POLICITACION FIRST DIVISION MANILA METAL CONTAINER CORPORATION, REYNALDO C. TOLENTINO, PHILIPPINE NATIONAL BANK, DMCI-PROJECT DEVELOPERS, INC.

, Petitioner, Intervenor, - versus Respondent, Promulgated: December 20, G.R. No. 166862

August 30, 1983, respondent PNB informed petitioner that the request had been referred to its Pasay City Branch for appropriate action and recommendation.[9] In a letter[10] dated February 10, 1984, petitioner reiterated its request for a one year extension from February 17, 1984 within which to redeem/repurchase the property on installment basis. It reiterated its request to repurchase the property on installment.[11] Meanwhile, some PNB Pasay City Branch personnel informed petitioner that as a matter of policy, the bank does not accept partial redemption.[12] Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 on June 1, 1984, and issued a new title in favor of respondent PNB. [13] Petitioners offers had not yet been acted upon by respondent PNB. Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of account, and as of June 25, 1984 petitioners obligation amounted to P1,574,560.47. This included the bid price of P1,056,924.50, interest, advances of insurance premiums, advances on realty taxes, registration expenses, miscellaneous expenses and publication cost.[14] When apprised of the statement of account, petitioner remitted P725,000.00 to respondent PNB as deposit to repurchase, and Official Receipt No. 978191 was issued to it.[15] In the meantime, the SAMD recommended to the management of respondent PNB that petitioner be allowed to repurchase the property for P1,574,560.00. In a letter dated November 14, 1984, the PNB management informed petitioner that it was rejecting the offer and the recommendation of the SAMD. It was suggested that petitioner purchase the property for P2,660,000.00, its minimum market value. Respondent PNB gave petitioner until December 15, 1984 to act on the proposal; otherwise, its P725,000.00 deposit would be returned and the property would be sold to other interested buyers.[16] Petitioner, however, did not agree to respondent PNBs proposal. Instead, it wrote another letter dated December 12, 1984 requesting for a reconsideration. Respondent PNB replied in a letter dated December 28, 1984, wherein it reiterated its proposal that petitioner purchase the property for P2,660,000.00. PNB again informed petitioner that it would return the deposit should petitioner desire to withdraw its offer to purchase the property.[17] On February 25, 1985, petitioner, through counsel, requested that PNB reconsider its letter dated December 28, 1984. Petitioner declared that it had already agreed to the SAMDs offer to purchase the property for P1,574,560.47, and that was why it had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse should PNB insist on the position.[18] On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted petitioners offer to purchase the property, but for P1,931,389.53 in cash less the P725,000.00 already deposited with it.[19] On page two of the letter was a space above the typewritten name of petitioners President, Pablo Gabriel, where he was to affix his signature. However, Pablo Gabriel did not conform to the letter but merely indicated therein that he had received it.[20] Petitioner did not respond, so PNB requested petitioner in a letter dated June 30, 1988 to submit an amended offer to repurchase. Petitioner rejected respondents proposal in a letter dated July 14, 1988. It maintained that respondent PNB had agreed to sell the property for P1,574,560.47, and that since its P725,000.00 downpayment had been accepted, respondent PNB was proscribed from increasing the purchase price of the property.[21] Petitioner averred that it had a net balance payable in the amount of P643,452.34. Respondent PNB, however, rejected petitioners offer to pay the balance of P643,452.34 in a letter dated August 1, 1989.[22] On August 28, 1989, petitioner filed a complaint against respondent PNB for Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific

Performance with Damages. To support its cause of action for specific performance, it alleged the following: 34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal in the substantial amount of P725,000.00 for the redemption/repurchase price of P1,574,560.47 as approved by its SMAD and considering the reliance made by Manila Metal and the long time that has elapsed, the approval of the higher management of the Bank to confirm the agreement of its SMAD is clearly a potestative condition which cannot legally prejudice Manila Metal which has acted and relied on the approval of SMAD. The Bank cannot take advantage of a condition which is entirely dependent upon its own will after accepting and benefiting from the substantial payment made by Manila Metal. PNB approved the repurchase price of P1,574,560.47 for which it accepted P725,000.00 from Manila Metal. PNB cannot take advantage of its own delay and long inaction in demanding a higher amount based on unilateral computation of interest rate without the consent of Manila Metal.

Intervenor. 2006 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x DECISION CALLEJO, SR., J.:

35.

Petitioner later filed an amended complaint and supported its claim for damages with the following arguments: 36. That in order to protect itself against the wrongful and malicious acts of the defendant Bank, plaintiff is constrained to engage the services of counsel at an agreed fee of P50,000.00 and to incur litigation expenses of at least P30,000.00, which the defendant PNB should be condemned to pay the plaintiff Manila Metal. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff Manila Metal suffered besmirched reputation for which defendant PNB is liable for moral damages of at least P50,000.00. That for the wrongful and malicious act of defendant PNB which are highly reprehensible, exemplary damages should be awarded in favor of the plaintiff by way of example or correction for the public good of at least P30,000.00.[23]

Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R. No. 46153 which affirmed the decision[2] of the Regional Trial Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551, and its Resolution [3] denying the motion for reconsideration filed by petitioner Manila Metal Container Corporation (MMCC). The Antecedents Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong (now a City), Metro Manila. The property was covered by Transfer Certificate of Title (TCT) No. 332098 of the Registry of Deeds of Rizal. To secure a P900,000.00 loan it had obtained from respondent Philippine National Bank (PNB), petitioner executed a real estate mortgage over the lot. Respondent PNB later granted petitioner a new credit accommodation of P1,000,000.00; and, on November 16, 1973, petitioner executed an Amendment[4] of Real Estate Mortgage over its property. On March 31, 1981, petitioner secured another loan of P653,000.00 from respondent PNB, payable in quarterly installments of P32,650.00, plus interests and other charges.[5] On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real estate mortgage and sought to have the property sold at public auction for P911,532.21, petitioners outstanding obligation to respondent PNB as of June 30, 1982, [6] plus interests and attorneys fees. After due notice and publication, the property was sold at public auction on September 28, 1982 where respondent PNB was declared the winning bidder for P1,000,000.00. The Certificate of Sale[7] issued in its favor was registered with the Office of the Register of Deeds of Rizal, and was annotated at the dorsal portion of the title on February 17, 1983. Thus, the period to redeem the property was to expire on February 17, 1984. Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an extension of time to redeem/repurchase the property.[8] In its reply dated

37.

38.

Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus: a) Declaring the Amended Real Estate Mortgage (Annex A) null and void and without any legal force and effect. b) Declaring defendants acts of extra-judicially foreclosing the mortgage over plaintiffs property and setting it for auction sale null and void. Ordering the defendant Register of Deeds to cancel the new title issued in the name of PNB (TCT NO. 43792) covering the property described in paragraph 4 of the Complaint, to reinstate TCT No. 37025 in the name of Manila Metal and to
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c)

cancel the annotation of the mortgage in question at the back of the TCT No. 37025 described in paragraph 4 of this Complaint. d) Ordering the defendant PNB to return and/or deliver physical possession of the TCT No. 37025 described in paragraph 4 of this Complaint to the plaintiff Manila Metal. Ordering the defendant PNB to pay the plaintiff Manila Metals actual damages, moral and exemplary damages in the aggregate amount of not less than P80,000.00 as may be warranted by the evidence and fixed by this Honorable Court in the exercise of its sound discretion, and attorneys fees of P50,000.00 and litigation expenses of at least P30,000.00 as may be proved during the trial, and costs of suit.

rejected petitioners offer to repurchase the property. Petitioner, in turn, rejected the terms and conditions contained in the June 4, 1985 letter of the SAMD. While petitioner had offered to repurchase the property per its letter of July 14, 1988, the amount of P643,422.34 was way below the P1,206,389.53 which respondent PNB had demanded. It further declared that the P725,000.00 remitted by petitioner to respondent PNB on June 4, 1985 was a deposit, and not a downpayment or earnest money. On appeal to the CA, petitioner made the following allegations: I THE LOWER COURT ERRED IN RULING THAT DEFENDANTAPPELLEES LETTER DATED 4 JUNE 1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANTS OFFER TO PURCHASE THE SUBJECT PROPERTY IS NOT VALID AND ENFORCEABLE. II THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFFAPPELLANT AND DEFENDANT-APPELLEE. III THE LOWER COURT ERRED IN RULING THAT PLAINTIFFAPPELLLANT WAIVED ITS RIGHT TO PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS SET FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE 1985. IV THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANT-APPELLEE WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO COMPLETE THE BALANCE OF THEIR PURCHASE PRICE. V THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID RESCISSION OR CANCELLATION OF SUBJECT CONTRACT OF REPURCHASE. VI THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO SUBMIT THE AMENDED REPURCHASE OFFER. VII THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFF-APPELLANT. VIII THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFFAPPELLANT ACTUAL, MORAL AND EXEMPLARY DAMAGES, ATTOTRNEYS FEES AND LITIGATION EXPENSES.[33] Meanwhile, on June 17, 1993, petitioners Board of Directors approved Resolution No. 3-004, where it waived, assigned and transferred its rights over the property covered by TCT No. 33099 and TCT No. 37025 in favor of Bayani Gabriel, one of its Directors.[34] Thereafter, Bayani Gabriel executed a Deed of Assignment over 51% of the ownership and management of the property in favor of Reynaldo Tolentino, who later moved

for leave to intervene as plaintiff-appellant. On July 14, 1993, the CA issued a resolution granting the motion,[35] and likewise granted the motion of Reynaldo Tolentino substituting petitioner MMCC, as plaintiff-appellant, and his motion to withdraw as intervenor.[36] The CA rendered judgment on May 11, 2000 affirming the decision of the RTC.[37] It declared that petitioner obviously never agreed to the selling price proposed by respondent PNB (P1,931,389.53) since petitioner had kept on insisting that the selling price should be lowered to P1,574,560.47. Clearly therefore, there was no meeting of the minds between the parties as to the price or consideration of the sale. The CA ratiocinated that petitioners original offer to purchase the subject property had not been accepted by respondent PNB. In fact, it made a counter-offer through its June 4, 1985 letter specifically on the selling price; petitioner did not agree to the counteroffer; and the negotiations did not prosper. Moreover, petitioner did not pay the balance of the purchase price within the sixty-day period set in the June 4, 1985 letter of respondent PNB. Consequently, there was no perfected contract of sale, and as such, there was no contract to rescind. According to the appellate court, the claim for damages and the counterclaim were correctly dismissed by the court a quo for no evidence was presented to support it. Respondent PNBs letter dated June 30, 1988 cannot revive the failed negotiations between the parties. Respondent PNB merely asked petitioner to submit an amended offer to repurchase. While petitioner reiterated its request for a lower selling price and that the balance of the repurchase be reduced, however, respondent rejected the proposal in a letter dated August 1, 1989. Petitioner filed a motion for reconsideration, which the CA likewise denied. Thus, petitioner filed the instant petition for review on certiorari, alleging that: I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THERE IS NO PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND RESPONDENT. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE AMOUNT OF PHP725,000.00 PAID BY THE PETITIONER IS NOT AN EARNEST MONEY. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE FAILURE OF THE PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS CONTAINED IN PNBS JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF THE PETITIONER-APPELLANT OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER OF PNB DATED JUNE 4, 1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.
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e)

Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in the premises.[24] In its Answer to the complaint, respondent PNB averred, as a special and affirmative defense, that it had acquired ownership over the property after the period to redeem had elapsed. It claimed that no contract of sale was perfected between it and petitioner after the period to redeem the property had expired. During pre-trial, the parties agreed to submit the case for decision, based on their stipulation of facts.[25] The parties agreed to limit the issues to the following: 1. Whether or not the June 4, 1985 letter of the defendant approving/accepting plaintiffs offer to purchase the property is still valid and legally enforceable. Whether or not the plaintiff has waived its right to purchase the property when it failed to conform with the conditions set forth by the defendant in its letter dated June 4, 1985. Whether or not there is a perfected contract of sale between the parties.[26]

2.

II.

3.

While the case was pending, respondent PNB demanded, on September 20, 1989, that petitioner vacate the property within 15 days from notice,[27] but petitioners refused to do so. On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.[28] The offer was however rejected by respondent PNB, in a letter dated April 13, 1993. According to it, the prevailing market value of the property was approximately P30,000,000.00, and as a matter of policy, it could not sell the property for less than its market value.[29] On June 21, 1993, petitioner offered to purchase the property for P4,250,000.00 in cash.[30] The offer was again rejected by respondent PNB on September 13, 1993.[31] On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and respondent PNBs counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit petitioner had made.[32] The trial court ruled that there was no perfected contract of sale between the parties; hence, petitioner had no cause of action for specific performance against respondent. The trial court declared that respondent had

III.

IV.

V.

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF PETITIONER-APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING TO BUY THE SUBJECT PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO PERFECTED CONTRACT OF SALE.[38]

the effectivity of which is subordinated to its fulfillment. Since there is no perfected contract in the first place, there is no basis for the application of the principles governing suspensive conditions. According to respondent, the Statement of Account prepared by SAMD as of June 25, 1984 cannot be classified as a counter-offer; it is simply a recital of its total monetary claims against petitioner. Moreover, the amount stated therein could not likewise be considered as the counter-offer since as admitted by petitioner, it was only recommendation which was subject to approval of the PNB Board of Directors. Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected sale contract. As gleaned from the parties Stipulation of Facts during the proceedings in the court a quo, the amount is merely an acknowledgment of the receipt of P725,000.00 as deposit to repurchase the property. The deposit of P725,000.00 was accepted by respondent on the condition that the purchase price would still be approved by its Board of Directors. Respondent maintains that its acceptance of the amount was qualified by that condition, thus not absolute. Pending such approval, it cannot be legally claimed that respondent is already bound by any contract of sale with petitioner. According to respondent, petitioner knew that the SAMD has no capacity to bind respondent and that its authority is limited to administering, managing and preserving the properties and other special assets of PNB. The SAMD does not have the power to sell, encumber, dispose of, or otherwise alienate the assets, since the power to do so must emanate from its Board of Directors. The SAMD was not authorized by respondents Board to enter into contracts of sale with third persons involving corporate assets. There is absolutely nothing on record that respondent authorized the SAMD, or made it appear to petitioner that it represented itself as having such authority. Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been approved by the Board subject to the condition, among others, that the selling price shall be the total banks claim as of documentation date x x x payable in cash (P725,000.00 already deposited) within 60 days from notice of approval. A new Statement of Account was attached therein indicating the total banks claim to be P1,931,389.53 less deposit of P725,000.00, or P1,206,389.00. Furthermore, while respondents Board of Directors accepted petitioners offer to repurchase the property, the acceptance was qualified, in that it required a higher sale price and subject to specified terms and conditions enumerated therein. This qualified acceptance was in effect a counteroffer, necessitating petitioners acceptance in return. The Ruling of the Court The ruling of the appellate court that there was no perfected contract of sale between the parties on June 4, 1985 is correct. A contract 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.[41] Under Article 1318 of the New Civil Code, there is no contract unless the following requisites concur: (1) (2) of the contract; established. (3) Consent of the contracting parties; Object certain which is the subject matter Cause of the obligation which is

Contracts are perfected by mere consent which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.[42] Once perfected, they bind other contracting parties and the obligations arising therefrom have the form of law between the parties and should be complied with in good faith. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the consequences which, according to their nature, may be in keeping with good faith, usage and law.[43] By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.[44] The absence of any of the essential elements will negate the existence of a perfected contract of sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:[45] A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.[46] A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without acceptance of the other, there is no contract.[47] When the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.[48] In San Miguel Properties Philippines, Inc. v. Huang,[49] the Court ruled that the stages of a contract of sale are as follows: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof. A negotiation is formally initiated by an offer, which, however, must be certain.[50] At any time prior to the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional and without variance of any sort from the proposal. In Adelfa Properties, Inc. v. Court of Appeals,[51] the Court ruled that: x x x The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale.[52] A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to end the negotiation between the parties on a different
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The threshold issue is whether or not petitioner and respondent PNB had entered into a perfected contract for petitioner to repurchase the property from respondent. Petitioner maintains that it had accepted respondents offer made through the SAMD, to sell the property for P1,574,560.00. When the acceptance was made in its letter dated June 25, 1984; it then deposited P725,000.00 with the SAMD as partial payment, evidenced by Receipt No. 978194 which respondent had issued. Petitioner avers that the SAMDs acceptance of the deposit amounted to an acceptance of its offer to repurchase. Moreover, as gleaned from the letter of SAMD dated June 4, 1985, the PNB Board of Directors had approved petitioners offer to purchase the property. It claims that this was the suspensive condition, the fulfillment of which gave rise to the contract. Respondent could no longer unilaterally withdraw its offer to sell the property for P1,574,560.47, since the acceptance of the offer resulted in a perfected contract of sale; it was obliged to remit to respondent the balance of the original purchase price of P1,574,560.47, while respondent was obliged to transfer ownership and deliver the property to petitioner, conformably with Article 1159 of the New Civil Code. Petitioner posits that respondent was proscribed from increasing the interest rate after it had accepted respondents offer to sell the property for P1,574,560.00. Consequently, respondent could no longer validly make a counter-offer of P1,931,789.88 for the purchase of the property. It likewise maintains that, although the P725,000.00 was considered as deposit for the repurchase of the property in the receipt issued by the SAMD, the amount constitutes earnest money as contemplated in Article 1482 of the New Civil Code. Petitioner cites the rulings of this Court in Villonco v. Bormaheco[39] and Topacio v. Court of Appeals.[40] Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent and its failure to pay the balance of the price as fixed by respondent within the 60-day period from notice was to protest respondents breach of its obligation to petitioner. It did not amount to a rejection of respondents offer to sell the property since respondent was merely seeking to enforce its right to pay the balance of P1,570,564.47. In any event, respondent had the option either to accept the balance of the offered price or to cause the rescission of the contract. Petitioners letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency of the case in the RTC were merely to compromise the pending lawsuit, they did not constitute separate offers to repurchase the property. Such offer to compromise should not be taken against it, in accordance with Section 27, Rule 130 of the Revised Rules of Court. For its part, respondent contends that the parties never graduated from the negotiation stage as they could not agree on the amount of the repurchase price of the property. All that transpired was an exchange of proposals and counter-proposals, nothing more. It insists that a definite agreement on the amount and manner of payment of the price are essential elements in the formation of a binding and enforceable contract of sale. There was no such agreement in this case. Primarily, the concept of suspensive condition signifies a future and uncertain event upon the fulfillment of which the obligation becomes effective. It clearly presupposes the existence of a valid and binding agreement,

basis.[53] Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee consent because any modification or variation from the terms of the offer annuls the offer.[54] The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the minds. In this case, petitioner had until February 17, 1984 within which to redeem the property. However, since it lacked the resources, it requested for more time to redeem/repurchase the property under such terms and conditions agreed upon by the parties.[55] The request, which was made through a letter dated August 25, 1983, was referred to the respondents main branch for appropriate action.[56] Before respondent could act on the request, petitioner again wrote respondent as follows: 1. Upon approval of our request, we will pay your goodselves ONE HUNDRED & FIFTY THOUSAND PESOS (P150,000.00); 2. Within six months from date of approval of our request, we will pay another FOUR HUNDRED FIFTY THOUSAND PESOS (P450,000.00); and 3. The remaining balance together with the interest and other expenses that will be incurred will be paid within the last six months of the one year grave period requested for.[57]

It appears that the SAMD had prepared a recommendation for respondent to accept petitioners offer to repurchase the property even beyond the one-year period; it recommended that petitioner be allowed to redeem the property and pay P1,574,560.00 as the purchase price. Respondent later approved the recommendation that the property be sold to petitioner. But instead of the P1,574,560.47 recommended by the SAMD and to which petitioner had previously conformed, respondent set the purchase price at P2,660,000.00. In fine, respondents acceptance of petitioners offer was qualified, hence can be at most considered as a counter-offer. If petitioner had accepted this counter-offer, a perfected contract of sale would have arisen; as it turns out, however, petitioner merely sought to have the counter-offer reconsidered. This request for reconsideration would later be rejected by respondent. We do not agree with petitioners contention that the P725,000.00 it had remitted to respondent was earnest money which could be considered as proof of the perfection of a contract of sale under Article 1482 of the New Civil Code. The provision reads: ART. 1482. 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. This contention is likewise negated by the stipulation of facts which the parties entered into in the trial court:

charged with full knowledge of the nature and extent of said rights, interests and participation and waive your right to warranty against eviction. 3. All taxes and other government imposts due or to become due on the property, as well as expenses including costs of documents and science stamps, transfer fees, etc., to be incurred in connection with the execution and registration of all covering documents shall be borne by you; That you shall undertake at your own expense and account the ejectment of the occupants of the property subject of the sale, if there are any; That upon your failure to pay the balance of the purchase price within sixty (60) days from receipt of advice accepting your offer, your deposit shall be forfeited and the Bank is thenceforth authorized to sell the property to other interested parties. That the sale shall be subject to such other terms and conditions that the Legal Department may impose to protect the interest of the Bank.[64]

4.

5.

6.

When the petitioner was told that respondent did not allow partial redemption,[58] it sent a letter to respondents President reiterating its offer to purchase the property.[59] There was no response to petitioners letters dated February 10 and 15, 1984. The statement of account prepared by the SAMD stating that the net claim of respondent as of June 25, 1984 was P1,574,560.47 cannot be considered an unqualified acceptance to petitioners offer to purchase the property. The statement is but a computation of the amount which petitioner was obliged to pay in case respondent would later agree to sell the property, including interests, advances on insurance premium, advances on realty taxes, publication cost, registration expenses and miscellaneous expenses. There is no evidence that the SAMD was authorized by respondents Board of Directors to accept petitioners offer and sell the property for P1,574,560.47. Any acceptance by the SAMD of petitioners offer would not bind respondent. As this Court ruled in AF Realty Development, Inc. vs. Diesehuan Freight Services, Inc.:[60] Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with the performance of authorized duties of such director, are held not binding on the corporation. Thus, a corporation can only execute its powers and transact its business through its Board of Directors and through its officers and agents when authorized by a board resolution or its by-laws.[61]

8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB prepared an updated Statement of Account showing MMCCs total liability to PNB as of June 25, 1984 to be P1,574,560.47 and recommended this amount as the repurchase price of the subject property. 9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the property. The deposit of P725,000 was accepted by PNB on the condition that the purchase price is still subject to the approval of the PNB Board.[62] Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price of the property, in the event that respondent would approve the recommendation of SAMD for respondent to accept petitioners offer to purchase the property for P1,574,560.47. Unless and until the respondent accepted the offer on these terms, no perfected contract of sale would arise. Absent proof of the concurrence of all the essential elements of a contract of sale, the giving of earnest money cannot establish the existence of a perfected contract of sale.[63] It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to accept the offer to purchase the property for P1,931,389.53. However, this amounted to an amendment of respondents qualified acceptance, or an amended counter-offer, because while the respondent lowered the purchase price, it still declared that its acceptance was subject to the following terms and conditions: 1. That the selling price shall be the total Banks claim as of documentation date (pls. see attached statement of account as of 5-31-85), payable in cash (P725,000.00 already deposited) within sixty (60) days from notice of approval; 2. The Bank sells only whatever rights, interests and participation it may have in the property and you are

It appears that although respondent requested petitioner to conform to its amended counter-offer, petitioner refused and instead requested respondent to reconsider its amended counter-offer. Petitioners request was ultimately rejected and respondent offered to refund its P725,000.00 deposit. In sum, then, there was no perfected contract of sale between petitioner and respondent over the subject property. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Corporation. SO ORDERED.

LAW ON SALES | POLICITACION AND PERFECTION FT | 4

pagbibigay ng problema sa amin na hindi naman nagbenta ng lupa. OPTION CONTRACT HERMINIO TAYAG, petitioner, vs. AMANCIA LACSON, ROSENDO LACSON, ANTONIO LACSON, JUAN LACSON, TEODISIA LACSON-ESPINOSA and THE COURT OF APPEALS, respondents. DECISION CALLEJO, SR., J.: Before us is a petition for review on certiorari of the Decision[1] and the Resolution[2] of respondent Court of Appeals in CA-G.R. SP No. 44883. Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming karapatan o ang aming lupang sinasaka sa landowner o sa mga pamilyang Lacson, dahil ayaw naming magkaroon ng problema. Kaya kung ang sasabihin ninyong itoy katangahan, lalo sigurong magiging katangahan kung ibebenta pa namin sa inyo ang aming lupang sinasaka, kaya pasensya na lang Mister Tayag. Dahil sinira ninyo ang aming pagtitiwala at katapatan.[9] On August 19, 1996, the petitioner filed a complaint with the Regional Trial Court of San Fernando, Pampanga, Branch 44, against the defendants-tenants, as well as the respondents, for the court to fix a period within which to pay the agreed purchase price of P50.00 per square meter to the defendants, as provided for in the Deeds of Assignment. The petitioner also prayed for a writ of preliminary injunction against the defendants and the respondents therein.[10] The case was docketed as Civil Case No. 10910. In his complaint, the petitioner alleged, inter alia, the following: The Case for the Petitioner 4. That defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos are original farmers or direct tillers of landholdings over parcels of lands covered by Transfer Certificate of Title Nos. 35922-R, 35923-R and 35925-R which are registered in the names of defendants LACSONS; while defendants Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Alfredo Gozun, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, and Aurelio Flores are sub-tenants over the same parcel of land. 5. That on March 17, 1996 the defendants TIAMSON, et al., entered into Deeds of Assignment with the plaintiff by which the defendants assigned all their rights and interests on their landholdings to the plaintiff and that on the same date (March 17, 1996), the defendants received from the plaintiff partial payments in the amounts corresponding to their names. Subsequent payments were also received: 1st PAYMENT P 2 1.Julio 0 Tiamson - - , --0 0 0 P 2. Renato Gozun - - - - 1 0 -, 0 P 10, 621 .54 2nd PAYMENT CHECK NO. TOTAL

0 0 [son of Felix Gozun (deceased)] 2 3 1 2 7 4 2 3 1 2 8 5

3. Rosita Hernandez - P 5,000 ---

14, 374 .24

P 19,374.24

4. Bienvenido Tongol - - -

P 10,000

14, 465 .90

24,465.90

[Son of Abundio Tongol (deceased)] P 3 5. Alfonso 0 Flores - - - - , 0 0 0 P 1 6. Norma 0 Quiambao - , -0 0 0 P 41, 501 .10 26, 648 .40

Respondents Angelica Tiotuyco Vda. de Lacson,[3] and her children Amancia, Antonio, Juan, and Teodosia, all surnamed Lacson, were the registered owners of three parcels of land located in Mabalacat, Pampanga, covered by Transfer Certificates of Title (TCT) Nos. 35922-R, 35923-R, and 35925-R, registered in the Register of Deeds of San Fernando, Pampanga. The properties, which were tenanted agricultural lands, [4] were administered by Renato Espinosa for the owner. On March 17, 1996, a group of original farmers/tillers, namely, Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, and another group, namely, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores,[5] individually executed in favor of the petitioner separate Deeds of Assignment[6] in which the assignees assigned to the petitioner their respective rights as tenants/tillers of the landholdings possessed and tilled by them for and in consideration of P50.00 per square meter. The said amount was made payable when the legal impediments to the sale of the property to the petitioner no longer existed. The petitioner was als o granted the exclusive right to buy the property if and when the respondents, with the concurrence of the defendants-tenants, agreed to sell the property. In the interim, the petitioner gave varied sums of money to the tenants as partial payments, and the latter issued receipts for the said amounts. On July 24, 1996, the petitioner called a meeting of the defendants-tenants to work out the implementation of the terms of their separate agreements.[7] However, on August 8, 1996, the defendants-tenants, through Joven Mariano, wrote the petitioner stating that they were not attending the meeting and instead gave notice of their collective decision to sell all their rights and interests, as tenants/lessees, over the landholding to the respondents.[8] Explaining their reasons for their collective decision, they wrote as follows: Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng ating napagkasunduan, hindi tumanggap ng ibang buyer o ahente, pero sinira ninyo ang aming pagtitiwala sa pamamagitan ng demanda ninyo at

2 3 1 2 7 1

56,648.40

2 3 1 2 7 9

51,501.10

2 3 1 2 8 1

P 30,621.54

1 7. Rosita 0 Tolentino - - , -0 0 0 P 8. Jose Sosa --------- 1 0 ,

22, 126 .08

2 3 1 2 8 4

32,126.08

96, 000

106,000.00

14, 861 .31

2 3 1 2 9

24,861.31

LAW ON SALES | POLICITACION AND PERFECTION FT | 5

0 0 0 P 1 9. Francisco 0 Tolentino, Sr. , 0 0 0 P 1 10. Emiliano 0 Laxamana - - , 0 0 0 P 1 11. Ruben 0 Torres - - - - , 0 0 0 P 33, 587 .31 24, 237 .62

, 0 0 0

--

0 , 0 0 0

---

2 3 1 2 8 3

34,237.62

5 15. Emiliano , Ramos 0 0 0

18, 869 .60

2 3 1 2 8 0

23,869.60

1 0 22. Eddie , San Luis 0 0 0

-----

----

------

-----

----

1 0 16. Felino G. , Tolentino 0 0 0

-----

----

------

1 0 23. Ricardo , Hernandez 0 0 0

-----

----

------

----

P 43,587.31

5 17. Rica , Gozun 0 0 0

-----

----

-----24. Nicenciana Miranda

[Son of Mariano Torres (deceased)] P 1 12. Meliton 0 Allanigue , 0 0 0 P 5 13. Dominga , Laxamana 0 0 0 14. Felicencia de 1 Leon 0 22, 269 .02 12, 944 .77

1 0 18. Perla , Gozun 0 0 0 2 3 1 2 6 9

1 0 , 0 0 0

-----

----

------

-----

----

------

P 22,944.77

1 0 19. Benigno , Tolentino 0 0 0

1 0 25. Jose , Gozun 0 0 0

-----

----

------

-----

----

-----5 26. Alfredo , Sosa 0 0 0 -------------

2 3 1 2 7 5

27,269.02

1 0 20. Rodolfo , Quiambao 0 0 0 21. Roman Laxamana 1

-----

----

------

-----

---

------

1 0 27. Jose , Tiamson 0 0 0

-----

----

------

-----

--

-----LAW ON SALES | POLICITACION AND PERFECTION FT | 6

0 5 28. Augusto , Tolentino 0 0 0 ----

their contracts with the plaintiff and from selling/alienating their properties to the LACSONS or other persons; 15. That the plaintiff is willing and able to put up a reasonable bond to answer for the damages which the defendants would suffer should the injunction prayed for and granted be found without basis.[12] The petitioner prayed, that after the proceedings, judgment be rendered as follows: 1. Pending the hearing, a Writ of Preliminary Injunction be issued prohibiting, enjoining and restraining defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores from rescinding their contracts with the plaintiff and from alienating their rights and interest over the aforementioned properties in favor of defendants LACSONS or any other third persons; and prohibiting the defendants LACSONS from encumbering/alienating TCT Nos. 35922-R, 35923-R and 35925-R of the Registry of Deeds of San Fernando, Pampanga. 2. And pending the hearing of the Prayer for a Writ of Preliminary Injunction, it is prayed that a restraining order be issued restraining the aforementioned defendants (TIAMSON, et al.) from rescinding their contracts with the plaintiff and from alienating the subject properties to the defendants LACSONS or any third persons; further, restraining and enjoining the defendants LACSONS from encumbering/selling the properties covered by TCT Nos. 35922-R, 35923-R, and 35925-R of the Registry of Deeds of San Fernando, Pampanga. 3. Fixing the period within which plaintiff shall pay the balance of the purchase price to the defendants TIAMSON, et al., after the lapse of legal impediment, if any. 4. Making the Writ of Preliminary Injunction permanent;

-----

------

1 0 29. Sixto , Hernandez 0 0 0

1 0 35. Aurelio , Flores 0 0 0

-----

----

------

-----

----

------

6. That on July 24, 1996, the plaintiff wrote the defendants TIAMSON, et al., inviting them for a meeting regarding the negotiations/implementations of the terms of their Deeds of Assignment; 7. That on August 8, 1996, the defendants TIAMSON, et al., through Joven Mariano, replied that they are no longer willing to pursue with the negotiations, and instead they gave notice to the plaintiff that they will sell all their rights and interests to the registered owners (defendants LACSONS).

1 0 30. Alex , Quiambao 0 0 0

-----

----

------

A copy of the letter is hereto attached as Annex A etc.; 8. That the defendants TIAMSON, et. al., have no right to deal with the defendants LACSON or with any third persons while their contracts with the plaintiff are subsisting; defendants LACSONS are inducing or have induced the defendants TIAMSON, et. al., to violate their contracts with the plaintiff;

1 0 31. Isidro , Tolentino 0 0 0

-----

----

------

9. That by reason of the malicious acts of all the defendants, plaintiff suffered moral damages in the forms of mental anguish, mental torture and serious anxiety which in the sum of P500,000.00 for which defendants should be held liable jointly and severally.[11] In support of his plea for injunctive relief, the petitioner, as plaintiff, also alleged the following in his complaint:

32. Ceferino de Leon -

11, 378 .70

2 3 1 2 7 0

------

1 0 33. Alberto , Hernandez 0 0 0

11. That to maintain the status quo, the defendants TIAMSON, et al., should be restrained from rescinding their contracts with the plaintiff, and the defendants LACSONS should also be restrained from accepting any offer of sale or alienation with the defendants TIAMSON, et al., in whatever form, the latters rights and interests in the properties mentioned in paragraph 4 hereof; further, the LACSONS should be restrained from encumbering/alienating the subject properties covered by TCT No. 35922-R, 35923-R and TCT No. 35925-R, Registry of Deeds of San Fernando, Pampanga; 12. That the defendants TIAMSON, et al., threaten to rescind their contracts with the plaintiff and are also bent on selling/alienating their rights and interests over the subject properties to their co-defendants (LACSONS) or any other persons to the damage and prejudice of the plaintiff who already invested much money, efforts and time in the said transactions; 13. the complaint; That the plaintiff is entitled to the reliefs being demanded in

5. Ordering the defendants to pay the plaintiff the sum of P500,000.00 as moral damages; 6. Ordering the defendants to pay the plaintiff attorneys fees in the sum of P100,000.00 plus litigation expenses of P50,000.00; Plaintiff prays for such other relief as may be just and equitable under the premises.[13] In their answer to the complaint, the respondents as defendants asserted that (a) the defendant Angelica Vda. de Lacson had died on April 24, 1993; (b) twelve of the defendants were tenants/lessees of respondents, but the tenancy status of the rest of the defendants was uncertain; (c) they never induced the defendants Tiamson to violate their contracts with the petitioner; and, (d) being merely tenants-tillers, the defendants-tenants had no right to enter into any transactions involving their properties without their knowledge and consent. They also averred that the transfers or assignments of leasehold rights made by the defendants-tenants to the petitioner is contrary to Presidential Decree (P.D.) No. 27 and Republic Act No. 6657, the Comprehensive Agrarian Reform Program (CARP).[14] The respondents interposed counterclaims for damages against the petitioner as plaintiff. The defendants-tenants Tiamson, et al., alleged in their answer with counterclaim for
LAW ON SALES | POLICITACION AND PERFECTION FT | 7

-----

----

------

1 34. Orlando 0 Florez , 0 0

-----

----

------

14. That to prevent irreparable damages and prejudice to the plaintiff, as the latter has no speedy and adequate remedy under the ordinary course of law, it is essential that a Writ of Preliminary Injunction be issued enjoining and restraining the defendants TIAMSON, et al., from rescinding

damages, that the money each of them received from the petitioner were in the form of loans, and that they were deceived into signing the deeds of assignment: a) b) That all the foregoing allegations in the Answer are hereby repleaded and incorporated in so far as they are material and relevant herein; That the defendants Tiamson, et al., in so far as the Deeds of Assignment are concern[ed] never knew that what they did sign is a Deed of Assignment. What they knew was that they were made to sign a document that will serve as a receipt for the loan granted [to] them by the plaintiff; That the Deeds of Assignment were signed through the employment of fraud, deceit and false pretenses of plaintiff and made the defendants believe that what they sign[ed] was a mere receipt for amounts received by way of loans; That the documents signed in blank were filled up and completed after the defendants Tiamson, et al., signed the documents and their completion and accomplishment was done in the absence of said defendants and, worst of all, defendants were not provided a copy thereof; That as completed, the Deeds of Assignment reflected that the defendants Tiamson, et al., did assign all their rights and interests in the properties or landholdings they were tilling in favor of the plaintiff. That if this is so, assuming arguendo that the documents were voluntarily executed, the defendants Tiamson, et al., do not have any right to transfer their interest in the landholdings they are tilling as they have no right whatsoever in the landholdings, the landholdings belong to their codefendants, Lacson, et al., and therefore, the contract is null and void; That while it is admitted that the defendants Tiamson, et al., received sums of money from plaintiffs, the same were received as approved loans granted by plaintiff to the defendants Tiamson, et al., and not as part consideration of the alleged Deeds of Assignment; and by way of:[15]

adduce any evidence in opposition to the petitioners plea for a writ of preliminary injunction. On February 13, 1997, the court issued an Order[19] denying the motion of the respondents for being premature. It directed the hearing to proceed for the respondents to adduce their evidence. The court ruled that the petitioner, on the basis of the material allegations of the complaint, was entitled to injunctive relief. It also held that before the court could resolve the petitioners plea for injunctive relief, there was need for a hearing to enable the respondents and the defendants-tenants to adduce evidence to controvert that of the petitioner. The respondents filed a motion for reconsideration, which the court denied in its Order dated April 16, 1997. The trial court ruled that on the face of the averments of the complaint, the pleadings of the parties and the evidence adduced by the petitioner, the latter was entitled to injunctive relief unless the respondents and the defendants-tenants adduced controverting evidence. The respondents, the petitioners therein, filed a petition for certiorari in the Court of Appeals for the nullification of the February 13, 1997 and April 16, 1997 Orders of the trial court. The case was docketed as CA-G.R. SP No. 44883. The petitioners therein prayed in their petition that: 1. 2. An order be issued declaring the orders of respondent court dated February 13, 1997 and April 16, 1997 as null and void; An order be issued directing the respondent court to issue an order denying the application of respondent Herminio Tayag for the issuance of a Writ of Preliminary Injunction and/or restraining order. In the meantime, a Writ of Preliminary Injunction be issued against the respondent court, prohibiting it from issuing its own writ of injunction against Petitioners, and thereafter making said injunction to be issued by this Court permanent.

However, even if private respondent is denied of the injunctive relief he demands in the lower court still he could avail of other course of action in order to protect his interest such as the institution of a simple civil case of collection of money against TIAMSON, et al. For all the foregoing considerations, the orders dated 13 February 1997 and 16 April 1997 are hereby NULLIFIED and ordered SET ASIDE for having been issued with grave abuse of discretion amounting to lack or excess of jurisdiction. Accordingly, public respondent is permanently enjoined from proceeding with the case designated as Civil Case No. 10901.[22] The CA ruled that the respondents could not be enjoined from alienating or even encumbering their property, especially so since they were not privies to the deeds of assignment executed by the defendants-tenants. The defendants-tenants were not yet owners of the portions of the landholdings respectively tilled by them; as such, they had nothing to assign to the petitioner. Finally, the CA ruled that the deeds of assignment executed by the defendants-tenants were contrary to P.D. No. 27 and Rep. Act No. 6657. On August 4, 1998, the CA issued a Resolution denying the petitioners motion for reconsideration.[23] Hence, the petitioner filed his petition for review on certiorari before this Court, contending as follows: I A MERE ALLEGATION IN THE ANSWER OF THE TENANTS COULD NOT BE USED AS EVIDENCE OR BASIS FOR ANY CONCLUSION, AS THIS ALLEGATION, IS STILL THE SUBJECT OF TRIAL IN THE LOWER COURT (RTC).[24] II THE COURT OF APPEALS CANNOT ENJOIN THE HEARING OF A PETITION FOR PRELIMINARY INJUNCTION AT A TIME WHEN THE LOWER COURT (RTC) IS STILL RECEIVING EVIDENCE PRECISELY TO DETERMINE WHETHER OR NOT THE WRIT OF PRELIMINARY INJUNCTION BEING PRAYED FOR BY TAYAG SHOULD BE GRANTED OR NOT.[25] III THE COURT OF APPEALS CANNOT USE FACTS NOT IN EVIDENCE, TO SUPPORT ITS CONCLUSION THAT THE TENANTS ARE NOT YET AWARDEES OF THE LAND REFORM.[26] IV THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT STOPPAGE OF THE ENTIRE PROCEEDINGS BELOW INCLUDING THE TRIAL ON THE MERITS OF THE CASE CONSIDERING THAT THE ISSUE INVOLVED ONLY THE PROPRIETY OF MAINTAINING THE STATUS QUO.[27] V THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION THE CASE OF THE OTHER 35 TENANTS WHO DO NOT QUESTION THE JURISDICTION OF THE LOWER COURT (RTC) OVER THE CASE AND WHO ARE IN FACT STILL PRESENTING
LAW ON SALES | POLICITACION AND PERFECTION FT | 8

c)

d)

e)

3.

f)

Such other orders as may be deemed just & equitable under the premises also prayed for.[20] The respondents asserted that the Deeds of Assignment executed by the assignees in favor of the petitioner were contrary to paragraph 13 of P.D. No. 27 and the second paragraph of Section 70 of Rep. Act No. 6657, and, as such, could not be enforced by the petitioner for being null and void. The respondents also claimed that the enforcement of the deeds of assignment was subject to a supervening condition: 3. That this exclusive and absolute right given to the assignee shall be exercised only when no legal impediments exist to the lot to effect the smooth transfer of lawful ownership of the lot/property in the name of the ASSIGNEE.[21] The respondents argued that until such condition took place, the petitioner would not acquire any right to enforce the deeds by injunctive relief. Furthermore, the petitioners plea in his complaint before the trial court, to fix a period within which to pay the balance of the amounts due to the tenants under said deeds after the lapse of any legal impediment, assumed that the deeds were valid, when, in fact and in law, they were not. According to the respondents, they were not parties to the deeds of assignment; hence, they were not bound by the said deeds. The issuance of a writ of preliminary injunction would restrict and impede the exercise of their right to dispose of their property, as provided for in Article 428 of the New Civil Code. They asserted that the petitioner had no cause of action against them and the defendants-tenants. On April 17, 1998, the Court of Appeals rendered its decision against the petitioner, annulling and setting aside the assailed orders of the trial court; and permanently enjoining the said trial court from proceeding with Civil Case No. 10901. The decretal portion of the decision reads as follows:

At the hearing of the petitioners plea for a writ of preliminary injunction, the respondents counsel failed to appear. In support of his plea for a writ of preliminary injunction, the petitioner adduced in evidence the Deeds of Assignment,[16] the receipts[17] issued by the defendants-tenants for the amounts they received from him; and the letter[18] the petitioner received from the defendants-tenants. The petitioner then rested his case. The respondents, thereafter, filed a Comment/Motion to dismiss/deny the petitioners plea for injunctive relief on the following grounds: (a) the Deeds of Assignment executed by the defendants-tenants were contrary to public policy and P.D. No. 27 and Rep. Act No. 6657; (b) the petitioner failed to prove that the respondents induced the defendants-tenants to renege on their obligations under the Deeds of Assignment; (c) not being privy to the said deeds, the respondents are not bound by the said deeds; and, (d) the respondents had the absolute right to sell and dispose of their property and to encumber the same and cannot be enjoined from doing so by the trial court. The petitioner opposed the motion, contending that it was premature for the trial court to resolve his plea for injunctive relief, before the respondents and the defendants-tenants adduced evidence in opposition thereto, to afford the petitioner a chance to adduce rebuttal evidence and prove his entitlement to a writ of preliminary injunction. The respondents replied that it was the burden of the petitioner to establish the requisites of a writ of preliminary injunction without any evidence on their part, and that they were not bound to

THEIR EVIDENCE TO OPPOSE THE INJUNCTION PRAYED FOR, AND TO PROVE AT THE SAME TIME THE COUNTER-CLAIMS THEY FILED AGAINST THE PETITIONER.[28] VI THE LOWER COURT (RTC) HAS JURISDICTION OVER THE CASE FILED BY TAYAG FOR FIXING OF PERIOD UNDER ART. 1197 OF THE NEW CIVIL CODE AND FOR DAMAGES AGAINST THE LACSONS UNDER ART. 1314 OF THE SAME CODE. THIS CASE CANNOT BE SUPPRESSED OR RENDERED NUGATORY UNCEREMONIOUSLY.[29] The petitioner faults the Court of Appeals for permanently enjoining the trial court from proceeding with Civil Case No. 10910. He opines that the same was too drastic, tantamount to a dismissal of the case. He argues that at that stage, it was premature for the appellate court to determine the merits of the case since no evidentiary hearing thereon was conducted by the trial court. This, the Court of Appeals cannot do, since neither party moved for the dismissal of Civil Case No. 10910. The petitioner points out that the Court of Appeals, in making its findings, went beyond the issue raised by the private respondents, namely, whether or not the trial court committed a grave abuse of discretion amounting to excess or lack of jurisdiction when it denied the respondents motion for the denial/dismissal of the petitioners plea for a writ of preliminary injunction. He, likewise, points out that the appellate court erroneously presumed that the leaseholders were not DAR awardees and that the deeds of assignment were contrary to law. He contends that leasehold tenants are not prohibited from conveying or waiving their leasehold rights in his favor. He insists that there is nothing illegal with his contracts with the leaseholders, since the same shall be effected only when there are no more legal impediments. At bottom, the petitioner contends that, at that stage, it was premature for the appellate court to determine the merits of his case since no evidentiary hearing on the merits of his complaint had yet been conducted by the trial court. The Comment/Motion of the Respondents to Dismiss/Deny Petitioners Plea for a Writ of Preliminary Injunction Was Not Premature. Contrary to the ruling of the trial court, the motion of the respondents to dismiss/deny the petitioners plea for a writ of preliminary injunction after the petitioner had adduced his evidence, testimonial and documentary, and had rested his case on the incident, was proper and timely. It bears stressing that the petitioner had the burden to prove his right to a writ of preliminary injunction. He may rely solely on the material allegations of his complaint or adduce evidence in support thereof. The petitioner adduced his evidence to support his plea for a writ of preliminary injunction against the respondents and the defendants-tenants and rested his case on the said incident. The respondents then had three options: (a) file a motion to deny/dismiss the motion on the ground that the petitioner failed to discharge his burden to prove the factual and legal basis for his plea for a writ of preliminary injunction and, if the trial court denies his motion, for them to adduce evidence in opposition to the petitioners plea; (b) forgo their motion and adduce testimonial and/or documentary evidence in opposition to the petitioners plea for a writ of preliminary injunction; or, (c) waive their right to adduce evidence and submit the incident for consideration on the basis of the pleadings of the parties and the evidence of the petitioner. The respondents opted not to adduce any evidence, and instead filed a motion to deny or dismiss the petitioners plea for a writ of preliminary injunction against them, on their claim that the petitioner failed to prove his entitlement thereto. The trial court cannot compel the respondents to adduce evidence in opposition to the petitioners plea if the respondents opt to waive their right to adduce such evidence. Thus, the trial court should have resolved the respondents motion even without

the latters opposition and the presentation of evidence thereon. The RTC Committed a Grave Abuse of Discretion Amounting to Excess or Lack of Jurisdiction in Issuing its February 13, 1997 and April 16, 1997 Orders In its February 13, 1997 Order, the trial court ruled that the petitioner was entitled to a writ of preliminary injunction against the respondents on the basis of the material averments of the complaint. In its April 16, 1997 Order, the trial court denied the respondents motion for reconsideration of the previous order, on its finding that the petitioner was entitled to a writ of preliminary injunction based on the material allegations of his complaint, the evidence on record, the pleadings of the parties, as well as the applicable laws: For the record, the Court denied the LACSONS COMMENT/MOTION on the basis of the facts culled from the evidence presented, the pleadings and the law applicable unswayed by the partisan or personal interests, public opinion or fear of criticism (Canon 3, Rule 3.02, Code of Judicial Ethics).[30] Section 3, Rule 58 of the Rules of Court, as amended, enumerates the grounds for the issuance of a writ of preliminary injunction, thus: (a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually; (b) That the commission, continuance or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant; or (c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual. A preliminary injunction is an extraordinary event calculated to preserve or maintain the status quo of things ante litem and is generally availed of to prevent actual or threatened acts, until the merits of the case can be heard. Injunction is accepted as the strong arm of equity or a transcendent remedy.[31] While generally the grant of a writ of preliminary injunction rests on the sound discretion of the trial court taking cognizance of the case, extreme caution must be observed in the exercise of such discretion.[32] Indeed, in Olalia v. Hizon,[33] we held: It has been consistently held that there is no power the exercise of which is more delicate, which requires greater caution, deliberation and sound discretion, or more dangerous in a doubtful case, than the issuance of an injunction. It is the strong arm of equity that should never be extended unless to cases of great injury, where courts of law cannot afford an adequate or commensurate remedy in damages. Every court should remember that an injunction is a limitation upon the freedom of action of the defendant and should not be granted lightly or precipitately. It should be granted only when the court is fully satisfied that the law permits it and the emergency demands it.[34] The very foundation of the jurisdiction to issue writ of injunction rests in the existence

of a cause of action and in the probability of irreparable injury, inadequacy of pecuniary compensation and the prevention of the multiplicity of suits. Where facts are not shown to bring the case within these conditions, the relief of injunction should be refused.[35] For the court to issue a writ of preliminary injunction, the petitioner was burdened to establish the following: (1) a right in esse or a clear and unmistakable right to be protected; (2) a violation of that right; (3) that there is an urgent and permanent act and urgent necessity for the writ to prevent serious damage.[36] Thus, in the absence of a clear legal right, the issuance of the injunctive writ constitutes a grave abuse of discretion. Where the complainants right is doubtful or disputed, injunction is not proper. Injunction is a preservative remedy aimed at protecting substantial rights and interests. It is not designed to protect contingent or future rights. The possibility of irreparable damage without proof of adequate existing rights is not a ground for injunction.[37] We have reviewed the pleadings of the parties and found that, as contended by the respondents, the petitioner failed to establish the essential requisites for the issuance of a writ of preliminary injunction. Hence, the trial court committed a grave abuse of its discretion amounting to excess or lack of jurisdiction in denying the respondents comment/motion as well as their motion for reconsideration. First. The trial court cannot enjoin the respondents, at the instance of the petitioner, from selling, disposing of and encumbering their property. As the registered owners of the property, the respondents have the right to enjoy and dispose of their property without any other limitations than those established by law, in accordance with Article 428 of the Civil Code. The right to dispose of the property is the power of the owner to sell, encumber, transfer, and even destroy the property. Ownership also includes the right to recover the possession of the property from any other person to whom the owner has not transmitted such property, by the appropriate action for restitution, with the fruits, and for indemnification for damages.[38] The right of ownership of the respondents is not, of course, absolute. It is limited by those set forth by law, such as the agrarian reform laws. Under Article 1306 of the New Civil Code, the respondents may enter into contracts covering their property with another under such terms and conditions as they may deem beneficial provided they are not contrary to law, morals, good conduct, public order or public policy. The respondents cannot be enjoined from selling or encumbering their property simply and merely because they had executed Deeds of Assignment in favor of the petitioner, obliging themselves to assign and transfer their rights or interests as agricultural farmers/laborers/sub-tenants over the landholding, and granting the petitioner the exclusive right to buy the property subject to the occurrence of certain conditions. The respondents were not parties to the said deeds. There is no evidence that the respondents agreed, expressly or impliedly, to the said deeds or to the terms and conditions set forth therein. Indeed, they assailed the validity of the said deeds on their claim that the same were contrary to the letter and spirit of P.D. No. 27 and Rep. Act No. 6657. The petitioner even admitted when he testified that he did not know any of the respondents, and that he had not met any of them before he filed his complaint in the RTC. He did not even know that one of those whom he had impleaded as defendant, Angelica Vda. de Lacson, was already dead. Q: A: Q: A: Q: A: But you have not met any of these Lacsons? Not yet, sir. Do you know that two (2) of the defendants are residents of the United States? I do not know, sir. You do not know also that Angela Tiotuvie (sic) Vda. de Lacson had already been dead? I am aware of that, sir.[39]
LAW ON SALES | POLICITACION AND PERFECTION FT | 9

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

Just answer the question, Mr. Tayag. WITNESS: Yes, Your Honor. ATTY. OCAMPO: Q: A: Q: A: Did you explain to them? Yes, sir. What did you tell them? I explain[ed] to them, sir, that the legal impediment then especially if the Lacsons will not agree to sell their shares to me or to us it would be hard to (sic) me to pay them in full. And those covered by DAR. I explain[ed] to them and it was clearly stated in the title that there is [a] prohibited period of time before you can sell the property. I explained every detail to them.[41]

imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until accepted, it is not, properly speaking, treated as a contract.[44] The second party gets in praesenti, not lands, not an agreement that he shall have the lands, but the right to call for and receive lands if he elects.[45] An option contract is a separate and distinct contract from which the parties may enter into upon the conjunction of the option.[46] In this case, the defendants-tenants-subtenants, under the deeds of assignment, granted to the petitioner not only an option but the exclusive right to buy the landholding. But the grantors were merely the defendants-tenants, and not the respondents, the registered owners of the property. Not being the registered owners of the property, the defendantstenants could not legally grant to the petitioner the option, much less the exclusive right to buy the property. As the Latin saying goes, NEMO DAT QUOD NON HABET. Fourth. The petitioner impleaded the respondents as parties-defendants solely on his allegation that the latter induced or are inducing the defendants-tenants to violate the deeds of assignment, contrary to the provisions of Article 1314 of the New Civil Code which reads: Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. In So Ping Bun v. Court of Appeals,[47] we held that for the said law to apply, the pleader is burdened to prove the following: (1) the existence of a valid contract; (2) knowledge by the third person of the existence of the contract; and (3) interference by the third person in the contractual relation without legal justification. Where there was no malice in the interference of a contract, and the impulse behind ones conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is financially interested, and such interest motivates his conduct, it cannot be said that he is an officious or malicious intermeddler.[48] In fine, one who is not a party to a contract and who interferes thereon is not necessarily an officious or malicious intermeddler. The only evidence adduced by the petitioner to prove his claim is the letter from the defendants-tenants informing him that they had decided to sell their rights and interests over the landholding to the respondents, instead of honoring their obligation under the deeds of assignment because, according to them, the petitioner harassed those tenants who did not want to execute deeds of assignment in his favor, and because the said defendants-tenants did not want to have any problem with the respondents who could cause their eviction for executing with the petitioner the deeds of assignment as the said deeds are in violation of P.D. No. 27 and Rep. Act No. 6657.[49] The defendants-tenants did not allege therein that the respondents induced them to breach their contracts with the petitioner. The petitioner himself admitted when he testified that his claim that the respondents induced the defendants-assignees to violate contracts with him was based merely on what he heard, thus: Q: Going to your last statement that the Lacsons induces (sic) the defendants, did you see that the Lacsons were inducing the defendants? I heard and sometime in [the] first week of August, sir, they went in the barrio (sic). As a matter of fact, that is the reason why they sent me letter that they will sell it to the Lacsons. Incidentally, do you knew (sic) these Lacsons individually? No, sir, it was only Mr. Espinosa who I knew (sic) personally, the alleged negotiator and has the authority to sell the property.[50]

It is only upon the occurrence of the foregoing conditions that the petitioner would be obliged to pay to the defendants-tenants the balance of the P50.00 per square meter under the deeds of assignment. Thus: 2. That in case the ASSIGNOR and LANDOWNER will mutually agree to sell the said lot to the ASSIGNEE, who is given an exclusive and absolute right to buy the lot, the ASSIGNOR shall receive the sum of FIFTY PESOS (P50.00) per square meter as consideration of the total area actually tilled and possessed by the ASSIGNOR, less whatever amount received by the ASSIGNOR including commissions, taxes and all allowable deductions relative to the sale of the subject properties. 3. That this exclusive and absolute right given to the ASSIGNEE shall be exercised only when no legal impediments exist to the lot to effect the smooth transfer of lawful ownership of the lot/property in the name of the ASSIGNEE; 4. That the ASSIGNOR will remain in peaceful possession over the said property and shall enjoy the fruits/earnings and/or harvest of the said lot until such time that full payment of the agreed purchase price had been made by the ASSIGNEE.[42] There is no showing in the petitioners complaint that the respondents had agreed to sell their property, and that the legal impediments to the agreement no longer existed. The petitioner and the defendants-tenants had yet to submit the Deeds of Assignment to the Department of Agrarian Reform which, in turn, had to act on and approve or disapprove the same. In fact, as alleged by the petitioner in his complaint, he was yet to meet with the defendants-tenants to discuss the implementation of the deeds of assignment. Unless and until the Department of Agrarian Reform approved the said deeds, if at all, the petitioner had no right to enforce the same in a court of law by asking the trial court to fix a period within which to pay the balance of the purchase price and praying for injunctive relief. We do not agree with the contention of the petitioner that the deeds of assignment executed by the defendants-tenants are perfected option contracts.[43] An option is a contract by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It

A: Q: A:

A:

Q: A:

ATTY. OCAMPO: May I ask, Your Honor, that the witness please answer my question not to answer in the way he wanted it. COURT:

Even if the respondents received an offer from the defendants-tenants to assign and transfer their rights and interests on the landholding, the respondents cannot be enjoined
LAW ON SALES | POLICITACION AND PERFECTION FT | 10

from entertaining the said offer, or even negotiating with the defendants-tenants. The respondents could not even be expected to warn the defendants-tenants for executing the said deeds in violation of P.D. No. 27 and Rep. Act No. 6657. Under Section 22 of the latter law, beneficiaries under P.D. No. 27 who have culpably sold, disposed of, or abandoned their land, are disqualified from becoming beneficiaries. From the pleadings of the petitioner, it is quite evident that his purpose in having the defendants-tenants execute the Deeds of Assignment in his favor was to acquire the landholding without any tenants thereon, in the event that the respondents agreed to sell the property to him. The petitioner knew that under Section 11 of Rep. Act No. 3844, if the respondents agreed to sell the property, the defendants-tenants shall have preferential right to buy the same under reasonable terms and conditions: SECTION 11. Lessees Right of Pre-emption. In case the agricultural lessor desires to sell the landholding, the agricultural lessee shall have the preferential right to buy the same under reasonable terms and conditions: Provided, That the entire landholding offered for sale must be preempted by the Land Authority if the landowner so desires, unless the majority of the lessees object to such acquisition: Provided, further, That where there are two or more agricultural lessees, each shall be entitled to said preferential right only to the extent of the area actually cultivated by him. [51] Under Section 12 of the law, if the property was sold to a third person without the knowledge of the tenants thereon, the latter shall have the right to redeem the same at a reasonable price and consideration. By assigning their rights and interests on the landholding under the deeds of assignment in favor of the petitioner, the defendants-tenants thereby waived, in favor of the petitioner, who is not a beneficiary under Section 22 of Rep. Act No. 6657, their rights of preemption or redemption under Rep. Act No. 3844. The defendants-tenants would then have to vacate the property in favor of the petitioner upon full payment of the purchase price. Instead of acquiring ownership of the portions of the landholding respectively tilled by them, the defendants-tenants would again become landless for a measly sum of P50.00 per square meter. The petitioners scheme is subversive, not only of public policy, but also of the letter and spirit of the agrarian laws. That the scheme of the petitioner had yet to take effect in the future or ten years hence is not a justification. The respondents may well argue that the agrarian laws had been violated by the defendantstenants and the petitioner by the mere execution of the deeds of assignment. In fact, the petitioner has implemented the deeds by paying the defendants-tenants amounts of money and even sought their immediate implementation by setting a meeting with the defendantstenants. In fine, the petitioner would not wait for ten years to evict the defendants-tenants. For him, time is of the essence. The Appellate Court Erred In Permanently Enjoining The Regional Trial Court From Continuing with the Proceedings in Civil Case No. 10910. We agree with the petitioners contention that the appellate court erred when it permanently enjoined the RTC from continuing with the proceedings in Civil Case No. 10910. The only issue before the appellate court was whether or not the trial court committed a grave abuse of discretion amounting to excess or lack of jurisdiction in denying the respondents motion to deny or dismiss the petitioners plea for a w rit of preliminary injunction. Not one of the parties prayed to permanently enjoin the trial court from further proceeding with Civil Case No. 10910 or to dismiss the complaint. It bears stressing that the petitioner may still amend his complaint, and the respondents and the defendants-tenants may file motions to dismiss the complaint. By permanently enjoining the trial court from proceeding with Civil Case No. 10910, the appellate court acted arbitrarily and effectively dismissed the complaint motu proprio, including the counterclaims of the respondents and

that of the defendants-tenants. The defendants-tenants were even deprived of their right to prove their special and affirmative defenses. IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals nullifying the February 13, 1996 and April 16, 1997 Orders of the RTC is AFFIRMED. The writ of injunction issued by the Court of Appeals permanently enjoining the RTC from further proceeding with Civil Case No. 10910 is hereby LIFTED and SET ASIDE. The Regional Trial Court of Mabalacat, Pampanga, Branch 44, is ORDERED to continue with the proceedings in Civil Case No. 10910 as provided for by the Rules of Court, as amended. SO ORDERED.

