G.R. No.

134971

March 25, 2004

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 Decision1 and the
Resolution2 of respondent Court of Appeals in CA-G.R. SP No. 44883.
The Case for the Petitioner
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. 35922R, 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 Assignment6 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 also 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 defendantstenants 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 pagbibigay ng problema sa amin na hindi naman nagbenta ng
lupa.
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:
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
1.Julio
Tiamson - - ---

2nd
PAYMENT

CHECK
NO.

TOTAL

P 20,000

P
10,621.54

P 10,000

96,000

P 5,000

14,374.24

231274

P 10,000

14,465.90

231285

24,465.90

5. Alfonso
Flores - - - --

P 30,000

26,648.40

231271

56,648.40

6. Norma
Quiambao ---

P 10,000

41,501.10

231279

51,501.10

7. Rosita
Tolentino - ---

P 10,000

22,126.08

231284

32,126.08

8. Jose
Sosa - - - - ----

P 10,000

14,861.31

231291

24,861.31

2. Renato
Gozun - - - -[son of Felix
Gozun
(deceased)]
3. Rosita
Hernandez --4.
Bienvenido
Tongol - - [Son of
Abundio
Tongol
(deceased)]

231281

P 30,621.54
106,000.00

P 19,374.24

9. Francisco
Tolentino,
Sr.

P 10,000

24,237.62

231283

34,237.62

34. Orlando
Florez

10,000

------

------

------

35. Aurelio
Flores

10,000

------

------

------

10. Emiliano
Laxamana -

P 10,000

11. Ruben
Torres - - - -[Son of
Mariano
Torres
(deceased)]

P 10,000

12. Meliton
Allanigue

P 10,000

12,944.77

231269

P
22,944.77

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).

P 5,000

22,269.02

231275

27,269.02

A copy of the letter is hereto attached as Annex "A" etc.;

10,000

------

------

------

15. Emiliano
Ramos

5,000

18,869.60

231280

23,869.60

16. Felino G.
Tolentino

10,000

------

------

------

17. Rica
Gozun

5,000

------

------

------

18. Perla
Gozun

10,000

------

------

------

19. Benigno
Tolentino

10,000

------

------

------

20. Rodolfo
Quiambao

10,000

------

------

------

21. Roman
Laxamana

10,000

------

------

------

22. Eddie
San Luis

10,000

------

------

------

23. Ricardo
Hernandez

10,000

------

------

------

24.
Nicenciana
Miranda

10,000

------

------

------

25. Jose
Gozun

10,000

------

------

------

5,000

------

------

------

10,000

------

------

------

28. Augusto
Tolentino

5,000

------

------

------

29. Sixto
Hernandez

10,000

------

------

------

30. Alex
Quiambao

10,000

------

------

------

31. Isidro
Tolentino

10,000

------

------

------

------

11,378.70

231270

------

10,000

------

------

------

13. Dominga
Laxamana
14.
Felicencia
de Leon

26. Alfredo
Sosa
27. Jose
Tiamson

32. Ceferino
de Leon
33. Alberto
Hernandez

------

P
33,587.31

------

------

------

P
43,587.31

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;

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;
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:
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. That the plaintiff is entitled to the reliefs being demanded
in the complaint;
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 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;
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 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) That all the foregoing allegations in the Answer are hereby
repleaded and incorporated in so far as they are material
and relevant herein;

b) 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;
c) 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;
d) 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;
e) 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 co-defendants, Lacson, et al., and therefore,
the contract is null and void;
f) 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
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 receipts17 issued by the defendants-tenants
for the amounts they received from him; and the letter18 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 adduce any
evidence in opposition to the petitioners plea for a writ of preliminary
injunction.
On February 13, 1997, the court issued an Order19 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 defendantstenants 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 CAG.R. SP No. 44883. The petitioners therein prayed in their petition that:
1. An order be issued declaring the orders of respondent
court dated February 13, 1997 and April 16, 1997 as null and
void;

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

2. 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.
3. 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.
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:
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

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 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/subtenants 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 : There is no specific agreement prior to the execution of

those documents as when they will pay?
A : We agreed to that, that I will pay them when there are no
legal impediment, sir.
Q : 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?
A : When there are (sic) no more legal impediment exist, sir.
Q : Did you make how (sic) to the effect that the meaning of
that phrase that you used the unlettered defendants?
A : We have agreed to that, sir.

Q: But you have not met any of these Lacsons?

ATTY. OCAMPO:

A: Not yet, sir.

May I ask, Your Honor, that the witness please answer my

question not to answer in the way he wanted it.

Q: Do you know that two (2) of the defendants are residents

of the United States?

COURT:

A: I do not know, sir.

Just answer the question, Mr. Tayag.

Q: You do not know also that Angela Tiotuvie (sic) Vda. de

Lacson had already been dead?

WITNESS:

A: I am aware of that, sir.39

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:

Yes, Your Honor.

ATTY. OCAMPO:
Q : Did you explain to them?
A : Yes, sir.
Q : What did you tell them?
A : 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
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 defendantstenants 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
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
defendants-tenants 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 partiesdefendants 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 defendantsassignees 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?
A: 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.
Q: Incidentally, do you knew (sic) these Lacsons
individually?
A: No, sir, it was only Mr. Espinosa who I knew (sic)
personally, the alleged negotiator and has the authority to
sell the property.50
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 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 pre-empted 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 defendantstenants 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 defendants-tenants and the
petitioner by the mere execution of the deeds of assignment. In fact,
the petitioner has implemented the deeds by paying the defendantstenants amounts of money and even sought their immediate

implementation by setting a meeting with the defendants-tenants. In

fine, the petitioner would not wait for ten years to evict the defendantstenants. 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 writ 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 defendantstenants 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.

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." 3Subsequently, 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;

G.R. No. 111238 January 25, 1995

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

REGALADO, J.:
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:
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, 2situated in Barrio Culasi, Las Pias, Metro Manila.

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.
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, 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.
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.
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.

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 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 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.
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 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. 19Moreover, 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.
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 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 it 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 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 the 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.

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 welldefined. No other significance could be given to such acts that than
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.
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. 32It 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.
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 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 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.
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 ids 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.
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.
Both lower courts, however, are in accord that since Civil Case No. 895541 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.
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.
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
of 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 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. 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' latter 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.
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.

G.R. No. 97332 October 10, 1991

SPOUSES JULIO D. VILLAMOR AND MARINA
VILLAMOR, petitioners,
vs.
THE HON. COURT OF APPEALS AND SPOUSES MACARIA
LABINGISA REYES AND ROBERTO REYES,respondents.
Tranquilino F. Meris for petitioners.
Agripino G. Morga for private respondents.

MEDIALDEA, J.:p
This is a petition for review on certiorari of the decision of the Court of
Appeals in CA-G.R. No. 24176 entitled, "Spouses Julio Villamor and
Marina Villamor, Plaintiffs-Appellees, versus Spouses Macaria 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.

That I, with the conformity of my husband, Roberto

Reyes, have sold one-half thereof to the aforesaid
spouses Julio Villamor and Marina V. Villamor at
the price of P70.00 per sq. meter, which was
greatly higher than the actual reasonable
prevailing value of lands in that place at the time,
which portion, after segregation, is now covered
by TCT No. 39935 of the Register of Deeds for the
City of Caloocan, issued on August 17, 1971 in the
name of the aforementioned spouses vendees;
That the only reason why the Spouses-vendees
Julio Villamor and Marina V. Villamor, agreed to
buy the said one-half portion at the above-stated
price of about P70.00 per square meter, is
because I, and my husband Roberto Reyes, have
agreed to sell and convey to them the remaining
one-half portion still owned by me and now
covered by TCT No. 39935 of the Register of
Deeds for the City of Caloocan, whenever the
need of such sale arises, either on our part or on
the part of the spouses (Julio) Villamor and Marina
V. Villamor, at the same price of P70.00 per
square meter, excluding whatever improvement
may be found the thereon;

The facts of the case are as follows:

Macaria Labingisa Reyes was the owner of a 600-square meter lot
located at Baesa, Caloocan City, as evidenced by Transfer Certificate
of Title No. (18431) 18938, of the Register of Deeds of Rizal.
In July 1971, Macaria sold a portion of 300 square meters of the lot to
the Spouses Julio and Marina and Villamor for the total amount of
P21,000.00. Earlier, Macaria borrowed P2,000.00 from the spouses
which amount was deducted from the total purchase price of the 300
square meter lot sold. The portion sold to the Villamor spouses is now
covered by TCT No. 39935 while the remaining portion which is still in
the name of Macaria Labing-isa is covered by TCT No. 39934 (pars. 5
and 7, Complaint). On November 11, 1971, Macaria executed a "Deed
of Option" in favor of Villamor in which the remaining 300 square meter
portion (TCT No. 39934) of the lot would be sold to Villamor under the
conditions stated therein. The document reads:

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

DEED OF OPTION

With My Conformity:

This Deed of Option, entered into in the City of

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

MARINA VILLAMOR ROBERTO REYES

WITNESSETH

REPUBLIC OF THE PHILIPPINES)

CITY OF MANILA ) S.S.

That, I Macaria Labingisa, am the owner in fee

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

Signed in the Presence Of:

MARIANO Z. SUNIGA
ROSALINDA S. EUGENIO
ACKNOWLEDGMENT

At the City of Manila, on the 11th day of

November, 1971, personally appeared before me
Roberto Reyes, Macaria Labingisa, Julio Villamor
and Marina Ventura-Villamor, known to me as the
same persons who executed the foregoing Deed
of Option, which consists of two (2) pages
including the page whereon this acknowledgement
is written, and signed at the left margin of the first
page and at the bottom of the instrument by the

parties and their witnesses, and sealed with my

notarial seal, and said parties acknowledged to me
that the same is their free act and deed. The
Residence Certificates of the parties were
exhibited to me as follows: Roberto Reyes, A22494, issued at Manila on Jan. 27, 1971, and B502025, issued at Makati, Rizal on Feb. 18, 1971;
Macaria Labingisa, A-3339130 and B-1266104,
both issued at Caloocan City on April 15, 1971,
their joint Tax Acct. Number being 3028-767-6;
Julio Villamor, A-804, issued at Manila on Jan. 14,
1971, and B-138, issued at Manila on March 1,
1971; and Marina Ventura-Villamor, A-803, issued
at Manila on Jan. 14, 1971, their joint Tax Acct.
Number being 608-202 6. ARTEMIO M. MALUBAY
Notary Public
Until December 31, 1972
PTR No. 338203, Manila
January 15, 1971

2. FAILING TO CONSIDER THAT THE DEED OF

OPTION CONTAINS OBSCURE WORDS AND
STIPULATIONS WHICH SHOULD BE
RESOLVED AGAINST THE PLAINTIFFAPPELLEES WHO UNILATERALLY DRAFTED
AND PREPARED THE SAME;

Doc. No. 1526;

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

5. FAILING TO CONSIDER THAT EQUITABLE

CONSIDERATION TILT IN FAVOR OF THE
DEFENDANT-APPELLANTS; and

According to Macaria, when her husband, Roberto Reyes, retired in

1984, they offered to repurchase the lot sold by them to the Villamor
spouses but Marina Villamor refused and reminded them instead that
the Deed of Option in fact gave them the option to purchase the
remaining portion of the lot.
The Villamors, on the other hand, claimed that they had expressed
their desire to purchase the remaining 300 square meter portion of the
lot but the Reyeses had been ignoring them. Thus, on July 13, 1987,
after conciliation proceedings in the barangay level failed, they filed a
complaint for specific performance against the Reyeses.
On July 26, 1989, judgment was rendered by the trial court in favor of
the Villamor spouses, the dispositive portion of which states:
WHEREFORE, and (sic) in view of the foregoing,
judgment is hereby rendered in favor of the
plaintiffs and against the defendants ordering the
defendant MACARIA LABING-ISA REYES and
ROBERTO REYES, to sell unto the plaintiffs the
land covered by T.C.T No. 39934 of the Register of
Deeds of Caloocan City, to pay the plaintiffs the
sum of P3,000.00 as and for attorney's fees and to
pay the cost of suit.
The counterclaim is hereby DISMISSED, for LACK
OF MERIT.
SO ORDERED. (pp. 24-25, Rollo)
Not satisfied with the decision of the trial court, the Reyes spouses
appealed to the Court of Appeals on the following assignment of errors:
1. HOLDING THAT THE DEED OF OPTION
EXECUTED ON NOVEMBER 11, 1971
BETWEEN THE PLAINTIFF-APPELLEES AND
DEFENDANT-APPELLANTS IS STILL VALID AND
BINDING DESPITE THE LAPSE OF MORE THAN
THIRTEEN (13) YEARS FROM THE EXECUTION
OF THE CONTRACT;

3. HOLDING THAT THE DEED OF OPTION

EXPRESSED THE TRUE INTENTION AND
PURPOSE OF THE PARTIES DESPITE
ADVERSE, CONTEMPORANEOUS AND
SUBSEQUENT ACTS OF THE PLAINTIFFAPPELLEES;
4. FAILING TO PROTECT THE DEFENDANTAPPELLANTS ON ACCOUNT OF THEIR
IGNORANCE PLACING THEM AT A
DISADVANTAGE IN THE DEED OF OPTION;

6. HOLDING DEFENDANT-APPELLANTS LIABLE

TO PAY PLAINTIFF-APPELLEES THE AMOUNT
OF P3,000.00 FOR AND BY WAY OF
ATTORNEY'S FEES. (pp. 31-32, Rollo)
On February 12, 1991, the Court of Appeals rendered a decision
reversing the decision of the trial court and dismissing the complaint.
The reversal of the trial court's decision was premised on the finding of
respondent court that the Deed of Option is void for lack of
consideration.
The Villamor spouses brought the instant petition for review on
certiorari on the following grounds:
I. THE COURT OF APPEALS GRAVELY ERRED
IN FINDING THAT THE PHRASE WHENEVER
THE NEED FOR SUCH SALE ARISES ON OUR
(PRIVATE RESPONDENT) PART OR ON THE
PART OF THE SPOUSES JULIO D. VILLAMOR
AND MARINA V. VILLAMOR' CONTAINED IN
THE DEED OF OPTION DENOTES A
SUSPENSIVE CONDITION;
II. ASSUMING FOR THE SAKE OF ARGUMENT
THAT THE QUESTIONED PHRASE IS INDEED A
CONDITION, THE COURT OF APPEALS ERRED
IN NOT FINDING, THAT THE SAID CONDITION
HAD ALREADY BEEN FULFILLED;
III. ASSUMING FOR THE SAKE OF ARGUMENT
THAT THE QUESTIONED PHRASE IS INDEED A
CONDITION, THE COURT OF APPEALS ERRED
IN HOLDING THAT THE IMPOSITION OF SAID
CONDITION PREVENTED THE PERFECTION
OF THE CONTRACT OF SALE DESPITE THE
EXPRESS OFFER AND ACCEPTANCE
CONTAINED IN THE DEED OF OPTION;
IV. THE COURT OF APPEALS ERRED IN
FINDING THAT THE DEED OF OPTION IS VOID
FOR LACK OF CONSIDERATION;

V. THE COURT OF APPEALS ERRED IN

HOLDING THAT A DISTINCT CONSIDERATION
IS NECESSARY TO SUPPORT THE DEED OF
OPTION DESPITE THE EXPRESS OFFER AND
ACCEPTANCE CONTAINED THEREIN. (p.
12, Rollo)
The pivotal issue to be resolved in this case is the validity of the Deed
of Option whereby the private respondents agreed to sell their lot to
petitioners "whenever the need of such sale arises, either on our part
(private respondents) or on the part of Julio Villamor and Marina
Villamor (petitioners)." The court a quo, rule that the Deed of Option
was a valid written agreement between the parties and made the
following conclusions:
xxx xxx xxx
It is interesting to state that the agreement
between the parties are evidence by a writing,
hence, the controverting oral testimonies of the
herein defendants cannot be any better than the
documentary evidence, which, in this case, is the
Deed of Option (Exh. "A" and "A-a")
The law provides that when the terms of an
agreement have been reduced to writing it is to be
considered as containing all such terms, and
therefore, there can be, between the parties and
their successors in interest no evidence of their
terms of the agreement, other than the contents of
the writing. ... (Section 7 Rule 130 Revised Rules
of Court) Likewise, it is a general and most
inflexible rule that wherever written instruments
are appointed either by the requirements of law, or
by the contract of the parties, to be the
repositories and memorials of truth, any other
evidence is excluded from being used, either as a
substitute for such instruments, or to contradict or
alter them. This is a matter both of principle and of
policy; of principle because such instruments are
in their nature and origin entitled to a much higher
degree of credit than evidence of policy, because it
would be attended with great mischief if those
instruments upon which man's rights depended
were liable to be impeached by loose collateral
evidence. Where the terms of an agreement are
reduced to writing, the document itself, being
constituted by the parties as the expositor of their
intentions, it is the only instrument of evidence in
respect of that agreement which the law will
recognize so long as it exists for the purpose of
evidence. (Starkie, EV, pp. 648, 655 cited in
Kasheenath vs. Chundy, W.R. 68, cited in
Francisco's Rules of Court, Vol. VII Part I p. 153)
(Emphasis supplied, pp. 126-127, Records).
The respondent appellate court, however, ruled that the said deed of
option is void for lack of consideration. The appellate court made the
following disquisitions:
Plaintiff-appellees say they agreed to pay P70.00
per square meter for the portion purchased by
them although the prevailing price at that time was
only P25.00 in consideration of the option to buy
the remainder of the land. This does not seem to
be the case. In the first place, the deed of sale
was never produced by them to prove their claim.

Defendant-appellants testified that no copy of the

deed of sale had ever been given to them by the
plaintiff-appellees. In the second place, if this was
really the condition of the prior sale, we see no
reason why it should be reiterated in the Deed of
Option. On the contrary, the alleged overprice paid
by the plaintiff-appellees is given in the Deed as
reason for the desire of the Villamors to acquire
the land rather than as a consideration for the
option given to them, although one might wonder
why they took nearly 13 years to invoke their right
if they really were in due need of the lot.
At all events, the consideration needed to support
a unilateral promise to sell is a dinstinct one, not
something that is as uncertain as P70.00 per
square meter which is allegedly 'greatly higher
than the actual prevailing value of lands.' A sale
must be for a price certain (Art. 1458). For how
much the portion conveyed to the plaintiffappellees 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 defendantappellant'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. 3435, Rollo)
As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is
"the why of the contracts, the essential reason which moves the
contracting parties to enter into the contract." The cause or the
impelling reason on the part of private respondent executing the deed
of option as appearing in the deed itself is the petitioner's having
agreed to buy the 300 square meter portion of private respondents'
land at P70.00 per square meter "which was greatly higher than the
actual reasonable prevailing price." This cause or consideration is clear
from the deed which stated:
That the only reason why the spouses-vendees
Julio Villamor and Marina V. Villamor agreed to
buy the said one-half portion at the above stated
price of about P70.00 per square meter, is
because I, and my husband Roberto Reyes, have
agreed to sell and convey to them the remaining
one-half portion still owned by me ... (p. 26, Rollo)
The respondent appellate court failed to give due consideration to
petitioners' evidence which shows that in 1969 the Villamor spouses
bough an adjacent lot from the brother of Macaria Labing-isa for only
P18.00 per square meter which the private respondents did not rebut.
Thus, expressed in terms of money, the consideration for the deed of
option is the difference between the purchase price of the 300 square
meter portion of the lot in 1971 (P70.00 per sq.m.) and the prevailing
reasonable price of the same lot in 1971. Whatever it is, (P25.00 or
P18.00) though not specifically stated in the deed of option, was
ascertainable. Petitioner's allegedly paying P52.00 per square meter
for the option may, as opined by the appellate court, be improbable but

improbabilities does not invalidate a contract freely entered into by the

parties.
The "deed of option" entered into by the parties in this case had unique
features. Ordinarily, an optional contract is a privilege existing in one
person, for which he had paid a consideration and which gives him the
right to buy, for example, certain merchandise or certain specified
property, from another person, if he chooses, at any time within the
agreed period at a fixed price (Enriquez de la Cavada v. Diaz, 37 Phil.
982). If We look closely at the "deed of option" signed by the parties,
We will notice that the first part covered the statement on the sale of
the 300 square meter portion of the lot to Spouses Villamor at the price
of P70.00 per square meter "which was higher than the actual
reasonable prevailing value of the lands in that place at that time (of
sale)." The second part stated that the only reason why the Villamor
spouses agreed to buy the said lot at a much higher price is because
the vendor (Reyeses) also agreed to sell to the Villamors the other
half-portion of 300 square meters of the land. Had the deed stopped
there, there would be no dispute that the deed is really an ordinary
deed of option granting the Villamors the option to buy the remaining
300 square meter-half portion of the lot in consideration for their having
agreed to buy the other half of the land for a much higher price. But,
the "deed of option" went on and stated that the sale of the other half
would be made "whenever the need of such sale arises, either on our
(Reyeses) part or on the part of the Spouses Julio Villamor and Marina
V. Villamor. It appears that while the option to buy was granted to the
Villamors, the Reyeses were likewise granted an option to sell. In other
words, it was not only the Villamors who were granted an option to buy
for which they paid a consideration. The Reyeses as well were granted
an option to sell should the need for such sale on their part arise.
In the instant case, the option offered by private respondents had been
accepted by the petitioner, the promise, in the same document. The
acceptance of an offer to sell for a price certain created a bilateral
contract to sell and buy and upon acceptance, the offer, ipso
facto assumes obligations of a vendee (See Atkins, Kroll & Co. v. Cua
Mian Tek, 102 Phil. 948). Demandabilitiy may be exercised at any time
after the execution of the deed. InSanchez v. Rigos, No. L-25494, June
14, 1972, 45 SCRA 368, 376, We held:
In other words, since there may be no valid
contract without a cause of consideration, the
promisory is not bound by his promise and may,
accordingly withdraw it. Pending notice of its
withdrawal, his accepted promise partakes,
however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale.
A contract of sale is, under Article 1475 of the Civil Code, "perfected at
the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price. From that moment, the
parties may reciprocally demand perform of contracts." Since there
was, between the parties, a meeting of minds upon the object and the
price, there was already a perfected contract of sale. What was,
however, left to be done was for either party to demand from the other
their respective undertakings under the contract. It may be demanded
at any time either by the private respondents, who may compel the
petitioners to pay for the property or the petitioners, who may compel
the private respondents to deliver the property.
However, the Deed of Option did not provide for the period within
which the parties may demand the performance of their respective
undertakings in the instrument. The parties could not have
contemplated that the delivery of the property and the payment thereof
could be made indefinitely and render uncertain the status of the land.
The failure of either parties to demand performance of the obligation of
the other for an unreasonable length of time renders the contract
ineffective.

Under Article 1144 (1) of the Civil Code, actions upon written contract
must be brought within ten (10) years. The Deed of Option was
executed on November 11, 1971. The acceptance, as already
mentioned, was also accepted in the same instrument. The complaint
in this case was filed by the petitioners on July 13, 1987, seventeen
(17) years from the time of the execution of the contract. Hence, the
right of action had prescribed. There were allegations by the petitioners
that they demanded from the private respondents as early as 1984 the
enforcement of their rights under the contract. Still, it was beyond the
ten (10) years period prescribed by the Civil Code. In the case
of Santos v. Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and
subscribing to the observations of the courta quo held, thus:
... Assuming that Rosa Ganayo, the oppositor
herein, had the right based on the Agreement to
Convey and Transfer as contained in Exhibits '1'
and '1-A', her failure or the abandonment of her
right to file an action against Pulmano Molintas
when he was still a co-owner of the on-half (1/2)
portion of the 10,000 square meters is now barred
by laches and/or prescribed by law because she
failed to bring such action within ten (10) years
from the date of the written agreement in 1941,
pursuant to Art. 1144 of the New Civil Code, so
that when she filed the adverse claim through her
counsel in 1959 she had absolutely no more right
whatsoever on the same, having been barred by
laches.
It is of judicial notice that the price of real estate in Metro Manila is
continuously on the rise. To allow the petitioner to demand the delivery
of the property subject of this case thirteen (13) years or seventeen
(17) years after the execution of the deed at the price of only P70.00
per square meter is inequitous. For reasons also of equity and in
consideration of the fact that the private respondents have no other
decent place to live, this Court, in the exercise of its equity jurisdiction
is not inclined to grant petitioners' prayer.
ACCORDINGLY, the petition is DENIED. The decision of respondent
appellate court is AFFIRMED for reasons cited in this decision.
Judgement is rendered dismissing the complaint in Civil Case No. C12942 on the ground of prescription and laches.
SO ORDERED.
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.

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

The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and
defendant Severina Rigos executed an instrument entitled "Option to
Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to
sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the
barrios of Abar and Sibot, municipality of San Jose, province of Nueva
Ecija, and more particularly described in Transfer Certificate of Title
No. NT-12528 of said province, within two (2) years from said date with
the understanding that said option shall be deemed "terminated and
elapsed," if "Sanchez shall fail to exercise his right to buy the property"
within the stipulated period. Inasmuch as several tenders of payment
of the sum of Pl,510.00, made by Sanchez within said period, were
rejected by Mrs. Rigos, on March 12, 1963, the former deposited said
amount with the Court of First Instance of Nueva Ecija and
commenced against the latter the present action, for specific
performance and damages.
After the filing of defendant's answer admitting some allegations of
the complaint, denying other allegations thereof, and alleging, as
special defense, that the contract between the parties "is a unilateral
promise to sell, and the same being unsupported by any valuable
consideration, by force of the New Civil Code, is null and void" on
February 11, 1964, both parties, assisted by their respective counsel,
jointly moved for a judgment on the pleadings. Accordingly, on
February 28, 1964, the lower court rendered judgment for Sanchez,
ordering Mrs. Rigos to accept the sum judicially consigned by him and
to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos
was, likewise, sentenced to pay P200.00, as attorney's fees, and other
costs. Hence, this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of
our Civil Code, which provides:
ART. 1479. A promise to buy and sell a
determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding
upon the promissor if the promise is supported by
a consideration distinct from the price.
In his complaint, plaintiff alleges that, by virtue of the option under
consideration, "defendant agreed and committed to sell" and "the
plaintiff agreed and committed to buy" the land described in the option,
copy of which was annexed to said pleading as Annex A thereof and is
quoted on the margin. 1 Hence, plaintiff maintains that the promise
contained in the contract is "reciprocally demandable," pursuant to the
first paragraph of said Article 1479. Although defendant had really
"agreed, promised and committed" herself to sell the land to the
plaintiff, it is not true that the latter had, in turn, "agreed and committed
himself " to buy said property. Said Annex A does not bear out plaintiff's
allegation to this effect. What is more, since Annex A has been made
"an integral part" of his complaint, the provisions of said instrument
form part "and parcel" 2 of said pleading.
The option did not impose upon plaintiff the obligation to
purchase defendant's property. Annex A is not a "contract to buy and
sell." It merely granted plaintiff an "option" to buy. And both parties so
understood it, as indicated by the caption, "Option to Purchase," given
by them to said instrument. Under the provisions thereof, the
defendant "agreed, promised and committed" herself to sell the land
therein described to the plaintiff for P1,510.00, but there is nothing in
the contract to indicate that her aforementioned agreement, promise
and undertaking is supported by a consideration "distinct from the
price" stipulated for the sale of the land.

Relying upon Article 1354 of our Civil Code, the lower

court presumed the existence of said consideration, and this would
seem to be the main factor that influenced its decision in plaintiff's
favor. It should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the second
paragraph of Article 1479 refers to "sales" in particular, and, more
specifically, to "an accepted unilateral promise to buy or to sell." In
other words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the
promisor, Article 1479 requires the concurrence of a condition, namely,
that the promise be "supported by a consideration distinct from the
price." Accordingly, the promisee can not compel the promisor to
comply with the promise, unless the former establishes the existence
of said distinct consideration. In other words, the promisee has the
burden of proving such consideration. Plaintiff herein has not even
alleged the existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer,
and pleaded as a special defense, the absence of said consideration
for her promise to sell and, by joining in the petition for a judgment on
the pleadings, plaintiff has impliedly admitted the truth of said averment
in defendant's answer. Indeed as early as March 14, 1908, it had been
held, in Bauermann v. Casas, 3 that:
One who prays for judgment on the pleadings
without offering proof as to the truth of his own
allegations, and without giving the opposing party
an opportunity to introduce evidence, must be
understood to admit the truth of all the material
and relevant allegations of the opposing party, and
to rest his motion for judgment on those
allegations taken together with such of his own as
are admitted in the pleadings. (La Yebana
Company vs. Sevilla, 9 Phil. 210). (Emphasis
supplied.)
This view was reiterated in Evangelista v. De la 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 this contention, appellee
invokes article 1324 of the Civil Code which
provides:
"ART. 1324. When the offerer
has allowed the offeree a
certain period to accept, the
offer may be withdrawn any
time before acceptance by
communicating such
withdrawal, except when the
option is founded upon
consideration as something
paid or promised."
There is no question that under article 1479 of the
new Civil Code "an option to sell," or "a promise to
buy or to sell," as used in said article, to be valid
must be "supported by a consideration distinct
from the price." This is clearly inferred from the
context of said article that a unilateral promise to
buy or to sell, even if accepted, is only binding if
supported by consideration. In other words, "an
accepted unilateral promise can only have a
binding effect if supported by a consideration
which means that the option can still be
withdrawn, even if accepted, if the same is not
supported by any consideration. It is not disputed
that the option is without consideration. It can
therefore be withdrawn notwithstanding the
acceptance of it by appellee.
It is true that under article 1324 of the new Civil
Code, the general rule regarding offer and
acceptance is that, when the offerer gives to the
offeree a certain period to accept, "the offer may
be withdrawn at any time before acceptance"
except when the option is founded upon
consideration, but this general rule must be
interpreted as modified by the provision of article
1479 above referred to, which applies to "a
promise to buy and sell" specifically. As already
stated, this rule requires that a promise to sell to
be valid must be supported by a consideration
distinct from the price.
We are not oblivious of the existence of American
authorities which hold that an offer, once
accepted, cannot be withdrawn, regardless of
whether it is supported or not by a consideration
(12 Am. Jur. 528). These authorities, we note,
uphold the general rule applicable to offer and
acceptance as contained in our new Civil Code.
But we are prevented from applying them in view
of the specific provision embodied in article 1479.
While under the "offer of option" in question
appellant has assumed a clear obligation to sell its
barge to appellee and the option has been
exercised in accordance with its terms, and there
appears to be no valid or justifiable reason for
appellant to withdraw its offer, this Court cannot

adopt a different attitude because the law on the

matter is clear. Our imperative duty is to apply it
unless modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v.
Cua Hian Tek, 8 decided later that Southwestern Sugar & Molasses Co.
v. Atlantic Gulf & Pacific Co., 9 saw no distinction between Articles 1324
and 1479 of the Civil Code and applied the former where a unilateral
promise to sell similar to the one sued upon here was involved, treating
such promise as an option which, although not binding as a contract in
itself for lack of a separate consideration, nevertheless generated a
bilateral contract of purchase and sale upon acceptance. Speaking
through Associate Justice, later Chief Justice, Cesar Bengzon, this
Court said:
Furthermore, an option is unilateral: a promise to
sell at the price fixed whenever the offeree should
decide to exercise his option within the specified
time. After accepting the promise and before he
exercises his option, the holder of the option is not
bound to buy. He is free either to buy or not to buy
later. In this case, however, upon accepting herein
petitioner's offer a bilateral promise to sell and to
buy ensued, and the respondent ipso
facto assumed the obligation of a purchaser. He
did not just get the right subsequently to buy or not
to buy. It was not a mere option then; it was a
bilateral contract of sale.
Lastly, even supposing that Exh. A granted an
option which is not binding for lack of
consideration, the authorities hold that:
"If the option is given without
a consideration, it is a mere
offer of a contract of sale,
which is not binding until
accepted. If, however,
acceptance is made before a
withdrawal, it constitutes a
binding contract of sale, even
though the option was not
supported by a sufficient
consideration. ... . (77 Corpus
Juris Secundum, p. 652. See
also 27 Ruling Case Law 339
and cases cited.)
"It can be taken for granted,
as contended by the
defendant, that the option
contract was not valid for lack
of consideration. But it was, at
least, an offer to sell, which
was accepted by letter, and of
the acceptance the offerer
had knowledge before said
offer was withdrawn. The
concurrence of both acts
the offer and the acceptance
could at all events have
generated a contract, if none
there was before (arts. 1254
and 1262 of the Civil Code)."
(Zayco vs. Serra, 44 Phil.
331.)

In other words, since there may be no valid contract without a cause or

consideration, the promisor is not bound by his promise and may,
accordingly, withdraw it. Pending notice of its withdrawal, his accepted
promise partakes, however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale.
This view has the advantage of avoiding a conflict between Articles
1324 on the general principles on contracts and 1479 on sales
of the Civil Code, in line with the cardinal rule of statutory
construction that, in construing different provisions of one and the
same law or code, such interpretation should be favored as will
reconcile or harmonize said provisions and avoid a conflict between
the same. Indeed, the presumption is that, in the process of drafting
the Code, its author has maintained a consistent philosophy or
position. Moreover, the decision in Southwestern Sugar & Molasses
Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324
is modified by Art. 1479 of the Civil Code, in effect, considers the latter
as an exception to the former, and exceptions are not favored, unless
the intention to the contrary is clear, and it is not so, insofar as said two
(2) articles are concerned. What is more, the reference, in both the
second paragraph of Art. 1479 and Art. 1324, to an option or promise
supported by or founded upon a consideration, strongly suggests that
the two (2) provisions intended to enforce or implement the same
principle.
Upon mature deliberation, the Court is of the considered opinion that it
should, as it hereby reiterates the doctrine laid down in the Atkins,
Kroll & Co. case, and that, insofar as inconsistent therewith, the view
adhered to in theSouthwestern Sugar & Molasses Co. case should be
deemed abandoned or modified.
WHEREFORE, the decision appealed from is hereby affirmed, with
costs against defendant-appellant Severina Rigos. It is so ordered.
G.R. No. L-51824 February 7, 1992
PERCELINO DIAMANTE, petitioner,
vs.
HON. COURT OF APPEALS and GERARDO
DEYPALUBUS, respondents.
Hernandez, Velicaria, Vibar & Santiago for petitioner.
Amancio B. Sorongon for private respondent.

DAVIDE, JR., J.:

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. F-2021 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 tenyear 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 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
(Deypalubos) 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 factocause 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 forcertiorari 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
injunction, 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 2on 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.
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. L-29097, Jan. 28, 1974,
55 SCRA 330). Reviewing courts do not reexamine 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
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) specimen 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 specimen 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 herself 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 4.4
hectares appearing to be subject to an
encumbrance, his application would not have been
given favorable action.
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 in the nature of those upon the
presumption of the regularity of official functions as
in 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 petitioner-appellee
(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 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.
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
petitioners 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:

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
. . . 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 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.

IT IS SO ORDERED.
G.R. No. 126454

November 26, 2004

BIBLE BAPTIST CHURCH and PASTOR REUBEN

BELMONTE, petitioners,
vs.
COURT OF APPEALS and MR. & MRS. ELMER TITO MEDINA
VILLANUEVA, respondents.

DECISION

In Insular Life Assurance Co., Ltd. Employees Association-NATU vs.

Insular Life Assurance Co., Ltd., 10 this Court ruled:
. . . (t)he Supreme Court has ample authority to
review and resolve matter 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 power, 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. SP04866 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 Natural Resources of 29 August 1969, 20 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.

AZCUNA, J.:
This petition for review on certiorari seeks to annul the Decision1 dated
August 7, 1996, of the Court of Appeals in CA-G.R. CV No. 45956, and
its Resolution2 dated September 12, 1996, denying reconsideration of
the decision. In the questioned issuances, the Court of Appeals
affirmed the Decision3 dated June 8, 1993, of the Regional Trial Court
of Manila, Branch 3, in Civil Case No. 90-55437.
The antecedents are:
On June 7, 1985, the Bible Baptist Church (petitioner Baptist Church)
entered into a contract of lease4 with Mr. & Mrs. Elmer Tito Medina
Villanueva (respondent spouses Villanueva). The latter are the
registered owners of a property located at No. 2436 (formerly 2424)
Leon Guinto St., Malate, Manila. The pertinent stipulations in the lease
contract were:
1. That the LESSOR lets and leases to the LESSEE a store
space known as 2424 Leon Guinto Sr. St., Malate, Manila, of
which property the LESSOR is the registered owner in
accordance with the Land Registration Act.
2. That the lease shall take effect on June 7, 1985 and shall
be for the period of Fifteen (15) years.
3. That LESSEE shall pay the LESSOR within five (5) days
of each calendar month, beginning Twelve (12) months from
the date of this agreement, a monthly rental of Ten Thousand
Pesos (P10,000.00) Philippine Currency, plus 10%
escalation clause per year starting on June 7, 1988.
4. That upon signing of the LEASE AGREEMENT, the
LESSEE shall pay the sum of Eighty Four Thousand Pesos
(P84,000.00) Philippine Currency. Said sum is to be paid
directly to the Rural Bank, Valenzuela, Bulacan for the
purpose of redemption of said property which is mortgaged
by the LESSOR.
5. That the title will remain in the safe keeping of the Bible
Baptist Church, Malate, Metro Manila until the expiration of
the lease agreement or the leased premises be purchased
by the LESSEE, whichever comes first. In the event that the
said title will be lost or destroyed while in the possession of
the LESSEE, the LESSEE agrees to pay all costs involved
for the re-issuance of the title.
6. That the leased premises may be renovated by the
LESSEE, to the satisfaction of the LESSEE to be fit and
usable as a Church.

7. That the LESSOR will remove all other tenants from the
leased premises no later than March 15, 1986. It is further
agreed that if those tenants are not vacated by June 1, 1986,
the rental will be lowered by the sum of Three Thousand
Pesos (P3,000.00) per month until said tenants have left the
leased premises.
8. That the LESSEE has the option to buy the leased
premises during the Fifteen (15) years of the lease. If the
LESSEE decides to purchase the premises the terms will be:
A) A selling Price of One Million Eight Hundred Thousand
Pesos (P1.8 million), Philippine Currency. B) A down
payment agreed upon by both parties. C) The balance of the
selling price may be paid at the rate of One Hundred Twenty
Thousand Pesos (P120,000.00), Philippine Currency, per
year.
x x x.5
The foregoing stipulations of the lease contract are the subject of the
present controversy.
Although the same lease contract resulted in several cases6 filed
between the same parties herein, petitioner submits, for this Court's
review, only the following errors allegedly committed by the Court of
Appeals:
a) Respondent Court of Appeals erred in finding that the
option to buy granted the petitioner Baptist Church under its
contract of lease with the Villanuevas did not have a
consideration and, therefore, did not bind the latter;
b) [R]espondent court again also erred in finding that the
option to buy did not have a fixed price agreed upon by the
parties for the purchase of the property; and
c) [F]inally, respondent court erred in not awarding
petitioners Baptist Church and its pastor attorney's fees.7
In sum, this Court has three issues to resolve: 1) Whether or not the
option to buy given to the Baptist Church is founded upon a
consideration; 2) Whether or not by the terms of the lease agreement,
a price certain for the purchase of the land had been fixed; and 3)
Whether or not the Baptist Church is entitled to an award for attorney's
fees.
The stipulation in the lease contract which purportedly gives the lessee
an option to buy the leased premises at any time within the duration of
the lease, is found in paragraph 8 of the lease contract, viz:
8. That the LESSEE has the option to buy the leased
premises during the Fifteen (15) years of the lease. If the
LESSEE decides to purchase the premises the terms will be:
A) A selling Price of One Million Eight Hundred Thousand
Pesos (P1.8 million), Philippine Currency. B) A down
payment agreed upon by both parties. C) The balance of the
selling price may be paid at the rate of One Hundred Twenty
Thousand Pesos (P120,000.00), Philippine Currency, per
year.
Under Article 1479 of the Civil Code, it is provided:
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.
The second paragraph of Article 1479 provides for the definition and
consequent rights and obligations under an option contract. For an

option contract to be valid and enforceable against the promissor, there

must be a separate and distinct consideration that supports it.
In this case, petitioner Baptist Church seeks to buy the leased
premises from the spouses Villanueva, under the option given to them.
Petitioners claim that the Baptist Church "agreed to advance the large
amount needed for the rescue of the property but, in exchange, it
asked the Villanuevas to grant it a long term lease and an option to buy
the property for P1.8 million."8 They argue that the consideration
supporting the option was their agreement to pay off the Villanueva's
P84,000 loan with the bank, thereby freeing the subject property from
the mortgage encumbrance. They state further that the Baptist Church
would not have agreed to advance such a large amount as it did to
rescue the property from bank foreclosure had it not been given an
enforceable option to buy that went with the lease agreement.
In the petition, the Baptist Church states that "[t]rue, the Baptist Church
did not pay a separate and specific sum of money to cover the option
alone. But the P84,000 it paid the Villanuevas in advance should be
deemed consideration for the one contract they entered into the
lease with option to buy."9 They rely on the case ofTeodoro v. Court of
Appeals10 to support their stand.
This Court finds no merit in these contentions.
First, petitioners cannot insist that the P84,000 they paid in order to
release the Villanuevas' property from the mortgage should be deemed
the separate consideration to support the contract of option. It must be
pointed out that said amount was in fact apportioned into monthly
rentals spread over a period of one year, at P7,000 per month. Thus,
for the entire period of June 1985 to May 1986, petitioner Baptist
Church's monthly rent had already been paid for, such that it only again
commenced paying the rentals in June 1986. This is shown by the
testimony of petitioner Pastor Belmonte where he states that the
P84,000 was advance rental equivalent to monthly rent of P7,000 for
one year, such that for the entire year from 1985 to 1986 the Baptist
Church did not pay monthly rent.11
This Court agrees with respondents that the amount of P84,000 has
been fully exhausted and utilized by their occupation of the premises
and there is no separate consideration to speak of which could support
the option.12
Second, petitioners' reliance on the case of Teodoro v. Court of
Appeals13 is misplaced. The facts of the Teodoro case reveal that
therein respondent Ariola was the registered lessee of a property
owned by the Manila Railroad Co. She entered into an agreement
whereby she allowed Teodoro to occupy a portion of the rented
property and gave Teodoro an option to buy the same, should Manila
Railroad Co. decide to sell the property to Ariola. In addition, Teodoro,
who was occupying only a portion of the subject rented property, also
undertook to pay the Manila Railroad Co., the full amount of the rent
supposed to be paid by the registered lessor Ariola. Consequently,
unlike this case, Teodoro paid over and above the amount due for her
own occupation of a portion of the property. That amount, which should
have been paid by Ariola as lessor, and for her own occupation of the
property, was deemed by the Court as sufficient consideration for the
option to buy which Ariola gave to Teodoro upon Ariola's acquiring the
property.
Hence, in Teodoro, this Court was able to find that a separate
consideration supported the option contract and thus, its enforcement
may be demanded. Petitioners, therefore, cannot rely on Teodoro, for
the case even supports the respondents' stand that a consideration
that is separate and distinct from the purchase price is required to
support an option contract.
Petitioners further insist that a consideration need not be a separate
sum of money. They posit that their act of advancing the money to
"rescue" the property from mortgage and impending foreclosure,
should be enough consideration to support the option.
In Villamor v. Court of Appeals,14 this Court defined consideration as
"the why of the contracts, the essential reason which moves the
contracting parties to enter into the contract."15 This definition illustrates

that the consideration contemplated to support an option contract need

not be monetary. Actual cash need not be exchanged for the option.
However, by the very nature of an option contract, as defined in Article
1479, the same is an onerous contract for which the consideration
must be something of value, although its kind may vary.

This Court also notes that in the present case both the Regional Trial
Court and the Court of Appeals agree that the option was not founded
upon a separate and distinct consideration and that, hence,
respondents Villanuevas cannot be compelled to sell their property to
petitioner Baptist Church.

Specifically, in Villamor v. Court of Appeals,16 half of a parcel of land

was sold to the spouses Villamor for P70 per square meter, an amount
much higher than the reasonable prevailing price. Thereafter, a deed of
option was executed whereby the sellers undertook to sell the other
half to the same spouses. It was stated in the deed that the only
reason the spouses bought the first half of the parcel of land at a much
higher price, was the undertaking of the sellers to sell the second half
of the land, also at the same price. This Court held that the cause or
consideration for the option, on the part of the spouses-buyers, was
the undertaking of the sellers to sell the other half of the property. On
the part of the sellers, the consideration supporting the option was the
much higher amount at which the buyers agreed to buy the property. It
was explicit from the deed therein that for the parties, this was the
consideration for their entering into the contract.

The Regional Trial Court found that "[a]ll payments made under the
contract of lease were for rentals. No money [was] ever exchanged for
and in consideration of the option." Hence, the Regional Trial Court
found the action of the Baptist Church to be "premature and without
basis to compel the defendant to sell the leased premises." The
Regional Trial Court consequently ruled:

It can be seen that the Court found that the buyer/optionee had parted
with something of value, which was the amount he paid over and
above the actual prevailing price of the land. Such amount, different
from the price of the land subject of the option, was deemed sufficient
and distinct consideration supporting the option contract. Moreover, the
parties stated the same in their contract.
Villamor is distinct from the present case because, First, this Court
cannot find that petitioner Baptist Church parted with anything of value,
aside from the amount of P84,000 which was in fact eventually utilized
as rental payments. Second, there is no document that contains an
agreement between the parties that petitioner Baptist Church's
supposed rescue of the mortgaged property was the consideration
which the parties contemplated in support of the option clause in the
contract. As previously stated, the amount advanced had been fully
utilized as rental payments over a period of one year. While the
Villanuevas may have them to thank for extending the payment at a
time of need, this is not the separate consideration contemplated by
law.

WHEREFORE, judgment is rendered:

1) Denying plaintiffs' application for writ of
injunction;
2) That defendant cannot be compelled to sell to
plaintiffs the leased premises in accordance with
par. 8 of the contract of lease;
3) Defendant is hereby ordered to reimburse
plaintiffs the sum of P15, 919.75 plus 12% interest
representing real estate taxes, plaintiffs paid the
City Treasurer's Office of Manila;
4) Declaring that plaintiff made a valid and legal
consignation to the Court of the initial amount of
P18,634.00 for the month of November and
December 1990 and every month thereafter.
All other claims of the plaintiffs are hereby dismissed for lack
of merit.
No pronouncement as to costs.
SO ORDERED. 21

Noting that the option clause was part of a lease contract, this Court
looked into its previous ruling in the early case of Vda. De Quirino v.
Palarca,17 where the Court did say that "in reciprocal contracts, like the
one in question,18 the obligation or promise of each party is the
consideration for that of the other."19 However, it must be noted that in
that case, it was also expressly stated in the deed that should there be
failure to exercise the option to buy the property, the optionee
undertakes to sell the building and/or improvements he has made on
the premises. In addition, the optionee had also been paying an
amount of rent that was quite high and in fact turned out to be too
burdensome that there was a subsequent agreement to reduce said
rentals. The Court found that "the amount of rentals agreed upon x x x
which amount turned out to be so burdensome upon the lessee, that
the lessor agreed, five years later, to reduce it as well as the building
and/or improvements contemplated to be constructed and/or
introduced by the lessee, were, undoubtedly, part of the consideration
for his option to purchase the leased premises."20
Again, this Court notes that the parties therein clearly stipulated in their
contract that there was an undertaking on the part of the optionee to
sell the improvements made on the property if the option was not
exercised. Such is a valuable consideration that could support the
option contract. Moreover, there was the excessive rental payments
that the optionee paid for five years, which the Court also took into
account in deciding that there was a separate consideration supporting
the option.
To summarize the rules, an option contract needs to be supported by a
separate consideration. The consideration need not be monetary but
could consist of other things or undertakings. However, if the
consideration is not monetary, these must be things or undertakings of
value, in view of the onerous nature of the contract of option.
Furthermore, when a consideration for an option contract is not
monetary, said consideration must be clearly specified as such in the
option contract or clause.

On appeal, the Court of Appeals agreed with the Regional Trial Court
and found that the option to buy the leased premises was not binding
upon the Villanuevas for non-compliance with Article 1479. It found that
said option was not supported by a consideration as "no money was
ever really exchanged for and in consideration of the option." In
addition, the appellate court determined that in the instant case, "the
price for the object is not yet certain." Thus, the Court of Appeals
affirmed the Regional Trial Court decision and dismissed the appeal for
lack of merit.22
Having found that the option to buy granted to the petitioner Baptist
Church was not founded upon a separate consideration, and hence,
not enforceable against respondents, this Court finds no need to
discuss whether a price certain had been fixed as the purchase price.
Anent the claim for attorney's fees, it is stipulated in paragraph 13 of
the lease agreement that in the event of failure of either of the parties
to comply with any of the conditions of the agreement, the aggrieved
party can collect reasonable attorney's fees.23
In view of this Court's finding that the option contract is not enforceable
for being without consideration, the respondents Villanueva spouses'
refusal to comply with it cannot be the basis of a claim for attorney's
fees.
Hence, this Court agrees with as the Court of Appeals, which affirmed
the findings of the Regional Trial Court, that such claim is to be
dismissed for lack of factual and legal basis.
WHEREFORE, the Decision and Resolution of the Court of Appeals
subject of the petition are hereby AFFIRMED.

