FORMATION OF THE CONTRACT OF SALE
G.R. No. L-26872 July 25, 1975
VILLONCO REALTY COMPANY, plaintiff-appellee and EDITH PEREZ DE TAGLE,
intervenor-appellee,
vs.
BORMAHECO, INC., FRANCISCO N. CERVANTES and ROSARIO N. CERVANTES,
defendants-appellants. Meer, Meer & Meer for plaintiff-appellee.
AQUINO, J.:
This action was instituted by Villonco Realty Company against Bormaheco, Inc. and the spouses
Francisco N. Cervantes and Rosario N. Cervantes for the specific performance of a supposed
contract for the sale of land and the improvements thereon for one million four hundred thousand
pesos. Edith Perez de Tagle, as agent, intervened in order to recover her commission. The lower
court enforced the sale. Bormaheco, Inc. and the Cervantes spouses, as supposed vendors,
appealed.
This Court took cognizance of the appeal because the amount involved is more than P200,000 and
the appeal was perfected before Republic Act No. 5440 took effect on September 9, 1968. The facts
are as follows:
Francisco N. Cervantes and his wife, Rosario P. Navarra-Cervantes, are the owners of lots 3, 15 and
16 located at 245 Buendia Avenue, Makati, Rizal with a total area of three thousand five hundred
square meters (TCT Nos. 43530, 43531 and 43532, Exh. A, A-1 and A-2). The lots were mortgaged
to the Development Bank of the Phil (DBP) on April 21, 1959 as security for a loan of P441,000. The
mortgage debt was fully paid on July 10, 1969.
Cervantes is the president of Bormaheco, Inc., a dealer and importer of industrial and agricultural
machinery. The entire lots are occupied by the building, machinery and equipment of Bormaheco,
Inc. and are adjacent to the property of Villonco Realty Company situated at 219 Buendia Avenue.
In the early part of February, 1964 there were negotiations for the sale of the said lots and the
improvements thereon between Romeo Villonco of Villonco Realty Company "and Bormaheco, Inc.,
represented by its president, Francisco N. Cervantes, through the intervention of Edith Perez de
Tagle, a real estate broker".
In the course of the negotiations, the brothers Romeo Villonco and Teofilo Villonco conferred with
Cervantes in his office to discuss the price and terms of the sale. Later, Cervantes "went to see
Villonco for the same reason until some agreement" was arrived at. On a subsequent occasion,
Cervantes, accompanied by Edith Perez de Tagle, discussed again the terms of the sale with
Villonco.
During the negotiations, Villonco Realty Company assumed that the lots belonged to Bormaheco,
Inc. and that Cervantes was duly authorized to sell the same. Cervantes did not disclose to the
broker and to Villonco Realty Company that the lots were conjugal properties of himself and his wife
and that they were mortgaged to the DBP.
Bormaheco, Inc., through Cervantes, made a written offer dated February 12, 1964, to Romeo
Villonco for the sale of the property. The offer reads (Exh. B):
BORMAHECO, INC.
February 12,1964
Mr. Romeo
Villonco Villonco Building
Buendia Avenue
Makati, Rizal.
Dear Mr. Villonco:
This is with reference to our telephone conversation this noon on the matter of the sale of our
property located at Buendia Avenue, with a total area of 3,500 sq. m., under the following
conditions:
(1) That we are offering to sell to you the above property at the price of P400.00 per square
meter;
(2) That a deposit of P100,000.00 must be placed as earnest money on the purchase of the
above property which will become part payment of the property in the event that the sale is
consummated;
(3) That this sale is to be consummated only after I shall have also consummated my
purchase of another property located at Sta. Ana, Manila;
(4) That if my negotiations with said property will not be consummated by reason beyond my
control, I will return to you your deposit of P100,000 and the sale of my property to you will not
also be consummated; and
(5) That final negotiations on both properties can be definitely known after 45 days.
If the above terms is (are) acceptable to your Board, please issue out the said earnest money in
favor of Bormaheco, Inc., and deliver the same thru the bearer, Miss Edith Perez de Tagle.
Very truly yours,
SGD. FRANCISCO N. CERVANTES
President
The property mentioned in Bormaheco's letter was the land of the National Shipyards & Steel
Corporation (Nassco), with an area of twenty thousand square meters, located at Punta, Sta. Ana,
Manila. At the bidding held on January 17, 1964 that land was awarded to Bormaheco, Inc., the
highest bidder, for the price of P552,000. The Nassco Board of Directors in its resolution of February
18, 1964 authorized the General Manager to sign the necessary contract (Exh. H).
On February 28, 1964, the Nassco Acting General Manager wrote a letter to the Economic
Coordinator, requesting approval of that resolution. The Acting Economic Coordinator approved the
resolution on March 24, 1964 (Exh. 1).
In the meanwhile, Bormaheco, Inc. and Villonco Realty Company continued their negotiations for
the sale of the Buendia Avenue property. Cervantes and Teofilo Villonco had a final conference on
February 27, 1964. As a result of that conference Villonco Realty Company, through Teofilo Villonco,
in its letter of March 4, 1964 made a revised counter- offer (Romeo Villonco's first counter-offer was
dated February 24, 1964, Exh. C) for the purchase of the property. The counter-offer was accepted
by Cervantes as shown in Exhibit D, which is quoted below:
VILLONCO REALTY COMPANY
V. R. C. Building
219 Buendia Avenue, Makati,
Rizal, Philippines
March 4, 1964
Mr. Francisco Cervantes.
1
Bormaheco, Inc. voucher-receipt evidencing the delivery the broker indicated in her handwriting that the earnest
245 Buendia Avenue money was "subject to the terms and conditions embodied in Bormaheco's letter" of February 12
Makati, Rizal and Villonco Realty Company's letter of March 4, 1964 (Exh. E-1; 14 tsn).

Dear Mr. Cervantes:
In reference to the letter of Miss E. Perez de Tagle dated February 12th and 26, 1964 in respect to
the terms and conditions on the purchase of your property located at Buendia Ave., Makati, Rizal,
with a total area of 3,500 sq. meters., we hereby revise our offer, as follows:
1. That the price of the property shall be P400.00 per sq. m., including the improvements
thereon;
2. That a deposit of P100,000.00 shall be given to you as earnest money which will become
as part payment in the event the sale is consummated;
Then, unexpectedly, in a letter dated March 30, 1964, or twenty-six days after the signing of the
contract of sale, Exhibit D, Cervantes returned the earnest money, with interest amounting to
P694.24 (at ten percent per annum). Cervantes cited as an excuse the circumstance that "despite
the lapse of 45 days from February 12, 1964 there is no certainty yet" for the acquisition of the
Punta property (Exh. F; F-I and F-2). Villonco Realty Company refused to accept the letter and the
checks of Bormaheco, Inc. Cervantes sent them by registered mail. When he rescinded the contract,
he was already aware that the Punta lot had been awarded to Bormaheco, Inc. (25-26 tsn).
Edith Perez de Tagle, the broker, in a letter to Cervantes dated March 31, 1964 articulated her
shock and surprise at Bormaheco's turnabout. She reviewed the history of the deal and explained
why Romeo Villonco could not agree to the rescission of the sale (Exh. G).**

3. This sale shall be cancelled, only if your deal with another property in Sta. Ana shall not Cervantes in his letter of April 6, 1964, a reply to Miss Tagle's letter, alleged that the forty-five day
be consummated and in such case, the P100,000-00 earnest money will be returned to us with a period had already expired and the sale to Bormaheco, Inc. of the Punta property had not been
10% interest p.a. However, if our deal with you is finalized, said P100,000.00 will become as part consummated. Cervantes said that his letter was a "manifestation that we are no longer interested
payment for the purchase of your property without interest: to sell" the Buendia Avenue property to Villonco Realty Company (Annex I of Stipulation of Facts).
The latter was furnished with a copy of that letter.
4. The manner of payment shall be as follows:
In a letter dated April 7, 1964 Villonco Realty Company returned the two checks to Bormaheco, Inc.,
a. P100,000.00 earnest money and stating that the condition for the cancellation of the contract had not arisen and at the same time
650,000.00 as part of the down payment, or announcing that an action for breach of contract would be filed against Bormaheco, Inc. (Annex G
P750,000.00 as total down payment of Stipulation of Facts).1äwphï1.ñët

b. The balance is payable as follows: On that same date, April 7, 1964 Villonco Realty Company filed the complaint (dated April 6) for
P100,000.00 after 3 months specific performance against Bormaheco, Inc. Also on that same date, April 7, at eight-forty-five in
125,000.00 -do- the morning, a notice of lis pendens was annotated on the titles of the said lots.
212,500.00 -do-
P650,000.00 Total Bormaheco, Inc. in its answers dated May 5 and 25, 1964 pleaded the defense that the perfection
of the contract of sale was subject to the conditions (a) "that final acceptance or not shall be made
As regards to the other conditions which we have discussed during our last conference on February after 45 days" (sic) and (b) that Bormaheco, Inc. "acquires the Sta. Ana property".
27, 1964, the same shall be finalized upon preparation of the contract to sell.*
On June 2, 1964 or during the pendency of this case, the Nassco Acting General Manager wrote to
If the above terms and conditions are acceptable to you, kindly sign your conformity hereunder. Bormaheco, Inc., advising it that the Board of Directors and the Economic Coordinator had
Enclosed is our check for ONE HUNDRED THOUSAND (P100,000.00) PESOS, MBTC Check No. approved the sale of the Punta lot to Bormaheco, Inc. and requesting the latter to send its duly
448314, as earnest money. authorized representative to the Nassco for the signing of the deed of sale (Exh. 1).

Very truly yours, The deed of sale for the Punta land was executed on June 26, 1964. Bormaheco, Inc. was
represented by Cervantes (Exh. J. See Bormaheco, Inc. vs. Abanes, L-28087, July 31, 1973, 52
VILLONCO REALTY COMPANY SCRA 73).
(Sgd.) TEOFILO VILLONCO
In view of the disclosure in Bormaheco's amended answer that the three lots were registered in the
CONFORME: names of the Cervantes spouses and not in the name of Bormaheco, Inc., Villonco Realty Company
on July 21, 1964 filed an amended complaint impleading the said spouses as defendants.
BORMAHECO, INC. Bormaheco, Inc. and the Cervantes spouses filed separate answers.
(Sgd.) FRANCISCO CERVANTES
As of January 15, 1965 Villonco Realty Company had paid to the Manufacturers' Bank & Trust
That this sale shall be subject to favorable consummation of a property in Sta. Ana we are Company the sum of P8,712.25 as interests on the overdraft line of P100,000 and the sum of
negotiating. P27.39 as interests daily on the same loan since January 16, 1965. (That overdraft line was later
settled by Villonco Realty Company on a date not mentioned in its manifestation of February 19,
(Sgd.) FRANCISCO CERVANTES 1975).

The check for P100,000 (Exh. E) mentioned in the foregoing letter-contract was delivered by Edith Villonco Realty Company had obligated itself to pay the sum of P20,000 as attorney's fees to its
Perez de Tagle to Bormaheco, Inc. on March 4, 1964 and was received by Cervantes. In the lawyers. It claimed that it was damaged in the sum of P10,000 a month from March 24, 1964 when

2
the award of the Punta lot to Bormaheco, Inc. was approved. On the other hand, Bormaheco, Inc.
claimed that it had sustained damages of P200,000 annually due to the notice of lis pendens which
had prevented it from constructing a multi-story building on the three lots. (Pars. 18 and 19,
Stipulation of Facts).1äwphï1.ñët
Miss Tagle testified that for her services Bormaheco, Inc., through Cervantes, obligated itself to pay
her a three percent commission on the price of P1,400,000 or the amount of forty-two thousand
pesos (14 tsn).
After trial, the lower court rendered a decision ordering the Cervantes spouses to execute in favor of
Bormaheco, Inc. a deed of conveyance for the three lots in question and directing Bormaheco, Inc.
(a) to convey the same lots to Villonco Realty Company, (b) to pay the latter, as consequential
damages, the sum of P10,000 monthly from March 24, 1964 up to the consummation of the sale,
(c) to pay Edith Perez de Tagle the sum of P42,000 as broker's commission and (d) pay P20,000 as
to attorney's fees (Civil Case No. 8109).
Bormaheco, Inc. and the Cervantes spouses appealed. Their principal contentions are (a) that no
contract of sale was perfected because Cervantes made a supposedly qualified acceptance of the
revised offer contained in Exhibit D, which acceptance amounted to a counter-offer, and because
the condition that Bormaheco, inc. would acquire the Punta land within the forty-five-day period
was not fulfilled; (2) that Bormaheco, Inc. cannot be compelled to sell the land which belongs to the
Cervantes spouses and (3) that Francisco N. Cervantes did not bind the conjugal partnership and his
wife when, as president of Bormaheco, Inc., he entered into negotiations with Villonco Realty
Company regarding the said land.
We hold that the appeal, except as to the issue of damages, is devoid of merit.
"By the contract of sale one of the contracting parties obligates himself to transfer the ownership of
and to deliver a determining thing, and the other to pay therefor a price certain in money or its
equivalent. A contract of sale may be absolute or conditional" (Art. 1458, Civil Code).
"The contract of sale is perfected at the moment there is a meeting of minds upon the thing which
is the object of the contract and upon the price. From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law governing the form of contracts" (Art.
1475, Ibid.).
"Contracts are perfected by mere consent, and from that moment the parties are bound not only to
the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law" (Art. 1315, Civil Code).
"Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and the acceptance absolute.
A qualified acceptance constitutes a counter-offer" (Art. 1319, Civil Code). "An acceptance may be
express or implied" (Art. 1320, Civil Code).
Bormaheco's acceptance of Villonco Realty Company's offer to purchase the Buendia Avenue
property, as shown in Teofilo Villonco's letter dated March 4, 1964 (Exh. D), indubitably proves that
there was a meeting of minds upon the subject matter and consideration of the sale. Therefore, on
that date the sale was perfected. (Compare with McCullough vs. Aenlle & Co., 3 Phil. 285; Goyena
vs. Tambunting, 1 Phil. 490). Not only that Bormaheco's acceptance of the part payment of one
hundred ,thousand pesos shows that the sale was conditionally consummated or partly executed
subject to the purchase by Bormaheco, Inc. of the Punta property. The nonconsummation of that
purchase would be a negative resolutory condition (Taylor vs. Uy Tieng Piao, 43 Phil. 873).
On February 18, 1964 Bormaheco's bid for the Punta property was already accepted by the Nassco
which had authorized its General Manager to sign the corresponding deed of sale. What was
necessary only was the approval of the sale by the Economic Coordinator and a request for that
approval was already pending in the office of that functionary on March 4, 1964.
Bormaheco, Inc. and the Cervantes spouses contend that the sale was not perfected because
Cervantes allegedly qualified his acceptance of Villonco's revised offer and, therefore, his acceptance
amounted to a counter-offer which Villonco Realty Company should accept but no such acceptance
was ever transmitted to Bormaheco, Inc. which, therefore, could withdraw its offer.
That contention is not well-taken. It should be stressed that there is no evidence as to what
changes were made by Cervantes in Villonco's revised offer. And there is no evidence that Villonco
Realty Company did not assent to the supposed changes and that such assent was never made
known to Cervantes.
What the record reveals is that the broker, Miss Tagle, acted as intermediary between the parties. It
is safe to assume that the alleged changes or qualifications made by Cervantes were approved by
Villonco Realty Company and that such approval was duly communicated to Cervantes or
Bormaheco, Inc. by the broker as shown by the fact that Villonco Realty Company paid, and
Bormaheco, Inc. accepted, the sum of P100,000 as earnest money or down payment. That crucial
fact implies that Cervantes was aware that Villonco Realty Company had accepted the modifications
which he had made in Villonco's counter-offer. Had Villonco Realty Company not assented to those
insertions and annotations, then it would have stopped payment on its check for P100,000. The fact
that Villonco Realty Company allowed its check to be cashed by Bormaheco, Inc. signifies that the
company was in conformity with the changes made by Cervantes and that Bormaheco, Inc. was
aware of that conformity. Had those insertions not been binding, then Bormaheco, Inc. would not
have paid interest at the rate of ten percent per annum, on the earnest money of P100,000.
The truth is that the alleged changes or qualifications in the revised counter — offer (Exh. D) are
not material or are mere clarifications of what the parties had previously agreed upon.
Thus, Cervantes' alleged insertion in his handwriting of the figure and the words "12th and" in
Villonco's counter-offer is the same as the statement found in the voucher-receipt for the earnest
money, which reads: "subject to the terms and conditions embodied in Bormaheco's letter of Feb.
12, 1964 and your letter of March 4, 1964" (Exh. E-1).
Cervantes allegedly crossed out the word "Nassco" in paragraph 3 of Villonco's revised counter-offer
and substituted for it the word "another" so that the original phrase, "Nassco's property in Sta.
Ana", was made to read as "another property in Sta. Ana". That change is trivial. What Cervantes
did was merely to adhere to the wording of paragraph 3 of Bormaheco's original offer (Exh. B)
which mentions "another property located at Sta. Ana." His obvious purpose was to avoid
jeopardizing his negotiation with the Nassco for the purchase of its Sta. Ana property by unduly
publicizing it.
It is noteworthy that Cervantes, in his letter to the broker dated April 6, 1964 (Annex 1) or after the
Nassco property had been awarded to Bormaheco, Inc., alluded to the "Nassco property". At that
time, there was no more need of concealing from the public that Bormaheco, Inc. was interested in
the Nassco property.
Similarly, Cervantes' alleged insertion of the letters "PA" ( per annum) after the word "interest" in
that same paragraph 3 of the revised counter-offer (Exh. D) could not be categorized as a major
alteration of that counter-offer that prevented a meeting of the minds of the parties. It was
understood that the parties had contemplated a rate of ten percent per annum since ten percent a
month or semi-annually would be usurious.
Appellants Bormaheco, Inc. and Cervantes further contend that Cervantes, in clarifying in the
voucher for the earnest money of P100,000 that Bormaheco's acceptance thereof was subject to the
terms and conditions embodied in Bormaheco's letter of February 12, 1964 and your (Villonco's)
letter of March 4, 1964" made Bormaheco's acceptance "qualified and conditional".
3