In the early sixties, NDC had in its disposal a ten (10)-hectare property located along Pureza St., Sta. Mesa, Manila. The estate was popularly known as the NDC Compound and covered by Transfer Certificate of Title Nos. 92885, 110301 and 145470. On September 7, 1977, NDC entered into a Contract of Lease (C-33-77) with Golden Horizon Realty Corporation (GHRC) over a portion of the property, with an area of 2,407 square meters for a period of ten (10) years, renewable for another ten (10) years with mutual consent of the parties.[3] On May 4, 1978, a second Contract of Lease (C-12-78) was executed between NDC and GHRC covering 3,222.80 square meters, also renewable upon mutual consent after the expiration of the ten (10)-year lease period. In addition, GHRC as lessee was granted the option to purchase the area leased, the price to be negotiated and determined at the time the option to purchase is exercised.[4]

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES,

Petitioner, - versus Under the lease agreements, GHRC was obliged to construct at its own expense buildings of strong material at no less than the stipulated cost, and other improvements which shall automatically belong to the NDC as lessor upon the expiration of the lease period. Accordingly, GHRC introduced permanent improvements and structures as required by the terms of the contract. After the completion of the industrial complex project, for which GHRC spent P5 million, it was leased to various manufacturers, industrialists and other businessmen thereby generating hundreds of jobs.[5] On June 13, 1988, before the expiration of the ten (10)-year period under the second lease contract, GHRC wrote a letter to NDC indicating its exercise of the option to renew the lease for another ten (10) years. As no response was received from NDC, GHRC sent another letter on August 12, 1988, reiterating its desire to renew the contract and also requesting for priority to negotiate for its purchase should NDC opt to sell the leased premises.[6] NDC still did not reply but continued to accept rental payments from GHRC and allowed the latter to remain in possession of the property. Sometime after September 1988, GHRC discovered that NDC had decided to secretly dispose the property to a third party. On October 21, 1988, GHRC filed in the RTC a complaint for specific performance, damages with preliminary injunction and temporary restraining order.[7] In the meantime, then President Corazon C. Aquino issued Memorandum Order No. 214 dated January 6, 1989, ordering the transfer of the whole NDC Compound to the National Government, which in turn would convey the said property in favor of PUP at acquisition cost. The memorandum order cited the serious need of PUP, considered the Poor Mans University, to expand its campus, which adjoins the NDC Compound, to accommodate its growing student population, and the willingness of PUP to buy and of NDC to sell its property. The order of conveyance of the 10.31-hectare property would automatically result in the cancellation of NDCs total obligation in favor of the National Government in the amount of P57,193,201.64.[8] On February 20, 1989, the RTC issued a writ of preliminary injunction enjoining NDC and its attorneys, representatives, agents and any other persons assisting it from proceeding with the sale and disposition of the leased premises.[9]

GOLDEN HORIZON REALTY CORPORATION, x------------------------------------------x NATIONAL DEVELOPMENT COMPANY, Petitioner,

Respondent.

- versus GOLDEN HORIZON REALTY CORPORATION,

Respondent. x-----------------------------------------------------------------------------------------x DECISION VILLARAMA, JR., J.: The above-titled consolidated petitions filed under Rule 45 of the 1997 Rules of Civil Procedure, as amended, seek to reverse the Decision[1] dated June 25, 2008 and Resolution dated August 22, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 84399 which affirmed the Decision[2] dated November 25, 2004 of the Regional Trial Court (RTC) of Makati City, Branch 144 in Civil Case No. 88-2238. The undisputed facts are as follows: Petitioner National Development Company (NDC) is a government- owned and controlled corporation, created under Commonwealth Act No. 182, as amended by Com. Act No. 311 and Presidential Decree (P.D.) No. 668. Petitioner Polytechnic University of the Philippines (PUP) is a public, non-sectarian, non-profit educational institution created in 1978 by virtue of P.D. No. 1341.

LAW ON SALES | POLICITACION AND PERFECTION FT | 11

On February 23, 1989, PUP filed a motion to intervene as party defendant, claiming that as a purchaser pendente lite of a property subject of litigation it is entitled to intervene in the proceedings. The RTC granted the said motion and directed PUP to file its Answer-in-Intervention.[10] PUP also demanded that GHRC vacate the premises, insisting that the latters lease contract had already expired. Its demand letter unheeded by GHRC, PUP filed an ejectment case (Civil Case No. 134416) before the Metropolitan Trial Court (MeTC) of Manila on January 14, 1991.[11] Due to this development, GHRC filed an Amended and/or Supplemental Complaint to include as additional defendants PUP, Honorable Executive Secretary Oscar Orbos and Judge Ernesto A. Reyes of the Manila MeTC, and to enjoin the afore-mentioned defendants from prosecuting Civil Case No. 134416 for ejectment. A temporary restraining order was subsequently issued by the RTC enjoining PUP from prosecuting and Judge Francisco Brillantes, Jr. from proceeding with the ejectment case.[12] In its Second Amended and/or Supplemental Complaint, GHRC argued that Memorandum Order No. 214 is a nullity, for being violative of the writ of injunction issued by the trial court, apart from being an infringement of the Constitutional prohibition against impairment of obligation of contracts, an encroachment on legislative functions and a bill of attainder. In the alternative, should the trial court adjudge the memorandum order as valid, GHRC contended that its existing right must still be respected by allowing it to purchase the leased premises.[13] Pre-trial was set but was suspended upon agreement of the parties to await the final resolution of a similar case involving NDC, PUP and another lessee of NDC, Firestone Ceramics, Inc. (Firestone), then pending before the RTC of Pasay City.[14] On November 14, 2001, this Court rendered a decision in G.R. Nos. 143513 (Polytechnic University of the Philippines v. Court of Appeals) and 143590 (National Development Corporation v. Firestone Ceramics, Inc.),[15] which declared that the sale to PUP by NDC of the portion leased by Firestone pursuant to Memorandum Order No. 214 violated the right of first refusal granted to Firestone under its third lease contract with NDC. We thus decreed: WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are DENIED. Inasmuch as the first contract of lease fixed the area of the leased premises at 2.90118 hectares while the second contract placed it at 2.60 hectares, let a ground survey of the leased premises be immediately conducted by a duly licensed, registered surveyor at the expense of private respondent FIRESTONE CERAMICS, INC., within two (2) months from the finality of the judgment in this case. Thereafter, private respondent FIRESTONE CERAMICS, INC., shall have six (6) months from receipt of the approved survey within which to exercise its right to purchase the leased property at P1,500.00 per square meter, and petitioner Polytechnic University of the Philippines is ordered to reconvey the property to FIRESTONE CERAMICS, INC., in the exercise of its right of first refusal upon payment of the purchase price thereof. SO ORDERED.[16]

The RTC resumed the proceedings and when mediation and pre-trial failed to settle the case amicably, trial on the merits ensued.[17] On November 25, 2004, the RTC rendered its decision upholding the right of first refusal granted to GHRC under its lease contract with NDC and ordering PUP to reconvey the said portion of the property in favor of GHRC. The dispositive portion reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants ordering the plaintiff to cause immediate ground survey of the premises subject of the leased contract under Lease Contract No. C-33-77 and C-12-78 measuring 2,407 and 3,222.8 square meters respectively, by a duly licensed and registered surveyor at the expense of the plaintiff within two months from receipt of this Decision and thereafter, the plaintiff shall have six (6) months from receipt of the approved survey within which to exercise its right to purchase the leased property at P554.74 per square meter. And finally, the defendant PUP, in whose name the property is titled, is hereby ordered to reconvey the aforesaid property to the plaintiff in the exercise of its right of its option to buy or first refusal upon payment of the purchase price thereof. The defendant NDC is hereby further ordered to pay the plaintiff attorneys fees in the amount of P100,000.00. The case against defendant Executive Secretary is dismissed and this decision shall bind defendant Metropolitan Trial Court, Branch 20 of Manila. With costs against defendants NDC and PUP. SO ORDERED.[18] NDC and PUP separately appealed the decision to the CA.[19] By Decision of June 25, 2008, the CA affirmed in toto the decision of the RTC.[20] Both the RTC and the CA applied this Courts ruling in Polytechnic University of the Philippines v. Court of Appeals (supra), considering that GHRC is similarly situated as a lessee of NDC whose right of first refusal under the lease contract was violated by the sale of the property to PUP without NDC having first offered to sell the same to GHRC despite the latters request for the renewal of the lease and/or to purchase the leased premises prior to the expiration of the second lease contract. The CA further agreed with the RTCs finding that there was an implied renewal of the lease upon the failure of NDC to act on GHRCs repeated requests for renewal of the lease contract, both verbal and written, and continuing to accept monthly rental payments from GHRC which was allowed to continue in possession of the leased premises. The CA also rejected the argument of NDC and PUP that even assuming that GHRC had the right of first refusal, said right pertained only to the second lease contract, C12-78 covering 3,222.80 square meters, and not to the first lease contract, C-33-77 covering 2,407 square meters, which had already expired. It sustained the RTCs finding that the two (2) lease contracts were interrelated because each formed part of GHRCs industrial complex, such that business operations would be rendered useless and inoperative if the

first contract were to be detached from the other, as similarly held in the afore-mentioned case of Polytechnic University of the Philippines v. Court of Appeals. Petitioner PUP argues that respondents right to exercise the option to purchase had expired with the termination of the original contract of lease and was not carried over to the subsequent implied new lease between respondent and petitioner NDC. As testified to by their witnesses Leticia Cabantog and Atty. Rhoel Mabazza, there was no agreement or document to the effect that respondents request for extension or renewal of the subject contracts of lease for another ten (10) years was approved by NDC. Hence, respondent can no longer exercise the option to purchase the leased premises when the same were conveyed to PUP pursuant to Memorandum Order No. 214 dated January 6, 1989, long after the expiration of C-33-77 and C-12-78 in September 1988.[21] Petitioner PUP further contends that while it is conceded that there was an implied new lease between respondent and petitioner NDC after the expiration of the lease contracts, the same did not include the right of first refusal originally granted to respondent. The CA should have applied the ruling in Dizon v. Magsaysay[22] that the lessee cannot any more exercise its option to purchase after the lapse of the one (1)-year period of the lease contract. With the implicit renewal of the lease on a monthly basis, the other terms of the original contract of lease which are revived in the implied new lease under Article 1670 of the Civil Code are only those terms which are germane to the lessees right of continued enjoyment of the property leased. The provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee. Consequently, as in this case, respondents right of option to purchase the leased premises was not violated despite the impliedly renewed contract of lease with NDC. Respondent cannot favorably invoke the decision in G.R. Nos. 143513 and 143590 (Polytechnic University of the Philippines v. Court of Appeals) for the simple reason, among others, that unlike in said cases, the contracts of lease of respondent with NDC were not mutually extended or renewed for another ten (10) years. Thus, when the leased premises were conveyed to PUP, respondent did not any more have any right of first refusal, which incidentally appears only in the second lease contract and not in the first lease contract.[23] On its part, petitioner NDC assails the CA in holding that the contracts of lease were impliedly renewed for another ten (10)-year period. The provisions of C-33-77 and C12-78 clearly state that the lessee is granted the option to renew for another ten (10) years with the mutual consent of both parties. As regards the continued receipt of rentals by NDC and possession by the respondent of the leased premises, the impliedly renewed lease was only month-to-month and not ten (10) years since the rentals are being paid on a monthly basis, as held in Dizon v. Magsaysay.[24] Petitioner NDC further faults the CA in sustaining the RTCs decision which erroneously granted respondent the option to purchase the leased premises at the rate of P554.74 per square meter, the same rate for which NDC sold the property to petitioner PUP and/or the National Government, which is the mere acquisition cost thereof. It must be noted that such consideration or rate was imposed by Memorandum Order No. 214 under the premise that it shall, in effect, be a sale and/or purchase from one (1) government agency to another. It was intended merely as a transfer of one (1) user of the National Government to another, with the beneficiary, PUP in this case, merely returning to the petitioner/transferor the cost of acquisition thereof, as appearing on its accounting books. It does not in any way reflect the true and fair market value of the property, nor was it a price a willing seller would demand and accept for parting with his real property. Such benefit, therefore, cannot be extended to respondent as a private entity, as the latter does not share the same pocket, so to speak, with the National Government.[25]
LAW ON SALES | POLICITACION AND PERFECTION FT | 12

The issue to be resolved is whether or not our ruling in Polytechnic University of the Philippines v. Court of Appeals applies in this case involving another lessee of NDC who claimed that the option to purchase the portion leased to it was similarly violated by the sale of the NDC Compound in favor of PUP pursuant to Memorandum Order No. 214. We rule in the affirmative. The second lease contract contained the following provision: III. It is mutually agreed by the parties that this Contract of Lease shall be in full force and effect for a period of ten (10) years counted from the effectivity of the payment of rental as provided under sub-paragraph (b) of Article I, with option to renew for another ten (10) years with the mutual consent of both parties. In no case should the rentals be increased by more than 100% of the original amount fixed. Lessee shall also have the option to purchase the area leased, the price to be negotiated and determined at the time the option to purchase is exercised. [EMPHASIS SUPPLIED]

Petitioners position is untenable. When a lease contract contains a right of first refusal, the lessor has the legal duty to the lessee not to sell the leased property to anyone at any price until after the lessor has made an offer to sell the property to the lessee and the lessee has failed to accept it. Only after the lessee has failed to exercise his right of first priority could the lessor sell the property to other buyers under the same terms and conditions offered to the lessee, or under terms and conditions more favorable to the lessor.[30] Records showed that during the hearing on the application for a writ of preliminary injunction, respondent adduced in evidence a letter of Antonio A. Henson dated 15 July 1988 addressed to Mr. Jake C. Lagonera, Director and Special Assistant to Executive Secretary Catalino Macaraeg, reviewing a proposed memorandum order submitted to President Corazon C. Aquino transferring the whole NDC Compound, including the premises leased by respondent, in favor of petitioner PUP. This letter was offered in evidence by respondent to prove the existence of documents as of that date and even prior to the expiration of the second lease contract or the lapse of the ten (10)-year period counted from the effectivity of the rental payment -- that is, one hundred and fifty (150) days from the signing of the contract (May 4, 1978), as provided in Art. I, paragraph (b) of C-12-78, or on October 1, 1988. Respondent thus timely exercised its option to purchase on August 12, 1988. However, considering that NDC had been negotiating through the National Government for the sale of the property in favor of PUP as early as July 15, 1988 without first offering to sell it to respondent and even when respondent communicated its desire to exercise the option to purchase granted to it under the lease contract, it is clear that NDC violated respondents right of first refusal. Under the premises, the matter of the right of refusal not having been carried over to the impliedly renewed month-to-month lease after the expiration of the second lease contract on October 21, 1988 becomes irrelevant since at the time of the negotiations of the sale to a third party, petitioner PUP, respondents right of first refusal was still subsisting. Petitioner NDC in its memorandum contended that the CA erred in applying the ruling in Polytechnic University of the Philippines v. Court of Appeals pointing out that the case of lessee Firestone Ceramics, Inc. is different because the lease contract therein had not yet expired while in this case respondents lease contracts have already expired and never renewed. The date of the expiration of the lease contract in said case is December 31, 1989 which is prior to the issuance of Memorandum Order No. 214 on January 6, 1989. In contrast, respondents lease contracts had already expired (September 1988) at the time said memorandum order was issued.[31] Such contention does not hold water. As already mentioned, the reckoning point of the offer of sale to a third party was not the issuance of Memorandum Order No. 214 on January 6, 1989 but the commencement of such negotiations as early as July 1988 when respondents right of first refusal was still subsisting and the lease contracts still in force. Petitioner NDC did not bother to respond to respondents letter of June 13, 1988 informing it of respondents exercise of the option to renew and requesting to discuss further the matter with NDC, nor to the subsequent letter of August 12, 1988 reiterating the request for renewing the lease for another ten (10) years and also the exercise of the option to purchase under the lease contract. Petitioner NDC had dismissed these letters as mere informative in nature, and a request at its best.[32]

Perusal of the letter dated August 12, 1988, however, belies such claim of petitioner NDC that it was merely informative, thus: August 12, 1988 HON. ANTONIO HENSON General Manager NATIONAL DEVELOPMENT COMPANY 377 Se(n). Gil J. Puyat Avenue Makati, Metro Manila REF: Dear Sir: This is further to our earlier letter dated June 13, 1988 formally advising your goodselves of our intention to exercise our option for another ten (10) years. Should the National Development Company opt to sell the property covered by said leases, we also request for priority to negotiate for its purchase at terms and/or conditions mutually acceptable. As a backgrounder, we wish to inform you that since the start of our lease, we have improved on the property by constructing bodega-type buildings which presently house all legitimate trading and manufacturing concerns. These business are substantial taxpayers, employ not less than 300 employees and contribute even foreign earnings. It is in this context that we are requesting for the extension of the lease contract to prevent serious economic disruption and dislocation of the business concerns, as well as provide ourselves, the lessee, an opportunity to recoup our investments and obtain a fair return thereof. Your favorable consideration on our request will be very much appreciated. very truly yours, TIU HAN TENG President[33] As to petitioners argument that respondents right of first refusal can be invoked only with respect to the second lease contract which expressly provided for the option to purchase by the lessee, and not in the first lease contract which contained no such clause, we sustain the RTC and CA in finding that the second contract, covering an area of 3,222.80 square meters, is interrelated to and inseparable from the first contract over 2,407 square meters. The structures built on the leased premises, which are adjacent to each other, form part of an integrated system of a commercial complex leased out to manufacturers, fabricators and other businesses. Petitioners submitted a sketch plan and pictures taken of
LAW ON SALES | POLICITACION AND PERFECTION FT | 13

Contract of Lease Nos. C-33-77 & C-12-78

An option is a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the formers property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of the property the right to sell or demand a sale.[26] It binds the party, who has given the option, not to enter into the principal contract with any other person during the period designated, and, within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option.[27] Upon the other hand, a right of first refusal is a contractual grant, not of the sale of a property, but of the first priority to buy the property in the event the owner sells the same.[28] As distinguished from an option contract, in a right of first refusal, while the object might be made determinate, the exercise of the right of first refusal would be dependent not only on the owners eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to be firmed up.[29] As the option to purchase clause in the second lease contract has no definite period within which the leased premises will be offered for sale to respondent lessee and the price is made subject to negotiation and determined only at the time the option to buy is exercised, it is obviously a mere right of refusal, usually inserted in lease contracts to give the lessee the first crack to buy the property in case the lessor decides to sell the same. That respondent was granted a right of first refusal under the second lease contract appears not to have been disputed by petitioners. What petitioners assail is the CAs erroneous conclusion that such right of refusal subsisted even after the expiration of the original lease period, when respondent was allowed to continue staying in the leased premises under an implied renewal of the lease and without the right of refusal carried over to such month-tomonth lease. Petitioners thus maintain that no right of refusal was violated by the sale of the property in favor of PUP pursuant to Memorandum Order No. 214.

the driveways, in an effort to show that the leased premises can be used separately by respondent, and that the two (2) lease contracts are distinct from each other.[34] Such was a desperate attempt to downplay the commercial purpose of respondents substantial improvements which greatly contributed to the increased value of the leased premises. To prove that petitioner NDC had considered the leased premises as a single unit, respondent submitted evidence showing that NDC issued only one (1) receipt for the rental payments for the two portions.[35] Respondent further presented the blueprint plan prepared by its witness, Engr. Alejandro E. Tinio, who supervised the construction of the structures on the leased premises, to show the building concept as a one-stop industrial site and integrated commercial complex.[36] In fine, the CA was correct in declaring that there exists no justifiable reason not to apply the same rationale in Polytechnic University of the Philippines v. Court of Appeals in the case of respondent who was similarly prejudiced by petitioner NDCs sale of the property to PUP, as to entitle the respondent to exercise its option to purchase until October 1988 inasmuch as the May 4, 1978 contract embodied the option to renew the lease for another ten (10) years upon mutual consent and giving respondent the option to purchase the leased premises for a price to be negotiated and determined at the time such option was exercised by respondent. It is to be noted that Memorandum Order No. 214 itself declared that the transfer is subject to such liens/leases existing [on the subject property]. Thus: ...we now proceed to determine whether FIRESTONE should be allowed to exercise its right of first refusal over the property. Such right was expressly stated by NDC and FIRESTONE in par. XV of their third contract denominated as A10-78 executed on 22 December 1978 which, as found by the courts a quo, was interrelated to and inseparable from their first contract denominated as C-30-65 executed on 24 August 1965 and their second contract denominated as C-26-68 executed on 8 January 1969. Thus Should the LESSOR desire to sell the leased premises during the term of this Agreement, or any extension thereof, the LESSOR shall first give to the LESSEE, which shall have the right of first option to purchase the leased premises subject to mutual agreement of both parties. In the instant case, the right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract. The consideration for the right is built into the reciprocal obligations of the parties. Thus, it is not correct for petitioners to insist that there was no consideration paid by FIRESTONE to entitle it to the exercise of the right, inasmuch as the stipulation is part and parcel of the contract of lease making the consideration for the lease the same as that for the option. It is a settled principle in civil law that when a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a right that the lessors first offer shall be in his favor.

The option in this case was incorporated in the contracts of lease by NDC for the benefit of FIRESTONE which, in view of the total amount of its investments in the property, wanted to be assured that it would be given the first opportunity to buy the property at a price for which it would be offered. Consistent with their agreement, it was then implicit for NDC to have first offered the leased premises of 2.60 hectares to FIRESTONE prior to the sale in favor of PUP. Only if FIRESTONE failed to exercise its right of first priority could NDC lawfully sell the property to petitioner PUP.[37] [EMPHASIS SUPPLIED] As we further ruled in the afore-cited case, the contractual grant of a right of first refusal is enforceable, and following an earlier ruling in Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,[38] the execution of such right consists in directing the grantor to comply with his obligation according to the terms at which he should have offered the property in favor of the grantee and at that price when the offer should have been made. We then determined the proper rate at which the leased portion should be reconveyed to respondent by PUP, to whom the lessor NDC sold it in violation of respondent lessees right of first refusal, as follows: It now becomes apropos to ask whether the courts a quo were correct in fixing the proper consideration of the sale at P1,500.00 per square meter. In contracts of sale, the basis of the right of first refusal must be the current offer of the seller to sell or the offer to purchase of the prospective buyer. Only after the lessee-grantee fails to exercise its right under the same terms and within the period contemplated can the owner validly offer to sell the property to a third person, again, under the same terms as offered to the grantee. It appearing that the whole NDC compound was sold to PUP for P554.74 per square meter, it would have been more proper for the courts below to have ordered the sale of the property also at the same price. However, since FIRESTONE never raised this as an issue, while on the other hand it admitted that the value of the property stood at P1,500.00 per square meter, then we see no compelling reason to modify the holdings of the courts a quo that the leased premises be sold at that price.[39] [EMPHASIS SUPPLIED] In the light of the foregoing, we hold that respondent, which did not offer any amount to petitioner NDC, and neither disputed the P1,500.00 per square meter actual value of NDCs property at that time it was sold to PUP at P554.74 per square meter, as duly considered by this Court in the Firestone case, should be bound by such determination. Accordingly, the price at which the leased premises should be sold to respondent in the exercise of its right of first refusal under the lease contract with petitioner NDC, which was pegged by the RTC at P554.74 per square meter, should be adjusted to P1,500.00 per square meter, which more accurately reflects its true value at that time of the sale in favor of petitioner PUP. Indeed, basic is the rule that a party to a contract cannot unilaterally withdraw a right of first refusal that stands upon valuable consideration.[40] We have categorically ruled that it is not correct to say that there is no consideration for the grant of the right of first refusal if such grant is embodied in the same contract of lease. Since the stipulation forms part of the entire lease contract, the consideration for the lease includes the consideration for

the grant of the right of first refusal. In entering into the contract, the lessee is in effect stating that it consents to lease the premises and to pay the price agreed upon provided the lessor also consents that, should it sell the leased property, then, the lessee shall be given the right to match the offered purchase price and to buy the property at that price.[41] We have further stressed that not even the avowed public welfare or the constitutional priority accorded to education, invoked by petitioner PUP in the Firestone case, would serve as license for us, and any party for that matter, to destroy the sanctity of binding obligations. While education may be prioritized for legislative and budgetary purposes, it is doubtful if such importance can be used to confiscate private property such as the right of first refusal granted to a lessee of petitioner NDC.[42] Clearly, no reversible error was committed by the CA in sustaining respondents contractual right of first refusal and ordering the reconveyance of the leased portion of petitioner NDCs property in its favor. WHEREFORE, the petitions are DENIED. The Decision dated November 25, 2004 of the Regional Trial Court of Makati City, Branch 144 in Civil Case No. 88-2238, as affirmed by the Court of Appeals in its Decision dated June 25, 2008 in CA-G.R. CV No. 84399, is hereby AFFIRMED with MODIFICATION in that the price to be paid by respondent Golden Horizon Realty Corporation for the leased portion of the NDC Compound under Lease Contract Nos. C-33-77 and C-12-78 is hereby increased to P1,500.00 per square meter. No pronouncement as to costs. SO ORDERED. G.R. No. 111238 January 25, 1995 ADELFA PROPERTIES, INC. vs. COURT OF APPEALS, ET AL.

SECOND DIVISION [G.R. No. 111238. January 25, 1995.]

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

SYLLABUS 1. CIVIL LAW; SPECIAL CONTRACTS; CONTRACT TO SELL; CONTRACT OF SALE; DISTINGUISHED. The distinction between the two is important for in contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is
LAW ON SALES | POLICITACION AND PERFECTION FT | 14

considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. (Pingol, et al. vs. Court of Appeals, et al., G.R. No. 102909, September 6, 1993, 226 SCRA 118) 2. ID.; ID.; ID.; CONSTRUED; APPLICATION IN CASE AT BAR. An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly leads to the conclusion that the agreement between the parties is a contract to sell, and not an option contract or a contract of sale. There are two features which convince us that the parties never intended to transfer ownership to petitioner except upon the full payment of the purchase price. Firstly, the exclusive option to purchase, although it provided for automatic rescission of the contract and partial forfeiture of the amount already paid in case of default, does not mention that petitioner is obliged to return possession or ownership of the property as a consequence of non-payment. There is no stipulation anent reversion or reconveyance of the property to herein private respondents in the event that petitioner does not comply with its obligation. With the absence of such a stipulation, although there is a provision on the remedies available to the parties in case of breach, it may legally be inferred that the parties never intended to transfer ownership to the petitioner to completion of payment of the purchase price. In effect, there was an implied agreement that ownership shall not pass to the purchaser until he had fully paid the price. Article 1478 of the Civil Code does not require that such a stipulation be expressly made. Consequently, an implied stipulation to that effect is considered valid and, therefore, binding and enforceable between the parties. It should be noted that under the law and jurisprudence, a contract which contains this kind of stipulation is considered a contract to sell. Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale, is bolstered by the fact that the deed of absolute sale would have been issued only upon the payment of the balance of the purchase price, as may be gleaned from petitioner's letter dated April 16, 1990 wherein it informed private respondents that it "is now ready and willing to pay you simultaneously with the execution of the corresponding deed of absolute sale." Secondly, it has not been shown that there was delivery of the property, actual or constructive, made to herein petitioner. The exclusive option to purchase is not contained in a public instrument the execution of which would have been considered equivalent to delivery. Neither did petitioner take actual, physical possession of the property at any given time. It is true that after the reconstitution of private respondents' certificate of title, it remained in the possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter delivered the same to herein petitioner. Normally, under the law, such possession by the vendee is to be understood as a delivery.(Article 1501, Civil Code). However, private respondents explained that there was really no intention on their part to deliver the title to herein petitioner with the purpose of transferring ownership to it. They claim that Atty. Bernardo had possession of the title only because he was their counsel in the petition for reconstitution. We have no reason not to believe this explanation of private respondents, aside from the fact that such contention was never refuted or contradicted by petitioner. 3. ID.; ID.; INTERPRETATION; CASE AT BAR. The important task in contract interpretation is always the ascertainment of the intention of the contracting parties and that task is, of course, to be discharged by looking to the words they used to project that intention in their contract, all the words not just a particular word or two, and words in context not words standing alone. (Fernandez vs. Court of Appeals, et al., G.R. No. 80231, October 18, 1988, 166 SCRA 577) Moreover, judging from the subsequent acts of the parties which will hereinafter be discussed, it is undeniable that the intention of the parties was to enter into a contract to sell. In addition, the title of a contract does not necessarily determine its true nature. (Cruz, et al. vs. Court of Appeals, et al., G.R. No. 50350, May 15, 1984, 129 SCRA 222) Hence, the fact that the document under discussion is entitled "Exclusive Option to Purchase" is not controlling where the text thereof shows that it is a contract to sell.

4. ID.; ID.; OPTION; CONSTRUED. An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It is also sometimes called an "unaccepted offer." An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, that is, the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract by which the owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms. An agreement is only an "option" when no obligation rests on the party to make any payment except such as may be agreed on between the parties as consideration to support the option until he has made up his mind within the time specified. An option, and not a contract to purchase, is effected by an agreement to sell real estate for payments to be made within specified time and providing for forfeiture of money paid upon failure to make payment, where the purchaser does not agree to purchase, to make payment, or to bind himself in any way other than the forfeiture of the payments made. 5. ID.; CONTRACT; DEFINED. A contract, like a contract to sell, involves a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. Contracts, in general, are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. 6. ID.; ID.; OPTION; DISTINGUISHED. The distinction between an "option" and a contract of sale is that an option is an unaccepted offer. It states the terms and conditions on which the owner is willing to sell his land, if the holder elects to accept them within the time limited. If the holder does so elect, he must give notice to the other party, and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the option is at an end. A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both parties at the time of its execution. The offer and the acceptance are concurrent, since the minds of the contracting parties meet in the terms of the agreement. The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is whether or not the agreement could be specifically enforced. 7. ID.; SPECIAL CONTRACTS; SALES; ACCEPTANCE; RULE. The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be made either in a formal or an informal manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale. 8. ID.; ID.; EARNEST MONEY; RULE. It is a statutory rule that whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. (Article 1482, Civil Code) It constitutes an advance payment and must, therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller to bind the bargain.

9. ID.; ID.; ID.; OPTION MONEY; DISTINGUISHED. There are clear distinctions between earnest money and option money, viz.: (a) earnest money is part of the purchase price, while option money is the money given as a distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy. 10. ID.; ID.; TENDER OF PAYMENT; CONSIDERATION; CONSTRUED. The mere sending of a letter by the vendee expressing the intention to pay, without the accompanying payment, is not considered a valid tender of payment. (Vda. de Zulueta, et al. vs. Octaviano, et al., G.R. No. 55350, March 28, 1983, 121 SCRA 314). Besides, a mere tender of payment is not sufficient to compel private respondents to deliver the property and execute the deed of absolute sale. It is consignation which is essential in order to extinguish petitioner's obligation to pay the balance of the purchase price. The rule is different in case of an option contract (Nietes vs. Court of Appeals, et al., L-32875, August 18, 1972, 46 SCRA 654) or in legal redemption or in a sale with right to repurchase, )Francisco, et al. vs. Bautista, et al., L-44167, December 19, 1990, 192 SCRA 388) wherein consignation is not necessary because these cases involve an exercise of a right or privilege (to buy, redeem or repurchase) rather than the discharge of an obligation, hence tender of payment would be sufficient to preserve the right or privilege. This is because the provisions on consignation are not applicable when there is no obligation to pay. A contract to sell, as in the case before us, involves the performance of an obligation, not merely the exercise of a privilege or a right. Consequently, performance or payment may be effected not by tender of payment alone but by both tender and consignation. 11. ID.; ID.; EXTRA JUDICIAL RECISSION; WHEN JUSTIFIED; CASE AT BAR. Petitioner no longer had the right to suspend payment after the disturbance ceased with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the balance again arose and resumed after it received notice of such dismissal. Unfortunately, petitioner failed to seasonably make payment, as in fact it has failed to do so up to the present time, or even to deposit the money with the trial court when this case was originally filed therein. By reason of petitioner's failure to comply with its obligation, private respondents elected to resort to and did announce the rescission of the contract through its letter to petitioner dated July 27, 1990. That written notice of rescission is deemed sufficient under the circumstances. Article 1592 of the Civil Code which requires rescission either by judicial action or notarial act is not applicable to a contract to sell. (Albea vs. Inquimboy, et al., 86 Phil. 477 (1950); Alfonso, et al. vs. Court of Appeals, et al., G.R. No. 63745, June 8, 1990, 186 SCRA 400). Furthermore, judicial action for rescission of a contract is not necessary where the contract provides for automatic rescission in case of breach, (Palay, Inc., et al. vs. Clave, et al., G.R. No. 56076, September 21, 1983, 124 SCRA 638) as in the contract involved in the present controversy. This Court is not unaware of the ruling in University of the Philippines vs. De los Angeles, etc., L-28602, September 29, 1970, 35 SCRA 102 that the right to rescind is not absolute, being ever subject to scrutiny and review by the proper court. It is our considered view, however, that this rule applies to a situation where the extrajudicial rescission is contested by the defaulting party. In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in court. If the debtor impugns the declaration, it shall be subject to judicial determination. (Palay, Inc., et al. vs. Clave, et al., supra.) Otherwise, if said party does not oppose it, the extrajudicial rescission shall have legal effect (Zulueta vs. Mariano, etc. et al., L-29360, January 30, 1982, 111 SCRA 206).

DECISION

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REGALADO, J p: The main issues presented for resolution in this petition for review on certiorari of the judgment of respondent Court of Appeals, dated April 6, 1993, in CA-G.R. CV No. 34767 1 are (1) whether of not the "Exclusive Option to Purchase" executed between petitioner Adelfa Properties, Inc. and private respondents Rosario Jimenez-Castaeda and Salud Jimenez is an option contract; and (2) whether or not there was a valid suspension of payment of the purchase price by said petitioner, and the legal effects thereof on the contractual relations of the parties. The records disclose the following antecedent facts which culminated in the present appellate review, to wit:cdasia 1. Herein private respondents and their brothers, Jose and Dominador Jimenez, were the registered co-owners of a parcel of land consisting of 17,710 square meters, covered by Transfer Certificate of Title (TCT) No. 309773, 2 situated in Barrio Culasi, Las Pias, Metro Manila. 2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of said parcel of land, specifically the eastern portion thereof, to herein petitioner pursuant to a "Kasulatan sa Bilihan ng Lupa." 3 Subsequently, a "Confirmatory Extrajudicial Partition Agreement" 4 was executed by the Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855 square meters was adjudicated to Jose and Dominador Jimenez, while the western portion was allocated to herein private respondents. 3. Thereafter, herein petitioner expressed interest in buying the western portion of the property from private respondents. Accordingly, on November 25, 1989, an "Exclusive Option to Purchase" 5 was executed between petitioner and private respondents, under the following terms and conditions: "1. The selling price of said 8,655 square meters of the subject property is TWO MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS ONLY (P2,856,150.00); 2. The sum of P50,000.00 which we received from ADELFA PROPERTIES, INC., as an option money shall be credited as partial payment upon the consummation of the sale and the balance in the sum of TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS (P2,806,150.00) to be paid on or before November 30, 1989; 3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance in accordance with paragraph 2 hereof, this option shall be cancelled and 50% of the option money to be forfeited in our favor and we will refund the remaining 50% of said money upon the sale of said property to a third party; 4. All expenses including the corresponding capital gains tax, cost of documentary stamps are for the account of the VENDORS, and expenses for the registration of the deed of sale in the Registry of Deeds are for the account of ADELFA PROPERTIES, INC." Considering, however, that the owner's copy of the certificate of title issued to respondent Salud Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said certificate of title was filed in court through Atty. Bayani L. Bernardo, who acted as private respondents' counsel. Eventually, a new owner's copy of the certificate of title was issued but it remained in the possession of Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc.cdasia

4. Before petitioner could make payment, it received summons 6 on November 29, 1989, together with a copy of a complaint filed by the nephews and nieces of private respondents against the latter, Jose and Dominador Jimenez, and herein petitioner in the Regional Trial Court of Makati, docketed as Civil Case No. 89-5541, for annulment of the deed of sale in favor of Household Corporation and recovery of ownership of the property covered by TCT No. 309773. 7 5. As a consequence, in a letter dated November 29, 1989, petitioner informed private respondents that it would hold payment of the full purchase price and suggested that private respondents settle the case with their nephews and nieces, adding that ". . . if possible, although November 30, 1989 is a holiday, we will be waiting for you and said plaintiffs at our office up to 7:00 p.m." 8 Another letter of the same tenor and of even date was sent by petitioner to Jose and Dominador Jimenez. 9 Respondent Salud Jimenez refused to heed the suggestion of petitioner and attributed the suspension of payment of the purchase price to "lack of word of honor." 6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option contract with private respondents, and its contract of sale with Jose and Dominador Jimenez, as Entry No. 1437-4 and entry No. 1438-4, respectively. 7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. Bernardo, in his capacity as petitioner's counsel, and to inform the latter that they were cancelling the transaction. In turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00 be deducted therefrom for the settlement of the civil case. This was rejected by private respondents. On December 22, 1989, Atty. Bernardo wrote private respondents on the same matter but this time reducing the amount from P500,000.00 to P300,000.00, and this was also rejected by the latter. 8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-5541. Thus, on February 28, 1990, petitioner caused to be annotated anew on TCT No. 309773 the exclusive option to purchase as Entry No. 4442-4. 9. On the same day, February 28, 1990, private respondents executed a Deed of Conditional Sale 10 in favor of Emylene Chua over the same parcel of land for P3,029,250.00, of which P1,500,000.00 was paid to private respondents on said date, with the balance to be paid upon the transfer of title to the specified one-half portion. LLphil 10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view of the dismissal of the case against them, petitioner was willing to pay the purchase price, and he requested that the corresponding deed of absolute sale be executed. 11 This was ignored by private respondents.cdasia 11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing therein a check for P25,000.00 representing the refund of fifty percent of the option money paid under the exclusive option to purchase. Private respondents then requested petitioner to return the owner's duplicate copy of the certificate of title of respondent Salud Jimenez. 12 Petitioner failed to surrender the certificate of title, hence private respondents filed Civil Case No. 7532 in the Regional Trial Court of Pasay City, Branch 113, for annulment of contract with damages, praying, among others, that the exclusive option to purchase be declared null and void; that defendant, herein petitioner, be ordered to return the owner's duplicate certificate of title; and that the annotation of the option contract on TCT No. 309773 be cancelled. Emylene Chua, the subsequent purchaser of the lot, filed a complaint in intervention. 12. The trial court rendered judgment 13 therein on September 5, 1991 holding that the agreement entered into by the parties was merely an option contract, and declaring that the suspension of payment by herein petitioner constituted a counter-offer which, therefore,

was tantamount to a rejection of the option. It likewise ruled that herein petitioner could not validly suspend payment in favor of private respondents on the ground that the vindicatory action filed by the latter's kin did not involve the western portion of the land covered by the contract between petitioner and private respondents, but the eastern portion thereof which was the subject of the sale between petitioner and the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation of the exclusive option to purchase, declared the sale to intervenor Emylene Chua as valid and binding, and ordered petitioner to pay damages and attorney's fees to private respondents, with costs. LLpr 13. On appeal, respondent Court of appeals affirmed in toto the decision of the court a quo and held that the failure of petitioner to pay the purchase price within the period agreed upon was tantamount to an election by petitioner not to buy the property; that the suspension of payment constituted an imposition of a condition which was actually a counter-offer amounting to a rejection of the option; and that Article 1590 of the Civil Code on suspension of payments applies only to a contract of sale or a contract to sell, but not to an option contract which it opined was the nature of the document subject of the case at bar. Said appellate court similarly upheld the validity of the deed of conditional sale executed by private respondents in favor of intervenor Emylene Chua. In the present petition, the following assignment of errors are raised: 1. Respondent court of appeals acted with grave abuse of discretion in making its finding that the agreement entered into by petitioner and private respondents was strictly an option contract; 2. Granting arguendo that the agreement was an option contract, respondent court of Appeals acted with grave abuse of discretion in grievously failing to consider that while the option period had not lapsed, private respondents could not unilaterally and prematurely terminate the option period; 3. Respondent Court of Appeals acted with grave abuse of discretion in failing to appreciate fully the attendant facts and circumstances when it made the conclusion of law that Article 1590 does not apply; and 4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with the sale in favor of appellee Ma. Emylene Chua and the award of damages and attorney's fees which are not only excessive, but also without bases in fact and in law. 14 An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly leads to the conclusion that the agreement between the parties is a contract to sell, and not an option contract or a contract of sale. I 1. In view of the extended disquisition thereon by respondent court, it would be worthwhile at this juncture to briefly discourse on the rationale behind our treatment of the alleged option contract as a contract to sell, rather than a contract of sale. The distinction between the two is important for in contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until
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the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. 15 There are two features which convince us that the parties never intended to transfer ownership to petitioner except upon the full payment of the purchase price. Firstly, the exclusive option to purchase, although it provided for automatic rescission of the contract and partial forfeiture of the amount already paid in case of default, does not mention that petitioner is obliged to return possession or ownership of the property as a consequence of non-payment. There is no stipulation anent reversion or reconveyance of the property to herein private respondents in the event that petitioner does not comply with its obligation. With the absence of such a stipulation, although there is a provision on the remedies available to the parties in case of breach, it may legally be inferred that the parties never intended to transfer ownership to the petitioner to completion of payment of the purchase price.cdasia In effect, there was an implied agreement that ownership shall not pass to the purchaser until he had fully paid the price. Article 1478 of the Civil Code does not require that such a stipulation be expressly made. Consequently, an implied stipulation to that effect is considered valid and, therefore, binding and enforceable between the parties. It should be noted that under the law and jurisprudence, a contract which contains this kind of stipulation is considered a contract to sell. Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale, is bolstered by the fact that the deed of absolute sale would have been issued only upon the payment of the balance of the purchase price, as may be gleaned from petitioner's letter dated April 16, 1990 16 wherein it informed private respondents that it "is now ready and willing to pay you simultaneously with the execution of the corresponding deed of absolute sale." Secondly, it has not been shown that there was delivery of the property, actual or constructive, made to herein petitioner. The exclusive option to purchase is not contained in a public instrument the execution of which would have been considered equivalent to delivery. 17 Neither did petitioner take actual, physical possession of the property at any given time. It is true that after the reconstitution of private respondents' certificate of title, it remained in the possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter delivered the same to herein petitioner. Normally, under the law, such possession by the vendee is to be understood as a delivery. 18 However, private respondents explained that there was really no intention on their part to deliver the title to herein petitioner with the purpose of transferring ownership to it. They claim that Atty. Bernardo had possession of the title only because he was their counsel in the petition for reconstitution. We have no reason not to believe this explanation of private respondents, aside from the fact that such contention was never refuted or contradicted by petitioner. 2. Irrefragably, the controverted document should legally be considered as a perfected contract to sell. On this particular point, therefore, we reject the position and ratiocination of respondent Court of Appeals which, while awarding the correct relief to private respondents, categorized the instrument as "strictly an option contract." The important task in contract interpretation is always the ascertainment of the intention of the contracting parties and that task is, of course, to be discharged by looking to the words they used to project that intention in their contract, all the words not just a particular word or two, and words in context not words standing alone. 19 Moreover, judging from the subsequent acts of the parties which will hereinafter be discussed, it is undeniable that the intention of the parties was to enter into a contract to sell. 20 In addition, the title of a contract does not necessarily determine its true nature. 21 Hence, the fact that the document under discussion is entitled "Exclusive Option to Purchase" is not controlling where the text thereof shows that it is a contract to sell.cdasia

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

It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain, while the acceptance thereof was absolute and without any condition or qualification. The agreement as to the object, the price of the property, and the terms of payment was clear and well-defined. No other significance could be given to such acts that than that they were meant to finalize and perfect the transaction. The parties even went beyond the basic requirements of the law by stipulating that "all expenses including the corresponding capital gains tax, cost of documentary stamps are for the account of the vendors, and expenses for the registration of the deed of sale in the Registry of Deeds are for the account of Adelfa Properties, Inc." Hence, there was nothing left to be done except the performance of the respective obligations of the parties. We do not subscribe to private respondents' submission, which was upheld by both the trial court and respondent Court of Appeals, that the offer of petitioner to deduct P500,000.00, (later reduced to P300,000.00) from the purchase price for the settlement of the civil case was tantamount to a counter-offer. It must be stressed that there already existed a perfected contract between the parties at the time the alleged counter-offer was made. Thus, any new offer by a party becomes binding only when it is accepted by the other. In the case of private respondents, they actually refused to concur in said offer of petitioner, by reason of which the original terms of the contract continued to be enforceable. prcd At any rate, the same cannot be considered a counter-offer for the simple reason that petitioner's sole purpose was to settle the civil case in order that it could already comply with its obligation. In fact, it was even indicative of a desire by petitioner to immediately comply therewith, except that it was being prevented from doing so because of the filing of the civil case which, it believed in good faith, rendered compliance improbable at that time. In addition, no inference can be drawn from that suggestion given by petitioner that it was totally abandoning the original contract. More importantly, it will be noted that the failure of petitioner to pay the balance of the purchase price within the agreed period was attributed by private respondents to "lack of word of honor" on the part of the former. The reason of "lack of word of honor" is to us a clear indication that private respondents considered petitioner already bound by its obligation to pay the balance of the consideration. In effect, private respondents were demanding or exacting fulfillment of the obligation from herein petitioner. With the arrival of the period agreed upon by the parties, petitioner was supposed to comply with the obligation incumbent upon it to perform, not merely to exercise an option or a right to buy the property. The obligation of petitioner on November 30, 1993 consisted of an obligation to give something, that is, the payment of the purchase price. The contract did not simply give petitioner the discretion to pay for the property. 32 It will be noted that there is nothing in the said contract to show that petitioner was merely given a certain period within which to exercise its privilege to buy. The agreed period was intended to give time to herein petitioner within which to fulfill and comply with its obligation, that is, to pay the balance of the purchase price. No evidence was presented by private respondents to prove otherwise.cdasia The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is whether or not the agreement could be specifically enforced. 33 There is no doubt that the obligation of petitioner to pay the purchase price is specific, definite and certain, and consequently binding and enforceable. Had private respondents chosen to enforce the contract, they could have specifically compelled petitioner to pay the balance of P2,806,150.00. This is distinctly made manifest in the contract itself as an integral stipulation, compliance with which could legally and definitely be demanded from petitioner as a consequence. This is not a case where no right is as yet created nor an obligation declared, as where something further remains to be done before the buyer and seller obligate themselves. 34 An
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agreement is only an "option" when no obligation rests on the party to make any payment except such as may be agreed on between the parties as consideration to support the option until he has made up his mind within the time specified. 35 An option, and not a contract to purchase, is effected by an agreement to sell real estate for payments to be made within specified time and providing for forfeiture of money paid upon failure to make payment, where the purchaser does not agree to purchase, to make payment, or to bind himself in any way other than the forfeiture of the payments made. 36 As hereinbefore discussed, this is not the situation obtaining in the case at bar. While there is jurisprudence to the effect that a contract which provides that the initial payment shall be totally forfeited in case of default in payment is to be considered as an option contract, 37 still we are not inclined to conform with the findings of respondent court and the court a quo that the contract executed between the parties is an option contract, for the reason that the parties were already contemplating the payment of the balance of the purchase price, and were not merely quoting an agreed value for the property. The term "balance," connotes a remainder or something remaining from the original total sum already agreed upon.cdasia In other words, the alleged option money of P50,000.00 was actually earnest money which was intended to form part of the purchase price. The amount of P50,000.00 was not distinct from the cause or consideration for the sale of the property, but was itself a part thereof. It is a statutory rule that whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. 38 It constitutes an advance payment and must, therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller to bind the bargain. There are clear distinctions between earnest money and option money, viz.: (a) earnest money is part of the purchase price, while option money is the money given as a distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy. 39 The aforequoted characteristics of earnest money are apparent in the so-called option contract under review, even though it was called "option money" by the parties. In addition, private respondents failed to show that the payment of the balance of the purchase price was only a condition precedent to the acceptance of the offer or to the exercise of the right to buy. On the contrary, it has been sufficiently established that such payment was but an element of the performance of petitioner's obligation under the contract to sell. 40 II 1. This brings us to the second issue as to whether or not there was valid suspension of payment of the purchase price by petitioner and the legal consequences thereof. To justify its failure to pay the purchase price within the agreed period, petitioner invokes Article 1590 of the Civil Code which provides: "ART. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price."cdasia Respondent court refused to apply the aforequoted provision of law on the erroneous assumption that the true agreement between the parties was a contract of option. As we

have hereinbefore discussed, it was not an option contract but a perfected contract to sell. Verily, therefore, Article 1590 would properly apply. llcd Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the parties herein involved only the eastern half of the land subject of the deed of sale between petitioner and the Jimenez brothers, it did not, therefore, have any adverse effect on private respondents' title and ownership over the western half of the land which is covered by the contract subject of the present case. We have gone over the complaint for recovery of ownership filed in said case 41 and we are not persuaded by the factual findings made by said courts. At a glance, it is easily discernible that, although the complaint prayed for the annulment only of the contract of sale executed between petitioner and the Jimenez brothers, the same likewise prayed for the recovery of therein plaintiffs' share in that parcel of land specifically covered by TCT No. 309773. In other words, the plaintiffs therein were claiming to be co-owners of the entire parcel of land described in TCT No. 309773, and not only of a portion thereof nor, as incorrectly interpreted by the lower courts, did their claim pertain exclusively to the eastern half adjudicated to the Jimenez brothers. Such being the case, petitioner was justified in suspending payment of the balance of the purchase price by reason of the aforesaid vindicatory action filed against it. The assurance made by private respondents that petitioner did not have to worry about the case because it was pure and simple harassment 42 is not the kind of guaranty contemplated under the exceptive clause in Article 1590 wherein the vendor is bound to make payment even with the existence of a vindicatory action if the vendee should give a security for the return of the price. 2. Be that as it may, and the validity of the suspension of payment notwithstanding, we find and hold that private respondents may no longer be compelled to sell and deliver the subject property to petitioner for two reasons, that is, petitioner's failure to duly effect the consignation of the purchase price after the disturbance had ceased; and, secondarily, the fact that the contract to sell had been validly rescinded by private respondents.cdasia The records of this case reveal that as early as February 28, 1990 when petitioner caused its exclusive option to be annotated anew on the certificate of title, it already knew of the dismissal of Civil Case No. 89-5541. However, it was only on April 16, 1990 that petitioner, through its counsel, wrote private respondents expressing its willingness to pay the balance of the purchase price upon the execution of the corresponding deed of absolute sale. At most, that was merely a notice to pay. There was no proper tender of payment nor consignation in this case as required by law. LLjur The mere sending of a letter by the vendee expressing the intention to pay, without the accompanying payment, is not considered a valid tender of payment. 43 Besides, a mere tender of payment is not sufficient to compel private respondents to deliver the property and execute the deed of absolute sale. It is consignation which is essential in order to extinguish petitioner's obligation to pay the balance of the purchase price. 44 The rule is different in case of an option contract 45 or in legal redemption or in a sale with right to repurchase, 46 wherein consignation is not necessary because these cases involve an exercise of a right or privilege (to buy, redeem or repurchase) rather than the discharge of an obligation, hence tender of payment would be sufficient to preserve the right or privilege. This is because the provisions on consignation are not applicable when there is no obligation to pay. 47 A contract to sell, as in the case before us, involves the performance of an obligation, not merely the exercise of a privilege or a right. Consequently, performance or payment may be effected not by tender of payment alone but by both tender and consignation. Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the balance again arose and resumed after it received notice of such dismissal. Unfortunately, petitioner failed to seasonably make payment, as in fact it has

failed to do so up to the present time, or even to deposit the money with the trial court when this case was originally filed therein.cdasia By reason of petitioner's failure to comply with its obligation, private respondents elected to resort to and did announce the rescission of the contract through its letter to petitioner dated July 27, 1990. That written notice of rescission is deemed sufficient under the circumstances. Article 1592 of the Civil Code which requires rescission either by judicial action or notarial act is not applicable to a contract to sell. 48 Furthermore, judicial action for rescission of a contract is not necessary where the contract provides for automatic rescission in case of breach, 49 as in the contract involved in the present controversy. We are not unaware of the ruling in University of the Philippines vs. De los Angeles, etc. 50 that the right to rescind is not absolute, being ever subject to scrutiny and review by the proper court. It is our considered view, however, that this rule applies to a situation where the extrajudicial rescission is contested by the defaulting party. In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in court. If the debtor impugns the declaration, it shall be subject to judicial determination. 51 Otherwise, if said party does not oppose it, the extrajudicial rescission shall have legal effect. 52 In the case at bar, it has been shown that although petitioner was duly furnished and did receive a written notice of rescission which specified the grounds therefore, it failed to reply thereto or protest against it. Its silence thereon suggests an admission of the veracity and validity of private respondents' claim. 53 Furthermore, the initiative of instituting suit was transferred from the rescinder to the defaulter by virtue of the automatic rescission clause in the contract. 54 But then, the records bear out the fact that aside from the lackadaisical manner with which petitioner treated private respondents' letter of cancellation, it utterly failed to seriously seek redress from the court for the enforcement of its alleged rights under the contract. If private respondents had not taken the initiative of filing Civil Case No. 7532, evidently petitioner had no intention to take any legal action to compel specific performance from the former. By such cavalier disregard, it has been effectively estopped from seeking the affirmative relief it now desires but which it had theretofore disdained. LLphil WHEREFORE, on the foregoing modificatory premises, and considering that the same result has been reached by respondent Court of Appeals with respect to the relief awarded to private respondents by the court a quo which we find to be correct, its assailed judgment in CA-G.R. CV No. 34767 is hereby AFFIRMED. SO ORDERED. MEANING OF SEPARATE CONSIDERATION G.R. No. 97332 October 10, 1991 SPS. JULIO D. VILLAMOR AND MARINA VILLAMOR vs. COURT OF APPEALS, ET AL.