No costs.

the said second sale was cancelled after the

payment of P12,000.00 by the defendants to
Derrama.

SO ORDERED.

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.

G.R. No. 83759 July 12, 1991

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

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.

Dionisio C. Isidto for petitioners.

Raymundo Lozada, Jr. for private respondents.

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.

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

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 196869. 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,

KNOW ALL MEN BY THESE PRESENTS:

I, CIPRIANO VASQUEZ, . . ., do hereby grant the
spouses Martin Vallejera and Apolonia Olea, their
heirs and assigns, the right to repurchase said Lot
No. 1860 for the sum of TWELVE THOUSAND
PESOS (P12,000.00), Philippine Currency, within
the period TEN (10) YEARS from the agricultural
year 1969-1970 when my contract of lease over
the property shall expire and until the agricultural
year 1979-1980.
IN WITNESS WHEREOF, I have hereunto signed
my name at Binalbagan, Negros Occidental, this
21st day of September, 1964.
SGD. CIPRIANO VASQUEZ
SGD. VALERIANA G. VASQUEZ SGD. FRANCISCO SANICAS
(Rollo, p. 47)

The Court of Appeals, applying the principles laid down in the case of
Sanchez v. Rigos, 45 SCRA 368 [1972] decided in favor of the private
respondents.
In the Sanchez case, plaintiff-appellee Nicolas Sanchez and
defendant-appellant Severino Rigos executed a document entitled
"Option to Purchase," whereby Mrs. Rigos "agreed, promised and
committed . . . to sell" to Sanchez for the sum of P1,510.00, a
registered parcel of land within 2 years from execution of the document
with the condition that said option shall be deemed "terminated and
lapsed," if "Sanchez shall fail to exercise his right to buy the property"
within the stipulated period. In the same document,
Sanchez" . . . hereby agree and conform with all the conditions set
forth in the option to purchase executed in my favor, that I bind myself
with all the terms and conditions." (Emphasis supplied) The notarized
document was signed both by Sanchez and Rigos.

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:

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.

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.

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:

Lastly, even supposing that

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

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.

Art. 1479. A promise to buy and sell a determinate

thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding
upon the promissory if the promise is supported by
a consideration distinct from the price.
and Article 1324 thereof which provides:
Art. 1324. When the offerer has allowed the offerer
a certain period to accept, the offer may be
withdrawn at any time before acceptance by
communicating such withdrawal, except when the
option is founded upon a consideration, as
something paid or promised.
should be reconciled and harmonized to avoid a conflict between the
two provisions. In effect, the Court abandoned the ruling in the
Southwestern Sugar and Molasses Co. case and reiterated the ruling
in the Atkins, Kroll and Co. case, to wit:
However, this Court itself, in the case of Atkins,
Kroll and Co., Inc. v. Cua Hian Tek, (102 Phil. 948,
951-952) decided later than Southwestern Sugar
& Molasses Co. v. Atlantic Gulf & Pacific Co.,
(supra) saw no distinction between Articles 1324
and 1479 of the Civil Code and applied the former
where a unilateral promise to sell similar to the
one sued upon here was involved, treating such

If the option is given without a

consideration, it is a mere
offer of a contract of sale,
which is not binding until
accepted. If, however,
acceptance is made before a
withdrawal, it constitutes a
binding contract of sale, even
though the option was not
supported by a sufficient
consideration . . . (77 Corpus
Juris Secundum p.
652. See also 27 Ruling Case
Law 339 and cases cited.)
This Court affirmed the lower court's decision although the promise to
sell was not supported by a consideration distinct from the price. It was
obvious that Sanchez, the promisee, accepted the option to buy before
Rigos, the promisor, withdrew the same. Under such circumstances,
the option to purchase was converted into a bilateral contract of sale
which bound both parties.
In the instant case and contrary to the appellate court's finding, it is
clear that the right to repurchase was not supported by a consideration
distinct from the price. The rule is that the promisee has the burden of
proving such consideration. Unfortunately, the private respondents,
promisees in the right to repurchase failed to prove such consideration.
They did not even allege the existence thereof in their complaint.
(See Sanchez v. Rigos supra)

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

Neither did petitioner make a judicial consignation

of the repurchase price within the agreed period.
In a contract of sale with a right of repurchase, the
redemptioner who may offer to make the
repurchase on the option date of redemption
should deposit the full amount in court . . .
(Rumbaoa v. Arzaga, 84 Phil. 812 [1949])
To effectively exercise the right to repurchase the
vendor a retro must make an actual and
simultaneous tender of payment or consignation.
(Catangcatang v. Legayada, 84 SCRA 51 [1978])
The private respondents' ineffectual acceptance of the option to buy
validated the petitioner's refusal to sell the parcel which can be
considered as a withdrawal of the option to buy.
We agree with the petitioners that the case of Vda. de Zulueta
v. Octaviano, (supra) is in point.
Stripped of non-essentials the facts of the Zulueta case are as
follows: On November 25, 1952 (Emphasis supplied) Olimpia
Fernandez Vda. de Zulueta, the registered owner of a 5.5 hectare
riceland sold the lot to private respondent Aurelio B. Octaviano for
P8,600.00 subject to certain terms and conditions. The contract was an
absolute and definite sale. On the same day, November 25,
1952, (Emphasis supplied) the vendee, Aurelio signed another
document giving the vendor Zulueta the "option to repurchase" the
property at anytime after May 1958 but not later than May 1960. When
however, Zulueta tried to exercise her "option to buy" the property,
Aurelio resisted the same prompting Zulueta to commence suit for
recovery of ownership and possession of the property with the then
Court of First Instance of Iloilo.
The trial court ruled in favor of Zulueta. Upon appeal, however, the
Court of Appeals reversed the trial court's decision.
We affirmed the appellate court's decision and ruled:
The nature of the transaction between Olimpia and
Aurelio, from the context of Exhibit "E" is not a
sale with right to repurchase. Conventional
redemption takes place "when the vendor reserves
the right to repurchase the thing sold, with the
obligation to comply with the provisions of Article
1616 and other stipulations which may have been
agreed upon. (Article 1601, Civil Code).
In this case, there was no reservation made by the
vendor, Olimpia, in the document Exhibit "E" the
"option to repurchase" was contained in a
subsequent document and was made by the
vendee, Aurelio. Thus, it was more of an option to
buy or a mere promise on the part of the vendee,
Aurelio, to resell the property to the vendor,
Olimpia. (10 Manresa, p. 311 cited in Padilla's Civil
Code Annotated, Vol. V, 1974 ed., p. 467) As held
in Villarica v. Court of Appeals (26 SCRA 189
[1968]):
The right of repurchase is not a right granted the
vendor by the vendee in a subsequent
instrument, but is a right reserved by the vendor in
the same instrument of sale as one of the
stipulations of the contract. Once the instrument of

absolute sale is executed, the vendor can no

longer reserve the right to repurchase, and any
right thereafter granted the vendor by the vendee
in a separate instrument cannot be a right of
repurchase but some other right like the option to
buy in the instant case. . . (Emphasis supplied)
The appellate court rejected the application of the Zulueta case by
stating:

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.

. . . [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:

G.R. No. 183612

March 15, 2010

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, Petitioner,

vs.
GOLDEN HORIZON REALTY CORPORATION, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x

A close examination of Exh. "E" reveals that

although it is a separate document in itself, it is far
different from the document which was
pronounced as an option by the Supreme Court in
the Villarica case. The option in the Villarica case
was executed several days after the execution of
the deed of sale. In the present case, Exh. "E" was
executed and ratified by the same notary public
and the Deed of Sale of Lot No. 1860 by the
plaintiffs to the defendants were notarized by the
same notary public and entered in the same page
of the same notarial register . . .
The latter case (Vda. de Zulueta v.
Octaviano, supra), likewise involved the execution
of the separate document after an intervention of
several days and the question of laches was
decided therein, which is not present in the instant
case. That distinction is therefore crucial and We
are of the opinion that the appellee's right to
repurchase has been adequately provided for and
reserved in conformity with Article 1601 of the Civil
Code, which states:
Conventional redemption shall take place when
the vendor reserves the right to repurchase the
thing sold, with the obligation to comply with the
provision of Article 1616 and other stipulations
which may have been agreed upon. (Rollo, pp. 4647)
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.
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

G.R. No. 184260

NATIONAL DEVELOPMENT COMPANY, Petitioner,
vs.
GOLDEN HORIZON REALTY CORPORATION, Respondent.
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
Decision1 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 Decision2 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 governmentowned 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.
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-3377) 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

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 spentP5 million, it was leased to
various manufacturers, industrialists and other businessmen thereby
generating hundreds of jobs.5

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

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.

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.),15which 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:

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
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-inIntervention.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

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

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, C-12-78 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. Magsaysay22 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 C-12-78 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
inDizon 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
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 subparagraph (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]
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.271avvphi1

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

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

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-to-month
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.

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

Petitioners position is untenable.

August 12, 1988

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

HON. ANTONIO HENSON

General Manager

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

Perusal of the letter dated August 12, 1988, however, belies such claim
of petitioner NDC that it was merely informative, thus:

NATIONAL DEVELOPMENT COMPANY

377 Se(n). Gil J. Puyat Avenue
Makati, Metro Manila
REF: Contract of Lease
Nos. C-33-77 & C-12-78
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

President33
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 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 inPolytechnic 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 A-10-78 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, andneither disputed the P1,500.00
per square meter actual value of NDCs property at that time it was
sold to PUP atP554.74 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-1278 is hereby increased to P1,500.00 per square meter.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY
DEVELOPMENT CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.

VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of
Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345 setting
aside and declaring without force and effect the orders of execution of
the trial court, dated 30 August 1991 and 27 September 1991, in Civil
Case No. 87-41058.
The antecedents are recited in good detail by the appellate court
thusly:
On July 29, 1987 a Second Amended Complaint for Specific
Performance was filed by Ang Yu Asuncion and Keh Tiong, et al.,
against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before
the Regional Trial Court, Branch 31, Manila in Civil Case No. 8741058, 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 P5million; that plaintiffs thereafter asked the defendants to put their
offer in writing to which request defendants acceded; that in reply

to defendant's letter, plaintiffs wrote them on October 24, 1986

asking that they specify the terms and conditions of the offer to
sell; that when plaintiffs did not receive any reply, they sent
another letter dated January 28, 1987 with the same request; that
since defendants failed to specify the terms and conditions of the
offer to sell and because of information received that defendants
were about to sell the property, plaintiffs were compelled to file the
complaint to compel defendants to sell the property to them.
Defendants filed their answer denying the material allegations of
the complaint and interposing a special defense of lack of cause
of action.
After the issues were joined, defendants filed a motion for
summary judgment which was granted by the lower court. The
trial court found that defendants' offer to sell was never accepted
by the plaintiffs for the reason that the parties did not agree upon
the terms and conditions of the proposed sale, hence, there was
no contract of sale at all. Nonetheless, the lower court ruled that
should the defendants subsequently offer their property for sale at
a price of P11-million or below, plaintiffs will have the right of first
refusal. Thus the dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor of the
defendants and against the plaintiffs summarily dismissing the
complaint subject to the aforementioned condition that if the
defendants subsequently decide to offer their property for sale for
a purchase price of Eleven Million Pesos or lower, then the
plaintiffs has the option to purchase the property or of first refusal,
otherwise, defendants need not offer the property to the plaintiffs
if the purchase price is higher than Eleven Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September
21, 1990 (penned by Justice Segundino G. Chua and concurred
in by Justices Vicente V. Mendoza and Fernando A. Santiago),
this Court affirmed with modification the lower court's judgment,
holding:
In resume, there was no meeting of the minds between the
parties concerning the sale of the property. Absent such
requirement, the claim for specific performance will not lie.
Appellants' demand for actual, moral and exemplary damages will
likewise fail as there exists no justifiable ground for its award.
Summary judgment for defendants was properly granted. Courts
may render summary judgment when there is no genuine issue as
to any material fact and the moving party is entitled to a judgment
as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815).
All requisites obtaining, the decision of the court a quo is legally
justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment
appealed from is hereby AFFIRMED, but subject to the following
modification: The court a quo in the aforestated decision gave the
plaintiffs-appellants the right of first refusal only if the property is
sold for a purchase price of Eleven Million pesos or lower;
however, considering the mercurial and uncertain forces in our
market economy today. We find no reason not to grant the same
right of first refusal to herein appellants in the event that the
subject property is sold for a price in excess of Eleven Million
pesos. No pronouncement as to costs.
SO ORDERED.

The decision of this Court was brought to the Supreme Court by

petition for review on certiorari. The Supreme Court denied the
appeal on May 6, 1991 "for insufficiency in form and substances"
(Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was
pending consideration by this Court, the Cu Unjieng spouses
executed a Deed of Sale (Annex D, Petition) transferring the
property in question to herein petitioner Buen Realty and
Development Corporation, subject to the following terms and
conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION
PESOS (P15,000,000.00), receipt of which in full is hereby
acknowledged, the VENDORS hereby sells, transfers and
conveys for and in favor of the VENDEE, his heirs, executors,
administrators or assigns, the above-described property with all
the improvements found therein including all the rights and
interest in the said property free from all liens and encumbrances
of whatever nature, except the pending ejectment proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax,
registration fees for the transfer of title in his favor and other
expenses incidental to the sale of above-described property
including capital gains tax and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the
name of the Cu Unjieng spouses was cancelled and, in lieu
thereof, TCT No. 195816 was issued in the name of petitioner on
December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject
property wrote a letter to the lessees demanding that the latter
vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating
that petitioner brought the property subject to the notice of lis
pendens regarding Civil Case No. 87-41058 annotated on TCT
No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of
the Decision in Civil Case No. 87-41058 as modified by the Court
of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A,
Petition) quoted as follows:
Presented before the Court is a Motion for Execution filed by
plaintiff represented by Atty. Antonio Albano. Both defendants
Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty.
Vicente Sison and Atty. Anacleto Magno respectively were duly
notified in today's consideration of the motion as evidenced by the
rubber stamp and signatures upon the copy of the Motion for
Execution.
The gist of the motion is that the Decision of the Court dated
September 21, 1990 as modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated to the Supreme
Court upon the petition for review and that the same was denied
by the highest tribunal in its resolution dated May 6, 1991 in G.R.
No.
L-97276, had now become final and executory. As a
consequence, there was an Entry of Judgment by the Supreme
Court as of June 6, 1991, stating that the aforesaid modified
decision had already become final and executory.

It is the observation of the Court that this property in dispute was

the subject of theNotice of Lis Pendens and that the modified
decision of this Court promulgated by the Court of Appeals which
had become final to the effect that should the defendants decide
to offer the property for sale for a price of P11 Million or lower, and
considering the mercurial and uncertain forces in our market
economy today, the same right of first refusal to herein
plaintiffs/appellants in the event that the subject property is sold
for a price in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to execute the
necessary Deed of Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs' right
of first refusal and that a new Transfer Certificate of Title be
issued in favor of the buyer.
All previous transactions involving the same property
notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in bad
faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order,
the dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution issue in the aboveentitled case directing the Deputy Sheriff Ramon Enriquez of this
Court to implement said Writ of Execution ordering the defendants
among others to comply with the aforesaid Order of this Court
within a period of one (1) week from receipt of this Order and for
defendants to execute the necessary Deed of Sale of the property
in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong
and Arthur Go for the consideration of P15,000,000.00 and
ordering the Register of Deeds of the City of Manila, to cancel and
set aside the title already issued in favor of Buen Realty
Corporation which was previously executed between the latter
and defendants and to register the new title in favor of the
aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of
execution (Annex C, Petition) was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private
respondent, set aside and declared without force and effect the above
questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen
Realty can be held bound by the writ of execution by virtue of the
notice of lis pendens, carried over on TCT No. 195816 issued in the
name of Buen Realty, at the time of the latter's purchase of the
property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption
of such arrangements as the right of first refusal, a purchase option
and a contract to sell. For ready reference, we might point out some
fundamental precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art.
1156, Civil Code). The obligation is constituted upon the concurrence

of the essential elements thereof, viz: (a) The vinculum juris or juridical
tie which is the efficient cause established by the various sources of
obligations (law, contracts, quasi-contracts, delicts and quasi-delicts);
(b) the object which is the prestation or conduct; required to be
observed (to give, to do or not to do); and (c) the subject-persons who,
viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects.

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. . . .

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
ofconsummation begins when the parties perform their respective
undertakings under the contract culminating in the extinguishment
thereof.
Until the contract is perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation. In sales, particularly, to
which the topic for discussion about the case at bench belongs, the
contract is perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer ownership of a
thing or right to another, called the buyer, over which the latter agrees.
Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to
Sell" where invariably the ownership of the thing sold is retained until
the fulfillment of a positive suspensive condition (normally, the full
payment of the purchase price), the breach of the condition will prevent
the obligation to convey title from acquiring an obligatory
force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said
that, although denominated a "Deed of Conditional Sale," a sale is still
absolute where the contract is devoid of any proviso that title is
reserved or the right to unilaterally rescind is stipulated, e.g., until or
unless the price is paid. Ownership will then be transferred to the buyer
upon actual or constructive delivery (e.g., by the execution of a public
document) of the property sold. Where the condition is imposed upon
the perfection of the contract itself, the failure of the condition would
prevent such perfection. 3 If the condition is imposed on the obligation
of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object
is made determinate and the price is fixed, can be obligatory on the
parties, and compliance therewith may accordingly be exacted. 5

An accepted unilateral promise to buy or to sell a

determinate thing for a price certain is binding
upon the promissor if the promise is supported by
a consideration distinct from the price. (1451a) 6
Observe, however, that the option is not the contract of sale itself. 7 The
optionee has the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of the
option, a bilateral promise to sell and to buy ensues and both parties
are then reciprocally bound to comply with their respective
undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An
imperfect promise (policitacion) is merely an offer. Public
advertisements or solicitations and the like are ordinarily construed as
mere invitations to make offers or only as proposals. These relations,
until a contract is perfected, are not considered binding commitments.
Thus, at any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. The offer, at this stage, may
be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the
offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270).
Where a period is given to the offeree within which to accept the offer,
the following rules generally govern:
(1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to withdraw the
offer before its acceptance, or, if an acceptance has been made,
before the offeror's coming to know of such fact, by communicating
that withdrawal to the offeree (see Art. 1324, Civil Code; see also
Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is
applicable to a unilateral promise to sell under Art. 1479, modifying the
previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil.
249; see also Art. 1319, Civil Code; Rural Bank of Paraaque, Inc., vs.
Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The
right to withdraw, however, must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage claim under Article
19 of the Civil Code which ordains that "every person must, in the
exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" 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 optioneeofferee, 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.
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. CV21123. The Court of Appeals, in this regard, has observed:
Finally, the questioned writ of execution is in
variance with the decision of the trial court as
modified by this Court. As already stated, there
was nothing in said decision 13 that decreed the
execution of a deed of sale between the Cu
Unjiengs and respondent lessees, or the fixing of
the price of the sale, or the cancellation of title in
the name of petitioner (Limpin vs. IAC, 147 SCRA
516; Pamantasan ng Lungsod ng Maynila vs. IAC,
143 SCRA 311; De Guzman vs. CA, 137 SCRA
730; Pastor vs. CA, 122 SCRA 885).

It is likewise quite obvious to us that the decision in Civil Case No. 8741058 could not have decreed at the time the execution of any deed of
sale between the Cu Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting
aside the questioned Orders, dated 30 August 1991 and 27 September
1991, of the court a quo. Costs against petitioners.
SO ORDERED.
G.R. No. 111538 February 26, 1997
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.

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.
Facts of the Case
On March 19, 1991, herein petitioner filed before the Regional Trial
Court of Makati a complaint, 5 which is reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and
existing under and by virtue of the laws of the
Philippines, with principal place of business of (sic)
Dr. A. Santos Avenue, 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 S19648. 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;"
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-infact of defendant Santos, Xerox copy of the letter
is hereto attached as Annex "N".

9. Upon learning of this fact plaintiff's

representative wrote a letter to defendant Santos,
requesting her to rectify the error and
consequently realizing the error, she had it
reconveyed to her for the same consideration of
FIVE MILLION (P5,000,000.00) PESOS. Xerox
copies of the letter and the deed of reconveyance
are hereto attached as Annexes "O" and "P".
10. Subsequently the property was offered for sale
to plaintiff by the defendant for the sum of
FIFTEEN MILLION (P15,000,000.00) PESOS.
Plaintiff was given ten (10) days to make good of
the offer, but therefore (sic) the said period expired
another letter came from the counsel of defendant
Santos, containing the same tenor of (sic) the
former letter. Xerox copies of the letters are hereto
attached as Annexes "Q" and "R".
11. On May 8, 1989, before the period given in the
letter offering the properties for sale expired,
plaintiff's counsel wrote counsel of defendant
Santos offering to buy the properties for FIVE
MILLION (P5,000,000.00) PESOS. Xerox copy of
the letter is hereto attached as Annex "S".
12. On May 15, 1989, before they replied to the
offer to purchase, another deed of sale was
executed by defendant Santos (in favor of)
defendant Raymundo for a consideration of NINE
MILLION (P9,000,000.00) PESOS. Xerox copy of
the second deed of sale is hereto attached as
Annex "T".
13. Defendant Santos violated again paragraph 9
of the contract of lease by executing a second
deed of sale to defendant Raymundo.
14. It was only on May 17, 1989, that defendant
Santos replied to the letter of the plaintiff's offer to
buy or two days after she sold her properties. In
her reply she stated among others that the period
has lapsed and the plaintiff is not a privy (sic) to
the contract. Xerox copy of the letter is hereto
attached as Annex "U".
15. On June 28, 1989, counsel for plaintiff
informed counsel of defendant Santos of the fact
that plaintiff is the assignee of all rights and
interest of the former lessor. Xerox copy of the
letter is hereto attached as Annex "V".
16. On July 6, 1989, counsel for defendant Santos
informed the plaintiff that the new owner is
defendant Raymundo. Xerox copy of the letter is
hereto attached as Annex "W".
17. From the preceding facts it is clear that the
sale was simulated and that there was a collusion
between the defendants in the sales of the leased
properties, on the ground that when plaintiff wrote
a letter to defendant Santos to rectify the error,
she immediately have (sic) the property
reconveyed it (sic) to her in a matter of twelve (12)
days.

18. Defendants have the same counsel who

represented both of them in their exchange of
communication with plaintiff's counsel, a fact that
led to the conclusion that a collusion exist (sic)
between the defendants.

PRAYER

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-inlaw 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.

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;

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.

c. Defendants pay the sum of P5,000,000.00 as

moral damages;

21. Plaintiff has made considerable investments in

the said leased property by erecting a two (2)
storey, six (6) doors commercial building
amounting to THREE MILLION (P3,000,000.00)
PESOS. This considerable improvement was
made on the belief that eventually the said
premises shall be sold to the plaintiff.
22. As a consequence of this unlawful act of the
defendants, plaintiff will incurr (sic) total loss of
THREE MILLION (P3,000,000.00) PESOS as the
actual cost of the building and as such defendants
should be charged of the same amount for actual
damages.
23. As a consequence of the collusion, evil design
and illegal acts of the defendants, plaintiff in the
process suffered mental anguish, sleepless nights,
bismirched (sic) reputation which entitles plaintiff
to moral damages in the amount of FIVE MILLION
(P5,000,000.00) PESOS.
24. The defendants acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner and as
a deterrent to the commission of similar acts, they
should be made to answer for exemplary
damages, the amount left to the discretion of the
Court.
25. Plaintiff demanded from the defendants to
rectify their unlawful acts that they committed, but
defendants refused and failed to comply with
plaintiffs just and valid and (sic) demands. Xerox
copies of the demand letters are hereto attached
as Annexes "KK" to "LL", respectively.
26. Despite repeated demands, defendants failed
and refused without justifiable cause to satisfy
plaintiff's claim, and was constrained to engaged
(sic) the services of undersigned counsel to
institute this action at a contract fee of
P200,000.00, as and for attorney's fees, exclusive
of cost and expenses of litigation.

WHEREFORE, it is respectfully prayed, that

judgment be rendered in favor of the plaintiff and
against defendants and ordering that:

b. Dependants (sic) pay plaintiff the sum of

P3,000,000.00 as actual damages;

d. Defendants pay exemplary damages left to the

discretion of the Court;
e. Defendants pay the sum of not less than
P200,000.00 as attorney's fees.
Plaintiff further prays for other just and equitable
reliefs plus cost of suit.
Instead of filing their respective answers, respondents filed motions to
dismiss anchored on the grounds of lack of cause of action, estoppel
and laches.
On September 2, 1991, the trial court issued the order dismissing the
complaint for lack of a valid cause of action. It ratiocinated thus:
Upon the very face of the plaintiff's Complaint
itself, it therefore indubitably appears that the
defendant Santos had verily complied with
paragraph 9 of the Lease Agreement by twice
offering the properties for sale to the plaintiff for ~1
5 M. The said offers, however, were plainly
rejected by the plaintiff which scorned the said
offer as "RIDICULOUS". There was therefore a
definite refusal on the part of the plaintiff to accept
the offer of defendant Santos. For in acquiring the
said properties back to her name, and in so
making the offers to sell both by herself (attorneyin-fact) and through her counsel, defendant
Santos was indeed conscientiously complying with
her obligation under paragraph 9 of the Lease
Agreement. . . . .
xxx xxx xxx
This is indeed one instance where a Complaint,
after barely commencing to create a cause of
action, neutralized itself by its subsequent
averments which erased or extinguished its earlier
allegations of an impending wrong. Consequently,
absent any actionable wrong in the very face of
the Complaint itself, the plaintiffs subsequent
protestations of collusion is bereft or devoid of any
meaning or purpose. . . . .
The inescapable result of the foregoing
considerations point to no other conclusion than
that the Complaint actually does not contain any

valid cause of action and should therefore be as it

is hereby ordered DISMISSED. The Court finds no
further need to consider the other grounds of
estoppel and laches inasmuch as this resolution is
sufficient to dispose the matter. 6
Petitioners appealed to the Court of Appeals which affirmed in toto the
ruling of the trial court, and further reasoned that:
. . . . Appellant's protestations that the P15 million
price quoted by appellee Santos was reduced to
P9 million when she later resold the leased
properties to Raymundo has no valid legal
moorings because appellant, as a prospective
buyer, cannot dictate its own price and forcibly ram
it against appellee Santos, as owner, to buy off her
leased properties considering the total absence of
any stipulation or agreement as to the price or as
to how the price should be computed under
paragraph 9 of the lease contract, . . . . 7
Petitioner moved for reconsideration but was denied in an order dated
August 20, 1993. 8
Hence this petition. Subsequently, petitioner filed an "Urgent Motion for
the Issuance of Restraining Order and/or Writ of Preliminary Injunction
and to Hold Respondent David A. Raymundo in Contempt of
Court." 9 The motion sought to enjoin respondent Raymundo and his
counsel from pursuing the ejectment complaint filed before the
barangay captain of San Isidro, 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.
Issue
The principal legal issue presented before us for resolution is whether
the aforequoted complaint alleging breach of the contractual right of
"first option or priority to buy" states a valid cause of action.
Petitioner contends that the trial court as well as the appellate tribunal
erred in dismissing the complaint because it in fact had not just one but
at least three (3) valid causes of action, to wit: (1) breach of contract,
(2) its right of first refusal founded in law, and (3) damages.
Respondents Santos and Raymundo, in their separate comments, aver
that the petition should be denied for not raising a question of law as
the issue involved is purely factual whether respondent Santos
complied with paragraph 9 of the lease agreement and for not
having complied with Section 2, Rule 45 of the Rules of Court,
requiring the filing of twelve (12) copies of the petitioner's brief. Both
maintain that the complaint filed by petitioner before the Regional Trial
Court of Makati stated no valid cause of action and that petitioner failed
to substantiate its claim that the lower courts decided the same "in a
way not in accord with law and applicable decisions of the Supreme
Court"; or that the Court of Appeals has "sanctioned departure by a
trial court from the accepted and usual course of judicial proceedings"
so as to merit the exercise by this Court of the power of review under
Rule 45 of the Rules of Court. Furthermore, they reiterate estoppel and
laches as grounds for dismissal, claiming that petitioner's payment of
rentals of the leased property to respondent Raymundo from June 15,
1989, to June 30, 1990, was an acknowledgment of the latter's status

as new owner-lessor of said property, by virtue of which petitioner is

deemed to have waived or abandoned its first option to purchase.
Private respondents likewise contend that the deed of assignment of
the lease agreement did not include the assignment of the option to
purchase. Respondent Raymundo further avers that he was not privy
to the contract of lease, being neither the lessor nor lessee adverted to
therein, hence he could not be held liable for violation thereof.
The Court's Ruling
Preliminary Issue: Failure to File
Sufficient Copies of Brief
We first dispose of the procedural issue raised by respondents,
particularly petitioner's failure to file twelve (12) copies of its brief. We
have ruled that when non-compliance with the Rules was not intended
for delay or did not result in prejudice to the adverse party, dismissal of
appeal on mere technicalities in cases where appeal is a matter of
right may be stayed, in the exercise of the court's equity
jurisdiction. 10 It does not appear that respondents were unduly
prejudiced by petitioner's nonfeasance. Neither has it been shown that
such failure was intentional.
Main Issue: Validity of Cause of Action
We do not agree with respondents' contention that the issue involved
is purely factual. The principal legal question, as stated earlier, is
whether the complaint filed by herein petitioner in the lower court
states a valid cause of action. Since such question assumes the facts
alleged in the complaint as true, it follows that the determination
thereof is one of law, and not of facts. There is a question of law in a
given case when the doubt or difference arises as to what the law is on
a certain state of facts, and there is a question of fact when the doubt
or difference arises as to the truth or the falsehood of alleged facts. 11
At the outset, petitioner concedes that when the ground for a motion to
dismiss is lack of cause of action, such ground must appear on the
face of the complaint; that to determine the sufficiency of a cause of
action, only the facts alleged in the complaint and no others should be
considered; and that the test of sufficiency of the facts alleged in a
petition or complaint to constitute a cause of action is whether,
admitting the facts alleged, the court could render a valid judgment
upon the same in accordance with the prayer of the petition or
complaint.
A cause of action exists if the following elements are present: (1) a
right in favor of the plaintiff by whatever means and under whatever
law it arises or is created; (2) an obligation on the part of the named
defendant to respect or not to violate such right, and (3) an act or
omission on the part of such defendant violative of the right of plaintiff
or constituting a breach of the obligation of defendant to the plaintiff for
which the latter may maintain an action for recovery of damages. 12
In determining whether allegations of a complaint are sufficient to
support a cause of action, it must be borne in mind that the complaint
does not have to establish or allege facts proving the existence of a
cause of action at the outset; this will have to be done at the trial on the
merits of the case. To sustain a motion to dismiss for lack of cause of
action, the complaint must show that the claim for relief does not exist,
rather than that a claim has been defectively stated, or is ambiguous,
indefinite or uncertain. 13
Equally important, a defendant moving to dismiss a complaint on the
ground of lack of cause of action is regarded as having hypothetically
admitted all the averments thereof. 14

A careful examination of the complaint reveals that it sufficiently

alleges an actionable contractual breach on the part of private
respondents. Under paragraph 9 of the contract of lease between
respondent Santos and petitioner, the latter was granted the "first
option or priority" to purchase the leased properties in case Santos
decided to sell. If Santos never decided to sell at all, there can never
be a breach, much less an enforcement of such "right." But on
September 21, 1988, Santos sold said properties to Respondent
Raymundo without first offering these to petitioner. Santos indeed
realized her error, since she repurchased the properties after petitioner
complained. Thereafter, she offered to sell the properties to petitioner
for P15 million, which petitioner, however, rejected because of the
"ridiculous" price. But Santos again appeared to have violated the
same provision of the lease contract when she finally resold the
properties to respondent Raymundo for only P9 million without first
offering them to petitioner at such price. Whether there was actual
breach which entitled petitioner to damages and/or other just or
equitable relief, is a question which can better be resolved after trial on
the merits where each party can present evidence to prove their
respective allegations and defenses. 15
The trial and appellate courts based their decision to sustain
respondents' motion to dismiss on the allegations of 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 600,000.00 to be fully paid in cash, less a mortgage
lien of P100,000.00. On the other hand, the selling price offered by
Reynoso to and accepted by Guzman was only P400,000.00 of which
P137,500.00 was to be paid in cash while the balance was to be paid
only when the property was cleared of occupants. We held that even if
the Bonnevies could not buy it at the price quoted (P600,000.00),
nonetheless, Reynoso could not sell it to another for a lower price and
under more favorable terms and conditions without first offering said
favorable terms and price to the Bonnevies as well. Only if the
Bonnevies failed to exercise their right of first priority could Reynoso
thereafter lawfully sell the subject property to others, and only under
the same terms and conditions previously offered to the Bonnevies.
Of course, under their contract, they specifically stipulated that the
Bonnevies could exercise the right of first priority, "all things and
conditions being equal." This Court interpreted this proviso to mean
that there should be identity of terms and conditions to be offered to
the Bonnevies and all other prospective buyers, with the Bonnevies to
enjoy the right of first priority. We hold that the same rule applies even
without the same proviso if the right of first refusal (or the first option to
buy) is not to be rendered illusory.
From the foregoing, the basis of the right of first refusal* must be
the current offer to sell of the seller or offer to purchase of any
prospective buyer. Only after the optionee fails to exercise its right of
first priority under the same terms and within the period contemplated,

could the owner validly offer to sell the property to a third person,
again, under the same terms as offered to the optionee.
This principle was reiterated in the very recent case of Equatorial
Realty vs. Mayfair Theater, Inc. 17 which was decided en banc. This
Court upheld the right of first refusal of the lessee Mayfair, and
rescinded the sale of the property by the lessor Carmelo to Equatorial
Realty "considering that Mayfair, which had substantial interest over
the subject property, was prejudiced by its sale to Equatorial without
Carmelo conferring to Mayfair every opportunity to negotiate within the
30-day stipulated period" (emphasis supplied).
In that case, two contracts of lease between Carmelo and Mayfair
provided "that if the LESSOR should desire to sell the leased
premises, the LESSEE shall be given 30 days exclusive option to
purchase the same." Carmelo initially offered to sell the leased
property to Mayfair for six to seven million pesos. Mayfair indicated
interest in purchasing the property though it invoked the 30-day period.
Nothing was heard thereafter from Carmelo. Four years later, the latter
sold its entire Recto Avenue property, including the leased premises, to
Equatorial for P11,300,000.00 without priorly informing Mayfair. The
Court held that both Carmelo and Equatorial acted in bad faith:
Carmelo for knowingly violating the right of first option of Mayfair, and
Equatorial for purchasing the property despite being aware of the
contract stipulation. In addition to rescission of the contract of sale, the
Court ordered Carmelo to allow Mayfair to buy the subject property at
the same price of P11,300,000.00.
No cause of action
under P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or the Urban
Land Reform Law, as another source of its right of first refusal. It
claims to be covered under said law, being the "rightful occupant of the
land and its structures" since it is the lawful lessee thereof by reason of
contract. Under the lease contract, petitioner would have occupied the
property for fourteen (14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a beneficiary under
said law, suffice it to say that this Court has previously ruled that under
Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the
exercise of the lessee's right of first refusal to purchase shall be
determined by the Urban Zone Expropriation and Land Management
Committee. Hence, . . . . certain prerequisites must be complied with
by anyone who wishes to avail himself of the benefits of the
decree." 19 There being no allegation in its complaint that the
prerequisites were complied with, it is clear that the complaint did fail to
state a cause of action on this ground.
Deed of Assignment included
the option to purchase
Neither do we find merit in the contention of respondent Santos that
the assignment of the lease contract to petitioner did not include the
option to purchase. The provisions of the deeds of assignment with
regard to matters assigned were very clear. Under the first assignment
between Frederick Chua as assignor and Lee Ching Bing as assignee,
it was expressly stated that:
. . . . the ASSIGNOR hereby CEDES,
TRANSFERS and ASSIGNS to herein ASSIGNEE,
all his rights, interest and participation over said
premises afore-described, . . . . 20 (emphasis
supplied)

And under the subsequent assignment executed between Lee Ching

Bing as assignor and the petitioner, represented by its Vice President
Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated
that;
. . . . the ASSIGNOR hereby sells, transfers and
assigns all his rights, interest and participation
over said leased premises, . . . . 21 (emphasis
supplied)
One of such rights included in the contract of lease and, therefore, in
the assignments of rights was the lessee's right of first option or priority
to buy the properties subject of the lease, as provided in paragraph 9
of the assigned lease contract. The deed of assignment need not be
very specific as to which rights and obligations were passed on to the
assignee. It is understood in the general provision aforequoted that all
specific rights and obligationscontained in the contract of lease are
those referred to as being assigned. Needless to state, respondent
Santos gave her unqualified conformity to both assignments of rights.
Respondent Raymundo privy
to the Contract of Lease
With respect to the contention of respondent Raymundo that he is not
privy to the lease contract, not being the lessor nor the lessee referred
to therein, he could thus not have violated its provisions, but he is
nevertheless a proper party. Clearly, he stepped into the shoes of the
owner-lessor of the land as, by virtue of his purchase, he assumed all
the obligations of the lessor under the lease contract. Moreover, he
received benefits in the form of rental payments. Furthermore, the
complaint, as well as the petition, prayed for the annulment of the sale
of the properties to him. Both pleadings also alleged collusion between
him and respondent Santos which defeated the exercise by petitioner
of its right of first refusal.
In order then to accord complete relief to petitioner, respondent
Raymundo was a necessary, if not indispensable, party to the
case. 22 A favorable judgment for the petitioner will necessarily affect
the rights of respondent Raymundo as the buyer of the property over
which petitioner would like to assert its right of first option to buy.
Having come to the conclusion that the complaint states a valid cause
of action for breach of the right of first refusal and that the trial court
should thus not have dismissed the complaint, we find no more need to
pass upon the question of whether the complaint states a cause of
action for damages or whether the complaint is barred by estoppel or
laches. As these matters require presentation and/or determination of
facts, they can be best resolved after trial on the merits.
While the lower courts erred in dismissing the complaint, private
respondents, however, cannot be denied their day in court. While, in
the resolution of a motion to dismiss, the truth of the facts alleged in
the complaint are theoretically admitted, such admission is merely
hypothetical and only for the purpose of resolving the motion. In case
of denial, the movant is not to be deprived of the right to submit its own
case and to submit evidence to rebut the allegations in the complaint.
Neither will the grant of the motion by a trial court and the ultimate
reversal thereof by an appellate court have the effect of stifling such
right. 23 So too, the trial court should be given the opportunity to
evaluate the evidence, apply the law and decree the proper remedy.
Hence, we remand the instant case to the trial court to allow private
respondents to have their day in court.
WHEREFORE, the petition is GRANTED. The assailed decisions of
the trial court and Court of Appeals are hereby REVERSED and SET
ASIDE. The case is REMANDED to the Regional Trial Court of Makati
for further proceedings.

SO ORDERED.
G.R. No. 140479 March 8, 2001
ROSENCOR DEVELOPMENT CORPORATION and RENE
JOAQUIN, petitioners,
vs.
PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN,
FERNANDO MAGBANUA and LIZZA TIANGCO, respondents.
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court seeking reversal of the Decision1 of the Court of Appeals dated
June 25, 1999 in CA-G.R. CV No. 53963. The Court of Appeals
decision reversed and set aside the Decision2 dated May 13, 1996 of
Branch 217 of the Regional Trial Court of Quezon City in Civil Case
No. Q-93-18582.1wphi1.nt
The case was originally filed on December 10, 1993 by Paterno
Inquing, Irene Guillermo and Federico Bantugan, herein respondents,
against Rosencor Development Corporation (hereinafter "Rosencor"),
Rene Joaquin, and Eufrocina de Leon. Originally, the complaint was
one for annulment of absolute deed of sale but was later amended to
one for rescission of absolute deed of sale. A complaint-for intervention
was thereafter filed by respondents Fernando Magbanua and Danna
Lizza Tiangco. The complaint-in-intervention was admitted by the trial
court in an Order dated May 4, 1994.3
The facts of the case, as stated by the trial court and adopted by the
appellate court, are as follows:
"This action was originally for the annulment of the Deed of
Absolute Sale dated September 4, 1990 between
defendants Rosencor and Eufrocina de Leon but later
amended (sic) praying for the rescission of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the
lessees since 1971 of a two-story residential apartment
located at No. 150 Tomas Morato Ave., Quezon City covered
by TCT No. 96161 and owned by spouses Faustino and
Cresencia Tiangco. The lease was not covered by any
contract. The lessees were renting the premises then for
P150.00 a month and were allegedly verbally granted by the
lessors the pre-emptive right to purchase the property if ever
they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the
management of the property was adjudicated to their heirs
who were represented by Eufrocina de Leon. The lessees
were allegedly promised the same pre-emptive right by the
heirs of Tiangcos since the latter had knowledge that this
right was extended to the former by the late spouses
Tiangcos. The lessees continued to stay in the premises and
allegedly spent their own money amounting from P50,000.00
to P100,000.00 for its upkeep. These expenses were never
deducted from the rentals which already increased to
P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda
Aguila demanding that they vacate the premises so that the
demolition of the building be undertaken. They refused to
leave the premises. In that same month, de Leon refused to
accept the lessees rental payment claiming that they have
run out of receipts and that a new collector has been
assigned to receive the payments. Thereafter, they received

a letter from Eufrocina de Leon offering to sell to them the

property they were leasing for P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for the
amount of P1,000,000.00. De Leon told them that she will be
submitting the offer to the other heirs. Since then, no answer
was given by de Leon as to their offer to buy the property.
However, in November 1990, Rene Joaquin came to the
leased premises introducing himself as its new owner.
In January 1991, the lessees again received another letter
from Atty. Aguila demanding that they vacate the premises. A
month thereafter, the lessees received a letter from de Leon
advising them that the heirs of the late spouses Tiangcos
have already sold the property to Rosencor. The following
month Atty. Aguila wrote them another letter demanding the
rental payment and introducing herself as counsel for
Rosencor/Rene Joaquin, the new owners of the premises.
The lessees requested from de Leon why she had
disregarded the pre-emptive right she and the late Tiangcos
have promised them. They also asked for a copy of the deed
of sale between her and the new owners thereof but she
refused to heed their request. In the same manner, when
they asked Rene Joaquin a copy of the deed of sale, the
latter turned down their request and instead Atty. Aguila
wrote them several letters demanding that they vacate the
premises. The lessees offered to tender their rental payment
to de Leon but she refused to accept the same.
In April 1992 before the demolition can be undertaken by the
Building Official, the barangay interceded between the
parties herein after which Rosencor raised the issue as to
the rental payment of the premises. It was also at this
instance that the lessees were furnished with a copy of the
Deed of Sale and discovered that they were deceived by de
Leon since the sale between her and Rene
Joaquin/Rosencor took place in September 4, 1990 while de
Leon made the offer to them only in October 1990 or after
the sale with Rosencor had been consummated. The
lessees also noted that the property was sold only for
P726,000.00.
The lessees offered to reimburse de Leon the selling price of
P726,000.00 plus an additional P274,000.00 to complete
their P1,000.000.00 earlier offer. When their offer was
refused, they filed the present action praying for the
following: a) rescission of the Deed of Absolute Sale
between de Leon and Rosencor dated September 4, 1990;
b) the defendants Rosencor/Rene Joaquin be ordered to
reconvey the property to de Leon; and c) de Leon be
ordered to reimburse the plaintiffs for the repairs of the
property, or apply the said amount as part of the price for the
purchase of the property in the sum of P100,000.00."4
After trial on the merits, the Regional Trial Court rendered a
Decision5 dated May 13, 1996 dismissing the complaint. The trial court
held that the right of redemption on which the complaint. The trial court
held that the right of redemption on which the complaint was based
was merely an oral one and as such, is unenforceable under the law.
The dispositive portion of the May 13, 1996 Decision is as follows:
"WHEREFORE, in view of the foregoing, the Court
DISMISSES the instant action. Plaintiffs and plaintiffsintervenors are hereby ordered to pay their respective
monthly rental of P1,000.00 per month reckoned from May
1990 up to the time they leave the premises. No costs.

SO ORDERED."6
Not satisfied with the decision of the trial court, respondents herein
filed a Notice of Appeal dated June 3, 1996. On the same date, the trial
court issued an Order for the elevation of the records of the case to the
Court of Appeals. On August 8, 1997, respondents filed their appellate
brief before the Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its
decision7 reversing the decision of the trial court. The dispositive
portion of the June 25, 1999 decision is as follows:
"WHEREFORE, premises considered, the appealed decision
(dated May 13, 1996) of the Regional Trial Court (Branch
217) in Quezon City in Case No. Q-93-18582 is hereby
REVERSED and SET ASIDE. In its stead, a new one is
rendered ordering:
(1) The rescission of the Deed of Absolute Sale
executed between the appellees on September 4,
1990;
(2) The reconveyance of the subject premises to
appellee Eufrocina de Leon;
(3) The heirs of Faustino and Crescencia Tiangco,
thru appellee Eufrocina de Leon, to afford the
appellants thirty days within which to exercise their
right of first refusal by paying the amount of ONE
MILLION PESOS (P1,000,000.00) for the subject
property; and
(4) The appellants to, in turn, pay the appellees
back rentals from May 1990 up to the time this
decision is promulgated.
No pronouncement as to costs.
SO ORDERED".8
Petitioners herein filed a Motion for Reconsideration of the decision of
the Court of Appeals but the same was denied in a Resolution dated
October 15, 1999.9
Hence, this petition for review on certiorari where petitioners Rosencor
Development Corporation and Rene Joaquin raise the following
assignment of errors10:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT
ORDERED THE RESCISSION OF THE ABSOLUTE DEED
OF SALE BETWEEN EUFROCINA DE LEON AND
PETITIONER ROSENCOR.
II.
THE COURT OF APPEALS COMMTITED MANIFEST
ERROR IN MANDATING THAT EUFROCINA DE LEON
AFFORD RESPONDENTS THE OPPORTUNITY TO
EXERCISE THEIR RIGHT OF FIRST REFUSAL.
III.