That contention is not correct. There is no incompatibility between Bormaheco's offer of February
12, 1964 (Exh. B) and Villonco's counter-offer of March 4, 1964 (Exh. D). The revised counter-offer
merely amplified Bormaheco's original offer.
The controlling fact is that there was agreement between the parties on the subject matter, the
price and the mode of payment and that part of the price was paid. "Whenever earnest money is
given in a contract of sale, it shall be considered as part of the price and as proof of the perfection
of the contract" (Art. 1482, Civil Code).
"It is true that an acceptance may contain a request for certain changes in the terms of the offer
and yet be a binding acceptance. 'So long as it is clear that the meaning of the acceptance is
positively and unequivocally to accept the offer, whether such request is granted or not, a contract
is formed.' " (Stuart vs. Franklin Life Ins. Co., 165 Fed. 2nd 965, citing Sec. 79, Williston on
Contracts).
Thus, it was held that the vendor's change in a phrase of the offer to purchase, which change does
not essentially change the terms of the offer, does not amount to a rejection of the offer and the
tender of a counter-offer (Stuart vs. Franklin Life Ins. Co., supra).
The instant case is not governed by the rulings laid down in Beaumont vs. Prieto, 41 Phil. 670, 985,
63 L. Ed. 770, and Zayco vs. Serra, 44 Phil. 326. In those two cases the acceptance radically altered
the offer and, consequently, there was no meeting of the minds of the parties.
Thus, in the Zayco case, Salvador Serra offered to sell to Lorenzo Zayco his sugar central for
P1,000,000 on condition that the price be paid in cash, or, if not paid in cash, the price would be
payable within three years provided security is given for the payment of the balance within three
years with interest. Zayco, instead of unconditionally accepting those terms, countered that he was
going to make a down payment of P100,000, that Serra's mortgage obligation to the Philippine
National Bank of P600,000 could be transferred to Zayco's account and that he (plaintiff) would give
a bond to secure the payment of the balance of the price. It was held that the acceptance was
conditional or was a counter-offer which had to be accepted by Serra. There was no such
acceptance. Serra revoked his offer. Hence, there was no perfected contract.
In the Beaumont case, Benito Valdes offered to sell to W Borck the Nagtahan Hacienda owned by
Benito Legarda, who had empowered Valdes to sell it. Borck was given three months from
December 4, 1911 to buy the hacienda for P307,000. On January 17, 1912 Borck wrote to Valdes,
offering to purchase the hacienda for P307,000 payable on May 1, 1912. No reply was made to that
letter. Borck wrote other letters modifying his proposal. Legarda refused to convey the property.
It was held that Borck's January 17th letter plainly departed from the terms of the offer as to the
time of payment and was a counter-offer which amounted to a rejection of Valdes' original offer. A
subsequent unconditional acceptance could not revive that offer.
The instant case is different from Laudico and Harden vs. Arias Rodriguez, 43 Phil. 270 where the
written offer to sell was revoked by the offer or before the offeree's acceptance came to the
offeror's knowledge.
Appellants' next contention is that the contract was not perfected because the condition that
Bormaheco, Inc. would acquire the Nassco land within forty-five days from February 12, 1964 or on
or before March 28, 1964 was not fulfilled. This contention is tied up with the following letter of
Bormaheco, Inc. (Exh. F):
BORMAHECO, INC.
March 30, 1964
Villonco Realty Company
V.R.C. Building
219 Buendia Ave.,
Makati, Rizal
Gentlemen:
We are returning herewith your earnest money together with interest thereon at 10% per annum.
Please be informed that despite the lapse of the 45 days from February 12, 1964 there is no
certainty yet for us to acquire a substitute property, hence the return of the earnest money as
agreed upon.
Very truly yours,
SGD. FRANCISCO N. CERVANTES
President
Encl.: P.N.B. Check No. 112994 J
P.N.B. Check No. 112996J
That contention is predicated on the erroneous assumption that Bormaheco, Inc. was to acquire the
Nassco land within forty-five days or on or before March 28, 1964.
The trial court ruled that the forty-five-day period was merely an estimate or a forecast of how long
it would take Bormaheco, Inc. to acquire the Nassco property and it was not "a condition or a
deadline set for the defendant corporation to decide whether or not to go through with the sale of
its Buendia property".
The record does not support the theory of Bormaheco, Inc. and the Cervantes spouses that the
forty-five-day period was the time within which (a) the Nassco property and two Pasong Tamo lots
should be acquired, (b) when Cervantes would secure his wife's consent to the sale of the three lots
and (c) when Bormaheco, Inc. had to decide what to do with the DBP encumbrance.
Cervantes in paragraph 3 of his offer of February 12, 1964 stated that the sale of the Buendia lots
would be consummated after he had consummated the purchase of the Nassco property. Then, in
paragraph 5 of the same offer he stated "that final negotiations on both properties can be definitely
known after forty-five days" (See Exh. B).
It is deducible from the tenor of those statements that the consummation of the sale of the Buendia
lots to Villonco Realty Company was conditioned on Bormaheco's acquisition of the Nassco land. But
it was not spelled out that such acquisition should be effected within forty-five days from February
12, 1964. Had it been Cervantes' intention that the forty-five days would be the period within which
the Nassco land should be acquired by Bormaheco, then he would have specified that period in
paragraph 3 of his offer so that paragraph would read in this wise: "That this sale is to be
consummated only after I shall have consummated my purchase of another property located at Sta.
Ana, Manila within forty-five days from the date hereof ." He could have also specified that period in
his "conforme" to Villonco's counter-offer of March 4, 1964 (Exh. D) so that instead of merely
stating "that this sale shall be subject to favorable consummation of a property in Sta. Ana we are
negotiating" he could have said: "That this sale shall be subject to favorable consummation within
forty-five days from February 12, 1964 of a property in Sta. Ana we are negotiating".
No such specification was made. The term of forty-five days was not a part of the condition that the
Nassco property should be acquired. It is clear that the statement "that final negotiations on both
property can be definitely known after 45 days" does not and cannot mean that Bormaheco, Inc.
should acquire the Nassco property within forty-five days from February 12, 1964 as pretended by
Cervantes. It is simply a surmise that after forty-five days (in fact when the forty-five day period
should be computed is not clear) it would be known whether Bormaheco, Inc. would be able to
4
acquire the Nassco property and whether it would be able to sell the Buendia property. That
aforementioned paragraph 5 does not even specify how long after the forty-five days the outcome
of the final negotiations would be known.
It is interesting to note that in paragraph 6 of Bormaheco's answer to the amended complaint,
which answer was verified by Cervantes, it was alleged that Cervantes accepted Villonco's revised
counter-offer of March 4, 1964 subject to the condition that "the final negotiations (acceptance) will
have to be made by defendant within 45 days from said acceptance" (31 Record on Appeal). If that
were so, then the consummation of Bormaheco's purchase of the Nassco property would be made
within forty-five days from March 4, 1964.
What makes Bormaheco's stand more confusing and untenable is that in its three answers it
invariably articulated the incoherent and vague affirmative defense that its acceptance of Villonco's
revised counter-offer was conditioned on the circumstance "that final acceptance or not shall be
made after 45 days" whatever that means. That affirmative defense is inconsistent with the other
aforequoted incoherent statement in its third answer that "the final negotiations (acceptance) will
have to be made by defendant within 45 days from said acceptance" (31 Record on
Appeal).1äwphï1.ñët
Thus, Bormaheco's three answers and paragraph 5 of his offer of February 12, 1964 do not sustain
at all its theory that the Nassco property should be acquired on or before March 28, 1964. Its
rescission or revocation of its acceptance cannot be anchored on that theory which, as articulated in
its pleadings, is quite equivocal and unclear.
It should be underscored that the condition that Bormaheco, Inc. should acquire the Nassco
property was fulfilled. As admitted by the appellants, the Nassco property was conveyed to
Bormaheco, Inc. on June 26, 1964. As early as January 17, 1964 the property was awarded to
Bormaheco, Inc. as the highest bidder. On February 18, 1964 the Nassco Board authorized its
General Manager to sell the property to Bormaheco, Inc. (Exh. H). The Economic Coordinator
approved the award on March 24, 1964. It is reasonable to assume that had Cervantes been more
assiduous in following up the transaction, the Nassco property could have been transferred to
Bormaheco, Inc. on or before March 28, 1964, the supposed last day of the forty-five-day period.
The appellants, in their fifth assignment of error, argue that Bormaheco, Inc. cannot be required to
sell the three lots in question because they are conjugal properties of the Cervantes spouses. They
aver that Cervantes in dealing with the Villonco brothers acted as president of Bormaheco, Inc. and
not in his individual capacity and, therefore, he did not bind the conjugal partnership nor Mrs.
Cervantes who was allegedly opposed to the sale.
Those arguments are not sustainable. It should be remembered that Cervantes, in rescinding the
contract of sale and in returning the earnest money, cited as an excuse the circumstance that there
was no certainty in Bormaheco's acquisition of the Nassco property (Exh. F and Annex 1). He did
not say that Mrs. Cervantes was opposed to the sale of the three lots. He did not tell Villonco Realty
Company that he could not bind the conjugal partnership. In truth, he concealed the fact that the
three lots were registered "in the name of FRANCISCO CERVANTES, Filipino, of legal age, married to
Rosario P. Navarro, as owner thereof in fee simple". He certainly led the Villonco brothers to believe
that as president of Bormaheco, Inc. he could dispose of the said lots. He inveigled the Villoncos
into believing that he had untrammelled control of Bormaheco, Inc., that Bormaheco, Inc. owned
the lots and that he was invested with adequate authority to sell the same.
Thus, in Bormaheco's offer of February 12, 1964, Cervantes first identified the three lots as "our
property" which "we are offering to sell ..." (Opening paragraph and par. 1 of Exh. B). Whether the
prounoun "we" refers to himself and his wife or to Bormaheco, Inc. is not clear. Then, in paragraphs
3 and 4 of the offer, he used the first person and said: "I shall have consummated my purchase" of
the Nassco property; "... my negotiations with said property" and "I will return to you your deposit".
Those expressions conveyed the impression and generated the belief that the Villoncos did not have
to deal with Mrs. Cervantes nor with any other official of Bormaheco, Inc.
The pleadings disclose that Bormaheco, Inc. and Cervantes deliberately and studiously avoided
making the allegation that Cervantes was not authorized by his wife to sell the three lots or that he
acted merely as president of Bormaheco, Inc. That defense was not interposed so as not to place
Cervantes in the ridiculous position of having acted under false pretenses when he negotiated with
the Villoncos for the sale of the three lots.
Villonco Realty Company, in paragraph 2 of its original complaint, alleged that "on February 12,
1964, after some prior negotiations, the defendant (Bormaheco, Inc.) made a formal offer to sell to
the plaintiff the property of the said defendant situated at the abovenamed address along Buendia
Avenue, Makati, Rizal, under the terms of the letter-offer, a copy of which is hereto attached as
Annex A hereof", now Exhibit B (2 Record on Appeal).
That paragraph 2 was not, repeat, was not denied by Bormaheco, Inc. in its answer dated May 5,
1964. It did not traverse that paragraph 2. Hence, it was deemed admitted. However, it filed an
amended answer dated May 25, 1964 wherein it denied that it was the owner of the three lots. It
revealed that the three lots "belong and are registered in the names of the spouses Francisco N.
Cervantes and Rosario N. Cervantes."
The three answers of Bormaheco, Inc. contain the following affirmative defense:
13. That defendant's insistence to finally decide on the proposed sale of the land in question
after 45 days had not only for its purpose the determination of its acquisition of the said Sta. Ana
(Nassco) property during the said period, but also to negotiate with the actual and registered owner
of the parcels of land covered by T.C.T. Nos. 43530, 43531 and 43532 in question which plaintiff
was fully aware that the same were not in the name of the defendant (sic; Par. 18 of Answer to
Amended Complaint, 10, 18 and 34, Record on Appeal).
In that affirmative defense, Bormaheco, Inc. pretended that it needed forty- five days within which
to acquire the Nassco property and "to negotiate" with the registered owner of the three lots. The
absurdity of that pretension stands out in bold relief when it is borne in mind that the answers of
Bormaheco, Inc. were verified by Cervantes and that the registered owner of the three lots is
Cervantes himself. That affirmative defense means that Cervantes as president of Bormaheco, Inc.
needed forty-five days in order to "negotiate" with himself (Cervantes).
The incongruous stance of the Cervantes spouses is also patent in their answer to the amended
complaint. In that answer they disclaimed knowledge or information of certain allegations which
were well-known to Cervantes as president of Bormaheco, Inc. and which were admitted in
Bormaheco's three answers that were verified by Cervantes.
It is significant to note that Bormaheco, Inc. in its three answers, which were verified by Cervantes,
never pleaded as an affirmative defense that Mrs. Cervantes opposed the sale of the three lots or
that she did not authorize her husband to sell those lots. Likewise, it should be noted that in their
separate answer the Cervantes spouses never pleaded as a defense that Mrs. Cervantes was
opposed to the sale of three lots or that Cervantes could not bind the conjugal partnership. The
appellants were at first hesitant to make it appear that Cervantes had committed the skullduggery
of trying to sell property which he had no authority to alienate.
It was only during the trial on May 17, 1965 that Cervantes declared on the witness stand that his
wife was opposed to the sale of the three lots, a defense which, as already stated, was never
interposed in the three answers of Bormaheco, Inc. and in the separate answer of the Cervantes
spouses. That same viewpoint was adopted in defendants' motion for reconsideration dated
November 20, 1965.
But that defense must have been an afterthought or was evolved post litem motam since it was
never disclosed in Cervantes' letter of rescission and in his letter to Miss Tagle (Exh. F and Annex 1).
5
Moreover, Mrs. Cervantes did not testify at the trial to fortify that defense which had already been
waived for not having been pleaded (See sec. 2, Rule 9, Rules of Court).
Taking into account the situation of Cervantes vis-a-vis Bormaheco, Inc. and his wife and the fact
that the three lots were entirely occupied by Bormaheco's building, machinery and equipment and
were mortgaged to the DBP as security for its obligation, and considering that appellants' vague
affirmative defenses do not include Mrs. Cervantes' alleged opposition to the sale, the plea that
Cervantes had no authority to sell the lots strains the rivets of credibility (Cf. Papa and Delgado vs.
Montenegro, 54 Phil. 331; Riobo vs. Hontiveros, 21 Phil. 31).
"Obligations arising from contracts have the force of law between the contracting parties and should
be complied with in good faith" (Art. 1159, Civil Code). Inasmuch as the sale was perfected and
even partly executed, Bormaheco, Inc., and the Cervantes spouses, as a matter of justice and good
faith, are bound to comply with their contractual commitments.
spouses Francisco N. Cervantes and Rosario P. Navarra-Cervantes should execute a deed conveying
to Bormaheco, Inc. their three lots covered by Transfer Certificate of Title Nos. 43530, 43531 and
43532 of the Registry of Deeds of Rizal.
2. Within five (5) days from the execution of such deed of conveyance, Bormaheco, Inc.
should execute in favor of Villonco Realty Company, V. R. C. Building, 219 Buendia Avenue, Makati,
Rizal a registerable deed of sale for the said three lots and all the improvements thereon, free from
all lien and encumbrances, at the price of four hundred pesos per square meter, deducting from the
total purchase price the sum of P100,000 previously paid by Villonco Realty Company to Bormaheco,
Inc.
3. Upon the execution of such deed of sale, Villonco Realty Company is obligated to pay
Bormaheco, Inc. the balance of the price in the sum of one million three hundred thousand pesos
(P1,300,000).

Parenthetically, it may be observed that much misunderstanding could have been avoided had the 4. Bormaheco, Inc. is ordered (a) to pay Villonco Realty Company twenty thousand pesos
broker and the buyer taken the trouble of making some research in the Registry of Deeds and (P20,000) as attorney's fees and (b) to pay Edith Perez de Tagle the sum of forty-two thousand
availing themselves of the services of a competent lawyer in drafting the contract to sell. pesos (P42,000) as commission. Costs against the defendants-appellants.

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

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

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

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

The appellants in their eighth assignment of error impugn the trial court's adjudication of forty-two
thousand pesos as three percent broker's commission to Miss Tagle. They allege that there is no
evidence that Bormaheco, Inc. engaged her services as a broker in the projected sale of the three
lots and the improvements thereon. That allegation is refuted by paragraph 3 of the stipulation of
facts and by the documentary evidence. It was stipulated that Miss Tagle intervened in the
negotiations for the sale of the three lots. Cervantes in his original offer of February 12, 1964
apprised Villonco Realty Company that the earnest money should be delivered to Miss Tagle, the
bearer of the letter-offer. See also Exhibit G and Annex I of the stipulation of facts.

We hold that the trial court did not err in adjudging that Bormaheco, Inc. should pay Miss Tagle her
three percent commission.

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

1. Within ten (10) days from the date the defendants-appellants receive notice from the
clerk of the lower court that the records of this case have been received from this Court, the

6
G.R. No. L-18335 January 10, 1923
LORENZO ZAYCO, DIONISIO INZA, and SEVERINO LIZARRAGA, plaintiffs-appellants,
vs.
SALVADOR SERRA, VENANCIO CONCEPCION, and PHIL. C. WHITAKER, defendants-
appellees.
AVANCEÑA, J.:
On November 7, 1918, the plaintiff, Lorenzo Zayco, and the defendant, Salvador Serra, entered into
a contract, the pertinent clauses of which are following:
1. That the party of the first part shall give the party of the second part an option to buy the Palma
Central for the sum of one million pesos (P1,000,000).
xxx xxx xxx
4. That in the case the purchase of the Palma Central is made and the party of the second part
cannot pay the whole price in cash, then he will be given a period not exceeding three years within
which to make the full payment, computed from the day of the execution of the contract of sale,
provided that the party of the second part gives a security or bond to the satisfaction of the party of
the first part to guarantee the payment of the balance of the purchase price, with interest thereon
at a reasonable rate.
xxx xxx xxx
6. That this option of the party of the second part to purchase the Palma Central, or to become a
partner of, or join, the party of the first, expires on the 30th of June, 1919.
7. That hereafter, in case of the sale of the Palma Central, or the formation of a partnership to
operate the same, the party of the second part shall have preference to make such sale, or become
a partner, over any other persons desiring to purchase the central or enter into partnership.
Under date of June 28, 1919, the plaintiff, Lorenzo Zayco, through his attorney, wrote a letter
(Exhibit A) to the defendant, Salvador Serra, accepting the foregoing contract and placing at his
disposal a cash order of the Bank of the Philippine Islands of Iloilo in the amount of P100,000, in
part payment of the price of the Palma Central and Estate. In this letter, notice was also given to
Serra that the Philippine National Bank agreed to transfer his long term loan of P600,000, to the
account of Zayco and to hold the latter responsible for all the amounts had and received on account
of this loan, Serra to be completely relieved from all responsibility arising therefrom. Offer was
further made in this letter to give the bond required by the contract of November 7, 1918, to secure
the payment of the balance of the price of the Palma Central and Estate. The letter ended with a
demand by Zayco on Serra to execute the deed of sale. Serra had knowledge of this letter on June
30, 1919, as may be inferred from his answer bearing that date (Exhibit C). On the following 15th of
July, Serra wrote to Zayco's attorney, stating that the option contract of November 7, 1918, was
cancelled and annulled.
On the same day, June 30, 1919, Zayco brought suit against Serra to compel him to execute the
deed of sale and conveyance of the Palma Central and Estate and to pay, in addition, P500,000 as
damages.
It might be well to make a brief statement of the proceedings had thereafter until the holding of the
trial.
To this complaint the defendant demurred on the ground, among others, that the contract of
November 7, 1918, does not specify the part of the price that was to be paid in cash and the part
that was to be paid within a period not exceeding three years.
Before the court could pass upon this demurrer, Zayco filed an amended complaint on September 9,
1919, which was later withdrawn, and substituted by another one dated October 21, 1919.
To this amended complaint of October 21, 1919, another demurrer was filed, one of its grounds
being the same as that alleged in the first demurrer, to wit, that the contract of November 7, 1918,
does not stipulate what part of the price was to be in cash and what part within a period not
exceeding three years. The court sustained this demurrer and granted the plaintiff a period within
which to amend his complaint.
On January 23, 1920, the last amended complaint was filed in which, for the first time, an allegation
is made that subsequent to the contract of November 7, 1918, and prior to June 28, 1919, a
stipulation was made by the plaintiff, Zayco, and the defendant, Serra, that the sum to be paid in
cash on account of the total price of the sale was P100,000.
A demurrer was also interposed to this last amended complaint, which was overruled.
The defendant filed his answer on February 27, 1920, containing a general and specific denial of all
and each of the allegations of the complaint and a special defense consisting in that the contract of
November 7, 1918, did not specify a sufficient consideration on the part of the plaintiff Zayco.
On March 19, 1920, the plaintiff filed a supplemental complaint in which Philip Whitaker, Venancio
Concepcion, and Eusebio R. de Luzuriaga were included as defendants, and it was alleged that,
without the knowledge of the plaintiff Zayco, the defendant Serra sold the Palma Central and Estate
to said Messrs. Philip Whitaker, Venancio Concepcion, and Eusebio R. de Luzuriaga on January 29,
1920, for the sum of P1,500,000 on the terms and conditions specified in said contract. It is prayed
in this complaint that, at all events, the plaintiff Zayco be declared entitled to purchase from the
defendant, Serra, the Palma Central and Estate on the same terms and conditions as those of the
sale to Messrs. Whitaker, Concepcion, and Luzuriaga.
Later Mr. Eusebio R. de Luzuriaga was excluded from this complaint. The plaintiff Zayco having
assigned his rights to Dionisio Inza and Severino Lizarraga, these parties were admitted to intervene
as plaintiffs. The cause having been tried, the court below rendered judgment absolving the
defendants from the complaint.
By the terms of the contract of November 7, 1918, Zayco was granted the right: (a) To purchase
the Palma Central and Estate until June 30, 1919, and (b) have preference, after that date, over any
other purchaser making the same terms.
The court below holds that this contract of November 7, 1918, has no consideration and is, for this
reason, null and void. This conclusion, however, is not supported by the evidence.
It is true that the contract does not state any consideration on the part of Serra, but it is presumed
that there is a consideration in all contracts (art. 1277, Civ. Code). Besides, a consideration can be
proved and, in this case, there is evidence showing its existence.
The Palma Central was in competition with the Bearin Central of Lizarraga Hermanos and both were
doing their best to gain the greater number of supporters, which, as is well-known, constitutes the
basis and measures of their development. Zayco owned an estate containing 350 hectares used for
cultivating cane, situated between both centrals is such a way as to constitute an opening to them
from the adjacent estates. Owing to this circumstance, Zayco has been the subject of solicitations of
both centrals, each making the most favorable offers to win him. Lizarraga Hermanos went so far as
to offer to remit his debt, amounting to P40,000, if he became a supporter of their central. Serra, in
turn, offered to give him 60 per cent of the sugar of his cane milled in the Palma Central instead of
7
55 per cent, as allowed by the other centrals, and besides, they promised to assist him in acquiring
this central. Zayco, at last, decided to become, as he in fact became, a supporter of the Palma
Central.
All this, which preceded and led to the execution of the contract of November 7, 1918, is evidently a
sufficient consideration to give life to the contract. It meant, on the part of Zayco, the waiver of
positive benefits which he would have obtained from Lizarraga Hermanos. It meant at the same
time, on the part of Serra, an expansion of his central and the consequent increase in his production
and profit. Under such circumstance Zayco's support to the Palma Central was a prestation of thing
or service which positively benefited Serra.
As has been stated, Zayco prays in this action that Serra be compelled to sell to him the Palma
Central in accordance with the contract to sell of November 7, 1918. It having been determined that
there exists a consideration for this contract, the same is binding upon the parties.
Our conclusion is that the acceptance made by Zayco of Serra's offer was not sufficient to give life
to a contract and is no ground for compelling Serra to execute the sale offered.
As to plaintiff's claim that they have preference over the defendants, Messrs. Venancio Concepcion
and Phil. C. Whitaker in the purchase of the Palma Central, two members of this court and the
writer of this opinion believe that the plaintiffs are entitled to this preference, but the majority of the
court hold otherwise, for the reason that the plaintiffs have not formally offered to repay the
defendant Concepcion and Whitaker incurred under the contract.
For the foregoing reasons, the judgment appealed from is affirmed with the costs against the
appellants. So ordered.

However, it is not necessary to view the question from this standpoint. It can be taken for granted,
as contended by the defendants, 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 this 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).

However, Zayco's acceptance, as his letter of June 28, 1919, indicates, could not, in itself, convert
the offer of sale made by Serra in the document of November 7, 1918, into a perfect contract. In
order for the acceptance to have this effect, it must be plain and unconditional, and it will not be so
if it involves any new proposal, for in that case it would not mean conformity with the offer, which is
what gives rise to the generation of the contract. The letter of acceptance of Zayco lacks these
requisites.

It should be noted that, according to the terms of the offer, in case the total of the agreed price of
P1,000,000 could not be paid in cash, the balance was to be paid within a period not exceeding
three years. This means that a part of this price was to be paid in cash. But the amount of this first
payment was not determined. Consequently, when Zayco accepted the offer, tendering the sum of
P100,000 as first payment, his acceptance involved a proposal, not contained in the offer, that this
precisely, and not any other, should be the amount of the first payment. This proposal, in turn,
required acceptance on the part of Serra. For this reason, Zayco's acceptance did not imply
conformity with the offer of Serra, but only when the latter shall, in turn, have accepted his proposal
that the amount to be paid in cash was P100,000. Not only was this not accepted by Serra, but
Serra cancelled his offer on July 15, 1919.