FIRST DIVISION [G.R. No. 97332. October 10, 1991.]

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SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR, petitioners, vs. THE HON. COURT OF APPEALS AND SPOUSES MACARIA LABINGISA REYES AND ROBERTO REYES, respondents.

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. 7. ID.; PRESCRIPTION OF ACTIONS; ACTION BASED ON A WRITTEN CONTRACT PRESCRIBES WITHIN TEN (10) YEARS; CASE AT BAR. Under Article 1144 (1) of the Civil Code, actions upon a 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) year period prescribed by the Civil Code. 8. ID.; EQUITY; DOCTRINE APPLIED IN CASE AT BAR. 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.

"This Deed of Option, entered into in the City of Manila, Philippines, this 11th day of November, 1971, by and between Macaria Labingisa-, of age, married to Roberto Reyes, likewise of age, and both residing 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. prcd "WITNESSES "That, I Macaria Labingisa, am the owner in fee simple of a parcel of land with an area of 600 square meters, more or less, more particularly described in TCT No. (18431) 18938 of the Office of the Register of Deeds for the province of Rizal, issued in my name, I having inherited the same from my deceased parents, for which reason it is my paraphernal property; "That I, with the conformity of my husband, Roberto Reyes, have sold one-half thereof to the aforesaid spouses Julio Villamor and Marina V. Villamor at the price of P70.00 per sq. meter, which was greatly higher than the actual reasonable prevailing value of lands in that place at the time, which portion, after segregation, is now covered by TCT No. 39935 of the Register of Deeds for the City of Caloocan, issued on August 17, 1971 in the name of the aforementioned spouses vendees; "That the only reason why the Spouses-vendees Julio Villamor and Marina V. Villamor, agreed to buy the said one-half portion at the above-stated price of about P70.00 per square meter, is because I, and my husband Roberto Reyes, have agreed to sell and convey to them the remaining one-half portion still owned by me and now covered by TCT No. 39935 of the Register of Deeds for the City of Caloocan, whenever the need of such sale arises, either on our part or on the part of the spouses (Julio) Villamor and Marina V. Villamor, at the same price of P70.00 per square meter, excluding whatever improvement may be found thereon; "That I am willing to have this contract to sell inscribed on my aforesaid title as an encumbrance upon the property covered thereby, upon payment of the corresponding fees; and "That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept, the above provisions of this Deed of Option. "IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila, Philippines, by all the persons concerned, this 11th day of November, 1971. "JULIO VILLAMOR "MACARIA LABINGISA

Tranquilino F. Meris for petitioners. Agripino G. Morga for private respondents.

SYLLABUS 1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONSIDERATION; DEFINED. 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." 2. ID.; ID.; ID.; CASE AT BAR. The cause or the impelling reason on the part of private respondent in executing the deed of option as appearing in the deed itself is the petitioners' 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." The respondent appellate court failed to give due consideration to petitioners' evidence which shows that in 1969 the Villamor spouses bought 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. Petitioners' allegedly paying P52.00 per square meter for the option may, as opined by the appellate court, he improbable but improbabilities does not invalidate a contract freely entered into by the parties. 3. ID.; ID.; OPTIONAL CONTRACT; CONSTRUED. 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). 4. ID.; ID.; ACCEPTANCE OF OFFER TO SELL; EFFECTS. The acceptance of an offer to sell for a price certain created a bilateral contract to sell and buy and upon acceptance, the offered, ipso facto assumes obligations of a vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil. 948). Demandability 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) 5. ID.; ID.; SALE; WHEN PERFECTED. 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 performance, subject to the provisions of the law governing the form of contracts." 6. ID.; ID.; DEED OF OPTION; FAILURE OF EITHER PARTY TO DEMAND PERFORMANCE OF OBLIGATION FOR UNREASONABLE LENGTH OF TIME, RENDERS CONTRACT INEFFECTUAL. The Deed of Option did not provide for the period within

DECISION

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

With My Conformity: "MARINA VILLAMOR "ROBERTO REYES

"Signed in the Presence Of: "MARIANO Z. SUNIGA "ROSALINDA S. EUGENIO

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"ACKNOWLEDGMENT

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.

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: LLphil xxx xxx xxx

"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 acknowledgment 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 3028-7676; 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. LLphil "ARTEMIO M. MALUBAY Notary Public Until December 31, 1972 PTR No. 338203, Manila January 15, 1971 "Doc. No. 1526; Page No. 24; Book No. 38; Series of 1971." (pp. 25-29, Rollo) According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to repurchase the lot sold by them to the Villamor spouses but Marina Villamor refused and reminded them instead that the Deed of Option in fact gave them the option to purchase the remaining portion of the lot. The Villamors, on the other hand, claimed that they had expressed their desire to purchase the remaining 300 square meter portion of the lot but the Reyes had been ignoring them. Thus, on July 13, 1987, after conciliation proceedings in the barangay level failed, they filed a complaint for specific performance against the Reyes. 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 LABINGISA REYES and ROBERTO REYES, to sell unto the plaintiffs the land covered by T.C.T. No.

"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 PLAINTIFFAPPELLEES 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 or 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

"It is interesting to state that the agreement between the parties are evidenced 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 the 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 parol 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) (Italic 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 distinct one, not something that is as uncertain as P70,00 per square meter which is allegedly
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'greatly higher than the actual prevailing value of lands.' A sale must be for a price certain (Art. 1458). For how much the portion conveyed to the plaintiff-appellees was sold so that the balance could be considered the consideration for the promise to sell has not been shown, beyond a mere allegation that it was very much below P70.00 per square meter. "The fact that plaintiff-appellees might have paid P18.00 per square meter for another land at the time of the sale to them of a portion of defendant-appellant's lot does not necessarily prove that the prevailing market price at the time of the sale was P18.00 per square meter. (In fact they claim it was P25.00). It is improbable that plaintiff-appellees should pay P52.00 per square meter for the privilege of buying when the value of the land itself was allegedly P18.00 per square meter." (pp. 34-35, Rollo) As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the contracts, the essential reason which moves the contracting parties to enter into the contract." The cause or the impelling reason on the part of private respondent in executing the deed of option as appearing in the deed itself is the petitioners' 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: prcd "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 bought 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. Petitioners' allegedly paying P52.00 per square meter for the option may, as opined by the appellate court, he 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 (Reyes) 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 (Reyes) 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 Reyes 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 Reyes 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 promises, 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 offered, ipso facto assumes obligations of a vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil. 948). Demandability 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 promisor is not bound by his promise and may, accordingly withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale." 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 performance, subject to the provisions of the law governing the form 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. LibLex Under Article 1144 (1) of the Civil Code, actions upon a 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) year 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 coowner of the one-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. Judgment is rendered dismissing the complaint in Civil Case No. C-12942 on the ground of prescription and laches. Cdpr SO ORDERED. NO SEPARATE CONSIDERATION EN BANC [G.R. No. L-25494. June 14, 1972.]

NICOLAS SANCHEZ, plaintiff-appellee, vs. SEVERINA RIGOS, defendant-appellant.

Santiago F. Bautista for plaintiff-appellee. Jesus G. Villamar for defendant-appellant.

DECISION

CONCEPCION, C.J p: Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the case to Us, upon the ground that it involves a question purely of law. The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an instrument, entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed . . . to sell" to Sanchez, for the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more particularly described in Transfer Certificate of Title No. NT-12528 of said province, within two (2) years from said date with the understanding that said option shall be deemed "terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated period. Inasmuch as several tenders of payment of the sum of P1,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said amount with the Court of First Instance of Nueva Ecija and commenced against the latter the present action, for specific performance and damages. After the filing of defendant's answer admitting some allegations of the complaint, denying other allegations thereof, and alleging, as special defense, that the contract between the parties "is a unilateral promise to sell, and the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and void" on February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney's fees, and the costs. Hence, this appeal by Mrs. Rigos.
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This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides: "ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. "An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price." In his complaint plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land described in the option, copy of which was annexed to said pleading as Annex A thereof and is quoted on the margin. 1 Hence, plaintiff maintains that the promise contained in the contract is "reciprocally demandable," pursuant to the first paragraph of said Article 1479. Although defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff, it is not true that the latter had, in turn, "agreed and committed himself" to buy said property Said Annex A does not bear out plaintiff's allegation to this effect. What is more, since Annex A has bean made "an integral part" of his complaint, the provisions of said instrument form part "and parcel" 2 of said pleading. The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as indicated by the caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof, the defendant "agreed, promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration "distinct from the price" stipulated for the sale of the land. Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and this would seem to be the main factor that influenced its decision in plaintiff's favor. It should be noted, however, that: (1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words, Article 1479 is controlling in the case at bar. (2) In order that said unilateral promise may be "binding" upon the promisor, Article 1479 requires the concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the price." Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration. Plaintiff herein has not even alleged the existence thereof in his complaint. (3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer. Indeed, as early as March 14, 1908, it had been held, in Bauermann v. Casas, 3 that: "One who prays for judgment on the pleadings without offering proof as to the truth of hie own allegations, and without giving the opposing party an opportunity to introduce evidence, must be understood to admit the truth of all the material and relevant allegations of the opposing party, and to rest his motion for judgment on those allegations taken together with such of his own as are admitted in the pleading. (La Yebana Company vs. Sevilla, 9 Phil. 210)." (Emphasis supplied.).

This view was reiterated in Evangelista V. De la Rosa 4 and Mercy's Incorporated v. Herminia Verde. 5 Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6 from which We quote: "The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of P30,000 under the terms stated above has no legal effect because it is not supported by any consideration and in support thereof it invokes article 1479 of the new Civil Code, The article provides:. 'ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. 'An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price.' "On the other hand, appellee contends that, even granting that the 'offer of option' is not supported by any consideration, that option became binding on appellant when the appellee gave notice to it of its acceptance, and that having accepted it within the period of option, the offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support of this contention, appellee invokes article 1324 of the Civil Code which provides: 'ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised.' "There is no question that under article 1479 of the new Civil Code 'an option to sell,' or 'a promise to buy or to sell,' as used in said article, to be valid must be 'supported by a consideration distinct from the price.' This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a consideration. In other words, 'an accepted unilateral promise' can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. Here it is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance made of it by appellee. "It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that, when the offerer gives to the offeree a certain period to accept, 'the offer may be withdrawn at any time before acceptance' except when the option is founded upon consideration, but this general rule must be interpreted as modified by the provision of article 1479 above referred to, which applies to 'a promise to buy and sell' specifically. As already stated, this rule requires that a promise to sell to be valid must be supported by a consideration distinct from the price. "We are net oblivious of the existence of American authorities which hold that an offer, once accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration (12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and acceptance as contained in our new Civil Code. But we are prevented from applying them in view of the specific provision embodied in article 1479. While under the 'offer of option' in question appellant has assumed a clear obligation to sell its barge to appellee and the option has been exercised in accordance with its terms, and there appears to be no valid or justifiable reason for appellant to withdraw its offer, this Court cannot adopt a different attitude because the law on the matter is clear. Our imperative duty is to apply it unless modified by Congress." 7

However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 8 decided later than Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued upon here was involved, treating such promise as an option which, although not binding as a contract in itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said: "Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case however, upon accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was bilateral contract of sale. "Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that. 'If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration. . . . ' (77 Corpus Juris Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.') 'It can be taken for granted, as contended by the defendant, that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by latter, and of the acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both acts the offer and the acceptance could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code).' (Zayco vs. Serra, 44 Phil. 331.)" In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale. This view has the advantage of avoiding a conflict between Articles 1324 on the general principles on contracts and 1479 on sales of the Civil Code, in line with the cardinal rule of statutory construction that, in construing different provisions of one and the same law or code, such interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the presumption is that, in the process of drafting the Code, its author has maintained a consistent philosophy or position. Moreover, the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & pacific Co., 10 holding that Art. 1324 is modified by Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the former, and exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or founded upon a consideration, strongly suggests that the two (2) provisions intended to enforce or implement the same principle. Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar all inconsistent therewith, the view adhered to in the South western Sugar & Molasses Co. case should be deemed abandoned or modified.
LAW ON SALES | POLICITACION AND PERFECTION FT | 22

WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendantappellant Severina Rigos. It is so ordered. G.R. No. 51824 February 7, 1992 PERCELINO DIAMANTE vs. COURT OF APPEALS, ET AL.

3. ID.; RIGHT TO REPURCHASE; BECOMES A PROMISE TO SELL WHEN MADE AFTER THE SALE. In the earlier case of Ramos, et al. vs. Icasiano, et al., (51 Phil. 343) decided in 1927, this Court had already ruled that "an agreement to repurchase becomes a promise to sell when made after the sale, because when the sale is made without such an agreement, the purchaser acquires the thing sold absolutely, and if he afterwards grants the vendor the right to repurchase, it is a new contract entered into by the purchaser, as absolute owner already of the object. In that case the vendor has not reserved to himself the right to repurchase." 4. ID.; PROMISE TO SELL; NOT BINDING UPON PROMISSOR IN THE ABSENCE OF EITHER OR BOTH ACCEPTANCE AND SEPARATE CONSIDERATION. The Option to Repurchase executed by private respondent in the present case, was merely a promise to sell, which must be governed by Article 1479 of the Civil Code which reads as follows: "ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price." A copy of the so-called Option to Repurchase is neither attached to the records nor quoted in any of the pleadings of the parties. This Court cannot, therefore, properly rule on whether the promise was accepted and a consideration distinct from the price, supports the option. Undoubtedly, in the absence of either or both acceptance and separate consideration, the promise to sell is not binding upon the promissor (private respondent). 5. ID.; UNILATERAL PROMISE TO BUY OR SELL; EFFECT OF ABSENCE OF ACCEPTANCE AND DISTINCT CONSIDERATION. A unilateral promise to buy or sell is a mere offer, which is not converted into a contract except at the moment it is accepted. Acceptance is the act that gives life to a juridical obligation, because, before the promise is accepted, the promissor may withdraw it at any time. Upon acceptance, however, a bilateral contract to sell and to buy is created, and the offeree ipso facto assumes the obligations of a purchaser; the offeror, on the other hand, would be liable for damages if he fails to deliver the thing he had offered for sale. Even if the promise was accepted, private respondent was not bound thereby in the absence of a distinct consideration. 6. ID.; CONTRACT OF OPTION, DEFINED. The contract of option is a separate and distinct contract from the contract which the parties may enter into upon the consummation of the option, and a consideration for an optional contract is just as important as the consideration for any other kind of contract. Thus, a distinction should be drawn between the consideration for the option to repurchase, and the consideration for the contract of repurchase itself." 7. REMEDIAL LAW; ASSIGNMENT OF ERROR; AUTHORIZES SUPREME COURT TO EXAMINE AND PASS UPON THE DECISION OF THE COURT BELOW. In Hernandez vs. Andal, (78 Phil. 196), this Court held: "If the appellants' assignment of error be not considered a direct challenge to the decision of the court below, we still believe that the objection takes a narrow view of practice and procedure contrary to the liberal spirit which pervades the Rules of Court. The first injunction of the new Rules (Rule 1, Section 2) is that they 'shall be liberally construed in order to promote their object and to assist the parties in obtaining just, speedy, and inexpensive determination of every action and proceeding.' In line with the modern trends of procedure, we are told that, 'while an assignment of error which is required by law or rule of court has been held essential to appellate review, and only those assigned will be considered, there are a number of cases which appear to accord to the appellate court a broad discretionary power to waive the lack of proper assignment of errors and consider errors not assigned. And an unassigned error closely related to an error properly assigned, or upon which the determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as error.' (4 C.J.S., 1734; 3 C.J., 1341, footnote 77).

At the least, the assignment of error, viewed in this light, authorizes us to examine and pass upon the decision of the court below."

DECISION

THIRD DIVISION [G.R. No. 51824. February 7, 1992.]

DAVIDE, JR., J p: Assailed in this petition for review is the Resolution of the respondent Court of Appeals dated 21 March 1979 in C.A.-G.R. No. SP-04866 setting aside its earlier decision therein, promulgated on 6 December 1978, which reversed the decision of the then Court of First Instance (now Regional Trial Court) of Iloilo City. The latter nullified the Orders of the Secretary of the Department of Agriculture and Natural Resources (DANR) dated 29 August 1969, 20 November 1969 and 21 April 1970, declared binding the Fishpond Lease Agreement (FLA) issued to private respondent and disallowed petitioner from repurchasing from private respondent a portion of the fishery lot located at Dumangas, Iloilo, covered by the FLA. The pleadings of the parties and the decision of the respondent Court disclose the factual antecedents of this case. A fishery lot, encompassing an area of 9.4 hectares and designated as Lot No. 518-A of the Cadastral Survey of Dumangas, Iloilo, was previously covered by Fishpond Permit No. F2021 issued in the name of Anecita Dionio. Upon Anecita's death, her heirs, petitioner Diamante and Primitivo Dafeliz, inherited the property which they later divided between themselves; petitioner got 4.4 hectares while Dafeliz got 5 hectares. It is the petitioner's share that is the subject of the present controversy. Primitivo Dafeliz later sold his share to private respondent. On 21 May 1959, petitioner sold to private respondent his leasehold rights over the property in question for P8,000.00 with the right to repurchase the same within three (3) years from said date. On 16 August 1960, private respondent filed an application with the Bureau of Fisheries, dated 12 July 1960, for a fishpond permit and a fishpond lease agreement over the entire lot, submitting therewith the deeds of sale executed by Dafeliz and the petitioner. Pressed by urgent financial needs, petitioner, on 17 October 1960, sold all his remaining rights over the property in question to the private respondent for P4,000.00. On 25 October 1960, private respondent, with his wife's consent, executed in favor of the petitioner an Option to Repurchase the property in question within ten (10) years from said date, with a ten-year grace period. Private respondent submitted to the Bureau of Fisheries the definite deed of sale; he did not, however, submit the Option to Repurchase. Thereafter, on 2 August 1961, the Bureau of Fisheries issued to private respondent Fishpond Permit No. 4953-Q; on 17 December 1962, it approved FLA No. 1372 in the latter's favor. On 11 December 1963, petitioner, contending that he has a valid twenty-year option to repurchase the subject property, requested the Bureau of Fisheries to nullify FLA No. 1372
LAW ON SALES | POLICITACION AND PERFECTION FT | 23

PERCELINO DIAMANTE, petitioner, vs. HON. COURT OF APPEALS and GERARDO DEYPALUBOS, respondents.

Hernandez, Velicaria, Vibar & Santiago for petitioner. Amancio B. Sorongon for private respondent.

SYLLABUS 1. ADMINISTRATIVE LAW; SECRETARY OF DEPARTMENT OF AGRICULTURE AND NATURAL RESOURCES; LAW ON CONVENTIONAL REDEMPTION MISAPPLIED. Respondent Secretary gravely erred in holding that private respondent's non-disclosure and suppression of the fact that 4.4 hectares of the area subject of the application is burdened with or encumbered by the Option to Repurchase constituted a falsehood or a misrepresentation of an essential or material fact which, under the second paragraph of Section 29 of Fisheries Administrative Order No. 60 earlier quoted, "shall ipso facto cause the cancellation of the permit or lease." In short, the Secretary was of the opinion that the Option to Repurchase was an encumbrance on the property which affected the absolute and exclusive character of private respondent's ownership over the 4.4 hectares sold to him by petitioner. This is a clear case of a misapplication of the law on conventional redemption and a misunderstanding of the effects of a right to repurchase granted subsequently in an instrument different from the original document of sale. 2. CIVIL LAW; ARTICLE 1601, NEW CIVIL CODE INTERPRETED. Article 1601 of the Civil Code provides: "Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of article 1616 and other stipulations which may have been agreed upon." In Villarica, et al. vs. Court of Appeals, et al., decided on 29 November 1968, or barely seven (7) days before the respondent Court promulgated its decision in this case, this Court, interpreting the above Article, held: "The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no longer reserve the right to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of repurchase but some other right like the option to buy in the instant case. . . . ."

insofar as the said property is concerned. On 18 December 1964, his letter-complaint was dismissed. Petitioner then sought a reconsideration of the dismissal; the same was denied on 29 April 1965. His appeal to the Secretary of the DANR was likewise dismissed on 30 October 1968. Again, on 20 November 1968, petitioner sought for a reconsideration; this time, however, he was successful. On 29 August 1969, the DANR Secretary granted his motion in an Order cancelling FLA No. 1372 and stating, inter alia, that: "Evidently, the application as originally filed, could not be favorably acted upon by reason of the existing right of a third party over a portion thereof. It was only the submission of the deed of absolute sale which could eliminate the stumbling block to the approval of the transfer and the issuance of a permit or lease agreement. It was on the basis of this deed of sale, in fact, the one entitled 'option to repurchase' executed barely a week from the execution of the deed of absolute sale, (which) reverted, in effect, the status of the land in question to what it was after the execution of the deed of sale with right to repurchase; that is, the land was again placed under an encumbrance in favor of a third party. Circumstantially, there is a ground (sic) to believe that the deed of absolute sale was executed merely with the end in view of circumventing the requirements for the approval of the transfer of leasehold rights of Diamante in favor of Deypalubos; and the subsequent execution of the 'Option to Repurchase' was made to assure the maintenance of a vendor a retro's rights in favor of Diamante. There was, therefore, a misrepresentation of an essential or material fact committed by the lessee-appellee (Daypalubos) in his application for the permit and the lease agreement, without which the same could not have been issued." 1 The Secretary based his action on Section 20 of Fisheries Administrative Order No. 60, the second paragraph of which reads: "Any and all of the statements made in the corresponding application shall be considered as essential conditions and parts of the permit or lease granted. Any false statements in the application of facts or any alteration, change or modification of any or all terms and conditions made therein shall ipso facto cause the cancellation of the permit or lease." Private respondent moved for a reconsideration of this last Order arguing that the DANR Secretary's previous Order of 30 October 1968 dismissing petitioner's letter-complaint had already become final on the ground that he (private respondent) was not served a copy of petitioner's 20 November 1968 motion for reconsideration. On 20 November 1969, private respondent's motion for reconsideration was denied; a second motion for reconsideration was likewise denied on 20 April 1970. On 5 May 1970, private respondent filed with the Court of First Instance of Iloilo City a special civil action for certiorari with preliminary injunction (docketed as Civil Case No. 8209), seeking to annul the Secretary's Orders of 20 April 1970, 20 November 1969 and 29 August 1969 on the ground that the Secretary: (1) gravely abused his discretion in not giving him the opportunity to be heard on the question of whether or not the Option to Repurchase was forged; and (2) has no jurisdiction to set aside FLA No. 1372 as the Order of the Bureau of Fisheries dismissing petitioner's 11 December 1963 letter-complaint had already become final. After issuing a temporary restraining order and a writ of preliminary injuction, the lower court tried the case jointly with Criminal Case No. 520 wherein both the petitioner and a certain Atty. Agustin Dioquino, the Notary Public who notarized the 25 October 1960 Option to Repurchase, were charged with falsification of a public document. After due trial, the lower court acquitted the accused in the criminal case and decided in favor of the private respondent in Civil Case No. 8209; the court ruled that: (1) the DANR Secretary abused his discretion in issuing the questioned Orders, (2) petitioner cannot repurchase the property in question as the Option to Repurchase is of doubtful validity, and (3) FLA No. 1372 in the name of private respondent is valid and binding.

Petitioner appealed to the respondent Court which, on 6 December 1978, reversed the decision of the trial court 2 on the ground that no grave abuse of discretion was committed by respondent Secretary inasmuch as private respondent was given the opportunity to be heard on his claim that the Option to Repurchase is spurious, and that the trial court merely indulged in conjectures in not upholding its validity. Said the respondent Court: "With all the foregoing arguments appellee had exhaustively adduced to show the spuriousness of the deed of 'Option to Repurchase', appellee can hardly complain of not having been given an opportunity to be heard, which is all that is necessary in relation to the requirement of notice and hearing in administrative proceedings. Moreover, appellee never asked for a formal hearing at the first opportunity that he had to do so, as when he filed his first motion for reconsideration. He asked for a formal hearing only in his second motion for reconsideration evidently as a mere afterthought, upon realizing that his arguments were futile without proofs to support them. The only remaining question, therefore, is whether the Secretary acted with grave abuse of discretion in giving weight to the alleged execution by appellee of the deed of Option to Repurchase, on the basis of the xerox copy of said deed as certified by the Notary Public, Agustin Dioquino. cdphil With such documentary evidence duly certified by the Notary Public, which is in effect an affirmation of the existence of the deed of 'Option of Repurchase' (sic) and its due execution, the Secretary may not be said to have gravely abused his discretion in giving the document enough evidentiary weight to justify his action in applying the aforequoted provisions of Fisheries Adm. Order No. 60. This piece of evidence may be considered substantial enough to support the conclusion reached by the respondent Secretary, which is all that is necessary to sustain an administrative finding of fact (Ortua vs. Encarnacion, 59 Phil. 635; Ang Tibay vs. CIR, 69 Phil. 635; Ramos vs. The Sec. of Agriculture and Natural Resources, et al. L29097, Jan. 28, 1974, 55 SCRA 330). Reviewing courts do not re-examine the sufficiency of the evidence in an administrative case, if originally instituted as such, nor are they authorized to receive additional evidence that was not submitted to the administrative agency concerned. For common sense dictates that the question of whether the administrative agency abused its discretion in weighing evidence should be resolved solely on the basis of the proof that the administrative authorities had before them and no other (Timbancaya vs. Vicente, L-19100, Dec. 27, 1963, 9 SCRA 852). In the instant case the evidence presented for the first time before the court a quo could be considered only for the criminal case heard jointly with this case. The lower court's action of acquitting the notary public, Agustin Dioquino, and appellant Diamante in Criminal Case No. 520 for falsification of public document is in itself a finding that the alleged forgery has not been conclusively established. This finding is quite correct considering the admission of the NBI handwriting expert that he cannot make any finding on the question of whether appellee's signature on the deed of 'Option to Repurchase' is forged or not, because of the lack of (sic) speciment signature of appellee for comparative examination. The Secretary may have such signature in the application papers of appellee on file with the former's office upon which to satisfy himself of (sic) the genuineness of appellee's signature. It would be strange, indeed, that appellee had not provided the NBI expert with a speciment of his signature when his purpose was to have an expert opinion that his signature on the questioned document is forged. On the other hand, as to the signature of his wife, the latter admitted the same to be her own. Thus 'Q There is a signature below the typewritten words 'with my marital consent' and above the name Edelina Duyo, whose signature is this? A That is my signature.

(T.s.n., Crim. Case No. 520, April 5, 1971, p. 14).' In not finding in favor of the perfect validity of the 'Option to Repurchase', the court a quo merely indulged in conjectures. Thus, believing the testimony of appellee that the later (sic) could not have executed the deed of option to repurchase after spending allegedly P12,000.00, and that if there was really a verbal agreement upon the execution of the deed of absolute sale, as alleged by appellant, that appellant's right to repurchase, as was stipulated in the earlier deed of sale, shall be preserved, such agreement should have been embodied in the deed of sale of October 17, 1960 (Exh. D), the court doubted the genuineness of the deed of Option to Repurchase (sic). It is highly doubtful if appellee had spent P12,000.00 during the period from October 17, 1960 to October 25, 1960 when the deed of option was executed. Likewise, the right to repurchase could not have been embodied in the deed of absolute sale since, as the Secretary of DANR found, the purpose of the deed of absolute sale is to circumvent the law and insure the approval of appellee's application, as with his right to the 4.4 hectares appearing to be subject to an encumbrance, his application would not have been given favorable action. cdphil Above all, the speculation and conjectures as indulged in by the court a quo cannot outweigh the probative effect of the document itself, a certified xerox copy thereof as issued by the Notary Public, the non-presentation of the original having been explained by its loss, as was the testimony of the same Notary Public, who justly won acquittal when charged with falsification of public document at the instance of appellee. The fact that the spaces for the document number, page and book numbers were not filled up in the photostatic copy presented by the representative of the Bureau of Records Management does not militate against the genuineness of the document. It simply means that the copy sent to the said Bureau happens to have those spaces unfilled up (sic). But the sending of a copy of the document to the Bureau of Records Management attests strongly to the existence of such document, the original of which was duly executed, complete with the aforesaid data duly indicated thereon, as shown by the xerox copy certified true by the Notary Public. Indeed, in the absence of positive and convincing proof of forgery, a public instrument executed with the intervention of a Notary Public must be held in high respect and accorded full integrity, if only upon the presumption of the regularity of official functions as is the nature of those of a notary public (Bautista vs. Dy Bun Chin, 49 OG 179; El Hogar Filipino vs. Olviga, 60 Phil. 17)." Subsequently, the respondent Court, acting on private respondent's motion for reconsideration, promulgated on 21 March 1979 the challenged Resolution 3 setting aside the earlier decision and affirmed, in toto, the ruling of the trial court, thus: ". . . the respondent (DANR) Secretary had gone beyond his statutory authority and had clearly acted in abuse of discretion in giving due weight to the alleged option to repurchase whose (sic) genuiness (sic) and due execution had been impugned and denied by petitionerappellee (Deypalubos). While the certified true copy of the option to repurchase may have been the basis of the respondent Secretary in resolving the motion for reconsideration, the Court believes that he should have first ordered the presentation of evidence to resolve this factual issue considering the conflicting claims of the parties. As earlier pointed out, all that was submitted to the Bureau of Fisheries and consequently to the respondent Secretary, was a xerox copy of the questioned document which was certified to by a notary public to be a copy of a deed found in his notarial file which did not bear any specimen of the signatures of the contracting parties. And assuming that a certification made by a notary public as to the existence of a document should be deemed an affirmation that such document actually exists. Nevertheless, (sic) when such claim is impugned, the one who assails the existence of a document should be afforded the opportunity to prove such claim, because, at most, the
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presumption of regularity in the performance of official duties is merely disputable and can be rebutted by convincing and positive evidence to the contrary." His motion for reconsideration having been denied, the petitioner filed the instant petition for review. Petitioner contends that the Rules of Court should not be strictly applied to administrative proceedings and that the findings of fact of administrative bodies, absent a showing of arbitrariness, should be accorded respect. While the petition has merit, petitioner's victory is hollow and illusory for, as shall hereafter be shown, even as We reverse the assailed resolution of the respondent Court of Appeals, the questioned decision of the Secretary must, nevertheless, be set aside on the basis of an erroneous conclusion of law with respect to the Option to Repurchase. LLjur The respondent Court correctly held in its decision of 6 December 1978 that the respondent Secretary provided the private respondent sufficient opportunity to question the authenticity of the Option to Repurchase and committed no grave abuse of discretion in holding that the same was in fact executed by private respondent. We thus find no sufficient legal and factual moorings for respondent Court's sudden turnabout in its resolution of 21 March 1979. That private respondent and his wife executed the Option to Repurchase in favor of petitioner on 25 October 1960 is beyond dispute. As determined by the respondent Court in its decision of 6 December 1978, private respondent's wife, Edelina Duyo, admitted having affixed her signature to the said document. Besides, the trial court itself, in Criminal Case No. 520 which was jointly tried with the civil case, acquitted both the petitioner and the notary public, before whom the Option to Repurchase was acknowledged, of the crime of falsification of said document. We hold, however, that the respondent Secretary gravely erred in holding that private respondent's non-disclosure and suppression of the fact that 4.4 hectares of the area subject of the application is burdened with or encumbered by the Option to Repurchase constituted a falsehood or a misrepresentation of an essential or material fact which, under the second paragraph of Section 29 of Fisheries Administrative Order No. 60 earlier quoted, "shall ipso facto cause the cancellation of the permit or lease." In short, the Secretary was of the opinion that the Option to Repurchase was an encumbrance on the property which affected the absolute and exclusive character of private respondent's ownership over the 4.4 hectares sold to him by petitioner. This is a clear case of a misapplication of the law on conventional redemption and a misunderstanding of the effects of a right to repurchase granted subsequently in an instrument different from the original document of sale. Article 1601 of the Civil Code provides: "Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of article 1616 and other stipulations which may have been agreed upon.". In Villarica, et al. vs. Court of Appeals, et al., 4 decided on 29 November 1968, or barely seven (7) days before the respondent Court promulgated its decision in this case, this Court, interpreting the above Article, held: "The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no longer reserve the right to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of repurchase but some other right like the option to buy in the instant case. . . . ."

In the earlier case of Ramos, et al. vs. Icasiano, et al., 5 decided in 1927, this Court had already ruled that "an agreement to repurchase becomes a promise to sell when made after the sale, because when the sale is made without such an agreement, the purchaser acquires the thing sold absolutely, and if he afterwards grants the vendor the right to repurchase, it is a new contract entered into by the purchaser, as absolute owner already of the object. In that case the vendor has not reserved to himself the right to repurchase." In Vda. de Cruzo, et al. vs. Carriaga, et al., 6 this Court found another occasion to apply the foregoing principle. Hence, the Option to Repurchase executed by private respondent in the present case, was merely a promise to sell, which must be governed by Article 1479 of the Civil Code which reads as follows: prLL "ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price." A copy of the so-called Option to Repurchase is neither attached to the records nor quoted in any of the pleadings of the parties. This Court cannot, therefore, properly rule on whether the promise was accepted and a consideration distinct from the price, supports the option. Undoubtedly, in the absence of either or both acceptance and separate consideration, the promise to sell is not binding upon the promissor (private respondent). "A unilateral promise to buy or sell is a mere offer, which is not converted into a contract except at the moment it is accepted. Acceptance is the act that gives life to a juridical obligation, because, before the promise is accepted, the promissor may withdraw it at any time. Upon acceptance, however, a bilateral contract to sell and to buy is created, and the offeree ipso facto assumes the obligations of a purchaser; the offeror, on the other hand, would be liable for damages if he fails to deliver the thing he had offered for sale. xxx xxx xxx

of the new Rules (Rule 1, section 2) is that the 'shall be liberally construed in order to promote their object and to assist the parties in obtaining just, speedy, and inexpensive determination of every action and proceeding.' In line with the modern trends of procedure, we are told that, 'while an assignment of error which is required by law or rule of court has been held essential to appellate review, and only those assigned will be considered, there are a number of cases which appear to accord to the appellate court a broad discretionary power to waive the lack of proper assignment of errors and consider errors not assigned. And an unassigned error closely related to an error properly assigned, or upon which the determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as error.' (4 C.J.S., 1734; 3 C.J., 1341, footnote 77). At the least, the assignment of error, viewed in this light, authorizes us to examine and pass upon the decision of the court below." In Insular Life Assurance Co., Ltd. Employees Association-NATU vs. Insular Life Assurance Co., Ltd., 10 this Court ruled: LLphil ". . . (t)he Supreme Court has ample authority to review and resolve matters not assigned and specified as errors by either of the parties in the appeal if it finds the consideration and determination of the same essential and indispensable in order to arrive at a just decision in the case. 11 This Court, thus, has the authority to waive the lack of proper assignment of errors if the unassigned errors closely relate to errors properly pinpointed out or if the unassigned errors refer to matters upon which the determination of the questions raised by the errors properly assigned depend. 12 The same also applies to issues not specifically raised by the parties. The Supreme Court, likewise, has broad discretionary powers, in the resolution of a controversy, to take into consideration matters on record which the parties fail to submit to the Court as specific questions for determination. 13 Where the issues already raised also rest on other issues not specifically presented, as long as the latter issues bear relevance and close relation to the former and as long as they arise from matters on record, the Court has the authority to include them in its discussion of the controversy as well as to pass upon them. In brief, in those cases wherein questions not particularly raised by the parties surface as necessary for the complete adjudication of the rights and obligations of the parties and such questions fall within the issues already framed by the parties, the interests of justice dictate that the Court consider and resolve them." WHEREFORE, the instant petition is GRANTED. The Resolution of respondent Court of Appeals of 21 March 1979 in C.A.-G.R. No. SP-04866 and the Decision of the trial court in Civil Case No. 8209, insofar as they declare, for the reasons therein given, Fishpond Lease Agreement No. 1372, valid and binding, are hereby REVERSED and SET ASIDE. The challenged Orders of the respondent Secretary of Agriculture and National Resources of 29 August 1969, 29 November 1969 and 21 April 1970 are likewise REVERSED and SET ASIDE and Fishpond Lease Agreement No. 1372 is ordered REINSTATED. No pronouncement as to costs. IT IS SO ORDERED. THERE MUST BE ACCEPTANCE OF OPTION OFFER G.R. No. 83759 July 12, 1991 CIPRIANO VASQUEZ vs. COURT OF APPEALS

. . . The contract of option is a separate and distinct contract from the contract which the parties may enter into upon the consummation of the option, and a consideration for an optional contract is just as important as the consideration for any other kind of contract. Thus, a distinction should be drawn between the consideration for the option to repurchase, and the consideration for the contract of repurchase itself." 7 Even if the promise was accepted, private respondent was not bound thereby in the absence of a distinct consideration. 8 It may be true that the foregoing issues were not squarely raised by the parties. Being, however, intertwined with the issue of the correctness of the decision of the respondent Secretary and, considering further that the determination of said issues is essential and indispensable for the rendition of a just decision in this case, this Court does not hesitate to rule on them. In Hernandez vs. Andal, 9 this Court held: "If the appellants' assignment of error be not considered a direct challenge to the decision of the court below, we still believe that the objection takes a narrow view of practice and procedure contrary to the liberal spirit which pervades the Rules of Court. The first injuction

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THIRD DIVISION [G.R. No. 83759. July 12, 1991.]

GUTIERREZ, JR., J p: This petition seeks to reverse the decision of the Court of Appeals which affirmed the earlier decision of the Regional Trial Court, 6th Judicial Region, Branch 56, Himamaylan, Negros Occidental in Civil Case No. 839 (for specific performance and damages) ordering the petitioners (defendants in the civil case) to resell Lot No. 1860 of the Cadastral Survey of Himamaylan, Negros Occidental to the respondents (plaintiffs in the civil case) upon payment by the latter of the amount of P24,000.00 as well as the appellate court's resolution denying a motion for reconsideration. In addition, the appellate court ordered the petitioners to pay the amount of P5,000.00 as necessary and useful expenses in accordance with Article 1616 of the Civil Code. The facts of the case are not in dispute. They are summarized by the appellate court as follows: "On January 15, 1975, the plaintiffs-spouses (respondents herein) filed this action against the defendants-spouses (petitioners herein) seeking to redeem Lot No. 1860 of the Himamaylan Cadastre which was previously sold by plaintiffs to defendants on September 21, 1964. "The said lot was registered in the name of plaintiffs. On October 1959, the same was leased by plaintiffs to the defendants up to crop year 1966-67, which was extended to crop year 1968-69. After the execution of the lease, defendants took possession of the lot, up to now and devoted the same to the cultivation of sugar. On September 21, 1964, the plaintiffs sold the lot to the defendants under a Deed of Sale for the amount of P9,000.00. The Deed of Sale was duly ratified and notarized. On the same day and along with the execution of the Deed of Sale, a separate instrument, denominated as Right to Repurchase (Exh. E), was executed by the parties granting plaintiffs the right to repurchase the lot for P12,000.00, said Exh. E likewise duly ratified and notarized. By virtue of the sale, defendants secured TCT No. T-58898 in their name. On January 2, 1969, plaintiffs sold the same lot to Benito Derrama, Jr., after securing the defendants' title, for the sum of P12,000.00. Upon the protestations of defendant, assisted by counsel, the said second sale was cancelled after the payment of P12,000.00 by the defendants to Derrama. Defendants resisted this action for redemption on the premise that Exh. E is just an option to buy since it is not embodied in the same document of sale but in a separate document, and since such option is not supported by a consideration distinct from the price, said deed for right to repurchase is not binding upon them. After trial, the court below rendered judgment against the defendants, ordering them to resell lot No. 1860 of the Himamaylan Cadastre to the plaintiffs for the repurchase price of P24,000.00, which amount combines the price paid for the first sale and the price paid by defendants to Benito Derrama, Jr. Defendants moved for, but were denied reconsideration. Excepting thereto, defendantsappealed, . . ." (Rollo, pp. 44-45). The petition was given due course in a resolution dated February 12, 1990. The petitioners insist that they can not be compelled to resell Lot No. 1860 of the Himamaylan Cadastre. They contend that the nature of the sale over the said lot between them and the private respondents was that of an absolute deed of sale and that the right thereafter granted by them to the private respondents (Right to Repurchase, Exhibit "E") can only be either an option to buy or a mere promise on their part to resell the property. They opine that since the "RIGHT TO REPURCHASE" was not supported by any consideration

distinct from the purchase price it is not valid and binding on the petitioners pursuant to Article 1479 of the Civil Code. The document denominated as "RIGHT TO REPURCHASE" (Exhibit E) provides: "RIGHT TO REPURCHASE KNOW ALL MEN BY THESE PRESENTS: I, CIPRIANO VASQUEZ, . . ., do hereby grant the spouses Martin Vallejera and Apolonia Olea, their heirs and assigns, the right to repurchase said Lot No. 1860 for the sum of TWELVE THOUSAND PESOS (P12,000.00), Philippine Currency, within the period TEN (10) YEARS from the agricultural year 1969-1970 when my contract of lease over the property shall expire and until the agricultural year 1979-1980. IN WITNESS WHEREOF, I have hereunto signed my name at Binalbagan, Negros Occidental, this 21st day of September, 1964. SGD. CIPRIANO VASQUEZ SGD. VALERIANA G. VASQUEZ (Rollo, p. 47). The Court of Appeals, applying the principles laid down in the case of Sanchez v. Rigos, 45 SCRA 368 [1972] decided in favor of the private respondents. In the Sanchez case, plaintiff-appellee Nicolas Sanchez and defendant-appellant Severino Rigos executed a document entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed . . . to sell" to Sanchez for the sum of P1,510.00, a registered parcel of land within 2 years from execution of the document with the condition that said option shall be deemed "terminated and lapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated period. In the same document, Sanchez' . . . hereby agree and conform with all the conditions set forth in the option to purchase executed in my favor, that I bind myself with all the terms and conditions." (Emphasis supplied) The notarized document was signed both by Sanchez and Rigos. After several tenders of payment of the agreed sum of P1,510.00 made by Sanchez within the stipulated period were rejected by Rigos, the former deposited said amount with the Court of First Instance of Nueva Ecija and filed an action for specific performance and damages against Rigos. The lower court rendered judgment in favor of Sanchez and ordered Rigos to accept the sum judicially consigned and to execute in Sanchez' favor the requisite deed of conveyance. Rigos appealed the case to the Court of Appeals which certified to this Court on the ground that it involves a pure question of law. This Court after deliberating on two conflicting principles laid down in the cases of Southwestern Sugar and Molasses Co. v. Atlantic Gulf and Pacific Co., (97 Phil. 249 [1955]) and Atkins, Kroll & Co., Inc. v. Cua Hian Tek, 102 Phil. 948 [1958]) arrived at the conclusion that Article 1479 of the Civil Code which provides: "ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. SGD. FRANCISCO SANICAS"

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

Dionisio C. Isidto for petitioners. Raymundo Lozada, Jr. for private respondents.

SYLLABUS 1. CIVIL LAW; SPECIAL CONTRACTS; SALE; RIGHT TO REPURCHASE, MUST BE ACCEPTED BY THE BUYER; NOT PRESENT IN CASE AT BAR. The record does not show that the private respondents accepted the "Right to Repurchase" the land in question. We disagree with the appellate court's finding that the private respondents accepted the "right to repurchase" under the following circumstances: ". . . as evidenced by the annotation and registration of the same on the back of the transfer of certificate of title in the name of appellants. As vividly appearing therein, it was signed by appellant himself and witnessed by his wife so that for all intents and purposes the Vasquez spouses are estopped from disregarding its obvious purpose and intention." 2. ID.; ID.; ID.; ID.; NOT VALIDATED BY ANNOTATION AND REGISTRATION OF THE RIGHT AT THE BACK OF THE CERTIFICATE OF TITLE. The annotation and registration of the right to repurchase at the back of the certificate of title of the petitioners can not be considered as acceptance of the right to repurchase. Annotation at the back of the certificate of title of registered land is for the purpose of binding purchasers of such registered land. Thus, we ruled in the case of Bel Air Village Association, Inc. vs. Dionisio (174 SCRA 589 [1989]), citing Tanchoco vs. Aquino (154 SCRA 1 [1987]), and Constantino vs. Espiritu (45 SCRA 557 [1972]) that purchasers of a registered land are bound by the annotation found at the back of the certificate of title covering the subject parcel of land. In effect, the annotation of the right to repurchase found at the back of the certificate of title over the subject parcel of land of the private respondents only served as notice of the existence of such unilateral promise of the petitioners to resell the same to the private respondents. This, however, can not be equated with acceptance of such right to repurchase by the private respondent. Neither can the signature of the petitioners in the document called "right to repurchase" signify acceptance of the right to repurchase. The respondents did not sign the offer. Acceptance should be made by the promisee, in this case, the private respondents and not the promisors, the petitioners herein. It would be absurd to require the promisor of an option to buy to accept his own offer instead of the promisee to whom the option to buy is given.

DECISION

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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." and Article 1324 thereof which provides: "ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. should be reconciled and harmonized to avoid a conflict between the two provisions. In effect, the Court abandoned the ruling in the Southwestern Sugar and Molasses Co. case and reiterated the ruling in the Atkins, Kroll and Co. case, to wit: "However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, (102 Phil. 948, 951-952) decided later than Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., (supra) saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued upon here was involved, treating such promise as an option which, although not binding as a contract in itself for lack of separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said: "'Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case however, upon accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was bilateral contract of sale. Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that. "'If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration. . . . ' (77 Corpus Juris Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.)" This Court affirmed the lower court's decision although the promise to sell was not supported by a consideration distinct from the price. It was obvious that Sanchez, the promisee, accepted the option to buy before Rigos, the promisor, withdrew the same. Under such circumstances, the option to purchase was converted into a bilateral contract of sale which bound both parties. In the instant case and contrary to the appellate court's finding, it is clear that the right to repurchase was not supported by a consideration distinct from the price. The rule is that the promisee has the burden of proving such consideration. Unfortunately, the private respondents, promisees in the right to repurchase failed to prove such consideration. They did not even allege the existence thereof in their complaint. (See Sanchez v. Rigos supra). Therefore, in order that the Sanchez case can be applied, the evidence must show that the private respondents accepted the right to repurchase.

The record, however, does not show that the private respondents accepted the "Right to Repurchase" the land in question. We disagree with the appellate court's finding that the private respondents accepted the "right to repurchase" under the following circumstances: . . as evidenced by the annotation and registration of the same on the back of the transfer of certificate of title in the name of appellants. As vividly appearing therein, it was signed by appellant himself and witnessed by his wife so that for all intents and purposes the Vasquez spouses are estopped from disregarding its obvious purpose and intention." The annotation and registration of the right to repurchase at the back of the certificate of title of the petitioners can not be considered as acceptance of the right to repurchase. Annotation at the back of the certificate of title of registered land is for the purpose of binding purchasers of such registered land. Thus, we ruled in the case of Bel Air Village Association, Inc. v. Dionisio (174 SCRA 589 [1989]), citing Tanchoco v. Aquino (154 SCRA 1 [1987]), and Constantino v. Espiritu (45 SCRA 557 [1972]) that purchasers of a registered land are bound by the annotations found at the back of the certificate of title covering the subject parcel of land. In effect, the annotation of the right to repurchase found at the back of the certificate of title over the subject parcel of land of the private respondents only served as notice of the existence of such unilateral promise of the petitioners to resell the same to the private respondents. This, however, can not be equated with acceptance of such right to repurchase by the private respondent. LLjur Neither can the signature of the petitioners in the document called "right to repurchase" signify acceptance of the right to repurchase. The respondents did not sign the offer. Acceptance should be made by the promisee, in this case, the private respondents and not the promisors, the petitioners herein. It would be absurd to require the promisor of an option to buy to accept his own offer instead of the promisee to whom the option to buy is given. Furthermore, the actions of the private respondents (a) filing a complaint to compel resale and their demands for resale prior to filing of the complaint cannot be considered acceptance. As stated in Vda. de Zulueta v. Octaviano (121 SCRA 314 [1983]): "And even granting, arguendo that the sale was a pacto de retro sale, the evidence shows that Olimpia, through her lawyer, opted to repurchase the land only on 16 February 1962, approximately two years beyond the stipulated period, that is, `not later than May, 1960.' If Olimpia could not locate Aurelio, as she contends, and based on her allegation that the contract between her was one of sale with right to repurchase, neither, however, did she tender the redemption price to private respondent Isauro, but merely wrote him letters expressing her readiness to repurchase the property. 'It is clear that the mere sending of letters by the vendor expressing his desire to repurchase the property without accompanying tender of the redemption price fell short of the requirements of law.' (Lee v. Court of Appeals, 68 SCRA 197 [1972]). Neither did petitioner make a judicial consignation of the repurchase price within the agreed period. 'In a contract of sale with a right of repurchase, the redemptioner who may offer to make the repurchase on the option date of redemption should deposit the full amount in court . . .' (Rumbaoa v. Arzaga, 84 Phil. 812 [1949]). 'To effectively exercise the right to repurchase the vendor a retro must make an actual and simultaneous tender of payment or consignation.' (Catangcatang v. Legayada, 84 SCRA 51 [1978]). The private respondents' ineffectual acceptance of the option to buy validated the petitioner's refusal to sell the parcel which can be considered as a withdrawal of the option to buy.

