information system of the addressee.
These rules apply notwithstanding that the place where the information
system is located may be different from the place where the electronic data
message or electronic document is deemed to be received.
Section 23. Place of Dispatch and Receipt of Electronic Data Messages
or Electronic Documents. - Unless otherwise agreed between the
originator and the addressee, an electronic data message or electronic
document is deemed to be dispatched at the place where the originator has
its place of business and received at the place where the addressee has its
place of business. This rule shall apply even if the originator or addressee
had used a laptop other portable device to transmit or received his
electronic data message or electronic document. This rule shall also apply
to determine the tax situs of such transaction.
For the purpose hereof -
a. If the originator or addressee has more than one place of
business, the place of business is that which has the closest
relationship to the underlying transaction or, where there is no
underlying transaction, the principal place of business.
b. If the originator or the addressee does not have a place of
business, reference is to be made to its habitual residence; or
c. The "usual place of residence" in relation to a body corporate,
means the place where it is incorporated or otherwise legally
constituted.
Section 24. Choice of Security Methods. - Subject to applicable laws and
/or rules and guidelines promulgated by the Department of Trade and
Industry with other appropriate government agencies, parties to any
electronic transaction shall be free to determine the type of level of
electronic data message and electronic document security needed, and to
select and use or implement appropriate technological methods that suit
their need.
PART III
ELECTRONIC COMMERCE IN SPECIFIC AREAS
CHAPTER I.
CARRIAGE OF GOODS
Section 25. Actions Related to Contracts of Carriage of Goods. - Without
derogating from the provisions of part two of this law, this chapter applies
to any action in connection with, or in pursuance of, a contract of carriage
of goods, including but not limited to:
(a) (i) furnishing the marks, number, quantity or weight of goods;
(ii) stating or declaring the nature or value of goods;
(iii) issuing a receipt for goods;
(iv) confirming that goods have been loaded;
(b) (i) notifying a person of terms and conditions of the contract;
(ii) giving instructions to a carrier;
(c) (i) claiming delivery of goods;
(ii) authorizing release of goods;
(iii) giving notice of loss of, or damage to goods;
(d) giving any other notice or statement in connection with the
performance of the contract;
(e) undertaking to deliver goods to a named person or a person
authorized to claim delivery;
(f) granting, acquiring, renouncing, surrendering, transferring or
negotiating rights in goods;
(g) acquiring or transferring rights and obligations under the
contract.
Section 26. Transport Documents. - (1) Where the law requires that any
action referred to contract of carriage of goods be carried out in writing or
by using a paper document, that requirement is met if the action is carried
out by using one or more data messages or electronic documents.
(2) Paragraph (1) applies whether the requirement there in is in
the form of an obligation or whether the law simply provides
consequences for failing either to carry out the action in writing
or to use a paper document.
(3) If a right is to be granted to, or an obligation is to be acquired
by, one person and no person, and if the law requires that, in
order to effect this, the right or obligation must be conveyed to
that person by the transfer, or use of, a paper document, that
requirement is met if the right or obligation is conveyed by using
 one or more electronic data messages or electronic documents
unique;
(4) For the purposes of paragraph (3), the standard of reliability
required shall be assessed in the light of the purpose for which
the right or obligation was conveyed and in the light of all the
circumstances, including any relevant agreement.
(5) Where one or more data messages are used to effect any
action in subparagraphs (f) and (g) of Section 25, no paper
document used to effect any such action is valid unless the use
of electronic data message or electronic document has been
terminated and replaced by the used of paper documents. A paper
document issued in these circumstances shall contain a statement
of such termination. The replacement of the electronic data
messages or electronic documents by paper documents shall not
affect the rights or obligation of the parties involved.
(6) If a rule of laws is compulsorily applicable to a contract of
carriage of goods which is in, or is evidenced by, a paper
document, that rule shall not be inapplicable to such a contract
of carriage of goods which is evidenced by one or more
electronic data messages or electronic documents by reason of
the fact that the contract is evidenced by such electronic data
messages or electronic documents instead of by a paper
document.
PART IV
ELECTRONIC TRANSACTIONS IN GOVERNMENT
Section 27. Government Use of Electronic Data Messages, Electronic
Documents and Electronic Signatures. - Notwithstanding any law to the
contrary, within two (2) years from the date of the effectivity of this Act,
all departments, bureaus, offices and agencies of the government, as well
as all government-owned and -controlled corporations, that pursuant to
law require or accept the filling of documents, require that documents be
created, or retained and/or submitted, issue permits, licenses or certificates
of registration or approval, or provide for the method and manner of
payment or settlement of fees and other obligations to the government,
shall -
(a) accept the creation, filing or retention of such documents in
the form of electronic data messages or electronic documents;
(b) issue permits, licenses, or approval in the form of electronic
data messages or electronic documents;
(c) require and/or accept payments, and issue receipts
acknowledging such payments, through systems using electronic
data messages or electronic documents; or
(d) transact the government business and/or perform
governmental functions using electronic data messages or
electronic documents, and for the purpose, are authorized to
adopt and promulgate, after appropriate public hearing and with
due publication in newspapers of general circulation, the
appropriate rules, regulations, or guidelines, to, among others,
specify -
1) the manner and format in which such electronic data
messages or electronic documents shall be filed,
created, retained or issued;
2) where and when such electronic data messages or
electronic documents have to signed, the use of an
electronic signature, the type of electronic signature
required;
3) the format of an electronic data message or
electronic document and the manner the electronic
signature shall be affixed to the electronic data message
or electronic document;
4) the control processes and procedures as appropriate
to ensure adequate integrity, security and
confidentiality of electronic data messages or
electronic documents or records of payments;
5) other attributes required to electronic data messages
or electronic documents or payments; and
6) the full or limited use of the documents and papers
for compliance with the government requirements:
Provided, that this Act shall be itself mandate any
department of the government, organ of state or
statutory corporation to accept or issue any document
in the form of electronic data messages or electronic
documents upon the adoption, promulgation and
publication of the appropriate rules, regulations or
guidelines.