An attempt was made to prove the allegation contained in the last amended complaint to the effect
that subsequent to the execution of the contract November 7, 1918, Zayco and Serra agreed, as a
suppletory stipulation, that the amount of the first payment to be made in cash should be P100,000.
It is said that this stipulation is contained in a letter sent by Serra to Zayco. This letter, however,
was not introduced in evidence, but was alleged to have been lost, and secondary evidence of its
contents was presented which consisted in the testimonies of Zayco, his son, Rafael, and Antonio
Velez. Upon examination of the testimony of these witnesses, the same is found so uncertain and
contradictory on many points affecting their veracity as not to be considered sufficient to prove
either the loss of the alleged letter, or its existence and contents. Moreover, it is strange, if that
stipulation ever existed, that Zayco, in accepting the offer, not only agreed to pay P100,000 in cash,
but agreed also, as part of his acceptance, to assume Serra's obligations in connection with the
credit of P600,000 given him by the National Bank. It is stranger still that this stipulation, being so
important a part of the contract, was not alleged in the original complaint, and notwithstanding that
in the demurrer to this complaint attention was called to the fact that this stipulation was lacking,
this allegation was not made in the two successive amended complaints but only in the fourth, after
the court had sustained the demurrer filed on this ground.

8
G.R. No. L-11668 April 1, 1918
ANTONIO ENRIQUEZ DE LA CAVADA, plaintiff-appellee,
vs.
ANTONIO DIAZ, defendant-appellant.
JOHNSON, J.:
This action was instituted by the plaintiff for the purpose of requiring the defendant to comply with
a certain "contract of option" to purchase a certain piece or parcel of land described in said contract
and for damages for a noncompliance with said contract. After the close of the trial the Honorable
James A. Ostrand, judge, rendered a judgment the dispositive part of which is as follows:
Wherefore, it is hereby ordered and adjudged that the defendant, within the period of thirty days
from the date upon which this decision becomes final, convey to the plaintiff a good and sufficient
title in fee simple to the land described in decrees Nos. 13909 and 13919 of the Court of Land
Registration, upon payment or legal tender of payment by said plaintiff of the sum of thirty
thousand pesos (P30,000) in cash, and upon said plaintiff giving security approved by this court for
the payment within the term of 6 years from the date of the conveyance for the additional sum of
forty thousand pesos (P40,000) with interest at the rate of 6 per cent per annum.
It is further ordered and adjudged that in the event of the failure of the defendant to execute the
conveyance as aforesaid, the plaintiff have and recover judgment against him, the said defendant,
for the sum of twenty thousand pesos (P20,000), with interest at the rate of six per cent (6 per cent
per annum from the date upon which the conveyance should have been made). It is so ordered.
From that judgment the defendant appealed and made several assignment of error.
It appears from the record that on the 15th day of November, 1912, the defendant and the plaintiff
entered into the following "contract of option:"
(EXHIBIT A.)
CONTRACT OF OPTION.
I, the undersigned, Antonio Diaz, of legal age, with personal registration certificate Number F-
855949, issued at Pitogo, Tayabas, January 16, 1912, and temporarily residing in Manila, P. I., do
hereby grant an option to Antonio Enriquez to purchase my hacienda at Pitogo consisting of 100
and odd hectares, within the period necessary for the approval and issuance of a Torrens title
thereto by the Government for which he may pay me either the sum of thirty thousand pesos
(P30,000), Philippine currency, in cash, or within the period of six (6) years, beginning with the date
of the purchase, the sum of forty thousand pesos (P40,000), Philippine currency, at six per cent
interest per annum, with due security for the payment of the said P40,000 in consideration of the
sale to him of my property described as follows, to wit:
About one hundred hectares of land in Pitogo, Tayabas, containing about 20,000 coconut trees and
10,000 nipa-palm trees, all belonging to me, which I hereby sell to Antonio Enriquez de la Cavada
for seventy thousand pesos, under the conditions herein specified.
I declare that Antonio Enriquez is the sole person who has, and shall have, during the period of this
option, the right to purchase the property above-mentioned.
I likewise declare that Antonio Enriquez shall be free to resell the said property at whatever price he
may desire, provided that he should comply with the stipulations covenanted with me.
In witness of my entire conformity with the foregoing, I hereunto affix my signature, in Manila, P. I.,
this 15th day of November, 1912.
(Sgd.) Antonio Diaz.
Signed in the presence of:
(Sgd.) J. VALDS DIAZ.
(EXHIBIT B.)
P. I., November 15, 1912.
Sr. Don ANTONIO DIAZ,
Calle Victoria, No. 125, W. C., Manila, P. I.
DEAR SIR: I have the honor to inform you that, in conformity with the letter of option in my favor of
even date, I will buy your coconut plantation in Pitogo, containing one hundred hectares, together
with all the coconut and nipa-palm trees planted thereon, under the following conditions:
1. I shall send a surveyor to survey the said property, and to apply to the Government for a
Torrens title therefore, and, if the expenses incurred for the same should not exceed P1,000, I shall
pay the P500 and you the other P500; Provided, however, that you shall give the surveyor all
necessary assistance during his stay at the hacienda.
2. I shall pay the purchase price to you in conformity with our letter of option of this date,
and after the Torrens title shall have been officially approved.
Yours respectfully,
(Sgd.) A. ENRIQUEZ
I acknowledge receipt of, and conform with, the foregoing.
(Sgd.) ANTONIO DIAZ
It appears from the record that soon after the execution of said contract, and in part compliance
with the terms thereof, the defendant presented two petitions in the Court of Land Registration
(Nos. 13909 and 13919), each for the purpose of obtaining the registration of a part of the
"Hacienda de Pitogo." Said petitions were granted, and each parcel as registered and a certificate of
title was issued for each part under the Torrens system to the defendant herein. Later, and
pretending to comply with the terms of said contract, the defendant offered to transfer to the
plaintiff one of said parcels only, which was a part of said "hacienda." The plaintiff refused to accept
said certificate for a part only of said "hacienda" upon the ground (a) that it was only a part of the
"Hacienda de Pitogo," and (b) under the contract (Exhibits A and B) he was entitled to a transfer to
him all said "hacienda."
The theory of the defendant is that the contract of sale of said "Hacienda de Pitogo" included only
100 hectares, more or less, of said "hacienda," and that by offering to convey to the plaintiff a
portion of said "hacienda" composed of "100 hectares, more or less," he thereby complied with the
terms of the contract. The theory of the plaintiff is that he had purchased all of said "hacienda," and
that the same contained, at least, 100 hectares, more or less. The lower court sustained the
contention of the plaintiff, to wit, that the sale was a sale of the "Hacienda de Pitogo" and not a sale
of a part of it, and rendered a judgment requiring the defendant to comply with the terms of the
contract by transferring to the plaintiff, by proper deeds of conveyance, all said "hacienda," or to
pay in lieu thereof the sum of P20,000 damages, together with 6 per cent interest from the date
upon which said conveyance should have been made.
9

After issue had been joined between the plaintiff and defendant upon their pleadings, they entered
into the following agreement with reference to the method of presenting their proof:
The attorneys for the parties in this case make the following stipulations:
1. Each of the litigating parties shall present his evidence before Don Felipe Canillas,
assistant clerk of the Court of First Instance of Manila, who, for such purpose, should be appointed
commissioner.
2. Said commissioner shall set a day and hour for the presentation of the evidence above-
mentioned, both oral and documentary, and in the stenographic notes shall have record entered of
all objections made to the evidence by either party, in order that they may afterwards be decided by
the court.
3. The transcription of the stenographic notes, containing the record of the evidence taken,
shall be paid for in equal shares by both parties.
4. At the close of the taking of the evidence, each of the parties shall file his brief in respect
to such evidence, whereupon the case as it then stands shall be submitted to the decision of the
court.
The parties request the court to approve this agreement in the part thereof which refers to the
proceedings in this case.
Manila, P. I., December 21, 1914.
(Sgd.) ANTONIO V. HERRERO. (Sgd.) ALFREDO CHICOTE.
Approved:
(Sgd.) GEO. R. HARVEY,
Judge.
Said agreement was approved by the lower court, and proof was taken in accordance therewith.
The defendant-appellant now alleges, giving several reasons therefor, that the proof was improperly
practiced, and that the judge was without authority o decide the cause upon proof taken in the
manner agreed upon by the respective parties. The defendant-appellant makes no contention that
he was not permitted to present all the proof he desired to present. He makes no contention that he
has been prejudiced in any manner whatsoever by virtue of the method agreed upon for taking the
testimony.
There is nothing in the law nor in public policy which prohibits the parties in a civil litigation from
making the agreement above quoted. While the law concedes to parties litigant, generally, the right
to have their proof taken in the presence of the judge, such right is a renounceable one. In a civil
action the parties litigant have a right to agree, outside of the court, upon the facts in litigation.
Under certain conditions the parties litigant have a right to take the depositions of witnesses and
submit the sworn statements in that form to the court. The proof, as it was submitted to the court
in the present case, by virtue of said agreement, was, in effect, in the form of a deposition of the
various witnesses presented. Having agreed to the method of taking the proof, and the same having
been taking in compliance with said agreement, it is now too late, there being no law to the
contrary, for them to deny and repudiate the effect of their agreement. (Biunas vs. Mora, R. G. No.
11464, March 11, 1918; Behr vs. Levy Hermanos, R. G. No 12211, March 19, 1918.1)
Not only is there no law prohibiting the parties from entering into an agreement to submit their
proof to the court in civil actions as was done in the present case, but it may be a method highly
convenient, not only to the parties, but to busy courts. The judgment of the lower court, therefore,
should not be modified or reversed on account of the first assignment of error.
In the second assignment of error, the appellant alleges (a) that the lower court committed an error
in declaring the contract (Exhibits A and B) a valid obligation, for the reason that it not been
admitted in evidence, and (b) that the same was null for a failure of consideration. Upon the first
question, an examination of the proof shows that said contract (Exhibits A and B) was offered in
evidence and admitted as proof without objection. Said contract was, therefore, properly presented
to the court as proof. Not only was the contract before the court by reason of its having been
presented in evidence, but the defendant himself made said contract an integral part of his
pleadings. The defendant admitted the execution and delivery of the contract, and alleged that he
made an effort to comply with its terms. His only defense is that he sold to the plaintiff a part of the
"hacienda" only and that he offered, in compliance with the terms of the contract, to convey to the
plaintiff all of the land which he had promised to sell.
With reference to the second objection, to wit, that there was no consideration for said contract it
may be said (a) that the contract was for the sale of a definite parcel of land; (b) that it was
reduced to writing; (c) that the defendant promised to convey to the plaintiff said parcel of land; (d)
that the plaintiff promised to pay therefor the sum of P70,000 in the manner prescribed in said
contract; (e) that the defendant admitted the execution and delivery of the contract and alleged
that he made an effort to comply with the same (par. 3 of defendant's answer) and requested the
plaintiff to comply with his part of the contract; and (f) that no defense or pretension was made in
the lower court that there was no consideration for his contract. Having admitted the execution and
delivery of the contract, having admitted an attempt to comply with its terms, and having failed in
the court below to raise any question whatsoever concerning the inadequacy of consideration, it is
rather late, in the face of said admissions, to raise that question for the first time in this court. The
only dispute between the parties in the lower court was whether or not the defendant was obliged
to convey to the plaintiff all of said "hacienda." The plaintiff insisted that his contract entitled him to
a conveyance of all of said "hacienda." The defendant contended that he had complied with the
terms of his contract by offering to convey to the plaintiff a part of the said "hacienda" only. That
was the only question presented to the lower court and that was the only question decided.
A promise made by one party, if made in accordance with the forms required by the law, may be a
good consideration (causa) for a promise made by another party. (Art. 1274, Civil Code.) In other
words, the consideration (causa) need not pass from one to the other at the time the contract is
entered into. For example, A promises to sell a certain parcel of land to B for the sum of P70,000. A,
by virtue of the promise of B to pay P70,000, promises to sell said parcel of land to B for said sum,
then the contract is complete, provided they have complied with the forms required by the law. The
consideration need not be paid at the time of the promise. The one promise is a consideration for
the other. Of course, A cannot enforce a compliance with the contract and require B to pay said
sum until he has complied with his part of the contract. In the present case, the defendant
promised to convey the land in question to the plaintiff as soon as the same could be registered.
The plaintiff promised to pay to the defendant P70,000 therefor in accordance with the terms of
their contract. The plaintiff stood ready to comply with his part of the contract. The defendant, even
though he had obtained a registered title to said parcel of land, refused to comply with his promise.
All of the conditions of the contract on the part of the defendant had been concluded, except
delivering the deeds of transfer. Of course, if the defendant had been unable to obtain a registration
of his title, or if he had violated the terms of the alleged optional contract by selling the same to
some other person than the plaintiff, then he might have raised the objection that he had received
nothing from the plaintiff for the option which he had conceded. That condition, of course, would
have presented a different question from the one which we have before us. The said contract
(Exhibits A and B) was not, in fact, an "optional contract" as that phrase is generally used. Reading
the said contract from its four corners it is clearly as absolute promise to sell a definite parcel of
land for a fixed price upon definite conditions. The defendant promised to convey to the plaintiff the
land in question as soon as the same was registered under the Torrens system, and the plaintiff
promised to pay to the defendant the sum of P70,000, under the conditions named, upon the
happening of that event. The contract was not, in fact, what is generally known as a "contract of
10
option." It differs very essentially from a contract of option. An optional contract is a privilege
existing in one person, for which he had paid a consideration, which gives him the right to buy, for
example, certain merchandise of certain specified property, from another person, if he chooses, at
any time within the agreed period, at a fixed price. The contract of option is a separate and distinct
contract from the contract which the parties may enter into upon the consummation of the option. A
consideration for an optional contract is just as important as the consideration for any other kind of
contract. If there was no consideration for the contract of option, then it cannot be entered any
more than any other contract where no consideration exists. To illustrate, A offers B the sum of
P100,000 for the option of buying his property within the period of 30 days. While it is true that the
conditions upon which A promises to buy the property at the end of the period mentioned are
usually fixed in the option, the consideration for the option is an entirely different consideration
from the consideration of the contract with reference to which the option exists. A contract of option
is a contract by virtue of the terms of which the parties thereto promise and obligate themselves to
enter into contract at a future time, upon the happening of certain events, or the fulfillment of
certain conditions.
Upon the other hand, suppose that the defendant had complied with his part of the contract and
had tendered the deeds of transfer of the "Hacienda de Pitogo" in accordance with its terms and
had demanded the payments specified in the contract, and the plaintiff refused to comply — what
then would have been the rights of the defendant? Might he not have successfully maintained an
action for the specific performance of the contract, or for the damages resulting from the breach of
said contract? When the defendant alleged that he had complied with his part of the contract (par.
3 of defendant's answer) and demanded that the plaintiff should immediately comply with his part
of the same, he evidently was laying the foundation for an action for damages, the nullification or a
specific compliance with the contract.
The appellant contends that the contract which he made was not with the plaintiff but with
Rosenstock, Elser and Co. That question was not presented in the court below. The contract in
question shows, upon its face, that the defendant made the same with the plaintiff, Not having
raised the question in the court below, and having admitted the execution and delivery of the
contract in question with the plaintiff, we are of the opinion that his admission is conclusive upon
that question (par. 1 of special defense of defendant's answer) and need not be further discussed.
The appellant further contends that the action was premature, for the reason that the plaintiff had
not paid nor offered to pay the price agreed upon, under the conditions named, for the land in
question. That question was not raised in the court below, which fact, ordinarily, would be a
sufficient answer to the contention of the appellant. It may be added, however, that the defendant
could not demand the payment until he had offered the deeds of conveyance, in accordance with
the terms of his contract. He did not offer to comply with the terms of his contract. True it is that he
offered to comply partially with the terms of the contract, but not fully. While the payment must be
simultaneous with the delivery of the deeds of conveyance, the payment need not be made until the
deed of conveyance is offered. The plaintiff stood ready and willing to perform his part of the
contract immediately upon the performance on the part of the defendant. (Arts. 1258 and 1451 of
Civil Code.)
In the fifth assignment of error the appellant contends that the lower court committed an error in
not declaring that the defendant was not obligated to sell the "Hacienda de Pitogo" to the plaintiff
"por incumplimiento, renuncia abandono y negligencia del mismo demandante, etc." (For
nonfulfillment, renunciation, abandonment and negligence of plaintiff himself, etc.) That question
was not presented to the court below. But even though it had been the record shows that the
plaintiff, at all times, insisted upon a compliance with the terms of the contract on the part of the
defendant, standing ready to comply with his part of the same.
The appellant contends in his sixth assignment of error that the plaintiff had not suffered the
damages complained of, to wit, in the sum of P20,000. The only proof upon the question of
damages suffered by the plaintiff for the noncompliance with the terms of the contract in question
on the part of the defendant is that the plaintiff, in contemplation of the compliance with the terms
of the contract on the part of the defendant, entered into a contract with a third party to sell the
said "hacienda" at a profit of P30,000. That proof is not disputed. No attempt was made in the
lower court to deny that fact. The proof shows that the person with whom the plaintiff had entered
into a conditional sale of the land in question had made a deposit for the purpose of guaranteeing
the final consummation of that contract. By reason of the failure of the defendant to comply with
the contract here in question, the plaintiff was obliged to return the sum deposited by said third
party with a promise to pay damages. The record does not show why the plaintiff did not ask for
damages in the sum of P30,000. He asked for a judgment only in the sum of P20,000. He now asks
that the judgment of the lower court be modified and that he be given a judgment for P30,000.
Considering the fact that he neither asked for a judgment for more than P20,000 nor appealed from
the judgment of the lower court, his request now cannot be granted. We find no reason for
modifying the judgment of the lower court by virtue of the sixth assignment of error.
In the seventh assignment of error the appellant contends that the contract of sale was not in effect
a contract of sale. He alleges that the contract was, in fact, a contract by virtue of which the plaintiff
promised to find a buyer for the parcel of land in question; that the plaintiff was not in fact the
purchaser; that the only obligation that the plaintiff assumed was to find some third person who
would purchase the land from the defendant. Again, it would be sufficient to say, in answer to that
assignment of error, that no contention of that nature was presented in the court below, and for
that reason it is improperly presented now for the first time. In addition, however, it may be added
that the defendant, in his answer, admitted that he not only sold the land in question, but offered to
transfer the same to the plaintiff, in compliance with the contract. (See answer of defendant.)
In the eighth assignment of error the appellant contends that the lower court committed an error in
its order requiring him to convey to the plaintiff the "Hacienda de Pitogo," for the reason that the
plaintiff had not demanded a transfer of said property, and for the additional reason that a portion
of said "hacienda" had already been sold to a third person. With reference to the first contention,
the record clearly shows that the plaintiff was constantly insisting upon a compliance with the terms
of the contract, to wit, a conveyance to him of the "Hacienda de Pitogo" by the defendant.
Naturally, he refused, under the contract, to accept a conveyance of a part only of said "hacienda."
With reference to the second contention, it may be said that the mere fact that the defendant had
sold a part of the "hacienda" to other persons, is no sufficient reason for not requiring a strict
compliance with the terms of his contract with the plaintiff, or to answer in damages for his failure.
(Arts. 1101 and 1252 of the Civil Code.)
In view of the foregoing, and after a consideration of the facts and the law applicable thereto, we
are persuaded that there is no reason given in the record justifying a modification or reversal of the
judgment of the lower court. The same is, however, hereby affirmed, with costs. So ordered.
11
G.R. No. 124791 February 10, 1999
JOSE RAMON CARCELLER, petitioner,
vs.
COURT OF APPEALS and STATE INVESTMENT HOUSES, INC., respondents.
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
latter's 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 with all the improvements thereon, covered by Transfer Certificates of 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 attorney's 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 court's
judgment, but modified the basis for assessing the purchase price. While respondent court affirmed
appellee's 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 hearing 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?
12
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 petitioner's letter to SIHI, dated January 15, 1986, was fair notice to the latter of the
former's 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 Court's 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 court's 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 company's 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 respondent's view, there was already a delay of 18 days, fatal to petitioner's 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.
SIHI's 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 year's 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, SIHI's 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".
Petitioner's determination to purchase said property is equally indubitable. He introduced permanent
improvements on the leased property, demonstrating his intent to acquire dominion in a year's 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 73/4% 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, petitioner's 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,
13
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