THE COURT OF APPEALS GRIEVOUSLY ERRED IN

CONCLUDING THAT RESPONDENTS HAVE
ESTABLISHED THEIR RIGHT OF FIRST REFUSAL
DESPITE PETITIONERS RELIANCE ON THEIR DEFENSE
BASED ON THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the spouses
Faustino and Crescencia Tiangco, did not appeal the decision of the
Court of Appeals.
At the onset, we not that both the Court of Appeals and the Regional
Trial Court relied on Article 1403 of the New Civil Code, more
specifically the provisions on the statute of frauds, in coming out with
their respective decisions. The trial court, in denying the petition for
reconveyance, held that right of first refusal relied upon by petitioners
was not reduced to writing and as such, is unenforceable by virtue of
the said article. The Court of Appeals, on the other hand, also held that
the statute of frauds governs the "right of first refusal" claimed by
respondents. However, the appellate court ruled that respondents had
duly proven the same by reason of petitioners waiver of the protection
of the statute by reason of their failure to object to the presentation of
oral evidence of the said right.
Both the appellate court and the trial court failed to discuss, however,
the threshold issue of whether or not a right of first refusal is indeed
covered by the provisions of the New Civil Code on the statute of
frauds. The resolution of the issue on the applicability of the statute of
frauds is important as it will determine the type of evidence which may
be considered by the trial court as proof of the alleged right of first
refusal.
The term "statute of frauds" is descriptive of statutes which require
certain classes of contracts to be in writing. This statute does not
deprive the parties of the right to contract with respect to the matters
therein involved, but merely regulates the formalities of the contract
necessary to render it enforceable. Thus, they are included in the
provisions of the New Civil Code regarding unenforceable contracts,
more particularly Art. 1403, paragraph 2. Said article provides, as
follows:
"Art. 1403. The following contracts are unenforceable, unless
they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as
set forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing,
and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received
without the writing, or a secondary evidence of its contents:
a) An agreement that by its terms is not to be
performed within a year from the making thereof;
b) A special promise to answer for the debt,
default, or miscarriage of another;
c) An agreement made in consideration of
marriage, other than a mutual promise to marry;
d) An agreement for the sale of goods, chattels or
things in action, at a price not less than five
hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the

evidences, or some of them, of such things in

action, or pay at the time some part of the
purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount
and kind of property sold, terms of sale, price,
names of purchasers and person on whose
account the sale is made, it is a sufficient
memorandum;
e) An agreement for the leasing of a longer period
than one year, or for the sale of real property or of
an interest therein;
f) A representation to the credit of a third person."
The purpose of the statute is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence on the
unassisted memory of witnesses by requiring certain enumerated
contracts and transactions to be evidenced by a writing signed by the
party to be charged.11 Moreover, the statute of frauds refers to specific
kinds of transactions and cannot apply to any other transaction that is
not enumerated therein.12 The application of such statute presupposes
the existence of a perfected contract.13
The question now is whether a "right of first refusal" is among those
enumerated in the list of contracts covered by the Statute of Frauds.
More specifically, is a right of first refusal akin to "an agreement for the
leasing of a longer period than one year, or for the sale of real property
or of an interest therein" as contemplated by Article 1403, par. 2(e) of
the New Civil Code.
We have previously held that not all agreements "affecting land" must
be put into writing to attain enforceability.14Thus, we have held that the
setting up of boundaries,15 the oral partition of real property16, and an
agreement creating a right of way17 are not covered by the provisions of
the statute of frauds. The reason simply is that these agreements are
not among those enumerated in Article 1403 of the New Civil Code.
A right of first refusal is not among those listed as unenforceable under
the statute of frauds. Furthermore, the application of Article 1403, par.
2(e) of the New Civil Code presupposes the existence of a perfected,
albeit unwritten, contract of sale.18 A right of first refusal, such as the
one involved in the instant case, is not by any means a perfected
contract of sale of real property. At best, it is a contractual grant, not of
the sale of the real property involved, but of the right of first refusal
over the property sought to be sold19.
It is thus evident that the statute of frauds does not contemplate cases
involving a right of first refusal. As such, a right of first refusal need not
be written to be enforceable and may be proven by oral evidence.
The next question to be ascertained is whether or not respondents
have satisfactorily proven their right of first refusal over the property
subject of the Deed of Absolute Sale dated September 4, 1990
between petitioner Rosencor and Eufrocina de Leon.
On this point, we agree with the factual findings of the Court of Appeals
that respondents have adequately proven the existence of their right of
first refusal. Federico Bantugan, Irene Guillermo, and Paterno Inquing
uniformly testified that they were promised by the late spouses
Faustino and Crescencia Tiangco and, later on, by their heirs a right of
first refusal over the property they were currently leasing should they
decide to sell the same. Moreover, respondents presented a letter20
dated October 9, 1990 where Eufrocina de Leon, the representative of
the heirs of the spouses Tiangco, informed them that they had received

an offer to buy the disputed property for P2,000,000.00 and offered to

sell the same to the respondents at the same price if they were
interested. Verily, if Eufrocina de Leon did not recognize respondents
right of first refusal over the property they were leasing, then she would
not have bothered to offer the property for sale to the respondents.
It must be noted that petitioners did not present evidence before the
trial court contradicting the existence of the right of first refusal of
respondents over the disputed property. They only presented petitioner
Rene Joaquin, the vice-president of petitioner Rosencor, who admitted
having no personal knowledge of the details of the sales transaction
between Rosencor and the heirs of the spouses Tiangco21. They also
dispensed with the testimony of Eufrocina de Leon22 who could have
denied the existence or knowledge of the right of first refusal. As such,
there being no evidence to the contrary, the right of first refusal claimed
by respondents was substantially proven by respondents before the
lower court.
Having ruled upon the question as to the existence of respondents
right of first refusal, the next issue to be answered is whether or not the
Court of Appeals erred in ordering the rescission of the Deed of
Absolute Sale dated September 4, 1990 between Rosencor and
Eufrocina de Leon and in decreeing that the heirs of the spouses
Tiangco should afford respondents the exercise of their right of first
refusal. In other words, may a contract of sale entered into in violation
of a third 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. Bonnevie23, the Court upheld the
decision of a lower court ordering the rescission of a deed of sale
which violated a right of first refusal granted to one of the parties
therein. The Court held:
"xxx Contract of Sale was not voidable but rescissible. Under
Article 1380 to 1381 (3) of the Civil Code, a contract
otherwise valid may nonetheless be subsequently rescinded
by reason of injury to third persons, like creditors. The status
of creditors could be validly accorded the Bonnevies for they
had substantial interests that were prejudiced by the sale of
the subject property to the petitioner without recognizing
their right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by
law to the contracting parties and even to third persons, to
secure reparations for damages caused to them by a
contract, even if this should be valid, by means of the
restoration of things to their condition at the moment prior to
the celebration of said contract. It is a relief allowed for the
protection of one of the contracting parties and even third
persons from all injury and damage the contract may cause,
or to protect some incompatible and preferent right created
by the contract. Rescission implies a contract which, even if
initially valid, produces a lesion or pecuniary damage to
someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property
subject of the contract is an obstacle to the action for its
rescission where it is shown that such third person is in
lawful possession of the subject of the contract and that he
did not act in bad faith. However, this rule is not applicable in
the case before us because the petitioner is not considered
a third party in relation to the Contract of Sale nor may its
possession of the subject property be regarded as acquired
lawfully and in good faith.

Indeed, Guzman, Bocaling and Co. was the vendee in the

Contract of Sale. Moreover, the petitioner cannot be deemed
a purchaser in good faith for the record shows that it
categorically admitted that it was aware of the lease in favor
of the Bonnevies, who were actually occupying the subject
property at the time it was sold to it. Although the occupying
the subject property at the time it was sold to it. Although the
Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso and
Africa Reynoso, the petitioner cannot deny actual knowledge
of such lease which was equivalent to and indeed more
binding than presumed notice by registration.
A purchaser in good faith and for value is one who buys the
property of another without notice that some other person
has a right to or interest in such property without and pays a
full and fair price for the same at the time of such purchase
or before he has notice of the claim or interest of some other
person in the property. Good faith connotes an honest
intention to abstain from taking unconscientious advantage
of another. Tested by these principles, the petitioner cannot
tenably claim to be a buyer in good faith as it had notice of
the lease of the property by the Bonnevies and such
knowledge should have cautioned it to look deeper into the
agreement to determine if it involved stipulations that would
prejudice its own interests."
Subsequently24 in Equatorial Realty and Development, Inc. vs. Mayfair
Theater, Inc.25, the Court, en banc, with three justices
dissenting,26 ordered the rescission of a contract entered into in
violation of a right of first refusal. Using the ruling in Guzman Bocaling
& Co., Inc. vs. Bonnevie as basis, the Court decreed that since
respondent therein had a right of first refusal over the said property, it
could only exercise the said right if the fraudulent sale is first set aside
or rescinded. Thus:
"What Carmelo and Mayfair agreed to, by executing the two
lease contracts, was that Mayfair will have the right of first
refusal in the event Carmelo sells the leased premises. It is
undisputed that Carmelo did recognize this right of Mayfair,
for it informed the latter of its intention to sell the said
property in 1974. There was an exchange of letters
evidencing the offer and counter-offers made by both parties.
Carmelo, however, did not pursue the exercise to its logical
end. While it initially recognized 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.
XXX
As also earlier emphasized, the contract of sale between
Equatorial and Carmelo is characterized by bad faith, since it
was knowingly entered into in violation of the rights of and to

the prejudice of Mayfair. In fact, as correctly observed by the

Court of Appeals, Equatorial admitted that its lawyers had
studied the contract or lease prior to the sale. Equatorials
knowledge of the stipulations therein should have cautioned
it to look further into the agreement to determine if it involved
stipulations that would prejudice its own interests.
Since Mayfair had a right of first refusal, it can exercise the
right only if the fraudulent sale is first set aside or rescinded.
All of these matters are now before us and so there should
be no piecemeal determination of this case and leave
festering sores to deteriorate into endless litigation. The facts
of the case and considerations of justice and equity require
that we order rescission here and now. Rescission is a relief
allowed for the protection of one of the contracting parties
and even third persons from all injury and damage the
contract may cause or to protect some incompatible and
preferred right by the contract. The sale of the subject real
property should now be rescinded considering that Mayfair,
which had substantial interest over the subject property, was
prejudiced by the sale of the subject property to Equatorial
without Carmelo conferring to Mayfair every opportunity to
negotiate within the 30-day stipulate periond.27
In Paranaque Kings Enterprises, Inc. vs. Court of Appeals,28 the Court
held that the allegations in a complaint showing violation of a
contractual right of "first option or priority to buy the properties subject
of the lease" constitute a valid cause of action enforceable by an action
for specific performance. Summarizing the rulings in the two previously
cited cases, the Court affirmed the nature of and concomitant rights
and obligations of parties under a right of first refusal. Thus:
"We hold however, that in order to have full compliance with
the contractual right granting petitioner the first option to
purchase, the sale of the properties for the amount of
P9,000,000.00, the price for which they were finally sold to
respondent Raymundo, should have likewise been offered to
petitioner.
The Court has made an extensive and lengthy discourse on
the concept of, and obligations under, a right of first refusal
in the case of Guzman, Bocaling & Co. vs. Bonnevie. In that
case, under a contract of lease, the lessees (Raul and
Christopher Bonnevie) were given a "right of first priority" to
purchase the leased property in case the lessor (Reynoso)
decided to sell. The selling price quoted to the Bonnevies
was 600,000.00 to be fully paid in cash, less a mortgage lien
of P100,000.00. On the other hand, the selling price offered
by Reynoso to and accepted by Guzman was only
P400,000.00 of which P137,500.00 was to be paid in cash
while the balance was to be paid only when the property was
cleared of occupants. We held that even if the Bonnevies
could not buy it at the price quoted (P600,000.00),
nonetheless, Reynoso could not sell it to another for a lower
price and under more favorable terms and conditions without
first offering said favorable terms and price to the Bonnevies
as well. Only if the Bonnevies failed to exercise their right of
first priority could Reynoso thereafter lawfully sell the subject
property to others, and only under the same terms and
conditions previously offered to the Bonnevies.

by the lessor Carmelo to Equatorial Realty "considering that

Mayfair, which had substantial interest over the subject
property, was prejudiced by its sale to Equatorial without
Carmelo conferring to Mayfair every opportunity to negotiate
within the 30-day stipulated period"
In that case, two contracts of lease between Carmelo and
Mayfair provided "that if the LESSOR should desire to sell
the leased premises, the LESSEE shall be given 30 days
exclusive option to purchase the same." Carmelo initially
offered to sell the leased property to Mayfair for six to seven
million pesos. Mayfair indicated interest in purchasing the
property though it invoked the 30-day period. Nothing was
heard thereafter from Carmelo. Four years later, the latter
sold its entire Recto Avenue property, including the leased
premises, to Equatorial for P11,300,000.00 without priorly
informing Mayfair. The Court held that both Carmelo and
Equatorial acted in bad faith: Carmelo or knowingly violating
the right of first option of Mayfair, and Equatorial for
purchasing the property despite being aware of the contract
stipulation. In addition to rescission of the contract of sale,
the Court ordered Carmelo to allow Mayfair to buy the
subject property at the same price of P11,300,000.00.
In the recent case of Litonjua vs L&R Corporation,29 the Court, also
citing the case of Guzman, Bocaling & Co. vs. Bonnevie, held that the
sale made therein in violation of a right of first refusal embodied in a
mortgage contract, was rescissible. Thus:
"While petitioners question the validity of paragraph 8 of their
mortgage contract, they appear to be silent insofar as
paragraph 9 thereof is concerned. Said paragraph 9 grants
upon L&R Corporation the right of first refusal over the
mortgaged property in the event the mortgagor decides to
sell the same. We see nothing wrong in this provision. The
right of first refusal has long been recognized as valid in our
jurisdiction. The consideration for the loan mortgage includes
the consideration for the right of first refusal. L&R
Corporation is in effect stating that it consents to lend out
money to the spouses Litonjua provided that in case they
decide to sell the property mortgaged to it, then L&R
Corporation shall be given the right to match the offered
purchase price and to buy the property at that price. Thus,
while the spouses Litonjua had every right to sell their
mortgaged property to PWHAS without securing the prior
written consent of L&R Corporation, they had the obligation
under paragraph 9, which is a perfectly valid provision, to
notify the latter of their intention to sell the property and give
it priority over other buyers. It is only upon the failure of L&R
Corporation to exercise its right of first refusal could the
spouses Litonjua validly sell the subject properties to the
others, under the same terms and conditions offered to L&R
Corporation.
What then is the status of the sale made to PWHAS in
violation of L & R Corporations 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.

XXX

XXX

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

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.
XXX
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 Corporations 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 oneyear 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 Corporations
right of first refusal."
Thus, the prevailing doctrine, as enunciated in the cited cases, is that a
contract of sale entered into in violation of a right of first refusal of
another person, while valid, is rescissible.
There is, however, a circumstance which prevents the application of
this doctrine in the case at bench. In the cases cited above, the Court
ordered the rescission of sales made in violation of a right of first
refusal precisely because the vendees therein could not have acted in
good faith as they were aware or should have been aware of the right
of first refusal granted to another person by the vendors therein. The
rationale for this is found in the provisions of the New Civil Code on
rescissible contracts. Under Article 1381 of the New Civil Code,
paragraph 3, a contract validly agreed upon may be rescinded if it is
"undertaken in fraud of creditors when the latter cannot in any manner
collect the claim due them." Moreover, under Article 1385, rescission
shall not take place "when the things which are the object of the
contract are legally in the possession of third persons who did not act
in bad faith."30
It must be borne in mind that, unlike the cases cited above, the right of
first refusal involved in the instant case was an oral one given to
respondents by the deceased spouses Tiangco and 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, 199033 as indicative of

petitioners knowledge of the said right. In this letter, a certain Atty.
Erlinda Aguila demanded that respondent Irene Guillermo vacate the
structure they were occupying to make way for its demolition.
We fail to see how the letter could give rise to bad faith on the part of
the petitioner. No mention is made of the right of first refusal granted to
respondents. The name of petitioner Rosencor or any of it officers did
not appear on the letter and the letter did not state that Atty. Aguila was
writing in behalf of petitioner. In fact, Atty. Aguila stated during trial that
she wrote the letter in behalf of the heirs of the spouses Tiangco.
Moreover, even assuming that Atty. Aguila was indeed writing in behalf
of petitioner Rosencor, there is no showing that Rosencor was aware
at that time that such a right of first refusal existed.
Neither was there any showing that after receipt of this June 1, 1990
letter, respondents notified Rosencor or Atty. Aguila of their right of first
refusal over the property. Respondents did not try to communicate with
Atty. Aguila and inform her about their preferential right over the
disputed property. There is even no showing that they contacted the
heirs of the spouses Tiangco after they received this letter to remind
them of their right over the property.
Respondents likewise point to the letter dated October 9, 1990 of
Eufrocina de Leon, where she recognized the right of first refusal of
respondents, as indicative of the bad faith of petitioners. We do not
agree. Eufrocina de Leon wrote the letter on her own behalf and not on
behalf of petitioners and, as such, it only shows that Eufrocina de Leon
was aware of the existence of the oral right of first refusal. It does not
show that petitioners were likewise aware of the existence of the said
right. Moreover, the letter was made a month after the execution of the
Deed of Absolute Sale on September 4, 1990 between petitioner
Rosencor and the heirs of the spouses Tiangco. There is no showing
that prior to the date of the execution of the said Deed, petitioners were
put on notice of the existence of the right of first refusal.
Clearly, if there was any indication of bad faith based on respondents
evidence, it would only be on the part of Eufrocina de Leon as she was
aware of the right of first refusal of respondents yet she still sold the
disputed property to Rosencor. However, bad faith on the part of
Eufrocina de Leon does not mean that petitioner Rosencor likewise
acted in bad faith. There is no showing that prior to the execution of the
Deed of Absolute Sale, petitioners were made aware or put on notice
of the existence of the oral right of first refusal. Thus, absent clear and
convincing evidence to the contrary, petitioner Rosencor will be
presumed to have acted in good faith in entering into the Deed of
Absolute Sale over the disputed property.
Considering that there is no showing of bad faith on the part of the
petitioners, the Court of Appeals thus erred in ordering the rescission
of the Deed of Absolute Sale dated September 4, 1990 between
petitioner Rosencor and the heirs of the spouses Tiangco. The
acquisition by Rosencor of the property subject of the right of first
refusal is an obstacle to the action for its rescission where, as in this
case, it was shown that Rosencor is in lawful possession of the subject
of the contract and that it did not act in bad faith.34
This does not mean however that respondents are left without any
remedy for the unjustified violation of their right of first refusal. Their
remedy however is not an action for the rescission of the Deed of
Absolute Sale but an action for damages against the heirs of the
spouses Tiangco for the unjustified disregard of their right of first
refusal35.
WHEREFORE, premises considered, the decision of the Court of
Appeals dated June 25, 1999 is REVERSED and SET ASIDE. The
Decision dated May 13, 1996 of the Quezon City Regional Trial Court,

Branch 217 is hereby REINSTATED insofar as it dismisses the action

for rescission of the Deed of Absolute Sale dated September 4, 1990
and orders the payment of monthly rentals of P1,000.00 per month
reckoned from May 1990 up to the time respondents leave the
premises.
SO ORDERED.
G.R. No. 149734

November 19, 2004

DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners,

vs.
AYALA CORPORATION, respondent.

development plan within three (3) years from the date of this
Agreement. x x x"
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."
The parties are agreed that the development plan referred to
in paragraph 5.7 is not Conduit's development plan, but
Ayala's 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
which was formulated a year later, it was in the third phase,
or Phase II-c.
Under the MOA, the Vasquez spouses made several
express warranties, as follows:

DECISION

"3.1. The SELLERS shall deliver to the BUYER:

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

TINGA, J.:
The rise in value of four lots in one of the country's 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.

xxx
D. A list of all persons and/or entities with whom the
Company has pending contracts, if any.
xxx

Dr. Daniel Vazquez and Ma. Luisa Vazquez filed this Petition for
Review on Certiorari2 dated October 11, 2001 assailing the Decision3 of
the Court of Appeals dated September 6, 2001 which reversed the
Decision4 of the Regional Trial Court (RTC) and dismissed their
complaint for specific performance and damages against Ayala
Corporation.
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 latter's 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).

3.1.5. Audited financial statements of the Company as at

Closing date.
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:
4.1. The representations and warranties by the SELLERS
contained in this Agreement shall be true and correct at the
time of Closing as though such representations and
warranties were made at such time; and
xxx
6. Representation and Warranties by the SELLERS
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:

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

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:

xxx

7. Additional Warranties by the SELLERS

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.
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
Company's income prior to Closing or arising out of
transactions or state of facts existing prior thereto.
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
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.
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."
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...
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.
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."

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.
After trial, the court a quo rendered its decision, the
dispositive portion of which states:
"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 attorney's fees in the sum of
P200,000.00 and to pay the cost of the suit."
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; Ayala's
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 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
Ayala's 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]
Ayala Corporation filed an appeal, alleging that the trial court erred in
holding that petitioners did not breach their warranties under the
MOA6 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.
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. Construction's lawyers. The Court of Appeals
thus held that petitioners violated their warranties under the MOA when
they failed to disclose Lancer's 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.
Interpreting the MOA's 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 Conduit's development
plan. Nowhere does the MOA provide that Ayala Corporation shall
follow Conduit's development plan nor is Ayala Corporation prohibited
from changing the sequence of the phases of the property it will
develop.
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

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 Corporation's
offer to sell the subject lots at the reduced 1990 price of P5,000.00 per
square meter, they have effectively waived their right to buy the same.

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.

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.

Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is

a right of first refusal and not an option contract.

Ayala Corporation filed a Comment on the Petition8 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 Lancer's 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.
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, Lancer's 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.
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.
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
Corporation's) own development plan and not Conduit's. True to its
intention, Ayala Corporation did complete the development of the first
phase (Phase II-A) of its amended 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 119710 of the Civil Code. Having failed to do so,
Ayala Corporation cannot be declared to have been 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

Petitioners filed their Reply11 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 Lancer's 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.
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."
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 Lancer's claim was actually a claim against
GP Construction being its sub-contractor, it is Ayala Corporation and
not petitioners which is liable.
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.
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.
The parties were required to submit their respective memoranda in the
Resolution12 dated November 18, 2002. In compliance with this
directive, petitioners submitted their Memorandum13 dated February
14, 2003 on even date, while Ayala Corporation filed its
Memorandum14 dated February 14, 2003 on February 17, 2003.
We shall first dispose of the procedural question raised by the instant
petition.
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.
Ayala Corporation summarizes the clauses of the MOA which
petitioners allegedly breached when they failed to disclose the Lancer
claim:

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;

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.
xxx xxx xxx

c) Clause 7.2. that there is no basis for any assertion

against Conduit of any liability of any value not reflected 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
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.
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.
In a letter17 dated March 5, 1984, petitioner Daniel Vazquez reminded
Ayala Corporation's 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 sub-contracted, 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. Duarte's letter18 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 sub-contracts of GP with Lancer."
At the latest, Ayala Corporation came to know of the Lancer claim
before the date of Closing of the MOA. Lancer's letter19 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.
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:
7.1.1 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.
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
Company's income prior to Closing or arising out of
transactions or state of facts existing prior thereto.

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.
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]
Hence, petitioners' warranty that Conduit is not engaged in, a party to,
or threatened with any legal action or proceeding is qualified by Ayala
Corporation's actual knowledge of the Lancer claim which was
disclosed to Ayala Corporation before the "Closing."
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 billings knowingly assumed by Ayala Corporation necessarily
include the Lancer claim for which GP Construction is liable. Proof of
this is Ayala Corporation's letter23 to GP Construction dated before
"Closing" on May 4, 1981, informing the latter of Ayala Corporation's
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.
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 well24
Quite tellingly, Ayala Corporation even attached to its Pre-Trial
Brief25 dated July 9, 1992 a copy of the letter26dated May 28, 1981 of
GP Construction's 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 subcontract.

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 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 Answer27 dated February 17, 1992.
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:
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
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.
Atty. Leopoldo Francisco, former Vice President of Ayala Corporation's
legal division who assisted in drafting the MOA, testified:
COURT
You only ask what do you mean by that intent. Just answer
on that point.

Q: 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."
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.
Q: In other words, it is not Exhibit "D-5" which is the original
plan of Conduit?
A: No, it is not.
Q: This Exhibit "D-5" was the plan that was being followed by
GP Construction in 1981?
A: 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?
A: Yes, sir.32
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.

ATTY. BLANCO
Don't talk about standard.
WITNESS
A 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
It is thus unmistakable that this paragraph merely expresses an
intention on Ayala Corporation's 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.
More focal to the resolution of the instant case is paragraph 5.7's clear
reference to the first phase of Ayala Corporation's 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 Conduit's but to
Ayala Corporation's development plan which was yet to be formulated
when the MOA was executed:

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:
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.
However, the demand by the creditor shall not be necessary
in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(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
(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.
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 119734 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.
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 Turla's
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:
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 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.
II. Option on the adjoining lots
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
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, 198436 and February 18, 198437 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:
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
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 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
Even petitioner Daniel Vazquez' letter40 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:
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:
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
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
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 grantor's 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
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
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:
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 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 counter-offer 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.

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
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.

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.

Furthermore, we resolved:

WHEREFORE, the instant petition is DENIED. No pronouncement as

to costs.

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.

1.0. That TRCDC VACATE the leased premises immediately;

G.R. No. 140182. April 12, 2005

TANAY RECREATION CENTER AND DEVELOPMENT
CORP., Petitioners,
vs.
CATALINA MATIENZO FAUSTO* and ANUNCIACION FAUSTO
PACUNAYEN, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:

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
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 refusal19 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 defenseWith 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. 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 ofP10,000.00. 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. M35468 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 ofP11,000.00.46
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 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.49Meanwhile, 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.:

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

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:

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.

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

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;

such registration, title to the properties were consolidated in favor of

respondent bank. Consequently, TCT Nos. T-8595 and T-8350 were
cancelled and TCT Nos. 111058 and 111059 were issued in the name
of respondent bank.5

(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 Decision becomes
final and executory, the applicable rate shall be twelve percent (12%)
per annum until its satisfaction; and,

Despite the lapse of the redemption period and consolidation of title in

respondent bank, petitioner offered to repurchase the properties. While
the respondent bank considered petitioner's offer to repurchase, there
was no repurchase contract executed. The present controversy was
fuelled by petitioner's stance that a verbal repurchase/compromise
agreement was actually reached and implemented by the parties.

(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.
G.R. No. 177783

January 23, 2013

HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D. IGNACIOMANALO, MILFA D. IGNACIO-MANALO AND FAUSTINO D.
IGNACIO, Petitioners,
vs.
HOME BANKERS SAVINGS AND TRUST COMPANY, SPOUSES
PHILLIP AND THELMA RODRIGUEZ, CATHERINE, REYNOLD &
JEANETTE, all surnamed ZUNIGA, Respondents.

In the meantime, respondent bank made the following dispositions of

the foreclosed properties already titled in its name:
TCT No. 111059 (Subdivided into six lots with individual titles - TCT
Nos. 117771, 117772, 117773, 117774, 117775 and 117776)
A. TCT No. 117771 (16,350 sq.ms.) - Sold to Fermin
Salvador and Bella Salvador under Deed of Absolute Sale
dated May 23, 1984 for the price of P150,000.00
B. TCT No. 11772 (82,569 sq.ms. subdivided into 2 portions
1) Lot 3-B-1 (35,447 sq.ms.) - Sold to Dr. Oscar
Remulla and Natividad Pagtakhan, Dr. Edilberto
Torres and Dra. Rebecca Amores under Deed of
Absolute Sale dated April 17, 1985 for the price
ofP150,000.00
2) Lot 3-B-2 covered by separate title TCT No.
124660 (Subdivided into 3 portions Lot 3-B-2-A (15,000 sq.ms.) - Sold to Dr.
Myrna del Carmen Reyes under Deed of
Absolute Sale dated March 23, 1987 for
the price of P150,000.00

DECISION
VILLARAMA, JR., J.:
Before the Court is a Petition for Review on Certiorari under Rule 45
assailing the Decision1 dated July 18, 2006 and Resolution2 dated May
2, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 73551. The
CA reversed the Decision3 dated June 15, 1999 of the Regional Trial
Court (RTC) of Pasig City, Branch 151 in Civil Case No. 58980.
The factual antecedents:
In August 1981, petitioner Fausto C. Ignacio mortgaged two parcels of
land to Home Savings Bank and Trust Company, the predecessor of
respondent Home Bankers Savings and Trust Company, as security for
theP500,000.00 loan extended to him by said bank. These properties
which are located in Cabuyao, Laguna are covered by Transfer
Certificate of Title Nos. (T-40380) T-8595 and (T-45804) T-8350
containing an area of 83,303 square meters and 120,110 square
meters, respectively.4
When petitioner defaulted in the payment of his loan obligation,
respondent bank proceeded to foreclose the real estate mortgage. At
the foreclosure sale held on January 26, 1983, respondent bank was
the highest bidder for the sum of P764,984.67. On February 8, 1983,
the Certificate of Sale issued to respondent bank was registered with
the Registry of Deeds of Calamba, Laguna. With the failure of
petitioner to redeem the foreclosed properties within one year from

Lot 3-B-2-B (15,000 sq.ms.) - Sold to Dr.

Rodito Boquiren under Deed of Absolute
Sale dated March 23, 1987 for the price
of P150,000.00
Lot 3-B-2-C (17,122 sq.ms.) covered by
TCT No. T-154568 C. TCT No.117773 (17,232 sq.ms.) - Sold to Rizalina
Pedrosa under Deed of Absolute Sale dated June 4, 1984
for the price of P150,000.00
The expenses for the subdivision of lots covered by TCT No. 111059
and TCT No. 117772 were shouldered by petitioner who likewise
negotiated the above-mentioned sale transactions. The properties
covered by TCT Nos. T-117774 to 117776 are still registered in the
name of respondent bank.6
In a letter addressed to respondent bank dated July 25, 1989,
petitioner expressed his willingness to pay the amount of P600,000.00
in full, as balance of the repurchase price, and requested respondent
bank to release to him the remaining parcels of land covered by TCT
Nos. 111058 and T-154658 ("subject properties").7Respondent bank
however, turned down his request. This prompted petitioner to cause
the annotation of an adverse claim on the said titles on September 18,
1989.8

Prior to the annotation of the adverse claim, on August 24, 1989, the
property covered by TCT No. 154658 was sold by respondent bank to
respondent spouses Phillip and Thelma Rodriguez, without informing
the petitioner. On October 6, 1989, again without petitioner's
knowledge, respondent bank sold the property covered by TCT No T111058 to respondents Phillip and Thelma Rodriguez, Catherine M.
Zuiga, Reynold M. Zuiga and Jeannette M. Zuiga.9
On December 27, 1989, petitioner filed an action for specific
performance and damages in the RTC against the respondent bank.
As principal relief, petitioner sought in his original complaint the
reconveyance of the subject properties after his payment
of P600,000.00.10 Respondent bank filed its Answer denying the
allegations of petitioner and asserting that it was merely exercising its
right as owner of the subject properties when the same were sold to
third parties.
For failure of respondent bank to appear during the pre-trial
conference, it was declared as in default and petitioner was allowed to
present his evidence ex parte on the same date (September 3, 1990).
Petitioner simultaneously filed an "Ex-Parte Consignation" tendering
the amount of P235,000.00 as balance of the repurchase price.11 On
September 7, 1990, the trial court rendered judgment in favor of
petitioner. Said decision, as well as the order of default, were
subsequently set aside by the trial court upon the filing of a motion for
reconsideration by the respondent bank.12
In its Order dated November 19, 1990, the trial court granted the
motion for intervention filed by respondents Phillip and Thelma
Rodriguez, Catherine Zuiga, Reynold Zuiga and Jeannette Zuiga.
Said intervenors asserted their status as innocent purchasers for value
who had no notice or knowledge of the claim or interest of petitioner
when they bought the properties already registered in the name of
respondent bank. Aside from a counterclaim for damages against the
petitioner, intervenors also prayed that in the event respondent bank is
ordered to reconvey the properties, respondent bank should be
adjudged liable to the intervenors and return all amounts paid to it. 13
On July 8, 1991, petitioner amended his complaint to include as
alternative relief under the prayer for reconveyance the payment by
respondent bank of the prevailing market value of the subject
properties "less whatever remaining obligation due the bank by reason
of the mortgage under the terms of the compromise agreement.14
On June 15, 1999, the trial court rendered its Decision, the dispositive
portion of which reads:
WHEREFORE, findings [sic] the facts aver[r]ed in the complaint
supported by preponderance of evidences adduced, judgment is
hereby rendered in favor of the plaintiff and against the defendant and
intervenors by:
1. Declaring the two Deeds of Sale executed by the
defendant in favor of the intervenors as null and void and the
Register of Deeds in Calamba, Laguna is ordered to cancel
and/or annul the two Transfer Certificate of Titles No. T154658 and TCT No. T-111058 issued to the intervenors.
2. Ordering the defendant to refund the amount
of P1,004,250.00 to the intervenors as the consideration of
the sale of the two properties.
3. Ordering the defendant to execute the appropriate Deed
of Reconveyance of the two (2) properties in favor of the
plaintiff after the plaintiff pays in full the amount
of P600,000.00 as balance of the repurchase price.

4. Ordering the defendant bank to pay plaintiff the sum

of P50,000.00 as attorney's fees.
5. Dismissing the counterclaim of the defendant and
intervenors against the plaintiff.
Costs against the defendant.
SO ORDERED.15
The trial court found that respondent bank deliberately disregarded
petitioner's substantial payments on the total repurchase consideration.
Reference was made to the letter dated March 22, 1984 (Exhibit
"I")16 as the authority for petitioner in making the installment payments
directly to the Universal Properties, Inc. (UPI), respondent bank's
collecting agent. Said court concluded that the compromise agreement
amounts to a valid contract of sale between petitioner, as Buyer, and
respondent bank, as Seller. Hence, in entertaining other buyers for the
same properties already sold to petitioner with intention to increase its
revenues, respondent bank acted in bad faith and is thus liable for
damages to the petitioner. Intervenors were likewise found liable for
damages as they failed to exercise due diligence before buying the
subject properties.
Respondent bank appealed to the CA which reversed the trial court's
ruling, as follows:
WHEREFORE, the foregoing premises considered, the instant appeal
is hereby GRANTED. Accordingly, the assailed decision is hereby
REVERSED and SET ASIDE.
SO ORDERED.17
The CA held that by modifying the terms of the offer contained in the
March 22, 1984 letter of respondent bank, petitioner effectively
rejected the original offer with his counter-offer. There was also no
written conformity by respondent bank's officers to the amended
conditions for repurchase which were unilaterally inserted by petitioner.
Consequently, no contract of repurchase was perfected and
respondent bank acted well within its rights when it sold the subject
properties to herein respondents-intervenors.
As to the receipts presented by petitioner allegedly proving the
installment payments he had completed, the CA said that these were
not payments of the repurchase price but were actually remittances of
the payments made by petitioner's buyers for the purchase of the
foreclosed properties already titled in the name of respondent bank. It
was noted that two of these receipts (Exhibits "K" and "K-1")18 were
issued to Fermin Salvador and Rizalina Pedrosa, the vendees of two
subdivided lots under separate Deeds of Absolute Sale executed in
their favor by the respondent bank. In view of the attendant
circumstances, the CA concluded that petitioner acted merely as a
broker or middleman in the sales transactions involving the foreclosed
properties. Lastly, the respondents-intervenors were found to be
purchasers who bought the properties in good faith without notice of
petitioner's interest or claim. Nonetheless, since there was no
repurchase contract perfected, the sale of the subject properties to
respondents-intervenors remains valid and binding, and the issue of
whether the latter were innocent purchasers for value would be of no
consequence.
Petitioner's motion for reconsideration was likewise denied by the
appellate court.
Hence, this petition alleging that:

A.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT THERE WAS A
PERFECTED CONTRACT TO REPURCHASE BETWEEN
PETITIONER AND RESPONDENT-BANK.
B.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT PETITIONER DID
NOT ACT AS BROKER IN THE SALE OF THE
FORECLOSED PROPERTIES AND THUS FAILED TO
CONSIDER THE EXISTENCE OF OFFICIAL RECEIPTS
ISSUED IN THE NAME OF THE PETITIONER THAT ARE
DULY NOTED FOR HIS ACCOUNT.
C.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT RESPONDENTBANK DID NOT HAVE THE RIGHT TO DISPOSE THE
SUBJECT PROPERTIES.

must be certain. 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. A qualified acceptance, or one that involves a new
proposal, constitutes a counter-offer and is a rejection of the original
offer. Consequently, when something is desired which is not exactly
what is proposed in the offer, such acceptance is not sufficient to
generate consent because any modification or variation from the terms
of the offer annuls the offer.22
The acceptance must be identical in all respects with that of the offer
so as to produce consent or meeting of the minds.23 Where a party sets
a different purchase price than the amount of the offer, such
acceptance was qualified which can be at most considered as a
counter-offer; a perfected contract would have arisen only if the other
party had accepted this counter-offer.24 In Villanueva v. Philippine
National Bank25 this Court further elucidated on the meaning of
unqualified acceptance, as follows:
While it is impossible to expect the acceptance to echo every
nuance of the offer, it is imperative that it assents to those points in the
offer which, under the operative facts of each contract, are not only
material but motivating as well. Anything short of that level of mutuality
produces not a contract but a mere counter-offer awaiting acceptance.
More particularly on the matter of the consideration of the contract, the
offer and its acceptance must be unanimous both on the rate of the
payment and on its term. An acceptance of an offer which agrees to
the rate but varies the term is ineffective.26 (Emphasis supplied)

D.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT RESPONDENTSINTERVENORS ARE NOT INNOCENT PURCHASERS FOR
VALUE IN GOOD FAITH.19

Petitioner submitted as evidence of a perfected contract of repurchase

the March 22, 1984 letter (Exhibit "I")27from Rita B. Manuel, then
President of UPI, a corporation formed by respondent bank to dispose
of its acquired assets, with notations handwritten by petitioner himself.
Said letter reads:
March 22, 1984

It is to be noted that the above issues raised by petitioner alleged

grave abuse of discretion committed by the CA, which is proper in a
petition for certiorari under Rule 65 of the 1997 Rules of Civil
Procedure, as amended, but not in the present petition for review on
certiorari under Rule 45.

Honorable Judge Fausto Ignacio

412 Bagumbayan Street, Pateros
Metro Manila
Dear Judge Ignacio:

The core issue for resolution is whether a contract for the repurchase
of the foreclosed properties was perfected between petitioner and
respondent bank.
The Court sustains the decision of the CA.
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.20 The requisite acceptance of the
offer is expressed in Article 1319 of the Civil Code which states:
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.
In Palattao v. Court of Appeals,21 this Court held that if the acceptance
of the offer was not absolute, such acceptance is insufficient to
generate consent that would perfect a contract. Thus:
Contracts that are consensual in nature, like a contract of sale, are
perfected upon mere meeting of the minds. Once there is concurrence
between the offer and the acceptance upon the subject matter,
consideration, and terms of payment, a contract is produced. The offer

Your proposal to repurchase your foreclosed properties located at

Cabuyao, Laguna consisting of a total area of 203,413 square meters
has been favorably considered subject to the following terms and
conditions:
1) Total Selling Price shall be P950,000.00
2) Downpayment of P150,00000 with the balance
Payable in Three (3) equal installments
as follows:
1st Installment - P 266,667 - on or before May 31,
'84
2nd Installment - P 266,667 - on or before Sept.
31, '84
3rd Installment - P 266,666 - on or before Jan. 30,
'85
TOTAL - P 800,000.00

3) All expenses pertinent to the subdivision of the parcel of

land consisting of 120,110 square meters shall be for your
account.
Thank you,
Very truly yours,
RITA B. MANUEL
President
According to petitioner, he wrote the notations in the presence of a
certain Mr. Lazaro, the representative of Mrs. Manuel (President), and
a certain Mr. Fajardo, which notations supposedly represent their
"compromise agreement."28 These notations indicate that the
repurchase price would be P900,000.00 which shall be paid as
follows: P150,000 - end of May '84; P150,000 - end of June '84;
Balance - "Depending on financial position". Petitioner further alleged
the following conditions of the verbal agreement: (1) respondent bank
shall release the equivalent land area for payments made by petitioner
who shall shoulder the expenses for subdivision of the land; (2) in case
any portion of the subdivided land is sold by petitioner, a separate
document of sale would be executed directly to the buyer; (3) the
remaining portion of the properties shall not be subject of respondent
bank's transaction without the consent and authority of petitioner; (4)
the petitioner shall continue in possession of the properties and
whatever portion still remaining, and attending to the needs of its
tenants; and (5) payments shall be made directly to UPI.29
The foregoing clearly shows that petitioner's acceptance of the
respondent bank's terms and conditions for the repurchase of the
foreclosed properties was not absolute. Petitioner set a different
repurchase price and also modified the terms of payment, which even
contained a unilateral condition for payment of the balance (P600,000),
that is, depending on petitioner's "financial position." The CA thus
considered the qualified acceptance by petitioner as a counterproposal which must be accepted by respondent bank. However, there
was no evidence of any document or writing showing the conformity of
respondent bank's officers to this counter-proposal.
Petitioner contends that the receipts issued by UPI on his installment
payments are concrete proof -- despite denials to the contrary by
respondent bank -- that there was an implied acceptance of his
counter-proposal and that he did not merely act as a broker for the sale
of the subdivided portions of the foreclosed properties to third parties.
Since all these receipts, except for two receipts issued in the name of
Fermin Salvador and Rizalina Pedrosa, were issued in the name of
petitioner instead of the buyers themselves, petitioner emphasizes that
the payments were made for his account. Moreover, petitioner asserts
that the execution of the separate deeds of sale directly to the buyers
was in pursuance of the perfected repurchase agreement with
respondent bank, such an arrangement being "an accepted practice to
save on taxes and shortcut paper works."
The Court is unconvinced.
In Adelfa Properties, Inc. v. CA,30 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 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.31

Even assuming that the bank officer or employee whom petitioner

claimed he had talked to regarding the March 22, 1984 letter had
acceded to his own modified terms for the repurchase, their supposed
verbal exchange did not bind respondent bank in view of its corporate
nature. There was no evidence that said Mr. Lazaro or Mr. Fajardo was
authorized by respondent bank's Board of Directors to accept
petitioner's counter-proposal to repurchase the foreclosed properties at
the price and terms other than those communicated in the March 22,
1984 letter. As this Court ruled in AF Realty & Development, Inc. v.
Dieselman Freight Services, Co.32
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.1wphi1 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.33
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. 34
In the absence of conformity or acceptance by properly authorized
bank officers of petitioner's counter-proposal, no perfected repurchase
contract was born out of the talks or negotiations between petitioner
and Mr. Lazaro and Mr. Fajardo. Petitioner therefore had no legal right
to compel respondent bank to accept the P600,000 being tendered by
him as payment for the supposed balance of repurchase price.
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.35 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. 36
In sum, we find the ruling of the CA more in accord with the established
facts and applicable law and jurisprudence. Petitioner's claim of utmost
accommodation by respondent bank of his own terms for the
repurchase of his foreclosed properties are simply contrary to normal
business practice. As aptly observed by the appellate court:
The submission of the plaintiff-appellee is unimpressive.
First, if the counter-proposal was mutually agreed upon by both the
plaintiff-appellee and defendant-appellant, how come not a single
signature of the representative of the defendant-appellant was affixed
thereto. Second, it is inconceivable that an agreement of such great
importance, involving two personalities who are both aware and
familiar of the practical and legal necessity of reducing agreements into
writing, the plaintiff-appellee, being a lawyer and the defendantappellant, a banking institution, not to formalize their repurchase
agreement. Third, it is quite absurd and unusual that the defendantappellant could have acceded to the condition that the balance of the
payment of the repurchase price would depend upon the financial
position of the plaintiff-appellee. Such open[-]ended and indefinite
period for payment is hardly acceptable to a banking institution like the
defendant-appellant whose core existence fundamentally depends
upon its financial arrangements and transactions which, most, if not all
the times are intended to bear favorable outcome to its business. Last,
had there been a repurchase agreement, then, there should have been

titles or deeds of conveyance issued in favor of the plaintiff-appellee.

But as it turned out, the plaintiff-appellee never had any land deeded or
titled in his name as a result of the alleged repurchase agreement. All
these, reinforce the conclusion that the counter-proposal was
unilaterally made and inserted by the plaintiff-appellee in Exhibit "I" and
could not have been accepted by the defendant-appellant, and that a
different agreement other than a repurchase agreement was perfected
between them.37

adjacent to the property of Villonco Realty Company situated at 219

Buendia Avenue.

Petitioner Fausto C. Ignacio passed away on November 11, 2008 and

was substituted by his heirs, namely: Marfel D. Ignacio-Manalo, Milfa
D. Ignacio-Manalo and Faustino D. Ignacio.

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.

WHEREFORE, the petition for review on certiorari is DENIED. The

Decision dated July 18, 2006 and Resolution dated May 2, 2007 of the
Court of Appeals in CA-G.R. CV No. 73551 are hereby AFFIRMED.
With costs against the petitioners.
SO ORDERED.
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, Navarro and Associates for defendants-appellants.
P. P. Gallardo and Associates for intervenor-appellee.

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".

During the negotiations, Villonco Realty Company assumed that the

lots belonged to Bormaheco, Inc. and that Cervantes was duly
authorized to sell the same. Cervantes did not disclose to the broker
and to Villonco Realty Company that the lots were conjugal properties
of himself and his wife and that they were mortgaged to the DBP.
Bormaheco, Inc., through Cervantes, made a written offer dated
February 12, 1964, to Romeo Villonco for the sale of the property. The
offer reads (Exh. B):
BORMAHECO, INC.
February 12,1964
Mr. Romeo
Villonco Villonco Building
Buendia Avenue
Makati, Rizal.
Dear Mr. Villonco:

AQUINO, J.:
This action was instituted by Villonco Realty Company against
Bormaheco, Inc. and the spouses Francisco N. Cervantes and Rosario
N. Cervantes for the specific performance of a supposed contract for
the sale of land and the improvements thereon for one million four
hundred thousand pesos. Edith Perez de Tagle, as agent, intervened in
order to recover her commission. The lower court enforced the sale.
Bormaheco, Inc. and the Cervantes spouses, as supposed vendors,
appealed.
This Court took cognizance of the appeal because the amount involved
is more than P200,000 and the appeal was perfected before Republic
Act No. 5440 took effect on September 9, 1968. The facts are as
follows:
Francisco N. Cervantes and his wife, Rosario P. Navarra-Cervantes,
are the owners of lots 3, 15 and 16 located at 245 Buendia Avenue,
Makati, Rizal with a total area of three thousand five hundred square
meters (TCT Nos. 43530, 43531 and 43532, Exh. A, A-1 and A-2). The
lots were mortgaged to the Development Bank of the Phil (DBP) on
April 21, 1959 as security for a loan of P441,000. The mortgage debt
was fully paid on July 10, 1969.
Cervantes is the president of Bormaheco, Inc., a dealer and importer of
industrial and agricultural machinery. The entire lots are occupied by
the building, machinery and equipment of Bormaheco, Inc. and are

This is with reference to our telephone

conversation this noon on the matter of the sale
of our property located at Buendia Avenue, with a
total area of 3,500 sq. m., under the following
conditions:
(1) That we are offering to sell to you the above
property at the price of P400.00 per square meter;
(2) That a deposit of P100,000.00 must be placed
as earnest money on the purchase of the above
property which will become part payment of the
property in the event that the sale is
consummated;
(3) That this sale is to be consummated only after I
shall have also consummated my purchase of
another property located at Sta. Ana, Manila;
(4) That if my negotiations with said property will
not be consummated by reason beyond my
control, I will return to you your deposit of
P100,000 and the sale of my property to you will
not also be consummated; and
(5) That final negotiations on both properties can
be definitely known after 45 days.

If the above terms is (are) acceptable to your

Board, please issue out the said earnest money in
favor of Bormaheco, Inc., and deliver the same
thru the bearer, Miss Edith Perez de Tagle. Very
truly yours,SGD. FRANCISCO N. CERVANTES
President
The property mentioned in Bormaheco's letter was the land of the
National Shipyards & Steel Corporation (Nassco), with an area of
twenty thousand square meters, located at Punta, Sta. Ana, Manila. At
the bidding held on January 17, 1964 that land was awarded to
Bormaheco, Inc., the highest bidder, for the price of P552,000. The
Nassco Board of Directors in its resolution of February 18, 1964
authorized the General Manager to sign the necessary contract (Exh.
H).

payment for the purchase of your property without

interest:
4. The manner of payment shall be as follows:
a. P100,000.00 earnest money and
650,000.00 as part of the down payment, or
P750,000.00 as total down payment
b. The balance is payable as follows:
P100,000.00 after 3 months
125,000.00 -do212,500.00 -doP650,000.00 Total

On February 28, 1964, the Nassco Acting General Manager wrote a

letter to the Economic Coordinator, requesting approval of that
resolution. The Acting Economic Coordinator approved the resolution
on March 24, 1964 (Exh. 1).

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.*

In the meanwhile, Bormaheco, Inc. and Villonco Realty Company

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

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:

VILLONCO REALTY COMPANY

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

BORMAHECO, INC.
(Sgd.) FRANCISCO CERVANTES

March 4, 1964

That this sale shall be subject to favorable

consummation of a property in Sta. Ana we are
negotiating.

Mr. Francisco Cervantes.