Section 28. RPWEB To Promote the Use of Electronic Documents or
Electronic Data Messages In Government and to the General Public. -
Within two (2) years from the effectivity of this Act, there shall be
installed an electronic online network in accordance with Administrative
Order 332 and House of Representatives Resolution 890, otherwise known
as RPWEB, to implement Part IV of this Act to facilitate the open, speedy
and efficient electronic online transmission, conveyance and use of
electronic data messages or electronic documents amongst all government
departments, agencies, bureaus, offices down to the division level and to
the regional and provincial offices as practicable as possible, government
owned and controlled corporations, local government units, other public
instrumentalities, universities, colleges and other schools, and universal
access to the general public.
The RPWEB network shall serve as initial platform of the government
information infrastructure (GII) to facilitate the electronic online
transmission and conveyance of government services to evolve and
improve by better technologies or kinds and electronic online wide area
networks utilizing, but not limited to, fiber optic, satellite, wireless and
other broadband telecommunication mediums or modes.
To facilitate the rapid development of the GII, the Department of
Transportation and Communications, National Telecommunications
Commission and the National Computer Center are hereby directed to
aggressively promote and implement a policy environment and regulatory
framework that shall lead to the substantial reduction of costs of including,
but not limited to, lease lines, land, satellite and dial-up telephone access,
cheap broadband and wireless accessibility by government departments,
agencies, bureaus, offices, government owned and controlled
corporations, local government units, other public instrumentalities and
the general public, to include the establishment of a government website
portal and a domestic internal exchange system to facilitate strategic
access to government and amongst agencies thereof and the general public
and for the speedier flow of locally generated internal traffic within the
Philippines.
The physical infrastructure of cable and wireless system for cable TV and
broadcast excluding programming content and the management thereof
shall be considered as within the activity of telecommunications for the
purpose of electronic commerce and to maximize the convergence of ICT
in the installation of the GII.
Section 29. Authority of the Department of Trade and Industry and
Participating Entities. - The Department of Trade and Industry (DTI) shall
direct supervise the promotion and development of electronic commerce
in the country with relevant government agencies, without prejudice to the
provisions of Republic Act 7653 (Charter of Bangko Sentral ng Pilipinas)
and Republic Act No. 337, (General Banking Act) as amended.
Among others, the DTI is empowered to promulgate rules and regulations,
as well as provide quality standards or issue certifications, as the case may
be, and perform such other functions as may be necessary for the
implementation of this Act in the area of electronic commerce to include,
but shall not limited to, the installation of an online public information and
quality and price monitoring system for goods and services aimed in
protecting the interests of the consuming public availing of the advantages
of this Act.
PART V
FINAL PROVISIONS
Section 30. Extent of Liability of a Service Provider. - Except as otherwise
provided in this Section, no person or party shall be subject to any civil or
criminal liability in respect of the electronic data message or electronic
document for which the person or party acting as a service provider as
defined in Section 5 merely provides access if such liability is founded on
-
(a) The obligations and liabilities of the parties under the
electronic data message or electronic document;
(b) The making, publication, dissemination or distribution of
such material or any statement made in such material, including
possible infringement of any right subsisting in or in relation to
such material. Provided, That:
i. The service provider does not have actual knowledge,
or is not aware of the facts or circumstances from
which it is apparent, that the making, publication,
dissemination or distribution of such material is
unlawful or infringes any rights subsisting in or in
relation to such material;
ii The service provider does not knowingly receive a
financial benefit directly attributable to the unlawful or
infringing activity; and
iii. The service provider does not directly commit any
infringement or other unlawful act and does not induce
or cause another person or party to commit any
infringement or other unlawful act and/or does not
benefit financially from the infringing activity or
unlawful act or another person or party; Provider,
further, That nothing in this Section shall affect -
(a) Any obligation founded on contract;
(b) The obligation of a service provider as such under a licensing
or other regulatory regime established under written law; or
(c) Any obligation imposed under any written law;
 (d) The civil liability of any party to the extent that such liability for the continued implementation shall be included in the annual General
forms the basis for injunctive relief issued by a court under any Appropriations Act.