14
G.R. No. 154156 August 31, 2006
JMA HOUSE INCORPORATED, Petitioner,
vs.
STA. MONICA INDUSTRIAL and DEVELOPMENT CORPORATION and A. GUERRERO
DEVELOPMENT CORPORATION, Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals (CA)
in CA-G.R. CV No. 60085 affirming on appeal the Decision2 of the Regional Trial Court (RTC),
Quezon City, Branch 105, in Civil Case No. Q-91-10576.
JMA House Incorporated (JMA) applied for a ₱1,500,000.00 loan from the Pioneer Savings and Loan
Association, Inc. (Pioneer). To secure payment thereof, JMA executed a real estate mortgage over a
parcel of land identified as Lot No. 4, Block No. 13, Subdivision Plan No. Psd-35337 covered by
Transfer Certificate of Title (TCT) No. 268126. The lot, which was located in Quezon City across
Gate 1 of the Maryknoll College, had an area of 1,611.6 square meters.3 There was likewise a
three-storey commercial and residential building which was occupied by tenants.4 Upon the failure
of JMA to pay its loan, the real estate mortgage was foreclosed extrajudicially. Pioneer was the
winning bidder at ₱2,000,000.00 during the sale at public auction held on August 26, 1985. The
Sheriff executed a Certificate of Sale over the property in favor of Pioneer which was annotated at
the dorsal portion of TCT No. 268126 on October 11, 1985.5 JMA had one year or until October 11,
1986 to redeem the property.
JMA decided to redeem the property from Pioneer sometime in June 1986. It offered to borrow from
Sta. Monica Industrial and Development Corporation (Sta. Monica) the amount of ₱2,300,000.00.
During the negotiations between Rosita Alberto, the General Manager of JMA, and Sta. Monica’s
president Eugenio Trinidad, the parties agreed that the latter would purchase the property for
₱3,021,000.00.6 Trinidad insisted that JMA execute a deed of absolute sale over the property for
the price of ₱4,100,000.00. Rosita Alberto suggested that instead of a deed of absolute sale, a real
estate mortgage be executed considering that the property was worth much more than
₱4,100,000.00. Trinidad refused. By way of a compromise, Alberto suggested that a supplement
deed giving JMA the option to repurchase the property within a period of two years be executed.7
Trinidad agreed to this proposal. Thus, the lawyers of JMA and Sta. Monica prepared two deeds.8
From the ₱3,021,000.00 it received from Sta. Monica, JMA remitted ₱2,300,000.00 to Pioneer.
On June 23, 1986, Pioneer and JMA executed a Deed of Legal Redemption and Absolute Sale in
which Pioneer, for and consideration of ₱2,300,000.00, transferred to JMA all the rights over the
property, including the improvements thereon, which Pioneer acquired under the Certificate of
Sale.9 The parties, likewise, declared therein that it was their intention that, with the execution of
said deed, the loan of JMA amounting to ₱1,250,000.00, including all interests, penalties and
charges thereon, were considered fully paid and legally extinguished.10
On June 30, 1986 JMA, represented by its General Manager Rosita Alberto, executed a Deed of
Absolute Sale over the lot, including the buildings thereon, in favor of Sta. Monica, represented by
Eugenio Trinidad. The receipt for ₱4,100,000.00 as purchase price was acknowledged by JMA from
Sta. Monica.11 As agreed upon by the parties, the parties likewise executed a contract denominated
as Option to Buy, in which Sta. Monica gave JMA the option to buy the property for ₱4,100,000.00
within one (1) year from the execution of the Deed Of Absolute Sale on or before July 1, 1987, with
a "grace period" of one year immediately upon the expiration thereof (until July 1, 1988). The
parties agreed that, in case JMA availed of such extension, JMA would be obligated to pay an
additional amount equivalent to 3.5% a month as liquidated damages, until the whole amount is
fully paid and/or the option is finally exercised.12
Alberto turned over to Trinidad the owner’s duplicate of TCT No. 26812.6 The Register of Deeds
thereafter issued TCT No. 347638 in the name of Sta. Monica;13 however, the Option to Buy was
not annotated at the dorsal portion of the title.
As agreed upon between JMA and Sta. Monica, the latter thenceforth paid the realty taxes on the
property.14 JMA continued collecting the rentals from the tenants of the buildings with the
knowledge and conformity of Sta. Monica. On November 17, 1986, Sta. Monica mortgaged the
property to the PCI Capital Corporation as security for a ₱3,600,000.00 loan.15
In a letter dated January 26, 1988, Sta. Monica, through Eugenio Trinidad, informed Rosita Alberto
and the tenants of the buildings in the property that due to the failure of JMA to "repurchase" the
property, it had been sold to A. Guerrero Development Corporation (AGCOR) effective February 1,
1988, and, as the new owner, AGCOR would be collecting the rentals.16 Rosita Alberto protested to
Trinidad, insisting that the period given to JMA to buy back the property had not yet elapsed.
Nevertheless, on February 2, 1988, Sta. Monica and AGCOR executed a Deed of Absolute Sale over
the property for ₱5,700,000.00, receipt of which was acknowledged by Sta. Monica.17 Part of the
amount was used by Sta. Monica to redeem the property from PCI Capital Corporation which
executed a Release of Real Estate Mortgage on February 16, 1988.18 On February 17, 1988, the
Register of Deeds issued TCT No. 376746 in the name of AGCOR.19 It paid the realty taxes on the
property starting 1988.20
Despite the sale of the property to AGCOR, Trinidad received, on June 30, 1988, five checks from
Rosita Alberto drawn against the account of JMA in the total amount of ₱3,000,000.00. He likewise
received ₱57,000.00 from Atty. Rosalie Alberto, Rosita’s sister and a member of the JMA Board of
Directors "as partial payment of the account of JMA for the property located at No. 335, Katipunan
Street, Quezon City."21 However, the checks were dishonored by the drawee Bank.22 Trinidad
failed to return the cash amount of ₱57,000.00 to JMA.
On October 30, 1989, AGCOR mortgaged the property to Planter’s Development Bank as security for
a ₱7,000,000.00 loan.23
Almost two years thereafter, or on November 11, 1991, JMA filed a complaint against Sta. Monica
and AGCOR, as defendants, in the RTC of Quezon City for specific performance, reconveyance and
damages. It alleged that it mortgaged its property to Sta. Monica as security for a ₱3,021,000.00
loan and ₱1,079,000.00 as interest; however, upon the insistence of Trinidad, in lieu of a real estate
mortgage, a deed of absolute sale was executed over the property for the price of ₱4,100,000.00;
an Option to Buy was also executed in its favor, giving it the option to buy the property for
₱4,100,000.00 within a period of one (1) year from execution thereof, and in the meantime, it
retained dominion over the property; on January 26, 1988, it received notice that beginning
February 1, 1988, the tenants will pay their rentals to the new owner of the property, defendant
AGCOR, to which it protested; defendant Sta. Monica assured the plaintiff that defendant AGCOR
was aware of its option to buy the property.
JMA further alleged that it informed defendant Sta. Monica on June 30, 1988 that it was ready to
repurchase the property for ₱5,822,000.00 with an initial payment of ₱3,057,000.00 to be
immediately tendered on said date, and the remaining balance of ₱2,765,000.00 after one month.
Sta. Monica assured JMA that the property would be delivered to it with AGCOR’s conformity. JMA
paid ₱3,057,000.00 on June 30, 1988, per redemption receipt issued by Trinidad, who however
refused to receive the balance. Despite representations to defendant AGCOR to abide by the Option
to Buy, AGCOR maintained its right to possess and own the property and even filed ejectment cases
against it; worse, Sta. Monica never returned the downpayment given on June 30, 1988 and
continues to benefit therefrom.
JMA averred that it had a right to repurchase the property under the terms of the Option to Buy
Agreement dated June 30, 1986, considering that the transaction actually entered into is one of
equitable mortgage and not a deed of sale with option to buy. Defendant Sta. Monica is mandated
by law to abide by the said agreement and could not have sold the questioned property to
15
defendant AGCOR, taking into account that it has accepted the amount of ₱3,057,000.00 as
downpayment for the purchase price. Having sold the property to AGCOR, defendant Sta. Monica
must be made to pay the plaintiff the amount of ₱15,000,000.00 which is the actual market value of
the property, as well as the rental payments which it failed to collect.24 The plaintiff prayed that
judgment be rendered in its favor, thus:
WHEREFORE, it is most respectfully prayed of this Honorable Court that judgment be rendered in
favor of the plaintiff ordering:
1) Defendants Sta. Monica and AGCOR to respect and acknowledge the right of JMA to repurchase
and consequently own and possess the property free from liens and all encumbrances;
2) Defendants to solidarily pay the plaintiff the accrued rentals of ₱2,362,500.00 as of October
1991, with an additional ₱52,500.00 every month thereafter until defendant AGCOR ceases to
collect the mentioned rentals from the tenants of the premises;
3) Ordering defendants to pay exemplary damages in the amount of ₱100,000.00, nominal damages
in the amount of ₱100,000.00, attorney’s fees in the sum of ₱200,000.00 and the costs of suit;
Just and equitable reliefs are, likewise, prayed for under the premises.25
For its part, Sta. Monica alleged in its Answer to the complaint the following special and affirmative
defenses: (1) JMA has no cause of action against it; (2) the complaint is unfounded and malicious;
(3) it acted in good faith; (4) the supposed "Option to Buy" is not supported by valuable
consideration and, therefore, is unenforceable; (5) assuming arguendo that there was an extension
to exercise the said "Option to Buy," it was not in writing, without consideration and, therefore,
unenforceable; (6) the amount/s which JMA had given to it had been offset by the value of the
property and the resulting damages sustained by it (Sta. Monica). Defendant claimed
₱1,000,000.00, ₱500,000.00, ₱200,000.00 and ₱100,000.00 compulsory counterclaim representing
actual, moral and exemplary damages, including attorney’s fees and the litigation expenses,
respectively.
Defendant AGCOR alleged in its Answer with Cross-claim and Counterclaims that the physical
possession of the subject property was voluntarily surrendered by Sta. Monica to it upon execution
of the Deed of Absolute Sale. It came to know of the alleged "Option to Buy" only on September 30,
1988 when Trinidad made an offer to repurchase the subject property with an initial downpayment
of ₱3,000,000.00, the balance to be paid on the following day. However, Trinidad never showed up
or called as promised.
As special and affirmative defenses, it claimed that there was no cause of action against it, since
even assuming that an option to buy was duly executed, it was not a party thereto. It pointed out
that the option was not registered nor annotated in the title with the Register of Deeds for the
purpose of giving notice to the whole world; JMA was estopped from claiming that its contract26
with Sta. Monica was a sale with right to repurchase, considering that there was no pre-existing
condition or limitation whatsoever to serve as notice to third persons dealing with the said property;
it was a purchaser in good faith without knowledge of any agreement between JMA and Sta. Monica
or any fact that would vitiate consent in the acquisition of the property; it acquired legal title thru
sale and in fact, TCT No. 376746 was issued in its name; and JMA is guilty of laches and it had not
completely exercised its option to repurchase by paying the total amount and there is no proof that
the option was extended by Sta. Monica for another year.
By way of cross-claim, AGCOR alleged that JMA and Sta. Monica should be the only parties in this
case, since they executed the "Option to Buy," to its exclusion. Because of its inclusion as
defendant, its goodwill was damaged and it was deprived of its right of full ownership; thus, cross-
defendant Sta. Monica should be held liable for actual or compensatory damages in the amount of
₱1,000,000.00. It likewise asserted compulsory counterclaims in the amount of ₱500,000.00 as
moral damages, ₱300,000.00 as exemplary damages, and ₱200,000.00 as attorney’s fees.27
On January 10, 1992, Eugenio Trinidad died.28 Victor Trinidad became the President of Sta. Monica.
During trial, JMA presented Rosita Alberto and her sister, Atty. Rosalie Alberto as witnesses. Rosita
testified that she graduated from the University of the Philippines with a Bachelor of Arts degree in
Economics.29 It was Eugenio Trinidad who insisted that JMA execute a deed of absolute sale
instead of a real estate mortgage to secure the ₱4,100,000.00 loan.30 She, in turn, requested that
an option to buy be executed by the plaintiff to supplement the deed of absolute sale to which
Trinidad agreed.31 JMA retained possession of the property and continued collecting rentals from
the tenants since the transaction between the parties was precisely a contract of mortgage.32 When
she protested to Trinidad’s letter dated January 26, 1988 informing her and the tenants that the
property had not been repurchased by JMA, Trinidad verbally assured her that JMA could
repurchase the property and pay the price thereof within a reasonable time. Trinidad agreed to the
repurchasing of the property for ₱5,822,000.00 payable in two installments, to wit: (a)
₱3,057,000.00 on June 30, 1988; and (b) the balance of ₱2,768,000.00 within a reasonable time.
On June 30, 1988, ₱3,000,000.00 in checks and ₱57,000.00 cash was paid by JMA, through Atty.
Rosalie Alberto and Atty. Rellosa to Trinidad, and for which the latter issued a redemption receipt.
JMA was ready to pay the balance of the repurchase price (₱2,768,000.00) but Trinidad could not
be located, and worse, failed to return the initial amount paid.33
On cross-examination, Rosita Alberto admitted that her agreement with Trinidad, that JMA can
repurchase the property by paying the price within a reasonable time, was merely verbal because
she trusted Trinidad.34 JMA did not file any complaint for consignation of the amount for its
repurchase of the property.35 She admitted that the checks delivered to Trinidad had been
dishonored.36 The respective lawyers of Sta. Monica and JMA typed the deed of absolute sale and
option to buy.37
Atty. Rosalie Alberto testified that JMA is a family corporation. She learned of the deed of absolute
sale and option to buy only in February 1988.38 She represented JMA in the negotiations with
Trinidad for the repurchase of the property. Trinidad informed her that he had already informed
defendant AGCOR of plaintiff’s tender of ₱3,057,000.00. He, however, suggested that she personally
inform AGCOR of said tender. When she did so, Guerrero informed her that AGCOR could no longer
accept the offer.39 She wanted to tell Trinidad about what Guerrero had said, but she could no
longer locate him.40
Franco Marquez, President of the Philippine Appraisal Co., Inc., testified that the property was
appraised on May 15, 1986, and its value was pegged at ₱11,080,000.00.41
Defendant Sta. Monica presented its president, Victor Trinidad, who testified on the damages
sustained by it. On cross-examination, he admitted that, despite the deed of absolute sale, it never
took possession of the property.42 Neither did defendant collect rentals from the tenants of the
building because of the option to buy.43
Alberto Guerrero, a doctor of medicine and a lawyer, testified that he was the president of AGCOR,
also a family corporation. When the property was offered for sale by Sta. Monica, he examined the
title in the Register of Deeds and discovered that it was mortgaged to PCI Capital Corporation.44 He
agreed to buy the property and paid Sta. Monica’s loan on February 3 and 16, 1988, upon which a
Release of Real Estate Mortgage was issued.45 In due course, defendants AGCOR and Sta. Monica
executed a Deed of Absolute Sale covering the property.46 He further declared that AGCOR secured
a ₱2,500,000.00 loan from Planter’s Bank and used the money to pay Sta. Monica. On October 30,
1989, Sta. Monica executed a real estate mortgage over the property in favor of Planter’s Bank as
security for a ₱7,000,000.00 loan. The deed was annotated at the dorsal portion of TCT No. 376746
on November 15, 1980.47 The property was declared for taxation purposes after the property had
been purchased.48
On January 26, 1996, JMA filed an Omnibus Motion to Admit Newly-Discovered Evidence, which
included the Appraisal Report of the Philippine Appraisal Co., Inc.49 to prove the fair market value
16
of the property as of February 1, 1988. The RTC granted the motion and allowed Franco M.
Marquez to testify on the Appraisal Report.50 The plaintiff offered the Report as part of the motion
and to prove that the appraisal value of the property in May 1986 was ₱11,080,000.00. The report
was admitted as part of the testimony of Marquez.51
On December 8, 1997, the trial court rendered judgment in favor of the defendants. It ordered the
dismissal of the complaint and ordered the plaintiff to pay ₱50,000.00 to each of the defendants.
The fallo of the decision reads:
WHEREFORE, in light of the foregoing, the Court renders judgment as follows:
1. Plaintiff’s complaint is dismissed and it is ordered on the counterclaim, to pay the amount of
₱50,000.00 each to defendant Sta. Monica Industrial & Development Corporation and defendant A.
Guerrero Development Corporation as attorney’s fees; and to pay the costs of suit;
2. The cross-claim of A. Guerrero Development Corporation against Sta. Monica Industrial and
Development Corporation is dismissed.
SO ORDERED.52
The trial court disbelieved the testimony of Atty. Alberto, holding that to declare the transaction
between the plaintiff and defendant Sta. Monica as an equitable mortgage would be unjust to the
latter.53 The trial court noted that the plaintiff agreed to the execution of the deed of absolute sale
and the option to buy; Rosita Alberto was an Economics graduate and was assisted by a lawyer.
When the deed of absolute sale over the property was executed, JMA even offered to
repurchase/buy the property instead of redeeming it, and waited up to June 30, 1988 to tender the
repurchase price. The RTC concluded that the true intention of the parties was the property to be
sold to Sta. Monica for profit, with JMA retaining the option to buy it back for ₱4,100,000.00 within
a specific period of time. Moreover, considering that JMA failed to file an action for reformation of
deed, it was estopped from claiming that the deed of absolute sale and option to buy failed to
reflect the true intention of the parties.
The RTC ruled that the Appraisal Report had no probative weight because the property subject
thereof was covered by TCT No. 20416, not the property covered by TCT No. 268216 which was the
subject of the contract between the plaintiff and defendant Sta. Monica. Further, the remittances
made to Trinidad by way of checks did not buttress the case for JMA because they were so remitted
after the stipulated one-year period and was short of the agreed amount of ₱4,100,000.00. It was
further pointed out that the checks bounced.
The RTC also declared that before AGCOR bought the property, it had no knowledge of the option
to buy executed by JMA and Sta. Monica; and even if it had, JMA had failed to exercise its option
and pay the purchase price of the property within the stipulated period. It was further stated that
there is no evidence to prove the supposed obligation of Sta. Monica to return the amount of
₱57,000.00 received by Trinidad on June 30, 1988; there is no evidence that he was authorized by
Sta. Monica to do so and that he received the amount for and in its behalf.54
JMA appealed the decision to the CA. On January 28, 2002, the appellate court dismissed the appeal
and affirmed the decision of the RTC, holding that the contracts entered into by the parties are what
they purport to be: a Deed of Absolute Sale and Option to Buy; the deeds were notarized, hence,
are public documents, and have the presumption of regularity. Furthermore, there were no
ambiguities in the deeds. It was further held that JMA was barred by laches to enforce its claim that
the deed of absolute sale was in fact an equitable mortgage. It pointed out that the property was
not repurchased within the timeline fixed in the Option to Buy.55
JMA filed a motion for the reconsideration of the decision which the CA denied on July 1, 2002.56
JMA, now petitioner, filed the instant petition for review on certiorari, seeking to reverse the ruling
of the CA on the following grounds:
I
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT APPLYING ARTICLE 1602 OF THE
CIVIL CODE AND NOT HOLDING THAT THE CONTRACT SUBJECT MATTER OF THE INSTANT
PETITION IS THAT OF AN EQUITABLE MORTGAGE.
II
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT PETITIONER IS GUILTY
OF LACHES IN ASSERTING ITS RIGHT OVER ITS PROPERTY.
III
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE FINDING OF THE
LOWER COURT THAT RESPONDENT AGCOR HAS NO KNOWLEDGE OF THE OPTION TO BUY.57
It maintains that the trial court and the CA failed to consider the testimony of its General Manager
Rosita Alberto, to prove that the contract entered into between it and respondent Sta. Monica is, in
reality, a real estate mortgage. Petitioner maintains that the trial court and the appellate court
ignored the facts based on the following evidence: (1) petitioner was in dire need of money when it
executed the Deed of Absolute Sale and Option to Buy on June 30, 1985; (2) it continued to possess
the property after the execution of the Deed of Sale and Option to Buy, and even collected the
rentals from the tenants of the commercial and residential buildings; (3) the purchase price of
₱4,100,000.00 is grossly inadequate as purchase price of the property compared to its market value
(₱11,080,000.00) as found by the Philippine Appraisal Company.
On the other hand, respondents aver that the issues raised by the petitioner are factual, which the
Court is proscribed from reviewing. Moreover, the findings of facts of the trial court were affirmed
by the CA; hence, such findings are conclusive on this Court. They insist that the CA decision is in
accord with the law and the evidence on record. Article 1602 of the New Civil Code does not apply
in this case because petitioner failed to exercise its option and pay the agreed upon repurchase
price; hence, the CA correctly ruled that it was barred by laches when it filed its complaint below
only on November 11, 1991.
The threshold issues are the following: (1) whether the Court is proscribed from reviewing the
factual issues raised by petitioner; (2) whether the transaction between the parties is an equitable
mortgage; (3) whether the petitioner is barred by laches from filing the action against the
respondent; and (4) whether respondent AGCOR was in good faith when it purchased the property
from respondent Sta. Monica for ₱5,700,000.00.
The petition is denied for lack of merit.
Section 1, Rule 45 of the Rules of Court provides that only questions of law may be raised in this
Court. Th e rationale for the rule is that the Court is not a trier of facts; it is not to re-examine and
calibrate the evidence on record, as such task is assigned to the trial court. The trial court’s findings,
as affirmed by the CA, are conclusive on this Court unless there is preponderant evidence that the
lower court ignored, misconstrued or misinterpreted cogent and substantial facts and circumstances
which, if considered, would modify or reverse the outcome of the case.58 The Court may look into
and resolve factual issues in exceptional cases such as when the findings and conclusions of the trial
court are contrary to evidence on record or tainted with grave abuse of discretion amounting to
excess of jurisdiction.
On the second issue, the law is 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 stipulations shall control.59 When the
17
language of the contract is explicit, leaving no doubt as to the intention of the drafters, the courts
may not read into it any other intention that would contradict its plain import.60 The clear terms of
the contract should never be the subject matter of interpretation. Neither abstract justice nor the
rule of liberal interpretation justifies the creation of a contract for the parties which they did not
make themselves or the imposition upon one party to a contract or obligation not assumed simply
or merely to avoid seeming hardships.61 Their true meaning must be enforced, as it is to be
presumed that the contracting parties know their scope and effects.62 If the parties execute two or
more separate writings covering a common transaction and subject matter, the writings should be
read and interpreted together to render the parties’ intention effective.63 On the other hand, if the
contract is ambiguous or the contracting parties offer conflicting claims on their intent, the trial
court, at the first instance, has to ascertain the true intent of the parties, taking into account the
contemporaneous and subsequent conduct, actions and words of the parties material to the case,64
and pertinent facts having a tendency to fix and determine the real intent of the parties and
undertaking shall be considered. It is the parties’ intention which shall be accorded primordial
consideration. The reasonableness of the result obtained, after analysis and construction of the
contract/contracts, must also be carefully considered.65 The ascertained intention of the parties is
deemed an integral part of the contract, as though it had been originally expressed in unequivocal
terms. The Court will enforce the true agreement of the parties even if the property in question has
already been registered and a new transfer certificate of title is issued in the name of the
transferee.66
The rule is that he who alleges that a contract does not reflect the true intention of the parties
thereto may prove the same by documentary or parol evidence.67 In this case, petitioner alleges
that the Deed of Absolute Sale and Option to Buy do not reflect the true intention of the parties,
which according to it is a loan with mortgage or an equitable mortgage. The petitioner is burdened
to prove, by clear and convincing evidence, the terms of the writings.68 In the language of State
Supreme Court of North Carolina in O’briant v. Lee,69 "the intention must be established, not by
simple declarations of the parties, but by proof of facts and circumstances, inconsistent with the rule
of absolute purchase, otherwise, the solemnity of deeds would always be exposed to the slippery
memory of witnesses." The presumption is that the contract is what it purports to be; and, to
establish its character as a mortgage, the evidence must be clear, unequivocal and convincing which
reasons tending to show that the transaction was intended as a security for debt; and thus to be a
mortgage must be sufficient to satisfy every reasonable mind without hesitation.70 A less rigorous
rule would mean that no man is safe in taking a deed of property. It would be only necessary for
the grantor to bring witnesses to an agreement that the deed was regarded as an equitable
mortgage, to enable him, on payment of the purchase price and interest, to redeem, particularly if
the value of the property had doubled or trebled in ratio.71 Unless the testimony is entirely plain
and convincing beyond reasonable controversy, the writing will be held to express correctly the
intention of the parties.72 If there is a doubt as to the fact whether the transaction is in the nature
of a mortgage, the presumption, in order to avoid a forfeiture is always in favor of a position to
redeem, to subserve abstract justice and avert injurious consequences.73
An equitable mortgage is one which, although lacking in some formality, or form or words or other
requisites deemed required by statutes nevertheless reveals the intention of the parties to charge a
real property as security for a debt and contains nothing impossible or contrary to law. An equitable
mortgage may be constituted by any writing from which the intention to create such a lien may be
patterned.
Under Article 1602 of the New Civil Code, a contract shall be presumed to be an equitable mortgage
in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the
period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation.
For the presumptions under the article to apply, two requisites must concur: (1) that the parties
entered into a contract denominated as a sale; and (2) that their intention was to secure an existing
debt by way of mortgage.74 In order for a deed to be declared a mortgage, the relation of debtor
and creditor must exist between the grantor in such a deed and one who seeks to have it declared a
mortgage.75 There must be a continuing binding debt; a debt in its fullest sense. Where there is no
debt, there can be no mortgage; for if there is nothing to secure, there can be no security.76 If
there is an indebtedness or liability between the parties, either a debt existing prior to the
conveyance, or a debt arising from a loan made at the time of the conveyance, or from any other
cause, and this debt is still left subsistent, not being discharged or satisfied by the conveyance, but
the grantor is regarded as still owing and bound to pay at some future time, so that the payment
stipulated for in the agreement to re-convey is in reality the payment of this existing debt, then the
whole transaction amounts to a mortgage, whatever stipulation they may have inserted in the
instruments. If there is no relation of debtor-creditor, but by the terms of the contract one is merely
given an option to buy real property for a fixed amount and for a fixed price, there is no equitable
mortgage; the optionee is not bound to buy and to pay for said real property.77
In the present case, the trial and appellate courts declared that based on the evidence on record,
petitioner sold the property to respondent Sta. Monica for ₱3,021,000.00; as stated in the Option to
Buy, petitioner may opt to repurchase the property for ₱4,100,000.00. Respondent Sta. Monica
agrees with the findings of the trial court and the appellate court.78
The trial court failed to make any finding why petitioner sold the property to respondent Sta. Monica
for ₱3,021,000.00, which is contrary to what appears on the face of the deed of absolute sale -
₱4,100,000.00-which amount petitioner acknowledged to have received from said respondent.
Although petitioner claimed in its complaint that the true purchase price of the property was
₱3,021,000.00 and that it borrowed from respondent Sta. Monica ₱1,079,000.00 as mortgage for
one year (from June 30, 1986 to June 30, 1987), no testimonial and documentary evidence was
adduced to prove the same. Petitioner was burdened to prove its claim in its complaint that it
borrowed ₱3,021,000.00 from respondent Sta. Monica,79 failing which its claim will be defeated
even if respondents failed to present any evidence to prove their side.80
To reiterate, there is no evidence on record that petitioner borrowed ₱3,021,000.00 from
respondent Sta. Monica in 1986 as alleged in its complaint. The only evidence on record is that
petitioner decided in June 1986 to redeem the property from Pioneer much earlier than the one-
year-period therefor and needed ₱2,300,000.00 for the purpose. Petitioner received the amount
from respondent Sta. Monica and was able to redeem the property from Pioneer. The only evidence
of petitioner that it received money from respondent Sta. Monica is the Deed of Absolute Sale, in
which the petitioner acknowledged to have received ₱4,100,000.00.
The "Redemption Receipt" signed by Trinidad on June 30, 1988 for ₱3,000,000.00 in the form of
checks and ₱57,000.00 in cash "as partial payment of the account of JMA for the property x x x"
does not constitute evidence that petitioner secured a loan of ₱3,021,000.00 from respondent Sta.
Monica in June 1986. The said amount was part of the ₱5,822,000.00 which petitioner was obliged
to pay to respondent Sta. Monica, in case it opted to buy the property under the Option to Buy,
representing the repurchase price, inclusive of liquidated damages. In fact, Rosita Alberto testified
that petitioner expected respondent Sta. Monica to execute a deed of sale over the property upon
its payment of ₱4,100,000.00. This is gleaned from the testimony of Atty. Alberto:
Atty. Balbastro:
18