We agree with the petitioners that the case of Vda. de Zulueta v. Octaviano, (supra) is in point. Stripped of non-essentials the facts of the Zulueta case are as follows: On November 25, 1952 (Emphasis supplied) Olimpia Fernandez Vda. de Zulueta, the registered owner of a 5.5 hectare riceland sold the lot to private respondent Aurelio B. Octaviano for P8,600.00 subject to certain terms and conditions. The contract was an absolute and definite sale. On the same day, November 25, 1952, (Emphasis supplied) the vendee, Aurelio signed another document giving the vendor Zulueta the "option to repurchase" the property at anytime after May 1958 but not later than May 1960. When, however, Zulueta tried to exercise her "option to buy" the property, Aurelio resisted the same prompting Zulueta to commence suit for recovery of ownership and possession of the property with the then Court of First Instance of Iloilo. cdrep The trial court ruled in favor of Zulueta. Upon appeal, however, the Court of Appeals reversed the trial court's decision. We affirmed the appellate court's decision and ruled: "The nature of the transaction between Olimpia and Aurelio, from the context of Exhibit "E" is not a sale with right to repurchase. Conventional redemption takes place `when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which may have been agreed upon. (Article 1601, Civil Code). In this case, there was no reservation made by the vendor, Olimpia, in the document Exhibit "E". The `option to repurchase' was contained in a subsequent document and was made by the vendee, Aurelio. Thus, it was more of an option to buy or a mere promise on the part of the vendee, Aurelio, to resell the property to the vendor, Olimpia. (10 Manresa, p. 311 cited in Padilla's Civil Code Annotated, Vol. V, 1974 ed., p. 467) As held in Villarica v. Court of Appeals (26 SCRA 189 [1968]): "'The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no longer reserve the right to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of repurchase but some other right like the option to buy in the instant case . . . (Emphasis our)" The appellate court rejected the application of the Zulueta case by stating: ". . . [A]s found by the trial court from which we quote with approval below, the said cases involve the lapse of several days for the execution of separate instruments after the execution of the deed of sale, while the instant case involves the execution of an instrument, separate as it is, but executed on the same day, and notarized by the same notary public, to wit: "A close examination of Exh. "E" reveals that although it is a separate document in itself, it is far different from the document which was pronounced as an option by the Supreme Court in the Villarica case. The option in the Villarica case was executed several days after the execution of the deed of sale. In the present case, Exh. "E" was executed and ratified by the same notary public and the Deed of Sale of Lot No. 1860 by the plaintiffs to the defendants were notarized by the same notary public and entered in the same page of the same notarial register . . ." The latter case (Vda. de Zulueta v. Octaviano, supra), likewise involved the execution of the separate document after an intervention of several days and the question of laches was
LAW ON SALES | POLICITACION AND PERFECTION FT | 27

decided therein, which is not present in the instant case. That distinction is therefore crucial and We are of the opinion that the appellee's right to repurchase has been adequately provided for and reserved in conformity with Article 1601 of the Civil Code, which states: "'Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provision of Article 1616 and other stipulations which may have been agreed upon.'" (Rollo, pp. 46-47) Obviously, the appellate court's findings are not reflected in the cited decision. As in the instant case, the option to repurchase involved in the Zulueta case was executed in a separate document but on the same date that the deed of definite sale was executed. cdrep While it is true that this Court in the Zulueta case found Zulueta guilty of laches, this, however, was not the primary reason why this Court disallowed the redemption of the property by Zulueta. It is clear from the decision that the ruling in the Zulueta case was based mainly on the finding that the transaction between Zulueta and Octaviano was not a sale with right to repurchase and that the "option to repurchase was but an option to buy or a mere promise on the part of Octaviano to resell the property to Zulueta. In the instant case, since the transaction between the petitioners and private respondents was not a sale with right to repurchase, the private respondents cannot avail of Article 1601 of the Civil Code which provides for conventional redemption. WHEREFORE, the petition is GRANTED. The questioned decision and resolution of the Court of Appeals are hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 839 of the then Court of First Instance of Negros Occidental 12th Judicial District Branch 6 is DISMISSED. No costs. SO ORDERED.

RIGHT OF FIRST REFUSAL G.R. No. 109125 December 2, 1994 ANG YU ASUNCION, ET AL. vs. COURT OF APPEALS, ET AL.

"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.'

EN BANC [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.

"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;
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DECISION

VITUG, J p: 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 Ann 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.

'2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the transfer of title in his favor and other expenses incidental to the sale of above-described property including capital gains tax and accrued real estate taxes.' "As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3, 1990. "On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that the latter vacate the premises. "On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs. "The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123. "On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows: "'Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty. Anacleto Magno respectively were duly notified in today's consideration of the motion as evidenced by the rubber stamp and signatures upon the copy of the Motion for Execution. 'The gist of the motion is that the Decision of the Court dated September 21, 1990 as modified by the Court of Appeals in its decision in CA G.R. CV-21123, and elevated to the Supreme Court upon the petition for review and that the same was denied by the highest tribunal in its resolution dated May 6, 1991 in G.R. No. L-97276, had now become final and executory. As a consequence, there was an Entry of Judgment by the Supreme Court as of June 6, 1991, stating that the aforesaid modified decision had already become final and executory. 'It is the observation of the Court that this property in dispute was the subject of the Notice of Lis Pendens and that the modified decision of this Court promulgated by the Court of Appeals which had become final to the effect that should the defendants decide to offer the property for sale for a price of P11 Million or lower, and considering the mercurial and uncertain forces in our market economy today, the same right of first refusal to herein plaintiffs/appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos or more. 'WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos in recognition of plaintiffs' right of first refusal and that a new Transfer Certificate of Title be issued in favor of the buyer. 'All previous transactions involving the same property notwithstanding the issuance of another title to Buen Realty Corporation, is hereby set aside as having been executed in bad faith. 'SO ORDERED.' "On September 22, 1991 respondent Judge issue 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. prcd 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. cdrep

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides: "Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. "A contract of sale may be absolute or conditional. When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. 3 If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4 An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. 5 An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz: "ART. 1479. . . . . "An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. (1451a) 6 Observe, however, that the option is not the contract of sale itself. 7 The optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. 8 Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the following rules generally govern:
LAW ON SALES | POLICITACION AND PERFECTION FT | 29

(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdrawal the offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." LLjur (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 1319 9 of the same Code. An option or an offer would require, among other things, 10 a clear certainty on both the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct. LexLib Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. 11 It is not to say, however, that the right of first refusal would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery for damages. The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first refusal" in favor of petitioners. The consequence of such a declaration entails no more than what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an action for damages in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to respect the registration of the lis pendens in Civil Case No. 87-41058 are matters that must be independently addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership and possession of the property, without first being duly afforded its day in court. We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has observed: Cdpr "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. PARAAQUE KINGS ENTERPRISES, INCORPORATED, petitioner, vs. COURT OF APPEALS, CATALINA L. SANTOS, represented by her attorney-in-fact, LUZ B. PROTACIO, and DAVID A. RAYMUNDO, respondents. DECISION PANGANIBAN, J.: Do allegations in a complaint showing violation of a contractual right of first option or priority to buy the properties subject of the lease constitute a valid cause of action? Is the grantee of such right entitled to be offered the same terms and conditions as those given to a third party who eventually bought such properties? In short, is such right of first refusal enforceable by an action for specific performance? These questions are answered in the affirmative by this Court in resolving this petition for review under Rule 45 of the Rules of Court challenging the Decision [1] of the Court of Appeals[2] promulgated on March 29, 1993, in CA-G.R. CV No. 34987 entitled Paraaque Kings Enterprises, Inc. vs. Catalina L. Santos, et al., which affirmed the order[3] of September 2, 1991, of the Regional Trial Court of Makati, Branch 57,[4] dismissing Civil Case No. 91-786 for lack of a valid cause of action.

complaint,[5] which is reproduced in full below: Plaintiff, by counsel, respectfully states that: 1. Plaintiff is a private corporation organized and existing under and by virtue of the laws of the Philippines, with principal place of business of (sic) Dr. A. Santos Avenue, Paraaque, Metro Manila, while defendant Catalina L. Santos, is of legal age, widow, with residence and postal address at 444 Plato Street, Ct., Stockton, California, USA, represented in this action by her attorney-in-fact, Luz B. Protacio, with residence and postal address at No, 12, San Antonio Street, Magallanes Village, Makati, Metro Manila, by virtue of a general power of attorney. Defendant David A. Raymundo, is of legal age, single, with residence and postal address at 1918 Kamias Street, Damarias Village, Makati, Metro Manila, where they (sic) may be served with summons and other court processes. Xerox copy of the general power of attorney is hereto attached as Annex A. 2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land located at (sic) Paraaque, Metro Manila with transfer certificate of title nos. S-19637, S-19638 and S-19643 to 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 Paraaque Kings Enterprises, Incorporated by virtue of a deed of assignment and with the conformity of defendant Santos, the same was duly registered, Xerox copy of the deed of assignment is hereto attached as Annex L. 6. Paragraph 9 of the assigned leased (sic) contract provides among others that: 9. That in case the properties subject of the lease agreement are sold or encumbered, Lessors shall impose as a condition that the buyer or mortgagee thereof shall recognize and be bound by all the terms and conditions of this lease agreement and shall respect this Contract of Lease as if they are the LESSORS thereof and in case of sale, LESSEE shall have the first option or priority to buy the properties subject of the lease;
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Facts of the Case

On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati a

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 plaintiffs 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, plaintiffs 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 plaintiffs offer to buy or two days after she sold her properties. In her reply she stated among others that the period has lapsed and the plaintiff is not a privy (sic) to the contract. Xerox copy of the letter is hereto attached as Annex U. 15. On June 28, 1989, counsel for plaintiff informed counsel of defendant Santos of the fact that plaintiff is the assignee of all rights and interest of the former lessor. Xerox copy of the letter is hereto attached as Annex V.

16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the new owner is defendant Raymundo. Xerox copy of the letter is hereto attached as Annex W. 17. From the preceding facts it is clear that the sale was simulated and that there was a collusion between the defendants in the sales of the leased properties, on the ground that when plaintiff wrote a letter to defendant Santos to rectify the error, she immediately have (sic) the property reconveyed it (sic) to her in a matter of twelve (12) days. 18. Defendants have the same counsel who represented both of them in their exchange of communication with plaintiffs 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) suit.

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 plaintiffs 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 attorneys 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 attorneys fees. Plaintiff further prays for other just and equitable reliefs plus cost of

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 plaintiffs 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 P15 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. x x x 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. x x x The inescapable result of the foregoing considerations point to no
LAW ON SALES | POLICITACION AND PERFECTION FT | 31

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: x x x Appellants 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, x x x[7] Petitioner moved for reconsideration but was denied in an order dated August 20, 1993.[8] Hence this petition. Subsequently, petitioner filed an Urgent Motion for the Issuance of Restraining Order and/or Writ of Preliminary Injunction and to Hold Respondent David A. Raymundo in Contempt of Court.[9] The motion sought to enjoin respondent Raymundo and his counsel from pursuing the ejectment complaint filed before the barangay captain of San Isidro, Paraaque, Metro Manila; to direct the dismissal of said ejectment complaint or of any similar action that may have been filed; and to require respondent Raymundo to explain why he should not be held in contempt of court for forum-shopping. The ejectment suit initiated by respondent Raymundo against petitioner arose from the expiration of the lease contract covering the property subject of this case. The ejectment suit was decided in favor of Raymundo, and the entry of final judgment in respect thereof renders the said motion moot and academic.

the latters 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.

complaint must show that the claim for relief does not exist, rather than that a claim has been defectively stated, or is ambiguous, indefinite or uncertain.[13] Equally important, a defendant moving to dismiss a complaint on the ground of lack of cause of action is regarded as having hypothetically admitted all the averments thereof.[14] A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual breach on the part of private respondents. Under paragraph 9 of the contract of lease between respondent Santos and petitioner, the latter was granted the first option or priority to purchase the leased properties in case Santos decided to sell. If Santos never decided to sell at all, there can never be a breach, much less an enforcement of such right. But on September 21, 1988, Santos sold said properties to Respondent Raymundo without first offering these to petitioner. Santos indeed realized her error, since she repurchased the properties after petitioner complained. Thereafter, she offered to sell the properties to petitioner for P15 million, which petitioner, however, rejected because of the ridiculous price. But Santos again appeared to have violated the same provision of the lease contract when she finally resold the properties to respondent Raymundo for only P9 million without first offering them to petitioner at such price. Whether there was actual breach which entitled petitioner to damages and/or other just or equitable relief, is a question which can better be resolved after trial on the merits where each party can present evidence to prove their respective allegations and defenses.[15] The trial and appellate courts based their decision to sustain respondents motion to dismiss on the allegations of Paraaque Kings Enterprises that Santos had actually offered the subject properties for sale to it prior to the final sale in favor of Raymundo, but that the offer was rejected. According to said courts, with such offer, Santos had verily complied with her obligation to grant the right of first refusal to petitioner. We hold, however, that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the properties for the amount of P9 million, the price for which they were finally sold to respondent Raymundo, should have likewise been first offered to petitioner. The Court has made an extensive and lengthy discourse on the concept of, and obligations under, a right of first refusal in the case of Guzman, Bocaling & Co. vs. Bonnevie.[16] In that case, under a contract of lease, the lessees (Raul and Christopher Bonnevie) were given a right of first priority to purchase the leased property in case the lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies was P600,000.00 to be fully paid in cash, less a mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and accepted by Guzman was only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be paid only when the property was cleared of occupants. We held that even if the Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso could not sell it to another for a lower price and under more favorable terms and conditions without first offering said favorable terms and price to the Bonnevies as well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso thereafter lawfully sell the subject property to others, and only under the same terms and conditions previously offered to the Bonnevies. Of course, under their contract, they specifically stipulated that the Bonnevies could exercise the right of first priority, all things and conditions being equal. This Court interpreted this proviso to mean that there should be identity of terms and conditions to be offered to the Bonnevies and all other prospective buyers, with the Bonnevies to enjoy the right of first priority. We hold that the same rule applies even without the same proviso if the right of first refusal (or the first option to buy) is not to be rendered illusory. From the foregoing, the basis of the right of the first refusal* must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Only after the grantee** fails to exercise its right of first priority under the same terms and within the period
LAW ON SALES | POLICITACION AND PERFECTION FT | 32

The Courts Ruling

Preliminary Issue: Failure to File Sufficient Copies of Brief

We first dispose of the procedural issue raised by respondents, particularly petitioners 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 courts equity jurisdiction.[10] It does not appear that respondents were unduly prejudiced by petitioners nonfeasance. Neither has it been shown that such failure was intentional.

Main Issue: Validity of Cause of Action

Issue

The principal legal issue presented before us for resolution is whether the aforequoted complaint alleging breach of the contractual right of first option or priority to buy states a valid cause of action. Petitioner contends that the trial court as well as the appellate tribunal erred in dismissing the complaint because it in fact had not just one but at least three (3) valid causes of action, to wit: (1) breach of contract, (2) its right of first refusal founded in law, and (3) damages. Respondents Santos and Raymundo, in their separate comments, aver that the petition should be denied for not raising a question of law as the issue involved is purely factual -- whether respondent Santos complied with paragraph 9 of the lease agreement -and for not having complied with Section 2, Rule 45 of the Rules of Court, requiring the filing of twelve (12) copies of the petitioners 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 petitioners payment of rentals of the leased property to respondent Raymundo from June 15, 1989, to June 30, 1990, was an acknowledgment of

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

contemplated, could the owner validly offer to sell the property to a third person, again, under the same terms as offered to the grantee***. 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 (underscoring 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 refusal* 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.

assignor and the petitioner, represented by its Vice President Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated that: x x x the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and participation over said leased premises, x x x[21] (underscoring supplied) One of such rights included in the contract of lease and, therefore, in the assignments of rights was the lessees 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.

SO ORDERED. ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN, petitioners, vs. PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN, FERNANDO MAGBANUA and LIZZA TIANGCO, respondents. DECISION GONZAGA-REYES, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking reversal of the Decision[1] 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 Decision[2]dated May 13, 1996 of Branch 217 of the Regional Trial Court of Quezon City in Civil Case No. Q-9318582. 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 rent al 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.
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Respondent Raymundo privy to the Contract of Lease

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 lessees right of first refusal to purchase shall be determined by the Urban Zone Expropriation and Land Management Committee. Hence, x x x 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.

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.

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: x x x the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all his rights, interest and participation over said premises afore-described, x x x[20] (underscoring supplied) And under the subsequent assignment executed between Lee Ching Bing as

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 Buiding 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 Decision [5] dated May 13, 1996 dismissing 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 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) o f 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; decision[7]

(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 errors[10]: 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 COMMITTED 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 note 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 firs t 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 enume rated 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 property[16], and an agreement creating a right of way[17] 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 sold[19]
LAW ON SALES | POLICITACION AND PERFECTION FT | 34

It is thus evident that the statute of frauds does not contemplate cases involving a right of first refusal. As such, a right of first refusal need not be written to be enforceable and may be proven by oral evidence. The next question to be ascertained is whether or not respondents have satisfactorily proven their right of first refusal over the property subject of the Deed of Absolute Sale dated September 4, 1990 between petitioner Rosencor and Eufrocina de Leon. On this point, we agree with the factual findings of the Court of Appeals that respondents have adequately proven the existence of their right of first refusal. Federico Bantugan, Irene Guillermo, and Paterno Inquing uniformly testified that they were promised by the late spouses Faustino and Crescencia Tiangco and, later on, by their heirs a right of first refusal over the property they were currently leasing should they decide to sell the same. Moreover, respondents presented a letter[20] 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 Tiangco [21] They also dispensed with the testimony of Eufrocina de Leon[22] who could have denied the existence or knowledge of the right of first refusal. As such, there being no evidence to the contrary, the right of first refusal claimed by respondents was substantially proven by respondents before the lower court. Having ruled upon the question as to the existence of respondents right of first refusal, the next issue to be answered is whether or not the Court of Appeals erred in ordering the rescission of the Deed of Absolute Sale dated September 4, 1990 between Rosencor and Eufrocina de Leon and in decreeing that the heirs of the spouses Tiangco should afford respondents the exercise of their right of first refusal. In other words, may a contract of sale entered into in violation of a third partys right of first refusal be rescinded in order that such third party can exercise said right? The issue is not one of first impression. In Guzman, Bocaling and Co, Inc. vs. Bonnevie[23], 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 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. Subsequently[24] in Equatorial Realty and Development, Inc. vs. Mayfair Theater, Inc.[25], the Court, en banc, with three justices dissenting,[26] ordered the rescission of a contract entered into in violation of a right of first refusal. Using the ruling in Guzman Bocaling & Co., Inc. vs. Bonnevie as basis, the Court decreed that since respondent therein had a right of first refusal over the said property, it could only exercise the said right if the fraudulent sale is first set aside or rescinded. Thus: What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in 1974. There was an exchange of letters evidencing the offer and counter-offers made by both parties. Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfairs right of first refusal, Carmelo violated such right when without affording its negotiations with Mayfair the full process to ripen to at least an interface of a definite offer and a possible corresponding acceptance within the 30-day exclusive option time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M. Recto property to Equatorial. Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question, rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim that to be a purchaser in good faith, and, therefore, rescission lies. X X X

Since Mayfair had a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or rescinded. All of these matters are now before us and so there should be no piecemeal determination of this case and leave festering sores to deteriorate into endless litigation. The facts of the case and considerations of justice and equity require that we order rescission here and now. Rescission is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause or to protect some incompatible and preferred right by the contract. The sale of the subject real property should now be rescinded considering that Mayfair, which had substantial interest over the subject property, was prejudiced by the sale of the subject property to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day stipulate period.[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

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 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.
LAW ON SALES | POLICITACION AND PERFECTION FT | 35

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. Equat orials 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.

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

object of the contract are legally in the possession of third persons who did not act in bad faith.[30] It must be borne in mind that, unlike the cases cited above, the right of first refusal involved in the instant case was an oral one given to respondents by the deceased spouses Tiangco and subsequently recognized by their heirs. As such, in order to hold that petitioners were in bad faith, there must be clear and convincing proof that petitioners were made aware of the said right of first refusal either by the respondents or by the heirs of the spouses Tiangco. It is axiomatic that good faith is always presumed unless contrary evidence is adduced.[31] A purchaser in good faith is one who buys the property of another without notice that some other person has a right or interest in such a property and pays a full and fair price at the time of the purchase or before he has notice of the claim or interest of some other person in the property.[32] In this regard, the rule on constructive notice would be inapplicable as it is undisputed that the right of first refusal was an oral one and that the same was never reduced to writing, much less registered with the Registry of Deeds. In fact, even the lease contract by which respondents derive their right to possess the property involved was an oral one. On this point, we hold that the evidence on record fails to show that petitioners acted in bad faith in entering into the deed of sale over the disputed property with the heirs of the spouses Tiangco. Respondents failed to present any evidence that prior to the sale of the property on September 4, 1990, petitioners were aware or had notice of the oral right of first refusal. Respondents point to the letter dated June 1, 1990[33] as indicative of petitioners knowledge of the said right. In this letter, a certain Atty. Erlinda Aguila demanded that respondent Irene Guillermo vacate the structure they were occupying to make way for its demolition. We fail to see how the letter could give rise to bad faith on the part of the petitioner. No mention is made of the right of first refusal granted to respondents. The name of petitioner Rosencor or any of it officers did not appear on the letter and the letter did not state that Atty. Aguila was writing in behalf of petitioner. In fact, Atty. Aguila stated during trial that she wrote the letter in behalf of the heirs of the spouses Tiangco. Moreover, even assuming that Atty. Aguila was indeed writing in behalf of petitioner Rosencor, there is no showing that Rosencor was aware at that time that such a right of first refusal existed. Neither was there any showing that after receipt of this June 1, 1990 letter, respondents notified Rosencor or Atty. Aguila of their right of first refusal over the property. Respondents did not try to communicate with Atty. Aguila and inform her about their preferential right over the disputed property. There is even no showing that they contacted the heirs of the spouses Tiangco after they received this letter to remind them of their right over the property. Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de Leon, where she recognized the right of first refusal of respondents, as indicative of the bad faith of petitioners. We do not agree. Eufrocina de Leon wrote the letter on her own behalf and not on behalf of petitioners and, as such, it only shows that Eufrocina de Leon was aware of the existence of the oral right of first refusal. It does not show that petitioners were likewise aware of the existence of the said right. Moreover, the letter was made a month after the execution of the Deed of Absolute Sale on September 4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco. There is no showing that prior to the date of the execution of the said Deed, petitioners were put on notice of the existence of the right of first refusal. Clearly, if there was any indication of bad faith based on respondents evidence, it would only be on the part of Eufrocina de Leon as she was aware of the right of first refusal

of respondents yet she still sold the disputed property to Rosencor. However, bad faith on the part of Eufrocina de Leon does not mean that petitioner Rosencor likewise acted in bad faith. There is no showing that prior to the execution of the Deed of Absolute Sale, petitioners were made aware or put on notice of the existence of the oral right of first refusal. Thus, absent clear and convincing evidence to the contrary, petitioner Rosencor will be presumed to have acted in good faith in entering into the Deed of Absolute Sale over the disputed property. Considering that there is no showing of bad faith on the part of the petitioners, the Court of Appeals thus erred in ordering the rescission of the Deed of Absolute Sale dated September 4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco. The acquisition by Rosencor of the property subject of the right of first refusal is an obstacle to the action for its rescission where, as in this case, it was shown that Rosencor is in lawful possession of the subject of the contract and that it did not act in bad faith.[34] This does not mean however that respondents are left without any remedy for the unjustified violation of their right of first refusal. Their remedy however is not an action for the rescission of the Deed of Absolute Sale but an action for damages against the heirs of the spouses Tiangco for the unjustified disregard of their right of first refusal[35]. 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. SECOND DIVISION DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, Petitioners, G.R. No. 149734

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

All things considered, what then are the relative rights and obligations of the parties? To recapitulate: the sale between the spouses Litonjua and PWHAS is valid, notwithstanding the absence of L & R 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

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

Dr. Daniel Vazquez and Ma. Luisa Vazquez[1] filed this Petition for Review on Certiorari[2] dated October 11, 2001 assailing the Decision[3] of the Court of Appeals dated September 6, 2001 which reversed the Decision[4] of the Regional Trial Court (RTC) and dismissed their complaint for specific performance and damages against Ayala Corporation.
LAW ON SALES | POLICITACION AND PERFECTION FT | 36

which was formulated a year later, it was in the third phase, or Phase II-c. Despite their disparate rulings, the RTC and the appellate court agree on the following antecedents:[5] On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez (hereafter, Vasquez spouses) entered into a Memorandum of Agreement (MOA) with Ayala Corporation (hereafter, AYALA) with AYALA buying from the Vazquez spouses, all of the latters shares of stock in Conduit Development, Inc. (hereafter, Conduit). The main asset of Conduit was a 49.9 hectare property in Ayala Alabang, Muntinlupa, which was then being developed by Conduit under a development plan where the land was divided into Villages 1, 2 and 3 of the Don Vicente Village. The development was then being undertaken for Conduit by G.P. Construction and Development Corp. (hereafter, GP Construction). Under the MOA, the Vasquez spouses made several express warranties, as follows:

be true and correct at the time of Closing as though such representations and warranties were made at such time; and

xxx

3.1. The SELLERS shall deliver to the BUYER:

6. Representation and Warranties by the SELLERS

xxx

The SELLERS jointly and severally represent and warrant to the BUYER that at the time of the execution of this Agreement and at the Closing:

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

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

xxx

xxx

6.2.3. There are no actions, suits or proceedings pending, or to the knowledge of the SELLERS, threatened against or affecting the SELLERS with respect to the Shares or the Property; and

5.7. The BUYER hereby commits that it will develop the Remaining Property into a first class residential subdivision of the same class as its New Alabang Subdivision, and that it intends to complete the first phase under its amended development plan within three (3) years from the date of this Agreement. x x x

D. A list of all persons and/or entities with whom the Company has pending contracts, if any. 7. Additional Warranties by the SELLERS xxx 7.1. With respect to the Audited Financial Statements required to be submitted at Closing in accordance with Par. 3.1.5 above, the SELLER jointly and severally warrant to the BUYER that:

3.1.5. Audited financial statements of the Company as at Closing date.

5.15. The BUYER agrees to give the SELLERS a first option to purchase four developed lots next to the Retained Area at the prevailing market price at the time of the purchase.

4. Conditions Precedent

All obligations of the BUYER under this Agreement are subject to fulfillment prior to or at the Closing, of the following conditions: The parties are agreed that the development plan referred to in paragraph 5.7 is not Conduits development plan, but Ayalas amended development plan which was still to be formulated as of the time of the MOA. While in the Conduit plan, the 4 lots to be offered for sale to the Vasquez Spouses were in the first phase thereof or Village 1, in the Ayala plan

7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company shall own the Remaining Property, free from all liens and encumbrances and that the Company shall have no obligation to any party except for billings payable to GP Construction & Development Corporation and advances made by Daniel Vazquez for which BUYER shall be responsible in accordance with Par. 2 of this Agreement.

4.1. The representations and warranties by the SELLERS contained in this Agreement shall
LAW ON SALES | POLICITACION AND PERFECTION FT | 37

7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the Company as of Closing, and those disclosed to BUYER, the Company as of the date thereof, has no liabilities of any nature whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities due or to become due and whether incurred in respect of or measured in respect of the Companys income prior to Closing or arising out of transactions or state of facts existing prior thereto.

G.P. Construction not being able to reach an amicable settlement with Lancer, on March 22, 1982, Lancer sued G.P. Construction, Conduit and Ayala in the then Court of First Instance of Manila in Civil Case No. 82-8598. G.P. Construction in turn filed a cross-claim against Ayala. G.P. Construction and Lancer both tried to enjoin Ayala from undertaking the development of the property. The suit was terminated only on February 19, 1987, when it was dismissed with prejudice after Ayala paid both Lancer and GP Construction the total of P4,686,113.39.

the Property and the Lancer suit does not affect the shares of stock sold to Ayala; Ayala was obligated to develop within 3 years; to say that Ayala was under no obligation to follow a time frame was to put the Vasquezes at Ayalas mercy; Ayala did not develop because of a slump in the real estate market; the MOA was drafted and prepared by the AYALA who should suffer its ambiguities; the option to purchase the 4 lots is valid because it was supported by consideration as the option is incorporated in the MOA where the parties had prestations to each other. [Emphasis supplied]

7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion against the Company as at closing or any liability of any nature and in any amount not fully reflected or reserved against such Audited Financial Statements referred to above, and those disclosed to BUYER.

xxx

xxx xxx

Taking the position that Ayala was obligated to sell the 4 lots adjacent to the Retained Area within 3 years from the date of the MOA, the Vasquez spouses sent several reminder letters of the approaching so-called deadline. However, no demand after April 23, 1984, was ever made by the Vasquez spouses for Ayala to sell the 4 lots. On the contrary, one of the letters signed by their authorized agent, Engr. Eduardo Turla, categorically stated that they expected development of Phase 1 to be completed by February 19, 1990, three years from the settlement of the legal problems with the previous contractor.

Ayala Corporation filed an appeal, alleging that the trial court erred in holding that petitioners did not breach their warranties under the MOA[6] dated April 23, 1981; that it was obliged to develop the land where the four (4) lots subject of the option to purchase are located within three (3) years from the date of the MOA; that it was in delay; and that the option to purchase was valid because it was incorporated in the MOA and the consideration therefor was the commitment by Ayala Corporation to petitioners embodied in the MOA.

7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the Company is not engaged in or a party to, or to the best of the knowledge of the SELLERS, threatened with, any legal action or other proceedings before any court or administrative body, nor do the SELLERS know or have reasonable grounds to know of any basis for any such action or proceeding or of any governmental investigation relative to the Company.

By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered for sale. The four lots were then offered to be sold to the Vasquez spouses at the prevailing price in 1990. This was rejected by the Vasquez spouses who wanted to pay at 1984 prices, thereby leading to the suit below.

As previously mentioned, the Court of Appeals reversed the RTC Decision. According to the appellate court, Ayala Corporation was never informed beforehand of the existence of the Lancer claim. In fact, Ayala Corporation got a copy of the Lancer subcontract only on May 29, 1981 from G.P. Constructions lawyers. The Court of Appeals thus held that petitioners violated their warranties under the MOA when they failed to disclose Lancers claims. Hence, even conceding that Ayala Corporation was obliged to develop and sell the four (4) lots in question within three (3) years from the date of the MOA, the obligation was suspended during the pendency of the case filed by Lancer.

After trial, the court a quo rendered its decision, the dispositive portion of which states:

Interpreting the MOAs paragraph 5.7 above-quoted, the appellate court held that Ayala Corporation committed to develop the first phase of its own amended development plan and not Conduits development plan. Nowhere does the MOA provide that Ayala Corporation shall follow Conduits development plan nor is Ayala Corporation prohibited from changing the sequence of the phases of the property it will develop.

7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and observance by the Company of any term, covenant or condition of any instrument or agreement to which the company is a party or by which it is bound, and no condition exists which, with notice or lapse of time or both, will constitute such default or breach.

THEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant, ordering defendant to sell to plaintiffs the relevant lots described in the Complaint in the Ayala Alabang Village at the price of P460.00 per square meter amounting to P1,349,540.00; ordering defendant to reimburse to plaintiffs attorneys fees in the sum of P200,000.00 and to pay the cost of the suit.

Anent the question of delay, the Court of Appeals ruled that there was no delay as petitioners never made a demand for Ayala Corporation to sell the subject lots to them. According to the appellate court, what petitioners sent were mere reminder letters the last of which was dated prior to April 23, 1984 when the obligation was not yet demandable. At any rate, the Court of Appeals found that petitioners in fact waived the three (3)-year period when they sent a letter through their agent, Engr. Eduardo Turla, stating that they expect that the development of Phase I will be completed by 19 February 1990, three years from the settlement of the legal problems with the previous contractor.[7]

After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the Don Vicente Project. Ayala then received a letter from one Maximo Del Rosario of Lancer General Builder Corporation informing Ayala that he was claiming the amount of P1,509,558.80 as the subcontractor of G.P. Construction...

In its decision, the court a quo concluded that the Vasquez spouses were not obligated to disclose the potential claims of GP Construction, Lancer and Del Rosario; Ayalas accountants should have opened the records of Conduit to find out all claims; the warranty against suit is with respect to the shares of

The appellate court likewise ruled that paragraph 5.15 above-quoted is not an option contract but a right of first refusal there being no separate consideration therefor. Since petitioners refused Ayala Corporations offer to sell the subject lots at the reduced
LAW ON SALES | POLICITACION AND PERFECTION FT | 38

1990 price of P5,000.00 per square meter, they have effectively waived their right to buy the same.

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

development plan within three (3) years from the execution of the MOA. However, it is not obliged to develop the third phase (Phase II-C) where the subject lots are located within the same time frame because there is no contractual stipulation in the MOA therefor. It is free to decide on its own the period for the development of Phase II-C. If petitioners wanted to impose the same three (3)-year timetable upon the third phase of the amended development plan, they should have filed a suit to fix the time table in accordance with Article 1197[10] of the Civil Code. Having failed to do so, Ayala Corporation cannot be declared to have been in delay.

They also assert that demand was made on Ayala Corporation to comply with their obligation under the MOA. Apart from their reminder letters dated January 24, February 18 and March 5, 1984, they also sent a letter dated March 4, 1984 which they claim is a categorical demand for Ayala Corporation to comply with the provisions of the MOA.

Ayala Corporation filed a Comment on the Petition[8] dated March 26, 2002, contending that the petition raises questions of fact and seeks a review of evidence which is within the domain of the Court of Appeals. Ayala Corporation maintains that the subcontract between GP Construction, with whom Conduit contracted for the development of the property under a Construction Contract dated October 10, 1980, and Lancer was not disclosed by petitioners during the negotiations. Neither was the liability for Lancers claim included in the Audited Financial Statements submitted by petitioners after the signing of the MOA. These justify the conclusion that petitioners breached their warranties under the afore-quoted paragraphs of the MOA. Since the Lancer suit ended only in February 1989, the three (3)-year period within which Ayala Corporation committed to develop the property should only be counted thence. Thus, when it offered the subject lots to petitioners in 1990, Ayala Corporation was not yet in delay.

Ayala Corporation further contends that no demand was made on it for the performance of its alleged obligation. The letter dated October 4, 1983 sent when petitioners were already aware of the Lancer suit did not demand the delivery of the subject lots by April 23, 1984. Instead, it requested Ayala Corporation to keep petitioners posted on the status of the case. Likewise, the letter dated March 4, 1984 was merely an inquiry as to the date when the development of Phase 1 will be completed. More importantly, their letter dated June 27, 1988 through Engr. Eduardo Turla expressed petitioners expectation that Phase 1 will be completed by February 19, 1990.

The parties were required to submit their respective memoranda in the Resolution[12] dated November 18, 2002. In compliance with this directive, petitioners submitted their Memorandum[13] dated February 14, 2003 on even date, while Ayala Corporation filed its Memorandum[14] dated February 14, 2003 on February 17, 2003.

We shall first dispose of the procedural question raised by the instant petition.

Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a right of first refusal and not an option contract.

In response to petitioners contention that there was no action or proceeding against them at the time of the execution of the MOA on April 23, 1981, Ayala Corporation avers that the facts and circumstances which gave rise to the Lancer claim were already extant then. Petitioners warranted that their representations under the MOA shall be true and correct at the time of Closing which shall take place within four (4) weeks from the signing of the MOA.[9] Since the MOA was signed on April 23, 1981, Closing was approximately the third week of May 1981. Hence, Lancers claims, articulated in a letter which Ayala Corporation received on May 4, 1981, are among the liabilities warranted against under paragraph 7.1.2 of the MOA.

Petitioners filed their Reply[11] dated August 15, 2002 reiterating the arguments in their Petition and contending further that they did not violate their warranties under the MOA because the case was filed by Lancer only on April 1, 1982, eleven (11) months and eight (8) days after the signing of the MOA on April 23, 1981. Ayala Corporation admitted that it received Lancers claim before the Closing date. It therefore had all the time to rescind the MOA. Not having done so, it can be concluded that Ayala Corporation itself did not consider the matter a violation of petitioners warranty.

It is well-settled that the jurisdiction of this Court in cases brought to it from the Court of Appeals by way of petition for review under Rule 45 is limited to reviewing or revising errors of law imputed to it, its findings of fact being conclusive on this Court as a matter of general principle. However, since in the instant case there is a conflict between the factual findings of the trial court and the appellate court, particularly as regards the issues of breach of warranty, obligation to develop and incurrence of delay, we have to consider the evidence on record and resolve such factual issues as an exception to the general rule.[15] In any event, the submitted issue relating to the categorization of the right to purchase granted to petitioners under the MOA is legal in character.

The next issue that presents itself is whether petitioners breached their warranties under the MOA when they failed to disclose the Lancer claim. The trial court declared they did not; the appellate court found otherwise.

Moreover, petitioners submitted the Audited Financial Statements of Conduit and allowed an acquisition audit to be conducted by Ayala Corporation. Thus, the latter bought Conduit with open eyes.

Ayala Corporation summarizes the clauses of the MOA which petitioners allegedly breached when they failed to disclose the Lancer claim:

Moreover, Ayala Corporation asserts that the warranties under the MOA are not just against suits but against all kinds of liabilities not reflected in the Audited Financial Statements. It cannot be faulted for relying on the express warranty that except for billings payable to GP Construction and advances made by petitioner Daniel Vazquez in the amount of P38,766.04, Conduit has no other liabilities. Hence, petitioners cannot claim that Ayala Corporation should have examined and investigated the Audited Financial Statements of Conduit and should now assume all its obligations and liabilities including the Lancer suit and the cross-claim of GP Construction.

Petitioners also maintain that they had no knowledge of the impending case against Conduit at the time of the execution of the MOA. Further, the MOA makes Ayala Corporation liable for the payment of all billings of GP Construction. Since Lancers claim was actually a claim against GP Construction being its sub-contractor, it is Ayala Corporation and not petitioners which is liable.

a) Clause 7.1.1. that Conduit shall not be obligated to anyone except to GP Construction for P38,766.04, and for advances made by Daniel Vazquez;

b) Clause 7.1.2. that except as reflected in the audited financial statements Conduit had no other liabilities whether accrued, absolute, contingent or otherwise;

Furthermore, Ayala Corporation did not make a commitment to complete the development of the first phase of the property within three (3) years from the execution of the MOA. The provision refers to a mere declaration of intent to develop the first phase of its (Ayala Corporations) own development plan and not Conduits. True to its intention, Ayala Corporation did complete the development of the first phase (Phase II-A) of its amended

Likewise, petitioners aver that although Ayala Corporation may change the sequence of its development plan, it is obliged under the MOA to develop the entire area where the subject lots are located in three (3) years.

c) Clause 7.2. that there is no basis for any assertion against Conduit of any liability of any value not reflected
LAW ON SALES | POLICITACION AND PERFECTION FT | 39

or reserved in the financial statements, and those disclosed to Ayala;

d) Clause 7.6.3. that Conduit is not threatened with any legal action or other proceedings; and

7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company shall own the Remaining Property, free from all liens and encumbrances and that the Company shall have no obligation to any party except for billings payable to GP Construction & Development Corporation and advances made by Daniel Vazquez for which BUYER shall be responsible in accordance with Paragraph 2 of this Agreement.

Hence, petitioners warranty that Conduit is not engaged in, a party to, or threatened with any legal action or proceeding is qualified by Ayala Corporations actual knowledge of the Lancer claim which was disclosed to Ayala Corporation before the Closing.

e) Clause 7.6.4. that Conduit had not breached any term, condition, or covenant of any instrument or agreement to which it is a party or by which it is bound.[16]

The Court is convinced that petitioners did not violate the foregoing warranties.

7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the Company as of Closing, and those disclosed to BUYER, the Company as of the date hereof, has no liabilities of any nature whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities due or to become due and whether incurred in respect of or measured in respect of the Companys income prior to Closing or arising out of transactions or state of facts existing prior thereto.

At any rate, Ayala Corporation bound itself to pay all billings payable to GP Construction and the advances made by petitioner Daniel Vazquez. Specifically, under paragraph 2 of the MOA referred to in paragraph 7.1.1, Ayala Corporation undertook responsibility for the payment of all billings of the contractor GP Construction & Development Corporation after the first billing and any payments made by the company and/or SELLERS shall be reimbursed by BUYER on closing which advances to date is P1,159,012.87.[22]

The exchanges of communication between the parties indicate that petitioners substantially apprised Ayala Corporation of the Lancer claim or the possibility thereof during the period of negotiations for the sale of Conduit.

7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion against the Company as at Closing of any liability of any nature and in any amount not fully reflected or reserved against such Audited Financial Statements referred to above, and those disclosed to BUYER.

The billings knowingly assumed by Ayala Corporation necessarily include the Lancer claim for which GP Construction is liable. Proof of this is Ayala Corporations letter[23] to GP Construction dated before Closing on May 4, 1981, informing the latter of Ayala Corporations receipt of the Lancer claim embodied in the letter dated April 30, 1981, acknowledging that it is taking over the contractual responsibilities of Conduit, and requesting copies of all sub-contracts affecting the Conduit property. The pertinent excerpts of the letter read: In this connection, we wish to inform you that this morning we received a letter from Mr. Maximo D. Del Rosario, President of Lancer General Builders Corporation apprising us of the existence of subcontracts that they have with your corporation. They have also furnished us with a copy of their letter to you dated 30 April 1981.

In a letter[17] dated March 5, 1984, petitioner Daniel Vazquez reminded Ayala Corporations Mr. Adolfo Duarte (Mr. Duarte) that prior to the completion of the sale of Conduit, Ayala Corporation asked for and was given information that GP Construction subcontracted, presumably to Lancer, a greater percentage of the project than it was allowed. Petitioners gave this information to Ayala Corporation because the latter intimated a desire to break the contract of Conduit with GP. Ayala Corporation did not deny this. In fact, Mr. Duartes letter[18] dated March 6, 1984 indicates that Ayala Corporation had knowledge of the Lancer subcontract prior to its acquisition of Conduit. Ayala Corporation even admitted that it tried to explorelegal basis to discontinue the contract of Conduit with GP but found this not feasible when information surfaced about the tacit consent of Conduit to the subcontracts of GP with Lancer.

xxx xxx xxx

At the latest, Ayala Corporation came to know of the Lancer claim before the date of Closing of the MOA. Lancers letter[19] dated April 30, 1981 informing Ayala Corporation of its unsettled claim with GP Construction was received by Ayala Corporation on May 4, 1981, well before the Closing[20] which occurred four (4) weeks after the date of signing of the MOA on April 23, 1981, or on May 23, 1981.

7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the Company is not engaged in or a party to, or to the best of the knowledge of the SELLERS, threatened with, any legal action or other proceedings before any court or administrative body, nor do the SELLERS know or have reasonable grounds to know of any basis for any such action or proceeding or of any governmental investigation relative to the Company.

Since we are taking over the contractual responsibilities of Conduit Development, Inc., we believe that it is necessary, at this point in time, that you furnish us with copies of all your subcontracts affecting the property of Conduit, not only with Lancer General Builders Corporation, but all subcontracts with other parties as well[24]

The full text of the pertinent clauses of the MOA quoted hereunder likewise indicate that certain matters pertaining to the liabilities of Conduit were disclosed by petitioners to Ayala Corporation although the specifics thereof were no longer included in the MOA:

7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and observance by the Company of any term, covenant or condition of any instrument or agreement to which the Company is a party or by which it is bound, and no condition exists which, with notice or lapse of time or both, will constitute such default or breach.[21] [Emphasis supplied]

Quite tellingly, Ayala Corporation even attached to its Pre-Trial Brief[25] dated July 9, 1992 a copy of the letter[26] dated May 28, 1981 of GP Constructions counsel addressed to Conduit furnishing the latter with copies of all sub-contract agreements entered into by GP Construction. Since it was addressed to Conduit, it can be presumed that it was the latter which gave Ayala Corporation a copy of the letter thereby disclosing to the latter the existence of the Lancer sub-contract.

The ineluctable conclusion is that petitioners did not violate their warranties under the MOA. The Lancer sub-contract and claim were substantially disclosed to Ayala
LAW ON SALES | POLICITACION AND PERFECTION FT | 40

Corporation before the Closing date of the MOA. Ayala Corporation cannot disavow knowledge of the claim.

Moreover, while in its correspondence with petitioners, Ayala Corporation did mention the filing of the Lancer suit as an obstacle to its development of the property, it never actually brought up nor sought redress for petitioners alleged breach of warranty for failure to disclose the Lancer claim until it filed its Answer[27] dated February 17, 1992.

Well, the word intent here, your Honor, was used to emphasize the tentative character of the period of development because it will be noted that the sentence refers to and I quote to complete the first phase under its amended development plan within three (3) years from the date of this agreement, at the time of the execution of this agreement, your Honor. That amended development plan was not yet in existence because the buyer had manifested to the seller that the buyer could amend the subdivision plan originally belonging to the seller to conform with its own standard of development and second, your Honor, (interrupted)[31]

Q: A:

This Exhibit D-5 was the plan that was being followed by GP Construction in 1981? Yes, sir.

Q:

And point of fact during your direct examination as of the date of the agreement, this amended development plan was still to be formulated by Ayala? Yes, sir.[32]

We now come to the correct interpretation of paragraph 5.7 of the MOA. Does this paragraph express a commitment or a mere intent on the part of Ayala Corporation to develop the property within three (3) years from date thereof? Paragraph 5.7 provides:

A: It is thus unmistakable that this paragraph merely expresses an intention on Ayala Corporations part to complete the first phase under its amended development plan within three (3) years from the execution of the MOA. Indeed, this paragraph is so plainly worded that to misunderstand its import is deplorable.

5.7. The BUYER hereby commits that it will develop the Remaining Property into a first class residential subdivision of the same class as its New Alabang Subdivision, and that it intends to complete the first phase under its amended development plan within three (3) years from the date of this Agreement.[28]

More focal to the resolution of the instant case is paragraph 5.7s clear reference to the first phase of Ayala Corporations amended development plan as the subject of the three (3)-year intended timeframe for development. Even petitioner Daniel Vazquez admitted on cross-examination that the paragraph refers not to Conduits but to Ayala Corporations development plan which was yet to be formulated when the MOA was executed:

As correctly held by the appellate court, this admission is crucial because while the subject lots to be sold to petitioners were in the first phase of the Conduit development plan, they were in the third or last phase of the Ayala Corporation development plan. Hence, even assuming that paragraph 5.7 expresses a commitment on the part of Ayala Corporation to develop the first phase of its amended development plan within three (3) years from the execution of the MOA, there was no parallel commitment made as to the timeframe for the development of the third phase where the subject lots are located. Lest it be forgotten, the point of this petition is the alleged failure of Ayala Corporation to offer the subject lots for sale to petitioners within three (3) years from the execution of the MOA. It is not that Ayala Corporation committed or intended to develop the first phase of its amended development plan within three (3) years. Whether it did or did not is actually beside the point since the subject lots are not located in the first phase anyway. We now come to the issue of default or delay in the fulfillment of the obligation. Article 1169 of the Civil Code provides:

Notably, while the first phrase of the paragraph uses the word commits in reference to the development of the Remaining Property into a first class residential subdivision, the second phrase uses the word intends in relation to the development of the first phase of the property within three (3) years from the date of the MOA. The variance in wording is significant. While commit[29] connotes a pledge to do something, intend[30] merely signifies a design or proposition.

Q:

Atty. Leopoldo Francisco, former Vice President of Ayala Corporations legal division who assisted in drafting the MOA, testified:

Now, turning to Section 5.7 of this Memorandum of Agreement, it is stated as follows: The Buyer hereby commits that to develop the remaining property into a first class residential subdivision of the same class as New Alabang Subdivision, and that they intend to complete the first phase under its amended development plan within three years from the date of this agreement.

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

COURT You only ask what do you mean by that intent. Just answer on that point.

Now, my question to you, Dr. Vasquez is that there is no dispute that the amended development plan here is the amended development plan of Ayala? A: Yes, sir.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) ATTY. BLANCO WITNESS Dont talk about standard. A: Q: In other words, it is not Exhibit D-5 which is the original plan of Conduit? No, it is not. declares; or

When the obligation or the law expressly so

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or

LAW ON SALES | POLICITACION AND PERFECTION FT | 41

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.

by February 19, 1990, three years from the settlement of the legal problems with the previous contractor. The reason for this is, as you know, that security-wise, Dr. & Mrs. Vazquez have been advised not to construct their residence till the surrounding area (which is Phase I) is developed and occupied. They have been anxious to build their residence for quite some time now, and would like to receive assurance from your goodselves regarding this, in compliance with the agreement.

The letter dated February 18, 1984 is similarly worded. It states:

In this regard, we would like to remind you of Articles 5.7 and 5.9 of our Memorandum of Agreement which states respectively:[39]

II. Option on the adjoining lots In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially.[33] Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has been fixed shall be demandable only when that day comes. However, no such day certain was fixed in the MOA. Petitioners, therefore, cannot demand performance after the three (3) year period fixed by the MOA for the development of the first phase of the property since this is not the same period contemplated for the development of the subject lots. Since the MOA does not specify a period for the development of the subject lots, petitioners should have petitioned the court to fix the period in accordance with Article 1197[34] of the Civil Code. As no such action was filed by petitioners, their complaint for specific performance was premature, the obligation not being demandable at that point. Accordingly, Ayala Corporation cannot likewise be said to have delayed performance of the obligation. Even assuming that the MOA imposes an obligation on Ayala Corporation to develop the subject lots within three (3) years from date thereof, Ayala Corporation could still not be held to have been in delay since no demand was made by petitioners for the performance of its obligation. We have already written your goodselves regarding the intention of Dr. & Mrs. Vazquez to exercise their option to purchase the two lots on each side (a total of 4 lots) adjacent to their Retained Area. They are concerned that although over a year has elapsed since the settlement of the legal problems, you have not presented them with the size, configuration, etc. of these lots. They would appreciate being provided with these at your earliest convenience.[35]

Even petitioner Daniel Vazquez letter[40] dated March 5, 1984 does not make out a categorical demand for Ayala Corporation to offer the subject lots for sale on or before April 23, 1984. The letter reads in part:

Manifestly, this letter expresses not only petitioners acknowledgement that the delay in the development of Phase I was due to the legal problems with GP Construction, but also their acquiescence to the completion of the development of Phase I at the much later date of February 19, 1990. More importantly, by no stretch of semantic interpretation can it be construed as a categorical demand on Ayala Corporation to offer the subject lots for sale to petitioners as the letter merely articulates petitioners desire to exercise their option to purchase the subject lots and concern over the fact that they have not been provided with the specifications of these lots. The letters of petitioners children, Juan Miguel and Victoria Vazquez, dated January 23, 1984[36] and February 18, 1984[37] can also not be considered categorical demands on Ayala Corporation to develop the first phase of the property within the three (3)year period much less to offer the subject lots for sale to petitioners. The letter dated January 23, 1984 reads in part:

and that we expect from your goodselves compliance with our Memorandum of Agreement, and a definite date as to when the road to our property and the development of Phase I will be completed.[41]

At best, petitioners letters can only be construed as mere reminders which cannot be considered demands for performance because it must appear that the tolerance or benevolence of the creditor must have ended.[42]

The petition finally asks us to determine whether paragraph 5.15 of the MOA can properly be construed as an option contract or a right of first refusal. Paragraph 5.15 states:

As found by the appellate court, petitioners letters which dealt with the three (3)year timetable were all dated prior to April 23, 1984, the date when the period was supposed to expire. In other words, the letters were sent before the obligation could become legally demandable. Moreover, the letters were mere reminders and not categorical demands to perform. More importantly, petitioners waived the three (3)-year period as evidenced by their agent, Engr. Eduardo Turlas letter to the effect that petitioners agreed that the three (3)-year period should be counted from the termination of the case filed by Lancer. The letter reads in part:

You will understand our interest in the completion of the roads to our property, since we cannot develop it till you have constructed the same. Allow us to remind you of our Memorandum of Agreement, as per which you committed to develop the roads to our property as per the original plans of the company, and that

5.15 The BUYER agrees to give the SELLERS first option to purchase four developed lots next to the Retained Area at the prevailing market price at the time of the purchase.[43]

I. Completion of Phase I As per the memorandum of Agreement also dated April 23, 1981, it was undertaken by your goodselves to complete the development of Phase I within three (3) years. Dr. & Mrs. Vazquez were made to understand that you were unable to accomplish this because of legal problems with the previous contractor. These legal problems were resolved as of February 19, 1987, and Dr. & Mrs. Vazquez therefore expect that the development of Phase I will be completed 1. The back portion should have been developed before the front portion which has not been the case. 2. The whole project front and back portions be completed by 1984.[38]

The Court has clearly distinguished between an option contract and a right of first refusal. An option is a preparatory contract in which one party grants to another, for a fixed period and at a determined price, the privilege to buy or sell, or to decide whether or not to enter into a principal contract. It binds the party who has given the option not to enter into the principal contract with any other person during the period designated, and within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by consideration.[44]

LAW ON SALES | POLICITACION AND PERFECTION FT | 42

In a right of first refusal, on the other hand, while the object might be made determinate, the exercise of the right would be dependent not only on the grantors eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to be firmed up.[45]

in 1984 of P460.00/square meter, petitioners rejected the offer. Ayala Corporation reduced the price to P5,000.00/square meter but again, petitioners rejected the offer and instead made a counteroffer in the amount of P2,000.00/square meter.[49] Ayala Corporation rejected petitioners counter-offer. With this rejection, petitioners lost their right to purchase the subject lots.