Bormaheco, Inc.
245 Buendia Avenue
Makati, Rizal

(Sgd.) FRANCISCO CERVANTES

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

The check for P100,000 (Exh. E) mentioned in the foregoing lettercontract was delivered by Edith Perez de Tagle to Bormaheco, Inc. on
March 4, 1964 and was received by Cervantes. In the voucher-receipt
evidencing the delivery the broker indicated in her handwriting that the
earnest money was "subject to the terms and conditions embodied in
Bormaheco's letter" of February 12 and Villonco Realty Company's
letter of March 4, 1964 (Exh. E-1; 14 tsn).
Then, unexpectedly, in a letter dated March 30, 1964, or twenty-six
days after the signing of the contract of sale, Exhibit D, Cervantes
returned the earnest money, with interest amounting to P694.24 (at ten
percent per annum). Cervantes cited as an excuse the circumstance
that "despite the lapse of 45 days from February 12, 1964 there is no
certainty yet" for the acquisition of the Punta property (Exh. F; F-I and
F-2). Villonco Realty Company refused to accept the letter and the
checks of Bormaheco, Inc. Cervantes sent them by registered mail.
When he rescinded the contract, he was already aware that the Punta
lot had been awarded to Bormaheco, Inc. (25-26 tsn).
Edith Perez de Tagle, the broker, in a letter to Cervantes dated March
31, 1964 articulated her shock and surprise at Bormaheco's turnabout.
She reviewed the history of the deal and explained why Romeo
Villonco could not agree to the rescission of the sale (Exh. G).**

Cervantes in his letter of April 6, 1964, a reply to Miss Tagle's letter,

alleged that the forty-five day period had already expired and the sale
to Bormaheco, Inc. of the Punta property had not been consummated.
Cervantes said that his letter was a "manifestation that we are no
longer interested to sell" the Buendia Avenue property to Villonco
Realty Company (Annex I of Stipulation of Facts). The latter was
furnished with a copy of that letter.
In a letter dated April 7, 1964 Villonco Realty Company returned the
two checks to Bormaheco, Inc., stating that the condition for the
cancellation of the contract had not arisen and at the same time
announcing that an action for breach of contract would be filed against
Bormaheco, Inc. (Annex G of Stipulation of Facts).1wph1.t
On that same date, April 7, 1964 Villonco Realty Company filed the
complaint (dated April 6) for specific performance against Bormaheco,
Inc. Also on that same date, April 7, at eight-forty-five in the morning, a
notice of lis pendens was annotated on the titles of the said lots.
Bormaheco, Inc. in its answers dated May 5 and 25, 1964 pleaded the
defense that the perfection of the contract of sale was subject to the
conditions (a) "that final acceptance or not shall be made after 45
days" (sic) and (b) that Bormaheco, Inc. "acquires the Sta. Ana
property".
On June 2, 1964 or during the pendency of this case, the Nassco
Acting General Manager wrote to Bormaheco, Inc., advising it that the
Board of Directors and the Economic Coordinator had approved the
sale of the Punta lot to Bormaheco, Inc. and requesting the latter to
send its duly authorized representative to the Nassco for the signing of
the deed of sale (Exh. 1).
The deed of sale for the Punta land was executed on June 26, 1964.
Bormaheco, Inc. was represented by Cervantes (Exh. J. See
Bormaheco, Inc. vs. Abanes, L-28087, July 31, 1973, 52 SCRA 73).
In view of the disclosure in Bormaheco's amended answer that the
three lots were registered in the names of the Cervantes spouses and
not in the name of Bormaheco, Inc., Villonco Realty Company on July
21, 1964 filed an amended complaint impleading the said spouses as
defendants. Bormaheco, Inc. and the Cervantes spouses filed
separate answers.
As of January 15, 1965 Villonco Realty Company had paid to the
Manufacturers' Bank & Trust Company the sum of P8,712.25 as
interests on the overdraft line of P100,000 and the sum of P27.39 as
interests daily on the same loan since January 16, 1965. (That
overdraft line was later settled by Villonco Realty Company on a date
not mentioned in its manifestation of February 19, 1975).
Villonco Realty Company had obligated itself to pay the sum of
P20,000 as attorney's fees to its lawyers. It claimed that it was
damaged in the sum of P10,000 a month from March 24, 1964 when
the award of the Punta lot to Bormaheco, Inc. was approved. On the
other hand, Bormaheco, Inc. claimed that it had sustained damages of
P200,000 annually due to the notice of lis pendens which had
prevented it from constructing a multi-story building on the three lots.
(Pars. 18 and 19, Stipulation of Facts).1wph1.t
Miss Tagle testified that for her services Bormaheco, Inc., through
Cervantes, obligated itself to pay her a three percent commission on
the price of P1,400,000 or the amount of forty-two thousand pesos (14
tsn).
After trial, the lower court rendered a decision ordering the Cervantes
spouses to execute in favor of Bormaheco, Inc. a deed of conveyance

for the three lots in question and directing Bormaheco, Inc. (a) to
convey the same lots to Villonco Realty Company, (b) to pay the latter,
as consequential damages, the sum of P10,000 monthly from March
24, 1964 up to the consummation of the sale, (c) to pay Edith Perez de
Tagle the sum of P42,000 as broker's commission and (d) pay P20,000
as to attorney's fees (Civil Case No. 8109).
Bormaheco, Inc. and the Cervantes spouses appealed. Their principal
contentions are (a) that no contract of sale was perfected because
Cervantes made a supposedly qualified acceptance of the revised offer
contained in Exhibit D, which acceptance amounted to a counter-offer,
and because the condition that Bormaheco, inc. would acquire the
Punta land within the forty-five-day period was not fulfilled; (2) that
Bormaheco, Inc. cannot be compelled to sell the land which belongs to
the Cervantes spouses and (3) that Francisco N. Cervantes did not
bind the conjugal partnership and his wife when, as president of
Bormaheco, Inc., he entered into negotiations with Villonco Realty
Company regarding the said land.
We hold that the appeal, except as to the issue of damages, is devoid
of merit.
"By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determining thing, and the
other to pay therefor a price certain in money or its equivalent. A
contract of sale may be absolute or conditional" (Art. 1458, Civil Code).
"The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the
price. From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form of
contracts" (Art. 1475, Ibid.).
"Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law" (Art. 1315,
Civil Code).
"Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer" (Art. 1319, Civil Code). "An
acceptance may be express or implied" (Art. 1320, Civil Code).
Bormaheco's acceptance of Villonco Realty Company's offer to
purchase the Buendia Avenue property, as shown in Teofilo Villonco's
letter dated March 4, 1964 (Exh. D), indubitably proves that there was
a meeting of minds upon the subject matter and consideration of the
sale. Therefore, on that date the sale was perfected. (Compare with
McCullough vs. Aenlle & Co., 3 Phil. 285; Goyena vs. Tambunting, 1
Phil. 490). Not only that Bormaheco's acceptance of the part payment
of one hundred ,thousand pesos shows that the sale was conditionally
consummated or partly executed subject to the purchase by
Bormaheco, Inc. of the Punta property. The nonconsummation of that
purchase would be a negative resolutory condition (Taylor vs. Uy Tieng
Piao, 43 Phil. 873).
On February 18, 1964 Bormaheco's bid for the Punta property was
already accepted by the Nassco which had authorized its General
Manager to sign the corresponding deed of sale. What was necessary
only was the approval of the sale by the Economic Coordinator and a
request for that approval was already pending in the office of that
functionary on March 4, 1964.

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

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 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.

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.

What the record reveals is that the broker, Miss Tagle, acted as
intermediary between the parties. It is safe to assume that the alleged
changes or qualifications made by Cervantes were approved by
Villonco Realty Company and that such approval was duly
communicated to Cervantes or Bormaheco, Inc. by the broker as
shown by the fact that Villonco Realty Company paid, and Bormaheco,
Inc. accepted, the sum of P100,000 as earnest money or down
payment. That crucial fact implies that Cervantes was aware that
Villonco Realty Company had accepted the modifications which he had
made in Villonco's counter-offer. Had Villonco Realty Company not
assented to those insertions and annotations, then it would have
stopped payment on its check for P100,000. The fact that Villonco
Realty Company allowed its check to be cashed by Bormaheco, Inc.
signifies that the company was in conformity with the changes made by
Cervantes and that Bormaheco, Inc. was aware of that conformity. Had
those insertions not been binding, then Bormaheco, Inc. would not
have paid interest at the rate of ten percent per annum, on the earnest
money of P100,000.
The truth is that the alleged changes or qualifications in the revised
counter offer (Exh. D) are not material or are mere clarifications of
what the parties had previously agreed upon.
Thus, Cervantes' alleged insertion in his handwriting of the figure and
the words "12th and" in Villonco's counter-offer is the same as the
statement found in the voucher-receipt for the earnest money, which
reads: "subject to the terms and conditions embodied in Bormaheco's
letter of Feb. 12, 1964 and your letter of March 4, 1964" (Exh. E-1).
Cervantes allegedly crossed out the word "Nassco" in paragraph 3 of
Villonco's revised counter-offer and substituted for it the word "another"
so that the original phrase, "Nassco's property in Sta. Ana", was made
to read as "another property in Sta. Ana". That change is trivial. What
Cervantes did was merely to adhere to the wording of paragraph 3 of
Bormaheco's original offer (Exh. B) which mentions "another property
located at Sta. Ana." His obvious purpose was to avoid jeopardizing his
negotiation with the Nassco for the purchase of its Sta. Ana property by
unduly publicizing it.
It is noteworthy that Cervantes, in his letter to the broker dated April 6,
1964 (Annex 1) or after the Nassco property had been awarded to
Bormaheco, Inc., alluded to the "Nassco property". At that time, there
was no more need of concealing from the public that Bormaheco, Inc.
was interested in the Nassco property.
Similarly, Cervantes' alleged insertion of the letters "PA" ( per annum)
after the word "interest" in that same paragraph 3 of the revised
counter-offer (Exh. D) could not be categorized as a major alteration of
that counter-offer that prevented a meeting of the minds of the parties.
It was understood that the parties had contemplated a rate of ten
percent per annum since ten percent a month or semi-annually would
be usurious.

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

Appellants' next contention is that the contract was not perfected

because the condition that Bormaheco, Inc. would acquire the Nassco
land within forty-five days from February 12, 1964 or on or before
March 28, 1964 was not fulfilled. This contention is tied up with the
following letter of Bormaheco, Inc. (Exh. F):
BORMAHECO, INC.
March 30, 1964
Villonco Realty Company
V.R.C. Building
219 Buendia Ave.,
Makati, Rizal
Gentlemen:
We are returning herewith your earnest money
together with interest thereon at 10% per annum.
Please be informed that despite the lapse of the
45 days from February 12, 1964 there is no
certainty yet for us to acquire a substitute property,
hence the return of the earnest money as agreed
upon.
Very truly yours,SGD. FRANCISCO N.
CERVANTES
President
Encl.: P.N.B. Check No. 112994 J
P.N.B. Check No. 112996J
That contention is predicated on the erroneous assumption that
Bormaheco, Inc. was to acquire the Nassco land within forty-five days
or on or before March 28, 1964.
The trial court ruled that the forty-five-day period was merely an
estimate or a forecast of how long it would take Bormaheco, Inc. to
acquire the Nassco property and it was not "a condition or a deadline
set for the defendant corporation to decide whether or not to go
through with the sale of its Buendia property".
The record does not support the theory of Bormaheco, Inc. and the
Cervantes spouses that the forty-five-day period was the time within
which (a) the Nassco property and two Pasong Tamo lots should be
acquired, (b) when Cervantes would secure his wife's consent to the
sale of the three lots and (c) when Bormaheco, Inc. had to decide what
to do with the DBP encumbrance.
Cervantes in paragraph 3 of his offer of February 12, 1964 stated that
the sale of the Buendia lots would be consummated after he had
consummated the purchase of the Nassco property. Then, in
paragraph 5 of the same offer he stated "that final negotiations on both
properties can be definitely known after forty-five days" (See Exh. B).
It is deducible from the tenor of those statements that the
consummation of the sale of the Buendia lots to Villonco Realty
Company was conditioned on Bormaheco's acquisition of the Nassco
land. But it was not spelled out that such acquisition should be effected
within forty-five days from February 12, 1964. Had it been Cervantes'
intention that the forty-five days would be the period within which the
Nassco land should be acquired by Bormaheco, then he would have
specified that period in paragraph 3 of his offer so that paragraph
would read in this wise: "That this sale is to be consummated only after
I shall have consummated my purchase of another property located at

Sta. Ana, Manila within forty-five days from the date hereof ." He could
have also specified that period in his "conforme" to Villonco's counteroffer of March 4, 1964 (Exh. D) so that instead of merely stating "that
this sale shall be subject to favorable consummation of a property in
Sta. Ana we are negotiating" he could have said: "That this sale shall
be subject to favorable consummation within forty-five days from
February 12, 1964 of a property in Sta. Ana we are negotiating".
No such specification was made. The term of forty-five days was not a
part of the condition that the Nassco property should be acquired. It is
clear that the statement "that final negotiations on both property can be
definitely known after 45 days" does not and cannot mean that
Bormaheco, Inc. should acquire the Nassco property within forty-five
days from February 12, 1964 as pretended by Cervantes. It is simply a
surmise that after forty-five days (in fact when the forty-five day period
should be computed is not clear) it would be known whether
Bormaheco, Inc. would be able to acquire the Nassco property and
whether it would be able to sell the Buendia property. That
aforementioned paragraph 5 does not even specify how long after the
forty-five days the outcome of the final negotiations would be known.
It is interesting to note that in paragraph 6 of Bormaheco's answer to
the amended complaint, which answer was verified by Cervantes, it
was alleged that Cervantes accepted Villonco's revised counter-offer of
March 4, 1964 subject to the condition that "the final negotiations
(acceptance) will have to be made by defendant within 45 daysfrom
said acceptance" (31 Record on Appeal). If that were so, then the
consummation of Bormaheco's purchase of the Nassco property would
be made within forty-five days from March 4, 1964.
What makes Bormaheco's stand more confusing and untenable is that
in its three answers it invariably articulated the incoherent and vague
affirmative defense that its acceptance of Villonco's revised counteroffer 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).1wph1.t
Thus, Bormaheco's three answers and paragraph 5 of his offer of
February 12, 1964 do not sustain at all its theory that the Nassco
property should be acquired on or before March 28, 1964. Its
rescission or revocation of its acceptance cannot be anchored on that
theory which, as articulated in its pleadings, is quite equivocal and
unclear.
It should be underscored that the condition that Bormaheco, Inc.
should acquire the Nassco property was fulfilled. As admitted by the
appellants, the Nassco property was conveyed to Bormaheco, Inc. on
June 26, 1964. As early as January 17, 1964 the property was
awarded to Bormaheco, Inc. as the highest bidder. On February 18,
1964 the Nassco Board authorized its General Manager to sell the
property to Bormaheco, Inc. (Exh. H). The Economic Coordinator
approved the award on March 24, 1964. It is reasonable to assume
that had Cervantes been more assiduous in following up the
transaction, the Nassco property could have been transferred to
Bormaheco, Inc. on or before March 28, 1964, the supposed last day
of the forty-five-day period.
The appellants, in their fifth assignment of error, argue that
Bormaheco, Inc. cannot be required to sell the three lots in question
because they are conjugal properties of the Cervantes spouses. They
aver that Cervantes in dealing with the Villonco brothers acted as
president of Bormaheco, Inc. and not in his individual capacity and,
therefore, he did not bind the conjugal partnership nor Mrs. Cervantes
who was allegedly opposed to the sale.

Those arguments are not sustainable. It should be remembered that

Cervantes, in rescinding the contract of sale and in returning the
earnest money, cited as an excuse the circumstance that there was no
certainty in Bormaheco's acquisition of the Nassco property (Exh. F
and Annex 1). He did not say that Mrs. Cervantes was opposed to the
sale of the three lots. He did not tell Villonco Realty Company that he
could not bind the conjugal partnership. In truth, he concealed the fact
that the three lots were registered "in the name of FRANCISCO
CERVANTES, Filipino, of legal age, married to Rosario P. Navarro, as
owner thereof in fee simple". He certainly led the Villonco brothers to
believe that as president of Bormaheco, Inc. he could dispose of the
said lots. He inveigled the Villoncos into believing that he had
untrammelled control of Bormaheco, Inc., that Bormaheco, Inc. owned
the lots and that he was invested with adequate authority to sell the
same.

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).

Thus, in Bormaheco's offer of February 12, 1964, Cervantes first

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

It is significant to note that Bormaheco, Inc. in its three answers, which

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

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.

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.

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 letteroffer, a copy of which is hereto attached as Annex A hereof", now
Exhibit B (2 Record on Appeal).
That paragraph 2 was not, repeat, was not denied by Bormaheco, Inc.
in its answer dated May 5, 1964. It did not traverse that paragraph 2.
Hence, it was deemed admitted. However, it filed an amended answer
dated May 25, 1964 wherein it denied that it was the owner of the three
lots. It revealed that the three lots "belong and are registered in the
names of the spouses Francisco N. Cervantes and Rosario N.
Cervantes."
The three answers of Bormaheco, Inc. contain the following affirmative
defense:
13. That defendant's insistence to finally decide on
the proposed sale of the land in question after 45
days had not only for its purpose the determination
of its acquisition of the said Sta. Ana (Nassco)
property during the said period, but also to
negotiate with the actual and registered owner of
the parcels of land covered by T.C.T. Nos. 43530,
43531 and 43532 in question which plaintiff was
fully aware that the same were not in the name of
the defendant (sic; Par. 18 of Answer to Amended
Complaint, 10, 18 and 34, Record on Appeal).

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.

But that defense must have been an afterthought or was evolved post
litem motam since it was never disclosed in Cervantes' letter of
rescission and in his letter to Miss Tagle (Exh. F and Annex 1).
Moreover, Mrs. Cervantes did not testify at the trial to fortify that
defense which had already been waived for not having been pleaded
(See sec. 2, Rule 9, Rules of Court).
Taking into account the situation of Cervantes vis-a-vis Bormaheco,
Inc. and his wife and the fact that the three lots were entirely occupied
by Bormaheco's building, machinery and equipment and were
mortgaged to the DBP as security for its obligation, and considering
that appellants' vague affirmative defenses do not include Mrs.
Cervantes' alleged opposition to the sale, the plea that Cervantes had
no authority to sell the lots strains the rivets of credibility (Cf. Papa and
Delgado vs. Montenegro, 54 Phil. 331; Riobo vs. Hontiveros, 21 Phil.
31).
"Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith" (Art.
1159, Civil Code). Inasmuch as the sale was perfected and even partly
executed, Bormaheco, Inc., and the Cervantes spouses, as a matter of
justice and good faith, are bound to comply with their contractual
commitments.
Parenthetically, it may be observed that much misunderstanding could
have been avoided had the broker and the buyer taken the trouble of
making some research in the Registry of Deeds and availing
themselves of the services of a competent lawyer in drafting the
contract to sell.
Bormaheco, Inc. and the Cervantes spouses in their sixth assignment
of error assail the trial court's award to Villonco Realty Company of
consequential damage amounting to ten thousand pesos monthly from

March 24, 1964 (when the Economic Coordinator approved the award
of the Nassco property to Bormaheco, Inc.) up to the consummation of
the sale. The award was based on paragraph 18 of the stipulation of
facts wherein Villonco Realty Company "submits that the delay in the
consummation of the sale" has caused it to suffer the aforementioned
damages.
The appellants contend that statement in the stipulation of facts simply
means that Villonco Realty Company speculates that it has suffered
damages but it does not mean that the parties have agreed that
Villonco Realty Company is entitled to those damages.
Appellants' contention is correct. As rightly observed by their counsel,
the damages in question were not specifically pleaded and proven and
were "clearly conjectural and speculative".
However, appellants' view in their seventh assignment of error that the
trial court erred in ordering Bormaheco, Inc. to pay Villonco Realty
Company the sum of twenty thousand pesos as attorney's fees is not
tenable. Under the facts of the case, it is evident that Bormaheco, Inc.
acted in gross and evident bad faith in refusing to satisfy the valid and
just demand of Villonco Realty Company for specific performance. It
compelled Villonco Realty Company to incure expenses to protect its
interest. Moreover, this is a case where it is just and equitable that the
plaintiff should recover attorney's fees (Art. 2208, Civil Code).
The appellants in their eighth assignment of error impugn the trial
court's adjudication of forty-two thousand pesos as three percent
broker's commission to Miss Tagle. They allege that there is no
evidence that Bormaheco, Inc. engaged her services as a broker in the
projected sale of the three lots and the improvements thereon. That
allegation is refuted by paragraph 3 of the stipulation of facts and by
the documentary evidence. It was stipulated that Miss Tagle intervened
in the negotiations for the sale of the three lots. Cervantes in his
original offer of February 12, 1964 apprised Villonco Realty Company
that the earnest money should be delivered to Miss Tagle, the bearer
of the letter-offer. See also Exhibit G and Annex I of the stipulation of
facts.

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.
G.R. No. 157493

February 5, 2007

RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and

FERNANDO, ERNESTO, LEONORA, BIBIANO, JR., LIBRADO and
ENRIQUETA, all surnamed OESMER, Petitioners,
vs.
PARAISO DEVELOPMENT CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of
the 1997 Revised Rules of Civil Procedure seeking to reverse and set
aside the Court of Appeals Decision1 dated 26 April 2002 in CA-G.R.
CV No. 53130 entitled, Rizalino, Ernesto, Leonora, Bibiano, Jr.,
Librado, Enriqueta, Adolfo, and Jesus, all surnamed Oesmer vs.
Paraiso Development Corporation, as modified by its Resolution2 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:

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).

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 coowners of undivided shares of two parcels of agricultural and tenanted
land situated in Barangay Ulong Tubig, Carmona, Cavite, identified as
Lot 720 with an area of 40,507 square meters (sq. m.) and Lot 834
containing an area of 14,769 sq. m., or a total land area of 55,276 sq.
m. Both lots are unregistered and originally owned by their parents,
Bibiano Oesmer and Encarnacion Durumpili, who declared the lots for
taxation purposes under Tax Declaration No. 34383(cancelled by I.D.
No. 6064-A) for Lot 720 and Tax Declaration No. 34374 (cancelled by
I.D. No. 5629) for Lot 834. When the spouses Oesmer died,
petitioners, together with Adolfo and Jesus, acquired the lots as heirs
of the former by right of succession.
Respondent Paraiso Development Corporation is known to be
engaged in the real estate business.
Sometime in March 1989, Rogelio Paular, a resident and former
Municipal Secretary of Carmona, Cavite, brought along petitioner
Ernesto to meet with a certain Sotero Lee, President of respondent
Paraiso Development Corporation, at Otani Hotel in Manila. The said
meeting was for the purpose of brokering the sale of petitioners
properties to respondent corporation.

Pursuant to the said meeting, a Contract to Sell5 was drafted by the

Executive Assistant of Sotero Lee, Inocencia Almo. On 1 April 1989,
petitioners Ernesto and Enriqueta signed the aforesaid Contract to
Sell. A check in the amount of 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 letter6 dated 1 November 1989, addressed to respondent
corporation, petitioners informed the former of their intention to rescind
the Contract to Sell and to return the amount of 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
Complaint7 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 Decision9 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.1awphi1.net Judgment is hereby rendered in favor of herein
[respondent] Paraiso Development Corporation. The assailed Contract
to Sell is valid and binding with respect to the undivided proportionate
shares of the six (6) signatories of this document, [herein petitioners],
namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and
Leonora (all surnamed Oesmer). The said [petitioners] are hereby
ordered to execute the Deed of Absolute Sale concerning their 6/8
share over the subject two parcels of land in favor of herein
[respondent] corporation, and to pay the latter 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 price of the subject two parcels of land. 12
Hence, this Petition for Review on Certiorari.
Petitioners come before this Court arguing that the Court of Appeals
erred:
I. On a question of law in not holding that, the supposed
Contract to Sell (Exhibit D) is not binding upon petitioner
Ernesto Oesmers co-owners (herein petitioners Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora).
II. On a question of law in not holding that, the supposed
Contract to Sell (Exhibit D) is void altogether considering that
respondent itself did not sign it as to indicate its consent to
be bound by its terms. Moreover, Exhibit D is really a
unilateral promise to sell without consideration distinct from
the price, and hence, void.
Petitioners assert that the signatures of five of them namely: Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora, on the margins of the
supposed Contract to Sell did not confer authority on petitioner Ernesto
as agent to sell their respective shares in the questioned properties,
and hence, for lack of written authority from the above-named
petitioners to sell their respective shares in the subject parcels of land,
the supposed Contract to Sell is void as to them. Neither do their
signatures signify their consent to directly sell their shares in the
questioned properties. Assuming that the signatures indicate consent,
such consent was merely conditional. The effectivity of the alleged
Contract to Sell was subject to a suspensive condition, which is the
approval of the sale by all the co-owners.
Petitioners also assert that the supposed Contract to Sell (Exhibit D),
contrary to the findings of the Court of Appeals, is not couched in
simple language.
They further claim that the supposed Contract to Sell does not bind the
respondent because the latter did not sign the said contract as to

indicate its consent to be bound by its terms. Furthermore, they

maintain that the supposed Contract to Sell is really a unilateral
promise to sell and the option money does not bind petitioners for lack
of cause or consideration distinct from the purchase price.
The Petition is bereft of merit.
It is true that the signatures of the five petitioners, namely: Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora, on the Contract to Sell did
not confer authority on petitioner Ernesto as agent authorized to sell
their respective shares in the questioned properties because of Article
1874 of the Civil Code, which expressly provides that:
Art. 1874. When a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.
The law itself explicitly requires a written authority before an agent can
sell an immovable. The conferment of such an authority should be in
writing, in as clear and precise terms as possible. It is worth noting that
petitioners signatures are found in the Contract to Sell. The Contract is
absolutely silent on the establishment of any principal-agent
relationship between the five petitioners and their brother and copetitioner 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 ofP3,316,560.00 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 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.

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 coowners. The Contract to Sell is clear enough. It is a cardinal rule in the
interpretation of contracts that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulation shall control.18 The terms of the Contract to
Sell made no mention of the condition that before it can become valid
and binding, a unanimous consent of all the heirs is necessary. Thus,
when the language of the contract is explicit, as in the present case,
leaving no doubt as to the intention of the parties thereto, the literal
meaning of its stipulation is controlling.
In addition, the petitioners, being owners of their respective undivided
shares in the subject properties, can dispose of their shares even
without the consent of all the co-heirs. Article 493 of the Civil Code
expressly provides:
Article 493. Each co-owner shall have the full ownership of his part and
of the fruits and benefits pertaining thereto, and he may
therefore alienate, assign or mortgage it, and even substitute
another person in its enjoyment, except when personal rights are
involved. But the effect of the alienation or the mortgage, with respect
to the co-owners, shall be limited to the portion which may be allotted
to him in the division upon the termination of the co-ownership.
[Emphases supplied.]
Consequently, even without the consent of the two co-heirs, Adolfo and
Jesus, the Contract to Sell is still valid and binding with respect to the
6/8 proportionate shares of the petitioners, as properly held by the
appellate court.
Therefore, this Court finds no error in the findings of the Court of
Appeals that all the petitioners who were signatories in the Contract to
Sell are bound thereby.

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

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 isDECLARED 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 ofP3,216,560.00 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.
SO ORDERED.
G.R. No. 160132

April 17, 2009

SERAFIN, RAUL, NENITA, NAZARETO, NEOLANDA, all surnamed

NARANJA, AMELIA NARANJA-RUBINOS, NILDA NARANJALIMANA, and NAIDA NARANJA-GICANO, Petitioners,
vs.
COURT OF APPEALS, LUCILIA P. BELARDO, represented by her
Attorney-in-Fact, REBECCA CORDERO, and THE LOCAL
REGISTER OF DEEDS, BACOLOD CITY, Respondents.

DECISION
NACHURA, J.:
This petition seeks a review of the Court of Appeals (CA)
Decision1 dated September 13, 2002 and Resolution2dated 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 co-owned 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 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.)
ROQUE NARANJA6

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 ofP30,000.00. 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. Dema-ala returned the certificates of title to Belardo, who, in turn,
gave them back to Atty. Sanicas.11

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. Dismissing Civil Case No. 7144.
2. Civil Case No. 7214.
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;

Unknown to Belardo, petitioners, the children of Placido and Gabino

Naranja, executed an Extrajudicial Settlement Among Heirs12 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

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;

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
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-infact, 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

c) Ordering Lucilia Belardo or her successors-ininterest to pay plaintiffs the sum of 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. T-140184) 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.
2. 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 forumshopping.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.1avvphi1
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-ininterest.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.

(a) Ordering the defendants to deliver to the

plaintiff the parcel of land subject of this case,
declared in the name of Segundo Dalion
previously under Tax Declaration No. 11148 and
lately under Tax Declaration No. 2297 (1974) and
to execute the corresponding formal deed of
conveyance in a public document in favor of the
plaintiff of the said property subject of this case,
otherwise, should defendants for any reason fail to
do so, the deed shall be executed in their behalf
by the Provincial Sheriff or his Deputy;
(b) Ordering the defendants to pay plaintiff the
amount of P2,000.00 as attorney's fees and P
500.00 as litigation expenses, and to pay the
costs; and
(c) Dismissing the counter-claim. (p. 38, Rollo)
The facts of the case are as follows:

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
SPS. SEGUNDO DALION AND EPIFANIA SABESAJEDALION, petitioners,
vs.
THE HONORABLE COURT OF APPEALS AND RUPERTO
SABESAJE, JR., respondents.
Francisco A. Puray, Sr. for petitioners.
Gabriel N. Duazo for private respondent.

MEDIALDEA, J.:
This is a petition to annul and set aside the decision of the Court of
Appeals rendered on May 26, 1987, upholding the validity of the sale
of a parcel of land by petitioner Segundo Dalion (hereafter, "Dalion") in
favor of private respondent Ruperto Sabesaje, Jr. (hereafter,
"Sabesaje"), described thus:
A parcel of land located at Panyawan, Sogod,
Southern Leyte, declared in the name of Segundo
Dalion, under Tax Declaration No. 11148, with an
area of 8947 hectares, assessed at P 180.00, and
bounded on the North, by Sergio Destriza and
Titon Veloso, East, by Feliciano Destriza, by
Barbara Bonesa (sic); and West, by Catalino
Espina. (pp. 36-37, Rollo)
The decision affirms in toto the ruling of the trial court 1 issued on
January 17, 1984, the dispositive portion of which provides as follows:
WHEREFORE, IN VIEW OF THE FOREGOING,
the Court hereby renders judgment.

On May 28, 1973, Sabesaje sued to recover ownership of a parcel of

land, based on a private document of absolute sale, dated July 1, 1965
(Exhibit "A"), allegedly executed by Dalion, who, however denied the
fact of sale, contending that the document sued upon is fictitious, his
signature thereon, a forgery, and that subject land is conjugal property,
which he and his wife acquired in 1960 from Saturnina Sabesaje as
evidenced by the "Escritura de Venta Absoluta" (Exhibit "B"). The
spouses denied claims of Sabesaje that after executing a deed of sale
over the parcel of land, they had pleaded with Sabesaje, their relative,
to be allowed to administer the land because Dalion did not have any
means of livelihood. They admitted, however, administering since
1958, five (5) parcels of land in Sogod, Southern Leyte, which
belonged to Leonardo Sabesaje, grandfather of Sabesaje, who died in
1956. They never received their agreed 10% and 15% commission on
the sales of copra and abaca, respectively. Sabesaje's suit, they
countered, was intended merely to harass, preempt and forestall
Dalion's threat to sue for these unpaid commissions.
From the adverse decision of the trial court, Dalion appealed,
assigning errors some of which, however, were disregarded by the
appellate court, not having been raised in the court below. While the
Court of Appeals duly recognizes Our authority to review matters even
if not assigned as errors in the appeal, We are not inclined to do so
since a review of the case at bar reveals that the lower court has
judicially decided the case on its merits.
As to the controversy regarding the identity of the land, We have no
reason to dispute the Court of Appeals' findings as follows:
To be sure, the parcel of land described in Exhibit
"A" is the same property deeded out in Exhibit "B".
The boundaries delineating it from adjacent lots
are identical. Both documents detail out the
following boundaries, to wit:
On the North-property of Sergio Destriza and Titon
Veloso;
On the East-property of Feliciano Destriza;
On the South-property of Barbara Boniza and
On the West-Catalino Espina.

(pp. 41-42, Rollo)

The issues in this case may thus be limited to: a) the validity of the
contract of sale of a parcel of land and b) the necessity of a public
document for transfer of ownership thereto.
The appellate court upheld the validity of the sale on the basis of Secs.
21 and 23 of Rule 132 of the Revised Rules of Court.
SEC. 21. Private writing, its execution and
authenticity, how proved.-Before any private
writing may be received in evidence, its due
execution and authenticity must be proved either:
(a) By anyone who saw the writing executed;
(b) By evidence of the genuineness of the
handwriting of the maker; or
(c) By a subscribing witness
xxx xxx xxx
SEC. 23. Handwriting, how proved. The
handwriting of a person may be proved by any
witness who believes it to be the handwriting of
such person, and has seen the person write, or
has seen writing purporting to be his upon which
the witness has acted or been charged, and has
thus acquired knowledge of the handwriting of
such person. Evidence respecting the handwriting
may also be given by a comparison, made by the
witness or the court, with writings admitted or
treated as genuine by the party against whom the
evidence is offered, or proved to be genuine to the
satisfaction of the judge. (Rule 132, Revised Rules
of Court)
And on the basis of the findings of fact of the trial court as follows:

own affirmative allegations (Section 1, Rule 131,

Rules of Court). Furthermore, it is presumed that a
person is innocent of a crime or wrong (Section 5
(a), Idem), and defense should have come forward
with clear and convincing evidence to show that
plaintiff committed forgery or caused said forgery
to be committed, to overcome the presumption of
innocence. Mere denial of having signed, does not
suffice to show forgery.
In addition, a comparison of the questioned
signatories or specimens (Exhs. A-2 and A-3) with
the admitted signatures or specimens (Exhs. X
and Y or 3-C) convinces the court that Exhs. A-2
or Z and A-3 were written by defendant Segundo
Dalion who admitted that Exhs. X and Y or 3-C are
his signatures. The questioned signatures and the
specimens are very similar to each other and
appear to be written by one person.
Further comparison of the questioned signatures
and the specimens with the signatures Segundo
D. Dalion appeared at the back of the summons
(p. 9, Record); on the return card (p. 25, Ibid.);
back of the Court Orders dated December 17,
1973 and July 30, 1974 and for October 7, 1974
(p. 54 & p. 56, respectively, Ibid.), and on the open
court notice of April 13, 1983 (p. 235, Ibid.) readily
reveal that the questioned signatures are the
signatures of defendant Segundo Dalion.
It may be noted that two signatures of Segundo D.
Dalion appear on the face of the questioned
document (Exh. A), one at the right corner bottom
of the document (Exh. A-2) and the other at the left
hand margin thereof (Exh. A-3). The second
signature is already a surplusage. A forger would
not attempt to forge another signature, an
unnecessary one, for fear he may commit a
revealing error or an erroneous stroke. (Decision,
p. 10) (pp. 42-43, Rollo)

Here, people who witnessed the execution of

subject deed positively testified on the authenticity
thereof. They categorically stated that it had been
executed and signed by the signatories thereto. In
fact, one of such witnesses, Gerardo M. Ogsoc,
declared on the witness stand that he was the one
who prepared said deed of sale and had copied
parts thereof from the "Escritura De Venta
Absoluta" (Exhibit B) by which one Saturnina
Sabesaje sold the same parcel of land to appellant
Segundo Dalion. Ogsoc copied the bounderies
thereof and the name of appellant Segundo
Dalion's wife, erroneously written as "Esmenia" in
Exhibit "A" and "Esmenia" in Exhibit "B". (p. 41,
Rollo)

We see no reason for deviating from the appellate court's ruling (p. 44,
Rollo) as we reiterate that

xxx xxx xxx

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).

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

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)

This argument is misplaced. The provision of Art. 1358 on the

necessity of a public document is only for convenience, not for validity
or enforceability. It is not a requirement for the validity of a contract of
sale of a parcel of land that this be embodied in a public instrument.
A contract of sale is a consensual contract, which means that the sale
is perfected by mere consent. No particular form is required for its
validity. Upon perfection of the contract, the parties may reciprocally
demand performance (Art. 1475, NCC), i.e., the vendee may compel
transfer of ownership of the object of the sale, and the vendor may
require the vendee to pay the thing sold (Art. 1458, NCC).
The trial court thus rightly and legally ordered Dalion to deliver to
Sabesaje the parcel of land and to execute corresponding formal deed
of conveyance in a public document. Under Art. 1498, NCC, when the
sale is made through a public instrument, the execution thereof is
equivalent to the delivery of the thing. Delivery may either be actual
(real) or constructive. Thus delivery of a parcel of land may be done by
placing the vendee in control and possession of the land (real) or by
embodying the sale in a public instrument (constructive).
As regards petitioners' contention that the proper action should have
been one for specific performance, We believe that the suit for
recovery of ownership is proper. As earlier stated, Art. 1475 of the Civil
Code gives the parties to a perfected contract of sale the right to
reciprocally demand performance, and to observe a particular form, if
warranted, (Art. 1357). The trial court, aptly observed that Sabesaje's
complaint sufficiently alleged a cause of action to compel Dalion to
execute a formal deed of sale, and the suit for recovery of ownership,
which is premised on the binding effect and validity inter partes of the
contract of sale, merely seeks consummation of said contract.
... . A sale of a real property may be in a private
instrument but that contract is valid and binding
between the parties upon its perfection. And a
party may compel the other party to execute a
public instrument embodying their contract
affecting real rights once the contract appearing in
a private instrument hag been perfected (See Art.
1357).
... . (p. 12, Decision, p. 272, Records)
ACCORDINGLY, the petition is DENIED and the decision of the Court
of Appeals upholding the ruling of the trial court is hereby AFFIRMED.
No costs.

for specific performance and damages against private respondents

Bank of Philippine Island (BPI) and National Book Store (NBS).
Petitioner Limketkai Sons Milling, Inc., opposed the motion and filed its
Consolidated Comment, to which private respondent NBS filed a
Reply. Thereafter, petitioner filed its Manifestation and Motion for the
voluntary inhibition of Chief Justice Andres R. Narvasa from taking part
in any "subsequent deliberations in this case". The Honorable Chief
Justice declined. 1
The Court is swayed to reconsider.
The bottom line issue is whether or not a contract of sale of the subject
parcel of land existed between the petitioner and respondent BPI. A reevaluation of the attendant facts and the evidence on record,
specifically petitioner's Exhibits "A" to "I", yields the negative. To
elaborate:
Exhibit "A" 2 is a Deed of Trust dated May 14, 1976, entered into
between Philippine Remnants Co., Inc., as grantor, and respondent
BPI, as trustee, stating that subject property covered by TCT 493122
(formerly TCT No. 27324) 3 "has [been] assigned, transferred,
conveyed and set over unto the Trustee" 4 expressly authorizing and
empowering the same "in its own name to sell and dispose of said trust
property or any lot or parcel thereof 5 and "to facilitate [the] sale of the
trust property, the Trustee may engage the services of real estate
broker or brokers, under such terms and conditions which the Trustee
may deem proper, to sell the Trust property or any lot or parcel
thereof." 6
Exhibit "B" is a Letter of Authority for the petitioner issued by
respondent BPI to Pedro A. Revilla, Jr., a real estate broker, to sell the
property pursuant to the Deed of Trust. The full text of Exhibit "B" is
hereby quoted:
Trust Account No. 75-09
23 June 1988
ASSETRADE CO.
70 San Francisco St.
Capitol Subdivision
Pasig, Metro Manila
Attention: Mr. Pedro P. Revilla, Jr.
Managing Partner

SO ORDERED.
-----------------------G.R. No. 118509 March 29, 1996
LIMKETKAI SONS MILLING INC., petitioner,
vs.
COURT OF APPEALS, ET AL., respondents.
RESOLUTION

Gentlemen:
This will serve as your authority to sell on an "as is" "where
is" basis the property located at Pasig Blvd., Bagong Ilog,
Pasig, Metro Manila, under the following details and basic
terms and conditions:
TCT No. : 493122 in the name of BPI as trustee of
Philippine Remnants Co., Inc.

FRANCISCO, J.:p
In this motion for reconsideration, the Court * is called upon to take a
second hard look on its December 1, 1995 decision reversing and
setting aside respondent Court of Appeals' judgment of August 12,
1994 that dismissed petitioner Limketkai Sons Milling Inc.'s complaint

Area : 33,056.0 square meters (net of 890

sq. m. sold to the Republic of the
Philippines due to the widening of
Pasig Blvd.)

Price : P1,100.00 per sq. m. or P36,361,600.00

Terms : Cash
Broker's Commission : 2%
Others : a) Documentary (sic) stamps to be
affixed to Deed of Absolute Sale,
transfer tax, registration expenses,
and other titling expenses for account
of the Buyer.
b) Capital gains tax, if payable, and
real estate taxes up to 30 June 1988
shall be for the account of the Seller.
This authority which is good for thirty (30) days only from
date hereof is non-exclusive and on a "first-come" "firstserve" basis.
Very truly yours,
BANK OF THE PHILIPPINE ISLANDS
as trustee of
Philippine Remnants Co., Inc.
(Sgd.) (Sgd.)
FERNANDO J. SISON, III ALFONSO R. ZAMORA
Assistant Vice-President Vice President
[Note: Emphasis supplied]

security guard on duty at subject property to allow him

(Revilla, Jr.) and his companion to conduct an ocular
inspection of the premises. 7
Exhibit "D" is a letter addressed by Pedro Revilla, Jr. to respondent BPI
informing the latter that he has procured a prospective buyer. 8
Exhibit "E" is the written proposal submitted by Alfonso Y. Lim in behalf
of petitioner Limketkai Sons Milling, Inc., offering to buy the subject
property at P1,000.00/sq. m. 9
Exhibit "F" is respondent BPI's letter addressed to petitioner pointing
out that petitioner's proposal embodied in its Letter (Exhibit "E") has
been rejected by the respondent BPI's Trust Committee. 10
Exhibit "G" is petitioner's letter dated July 22, 1988 reiterating its offer
to buy the subject property at P1,000/sq. m. but now on cash basis. 11
Exhibit "H" refers to respondent BPI's another rejection of petitioner's
offer to buy the property at P1,000/sq. m. 12
And finally, Exhibit "I" is a letter by petitioner addressed to respondent
BPI claiming the existence of a perfected contract of sale of the subject
property between them. 13

These exhibits, either scrutinized singly or collectively, do not reveal a

perfection of the purported contract of sale. Article 1458 of the Civil
Code defines a contract of sale as follows:
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.
Article 1475 of the same code specifically provides when a
contract of sale is deemed perfected, to wit:
Art. 1475. The contract of sale is perfected at the
moment there is 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.
The Court in Toyota Shaw, Inc. v. Court of Appeals 14 had
already ruled that a definite agreement on the manner of
payment of the price is an essential element in the formation
of a binding and enforceable contract of sale. Petitioner's
exhibits did not establish any definitive agreement or
meeting of the minds between the concerned parties as
regards the price or term of payment. Instead, what merely
appears therefrom is respondent BPI's repeated rejection of
the petitioner's proposal to buy the property at P1,000/sq.
m. 15 In addition, even on the assumption that Exhibit "E"
reflects that respondent BPI offered to sell the disputed
property for P1,000/sq. m., petitioner's acceptance of the
offer is conditioned upon or qualified by its proposed
terms 16 to which respondent BPI must first agree with.
On the subject of consent as an essential element of contracts, Article
1319 of the Civil Code has this to say:
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.
xxx xxx xxx
The acceptance of an offer must therefor be unqualified and
absolute. In other words, it must be identical in all respects
with that of the offer so as to produce consent or meeting of
the minds. This was not the case herein considering that
petitioner's acceptance of the offer was qualified, which
amounts to a rejection of the original offer. 17 And contrary to
petitioner's assertion that its offer was accepted by
respondent BPI, there was no showing that petitioner
complied with the terms and conditions explicitly laid down
by respondent BPI for prospective buyers. 18 Neither was the
petitioner able to prove that its offer to buy the subject
property was formally approved by the beneficial owner of
the property and the Trust Committee of the Bank; an
essential requirement for the acceptance of the offer which
was clearly specified in Exhibits F and H. Even more telling
is petitioner's unexplained failure to reduce in writing the

alleged acceptance of its offer to buy the property at

P1,000/sq. m.

notes to prove the existence of a perfected oral

contract of sale when in truth there is none.

The Court also finds as unconvincing petitioner's representation under

Exhibits "E", "G", and "I" that its proposal to buy the subject property
for P1,000/sq. m. has been accepted by respondent BPI, considering
that none of the said Exhibits contained the signature of any
responsible official of respondent bank.

In adherence to the provisions of the Statute of

Frauds, the examination and evaluation of the
notes or memoranda adduced by the appellee
was confined and limited to within the four corners
of the documents. To go beyond what appears on
the face of the documents constituting the notes
or memoranda, stretching their import beyond
what is written in black and white, would certainly
be uncalled for, if not violative of the Statute of
Frauds and opening the doors to fraud, the very
evil sought to be avoided by the statute. In fine,
considering that the documents adduced by the
appellee do not embody the essentials of the
contract of sale aside from not having been
subscribed by the party charged or its agent, the
transaction involved definitely falls within the ambit
of the Statute of Frauds. 20

It is therefore evident from the foregoing that petitioner's documentary

evidence floundered in establishing its claim of a perfected contract of
sale.
Moreover, petitioner's case failed to hurdle the strict requirements of
the Statute of Frauds. Article 1403 of the Civil Code states:
Art. 1403. The following contracts are
unenforceable, unless they are ratified:
xxx xxx xxx

[Note: Emphasis added]

(2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the following
cases an agreement thereafter 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 long period
than one year, or for the sale of real property or of
an interest therein.
xxx xxx xxx
In this case there is a patent absence of any deed of sale
categorically conveying the subject property from respondent
BPI to petitioner. Exhibits "E", "G", "I" which petitioner claims
as proof of perfected contract of sale between it and
respondent BPI were not subscribed by the party
charged, i.e., BPI and did not constitute the memoranda or
notes that the law speaks of. 19 To consider them sufficient
compliance with the Statute of Frauds is to betray the
avowed purpose of the law to prevent fraud and perjury in
the enforcement of obligations. We share, in this connection,
respondent Court of Appeals' observation when it said:
. . . The requirement that the notes or memoranda
be subscribed by BPI or its agents, as the party
charged, is very vital for the strict compliance with
the avowed purpose of the Statute of Frauds
which 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 (Asia Production Co.,
Inc. vs. Pano, 205 SCRA 458). It cannot be
gainsaid that a shrewd person could easily
concoct a story in his letters addressed to the
other party and present the letters to the court as

Corrolarily, as the petitioner's exhibits failed to establish the perfection

of the contract of sale, oral testimony cannot take their place without
violating the parol evidence rule. 21 It was therefore irregular for the trial
court to have admitted in evidence testimony to prove the existence of
a contract of sale of a real property between the parties despite the
persistent objection made by private respondents' counsels as early as
the first scheduled hearing. While said counsels cross-examined the
witnesses, this, to our view, did not constitute a waiver of the parol
evidence rule. The Talosig v. Vda.de Nieba, 22 and Abrenica v. Gonda
and de Gracia 23 cases cited by the Court in its initial decision, which
ruled to the effect that an objection against the admission of any
evidence must be made at the proper time, i.e., ". . . at the time
question is asked", 24 and that if not so made it will be understood to
have been waived, do not apply as these two cases involved
facts 25 different from the case at bench. More importantly, here, the
direct testimonies of the witnesses were presented in "affidavit-form"
where prompt objection to inadmissible evidence is hardly possible,
whereas the direct testimonies in these cited cases were delivered
orally in open court. The best that counsels could have done, and
which they did, under the circumstances was to preface the crossexamination with objection. Thus:
ATTY. VARGAS:
Before I proceed with the cross-examination of the witness, your
Honor, may we object to the particular portion of the affidavit
which attempt to prove the existence of a verbal contract to
sell more specifically the answers contained in page 3. Par. 1,
the whole of the answer.
xxx xxx xxx
COURT:
Objection overruled.
ATTY. VARGAS:
Your Honor, what has been denied by the Court was the motion
for preliminary hearing on affirmative defenses. The statement
made by the witness to prove that there was a verbal contract to
sell is inadmissible in evidence in this case because an
agreement must be in writing.