Q Let me put it this way, under these documents, Exhibits B and C, more particularly Exhibit C, the
Option to Buy, JMA House Incorporated was given up to June 30, 1988 within which to exercise her
option to buy, is that correct?
A Yes, Sir.
Q And as of June 30, 1988, how much money did you tender to Sta. Monica Industrial Corporation?
A I tendered a total amount of three million fifty-seven thousand pesos, Sir.
Q And how much is the redemption price, if you know? If you know the repurchase price?
A Based on the papers that can be found on the deed of absolute sale, if JMA House Incorporated
was to redeem the property during the first year, we were supposed to repurchase on time.
COURT:
Q You are a lawyer, right?
A Yes, Your Honor.
WITNESS:
A To repurchase the property within the first year, a total amount of four million one hundred
thousand pesos, inclusive of interest, was supposed to be paid. If the repurchase was to be made
on the second year, interests of 3.5 per cent per month was to be added on the face value which is
one million one hundred thousand pesos.
xxxx
Atty. Balbastro:
Q Aside from Exhibit G, you do not have any other document concerning the payment you made to
Sta. Monica Industrial Corporation?
A No other.
Q Now, subsequent to the payments (sic) of Exhibits B and C, no other written document was
executed between JMA House Incorporated and Sta. Monica Industrial and Development
Corporation, is that correct?
A No other because we were expecting that the next document to be executed was a deed of
absolute sale of Sta. Monica Industrial Corporation back to JMA House Incorporated covering the
property.81
If, as claimed by petitioner, the transaction between it and respondent Sta. Monica was an equitable
mortgage, the latter would be obliged to execute a Cancellation of Real Estate Mortgage or Release
of Mortgage over the property in favor of the petitioner. But, as admitted by Rosita Alberto,
petitioner did not expect respondent Sta. Monica to execute any of these; petitioner expected that a
deed of sale would be executed in its favor.
It bears stressing that petitioner and respondent Sta. Monica were assisted by their respective
lawyers during the negotiations held between Rosita Alberto and Trinidad. While Trinidad insisted
on a deed of absolute sale, Rosita Alberto suggested that a real estate mortgage be executed by the
parties instead. Trinidad rejected this, upon which Rosita proposed that an option to buy be
executed as a supplement to the deed of absolute sale, to which Trinidad readily agreed. Obviously,
the parties had arrived at a compromise to execute two deeds: a deed of absolute sale for
₱4,100,000.00, and a deed of option to enable petitioner to buy the property for the same price.
Rosita Alberto testified, thus:
Q Now, you also made mention that you had mortgaged the property to Sta. Monica Industrial
Corporation. Did you execute any document to prove that mortgage?
A Yes. Through the negotiation we were talking about a real estate mortgage but Mr. Trinidad
insisted on a deed of sale in their favor. However, I requested for another document an option to
buy/option to repurchase which is supplement to the deed of sale which would give us two years
from the date of signing, to repurchase the property.
ATTY. LAZARO:
Q Madam Witness, do you still recall the exact date when this deed of absolute sale was executed?
A It was June 30th 1986.
Q And how about the option to buy agreement that you are mentioning? When was it executed?
A It was executed [simultaneously] on the same day, June 30, 1986.
Q I am going to show you now a deed of absolute sale between JMA House Incorporated and Sta.
Monica Industrial and Development Corporation which has been previously marked as Exhibit B and
Exhibit B-1. What is the relation of this deed of absolute sale to the one that you are referring to?
A This is the same deed of absolute sale that we signed.
Q And I am calling your attention to Exhibit B-1 wherein the signature over and above the name
Rosita Alberto [appears], whose signature is that?
A My signature, Sir.
Q And I am also calling your attention to the signature over and above the name Eugenio E.
Trinidad, President and General Manager. Whose signature is that?
A Mr. Trinidad[’s].82
The respective lawyers of petitioner and respondent Sta. Monica thereafter prepared the deeds
which were executed on June 30, 1986 before the same Notary Public, Atilano H. Lim. According to
Rosita Alberto, the Option to Buy supplemented the Deed of Absolute Sale. The testimony of Rosita
Alberto on the matter follows:
Q Alright, I will read to you your Exh. "C," under the second WHEREAS, and I quote: Whereas, the
parties in the aforementioned Deed mutually agreed that the VENDOR JMA HOUSE INCORPORATED
is given an option to buy back the properties subject thereto…" Do you recall this provision?
A Yes. This is the document.
Q And, in this second WHEREAS, the aforementioned Deed referred to here is the Deed referred to
in the first WHEREAS, that is the Deed of Absolute Sale, marked as Exhibit "B", is that correct?
A Yes.
Q I am going back to my first question. In other words, the basis of the option to buy is the
supposed mutual agreement between JMA House Incorporated and Sta. Monica Industrial and
19
Development Corporation to give JMA House Incorporated the [option] to buy back the property as
provided in the Deed of Absolute Sale marked here as Exhibit "B," is that correct?
A They were supplementing each other, the option to buy and the deed of absolute sale.83
The fact that petitioner sold the property to respondent Sta. Monica is evidenced by Rosita Alberto’s
admission that she delivered to respondent Sta. Monica the owner’s duplicate of TCT No. 268126,
after which the latter had the property registered in its name, conformably with their "pre-
arrangement." This can be gleaned from her testimony, in answer to the questions of counsel of
respondent AGCOR:
ATTY. LUCAS:
Q After June 30, 1986, Your Honor.
WITNESS:
A After June 30, 1986, the taxes were paid by STA. MONICA. That was the pre-arrangement, Your
Honor, with STA. MONICA. And it would be absurd for JMA to pay the taxes when the title was with
STA. MONICA. And we believe that they would be using it for their purposes, the title; for STA.
MONICA’s purposes. So, they are more than willing to take up the taxes.84
Although Rosita Alberto did not specify the particulars of her "pre-arrangement" with Trinidad
outside of the Deed of Absolute Sale and Option to Buy, it can safely be presumed that they agreed
that petitioner would continue collecting rentals from the tenants, and respondent may mortgage
the property as security for its ₱3,600,000.00 loan from the PCI Capital Corporation. Petitioner
would then be able to generate funds for the purchase of the property on or before June 30, 1987
or 1988, partly from the rentals. On the other hand, respondent Sta. Monica was able to generate
funds from its loan, with the property as collateral, for its business. Both parties benefited under the
arrangement.
While it is true that per Appraisal Report of the Philippine Appraisal Corporation, the property of the
petitioner had a value, as of 1986, of ₱11,080,000.00, despite which, Alberto agreed to sell the
property for ₱4,100,000.00 under the Deed of Absolute Sale, nevertheless, Alberto cannot be
faulted. After all, under the Option to Buy, petitioner was obliged to pay only ₱4,100,000.00.
It must be stressed that an option is a continuing offer or contract by which an owner stipulates
with another that the latter shall have the right to buy the property at a fixed price with a certain
time, or under, or in compliance with, certain terms and conditions; or which gives to the owner of
the property the right to sell or demand a sale.85 It is, in fine, an unaccepted offer, governed by the
second paragraph of Article 1479 of the New Civil Code which states that "a promise to buy and sell
a determinate thing for a price certain is reciprocally demandable." An option is not of itself a
purchase, but merely secures the privilege to buy. An option is a privilege given by the owner of the
property to another to buy the property at his election, and the owner does not sell the property but
gives another the right to buy at his election.86 It imposes no binding obligation on the person
holding the option, aside from the consideration for the offer. Without acceptance, it is not, properly
speaking, treated as a contract, and does not vest, transfer or agree to transfer, any title to, or any
interest or right in the subject property, but is merely a contract by which the owner of the property
gives the optionee the right or privilege of accepting the offer and buying the property on certain
terms.87
Thus, an option contract involves two distinct elements, that is: (1) the offer to sell, which does not
become a contract until accepted; (2) the completed contract to lease the offer for a specified
time.88 It is a separate and distinct contract from that which the parties may enter into, upon the
consummation of the option.
It bears stressing that an option must be supported by a consideration distinct and separate from
the price.1âwphi1 A consideration for an optional contract is just as important as the consideration
for any other kind of contract.89 If there is no consideration for the optional contract, then it cannot
be enforced anymore than any other contract where no consideration exists.90 However, case law
is that although an option is not binding as a contract for want of consideration, yet if the offer
contained therein is not withdrawn, its acceptance within the time limited gives rise to a contract of
sale, binding on the vendor, which cannot be affected by any subsequent attempt to withdraw the
offer.91
The optionee or promisee is burdened to prove such consideration for the option. The consideration
for the option is not presumed. In Villamor v. Court of Appeals,92 the Court ruled that consideration
is "the why of the contract, the essential reason which moves the contracting parties to enter into
the contract."93 The consideration for a contract, including an option, need not be money or
anything of monetary value but may consist of either a benefit or a detriment to the promisor.94
There is sufficient consideration for a promise if there is any benefit to the promisee or any
detriment to the promisor. A benefit should not necessarily accrue to the promisee if a detriment to
the promisor is present; and there is consideration if the promisee does anything legal which he is
not bound to do or refrain from doing anything which he has a right to do, whether or not there is
any actual loan or detriment to him or actual benefit to the promisor.95 It is sufficient that
something valuable flows from the person to whom it is made, or that he suffers some prejudice or
inconvenience, and that the promise is the inducement to the transaction. Indeed, there is a
consideration if the promisee, in return for the promise, does anything legal which he is not bound
to do, or refrains from doing anything which he has a right to do, whether there is any actual loss or
detriment to him or actual benefit to the promisor or not.96
We agree with the rulings of the trial court and the CA that the option granted to the petitioner has
a consideration distinct from the purchase price of the property for ₱4,100,000.00.
As gleaned from the Option to Buy itself, the agreement was executed by the parties because of the
Deed of Absolute Sale they had executed on the same occasion. Instead of the parties executing a
Real Estate Mortgage as suggested by petitioner, the parties, by way of compromise, agreed to
execute a Deed of Absolute Sale, on the condition that they execute an Option to Buy, giving
petitioner the privilege to repurchase the property within a period of one year, with a grace period
of one year immediately upon the expiration of the original one year period. As admitted by Rosita
Alberto, the two deeds complemented each other, the Option to Buy being a supplement to the
Deed of Absolute Sale. In fine, petitioner would not have agreed to sell the property to respondent
Sta. Monica unless petitioner was given the option to repurchase the property for the same amount.
However, we agree with the ruling of the CA that petitioner failed to exercise its option and notify
respondent Sta. Monica of its acceptance of the latter’s offer within the timeline under the Option to
Buy. Under the said deed, petitioner had one year from June 30, 1986 or up to June 30, 1987 to
exercise its option, and in case of failure to do so, it had a one year grace period (from July 1, 1987
to June 30, 1988), provided that, in the latter case, it would pay equitable damages of 3.5% a
month from July 1, 1987 to June 30, 1988 until full payment of the purchase price or until the
option is finally exercised. The pertinent portion of the contract reads:
NOW, THEREFORE, for and in consideration of the foregoing premises, stipulations and conditions,
the JMA HOUSE INCORPORATED is hereby given an option to buy back the subject properties
mentioned in the aforesaid Deed of Absolute Sale, and in like manner the STA. MONICA
INDUSTRIAL AND DEVELOPMENT CORPORATION hereby undertakes and binds itself to resell the
same unto the said JMA HOUSE INCORPORATED within a period of One (1) year from and after
date of execution of the said Deed for a fixed consideration of FOUR MILLION ONE HUNDRED
THOUSAND PESOS (₱4,100,000.00) Philippine Currency; PROVIDED, HOWEVER, should the said
JMA HOUSE INCORPORATED failed (sic) to exercise the herein option to buy back within the above-
stated period, the JMA HOUSE INCORPORATED be (sic) given a grace period of another One (1)
year immediately thereafter. In case of such extension the JMA HOUSE INCORPORATED hereby
undertakes and binds itself to pay an amount equivalent to Three and one-half percent (sic) month
20
for and as liquidated damages until the whole amount is fully paid and/or the option is finally
exercised.

It is clear that petitioner failed to exercise its option on or before June 30, 1987. Neither did
petitioner exercise its option and pay the liquidated damages to respondent Sta. Monica from July 1,
1987 up to June 1988. This impelled respondent Sta. Monica to inform petitioner that because of its
failure to exercise its option to purchase the property, it had to discontinue collecting the rentals
from the tenants of the buildings. On February 2, 1988, respondent Sta. Monica sold the property to
respondent AGCOR, which secured TCT No. 376746 on February 17, 1988.

The Option to Buy provides that acceptance must be accompanied by payment of liquidated
damages; such payment is a condition precedent to the exercise of the right to buy, and the money
must be tendered or offered. A mere notice of an intention to accept, or of an acceptance without
such payment or tender, does not constitute a valid compliance.97 Respondent Sta. Monica’s
acceptance of the five checks in the total amount of ₱3,000,000.00 and the cash amount of
₱57,000.00 on June 30, 1988, as partial payment of petitioner’s account did not resuscitate the right
which petitioner had by then already lost, particularly since the property had already been sold and
titled to AGCOR. The said partial payment was an exercise in futility, made worse by the fact that
the five checks were dishonored by the drawee bank.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. Costs against the petitioner.

SO ORDERED.

21
G.R. No. 97332 October 10, 1991 That I am willing to have this contract to sell inscribed on my aforesaid title as an encumbrance
upon the property covered thereby, upon payment of the corresponding fees; and
SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR, petitioners,
vs. That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept, the above provisions of
THE HON. COURT OF APPEALS AND SPOUSES MACARIA LABINGISA REYES AND this Deed of Option.
ROBERTO REYES, respondents.
IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila, Philippines, by all the
MEDIALDEA, J.: persons concerned, this 11th day of November, 1971.

This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. No.
24176 entitled, "Spouses Julio Villamor and Marina Villamor, Plaintiffs-Appellees, versus Spouses
Macaria Labing-isa Reyes and Roberto Reyes, Defendants-Appellants," which reversed the decision
of the Regional Trial Court (Branch 121) at Caloocan City in Civil Case No. C-12942.
The facts of the case are as follows:
Macaria Labingisa Reyes was the owner of a 600-square meter lot located at Baesa, Caloocan City,
as evidenced by Transfer Certificate of Title No. (18431) 18938, of the Register of Deeds of Rizal.
In July 1971, Macaria sold a portion of 300 square meters of the lot to the Spouses Julio and Marina
and Villamor for the total amount of P21,000.00. Earlier, Macaria borrowed P2,000.00 from the
spouses which amount was deducted from the total purchase price of the 300 square meter lot sold.
The portion sold to the Villamor spouses is now covered by TCT No. 39935 while the remaining
portion which is still in the name of Macaria Labing-isa is covered by TCT No. 39934 (pars. 5 and 7,
Complaint). On November 11, 1971, Macaria executed a "Deed of Option" in favor of Villamor in
which the remaining 300 square meter portion (TCT No. 39934) of the lot would be sold to Villamor
under the conditions stated therein. The document reads:
DEED OF OPTION
This Deed of Option, entered into in the City of Manila, Philippines, this 11th day of November,
1971, by and between Macaria Labing-isa, of age, married to Roberto Reyes, likewise of age, and
both resideing on Reparo St., Baesa, Caloocan City, on the one hand, and on the other hand the
spouses Julio Villamor and Marina V. Villamor, also of age and residing at No. 552 Reparo St.,
corner Baesa Road, Baesa, Caloocan City.
WITNESSETH
JULIO VILLAMOR MACARIA LABINGISA
With My Conformity:
MARINA VILLAMOR ROBERTO REYES
Signed in the Presence Of:
MARIANO Z. SUNIGA
ROSALINDA S. EUGENIO
ACKNOWLEDGMENT
REPUBLIC OF THE PHILIPPINES)
CITY OF MANILA ) S.S.
At the City of Manila, on the 11th day of November, 1971, personally appeared before me Roberto
Reyes, Macaria Labingisa, Julio Villamor and Marina Ventura-Villamor, known to me as the same
persons who executed the foregoing Deed of Option, which consists of two (2) pages including the
page whereon this acknowledgement is written, and signed at the left margin of the first page and
at the bottom of the instrument by the parties and their witnesses, and sealed with my notarial seal,
and said parties acknowledged to me that the same is their free act and deed. The Residence
Certificates of the parties were exhibited to me as follows: Roberto Reyes, A-22494, issued at
Manila on Jan. 27, 1971, and B-502025, issued at Makati, Rizal on Feb. 18, 1971; Macaria Labingisa,
A-3339130 and B-1266104, both issued at Caloocan City on April 15, 1971, their joint Tax Acct.
Number being 3028-767-6; Julio Villamor, A-804, issued at Manila on Jan. 14, 1971, and B-138,
issued at Manila on March 1, 1971; and Marina Ventura-Villamor, A-803, issued at Manila on Jan.
14, 1971, their joint Tax Acct. Number being 608-202-6.