In her Answer, respondent claimed that petitioner is estopped from assailing the validity of the deed of sale as the latter acknowledged her ownership when it merely asked for a renewal of the lease. According to respondent, when they met to discuss the matter, petitioner did not demand for the exercise of its option to purchase the property, and it even asked for grace period to vacate the premises.[8] After trial on the merits, the Regional Trial Court of Morong, Rizal (Branch 78), rendered judgment extending the period of the lease for another seven years from August 1, 1991 at a monthly rental of P10,000.00, and dismissed petitioners claim for damages.[9] On appeal, docketed as CA-G.R. CV No. 43770, the Court of Appeals (CA) affirmed with modifications the trial courts judgment per its Decision dated June 14, 1999.[10] The dispositive portion of the decision reads: WHEREFORE, the appealed decision is AFFIRMED AND ACCORDINGLY MODIFIED AS DISCUSSED. Furthermore, we resolved:

Applied to the instant case, paragraph 5.15 is obviously a mere right of first refusal and not an option contract. Although the paragraph has a definite object, i.e., the sale of subject lots, the period within which they will be offered for sale to petitioners and, necessarily, the price for which the subject lots will be sold are not specified. The phrase at the prevailing market price at the time of the purchase connotes that there is no definite period within which Ayala Corporation is bound to reserve the subject lots for petitioners to exercise their privilege to purchase. Neither is there a fixed or determinable price at which the subject lots will be offered for sale. The price is considered certain if it may be determined with reference to another thing certain or if the determination thereof is left to the judgment of a specified person or persons.[46]

It cannot, therefore, be said that Ayala Corporation breached petitioners right of first refusal and should be compelled by an action for specific performance to sell the subject lots to petitioners at the prevailing market price in 1984.

WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.

SO ORDERED. Further, paragraph 5.15 was inserted into the MOA to give petitioners the first crack to buy the subject lots at the price which Ayala Corporation would be willing to accept when it offers the subject lots for sale. It is not supported by an independent consideration. As such it is not governed by Articles 1324 and 1479 of the Civil Code, viz: TANAY RECREATION CENTER AND DEVELOPMENT CORP., Petitioner, - versus CATALINA MATIENZO FAUSTO+ and ANUNCIACION FAUSTO PACUNAYEN, Respondents. x----------------------------------------------------------- x DECISION AUSTRIA-MARTINEZ, J.: Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the lessee of a 3,090-square meter property located in Sitio Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto,[1] under a Contract of Lease executed on August 1, 1971. On this property stands the Tanay Coliseum Cockpit operated by petitioner. The lease contract provided for a 20-year term, subject to renewal within sixty days prior to its expiration. The contract also provided that should Fausto decide to sell the property, petitioner shall have the priority right to purchase the same.[2] On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew the lease.[3] However, it was Faustos daughter, respondent Anunciacion F. Pacunayen, who replied, asking that petitioner remove the improvements built thereon, as she is now the absolute owner of the property.[4] It appears that Fausto had earlier sold the property to Pacunayen on August 8, 1990, for the sum of P10,000.00 under a Kasulatan ng Bilihan Patuluyan ng Lupa,[5] and title has already been transferred in her name under Transfer Certificate of Title (TCT) No. M-35468.[6] Despite efforts, the matter was not resolved. Hence, on September 4, 1991, petitioner filed an Amended Complaint for Annulment of Deed of Sale, Specific Performance with Damages, and Injunction, docketed as Civil Case No. 372-M.[7]

1.0. immediately;

That TRCDC VACATE the leased premises

2.0. To GRANT the motion of Pacunayen to allow her to withdraw the amount of P320,000.00, deposited according to records, with this court. 3.0. To order TRCDC to MAKE THE NECESSARY ACCOUNTING regarding the amounts it had already deposited (for unpaid rentals for the extended period of seven [7] years of the contract of lease). In case it had not yet completed its deposit, to immediately pay the remaining balance to Pacunayen. 4.0. To order TRCDC to PAY the amount of P10,000.00 as monthly rental, with regard to its continued stay in the leased premises even after the expiration of the extended period of seven (7) years, computed from August 1, 1998, until it finally vacates therefrom. SO ORDERED.[11] In arriving at the assailed decision, the CA acknowledged the priority right of TRCDC to purchase the property in question. However, the CA interpreted such right to mean that it shall be applicable only in case the property is sold to strangers and not to Faustos relative. The CA stated that (T)o interpret it otherwise as to comprehend all sales including those made to relatives and to the compulsory heirs of the seller at that would be an absurdity, and her (Faustos) only motive for such transfer was precisely one of preserving the property within her bloodline and that someone administer the property.[12] The CA also ruled that petitioner already acknowledged the transfer of ownership and is deemed to have waived its right to purchase the property.[13] The CA even further went on to rule that even if the sale is annulled, petitioner could not achieve anything because the property will be eventually transferred to Pacunayen after Faustos death.[14] Petitioner filed a motion for reconsideration but it was denied per Resolution dated September 14, 1999.[15]
LAW ON SALES | POLICITACION AND PERFECTION FT | 43

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

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

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

Consequently, the offer may be withdrawn anytime by communicating the withdrawal to the other party.[47]

In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price of P6,500.00/square meter, the prevailing market price for the property when the offer was made on June 18, 1990.[48] Insisting on paying for the lots at the prevailing market price

Dissatisfied, petitioner elevated the case to this Court on petition for review on certiorari, raising the following grounds: THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN HOLDING THAT THE CONTRACTUAL STIPULATION GIVING PETITIONER THE PRIORITY RIGHT TO PURCHASE THE LEASED PREMISES SHALL ONLY APPLY IF THE LESSOR DECIDES TO SELL THE SAME TO STRANGERS; THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN HOLDING THAT PETITIONERS PRIORITY RIGHT TO PURCHASE THE LEASED PREMISES IS INCONSEQUENTIAL.[16] The principal bone of contention in this case refers to petitioners priority right to purchase, also referred to as the right of first refusal. Petitioners right of first refusal in this case is expressly provided for in the notarized Contract of Lease dated August 1, 1971, between Fausto and petitioner, to wit: 7. That should the LESSOR decide to sell the leased premises, the LESSEE shall have the priority right to purchase the same;[17] When a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a right that the lessor's first offer shall be in his favor.[18] Petitioners right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract. The consideration for the lease includes the consideration for the right of first refusal[19] and is built into the reciprocal obligations of the parties. It was erroneous for the CA to rule that the right of first refusal does not apply when the property is sold to Faustos relative.[20] When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon. As such, there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement, except when it fails to express the true intent and agreement of the parties.[21] In this case, the wording of the stipulation giving petitioner the right of first refusal is plain and unambiguous, and leaves no room for interpretation. It simply means that should Fausto decide to sell the leased property during the term of the lease, such sale should first be offered to petitioner. The stipulation does not provide for the qualification that such right may be exercised only when the sale is made to strangers or persons other than Faustos kin. Thus, under the terms of petitioners right of first refusal, Fausto has the legal duty to petitioner not to sell the property to anybody, even her relatives, at any price until after she has made an offer to sell to petitioner at a certain price and said offer was rejected by petitioner. Pursuant to their contract, it was essential that Fausto should have first offered the property to petitioner before she sold it to respondent. It was only after petitioner failed to exercise its right of first priority could Fausto then lawfully sell the property to respondent. The rule is that a sale made in violation of a right of first refusal is valid. However, it may be rescinded, or, as in this case, may be the subject of an action for specific performance.[22] In Riviera Filipina, Inc. vs. Court of Appeals,[23] the Court discussed the

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

after the death of her mother by virtue of succession, as in fact, Fausto died in March 1996, and the property now belongs to respondent, being Faustos heir.[25] For one, Fausto was bound by the terms and conditions of the lease contract. Under the right of first refusal clause, she was obligated to offer the property first to petitioner before selling it to anybody else. When she sold the property to respondent without offering it to petitioner, the sale while valid is rescissible so that petitioner may exercise its option under the contract. With the death of Fausto, whatever rights and obligations she had over the property, including her obligation under the lease contract, were transmitted to her heirs by way of succession, a mode of acquiring the property, rights and obligation of the decedent to the extent of the value of the inheritance of the heirs. Article 1311 of the Civil Code provides: ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. A lease contract is not essentially personal in character.[26] Thus, the rights and obligations therein are transmissible to the heirs. The general rule is that heirs are bound by contracts entered into by their predecessors-in-interest except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3) provision of law.[27] In this case, the nature of the rights and obligations are, by their nature, transmissible. There is also neither contractual stipulation nor provision of law that makes the rights and obligations under the lease contract intransmissible. The lease contract between petitioner and Fausto is a property right, which is a right that passed on to respondent and the other heirs, if any, upon the death of Fausto. In DKC Holdings Corporation vs. Court of Appeals,[28] the Court held that the Contract of Lease with Option to Buy entered into by the late Encarnacion Bartolome with DKC Holdings Corporation was binding upon her sole heir, Victor, even after her demise and it subsists even after her death. The Court ruled that: . . . Indeed, being an heir of Encarnacion, there is privity of interest between him and his deceased mother. He only succeeds to what rights his mother had and what is valid and binding against her is also valid and binding as against him. This is clear from Paraaque Kings Enterprises vs. Court of Appeals, where this Court rejected a similar defense-

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
LAW ON SALES | POLICITACION AND PERFECTION FT | 44

received benefits in the form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the exercise by petitioner of its right of first refusal. In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first option to buy.[29] (Emphasis supplied) Likewise in this case, the contract of lease, with all its concomitant provisions, continues even after Faustos death and her heirs merely stepped into her shoes.[30] Respondent, as an heir of Fausto, is therefore bound to fulfill all its terms and conditions. There is no personal act required from Fausto such that respondent cannot perform it. Faustos obligation to deliver possession of the property to petitioner upon the exercise by the latter of its right of first refusal may be performed by respondent and the other heirs, if any. Similarly, nonperformance is not excused by the death of the party when the other party has a property interest in the subject matter of the contract.[31] The CA likewise found that petitioner acknowledged the legitimacy of the sale to respondent and it is now barred from exercising its right of first refusal. According to the appellate court: Second, when TRCDC, in a letter to Fausto, signified its intention to renew the lease contract, it was Pacunayen who answered the letter on June 19, 1991. In that letter Pacunayen demanded that TRCDC vacate the leased premises within sixty (60) days and informed it of her ownership of the leased premises. The pertinent portion of the letter reads: Furtherly, please be advised that the land is no longer under the absolute ownership of my mother and the undersigned is now the real and absolute owner of the land. Instead of raising a howl over the contents of the letter, as would be its expected and natural reaction under the circumstances, TRCDC surprisingly kept silent about the whole thing. As we mentioned in the factual antecedents of this case, it even invited Pacunayen to its special board meeting particularly to discuss with her the renewal of the lease contract. Again, during that meeting, TRCDC did not mention anything that could be construed as challenging Pacunayens ownership of the leased premises. Neither did TRCDC assert its priority right to purchase the same against Pacunayen.[32]

The essential elements of estoppel are: (1) conduct of a party amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) intent, or at least expectation, that this conduct shall be acted upon by, or at least influence, the other party; and (3) knowledge, actual or constructive, of the real facts.[33] The records are bereft of any proposition that petitioner waived its right of first refusal under the contract such that it is now estopped from exercising the same. In a letter dated June 17, 1991, petitioner wrote to Fausto asking for a renewal of the term of lease.[34] Petitioner cannot be faulted for merely seeking a renewal of the lease contract because obviously, it was working on the assumption that title to the property is still in Faustos name and the latter has the sole authority to decide on the fate of the property. Instead, it was respondent who replied, advising petitioner to remove all the improvements on the property, as the lease is to expire on the 1st of August 1991. Respondent also informed petitioner that her mother has already sold the property to her.[35] In order to resolve the matter, a meeting was called among petitioners stockholders, including respondent, on July 27, 1991, where petitioner, again, proposed that the lease be renewed. Respondent, however, declined. While petitioner may have sought the renewal of the lease, it cannot be construed as a relinquishment of its right of first refusal. Estoppel must be intentional and unequivocal.[36] Also, in the excerpts from the minutes of the special meeting, it was further stated that the possibility of a sale was likewise considered.[37] But respondent also refused to sell the land, while the improvements, if for sale shall be subject for appraisal.[38] After respondent refused to sell the land, it was then that petitioner filed the complaint for annulment of sale, specific performance and damages.[39] Petitioners acts of seeking all possible avenues for the amenable resolution of the conflict do not amount to an intentional and unequivocal abandonment of its right of first refusal. Respondent was well aware of petitioners right to priority of sale, and that the sale made to her by her mother was merely for her to be able to take charge of the latters affairs. As admitted by respondent in her Appellees Brief filed before the CA, viz.: After June 19, 1991, TRCDC invited Pacunayen to meeting with the officers of the corporation. . . . In the same meeting, Pacunayens attention was called to the provision of the Contract of Lease had by her mother with TRCDC, particularly paragraph 7 thereof, which states: 7. That should the lessor decide to sell the leased premises, the LESSEE shall have the priority right to purchase the same. Of course, in the meeting she had with the officers of TRCDC, Pacunayen explained that the sale made in her favor by her mother was just a formality so that she may have the proper representation with TRCDC in the absence of her parents, more so that her father had already passed away, and there was no malice in her mine (sic) and that of her mother, or any intention on their part to deceive TRCDC. All these notwithstanding, and for her to show their good faith in dealing with TRCDC, Pacunayen started the ground work to reconvey ownership over the whole land, now covered by Transfer Certificare (sic) of Title No. M-259, to and in

the name of her mother (Fausto), but the latter was becoming sickly, old and weak, and they found no time to do it as early as they wanted to.[40] (Emphasis supplied) Given the foregoing, the Kasulatan ng Bilihan Patuluyan ng Lupa dated August 8, 1990 between Fausto and respondent must be rescinded. Considering, however, that Fausto already died on March 16, 1996, during the pendency of this case with the CA , her heirs should have been substituted as respondents in this case. Considering further that the Court cannot declare respondent Pacunayen as the sole heir, as it is not the proper forum for that purpose, the right of petitioner may only be enforced against the heirs of the deceased Catalina Matienzo Fausto, represented by respondent Pacunayen. In Paraaque Kings Enterprises, Inc. vs. Court of Appeals,[41] it was ruled that the basis of the right of the first refusal must be the current offer to sell of the seller or offer to purchase of any prospective buyer. It is only after the grantee fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner validly offer to sell the property to a third person, again, under the same terms as offered to the grantee. The circumstances of this case, however, dictate the application of a different ruling. An offer of the property to petitioner under identical terms and conditions of the offer previously given to respondent Pacunayen would be inequitable. The subject property was sold in 1990 to respondent Pacunayen for a measly sum of P10,000.00. Obviously, the value is in a small amount because the sale was between a mother and daughter. As admitted by said respondent, the sale made in her favor by her mother was just a formality so that she may have the proper representation with TRCDC in the absence of her parents[42] Consequently, the offer to be made to petitioner in this case should be under reasonable terms and conditions, taking into account the fair market value of the property at the time it was sold to respondent. In its complaint, petitioner prayed for the cancellation of TCT No. M-35468 in the name of respondent Pacunayen,[43] which was issued by the Register of Deeds of Morong on February 7, 1991.[44] Under ordinary circumstances, this would be the logical effect of the rescission of the Kasulatan ng Bilihan Patuluyan ng Lupa between the deceased Fausto and respondent Pacunayen. However, the circumstances in this case are not ordinary. The buyer of the subject property is the sellers own daughter. If and when the title (TCT No. M35468) in respondent Pacunayens name is cancelled and reinstated in Faustos name, and thereafter negotiations between petitioner and respondent Pacunayen for the purchase of the subject property break down, then the subject property will again revert to respondent Pacunayen as she appears to be one of Faustos heirs. This would certainly be a winding route to traverse. Sound reason therefore dictates that title should remain in the name of respondent Pacunayen, for and in behalf of the other heirs, if any, to be cancelled only when petitioner successfully exercises its right of first refusal and purchases the subject property. Petitioner further seeks the award of the following damages in its favor: (1) P100,000.00 as actual damages; (2) P1,100,000.00 as compensation for lost goodwill or reputation; (3) P100,000.00 as moral damages; (4) P100,000.00 as exemplary damages; (5) P50,000.00 as attorneys fees; (6) P1,000.00 appearance fee per hearing; and (7) the costs of suit.[45] According to petitioner, respondents act in fencing the property led to the closure of the Tanay Coliseum Cockpit and petitioner was unable to conduct cockfights and generate income of not less than P100,000.00 until the end of September 1991, aside from the expected rentals from the cockpit space lessees in the amount of P11,000.00.[46] Under Article 2199 of the Civil Code, it is provided that: Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary
LAW ON SALES | POLICITACION AND PERFECTION FT | 45

loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages. (Emphasis supplied) The rule is that actual or compensatory damages cannot be presumed, but must be proved with reasonable degree of certainty. A court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered by the injured party and on the best obtainable evidence of the actual amount thereof. It must point out specific facts, which could afford a basis for measuring whatever compensatory or actual damages are borne.[47] In the present case, there is no question that the Tanay Coliseum Cockpit was closed for two months and TRCDC did not gain any income during said period. But there is nothing on record to substantiate petitioners claim that it was bound to lose some P111,000.00 from such closure. TRCDCs president, Ambrosio Sacramento, testified that they suffered income losses with the closure of the cockpit from August 2, 1991 until it re-opened on October 20, 1991.[48] Mr. Sacramento, however, cannot state with certainty the amount of such unrealized income.[49] Meanwhile, TRCDCs accountant, Merle Cruz, stated that based on the corporations financial statement for the years 1990 and 1991,[50] they derived the amount of P120,000.00 as annual income from rent.[51] From said financial statement, it is safe to presume that TRCDC generated a monthly income of P10,000.00 a month (P120,000.00 annual income divided by 12 months). At best therefore, whatever actual damages that petitioner suffered from the cockpits closure for a period of two months can be reasonably summed up only to P20,000.00. Such award of damages shall earn interest at the legal rate of six percent (6%) per annum, which shall be computed from the time of the filing of the Complaint on August 22, 1991, until the finality of this decision. After the present decision becomes final and executory, the rate of interest shall increase to twelve percent (12%) per annum from such finality until its satisfaction, this interim period being deemed to be equivalent to a forbearance of credit.[52] This is in accord with the guidelines laid down by the Court in Eastern Shipping Lines, Inc. vs. Court of Appeals,[53] regarding the manner of computing legal interest, viz.: II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty

cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.[54] Petitioner also claims the amount of P1,100,000.00 as compensation for lost goodwill or reputation. It alleged that with the unjust and wrongful conduct of the defendants as above-described, plaintiff stands to lose its goodwill and reputation established for the past 20 years.[55] An award of damages for loss of goodwill or reputation falls under actual or compensatory damages as provided in Article 2205 of the Civil Code, to wit: Art. 2205. Damages may be recovered: (1) For loss or impairment of earning capacity in cases of temporary or permanent personal injury; (2) For injury to the plaintiffs business standing or commercial credit. Even if it is not recoverable as compensatory damages, it may still be awarded in the concept of temperate or moderate damages.[56] In arriving at a reasonable level of temperate damages to be awarded, trial courts are guided by the ruling that: . . . There are cases where from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is convinced that there has been such loss. For instance, injury to one's commercial credit or to the goodwill of a business firm is often hard to show certainty in terms of money. Should damages be denied for that reason? The judge should be empowered to calculate moderate damages in such cases, rather than that the plaintiff should suffer, without redress from the defendant's wrongful act. (Araneta v. Bank of America, 40 SCRA 144, 145)[57] In this case, aside from the nebulous allegation of petitioner in its amended complaint, there is no evidence on record, whether testimonial or documentary, to adequately support such claim. Hence, it must be denied. Petitioners claim for moral damages must likewise be denied. The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish, which can be experienced only by one having a nervous system.[58] Petitioner being a corporation,[59] the claim for moral damages must be denied.

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

(2) The Heirs of the deceased Catalina Matienzo Fausto who are hereby deemed substituted as respondents, represented by respondent Anunciacion Fausto Pacunayen, are ORDERED to recognize the obligation of Catalina Matienzo Fausto under the Contract of Lease with respect to the priority right of petitioner Tanay Recreation Center and Development Corp. to purchase the subject property under reasonable terms and conditions; (3) Transfer Certificate of Title No. M-35468 shall remain in the name of respondent Anunciacion Fausto Pacunayen, which shall be cancelled in the event petitioner successfully purchases the subject property; (4) Respondent is ORDERED to pay petitioner Tanay Recreation Center and Development Corporation the amount of Twenty Thousand Pesos (P20,000.00) as actual damages, plus interest thereon at the legal rate of six percent (6%) per annum from the filing of the Complaint until the finality of this Decision. After this
LAW ON SALES | POLICITACION AND PERFECTION FT | 46

Decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction; and, (5) Respondent is ORDERED to pay petitioner the amount of Ten Thousand Pesos (P10,000.00) as attorneys fees, and to pay the costs of suit. (6) Let the case be remanded to the Regional Trial Court, Morong, Rizal (Branch 78) for further proceedings on the determination of the reasonable terms and conditions of the offer to sell by respondents to petitioner, without prejudice to possible mediation between the parties. The rest of the unaffected dispositive portion of the Court of Appeals Decision is AFFIRMED. SO ORDERED. HENRY MACION and ANGELES MACION, petitioners, vs. HON. JAPAL M. GUIANI, in his capacity as Presiding Judge of the Regional Trial Court Branch 14, Cotabato City and DELA VIDA INSTITUTE represented by MS. JOSEPHINE LANZADERAS, respondents. MUTUAL PROMISE TO BUY AND SELL G.R. No. 106837 August 4, 1993 HENRY MACION, ET AL. vs. JAPAL M. GUIANI, ET AL.

"6. that upon the execution of this agreement, the defendant will furnish the plaintiff with xerox copy of the land title for each lot which the latter may use for the purpose of providing information in securing a loan from any financing or banking institution of their choice. 7. that if within the period of five (5) months from and after February 6, 1992, the plaintiff succeeds in obtaining funds for the purpose of settling their obligations with defendants in the total sum of P2,060,000.00 the latter shall oblige themselves to execute, sign and deliver to the former the corresponding Deed of Sale for the two (2) lots which is the subject of this case and turn-over to said plaintiff the owner's duplicate copy of TCT Nos. T22004 and T-22005 of the Registry of Deeds for the City of Cotabato." In affirmation of the compromise agreement, the Board of Trustees of De La Vida College passed thereafter a resolution expressing full support to the said agreement entered into between the parties. 4 On March 10, 1992, private respondent wrote petitioners that "the compromise agreement we have had in the presence of Judge Guiani is not the same as per attached xerox copy you gave us." In that letter, which essentially was a counterproposal, private respondent said that the price of P2,060,000.00 was higher than what they were willing to pay in the amount of P2,000.000.00 only. 5 Other matters taken up in the letter were: De La Vida Institute would admit students and hold classes until July 6, 1992 but in case they (private respondent) fail to deliver the said amount, they would voluntarily vacate the premises and that "in the event that the bank and other lending institutions give its nod and approval to our loan and require the submission of other documents, you will give to us the Deed of Sale and Owner's copies of the Titles of the two (2) lots to expedite release of the amount concerned." 6 On March 25, 1992, the trial court approved the compromise agreement dated February 6, 1992. cdll Two (2) months after, private respondents, alleging that they had negotiated a loan from the Bank of the Philippine Islands, wrote letters dated May 19, 20 and 26 requesting petitioners to execute with them a contract to sell in their favor. On May 28, 1992, private respondent filed with the trial court an urgent motion for an order directing petitioners to execute a contract to sell in private respondent's favor in accordance with paragraph 7 of the compromise agreement. 7 On July 8, 1992, petitioners filed a motion for execution of judgment alleging that after a lapse of five (5) months from February 6, 1992, private respondents have failed to settle their obligations with petitioners. 8 In its order dated August 6, 1992, respondent judge denied the motion for execution and directed petitioners to execute the required contract to sell in favor of private respondent. Respondent judge opined that the proximate cause of private respondent's failure to comply with the compromise agreement was the refusal of petitioners to execute a contract to sell as required under the agreement. Respondent judge added that petitioners should have executed the contract to sell because anyway they would not be prejudiced since there was no transfer of ownership involved in a contract to sell. 9 Hence this instant petition for certiorari, with prayer for a temporary restraining order enjoining respondent judge from enforcing its August 6, 1992 order. On October 7, 1992, petitioners filed an Omnibus Urgent Motion praying that private respondent be ordered to consign with the court below P135,000.00 representing rentals from May 1991 to January 1992. In our resolution dated November 18, 1992, we granted said prayer. On March 9, 1993, private respondent consigned with the Office of the Clerk of
LAW ON SALES | POLICITACION AND PERFECTION FT | 47

THIRD DIVISION [G.R. No. 106837. August 4, 1993.]

Leonardo J. Rendon for petitioners. Mama Dalandag for private respondent Dela Vida Institute.

DECISION

ROMERO, J p: The subject of this litigation revolves around two (2) parcels of adjoining lots owned by petitioners which are the proposed extension sites of De La Vida Institute, an educational institution located in Cotabato City. On April 26, 1991, the petitioners and private respondent entered into a contract to sell under which terms, private respondent, as president of De la Vida Institute, assured petitioners that they would buy the said properties on or before July 31, 1991 in the amount of P1,750,000.00. In the meantime, petitioners surrendered the physical possession of the two lots to private respondent who promptly built an edifice worth P800,000.00. 1 But on July 31, 1991, the sale did not materialize. Consequently, petitioners filed a complaint for unlawful detainer against private respondent (MTCC Civil Case No. 2739). In retaliation, private respondent filed a complaint for reformation of the contract to sell executed on April 26, 1991 (Civil Case 592). 2 Afterwards, the parties met to settle their differences. On February 6, 1992, the parties entered into a compromise agreement which stipulated among others that petitioners would give private respondent five (5) months to raise the amount of P2,060,000.00; 3 that in the event of failure to raise the said amount within the designated period, private respondent would vacate the premises immediately. The compromise agreement, inter alia, provided:

Court the sum of P135,000.00. On March 29, 1993, petitioners filed with the lower court a motion to withdraw the consigned amount and on April 5, 1993, the trial court released the consigned amount to petitioners. 10 The issue in the case at bar is whether or not respondent judge committed grave abuse of discretion in ordering petitioner to execute a contract to sell in favor of private respondent. We dismiss the petition. The resolution of this case hinges on whether the compromise agreement gives private respondent-buyer the right to demand from petitioner-sellers the execution of a contract to sell in favor of the former. Apparently, paragraph 7 of the compromise agreement does not give such right to private respondent-buyer. To wit: "7. that if within the period of five (5) months from and after February 6, 1992, the plaintiff succeeds in obtaining funds for the purpose of settling their obligations with defendants in the total sum of P2,060,000.00 the latter shall oblige themselves to execute, sign and deliver to the former the corresponding Deed of Sale for the two (2) lots which is the subject of this case and turn-over to said plaintiff the owner's duplicate copy of TCT Nos. T22004 and T-22005 of the Registry of Deeds for the City of Cotabato." (Italics provided). From the aforecited paragraph, it is clear that the seller is obliged to execute a Deed of Sale and not a Contract to Sell upon payment of the full price of P2.06 million. Thereafter, the sellers would turn over to the buyers, respondents herein, the owner's duplicate copy of Transfer Certificate of Title Nos. T-22004 and T-22005. LexLib However, in the interpretation of the compromise agreement, we must delve into the contemporaneous and subsequent acts of the parties to fathom the real intention of the parties. 11 A review of the facts reveals that even prior to the signing of the compromise agreement and the filing of Civil Case No. 592 before the trial court, the parties had already entered into a contract to sell. Thereafter, when the transaction failed to materialize, the parties filed suits against each other; petitioners, their unlawful detainer case, and private respondent a complaint for reformation of contract, alleging that petitioners in fact had caused the preparation of the contract to sell dated April 26, 1991 with the understanding that the land would be used as a collateral in obtaining a loan with DBP. Said contract to sell was superseded by the compromise agreement entered into on February 6, 1992 containing the abovequoted paragraph. It must be recalled that private respondent was given five (5) months from February 6, 1992, i.e., on or before July 6, 1992 to secure the purchase price of the two (2) lots. We note that within the time frame agreed upon by the parties, private respondents wrote three (3) letters dated May 19, 20 and 26 requesting petitioners to execute a contract to sell in its favor. Under these factual circumstances, we opine that the compromise agreement must be interpreted as bestowing upon private respondent-buyer the power to demand a contract to sell from petitioner-sellers. Where the seller promised to execute a deed of absolute sale upon completing payment of the price, it is a contract to sell. 12 In the case at bar, the sale is still in the executory stage since the passing of title is subject to a suspensive condition, namely, that if private respondent is able to secure the needed funds to be used in the purchase of the two (2) lots owned by petitioners. A mere executory sale, one where the sellers merely promise to transfer the property at some future date, or where some conditions have to be fulfilled before the contract is converted from an executory to an executed one, does not pass ownership over the real estate being sold. 13

In our jurisdiction, it has been held that an accepted bilateral promise to buy and sell is in a sense similar to, but not exactly the same, as a perfected contract of sale because there is already a meeting of minds upon the thing which is the object of the contract and upon the price. 14 But a contract of sale is consummated only upon delivery and payment. It cannot be denied that the compromise agreement, having been signed by both parties, is tantamount to a bilateral promise to buy and sell a certain thing for a price certain. Hence, this gives the contracting parties rights in personam, such that each has the right to demand from the other the fulfillment of their respective undertakings. 15 Demandability may be exercised at any time after the execution of the Deed. 16 The order of respondent judge directing petitioners to issue a contract to sell does not place petitioners in any danger of losing their property without consideration, for, to repeat, in a contract to sell there is no immediate transfer of ownership. In contracts to sell, payment is a positive suspensive condition, failure of which does not constitute a breach but an event that prevents the obligation of the vendor to convey title from materializing, in accordance with Article 1184 of the Civil Code. 17 Petitioners as promisors were never obliged to convey title before the happening of the suspensive condition. In fact, nothing stood in the way of their selling the property to another after an unsuccessful demand for said price upon the expiration of the time agreed upon. Since the period given by petitioners under the compromise agreement has already lapsed, we order the trial court to fix anew a period within which private respondents could secure the needed funds for the purchase of the land. 18 Moreover, considering that private respondents have only consigned rentals from May 1991 to January 1992 and have since accepted students for the present school year, it is only proper that they be ordered to deposit the monthly rentals collected thereafter with the trial court. LLphil WHEREFORE, the instant petition is DISMISSED. Petitioners are hereby ordered to EXECUTE a contract to sell in favor of private respondents. On the other hand, private respondent is ordered to DEPOSIT with the trial court current rentals pending consummation of the transaction between the parties. The trial court is ordered to FIX anew the period within which private respondents may be given the opportunity to raise funds for the purchase of the two (2) adjoining lots owned by petitioners. SO ORDERED.

LAW ON SALES | POLICITACION AND PERFECTION FT | 48

PERFECTION STAGE
WHEN DEVIATION ALLOWED G.R. No. L-26872 July 25, 1975 VILLONCO REALTY COMPANY vs. BORMAHECO, INC., ET AL.

On appeal, the Cervantes spouses and Bormaheco, Inc., contended that (a) no contract of sale was perfected because Cervantes made a qualified acceptance of the counter-offer and the condition that Bormaheco would acquire the Sta. Ana property within 45 days was not fulfilled; (2) that Bormaheco, Inc., cannot be compelled to sell the land which belongs to the Cervantes spouses; and (3) that Francisco did not bind the conjugal partnership and his wife when he entered into negotiations with Villonco. The Supreme Court affirmed the judgment, except with respect to damages which were not specifically pleaded and proven and were" clearly conjectural and speculative." SYLLABUS 1. SPECIAL CONTRACTS; SALE, DEFINED. "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" (Art. 1458, Civil Code). 2. ID.; ID.; PERFECTION. "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, Civil Code). Furthermore, "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). 3. ID.; ID.; ID.; CONSENT; ELEMENTS THEREOF. "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 acceptance absolute. A qualified acceptance constitutes a counter-offer" (Art. 1319, Civil Code). "An acceptance may be express or implied" (Art. 1320, Civil Code). 4. ID.; ID.; ID.; ID.; CASE AT BAR. Vendor's acceptance of the vendee's offer to purchase the property indubitably proves that there was a meeting of the minds upon the subject and consideration of the sale. From that moment, the sale was perfected, and the vendor'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 the vendor of another property. The nonconsummation of that purchase would be a negative resolutory condition. 5. ID.; ID.; ID.; CIRCUMSTANCES SHOWING PERFECTION OF CONTRACT. The contention that the sale was not perfected because the seller allegedly qualified his acceptance of the buyer's offer, and therefore his acceptance amounted to a counter-offer, which the buyer should accept, is without merit in the absence of evidence as to what changes were made by the seller in the buyer's offer and in the absence of evidence that the buyer did not assent to the supposed changes and that assent was never made known to the seller. 6. ID.; ID.; ID.; EFFECT OF ACCEPTANCE OF EARNEST MONEY. Where it is shown that the buyer paid and the seller accepted the agreed sum of earnest money or down payment, it may be assumed that the alleged changes or qualifications made by the seller on the buyer's offer was approved by the latter and that such approval was duly communicated to the seller. The payment by the buyer and acceptance by the seller of the earnest money implies that the seller was aware that the buyer had accepted the modifications which the former had made in the latter's offer. 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.

7. ID.; ID.; ID.; CHANGES WHICH MERELY CLARIFY WHAT HAVE BEEN PREVIOUSLY AGREED UPON DOES NOT PREVENT PERFECTION OF CONTRACT. Where the changes or qualifications made by the seller on the buyer's offer are not material or are mere clarifications of what the parties had previously agreed upon, such changes would not prevent a perfection of the contract. Thus, the alleged insertion of the letters "PA" (per annum) after the word "interest" could not be categorized as a major alternation of the offer as to prevent a meeting of the minds of the parties. It is understood that the parties contemplated a rate of ten percent per annum since ten percent a month or semi-annually would be usurious. 8. ID.; ID.; ID.; ID.; CHANGE WHICH DOES NOT ESSENTIALLY ALTER TERMS IN OFFER TO PURCHASE DOES NOT AMOUNT TO REJECTION OF OFFER. 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. Thus, 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. 9. ID.; ID.; ID.; CASE AT BAR. In an offer to sell a land it was stated that the sale would be consummated after he (the vendor) had consummated the purchase of another property. In another paragraph thereof, it was stated "that the final negotiations on both properties can be definitely known after 45 days." HELD: The term 45 days was not a part of the condition that the other property should be acquired. The statement does not and cannot mean that the vendor should acquire the other property within the forty-five day period. It is simply a surmise that after forty-five days it would be known whether the vendor would be able to acquire the other property and whether it would be able to sell the property subject to sale. 10. ID.; ID.; ID.; VALIDITY OF SALE DESPITE MISREPRESENTATION. Where the seller, in entering into a contract of sale in his capacity as President of a corporation, has concealed the fact that the lots subject of sale were actually registered in his and his wife's name as owners in fee simple, making the buyer believe that as President of the corporation he could dispose of said lots, he cannot subsequently argue that he did not bind the conjugal partnership and his wife nor that the corporation can not be required to sell the said lots because they are conjugal properties. 11. DAMAGES; AWARD; PROPRIETY OF. Award of damages is not proper where the same was not specially pleaded or proven and were "clearly conjectural and speculative." 12. ATTORNEY'S FEES; AWARD; PROPRIETY OF. The award of attorney's fees to the plaintiff buyer is proper in an action for specific performance of a contract of sale where the seller is found to have acted in gross and evident bad faith in refusing to satisfy the valid and just demand of the buyer, thereby compelling the latter to incur expenses to protect its interest; and where, furthermore, said award is found to be just and equitable under the provisions of Art. 2208 of the Civil Code. BARREDO, J., concurring: 1. SPECIAL CONTRACTS; SALE PERFECTION OF; INSTANT CASE. The signing by the vendor of his conformity to the vendee's counter-offer and his acceptance of P100,000.00 earnest money resulted in a completely perfected contract of sale between the parties in accordance with Article 1482 of the Civil Code, needing only the execution of the corresponding deed of sale for its consummation and subject only to the negative resolutory condition that the sale shall be cancelled only if the vendor's deal with another property is not consumed.
LAW ON SALES | POLICITACION AND PERFECTION FT | 49

EN BANC [G.R. No. L-26872. July 25, 1975.]

VILLONCO REALTY COMPANY, plaintiff-appellee and EDITH PEREZ DE TAGLE, intervenor-appellee, vs. BORMAHECO, INC., FRANCISCO N. CERVANTES and ROSARIO N. CERVANTES, defendants-appellants.

Meer, Meer & Meer for plaintiff-appellee. J. Villareal, Navarra & Associates for defendants-appellants. P.P. Gallardo & Associates for intervenor-appellee.

SYNOPSIS The Carvantes spouses, Francisco and Rosario, owned three lots adjacent to the property of Villonco Realty Co. In the negotiations for the sale of said lots to Villonco, by Bormaheco, Inc. of which Francisco was the President, the offer to sell, dated February 12, 1964, signed by Francisco as President of Bormaheco, Inc., stated that "a deposit of P100,000 must be placed as earnest money"; that the sale "is to be consummated only after I shall have also consummated my purchase of another property located at Sta. Ana, Manila" and that "final negotiations on both properties can be definitely known after 45 days." The Sta. Ana lot mentioned in the offer to sell was awarded by NASSCO to Bormaheco at a bidding held on Jan. 17, 1964, and the NASSCO Board resolution authorizing the general manager to sign the contract was approved on March 24, 1964 by the Acting Economic Coordinator. Meanwhile, on March 4, 1964, Cervantes accepted Villonco's counter-offer, "subject to a favorable consummation of a property in Sta. Ana we are negotiating." On the same day, Cervantes received the P100,000 earnest money. Twenty-six days later, Cervantes unexpectedly returned the earnest money with interest, claiming that "despite the lapse of 45 days from February 12, 1964, there is no certainty yet" for the acquisition of the Sta. Ana property. Villonco refused to accept Bormaheco's checks, and sued for specific performance. The lower court ordered the Cervantes spouses to execute in favor of Bormaheco, Inc. a deed conveyance for the three lots in question and directed Bormaheco, Inc. to convey the same lots to Villonco, and to pay the latter damages and attorney's fees.

2. ID.; ID.; DISPOSITION BY HUSBAND PROHIBITED BY CIVIL CODE. The disposition by a husband prohibited by the Civil Code, unless consented by the wife, refers to a transaction outrightly prejudicial to the partnership and cannot comprehend a sale made precisely for its benefit and causing no loss thereto beyond the ordinary risks of misjudgment of a manager acting in good faith.

"BORMAHECO, INC. February 12, 1964 "Mr. Romeo Villonco Villonco Building

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 counteroffer (Romeo Villonco's first counter-offer was dated February 24, 1964, Exh. C) for the purchase of the property. The counter-offer was accepted by Cervantes as shown in Exhibit D, which is quoted below: "VILLONCO REALTY COMPANY V. R. C. Building 219 Buendia Avenue, Makati, Rizal, Philippines March 4, 1964 Mr. Francisco Cervantes Bormaheco, Inc. 245 Buendia Avenue Makati, Rizal. Dear Mr. Cervantes: In reference to the letter of Miss E. Perez de Tagle dated February 12th and 26, 1964 in respect to the terms and conditions on the purchase of your property located at Buendia Ave., Makati, Rizal, with a total area of 3,500 sq. meters., we hereby revise our offer, as follows: 1. That the price of the property shall be P400.00 per sq. m., including the improvements thereon; 2. That a deposit of P100,000.00 shall be given to you as earnest money which will become as part payment in the event the sale is consummated; 3. This sale shall be cancelled, only if your deal with another property in Sta. Ana shall not be consummated and in such case, the P100,000.00 earnest money will be returned to us with a 10% interest p.a. However, if our deal with you is finalized, said P100,000.00 will become as part payment for the purchase of your property without interest: 4. a. The manner of payment shall be as follows: P100,000.00 earnest money and 650,000.00 as part of the down payment, or P750,000.00 as total down payment b. The balance is payable as follows: P100,000.00 after 3 months
LAW ON SALES | POLICITACION AND PERFECTION FT | 50

DECISION

Buendia Avenue Makati, Rizal

AQUINO, J p: 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 Philippines (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 three 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):

"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 sate 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. I).

125,000.00 do 212,500.00 do 212,500.00 do P650,000.00 Total

no longer interested to sell" the Buendia Avenue property to Villonco Realty Company (Annex I of Stipulation of Facts). The latter was furnished with a copy of that letter. In a letter dated April 7, 1964 Villonco Realty Company returned the two checks to Bormaheco, Inc., stating that the condition for the cancellation of the contract had not arisen and at the same time announcing that an action for breach of contract would be filed against Bormaheco, Inc. (Annex G of Stipulation of Facts). On that same date, April 7, 1964 Villonco Realty Company filed the complaint (dated April 6) for specific performance against Bormaheco, Inc. Also on that same date, April 7, at eightforty-five in the morning, a notice of lis pendens was annotated on the titles of the said lots. Bormaheco, Inc. in its answers dated May 5 and 25, 1964 pleaded the defense that the perfection of the contract of sale was subject to the conditions (a) "that final acceptance or not shall be made after 45 days" (sic) and (b) that Bormaheco, Inc. "acquires the Sta. Ana property". On June 2, 1964 or during the pendency of this case, the Nassco Acting General Manager wrote to Bormaheco, Inc., advising it that the Board of Directors and the Economic Coordinator had approved the sale of the Punta lot to Bormaheco, Inc. and requesting the latter to send its duly authorized representative to the Nassco for the signing of the deed of sale (Exh. 1). The deed of sale for the Punta land was executed on June 26, 1964. Bormaheco, Inc. was represented by Cervantes (Exh. J. See Bormaheco, Inc. vs. Abanes, L-28087, July 31, 1973, 52 SCRA 73). In view of the disclosure in Bormaheco's amended answer that the three lots were registered in the names of the Cervantes spouses and not in the name of Bormaheco, Inc., Villonco Realty Company on July 21, 1964 filed an amended complaint impleading the said spouses as defendants. Bormaheco, Inc. and the Cervantes spouses filed separate answers. As of January 15, 1965 Villonco Realty Company had paid to the Manufacturers' Bank & Trust Company the sum of P8,712.25 as interests on the overdraft line of P100,000 and the sum of P27.39 as interests daily on the same loan since January 16, 1965. (That overdraft line was later settled by Villonco Realty Company on a date not mentioned in its manifestation of February 19, 1975). Villonco Realty Company had obligated itself to pay the sum of P20,000 as attorney's fees to its lawyers. It claimed that it was damaged in the sum of P10,000 a month from March 24, 1964 when the award of the Punta lot to Bormaheco, Inc. was approved. On the other hand, Bormaheco, Inc. claimed that it had sustained damages of P200,000 annually due to the notice of lis pendens which had prevented it from constructing a multistory building on the three lots. (Pars. 18 and 19, Stipulation of Facts). 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) to pay P20,000 as 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 non consummation 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 as 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.
LAW ON SALES | POLICITACION AND PERFECTION FT | 51

As regards to the other conditions which we have discussed during our last conference on February 27, 1964, the same shall be finalized upon preparation of the contract to sell. ** If the above terms and conditions are acceptable to you, kindly sign your conformity hereunder. Enclosed is our check for ONE HUNDRED THOUSAND (P100,000.00) PESOS, MBTC Check No. 448314, as earnest money. Very truly yours, VILLONCO REALTY COMPANY (Sgd.) TEOFILO VILLONCO CONFORME: BORMAHECO, INC. (Sgd.) FRANCISCO CERVANTES That this sale shall be subject to favorable consummation of a property in Sta. Ana we are negotiating. (Sgd.) FRANCISCO CERVANTES" The check for P100,000 (Exh. E) mentioned in the foregoing letter-contract was delivered by Edith Perez de Tagle to Bormaheco, Inc. on March 4, 1964 and was received by Cervantes. In the voucher-receipt evidencing the delivery the broker indicated in her handwriting that the earnest money was "subject to the terms and conditions embodied in Bormaheco's letter" of February 12 and Villonco Realty Company's letter of March 4,1964 (Exh. E-1; 14 tsn). Then, unexpectedly, in a letter dated March 30, 1964, or twenty-six days after the signing of the contract of sale, Exhibit D, Cervantes returned the earnest money, with interest amounting to P694.24 (at ten percent per annum). Cervantes cited as an excuse the circumstance that "despite the lapse of 45 days from February 12, 1964 there is no certainty yet" for the acquisition of the Punta property (Exh. F; F-1 and F-2). Villonco Realty Company refused to accept the letter and the checks of Bormaheco, Inc. Cervantes sent them by registered mail. When he rescinded the contract, he was already aware that the Punta lot had been awarded to Bormaheco, Inc. (25-26 tsn). Edith Perez de Tagle, the broker, in a letter to Cervantes dated March 31, 1964 articulated her shock and surprise at Bormaheco's turnabout. She reviewed the history of the deal and explained why Romeo Villonco could not agree to the rescission of the sale (Exh. G). *** Cervantes in his letter of April 6, 1964, a reply to Miss Tagle's letter, alleged that the fortyfive day period had already expired and the sale to Bormaheco, Inc. of the Punta property had not been consummated. Cervantes said that his letter was a "manifestation that we are

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 asserted 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 I) or after the Nassco property had been awarded to Bormaheco, Inc., alluded to the "Nassco property". At that time, there was no more need of concealing from the public that Bormaheco, Inc. was interested in the Nassco property. Similarly, Cervantes' alleged insertion of the letters "PA" (per annum) after the word "interest" in that same paragraph 3 of the revised counter-offer (Exh. D) could not be categorized as a major alteration of that counter-offer that prevented a meeting of the minds of the parties. It was understood that the parties had contemplated a rate of ten percent per annum since ten percent a month or semi-annually would be usurious. Appellants Bormaheco, Inc. and Cervantes further contend that Cervantes, in clarifying in the voucher for the earnest money of P100,000 that Bormaheco's acceptance thereof was "subject to the terms and conditions embodied in Bormaheco's letter of February 12, 1964 and your (Villonco's) letter of March 4, 1964" made Bormaheco's acceptance "qualified and conditional". That contention is not correct. There is no incompatibility between Bormaheco's offer of February 12, 1964 (Exh. B) and Villonco's counter-offer of March 4, 1964 (Exh. D). The revised counter-offer merely amplified Bormaheco's original offer.

The controlling fact is that there was agreement between the parties on the subject matter, the price and the mode of payment and that part of the price was paid. "Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract" (Art. 1482, Civil Code). "It is true that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance. 'So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not, a contract is formed.'" (Stuart vs. Franklin Life Ins. Co., 165 Fed. 2nd 965, citing Sec. 79, Williston on Contracts). Thus, it was held that the vendor's change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not amount to a rejection of the offer, and the tender of a counter-offer (Stuart vs. Franklin Life Ins. Co., supra). The instant case is not governed by the rulings laid down in Beaumont vs. Prieto, 41 Phil. 670, 985, 63 L. Ed. 770, and Zayco vs. Serra, 44 Phil. 326. In those two cases the acceptance radically altered the offer and, consequently, there was no meeting of the minds of the parties. Thus, in the Zayco case, Salvador Serra offered to sell to Lorenzo Zayco his sugar central for P1,000,000 on condition that the price be paid in cash, or, if not paid in cash, the price would be payable within three years provided security is given for the payment of the balance within three years with interest. Zayco, instead of unconditionally accepting those terms, countered that he was going to make a down payment of P100,000, that Serra's mortgage obligation to the Philippine National Bank of P600,000 could be transferred to Zayco's account and that he (plaintiff) would give a bond to secure the payment of the balance of the price. It was held that the acceptance was conditional or was a counter-offer which had to be accepted by Serra. There was no such acceptance. Serra revoked his offer. Hence, there was no perfected contract. In the Beaumont case, Benito Valdes offered to sell to W Borck the Nagtahan Hacienda owned by Benito Legarda, who had empowered Valdes to sell it. Borck was given three months from December 4, 1911 to buy the hacienda for P307,000. On January 17, 1912 Borck wrote to Valdes, offering to purchase the hacienda for P307,000 payable on May 1, 1912. No reply was made to that letter. Borck wrote other letters modifying his proposal. Legarda refused to convey the property. It was held that Borck's January 17th letter plainly departed from the terms of the offer as to the time of payment and was a counter-offer which amounted to a rejection of Valdes' original offer. A subsequent unconditional acceptance could not revive that offer. The instant case is different from Laudico and Harden vs. Arias Rodriguez, 43 Phil. 270 where the written offer to sell was revoked by the offeror 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. 112996 J" 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 offer 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 fortyfive 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".
LAW ON SALES | POLICITACION AND PERFECTION FT | 52

No such specification was made. The term of forty-five days was not a part of the condition that the Nassco property should he acquired. It is clear that the statement "that final negotiations on both property can be definitely known after 45 days" does not and cannot mean that Bormaheco, Inc. should acquire the Nassco property within forty-five days from February 12, 1964 as pretended by Cervantes. It is simply a surmise that after forty-five days (in fact when the forty-five day period should be computed is not clear) it would be known whether Bormaheco, Inc. would be able to acquire the Nassco property and whether it would be able to sell the Buendia property. That aforementioned paragraph 5 does not even specify how long after the forty-five days the outcome of the final negotiations would be known. It is interesting to note that in paragraph 6 of Bormaheco's answer to the amended complaint, which answer was verified by Cervantes, it was alleged that Cervantes accepted Villonco's revised counter-offer of March 4, 1964 subject to the condition that "the final negotiations (acceptance) will have to be made by defendant within 45 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). 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 I). 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. Navarra, 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 pronoun "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. 4353C, 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 or 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 he 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 I). Moreover, Mrs. Cervantes did not testify at the trial to fortify that defense which had already been waived for not having been pleaded (See sec. 2, Rule 9, Rules of Court). Taking into account the situation of Cervantes vis-a-vis Bormaheco, Inc. and his wife and the fact that the three lots were entirely occupied by Bormaheco's building, machinery and equipment and were mortgaged to the DBP as security for its obligation, and considering that appellants' vague affirmative defenses do not include Mrs. Cervantes' alleged opposition to the sale, the plea that Cervantes had no authority to sell the lots strains the rivets of credibility (Cf. Papa and Delgado vs. Montenegro, 54 Phil. 331; Riobo vs. Hontiveros, 21 Phil. 31). "Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith" (Art. 1159, Civil Code). Inasmuch as the sale was perfected and even partly executed, Bormaheco, Inc. and the Cervantes spouses, as a matter of justice and good faith, are bound to comply with their contractual commitments. Parenthetically, it may be observed that much misunderstanding could have been avoided had the broker and the buyer taken the trouble of making some research in the Registry of Deeds and availing themselves of the services of a competent lawyer in drafting the contract to sell. Bormaheco, Inc. and the Cervantes spouses in their sixth assignment of error assail the trial court's award to Villonco Realty Company of consequential damages 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 insure 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).
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The appellants in their eighth assignment of error impugn the trial court's adjudication of forty-two thousand pesos as three percent broker's commission to Miss Tagle. They allege that there is no evidence that Bormaheco, Inc. engaged her services as a broker in the projected sale of the three lots and the improvements thereon. That allegation is refuted by paragraph 3 of the stipulation of facts and by the documentary evidence. It was stipulated that Miss Tagle intervened in the negotiations for the sale of the three lots. Cervantes in his original offer of February 12, 1964 apprised Villonco Realty Company that the earnest money should be delivered to Miss Tagle, the bearer of the letter-offer. See also Exhibit G and Annex I of the stipulation of facts. We hold that the trial court did not err in adjudging that Bormaheco, Inc. should pay Miss Tagle her three percent commission. WHEREFORE, the trial court's decision is modified as follows: 1. Within ten (10) days from the date the defendants-appellants receive notice from the clerk of the lower court that the records of this case have been received from this Court, the spouses Francisco N. Cervantes and Rosario P. Navarra-Cervantes should execute a deed conveying to Bormaheco, Inc. their three lots covered by Transfer Certificate of Title Nos. 43530, 43531 and 43532 of the Registry of Deeds of Rizal. 2. Within five (5) days from the execution of such deed of conveyance, Bormaheco, Inc. should execute in favor of Villonco Realty Company, V. R. C. Building, 219 Buendia Avenue, Makati, Rizal a registerable deed of sale for the said three lots and all the improvements thereon, free from all lien and encumbrances, at the price of four hundred pesos per square meter, deducting from the total purchase price the sum of P100,000 previously paid by Villonco Realty Company to Bormaheco, Inc. 3. Upon the execution of such deed of sale, Villonco Realty Company is obligated to pay Bormaheco, Inc. the balance of the price in the sum of one million three hundred thousand pesos (P1,300,000). 4. Bormaheco, Inc. is ordered (a) to pay Villonco Realty Company twenty thousand pesos (P20,000) as attorney's fees and (b) to pay Edith Perez de Tagle the sum of forty-two thousand pesos (P42,000) as commission. Costs against the defendants-appellants. SO ORDERED. DIFFERENCE BETWEEN EARNEST MONEY AND OPTION MONEY RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and FERNANDO, ERNESTO, LEONORA, BIBIANO, JR., LIBRADO and ENRIQUETA, all surnamed OESMER, Petitioners, - versus PARAISO DEVELOPMENT CORPORATION, Respondent.

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure seeking to reverse and set aside the Court of Appeals Decision[1] dated 26 April 2002 in CA-G.R. CV No. 53130 entitled, Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, Enriqueta, Adolfo, and Jesus, all surnamed Oesmer vs. Paraiso Development Corporation, as modified by its Resolution[2] dated 4 March 2003, declaring the Contract to Sell valid and binding with respect to the undivided proportionate shares of the six signatories of the said document, herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer); and ordering them to execute the Deed of Absolute Sale concerning their 6/8 share over the subject parcels of land in favor of herein respondent Paraiso Development Corporation, and to pay the latter the attorneys fees plus costs of the suit. The assailed Decision, as modified, likewise ordered the respondent to tender payment to the petitioners in the amount of P3,216,560.00 representing the balance of the purchase price of the subject parcels of land. The facts of the case are as follows: Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and Enriqueta, all surnamed Oesmer, together with Adolfo Oesmer (Adolfo) and Jesus Oesmer (Jesus), are brothers and sisters, and the co-owners of undivided shares of two parcels of agricultural and tenanted land situated in Barangay Ulong Tubig, Carmona, Cavite, identified as Lot 720 with an area of 40,507 square meters (sq. m.) and Lot 834 containing an area of 14,769 sq. m., or a total land area of 55,276 sq. m. Both lots are unregistered and originally owned by their parents, Bibiano Oesmer and Encarnacion Durumpili, who declared the lots for taxation purposes under Tax Declaration No. 3438[3] (cancelled by I.D. No. 6064-A) for Lot 720 and Tax Declaration No. 3437[4] (cancelled by I.D. No. 5629) for Lot 834. When the spouses Oesmer died, petitioners, together with Adolfo and Jesus, acquired the lots as heirs of the former by right of succession. Respondent Paraiso Development Corporation is known to be engaged in the real estate business. Sometime in March 1989, Rogelio Paular, a resident and former Municipal Secretary of Carmona, Cavite, brought along petitioner Ernesto to meet with a certain Sotero Lee, President of respondent Paraiso Development Corporation, at Otani Hotel in Manila. The said meeting was for the purpose of brokering the sale of petitioners properties to respondent corporation. Pursuant to the said meeting, a Contract to Sell[5] was drafted by the Executive Assistant of Sotero Lee, Inocencia Almo. On 1 April 1989, petitioners Ernesto and Enriqueta signed the aforesaid Contract to Sell. A check in the amount of P100,000.00, payable to Ernesto, was given as option money. Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and Librado also signed the said Contract to Sell. However, two of the brothers, Adolfo and Jesus, did not sign the document. On 5 April 1989, a duplicate copy of the instrument was returned to respondent corporation. On 21 April 1989, respondent brought the same to a notary public for notarization. In a letter[6] dated 1 November 1989, addressed to respondent corporation, petitioners informed the former of their intention to rescind the Contract to Sell and to return the amount of P100,000.00 given by respondent as option money. Respondent did not respond to the aforesaid letter. On 30 May 1991, herein petitioners, together with Adolfo and Jesus, filed a Complaint[7] for Declaration of Nullity or for Annulment of Option Agreement or Contract to Sell with Damages before the Regional Trial Court (RTC) of Bacoor, Cavite. The said case was docketed as Civil Case No. BCV-91-49.