COURT:
Go ahead, that has been already overruled.
ATTY. VARGAS:
So may we reiterate our objection with regards to all other
portions of the affidavit which deal on the verbal contract. (TSN,
Feb. 28, 1989, pp. 3-5: Emphasis supplied.) 26
xxx xxx xxx
ATTY. CORNAGO:
Before we proceed, we would like to make of record our
continuing objection in so far as questions and answers
propounded to Pedro Revilla dated February 27, 1989, in so far
as questions would illicit (sic) answers which would be violative
of the best evidence rule in relation to Art. 1403. I refer to
questions nos. 8, 13, 16 and 19 of the affidavit of this witness
which is considered as his direct testimony. (T.S.N., June 29,
1990, p. 2)
ATTY. CORNAGO:
May we make of record our continued objection on the testimony
which is violative of the best evidence rule in relation to Art. 1403
as contained in the affidavit particularly questions Nos. 12, 14 19
and 20 of the affidavit of Alfonso Lim executed on February 24,
1989. . . . (T.S.N., June 28, 1990, p. 8). 27
Counsels should not be blamed and, worst, penalized for taking
the path of prudence by choosing to cross-examine the
witnesses instead of keeping mum and letting the inadmissible
testimony in "affidavit form" pass without challenge. We thus
quote with approval the observation of public respondent Court
of Appeals on this point:
As a logical consequence of the above findings, it follows
that the court a quo erred in allowing the appellee to introduce
parol evidence to prove the existence of a perfected contract of
sale over and above the objection of the counsel for the
defendant-appellant. The records show that the court a quo
allowed the direct testimony of the witnesses to be in affidavit
form subject to cross-examination by the opposing counsel. If
the purpose thereof was to prevent the opposing counsel from
objecting timely to the direct testimony, the scheme failed for as
early as the first hearing of the case on February 28, 1989
during the presentation of the testimony in affidavit form of
Pedro Revilla, Jr., plaintiff-appellee's first witness, the
presentation of such testimony was already objected to as
inadmissible. 28
[Emphasis supplied.]
WHEREFORE, in view of the foregoing premises, the Court hereby
GRANTS the motion for reconsideration, and SETS ASIDE its
December 1, 1995 decision. Accordingly, the petition is DENIED and
the Court of Appeals' decision dated August 12, 1994, appealed from is
AFFIRMED in toto.
SO ORDERED.
G.R. No. 105647*

July 31, 2001

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.
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 PLS285-D, located in Bo. 3, Banga, Cotabato, containing an
area of ten (10) hectares, forty-three (43) acres and sixtyeight (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 defendant-appellant 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, defendantappellant 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
injunction and/ or restraining order against defendantappellant 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 defendantappellant, 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 defendantappellant 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 plaintiff's alleged
right, if any, is barred by the statutes of fraud. As
counterclaim, defendant-appellant prayed that plaintiffsappellees 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.

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 defendant-appellant within
ten (10) days from the finality of this decision. With costs
against plaintiffs-appellees.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.
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 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 plaintiffsappellees.1wphi1.nt
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
Code9 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 defendantappellant 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 defendant-appellant (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. 79), 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.'
Thus, notwithstanding the invalidity of the sale with respect
to the share of plaintiffs-appellees, 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.

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,
attorney's 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.1wphi1.nt
SO ORDERED.4
Likewise challenged is the October 14, 1998 CA Resolution which
denied petitioners' Motion for Reconsideration.5
The Facts
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

SO ORDERED.
G.R. No. 136021

February 22, 2000

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.
PANGANIBAN, J.:
In action for quieting of title, the plaintiff must show not only that there
is a cloud or contrary interest over the subject real property, but that
the 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 judgment2 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:
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,

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 one-third so ceded will be
located adjoining the municipal road (par. 5. Exh "D");
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-in
interest 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 5679-C-12-B, along lines 18-19-20 of said lot, per
Certification dated August 10, 1985, by Geodetic Engineer
Celestino R. Orozco (Exh. "F");
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 3,000-square meter portion of
Lot 5679, is embraced and included within the boundary of
the later acquisition by respondent Selma;
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 plaintiffs-petitioners
from Dalmacio Secuya of which they had long been in
possession . . . in concept of owner. Such claim of
defendant-respondent Selma is a cloud on the title of
plaintiffs-petitioners, hence, their complaint (Annex "C").6
Respondent Selma's version of the facts, on the other hand, was
summarized by the appellate court as follows:
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 Aro's
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 court's ruling, the appellate court debunked
petitioners' claim of ownership of the land and upheld Respondent
Selma's title thereto. It held that respondent's 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.

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 one-third (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 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
respondent's title.
The Court's 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 facieappearance 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.
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:

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.

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
Talisay-Minglanilla 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;
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 one-third (l/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

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-ininterest 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 transactions16 and covered by several
transfer certificates of title.
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.
308719 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 Maxima's 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.
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 Agreement: An Express Trust, Not a Partition

The Absence of the Purported Deed of Sale

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.

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

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

Moreover, while petitioners could not present the purported deed

evidencing the transaction between Paciencia Sabellona and Dalmacio
Secuya, petitioners' immediate predecessor-in-interest, 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

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 Deed21 confirming the sale executed by Ramon
Sabellona, Paciencia's 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.

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.

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 the land taxes. If petitioners really
believed that they owned the property, they have 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 Respondent's Title
Petitioners debunk Private Respondent Selma's 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 purchaser in good faith; and hence does
not merit the protection of the law.

Clearly, petitioners do not have the requisite title to pursue an action

for quieting of title.1wphi1.nt
WHEREFORE, the Petition is hereby DENIED and the assailed
Decision AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. No. L-55048 May 27, 1981
SUGA SOTTO YUVIENCO, BRITANIA SOTTO, and MARCELINO
SOTTO, petitioners,
vs.
HON. AUXENCIO C. DACUYCUY, Judge of the CFI of Leyte, DELY
RODRIGUEZ, FELIPE ANG CRUZ, CONSTANCIA NOGAR,
MANUEL GO, INOCENTES DIME, WILLY JULIO, JAIME YU, OSCAR
DY, DY CHIU SENG, BENITO YOUNG, FERNANDO YU, SEBASTIAN
YU, CARLOS UY, HOC CHUAN and MANUEL DY,respondents.

BARREDO, J.:1wph1.t
Petition for certiorari and prohibition to declare void for being in grave
abuse of discretion the orders of respondent judge dated November 2,
1978 and August 29, 1980, in Civil Case No. 5759 of the Court of First
Instance of Leyte, which denied the motion filed by petitioners to
dismiss the complaint of private respondents for specific performance
of an alleged agreement of sale of real property, the said motion being
based on the grounds that the respondents' complaint states no cause
of action and/or that the claim alleged therein is unenforceable under
the Statute of Frauds.
Finding initially prima facie merit in the petition, We required
respondents to answer and We issued a temporary restraining order
on October 7, 1980 enjoining the execution of the questioned orders.
In essence, the theory of petitioners is that while it is true that they did
express willingness to sell to private respondents the subject property
for P6,500,000 provided the latter made known their own decision to
buy it not later than July 31, 1978, the respondents' reply that they
were agreeable was not absolute, so much so that when ultimately
petitioners' representative went to Cebu City with a prepared and duly
signed contract for the purpose of perfecting and consummating the
transaction, respondents and said representative found variance
between the terms of payment stipulated in the prepared document
and what respondents had in mind, hence the bankdraft which
respondents were delivering to petit loners' representative was
returned and the document remained unsigned by respondents. Hence
the action below for specific performance.

To be more specific, the parties do not dispute that on July 12, 1978,
petitioners, thru a certain Pedro C. Gamboa, sent to respondents the
following letter:

PROPOSAL ACCEPTED ARRIVING TUESDAY

MORNING WITH CONTRACT PREPARE
PAYMENT BANK DRAFT 1wph1.tATTY.
GAMBOA

Mr. Yao King Ong

(Page 10, Id.)
Life Bakery
Now, Paragraph 10 of the complaint below of respondents
alleges: 1wph1.t

Tacloban City
Dear Mr. Yao: 1wph1.t
This refers to the Sotto property (land and
building) situated at Tacloban City. My clients are
willing to sell them at a total price of
P6,500,000.00.
While there are other parties who are interested to
buy the property, I am giving you and the other
occupants the preference, but such priority has to
be exercised within a given number of days as I do
not want to lose the opportunity if you are not
interested. I am therefore gluing you and the rest
of the occupants until July 31, 1978 within it which
to decide whether you want to buy the property. If I
do not hear from you by July 31, I will offer or
close the deal with the other interested buyer.
Thank you so much for the hospitality extended to
me during my last trip to Tacloban, and I hope to
hear from you very soon. 1wph1.tVery truly
yours,Pedro C. Gamboa 1
(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:
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 1wph1.tYao 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

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: 1wph1.t
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 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: 1wph1.t
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: 1wph1.t
I. 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: 1wph1.t
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 name 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; Ill Moran,
Comments on the Rules of Court, 1952 ed. p.
187). See also Bautista's Monograph on the
Statute of Frauds in 21 SCRA p. 250. (Pp. 110111, Record)
Our first task then is to dwell on the issue of whether or not in the light
of the foregoing circumstances, the complaint in controversy states

sufficiently a cause of action. This issue necessarily entails the

determination of whether or not the plaintiffs have alleged facts
adequately showing the existence of a perfected contract of sale
between herein petitioners and the occupant represented by
respondent Yao King Ong.
In this respect, the governing legal provision is, of course, Article 1319
of the Civil Code which provides:1wph1.t
ART. 1319. Consent is manifested by the meeting
of the offer and the acceptance upon the thing and
the cause which are constitute the contract. The
offer must be certain the acceptance absolute. A
qualified acceptance constitute a counter-offer.
Acceptance made by letter or telegram does not
bind offerer except from the time it came to his
knowledge. The contract, in a case, is presumed
to have been entered into in the place where the
offer was made.
In the instant case, We can lay aside, for the moment, petitioners'
contention that the letter of July 12, 1978 of Atty. Pedro C. Gamboa to
respondents Yao King Ong and his companions constitute an offer that
is "certain", although the petitioners claim that it was a mere
expression of willingness to sell the subject property and not a direct
offer of sale to said respondents. What We consider as more important
and truly decisive is what is the correct juridical significance of the
telegram of respondents instructing Atty. Gamboa to "proceed to
Tacloban tonegotiate details." We underline the word "negotiate"
advisedly because to Our mind it is the key word that negates and
makes it legally impossible for Us to hold that respondents' acceptance
of petitioners' offer, assuming that it was a "certain" offer indeed, was
the "absolute" one that Article 1319 above-quoted requires.
Dictionally, the implication of "to negotiate" is practically the opposite of
the Idea that an agreement has been reached. Webster's Third
International Dictionary, Vol. II (G. & C. Merriam Co., 1971 Philippine
copyright) gives the meaning of negotiate as "to communicate or
confer with another so as to arrive at the settlement of some matter;
meet with another so as to arrive through discussion at some kind of
agreement or compromise about something; to arrange for or bring
about through conference or discussion; work at or arrive at or settle
upon by meetings and agreements or compromises ". Importantly, it
must be borne in mind that Yao King Ong's telegram simply says "we
agree to buy property". It does not necessarily connote acceptance of
the price but instead suggests that the details were to be subject of
negotiation.
Respondents now maintain that what the telegram refers to as "details"
to be "negotiated" are mere "accidental elements", not the essential
elements of the contract. They even invite attention to the fact that they
have alleged in their complaint (Par. 6) that it was as early as "in the
month of October, 1977 (that) negotiations between plaintiffs and
defendants for the purchase and sale (in question) were made, thus
resulting to offers of same defendants and counter-offer of plaintiffs".
But to Our mind such alleged facts precisely indicate the failure of any
meeting of the minds of the parties, and it is only from the letter and
telegrams above-quoted that one can determine whether or not such
meeting of the minds did materialize. As We see it, what such
allegations bring out in bold relief is that it was precisely because of
their past failure to arrive at an agreement that petitioners had to put
an end to the uncertainty by writing the letter of July 12, 1978. On the
other hand, that respondents were all the time agreeable to buy the
property may be conceded, but what impresses Us is that instead of
"absolutely" accepting the "certain" offer if there was one of the
petitioners, they still insisted on further negotiation of details. For

anyone to read in the telegram of Yao that they accepted the price of
P6,500,000.00 would be an inference not necessarily warranted by the
words "we agree to buy" and "proceed Tacloban to negotiate details". If
indeed the details being left by them for further negotiations were
merely accidental or formal ones, what need was there to say in the
telegram that they had still "to negotiate (such) details", when, being
unessential per their contention, they could have been just easily
clarified and agreed upon when Atty. Gamboa would reach Tacloban?
Anent the telegram of Atty. Gamboa of July 27, 1978, also quoted
earlier above, We gather that it was in answer to the telegram of Yao.
Considering that Yao was in Tacloban then while Atty. Gamboa was in
Cebu, it is difficult to surmise that there was any communication of any
kind between them during the intervening period, and none such is
alleged anyway by respondents. Accordingly, the claim of respondents
in paragraph 8 of their complaint below that there was an agreement of
a down payment of P2 M, with the balance of P4.5M to be paid within
90 days afterwards is rather improbable to imagine to have actually
happened.
Respondents maintain that under existing jurisprudence relative to a
motion to dismiss on the ground of failure of the complaint to state a
cause of action, the movant-defendant is deemed to admit the factual
allegations of the complaint, hence, petitioners cannot deny, for
purposes of their motion, that such terms of payment had indeed been
agreed upon.
While such is the rule, those allegations do not detract from the fact
that under Article 1319 of the Civil Code above-quoted, and judged in
the light of the telegram-reply of Yao to Atty. Gamboa's letter of July 12,
1978, there was not an absolute acceptance, hence from that point of
view, petitioners' contention that the complaint of respondents state no
cause of action is correct.
Nonetheless, the alleged subsequent agreement about the P2 M down
and P4.5 M in 90 days may at best be deemed as a distinct cause of
action. And placed against the insistence of petitioners, as
demonstrated in the two deeds of sale taken by Atty. Gamboa to
Tacloban, Annexes 9 and 10 of the answer of herein respondents, that
there was no agreement about 90 days, an issue of fact arose, which
could warrant a trial in order for the trial court to determine whether or
not there was such an agreement about the balance being payable in
90 days instead of the 30 days stipulated in Annexes 9 and 10 abovereferred to. Our conclusion, therefore, is that although there was no
perfected contract of sale in the light of the letter of Atty. Gamboa of
July 12, 1978 and the letter-reply thereto of Yao; it being doubtful
whether or not, under Article 1319 of the Civil Code, the said letter may
be deemed as an offer to sell that is "certain", and more, the Yao
telegram is far from being an "absolute" acceptance under said article,
still there appears to be a cause of action alleged in Paragraphs 8 to
12 of the respondents' complaint, considering it is alleged therein that
subsequent to the telegram of Yao, it was agreed that the petitioners
would sell the property to respondents for P6.5 M, by paving P2 M
down and the balance in 90 days and which agreement was allegedly
violated when in the deeds prepared by Atty. Gamboa and taken to
Tacloban, only 30 days were given to respondents.
But the foregoing conclusion is not enough to carry the day for
respondents. It only brings Us to the question of whether or not the
claim for specific performance of respondents is enforceable under the
Statute of Frauds. In this respect, We man, view the situation at hand
from two angles, namely, (1) that the allegations contained in
paragraphs 8 to 12 of respondents' complaint should be taken together
with the documents already aforementioned and (2) that the said
allegations constitute a separate and distinct cause of action. We hold
that either way We view the situation, the conclusion is inescapable e
that the claim of respondents that petitioners have unjustifiably refused

to proceed with the sale to them of the property v in question is

unenforceable under the Statute of Frauds.
It is nowhere alleged in said paragraphs 8 to 12 of the complaint that
there is any writing or memorandum, much less a duly signed
agreement to the effect that the price of P6,500,000 fixed by petitioners
for the real property herein involved was agreed to be paid not in cash
but in installments as alleged by respondents. The only documented
indication of the non-wholly-cash payment extant in the record is that
stipulated in Annexes 9 and 10 above-referred to, the deeds already
signed by the petitioners and taken to Tacloban by Atty. Gamboa for
the signatures of the respondents. In other words, the 90-day term for
the balance of P4.5 M insisted upon by respondents choices not
appear in any note, writing or memorandum signed by either the
petitioners or any of them, not even by Atty. Gamboa. Hence, looking
at the pose of respondents that there was a perfected agreement of
purchase and sale between them and petitioners under which they
would pay in installments of P2 M down and P4.5 M within ninety 90)
days afterwards it is evident that such oral contract involving the "sale
of real property" comes squarely under the Statute of Frauds (Article
1403, No. 2(e), Civil Code.)
On the other score of considering the supposed agreement of paying
installments as partly supported by the letter and t telegram earlier
quoted herein, His Honor declared with well studied ratiocination, albeit
legally inaccurate, that: 1wph1.t
The next issue relate to the State of Frauds. It is
contended that plaintiffs' action for specific
performance to compel the defendants to execute
a good and sufficient conveyance of the property
in question (Sotto land and building) is
unenforceable because there is no other note
memorandum or writing except annexes "C", "C-l"
and "D", which by themselves did not give birth to
a contract to sell. The argument is not well
founded. The rules of pleading limit the statement
of the cause of action only to such operative facts
as give rise to the right of action of the plaintiff to
obtain relief against the wrongdoer. The details of
probative matter or particulars of evidence,
statements of law, inferences and arguments need
not be stated. Thus, Sec. 1 of Rule 8 provides that
'every pleading shall contain in a methodical and
logical form, a plain concise and direct statement
of the ultimate facts on which the party pleading
relies for his claim or defense, as the case may
be, omitting the statement of mere evidentiary
facts.' Exhibits need not be attached. The contract
of sale sued upon in this case is supported by
letters and telegrams annexed to the complaint
and plaintiffs have announced that they will
present additional evidences during the trial to
prove their cause of action. The plaintiffs having
alleged that the contract is backed up by letters
and telegrams, and the same being sufficient
memorandum, the complaint states a cause of
action and they should be given their day in court
and allowed to substantiate their allegations
(Parades vs. Espino, 22 SCRA 1000). (Pp 165166, Record.)
The foregoing disquisition of respondent judge misses at least two (2)
juridical substantive aspects of the Statute of Frauds insofar as sale of
real property is concerned. First, His Honor assumed that the
requirement of perfection of such kind of contract under Article 1475 of
the Civil Code which provides that "(t)he contract of sale is perfected at
the moment there is a meeting of the minds upon the thing which is the

object of the contract and upon the price", the Statute would no longer
apply as long as the total price or consideration is mentioned in some
note or memorandum and there is no need of any indication of the
manner in which such total price is to be paid.
We cannot agree. In the reality of the economic world and the exacting
demands of business interests monetary in character, payment on
installments or staggered payment of the total price is entirely a
different matter from cash payment, considering the unpredictable
trends in the sudden fluctuation of the rate of interest. In other words, it
is indisputable that the value of money - varies from day to day, hence
the indispensability of providing in any sale of the terms of payment
when not expressly or impliedly intended to be in cash.
Thus, We hold that in any sale of real property on installments, the
Statute of Frauds read together with the perfection requirements of
Article 1475 of the Civil Code must be understood and applied in the
sense that the idea of payment on installments must be in the requisite
of a note or memorandum therein contemplated. Stated otherwise, the
inessential elements" mentioned in the case of Parades vs. Espino, 22
SCRA 1000, relied upon by respondent judge must be deemed to
include the requirement just discussed when it comes to installment
sales. There is nothing in the monograph re the Statute of Frauds
appearing in 21 SCRA 250 also cited by His Honor indicative of any
contrary view to this ruling of Ours, for the essence and thrust of the
said monograph refers only to the form of the note or memorandum
which would comply with the Statute, and no doubt, while such note or
memorandum need not be in one single document or writing and it can
be in just sufficiently implicit tenor, imperatively the separate notes
must, when put together', contain all the requisites of a perfected
contract of sale. To put it the other way, under the Statute of Frauds,
the contents of the note or memorandum, whether in one writing or in
separate ones merely indicative for an adequate understanding of all
the essential elements of the entire agreement, may be said to be the
contract itself, except as to the form.
Secondly, We are of the considered opinion that under the rules on
proper pleading, the ruling of the trial court that, even if the allegation
of the existence of a sale of real property in a complaint is challenged
as barred from enforceability by the Statute of Frauds, the plaintiff may
simply say there are documents, notes or memoranda without either
quoting them in or annexing them to the complaint, as if holding an ace
in the sleeves is not correct. To go directly to the point, for Us to
sanction such a procedure is to tolerate and even encourage undue
delay in litigation, for the simple reason that to await the stage of trial
for the showing or presentation of the requisite documentary proof
when it already exists and is asked to be produced by the adverse
party would amount to unnecessarily postponing, with the concomitant
waste of time and the prolongation of the proceedings, something that
can immediately be evidenced and thereby determinable with
decisiveness and precision by the court without further delay.
In this connection, Moran observes that unlike when the ground of
dismissal alleged is failure of the complaint to state a cause of action, a
motion to dismiss invoking the Statute of Frauds may be filed even if
the absence of compliance does not appear an the face of the
complaint. Such absence may be the subject of proof in the motion
stage of the proceedings. (Moran, Comment on the Rules of Court,
Vol. 1, p. 494, 1979 ed.) It follows then that when such a motion is filed
and all the documents available to movant are before the court, and
they are insufficient to comply with the Statute, it becomes incumbent
upon the plaintiff, for the reasons of policy We have just' indicated
regarding speedy administration of justice, to bring out what note or
memorandum still exists in his possession in order to enable the court
to expeditiously determine then and there the need for further
proceedings. In other words, it would be inimical to the public interests
in speedy justice for plaintiff to play hide and seek at his own
convenience, particularly, when, as is quite apparent as in the instant

case that chances are that there are no more writings, notes or
memoranda of the installment agreement alleged by respondents. We
cannot divine any reason why any such document would be withheld if
they existed, except the unpermissible desire of the respondents to
force the petitioners to undergo the ordeals, time, effort and expenses
of a futile trial.
In the foregoing premises, We find no alternative than to render
judgment in favor of petitioners in this certiorari and prohibition case. If
at all, appeal could be available if the petitioners subjected themselves
to the trial ruled to be held by the trial court. We foresee even at this
point, on the basis of what is both extant and implicit in the records,
that no different result can be probable. We consider it as sufficiently a
grave abuse of discretion warranting the special civil actions herein the
failure of respondent judge to properly apply the laws on perfection of
contracts in relation to the Statute of Frauds and the pertinent rules of
pleading and practice, as We have discussed above.
ACCORDINGLY, the impugned orders of respondent judge of
November 2, 1978 and August 29, 1980 are hereby set aside and
private respondents' amended complaint, Annex A of the petition, is
hereby ordered dismissed and the restraining order heretofore issued
by this Court on October 7, 1980 is declared permanent. Costs against
respondents.
G.R. No. 85240 July 12, 1991
HEIRS OF CECILIO (also known as BASILIO) CLAUDEL, namely,
MODESTA CLAUDEL, LORETA HERRERA, JOSE CLAUDEL,
BENJAMIN CLAUDEL, PACITA CLAUDEL, CARMELITA CLAUDEL,
MARIO CLAUDEL, ROBERTO CLAUDEL, LEONARDO CLAUDEL,
ARSENIA VILLALON, PERPETUA CLAUDEL and FELISA
CLAUDEL, petitioners,
vs.
HON. COURT OF APPEALS, HEIRS OF MACARIO, ESPERIDIONA,
RAYMUNDA and CELESTINA, all surnamed
CLAUDEL, respondents.
Ricardo L. Moldez for petitioners.
Juan T. Aquino for private respondents

SARMIENTO, J.: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, Modesto, Loreta,
Jose, Benjamin, Pacita, Carmelita, Roberto, Mario, Leonardo, Nenita,
Arsenia Villalon, and Felisa Claudel, and their children and
descendants, now the herein petitioners (hereinafter referred to as
HEIRS OF CECILIO), and on the other, the brother and sisters of
Cecilio, namely, Macario, Esperidiona, Raymunda, and Celestina and
their children and descendants, now the herein private respondents
(hereinafter referred to as SIBLINGS OF CECILIO). In 1972, the
HEIRS OF CECILIO partitioned this lot among themselves and
obtained the corresponding Transfer Certificates of Title on their
shares, as follows:

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.

TCT No. 395391 1,997 sq. m. Jose Claudel

TCT No. 395392 1,997 sq. m. Modesta Claudel
and children

2. THE TRIAL COURT ERRED IN HOLDING

THAT PLAINTIFFS FAILED TO PROVE ANY
DOCUMENT EVIDENCING THE ALLEGED SALE.

TCT No. 395393 1,997 sq. m. Armenia C.

Villalon
TCT No. 395394 1,997 sq. m. Felisa Claudel

3. THE TRIAL COURT ERRED IN NOT GIVING

CREDIT TO THE PLAN, EXHIBIT A, SHOWING
THE PORTIONS SOLD TO EACH OF THE
PLAINTIFFS' PREDECESSORS-IN-INTEREST.

Four years later, on December 7, 1976, private respondents SIBLINGS

OF CECILIO, filed Civil Case No. 5276-P as already adverted to at the
outset, with the then Court of First Instance of Rizal, a "Complaint for
Cancellation of Titles and Reconveyance with Damages," alleging that
46 years earlier, or sometime in 1930, their parents had purchased
from the late Cecilio Claudel several portions of Lot No. 1230 for the
sum of P30.00. They admitted that the transaction was verbal.
However, as proof of the sale, the SIBLINGS OF CECILIO presented a
subdivision plan of the said land, dated March 25, 1930, indicating the
portions allegedly sold to the SIBLINGS OF CECILIO.
As already mentioned, the then Court of First Instance of Rizal, Branch
CXI, dismissed the complaint, disregarding the above sole evidence
(subdivision plan) presented by the SIBLINGS OF CECILIO, thus:
Examining the pleadings as well as the evidence
presented in this case by the parties, the Court
can not but notice that the present complaint was
filed in the name of the Heirs of Macario,
Espiridiona, Raymunda and Celestina, all
surnamed Claudel, without naming the different
heirs particularly involved, and who wish to
recover the lots from the defendants. The Court
tried to find this out from the evidence presented
by the plaintiffs but to no avail. On this point alone,
the Court would not be able to apportion the
property to the real party in interest if ever they are
entitled to it as the persons indicated therein is in
generic term (Section 2, Rule 3). The Court has
noticed also that with the exception of plaintiff
Lampitoc and (sic) the heirs of Raymunda Claudel
are no longer residing in the property as they have
(sic) left the same in 1967. But most important of
all the plaintiffs failed to present any document
evidencing the alleged sale of the property to their
predecessors in interest by the father of the
defendants. Considering that the subject matter of
the supposed sale is a real property the absence
of any document evidencing the sale would
preclude the admission of oral testimony (Statute
of Frauds). Moreover, considering also that the

4. THE TRIAL COURT ERRED IN NOT

DECLARING PLAINTIFFS AS OWNERS OF THE
PORTION COVERED BY THE PLAN, EXHIBIT A.
5. THE TRIAL COURT ERRED IN NOT
DECLARING TRANSFER CERTIFICATES OF
TITLE NOS. 395391, 395392, 395393 AND
395394 OF THE REGISTER OF DEEDS OF
RIZAL AS NULL AND VOID.
The Court of Appeals reversed the decision of the trial court on the
following grounds:
1. The failure to bring and prosecute the action in the name of the real
party in interest, namely the parties themselves, was not a fatal
omission since the court a quo could have adjudicated the lots to the
SIBLINGS OF CECILIO, the parents of the herein respondents, leaving
it to them to adjudicate the property among themselves.
2. The fact of residence in the disputed properties by the herein
respondents had been made possible by the toleration of the deceased
Cecilio.
3. The Statute of Frauds applies only to executory contracts and not to
consummated sales as in the case at bar where oral evidence may be
admitted as cited in 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.
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.

The rule of thumb is that a sale of land, once consummated, is valid

regardless of the form it may have been entered into. 11 For nowhere
does law or jurisprudence prescribe that the contract of sale be put in
writing before such contract can validly cede or transmit rights over a
certain real property between the parties themselves.
However, in the event that a third party, as in this case, disputes the
ownership of the property, the person against whom that claim is
brought can not present any proof of such sale and hence has no
means to enforce the contract. Thus the Statute of Frauds was
precisely devised to protect the parties in a contract of sale of real
property so that no such contract is enforceable unless certain
requisites, for purposes of proof, are met.
The provisions of the Statute of Frauds pertinent to the present
controversy, state:
Art. 1403 (Civil Code). The following contracts are
unenforceable, unless they are ratified:
xxx xxx xxx
2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the following
cases, an agreement hereafter made shall be
unenforceable by action unless the same, or some
note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be
received without the writing, or a secondary
evidence of its contents:
xxx xxx xxx

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.

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 rest of the land, lots 1230-E and 1230-F, with an area of 598 and
6,927 square meters, respectively would go to Cecilio or his heirs, the
herein petitioners. Beyond these apportionments, the HEIRS OF
CECILIO would not receive anything else.
The crux of the entire litigation is whether or not the Court of Appeals
committed a reversible error in disposing the question of the true
ownership of the lots.
And the real issues are:
1. Whether or not a contract of sale of land may be
proven orally:
2. Whether or not the prescriptive period for filing
an action for cancellation of titles and
reconveyance with damages (the action filed by
the SIBLINGS OF CECILIO) should be counted
from the alleged sale upon which they claim their
ownership (1930) or from the date of the issuance
of the titles sought to be cancelled in favor of the
HEIRS OF CECILIO (1976).

The purpose of the Statute of Frauds is to prevent fraud and perjury in

the enforcement of obligations depending for their evidence upon the
unassisted memory of witnesses by requiring certain enumerated
contracts and transactions to be evidenced in Writing. 12
The provisions of the Statute of Frauds originally appeared under the
old Rules of Evidence. However when the Civil Code was re-written in
1949 (to take effect in 1950), the provisions of the Statute of Frauds
were taken out of the Rules of Evidence in order to be included under
the title on Unenforceable Contracts in the Civil Code. The transfer
was not only a matter of style but to show that the Statute of Frauds is
also a substantive law.
Therefore, except under the conditions provided by the Statute of
Frauds, the existence of the contract of sale made by Cecilio with his
siblings 13 can not be proved.
On the second issue, the belated claim of the SIBLINGS OF CECILIO
who filed a complaint in court only in 1976 to enforce a light acquired
allegedly as early as 1930, is difficult to comprehend.
The Civil Code states:

Art. 1145. The following actions must be

commenced within six years:
(1) Upon an oral contract . . . (Emphasis supplied).
If the parties SIBLINGS OF CECILIO had allegedly derived their right
of action from the oral purchase made by their parents in 1930, then
the action filed in 1976 would have clearly prescribed. More than six
years had lapsed.
We do not agree with the parties SIBLINGS OF CECILIO when they
reason that an implied trust in favor of the SIBLINGS OF CECILIO was
established in 1972, when the HEIRS OF CECILIO executed a
contract of partition over the said properties.
But as we had pointed out, the law recognizes the superiority of the
torrens title.
Above all, the torrens title in the possession of the HEIRS OF CECILIO
carries more weight as proof of ownership than the survey or
subdivision plan of a parcel of land in the name of SIBLINGS OF
CECILIO.
The Court has invariably upheld the indefeasibility of the torrens title.
No possession by any person of any portion of the land could defeat
the title of the registered owners thereof. 14
A torrens title, once registered, cannot be
defeated, even by adverse, open and notorious
possession. A registered title under the torrens
system cannot be defeated by prescription. The
title, once registered, is notice to the world. All
persons must take notice. No one can plead
ignorance of the registration. 15
xxx xxx xxx
Furthermore, a private individual may not bring an
action for reversion or any action which would
have the effect of cancelling a free patent and the
corresponding certificate of title issued on the
basis thereof, with the result that the land covered
thereby will again form part of the public domain,
as only the Solicitor General or the officer acting in
his stead may do so. 16
It is true that in some instances, the Court did away with the
irrevocability of the torrens title, but the circumstances in the case at
bar varied significantly from these cases.
In Bornales v. IAC, 17 the defense of indefeasibility of a certificate of
title was disregarded when the transferee who took it had notice of the
flaws in the transferor's title. No right passed to a transferee from a
vendor who did not have any in the first place. The transferees bought
the land registered under the torrens system from vendors who
procured title thereto by means of fraud. With this knowledge, they can
not invoke the indefeasibility of a certificate of title against the private
respondent to the extent of her interest. This is because the torrens
system of land registration, though indefeasible, should not be used as
a means to perpetrate fraud against the rightful owner of real property.
Mere registration of the sale is not good enough, good faith must
concur with registration. Otherwise registration becomes an exercise in
futility. 18

In Amerol v. Bagumbaran, 19 we reversed the decision of the trial court.

In this case, the title was wrongfully registered in another person's
name. An implied trust was therefore created. This trustee was
compelled by law to reconvey property fraudulently acquired
notwithstanding the irrevocability of the torrens title. 20
In the present case, however, the facts belie the claim of ownership.
For several years, when the SIBLINGS OF CECILIO, namely, Macario,
Esperidiona Raymunda, and Celestina were living on the contested
premises, they regularly paid a sum of money, designated as "taxes" at
first, to the widow of Cecilio, and later, to his heirs. 21 Why their
payments were never directly made to the Municipal Government of
Muntinlupa when they were intended as payments for "taxes" is difficult
to square with their claim of ownership. We are rather inclined to
consider this fact as an admission of non-ownership. And when we
consider also that the petitioners HEIRS OF CECILIO had individually
paid to the municipal treasury the taxes corresponding to the particular
portions they were occupying, 22 we can readily see the superiority of
the petitioners' position.
Renato Solema and Decimina Calvez, two of the respondents who
derive their right from the SIBLINGS OF CLAUDEL, bought a portion of
the lot from Felisa Claudel, one of the HEIRS OF CLAUDEL. 23 The
Calvezes should not be paying for a lot that they already owned and if
they did not acknowledge Felisa as its owner.
In addition, before any of the SIBLINGS OF CECILIO could stay on
any of the portions of the property, they had to ask first the permission
of Jose Claudel again, one of the HEIRS OF CECILIO. 24 In fact the
only reason why any of the heirs of SIBLINGS OF CECILIO could stay
on the lot was because they were allowed to do so by the HEIRS OF
CECILIO. 25
In view of the foregoing, we find that the appellate court committed a
reversible error in denigrating the transfer certificates of title of the
petitioners to the survey or subdivision plan proffered by the private
respondents. The Court generally recognizes the profundity of
conclusions and findings of facts reached by the trial court and hence
sustains them on appeal except for strong and cogent reasons
inasmuch as the trial court is in a better position to examine real
evidence and observe the demeanor of witnesses in a case.
No clear specific contrary evidence was cited by the respondent
appellate court to justify the reversal of the lower court's findings. Thus,
in this case, between the factual findings of the trial court and the
appellate court, those of the trial court must prevail over that of the
latter. 26
WHEREFORE, the petition is GRANTED We REVERSE and SET
ASIDE the decision rendered in CA-G.R. CV No. 04429, and we
hereby REINSTATE the decision of the then Court of First Instance of
Rizal (Branch 28, Pasay City) in Civil Case No. M-5276-P which ruled
for the dismissal of the Complaint for Cancellation of Titles and
Reconveyance with Damages filed by the Heirs of Macario,
Esperidiona Raymunda, and Celestina, all surnamed CLAUDEL. Costs
against the private respondents.
SO ORDERED.
G.R. No. 144225

June 17, 2003

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
Before us is a petition for review assailing the Decision1 of the Court of
Appeals dated 26 November 1999 affirming the decision2 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 forP7,000.00 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.
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;
2. 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. T163268 and 163272 in the names of spouses Delfin F.
Espiritu, Jr. and Estela S. Espiritu; Transfer Certificates of
Title Nos. T-163269 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;
3. Ordering the defendant-spouses 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;

4. 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;
5. 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 codefendants within ten (10) days from the finality of this
decision with legal interest thereon from date of the sale;
6. 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
7. Ordering defendants to pay the costs of suit.
Defendants counterclaims are hereby dismissed for lack of merit.
SO ORDERED.3

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.

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
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

Another indication of Calonsos bad faith was her own admission 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.
The Ruling of the Court of Appeals
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.

Buyers, innocent purchasers in good faith and for value whose

individual titles to their respective lots are absolute and indefeasible,
are valid.

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 1617 of the Civil Code.

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.

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.
The Issues
Petitioners raise the following issues:
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

IV

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 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.9The 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.
Validity and Enforceability of the Sale
The contract of sale between the spouses Godofredo and Carmen and
the spouses 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.14Ownership 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 Dir obliagtion rmen. rchase pricend Adelia . fredo and Carmen
do not deny the existence of the cBP 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.

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.

The trial and appellate courts correctly refused to apply the Statute of
Frauds to this case. The Statute of Frauds16 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.

However, Godofredo can no longer question the sale. Voidable

contracts are susceptible of ratification.24Godofredo 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.

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. 20Armando 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.
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

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 cross-examination:
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 years31 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 directory33 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. An 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;
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) Upon a written contract;
(2) Upon an obligation created by law;

(3) Upon a judgment.

xxx

xxx

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 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.
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 the property
subject of the sale.57
Thus, to merit protection under the second paragraph of Article
154458 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 knowledge 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.
G.R. No. 133895

October 2, 2001

ZENAIDA M. SANTOS, petitioner,

vs.
CALIXTO SANTOS, ALBERTO SANTOS, ROSA SANTOSCARREON and ANTONIO SANTOS, respondents.
QUISUMBING, J.:
This petition for review1 seeks to annul and set aside the decision date
March 10, 1998 of the Court of Appeals that affirmed the decision of
the Regional Trial Court of Manila, Branch 48, dated March 17, 1993.
Petitioner also seeks to annul the resolution that denied her motion for
reconsideration.
Petitioner Zenaida M. Santos is the widow of Salvador Santos, a
brother of private respondents Calixto, Alberto, Antonio, all surnamed
Santos and Rosa Santos-Carreon.
The spouses Jesus and Rosalia Santos owned a parcel of land
registered under TCT No. 27571 with an area of 154 square meters,
located at Sta. Cruz Manila. On it was a four-door apartment
administered by Rosalia who rented them out. The spouses had five
children, Salvador, Calixto, Alberto, Antonio and Rosa.
On January 19, 1959, Jesus and Rosalia executed a deed of sale of
the properties in favor of their children Salvador and Rosa. TCT No.
27571 became TCT No. 60819. Rosa in turn sold her share to
Salvador on November 20, 1973 which resulted in the issuance of a
new TCT No. 113221. Despite the transfer of the property to Salvador,

Rosalia continued to lease receive rentals form the apartment

units.1wphi1.nt
On November 1, 1979, Jesus died. Six years after or on January 9,
1985, Salvador died, followed by Rosalia who died the following
month. Shortly after, petitioner Zenaida, claiming to be Salvador's heir,
demanded the rent from Antonio Hombrebueno,2 a tenant of Rosalia.
When the latter refused to pay, Zenaida filed and ejectment suit
against him with the Metropolitan Trial Court of Manila, Branch 24,
which eventually decided in Zenaida's favor.
On January 5, 1989, private respondents instituted an action for
reconveyance of property with preliminary injunction against petitioner
in the Regional Trial Court of Manila, where they alleged that the two
deeds of sale executed on January 19, 1959 and November 20, 1973
were simulated for lack of consideration. They were executed to
accommodate Salvador in generation funds for his business and
providing him with greater business flexibility.
In her Answer, Zenaida denied the material allegations in the complaint
as special and affirmative defenses, argued that Salvador was the
registered owner of the property, which could only be subjected to
encumbrances or liens annotated on the title; that the respondents'
right to reconveyance was already barred by prescription and laches;
and that the complaint state no cause of action.
On March 17, 1993, the trial court decided in private respondents'
favor, thus:
WHEREFORE, viewed from all the foregoing considerations,
judgment is hereby made in favor of the plaintiffs and against
the defendants:
a) Declaring Exh. "B", the deed of sale executed by Rosalia
Santos and Jesus Santos on January 19, 1959, as entirely
null and void for being fictitious or stimulated and inexistent
and without any legal force and effect:
b) Declaring Exh. "D", the deed of sale executed by Rosa
Santos in favor of Salvador Santos on November 20, 1973,
also as entirely null and void for being likewise fictitious or
stimulated and inexistent and without any legal force and
effect;
c) Directing the Register of Deeds of Manila to cancel
Transfer Certificate of Title No. T-113221 registered in the
name of Salvador Santos, as well as, Transfer Certificate of
Title No. 60819 in the names of Salvador Santos, Rosa
Santos, and consequently thereafter, reinstating with the
same legal force and effect as if the same was not
cancelled, and which shall in all respects be entitled to like
faith and credit; Transfer Certificate of Title No. T-27571
registered in the name of Rosalia A. Santos, married to
Jesus Santos, the same to be partitioned by the heirs of the
said registered owners in accordance with law; and
d) Making the injunction issued in this case permanent.
Without pronouncement as to costs.
SO OREDERED.3
The trial court reasoned that notwithstanding the deeds of sale
transferring the property to Salvador, the spouses Rosalia and Jesus
continued to possess the property and to exercise rights of ownership

not only by receiving the monthly rentals, but also by paying the realty
taxes. Also, Rosalia kept the owner's duplicate copy of the title even
after it was already in the name of Salvador. Further, the spouses had
no compelling reason in 1959 to sell the property and Salvador was not
financially capable to purchase it. The deeds of sale were therefore
fictitious. Hence, the action to assail the same does not prescribe. 4
Upon appeal, the Court of Appeals affirmed the trial court's decision
dated March 10, 1998. It held that in order for the execution of a public
instrument to effect tradition, as provided in Article 1498 of the Civil
Code,5 the vendor shall have had control over the thing sold, at the
moment of sale. It was not enough to confer upon the purchaser the
ownership and the right of possession. The thing sold must be placed
in his control. The subject deeds of sale did not confer upon Salvador
the ownership over the subject property, because even after the sale,
the original vendors remained in dominion, control, and possession
thereof. The appellate court further said that if the reason for
Salvador's failure to control and possess the property was due to his
acquiescence to his mother, in deference to Filipino custom, petitioner,
at least, should have shown evidence to prove that her husband
declared the property for tax purposes in his name or paid the land
taxes, acts which strongly indicate control and possession. The
appellate court disposed:
WHEREFORE, finding no reversible error in the decision
appealed from, the same is hereby AFFIRMED. No
pronouncement as to costs.
SO ORDERED.6
Hence, this petition where petitioner avers that the Court of Appeals
erred in:
I.
HOLDING THAT THE OWNERSHIP OVER THE
LITIGATED PROPERTY BY THE LATE HUSBAND OF
DEFENDANT-APPELLANT WAS AFFECTED BY HIS
FAILURE TO EXERCISE CERTAIN ATTRIBUTES OF
OWNERSHIP.
II.
HOLDING THAT DUE EXECUTION OF A PUBLIC
INSTRUMENT IS NOT EQUIVALENT TO DELIVERY OF
THE LAND IN DISPUTE.
III.
NOT FINDING THAT THE CAUSE OF ACTION OF
ROSALIA SANTOS HAD PRESCRIBED AND/OR BARRED
BY LACHES.
IV.
IGNORING PETITIONER'S ALLEGATION TO THE
EFFECT THAT PLAINTIFF DR. ROSA [S.] CARREON IS
NOT DISQUALIFIED TO TESTIFY AS TO THE
QUESTIONED DEEDS OF SALE CONSIDERING THAT
SALVADOR SANTOS HAS LONG BEEN DEAD.7
In this petition, we are asked to resolve the following:
1. Are payments of realty taxes and retention of possession
indications of continued ownership by the original owners?

2. Is a sale through a public instrument tantamount to

delivery of the thing sold?
3. Did the cause of action of Rosalia Santos and her heirs
prescribe?
4. Can petitioner invoke the "Dead Man's Statute?"8
On the first issue, petitioner contends that the Court of Appeals erred in
holding that despite the deeds of sale in Salvador's favor, Jesus and
Rosalia still owned the property because the spouses continued to pay
the realty taxes and possess the property. She argues that tax
declarations are not conclusive evidence of ownership when not
supported by evidence. She avers that Salvador allowed his mother to
possess the property out of respect to her in accordance with Filipino
values.
It is true that neither tax receipts nor declarations of ownership for
taxation purposes constitute sufficient proof of ownership. They must
be supported by other effective proofs.9 These requisite proofs we find
present in this case. As admitted by petitioner, despite the sale, Jesus
and Rosalia continued to possess and administer the property and
enjoy its fruits by leasing it to third persons.10 Both Rosa and Salvador
did not exercise any right of ownership over it.11 Before the second
deed of sale to transfer her share over the property was executed by
Rosa, Salvador still sought she permission of his mother.12 Further,
after Salvador registered the property in his name, he surrendered the
title to his mother.13 These are clear indications that ownership still
remained with the original owners. In Serrano vs. CA, 139 SCRA 179,
189 (1985), we held that the continued collection of rentals from the
tenants by the seller of realty after execution of alleged deed of sale is
contrary to the notion of ownership.
Petitioner argues that Salvador, in allowing her mother to use the
property even after the sale, did so out of respect for her and out of
generosity, a factual matter beyond the province of this
Court.14 Significantly, in Alcos vs. IAC 162 SCRA 823, 837 (1988), we
noted that the buyer's immediate possession and occupation of the
property corroborated the truthfulness and authenticity of the deed of
sale. Conversely, the vendor's continued possession of the property
makes dubious the contract of sale between the parties.
On the second issue, is a sale through a public instrument tantamount
to delivery of the thing sold? Petitioner in her memorandum invokes
Article 147715 of the Civil Code which provides that ownership of the
thing sold is transferred to the vendee upon its actual or constructive
delivery. Article 1498, in turn, provides that when the sale is made
through a public instrument, its execution is equivalent to the delivery
of the thing subject of the contract. Petitioner avers that applying said
provisions to the case, Salvador became the owner of the subject
property by virtue of the two deeds of sale executed in his favor.
Nowhere in the Civil Code, however, does it provide that execution of a
deed of sale is a conclusive presumption of delivery of possession.
The Code merely said that the execution shall be equivalent to
delivery. The presumption can be rebutted by clear and convincing
evidence.16 Presumptive delivery can be negated by the failure of the
vendee to take actual possession of the land sold.17
In Danguilan vs. IAC, 168 SCRA 22, 32 (1988), we held that for the
execution of a public instrument to effect tradition, the purchaser must
be placed in control of the thing sold. When there is no impediment to
prevent the thing sold from converting to tenancy of the purchaser by
the sole will of the vendor, symbolic delivery through the execution of a
public instrument is sufficient. But if, notwithstanding the execution of
the instrument, the purchaser cannot have the enjoyment and material

tenancy nor make use of it himself or through another in his name,

then delivery has not been effected.

no adverse effect on the petitioner to make respondents guilty of

laches.

As found by both the trial and appellate courts and amply supported by
the evidence on record, Salvador was never placed in control of the
property. The original sellers retained their control and possession.
Therefore, there was no real transfer of ownership.

Lastly, petitioner in her memorandum seeks to expunge the testimony

of Rosa Santos-Carreon before the trial court in view of Sec. 23, Rule
130 of the Revised Rules of Court, otherwise known as the "Dead
Man's Statute."19It is too late for petitioner, however, to invoke said rule.
The trial court in its order dated February 5, 1990, denied petitioner's
motion to disqualify respondent Rosa as a witness. Petitioner did not
appeal therefrom. Trial ensued and Rosa testified as a witness for
respondents and was cross-examined by petitioner's counsel. By her
failure to appeal from the order allowing Rosa to testify, she waived her
right to invoke the dean man's statute. Further, her counsel crossexamined Rosa on matters that occurred during Salvadors' lifetime.
In Goi vs. CA, 144 SCRA 222, 231 (1986) we held that protection
under the dead man's statute is effectively waived when a counsel for
a petitioner cross-examines a private respondent on matters occurring
during the deceased's lifetime. The Court of appeals cannot be faulted
in ignoring petitioner on Rosa's disqualification.1wphi1.nt

Moreover, in Norkis Distributors, Inc. vs. CA, 193 SCRA 694, 698-699
(1991), citing the land case of Abuan vs. Garcia, 14 SCRA 759 (1965),
we held that the critical factor in the different modes of effecting
delivery, which gives legal effect to the act is the actual intention of the
vendor to deliver, and its acceptance by the vendee. Without that
intention, there is no tradition. In the instant case, although the
spouses Jesus and Rosalia executed a deed of sale, they did not
deliver the possession and ownership of the property to Salvador and
Rosa. They agreed to execute a deed of sale merely to accommodate
Salvador to enable him to generate funds for his business venture.
On the third issue, petitioner argues that from the date of the sale from
Rosa to Salvador on November 20, 1973, up to his death on January
9, 1985, more or less twelve years had lapsed, and from his death up
to the filing of the case for reconveyance in the court a quo on January
5, 1989, four years had lapsed. In other words, it took respondents
about sixteen years to file the case below. Petitioner argues that an
action to annul a contract for lack of consideration prescribes in ten
years and even assuming that the cause of action has not prescribed,
respondents are guilty of laches for their inaction for a long period of
time.
Has respondents' cause of action prescribed? In Lacsamana vs. CA,
288 SCRA 287, 292 (1998), we held that the right to file an action for
reconveyance on the ground that the certificate of title was obtained by
means of a fictitious deed of sale is virtually an action for the
declaration of its nullity, which does not prescribe. This applies
squarely to the present case. The complaint filed by respondent in the
court a quo was for the reconveyance of the subject property to the
estate of Rosalia since the deeds of sale were simulated and fictitious.
The complaint amounts to a declaration of nullity of a void contract,
which is imprescriptible. Hence, respondents' cause of action has not
prescribed.
Neither is their action barred by laches. The elements of laches are: 1)
conduct on the part of the defendant, or of one under whom he claims,
giving rise to the situation of which the complaint seeks a remedy; 2)
delay in asserting the complainant's rights, the complainant having had
knowledge or notice of the defendant's conduct as having been
afforded an opportunity to institute a suit; 3) lack of knowledge or
notice on the part of the defendant that the complainant would assert
the right in which he bases his suit; and 4) injury or prejudice to the
defendant in the event relief is accorded to the complainant, or the suit
is not held barred.18 These elements must all be proved positively. The
conduct which caused the complaint in the court a quo was petitioner's
assertion of right of ownership as heir of Salvador. This started in
December 1985 when petitioner demanded payment of the lease
rentals from Antonio Hombrebueno, the tenant of the apartment units.
From December 1985 up to the filing of the complaint for
reconveyance on January 5, 1989, only less than four years had
lapsed which we do not think is unreasonable delay sufficient to bar
respondents' cause of action. We likewise find the fourth element
lacking. Neither petitioner nor her husband made considerable
investments on the property from the time it was allegedly transferred
to the latter. They also did not enter into transactions involving the
property since they did not claim ownership of it until December 1985.
Petitioner stood to lose nothing. As we held in the same case
of Lacsamana vs. CA, cited above, the concept of laches is not
concerned with the lapse of time but only with the effect of unreasonble
lapse. In this case, the alleged 16 years of respondents' inaction has

WHEREFORE, the instant petition is DENIED. The assailed decision

dated March 10, 1998 of the Court of Appeals, which sustained the
judgment of the Regional Trial Court dated March 17, 1993, in favor of
herein private respondents, is AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 92989 July 8, 1991
PERFECTO DY, JR. petitioner,
vs.
COURT OF APPEALS, GELAC TRADING INC., and ANTONIO V.
GONZALES, respondents.
Zosa & Quijano Law Offices for petitioner.
Expedito P. Bugarin for respondent GELAC Trading, Inc.