That, I Macaria Labingisa, am the owner in fee simple of a parcel of land with an area of 600 square ARTEMIO M. MALUBAY
meters, more or less, more particularly described in TCT No. (18431) 18938 of the Office of the Notary Public
Register of Deeds for the province of Rizal, issued in may name, I having inherited the same from Until December 31, 1972
my deceased parents, for which reason it is my paraphernal property; PTR No. 338203, Manila
January 15, 1971
That I, with the conformity of my husband, Roberto Reyes, have sold one-half thereof to the
aforesaid spouses Julio Villamor and Marina V. Villamor at the price of P70.00 per sq. meter, which Doc. No. 1526;
was greatly higher than the actual reasonable prevailing value of lands in that place at the time, Page No. 24;
which portion, after segregation, is now covered by TCT No. 39935 of the Register of Deeds for the Book No. 38;
City of Caloocan, issued on August 17, 1971 in the name of the aforementioned spouses vendees; Series of 1971. (pp. 25-29, Rollo)

That the only reason why the Spouses-vendees Julio Villamor and Marina V. Villamor, agreed to buy
the said one-half portion at the above-stated price of about P70.00 per square meter, is because I,
and my husband Roberto Reyes, have agreed to sell and convey to them the remaining one-half
portion still owned by me and now covered by TCT No. 39935 of the Register of Deeds for the City
of Caloocan, whenever the need of such sale arises, either on our part or on the part of the spouses
(Julio) Villamor and Marina V. Villamor, at the same price of P70.00 per square meter, excluding
whatever improvement may be found the thereon;
According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to
repurchase the lot sold by them to the Villamor spouses but Marina Villamor refused and reminded
them instead that the Deed of Option in fact gave them the option to purchase the remaining
portion of the lot.
The Villamors, on the other hand, claimed that they had expressed their desire to purchase the
remaining 300 square meter portion of the lot but the Reyeses had been ignoring them. Thus, on

22
July 13, 1987, after conciliation proceedings in the barangay level failed, they filed a complaint for
specific performance against the Reyeses.
On July 26, 1989, judgment was rendered by the trial court in favor of the Villamor spouses, the
dispositive portion of which states:
WHEREFORE, and (sic) in view of the foregoing, judgment is hereby rendered in favor of the
plaintiffs and against the defendants ordering the defendant MACARIA LABING-ISA REYES and
ROBERTO REYES, to sell unto the plaintiffs the land covered by T.C.T No. 39934 of the Register of
Deeds of Caloocan City, to pay the plaintiffs the sum of P3,000.00 as and for attorney's fees and to
pay the cost of suit.
The counterclaim is hereby DISMISSED, for LACK OF MERIT.
SO ORDERED. (pp. 24-25, Rollo)
Not satisfied with the decision of the trial court, the Reyes spouses appealed to the Court of Appeals
on the following assignment of errors:
1. HOLDING THAT THE DEED OF OPTION EXECUTED ON NOVEMBER 11, 1971 BETWEEN
THE PLAINTIFF-APPELLEES AND DEFENDANT-APPELLANTS IS STILL VALID AND BINDING DESPITE
THE LAPSE OF MORE THAN THIRTEEN (13) YEARS FROM THE EXECUTION OF THE CONTRACT;
2. FAILING TO CONSIDER THAT THE DEED OF OPTION CONTAINS OBSCURE WORDS AND
STIPULATIONS WHICH SHOULD BE RESOLVED AGAINST THE PLAINTIFF-APPELLEES WHO
UNILATERALLY DRAFTED AND PREPARED THE SAME;
3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE INTENTION AND
PURPOSE OF THE PARTIES DESPITE ADVERSE, CONTEMPORANEOUS AND SUBSEQUENT ACTS OF
THE PLAINTIFF-APPELLEES;
4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON ACCOUNT OF THEIR
IGNORANCE PLACING THEM AT A DISADVANTAGE IN THE DEED OF OPTION;
5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION TILT IN FAVOR OF THE
DEFENDANT-APPELLANTS; and
6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY PLAINTIFF-APPELLEES THE
AMOUNT OF P3,000.00 FOR AND BY WAY OF ATTORNEY'S FEES. (pp. 31-32, Rollo)
On February 12, 1991, the Court of Appeals rendered a decision reversing the decision of the trial
court and dismissing the complaint. The reversal of the trial court's decision was premised on the
finding of respondent court that the Deed of Option is void for lack of consideration.
The Villamor spouses brought the instant petition for review on certiorari on the following grounds:
I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE PHRASE WHENEVER
THE NEED FOR SUCH SALE ARISES ON OUR (PRIVATE RESPONDENT) PART OR ON THE PART OF
THE SPOUSES JULIO D. VILLAMOR AND MARINA V. VILLAMOR' CONTAINED IN THE DEED OF
OPTION DENOTES A SUSPENSIVE CONDITION;
II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED PHRASE IS INDEED A
CONDITION, THE COURT OF APPEALS ERRED IN NOT FINDING, THAT THE SAID CONDITION HAD
ALREADY BEEN FULFILLED;
III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED PHRASE IS INDEED A
CONDITION, THE COURT OF APPEALS ERRED IN HOLDING THAT THE IMPOSITION OF SAID
CONDITION PREVENTED THE PERFECTION OF THE CONTRACT OF SALE DESPITE THE EXPRESS
OFFER AND ACCEPTANCE CONTAINED IN THE DEED OF OPTION;
IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE DEED OF OPTION IS VOID FOR
LACK OF CONSIDERATION;
V. THE COURT OF APPEALS ERRED IN HOLDING THAT A DISTINCT CONSIDERATION IS
NECESSARY TO SUPPORT THE DEED OF OPTION DESPITE THE EXPRESS OFFER AND ACCEPTANCE
CONTAINED THEREIN. (p. 12, Rollo)
The pivotal issue to be resolved in this case is the validity of the Deed of Option whereby the private
respondents agreed to sell their lot to petitioners "whenever the need of such sale arises, either on
our part (private respondents) or on the part of Julio Villamor and Marina Villamor (petitioners)."
The court a quo, rule that the Deed of Option was a valid written agreement between the parties
and made the following conclusions:
xxx xxx xxx
It is interesting to state that the agreement between the parties are evidence by a writing, hence,
the controverting oral testimonies of the herein defendants cannot be any better than the
documentary evidence, which, in this case, is the Deed of Option (Exh. "A" and "A-a")
The law provides that when the terms of an agreement have been reduced to writing it is to be
considered as containing all such terms, and therefore, there can be, between the parties and their
successors in interest no evidence of their terms of the agreement, other than the contents of the
writing. ... (Section 7 Rule 130 Revised Rules of Court) Likewise, it is a general and most inflexible
rule that wherever written instruments are appointed either by the requirements of law, or by the
contract of the parties, to be the repositories and memorials of truth, any other evidence is excluded
from being used, either as a substitute for such instruments, or to contradict or alter them. This is a
matter both of principle and of policy; of principle because such instruments are in their nature and
origin entitled to a much higher degree of credit than evidence of policy, because it would be
attended with great mischief if those instruments upon which man's rights depended were liable to
be impeached by loose collateral evidence. Where the terms of an agreement are reduced to
writing, the document itself, being constituted by the parties as the expositor of their intentions, it is
the only instrument of evidence in respect of that agreement which the law will recognize so long as
it exists for the purpose of evidence. (Starkie, EV, pp. 648, 655 cited in Kasheenath vs. Chundy,
W.R. 68, cited in Francisco's Rules of Court, Vol. VII Part I p. 153) (Emphasis supplied, pp. 126-127,
Records).
The respondent appellate court, however, ruled that the said deed of option is void for lack of
consideration. The appellate court made the following disquisitions:
Plaintiff-appellees say they agreed to pay P70.00 per square meter for the portion purchased by
them although the prevailing price at that time was only P25.00 in consideration of the option to
buy the remainder of the land. This does not seem to be the case. In the first place, the deed of
sale was never produced by them to prove their claim. Defendant-appellants testified that no copy
of the deed of sale had ever been given to them by the plaintiff-appellees. In the second place, if
this was really the condition of the prior sale, we see no reason why it should be reiterated in the
Deed of Option. On the contrary, the alleged overprice paid by the plaintiff-appellees is given in the
Deed as reason for the desire of the Villamors to acquire the land rather than as a consideration for
the option given to them, although one might wonder why they took nearly 13 years to invoke their
right if they really were in due need of the lot.
At all events, the consideration needed to support a unilateral promise to sell is a dinstinct one, not
something that is as uncertain as P70.00 per square meter which is allegedly 'greatly higher than
the actual prevailing value of lands.' A sale must be for a price certain (Art. 1458). For how much
the portion conveyed to the plaintiff-appellees was sold so that the balance could be considered the
23
consideration for the promise to sell has not been shown, beyond a mere allegation that it was very
much below P70.00 per square meter.
The fact that plaintiff-appellees might have paid P18.00 per square meter for another land at the
time of the sale to them of a portion of defendant-appellant's lot does not necessarily prove that the
prevailing market price at the time of the sale was P18.00 per square meter. (In fact they claim it
was P25.00). It is improbable that plaintiff-appellees should pay P52.00 per square meter for the
privilege of buying when the value of the land itself was allegedly P18.00 per square meter. (pp. 34-
35, Rollo)
As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the contracts, the
essential reason which moves the contracting parties to enter into the contract." The cause or the
impelling reason on the part of private respondent executing the deed of option as appearing in the
deed itself is the petitioner's having agreed to buy the 300 square meter portion of private
respondents' land at P70.00 per square meter "which was greatly higher than the actual reasonable
prevailing price." This cause or consideration is clear from the deed which stated:
That the only reason why the spouses-vendees Julio Villamor and Marina V. Villamor agreed to buy
the said one-half portion at the above stated price of about P70.00 per square meter, is because I,
and my husband Roberto Reyes, have agreed to sell and convey to them the remaining one-half
portion still owned by me ... (p. 26, Rollo)
The respondent appellate court failed to give due consideration to petitioners' evidence which shows
that in 1969 the Villamor spouses bough an adjacent lot from the brother of Macaria Labing-isa for
only P18.00 per square meter which the private respondents did not rebut. Thus, expressed in
terms of money, the consideration for the deed of option is the difference between the purchase
price of the 300 square meter portion of the lot in 1971 (P70.00 per sq.m.) and the prevailing
reasonable price of the same lot in 1971. Whatever it is, (P25.00 or P18.00) though not specifically
stated in the deed of option, was ascertainable. Petitioner's allegedly paying P52.00 per square
meter for the option may, as opined by the appellate court, be improbable but improbabilities does
not invalidate a contract freely entered into by the parties.
The "deed of option" entered into by the parties in this case had unique features. Ordinarily, an
optional contract is a privilege existing in one person, for which he had paid a consideration and
which gives him the right to buy, for example, certain merchandise or certain specified property,
from another person, if he chooses, at any time within the agreed period at a fixed price (Enriquez
de la Cavada v. Diaz, 37 Phil. 982). If We look closely at the "deed of option" signed by the parties,
We will notice that the first part covered the statement on the sale of the 300 square meter portion
of the lot to Spouses Villamor at the price of P70.00 per square meter "which was higher than the
actual reasonable prevailing value of the lands in that place at that time (of sale)." The second part
stated that the only reason why the Villamor spouses agreed to buy the said lot at a much higher
price is because the vendor (Reyeses) also agreed to sell to the Villamors the other half-portion of
300 square meters of the land. Had the deed stopped there, there would be no dispute that the
deed is really an ordinary deed of option granting the Villamors the option to buy the remaining 300
square meter-half portion of the lot in consideration for their having agreed to buy the other half of
the land for a much higher price. But, the "deed of option" went on and stated that the sale of the
other half would be made "whenever the need of such sale arises, either on our (Reyeses) part or
on the part of the Spouses Julio Villamor and Marina V. Villamor. It appears that while the option to
buy was granted to the Villamors, the Reyeses were likewise granted an option to sell. In other
words, it was not only the Villamors who were granted an option to buy for which they paid a
consideration. The Reyeses as well were granted an option to sell should the need for such sale on
their part arise.
In the instant case, the option offered by private respondents had been accepted by the petitioner,
the promise, in the same document. The acceptance of an offer to sell for a price certain created a
bilateral contract to sell and buy and upon acceptance, the offer, ipso facto assumes obligations of a
vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil. 948). Demandabilitiy may be exercised at
any time after the execution of the deed. In Sanchez v. Rigos, No. L-25494, June 14, 1972, 45
SCRA 368, 376, We held:
In other words, since there may be no valid contract without a cause of consideration, the
promisory is not bound by his promise and may, accordingly withdraw it. Pending notice of its
withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale.
A contract of sale is, under Article 1475 of the Civil Code, "perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and upon the price. From that
moment, the parties may reciprocally demand perform of contracts." Since there was, between the
parties, a meeting of minds upon the object and the price, there was already a perfected contract of
sale. What was, however, left to be done was for either party to demand from the other their
respective undertakings under the contract. It may be demanded at any time either by the private
respondents, who may compel the petitioners to pay for the property or the petitioners, who may
compel the private respondents to deliver the property.
However, the Deed of Option did not provide for the period within which the parties may demand
the performance of their respective undertakings in the instrument. The parties could not have
contemplated that the delivery of the property and the payment thereof could be made indefinitely
and render uncertain the status of the land. The failure of either parties to demand performance of
the obligation of the other for an unreasonable length of time renders the contract ineffective.
Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought within ten
(10) years. The Deed of Option was executed on November 11, 1971. The acceptance, as already
mentioned, was also accepted in the same instrument. The complaint in this case was filed by the
petitioners on July 13, 1987, seventeen (17) years from the time of the execution of the contract.
Hence, the right of action had prescribed. There were allegations by the petitioners that they
demanded from the private respondents as early as 1984 the enforcement of their rights under the
contract. Still, it was beyond the ten (10) years period prescribed by the Civil Code. In the case of
Santos v. Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and subscribing to the
observations of the court a quo held, thus:
... Assuming that Rosa Ganayo, the oppositor herein, had the right based on the Agreement to
Convey and Transfer as contained in Exhibits '1' and '1-A', her failure or the abandonment of her
right to file an action against Pulmano Molintas when he was still a co-owner of the on-half (1/2)
portion of the 10,000 square meters is now barred by laches and/or prescribed by law because she
failed to bring such action within ten (10) years from the date of the written agreement in 1941,
pursuant to Art. 1144 of the New Civil Code, so that when she filed the adverse claim through her
counsel in 1959 she had absolutely no more right whatsoever on the same, having been barred by
laches.
It is of judicial notice that the price of real estate in Metro Manila is continuously on the rise. To
allow the petitioner to demand the delivery of the property subject of this case thirteen (13) years
or seventeen (17) years after the execution of the deed at the price of only P70.00 per square
meter is inequitous. For reasons also of equity and in consideration of the fact that the private
respondents have no other decent place to live, this Court, in the exercise of its equity jurisdiction is
not inclined to grant petitioners' prayer.
ACCORDINGLY, the petition is DENIED. The decision of respondent appellate court is AFFIRMED for
reasons cited in this decision. Judgement is rendered dismissing the complaint in Civil Case No. C-
12942 on the ground of prescription and laches.
SO ORDERED.
24
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 . . .;
25
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;
26
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,
27
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 Claro M. Recto property to Equatorial.
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION CLAUSE IN THE
CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN DOING SO THE
COURT OF APPEALS DISREGARDED THE CONTRACTS OF LEASE WHICH CLEARLY AND
UNEQUIVOCALLY PROVIDE FOR AN OPTION, AND THE ADMISSION OF THE PARTIES OF SUCH
OPTION IN THEIR STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS ERRED IN
DIRECTING EQUATORIAL TO EXECUTE A DEED OF SALE EIGHTEEN (18) YEARS AFTER MAYFAIR
FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS RIGHT OF FIRST REFUSAL ASSUMING IT WAS
ONE) WHEN THE CONTRACTS LIMITED THE EXERCISE OF SUCH OPTION TO 30 DAYS FROM
NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED IMPLEMENTATION OF ITS
DECISION EVEN BEFORE ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF THAT WAS
NOT EVEN PRAYED FOR IN THE COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE ASSIGNMENT OF
APPEALED CASES WHEN IT ALLOWED THE SAME DIVISION XII, PARTICULARLY JUSTICE MANUEL
HERRERA, TO RESOLVE ALL THE MOTIONS IN THE "COMPLETION PROCESS" AND TO STILL
RESOLVE THE MERITS OF THE CASE IN THE "DECISION STAGE".11
We shall first dispose of the fourth assigned error respecting alleged irregularities in the raffle of this
case in the Court of Appeals. Suffice it to say that in our Resolution,12 dated December 9, 1992, we
already took note of this matter and set out the proper applicable procedure to be the following:
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
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
28
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.
29
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.
30
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.
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.

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.