law requiring that the service provider take or refrain from Section 37. Statutory Interpretation. - Unless otherwise expressly
actions necessary to remove, block or deny access to any provided for, the interpretation of this Act shall give due regard to its
material, or to preserve evidence of a violation of law. international origin and the need to promote uniformity in its application
Section 31. Lawful Access. - Access to an electronic file, or an electronic and the observance of good faith in international trade relations. The
signature of an electronic data message or electronic document shall only generally accepted principles of international law and convention on
be authorized and enforced in favor of the individual or entity having a electronic commerce shall likewise be considered.
legal right to the possession or the use of plaintext, electronic signature or Section 38. Variation by Agreement. - As between parties involved in
file or solely for the authorized purposes. The electronic key for identity generating, sending, receiving, storing or otherwise processing electronic
or integrity shall not be made available to any person or party without the data message or electronic document, any provision of this Act may be
consent of the individual or entity in lawful possession of that electronic varied by agreement between and among them.
key; Section 39. Reciprocity. - All benefits, privileges, advantages or statutory
Section 32. Obligation of Confidentiality. - Except for the purposes rules established under this Act, including those involving practice of
authorized under this Act, any person who obtained access to any profession, shall be enjoyed only by parties whose country origin grants
electronic key, electronic data message or electronic document, book, the same benefits and privileges or advantages to Filipino citizens.
register, correspondence, information, or other material pursuant to any Section 40. Separability Clause. - The provisions of this Act are hereby
powers conferred under this Act, shall not convey to or share the same declared separable and in the event of any such provision is declared
with any other person. unconstitutional, the other provisions, which are not affected, shall remain
Section 33. Penalties. - The following Acts, shall be penalized by fine in force and effect.
and/or imprisonment, as follows: Section 41. Repealing Clause. - All other laws, decrees, rules and
(a) Hacking or crackling with refers to unauthorized access into regulations or parts thereof which are inconsistent with the provisions of
or interference in a computer system/server or information and this Act are hereby repealed, amended or modified accordingly.
communication system; or any access in order to corrupt, alter, Section 42. Effectivity. - This Act shall take effect immediately after its
steal, or destroy using a computer or other similar information publication in the Official Gazette or in at least two (2) national
and communication devices, without the knowledge and consent newspapers of general circulation.
of the owner of the computer or information and Approved:
communications system, including the introduction of computer June 14, 2000
viruses and the like, resulting in the corruption, destruction, (Sgd.) JOSEPH E. ESTRADA
alteration, theft or loss of electronic data messages or electronic President of the Philippines
documents shall be punished by a minimum fine of One Hundred
Thousand pesos (P 100,000.00) and a maximum commensurate
to the damage incurred and a mandatory imprisonment of six (6)
months to three (3) years;
(b) Piracy or the unauthorized copying, reproduction,
dissemination, or distribution, importation, use, removal,
alteration, substitution, modification, storage, uploading,
downloading, communication, making available to the public, or
broadcasting of protected material, electronic signature or
copyrighted works including legally protected sound recordings
or phonograms or information material on protected works,
through the use of telecommunication networks, such as, but not
limited to, the internet, in a manner that infringes intellectual
property rights shall be punished by a minimum fine of one
hundred thousand pesos (P 100,000.00) and a maximum
commensurate to the damage incurred and a mandatory
imprisonment of six (6) months to three (3) years;
(c) Violations of the Consumer Act of Republic Act No. 7394
and other relevant to pertinent laws through transaction covered
by or using electronic data messages or electronic documents,
shall be penalized with the same penalties as provided in those
laws;
(d) Other violations of the provisions of this Act, shall be
penalized with a maximum penalty of one million pesos
(P 1,000,000.00) or six (6) years imprisonment.
Section 34. Implementing Rules and Regulations. - The DTI, Department
of Budget and Management and the Bangko Sentral ng Pilipinas are
hereby empowered to enforced the provisions of this Act and issue
implementing rules and regulations necessary, in coordination with the
Department of Transportation and Communications, National
Telecommunications Commission, National Computer Center, National
Information Technology Council, Commission on Audit, other concerned
agencies and the private sector, to implement this Act within sixty (60)
days after its approval.
Failure to Issue rules and regulations shall not in any manner affect the
executory nature of the provisions of this Act.
Section 35. Oversight Committee. - There shall be Congressional
Oversight Committee composed of the Committees and Trade and
Industry/Commerce, Science and Technology, Finance and
Appropriations of both the Senate and House of Representatives, which
shall meet at least every quarter of the first two years and every semester
for the third year after the approval of this Act to oversee its
implementation. The DTI, DBM, Bangko Sentral ng Pilipinas, and other
government agencies as may be determined by the Congressional
Committee shall provide a quarterly performance report of their actions
taking in the implementation of this Act for the first three (3) years.
Section 36. Appropriations. - The amount necessary to carry out the
provisions of Sections 27 and 28 of this Act shall be charged against any
available funds and/or savings under the General Appropriations Act of
2000 in the first year of effectivity of this Act. Thereafter, the funds needed