During trial, petitioner Rizalino died. Upon motion of petitioners, the trial court issued an Order,[8] dated 16 September 1992, to the effect that the deceased petitioner be substituted by his surviving spouse, Josefina O. Oesmer, and his children, Rolando O. Oesmer and Fernando O. Oesmer. However, the name of Rizalino was retained in the title of the case both in the RTC and the Court of Appeals. After trial on the merits, the lower court rendered a Decision [9] dated 27 March 1996 in favor of the respondent, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and binding only to the undivided proportionate share of the signatory of this document and recipient of the check, [herein petitioner] co-owner Ernesto Durumpili Oesmer. The latter is hereby ordered to execute the Contract of Absolute Sale concerning his 1/8 share over the subject two parcels of land in favor of herein [respondent] corporation, and to pay the latter the attorneys fees in the sum of Ten Thousand (P10,000.00) Pesos plus costs of suit. The counterclaim of [respondent] corporation is hereby Dismissed for lack of merit.[10] Unsatisfied, respondent appealed the said Decision before the Court of Appeals. On 26 April 2002, the appellate court rendered a Decision modifying the Decision of the court a quo by declaring that the Contract to Sell is valid and binding with respect to the undivided proportionate shares of the six signatories of the said document, herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The decretal portion of the said Decision states that: WHEREFORE, premises considered, the Decision of the court a quo is hereby MODIFIED. Judgment is hereby rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and binding with respect to the undivided proportionate share of the six (6) signatories of this document, [herein petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The said [petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8 share over the subject two parcels of land and in favor of herein [respondent] corporation, and to pay the latter the attorneys fees in the sum of Ten Thousand Pesos (P10,000.00) plus costs of suit.[11] Aggrieved by the above-mentioned Decision, petitioners filed a Motion for Reconsideration of the same on 2 July 2002. Acting on petitioners Motion for Reconsideration, the Court of Appeals issued a Resolution dated 4 March 2003, maintaining its Decision dated 26 April 2002, with the modification that respondent tender payment to petitioners in the amount of P3,216,560.00, representing the balance of the purchase price of the subject parcels of land. The dispositive portion of the said Resolution reads: WHEREFORE, premises considered, the assailed Decision is hereby modified. Judgment is hereby rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and binding with respect to the
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undivided proportionate shares of the six (6) signatories of this document, [herein petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The said [petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8 share over the subject two parcels of land in favor of herein [respondent] corporation, and to pay the latter attorneys fees in the sum of Ten Thousand Pesos (P10,000.00) plus costs of suit. Respondent is likewise ordered to tender payment to the above-named [petitioners] in the amount of Three Million Two Hundred Sixteen Thousand Five Hundred Sixty Pesos (P3,216,560.00) representing the balance of the purchase [12] price of the subject two parcels of land. Hence, this Petition for Review on Certiorari. Petitioners come before this Court arguing that the Court of Appeals erred: I. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is not binding upon petitioner Ernesto Oesmers co-owners (herein petitioners Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora). On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is void altogether considering that respondent itself did not sign it as to indicate its consent to be bound by its terms. Moreover, Exhibit D is really a unilateral promise to sell without consideration distinct from the price, and hence, void.

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

contract that she signed the same merely as a witness. The fact that her signature appears on the right-hand margin of the Contract to Sell is insignificant. The contract indisputably referred to the Heirs of Bibiano and Encarnacion Oesmer, and since there is no showing that Enriqueta signed the document in some other capacity, it can be safely assumed that she did so as one of the parties to the sale. Emphasis should also be given to the fact that petitioners Ernesto and Enriqueta concurrently signed the Contract to Sell. As the Court of Appeals mentioned in its Decision,[14] the records of the case speak of the fact that petitioner Ernesto, together with petitioner Enriqueta, met with the representatives of the respondent in order to finalize the terms and conditions of the Contract to Sell. Enriqueta affixed her signature on the said contract when the same was drafted. She even admitted that she understood the undertaking that she and petitioner Ernesto made in connection with the contract. She likewise disclosed that pursuant to the terms embodied in the Contract to Sell, she updated the payment of the real property taxes and transferred the Tax Declarations of the questioned properties in her name.[15] Hence, it cannot be gainsaid that she merely signed the Contract to Sell as a witness because she did not only actively participate in the negotiation and execution of the same, but her subsequent actions also reveal an attempt to comply with the conditions in the said contract. With respect to the other petitioners assertion that they did not understand the importance and consequences of their action because of their low degree of education and because the contents of the aforesaid contract were not read nor explained to them, the same cannot be sustained. We only have to quote the pertinent portions of the Court of Appeals Decision, clear and concise, to dispose of this issue. Thus, First, the Contract to Sell is couched in such a simple language which is undoubtedly easy to read and understand. The terms of the Contract, specifically the amount of P100,000.00 representing the option money paid by [respondent] corporation, the purchase price of P60.00 per square meter or the total amount of P3,316,560.00 and a brief description of the subject properties are well-indicated thereon that any prudent and mature man would have known the nature and extent of the transaction encapsulated in the document that he was signing. Second, the following circumstances, as testified by the witnesses and as can be gleaned from the records of the case clearly indicate the [petitioners] intention to be bound by the stipulations chronicled in the said Contract to Sell. As to [petitioner] Ernesto, there is no dispute as to his intention to effect the alienation of the subject property as he in fact was the one who initiated the negotiation process and culminated the same by affixing his signature on the Contract to Sell and by taking receipt of the amount of P100,000.00 which formed part of the purchase price. xxxx As to [petitioner] Librado, the [appellate court] finds it preposterous that he willingly affixed his signature on a document written in a language (English) that he purportedly does not understand. He testified that the document was just brought to him by an 18 year old niece named Baby and he was told that the
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II.

Petitioners assert that the signatures of five of them namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora, on the margins of the supposed Contract to Sell did not confer authority on petitioner Ernesto as agent to sell their respective shares in the questioned properties, and hence, for lack of written authority from the above-named petitioners to sell their respective shares in the subject parcels of land, the supposed Contract to Sell is void as to them. Neither do their signatures signify their consent to directly sell their shares in the questioned properties. Assuming that the signatures indicate consent, such consent was merely conditional. The effectivity of the alleged Contract to Sell was subject to a suspensive condition, which is the approval of the sale by all the co-owners. Petitioners also assert that the supposed Contract to Sell (Exhibit D), contrary to the findings of the Court of Appeals, is not couched in simple language. They further claim that the supposed Contract to Sell does not bind the respondent because the latter did not sign the said contract as to indicate its consent to be bound by its terms. Furthermore, they maintain that the supposed Contract to Sell is really a unilateral promise to sell and the option money does not bind petitioners for lack of cause or consideration distinct from the purchase price. The Petition is bereft of merit. It is true that the signatures of the five petitioners, namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora, on the Contract to Sell did not confer authority on

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

cannot read the instrument, it is as much his duty to procure some reliable persons to read and explain it to him, before he signs it, as it would be to read it before he signed it if he were able to do and his failure to obtain a reading and explanation of it is such gross negligence as will estop from avoiding it on the ground that he was ignorant of its contents.[16] That the petitioners really had the intention to dispose of their shares in the subject parcels of land, irrespective of whether or not all of the heirs consented to the said Contract to Sell, was unveiled by Adolfos testimony as follows: ATTY. GAMO: This alleged agreement between you and your other brothers and sisters that unless everybody will agree, the properties would not be sold, was that agreement in writing? WITNESS: No sir. ATTY. GAMO: What you are saying is that when your brothers and sisters except Jesus and you did not sign that agreement which had been marked as [Exhibit] D, your brothers and sisters were grossly violating your agreement. WITNESS: Yes, sir, they violated what we have agreed upon.[17] We also cannot sustain the allegation of the petitioners that assuming the signatures indicate consent, such consent was merely conditional, and that, the effectivity of the alleged Contract to Sell was subject to the suspensive condition that the sale be approved by all the co-owners. The Contract to Sell is clear enough. It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control.[18] The terms of the Contract to Sell made no mention of the condition that before it can become valid and binding, a unanimous consent of all the heirs is necessary. Thus, when the language of the contract is explicit, as in the present case, leaving no doubt as to the intention of the parties thereto, the literal meaning of its stipulation is controlling. In addition, the petitioners, being owners of their respective undivided shares in the subject properties, can dispose of their shares even without the consent of all the coheirs. Article 493 of the Civil Code expressly provides: Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership. [Emphases supplied.] Consequently, even without the consent of the two co-heirs, Adolfo and Jesus, the Contract to Sell is still valid and binding with respect to the 6/8 proportionate shares of the petitioners, as properly held by the appellate court.

Therefore, this Court finds no error in the findings of the Court of Appeals that all the petitioners who were signatories in the Contract to Sell are bound thereby. The final arguments of petitioners state that the Contract to Sell is void altogether considering that respondent itself did not sign it as to indicate its consent to be bound by its terms; and moreover, the Contract to Sell is really a unilateral promise to sell without consideration distinct from the price, and hence, again, void. Said arguments must necessarily fail. The Contract to Sell is not void merely because it does not bear the signature of the respondent corporation. Respondent corporations consent to be bound by the terms of the contract is shown in the uncontroverted facts which established that there was partial performance by respondent of its obligation in the said Contract to Sell when it tendered the amount of P100,000.00 to form part of the purchase price, which was accepted and acknowledged expressly by petitioners. Therefore, by force of law, respondent is required to complete the payment to enforce the terms of the contract. Accordingly, despite the absence of respondents signature in the Contract to Sell, the former cannot evade its obligation to pay the balance of the purchase price. As a final point, the Contract to Sell entered into by the parties is not a unilateral promise to sell merely because it used the word option money when it referred to the amount of P100,000.00, which also form part of the purchase price. Settled is the rule that in the interpretation of contracts, the ascertainment of the intention of the contracting parties is to be discharged by looking to the words they used to project that intention in their contract, all the words, not just a particular word or two, and words in context, not words standing alone.[19] In the instant case, the consideration of P100,000.00 paid by respondent to petitioners was referred to as option money. However, a careful examination of the words used in the contract indicates that the money is not option money but earnest money. Earnest money and option money are not the same but distinguished thus: (a) earnest money is part of the purchase price, while option money is the money given as a distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and, (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms of the option.[20] The sum of P100,000.00 was part of the purchase price. Although the same was denominated as option money, it is actually in the nature of earnest money or down payment when considered with the other terms of the contract. Doubtless, the agreement is not a mere unilateral promise to sell, but, indeed, it is a Contract to Sell as both the trial court and the appellate court declared in their Decisions. WHEREFORE, premises considered, the Petition is DENIED, and the Decision and Resolution of the Court of Appeals dated 26 April 2002 and 4 March 2003, respectively, are AFFIRMED, thus, (a) the Contract to Sell is DECLARED valid and binding with respect to the undivided proportionate shares in the subject parcels of land of the six signatories of the said document, herein petitioners Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer); (b) respondent is ORDERED to tender payment to petitioners in the amount of P3,216,560.00 representing the balance of the purchase price for the latters shares in the subject parcels of land; and (c) petitioners are further ORDERED to execute in favor of respondent the Deed of Absolute Sale covering their shares in the subject parcels of land after receipt of the balance of the purchase price, and to pay respondent attorneys fees plus costs of the suit. Costs against petitioners.
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FORMAL REQUIREMENTS OF SALE SERAFIN, RAUL, NENITA, NAZARETO, NEOLANDA, all surnamed NARANJA, AMELIA NARANJA-RUBINOS, NILDA NARANJA-LIMANA, and NAIDA NARANJA-GICANO, Petitioners, - versus COURT OF APPEALS, LUCILIA P. BELARDO, represented by her Attorney-in-Fact, REBECCA CORDERO, and THE LOCAL REGISTER OF DEEDS, BACOLOD CITY, Respondents.

valuable consideration, receipt of which in full I hereby acknowledge to my entire satisfaction, by these presents, I hereby transfer and convey by way of absolute sale the above-mentioned Lot No. 4 consisting of 136 square meters covered by Transfer Certificate of Title No. T-18764 and my one-third share in Lot No. 2, covered by Transfer Certificate of Title No. T-18762, in favor of my sister LUCILIA P. BELARDO, of legal age, Filipino citizen, married to Alfonso D. Belardo, and a resident of Pontevedra, Negros Occidental, her heirs, successors and assigns. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of August, 1981 at Bacolod City, Philippines. (SGD.)

On December 11, 1989, Atty. Sanicas prepared a certificate of authorization, giving Belardos daughter, Jennelyn P. Vargas, the authority to collect the payments from Esso Standard Eastern, Inc. But it appeared from the companys Advice of Fixed Payment that payment of the lease rental had already been transferred from Belardo to Amelia Naranja-Rubinos because of the Extrajudicial Settlement Among Heirs. On June 23, 1992, Belardo,[15] through her daughter and attorney-in-fact, Rebecca Cordero, instituted a suit for reconveyance with damages. The complaint prayed that judgment be rendered declaring Belardo as the sole legal owner of Lot No. 4, declaring null and void the Extrajudicial Settlement Among Heirs, and TCT No. T-140184, and ordering petitioners to reconvey to her the subject property and to pay damages. The case was docketed as Civil Case No. 7144. Subsequently, petitioners also filed a case against respondent for annulment of sale and quieting of title with damages, praying, among others, that judgment be rendered nullifying the Deed of Sale, and ordering the Register of Deeds of Bacolod City to cancel the annotation of the Deed of Sale on TCT No. T-18762. This case was docketed as Civil Case No. 7214. On March 5, 1997, the RTC rendered a Decision in the consolidated cases in favor of petitioners. The trial court noted that the Deed of Sale was defective in form since it did not contain a technical description of the subject properties but merely indicated that they were Lot No. 4, covered by TCT No. T-18764 consisting of 136 square meters, and one-third portion of Lot No. 2 covered by TCT No. T-18762. The trial court held that, being defective in form, the Deed of Sale did not vest title in private respondent. Full and absolute ownership did not pass to private respondent because she failed to register the Deed of Sale. She was not a purchaser in good faith since she acted as a witness to the second sale of the property knowing that she had already purchased the property from Roque. Whatever rights private respondent had over the properties could not be superior to the rights of petitioners, who are now the registered owners of the parcels of land. The RTC disposed, thus: IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered: 1. 2. Dismissing Civil Case No. 7144. Civil Case No. 7214.

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

Decision[1]

ROQUE NARANJA[6] Roques copies of TCT No. T-18764 and TCT No. T-18762 were entrusted to Atty. Sanicas for registration of the deed of sale and transfer of the titles to Belardo. But the deed of sale could not be registered because Belardo did not have the money to pay for the registration fees.[7] Belardos only source of income was her store and coffee shop. Sometimes, her children would give her money to help with the household expenses, including the expenses incurred for Roques support. At times, she would also borrow money from Margarita Demaala, a neighbor.[8] When the amount of her loan reached P15,000.00, Dema-ala required a security. On November 19, 1983, Roque executed a deed of sale in favor of Dema-ala, covering his two properties in consideration of the P15,000.00 outstanding loan and an additional P15,000.00, for a total of P30,000.00. Dema-ala explained that she wanted Roque to execute the deed of sale himself since the properties were still in his name. Belardo merely acted as a witness. The titles to the properties were given to Dema-ala for safekeeping.[9] Three days later, or on December 2, 1983, Roque died of influenza. The proceeds of the loan were used for his treatment while the rest was spent for his burial.[10] In 1985, Belardo fully paid the loan secured by the second deed of sale. Demaala returned the certificates of title to Belardo, who, in turn, gave them back to Atty. Sanicas.[11] Unknown to Belardo, petitioners, the children of Placido and Gabino Naranja, executed an Extrajudicial Settlement Among Heirs[12] on October 11, 1985, adjudicating among themselves Lot No. 4. On February 19, 1986, petitioner Amelia Naranja-Rubinos, accompanied by Belardo, borrowed the two TCTs, together with the lease agreement with Esso Standard Eastern, Inc., from Atty. Sanicas on account of the loan being proposed by Belardo to her. Thereafter, petitioners had the Extrajudicial Settlement Among Heirs notarized on February 25, 1986. With Roques copy of TCT No. T-18764 in their possession, they succeeded in having it cancelled and a new certificate of title, TCT No. T-140184, issued in their names.[13] In 1987, Belardo decided to register the Deed of Sale dated August 21, 1981. With no title in hand, she was compelled to file a petition with the RTC to direct the Register of Deeds to annotate the deed of sale even without a copy of the TCTs. In an Order dated June 18, 1987, the RTC granted the petition. But she only succeeded in registering the deed of sale in TCT No. T-18762 because TCT No. T-18764 had already been cancelled.[14]

a) Declaring the Deed of Sale dated August 21, 1981, executed by Roque Naranja, covering his one-third (1/3) share of Lot 2 of the consolidationsubdivision plan (LRC) Pcs-886, being a portion of the consolidation of Lots 240-A, 240-B, 240-C and 240-D, described on plan, Psd-33443 (LRC) GLRO Cad. Rec. No. 55 in favor of Lucilia Belardo, and entered as Doc. No. 80, Page 17, Book No. XXXVI, Series of 1981 of Notary Public Eugenio Sanicas of Bacolod City, as null and void and of no force and effect; b) Ordering the Register of Deeds of Bacolod City to cancel Entry No. 148123 annotate at the back of Transfer Certificate of Title No. T-18762; c) Ordering Lucilia Belardo or her successors-in-interest to pay plaintiffs the sum of
LAW ON SALES | POLICITACION AND PERFECTION FT | 57

P20,000.00 as attorneys fees, the amount of P500.00 as appearance fees. Counterclaims in both Civil Cases Nos. 7144 and 7214 are hereby DISMISSED. SO ORDERED.[16] On September 13, 2002, the CA reversed the RTC Decision. The CA held that the unregisterability of a deed of sale will not undermine its validity and efficacy in transferring ownership of the properties to private respondent. The CA noted that the records were devoid of any proof evidencing the alleged vitiation of Roques consent to the sale; hence, there is no reason to invalidate the sale. Registration is only necessary to bind third parties, which petitioners, being the heirs of Roque Naranja, are not. The trial court erred in applying Article 1544 of the Civil Code to the case at bar since petitioners are not purchasers of the said properties. Hence, it is not significant that private respondent failed to register the deed of sale before the extrajudicial settlement among the heirs. The dispositive portion of the CA Decision reads: WHEREFORE, the decision dated March 5, 1997 in Civil Cases Nos. 7144 and 7214 is hereby REVERSED and SET ASIDE. In lieu thereof, judgment is hereby rendered as follows: 1. Civil Case No. 7214 is hereby ordered DISMISSED for lack of cause of action. 2. In Civil Case No. 7144, the extrajudicial settlement executed by the heirs of Roque Naranja adjudicating among themselves Lot No. 4 of the consolidation-subdivision plan (LRC) Pcs 886 of the Bacolod Cadastre is hereby declared null and void for want of factual and legal basis. The certificate of title issued to the heirs of Roque Naranja (Transfer Certificate of [T]i[t]le No. T140184) as a consequence of the void extra-judicial settlement is hereby ordered cancelled and the previous title to Lot No. 4, Transfer Certificate of Title No. T-18764, is hereby ordered reinstated. Lucilia Belardo is hereby declared the sole and legal owner of said Lot No. 4, and one-third of Lot No. 2 of the same consolidation-subdivision plan, Bacolod Cadastre, by virtue of the deed of sale thereof in her favor dated August 21, 1981. SO ORDERED.[17] The CA denied petitioners motion for reconsideration on September 24, 2003.[18] Petitioners filed this petition for review, raising the following issues: 1. WHETHER OR NOT THE HONORABLE RESPONDENT COURT OF APPEALS IS CORRECT IN IGNORING THE POINT RAISED BY [PETITIONERS] THAT THE DEED OF SALE WHICH DOES NOT COMPL[Y] WITH THE PROVISIONS OF ACT NO. 496 IS [NOT] VALID. WHETHER OR NOT THE ALLEGED DEED OF SALE [OF REAL PROPERTIES] IS VALID CONSIDERING THAT THE CONSENT OF THE LATE ROQUE

NARANJA HAD BEEN VITIATED; x x x THERE [IS] NO CONCLUSIVE SHOWING THAT THERE WAS CONSIDERATION AND THERE [ARE] SERIOUS IRREGULARITIES IN THE NOTARIZATION OF THE SAID DOCUMENTS.[19] In her Comment, private respondent questioned the Verification and Certification of Non-Forum Shopping attached to the Petition for Review, which was signed by a certain Ernesto Villadelgado without a special power of attorney. In their reply, petitioners remedied the defect by attaching a Special Power of Attorney signed by them. Pursuant to its policy to encourage full adjudication of the merits of an appeal, the Court had previously excused the late submission of a special power of attorney to sign a certification against forum-shopping.[20] But even if we excuse this defect, the petition nonetheless fails on the merits. The Court does not agree with petitioners contention that a deed of sale must contain a technical description of the subject property in order to be valid. Petitioners anchor their theory on Section 127 of Act No. 496,[21] which provides a sample form of a deed of sale that includes, in particular, a technical description of the subject property. To be valid, a contract of sale need not contain a technical description of the subject property. Contracts of sale of real property have no prescribed form for their validity; they follow the general rule on contracts that they may be entered into in whatever form, provided all the essential requisites for their validity are present.[22] The requisites of a valid contract of sale under Article 1458 of the Civil Code are: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent. The failure of the parties to specify with absolute clarity the object of a contract by including its technical description is of no moment. What is important is that there is, in fact, an object that is determinate or at least determinable, as subject of the contract of sale. The form of a deed of sale provided in Section 127 of Act No. 496 is only a suggested form. It is not a mandatory form that must be strictly followed by the parties to a contract. In the instant case, the deed of sale clearly identifies the subject properties by indicating their respective lot numbers, lot areas, and the certificate of title covering them. Resort can always be made to the technical description as stated in the certificates of title covering the two properties. On the alleged nullity of the deed of sale, we hold that petitioners failed to submit sufficient proof to show that Roque executed the deed of sale under the undue influence of Belardo or that the deed of sale was simulated or without consideration. A notarized document carries the evidentiary weight conferred upon it with respect to its due execution, and documents acknowledged before a notary public have in their favor the presumption of regularity. It must be sustained in full force and effect so long as he who impugns it does not present strong, complete, and conclusive proof of its falsity or nullity on account of some flaws or defects provided by law.[23] Petitioners allege that Belardo unduly influenced Roque, who was already physically weak and senile at that time, into executing the deed of sale. Belardo allegedly took advantage of the fact that Roque was living in her house and was dependent on her for support. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice.[24] One who

alleges any defect, or the lack of consent to a contract by reason of fraud or undue influence, must establish by full, clear and convincing evidence, such specific acts that vitiated the partys consent; otherwise, the latters presumed consent to the contract prevails.[25] For undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of a contracting party as to destroy his free agency, making him express the will of another rather than his own.[26] Petitioners adduced no proof that Roque had lost control of his mental faculties at the time of the sale. Undue influence is not to be inferred from age, sickness, or debility of body, if sufficient intelligence remains.[27] The evidence presented pertained more to Roques physical condition rather than his mental condition. On the contrary, Atty. Sanicas, the notary public, attested that Roque was very healthy and mentally sound and sharp at the time of the execution of the deed of sale. Atty. Sanicas said that Roque also told him that he was a Law graduate.[28] Neither was the contract simulated. The late registration of the Deed of Sale and Roques execution of the second deed of sale in favor of Dema -ala did not mean that the contract was simulated. We are convinced with the explanation given by respondents witnesses that the deed of sale was not immediately registered because Belardo did not have the money to pay for the fees. This explanation is, in fact, plausible considering that Belardo could barely support herself and her brother, Roque. As for the second deed of sale, Dema-ala, herself, attested before the trial court that she let Roque sign the second deed of sale because the title to the properties were still in his name. Finally, petitioners argue that the Deed of Sale was not supported by a consideration since no receipt was shown, and it is incredulous that Roque, who was already weak, would travel to Bacolod City just to be able to execute the Deed of Sale. The Deed of Sale which states receipt of which in full I hereby acknowledge to my entire satisfaction is an acknowledgment receipt in itself. Moreover, the presumption that a contract has sufficient consideration cannot be overthrown by a mere assertion that it has no consideration.[29] Heirs are bound by contracts entered into by their predecessors-in-interest.[30] As heirs of Roque, petitioners are bound by the contract of sale that Roque executed in favor of Belardo. Having been sold already to Belardo, the two properties no longer formed part of Roques estate which petitioners could have inherited. The deed of extrajudicial settlement that petitioners executed over Lot No. 4 is, therefore, void, since the property subject thereof did not become part of Roques estate. WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated September 13, 2002 and Resolution dated September 24, 2003 are AFFIRMED. SO ORDERED. G.R. No. 78903 February 28, 1990 SEGUNDO DALION, ET AL. vs. COURT OF APPEALS, ET AL.

FIRST DIVISION [G.R. No. 78903. February 28, 1990.]

2.

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SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-DALION, petitioners, vs. THE HONORABLE COURT OF APPEALS AND RUPERTO SABESAJE, JR., respondents.

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 P180.00, 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 P500.00 as litigation expenses, and to pay the costs; and (c) Dismissing the counter-claim." (p. 38, Rollo)

"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) (b) (c) xxx By anyone who saw the writing executed; By evidence of the genuineness of the handwriting of the maker; or By a subscribing witness. xxx xxx

Francisco A. Puray, Sr. for petitioners. Gabriel N. Duazo for private respondent.

SYLLABUS 1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE TRIAL COURT ARE ENTITLED TO GREAT WEIGHT. 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) 2. CIVIL LAW; OBLIGATIONS AND CONTRACT; PUBLIC DOCUMENT IS NECESSARY ONLY FOR CONVENIENCE AND NOT FOR VALIDITY OR ENFORCEABILITY. 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. 3. ID.; ID.; PERFECTION OF CONTRACT; SALE IS PERFECTED BY MERE CONSENT; VENDEE MAY COMPEL TRANSFER OF OWNERSHIP OF THE OBJECT OF SALE. 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). 4. ID.; ID.; ID.; ID.; ACTION FOR RECOVERY OF OWNERSHIP IS PROPER AS IT SEEKS CONSUMMATION OF CONTRACT OF SALE. 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.

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. LexLib 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:

"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 boundaries thereof and the name of appellant Segundo Dalion's wife, erroneously written as "Esmenia" in Exhibit "A" and "Esmena" in Exhibit "B". (p. 41, Rollo) xxx xxx xxx

DECISION

MEDIALDEA, J p:

"Against defendant's mere denial that he signed the document, the positive testimonies of the instrumental witnesses Ogsoc and Espina, aside from the testimony of the plaintiff, must prevail. Defendant has affirmatively alleged forgery, but he never presented any witness or evidence to prove his claim of forgery. Each party must prove his own affirmative allegations (Section 1, Rule 131, Rules of Court). Furthermore, it is presumed that a person is innocent of a crime or wrong (Section 5 (a), idem), and defense should have come forward with clear and convincing evidence to show that plaintiff committed forgery or caused said forgery to be
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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 signatures (Exhs. A-2 or Z and A-3) with the admitted signatures or specimens (Exhs. X and Y or 3-C) convinces the court that Exhs. A-2 or Z and A-3 were written by defendant Segundo Dalion who admitted that Exhs. X and Y or 3-C are his signatures. The questioned signatures and the specimens are very similar to each other and appear to be written by one person. "Further comparison of the questioned signatures and the specimens with the signatures "Segundo D. Dalion" appeared at the back of the summons (p. 9, Record); on the return card (p. 25, ibid.); back of the Court Orders dated December 17, 1973 and July 30, 1974 and for October 7, 1974 (p. 54 & p. 56, respectively, ibid.), and on the open court notice of April 13, 1983 (p. 235, ibid.) readily reveal that the questioned signatures are the signatures of defendant Segundo Dalion. "It may be noted that two signatures of Segundo D. Dalion appear on the face of the questioned document (Exh. A), one at the right corner bottom of the document (Exh. A-2) and the other at the left hand margin thereof (Exh. A-3). The second signature is already a surplusage. A forger would not attempt to forge another signature, an unnecessary one, for fear he may commit a revealing error or an erroneous stroke." (Decision, p. 10) (pp. 42-43, Rollo) We see no reason for deviating from the appellate court's ruling (p. 44, Rollo) as we reiterate that Cdpr "Appellate courts have consistently subscribed to the principle that conclusions and findings of fact by the trial courts are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons, since it is undeniable that the trial court is in a more advantageous position to examine real evidence, as well as to observe the demeanor of the witnesses while testifying in the case (Chase v. Buencamino, Sr., G.R. No. L-20395, May 13, 1985, 136 SCRA 365; Pring v. Court of Appeals, G.R. No. L-41605, August 19, 1985, 138 SCRA 185) Assuming authenticity of his signature and the genuineness of the document, Dalion nonetheless still impugns the validity of the sale on the ground that the same is embodied in a private document, and did not thus convey title or right to the lot in question since "acts and contracts which have for their object the creation, transmission, modification or extinction of real rights over immovable property must appear in a public instrument" (Art. 1358, par 1, NCC). This argument is misplaced. The provision of Art. 1358 on the necessity of a public document is only for convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale of a parcel of land that this be embodied in a public instrument. A contract of sale is a consensual contract, which means that the sale is perfected by mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may reciprocally demand performance (Art. 1475, NCC), i.e., the vendee may compel transfer of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold (Art. 1458, NCC). The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje the parcel of land and to execute corresponding formal deed of conveyance in a public document. Under Art. 1498, NCC, when the sale is made through a public instrument, the execution thereof is equivalent to the delivery of the thing. Delivery may either be actual (real) or constructive.

Thus delivery of a parcel of land may be done by placing the vendee in control and possession of the land (real) or by embodying the sale in a public instrument (constructive). As regards petitioners' contention that the proper action should have been one for specific performance, We believe that the suit for recovery of ownership is proper. As earlier stated, Art. 1475 of the Civil Code gives the parties to a perfected contract of sale the right to reciprocally demand performance, and to observe a particular form, if warranted, (Art. 1357). The trial court, aptly observed that Sabesaje's complaint sufficiently alleged a cause of action to compel Dalion to execute a formal deed of sale, and the suit for recovery of ownership, which is premised on the binding effect and validity inter partes of the contract of sale, merely seeks consummation of said contract. ". . . A sale of a real property may be in a private instrument, but that contract is valid and binding between the parties upon its perfection. And a party may compel the other party to execute a public instrument embodying their contract affecting real rights once the contract appearing in a private instrument has been perfected (See Art. 1357). "xxx xxx xxx" (p. 12, Decision, p. 272, Records)

On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was given formal authority by BPI to sell the lot for P1,000.00 per square meter. This arrangement was concurred in by the owners of the Philippine Remnants. Broker Revilla contacted Alfonso Lim of petitioner company who agreed to buy the land. On July 8, 1988, petitioner's officials and Revilla were given permission by Rolando V. Aromin, BPI Assistant Vice-President, to enter and view the property they were buying. On July 9, 1988, Revilla formally informed BPI that he had procured a buyer, herein petitioner. On July 11, 1988, petitioner's officials, Alfonso Lim and Albino Limketkai, went to BPI to confirm the sale. They were entertained by Vice-President Merlin Albano and Asst. Vice-President Aromin. Petitioner asked that the price of P1,000.00 per square meter be reduced to P900.00 while Albano stated the price to be P1,100.00. The parties finally agreed that the lot would be sold at P1,000.00 per square meter to be paid in cash. Since the authority to sell was on a first come, first served and non-exclusive basis, it may be mentioned at this juncture that there is no dispute over petitioner's being the first comer and the buyer to be first served. Notwithstanding the final agreement to pay P1,000.00 per square meter on a cash basis, Alfonso Lim asked if it was possible to pay on terms. The bank officials stated that there was no harm in trying to ask for payment on terms because in previous transactions, the same had been allowed. It was the understanding, however, that should the term payment be disapproved, then the price shall be paid in cash. It was Albano who dictated the terms under which the installment payment may be approved, and acting thereon, Alfonso Lim, on the same date, July 11, 1988, wrote BPI through Merlin Albano embodying the payment initially of 10% and the remaining 90% within a period of 90 days. Two or three days later, petitioner learned that its offer to pay on terms had been frozen. Alfonso Lim went to BPI on July 18, 1988 and tendered the full payment of P33,056,000.00 to Albano. The payment was refused because Albano stated that the authority to sell that particular piece of property in Pasig had been withdrawn from his unit. The same check was tendered to BPI Vice-President Nelson Bona who also refused to receive payment. An action for specific performance with damages was thereupon filed on August 25, 1988 by petitioner against BPI. In the course of the trial, BPI informed the trial court that it had sold the property under litigation to NBS on July 14, 1989. The complaint was thus amended to include NBS. On June 10, 1991, the trial court rendered judgment in the case as follows: WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants Bank of the Philippine Islands and National Book Store, Inc.: 1. Declaring the Deed of Sale of the property covered by T.C.T. No. 493122 in the name of the Bank of the Philippine Islands, situated in Barrio Bagong Ilog, Pasig, Metro Manila, in favor of National Book Store, Inc., null and void; 2. Ordering the Register of Deeds of the Province of Rizal to cancel the Transfer Certificate of Title which may have been issued in favor of National Book Store, Inc. by virtue of the aforementioned Deed of Sale dated July 14, 1989; 3. Ordering defendant BPI, upon receipt by it from plaintiff of the sum of P33,056,000.00, to execute a Deed of Sale in favor of plaintiff of the aforementioned property at the price of P1,000.00 per square meter; in default thereof, the Clerk of this Court is directed to execute the said deed;
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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. LIMKETKAI SONS MILLING, INC., petitioner, vs. COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS and NATIONAL BOOK STORE, respondents. MELO, J.: The issue in the petition before us is whether or not there was a perfected contract between petitioner Limketkai Sons Milling, Inc. and respondent Bank of the Philippine Islands (BPI) covering the sale of a parcel of land, approximately 3.3 hectares in area, and located in Barrio Bagong Ilog, Pasig City, Metro Manila. Branch 151 of the Regional Trial Court of the National Capital Judicial Region stationed in Pasig ruled that there was a perfected contract of sale between petitioner and BPI. It stated that there was mutual consent between the parties; the subject matter is definite; and the consideration was determined. It concluded that all the elements of a consensual contract are attendant. It ordered the cancellation of a sale effected by BPI to respondent National Book Store (NBS) while the case was pending and the nullification of a title issued in favor of said respondent NBS. Upon elevation of the case to the Court of Appeals, it was held that no contract of sale was perfected because there was no concurrence of the three requisites enumerated in Article 1318 of the Civil Code. The decision of the trial court was reversed and the complaint dismissed. Hence, the instant petition. Shorn of the interpretations given to the acts of those who participated in the disputed sale, the findings of facts of the trial court and the Court of Appeals narrate basically the same events and occurrences. The records show that on May 14, 1976, Philippine Remnants Co., Inc. constituted BPI as its trustee to manage, administer, and sell its real estate property. One such piece of property placed under trust was the disputed lot, a 33,056-square meter lot at Barrio Bagong Ilog, Pasig, Metro Manila covered by Transfer Certificate of Title No. 493122.

4. Ordering the Register of Deeds of Pasig, upon registration of the said deed, whether executed by defendant BPI or the Clerk of Court and payment of the corresponding fees and charges, to cancel said T.C.T. No. 493122 and to issue, in lieu thereof, another transfer certificate of title in the name of plaintiff; 5. Ordering defendants BPI and National Book Store, Inc. to pay, jointly and severally, to the plaintiff the sums of P10,000,000.00 as actual and consequential damages and P150,000.00 as attorney's fees and litigation expenses, both with interest at 12% per annum from date hereof; 6. On the cross-claim of defendant bank against National Book Store, ordering the latter to indemnify the former of whatever amounts BPI shall have paid to the plaintiff by reason hereof; and 7. Dismissing the counterclaims of the defendants against the plaintiff and National Book Store's cross-claim against defendant bank. Costs against defendants. (pp. 44-45, Rollo.) As earlier intimated, upon the decision being appealed, the Court of Appeals (Buena [P], Rasul, and Mabutas, JJ.), on August 12, 1994, reversed the trial court's decision and dismissed petitioner's complaint for specific performance and damages. The issues raised by the parties revolve around the following four questions: (1) Was there a meeting of the minds between petitioner Limketkai and respondent BPI as to the subject matter of the contract and the cause of the obligation? (2) Were the bank officials involved in the transaction authorized by BPI to enter into the questioned contract? (3) Is there competent and admissible evidence to support the alleged meeting of the minds? (4) Was the sale of the disputed land to the NBS during the pendency of trial effected in good faith? There is no dispute in regard to the following: (a) that BPI as trustee of the property of Philippine Remnant Co. authorized a licensed broker, Pedro Revilla, to sell the lot for P1,000.00 per square meter; (b) that Philippine Remnants confirmed the authority to sell of Revilla and the price at which he may sell the lot; (c) that petitioner and Revilla agreed on the former buying the property; (d) that BPI Assistant Vice-President Rolando V. Aromin allowed the broker and the buyer to inspect the property; and (e) that BPI was formally informed about the broker having procured a buyer. The controversy revolves around the interpretation or the significance of the happenings or events at this point. Petitioner states that the contract to sell and to buy was perfected on July 11, 1988 when its top officials and broker Revilla finalized the details with BPI Vice-Presidents Merlin Albano and Rolando V. Aromin at the BPI offices. Respondents, however, contend that what transpired on this date were part of continuing negotiations to buy the land and not the perfection of the sale. The arguments of respondents center on two propositions (1) Vice-Presidents Aromin and Albano had no authority to bind BPI on this particular transaction and (2) the subsequent attempts of petitioner to pay under terms instead of full payment in cash constitutes a counter-offer which negates the existence of a perfected contract. The alleged lack of authority of the bank officials acting in behalf of BPI is not sustained by the record.

At the start of the transactions, broker Revilla by himself already had full authority to sell the disputed lot. Exhibit B dated June 23, 1988 states, "this will serve as your authority to sell on an as is, where is basis the property located at Pasig Blvd., Bagong Ilog . . . ." We agree with Revilla's testimony that the authority given to him was to sell and not merely to look for a buyer, as contended by respondents. Revilla testified that at the time he perfected the agreement to sell the litigated property, he was acting for and in behalf of the BPI as if he were the Bank itself. This notwithstanding and to firm up the sale of the land, Revilla saw it fit to bring BPI officials into the transaction. If BPI could give the authority to sell to a licensed broker, we see no reason to doubt the authority to sell of the two BPI Vice-Presidents whose precise job in the Bank was to manage and administer real estate property. Respondent BPI alleges that sales of trust property need the approval of a Trust Committee made up of top bank officials. It appears from the record that this trust committee meets rather infrequently and it does not have to pass on regular transactions. Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He directly supervised the BPI Real Property Management Unit. He had been in the Real Estate Division since 1985 and was the head supervising officer of real estate matters. Aromin had been with the BPI Trust Department since 1968 and had been involved in the handling of properties of beneficial owners since 1975 (tsn., December 3, 1990, p. 5). Exhibit 10 of BPI, the February 15, 1989 letter from Senior Vice-President Edmundo Barcelon, while purporting to inform Aromin of his poor performance, is an admission of BPI that Aromin was in charge of Torrens titles, lease contracts, problems of tenants, insurance policies, installment receivables, management fees, quitclaims, and other matters involving real estate transactions. His immediate superior, Vice-President Merlin Albano had been with the Real Estate Division for only one week but he was present and joined in the discussions with petitioner. There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin before the incident. Revilla brought the brothers directly to Aromin upon entering the BPI premises. Aromin acted in a perfectly natural manner on the transaction before him with not the slightest indication that he was acting ultra vires. This shows that BPI held Aromin out to the public as the officer routinely handling real estate transactions and, as Trust Officer, entering into contracts to sell trust properties. Respondents state and the record shows that the authority to buy and sell this particular trust property was later withdrawn from Trust Officer Aromin and his entire unit. If Aromin did not have any authority to act as alleged, there was no need to withdraw authority which he never possessed. Petitioner points to Areola vs. Court of Appeals (236 SCRA 643 [1994]) which cited Prudential Bank vs. Court of Appeals (22 SCRA 350 [1993]), which in turn relied upon McIntosh vs. Dakota Trust Co. (52 ND 752, 204 NW 818, 40 ALR 1021), to wit: Accordingly a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person for his own ultimate benefit. (at pp. 652-653.) In the present case, the position and title of Aromin alone, not to mention the testimony and documentary evidence about his work, leave no doubt that he had full authority to act for BPI in the questioned transaction. There is no allegation of fraud, nor is there the least indication that Aromin was acting for his own ultimate benefit. BPI later dismissed Aromin because it appeared that a top official of the bank was personally interested in the sale of the Pasig property and did not like Aromin's testimony. Aromin was charged with poor performance but

his dismissal was only sometime after he testified in court. More than two long years after the disputed transaction, he was still Assistant Vice-President of BPI. The records show that the letter of instruction dated June 14, 1988 from the owner of Philippine Remnants Co. regarding the sale of the firm's property was addressed to Aromin. The P1,000.00 figure on the first page of broker Revilla's authority to sell was changed to P1,100.00 by Aromin. The price was later brought down again to P1,000.00, also by Aromin. The permission given to petitioner to view the lot was signed by Aromin and honored by the BPI guards. The letter dated July 9, 1988 from broker Revilla informing BPI that he had a buyer was addressed to Aromin. The conference on July 11, 1988 when the contract was perfected was with Aromin and Vice-President Albano. Albano and Aromin were the ones who assured petitioner Limketkai's officers that term payment was possible. It was Aromin who called up Miguel Bicharra of Philippine Remnants to state that the BPI rejected payment on terms and it was to Aromin that Philippine Remnants gave the go signal to proceed with the cash sale. Everything in the record points to the full authority of Aromin to bind the bank, except for the self-serving memoranda or letters later produced by BPI that Aromin was an inefficient and undesirable officer and who, in fact, was dismissed after he testified in this case. But, of course, Aromin's alleged inefficiency is not proof that he was not fully clothed with authority to bind BPI. Respondents' second contention is that there was no perfected contract because petitioner's request to pay on terms constituted a counter-offer and that negotiations were still in progress at that point. Asst. Vice-President Aromin was subpoenaed as a hostile witness for petitioner during trial. Among his statements is one to the effect that . . . Mr. Lim offered to buy the property at P900.00 per square meter while Mr. Albano counter-offered to sell the property at P1,100.00 per square meter but after the usual haggling, we finally agreed to sell the property at the price of P1,000.00 per square meter . . . (tsn, 12-3-90, p. 17; Emphasis supplied.) Asked if there was a meeting of the minds between the buyer and the bank in respect to the price of P1,000.00 per square meter, Aromin answered: Yes, sir, as far as my evaluation there was a meeting of the minds as far as the price is concerned, sir. (ibid, p. 17.) The requirements in the payment of the purchase price on terms instead of cash were suggested by BPI Vice-President Albano. Since the authority given to broker Revilla specified cash payment, the possibility of paying on terms was referred to the Trust Committee but with the mutual agreement that "if the proposed payment on terms will not be approved by our Trust Committee, Limketkai should pay in cash . . . the amount was no longer subject to the approval or disapproval of the Committee, it is only on the terms." (ibid, p. 19). This is incontrovertibly established in the following testimony of Aromin: A. After you were able to agree on the price of P1,000.00/sq. m., since the letter or authority says the payment must be in cash basis, what transpired later on? B. After we have agreed on the price, the Lim brothers inquired on how to go about submitting the covering proposal if they will be allowed to pay on terms. They requested us to give them a guide on how to prepare the corresponding letter of proposal. I recall that, upon the request of
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Mr. Albino Limketkai, we dictated a guide on how to word a written firm offer that was to be submitted by Mr. Lim to the bank setting out the terms of payment but with the mutual agreement that if his proposed payment on terms will not be approved by our trust committee, Limketkai should pay the price in cash. Q And did buyer Limketkai agree to pay in cash in case the offer of terms will be cash (disapproved). A Yes, sir. Q At the start, did they show their willingness to pay in cash? A Yes, sir. Q You said that the agreement on terms was to be submitted to the trust committee for approval, are you telling the Court that what was to be approved by the trust committee was the provision on the payment on terms? A Yes, sir. Q So the amount was no longer subject to the approval or disapproval of the committee, it is only on the terms? A Yes, sir. (tsn, Dec. 3, 1990, pp. 18-19; Emphasis supplied.) The record shows that if payment was in cash, either broker Revilla or Aromin had full authority. But because petitioner took advantage of the suggestion of Vice-President Albano, the matter was sent to higher officials. Immediately upon learning that payment on terms was frozen and/or denied, Limketkai exercised his right within the period given to him and tendered payment in full. The BPI rejected the payment. In its Comment and Memorandum, respondent NBS cites Ang Yu Asuncion vs. Court of Appeals (238 SCRA 602 [1994]) to bolster its case. Contrarywise, it would seem that the legal principles found in said case strengthen and support petitioner's submission that the contract was perfected upon the meeting of the minds of the parties. The negotiation or preparation stage started with the authority given by Philippine Remnants to BPI to sell the lot, followed by (a) the authority given by BPI and confirmed by Philippine Remnants to broker Revilla to sell the property, (b) the offer to sell to Limketkai, (c) the inspection of the property and finally (d) the negotiations with Aromin and Albano at the BPI offices. The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to sell and Alfonso Lim with Albino Limketkai, acting for petitioner Limketkai, agreed to buy the disputed lot at P1,000.00 per square meter. Aside from this there was the earlier agreement between petitioner and the authorized broker. There was a concurrence of offer and acceptance, on the object, and on the cause thereof. The phases that a contract goes through may be summarized as follows:

a. preparation, conception or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; b. perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and c. consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract (Toyota Shaw, Inc. vs. Court of Appeals, G.R. No. 116650, May 23, 1995). But in more graphic prose, we turn to Ang Yu Asuncion, per Justice Vitug: . . . 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. (238 SCRA 602; 611 [1994].) In Villonco Realty Company vs. Bormaheco (65 SCRA 352 [1975]), bearing factual antecendents similar to this case, the Court, through Justice Aquino (later to be Chief Justice), quoting authorities, upheld the perfection of the contract of sale thusly: 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.) xxx xxx xxx 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). xxx xxx xxx

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., 105 Fed. 2nd 965, citing Sec. 79, Williston on Contracts). xxx xxx xxx . . . 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 or a counter-offer. (Stuart vs. Franklin Life Ins. Co., supra.) (at pp. 362-363; 365-366.) In the case at bench, the allegation of NBS that there was no concurrence of the offer and acceptance upon the cause of the contract is belied by the testimony of the very BPI official with whom the contract was perfected. Aromin and Albano concluded the sale for BPI. The fact that the deed of sale still had to be signed and notarized does not mean that no contract had already been perfected. A sale of land is valid regardless of the form it may have been entered into (Claudel vs. Court of Appeals, 199 SCRA 113, 119 [1991]). The requisite form under Article 1458 of the Civil Code is merely for greater efficacy or convenience and the failure to comply therewith does not affect the validity and binding effect of the act between the parties (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, p. 552). If the law requires a document or other special form, as in the sale of real property, the contracting parties may compel each other to observe that form, once the contract has been perfected. Their right may be exercised simultaneously with action upon the contract (Article 1359, Civil Code). Regarding the admissibility and competence of the evidence adduced by petitioner, respondent Court of Appeals ruled that because the sale involved real property, the statute of frauds is applicable. In any event, petitioner cites Abrenica vs. Gonda (34 Phil. 739 [1916]) wherein it was held that contracts infringing the Statute of Frauds are ratified when the defense fails to object, or asks questions on cross-examination. The succinct words of Justice Araullo still ring in judicial cadence: As no timely objection or protest was made to the admission of the testimony of the plaintiff with respect to the contract; and as the motion to strike out said evidence came too late; and, furthermore, as the defendants themselves, by the cross-questions put by their counsel to the witnesses in respect to said contract, tacitly waived their right to have it stricken out, that evidence, therefore, cannot be considered either inadmissible or illegal, and court, far from having erred in taking it into consideration and basing his judgment thereon, notwithstanding the fact that it was ordered to be stricken out during the trial, merely corrected the error he committed in ordering it to be so stricken out and complied with the rules of procedure hereinbefore cited. (at p. 748.) In the instant case, counsel for respondents cross-examined petitioner's witnesses at length on the contract itself, the purchase price, the tender of cash payment, the authority of Aromin and Revilla, and other details of the litigated contract. Under the Abrenica rule (reiterated in a number of cases, among them Talosig vs. Vda. de Nieba 43 SCRA 472 [1972]), even assuming that parol evidence was initially inadmissible, the same became competent and admissible because of the cross-examination, which elicited evidence proving the evidence of a perfected contract. The cross-examination on the contract is deemed a waiver of the
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defense of the Statute of Frauds (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, supra, p. 563). The reason for the rule is that as pointed out in Abrenica "if the answers of those witnesses were stricken out, the cross-examination could have no object whatsoever, and if the questions were put to the witnesses and answered by them, they could only be taken into account by connecting them with the answers given by those witnesses on direct examination" (pp. 747-748). Moreover, under Article 1403 of the Civil Code, an exception to the unenforceability of contracts pursuant to the Statute of Frauds is the existence of a written note or memorandum evidencing the contract. The memorandum may be found in several writings, not necessarily in one document. The memorandum or memoranda is/are written evidence that such a contract was entered into. We cite the findings of the trial court on this matter: In accordance with the provisions of Art. 1403 of the Civil Code, the existence of a written contract of the sale is not necessary so long as the agreement to sell real property is evidenced by a written note or memorandum, embodying the essentials of the contract and signed by the party charged or his agent. Thus, it has been held: The Statute of Frauds, embodied in Article 1403 of the Civil Code of the Philippines, does not require that the contract itself be written. The plain test 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. (Emphasis supplied) 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 plaintiffs opposition to the motion to dismiss. The letter, transcribed above in part, together with the one marked as Appendix B, constitute an adequate memorandum of the transaction. They are signed by the defendant-appellant; refer to the property sold as a Lot in Puerto Princesa, Palawan, covered by T.C.T. No. 62, give its area as 1,825 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. (Footnote 26, Paredes vs. Espino, 22 SCRA 1000 [1968]). While there is no written contract of sale of the Pasig property executed by BPI in favor of plaintiff, there are abundant notes and

memoranda extant in the records of this case evidencing the elements of a perfected contract. There is Exhibit P, the letter of Kenneth Richard Awad addressed to Roland Aromin, authorizing the sale of the subject property at the price of P1,000.00 per square meter giving 2% commission to the broker and instructing that the sale be on cash basis. Concomitantly, on the basis of the instruction of Mr. Awad, (Exh. P), an authority to sell, (Exh. B) was issued by BPI to Pedro Revilla, Jr., representing Assetrade Co., authorizing the latter to sell the property at the initial quoted price of P1,000.00 per square meter which was altered on an unaccepted offer by Technoland. After the letter authority was issued to Mr. Revilla, a letter authority was signed by Mr. Aromin allowing the buyer to enter the premises of the property to inspect the same (Exh. C). On July 9, 1988, Pedro Revilla, Jr., acting as agent of BPI, wrote a letter to BPI informing it that he had procured a buyer in the name of Limketkai Sons Milling, Inc. with offices at Limketkai Bldg., Greenhills, San Juan, Metro Manila, represented by its Exec. VicePresident, Alfonso Lim (Exh. D). On July 11, 1988, the plaintiff, through Alfonso Lim, wrote a letter to the bank, through Merlin Albano, confirming their transaction regarding the purchase of the subject property (Exh. E). On July 18, 1988, the plaintiff tendered upon the officials of the bank a check for P33,056,000.00 covered by Check No. CA510883, dated July 18, 1988. On July 1, 1988, Alfonso Zamora instructed Mr. Aromin in a letter to resubmit new offers only if there is no transaction closed with Assetrade Co. (Exh. S). Combining all these notes and memoranda, the Court is convinced of the existence of perfected contract of sale. Aptly, the Supreme Court, citing American cases with approval, held: No particular form of language or instrument is necessary to constitute a memorandum or note in writing under the statute of frauds; any document or writing, formal or informal, written either for the purpose of furnishing evidence of the contract or for another purpose, which satisfies all the requirements of the statute as to contents and signature, as discussed respectively infra secs. 178-200, and infra secs. 201-205, is a sufficient memorandum or note. A memorandum may be written as well with lead pencil as with pen and ink. It may also be filled in on a printed form. (37 C.J.S., 653-654). The note or memorandum required by the statute of frauds need not be contained in a single document, nor, when contained in two or more papers, need each paper be sufficient as to contents and signature to satisfy the statute. Two or more writings properly connected may be considered together, matters missing or uncertain in one may be supplied or rendered certain by another, and their sufficiency will depend on whether, taken together, they meet the requirements of the statute as to contents and the requirements of the

statutes as to signature, as considered respectively infra secs. 179-200 and secs. 201-215. (pp. 460-463, Original RTC Record). The credibility of witnesses is also decisive in this case. The trial court directly observed the demeanor and manner of testifying of the witnesses while the Court of Appeals relied merely on the transcript of stenographic notes. In this regard, the court of origin had this to say: Apart from weighing the merits of the evidence of the parties, the Court had occasion to observe the demeanor of the witnesses they presented. This is one important factor that inclined the Court to believe in the version given by the plaintiff because its witnesses, including hostile witness Roland V. Aromin, an assistant vicepresident of the bank, were straightforward, candid and unhesitating in giving their respective testimonies. Upon the other hand, the witnesses of BPI were evasive, less than candid and hesitant in giving their answers to cross examination questions. Moreover, the witnesses for BPI and NBS contradicted each other. Fernando Sison III insisted that the authority to sell issued to Mr. Revilla was merely an evidence by which a broker may convince a prospective buyer that he had authority to offer the property mentioned therein for sale and did not bind the bank. On the contrary, Alfonso Zamora, a Senior Vice-President of the bank, admitted that the authority to sell issued to Mr. Pedro Revilla, Jr. was valid, effective and binding upon the bank being signed by two class "A" signatories and that the bank cannot back out from its commitment in the authority to sell to Mr. Revilla. While Alfredo Ramos of NBS insisted that he did not know personally and was not acquainted with Edmundo Barcelon, the latter categorically admitted that Alfredo Ramos was his friend and that they have even discussed in one of the luncheon meetings the matter of the sale of the Pasig property to NBS. George Feliciano emphatically said that he was not a consultant of Mr. Ramos nor was he connected with him in any manner, but his calling card states that he was a consultant to the chairman of the Pacific Rim Export and Holdings Corp. whose chairman is Alfredo Ramos. This deliberate act of Mr. Feliciano of concealing his being a consultant to Mr. Alfredo Ramos evidently was done by him to avoid possible implication that he committed some underhanded maneuvers in manipulating to have the subject property sold to NBS, instead of being sold to the plaintiff. (pp. 454-455, Original RTC Record.) On the matter of credibility of witnesses where the findings or conclusions of the Court of Appeals and the trial court are contrary to each other, the pronouncement of the Court in Serrano vs. Court of Appeals (196 SCRA 107 [1991]) bears stressing: It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility of witnesses are entitled to great respect from the appellate courts because the trial court had an opportunity to observe the demeanor of witnesses while giving testimony which may indicate their candor or lack thereof. While the Supreme Court ordinarily does not rule on the issue of credibility of witnesses, that being a question of fact not properly raised in a petition under Rule 45, the Court has undertaken to do so in
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exceptional situations where, for instance, as here, the trial court and the Court of Appeals arrived at divergent conclusions on questions of fact and the credibility of witnesses. (at p. 110.) On the fourth question of whether or not NBS is an innocent purchaser for value, the record shows that it is not. It acted in bad faith. Respondent NBS ignored the notice of lis pendens annotated on the title when it bought the lot. It was the willingness and design of NBS to buy property already sold to another party which led BPI to dishonor the contract with Limketkai. Petitioner cites several badges of fraud indicating that BPI and NBS conspired to prevent petitioner from paying the agreed price and getting possession of the property: 1. The sale was supposed to be done through an authorized broker, but top officials of BPI personally and directly took over this particular sale when a close friend became interested. 2. BPI Senior Vice President Edmundo Barcelon admitted that NBS's President, Alfredo Ramos, was his friend; that they had lunch meetings before this incident and discussed NBS's purchase of the lot. Barcelon's father was a business associate of Ramos. 3. George Feliciano, in behalf of NBS, offered P5 million and later P7 million if petitioner would drop the case and give up the lot. Feliciano went to petitioner's office and haggled with Alfonso Lim but failed to convince him inspite of various and increasing offers. 4. In a place where big and permanent buildings abound, NBS had constructed only a warehouse marked by easy portability. The warehouse is bolted to its foundations and can easily be dismantled. It is the very nature of the deed of absolute sale between BPI and NBS which, however, clearly negates any allegation of good faith on the part of the buyer. Instead of the vendee insisting that the vendor guarantee its title to the land and recognize the right of the vendee to proceed against the vendor if the title to the land turns out to be defective as when the land belongs to another person, the reverse is found in the deed of sale between BPI and NBS. Any losses which NBS may incur in the event the title turns out to be vested in another person are to be borne by NBS alone. BPI is expressly freed under the contract from any recourse of NBS against it should BPI's title be found defective. NBS, in its reply memorandum, does not refute or explain the above circumstance squarely. It simply cites the badges of fraud mentioned in Oria vs. McMicking (21 Phil. 243 [1912]) and argues that the enumeration there is exclusive. The decision in said case plainly states "the following are some of the circumstances attending sales which have been denominated by courts (as) badges of fraud." There are innumerable situations where fraud is manifested. One enumeration in a 1912 decision cannot possibly cover all indications of fraud from that time up to the present and into the future. The Court of Appeals did not discuss the issue of damages. Petitioner cites the fee for filing the amended complaint to implead NBS, sheriffs fees, registration fees, plane fare and hotel expenses of Cebu-based counsel. Petitioner also claimed, and the trial court awarded, damages for the profits and opportunity losses caused to petitioner's business in the amount of P10,000,000.00. We rule that the profits and the use of the land which were denied to petitioner because of the non-compliance or interference with a solemn obligation by respondents is somehow made up by the appreciation in land values in the meantime. Prescinding from the above, we rule that there was a perfected contract between BPI and petitioner Limketkai; that the BPI officials who transacted with petitioner had full authority to bind the bank; that the evidence supporting the sale is competent and admissible; and that the sale of the lot to NBS during the trial of the case was characterized by bad faith.