31
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 3 of September 2, 1991, of the Regional
Trial Court of Makati, Branch 57, 4 dismissing Civil Case No. 91-786 for lack of a valid cause of
action.
Facts of the Case
On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati a complaint, 5
which is reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and existing under and by virtue of the laws of
the Philippines, with principal place of business of (sic) Dr. A. Santos Avenue, 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
32
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
33
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.
34
Of course, under their contract, they specifically stipulated that the Bonnevies could exercise the
right of first priority, "all things and conditions being equal." This Court interpreted this proviso to
mean that there should be identity of terms and conditions to be offered to the Bonnevies and all
other prospective buyers, with the Bonnevies to enjoy the right of first priority. We hold that the
same rule applies even without the same proviso if the right of first refusal (or the first option to
buy) is not to be rendered illusory.
From the foregoing, the basis of the right of first refusal* must be the current offer to sell of the
seller or offer to purchase of any prospective buyer. Only after the optionee fails to exercise its right
of first priority under the same terms and within the period contemplated, could the owner validly
offer to sell the property to a third person, again, under the same terms as offered to the optionee.
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc. 17
which was decided en banc. This Court upheld the right of first refusal of the lessee Mayfair, and
rescinded the sale of the property by the lessor Carmelo to Equatorial Realty "considering that
Mayfair, which had substantial interest over the subject property, was prejudiced by its sale to
Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day
stipulated period" (emphasis supplied).
In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR
should desire to sell the leased premises, the LESSEE shall be given 30 days exclusive option to
purchase the same." Carmelo initially offered to sell the leased property to Mayfair for six to seven
million pesos. Mayfair indicated interest in purchasing the property though it invoked the 30-day
period. Nothing was heard thereafter from Carmelo. Four years later, the latter sold its entire Recto
Avenue property, including the leased premises, to Equatorial for P11,300,000.00 without priorly
informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad faith: Carmelo for
knowingly violating the right of first option of Mayfair, and Equatorial for purchasing the property
despite being aware of the contract stipulation. In addition to rescission of the contract of sale, the
Court ordered Carmelo to allow Mayfair to buy the subject property at the same price of
P11,300,000.00.
No cause of action
under P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law, as another
source of its right of first refusal. It claims to be covered under said law, being the "rightful
occupant of the land and its structures" since it is the lawful lessee thereof by reason of contract.
Under the lease contract, petitioner would have occupied the property for fourteen (14) years at the
end of the contractual period.
Without probing into whether petitioner is rightfully a beneficiary under said law, suffice it to say
that this Court has previously ruled that under
Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the exercise of the lessee's right
of first refusal to purchase shall be determined by the Urban Zone Expropriation and Land
Management Committee. Hence, . . . . certain prerequisites must be complied with by anyone who
wishes to avail himself of the benefits of the decree." 19 There being no allegation in its complaint
that the prerequisites were complied with, it is clear that the complaint did fail to state a cause of
action on this ground.
Deed of Assignment included
the option to purchase
Neither do we find merit in the contention of respondent Santos that the assignment of the lease
contract to petitioner did not include the option to purchase. The provisions of the deeds of
assignment with regard to matters assigned were very clear. Under the first assignment between
Frederick Chua as assignor and Lee Ching Bing as assignee, it was expressly stated that:
. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all his rights,
interest and participation over said premises afore-described, . . . . 20 (emphasis supplied)
And under the subsequent assignment executed between Lee Ching Bing as assignor and the
petitioner, represented by its Vice President Vicenta Lo Chiong, as assignee, it was likewise
expressly stipulated that;
. . . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and participation over
said leased premises, . . . . 21 (emphasis supplied)
One of such rights included in the contract of lease and, therefore, in the assignments of rights was
the lessee's right of first option or priority to buy the properties subject of the lease, as provided in
paragraph 9 of the assigned lease contract. The deed of assignment need not be very specific as to
which rights and obligations were passed on to the assignee. It is understood in the general
provision aforequoted that all specific rights and obligations contained 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.
35
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.
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
36
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
37
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.
38
G.R. No. 140479 March 8, 2001
ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN, petitioners,
vs.
PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN, FERNANDO MAGBANUA
and LIZZA TIANGCO, respondents.
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking reversal of the
Decision1 of the Court of Appeals dated June 25, 1999 in CA-G.R. CV No. 53963. The Court of
Appeals decision reversed and set aside the Decision2 dated May 13, 1996 of Branch 217 of the
Regional Trial Court of Quezon City in Civil Case No. Q-93-18582.1âwphi1.nêt
The case was originally filed on December 10, 1993 by Paterno Inquing, Irene Guillermo and
Federico Bantugan, herein respondents, against Rosencor Development Corporation (hereinafter
"Rosencor"), Rene Joaquin, and Eufrocina de Leon. Originally, the complaint was one for annulment
of absolute deed of sale but was later amended to one for rescission of absolute deed of sale. A
complaint-for intervention was thereafter filed by respondents Fernando Magbanua and Danna Lizza
Tiangco. The complaint-in-intervention was admitted by the trial court in an Order dated May 4,
1994.3
The facts of the case, as stated by the trial court and adopted by the appellate court, are as follows:
"This action was originally for the annulment of the Deed of Absolute Sale dated September 4, 1990
between defendants Rosencor and Eufrocina de Leon but later amended (sic) praying for the
rescission of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the lessees since 1971 of a two-story
residential apartment located at No. 150 Tomas Morato Ave., Quezon City covered by TCT No.
96161 and owned by spouses Faustino and Cresencia Tiangco. The lease was not covered by any
contract. The lessees were renting the premises then for P150.00 a month and were allegedly
verbally granted by the lessors the pre-emptive right to purchase the property if ever they decide to
sell the same.
Upon the death of the spouses Tiangcos in 1975, the management of the property was adjudicated
to their heirs who were represented by Eufrocina de Leon. The lessees were allegedly promised the
same pre-emptive right by the heirs of Tiangcos since the latter had knowledge that this right was
extended to the former by the late spouses Tiangcos. The lessees continued to stay in the premises
and allegedly spent their own money amounting from P50,000.00 to P100,000.00 for its upkeep.
These expenses were never deducted from the rentals which already increased to P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda Aguila demanding that they vacate the
premises so that the demolition of the building be undertaken. They refused to leave the premises.
In that same month, de Leon refused to accept the lessees’ rental payment claiming that they have
run out of receipts and that a new collector has been assigned to receive the payments. Thereafter,
they received a letter from Eufrocina de Leon offering to sell to them the property they were leasing
for P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for the amount of P1,000,000.00. De Leon
told them that she will be submitting the offer to the other heirs. Since then, no answer was given
by de Leon as to their offer to buy the property. However, in November 1990, Rene Joaquin came
to the leased premises introducing himself as its new owner.
In January 1991, the lessees again received another letter from Atty. Aguila demanding that they
vacate the premises. A month thereafter, the lessees received a letter from de Leon advising them
that the heirs of the late spouses Tiangcos have already sold the property to Rosencor. The
following month Atty. Aguila wrote them another letter demanding the rental payment and
introducing herself as counsel for Rosencor/Rene Joaquin, the new owners of the premises.
The lessees requested from de Leon why she had disregarded the pre-emptive right she and the
late Tiangcos have promised them. They also asked for a copy of the deed of sale between her and
the new owners thereof but she refused to heed their request. In the same manner, when they
asked Rene Joaquin a copy of the deed of sale, the latter turned down their request and instead
Atty. Aguila wrote them several letters demanding that they vacate the premises. The lessees
offered to tender their rental payment to de Leon but she refused to accept the same.
In April 1992 before the demolition can be undertaken by the Building Official, the barangay
interceded between the parties herein after which Rosencor raised the issue as to the rental
payment of the premises. It was also at this instance that the lessees were furnished with a copy of
the Deed of Sale and discovered that they were deceived by de Leon since the sale between her
and Rene Joaquin/Rosencor took place in September 4, 1990 while de Leon made the offer to them
only in October 1990 or after the sale with Rosencor had been consummated. The lessees also
noted that the property was sold only for P726,000.00.
The lessees offered to reimburse de Leon the selling price of P726,000.00 plus an additional
P274,000.00 to complete their P1,000.000.00 earlier offer. When their offer was refused, they filed
the present action praying for the following: a) rescission of the Deed of Absolute Sale between de
Leon and Rosencor dated September 4, 1990; b) the defendants Rosencor/Rene Joaquin be ordered
to reconvey the property to de Leon; and c) de Leon be ordered to reimburse the plaintiffs for the
repairs of the property, or apply the said amount as part of the price for the purchase of the
property in the sum of P100,000.00."4
After trial on the merits, the Regional Trial Court rendered a Decision5 dated May 13, 1996
dismissing the complaint. The trial court held that the right of redemption on which the complaint.
The trial court held that the right of redemption on which the complaint was based was merely an
oral one and as such, is unenforceable under the law. The dispositive portion of the May 13, 1996
Decision is as follows:
"WHEREFORE, in view of the foregoing, the Court DISMISSES the instant action. Plaintiffs and
plaintiffs-intervenors are hereby ordered to pay their respective monthly rental of P1,000.00 per
month reckoned from May 1990 up to the time they leave the premises. No costs.
SO ORDERED."6
Not satisfied with the decision of the trial court, respondents herein filed a Notice of Appeal dated
June 3, 1996. On the same date, the trial court issued an Order for the elevation of the records of
the case to the Court of Appeals. On August 8, 1997, respondents filed their appellate brief before
the Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its decision7 reversing the decision of the trial
court. The dispositive portion of the June 25, 1999 decision is as follows:
"WHEREFORE, premises considered, the appealed decision (dated May 13, 1996) of the Regional
Trial Court (Branch 217) in Quezon City in Case No. Q-93-18582 is hereby REVERSED and SET
ASIDE. In its stead, a new one is rendered ordering:
(1) The rescission of the Deed of Absolute Sale executed between the appellees on September 4,
1990;
(2) The reconveyance of the subject premises to appellee Eufrocina de Leon;
39
(3) The heirs of Faustino and Crescencia Tiangco, thru appellee Eufrocina de Leon, to afford the
appellants thirty days within which to exercise their right of first refusal by paying the amount of
ONE MILLION PESOS (P1,000,000.00) for the subject property; and
(4) The appellants to, in turn, pay the appellees back rentals from May 1990 up to the time this
decision is promulgated.
No pronouncement as to costs.
SO ORDERED".8
Petitioners herein filed a Motion for Reconsideration of the decision of the Court of Appeals but the
same was denied in a Resolution dated October 15, 1999.9
Hence, this petition for review on certiorari where petitioners Rosencor Development Corporation
and Rene Joaquin raise the following assignment of errors10:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE RESCISSION OF THE
ABSOLUTE DEED OF SALE BETWEEN EUFROCINA DE LEON AND PETITIONER ROSENCOR.
II.
THE COURT OF APPEALS COMMTITED MANIFEST ERROR IN MANDATING THAT EUFROCINA DE
LEON AFFORD RESPONDENTS THE OPPORTUNITY TO EXERCISE THEIR RIGHT OF FIRST REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT RESPONDENTS HAVE
ESTABLISHED THEIR RIGHT OF FIRST REFUSAL DESPITE PETITIONERS’ RELIANCE ON THEIR
DEFENSE BASED ON THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the spouses Faustino and Crescencia Tiangco, did
not appeal the decision of the Court of Appeals.
At the onset, we not that both the Court of Appeals and the Regional Trial Court relied on Article
1403 of the New Civil Code, more specifically the provisions on the statute of frauds, in coming out
with their respective decisions. The trial court, in denying the petition for reconveyance, held that
right of first refusal relied upon by petitioners was not reduced to writing and as such, is
unenforceable by virtue of the said article. The Court of Appeals, on the other hand, also held that
the statute of frauds governs the "right of first refusal" claimed by respondents. However, the
appellate court ruled that respondents had duly proven the same by reason of petitioners’ waiver of
the protection of the statute by reason of their failure to object to the presentation of oral evidence
of the said right.
Both the appellate court and the trial court failed to discuss, however, the threshold issue of
whether or not a right of first refusal is indeed covered by the provisions of the New Civil Code on
the statute of frauds. The resolution of the issue on the applicability of the statute of frauds is
important as it will determine the type of evidence which may be considered by the trial court as
proof of the alleged right of first refusal.
The term "statute of frauds" is descriptive of statutes which require certain classes of contracts to
be in writing. This statute does not deprive the parties of the right to contract with respect to the
matters therein involved, but merely regulates the formalities of the contract necessary to render it
enforceable. Thus, they are included in the provisions of the New Civil Code regarding
unenforceable contracts, more particularly Art. 1403, paragraph 2. Said article provides, as follows:
"Art. 1403. The following contracts are unenforceable, unless they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be unenforceable by action, unless the same, or some
note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing, or a secondary
evidence of its contents:
a) An agreement that by its terms is not to be performed within a year from the making thereof;
b) A special promise to answer for the debt, default, or miscarriage of another;
c) An agreement made in consideration of marriage, other than a mutual promise to marry;
d) An agreement for the sale of goods, chattels or things in action, at a price not less than five
hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action, or pay at the time some part of the purchase
money; but when a sale is made by auction and entry is made by the auctioneer in his sales book,
at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of
purchasers and person on whose account the sale is made, it is a sufficient memorandum;
e) An agreement for the leasing of a longer period than one year, or for the sale of real property or
of an interest therein;
f) A representation to the credit of a third person."
The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence on the unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the party to be
charged.11 Moreover, the statute of frauds refers to specific kinds of transactions and cannot apply
to any other transaction that is not enumerated therein.12 The application of such statute
presupposes the existence of a perfected contract.13
The question now is whether a "right of first refusal" is among those enumerated in the list of
contracts covered by the Statute of Frauds. More specifically, is a right of first refusal akin to "an
agreement for the leasing of a longer period than one year, or for the sale of real property or of an
interest therein" as contemplated by Article 1403, par. 2(e) of the New Civil Code.
We have previously held that not all agreements "affecting land" must be put into writing to attain
enforceability.14 Thus, we have held that the setting up of boundaries,15 the oral partition of real
property16, and an agreement creating a right of way17 are not covered by the provisions of the
statute of frauds. The reason simply is that these agreements are not among those enumerated in
Article 1403 of the New Civil Code.
A right of first refusal is not among those listed as unenforceable under the statute of frauds.
Furthermore, the application of Article 1403, par. 2(e) of the New Civil Code presupposes the
existence of a perfected, albeit unwritten, contract of sale.18 A right of first refusal, such as the one
involved in the instant case, is not by any means a perfected contract of sale of real property. At
best, it is a contractual grant, not of the sale of the real property involved, but of the right of first
refusal over the property sought to be sold19.
It is thus evident that the statute of frauds does not contemplate cases involving a right of first
refusal. As such, a right of first refusal need not be written to be enforceable and may be proven by
oral evidence.
40

The next question to be ascertained is whether or not respondents have satisfactorily proven their
right of first refusal over the property subject of the Deed of Absolute Sale dated September 4, 1990
between petitioner Rosencor and Eufrocina de Leon.
On this point, we agree with the factual findings of the Court of Appeals that respondents have
adequately proven the existence of their right of first refusal. Federico Bantugan, Irene Guillermo,
and Paterno Inquing uniformly testified that they were promised by the late spouses Faustino and
Crescencia Tiangco and, later on, by their heirs a right of first refusal over the property they were
currently leasing should they decide to sell the same. Moreover, respondents presented a letter20
dated October 9, 1990 where Eufrocina de Leon, the representative of the heirs of the spouses
Tiangco, informed them that they had received an offer to buy the disputed property for
P2,000,000.00 and offered to sell the same to the respondents at the same price if they were
interested. Verily, if Eufrocina de Leon did not recognize respondents’ right of first refusal over the
property they were leasing, then she would not have bothered to offer the property for sale to the
respondents.
It must be noted that petitioners did not present evidence before the trial court contradicting the
existence of the right of first refusal of respondents over the disputed property. They only presented
petitioner Rene Joaquin, the vice-president of petitioner Rosencor, who admitted having no personal
knowledge of the details of the sales transaction between Rosencor and the heirs of the spouses
Tiangco21. They also dispensed with the testimony of Eufrocina de Leon22 who could have denied
the existence or knowledge of the right of first refusal. As such, there being no evidence to the
contrary, the right of first refusal claimed by respondents was substantially proven by respondents
before the lower court.
Having ruled upon the question as to the existence of respondents’ right of first refusal, the next
issue to be answered is whether or not the Court of Appeals erred in ordering the rescission of the
Deed of Absolute Sale dated September 4, 1990 between Rosencor and Eufrocina de Leon and in
decreeing that the heirs of the spouses Tiangco should afford respondents the exercise of their right
of first refusal. In other words, may a contract of sale entered into in violation of a third party’s right
of first refusal be rescinded in order that such third party can exercise said right?
The issue is not one of first impression.
In Guzman, Bocaling and Co, Inc. vs. Bonnevie23, the Court upheld the decision of a lower court
ordering the rescission of a deed of sale which violated a right of first refusal granted to one of the
parties therein. The Court held:
"xxx Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381 (3) of the Civil
Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to
third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they
had substantial interests that were prejudiced by the sale of the subject property to the petitioner
without recognizing their right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to
third persons, to secure reparations for damages caused to them by a contract, even if this should
be valid, by means of the restoration of things to their condition at the moment prior to the
celebration of said contract. It is a relief allowed for the protection of one of the contracting parties
and even third persons from all injury and damage the contract may cause, or to protect some
incompatible and preferent right created by the contract. Rescission implies a contract which, even
if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for
reasons of equity.
It is true that the acquisition by a third person of the property subject of the contract is an obstacle
to the action for its rescission where it is shown that such third person is in lawful possession of the
subject of the contract and that he did not act in bad faith. However, this rule is not applicable in
the case before us because the petitioner is not considered a third party in relation to the Contract
of Sale nor may its possession of the subject property be regarded as acquired lawfully and in good
faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner
cannot be deemed a purchaser in good faith for the record shows that it categorically admitted that
it was aware of the lease in favor of the Bonnevies, who were actually occupying the subject
property at the time it was sold to it. Although the occupying the subject property at the time it was
sold to it. Although the Contract of Lease was not annotated on the transfer certificate of title in the
name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of
such lease which was equivalent to and indeed more binding than presumed notice by registration.
A purchaser in good faith and for value is one who buys the property of another without notice that
some other person has a right to or interest in such property without and pays a full and fair price
for the same at the time of such purchase or before he has notice of the claim or interest of some
other person in the property. Good faith connotes an honest intention to abstain from taking
unconscientious advantage of another. Tested by these principles, the petitioner cannot tenably
claim to be a buyer in good faith as it had notice of the lease of the property by the Bonnevies and
such knowledge should have cautioned it to look deeper into the agreement to determine if it
involved stipulations that would prejudice its own interests."
Subsequently24 in Equatorial Realty and Development, Inc. vs. Mayfair Theater, Inc.25, the Court,
en banc, with three justices dissenting,26 ordered the rescission of a contract entered into in
violation of a right of first refusal. Using the ruling in Guzman Bocaling & Co., Inc. vs. Bonnevie as
basis, the Court decreed that since respondent therein had a right of first refusal over the said
property, it could only exercise the said right if the fraudulent sale is first set aside or rescinded.
Thus:
"What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will
have the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that
Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell the said
property in 1974. There was an exchange of letters evidencing the offer and counter-offers made by
both parties. Carmelo, however, did not pursue the exercise to its logical end. While it initially
recognized 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 that to be a purchaser in good faith, and,
therefore, rescission lies.
XX X
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by
bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of
Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers
had studied the contract or lease prior to the sale. 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 had a right of first refusal, it can exercise the right only if the fraudulent sale is first
set aside or rescinded. All of these matters are now before us and so there should be no piecemeal
determination of this case and leave festering sores to deteriorate into endless litigation. The facts
41
of the case and considerations of justice and equity require that we order rescission here and now.
Rescission is a relief allowed for the protection of one of the contracting parties and even third
persons from all injury and damage the contract may cause or to protect some incompatible and
preferred right by the contract. The sale of the subject real property should now be rescinded
considering that Mayfair, which had substantial interest over the subject property, was prejudiced
by the sale of the subject property to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulate periond.27
In Paranaque Kings Enterprises, Inc. vs. Court of Appeals,28 the Court held that the allegations in a
complaint showing violation of a contractual right of "first option or priority to buy the properties
subject of the lease" constitute a valid cause of action enforceable by an action for specific
performance. Summarizing the rulings in the two previously cited cases, the Court affirmed the
nature of and concomitant rights and obligations of parties under a right of first refusal. Thus:
"We hold however, that in order to have full compliance with the contractual right granting
petitioner the first option to purchase, the sale of the properties for the amount of P9,000,000.00,
the price for which they were finally sold to respondent Raymundo, should have likewise been
offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and obligations under, a
right of first refusal in the case of Guzman, Bocaling & Co. vs. Bonnevie. In that case, under a
contract of lease, the lessees (Raul and Christopher Bonnevie) were given a "right of first priority" to
purchase the leased property in case the lessor (Reynoso) decided to sell. The selling price quoted
to the Bonnevies was 600,000.00 to be fully paid in cash, less a mortgage lien of P100,000.00. On
the other hand, the selling price offered by Reynoso to and accepted by Guzman was only
P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be paid only
when the property was cleared of occupants. We held that even if the Bonnevies could not buy it at
the price quoted (P600,000.00), nonetheless, Reynoso could not sell it to another for a lower price
and under more favorable terms and conditions without first offering said favorable terms and price
to the Bonnevies as well. Only if the Bonnevies failed to exercise their right of first priority could
Reynoso thereafter lawfully sell the subject property to others, and only under the same terms and
conditions previously offered to the Bonnevies.
X X X All things considered, what then are the relative rights and obligations of the parties? To
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc.
which was decided en banc. This Court upheld the right of first refusal of the lessee Mayfair, and
rescinded the sale of the property by the lessor Carmelo to Equatorial Realty "considering that
Mayfair, which had substantial interest over the subject property, was prejudiced by its sale to
Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day
stipulated period"
In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR
should desire to sell the leased premises, the LESSEE shall be given 30 days exclusive option to
purchase the same." Carmelo initially offered to sell the leased property to Mayfair for six to seven
million pesos. Mayfair indicated interest in purchasing the property though it invoked the 30-day
period. Nothing was heard thereafter from Carmelo. Four years later, the latter sold its entire Recto
Avenue property, including the leased premises, to Equatorial for P11,300,000.00 without priorly
informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad faith: Carmelo or
knowingly violating the right of first option of Mayfair, and Equatorial for purchasing the property
despite being aware of the contract stipulation. In addition to rescission of the contract of sale, the
Court ordered Carmelo to allow Mayfair to buy the subject property at the same price of
P11,300,000.00.
In the recent case of Litonjua vs L&R Corporation,29 the Court, also citing the case of Guzman,
Bocaling & Co. vs. Bonnevie, held that the sale made therein in violation of a right of first refusal
embodied in a mortgage contract, was rescissible. Thus:
"While petitioners question the validity of paragraph 8 of their mortgage contract, they appear to be
silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants upon L&R Corporation
the right of first refusal over the mortgaged property in the event the mortgagor decides to sell the
same. We see nothing wrong in this provision. The right of first refusal has long been recognized as
valid in our jurisdiction. The consideration for the loan mortgage includes the consideration for the
right of first refusal. L&R Corporation is in effect stating that it consents to lend out money to the
spouses Litonjua provided that in case they decide to sell the property mortgaged to it, then L&R
Corporation shall be given the right to match the offered purchase price and to buy the property at
that price. Thus, while the spouses Litonjua had every right to sell their mortgaged property to
PWHAS without securing the prior written consent of L&R Corporation, they had the obligation
under paragraph 9, which is a perfectly valid provision, to notify the latter of their intention to sell
the property and give it priority over other buyers. It is only upon the failure of L&R Corporation to
exercise its right of first refusal could the spouses Litonjua validly sell the subject properties to the
others, under the same terms and conditions offered to L&R Corporation.
What then is the status of the sale made to PWHAS in violation of L & R Corporation’s contractual
right of first refusal? On this score, we agree with the Amended Decision of the Court of Appeals
that the sale made to PWHAS is rescissible. The case of Guzman, Bocaling & Co. v. Bonnevie is
instructive on this point.
X X X
It was then held that the Contract of Sale there, which violated the right of first refusal, was
rescissible.
In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R
Corporation over the subject properties since the Deed of Real Estate Mortgage containing such a
provision was duly registered with the Register of Deeds. As such, PWHAS is presumed to have
been notified thereof by registration, which equates to notice to the whole world.
X X X
recapitulate: the sale between the spouses Litonjua and PWHAS is valid, notwithstanding the
absence of L & R Corporation’s prior written consent thereto. Inasmuch as the sale to PWHAS was
valid, its offer to redeem and its tender of the redemption price, as successor-in-interest of the
spouses Litonjua, within the one-year period should have been accepted as valid by the L & R
Corporation. However, while the sale is, indeed, valid, the same is rescissible because it ignored L &
R Corporation’s right of first refusal."
Thus, the prevailing doctrine, as enunciated in the cited cases, is that a contract of sale entered into
in violation of a right of first refusal of another person, while valid, is rescissible.
There is, however, a circumstance which prevents the application of this doctrine in the case at
bench. In the cases cited above, the Court ordered the rescission of sales made in violation of a
right of first refusal precisely because the vendees therein could not have acted in good faith as
they were aware or should have been aware of the right of first refusal granted to another person
by the vendors therein. The rationale for this is found in the provisions of the New Civil Code on
rescissible contracts. Under Article 1381 of the New Civil Code, paragraph 3, a contract validly
agreed upon may be rescinded if it is "undertaken in fraud of creditors when the latter cannot in
any manner collect the claim due them." Moreover, under Article 1385, rescission shall not take
place "when the things which are the object of the contract are legally in the possession of third
persons who did not act in bad faith."30
It must be borne in mind that, unlike the cases cited above, the right of first refusal involved in the
instant case was an oral one given to respondents by the deceased spouses Tiangco and
42
subsequently recognized by their heirs. As such, in order to hold that petitioners were in bad faith,
there must be clear and convincing proof that petitioners were made aware of the said right of first
refusal either by the respondents or by the heirs of the spouses Tiangco.
It is axiomatic that good faith is always presumed unless contrary evidence is adduced.31 A
purchaser in good faith is one who buys the property of another without notice that some other
person has a right or interest in such a property and pays a full and fair price at the time of the
purchase or before he has notice of the claim or interest of some other person in the property.32 In
this regard, the rule on constructive notice would be inapplicable as it is undisputed that the right of
first refusal was an oral one and that the same was never reduced to writing, much less registered
with the Registry of Deeds. In fact, even the lease contract by which respondents derive their right
to possess the property involved was an oral one.
On this point, we hold that the evidence on record fails to show that petitioners acted in bad faith in
entering into the deed of sale over the disputed property with the heirs of the spouses Tiangco.
Respondents failed to present any evidence that prior to the sale of the property on September 4,
1990, petitioners were aware or had notice of the oral right of first refusal.
between petitioner Rosencor and the heirs of the spouses Tiangco. The acquisition by Rosencor of
the property subject of the right of first refusal is an obstacle to the action for its rescission where,
as in this case, it was shown that Rosencor is in lawful possession of the subject of the contract and
that it did not act in bad faith.34
This does not mean however that respondents are left without any remedy for the unjustified
violation of their right of first refusal. Their remedy however is not an action for the rescission of the
Deed of Absolute Sale but an action for damages against the heirs of the spouses Tiangco for the
unjustified disregard of their right of first refusal35.
WHEREFORE, premises considered, the decision of the Court of Appeals dated June 25, 1999 is
REVERSED and SET ASIDE. The Decision dated May 13, 1996 of the Quezon City Regional Trial
Court, Branch 217 is hereby REINSTATED insofar as it dismisses the action for rescission of the
Deed of Absolute Sale dated September 4, 1990 and orders the payment of monthly rentals of
P1,000.00 per month reckoned from May 1990 up to the time respondents leave the premises.
SO ORDERED.