GUTIERREZ, JR., J.:p

This is a petition for review on certiorari seeking the reversal of the
March 23, 1990 decision of the Court of Appeals which ruled that the
petitioner's purchase of a farm tractor was not validly consummated
and ordered a complaint for its recovery dismissed.
The facts as established by the records are as follows:
The petitioner, Perfecto Dy and Wilfredo Dy are brothers. Sometime in
1979, Wilfredo Dy purchased a truck and a farm tractor through
financing extended by Libra Finance and Investment Corporation
(Libra). Both truck and tractor were mortgaged to Libra as security for
the loan.
The petitioner wanted to buy the tractor from his brother so on August
20, 1979, he wrote a letter to Libra requesting that he be allowed to
purchase from Wilfredo Dy the said tractor and assume the mortgage
debt of the latter.
In a letter dated August 27, 1979, Libra thru its manager, Cipriano Ares
approved the petitioner's request.

Thus, on September 4, 1979, Wilfredo Dy executed a deed of absolute

sale in favor of the petitioner over the tractor in question.
At this time, the subject tractor was in the possession of Libra Finance
due to Wilfredo Dy's failure to pay the amortizations.
Despite the offer of full payment by the petitioner to Libra for the
tractor, the immediate release could not be effected because Wilfredo
Dy had obtained financing not only for said tractor but also for a truck
and Libra insisted on full payment for both.
The petitioner was able to convince his sister, Carol Dy-Seno, to
purchase the truck so that full payment could be made for both. On
November 22, 1979, a PNB check was issued in the amount of
P22,000.00 in favor of Libra, thus settling in full the indebtedness of
Wilfredo Dy with the financing firm. Payment having been effected
through an out-of-town check, Libra insisted that it be cleared first
before Libra could release the chattels in question.
Meanwhile, Civil Case No. R-16646 entitled "Gelac Trading,
Inc. v. Wilfredo Dy", a collection case to recover the sum of P12,269.80
was pending in another court in Cebu.
On the strength of an alias writ of execution issued on December 27,
1979, the provincial sheriff was able to seize and levy on the tractor
which was in the premises of Libra in Carmen, Cebu. The tractor was
subsequently sold at public auction where Gelac Trading was the lone
bidder. Later, Gelac sold the tractor to one of its stockholders, Antonio
Gonzales.
It was only when the check was cleared on January 17, 1980 that the
petitioner learned about GELAC having already taken custody of the
subject tractor. Consequently, the petitioner filed an action to recover
the subject tractor against GELAC Trading with the Regional Trial
Court of Cebu City.
On April 8, 1988, the RTC rendered judgment in favor of the petitioner.
The dispositive portion of the decision reads as follows:
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff and against the defendant,
pronouncing that the plaintiff is the owner of the
tractor, subject matter of this case, and directing
the defendants Gelac Trading Corporation and
Antonio Gonzales to return the same to the
plaintiff herein; directing the defendants jointly and
severally to pay to the plaintiff the amount of
P1,541.00 as expenses for hiring a tractor;
P50,000 for moral damages; P50,000 for
exemplary damages; and to pay the cost. (Rollo,
pp. 35-36)
On appeal, the Court of Appeals reversed the decision of the RTC and
dismissed the complaint with costs against the petitioner. The Court of
Appeals held that the tractor in question still belonged to Wilfredo Dy
when it was seized and levied by the sheriff by virtue of the alias writ of
execution issued in Civil Case No. R-16646.
The petitioner now comes to the Court raising the following questions:
A.
WHETHER OR NOT THE HONORABLE COURT
OF APPEALS MISAPPREHENDED THE FACTS
AND ERRED IN NOT AFFIRMING THE TRIAL

COURT'S FINDING THAT OWNERSHIP OF THE

FARM TRACTOR HAD ALREADY PASSED TO
HEREIN PETITIONER WHEN SAID TRACTOR
WAS LEVIED ON BY THE SHERIFF PURSUANT
TO AN ALIAS WRIT OF EXECUTION ISSUED IN
ANOTHER CASE IN FAVOR OF RESPONDENT
GELAC TRADING INC.
B.
WHETHER OR NOT THE HONORABLE COURT
OF APPEALS EMBARKED ON MERE
CONJECTURE AND SURMISE IN HOLDING
THAT THE SALE OF THE AFORESAID
TRACTOR TO PETITIONER WAS DONE IN
FRAUD OF WILFREDO DY'S CREDITORS,
THERE BEING NO EVIDENCE OF SUCH FRAUD
AS FOUND BY THE TRIAL COURT.
C.
WHETHER OR NOT THE HONORABLE COURT
OF APPEALS MISAPPREHENDED THE FACTS
AND ERRED IN NOT SUSTAINING THE FINDING
OF THE TRIAL COURT THAT THE SALE OF THE
TRACTOR BY RESPONDENT GELAC TRADING
TO ITS CO-RESPONDENT ANTONIO V.
GONZALES ON AUGUST 2, 1980 AT WHICH
TIME BOTH RESPONDENTS ALREADY KNEW
OF THE FILING OF THE INSTANT CASE WAS
VIOLATIVE OF THE HUMAN RELATIONS
PROVISIONS OF THE CIVIL CODE AND
RENDERED THEM LIABLE FOR THE MORAL
AND EXEMPLARY DAMAGES SLAPPED
AGAINST THEM BY THE TRIAL COURT. (Rollo,
p. 13)
The respondents claim that at the time of the execution of the deed of
sale, no constructive delivery was effected since the consummation of
the sale depended upon the clearance and encashment of the check
which was issued in payment of the subject tractor.
In the case of Servicewide Specialists Inc. v. Intermediate Appellate
Court. (174 SCRA 80 [1989]), we stated that:
xxx xxx xxx
The rule is settled that the chattel mortgagor
continues to be the owner of the property, and
therefore, has the power to alienate the same;
however, he is obliged under pain of penal liability,
to secure the written consent of the mortgagee.
(Francisco, Vicente, Jr., Revised Rules of Court in
the Philippines, (1972), Volume IV-B Part 1, p.
525). Thus, the instruments of mortgage are
binding, while they subsist, not only upon the
parties executing them but also upon those who
later, by purchase or otherwise, acquire the
properties referred to therein.
The absence of the written consent of the
mortgagee to the sale of the mortgaged property
in favor of a third person, therefore, affects not the
validity of the sale but only the penal liability of the
mortgagor under the Revised Penal Code and the

binding effect of such sale on the mortgagee

under the Deed of Chattel Mortgage.
xxx xxx xxx
The mortgagor who gave the property as security under a chattel
mortgage did not part with the ownership over the same. He had the
right to sell it although he was under the obligation to secure the
written consent of the mortgagee or he lays himself open to criminal
prosecution under the provision of Article 319 par. 2 of the Revised
Penal Code. And even if no consent was obtained from the mortgagee,
the validity of the sale would still not be affected.
Thus, we see no reason why Wilfredo Dy, as the chattel mortgagor can
not sell the subject tractor. There is no dispute that the consent of Libra
Finance was obtained in the instant case. In a letter dated August 27,
1979, Libra allowed the petitioner to purchase the tractor and assume
the mortgage debt of his brother. The sale between the brothers was
therefore valid and binding as between them and to the mortgagee, as
well.
Article 1496 of the Civil Code states that the ownership of the thing
sold is acquired by the vendee from the moment it is delivered to him
in any of the ways specified in Articles 1497 to 1501 or in any other
manner signing an agreement that the possession is transferred from
the vendor to the vendee. We agree with the petitioner that Articles
1498 and 1499 are applicable in the case at bar.
Article 1498 states:
Art. 1498. When the sale is made through a public
instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the
object of the contract, if from the deed the contrary
does not appear or cannot clearly be inferred.
xxx xxx xxx
Article 1499 provides:
Article 1499. The delivery of movable property
may likewise be made by the mere consent or
agreement of the contracting parties, if the thing
sold cannot be transferred to the possession of the
vendee at the time of the sale, or if the latter
already had it in his possession for any other
reason. (1463a)
In the instant case, actual delivery of the subject tractor could not be
made. However, there was constructive delivery already upon the
execution of the public instrument pursuant to Article 1498 and upon
the consent or agreement of the parties when the thing sold cannot be
immediately transferred to the possession of the vendee. (Art. 1499)
The respondent court avers that the vendor must first have control and
possession of the thing before he could transfer ownership by
constructive delivery. Here, it was Libra Finance which was in
possession of the subject tractor due to Wilfredo's failure to pay the
amortization as a preliminary step to foreclosure. As mortgagee, he
has the right of foreclosure upon default by the mortgagor in the
performance of the conditions mentioned in the contract of mortgage.
The law implies that the mortgagee is entitled to possess the
mortgaged property because possession is necessary in order to
enable him to have the property sold.

While it is true that Wilfredo Dy was not in actual possession and

control of the subject tractor, his right of ownership was not divested
from him upon his default. Neither could it be said that Libra was the
owner of the subject tractor because the mortgagee can not become
the owner of or convert and appropriate to himself the property
mortgaged. (Article 2088, Civil Code) Said property continues to
belong to the mortgagor. The only remedy given to the mortgagee is to
have said property sold at public auction and the proceeds of the sale
applied to the payment of the obligation secured by the mortgagee.
(See Martinez v. PNB, 93 Phil. 765, 767 [1953]) There is no showing
that Libra Finance has already foreclosed the mortgage and that it was
the new owner of the subject tractor. Undeniably, Libra gave its
consent to the sale of the subject tractor to the petitioner. It was aware
of the transfer of rights to the petitioner.
Where a third person purchases the mortgaged property, he
automatically steps into the shoes of the original mortgagor.
(See Industrial Finance Corp. v. Apostol, 177 SCRA 521 [1989]). His
right of ownership shall be subject to the mortgage of the thing sold to
him. In the case at bar, the petitioner was fully aware of the existing
mortgage of the subject tractor to Libra. In fact, when he was obtaining
Libra's consent to the sale, he volunteered to assume the remaining
balance of the mortgage debt of Wilfredo Dy which Libra undeniably
agreed to.
The payment of the check was actually intended to extinguish the
mortgage obligation so that the tractor could be released to the
petitioner. It was never intended nor could it be considered as payment
of the purchase price because the relationship between Libra and the
petitioner is not one of sale but still a mortgage. The clearing or
encashment of the check which produced the effect of payment
determined the full payment of the money obligation and the release of
the chattel mortgage. It was not determinative of the consummation of
the sale. The transaction between the brothers is distinct and apart
from the transaction between Libra and the petitioner. The contention,
therefore, that the consummation of the sale depended upon the
encashment of the check is untenable.
The sale of the subject tractor was consummated upon the execution
of the public instrument on September 4, 1979. At this time
constructive delivery was already effected. Hence, the subject tractor
was no longer owned by Wilfredo Dy when it was levied upon by the
sheriff in December, 1979. Well settled is the rule that only properties
unquestionably owned by the judgment debtor and which are not
exempt by law from execution should be levied upon or sought to be
levied upon. For the power of the court in the execution of its judgment
extends only over properties belonging to the judgment debtor.
(Consolidated Bank and Trust Corp. v. Court of Appeals, G.R. No.
78771, January 23, 1991).
The respondents further claim that at that time the sheriff levied on the
tractor and took legal custody thereof no one ever protested or filed a
third party claim.
It is inconsequential whether a third party claim has been filed or not by
the petitioner during the time the sheriff levied on the subject tractor. A
person other than the judgment debtor who claims ownership or right
over levied properties is not precluded, however, from taking other
legal remedies to prosecute his claim. (Consolidated Bank and Trust
Corp. v. Court of Appeals, supra) This is precisely what the petitioner
did when he filed the action for replevin with the RTC.
Anent the second and third issues raised, the Court accords great
respect and weight to the findings of fact of the trial court. There is no
sufficient evidence to show that the sale of the tractor was in fraud of
Wilfredo and creditors. While it is true that Wilfredo and Perfecto are
brothers, this fact alone does not give rise to the presumption that the

sale was fraudulent. Relationship is not a badge of fraud (Goquiolay v.

Sycip, 9 SCRA 663 [1963]). Moreover, fraud can not be presumed; it
must be established by clear convincing evidence.
We agree with the trial court's findings that the actuations of GELAC
Trading were indeed violative of the provisions on human relations. As
found by the trial court, GELAC knew very well of the transfer of the
property to the petitioners on July 14, 1980 when it received summons
based on the complaint for replevin filed with the RTC by the petitioner.
Notwithstanding said summons, it continued to sell the subject tractor
to one of its stockholders on August 2, 1980.
WHEREFORE, the petition is hereby GRANTED. The decision of the
Court of Appeals promulgated on March 23, 1990 is SET ASIDE and
the decision of the Regional Trial Court dated April 8, 1988 is
REINSTATED.
SO ORDERED.
G.R. No. L-12342

August 3, 1918

A. A. ADDISON, plaintiff-appellant,
vs.
MARCIANA FELIX and BALBINO TIOCO, defendants-appellees.
Thos. D. Aitken for appellant.
Modesto Reyes and Eliseo Ymzon for appellees.
FISHER, J.:
By a public instrument dated June 11, 1914, the plaintiff sold to the
defendant Marciana Felix, with the consent of her husband, the
defendant Balbino Tioco, four parcels of land, described in the
instrument. The defendant Felix paid, at the time of the execution of
the deed, the sum of P3,000 on account of the purchase price, and
bound herself to pay the remainder in installments, the first of P2,000
on July 15, 1914, and the second of P5,000 thirty days after the
issuance to her of a certificate of title under the Land Registration Act,
and further, within ten years from the date of such title P10, for each
coconut tree in bearing and P5 for each such tree not in bearing, that
might be growing on said four parcels of land on the date of the
issuance of title to her, with the condition that the total price should not
exceed P85,000. It was further stipulated that the purchaser was to
deliver to the vendor 25 per centum of the value of the products that
she might obtain from the four parcels "from the moment she takes
possession of them until the Torrens certificate of title be issued in her
favor."
It was also covenanted that "within one year from the date of the
certificate of title in favor of Marciana Felix, this latter may rescind the
present contract of purchase and sale, in which case Marciana Felix
shall be obliged to return to me, A. A. Addison, the net value of all the
products of the four parcels sold, and I shall obliged to return to her,
Marciana Felix, all the sums that she may have paid me, together with
interest at the rate of 10 per cent per annum."
In January, 1915, the vendor, A. A. Addison, filed suit in Court of First
Instance of Manila to compel Marciana Felix to make payment of the
first installment of P2,000, demandable in accordance with the terms of
the contract of sale aforementioned, on July 15, 1914, and of the
interest in arrears, at the stipulated rate of 8 per cent per annum. The
defendant, jointly with her husband, answered the complaint and
alleged by way of special defense that the plaintiff had absolutely failed
to deliver to the defendant the lands that were the subject matter of the
sale, notwithstanding the demands made upon him for this purpose.
She therefore asked that she be absolved from the complaint, and that,

after a declaration of the rescission of the contract of the purchase and

sale of said lands, the plaintiff be ordered to refund the P3,000 that had
been paid to him on account, together with the interest agreed upon,
and to pay an indemnity for the losses and damages which the
defendant alleged she had suffered through the plaintiff's nonfulfillment of the contract.
The evidence adduced shows that after the execution of the deed of
the sale the plaintiff, at the request of the purchaser, went to Lucena,
accompanied by a representative of the latter, for the purpose of
designating and delivering the lands sold. He was able to designate
only two of the four parcels, and more than two-thirds of these two
were found to be in the possession of one Juan Villafuerte, who
claimed to be the owner of the parts so occupied by him. The plaintiff
admitted that the purchaser would have to bring suit to obtain
possession of the land (sten. notes, record, p. 5). In August, 1914, the
surveyor Santamaria went to Lucena, at the request of the plaintiff and
accompanied by him, in order to survey the land sold to the defendant;
but he surveyed only two parcels, which are those occupied mainly by
the brothers Leon and Julio Villafuerte. He did not survey the other
parcels, as they were not designated to him by the plaintiff. In order to
make this survey it was necessary to obtain from the Land Court a writ
of injunction against the occupants, and for the purpose of the
issuance of this writ the defendant, in June, 1914, filed an application
with the Land Court for the registration in her name of four parcels of
land described in the deed of sale executed in her favor by the plaintiff.
The proceedings in the matter of this application were subsequently
dismissed, for failure to present the required plans within the period of
the time allowed for the purpose.
The trial court rendered judgment in behalf of the defendant, holding
the contract of sale to be rescinded and ordering the return to the
plaintiff the P3,000 paid on account of the price, together with interest
thereon at the rate of 10 per cent per annum. From this judgment the
plaintiff appealed.
In decreeing the rescission of the contract, the trial judge rested his
conclusion solely on the indisputable fact that up to that time the lands
sold had not been registered in accordance with the Torrens system,
and on the terms of the second paragraph of clause (h) of the contract,
whereby it is stipulated that ". . . within one year from the date of the
certificate of title in favor of Marciana Felix, this latter may rescind the
present contract of purchase and sale . . . ."
The appellant objects, and rightly, that the cross-complaint is not
founded on the hypothesis of the conventional rescission relied upon
by the court, but on the failure to deliver the land sold. He argues that
the right to rescind the contract by virtue of the special agreement not
only did not exist from the moment of the execution of the contract up
to one year after the registration of the land, but does not accrue until
the land is registered. The wording of the clause, in fact, substantiates
the contention. The one year's deliberation granted to the purchaser
was to be counted "from the date of the certificate of title ... ."
Therefore the right to elect to rescind the contract was subject to a
condition, namely, the issuance of the title. The record show that up to
the present time that condition has not been fulfilled; consequently the
defendant cannot be heard to invoke a right which depends on the
existence of that condition. If in the cross-complaint it had been alleged
that the fulfillment of the condition was impossible for reasons
imputable to the plaintiff, and if this allegation had been proven,
perhaps the condition would have been considered as fulfilled (arts.
1117, 1118, and 1119, Civ. Code); but this issue was not presented in
the defendant's answer.
However, although we are not in agreement with the reasoning found
in the decision appealed from, we consider it to be correct in its result.
The record shows that the plaintiff did not deliver the thing sold. With
respect to two of the parcels of land, he was not even able to show

them to the purchaser; and as regards the other two, more than twothirds of their area was in the hostile and adverse possession of a third
person.
The Code imposes upon the vendor the obligation to deliver the thing
sold. The thing is considered to be delivered when it is placed "in the
hands and possession of the vendee." (Civ. Code, art. 1462.) It is true
that the same article declares that the execution of a public
instruments is equivalent to the delivery of the thing which is the object
of the contract, but, in order that this symbolic delivery may produce
the effect of tradition, it is necessary that the vendor shall have had
such control over the thing sold that, at the moment of the sale, its
material delivery could have been made. It is not enough to confer
upon the purchaser the ownership and theright of possession. The
thing sold must be placed in his control. When there is no impediment
whatever to prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic delivery through the
execution of a public instrument is sufficient. But if, notwithstanding the
execution of the instrument, the purchaser cannot have the enjoyment
and material tenancy of the thing and make use of it himself or through
another in his name, because such tenancy and enjoyment are
opposed by the interposition of another will, then fiction yields to reality
the delivery has not been effected.
As Dalloz rightly says (Gen. Rep., vol. 43, p. 174) in his commentaries
on article 1604 of the French Civil code, "the word "delivery" expresses
a complex idea . . . the abandonment of the thing by the person who
makes the delivery and the taking control of it by the person to whom
the delivery is made."
The execution of a public instrument is sufficient for the purposes of
the abandonment made by the vendor; but it is not always sufficient to
permit of the apprehension of the thing by the purchaser.
The supreme court of Spain, interpreting article 1462 of the Civil Code,
held in its decision of November 10, 1903, (Civ. Rep., vol. 96, p. 560)
that this article "merely declares that when the sale is made through
the means of a public instrument, the execution of this latter is
equivalent to the delivery of the thing sold: which does not and cannot
mean that this fictitious tradition necessarily implies the real tradition of
the thing sold, for it is incontrovertible that, while its ownership still
pertains to the vendor (and with greater reason if it does not), a third
person may be in possession of the same thing; wherefore, though, as
a general rule, he who purchases by means of a public instrument
should be deemed . . . to be the possessor in fact, yet this presumption
gives way before proof to the contrary."
It is evident, then, in the case at bar, that the mere execution of the
instrument was not a fulfillment of the vendors' obligation to deliver the
thing sold, and that from such non-fulfillment arises the purchaser's
right to demand, as she has demanded, the rescission of the sale and
the return of the price. (Civ. Code, arts. 1506 and 1124.)
Of course if the sale had been made under the express agreement of
imposing upon the purchaser the obligation to take the necessary
steps to obtain the material possession of the thing sold, and it were
proven that she knew that the thing was in the possession of a third
person claiming to have property rights therein, such agreement would
be perfectly valid. But there is nothing in the instrument which would
indicate, even implicitly, that such was the agreement. It is true, as the
appellant argues, that the obligation was incumbent upon the
defendant Marciana Felix to apply for and obtain the registration of the
land in the new registry of property; but from this it cannot be
concluded that she had to await the final decision of the Court of Land
Registration, in order to be able to enjoy the property sold. On the
contrary, it was expressly stipulated in the contract that the purchaser
should deliver to the vendor one-fourth "of the products ... of the

aforesaid four parcels from the moment when she takes possession of
them until the Torrens certificate of title be issued in her favor." This
obviously shows that it was not forseen that the purchaser might be
deprived of her possession during the course of the registration
proceedings, but that the transaction rested on the assumption that
she was to have, during said period, the material possession and
enjoyment of the four parcels of land.
Inasmuch as the rescission is made by virtue of the provisions of law
and not by contractual agreement, it is not the conventional but the
legal interest that is demandable.
It is therefore held that the contract of purchase and sale entered into
by and between the plaintiff and the defendant on June 11, 1914, is
rescinded, and the plaintiff is ordered to make restitution of the sum of
P3,000 received by him on account of the price of the sale, together
with interest thereon at the legal rate of 6 per annum from the date of
the filing of the complaint until payment, with the costs of both
instances against the appellant. So ordered.
G.R. No. L-69970 November 28, 1988
FELIX DANGUILAN, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, APOLONIA MELAD, assisted
by her husband, JOSE TAGACAY,respondents.
Pedro R. Perez, Jr. for petitioner.
Teodoro B. Mallonga for private respondent.

CRUZ, J.:
The subject of this dispute is the two lots owned by Domingo Melad
which is claimed by both the petitioner and the respondent. The trial
court believed the petitioner but the respondent court, on appeal,
upheld the respondent. The case is now before us for a resolution of
the issues once and for all.
On January 29, 1962, the respondent filed a complaint against the
petitioner in the then Court of First Instance of Cagayan for recovery of
a farm lot and a residential lot which she claimed she had purchased
from Domingo Melad in 1943 and were now being unlawfully withheld
by the defendant. 1 In his answer, the petitioner denied the allegation
and averred that he was the owner of the said lots of which he had
been in open, continuous and adverse possession, having acquired
them from Domingo Melad in 1941 and 1943. 2 The case was
dismissed for failure to prosecute but was refiled in 1967. 3
At the trial, the plaintiff presented a deed of sale dated December 4,
1943, purportedly signed by Domingo Melad and duly notarized, which
conveyed the said properties to her for the sum of P80.00. 4 She said
the amount was earned by her mother as a worker at the Tabacalera
factory. She claimed to be the illegitimate daughter of Domingo Melad,
with whom she and her mother were living when he died in 1945. She
moved out of the farm only when in 1946 Felix Danguilan approached
her and asked permission to cultivate the land and to stay therein. She
had agreed on condition that he would deliver part of the harvest from
the farm to her, which he did from that year to 1958. The deliveries
having stopped, she then consulted the municipal judge who advised
her to file the complaint against Danguilan. The plaintiff 's mother, her
only other witness, corroborated this testimony. 5

For his part, the defendant testified that he was the husband of Isidra
Melad, Domingo's niece, whom he and his wife Juana Malupang had
taken into their home as their ward as they had no children of their
own. He and his wife lived with the couple in their house on the
residential lot and helped Domingo with the cultivation of the farm.
Domingo Melad signed in 1941 a private instrument in which he gave
the defendant the farm and in 1943 another private instrument in which
he also gave him the residential lot, on the understanding that the latter
would take care of the grantor and would bury him upon his
death. 6 Danguilan presented three other witnesses 7 to corroborate his
statements and to prove that he had been living in the land since his
marriage to Isidra and had remained in possession thereof after
Domingo Melad's death in 1945. Two of said witnesses declared that
neither the plaintiff nor her mother lived in the land with Domingo
Melad. 8
The decision of the trial court was based mainly on the issue of
possession. Weighing the evidence presented by the parties, the
judge 9 held that the defendant was more believable and that the
plaintiff's evidence was "unpersuasive and unconvincing." It was held
that the plaintiff's own declaration that she moved out of the property in
1946 and left it in the possession of the defendant was contradictory to
her claim of ownership. She was also inconsistent when she testified
first that the defendant was her tenant and later in rebuttal that he was
her administrator. The decision concluded that where there was doubt
as to the ownership of the property, the presumption was in favor of the
one actually occupying the same, which in this case was the
defendant. 10
The review by the respondent court 11 of this decision was manifestly
less than thorough. For the most part it merely affirmed the factual
findings of the trial court except for an irrelevant modification, and it
was only toward the end that it went to and resolved what it considered
the lone decisive issue.
The respondent court held that Exhibits 2-b and 3-a, by virtue of which
Domingo Melad had conveyed the two parcels of land to the petitioner,
were null and void. The reason was that they were donations of real
property and as such should have been effected through a public
instrument. It then set aside the appealed decision and declared the
respondents the true and lawful owners of the disputed property.
The said exhibits read as follows:
EXHIBIT 2-b is quoted as follows: 12
I, DOMINGO MELAD, of legal age, married, do
hereby declare in this receipt the truth of my giving
to Felix Danguilan, my agricultural land located at
Barrio Fugu-Macusi, Penablanca, Province of
Cagayan, Philippine Islands; that this land is
registered under my name; that I hereby declare
and bind myself that there is no one to whom I will
deliver this land except to him as he will be the
one responsible for me in the event that I will die
and also for all other things needed and necessary
for me, he will be responsible because of this land
I am giving to him; that it is true that I have nieces
and nephews but they are not living with us and
there is no one to whom I will give my land except
to Felix Danguilan for he lives with me and this is
the length175 m. and the width is 150 m.
IN WITNESS WHEREOF, I hereby sign my name
below and also those present in the execution of
this receipt this 14th day of September 1941.

Penablanca Cagayan, September 14, 1941.

(SGD.) DOMINGO MELAD
WITNESSES:
1. (T.M.) ISIDRO MELAD
2. (SGD.) FELIX DANGUILAN
3. (T.M.) ILLEGIBLE
EXHIBIT 3-a is quoted as follows: 13
I, DOMINGO MELAD, a resident of Centro,
Penablanca, Province of Cagayan, do hereby
swear and declare the truth that I have delivered
my residential lot at Centro, Penablanca,
Cagayan, to Felix Danguilan, my son-in-law
because I have no child; that I have thought of
giving him my land because he will be the one to
take care of SHELTERING me or bury me when I
die and this is why I have thought of executing this
document; that the boundaries of this lot ison
the east, Cresencio Danguilan; on the north,
Arellano Street; on the south by Pastor Lagundi
and on the west, Pablo Pelagio and the area of
this lot is 35 meters going south; width and length
beginning west to east is 40 meters.
IN WITNESS HEREOF, I hereby sign this receipt
this 18th day of December 1943.
(SGD.) DOMINGO MELAD
WITNESSES:
(SGD.) ILLEGIBLE
(SGD.) DANIEL ARAO
It is our view, considering the language of the two instruments, that
Domingo Melad did intend to donate the properties to the petitioner, as
the private respondent contends. We do not think, however, that the
donee was moved by pure liberality. While truly donations, the
conveyances were onerous donations as the properties were given to
the petitioner in exchange for his obligation to take care of the donee
for the rest of his life and provide for his burial. Hence, it was not
covered by the rule in Article 749 of the Civil Code requiring donations
of real properties to be effected through a public instrument. The case
at bar comes squarely under the doctrine laid down in Manalo v. De
Mesa, 14 where the Court held:
There can be no doubt that the donation in
question was made for a valuable consideration,
since the donors made it conditional upon the
donees' bearing the expenses that might be
occasioned by the death and burial of the donor
Placida Manalo, a condition and obligation which
the donee Gregorio de Mesa carried out in his own
behalf and for his wife Leoncia Manalo; therefore,
in order to determine whether or not said donation
is valid and effective it should be sufficient to
demonstrate that, as a contract, it embraces the
conditions the law requires and is valid and
effective, although not recorded in a public
instrument.
The private respondent argues that as there was no equivalence
between the value of the lands donated and the services for which they

were being exchanged, the two transactions should be considered

pure or gratuitous donations of real rights, hence, they should have
been effected through a public instrument and not mere private
writings. However, no evidence has been adduced to support her
contention that the values exchanged were disproportionate or
unequal.
On the other hand, both the trial court and the respondent court have
affirmed the factual allegation that the petitioner did take care of
Domingo Melad and later arranged for his burial in accordance with the
condition imposed by the donor. It is alleged and not denied that he
died when he was almost one hundred years old, 15which would mean
that the petitioner farmed the land practically by himself and so
provided for the donee (and his wife) during the latter part of Domingo
Melad's life. We may assume that there was a fair exchange between
the donor and the donee that made the transaction an onerous
donation.
Regarding the private respondent's claim that she had purchased the
properties by virtue of a deed of sale, the respondent court had only
the following to say: "Exhibit 'E' taken together with the documentary
and oral evidence shows that the preponderance of evidence is in
favor of the appellants." This was, we think, a rather superficial way of
resolving such a basic and important issue.
The deed of sale was allegedly executed when the respondent was
only three years old and the consideration was supposedly paid by her
mother, Maria Yedan from her earnings as a wage worker in a
factory. 16 This was itself a suspicious circumstance, one may well
wonder why the transfer was not made to the mother herself, who was
after all the one paying for the lands. The sale was made out in favor of
Apolonia Melad although she had been using the surname Yedan her
mother's surname, before that instrument was signed and in fact even
after she got married. 17 The averment was also made that the contract
was simulated and prepared after Domingo Melad's death in 1945. 18 It
was also alleged that even after the supposed execution of the said
contract, the respondent considered Domingo Melad the owner of the
properties and that she had never occupied the same. 19
Considering these serious challenges, the appellate court could have
devoted a little more time to examining Exhibit "E" and the
circumstances surrounding its execution before pronouncing its validity
in the manner described above. While it is true that the due execution
of a public instrument is presumed, the presumption is disputable and
will yield to contradictory evidence, which in this case was not refuted.
At any rate, even assuming the validity of the deed of sale, the record
shows that the private respondent did not take possession of the
disputed properties and indeed waited until 1962 to file this action for
recovery of the lands from the petitioner. If she did have possession,
she transferred the same to the petitioner in 1946, by her own sworn
admission, and moved out to another lot belonging to her stepbrother. 20 Her claim that the petitioner was her tenant (later changed to
administrator) was disbelieved by the trial court, and properly so, for its
inconsistency. In short, she failed to show that she consummated the
contract of sale by actual delivery of the properties to her and her
actual possession thereof in concept of purchaser-owner.
As was held in Garchitorena v. Almeda: 21
Since in this jurisdiction it is a fundamental and
elementary principle that ownership does not pass
by mere stipulation but only by delivery (Civil
Code, Art. 1095; Fidelity and Surety Co. v. Wilson,
8 Phil. 51), and the execution of a public document
does not constitute sufficient delivery where the
property involved is in the actual and adverse

possession of third persons (Addison vs. Felix, 38

Phil. 404; Masallo vs. Cesar, 39 Phil. 134), it
becomes incontestable that even if included in the
contract, the ownership of the property in dispute
did not pass thereby to Mariano Garchitorena. Not
having become the owner for lack of delivery,
Mariano Garchitorena cannot presume to recover
the property from its present possessors. His
action, therefore, is not one of revindicacion, but
one against his vendor for specific performance of
the sale to him.
In the aforecited case of Fidelity and Deposit Co. v. Wilson, 22 Justice
Mapa declared for the Court:
Therefore, in our Civil Code it is a fundamental
principle in all matters of contracts and a wellknown doctrine of law that "non mudis pactis sed
traditione dominia rerum transferuntur". In
conformity with said doctrine as established in
paragraph 2 of article 609 of said code, that "the
ownership and other property rights are acquired
and transmitted by law, by gift, by testate or
intestate succession, and, in consequence of
certain contracts, by tradition". And as the logical
application of this disposition article 1095
prescribes the following: "A creditor has the rights
to the fruits of a thing from the time the obligation
to deliver it arises. However, he shall not acquire a
real right" (and the ownership is surely such) "until
the property has been delivered to him."
In accordance with such disposition and provisions
the delivery of a thing constitutes a necessary and
indispensable requisite for the purpose of
acquiring the ownership of the same by virtue of a
contract. As Manresa states in his Commentaries
on the Civil Code, volume 10, pages 339 and 340:
"Our law does not admit the doctrine of the
transfer of property by mere consent but limits the
effect of the agreement to the due execution of the
contract. ... The ownership, the property right, is
only derived from the delivery of a thing ... "
As for the argument that symbolic delivery was effected through the
deed of sale, which was a public instrument, the Court has held:
The Code imposes upon the vendor the obligation
to deliver the thing sold. The thing is considered to
be delivered when it is placed "in the hands and
possession of the vendee." (Civil Code, art. 1462).
It is true that the same article declares that the
execution of a public instrument is equivalent to
the delivery of the thing which is the object of the
contract, but, in order that this symbolic delivery
may produce the effect of tradition, it is necessary
that the vendor shall have had such control over
the thing sold that, at the moment of the sale, its
material delivery could have been made. It is not
enough to confer upon the purchaser
the ownership and the right of possession. The
thing sold must be placed in his control. When
there is no impediment whatever to prevent the
thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic
delivery through the execution of a public
instrument is sufficient. But if, notwithstanding the
execution of the instrument, the purchaser cannot

have the enjoyment and material tenancy of the

thing and make use of it himself or through
another in his name, because such tenancy and
enjoyment are opposed by the interposition of
another will, then fiction yields to realitythe
delivery has not been effected. 23
There is no dispute that it is the petitioner and not the private
respondent who is in actual possession of the litigated properties. Even
if the respective claims of the parties were both to be discarded as
being inherently weak, the decision should still incline in favor of the
petitioner pursuant to the doctrine announced in Santos & Espinosa v.
Estejada 24 where the Court announced:
If the claim of both the plaintiff and the defendant
are weak, judgment must be for the defendant, for
the latter being in possession is presumed to be
the owner, and cannot be obliged to show or prove
a better right.
WHEREFORE, the decision of the respondent court is SET ASIDE and
that of the trial court REINSTATED, with costs against the private
respondent. It is so ordered.
G.R. No. 120820

August 1, 2000

SPS. FORTUNATO SANTOS and ROSALINDA R SANTOS,

petitioners,
vs.
COURT OF APPEALS, SPS. MARIANO R. CASEDA and CARMEN
CASEDA, respondents.
QUISUMBING, J.:
For review on certiorari is the decision of the Court of Appeals, dated
March 28, 1995, in CA-G.R. CV No. 30955, which reversed and set
aside the judgment of the Regional Trial Court of Makati, Branch 133,
in Civil Case No. 89-4759. Petitioners (the Santoses) were the owners
of a house and lot informally sold, with conditions, to herein private
respondents (the Casedas). In the trial court, the Casedas had
complained that the Santoses refused to deliver said house and lot
despite repeated demands. The trial court dismissed the complaint for
specific performance and damages, but in the Court of Appeals, the
dismissal was reversed, as follows:
"WHEREFORE, in view of the foregoing, the decision
appealed from is hereby REVERSED and SET ASIDE and a
new one entered:
"1. GRANTING plaintiffs-appellants a period of NINETY (90)
DAYS from the date of the finality of judgment within which
to pay the balance of the obligation in accordance with their
agreement;
"2. Ordering appellees to restore possession of the subject
house and lot to the appellants upon receipt of the full
amount of the balance due on the purchase price; and
"3. No pronouncement as to costs.
"SO ORDERED."1
The undisputed facts of this case are as follows:

The spouses Fortunato and Rosalinda Santos owned the house and
lot consisting of 350 square meters located at Lot 7, Block 8, Better
Living Subdivision, Paraaque, Metro Manila, as evidenced by TCT (S11029) 28005 of the Register of Deeds of Paraaque. The land
together with the house, was mortgaged with the Rural Bank of
Salinas, Inc., to secure a loan of P150,000.00 maturing on June 16,
1987.
Sometime in 1984, Rosalinda Santos met Carmen Caseda, a fellow
market vendor of hers in Pasay City and soon became very good
friends with her. The duo even became kumadres when Carmen stood
as a wedding sponsor of Rosalinda's nephew.
On June 16, 1984, the bank sent Rosalinda Santos a letter demanding
payment of P16,915.84 in unpaid interest and other charges. Since the
Santos couple had no funds, Rosalinda offered to sell the house and
lot to Carmen. After inspecting the real property, Carmen and her
husband agreed.
Sometime that month of June, Carmen and Rosalinda
signed a document, which reads:
"Received the amount of P54,100.00 as a partial payment of
Mrs. Carmen Caseda to the (total) amount of 350,000.00
(house and lot) that is own (sic) by Mrs. Rosalinda R.
Santos.
(Sgd.) Carmen H. Caseda
direct buyer
Mrs. Carmen Caseda
"(Sgd.) Rosalinda Del R. Santos
Owner
Mrs. Rosalinda R. Santos
House and Lot
Better Living Subd. Paraaque, Metro Manila
Section V Don Bosco St."2
The other terms and conditions that the parties agreed upon were for
the Caseda spouses to pay: (1) the balance of the mortgage loan with
the Rural bank amounting to P135,385.18; (2) the real estate taxes; (3)
the electric and water bills; and (4) the balance of the cash price to be
paid not later than June 16, 1987, which was the maturity date of the
loan.3
The Casedas gave an initial payment of P54,100.00 and immediately
took possession of the property, which they then leased out. They also
paid in installments, P81,696.84 of the mortgage loan. The Casedas,
however, failed to pay the remaining balance of the loan because they
suffered bankruptcy in 1987. Notwithstanding the state of their
finances, Carmen nonetheless paid in March 1990, the real estate
taxes on the property for 1981-1984. She also settled the electric bills
from December 12, 1988 to July 12, 1989. All these payments were
made in the name of Rosalinda Santos.
In January 1989, the Santoses, seeing that the Casedas lacked the
means to pay the remaining installments and/or amortization of the

loan, repossessed the property. The Santoses then collected the

rentals from the tenants.
In February 1989, Carmen Caseda sold her fishpond in Batangas. She
then approached petitioners and offered to pay the balance of the
purchase price for the house and lot. The parties, however, could not
agree, and the deal could not push through because the Santoses
wanted a higher price. For understandably, the real estate boom in
Metro Manila at this time, had considerably jacked up realty values. On
August 11, 1989, the Casedas filed Civil Case No. 89-4759, with the
RTC of Makati, to have the Santoses execute the final deed of
conveyance over the property, or in default thereof, to reimburse the
amount of P180,000.00 paid in cash and P249,900.00 paid to the rural
bank, plus interest, as well as rentals for eight months amounting to
P32,000.00, plus damages and costs of suit.1wphi1.nt
After trial on the merits, the lower court disposed of the case as
follows:
"WHEREFORE, judgment is hereby ordered:
(a) dismissing plaintiff's (Casedas') complaint; and
(b) declaring the agreement; marked as Annex "C" of the
complaint rescinded. Costs against plaintiffs.

last amount to the bank to save the property from

foreclosure. Logically, plaintiffs must share in the burden
arising from their failure to liquidate the loan per their
contractual commitment. Hence, the amount of P25,794.64
as their share in the defendants' damages in the form of
increased loan-amount, is reasonable."6
On appeal, the appellate court, as earlier noted, reversed the lower
court. The appellate court held that rescission was not justified under
the circumstances and allowed the Caseda spouses a period of ninety
days within which to pay the balance of the agreed purchase price.
Hence, this instant petition for review on certiorari filed by the
Santoses.
Petitioners now submit the following issues for our consideration:
WHETHER OR NOT THE COURT OF APPEALS, HAS
JURISDICTION TO DECIDE PRIVATE RESPONDENT'S
APPEAL INTERPOSING PURELY QUESTIONS OF LAW.
WHETHER THE SUBJECT TRANSACTION IS NOT A
CONTRACT OF ABSOLUTE SALE BUT A MERE ORAL
CONTRACT TO SELL IN WHICH CASE JUDICIAL
DEMAND FOR RESCISSION (ART. 1592,7 CIVIL CODE) IS
NOT APPLICABLE.

"SO ORDERED."4
Said judgment of dismissal is mainly based on the trial court's finding
that:
"Admittedly, the purchase price of the house and lot was
P485,385.18, i.e. P350,000.00 as cash payment and
P135,385.18, assumption of mortgage. Of it plaintiffs
[Casedas] paid the following: (1) P54,100.00 down payment;
and (2) P81,694.64 installment payments to the bank on the
loan (Exhs. E to E-19) or a total of P135,794.64. Thus,
plaintiffs were short of the purchase price. They cannot,
therefore, demand specific performance."5
The trial court further held that the Casedas were not entitled to
reimbursement of payments already made, reasoning that:
"As earlier mentioned, plaintiffs made a total payment of
P135,794.64 out of the purchase price of P485,385.18. The
property was in plaintiffs' possession from June 1984 to
January 1989 or a period of fifty-five months. During that
time, plaintiffs leased the property. Carmen said the property
was rented for P25.00 a day or P750.00 a month at the start
and in 1987 it was increased to P2,000.00 and P4,000 a
month. But the evidence is not precise when the different
amounts of rental took place. Be that as it may, fairness
demands that plaintiffs must pay defendants for the exercise
of dominical rights over the property by renting it to others.
The amount of P2,000.00 a month would be reasonable
based on the average of P750.00, P2,000.00, P4,000.00
lease-rentals charged. Multiply P2,000 by 55 months, the
plaintiffs must pay defendants P110,000 for the use of the
property. Deducting this amount from the P135,794.64
payment of the plaintiffs on the property the difference is
P25,794.64. Should the plaintiffs be entitled to a
reimbursement of this amount? The answer is in the
negative. Because of failure of plaintiffs to liquidated the
mortgage loan on time, it had ballooned from its original
figure of P135,384.18 as of June 1984 to P337,280.78 as of
December 31, 1988. Defendants [Santoses] had to pay the

ASSUMING ARGUENDO THAT A JUDICIAL DEMAND FOR

RESCISSION IS REQUIRED, WHETHER PETITIONERS'
DEMAND AND PRAYER FOR RESCISSION CONTAINED
IN THEIR ANSWER FILED BEFORE THE TRIAL
SATISFIED THE SAID REQUIREMENT.
WHETHER OR NOT THE NON-PAYMENT OF MORE THAN
HALF OF THE ENTIRE PURCHASE PRICE INCLUDING
THE NON-COMPLIANCE WITH THE STIPULATION TO
LIQUIDATE THE MORTGAGE LOAN ON TIME WHICH
CAUSED GRAVE DAMAGE AND PREJUDICE TO
PETITIONERS, CONSTITUTE SUBSTANTIAL BREACH TO
JUSTIFY RESCISSION OF A CONTRACT TO SELL UNDER
ARTICLE 1191 8(CIVIL CODE).
On the first issue, petitioners argue that, since both the parties and the
apellate court adopted the findings of trial court,9 no questions of fact
were raised before the Court of Appeals. According to petitioners, CAG.R. CV No. 30955, involved only pure questions of law. They aver
that the court a quo had no jurisdiction to hear, much less decide, CAG.R. CV No. 30955, without running afoul of Supreme Court Circular
No. 290 (4) [c].10
There is a question of law in a given case when the doubt or difference
arises as to how the law is on a certain set of facts, and there is a
question of fact when the doubt or difference arises as to the truth or
falsehood of the alleged facts.11 But we note that the first assignment of
error submitted by respondents for consideration by the appellate court
dealt with the trial court's finding that herein petitioners got back the
property in question because respondents did not have the means to
pay the installments and/or amortization of the loan.12 The resolution of
this question involved an evaluation of proof, and not only a
consideration of the applicable statutory and case laws. Clearly, C.A.G.R. CV No. 30955 did not involve pure questions of law, hence the
Court of Appeals had jurisdiction and there was no violation of our
Circular No. 2-90.
Moreover, we find that petitioners took an active part in the
proceedings before the Court of Appeals, yet they did not raise there

the issue of jurisdiction. They should have raised this issue at the
earliest opportunity before the Court of Appeals. A party taking part in
the proceedings before the appellate court and submitting his case for
its decision ought not to later on attack the court's decision for want of
jurisdiction because the decision turns out to be adverse to him.13
The second and third issues deal with the question: Did the Court of
Appeals err in holding that a judicial rescission of the agreement was
necessary? In resolving both issues, we must first make a preliminary
determination of the nature of the contract in question: Was it a
contract of sale, as insisted by the respondents or a mere contract to
sell, as contended by petitioners?
Petitioners argue that the transaction between them and respondents
was a mere contract to sell, and not a contract of sale, since the sole
documentary evidence (Exh. D, receipt) referring to their agreement
clearly showed that they did not transfer ownership of the property in
question simultaneous with its delivery and hence remained its owners,
pending fulfillment of the other suspensive conditions, i.e. full payment
of the balance of the purchase price and the loan amortizations.
Petitioners point to Manuel v. Rodriguez, 109 Phil. 1 (1960) and Luzon
Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93 (1972),
where he held that article 1592 of the Civil Code is inapplicable to a
contract to sell. They charge the court a quo with reversible error in
holding that petitioners should have judicially rescinded the agreement
with respondents when the latter failed to pay the amortizations on the
bank loan.
Respondents insist that there was a perfected contract of sale, since
upon their partial payment of the purchase price, they immediately took
possession of the property as vendees, and subsequently leased it,
thus exercising all the rights of ownership over the property. This
showed that transfer of ownership was simultaneous with the delivery
of the realty sold, according to respondents.
It must be emphasized from the outset that a contract is what the law
defines it to be, taking into consideration its essential elements, and
not what the contracting parties call it.14 Article 145815 of the Civil Code
defines a contract of sale. Note that the said article expressly obliges
the vendor to transfer the ownership of the thing sold as an essential
element of a contract of sale.16 We have carefully examined the
contents of the unofficial receipt, Exh. D, with the terms and conditions
informally agreed upon by the parties, as well as the proofs submitted
to support their respective contentions. We are far from persuaded that
there was a transfer of ownership simultaneously with the delivery of
the property purportedly sold. The records clearly show that,
notwithstanding the fact that the Casedas first took then lost
possession of the disputed house and lot, the title to the property, TCT
No. 28005 (S-11029) issued by the Register of Deeds of Paraaque,
has remained always in the name of Rosalinda Santos.17 Note further
that although the parties agreed that the Casedas would assume the
mortgage, all amortization payments made by Carmen Caseda to the
bank were in the name of Rosalinda Santos.18 We likewise find that the
bank's cancellation and discharge of mortgage dated January 20,
1990, was made in favor of Rosalinda Santos.19 The foregoing
circumstances categorically and clearly show that no valid transfer of
ownership was made by the Santoses to the Casedas. Absent this
essential element, their agreement cannot be deemed a contract of
sale. We agree with petitioner's averment that the agreement between
Rosalinda Santos and Carmen Caseda is a contract to sell. In
contracts to sell, ownership is reserved the by the vendor and is not to
pass until full payment of the purchase price. This we find fully
applicable and understandable in this case, given that the property
involved is a titled realty under mortgage to a bank and would require
notarial and other formalities of law before transfer thereof could be
validly effected.