WHEREFORE, the questioned judgment of the Court of Appeals is hereby REVERSED and SET ASIDE. The June 10, 1991 judgment of Branch 151 of the Regional Trial Court of The National Capital Judicial Region stationed in Pasig, Metro Manila is REINSTATED except for the award of Ten Million Pesos (P10,000,000.00) damages which is hereby DELETED. SO ORDERED.

injunction and/ or restraining order against defendant-appellant alleging, among others, that the latter had unlawfully been depriving them of the use, possession and enjoyment of the subject property; that the entire parcel of land, which was devoted and highly suited to palay and corn, was yielding three harvests annually, with an average of one hundred twenty (120) sacks of corn and eighty cavans of rice per hectare; that plaintiffs-appellees were deprived of its total produce amounting to P150,000.00. Plaintiffs-appellees prayed for the award of moral damages in the sum of P50,000.00, exemplary damages in the amount of P20,000,00 and litigation expenses in the amount of P2,000.00. On September 19, 1986, defendant-appellant filed his answer with counterclaim traversing the material allegations in the complaint and alleging, by way of affirmative and special defenses, that: on September 11, 1961, Soledad Biona, after obtaining the loan of P1,000.00 from defendant-appellant, approached and begged the latter to buy the whole of Lot No. 177 since it was then at the brink of foreclosure by the Development Bank of the Philippines and she had no money to redeem the same nor the resources to support herself and her five small children; that defendant-appellant agreed to buy the property for the amount of P4,300.00, which consideration was to include the redemption price to be paid to the Development Bank of the Philippines; that the purchase price paid by defendant far exceeded the then current market value of the property and defendant had to sell his own eight-hectare parcel of land in Surallah to help Soledad Biona; that to evidence the transaction, a deed of sale was handwritten by Soledad Biona and signed by her and the defendant; that at the time of the sale, half of the portion of the property was already submerged in water and from the years 1969 to 1984, two and one-half hectares thereof were eroded by the Allah River; that by virtue of his continuous and peaceful occupation of the property from the time of its sale and for more than twenty- five years thereafter, defendant possesses a better right thereto subject only to the rights of the tenants whom he had allowed to cultivate the land under the Land Reform Program of the government; that the complaint states no cause of action; that plaintiffs alleged right, if any, is barred by the statutes of fraud. As counterclaim, defendant-appellant prayed that plaintiffs-appellees be ordered to execute a formal deed of sale over the subject property and to pay him actual, moral and exemplary damages as the trial court may deem proper. He likewise prayed for the award of attorney's fees in the sum of P10,000.00. During the hearing of the case, plaintiffs-appellees presented in evidence the testimonies of Editha Biona Blancaflor and Vilma Biona Blancaflor, and documentary exhibits A to G and their submarkings. Defendant-appellant, for his part, presented the testimonies of himself and Mamerto Famular, including documentary exhibits 1 to 13, F, G, H, I, and their submarkings.[1] On January 31, 1990, the RTC rendered a decision with the following dispositive portion: I (SIC) VIEW OF THE FOREGOING, decision is hereby rendered: 1. ordering the defendant to vacate possession of the lot in question to the extent of six-tenths (6/10) of the total area thereof and to deliver the same to the plaintiff Soledad Estrobillo Biona upon the latter's payment of the sum of P1,000.00 TO THE FORMER IN REDEMPTION OF ITS MORTGAGE CONSTITUTED UNDER exh. "1" of defendant; 2. ordering the defendant to vacate the possession of the remaining four-tenths (4/10) of the area of the lot in question, representing the shares of the children of the late Ernesto Biona and deliver the same to said plaintiffs; the defendant shall render an accounting of the net produce of the area ordered returned to the co-plaintiffs of Soledad Biona commencing from the date of the filing of the complaint until possession thereto has been delivered to said co-plaintiffs and to deliver or pay 25% of said net produce to said coplaintiffs; 3. ordering the defendant to pay the costs of this suit.
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HEIRS OF ERNESTO BIONA, NAMELY: EDITHA B. BLANCAFLOR, MARIANITA D. DE JESUS, VILMA B. BLANCAFLOR, ELSIE B. RAMOS and PERLITA B. CARMEN, petitioners, vs. THE COURT OF APPEALS and LEOPOLDO HILAJOS, respondents. DECISION KAPUNAN, J.: Before us is a petition for review on certiorari under Rule 45 of the Decision of the Court of Appeals dated March 31, 1992, reversing the decision of the Regional Trial Court, 11th Judicial region, Branch 26, Surallah, South Cotabato and the Resolution dated May 26, 1992, denying the subsequent motion for reconsideration. Quoting from the decision of the Court of Appeals, the antecedent facts are as follows: On October 23, 1953, the late Ernesto Biona, married to plaintiff-appellee Soledad Biona, was awarded Homestead Patent No. V-840 over the property subject of this suit, a parcel of agricultural land denominated as lot 177 of PLS-285-D, located in Bo. 3, Banga, Cotabato, containing an area of ten (10) hectares, forty-three (43) acres and sixty-eight (68) centares, Original Certificate of Title No. (V-2323) P-3831 was issued in his name by the Register of Deeds of Cotabato (Exh. C). On June 3, 1954, Ernesto and Soledad Biona obtained a loan from the then Rehabilitation Finance Corporation (now the Development Bank of the Philippines) and put up as collateral the subject property (Exh. 4). On June 12, 1956, Ernesto Biona died (Exh. B) leaving as his heirs herein plaintiffs-appellees, namely, his wife, Soledad Estrobillo Vda. De Biona, and five daughters, Editha B. Blancaflor, Marianita B. de Jesus, Vilma B. Blancaflor, Elsie B. Ramos and Perlita B. Carmen. On March 1, 1960, plaintiff-appellee Soledad Biona obtained a loan from defendantappellant in the amount of P1,000 and as security therefore, the subject property was mortgaged. It was further agreed upon by the contracting parties that for a period of two years until the debt is paid, defendant-appellant shall occupy the land in dispute and enjoy the usufruct thereof. The two-year period elapsed but Soledad Biona was not able to pay her indebtedness. Defendant-appellant continued occupying and cultivating the subject property without protest from plaintiffs-appellees. On July 3, 1962, defendant-appellant paid the sum of P1,400.00 to the Development Bank of the Philippines to cancel the mortgage previously constituted by the Biona spouses on June 3, 1953 (Exhs. 4 and 6). Thereafter, and for a period of not less than twenty-five years, defendant-appellant continued his peaceful and public occupation of the property, declaring it in his name for taxation purposes (Exhs. 10 and 11), paying real estate property taxes thereon (Exhs. 12, 13, 13-a to 13-e, F, G, H and I), and causing the same to be tenanted (Exhs. 7, 8, 9). On June 19, 1985, plaintiffs-appellees, filed a complaint for recovery of ownership, possession, accounting and damages, with a prayer for a writ of preliminary mandatory

The defendant's counter-claim are dismissed for lack of merit. SO ORDERED.[2] Dissatisfied, herein private respondent appealed to the Court of Appeals which reversed the trial court's ruling. The dispositive portion reads as follows: WHEREFORE, premises considered, the judgment appealed from is set aside and a new one entered dismissing the complaint, and the plaintiffs-appellees are ordered to execute a registrable deed of conveyance of the subject property in favor of the defendantappellant within ten (10) days from the finality of this decision. With costs against plaintiffsappellees.[3] Hence, the instant petition where the following assignment of errors were made: I.RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE SIGNATURE OF SOLEDAD ESTROBILLO IN THE DEED OF SALE (EXHIBIT "2"), A PRIVATE DOCUMENT, IS GENUINE.

the findings and conclusions of the respondent court as they are more in accord with the law and evidence on record. As to the authenticity of the deed of sale, we subscribe to the Court of Appeals' appreciation of evidence that private respondent has substantially proven that Soledad Biona indeed signed the deed of sale of the subject property in his favor. His categorical statement in the trial court that he himself saw Soledad Estrobillo affix her signature on the deed of sale lends credence. This was corroborated by another witness, Mamerto Famular. Although the petitioners consider such testimony as self-serving and biased,[6] it can not, however, be denied that private respondent has shown by competent proof that a contract of sale where all the essential elements are present for its validity was executed between the parties.[7] The burden is on the petitioners to prove the contrary which they have dismally failed to do. As aptly stated by the Court of Appeals: Having established the due execution of the subject deed of sale and the receipt evidencing payment of the consideration, the burden now shifted to plaintiffs-appellees to prove by contrary evidence that the property was not so transferred. They were not able to do this since the very person who could deny the due execution of the document, Soledad Biona, did not testify. She similarly failed to take the witness stand in order to deny her signatures on Exhs. 2 and 3. Admitting as true that she was under medication in Manila while the hearing of the case was underway, it was easy enough to get her deposition. Her non-presentation gives rise to the presumption that if her testimony was taken, the same would be adverse to the claim by plaintiffs-appellees. It must also be noted that under Sec. 22 Rule 132 of our procedural law, evidence respecting handwriting may also be given by a comparison, made by the witness or the court, with writings admitted or treated as genuine by the party against whom the evidence is offered. Our own close scrutiny of the signature of Soledad Biona appearing on Exh. 1, the document admitted by the contending parties, reveals that it is the same as the signatures appearing on Exhs. 2 and 3, the documents in dispute. Admittedly, as was pointed out by the trial court, the "S" in Exhs. 2 and 3 were written in printed type while that in Exh. 1 is in handwriting type. But a careful look at the text of Exh. 2 would reveal that Soledad Biona alternately wrote the letter "S" in longhand and printed form. Thus, the words "Sum" and "Sept.," found in the penultimate and last paragraphs of the document, respectively, were both written in longhand, while her name appearing on first part of the document, as well as the erased word "Sept." in the last paragraph thereof were written in printed form. Moreover, all doubts about the genuineness of Soledad Biona's signatures on Exhs. 2 and 3 are removed upon their comparison to her signature appearing on the special power of attorney (Exh. A) presented in evidence by plaintiffs-appellees during trial. In said document, Soledad Biona signed her name using the same fact that Soledad Estrobillo Biona wrote her entire name on Exh. 2 while she merely affixed her maiden name on the other two documents may have been due to the lesser options left to her when the lawyers who drafted the two documents (Exhs. 2 and 3) already had typewritten the names "SOLEDAD ESTROBILLO" thereon whereas in Exh. 2, it was Soledad Biona herself who printed and signed her own name. Thus, in the special power of attorney (Exh. A), Soledad Biona signed her name in the same manner it was typewritten on the document.[8] We agree with the private respondent that all the requisites for a valid contract of sale are present in the instant case. For a valuable consideration of P4,500.00, Soledad Biona agreed to sell and actually conveyed the subject property to private respondent. The fact that the deed of sale was not notarized does not render the agreement null and void and without any effect. The provision of Article 1358 of the Civil Code [9] on the necessity of a public document is only for convenience, and not for validity or enforceability.[10] The observance of which is only necessary to insure its efficacy, so that after the existence of said contract had been admitted, the party bound may be compelled to execute the proper document.[11] Undeniably, a contract has been entered into by Soledad Biona and the private respondent. Regardless of its form, it was valid, binding and enforceable between the parties. We quote with favor the respondent court's ratiocination on the matter:

xxx The trial court cannot dictate the manner in which the parties may execute their agreement, unless the law otherwise provides for a prescribed form, which is not so in this case. The deed of sale so executed, although a private document, is effective as between the parties themselves and also as the third persons having no better title, and should be admitted in evidence for the purpose of showing the rights and relations of the contracting parties (Carbonell v. Court of Appeals, 69 SCRA 99; Elumbaring v. Elumbaring, 12 Phil. 384). Under Art. 1356 of the Civil Code, contracts shall be obligatory in whatever form they may have been entered into provided all the essential requisites for their necessary elements for a valid contract of sale were met when Soledad Biona agreed to sell and actually conveyed Lot 177 to defendant-appellant who paid the amount of P4,500.00 therefore. The deed of sale (Exh. 2) is not made ineffective merely because it is not notarized or does not appear in a public document. The contract is binding upon the contracting parties, defendant-appellant and Soledad Biona, including her successors-in-interest. Pursuant to Art. 1357, plaintiffs-appellees may be compelled by defendant-appellant to execute a public document to embody their valid and enforceable contract and for the purpose of registering the property in the latter's name (Clarin v. Rulona, 127 SCRA 512; Heirs of Amparo v. Santos, 108 SCRA 43; Araneta v. Montelibano, 14 Phil. 117).[12] Finally, we find no merit in petitioners' contention that their right over the land has not prescribed. The principle of laches was properly applied against petitioner. Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier, it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it has either abandoned it or declined to assert it. [13] In the instant case, the Court of Appeals point to the circumstances that warrant the principle to come into play: Laches had been defined to be such neglect or omission to assert a right taken in conjunction with the lapse of time and other circumstances causing prejudice to an adverse party, as will bar him in equity (Heirs of Batiog Lacamen v. Heirs of Laruan, 65 SCRA 605, 609-610). In the instant suit, Soledad Biona, at the time of the execution of the deed of sale (Exh. 2) on September 11, 1961, could only alienate that portion of Lot 177 belonging to her, which is seven-twelfths of the entire property. She had no power or authority to dispose of the shares of her co-owners, the five daughters of the deceased Ernesto Biona, who were entitled to an indivisible five-twelfths portion of the whole property. It is not disputed, however, that as early as 1960, when Soledad Biona borrowed money from defendantappellant (Exh. L), the latter entered, possessed and started occupying the same in the concept of an owner. He caused its cultivation through various tenants under Certificates of Land Transfer (Exhs. 7-9), declared the property in his name, religiously paid taxes thereon, reaped benefits therefrom, and executed other acts of dominion without any protest or interference from plaintiffs-appellees for more than twenty-five years. Even when the five daughters of the deceased Ernesto Biona were way past the age of majority, when they could have already asserted their right to their share, no sale in defendant-appellant's favor was ever brought or any other action was taken by them to recover their share. Instead, they allowed defendant-appellant to peacefully occupy the property without protest. Although it is true that no title to registered land in derogation of that of the registered owner shall be acquired by prescription or adverse possession as the right to recover possession of registered land is imprescriptible, jurisprudence has laid down the rule that a person and his heirs may lose their right to recover back the possession of such property and title thereto by reason of laches. (Victoriano v. Court of Appeals, 194 SCRA 19; Lola v. CA, 145 SCRA 439, 449). Indeed, it has been ruled in the case of Miguel v. Catalino, 26 SCRA 234, 239, that: 'Courts can not look with favor at parties who, by their silence, delay and inaction, knowingly induce another to spend time, effort and expense in cultivating the land, paying taxes and making improvements thereof for 30 long years, only to spring from ambush and claim title when the possessor's efforts and the rise of land values offer an opportunity to make easy profit at his expense.'
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II - RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF SALE (EXHIBIT 2) IS VALID AND COULD LEGALLY CONVEY TO PRIVATE RESPONDENT OWNERSHIP AND TITLE OVER THE SUBJECT PROPERTY. III RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT HEREIN PETITIONERS HAD LOST THEIR RIGHT TO RECOVER THE SUBJECT PROPERTY BY VIRTUE OF THE EQUITABLE PRINCIPLE OF LACHES.

IV- RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE RESPONDENT'S RIGHT OF ACTION UNDER THE DEED OF SALE (EXHIBIT "2") HAD PRESCRIBED.[4] As correctly pointed out by the Court of Appeals, the pivotal issue in the instant case is whether or not the deed of sale is valid and if it effectively conveyed to the private respondents the subject property. In ruling in favor of the petitioners, the trial court refused to give weight to the evidence of private respondent which consisted of (1) the handwritten and unnotarized deed of sale executed by Soledad Biona in favor of the private respondent; and (2) the corresponding acknowledgment receipt of the amount of P3,500.00 as partial payment for the land in dispute. To the mind of the trial court, the signature of Soledad Biona on the deed of sale was not genuine. There was no direct evidence to prove that Soledad Biona herself signed the document. Moreover, the deed of sale was not notarized and therefore, did not convey any rights to the vendee. The trial court also ruled that petitioners' rights over the land have not allegedly prescribed. On the other hand, the respondent Court of Appeals accepted as genuine the deed of sale (Exh. 2) which "sets forth in unmistakable terms that Soledad Biona agreed for the consideration of P4,500.00, to transfer to defendant-appellant Lot 177. The fact that payment was made is evidenced by the acknowledgment receipt for P3,500.00 (Exh. 3) signed by Soledad Biona, and private respondent previous delivery of P1,000.00 to her pursuant to the Mutual Agreement (Exh. 1). The contract of sale between the contracting parties was consummated by the delivery of the subject land to private respondent who since then had occupied and cultivated the same continuously and peacefully until the institution of this suit."[5] Given the contrary findings of the trial court and the respondent court, there is a need to re-examine the evidence altogether. After a careful study, we are inclined to agree with

Thus, notwithstanding the invalidity of the sale with respect to the share of plaintiffsappellees, the daughters of the late Ernesto Biona, they [allowed] the vendee, defendantappellant herein, to enter, occupy and possess the property in the concept of an owner without demurrer and molestation for a long period of time, never claiming the land as their own until 1985 when the property has greatly appreciated in value. Vigilantibus non dormientibus sequitas subvenit.[14] WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals is AFFIRMED. SO ORDERED.

TO BIND THIRD PARTIES BENIGNA SECUYA, MIGUEL SECUYA, MARCELINO SECUYA, CORAZON SECUYA, RUFINA SECUYA, BERNARDINO SECUYA, NATIVIDAD SECUYA, GLICERIA SECUYA and PURITA SECUYA, petitioners, vs. GERARDA M. VDA. DE SELMA, respondent. Edp D E C I S I ON PANGANIBAN, J.: In an action for quieting of title, the plaintiffs must show not only that there is a cloud or contrary interest over the subject real property, but that they have a valid title to it. In the present case, the action must fail, because petitioners failed to show the requisite title. The Case Before us is a Petition for Review seeking to set aside the July 30, 1998 Decision of the Court of Appeals (CA) in CA-G.R. CV No. 38580,[1] which affirmed the judgment[2] of the Regional Trial Court (RTC) of Cebu City. The CA ruled: "WHEREFORE, [there being] no error in the appealed decision, the same is hereby AFFIRMED in toto."[3] The decretal portion of the trial court Decision reads as follows: Mis-edp "WHEREFORE, in view of all the foregoing [evidence] and considerations, this court hereby finds the preponderance of evidence to be in favor of the defendant Gerarda Selma as judgment is rendered: "1. Dismissing this Complaint for Quieting of Title, Cancellation of Certificate of Title of Gerarda vda. de Selma and damages; "2. Ordering the plaintiffs to vacate the premises in question and turn over the possession of the same to the defendant Gerarda Selma; "3. Requiring the plaintiffs to pay defendant the sum of P20,000 as moral damages, according to Art. 2217, attorneys fees of P15,000.00, litigation expenses of P5,000.00 pursuant to Art. 2208 No. 11 and to pay the costs of this suit. "SO ORDERED."[4] Likewise challenged is the October 14, 1998 CA Resolution which denied petitioners Motion for Reconsideration.[5] The FactsMis-oedp The present Petition is rooted in an action for quieting of title filed before the RTC by Benigna, Miguel, Marcelino, Corazon, Rufina, Bernardino, Natividad, Gliceria and Purita -- all surnamed Secuya -- against Gerarda M. vda. de Selma. Petitioners asserted ownership over the disputed parcel of land, alleging the following facts: "xxx xxx xxx

"8. The parcel of land subject of this case is a PORTION of Lot 5679 of the Talisay-Minglanilla Friar Lands Estate, referred to and covered [o]n Page 279, Friar Lands Sale Certificate Register of the Bureau of Lands (Exh. "K"). The property was originally sold, and the covering patent issued, to Maxima Caballero Vda. de Cario (Exhs. "K-1"; "K-2). Lot 5679 has an area of 12,750 square meters, more or less; "9. During the lifetime of Maxima Caballero, vendee and patentee of Lot 5679, she entered into that AGREEMENT OF PARTITION dated January 5, 1938 with Paciencia Sabellona, whereby the former bound herself and parted [with] one-third (1/3) portion of Lot 5679 in favor of the latter (Exh. "D"). Among others, it was stipulated in said agreement of partition that the said portion of onethird so ceded will be located adjoining the municipal road (par. 5, Exh. "D"); Ed-pm-is "10. Paciencia Sabellona took possession and occupation of that one-third portion of Lot 5679 adjudicated to her. Later, she sold the three thousand square meter portion thereof to Dalmacio Secuya on October 20, 1953, for a consideration of ONE THOUSAND EIGHT HUNDRED FIFTY PESOS (P1,850.00), by means of a private document which was lost (p. 8, tsn., 8/8/89-Calzada). Such sale was admitted and confirmed by Ramon Sabellona, only heir of Paciencia Sabellona, per that instrument denominated CONFIRMATION OF SALE OF UNDIVIDED SHARES, dated September 28, 1976 (Exh. "B"); "11. Ramon Sabellona was the only [or] sole voluntary heir of Paciencia Sabellona, per that KATAPUSAN NGA KABUT-ON UG PANUGON NI PACIENCIA SABELLONA (Last Will and Testament of Paciencia Sabellona), dated July 9, 1954, executed and acknowledged before Notary Public Teodoro P. Villarmina (Exh. "C"). Pursuant to such will, Ramon Sabellona inherited all the properties left by Paciencia Sabellona; "12. After the purchase [by] Dalmacio Secuya, predecessor-ininterest of plaintiffs, of the property in litigation on October 20, 1953, Dalmacio, together with his brothers and sisters - he being single took physical possession of the land and cultivated the same. In 1967, Edilberto Superales married Rufina Secuya, niece of Dalmacio Secuya. With the permission and tolerance of the Secuyas, Edilberto Superales constructed his house on the lot in question in January 1974 and lived thereon continuously up to the present (p. 8., tsn. 7/25/88 - Daclan). Said house is inside Lot 5679C-12-B, along lines 18-19-20 of said lot, per Certification dated August 10, 1985, by Geodetic Engineer Celestino R. Orozco (Exh. "F"); Jjs-c "13. Dalmacio Secuya died on November 20, 1961. Thus his heirs brothers, sisters, nephews and nieces - are the plaintiffs in Civil Case No. CEB-4247 and now the petitioners; "14. In 1972, defendant-respondent Gerarda Selma bought a 1,000 square-meter portion of Lot 5679, evidenced by Exhibit "P". Then on February 19, 1975, she bought the bigger bulk of Lot 5679, consisting of 9,302 square meters, evidenced by that deed of absolute sale, marked as Exhibit "5". The land in question, a 3,000square meter portion of Lot 5679, is embraced and included within the boundary of the later acquisition by respondent Selma;
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"15. Defendant-respondent Gerarda Selma lodged a complaint, and had the plaintiffs-petitioners summoned, before the Barangay Captain of the place, and in the confrontation and conciliation proceedings at the Lupong Tagapayapa, defendant-respondent Selma was asserting ownership over the land inherited by plaintiffspetitioners from Dalmacio Secuya of which they had long been in possession x x x in concept of owner. Such claim of defendantrespondent Selma is a cloud on the title of plaintiffs-petitioners, hence, their complaint (Annex "C")."[6] Respondent Selmas version of the facts, on the other hand, was summarized by the appellate court as follows: Sc-jj "She is the registered owner of Lot 5679-C-120 consisting of 9,302 square meters as evidenced by TCT No. T-35678 (Exhibit "6", Record, p. 324), having bought the same sometime in February 1975 from Cesaria Caballero as evidenced by a notarized Deed of Sale (Exhibit "5", Record, p. 323) and ha[ve] been in possession of the same since then. Cesaria Caballero was the widow of Silvestre Aro, registered owner of the mother lot, Lot. No. 5679 with an area of 12,750 square meters of the Talisay-Minglanilla Friar Lands Estate, as shown by Transfer Certificate of Title No. 4752 (Exhibit "10", Record, p. 340). Upon Silvestre Aros demise, his heirs executed an "Extrajudicial Partition and Deed of Absolute Sale" (Exhibit "11", Record, p. 341) wherein one-half plus one-fifth of Lot No. 5679 was adjudicated to the widow, Cesaria Caballero, from whom defendant-appellee derives her title."[7] The CA Ruling In affirming the trial courts ruling, the appellate court debunked petitioners claim of ownership of the land and upheld Respondent Selmas title thereto. It held that respondents title can be traced to a valid TCT. On the other hand, it ruled that petitioners anchor their claim on an "Agreement of Partition" which is void for being violative of the Public Land Act. The CA noted that the said law prohibited the alienation or encumbrance of land acquired under a free patent or homestead patent, for a period of five years from the issuance of the said patent. S-jcj Hence, this Petition.[8] The Issues In their Memorandum, petitioners urge the Court to resolve the following questions: "1. Whether or not there was a valid transfer or conveyance of onethird (1/3) portion of Lot 5679 by Maxima Caballero in favor of Paciencia Sabellona, by virtue of [the] Agreement of Partition dated January 5, 1938[;] and "2. Whether or not the trial court, as well as the appellate court, committed grave abuse of discretion amounting to lack of jurisdiction in not making a finding that respondent Gerarda M. vda. de Selma [was] a buyer in bad faith with respect to the land, which is a portion of Lot 5679."[9] For a clearer understanding of the above matters, we will divide the issues into three: first, the implications of the Agreement of Partition; second, the validity of the Deed of Confirmation of Sale executed in favor of the petitioners; and third, the validity of private respondents title. Supr-eme The Courts Ruling The Petition fails to show any reversible error in the assailed Decision.

Preliminary Matter: The Action for Quieting of Title In an action to quiet title, the plaintiffs or complainants must demonstrate a legal or an equitable title to, or an interest in, the subject real property.[10] Likewise, they must show that the deed, claim, encumbrance or proceeding that purportedly casts a cloud on their title is in fact invalid or inoperative despite its prima facie appearance of validity or legal efficacy.[11] This point is clear from Article 476 of the Civil Code, which reads: "Whenever there is cloud on title to real property or any interest therein, by reason of any instrument, record, claim, encumbrance or proceeding which is apparently valid or effective but is in truth and in fact invalid, ineffective, voidable or unenforceable, and may be prejudicial to said title, an action may be brought to remove such cloud or to quiet title. Co-urt "An action may also be brought to prevent a cloud from being cast upon title to real property or any interest therein." In the case at bar, petitioners allege that TCT No. 5679-C-120, issued in the name of Private Respondent Selma, is a cloud on their title as owners and possessors of the subject property, which is a 3,000--square-meter portion of Lot No. 5679-C-120 covered by the TCT. But the underlying question is, do petitioners have the requisite title that would enable them to avail themselves of the remedy of quieting of title? Petitioners anchor their claim of ownership on two documents: the Agreement of Partition executed by Maxima Caballero and Paciencia Sabellona and the Deed of Confirmation of Sale executed by Ramon Sabellona. We will now examine these two documents. First Issue: The Real Nature of the "Agreement of Partition" The duly notarized Agreement of Partition dated January 5, 1938, is worded as follows: Jle-xj "AGREEMENT OF PARTITION "I, MAXIMA CABALLERO, Filipina, of legal age, married to Rafael Cario, now residing and with postal address in the Municipality of Dumaguete, Oriental Negros, depose the following and say: "1. That I am the applicant of vacant lot No. 5679 of the TalisayMinglanilla Estate and the said application has already been indorsed by the District Land Officer, Talisay, Cebu, for private sale in my favor; "2. That the said Lot 5679 was formerly registered in the name of Felix Abad y Caballero and the sale certificate of which has already been cancelled by the Hon. Secretary of Agriculture and Commerce; Lex-juris "3. That for and in representation of my brother, Luis Caballero, who is now the actual occupant of said lot I deem it wise to have the said lot paid by me, as Luis Caballero has no means o[r] any way to pay the government; "4. That as soon as the application is approved by the Director of Lands, Manila, in my favor, I hereby bind myself to transfer the onethird (1/3) portion of the above mentioned lot in favor of my aunt, Paciencia Sabellana y Caballero, of legal age, single, residing and with postal address in Tungkop, Minglanilla, Cebu. Said portion of one-third (1/3) will be subdivided after the approval of said application and the same will be paid by her to the government [for] the corresponding portion. "5. That the said portion of one-third (1/3) will be located adjoining the municipal road;

"6. I, Paciencia Sabellana y Caballero, hereby accept and take the portion herein adjudicated to me by Mrs. Maxima Caballero of Lot No. 5679 Talisay-Minglanilla Estate and will pay the corresponding portion to the government after the subdivision of the same; "IN WITNESS WHEREOF, we have hereunto set our hands this 5th day of January, 1988, at Talisay, Cebu."[12] The Agreement: An Express Trust, Not a Partition Notwithstanding its purported nomenclature, this Agreement is not one of partition, because there was no property to partition and the parties were not co-owners. Rather, it is in the nature of a trust agreement. Juri-smis Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in another. It is a fiduciary relationship that obliges the trustee to deal with the property for the benefit of the beneficiary.[13] Trust relations between parties may either be express or implied. An express trust is created by the intention of the trustor or of the parties. An implied trust comes into being by operation of law.[14] The present Agreement of Partition involves an express trust. Under Article 1444 of the Civil Code, "[n]o particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended." That Maxima Caballero bound herself to give one third of Lot No. 5629 to Paciencia Sabellona upon the approval of the former's application is clear from the terms of the Agreement. Likewise, it is evident that Paciencia acquiesced to the covenant and is thus bound to fulfill her obligation therein. As a result of the Agreement, Maxima Caballero held the portion specified therein as belonging to Paciencia Sabellona when the application was eventually approved and a sale certificate was issued in her name.[15] Thus, she should have transferred the same to the latter, but she never did so during her lifetime. Instead, her heirs sold the entire Lot No. 5679 to Silvestre Aro in 1955. From 1954 when the sale certificate was issued until 1985 when petitioners filed their Complaint, Paciencia and her successors-in-interest did not do anything to enforce their proprietary rights over the disputed property or to consolidate their ownership over the same. In fact, they did not even register the said Agreement with the Registry of Property or pay the requisite land taxes. While petitioners had been doing nothing, the disputed property, as part of Lot No. 5679, had been the subject of several sales transactions[16] and covered by several transfer certificates of title. Jj-juris The Repudiation of the Express Trust While no time limit is imposed for the enforcement of rights under express trusts,[17] prescription may, however, bar a beneficiary's action for recovery, if a repudiation of the trust is proven by clear and convincing evidence and made known to the beneficiary.[18] There was a repudiation of the express trust when the heirs of Maxima Caballero failed to deliver or transfer the property to Paciencia Sabellona, and instead sold the same to a third person not privy to the Agreement. In the memorandum of incumbrances of TCT No. 3087[19] issued in the name of Maxima, there was no notation of the Agreement between her and Paciencia. Equally important, the Agreement was not registered; thus, it could not bind third persons. Neither was there any allegation that Silvestre Aro, who purchased the property from Maximas heirs, knew of it. Consequently, the subsequent sales transactions involving the land in dispute and the titles covering it must be upheld, in the absence of proof that the said transactions were fraudulent and irregular. Jksm Second Issue: The Purported Sale to Dalmacio Secuya Even granting that the express trust subsists, petitioners have not proven that they are the rightful successors-in-interest of Paciencia Sabellona. The Absence of the Purported Deed of Sale
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Petitioners insist that Paciencia sold the disputed property to Dalmacio Secuya on October 20, 1953, and that the sale was embodied in a private document. However, such document, which would have been the best evidence of the transaction, was never presented in court, allegedly because it had been lost. While a sale of a piece of land appearing in a private deed is binding between the parties, it cannot be considered binding on third persons, if it is not embodied in a public instrument and recorded in the Registry of Property.[20] Moreover, while petitioners could not present the purported deed evidencing the transaction between Paciencia Sabellona and Dalmacio Secuya, petitioners immediate predecessor-ininterest, private respondent in contrast has the necessary documents to support her claim to the disputed property. The Questionable Value of the Deed Executed by Ramon Sabellona Chief To prove the alleged sale of the disputed property to Dalmacio, petitioners instead presented the testimony of Miguel Secuya, one of the petitioners; and a Deed[21] confirming the sale executed by Ramon Sabellona, Paciencias alleged heir. The testimony of Miguel was a bare assertion that the sale had indeed taken place and that the document evidencing it had been destroyed. While the Deed executed by Ramon ratified the transaction, its probative value is doubtful. His status as heir of Paciencia was not affirmatively established. Moreover, he was not presented in court and was thus not quizzed on his knowledge -- or lack thereof -- of the 1953 transaction. Petitioners' Failure to Exercise Owners' Rights to the Property Petitioners insist that they had been occupying the disputed property for forty-seven years before they filed their Complaint for quieting of title. However, there is no proof that they had exercised their rights and duties as owners of the same. They argue that they had been gathering the fruits of such property; yet, it would seem that they had been remiss in their duty to pay land taxes. If petitioners really believed that they owned the property, they should have been more vigilant in protecting their rights thereto. As noted earlier, they did nothing to enforce whatever proprietary rights they had over the disputed parcel of land. Third Issue: The Validity of Private Respondents TitleEsm Petitioners debunk Private Respondent Selmas title to the disputed property, alleging that she was aware of their possession of the disputed properties. Thus, they insist that she could not be regarded as a purchaser in good faith who is entitled to the protection of the Torrens system. Indeed, a party who has actual knowledge of facts and circumstances that would move a reasonably cautious man to make an inquiry will not be protected by the Torrens system. In Sandoval v. Court of Appeals,[22] we held: "It is settled doctrine that one who deals with property registered under the Torrens system need not go beyond the same, but only has to rely on the title. He is charged with notice only of such burdens and claims as are annotated on the title. "The aforesaid principle admits of an unchallenged exception: that a person dealing with registered land has a right to rely on the Torrens certificate of title and to dispense without the need of inquiring further except when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry, or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of title of the property in litigation. The presence of anything which excites or arouses suspicion should then prompt the vendee to look beyond the certificate and investigate the title of the vendor appearing on the face of the certificate. One who falls within the exception can neither be denominated an innocent purchaser for value nor a

purchaser in good faith; and hence does not merit the protection of the law." Esmsc Granting arguendo that private respondent knew that petitioners, through Superales and his family, were actually occupying the disputed lot, we must stress that the vendor, Cesaria Caballero, assured her that petitioners were just tenants on the said lot. Private respondent cannot be faulted for believing this representation, considering that petitioners' claim was not noted in the certificate of the title covering Lot No. 5679. Moreover, the lot, including the disputed portion, had been the subject of several sales transactions. The title thereto had been transferred several times, without any protestation or complaint from the petitioners. In any case, private respondent's title is amply supported by clear evidence, while petitioners claim is barren of proof. Clearly, petitioners do not have the requisite title to pursue an action for quieting of title. WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioners. SO ORDERED. FOR ENFORCEABILITIY BETWEEN THE PARTIES: STATUTE OF FRAUDS G.R. No. L-55048 May 27, 1981 SUGA SOTTO YUVIENCO, ET AL. vs. AUXENCIO C. DACUYCUY, ET AL.

unsigned by the latter. Private respondents filed an action for specific performance in the Court of First Instance of Leyte and petitioners filed a motion to dismiss the complaint on the grounds that the complaint states no cause of action and/or that the claim alleged therein is unenforceable under the Statute of Frauds. Respondent judge ruled negatively; hence this petition. On certiorari and prohibition, the Supreme Court ruled that the complaint does not state a cause of action where the telegram-reply which is not an absolute acceptance under Art. 1319 of the Civil Code does not show the existence of a perfected contract of sale while the claim of private respondents for specific performance of the terms of payment of an evidently oral contract involving the "sale of real property" is unenforceable under Art. 1403, No. 2 (e) of the Civil Code, otherwise known as the Statute of Frauds. Impugned orders, set aside. SYLLABUS 1. CIVIL LAW; CONTRACTS; ESSENTIAL REQUISITES OF CONTRACTS; ABSOLUTE ACCEPTANCE OF OFFER; NOT PRESENT IN THE CASE AT BAR. Respondents' telegram which simply says "We agree to buy property" does not necessarily connote acceptance of the price but instead suggests that the details were to be subject of negotiation. That respondents were all the time agreeable to buy the property may be conceded, but what impresses the Supreme Court is that instead of "absolutely" accepting the "certain" offer if there was one of the petitioners, they still insisted on further negotiation of details. 2. REMEDIAL LAW; CIVIL PROCEDURE; MOTION TO DISMISS; GROUND; FAILURE TO STATE A CAUSE OF ACTION; A CASE OF; FAILURE TO SHOW ABSOLUTE ACCEPTANCE OF CONTRACT OF SALE IN CASE AT BAR. Where in the light of the telegram-reply of Yao to Any. Gamboa's letter of July 12, 1978 there was not an absolute acceptance of the Contract for the sale of Land under Article 1319 of the Civil Code, petitioners' contention that the complaint of respondents state no cause of action is correct. 3. CIVIL LAW; CONTRACTS; SALE OF REAL PROPERTY; STATUTE OF FRAUDS; PAYMENT IN INSTALLMENTS MUST BE IN WRITING TO BE ENFORCEABLE. In any sale of real property on installments, the Statute of Frauds read together with the perfection requirements of Article 1475 of the Civil Code must be understood and applied in the sense that the idea of payment on installments must be in the requisite of a note or memorandum therein contemplated. 4. ID.; ID.; ID.; ID.; MEMORANDUM WHETHER IN ONE WRITING OR IN SEPARATE NOTES; MUST CONTAIN ALL THE ESSENTIAL ELEMENTS OF THE ENTIRE AGREEMENT. Under the Statute of Frauds, the note or memorandum need not be in one single document or writing but the separate notes must, when put together, contain all the requisites of a perfected contract of sale. 5. REMEDIAL LAW; PLEADING AND PRACTICE; MOTION TO DISMISS INVOKING THE STATUTE OF FRAUDS; DUTY OF THE PLAINTIFF. A motion to dismiss invoking the Statute of Frauds may be filed even if the absence of compliance does not appear on the fact of the complaint. Such absence may be the subject of proof in the motion stage of the proceedings. (Moran, Comment on the Rules of Court, Vol. I, p. 494, 1979 ed.) It follows that it becomes incumbent upon the plaintiff to bring out what note or memorandum still exists in his possession in order to enable the court to expeditiously determine then and there the need for further proceedings.

SECOND DIVISION [G.R. No. L-55048. May 27, 1981.]

SUGA SOTTO YUVIENCO, BRITANIA SOTTO, and MARCELINO SOTTO, petitioners, vs. HON. AUXENCIO C. DACUYCUY, Judge of the CFI of Leyte, DELY RODRIGUEZ, FELIPE ANG CRUZ, CONSTANCIA NOGAR, MANUEL GO, INOCENTES DIME, WILLY JULIO, JAIME YU, OSCAR DY, DY CHIU SENG, BENITO YOUNG, FERNANDO YU, SEBASTIAN YU, CARLOS UY, HOC CHUAN and MANUEL DY, respondents.

Fulvio C. Pelaez for petitioners. Julio Villamor and Francisco Lava, Jr. and Ramon V. Salazar for respondents. SYNOPSIS Petitioners, owners of a parcel of land and the building existing thereon, expressed through their representative who wrote a letter to private respondents, the tenants therein, their willingness to sell their property to them. Private respondents replied by telegram with the following words, "we agree to buy proceed Tacloban to negotiate details". When petitioners' representative arrived with the prepared contract to purchase and to sell, private respondents found variance between the terms of payment and what they had in mind, hence the bankdraft being offered for payment was returned and the document remained

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DECISION

(Page 9, Record.) Reacting to the foregoing letter, the following telegram was sent by "Yao King Ong & Tenants" to Atty. Pedro Gamboa in Cebu City:

hereto attached as integral part hereof and marked as Annex 'C-1' and as a consequence hereof, plaintiffs (except plaintiff Tacloban Merchants' Realty Development Corporation) and defendants (except defendant Tacloban City Ice Plant, Inc.) agreed to the following terms and conditions respecting the payment of said purchase price, to wit: P2,000,000.00 to be paid in full on the date of the execution of the contract; and the balance of P4,500,000.00 shall be fully paid within ninety (90) days thereafter; "9. That on July 27, 1978, defendants sent a telegram to plaintiff-tenants, through the latter's representative Mr. Yao King Ong, reiterating their acceptance to the agreement referred to in the next preceding paragraph hereof and notifying plaintiffs-tenants to prepare payment by bank drafts; which the latter readily complied with; a copy of which telegram is hereto attached as integral part hereof and marked as Annex 'D';" (pp. 49-50, Record.) It was on the basis of the foregoing facts and allegations that herein petitioners filed their motion to dismiss alleging as main grounds: "1. That plaintiff, TACLOBAN MERCHANTS' REALTY DEVELOPMENT CORPORATION, amended complaint, does not state a cause of action and the claim on which the action is founded is likewise unenforceable under the provisions of the Statute of Frauds. II. That as to the rest of the plaintiffs, their amended complaint does not state a cause of action and the claim on which the action is founded is likewise unenforceable under the provisions of the Statute of Frauds." (Page 81, Record.) With commendable knowledgeability and industry, respondent judge ruled negatively on the motion to dismiss, discoursing at length on the personality as real party-in-interest of respondent corporation, while passing lightly, however, on what to Us are the more substantial and decisive issues of whether or not the complaint sufficiently states a cause of action and whether or not the claim alleged therein is unenforceable under the Statute of Frauds, by holding thus: "The second ground of the motion to dismiss is that plaintiffs' claim is unenforceable under the Statute of Frauds. The defendants argued against this motion and asked the court to reject the objection for the simple reason that the contract of sale sued upon in this case is supported by letters and telegrams annexed to the complaint and other papers which will be presented during the trial. This contention of the defendants is not well taken. The plaintiffs having alleged that the contract is backed up by letters and telegrams, and the same being a sufficient memorandum, the complaint states a cause of action and they should be given a day in court and allowed to substantiate their allegations (Paredes vs. Espino, 22 SCRA 1000.) To take a contract for the sale of land out of the Statute of Frauds a mere note or memorandum in writing subscribed by the vendor or his agent containing the names of the parties and a summary statement of the terms of the sale either expressly or by reference to something else is all that is required. The Statute does not require a formal contract drawn up with technical exactness for the language of Par. 2 of Art. 1403 of the Philippine Civil Code is '. . . an agreement . . . or some note or memorandum thereof,' thus recognizing a difference between the contract itself and the written evidence which the statute requires (Berg vs. Magdalena Estate, Inc., 92 Phil. 110; III Moran, Comments on the Rules of Court, 1952 ed. p. 187). See also Bautista's Monograph on the Statute of Frauds in 21 SCRA p. 250." (Pp. 110-111, Record.) Our first task then is to dwell on the issue of whether or not in the light of the foregoing circumstances, the complaint in controversy states sufficiently a cause of action. This issue necessarily entails the determination of whether or not the plaintiffs have alleged facts
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BARREDO, J p: Petition for certiorari and prohibition to declare void for being in grave abuse of discretion the orders of respondent judge dated November 2, 1978 and August 29, 1980, in Civil Case No. 5759 of the Court of First Instance of Leyte, which denied the motion filed by petitioners to dismiss the complaint of private respondents for specific performance of an alleged agreement of sale of real property, the said motion being based on the grounds that the respondents' complaint states no cause of action and/or that the claim alleged therein is unenforceable under the Statute of Frauds. Finding initially prima facie merit in the petition, We required respondents to answer and We issued a temporary restraining order on October 7, 1980 enjoining the execution of the questioned orders. In essence, the theory of petitioners is that while it is true that they did express willingness to sell to private respondents the subject property for P6,500,000 provided the latter made known their own decision to buy it not later than July 31, 1978, the respondents' reply that they were agreeable was not absolute, so much so that when ultimately petitioners' representative went to Cebu City with a prepared and duly signed contract for the purpose of perfecting and consummating the transaction, respondents and said representative found variance between the terms of payment stipulated in the prepared document and what respondents had in mind, hence the bankdraft which respondents were delivering to petitioners' representative was returned and the document remained unsigned by respondents. Hence the action below for specific performance. To be more specific, the parties do not dispute that on July 12, 1978, petitioners, thru a certain Pedro C. Gamboa, sent to respondents the following letter: "Mr. Yao King Ong Life Bakery Tacloban City Dear Mr. Yao: This refers to the Sotto property (land and building) situated at Tacloban City. My clients are willing to sell them at a total price of P6,500,000.00. While there are other parties who are interested to buy the property, I am giving you and the other occupants the preference, but such priority has to be exercised within a given number of days as I do not want to lose the opportunity if you are not interested. I am therefore giving you and the rest of the occupants until July 31, 1978 within which to decide whether you want to buy the property. If I do not hear from you by July 31, I will offer or close the deal with the other interested buyer. Thank you so much for the hospitality extended to me during my last trip to Tacloban, and I hope to hear from you very soon. Very truly yours, Pedro C. Gamboa" 1

"Atty. Pedro Gamboa Room 314, Maria Cristina Bldg. Osmea Boulevard, Cebu City Reurlet dated July 12 inform Dra. Yuvienco we agree to buy property proceed Tacloban to negotiate details. Yao King Ong & tenants" (Page 10, Record.) Likewise uncontroverted is the fact that under date of July 27, 1978, Atty. Gamboa wired Yao King Ong in Tacloban City as follows: "NLT YAO KING ONG LIFE BAKERY TACLOBAN CITY PROPOSAL ACCEPTED ARRIVING TUESDAY MORNING WITH CONTRACT PREPARE PAYMENT BANK DRAFT. ATTY. GAMBOA" (Page 10, id.) Now, Paragraph 10 of the complaint below of respondents alleges: "10. That on August 1, 1978, defendant Pedro Gamboa arrived Tacloban City bringing with him the prepared contract to purchase and to sell referred to in his telegram dated July 27, 1978 (Annex 'D' hereof), for the purpose of closing the transactions referred to in paragraphs 8 and 9 hereof, however, to the complete surprise of plaintiffs, the defendant (except def. Tacloban City Ice Plant, Inc.) without giving notice to plaintiffs, changed the mode of payment with respect to the balance of P4,500,000.00 by imposing upon plaintiffs to pay same amount within thirty (30) days from execution of the contract instead of the former term of ninety (90) days as stated in paragraph 8 hereof." (Pp. 10-11, Record.) Additionally and to reenforce their position, respondents alleged further in their complaint: "8. That on July 12, 1978, defendants (except defendant Tacloban City Ice Plant, Inc.) finally sent a telegram letter to plaintiffs-tenants, through same Mr. Yao King Ong, notifying them that defendants are willing to sell the properties (lands and building) at a total price of P6,500,000.00, which herein plaintiffs-tenants have agreed to buy the said properties for said price; a copy of which letter is hereto attached as integral part hereof and marked as Annex 'C', and plaintiffs accepted the offer through a telegram dated July 25, 1978, sent to defendants (through defendant Pedro C. Gamboa), a copy of which telegram is

adequately showing the existence of a perfected contract of sale between herein petitioners and the occupants represented by respondent Yao King Ong. In this respect, the governing legal provision is, of course, Article 1319 of the Civil Code which provides: "ART. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made." In the instant case, We can lay aside, for the moment, petitioners' contention that the letter of July 12, 1978 of Atty. Pedro C. Gamboa to respondents Yao King Ong and his companions constitute an offer that is "certain", although the petitioners claim that it was a mere expression of willingness to sell the subject property and not a direct offer of sale to said respondents. What We consider as more important and truly decisive is what is the correct juridical significance of the telegram of respondents instructing Atty. Gamboa to "proceed to Tacloban to negotiate details. "We underline the word "negotiate" advisedly, because to Our mind it is the key word that negates and makes it legally impossible for Us to hold that respondents' acceptance of petitioners' offer, assuming that it was a "certain" offer indeed, was the "absolute" one that Article 1319 above-quoted requires. Dictionally, the implication of "to negotiate" is practically the opposite of the idea that an agreement has been reached. Webster's Third International Dictionary, Vol. II (G. & C. Merriam Co., 1971 Philippine copyright) gives the meaning of negotiate as "to communicate or confer with another so as to arrive at the settlement of some matter; meet with another so as to arrive through discussion at some kind of agreement or compromise about something; to arrange for or bring about through conference or discussion; work at or arrive at or settle upon by meetings and agreements or compromises ." Importantly, it must be borne in mind that Yao King Ong's telegram simply says "we agree to buy property." It does not necessarily connote acceptance of the price but instead suggests that the details were to be subject of negotiation. Respondents now maintain that what the telegram refers to as "details" to be "negotiated" are mere "accidental elements," not the essential elements of the contract. They even invite attention to the fact that they have alleged in their complaint (Par. 6) that it was as early as "in the month of October, 1977 (that) negotiations between plaintiffs and defendants for the purchase and sale (in question) -were made, thus resulting to offers of same defendants and counter-offer of plaintiffs". But to Our mind such alleged facts precisely indicate the failure of any meeting of the minds of the parties, and it is only from the letter and telegrams abovequoted that one can determine whether or not such meeting of the minds did materialize. As We see it, what such allegations bring out in bold relief is that it was precisely because of their past failure to arrive at an agreement that petitioners had to put an end to the uncertainty by writing the letter of July 12, 1978. On the other hand, that respondents were all the time agreeable to buy the property may be conceded, but what impresses Us is that instead of "absolutely" accepting the "certain" offer if there was one of the petitioners, they still insisted on further negotiation of details. For anyone to read in the telegram of Yao that they accepted the price of P6,500,000.00 would be an inference not necessarily warranted by the words "we agree to buy" and "proceed Tacloban to negotiate details". If indeed the details being left by them for further negotiations were merely accidental or formal ones, what need was there to say in the telegram that they had still "to negotiate (such) details," when, being unessential per their contention, they could have been just easily clarified and agreed upon when Atty. Gamboa would reach Tacloban?