Respondents point to the letter dated June 1, 199033 as indicative of petitioners’ knowledge of the
said right. In this letter, a certain Atty. Erlinda Aguila demanded that respondent Irene Guillermo
vacate the structure they were occupying to make way for its demolition.

We fail to see how the letter could give rise to bad faith on the part of the petitioner. No mention is
made of the right of first refusal granted to respondents. The name of petitioner Rosencor or any of
it officers did not appear on the letter and the letter did not state that Atty. Aguila was writing in
behalf of petitioner. In fact, Atty. Aguila stated during trial that she wrote the letter in behalf of the
heirs of the spouses Tiangco. Moreover, even assuming that Atty. Aguila was indeed writing in
behalf of petitioner Rosencor, there is no showing that Rosencor was aware at that time that such a
right of first refusal existed.

Neither was there any showing that after receipt of this June 1, 1990 letter, respondents notified
Rosencor or Atty. Aguila of their right of first refusal over the property. Respondents did not try to
communicate with Atty. Aguila and inform her about their preferential right over the disputed
property. There is even no showing that they contacted the heirs of the spouses Tiangco after they
received this letter to remind them of their right over the property.

Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de Leon, where she
recognized the right of first refusal of respondents, as indicative of the bad faith of petitioners. We
do not agree. Eufrocina de Leon wrote the letter on her own behalf and not on behalf of petitioners
and, as such, it only shows that Eufrocina de Leon was aware of the existence of the oral right of
first refusal. It does not show that petitioners were likewise aware of the existence of the said right.
Moreover, the letter was made a month after the execution of the Deed of Absolute Sale on
September 4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco. There is no
showing that prior to the date of the execution of the said Deed, petitioners were put on notice of
the existence of the right of first refusal.

Clearly, if there was any indication of bad faith based on respondents’ evidence, it would only be on
the part of Eufrocina de Leon as she was aware of the right of first refusal of respondents yet she
still sold the disputed property to Rosencor. However, bad faith on the part of Eufrocina de Leon
does not mean that petitioner Rosencor likewise acted in bad faith. There is no showing that prior to
the execution of the Deed of Absolute Sale, petitioners were made aware or put on notice of the
existence of the oral right of first refusal. Thus, absent clear and convincing evidence to the
contrary, petitioner Rosencor will be presumed to have acted in good faith in entering into the Deed
of Absolute Sale over the disputed property.

Considering that there is no showing of bad faith on the part of the petitioners, the Court of Appeals
thus erred in ordering the rescission of the Deed of Absolute Sale dated September 4, 1990

43
G.R. No. L-11311 May 28, 1958
MARTA C. ORTEGA, plaintiff-appellant, vs .DANIEL LEONARDO, defendant-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"5 nor 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.
44
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.
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
45
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)
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.

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).

46
G.R. No. 138639 February 10, 2000
CITY-LITE REALTY CORPORATION, petitioner,
vs.
COURT OF APPEALS and F.P. HOLDINGS & REALTY CORP., METRO DRUG INC., MELDIN
AL G. ROY, VIEWMASTER CONSTRUCTION CORP., and the REGISTER OF DEEDS OF
QUEZON CITY, respondent.
BELLOSILLO, J.:
This is a petition for review on certiorari filed by CITY-LITE REALTY CORPORATION (CITY-LITE)
seeking to annul the 20 October 1998 Decision of the Court of Appeals1 which reversed the Decision
of the Regional Trial Court of Quezon City in its Civil Case No. Q-92-11068 declaring that a contract
of sale over the subject property was perfected and that Metro Drug Inc. and Meldin Al G. Roy had
the authority to sell the property.2
Private respondent F. P. HOLDINGS AND REALTY CORPORATION (F.P. HOLDINGS), formerly the
Sparta Holdings (Inc., was the registered owner of a parcel of land situated along E. Rodriguez
Avenue, Quezon City, also known as the "Violago Property" or the "San Lorenzo Ruiz Commercial
Center," with an area of 71,754 square meters, more or less, and covered by Transfer Certificate of
Title No. T-19599. The property was offered for sale to the general public through the circulation of
a sales brochure containing the following information:
A parcel of land including buildings and other improvements thereon located along E. Rodriguez
Avenue, Quezon City, with a total lot area of 71,754 square meters — 9,192 square meters in front,
23,332 square meters in the middle, and 39,230 square meters at the back. But the total area for
sale excludes 5,000 square meters covering the existing chapel and adjoining areas which be
donated to the Archdiocese of Manila thus reducing the total saleable area to 66,754 square meters.
Asking price was P6,250.00/square meter with terms of payment negotiable. Broker's commission
was 2.0% of selling price, net of withholding taxes and other charges. As advertised, contact person
was Meldin Al G. Roy, Metro Drug Inc., with address at 5/F Metro House, 345 Sen. Gil Puyat
Avenue, Makati City.
The front portion consisting of 9,192 square meters is the subject of this litigation.
On 22 August 1991 respondent Meldin Al G. Roy sent a sales brochure, together with the location
plan and copy of the Transfer Certificate of Title No. T-19599 of the Register of Deeds of Quezon
City, to Atty. Gelacio Mamaril, a practicing lawyer and a licensed real estate broker. Atty. Mamaril in
turn passed on these documents to Antonio Teng, Executive Vice-President, and Atty. Victor P.
Villanueva, Legal Counsel, of CITY-LITE.
In a letter dated 19 September 1991 sent to Metro Drug (ATTN: MELDIN AL ROY) after an initial
meeting with Meldin Al Roy that day, CITY-LITE conveyed its interest to purchase a portion or one-
half (1/2) of the front lot of the "Violago Property. Apparently, Roy subsequently informed CITY-
LITE's representative that it would take time to subdivide the lot and respondent F.P. HOLDINGS
was not receptive to the purchase of only half of the front lot. After a few days, Atty. Mamaril wrote
Metro Drug (ATTN: MELDIN AL ROY) expressing CITY-LITE's desire to buy the entire front lot of the
subject property instead of only half thereof provided the asking price of P6,250.00/square meter
was reduced and that payment be in installment for a certain period. Roy made a counter offer
dated 25 September 1991 as follows:
Dear Atty. Mamaril,
This has reference to your letter dated September 24, 1991 in connection with the interest of your
clients, Mr. Antonio Teng/City-Lite Realty Corporation and/or any of their subsidiaries to buy a
portion of the Violago Property fronting E. Rodriguez Sr. Avenue with an area of 9,192 square
meters.
We are pleased to inform you that we are prepared to consider the above offer subject to the
following major terms and conditions: 1. The price shall be P6,250.00/square meter or a total of
P57,450,000.00; 2. The above purchase price shall be paid to the owner as follows: (a) P15.0 Million
downpayment; (b) balance payable within six (6) months from date of downpayment without
interest. Should your client find the above major terms and conditions acceptable, please advise us
in writing by tomorrow, September 26, 1991, so that we can start formal discussions on the matter .
...
Very truly yours,
MELDIN AL G. ROY
On 26 September 1991 CITY-LITE's officers and Atty. Mamaril met with Roy at the Manila Mandarin
Hotel in Makati to consummate the transaction. After some discussions, the parties finally reached
an agreement and Roy agreed to sell the property to CITY-LITE provided only that the latter submit
its acceptance in writing to the terms and conditions of the sale as contained in his letter of 25
September 1991. Later that afternoon after meeting with Roy at the Manila Mandarin Hotel, Atty.
Mamaril and Antonio Teng of CITY-LITE conveyed their formal acceptance of the terms and
conditions set forth by Roy in separate letters both dated 26 September 1991.
However, for some reason or another and despite demand, respondent F.P. HOLDINGS refused to
execute the corresponding deed of sale in favor of CITY-LITE of the front lot of the property. Upon
its claim of protecting its interest as vendee of the property in suit, CITY-LITE registered an adverse
claim to the title of the property with the Register of Deeds of Quezon City which was annotated in
the Memorandum of Encumbrance of Transfer Certificate of Title No. T-19599 under Entry No. PE-
1001 dated 27 September 1991.
On 30 September 1991 CITY-LITE's counsel demanded in writing that Metro Drug (ATTN: MELDIN
AL G. ROY) comply with its commitment to CITY-LITE by executing the proper deed of conveyance
of the property under pain of court action. On 4 October 1991 F.P. HOLDINGS filed a petition for the
cancellation of the adverse claim against CITY-LITE with the Regional Trial Court of Quezon City,
docketed as LRC Case No. 91-10257, which was raffled to Br. 84.
On 8 October 1991 Edwin Fernandez, President of F.P. HOLDINGS, in a move to amicably settle
with CITY-LITE, met with the latter's officers during which he offered properties located in Caloocan
City and in Quezon Boulevard, Quezon City, as substitute for the property, but CITY-LITE refused
the offer because "it did not suit its business needs." With the filing of the petition of F.P.
HOLDINGS for the cancellation of the adverse claim, CITY-LITE caused the annotation of the first
notice of lis pendens which was recorded in the title of the property under Entry No. 4605.
On 2 December 1991 the RTC-Br. 84 of Quezon City dismissed F.P. HOLDINGS' petition declaring
that CITY-LITE's adverse claim had factual basis and was not "sham and frivolous." Meanwhile, F.P.
HOLDINGS caused the resurvey and segregation of the property and asked the Register of Deeds of
Quezon City to issue separate titles which the latter did on 17 January 1992 by issuing Transfer
Certificate of Title No. T-51671.
Following the dismissal of F.P. HOLDINGS' petition for the cancellation of the adverse claim, CITY-
LITE instituted a complaint against F.P. HOLDINGS originally for specific performance and damages
and caused the annotation of the second notice of lis pendens on the new certificate of title. After
the annotation of the second lis pendens, the property was transfered to defendant VIEWMASTER
CONSTRUCTION CORP. (VIEWMASTER) for which Transfer Certificate of Title No. T-52398 was
issued. However the notice of lis pendens was carried over and annotated on the new certificate of
title.
47

In view of the conveyance during the pendency of the suit, the original complaint for specific
performance and damages was amended with leave of court to implead VIEWMASTER as a
necessary party and the Register of Deeds of Quezon City as nominal defendant with the additional
prayer for the cancellation of VIEWMASTER's certificate of title. The case was thereafter raffled to
Br. 85 of the Regional Trial Court of Quezon City.
should be as it is declared null and void. Therefore the sale could not produce any legal effect as to
transfer the subject property from its lawful owner, F.P. HOLDINGS, to any interested party
including petitioner CITY-LITE.
WHEREFORE, the appealed Decision of the Court of Appeals being in accord with law and the
evidence is AFFIRMED. Costs against petitioner CITY-LITE REALTY CORPORATION.1âwphi1.nêt

On 4 October 1995 the court a quo rendered its decision in favor of CITY-LITE ordering F.P. SO ORDERED.
HOLDINGS to execute a deed of sale of the property in favor of CITY-LITE for the total
consideration of P55,056,250.00 payable as follows: P15 Million as downpayment to be payable
immediately upon execution of the deed of sale and the balance within six (6) months from
downpayment, without interest. The court also directed the Register of Deeds of of Quezon City to
cancel Transfer Certificate of Title No. T-52398 or any subsequent title it had issued affecting the
subject property, and to issue a new one in the name of CITY-LITE upon the presentation of the
deed of sale and other requirements for the transfer. It likewise ordered the defendants, except
VIEWMASTER and the Register of Deeds of Quezon City, to pay CITY-LITE jointly and severally
P800,000.00 by way of nominal damage, P250,000.00 for attorney's fees, and to pay the costs.

On 30 October 1995 VIEWMASTER filed a motion for reconsideration of the decision of the lower
court questioning its ruling that a perfected contract of sale existed between CITY-LITE and F.P.
HOLDINGS as there was no definite agreement over the manner of payment of the purchase price,
citing in support thereof Toyota Shaw Inc. v. Court of Appeals.3 However the motion for
reconsideration was denied.

In the challenged Decision of 20 October 1998 the Court of Appeals reversed and set aside the
judgment of the Regional Trial Court of Quezon City. On 10 May 1999 the Court of Appeals denied
CITY-LITE's motion to reconsider its decision.

Petitioner CITY-LITE is now before us assailing the Court of Appeals for declaring that no contract of
sale was perfected between it and respondent F.P. HOLDINGS because of lack of a definite
agreement on the manner of paying the purchase price and that respondents Metro Drug and
Meldin Al G. Roy were not authorized to sell the property to CITY-LITE, and that the authority of
Roy was only limited to that of a mere liaison or contact person.

We cannot sustain petitioner. On the issue of whether a contract of sale was perfected between
petitioner CITY-LITE and respondent F.P. HOLDINGS acting through its agent Meldin Al G. Roy of
Metro Drug, Art. 1874 of the Civil Code provides: "When the 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." Petitioner anchors the authority of Metro Drug and Meldin Al G. Roy on (a) the testimonies
of petitioner's three (3) witnesses and the admissions of Roy and the lawyer of Metro Drug; (b) the
sales brochure specifying Meldin Al G. Roy as a contact person; (c) the guard posted at the property
saying that Metro Drug was the authorized agent; and, (d) the common knowledge among brokers
that Metro Drug through Meldin Al G. Roy was the authorized agent of F.P. HOLDINGS to sell the
property. However, and more importantly, the Civil Code requires that an authority to sell a piece of
land shall be in writing. The absence of authority to sell can be determined from the written
memorandum issued by respondent F.P. HOLDINGS' President requesting Metro Drug's assistance in
finding buyers for the property. The memorandum in part stated: "We will appreciate Metro Drug's
assistance in referring to us buyers for the property. Please proceed to hold preliminary negotiations
with interested buyers and endorse formal offers to us for our final evaluation and appraisal." This
obviously meant that Meldin Al G. Roy and/or Metro Drug was only to assist F.P. HOLDINGS in
looking for buyers and referring to them possible prospects whom they were supposed to endorse
to F.P. HOLDINGS. But the final evaluation, appraisal and acceptance of the transaction could be
made only by F.P. HOLDINGS. In other words, Meldin Al G. Roy and/or Metro Drug was only a
contact person with no authority to conclude a sale of the property. In fact, a witness for petitioner
even admitted that Roy and/or Metro Drug was a mere broker,4 and Roy's only job was to bring the
parties together for a possible transaction.5 Consequently, we hold that for lack of a written
authority to sell the "Violago Property" on the part of Meldin Al G. Roy and/or Metro Drug, the sale

48
G.R. No. L-24384 September 28, 1967
MARGARITA IÑIGO, plaintiff-appellant,
vs.
ESTATE OF ADRIANA MALOTO, GREGORIO L. LIRA, Special Administrator,1 defendant
and appellee.
SANCHEZ, J.:
Appeal from an order dated January 18, 1965, sustaining defendants' motion to dismiss. The court
below ruled that the claim on which plaintiff's suit is founded is unenforceable under the provisions
of the Statute of Frauds.2
Essential to a resolution of the question posed are the following averments of the complaint: On
March 29, 1963, in pursuant of a previous verbal understanding plaintiff paid Adriana Maloto
P10,000.00 as purchase price for the disputed house and lot of 453 square meters, located in Iloilo
City. The deed of sale was to be executed later on. Plaintiff did not press Adriana Maloto for a
receipt for the money paid considering the "almost filial relationship" between the two (plaintiff is a
niece of Adriana's deceased husband), and because plaintiff was told by Adriana that the matter of
the preparation of the said receipt and the deed of sale was to be referred to the latter's lawyer,
Atty. Sulpicio Palma. Meanwhile, plaintiff "began to exercise ownership and dominion over the said
property by improving the same and constructing a retail store in front thereof." On two occasions,
in September and in October, 1963, on Adriana's instructions, plaintiff went to see Atty. Palma for
the preparation of a deed of sale. She was without success because Palma then was on the
campaign trail as a candidate for councilor of Iloilo City. On October 20, 1963, Adriana died.
Thereafter, the Torrens title to the property was transferred in the name of the present defendants,
nephews and niece of Adriana Maloto, after settlement of the latter's estate. Formal demand for the
execution of a deed of sale by said defendants was rejected by them.
rentals, attorney's fees and costs; that the aforesaid judgment became final; and that on February
15, 1966, the City Judge issued a writ of execution to enforce the same. Defendants now submit
that dismissal of the case for ownership is proper because of the facts just recited.1awphîl.nèt
We do not think that the decision in the ejectment case is an obstacle to the present suit. The
simple reason is that an action of ejectment is no bar to another contesting ownership. And then, it
would appear from said decision, Annex "A" of the supplementary memorandum, that the City Court
of Iloilo declared that it is "of the opinion that the defendant Margarita Iñigo is only a lessee of the
properties described in this complaint." "Implicit in this is that the question of ownership was in
reality seriously presented before the city court. So that, possession, the problem before the city
court, could not have been properly resolved there without first settling that of ownership. Since the
issue of ownership became apparent in the course of the trial of the ejectment case aforesaid, the
city court lost jurisdiction to proceed further with the trial thereof and the judgment thereon.6
The decision in the ejectment case accordingly is not decisive of the question of ownership raised in
the complaint before the Court of First Instance of Iloilo in the case now on appeal before this
Court.
For the reasons given, the order of the Court of First Instance of Iloilo of January 18, 1965
dismissing plaintiff's complaint is hereby set aside, and the case remanded to the court of origin for
further proceedings. Costs against defendants. So ordered.

Hence, this suit to compel defendants to execute that deed.

1. The averments of the complaint reveal that no written document was executed to record the
deed of sale or, for that matter, the payment of the purchase price of the house and land. These
are the considerations which impelled the Iloilo court to declare that plaintiff's suit is unenforceable
under the Statute of Frauds.

By Article 1403 (2) (e) of the Civil Code, a verbal contract for the sale of real property is
unenforceable, unless ratified. For, such contract offends the Statute of Frauds. But long accepted
and well settled is the rule that the Statute of Frauds is applicable only to executory contracts — not
to contracts either totally or partially performed.3 The complaint here states that the deceased
Adriana Maloto sold the disputed house and land to plaintiff; that consideration thereof was paid;
that by reason of such sale, plaintiff performed acts of ownership thereon. The facts thus alleged
are constitutive of a consummated contract. It matters not that neither the receipt for the
consideration nor the sale itself was in writing. Because "oral evidence of the alleged consummated
sale of the land" is not forbidden by the Statute of Frauds and may not be excluded in court.4

2. The record on appeal shows that defendants herein filed a suit for ejectment against plaintiff
covering the same property, the subject of the suit herein.5 Claim was there advanced that plaintiff
— in the present case — was a mere lessee thereof.1awphîl.nèt She traversed the allegations of
said complaint by reiterating her claim in the complaint before us that on March 29, 1963 she
bought the house and lot from defendants' predecessor, Adriana Maloto; that the City Court of Iloilo
had no jurisdiction over the subject-matter thereof which involves a case of ownership; and that the
issue of possession cannot be decided by the city court without first resolving the question of
ownership which properly belongs to the Court of First Instance of Iloilo. In defendants'
supplementary memorandum filed with this Court on March 3, 1966, defendants aver that the
decision of January 4, 1966 in the ejectment case was in favor of defendants in the case now before
us; that said decision directed Margarita Iñigo (plaintiff herein) to vacate the premises, to pay

49
G.R. No. L-23351 March 13, 1968
CIRILO PAREDES, plaintiff-appellant,
vs.
JOSE L. ESPINO, 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.
50
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.
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
51
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.
52

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
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

Furthermore, a private individual may not bring an action for reversion or any action which would WHEREFORE, the petition is GRANTED We REVERSE and SET ASIDE the decision rendered in CA-
have the effect of cancelling a free patent and the corresponding certificate of title issued on the G.R. CV No. 04429, and we hereby REINSTATE the decision of the then Court of First Instance of
basis thereof, with the result that the land covered thereby will again form part of the public Rizal (Branch 28, Pasay City) in Civil Case No. M-5276-P which ruled for the dismissal of the
domain, as only the Solicitor General or the officer acting in his stead may do so.16 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
It is true that in some instances, the Court did away with the irrevocability of the torrens title, but respondents.
the circumstances in the case at bar varied significantly from these cases.
SO ORDERED.
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

53