In view of our finding in the present case that the agreement between
the parties is a contract to sell, it follows that the appellate court erred
when it decreed that a judicial rescission of said agreement was
necessary. This is because there was no rescission to speak of in the
first place. As we earlier pointed, in a contract to sell, title remains with
the vendor and does not pass on to the vendee until the purchase
price is paid in full, Thus, in contract to sell, the payment of the
purchase price is a positive suspensive condition. Failure to pay the
price agreed upon is not a mere breach, casual or serious, but a
situation that prevents the obligation of the vendor to convey title from
acquiring an obligatory force.20 This is entirely different from the
situation in a contract of sale, where non-payment of the price is a
negative resolutory condition. The effects in law are not identical. In a
contract of sale, the vendor has lost ownership of the thing sold and
cannot recover it, unless the contract of sale is rescinded and set
aside.21 In a contract to sell, however, the vendor remains the owner for
as long as the vendee has not complied fully with the condition of
paying the purchase. If the vendor should eject the vendee for failure
to meet the condition precedent, he is enforcing the contract and not
rescinding it. When the petitioners in the instant case repossessed the
disputed house and lot for failure of private respondents to pay the
purchase price in full, they were merely enforcing the contract and not
rescinding it. As petitioners correctly point out the Court of Appeals
erred when it ruled that petitioners should have judicially rescinded the
contract pursuant to Articles 1592 and 1191 of the Civil Code. Article
1592 speaks of non-payment of the purchase price as a resolutory
condition. It does not apply to a contract to sell.22 As to Article 1191, it
is subordinated to the provisions of Article 1592 when applied to sales
of immovable property.23 Neither provision is applicable in the present
case.
As to the last issue, we need not tarry to make a determination of
whether the breach of contract by private respondents is so substantial
as to defeat the purpose of the parties in entering into the agreement
and thus entitle petitioners to rescission. Having ruled that there is no
rescission to speak of in this case, the question is moot.
WHEREFORE, the instant petition is GRANTED and the assailed
decision of the Court of Appeals in CA-G.R. CV No. 30955
is REVERSED and SET ASIDE. The judgment of the Regional Trial
Court of Makati, Branch 133, with respect to the DISMISSAL of the
complaint in Civil Case No. 89-4759, is hereby REINSTATED. No
pronouncement as to costs.1wphi1.nt
SO ORDERED.
G.R. No. 168499

November 26, 2012

SPOUSES EROSTO SANTIAGO and NELSIE

SANTIAGO, Petitioners,
vs.
MANCER VILLAMOR, CARLOS VILLAMOR, JOHN VILLAMOR and
DOMINGO VILLAMOR, JR., Respondents.
DECISION
BRION, J.:
We resolve the petition for review on certiorari1 tiled by spouses Eros
to Santiago and Nelsie Santiago (petitioners) to challenge the August
10, 2004 decision2 and the June 8, 2005 resolution3of the Court of
Appeals (CA) in CA-G.R. CV No. 59112. The CA decision set aside the
May 28, 1997 decision4 of the Regional Trial Court (RTC) of San
Jacinto, Masbate, Branch 50, in Civil Case No. 201. The CA resolution
denied the petitioners' subsequent motion for reconsideration.

THE FACTUAL ANTECEDENTS

In January 1982,5 the spouses Domingo Villamor, Sr. and Trinidad
Gutierrez Villamor (spouses Villamor, Sr.), the parents of Mancer
Villamor, Carlos Villamor and Domingo Villamor, Jr. (respondents) and
the grandparents of respondent John Villamor, mortgaged their 4.5hectare coconut land in Sta. Rosa, San Jacinto, Masbate, known as
Lot No. 1814, to the Rural Bank of San Jacinto (Masbate), Inc. (San
Jacinto Bank) as security for a P10,000.00 loan.
For non-payment of the loan, the San Jacinto Bank extrajudicially
foreclosed the mortgage, and, as the highest bidder at the public
auction, bought the land. When the spouses Villamor, Sr. failed to
redeem the property within the prescribed period, the San Jacinto
Bank obtained a final deed of sale in its favor sometime in 1991. The
San Jacinto Bank then offered the land for sale to any interested
buyer.6
a. The Specific Performance Case
Since the respondents had been in possession and cultivation of the
land, they decided, together with their sister Catalina Villamor
Ranchez, to acquire the land from the San Jacinto Bank. The San
Jacinto Bank agreed with the respondents and Catalina to a
P65,000.00 sale, payable in installments. The respondents and
Catalina made four (4) installment payments of P28,000.00,
P5,500.00, P7,000.00 and P24,500.00 on November 4, 1991,
November 23, 1992, April 26, 1993 and June 8, 1994, respectively.7
When the San Jacinto Bank refused to issue a deed of conveyance in
their favor despite full payment, the respondents and Catalina filed a
complaint against the San Jacinto Bank (docketed as Civil Case No.
200) with the RTC on October 11, 1994. The complaint was for specific
performance with damages.
The San Jacinto Bank claimed that it already issued a deed of
repurchase in favor of the spouses Villamor, Sr.; the payments made
by the respondents and Catalina were credited to the account of
Domingo, Sr. since the real buyers of the land were the spouses
Villamor, Sr.8
In a February 10, 2004 decision, the RTC dismissed the specific
performance case. It found that the San Jacinto Bank acted in good
faith when it executed a deed of "repurchase" in the spouses Villamor,
Sr.s names since Domingo, Sr., along with the respondents and
Catalina, was the one who transacted with the San Jacinto Bank to
redeem the land.9
The CA, on appeal, set aside the RTCs decision.10 The CA found that
the respondents and Catalina made the installment payments on their
own behalf and not as representatives of the spouses Villamor, Sr. The
San Jacinto Bank mistakenly referred to the transaction as a
"repurchase" when the redemption period had already lapsed and the
title had been transferred to its name; the transaction of the
respondents and Catalina was altogether alien to the spouses Villamor,
Sr.s loan with mortgage. Thus, it ordered the San Jacinto Bank to
execute the necessary deed of sale in favor of the respondents and
Catalina, and to pay P30,000.00 as attorneys fees.11 No appeal
appears to have been taken from this decision.
b. The Present Quieting of Title Case
On July 19, 1994 (or prior to the filing of the respondents and
Catalinas complaint for specific performance, as narrated above), the
San Jacinto Bank issued a deed of sale in favor of Domingo, Sr.12 On

July 21, 1994, the spouses Villamor, Sr. sold the land to the petitioners
for P150,000.00.13
After the respondents and Catalina refused the petitioners demand to
vacate the land, the petitioners filed on October 20, 1994 a complaint
for quieting of title and recovery of possession against the
respondents.14 This is the case that is now before us.
The respondents and Catalina assailed the San Jacinto Banks
execution of the deed of sale in favor of Domingo, Sr., claiming that the
respondents and Catalina made the installment payments on their own
behalf.15
In its May 28, 1997 decision,16 the RTC declared the petitioners as the
legal and absolute owners of the land, finding that the petitioners were
purchasers in good faith; the spouses Villamor, Sr.s execution of the
July 21, 1994 notarized deed of sale in favor of the petitioners resulted
in the constructive delivery of the land. Thus, it ordered the
respondents to vacate and to transfer possession of the land to the
petitioners, and to pay P10,000.00 as moral damages.17
On appeal, the CA, in its August 10, 2004 decision, found that the
petitioners action to quiet title could not prosper because the
petitioners failed to prove their legal or equitable title to the land. It
noted that there was no real transfer of ownership since neither the
spouses Villamor, Sr. nor the petitioners were placed in actual
possession and control of the land after the execution of the deeds of
sale. It also found that the petitioners failed to show that the
respondents and Catalinas title or claim to the land was invalid or
inoperative, noting the pendency of the specific performance case, at
that time on appeal with the CA. Thus, it set aside the RTC decision
and ordered the dismissal of the complaint, without prejudice to the
outcome of the specific performance case.18
When the CA denied19 the motion for reconsideration20 that followed,
the petitioners filed the present Rule 45 petition.
THE PETITION
The petitioners argue that the spouses Villamor, Sr.s execution of the
July 21, 1994 deed of sale in the petitioners favor was equivalent to
delivery of the land under Article 1498 of the Civil Code; the petitioners
are purchasers in good faith since they had no knowledge of the
supposed transaction between the San Jacinto Bank and the
respondents and Catalina; and the respondents and Catalinas
possession of the land should not be construed against them
(petitioners) since, by tradition and practice in San Jacinto, Masbate,
the children use their parents property.
THE CASE FOR THE RESPONDENTS
The respondents and respondent John submit that they hold legal title
to the land since they perfected the sale with the San Jacinto Bank as
early as November 4, 1991, the first installment payment, and are in
actual possession of the land; the petitioners are not purchasers in
good faith since they failed to ascertain why the respondents were in
possession of the land.
THE ISSUE
The case presents to us the issue of whether the CA committed a
reversible error when it set aside the RTC decision and dismissed the
petitioners complaint for quieting of title and recovery of possession.
OUR RULING

The petition lacks merit.

Quieting of title is a common law remedy for the removal of any cloud,
doubt or uncertainty affecting title to real property. The plaintiffs must
show not only that there is a cloud or contrary interest over the subject
real property,21 but that they have a valid title to it.22 Worth stressing, in
civil cases, the plaintiff must establish his cause of action by
preponderance of evidence; otherwise, his suit will not prosper.23

burden of investigating the rights of the respondents and respondent

John who were then in actual possession of the land. The petitioners
cannot take refuge behind the allegation that, by custom and tradition
in San Jacinto, Masbate, the children use their parents' property, since
they offered no proof supporting their bare allegation. The burden of
proving the status of a purchaser in good faith lies upon the party
asserting that status and cannot be discharged by reliance on the legal
presumption of good faith.28 The petitioners failed to discharge this
burden.

The petitioners anchor their claim over the disputed land on the July
21, 1994 notarized deed of sale executed in their favor by the spouses
Villamor, Sr. who in turn obtained a July 19, 1994 notarized deed of
sale from the San Jacinto Bank. On the other hand, the respondents
and respondent John claim title by virtue of their installment payments
to the San Jacinto Bank from November 4, 1991 to June 8, 1994 and
their actual possession of the disputed land.

Lastly, since the specific performance case already settled the

respondents and respondent John's claim over the disputed land, the
dispositive portion of the CA decision (dismissing the complaint without
prejudice to the outcome of the specific performance case29) is
modified to reflect this fact; we thus dismiss for lack of merit the
complaint for quieting of title and recovery of possession.

After considering the parties evidence and arguments, we agree with

the CA that the petitioners failed to prove that they have any legal or
equitable title over the disputed land.

WHEREFORE, we hereby DENY the petition and ORDER the

DISMISSAL of Civil Case No. 201 before the Regional Trial Court of
San Jacinto, Masbate, Branch 50.

Execution of the deed of sale only a

Costs against the petitioners.

prima facie presumption of delivery.

SO ORDERED.

Article 1477 of the Civil Code recognizes that the "ownership of the
thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof." Related to this article is Article 1497
which provides that "the thing sold shall be understood as delivered,
when it is placed in the control and possession of the vendee."

G.R. No. 194785

With respect to incorporeal property, Article 1498 of the Civil Code lays
down the general rule: the execution of a public instrument "shall be
equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot
clearly be inferred." However, the execution of a public instrument
gives rise only to a prima facie presumption of delivery, which is
negated by the failure of the vendee to take actual possession of the
land sold.24 "A person who does not have actual possession of the
thing sold cannot transfer constructive possession by the execution
and delivery of a public instrument."25
In this case, no constructive delivery of the land transpired upon the
execution of the deed of sale since it was not the spouses Villamor, Sr.
but the respondents who had actual possession of the land. The
presumption of constructive delivery is inapplicable and must yield to
the reality that the petitioners were not placed in possession and
control of the land.
The petitioners are not purchasers in
good faith.
The petitioners can hardly claim to be purchasers in good faith.
"A purchaser in good faith is one who buys property without notice that
some other person has a right to or interest in such property and pays
its fair price before he has notice of the adverse claims and interest of
another person in the same property."26 However, where the land sold
is in the possession of a person other than the vendor, the purchaser
must be wary and must investigate the rights of the actual possessor;
without such inquiry, the buyer cannot be said to be in good faith and
cannot have any right over the property.27
In this case, the spouses Villamor, Sr. were not in possession of the
land.1wphi1 The petitioners, as prospective vendees, carried the

July 11, 2012

VIRGILIO S. DAVID, Petitioner,

vs.
MISAMIS OCCIDENTAL II ELECTRIC COOPERATIVE,
INC., Respondent.
DECISION
MENDOZA, J.:
Before this Court is a petition for review under Rule 45 of the Rules of
Court assailing the July 8, 2010 Decision1of the Court of Appeals (CA),
in CA-G.R. CR No. 91839, which affirmed the July 17, 2008
Decision2 of the Regional Trial Court, Branch VIII, Manila (RTC) in Civil
Case No. 94-69402, an action for specific performance and damages.
The Facts:
Petitioner Virgilio S. David (David) was the owner or proprietor of VSD
Electric Sales, a company engaged in the business of supplying
electrical hardware including transformers for rural electric
cooperatives like respondent Misamis Occidental II Electric
Cooperative, Inc. (MOELCI), with principal office located in Ozamis
City.
To solve its problem of power shortage affecting some areas within its
coverage, MOELCI expressed its intention to purchase a 10 MVA
power transformer from David. For this reason, its General Manager,
Engr. Reynaldo Rada (Engr. Rada), went to meet David in the latters
office in Quezon City. David agreed to supply the power transformer
provided that MOELCI would secure a board resolution because the
item would still have to be imported.
On June 8, 1992, Engr. Rada and Director Jose Jimenez (Jimenez),
who was in-charge of procurement, returned to Manila and presented
to David the requested board resolution which authorized the purchase
of one 10 MVA power transformer. In turn, David presented his
proposal for the acquisition of said transformer. This proposal was the
same proposal that he would usually give to his clients.

After the reading of the proposal and the discussion of terms, David
instructed his then secretary and bookkeeper, Ellen M. Wong, to type
the names of Engr. Rada and Jimenez at the end of the proposal. Both
signed the document under the word "conforme." The board resolution
was thereafter attached to the proposal.
As stated in the proposal, the subject transformer, together with the
basic accessories, was valued at P5,200,000.00. It was also stipulated
therein that 50% of the purchase price should be paid as
downpayment and the remaining balance to be paid upon delivery.
Freight handling, insurance, customs duties, and incidental expenses
were for the account of the buyer.
The Board Resolution, on the other hand, stated that the purchase of
the said transformer was to be financed through a loan from the
National Electrification Administration (NEA). As there was no
immediate action on the loan application, Engr. Rada returned to
Manila in early December 1992 and requested David to deliver the
transformer to them even without the required downpayment. David
granted the request provided that MOELCI would pay interest at 24%
per annum. Engr. Rada acquiesced to the condition. On December 17,
1992, the goods were shipped to Ozamiz City via William Lines. In the
Bill of Lading, a sales invoice was included which stated the agreed
interest rate of 24% per annum.
When nothing was heard from MOELCI for sometime after the
shipment, Emanuel Medina (Medina), Davids Marketing Manager,
went to Ozamiz City to check on the shipment. Medina was able to
confer with Engr. Rada who told him that the loan was not yet released
and asked if it was possible to withdraw the shipped items. Medina
agreed.
When no payment was made after several months, Medina was
constrained to send a demand letter, dated September 15, 1993, which
MOELCI duly received. Engr. Rada replied in writing that the goods
were still in the warehouse of William Lines again reiterating that the
loan had not been approved by NEA. This prompted Medina to head
back to Ozamiz City where he found out that the goods had already
been released to MOELCI evidenced by the shipping companys copy
of the Bill of Lading which was stamped "Released," and with the
notation that the arrastre charges in the amount of P5,095.60 had been
paid. This was supported by a receipt of payment with the
corresponding cargo delivery receipt issued by the Integrated Port
Services of Ozamiz, Inc.
Subsequently, demand letters were sent to MOELCI demanding the
payment of the whole amount plus the balance of previous purchases
of other electrical hardware. Aside from the formal demand letters,
David added that several statements of accounts were regularly sent
through the mails by the company and these were never disputed by
MOELCI.

denied by the RTC to abbreviate proceedings and for the parties to

proceed to trial and avoid piecemeal resolution of issues. The order
denying its motion was raised with the CA, and then with this Court.
Both courts sustained the RTC ruling.
Trial ensued. By reason of MOELCIs continued failure to appear
despite notice, David was allowed to present his testimonial and
documentary evidence ex parte, pursuant to Rule 18, Section 5 of the
Rules. A Very Urgent Motion to Allow Defendant to Present Evidence
was filed by MOELCI, but was denied.
In its July 17, 2008 Decision, the RTC dismissed the complaint. It
found that although a contract of sale was perfected, it was not
consummated because David failed to prove that there was indeed a
delivery of the subject item and that MOELCI received it.3
Aggrieved, David appealed his case to the CA.
On July 8, 2010, the CA affirmed the ruling of the RTC. In the assailed
decision, the CA reasoned out that although David was correct in
saying that MOELCI was deemed to have admitted the genuineness
and due execution of the "quotation letter" (Exhibit A), wherein the
signatures of the Chairman and the General Manager of MOELCI
appeared, he failed to offer any textual support to his stand that it was
a contract of sale instead of a mere price quotation agreed to by
MOELCI representatives. On this score, the RTC erred in stating that a
contract of sale was perfected between the parties despite the
irregularities that tainted their transaction. Further, the fact that
MOELCIs representatives agreed to the terms embodied in the
agreement would not preclude the finding that said contract was at
best a mere contract to sell.
A motion for reconsideration was filed by David but it was denied.4
Hence, this petition.
Before this Court, David presents the following issues for
consideration:
I.
WHETHER OR NOT THERE WAS A PERFECTED
CONTRACT OF SALE.
II.
WHETHER OR NOT THERE WAS A DELIVERY THAT
CONSUMMATED THE CONTRACT.
The Court finds merit in the petition.

On February 17, 1994, David filed a complaint for specific performance

with damages with the RTC. In response, MOECLI moved for its
dismissal on the ground that there was lack of cause of action as there
was no contract of sale, to begin with, or in the alternative, the said
contract was unenforceable under the Statute of Frauds. MOELCI
argued that the quotation letter could not be considered a binding
contract because there was nothing in the said document from which
consent, on its part, to the terms and conditions proposed by David
could be inferred. David knew that MOELCIs assent could only be
obtained upon the issuance of a purchase order in favor of the bidder
chosen by the Canvass and Awards Committee.
Eventually, pursuant to Rule 16, Section 5 of the Rules of Court,
MOELCI filed its Motion for Preliminary Hearing of Affirmative
Defenses and Deferment of the Pre-Trial Conference which was

I.
On the issue as to whether or not there was a perfected contract of
sale, this Court is required to delve into the evidence of the case. In a
petition for review on certiorari under Rule 45 of the Rules of Court, the
issues to be threshed out are generally questions of law only, and not
of fact.
This was reiterated in the case of Buenaventura v. Pascual,5 where it
was written:
Time and again, this Court has stressed that its jurisdiction in a petition
for review on certiorari under Rule 45 of the Rules of Court is limited to

reviewing only errors of law, not of fact, unless the findings of fact
complained of are devoid of support by the evidence on record, or the
assailed judgment is based on the misapprehension of facts. The trial
court, having heard the witnesses and observed their demeanor and
manner of testifying, is in a better position to decide the question of
their credibility. Hence, the findings of the trial court must be accorded
the highest respect, even finality, by this Court.

development may occur may even be obvious from statements in the

agreement itself, that go beyond just "captions." Thus, the appellant
opens with, "WE are pleased to submit our quotation xxx." The
purported contract also ends with. "Thank you for giving us the
opportunity to quote on your requirements and we hope to receive your
order soon" apparently referring to a purchase order which MOELCI
contends to be a formal requirement for the entire transaction.8

That being said, the Court is not unmindful, however, of the recognized
exceptions well-entrenched in jurisprudence. It has always been
stressed that when supported by substantial evidence, the findings of
fact of the CA are conclusive and binding on the parties and are not
reviewable by this Court, unless the case falls under any of the
following recognized exceptions:

In other words, the CA was of the position that Exhibit A was at best a
contract to sell.

(1) When the conclusion is a finding grounded entirely on

speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd
or impossible;
(3) Where there is a grave abuse of discretion:
(4) When the judgment is based on a misapprehension of
facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary to
the admissions of both appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are without citation of specific
evidence on which the conclusions are based;
(9) When the facts set forth in the petition as well as in the
petitioners main and reply briefs are not disputed by the
respondents; and
(10) When the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and
contradicted by the evidence on record. 6 [Emphasis
supplied]
In this case, the CA and the RTC reached different conclusions on the
question of whether or not there was a perfected contract of sale. The
RTC ruled that a contract of sale was perfected although the same was
not consummated because David failed to show proof of delivery.7
The CA was of the opposite view. The CA wrote:
Be that as it may, it must be emphasized that the appellant failed to
offer any textual support to his insistence that Exhibit "A" is a contract
of sale instead of a mere price quotation conformed to by MOELCI
representatives. To that extent, the trial court erred in laying down the
premise that "indeed a contract of sale is perfected between the parties
despite the irregularities attending the transaction." x x x
That representatives of MOELCI conformed to the terms embodied in
the agreement does not preclude the finding that such contract is, at
best, a mere contract to sell with stipulated costs quoted should it
ultimately ripen into one of sale. The conditions upon which that

A perusal of the records persuades the Court to hold otherwise.

The elements of a contract of sale are, to wit: a) Consent or meeting of
the minds, that is, consent to transfer ownership in exchange for the
price; b) Determinate subject matter; and c) Price certain in money or
its equivalent.9 It is the absence of the first element which distinguishes
a contract of sale from that of a contract to sell.
In a contract to sell, the prospective seller explicitly reserves the
transfer of title to the prospective buyer, meaning, the prospective
seller does not as yet agree or consent to transfer ownership of the
property subject of the contract to sell until the happening of an event,
such as, in most cases, the full payment of the purchase price. What
the seller agrees or obliges himself to do is to fulfill his promise to sell
the subject property when the entire amount of the purchase price is
delivered to him. In other words, the full payment of the purchase price
partakes of a suspensive condition, the non-fulfillment of which
prevents the obligation to sell from arising and, thus, ownership is
retained by the prospective seller without further remedies by the
prospective buyer.10
In a contract of sale, on the other hand, the title to the property passes
to the vendee upon the delivery of the thing sold. Unlike in a contract to
sell, the first element of consent is present, although it is conditioned
upon the happening of a contingent event which may or may not occur.
If the suspensive condition is not fulfilled, the perfection of the contract
of sale is completely abated. However, if the suspensive condition is
fulfilled, the contract of sale is thereby perfected, such that if there had
already been previous delivery of the property subject of the sale to the
buyer, ownership thereto automatically transfers to the buyer by
operation of law without any further act having to be performed by the
seller. The vendor loses ownership over the property and cannot
recover it until and unless the contract is resolved or rescinded.11
An examination of the alleged contract to sell, "Exhibit A," despite its
unconventional form, would show that said document, with all the
stipulations therein and with the attendant circumstances surrounding
it, was actually a Contract of Sale. The rule is that it is not the title of
the contract, but its express terms or stipulations that determine the
kind of contract entered into by the parties.12 First, there was meeting
of minds as to the transfer of ownership of the subject matter. The
letter (Exhibit A), though appearing to be a mere price
quotation/proposal, was not what it seemed. It contained terms and
conditions, so that, by the fact that Jimenez, Chairman of the
Committee on Management, and Engr. Rada, General Manager of
MOELCI, had signed their names under the word "CONFORME," they,
in effect, agreed with the terms and conditions with respect to the
purchase of the subject 10 MVA Power Transformer. As correctly
argued by David, if their purpose was merely to acknowledge the
receipt of the proposal, they would not have signed their name under
the word "CONFORME."
Besides, the uncontroverted attending circumstances bolster the fact
that there was consent or meeting of minds in the transfer of
ownership. To begin with, a board resolution was issued authorizing
the purchase of the subject power transformer. Next, armed with the

said resolution, top officials of MOELCI visited Davids office in Quezon

City three times to discuss the terms of the purchase. Then, when the
loan that MOELCI was relying upon to finance the purchase was not
forthcoming, MOELCI, through Engr. Rada, convinced David to do
away with the 50% downpayment and deliver the unit so that it could
already address its acute power shortage predicament, to which David
acceded when it made the delivery, through the carrier William
Lines, as evidenced by a bill of lading.
Second, the document specified a determinate subject matter which
was one (1) Unit of 10 MVA Power Transformer with corresponding KV
Line Accessories. And third, the document stated categorically the
price certain in money which was P5,200,000.00 for one (1) unit of 10
MVA Power Transformer and P2,169,500.00 for the KV Line
Accessories.
In sum, since there was a meeting of the minds, there was consent on
the part of David to transfer ownership of the power transformer to
MOELCI in exchange for the price, thereby complying with the first
element. Thus, the said document cannot just be considered a contract
to sell but rather a perfected contract of sale.
II.
Now, the next question is, was there a delivery?
MOELCI, in denying that the power transformer was delivered to it,
argued that the Bill of Lading which David was relying upon was not
conclusive. It argued that although the bill of lading was stamped
"Released," there was nothing in it that indicated that said power
transformer was indeed released to it or delivered to its possession.
For this reason, it is its position that it is not liable to pay the purchase
price of the 10 MVA power transformer.
This Court is unable to agree with the CA that there was no delivery of
the items. On the contrary, there was delivery and release.
To begin with, among the terms and conditions of the proposal to which
MOELCI agreed stated:
2. Delivery Ninety (90) working days upon receipt of your purchase
order and downpayment.
C&F Manila, freight, handling, insurance, custom duties and incidental
expenses shall be for the account of MOELCI II. 13 (Emphasis supplied)
On this score, it is clear that MOELCI agreed that the power
transformer would be delivered and that the freight, handling,
insurance, custom duties, and incidental expenses shall be shouldered
by it.
On the basis of this express agreement, Article 1523 of the Civil Code
becomes applicable.1wphi1 It provides:
Where, in pursuance of a contract of sale, the seller is authorized or
required to send the goods to the buyer delivery of the goods to a
carrier, whether named by the buyer or not, for the purpose of
transmission to the buyer is deemed to be a delivery of the goods to
the buyer, except in the cases provided for in Article 1503, first, second
and third paragraphs, or unless a contrary intent appears. (Emphasis
supplied)
Thus, the delivery made by David to William Lines, Inc., as evidenced
by the Bill of Lading, was deemed to be a delivery to MOELCI. David

was authorized to send the power transformer to the buyer pursuant to

their agreement. When David sent the item through the carrier, it
amounted to a delivery to MOELCI.
Furthermore, in the case of Behn, Meyer & Co. (Ltd.) v. Yangco,14 it
was pointed out that a specification in a contract relative to the
payment of freight can be taken to indicate the intention of the parties
with regard to the place of delivery. So that, if the buyer is to pay the
freight, as in this case, it is reasonable to suppose that the subject of
the sale is transferred to the buyer at the point of shipment. In other
words, the title to the goods transfers to the buyer upon shipment or
delivery to the carrier.
Of course, Article 1523 provides a mere presumption and in order to
overcome said presumption, MOELCI should have presented evidence
to the contrary. The burden of proof was shifted to MOELCI, who had
to show that the rule under Article 1523 was not applicable. In this
regard, however, MOELCI failed.
There being delivery and release, said fact constitutes partial
performance which takes the case out of the protection of the Statute
of Frauds. It is elementary that the partial execution of a contract of
sale takes the transaction out of the provisions of the Statute of Frauds
so long as the essential requisites of consent of the contracting parties,
object and cause of the obligation concur and are clearly established to
be present.15
That being said, the Court now comes to Davids prayer that MOELCI
be made to pay the total sum of P5,472,722.27 plus the stipulated
interest at 24% per annum from the filing of the complaint. Although the
Court agrees that MOELCI should pay interest, the stipulated rate is,
however, unconscionable and should be equitably reduced. While
there is no question that parties to a loan agreement have wide latitude
to stipulate on any interest rate in view of the Central Bank Circular No.
905 s. 1982 which suspended the Usury Law ceiling on interest
effective January 1, 1983, it is also worth stressing that interest rates
whenever unconscionable may still be reduced to a reasonable and
fair level. There is nothing in the said circular which grants lenders
carte blanche authority to raise interest rates to levels which will either
enslave their borrowers or lead to a hemorrhaging of their
assets.16 Accordingly, the excessive interest of 24% per annum
stipulated in the sales invoice should be reduced to 12% per annum.
Indeed, David was compelled to file an action against MOELCI but this
reason alone will not warrant an award of attorneys fees. It is settled
that the award of attorney's fees is the exception rather than the rule.
Counsel's fees are not awarded every time a party prevails in a suit
because of the policy that no premium should be placed on the right to
litigate. Attorney's fees, as part of damages, are not necessarily
equated to the amount paid by a litigant to a lawyer. In the ordinary
sense, attorney's fees represent the reasonable compensation paid to
a lawyer by his client for the legal services he has rendered to the
latter; while in its extraordinary concept, they may be awarded by the
court as indemnity for damages to be paid by the losing party to the
prevailing party. Attorney's fees as part of damages are awarded only
in the instances specified in Article 2208 of the Civil Code 17 which
demands factual, legal, and equitable justification. Its basis cannot be
left to speculation or conjecture. In this regard, none was proven.
Moreover, in the absence of stipulation, a winning party may be
awarded attorney's fees only in case plaintiffs action or defendant's
stand is so untenable as to amount to gross and evident bad faith.18 is
MOELCI's case cannot be similarly classified.
Also, David's claim for the balance of P73,059.76 plus the stipulated
interest is denied for being unsubstantiated.

WHEREFORE, the petition Is GRANTED. The July 8, 2010 Decision of

the Court of Appeals Is REVERSED and SET ASIDE. Respondent
Misamis Occidental II Electric Cooperative, Inc. is ordered to pay
petitioner Virgilio S. David the total sum of P5,472,722.27 with interest
at the rate of 12o/o per annum reckoned from the filing of the complaint
until fully paid.

goodwill, trade-marks, accounts receivable, together with all vouchers,

entries, and other proofs of the indebtedness, such as the books of
account, etc., were sold to one of the intervenors herein, John
Bordman, by the direction and under the supervision of the said Alien
Property Custodian, in accordance with the provisions of the Alien
Enemy Act, for the sum of P660,000, as shown by the letters and bills
of sale, Exhibits B, C, D, and E.

SO ORDERED.
G.R. No. L-22537

December 8, 1924

BEHN, MEYER & CO., plaintiff,

vs.
J.S. STANLEY, ET AL., defendants.
And
LAZARUS G. JOSEPH and A.N. JUREIDINI & BROS., appellants,
vs.
JOHN BORDMAN, J.M. MENZI, and THE BANK OF THE
PHILIPPINE ISLANDS, intervenors-appellees.
Schwarzkopf and Ohnick for appellants Joseph and Jureidini and Bros.
Araneta and Zaragoza for intervenor Bank of the Philippine Islands.
Crossfield and O'Brien for intervenor Bordman.

OSTRAND, J.:
There is particularly no dispute as to the facts in this case. On January
23, 1917, Behn, Meyer & Co., Ltd., a foreign corporation with a branch
in the Philippine Islands, brought an action against the Collector of
Customs to recover the possession of certain merchandise imported
into the Islands and then in the hands of the Collector. A.N. Jureidini &
Bros. intervened in the case and claimed title to the merchandise
under a sale of the same ordered by the British Admiralty Court of
Alexandria, Egypt, in prize court proceedings.
The Court of First Instance on February 28, 1918, rendered judgment
in favor of Behn, Meyer & Co., on the ground that the title to the
merchandise originally rested in Behn, Meyer & Co., Ltd., and that no
record on the prize court proceedings showing that Behn, Meyer & Co.,
Ltd., had been divested of the title had been presented in evidence. On
appeal to the Supreme Court the judgment was reversed and the case
remanded to the court below with instructions to allow Jureidini & Bros.
a reasonable time within which to obtain a duly certified copy of the
decision of the Admiralty Court of Alexandria, in which the court
declared that the merchandise constituted lawful prize. 1 A new trial
was held on February 24, 1922, after which a judgment was entered in
favor of A.N. Jureidini & Bros. and against Behn, Meyer & Co., Ltd., for
the sum of P1,988 in damages for the further sum of P1,988 for the
value of the merchandise in default of delivery to Jureidini & Bros.
In the meantime, on the 16th day of February, 1918, all the business,
property, and assets of every nature of the firm of Behn, Meyer & Co.,
Ltd., were taken over by the Alien Property Custodian of the United
States under the provisions of the Trading with the Enemy Act and by
direction of the said Alien Property Custodian, one W.D. Pemberton
was appointed receiver and placed in full charge of the business and
assets of the firm.
During the month of January, 1919, the business of the Philippine
branch of Behn, Meyer & Co., Ltd., was liquidated and the property
and assets of the corporation in the Philippine Islands, including the

The intervenor herein the Bank of the Philippine Islands, advanced to

Bordman the sum of P660,000 with which to purchase the said
business, property, and assets of the said Behn, Meyer & Co., Ltd.,
which sum was turned over to W.D. Pemberton, the receiver appointed
by the Alien Property Custodian.
On the 21st of February, 1919, Behn, Meyer & Co., Ltd., was declared
by the Alien Property Custodian to be an enemy not holding a license
granted by the President, and on the same date demand was made on
the receiver to convey, transfer, assign, deliver, and pay over to the
Alien Property Custodian the bet proceeds of the sale and liquidation
of the business, property, and assets aforesaid, and by virtue of that
demand, the said net proceeds in the sum of P392,674.96 was on
February 28, 1919, delivered to the managing director of the office of
the Alien Property Custodian in the Philippine Islands, as shown by
Exhibits F and G, which sum as far as the record shows, is still in
possession of the Alien Property Custodian.
Execution of the judgment of February 24, 1922, in favor of A.N.
Jureidini & Bros, having been issued and returned unsatisfied, Jureidini
& Bros. on August 8, 1922, filed an ex-parte petition in the same case
praying that a receiver be appointed by the court to take charge of the
estate and effects of Behn, Meyer & Co., Ltd., and on August 10, 1922,
the Court of First Instance issued an order appointing Lazarus G.
Joseph receiver of the property, assets and estate of the said firm,
upon giving a bond in the sum of P1,000.
On the 4th of September, 1923, the said Lazarus G. Joseph, as such
receiver, commenced an action in the Court of First Instance of Manila
against the Bank of the Philippine Islands and J.M. Menzi, being civil
case No. 24892 of said court, to annul the aforesaid sale of the
business, property, and assets, etc., of the said Behn, & Co., Ltd., to
John Bordman and to recover back the property sold as property of the
said Behn, Meyer & Co., Ltd., and for an accounting and other relief.
On the 5th of September, 1923, the said Lazarus G. Joseph, in his
capacity of receiver, appeared in the present case in the Court of First
Instance and obtained an order directed to the said J.M. Menzi citing
him to appear before the court on a certain date to show cause why he
should not turn over to the said receiver the books of account of the
said Behn, Meyer & Co., Ltd.
On September 14, 1923, John Bordman, J.M. Menzi, and the Bank of
the Philippine Islands filed in the same case a motion for permission to
intervene in the receivership proceedings solely for the purpose of
vacating the order of August 10, 1922, appointing a receiver for the
property, assets, and estate of the said Behn, Meyer & Co., Ltd., and
alleging in support thereof that they had a legal interest in the subjectmatter of said receivership and an interest against that of the parties to
said proceedings.lawphi1.net
At the same time the intervenors filed a verified motion setting forth the
facts hereinabove stated asking that the said order of August 10, 1922,
appointing the said Lazarus G. Joseph, receiver of the said Behn,
Meyer & Co. Ltd., be vacated and set aside on the ground that
Jureidini & Bros., under the facts and circumstances stated, had no
legal right to such receivership and that the court had no jurisdiction to
make such appointment, and that consequently its order to that effect
was null and void.

Upon hearing, the Court of First Instance, under date of September 26,
1923, entered an order, the dispositive part of which reads as follows:
For the foregoing and the interests of J.M. Menzi, John
Bordman and the Bank of the Philippine Islands in this
proceeding having, in the opinion of the court, been shown,
that of Bordman consisting in his having in his acquired
through purchase for the sum of P660,000 all the interests,
rights, choses in action, books, vouchers of the herein
plaintiff; that of J.M. Menzi in his having been designated by
said Bordman to take charge of said properties and books in
his name; and that of the Bank of the Philippine Islands in its
having furnished the sum of money with which said Bordman
made the purchase, it is hereby adjudged to permit said
parties, as they are hereby permitted and authorized, to
intervene in this case; and the court having reached the
conclusion that it has not, and did not have, any jurisdiction
to appoint a receiver in view of the fact that all of the
properties of the said plaintiff had been sold by the Alien
Property Custodian in accordance with the Act of Congress
hereinbefore mentioned; it is hereby adjudged that the order
of this court of August 10, 1922, appointing Lazarus G.
Joseph, receiver, should be, as it hereby is, set aside. Let
the bond given by said receiver to secure the faithful
performance of his duties be cancelled, and J.M. Menzi is
held to be under no obligation to deliver to the aforesaid
Lazarus G. Joseph, the books under said Menzi's charge
which formerly belonged to the plaintiff Behn, Meyer & Co.,
Ltd.
No exception was taken to this order neither by the receiver nor by
Jureidini Bros., but on October 1, 1923, their counsel filed the following
motion for reconsideration:
Come now the Receiver and A.N. Jureidini & Bros. in the
above entitled case and move this court that the court
reconsider the resolution of this court dated September 26,
1923, and, thereafter order the delivery of the books to the
said receiver.
On December 3, 1923, the motion for reconsideration was denied,
exception duly taken and the case is now before us upon appeal from
the two orders last mentioned.
The appellants contend that the court below erred in permitting the
appellees to intervene inasmuch as (a) a final judgment had been
entered in the case and (b) the appellees had no legal interest in the
matter in litigation. Neither of these points is, in our opinion, well taken.
The appellees intervene only in the receivership proceedings which still
were an open issue and did not attempt to interfere in the part of the
case which was covered by the final judgment. They claimed no
interest in the controversy between Jureidini & Bros., and Behn, Meyer
& Co., Ltd., but that Bordman and the Bank of the Philippine Islands
had a vital interest in the subsequent receivership is clearly shown by
the fact that one of the first actions of the receiver appears to have
been the institution of an action against them to annul the sale made
by the Alien Property Custodian to Bordman, thus disturbing the latter
in his ' property rights and threatening the lien held by the bank upon
the property sold. As to the appellee Menzi, it is sufficient to say that he
was brought into the present case by the receiver himself on the order
to show cause why he did not turn over and deliver to said receiver the
books of account of Behn, Meyer & Co., Ltd. We fail to find any error or
abuse of discretion on the part of the court below in permitting the
intervention.
Appellants further maintain that the court erred in holding that the
appointment of the receiver was in excess of its jurisdiction. This

contention is also untenable. As soon as Behn, Meyer & Co., Ltd., was
an "enemy not holding a license granted by the President of the United
States," it became the duty of the Alien Property Custodian to take
possession of its business and all its assets within United States
territory, and we must presume that this duty was duly performed and
that all such assets are now either actually or constructively in the
possession of the Alien Property Custodian and under his control. If so,
they are beyond the jurisdiction and control of the Philippine Courts.
Section 7 of the Trading with Enemy Act as amended provides as
follows:
"The sole relief and remedy of any person having any claim
to any money or other property heretofore or hereafter
conveyed, transferred, assigned, delivered, or paid over to
the Alien Property Custodian, or required so to be, or seized
by him shall be that provided by the terms of this Act, and in
the event of sale or other disposition of such property by the
Alien Property Custodian, shall be limited to and enforced
against the net proceeds received therefrom and held by the
Alien Property Custodian or by the Treasurer of the United
States."lawphi1.net
Section 9 of the Act provides that anyone "not an enemy or ally of
enemy claiming any interest, right, or title in any money of other
property so requested and held, may give notice of his claim and
institute a suit in equity against the Custodian or the Treasurer, as the
case may be, to establish and enforce his claim, and where suit is
brought, the money or property is to be retained by the Custodian or in
the Treasury, to abide the final decree. The same section further
provides:
Except as herein provided, the money or other property
conveyed, transferred, assigned, delivered, or paid to the
Alien Property Custodian shall not be liable to lien,
attachment, garnishment, trustee, process, or execution,
or subject to any order to decree of any court.
Section 17 of the same Act provides:
That the district courts of the United States are hereby given
jurisdiction to make and enter all such rules as to notice and
otherwise, and all such orders and decrees, and to issue
such process as may be necessary and proper in the
premises to enforce the provisions of this Act, with a right of
appeal from the final order or decree of such court as
provided in sections one hundred and twenty-eight and two
hundred and thirty-eight of the Act of March third, nineteen
hundred and eleven, entitled "An Act to codify, revise, and
amend the laws relating to the judiciary."
The only jurisdiction given to the Courts of First Instance of the
Philippine Islands is in regard to criminal offenses under said Act, as
shown by section 18 thereof. Had it been the intention of Congress to
give the Philippine courts jurisdiction over civil litigation in regard to
property under the control of the Alien Property Custodian, the Act
would, of course, have so stated.
The orders appealed from are affirmed, with the costs against the
appellants. So ordered.
G.R. No. L-24069

June 28, 1968

LA FUERZA, INC., petitioner,

vs.
THE HON. COURT OF APPEALS and ASSOCIATED ENGINEERING
CO., INC., respondents.

Sycip, Salazar, Luna and Associates for respondent Associated

Engineering Co., Inc.
De Santos and Delfino for petitioner.
CONCEPCION, C.J.:
Ordinary action for the recovery of a sum of money. In due course, the
Court of First Instance of Manila rendered judgment for defendant, La
Fuerza, Inc. hereinafter referred to as La Fuerza which was at
first affirmed by the Court of Appeals. On motion for reconsideration,
the latter, however, set aside its original decision and sentenced La
Fuerza to pay to the plaintiff, Associated Engineering Co.,
hereinafter referred to as the Plaintiff the sum of P8,250.00, with
interest at the rate of 1% per month, from July, 1960 until fully paid,
plus P500 as attorney's fees and the costs. Hence, this Petition for
review on certiorari.
The facts, as found by the Court of First Instance and adopted by the
Court of Appeals, are:
The plaintiff (Associated Engineering, Co., Inc.) is a
corporation engaged in the manufacture and installation of
flat belt conveyors. The defendant (La Fuerza, Inc.) is also a
corporation engaged in the manufacture of wines. Sometime
in the month of January, 1960, Antonio Co, the manager of
the plaintiff corporation, who is an engineer, called the office
of the defendant located at 399 Muelle de Binondo, Manila
and told Mariano Lim, the President and general manager of
the defendant that he had just visited the defendant's plant at
Pasong Tamo, Makati, Rizal and was impressed by its size
and beauty but he believed it needed a conveyor system to
convey empty bottles from the storage room in the plant to
the bottle washers in the production room thereof. He
therefore offered his services to manufacture and install a
conveyor system which, according to him, would increase
production and efficiency of his business. The president of
the defendant corporation did not make up his mind then but
suggested to Antonio Co to put down his offer in writing.
Effectively, on February 4, 1960, marked as Exhibit A in this
case. Mariano Lim did not act on the said offer until February
11, 1960, when Antonio Co returned to inquire about the
action of the defendant on his said offer. The defendants
president and general manager then expressed his
conformity to the offer made in Exhibit A by writing at the foot
thereof under the word "confirmation" his signature. He
caused, however, to be added to this offer at the foot a note
which reads: "All specifications shall be in strict accordance
with the approved plan made part of this agreement hereof."
A few days later, Antonio Co made the demand for the down
payment of P5,000.00 which was readily delivered by the
defendant in the form of a check for the said amount. After
that agreement, the plaintiff started to prepare the premises
for the installations of the conveyor system by digging holes
in the cement floor of the plant and on April 18, 1960, they
delivered one unit of 110' 26" wide flat belt conveyor, valued
at P3,750.00, and another unit measuring 190' and 4" wide
flat conveyor, valued at P4,500.00, or a total of P13,250.00.
Deducting the down payment of P5,000.00 from this value,
there is a balance, of P8,250.00 to be paid by the defendant
upon the completion of the installation, Exhibit B.
The work went under way during the months of March and
April, during which time the president and general manager
of the defendant corporation was duly apprised of the
progress of the same because his plant mechanic, one Mr.
Santos, had kept him informed of the installation for which
he gave the go signal. It seems that the work was completed
during the month of May, 1960. Trial runs were made in the

presence of the president and general manager of the

defendant corporation, Antonio Co, the technical manager of
the plaintiff, and some other people. Several trial runs were
made then totalling about five. These runs were continued
during the month of June where about three trial runs were
made and, lastly, during the month of July, 1960.
As a result of this trial or experimental runs, it was
discovered, according to the defendant's general manager,
that the conveyor system did not function to their satisfaction
as represented by the technical manager of the plaintiff
Antonio Co for the reason that, when operated several
bottles collided with each other, some jumping off the
conveyor belt and were broken, causing considerable
damage. It was further observed that the flow of the system
was so sluggish that in the opinion of the said general
manager of the defendant their old system of carrying the
bottles from the storage room to the washers by hand
carrying them was even more efficient and faster.
After the last trial run made in the month of July and after the
plaintiff's technical manager had been advised several times
to make the necessary and proper adjustments or
corrections in order to improve the efficiency of the conveyor
system, it seems that the defects indicated by the said
president and general manager of the defendant had not
been remedied so that they came to the parting of the ways
with the result that when the plaintiff billed the defendant for
the balance of the contract price, the latter refused to pay for
the reason that according to the defendant the conveyor
system installed by the plaintiff did not serve the purpose for
which the same was manufactured and installed at such a
heavy expense. The flat belt conveyors installed in the
factory of the defendant are still there....
xxx

xxx

xxx

On March 22, 1961, the contractor commenced the present action to

recover the sums of P8,250, balance of the stipulated price of the
aforementioned conveyors, and P2,000, as attorney's fees, in addition
to the costs.
In its answer to the complaint, La Fuerza alleged that the "conveyors
furnished and installed by the plaintiff do not meet the conditions and
warrantings" (warranties?) of the latter, and set up a counterclaim for
the P5,000 advanced by La Fuerza, which prayed that the complaint
be dismissed; that its contract with the plaintiff be rescinded; and that
plaintiff be sentenced to refund said sum of P5,000 to La Fuerza, as
well as to pay thereto P1,000 as attorney's fees, apart from the costs.
After appropriate proceedings, the Court of First Instance of Manila
rendered a decision the dispositive part of which reads:
WHEREFORE, judgment is hereby rendered rescinding the
contract entered into by the parties in this case, marked as
Exhibit A, and ordering the plaintiff to refund or return to the
defendant the amount of P5,000.00 which they had received
as down payment, and the costs of this action. On the other
hand, defendant is ordered to permit the plaintiff to remove
the flat belt conveyors installed in their premises.
As above indicated, this decision was affirmed by the Court of Appeals,
which, on motion for reconsideration of the plaintiff, later set aside its
original decision and rendered another in plaintiff's favor, as stated in
the opening paragraph hereof.