Anent the telegram of Atty. Gamboa of July 27, 1978, also quoted earlier above, We gather that it was in answer to the telegram of Yao. Considering that Yao was in Tacloban then while Atty. Gamboa was in Cebu, it is difficult to surmise that there was any communication of any kind between them during the intervening period, and none such is alleged anyway by respondents. Accordingly, the claim of respondents in paragraph 8 of their complaint below that there was an agreement of a down payment of P2 M, with the balance of P4.5M to be paid within 90 days afterwards is rather improbable to imagine to have actually happened. Respondents maintain that under existing jurisprudence relative to a motion to dismiss on the ground of failure of the complaint to state a cause of action, the movant-defendant is deemed to admit the factual allegations of the complaint, hence, petitioners cannot deny, for purposes of their motion, that such terms of payment had indeed been agreed upon. While such is the rule, those allegations do not detract from the fact that under Article 1319 of the Civil Code above-quoted, and judged in the light of the telegram-reply of Yao to Atty. Gamboa's letter of July 12, 1978, there was not an absolute acceptance, hence from that point of view, petitioners' contention that the complaint of respondents state no cause of action is correct. Nonetheless, the alleged subsequent agreement about the P2M down and P4.5M in 90 days may at best be deemed as a distinct cause of action. And placed against the insistence of petitioners, as demonstrated in the two deeds of sale taken by Atty. Gamboa to Tacloban, Annexes 9 to 10 of the answer of herein respondents, that there was no agreement about 90 days, an issue of fact arose, which could warrant a trial in order for the trial court to determine whether or not there was such an agreement about the balance being payable in 90 days instead of the 30 days stipulated in Annexes 9 and 10 above-referred to. Our conclusion, therefore, is that although there was no perfected contract of sale in the light of the letter of Atty. Gamboa of July 12, 1978 and the letter-reply thereto of Yao; it being doubtful whether or not, under Article 1319 of the Civil Code, the said letter may be deemed as an offer to sell that is "certain", and more, the Yao telegram is far from being an "absolute" acceptance under said article, still there appears to be a cause of action alleged in Paragraphs 8 to 12 of the respondents' complaint, considering it is alleged therein that subsequent to the telegram of Yao, it was agreed that the petitioners would sell the property to respondents for P6.5M, by paying P2M down and the balance in 90 days and which agreement was allegedly violated when in the deeds prepared by Atty. Gamboa and taken to Tacloban, only 30 days were given to the respondents. But the foregoing conclusion is not enough to carry the day for respondents. It only brings Us to the question of whether or not the claim for specific performance of respondents is enforceable under the Statute of Frauds. In this respect, We may view the situation at hand from two angles, namely, (1) that the allegations contained in paragraphs 8 to 12 of respondents' complaint should be taken together with the documents already aforementioned and (2) that the said allegations constitute a separate and distinct cause of action. We hold that either way We view the situation, the conclusion is inescapable that the claim of respondents that petitioners have unjustifiably refused to proceed with the sale to them of the property in question is unenforceable under the Statute of Frauds. It is nowhere alleged in said paragraphs 8 to 12 of the complaint that there is any writing or memorandum, much less a duly signed agreement to the effect that the price of P6,500,000 fixed by petitioners for the real property herein involved was agreed to be paid not in cash but in installments as alleged by respondents. The only documented indication of the nonwholly-cash payment extant in the record is that stipulated in Annexes 9 and 10 abovereferred to, the deeds already signed by the petitioners and taken to Tacloban by Atty. Gamboa for the signatures of the respondents. In other words, the 90-day term for the balance of P4.5M insisted upon by respondents does not appear in any note, writing or memorandum signed by either the petitioners or any of them, not even by Atty. Gamboa. Hence, looking at the pose of respondents that there was a perfected agreement of purchase and sale between them and petitioners under which they would pay in installments

of P2M down and P4.5M within ninety (90) days afterwards, it is evident that such oral contract involving the "sale of real property" comes squarely under the Statute of Frauds. (Article 1403, No. 2(e), Civil Code.) On the other score of considering the supposed agreement of paying installments as partly supported by the letter and telegrams earlier quoted herein, His Honor declared with well studied ratiocination, albeit legally inaccurate, that: "The next issue relate to the Statute of Frauds. It is contended that plaintiffs' action for specific performance to compel the defendants to execute a good and sufficient conveyance of the property in question (Sotto land and building) is unenforceable because there is no other note, memorandum or writing except annexes 'C', 'C-1' and 'D', which by themselves did not give birth to a contract to sell. The argument is not well founded. The rules of pleading limit the statement of the cause of action only to such operative facts as give rise to the right of action of the plaintiff to obtain relief against the wrongdoer. The details of probative matter or particulars of evidence, statements of law, inferences and arguments need not be stated. Thus, Sec. 1 of Rule 8 provides that 'every pleading shall contain in a methodical and logical form, a plain concise and direct statement of the ultimate facts on which the party pleading relies for his claim or defense, as the case may be, omitting the statement of mere evidentiary facts.' Exhibits need not be attached. The contract of sale sued upon in this case is supported by letters and telegrams annexed to the complaint and plaintiffs have announced that they will present additional evidences during the trial to prove their cause of action. The plaintiffs having alleged that the contract is backed up by letters and telegrams, and the same being sufficient memorandum, the complaint states a cause of action and they should be given their day in court and allowed to substantiate their allegations (Paredes vs. Espino, 22 SCRA 1000)." (Pp. 165-166, Record.) The foregoing disquisition of respondent judge misses at least two (2) juridical substantive aspects of the Statute of Frauds insofar as sale of real property is concerned. First, His Honor assumed that the requirement of perfection of such kind of contract under Article 1475 of the Civil Code which provides that "(t)he contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price", the Statute would no longer apply as long as the total price or consideration is mentioned in some note or memorandum and there is no need of any indication of the manner in which such total price is to be paid. We cannot agree. In the reality of the economic world and the exacting demands of business interests monetary in character, payment on installments or staggered payment of the total price is entirely a different matter from cash payment, considering the unpredictable trends in the sudden fluctuation of the rate of interest. In other words, it is indisputable that the value of money varies from day to day, hence the indispensability of providing in any sale of the terms of payment when not expressly or impliedly intended to be in cash. Thus, We hold that in any sale of real property on installments, the Statute of Frauds read together with the perfection requirements of Article 1475 of the Civil Code must be understood and applied in the sense that the idea of payment on installments must be in the requisite of a note or memorandum therein contemplated. Stated otherwise, the "essential elements" mentioned in the case of Paredes vs. Espino, 22 SCRA 1000, relied upon by respondent judge must be deemed to include the requirement just discussed when it comes to installment sales. There is nothing in the monograph re the Statute of Frauds appearing in 21 SCRA 250 also cited by His Honor indicative of any contrary view to this ruling of Ours, for the essence and thrust of the said monograph refers only to the form of the note or memorandum which would comply with the Statute, and no doubt, while such note or memorandum need not be in one single document or writing and it can be in just sufficiently implicit tenor, imperatively, the separate notes must, when put together, contain all the requisites of a perfected contract of sale. To put it the other way, under the Statute of Frauds, the contents of the note or memorandum, whether in one writing or in separate ones
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merely indicative for an adequate understanding of all the essential elements of the entire agreement, may be said to be the contract itself, except as to the form. Secondly, We are of the considered opinion that under the rules on proper pleading, the ruling of the trial court that, even if the allegation of the existence of a sale of real property in a complaint is challenged as barred from enforceability by the Statute of Frauds, the plaintiff may simply say there are documents, notes or memoranda without either quoting them in or annexing them to the complaint, as if holding an ace in the sleeves is not correct. To go directly to the point, for Us to sanction such a procedure is to tolerate and even encourage undue delay in litigation, for the simple reason that to await the stage of trial for the showing or presentation of the requisite documentary proof when it already exists and is asked to be produced by the adverse party would amount to unnecessarily postponing, with the concomitant waste of time and the prolongation of the proceedings, something that can immediately be evidenced and thereby determinable with decisiveness and precision by the court without further delay. In this connection, Moran observes that unlike when the ground of dismissal alleged is failure of the complaint to state a cause of action, a motion to dismiss invoking the Statute of Frauds may be filed even if the absence of compliance does not appear on the face of the complaint. Such absence may be the subject of proof in the motion stage of the proceedings. (Moran, Comment on the Rules of Court, Vol. 1, p. 494, 1979 ed.) It follows then that when such a motion is filed and all the documents available to movant are before the court, and they are insufficient to comply with the Statute, it becomes incumbent upon the plaintiff, for the reasons of policy We have just indicated regarding speedy administration of justice, to bring out what note or memorandum still exists in his possession in order to enable the court to expeditiously determine then and there the need for further proceedings. In other words, it would be inimical to the public interests in speedy justice for plaintiff to play hide and seek at his own convenience, particularly, when, as is quite apparent as in the instant case that chances are that there are no more writings, notes or memoranda of the installment agreement alleged by respondents. We cannot divine any reason why any such document would be withheld if they existed, except the unpermissible desire of the respondents to force the petitioners to undergo the ordeals, time, effort and expenses of a futile trial. In the foregoing premises, We find no alternative than to render judgment in favor of petitioners in this certiorari and prohibition case. If at all, appeal could be available if the petitioners subjected themselves to the trial ruled to be held by the trial court. We foresee even at this point, on the basis of what is both extant and implicit in the records, that no different result can be probable. We consider it as sufficiently a grave abuse of discretion warranting the special civil actions herein the failure of respondent judge to properly apply the laws on perfection of contracts in relation to the Statute of Frauds and the pertinent rules of pleading and practice, as We have discussed above. ACCORDINGLY, the impugned orders of respondent judge of November 2, 1978 and August 29, 1980 are hereby set aside and private respondents' amended complaint, Annex A of the petition, is hereby ordered dismissed and the restraining order heretofore issued by this Court on October 7, 1980 is declared permanent. Costs against respondents. G.R. No. 85240 July 12, 1991 HEIRS OF CECILIO CLAUDEL vs. COURT OF APPEALS 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.

7. ID.; ID.; ID.; ISSUANCE OF TITLE BY VIRTUE OF A REGISTERED SALE, NOT ENOUGH. Mere registration of the sale is not good enough, good faith must concur with registration. Otherwise registration becomes an exercise in futility. 8. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE TRIAL COURT PREVAIL OVER THAT OF THE APPELLATE COURT; CASE AT BAR. 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 appellant 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.

Ricardo L. Moldez for petitioners. Juan T. Aquino for private respondents.

DECISION SYLLABUS 1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; SALE; NEED NOT BE IN WRITING FOR VALIDITY. The rule of thumb is that a sale of land, once consummated, is valid regardless of the form it may have been entered into. 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. 2. ID.; ID.; STATUTE OF FRAUDS; PURPOSE. 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. 3. ID.; ID.; ID.; APPLICABILITY THEREOF IN CASE AT BAR. 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. Therefore, except under the conditions provided by the Statute of Frauds, the existence of the contract of sale made by Cecilio with his siblings can not be proved. 4. ID.; PRESCRIPTION OF ACTIONS; AN ACTION BASED UPON AN ORAL CONTRACT SHOULD BE FILED WITHIN SIX (6) YEARS; ACTION IN CASE AT BAR HAS PRESCRIBED. 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 (6) years had lapsed. (Article 1145 [1] of the Civil Code) 5. REMEDIAL LAW; EVIDENCE; WEIGHT AND SUFFICIENCY; TORRENS TITLE CARRIES MORE WEIGHT AS PROOF OF OWNERSHIP THAN THE SURVEY OR SUBDIVISION PLAN. The torrens title in the possession of the HEIRS OF CECILIO carries more weight as proof of ownership than the survey of subdivision plan of a parcel of land in the name of SIBLINGS OF CECILIO. 6. CIVIL LAW; LAND TITLES AND DEEDS; TORRENS SYSTEM OF LAND REGISTRATION; TORRENS TITLE; INDEFEASIBILITY THEREOF. 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. SARMIENTO, J p: This petition for review on certiorari seeks the reversal of the decision rendered by the Court of Appeals in CA-G.R. CV No. 04429 1 and the reinstatement of the decision of the then Court of First Instance (CFI) of Rizal, Branch CXI, in Civil Case No. M-5276-P, entitled. "Heirs of Macario Claudel, et al v. Heirs of Cecilio Claudel, et al.," which dismissed the complaint of the private respondents against the petitioners for cancellation of titles and reconveyance with damages. 2 As early as December 28, 1922, Basilio, also known as "Cecilio" Claudel, acquired from the Bureau of Lands, Lot No. 1230 of the Muntinlupa Estate Subdivision, located in the poblacion of Muntinlupa, Rizal, with an area of 10,107 square meters; he secured Transfer Certificate of Title (TCT) No. 7471 issued by the Registry of Deeds for the Province of Rizal in 1923; he also declared the lot in his name, the latest Tax Declaration being No. 5795. He dutifully paid the real estate taxes thereon until his death in 1937. 3 Thereafter, his widow "Basilia" and later, her son Jose, one of the herein petitioners, paid the taxes. The same piece of land purchased by Cecilio would, however, become the subject of protracted litigation thirty-nine years after his death. Two branches of Cecilio's family contested the ownership over the land on one hand the children of Cecilio, namely, Modesta, 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. 1,997 sq. m. 1,997 sq. m. Jose Claudel Modesta Claudel and children Arsenia C. Villalon

SECOND DIVISION [G.R. No. 85240. July 12, 1991.]

TCT No. 395392 TCT No. 395393

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TCT No. 395394

1,997 sq. m.

Felisa Claudel 4

The Court of Appeals reversed the decision of the trial court on the following grounds: 1. The failure to bring and prosecute the action in the name of the real party in interest, namely the parties themselves, was not a fatal omission since the court a quo could have adjudicated the lots to the SIBLINGS OF CECILIO, the parents of the herein respondents, leaving it to them to adjudicate the property among themselves. 2. The fact of residence in the disputed properties by the herein respondents had been made possible by the toleration of the deceased Cecilio. 3. The Statute of Frauds applies only to executory contracts and not to consummated sales as in the case at bar where oral evidence may be admitted as cited in Iigo v. Estate of Magtoto 7 and Diana, et al. v. Macalibo. 8 In addition, ". . . Given the nature of their relationship with one another it is not unusual that no document to evidence the sale was executed, . . ., in their blind faith in friends and relatives, in their lack of experience and foresight, and in their ignorance, men, in spite of laws, will make and continue to make verbal contracts . . . " 9 4. The defense of prescription cannot be set up against the herein petitioners despite the lapse of over forty years from the time of the alleged sale in 1930 up to the filing of the "Complaint for Cancellation of Titles and Reconveyance . . ." in 1976. According to the Court of Appeals, the action was not for the recovery of possession of real property but for the cancellation of titles issued to the HEIRS OF CECILIO in 1973. Since the SIBLINGS OF CECILIO commenced their complaint for cancellation of titles and reconveyance with damages on December 7, 1976, only four years after the HEIRS OF CECILIO partitioned this lot among themselves and obtained the corresponding Transfer Certificates of Titles, then there is no prescription of action yet. llcd 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:

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 mater 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 errors 6 were assigned by the SIBLINGS OF CECILIO: 1. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS' COMPLAINT DESPITE CONCLUSIVE EVIDENCE SHOWING THE PORTION SOLD TO EACH OF PLAINTIFFS' PREDECESSORS. 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' PREDECESSORSIN-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.

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. prLL 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 sat 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 rewritten in 1949 (to take effect in 1950), the provisions of the Statute of Frauds were taken out of the Rules of Evidence in order to be included under the title on Unenforceable Contracts in the Civil Code. The transfer was not only a matter of style but to show that the Statute of Frauds is also a substantive law. Therefore, except under the conditions provided by the Statute of Frauds, the existence of the contract of sale made by Cecilio with his siblings 13 can not be proved.

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On the second issue, the belated claim of the SIBLINGS OF CECILIO who filed a complaint in court only in 1976 to enforce a right acquired allegedly as early as 1930, is difficult to comprehend. LLphil The Civil Code states: Art. 1145. The following actions must be commenced within six years: (1) Upon an oral contract . . . (Emphasis ours).

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 invididually paid to the municipal treasury the taxes corresponding to the particular portions they were occupying, 22 we can readily see the superiority of the petitioners' position. Renato Solema and Decimina Calvez, two of the respondents who derive their right from the SIBLINGS OF CLAUDEL, bought a portion of the lot from Felisa Claudel, one of the HEIRS OF CLAUDEL. 23 The Calvezes should not be paying for a lot that they already owned and if they did not acknowledge Felisa as its owner. In addition, before any of the SIBLINGS OF CECILIO could stay on any of the portions of the property, they had to ask first the permission of Jose Claudel again, one of the HEIRS OF CECILIO. 24 In fact the only reason why any of the heirs of SIBLINGS OF CECILIO could stay on the lot was because they were allowed to do so by the HEIRS OF CECILIO. 25 In view of the foregoing, we find that the appellate court committed a reversible error in denigrating the transfer certificates of title of the petitioners to the survey or subdivision plan proffered by the private respondents. The Court generally recognizes the profundity of conclusions and findings of facts reached by the trial court and hence sustains them on appeal except for strong and cogent reasons inasmuch as the trial court is in a better position to examine real evidence and observe the demeanor of witnesses in a case. No clear specific contrary evidence was cited by the respondent appellate court to justify the reversal of the lower court's findings. Thus, in this case, between the factual findings of the trial court and the appellate court, those of the trial court must prevail over that of the latter. 26 WHEREFORE, the petition is GRANTED. We REVERSE and SET ASIDE the decision rendered in CA-G.R. CV No. 04429, and we hereby REINSTATE the decision of the then Court of First Instance of Rizal (Branch 28, Pasay City) in Civil Case No. M-5276-P which ruled for the dismissal of the Complaint for Cancellation of Titles and Reconveyance with Damages filed by the Heirs of Macario, Esperidiona, Raymunda, and Celestina, all surnamed CLAUDEL. Costs against the private respondents. SO ORDERED. SPOUSES GODOFREDO ALFREDO and CARMEN LIMON ALFREDO, SPOUSES ARNULFO SAVELLANO and EDITHA B. SAVELLANO, DANTON D. MATAWARAN, SPOUSES DELFIN F. ESPIRITU, JR. and ESTELA S. ESPIRITU and ELIZABETH TUAZON, petitioners, vs. SPOUSES ARMANDO BORRAS and ADELIA LOBATON BORRAS, respondents. DECISION

CARPIO, J.:

The Case

If the parties SIBLINGS OF CECILIO had allegedly derived their right of action from the oral purchase made by their parents in 1930, then the action filed in 1976 would have clearly prescribed. More than six years had lapsed. We do not agree with the parties SIBLINGS OF CECILIO when they reason that an implied trust in favor of the SIBLINGS OF CECILIO was established in 1972, when the HEIRS OF CECILIO executed a contract of partition over the said properties. But as we had pointed out, the law recognizes the superiority of the torrens title. Above all, the torrens title in the possession of the HEIRS OF CECILIO carries more weight as proof of ownership than the survey or subdivision plan of a parcel of land in the name of SIBLINGS OF CECILIO. The Court has invariably upheld the indefeasibility of the torrens title. No possession by any person of any portion of the land could defeat the title of the registered owners thereof. 14 A torrens title, once registered, cannot be defeated, even by adverse, open and notorious possession. A registered title under the torrens system cannot be defeated by prescription. The title, once registered, is notice to the world. All persons must take notice. No one can plead ignorance of the registration. 15 xxx xxx xxx

Before us is a petition for review assailing the Decision[1] of the Court of Appeals dated 26 November 1999 affirming the decision[2] of the Regional Trial Court of Bataan, Branch 4, in Civil Case No. DH-256-94. Petitioners also question the Resolution of the Court of Appeals dated 26 July 2000 denying petitioners motion for reconsideration.

The Antecedent Facts

A parcel of land measuring 81,524 square meters (Subject Land) in Barrio Culis, Mabiga, Hermosa, Bataan is the subject of controversy in this case. The registered owners of the Subject Land were petitioner spouses, Godofredo Alfredo (Godofredo) and Carmen Limon Alfredo (Carmen). The Subject Land is covered by Original Certificate of Title No. 284 (OCT No. 284) issued to Godofredo and Carmen under Homestead Patent No. V 69196. On 7 March 1994, the private respondents, spouses Armando Borras (Armando) and Adelia Lobaton Borras (Adelia), filed a complaint for specific performance against Godofredo and Carmen before the Regional Trial Court of Bataan, Branch 4. The case was docketed as Civil Case No. DH-256-94. Armando and Adelia alleged in their complaint that Godofredo and Carmen mortgaged the Subject Land for P7,000.00 with the Development Bank of the Philippines (DBP). To pay the debt, Carmen and Godofredo sold the Subject Land to Armando and Adelia for P15,000.00, the buyers to pay the DBP loan and its accumulated interest, and the balance to be paid in cash to the sellers. Armando and Adelia gave Godofredo and Carmen the money to pay the loan to DBP which signed the release of mortgage and returned the owners duplicate copy of OCT No. 284 to Godofredo and Carmen. Armando and Adelia subsequently paid the balance of the purchase price of the Subject Land for which Carmen issued a receipt dated 11 March 1970. Godofredo and Carmen then delivered to Adelia the owners duplicate copy of OCT No. 284, with the document of cancellation of mortgage, official receipts of realty tax payments, and tax declaration in the name of Godofredo. Godofredo and Carmen introduced Armando and Adelia, as the new owners of the Subject Land, to the Natanawans, the old tenants of the Subject Land. Armando and Adelia then took possession of the Subject Land. In January 1994, Armando and Adelia learned that hired persons had entered the Subject Land and were cutting trees under instructions of allegedly new owners of the Subject Land. Subsequently, Armando and Adelia discovered that Godofredo and Carmen had re-sold portions of the Subject Land to several persons. On 8 February 1994, Armando and Adelia filed an adverse claim with the Register of Deeds of Bataan. Armando and Adelia discovered that Godofredo and Carmen had secured an owners duplicate copy of OCT No. 284 after filing a petition in court for the issuance of a new copy. Godofredo and Carmen claimed in their petition that they lost their owners duplicate copy. Armando and Adelia wrote Godofredo and Carmen complaining about their acts, but the latter did not reply. Thus, Armando and Adelia filed a complaint for specific performance.
LAW ON SALES | POLICITACION AND PERFECTION FT | 73

Furthermore, a private individual may not bring an action for reversion or any action which would have the effect of cancelling a free patent and the corresponding certificate of title issued on the basis thereof, with the result that the land covered thereby will again form part of the public domain, as only the Solicitor General or the officer acting in his stead may do so. 16 It is true that in some instances, the Court did away with the irrevocability of the torrens title, but the circumstances in the case at bar varied significantly from these cases. In Bornales v. IAC, 17 the defense of indefeasibility of a certificate of title was disregarded when the transferee who took it had notice of the flaws in the transferor's title. No right passed to a transferee from a vendor who did not have any in the first place. The transferees bought the land registered under the torrens system from vendors who procured title thereto by means of fraud. With this knowledge, they can not invoke the indefeasibility of a certificate of title against the private respondent to the extent of her interest. This is because the torrens system of land registration, though indefeasible, should not be used as a means to perpetrate fraud against the rightful owner of real property. LibLex Mere registration of the sale is not good enough, good faith must concur with registration. Otherwise registration becomes an exercise in futility. 18

On 28 March 1994, Armando and Adelia amended their complaint to include the following persons as additional defendants: the spouses Arnulfo Savellano and Editha B. Savellano, Danton D. Matawaran, the spouses Delfin F. Espiritu, Jr. and Estela S. Espiritu, and Elizabeth Tuazon (Subsequent Buyers). The Subsequent Buyers, who are also petitioners in this case, purchased from Godofredo and Carmen the subdivided portions of the Subject Land. The Register of Deeds of Bataan issued to the Subsequent Buyers transfer certificates of title to the lots they purchased. In their answer, Godofredo and Carmen and the Subsequent Buyers (collectively petitioners) argued that the action is unenforceable under the Statute of Frauds. Petitioners pointed out that there is no written instrument evidencing the alleged contract of sale over the Subject Land in favor of Armando and Adelia. Petitioners objected to whatever parole evidence Armando and Adelia introduced or offered on the alleged sale unless the same was in writing and subscribed by Godofredo. Petitioners asserted that the Subsequent Buyers were buyers in good faith and for value. As counterclaim, petitioners sought payment of attorneys fees and incidental expenses. Trial then followed. Armando and Adelia presented the following witnesses: Adelia, Jesus Lobaton, Roberto Lopez, Apolinario Natanawan, Rolando Natanawan, Tomas Natanawan, and Mildred Lobaton. Petitioners presented two witnesses, Godofredo and Constancia Calonso. On 7 June 1996, the trial court rendered its decision in favor of Armando and Adelia. The dispositive portion of the decision reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs, the spouses Adelia Lobaton Borras and Armando F. Borras, and against the defendant-spouses Godofredo Alfredo and Carmen Limon Alfredo, spouses Arnulfo Sabellano and Editha B. Sabellano, spouses Delfin F. Espiritu, Jr. and Estela S. Espiritu, Danton D. Matawaran and Elizabeth Tuazon, as follows: 1. Declaring the Deeds of Absolute Sale of the disputed parcel of land (covered by OCT No. 284) executed by the spouses Godofredo Alfredo and Camen Limon Alfredo in favor of spouses Arnulfo Sabellano and Editha B. Sabellano, spouses Delfin F. Espiritu, Danton D. Matawaran and Elizabeth Tuazon, as null and void; Declaring the Transfer Certificates of Title Nos. T-163266 and T-163267 in the names of spouses Arnulfo Sabellano and Editha B. Sabellano; Transfer Certificates of Title Nos. T-163268 and 163272 in the names of spouses Delfin F. Espiritu, Jr. and Estela S. Espiritu; Transfer Certificates of Title Nos. T163269 and T-163271 in the name of Danton D. Matawaran; and Transfer Certificate of Title No. T-163270 in the name of Elizabeth Tuazon, as null and void and that the Register of Deeds of Bataan is hereby ordered to cancel said titles; Ordering the defendant-spouses 4.

Godofredo Alfredo and Carmen Limon Alfredo to execute and deliver a good and valid Deed of Absolute Sale of the disputed parcel of land (covered by OCT No. 284) in favor of the spouses Adelia Lobaton Borras and Armando F. Borras within a period of ten (10) days from the finality of this decision; Ordering defendant-spouses Godofredo Alfredo and Carmen Limon Alfredo to surrender their owners duplicate copy of OCT No. 284 issued to them by virtue of the Order dated May 20, 1992 of the Regional Trial Court of Bataan, Dinalupihan Branch, to the Registry of Deeds of Bataan within ten (10) days from the finality of this decision, who, in turn, is directed to cancel the same as there exists in the possession of herein plaintiffs of the owners duplicate copy of said OCT No. 284 and, to restore and/or reinstate OCT No. 284 of the Register of Deeds of Bataan to its full force and effect; Ordering the defendant-spouses Godofredo Alfredo and Carmen Limon Alfredo to restitute and/or return the amount of the respective purchase prices and/or consideration of sale of the disputed parcels of land they sold to their co-defendants within ten (10) days from the finality of this decision with legal interest thereon from date of the sale; Ordering the defendants, jointly and severally, to pay plaintiff-spouses the sum of P20,000.00 as and for attorneys fees and litigation expenses; and Ordering defendants to pay the costs of suit.

On 26 July 2000, the Court of Appeals denied petitioners motion for reconsideration.

The Ruling of the Trial Court

The trial court ruled that there was a perfected contract of sale between the spouses Godofredo and Carmen and the spouses Armando and Adelia. The trial court found that all the elements of a contract of sale were present in this case. The object of the sale was specifically identified as the 81,524-square meter lot in Barrio Culis, Mabigas, Hermosa, Bataan, covered by OCT No. 284 issued by the Registry of Deeds of Bataan. The purchase price was fixed at P15,000.00, with the buyers assuming to pay the sellers P7,000.00 DBP mortgage loan including its accumulated interest. The balance of the purchase price was to be paid in cash to the sellers. The last payment of P2,524.00 constituted the full settlement of the purchase price and this was paid on 11 March 1970 as evidenced by the receipt issued by Carmen. The trial court found the following facts as proof of a perfected contract of sale: (1) Godofredo and Carmen delivered to Armando and Adelia the Subject Land; (2) Armando and Adelia treated as their own tenants the tenants of Godofredo and Carmen; (3) Godofredo and Carmen turned over to Armando and Adelia documents such as the owners duplicate copy of the title of the Subject Land, tax declaration, and the receipts of realty tax payments in the name of Godofredo; and (4) the DBP cancelled the mortgage on the Subject Property upon payment of the loan of Godofredo and Carmen. Moreover, the receipt of payment issued by Carmen served as an acknowledgment, if not a ratification, of the verbal sale between the sellers and the buyers. The trial court ruled that the Statute of Frauds is not applicable because in this case the sale was perfected. The trial court concluded that the Subsequent Buyers were not innocent purchasers. Not one of the Subsequent Buyers testified in court on how they purchased their respective lots. The Subsequent Buyers totally depended on the testimony of Constancia Calonso (Calonso) to explain the subsequent sale. Calonso, a broker, negotiated with Godofredo and Carmen the sale of the Subject Land which Godofredo and Carmen subdivided so they could sell anew portions to the Subsequent Buyers. Calonso admitted that the Subject Land was adjacent to her own lot. The trial court pointed out that Calonso did not inquire on the nature of the tenancy of the Natanawans and on who owned the Subject Land. Instead, she bought out the tenants for P150,000.00. The buy out was embodied in a Kasunduan. Apolinario Natanawan (Apolinario) testified that he and his wife accepted the money and signed the Kasunduan because Calonso and the Subsequent Buyers threatened them with forcible ejectment. Calonso brought Apolinario to the Agrarian Reform Office where he was asked to produce the documents showing that Adelia is the owner of the Subject Land. Since Apolinario could not produce the documents, the agrarian officer told him that he would lose the case. Thus, Apolinario was constrained to sign the Kasunduan and accept the P150,000.00. Another indication of Calonsos bad faith was her own admissio n that she saw an adverse claim on the title of the Subject Land when she registered the deeds of sale in the names of the Subsequent Buyers. Calonso ignored the adverse claim and proceeded with the registration of the deeds of sale. The trial court awarded P20,000.00 as attorneys fees to Armando and Adelia. In justifying the award of attorneys fees, the trial court invoked Article 2208 (2) of the Civil Code which allows a court to award attorneys fees, including litigation expenses, when it is just and equitable to award the same. The trial court ruled that Armando and Adelia are entitled to attorneys fees since they were compelled to file this case due to petitioners refusal to heed their just and valid demand.
LAW ON SALES | POLICITACION AND PERFECTION FT | 74

5.

6.

2.

7.

Defendants counterclaims are hereby dismissed for lack of merit. SO ORDERED.[3] Petitioners appealed to the Court of Appeals. On 26 November 1999, the Court of Appeals issued its Decision affirming the decision of the trial court, thus: WHEREFORE, premises considered, the appealed decision in Civil Case No. DH-256-94 is hereby AFFIRMED in its entirety. Treble costs against the defendants-appellants. SO ORDERED.[4]

3.

The Ruling of the Court of Appeals

I Whether the alleged sale of the Subject Land in favor of Armando and Adelia is valid and enforceable, where (1) it was orally entered into and not in writing; (2) Carmen did not obtain the consent and authority of her husband, Godofredo, who was the sole owner of the Subject Land in whose name the title thereto (OCT No. 284) was issued; and (3) it was entered into during the 25-year prohibitive period for alienating the Subject Land without the approval of the Secretary of Agriculture and Natural Resources. II Whether the action to enforce the alleged oral contract of sale brought after 24 years from its alleged perfection had been barred by prescription and by laches. III Whether the deeds of absolute sale and the transfer certificates of title over the portions of the Subject Land issued to the Subsequent Buyers, innocent purchasers in good faith and for value whose individual titles to their respective lots are absolute and indefeasible, are valid. IV Whether petitioners are liable to pay Armando and Adelia P20,0000.00 as attorneys fees and litigation expenses and the treble costs, where the claim of Armando and Adelia is clearly unfounded and baseless. V Whether petitioners are entitled to the counterclaim for attorneys fees and litigation expenses, where they have sustained such expenses by reason of institution of a clearly malicious and unfounded action by Armando and Adelia.[8]

The Court of Appeals found the factual findings of the trial court well supported by the evidence. Based on these findings, the Court of Appeals also concluded that there was a perfected contract of sale and the Subsequent Buyers were not innocent purchasers. The Court of Appeals ruled that the handwritten receipt dated 11 March 1970 is sufficient proof that Godofredo and Carmen sold the Subject Land to Armando and Adelia upon payment of the balance of the purchase price. The Court of Appeals found the recitals in the receipt as sufficient to serve as the memorandum or note as a writing under the Statute of Frauds.[5] The Court of Appeals then reiterated the ruling of the trial court that the Statute of Frauds does not apply in this case. The Court of Appeals gave credence to the testimony of a witness of Armando and Adelia, Mildred Lobaton, who explained why the title to the Subject Land was not in the name of Armando and Adelia. Lobaton testified that Godofredo was then busy preparing to leave for Davao. Godofredo promised that he would sign all the papers once they were ready. Since Armando and Adelia were close to the family of Carmen, they trusted Godofredo and Carmen to honor their commitment. Armando and Adelia had no reason to believe that their contract of sale was not perfected or validly executed considering that they had received the duplicate copy of OCT No. 284 and other relevant documents. Moreover, they had taken physical possession of the Subject Land. The Court of Appeals held that the contract of sale is not void even if only Carmen signed the receipt dated 11 March 1970. Citing Felipe v. Heirs of Maximo Aldon,[6] the appellate court ruled that a contract of sale made by the wife without the husbands consent is not void but merely voidable. The Court of Appeals further declared that the sale in this case binds the conjugal partnership even if only the wife signed the receipt because the proceeds of the sale were used for the benefit of the conjugal partnership. The appellate court based this conclusion on Article 161[7] of the Civil Code. The Subsequent Buyers of the Subject Land cannot claim that they are buyers in good faith because they had constructive notice of the adverse claim of Armando and Adelia. Calonso, who brokered the subsequent sale, testified that when she registered the subsequent deeds of sale, the adverse claim of Armando and Adelia was already annotated on the title of the Subject Land. The Court of Appeals believed that the act of Calonso and the Subsequent Buyers in forcibly ejecting the Natanawans from the Subject Land buttresses the conclusion that the second sale was tainted with bad faith from the very beginning. Finally, the Court of Appeals noted that the issue of prescription was not raised in the Answer. Nonetheless, the appellate court explained that since this action is actually based on fraud, the prescriptive period is four years, with the period starting to run only from the date of the discovery of the fraud. Armando and Adelia discovered the fraudulent sale of the Subject Land only in January 1994. Armando and Adelia lost no time in writing a letter to Godofredo and Carmen on 2 February 1994 and filed this case on 7 March 1994. Plainly, Armando and Adelia did not sleep on their rights or lose their rights by prescription. The Court of Appeals sustained the award of attorneys fees and imposed treble costs on petitioners.

Armando and Adelia was a perfected contract. A contract is perfected once there is consent of the contracting parties on the object certain and on the cause of the obligation.[12] In the instant case, the object of the sale is the Subject Land, and the price certain is P15,000.00. The trial and appellate courts found that there was a meeting of the minds on the sale of the Subject Land and on the purchase price of P15,000.00. This is a finding of fact that is binding on this Court. We find no reason to disturb this finding since it is supported by substantial evidence. The contract of sale of the Subject Land has also been consummated because the sellers and buyers have performed their respective obligations under the contract. In a contract of sale, the seller obligates himself to transfer the ownership of the determinate thing sold, and to deliver the same, to the buyer who obligates himself to pay a price certain to the seller.[13] In the instant case, Godofredo and Carmen delivered the Subject Land to Armando and Adelia, placing the latter in actual physical possession of the Subject Land. This physical delivery of the Subject Land also constituted a transfer of ownership of the Subject Land to Armando and Adelia.[14] Ownership of the thing sold is transferred to the vendee upon its actual or constructive delivery.[15] Godofredo and Carmen also turned over to Armando and Adelia the documents of ownership to the Subject Land, namely the owners duplicate copy of OCT No. 284, the tax declaration and the receipts of realty tax payments. On the other hand, Armando and Adelia paid the full purchase price as evidenced by the receipt dated 11 March 1970 issued by Carmen. Armando and Adelia fulfilled their obligation to provide the P7,000.00 to pay the DBP loan of Godofredo and Carmen, and to pay the latter the balance of P8,000.00 in cash. The P2,524.00 paid under the receipt dated 11 March 1970 was the last installment to settle fully the purchase price. Indeed, upon payment to DBP of the P7,000.00 and the accumulated interests, the DBP cancelled the mortgage on the Subject Land and returned the owners duplicate copy of OCT No. 284 to Godofredo and Carmen. The trial and appellate courts correctly refused to apply the Statute of Frauds to this case. The Statute of Frauds[16] provides that a contract for the sale of real property shall be unenforceable unless the contract or some note or memorandum of the sale is in writing and subscribed by the party charged or his agent. The existence of the receipt dated 11 March 1970, which is a memorandum of the sale, removes the transaction from the provisions of the Statute of Frauds. The Statute of Frauds applies only to executory contracts and not to contracts either partially or totally performed.[17] Thus, where one party has performed ones obligation, oral evidence will be admitted to prove the agreement.[18] In the instant case, the parties have consummated the sale of the Subject Land, with both sellers and buyers performing their respective obligations under the contract of sale. In addition, a contract that violates the Statute of Frauds is ratified by the acceptance of benefits under the contract.[19] Godofredo and Carmen benefited from the contract because they paid their DBP loan and secured the cancellation of their mortgage using the money given by Armando and Adelia. Godofredo and Carmen also accepted payment of the balance of the purchase price. Godofredo and Carmen cannot invoke the Statute of Frauds to deny the existence of the verbal contract of sale because they have performed their obligations, and have accepted benefits, under the verbal contract. [20] Armando and Adelia have also performed their obligations under the verbal contract. Clearly, both the sellers and the buyers have consummated the verbal contract of sale of the Subject Land. The Statute of Frauds was enacted to prevent fraud.[21] This law cannot be used to advance the very evil the law seeks to prevent. Godofredo and Carmen also claim that the sale of the Subject Land to Armando and Adelia is void on two grounds. First, Carmen sold the Subject Land without the marital consent of Godofredo. Second, the sale was made during the 25-year period that the law prohibits the alienation of land grants without the approval of the Secretary of Agriculture and Natural Resources.
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The Courts Ruling

The petition is without merit. In a petition for review on certiorari under Rule 45, this Court reviews only errors of law and not errors of facts.[9] The factual findings of the appellate court are generally binding on this Court.[10] This applies with greater force when both the trial court and the Court of Appeals are in complete agreement on their factual findings.[11] In this case, there is no reason to deviate from the findings of the lower courts. The facts relied upon by the trial and appellate courts are borne out by the record. We agree with the conclusions drawn by the lower courts from these facts.

The Issues Validity and Enforceability of the Sale Petitioners raise the following issues: The contract of sale between the spouses Godofredo and Carmen and the spouses

These arguments are without basis. The Family Code, which took effect on 3 August 1988, provides that any alienation or encumbrance made by the husband of the conjugal partnership property without the consent of the wife is void. However, when the sale is made before the effectivity of the Family Code, the applicable law is the Civil Code.[22] Article 173 of the Civil Code provides that the disposition of conjugal property without the wifes consent is not void but merely voidable. Article 173 reads: The wife may, during the marriage, and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs, after the dissolution of the marriage, may demand the value of property fraudulently alienated by the husband. In Felipe v. Aldon,[23] we applied Article 173 in a case where the wife sold some parcels of land belonging to the conjugal partnership without the consent of the husband. We ruled that the contract of sale was voidable subject to annulment by the husband. Following petitioners argument that Carmen sold the land to Armando and Adelia without the consent of Carmens husband, the sale would only be voidable and not void. However, Godofredo can no longer question the sale. Voidable contracts are susceptible of ratification.[24] Godofredo ratified the sale when he introduced Armando and Adelia to his tenants as the new owners of the Subject Land. The trial court noted that Godofredo failed to deny categorically on the witness stand the claim of the complainants witnesses that Godofredo introduced Armando and Adelia as the new landlords of the tenants.[25] That Godofredo and Carmen allowed Armando and Adelia to enjoy possession of the Subject Land for 24 years is formidable proof of Godofredos acquiescence to the sale. If the sale was truly unauthorized, then Godofredo should have filed an action to annul the sale. He did not. The prescriptive period to annul the sale has long lapsed. Godofredos conduct belies his claim that his wife sold the Subject Land without his consent. Moreover, Godofredo and Carmen used most of the proceeds of the sale to pay their debt with the DBP. We agree with the Court of Appeals that the sale redounded to the benefit of the conjugal partnership. Article 161 of the Civil Code provides that the conjugal partnership shall be liable for debts and obligations contracted by the wife for the benefit of the conjugal partnership. Hence, even if Carmen sold the land without the consent of her husband, the sale still binds the conjugal partnership. Petitioners contend that Godofredo and Carmen did not deliver the title of the Subject Land to Armando and Adelia as shown by this portion of Adelias testimony on crossexamination: Q -- No title was delivered to you by Godofredo Alfredo? A -- I got the title from Julie Limon because my sister told me.[26] Petitioners raise this factual issue for the first time. The Court of Appeals could have passed upon this issue had petitioners raised this earlier. At any rate, the cited testimony of Adelia does not convincingly prove that Godofredo and Carmen did not deliver the Subject Land to Armando and Adelia. Adelias cited testimony must be examined in context not only with her entire testimony but also with the other circumstances. Adelia stated during cross-examination that she obtained the title of the Subject Land from Julie Limon (Julie), her classmate in college and the sister of Carmen. Earlier, Adelias own sister had secured the title from the father of Carmen. However, Adelias sister, who was about to leave for the United States, gave the title to Julie because of the absence

of the other documents. Adelias sister told Adelia to secure the title from Julie, and this was how Adelia obtained the title from Julie. It is not necessary that the seller himself deliver the title of the property to the buyer because the thing sold is understood as delivered when it is placed in the control and possession of the vendee.[27] To repeat, Godofredo and Carmen themselves introduced the Natanawans, their tenants, to Armando and Adelia as the new owners of the Subject Land. From then on, Armando and Adelia acted as the landlords of the Natanawans. Obviously, Godofredo and Carmen themselves placed control and possession of the Subject Land in the hands of Armando and Adelia. Petitioners invoke the absence of approval of the sale by the Secretary of Agriculture and Natural Resources to nullify the sale. Petitioners never raised this issue before the trial court or the Court of Appeals. Litigants cannot raise an issue for the first time on appeal, as this would contravene the basic rules of fair play, justice and due process.[28] However, we will address this new issue to finally put an end to this case. The sale of the Subject Land cannot be annulled on the ground that the Secretary did not approve the sale, which was made within 25 years from the issuance of the homestead title. Section 118 of the Public Land Act (Commonwealth Act No. 141) reads as follows: SEC. 118. Except in favor of the Government or any of its branches, units, or institutions or legally constituted banking corporation, lands acquired under free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of the issuance of the patent or grant. xxx No alienation, transfer, or conveyance of any homestead after 5 years and before twenty-five years after the issuance of title shall be valid without the approval of the Secretary of Agriculture and Commerce, which approval shall not be denied except on constitutional and legal grounds. A grantee or homesteader is prohibited from alienating to a private individual a land grant within five years from the time that the patent or grant is issued.[29] A violation of this prohibition renders a sale void.[30] This prohibition, however, expires on the fifth year. From then on until the next 20 years[31] the land grant may be alienated provided the Secretary of Agriculture and Natural Resources approves the alienation. The Secretary is required to approve the alienation unless there are constitutional and legal grounds to deny the approval. In this case, there are no apparent constitutional or legal grounds for the Secretary to disapprove the sale of the Subject Land. The failure to secure the approval of the Secretary does not ipso facto make a sale void.[32] The absence of approval by the Secretary does not nullify a sale made after the expiration of the 5-year period, for in such event the requirement of Section 118 of the Public Land Act becomes merely directory[33] or a formality.[34] The approval may be secured later, producing the effect of ratifying and adopting the transaction as if the sale had been previously authorized.[35] As held in Evangelista v. Montano:[36] Section 118 of Commonwealth Act No. 141, as amended, specifically enjoins that the approval by the Department Secretary "shall not be denied except on constitutional and legal grounds." There being no allegation that there were constitutional or legal impediments to the sales, and no pretense that if the sales had been submitted to the Secretary concerned they would have been disapproved, approval was a ministerial duty, to be had as a matter of course and demandable if refused. For this reason, and if necessary, approval may now be applied for and its effect will be to ratify and

adopt the transactions as if they had been previously authorized. (Emphasis supplied)

Action Not Barred by Prescription and Laches

Petitioners insist that prescription and laches have set in. We disagree. The Amended Complaint filed by Armando and Adelia with the trial court is captioned as one for Specific Performance. In reality, the ultimate relief sought by Armando and Adelia is the reconveyance to them of the Subject Land. An action for reconveyance is one that seeks to transfer property, wrongfully registered by another, to its rightful and legal owner.[37] The body of the pleading or complaint determines the nature of an action, not its title or heading.[38] Thus, the present action should be treated as one for reconveyance.[39] Article 1456 of the Civil Code provides that a person acquiring property through fraud becomes by operation of law a trustee of an implied trust for the benefit of the real owner of the property. The presence of fraud in this case created an implied trust in favor of Armando and Adelia. This gives Armando and Adelia the right to seek reconveyance of the property from the Subsequent Buyers.[40] To determine when the prescriptive period commenced in an action for reconveyance, plaintiffs possession of the disputed property is material. A n action for reconveyance based on an implied trust prescribes in ten years.[41] The ten-year prescriptive period applies only if there is an actual need to reconvey the property as when the plaintiff is not in possession of the property.[42] However, if the plaintiff, as the real owner of the property also remains in possession of the property, the prescriptive period to recover title and possession of the property does not run against him.[43] In such a case, an action for reconveyance, if nonetheless filed, would be in the nature of a suit for quieting of title, an action that is imprescriptible.[44] In this case, the appellate court resolved the issue of prescription by ruling that the action should prescribe four years from discovery of the fraud. We must correct this erroneous application of the four-year prescriptive period. In Caro v. Court of Appeals,[45] we explained why an action for reconveyance based on an implied trust should prescribe in ten years. In that case, the appellate court also erroneously applied the four-year prescriptive period. We declared in Caro: We disagree. The case of Liwalug Amerol, et al. v. Molok Bagumbaran, G.R. No. L-33261, September 30, 1987,154 SCRA 396 illuminated what used to be a gray area on the prescriptive period for an action to reconvey the title to real property and, corollarily, its point of reference: xxx It must be remembered that before August 30, 1950, the date of the effectivity of the new Civil Code, the old Code of Civil Procedure (Act No. 190) governed prescription. It provided: SEC. 43. Other civil actions; how limited.- Civil actions other than for the recovery of real property can only be brought within the following periods after the right of action accrues: xxx xxx xxx

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

xxx

xxx

In contrast, under the present Civil Code, we find that just as an implied or constructive trust is an offspring of the law (Art. 1456, Civil Code), so is the corresponding obligation to reconvey the property and the title thereto in favor of the true owner. In this context, and vis-a-vis prescription, Article 1144 of the Civil Code is applicable. Article 1144. The following actions must be brought within ten years from the time the right of action accrues: (1) (2) (3) xxx (Emphasis supplied). An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten years and not otherwise . A long line of decisions of this Court, and of very recent vintage at that, illustrates this rule. Undoubtedly, it is now well-settled that an action for reconveyance based on an implied or constructive trust prescribes in ten years from the issuance of the Torrens title over the property . The only discordant note, it seems, is Balbin vs. Medalla which states that the prescriptive period for a reconveyance action is four years. However, this variance can be explained by the erroneous reliance on Gerona vs. de Guzman. But in Gerona, the fraud was discovered on June 25,1948, hence Section 43(3) of Act No. 190, was applied, the new Civil Code not coming into effect until August 30, 1950 as mentioned earlier. It must be stressed, at this juncture, that article 1144 and article 1456, are new provisions. They have no counterparts in the old Civil Code or in the old Code of Civil Procedure, the latter being then resorted to as legal basis of the four-year prescriptive period for an action for reconveyance of title of real property acquired under false pretenses. An action for reconveyance has its basis in Section 53, paragraph 3 of Presidential Decree No. 1529, which provides: In all cases of registration procured by fraud, the owner may pursue all his legal and equitable remedies against the parties to such fraud without prejudice, however, to the rights of any innocent holder of the decree of registration on the original petition or application, xxx This provision should be read in conjunction with Article 1456 of the Civil Code, which provides: Article 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. The law thereby creates the obligation of the trustee to reconvey the property and the title thereto in favor of the true owner. Correlating Section 53, paragraph 3 of Presidential Decree No. 1529 and Article 1456 of the Civil Code with Article 1144(2) of the Civil Code, supra, the prescriptive period for Upon a written contract; Upon an obligation created by law; Upon a judgment. xxx xxx

the reconveyance of fraudulently registered real property is ten (10) years reckoned from the date of the issuance of the certificate of title xxx (Emphasis supplied)[46] Following Caro, we have consistently held that an action for reconveyance based on an implied trust prescribes in ten years.[47] We went further by specifying the reference point of the ten-year prescriptive period as the date of the registration of the deed or the issuance of the title.[48] Had Armando and Adelia remained in possession of the Subject Land, their action for reconveyance, in effect an action to quiet title to property, would not be subject to prescription. Prescription does not run against the plaintiff in actual possession of the disputed land because such plaintiff has a right to wait until his possession is disturbed or his title is questioned before initiating an action to vindicate his right.[49] His undisturbed possession gives him the continuing right to seek the aid of a court of equity to determine the nature of the adverse claim of a third party and its effect on his title.[50] Armando and Adelia lost possession of the Subject Land when the Subsequent Buyers forcibly drove away from the Subject Land the Natanawans, the tenants of Armando and Adelia.[51] This created an actual need for Armando and Adelia to seek reconveyance of the Subject Land. The statute of limitation becomes relevant in this case. The ten-year prescriptive period started to run from the date the Subsequent Buyers registered their deeds of sale with the Register of Deeds. The Subsequent Buyers bought the subdivided portions of the Subject Land on 22 February 1994, the date of execution of their deeds of sale. The Register of Deeds issued the transfer certificates of title to the Subsequent Buyers on 24 February 1994. Armando and Adelia filed the Complaint on 7 March 1994. Clearly, prescription could not have set in since the case was filed at the early stage of the ten-year prescriptive period. Neither is the action barred by laches. We have defined laches as the failure or neglect, for an unreasonable time, to do that which, by the exercise of due diligence, could or should have been done earlier.[52] It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it.[53] Armando and Adelia discovered in January 1994 the subsequent sale of the Subject Land and they filed this case on 7 March 1994. Plainly, Armando and Adelia did not sleep on their rights.

the property subject of the sale.[57] Thus, to merit protection under the second paragraph of Article 1544[58] of the Civil Code, the second buyer must act in good faith in registering the deed.[59] In this case, the Subsequent Buyers good faith hinges on whether they had knowled ge of the previous sale. Petitioners do not dispute that Armando and Adelia registered their adverse claim with the Registry of Deeds of Bataan on 8 February 1994. The Subsequent Buyers purchased their respective lots only on 22 February 1994 as shown by the date of their deeds of sale. Consequently, the adverse claim registered prior to the second sale charged the Subsequent Buyers with constructive notice of the defect in the title of the sellers,[60] Godofredo and Carmen. It is immaterial whether Calonso, the broker of the second sale, communicated to the Subsequent Buyers the existence of the adverse claim. The registration of the adverse claim on 8 February 1994 constituted, by operation of law, notice to the whole world.[61] From that date onwards, the Subsequent Buyers were deemed to have constructive notice of the adverse claim of Armando and Adelia. When the Subsequent Buyers purchased portions of the Subject Land on 22 February 1994, they already had constructive notice of the adverse claim registered earlier.[62] Thus, the Subsequent Buyers were not buyers in good faith when they purchased their lots on 22 February 1994. They were also not registrants in good faith when they registered their deeds of sale with the Registry of Deeds on 24 February 1994. The Subsequent Buyers individual titles to their respective lots are not absolutely indefeasible. The defense of indefeasibility of the Torrens Title does not extend to a transferee who takes the certificate of title with notice of a flaw in his title.[63] The principle of indefeasibility of title does not apply where fraud attended the issuance of the titles as in this case.[64]

Attorneys Fees and Costs

We sustain the award of attorneys fees. The decision of the court must state the grounds for the award of attorneys fees. The trial court complied with this requirement.[65] We agree with the trial court that if it were not for petitioners unjustified refusal to heed the just and valid demands of Armando and Adelia, the latter would not have been compelled to file this action. The Court of Appeals echoed the trial courts condemnation of petitioners fraudulent maneuverings in securing the second sale of the Subject Land to the Subsequent Buyers. We will also not turn a blind eye on petitioners brazen tactics. Thus, we uphold the treble costs imposed by the Court of Appeals on petitioners. WHEREFORE, the petition is DENIED and the appealed decision is AFFIRMED. Treble costs against petitioners. SO ORDERED.

Validity of Subsequent Sale of Portions of the Subject Land

Petitioners maintain that the subsequent sale must be upheld because the Subsequent Buyers, the co-petitioners of Godofredo and Carmen, purchased and registered the Subject Land in good faith. Petitioners argue that the testimony of Calonso, the person who brokered the second sale, should not prejudice the Subsequent Buyers. There is no evidence that Calonso was the agent of the Subsequent Buyers and that she communicated to them what she knew about the adverse claim and the prior sale. Petitioners assert that the adverse claim registered by Armando and Adelia has no legal basis to render defective the transfer of title to the Subsequent Buyers. We are not persuaded. Godofredo and Carmen had already sold the Subject Land to Armando and Adelia. The settled rule is when ownership or title passes to the buyer, the seller ceases to have any title to transfer to any third person.[54] If the seller sells the same land to another, the second buyer who has actual or constructive knowledge of the prior sale cannot be a registrant in good faith.[55] Such second buyer cannot defeat the first buyers title.[56] In case a title is issued to the second buyer, the first buyer may seek reconveyance of

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