The appealed resolution of the Court of Appeals was, in effect, based

upon the theory of prescription of La Fuerza's right of action for
rescission of its contract with the plaintiff, for in the language of said
resolution "Article 1571 of the Civil Code provides that an action to
rescind 'shall be barred after six months from delivery of the thing
sold'", and, in the case at bar, La Fuerza did not avail of the right to
demand rescission until the filing of its answer in the Court of First
Instance, on April 17, 1961, or over ten (10) months after the
installation of the conveyors in question had been completed on May
30, 1960.
La Fuerza assails the view taken by the Court of Appeals, upon the
ground: 1) that there has been, in contemplation of law, no delivery of
the conveyors by the plaintiff; and 2) that, assuming that there has
been such delivery, the period of six (6) months prescribed in said Art.
1571 refers to the "period within which" La Fuerza may "bring an action
to demand compliance of the warranty against hidden defects", not the
action for rescission of the contract. Both grounds are untenable.
With respect to the first point, La Fuerza maintains that plaintiff is
deemed not to have delivered the conveyors, within the purview of Art.
1571, until it shall have complied with the conditions or requirements of
the contract between them that is to say, until the conveyors shall
meet La Fuerza's "need of a conveyor system that would mechanically
transport empty bottles from the storage room to the bottle workers in
the production room thus increasing the production and efficiency" of
its business-and La Fuerza had accepted said conveyors.
On this point, the Court of Appeals had the following to say:
Article 1571 of the Civil Code provides that an action to
rescind 'shall be barred after six months, from delivery of the
thing sold". This article is made applicable to the case at bar
by Article 1714 which provides that "the pertinent provisions
on warranty of title against hidden defect in a contract of
sale" shall be applicable to a contract for a piece of work.
Considering that Article 1571 is a provision on sales, the
delivery mentioned therein should be construed in the light of
the provisions on sales. Article 1497 provides that the thing
sold shall be understood as delivered when it is placed in the
control and possession of the vendee. Therefore, when the
thing subject of the sale is placed in the control and
possession of the vendee, delivery is complete. Delivery is
an act of the vendor. Thus, one of the obligations of the
vendor is the delivery of the thing sold (Art. 1495). The
vendee has nothing to do with the act of delivery by the
vendor. On the other hand, acceptance is an obligation on
the part of the vendee (Art. 1582). Delivery and acceptance
are two distinct and separate acts of different parties.
Consequently, acceptance cannot be regarded as a
condition to complete delivery.
xxx

xxx

xxx

We find no plausible reason to disagree with this view. Upon the

completion of the installation of the conveyors, in May, 1960,
particularly after the last trial run, in July 1960, La Fuerza was in a
position to decide whether or not it was satisfied with said conveyors,
and, hence, to state whether the same were a accepted or rejected.
The failure of La Fuerza to express categorically whether they
accepted or rejected the conveyors does not detract from the fact that
the same were actually in its possession and control; that, accordingly,
the conveyors had already been delivered by the plaintiff; and that, the
period prescribed in said Art. 1571 had begun to run.
With respect to the second point raised by La Fuerza, Art. 1571 of the
Civil Code provides:

Actions arising from the provisions of the preceding ten articles shall
be barred after six months, from the delivery of the thing sold.
xxx

xxx

xxx

Among the "ten articles" referred to in this provision, are Articles 1566
and 1567, reading:
Art. 1566. The vendor is responsible to the vendee for any
hidden faults or defects in the thing sold, even though he
was not aware thereof. ."This provision shall not apply if the
contrary has been stipulated, and the vendor was not aware
of the hidden faults or defects in the thing sold.
Art. 1567. In the cases of articles 1561, 1562, 1564, 1565
and 1566, the vendee may elect between withdrawing from
the contract and demanding a proportionate reduction of the
price, with damages in either case.
xxx

xxx

xxx

Pursuant to these two (2) articles, if the thing sold has hidden faults or
defects as the conveyors are claimed to have the vendor in
the case at bar, the plaintiff shall be responsible therefor and the
vendee or La Fuerza, in the present case "may elect
between withdrawing from the contract and demanding a proportional
reduction of the price, with damages in either case." In the exercise of
this right of election, La Fuerza had chosen to withdraw from the
contract, by praying for its rescission; but the action therefor in the
language of Art. 1571 "shall be barred after six months, from the
delivery of the thing sold." The period of four (4) years, provided in Art.
1389 of said Code, for "the action to claim rescission," applies to
contracts, in general, and must yields, in the instant case, to said Art.
1571, which refers to sales in particular.
Indeed, in contracts of the latter type, especially when goods,
merchandise, machinery or parts or equipment thereof are involved, it
is obviously wise to require the parties to define their position, in
relation thereto, within the shortest possible time. Public interest
demands that the status of the relations between the vendor and the
vendee be not left in a condition of uncertainty for an unreasonable
length of time, which would be the case, if the lifetime of the vendee's
right of rescission were four (4) years.
WHEREFORE, the appealed resolution of the Court of Appeals is
hereby affirmed, with costs against appellant, La Fuerza, Inc. It is so
ordered.
G.R. No. L-29972 January 26, 1976
ROSARIO CARBONELL, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE PONCIO, EMMA
INFANTE and RAMON INFANTE, respondents.

MAKASIAR, J.
Petitioner seeks a review of the resolution of the Court of Appeals
(Special Division of Five) dated October 30, 1968, reversing its
decision of November 2, 1967 (Fifth Division), and its resolution of
December 6, 1968 denying petitioner's motion for reconsideration.

The dispositive part of the challenged resolution reads:

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

(Sgd) CONSTANCIO MEONADA

Witness
(Pp. 6-7 rec. on appeal).
Thereafter, petitioner asked Atty. Salvador Reyes, also from the
Batanes Islands, to prepare the formal deed of sale, which she brought
to respondent Poncio together with the amount of some P400.00, the
balance she still had to pay in addition to her assuming the mortgaged
obligation to Republic Savings Bank.

Without costs.
The facts of the case as follows:
Prior to January 27, 1955, respondent Jose Poncio, a native of the
Batanes Islands, was the owner of the parcel of land herein involve
with improvements situated at 179 V. Agan St., San Juan, Rizal, having
an area of some one hundred ninety-five (195) square meters, more or
less, covered by TCT No. 5040 and subject to mortgage in favor of the
Republic Savings Bank for the sum of P1,500.00. Petitioner Rosario
Carbonell, a cousin and adjacent neighbor of respondent Poncio, and
also from the Batanes Islands, lived in the adjoining lot at 177 V. Agan
Street.
Both petitioners Rosario Carbonell and respondent Emma Infante
offered to buy the said lot from Poncio (Poncio's Answer, p. 38, rec. on
appeal).
Respondent Poncio, unable to keep up with the installments due on
the mortgage, approached petitioner one day and offered to sell to the
latter the said lot, excluding the house wherein respondent lived.
Petitioner accepted the offer and proposed the price of P9.50 per
square meter. Respondent Poncio, after having secured the consent of
his wife and parents, accepted the price proposed by petitioner, on the
condition that from the purchase price would come the money to be
paid to the bank.
Petitioner and respondent Jose Poncio then went to the Republic
Savings Bank and secured the consent of the President thereof for her
to pay the arrears on the mortgage and to continue the payment of the
installments as they fall due. The amount in arrears reached a total
sum of P247.26. But because respondent Poncio had previously told
her that the money, needed was only P200.00, only the latter amount
was brought by petitioner constraining respondent Jose Poncio to
withdraw the sum of P47.00 from his bank deposit with Republic
Savings Bank. But the next day, petitioner refunded to Poncio the sum
of P47.00.
On January 27, 1955, petitioner and respondent Poncio, in the
presence of a witness, made and executed a document in the Batanes
dialect, which, translated into English, reads:
CONTRACT FOR ONE HALF LOT WHICH I
BOUGHT FROM
JOSE PONCIO
Beginning today January 27, 1955, Jose Poncio
can start living on the lot sold by him to me,
Rosario Carbonell, until after one year during
which time he will not pa anything. Then if after
said one can he could not find an place where to
move his house, he could still continue occupying
the site but he should pay a rent that man, be
agreed. (Sgd) JOSE PONCIO
(Sgd.) ROSARIO CARBONELL

Upon arriving at respondent Jose Poncio's house, however, the latter

told petitioner that he could not proceed any more with the sale,
because he had already given the lot to respondent Emma Infants; and
that he could not withdraw from his deal with respondent Mrs. Infante,
even if he were to go to jail. Petitioner then sought to contact
respondent Mrs. Infante but the latter refused to see her.
On February 5, 1955, petitioner saw Emma Infante erecting a all
around the lot with a gate.
Petitioner then consulted Atty. Jose Garcia, who advised her to present
an adverse claim over the land in question with the Office of the
Register of Deeds of Rizal. Atty. Garcia actually sent a letter of inquiry
to the Register of Deeds and demand letters to private respondents
Jose Poncio and Emma Infante.
In his answer to the complaint Poncio admitted "that on January 30,
1955, Mrs. Infante improved her offer and he agreed to sell the land
and its improvements to her for P3,535.00" (pp. 38-40, ROA).
In a private memorandum agreement dated January 31, 1955,
respondent Poncio indeed bound himself to sell to his corespondent
Emma Infante, the property for the sum of P2,357.52, with respondent
Emma Infante still assuming the existing mortgage debt in favor of
Republic Savings Bank in the amount of P1,177.48. Emma Infante
lives just behind the houses of Poncio and Rosario Carbonell.
On February 2, 1955, respondent Jose Poncio executed the formal
deed of sale in favor of respondent Mrs. Infante in the total sum of
P3,554.00 and on the same date, the latter paid Republic Savings
Bank the mortgage indebtedness of P1,500.00. The mortgage on the
lot was eventually discharged.
Informed that the sale in favor of respondent Emma Infante had not yet
been registered, Atty. Garcia prepared an adverse claim for petitioner,
who signed and swore to an registered the same on February 8, 1955.
The deed of sale in favor of respondent Mrs. Infante was registered
only on February 12, 1955. As a consequence thereof, a Transfer
Certificate of Title was issued to her but with the annotation of the
adverse claim of petitioner Rosario Carbonell.
Respondent Emma Infante took immediate possession of the lot
involved, covered the same with 500 cubic meters of garden soil and
built therein a wall and gate, spending the sum of P1,500.00. She
further contracted the services of an architect to build a house; but the
construction of the same started only in 1959 years after the
litigation actually began and during its pendency. Respondent Mrs.
Infante spent for the house the total amount of P11,929.00.
On June 1, 1955, petitioner Rosario Carbonell, thru counsel, filed a
second amended complaint against private respondents, praying that
she be declared the lawful owner of the questioned parcel of land; that
the subsequent sale to respondents Ramon R. Infante and Emma L.

Infante be declared null and void, and that respondent Jose Poncio be
ordered to execute the corresponding deed of conveyance of said land
in her favor and for damages and attorney's fees (pp. 1-7, rec. on
appeal in the C.A.).
Respondents first moved to dismiss the complaint on the ground,
among others, that petitioner's claim is unenforceable under the
Statute of Frauds, the alleged sale in her favor not being evidenced by
a written document (pp. 7-13, rec. on appeal in the C.A.); and when
said motion was denied without prejudice to passing on the question
raised therein when the case would be tried on the merits (p. 17, ROA
in the C.A.), respondents filed separate answers, reiterating the
grounds of their motion to dismiss (pp. 18-23, ROA in the C.A.).
During the trial, when petitioner started presenting evidence of the sale
of the land in question to her by respondent Poncio, part of which
evidence was the agreement written in the Batanes dialect
aforementioned, respondent Infantes objected to the presentation by
petitioner of parole evidence to prove the alleged sale between her and
respondent Poncio. In its order of April 26, 1966, the trial court
sustained the objection and dismissed the complaint on the ground
that the memorandum presented by petitioner to prove said sale does
not satisfy the requirements of the law (pp. 31-35, ROA in the C.A.).
From the above order of dismissal, petitioner appealed to the Supreme
Court (G.R. No. L-11231) which ruled in a decision dated May 12,
1958, that the Statute of Frauds, being applicable only to executory
contracts, does not apply to the alleged sale between petitioner and
respondent Poncio, which petitioner claimed to have been partially
performed, so that petitioner is entitled to establish by parole evidence
"the truth of this allegation, as well as the contract itself." The order
appealed from was thus reversed, and the case remanded to the
court a quo for further proceedings (pp. 26-49, ROA in the C.A.).
After trial in the court a quo; a decision was, rendered on December 5,
1962, declaring the second sale by respondent Jose Poncio to his corespondents Ramon Infante and Emma Infante of the land in question
null and void and ordering respondent Poncio to execute the proper
deed of conveyance of said land in favor of petitioner after compliance
by the latter of her covenants under her agreement with respondent
Poncio (pp. 5056, ROA in the C.A.).
On January 23, 1963, respondent Infantes, through another counsel,
filed a motion for re-trial to adduce evidence for the proper
implementation of the court's decision in case it would be affirmed on
appeal (pp. 56-60, ROA in the C.A.), which motion was opposed by
petitioner for being premature (pp. 61-64, ROA in the C.A.). Before
their motion for re-trial could be resolved, respondent Infantes, this
time through their former counsel, filed another motion for new trial,
claiming that the decision of the trial court is contrary to the evidence
and the law (pp. 64-78, ROA in the C.A.), which motion was also
opposed by petitioner (pp. 78-89, ROA in the C.A.).
The trial court granted a new trial (pp. 89-90, ROA in the C.A.), at
which re-hearing only the respondents introduced additional evidence
consisting principally of the cost of improvements they introduced on
the land in question (p. 9, ROA in the C.A.).
After the re-hearing, the trial court rendered a decision, reversing its
decision of December 5, 1962 on the ground that the claim of the
respondents was superior to the claim of petitioner, and dismissing the
complaint (pp. 91-95, ROA in the C.A.), From this decision, petitioner
Rosario Carbonell appealed to the respondent Court of Appeals (p. 96,
ROA in the C.A.).
On November 2, 1967, the Court of Appeals (Fifth Division composed
of Justices Magno Gatmaitan, Salvador V. Esguerra and Angle H.

Mojica, speaking through Justice Magno Gatmaitan), rendered

judgment reversing the decision of the trial court, declaring petitioner
therein, to have a superior right to the land in question, and
condemning the defendant Infantes to reconvey to petitioner after her
reimbursement to them of the sum of P3,000.00 plus legal interest, the
land in question and all its improvements (Appendix "A" of Petition).
Respondent Infantes sought reconsideration of said decision and
acting on the motion for reconsideration, the Appellate Court, three
Justices (Villamor, Esguerra and Nolasco) of Special Division of Five,
granted said motion, annulled and set aside its decision of November
2, 1967, and entered another judgment affirming in toto the decision of
the court a quo, with Justices Gatmaitan and Rodriguez dissenting
(Appendix "B" of Petition).
Petitioner Rosario Carbonell moved to reconsider the Resolution of the
Special Division of Five, which motion was denied by Minute
Resolution of December 6, 1968 (but with Justices Rodriguez and
Gatmaitan voting for reconsideration) [Appendix "C" of Petition].
Hence, this appeal by certiorari.
Article 1544, New Civil Code, which is decisive of this case, recites:
If the same thing should have been sold to
different vendees, the ownership shall be
transferred to the person who may have first taken
possession thereof in good faith, if it
should movable property.
Should it be immovable property, the ownership
shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in
the possession; and, in the absence thereof, to the
person who presents the oldest title, provided
there is good faith (emphasis supplied).
It is essential that the buyer of realty must act in good faith in
registering his deed of sale to merit the protection of the second
paragraph of said Article 1544.
Unlike the first and third paragraphs of said Article 1544, which accord
preference to the one who first takes possession in good faith of
personal or real property, the second paragraph directs that ownership
of immovable property should be recognized in favor of one "who in
good faith first recorded" his right. Under the first and third
paragraph, good faith must characterize the act of anterior registration
(DBP vs. Mangawang, et al., 11 SCRA 405; Soriano, et al. vs. Magale,
et al., 8 SCRA 489).
If there is no inscription, what is decisive is prior possession in good
faith. If there is inscription, as in the case at bar, prior registration in
good faith is a pre-condition to superior title.
When Carbonell bought the lot from Poncio on January 27, 1955, she
was the only buyer thereof and the title of Poncio was still in his name
solely encumbered by bank mortgage duly annotated thereon.
Carbonell was not aware and she could not have been aware of
any sale of Infante as there was no such sale to Infante then. Hence,
Carbonell's prior purchase of the land was made in good faith. Her
good faith subsisted and continued to exist when she recorded her
adverse claim four (4) days prior to the registration of Infantes's deed
of sale. Carbonell's good faith did not cease after Poncio told her on

January 31, 1955 of his second sale of the same lot to Infante.
Because of that information, Carbonell wanted an audience with
Infante, which desire underscores Carbonell's good faith. With an
aristocratic disdain unworthy of the good breeding of a good Christian
and good neighbor, Infante snubbed Carbonell like a leper and refused
to see her. So Carbonell did the next best thing to protect her right
she registered her adversed claim on February 8, 1955. Under the
circumstances, this recording of her adverse claim should be deemed
to have been done in good faith and should emphasize Infante's bad
faith when she registered her deed of sale four (4) days later on
February 12, 1955.

have told her that Poncio already sold the lot to Carbonell who thereby
assumed the mortgage indebtedness of Poncio and to whom Poncio
delivered his mortgage passbook. Hoping to give a semblance of truth
to her pretended good faith, Infante snubbed Carbonell's request to
talk to her about the prior sale to her b Poncio of the lot. As
aforestated, this is not the attitude expected of a good neighbor
imbued with Christian charity and good will as well as a clear
conscience.

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

(4) Carbonell registered on February 8, 1955 her adverse claim, which

was accordingly annotated on Poncio's title, four [4] days before
Infante registered on February 12, 1955 her deed of sale executed on
February 2, 1955. Here she was again on notice of the prior sale to
Carbonell. Such registration of adverse claim is valid and effective
(Jovellanos vs. Dimalanta, L-11736-37, Jan. 30, 1959, 105 Phil. 125051).

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

(5) In his answer to the complaint filed by Poncio, as defendant in the

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

(2) Carbonell was already in possession of the mortgage passbook

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

As recounted by Chief Justice Roberto Concepcion, then Associate

Justice, in the preceding case of Rosario Carbonell vs. Jose Poncio,
Ramon Infante and Emma Infante (1-11231, May 12, 1958), Poncio
alleged in his answer:

If Poncio was still in possession of the mortgage passbook and his

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

... that he had consistently turned down several

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

(3) The fact that Poncio was no longer in possession of his mortgage
passbook and that the said mortgage passbook was already in
possession of Carbonell, should have compelled Infante to inquire from
Poncio why he was no longer in possession of the mortgage passbook
and from Carbonell why she was in possession of the same (Paglago,
et. al vs. Jara et al 22 SCRA 1247, 1252-1253). The only plausible and
logical reason why Infante did not bother anymore to make such
injury , w because in the ordinary course of business the bank must

EXISTENCE OF THE PRIOR SALE TO CARBONELL

DULY ESTABLISHED
(1) In his order dated April 26, 1956 dismissing the complaint on the
ground that the private document Exhibit "A" executed by Poncio and
Carbonell and witnessed by Constancio Meonada captioned "Contract

for One-half Lot which I Bought from Jose Poncio," was not such a
memorandum in writing within the purview of the Statute of Frauds, the
trial judge himself recognized the fact of the prior sale to Carbonell
when he stated that "the memorandum in question merely states that
Poncio is allowed to stay in the property which he had sold to the
plaintiff. There is no mention of the reconsideration, a description of the
property and such other essential elements of the contract of sale.
There is nothing in the memorandum which would tend to show even
in the slightest manner that it was intended to be an evidence of
contract sale. On the contrary, from the terms of the memorandum, it
tends to show that the sale of the property in favor of the plaintiff is
already an accomplished act.By the very contents of the memorandum
itself, it cannot therefore, be considered to be the memorandum which
would show that a sale has been made by Poncio in favor of the
plaintiff" (p. 33, ROA, emphasis supplied). As found by the trial court, to
repeat the said memorandum states "that Poncio is allowed to stay in
the property which he had sold to the plaintiff ..., it tends to show that
the sale of the property in favor of the plaintiff is already an
accomplished act..."
(2) When the said order was appealed to the Supreme Court by
Carbonell in the previous case of Rosario Carbonell vs. Jose Poncio,
Ramon Infante and Emma Infante
(L-11231, supra), Chief Justice Roberto Concepcion, then Associate
Justice, speaking for a unanimous Court, reversed the aforesaid order
of the trial court dismissing the complaint, holding that because the
complaint alleges and the plaintiff claims that the contract of sale was
partly performed, the same is removed from the application of the
Statute of Frauds and Carbonell should be allowed to establish by
parol evidence the truth of her allegation of partial performance of the
contract of sale, and further stated:
Apart from the foregoing, there are in the case at
bar several circumstances indicating that plaintiff's
claim might not be entirely devoid of factual basis.
Thus, for instance, Poncio admitted in his answer
that plaintiff had offered several times to purchase
his land.
Again, there is Exhibit A, a document signed by
the defendant. It is in the Batanes dialect, which,
according to plaintiff's uncontradicted evidence, is
the one spoken by Poncio, he being a native of
said region. Exhibit A states that Poncio would
stay in the land sold by him to plaintiff for one year,
from January 27, 1955, free of charge, and that, if
he cannot find a place where to transfer his house
thereon, he may remain upon. Incidentally, the
allegation in Poncio's answer to the effect that he
signed Exhibit A under the belief that it "was a
permit for him to remain in the premises in the"
that "he decided to sell the property" to the plaintiff
at P20 a sq. m." is, on its face, somewhat difficult
to believe. Indeed, if he had not decided as yet to
sell the land to plaintiff, who had never increased
her offer of P15 a square meter, there was no
reason for Poncio to get said permit from
her. Upon the other hand, if plaintiff intended to
mislead Poncio, she would have caused Exhibit A
to be drafted, probably, in English , instead of
taking the trouble of seeing to it that it was written
precisely in his native dialect, the Batanes.
Moreover, Poncio's signature on Exhibit A
suggests that he is neither illiterate nor so ignorant
as to sign document without reading its contents,
apart from the fact that Meonada had read Exhibit
A to him and given him a copy thereof, before he

signed thereon, according to Meonada's

uncontradicted testimony.
Then, also, defendants say in their brief:
The only allegation in
plaintiff's complaint that bears
any relation to her claim that
there has been partial
performance of the supposed
contract of sale, is the
notation of the sum of
P247.26 in the bank book of
defendant Jose Poncio. The
noting or jotting down of the
sum of P247.26 in the bank
book of Jose Poncio does not
prove the fact that the said
amount was the purchase
price of the property in
question. For all we knew, the
sum of P247.26 which plaintiff
claims to have paid to the
Republic Savings Bank for the
account of the defendant,
assuming that the money paid
to the Republic Savings Bank
came from the plaintiff, was
the result of some usurious
loan or accomodation, rather
than earnest money or part
payment of the land. Neither
is it competent or satisfactory
evidence to prove the
conveyance of the land in
question the fact that the bank
book account of Jose Poncio
happens to be in the
possession of the plaintiff.
(Defendants-Appellees' brief,
pp. 25-26).
How shall We know why Poncio's bank deposit
book is in plaintiffs possession, or whether there is
any relation between the P247.26 entry therein
and the partial payment of P247.26 allegedly
made by plaintiff to Poncio on account of the price
of his land, if we do not allow the plaintiff to
explain it on the witness stand? Without
expressing any opinion on the merits of plaintiff's
claim, it is clear, therefore, that she is entitled ,
legally as well as from the viewpoint of equity, to
an opportunity to introduce parol evidence in
support of the allegations of her second amended
complaint. (pp. 46-49, ROA, emphasis supplied).
(3) In his first decision of December 5, 1962 declaring null and void the
sale in favor of the Infantes and ordering Poncio to execute a deed of
conveyance in favor of Carbonell, the trial judge found:
... A careful consideration of the contents of Exh.
'A' show to the satisfaction of the court that the
sale of the parcel of land in question by the
defendant Poncio in favor of the plaintiff was
covered therein and that the said Exh. "a' was also
executed to allow the defendant to continue
staying in the premises for the stated period. It will
be noted that Exh. 'A' refers to a lot 'sold by him to

me' and having been written originally in a dialect

well understood by the defendant Poncio, he
signed the said Exh. 'A' with a full knowledge and
consciousness of the terms and consequences
thereof. This therefore, corroborates the testimony
of the plaintiff Carbonell that the sale of the land
was made by Poncio. It is further pointed out that
there was a partial performance of the verbal sale
executed by Poncio in favor of the plaintiff, when
the latter paid P247.26 to the Republic Savings
Bank on account of Poncio's mortgage
indebtedness. Finally, the possession by the
plaintiff of the defendant Poncio's passbook of the
Republic Savings Bank also adds credibility to her
testimony. The defendant contends on the other
hand that the testimony of the plaintiff, as well as
her witnesses, regarding the sale of the land made
by Poncio in favor of the plaintiff is inadmissible
under the provision of the Statute of Fraud based
on the argument that the note Exh. "A" is not the
note or memorandum referred to in the to in the
Statute of Fraud. The defendants argue that Exh.
"A" fails to comply with the requirements of the
Statute of Fraud to qualify it as the note or
memorandum referred to therein and open the
way for the presentation of parole evidence to
prove the fact contained in the note or
memorandum. The defendant argues that there is
even no description of the lot referred to in the
note, especially when the note refers to only one
half lot. With respect to the latter argument of the
Exhibit 'A', the court has arrived at the conclusion
that there is a sufficient description of the lot
referred to in Exh. 'A' as none other than the
parcel of land occupied by the defendant Poncio
and where he has his improvements erected. The
Identity of the parcel of land involved herein is
sufficiently established by the contents of the note
Exh. "A". For a while, this court had that similar
impression but after a more and thorough
consideration of the context in Exh. 'A' and for the
reasons stated above, the Court has arrived at the
conclusion stated earlier (pp. 52-54, ROA,
emphasis supplied).
(4) After re-trial on motion of the Infantes, the trial Judge rendered on
January 20, 1965 another decision dismissing the complaint, although
he found
1. That on January 27, 1955, the plaintiff
purchased from the defendant Poncio a parcel of
land with an area of 195 square meters, more or
less, covered by TCT No. 5040 of the Province of
Rizal, located at San Juan del Monte, Rizal, for
the price of P6.50 per square meter;
2. That the purchase made by the plaintiff was not
reduced to writing except for a short note or
memorandum Exh. A, which also recited that the
defendant Poncio would be allowed to continue his
stay in the premises, among other things, ... (pp.
91-92, ROA, emphasis supplied).
From such factual findings, the trial Judge confirms the due execution
of Exhibit "A", only that his legal conclusion is that it is not sufficient to
transfer ownership (pp. 93-94, ROA).

(5) In the first decision of November 2, 1967 of the Fifth Division of the
Court of Appeals composed of Justices Esguerra (now Associate
Justice of the Supreme Court), Gatmaitan and Mojica, penned by
Justice Gatmaitan, the Court of Appeals found that:
... the testimony of Rosario Carbonell not having
at all been attempted to be disproved by
defendants, particularly Jose Poncio, and
corroborated as it is by the private document in
Batanes dialect, Exhibit A, the testimony being to
the effect that between herself and Jose there had
been celebrated a sale of the property excluding
the house for the price of P9.50 per square meter,
so much so that on faith of that, Rosario had
advanced the sum of P247.26 and binding herself
to pay unto Jose the balance of the purchase
price after deducting the indebtedness to the Bank
and since the wording of Exhibit A, the private
document goes so far as to describe their
transaction as one of sale, already consummated
between them, note the part tense used in the
phrase, "the lot sold by him to me" and going so
far even as to state that from that day
onwards, vendor would continue to live therein, for
one year, 'during which time he will not pay
anything' this can only mean that between Rosario
and Jose, there had been a true contract of sale,
consummated by delivery constitutum
possession, Art. 1500, New Civil Code; vendor's
possession having become converted from then
on, as a mere tenant of vendee, with the special
privilege of not paying rental for one year, it is
true that the sale by Jose Poncio to Rosario
Carbonell corroborated documentarily only by
Exhibit A could not have been registered at all, but
it was a valid contract nonetheless, since under
our law, a contract sale is consensual, perfected
by mere consent, Couto v. Cortes, 8 Phil 459, so
much so that under the New Civil Code, while a
sale of an immovable is ordered to be reduced to
a public document, Art. 1358, that mandate does
not render an oral sale of realty invalid, but merely
incapable of proof, where still executory and action
is brought and resisted for its performance, 1403,
par. 2, 3; but where already wholly or partly
executed or where even if not yet, it is evidenced
by a memorandum, in any case where evidence to
further demonstrate is presented and admitted as
the case was here, then the oral sale becomes
perfectly good, and becomes a good cause of
action not only to reduce it to the form of a public
document, but even to enforce the contract in its
entirety, Art. 1357; and thus it is that what we now
have is a case wherein on the one hand Rosario
Carbonell has proved that she had an anterior
sale, celebrated in her favor on 27 January,
1955, Exhibit A,annotated as an adverse claim on
8 February, 1955, and on other, a sale is due form
in favor of Emma L. Infante on 2 February, 1955,
Exhibit 3-Infante, and registered in due form with
title unto her issued on 12 February, 1955; the vital
question must now come on which of these two
sales should prevail; ... (pp. 74-76, rec., emphasis
supplied).
(6) In the resolution dated October 30, 1968 penned by then Court of
Appeals Justice Esguerra (now a member of this Court), concurred in
by Justices Villamor and Nolasco, constituting the majority of a Special
Division of Five, the Court of Appeals, upon motion of the Infantes,

while reversing the decision of November 2, 1967 and affirming the

decision of the trial court of January 20, 1965 dismissing plaintiff's
complaint, admitted the existence and genuineness of Exhibit "A", the
private memorandum dated January 27, 1955, although it did not
consider the same as satisfying "the essential elements of a contract
of sale," because it "neither specifically describes the property and its
boundaries, nor mention its certificate of title number, nor states the
price certain to be paid, or contrary to the express mandate of Articles
1458 and 1475 of the Civil Code.
(7) In his dissent concurred in by Justice Rodriguez, Justice Gatmaitan
maintains his decision of November 2, 1967 as well as his findings of
facts therein, and reiterated that the private memorandum Exhibit "A",
is a perfected sale, as a sale is consensual and consummated by mere
consent, and is binding on and effective between the parties. This
statement of the principle is correct [pp. 89-92, rec.].
III
ADEQUATE CONSIDERATION OR PRICE FOR THE SALE
IN FAVOR OF CARBONELL
It should be emphasized that the mortgage on the lot was about to be
foreclosed by the bank for failure on the part of Poncio to pay the
amortizations thereon. To forestall the foreclosure and at the same
time to realize some money from his mortgaged lot, Poncio agreed to
sell the same to Carbonell at P9.50 per square meter, on condition that
Carbonell [1] should pay (a) the amount of P400.00 to Poncio and 9b)
the arrears in the amount of P247.26 to the bank; and [2] should
assume his mortgage indebtedness. The bank president agreed to the
said sale with assumption of mortgage in favor of Carbonell an
Carbonell accordingly paid the arrears of P247.26. On January 27,
1955, she paid the amount of P200.00 to the bank because that was
the amount that Poncio told her as his arrearages and Poncio
advanced the sum of P47.26, which amount was refunded to him by
Carbonell the following day. This conveyance was confirmed that same
day, January 27, 1955, by the private document, Exhibit "A", which was
prepared in the Batanes dialect by the witness Constancio Meonada,
who is also from Batanes like Poncio and Carbonell.
The sale did not include Poncio's house on the lot. And Poncio was
given the right to continue staying on the land without paying any rental
for one year, after which he should pay rent if he could not still find a
place to transfer his house. All these terms are part of the
consideration of the sale to Carbonell.
It is evident therefore that there was ample consideration, and not
merely the sum of P200.00, for the sale of Poncio to Carbonell of the
lot in question.
But Poncio, induced by the higher price offered to him by Infante,
reneged on his commitment to Carbonell and told Carbonell, who
confronted him about it, that he would not withdraw from his deal with
Infante even if he is sent to jail The victim, therefore, "of injustice and
outrage is the widow Carbonell and not the Infantes, who without moral
compunction exploited the greed and treacherous nature of Poncio,
who, for love of money and without remorse of conscience, dishonored
his own plighted word to Carbonell, his own cousin.
Inevitably evident therefore from the foregoing discussion, is the bad
faith of Emma Infante from the time she enticed Poncio to dishonor his
contract with Carbonell, and instead to sell the lot to her (Infante) by
offering Poncio a much higher price than the price for which he sold
the same to Carbonell. Being guilty of bad faith, both in taking physical
possession of the lot and in recording their deed of sale, the Infantes
cannot recover the value of the improvements they introduced in the
lot. And after the filing by Carbonell of the complaint in June, 1955, the

Infantes had less justification to erect a building thereon since their title
to said lot is seriously disputed by Carbonell on the basis of a prior sale
to her.
With respect to the claim of Poncio that he signed the document
Exhibit "A" under the belief that it was a permit for him to remain in the
premises in ease he decides to sell the property to Carbonell at P20.00
per square meter, the observation of the Supreme Court through Mr.
Chief Justice Concepcion in G.R. No. L-11231, supra, bears repeating:
... Incidentally, the allegation in Poncio's answer to
the effect that he signed Exhibit A under the belief
that it 'was a permit for him to remain in the
premises in the event that 'he decided to sell the
property' to the plaintiff at P20.00 a sq. m is, on its
face, somewhat difficult to believe. Indeed, if he
had not decided as yet to sell that land to plaintiff,
who had never increased her offer of P15 a
square meter, there as no reason for Poncio to get
said permit from her. Upon the they if plaintiff
intended to mislead Poncio, she would have
Exhibit A to be drafted, probably, in English,
instead of taking the trouble of seeing to it that it
was written precisely in his native dialect, the
Batanes. Moreover, Poncio's signature on Exhibit
A suggests that he is neither illiterate nor so
ignorant as to sign a document without reading its
contents, apart from the fact that Meonada had
read Exhibit A to him-and given him a copy
thereof, before he signed thereon, according to
Meonada's uncontradicted testimony. (pp. 46-47,
ROA).
As stressed by Justice Gatmaitan in his first decision of November 2,
1965, which he reiterated in his dissent from the resolution of the
majority of the Special Division. of Five on October 30, 1968, Exhibit A,
the private document in the Batanes dialect, is a valid contract of sale
between the parties, since sale is a consensual contract and is
perfected by mere consent (Couto vs. Cortes, 8 Phil. 459). Even an
oral contract of realty is all between the parties and accords to the
vendee the right to compel the vendor to execute the proper public
document As a matter of fact, Exhibit A, while merely a private
document, can be fully or partially performed, to it from the operation of
the statute of frauds. Being a all consensual contract, Exhibit A
effectively transferred the possession of the lot to the vendee
Carbonell by constitutum possessorium (Article 1500, New Civil Code);
because thereunder the vendor Poncio continued to retain physical
possession of the lot as tenant of the vendee and no longer as knew
thereof. More than just the signing of Exhibit A by Poncio and
Carbonell with Constancio Meonada as witness to fact the contract of
sale, the transition was further confirmed when Poncio agreed to the
actual payment by at Carbonell of his mortgage arrearages to the bank
on January 27, 1955 and by his consequent delivery of his own
mortgage passbook to Carbonell. If he remained owner and mortgagor,
Poncio would not have surrendered his mortgage passbook to'
Carbonell.
IV
IDENTIFICATION AND DESCRIPTION OF THE DISPUTED LOT IN
THE MEMORANDUM EXHIBIT "A"
The claim that the memorandum Exhibit "A" does not sufficiently
describe the disputed lot as the subject matter of the sale, was
correctly disposed of in the first decision of the trial court of December
5, 1962, thus: "The defendant argues that there is even no description
of the lot referred to in the note (or memorandum), especially when the

note refers to only one-half lot. With respect to the latter argument of
the defendant, plaintiff points out that one- half lot was mentioned in
Exhibit 'A' because the original description carried in the title states that
it was formerly part of a bigger lot and only segregated later. The
explanation is tenable, in (sic) considering the time value of the
contents of Exh. 'A', the court has arrived at the conclusion that there is
sufficient description of the lot referred to in Exh. As none other than
the parcel of lot occupied by the defendant Poncio and where he has
his improvements erected. The Identity of the parcel of land involved
herein is sufficiently established by the contents of the note Exh. 'A'.
For a while, this court had that similar impression but after a more and
through consideration of the context in Exh. 'A' and for the reasons
stated above, the court has arrived to (sic) the conclusion stated
earlier" (pp. 53-54, ROA).
Moreover, it is not shown that Poncio owns another parcel with the
same area, adjacent to the lot of his cousin Carbonell and likewise
mortgaged by him to the Republic Savings Bank. The transaction
therefore between Poncio and Carbonell can only refer and does refer
to the lot involved herein. If Poncio had another lot to remove his
house, Exhibit A would not have stipulated to allow him to stay in the
sold lot without paying any rent for one year and thereafter to pay
rental in case he cannot find another place to transfer his house.
While petitioner Carbonell has the superior title to the lot, she must
however refund to respondents Infantes the amount of P1,500.00,
which the Infantes paid to the Republic Savings Bank to redeem the
mortgage.
It appearing that the Infantes are possessors in bad faith, their rights to
the improvements they introduced op the disputed lot are governed by
Articles 546 and 547 of the New Civil Code. Their expenses consisting
of P1,500.00 for draining the property, filling it with 500 cubic meters of
garden soil, building a wall around it and installing a gate and
P11,929.00 for erecting a b ' bungalow thereon, are useful
expenditures, for they add to the value of the property (Aringo vs.
Arenas, 14 Phil. 263; Alburo vs. Villanueva, 7 Phil. 277; Valencia vs.
Ayala de Roxas, 13 Phil. 45).
Under the second paragraph of Article 546, the possessor in good faith
can retain the useful improvements unless the person who defeated
him in his possession refunds him the amount of such useful expenses
or pay him the increased value the land may have acquired by reason
thereof. Under Article 547, the possessor in good faith has also the
right to remove the useful improvements if such removal can be done
without damage to the land, unless the person with the superior right
elects to pay for the useful improvements or reimburse the expenses
therefor under paragraph 2 of Article 546. These provisions seem to
imply that the possessor in bad faith has neither the right of retention of
useful improvements nor the right to a refund for useful expenses.
But, if the lawful possessor can retain the improvements introduced by
the possessor in bad faith for pure luxury or mere pleasure only by
paying the value thereof at the time he enters into possession (Article
549 NCC), as a matter of equity, the Infantes, although possessors in
bad faith, should be allowed to remove the aforesaid improvements,
unless petitioner Carbonell chooses to pay for their value at the time
the Infantes introduced said useful improvements in 1955 and 1959.
The Infantes cannot claim reimbursement for the current value of the
said useful improvements; because they have been enjoying such
improvements for about two decades without paying any rent on the
land and during which period herein petitioner Carbonell was deprived
of its possession and use.
WHEREFORE, THE DECISION OF THE SPECIAL DIVISION OF FIVE
OF THE COURT OF APPEALS OF OCTOBER 30, 1968 IS HEREBY
REVERSED; PETITIONER ROSARIO CARBONELL IS HEREBY

DECLARED TO HAVE THE SUPERIOR RIGHT TO THE LAND IN

QUESTION AND IS HEREBY DIRECTED TO REIMBURSE TO
PRIVATE RESPONDENTS INFANTES THE SUM OF ONE
THOUSAND FIVE HUNDRED PESOS (P1,500.00) WITHIN THREE
(3) MONTHS FROM THE FINALITY OF THIS DECISION; AND THE
REGISTER OF DEEDS OF RIZAL IS HEREBY DIRECTED TO
CANCEL TRANSFER CERTIFICATE OF TITLE NO. 37842 ISSUED IN
FAVOR OF PRIVATE RESPONDENTS INFANTES COVERING THE
DISPUTED LOT, WHICH CANCELLED TRANSFER CERTIFICATE OF
TITLE NO. 5040 IN THE NAME OF JOSE PONCIO, AND TO ISSUE A
NEW TRANSFER CERTIFICATE OF TITLE IN FAVOR OF
PETITIONER ROSARIO CARBONELL UPON PRESENTATION OF
PROOF OF PAYMENT BY HER TO THE INFANTES OF THE
AFORESAID AMOUNT OF ONE THOUSAND FIVE HUNDRED
PESOS (P1,500.00).
PRIVATE RESPONDENTS INFANTES MAY REMOVE THEIR
AFOREMENTIONED USEFUL IMPROVEMENTS FROM THE LOT
WITHIN THREE (3) MONTHS FROM THE FINALITY OF THIS
DECISION, UNLESS THE PETITIONER ROSARIO CARBONELL
ELECTS TO ACQUIRE THE SAME AND PAYS THE INFANTES THE
AMOUNT OF THIRTEEN THOUSAND FOUR HUNDRED TWENTYNINE PESOS (P13,429.00) WITHIN THREE (3) MONTHS FROM THE
FINALITY OF THIS DECISION. SHOULD PETITIONER CARBONELL
FAIL TO PAY THE SAID AMOUNT WITHIN THE AFORESTATED
PERIOD OF THREE (3) MONTHS FROM THE FINALITY OF THIS
DECISION, THE PERIOD OF THREE (3) MONTHS WITHIN WHICH
THE RESPONDENTS INFANTES MAY REMOVE THEIR
AFOREMENTIONED USEFUL IMPROVEMENTS SHALL
COMMENCE FROM THE EXPIRATION OF THE THREE (3) MONTHS
GIVEN PETITIONER CARBONELL TO PAY FOR THE SAID USEFUL
IMPROVEMENTS.
WITH COSTS AGAINST PRIVATE RESPONDENTS.
G.R. No. 176308

May 8, 2009

ANGEL M. PAGADUAN, AMELIA P. TUCCI, TERESITA P. DEL

MONTE, ORLITA P. GADIN, PERLA P. ESPIRITU, ELISA P. DUNN,
LORNA P. KIMBLE, EDITO N. PAGADUAN, and LEO N.
PAGADUAN, Petitioners,
vs.
SPOUSES ESTANISLAO & FE POSADAS OCUMA, Respondents.
DECISION
TINGA, J.:
In this Petition for Review,1 petitioners assail the Decision2 of the Court
of Appeals dated September 18, 2006 which ruled that petitioners
action for reconveyance is barred by prescription and consequently
reversed the decision3 dated June 25, 2002 of the Regional Trial Court
(RTC) of Olongapo City.
Petitioners Angel N. Pagaduan, Amelia P. Tucci, Teresita P. del Monte,
Orlita P. Gadin, Perla P. Espiritu, Elisa P. Dunn, Lorna P. Kimble, Edito
N. Pagaduan and Leo N. Pagaduan are all heirs of the late Agaton
Pagaduan. Respondents are the spouses Estanislao Ocuma and Fe
Posadas Ocuma.
The facts are as follows:
The subject lot used to be part of a big parcel of land that originally
belonged to Nicolas Cleto as evidenced by Certificate of Title (C.T.) No.
14. The big parcel of land was the subject of two separate lines of
dispositions. The first line of dispositions began with the sale by Cleto

to Antonio Cereso on May 11, 1925. Cereso in turn sold the land to the
siblings with the surname Antipolo on September 23, 1943. The
Antipolos sold the property to Agaton Pagaduan, father of petitioners,
on March 24, 1961. All the dispositions in this line were not registered
and did not result in the issuance of new certificates of title in the name
of the purchasers.

The Court of Appeals ruled that while the registration of the southern
portion in the name of respondents had created an implied trust in
favor of Agaton Pagaduan, petitioners, however, failed to show that
they had taken possession of the said portion. Hence, the appellate
court concluded that prescription had set in, thereby precluding
petitioners recovery of the disputed portion.

The second line of dispositions started on January 30, 1954, after

Cletos death, when his widow Ruperta Asuncion as his sole heir and
new owner of the entire tract, sold the same to Eugenia Reyes. This
resulted in the issuance of Transfer Certificate of Title (TCT) No. T1221 in the name of Eugenia Reyes in lieu of TCT No. T-1220 in the
name of Ruperta Asuncion.

Unperturbed by the reversal of the trial courts decision, the petitioners

come to this Court via a petition for review on certiorari.7 They assert
that the Civil Code provision on double sale is controlling. They submit
further that since the incontrovertible evidence on record is that they
are in possession of the southern portion, the ten (10)-year prescriptive
period for actions for reconveyance should not apply to
them.8 Respondents, on the other hand, aver that the action for
reconveyance has prescribed since the ten (10)-year period, which
according to them has to be reckoned from the issuance of the title in
their name in 1962, has elapsed long ago.9

On November 26, 1961, Eugenia Reyes executed a unilateral deed of

sale where she sold the northern portion with an area of 32,325 square
meters to respondents for P1,500.00 and the southern portion
consisting of 8,754 square meters to Agaton Pagaduan for P500.00.
Later, on June 5, 1962, Eugenia executed another deed of sale, this
time conveying the entire parcel of land, including the southern portion,
in respondents favor. Thus, TCT No. T-1221 was cancelled and in lieu
thereof TCT No. T-5425 was issued in the name of respondents. On
June 27, 1989, respondents subdivided the land into two lots. The
subdivision resulted in the cancellation of TCT No. T-5425 and the
issuance of TCT Nos. T-37165 covering a portion with 31,418 square
meters and T-37166 covering the remaining portion with 9,661 square
meters.
On July 26, 1989, petitioners instituted a complaint for reconveyance of
the southern portion with an area of 8,754 square meters, with
damages, against respondents before the RTC of Olongapo City.
On June 25, 2002, the trial court rendered a decision in petitioners
favor. Ruling that a constructive trust over the property was created in
petitioners favor, the court below ordered respondents to reconvey the
disputed southern portion and to pay attorneys fees as well as
litigation expenses to petitioners. The dispositive portion of the
decision reads:
WHEREFORE, foregoing premises considered, judgment is hereby
rendered:
1. Ordering the defendants to reconvey to the plaintiffs, a
portion of their property originally covered by Certificate of
Title No. T-542164 now TCT Nos. 37165 and 37166 an area
equivalent to 8,754 square meters.
2. Ordering the defendant to pay plaintiffs P15,000.00 as
attorneys fees and P5,000.00 for litigation expenses.
3. Defendants counterclaims are dismissed.
SO ORDERED.5
Dissatisfied with the decision, respondents appealed it to the Court of
Appeals. The Court of Appeals reversed and set aside the decision of
the trial court; with the dispositive portion of the decision reading, thus:
WHEREFORE, premises considered, the appeal is granted.
Accordingly, prescription having set in, the assailed June 25, 2002
Decision of the RTC is reversed and set aside, and the Complaint for
reconveyance is herebyDISMISSED.
SO ORDERED.6

The Court of Appeals decision must be reversed and set aside, hence
the petition succeeds.
An action for reconveyance respects the decree of registration as
incontrovertible but seeks the transfer of property, which has been
wrongfully or erroneously registered in other persons' names, to its
rightful and legal owners, or to those who claim to have a better right.
However, contrary to the positions of both the appellate and trial
courts, no trust was created under Article 1456 of the new Civil Code
which provides:
Art. 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.
(Emphasis supplied)
The property in question did not come from the petitioners. In fact that
property came from Eugenia Reyes. The title of the Ocumas can be
traced back from Eugenia Reyes to Ruperta Asuncion to the original
owner Nicolas Cleto. Thus, if the respondents are holding the property
in trust for anyone, it would be Eugenia Reyes and not the
petitioners.1a v v p h i 1
Moreover, as stated in Berico v. Court of Appeals,10 Article 1456 refers
to actual or constructive fraud. Actual fraud consists in deception,
intentionally practiced to induce another to part with property or to
surrender some legal right, and which accomplishes the end
designed. Constructive fraud, on the other hand, is a breach of legal or
equitable duty which the law declares fraudulent irrespective of the
moral guilt of the actor due to the tendency to deceive others, to violate
public or private confidence, or to injure public interests. The latter
proceeds from a breach of duty arising out of a fiduciary or confidential
relationship. In the instant case, none of the elements of actual or
constructive fraud exists. The respondents did not deceive Agaton
Pagaduan to induce the latter to part with the ownership or deliver the
possession of the property to them. Moreover, no fiduciary relations
existed between the two parties.
This lack of a trust relationship does not inure to the benefit of the
respondents. Despite a host of jurisprudence that states a certificate of
title is indefeasible, unassailable and binding against the whole world,
it merely confirms or records title already existing and vested, and it
cannot be used to protect a usurper from the true owner, nor can it be
used for the perpetration of fraud; neither does it permit one to enrich
himself at the expense of others.11
Rather, after a thorough scrutiny of the records of the instant case, the
Court finds that this is a case of double sale under article 1544 of the
Civil Code which reads:

ART. 1544. If the same thing should have been sold to different
vendees, the ownership shall be transferred to the person who may
have first possession thereof in good faith, if it should be movable
property.
Should it be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in the Registry of
Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in possession; and, in the absence
thereof; to the person who presents the oldest title, provided there is
good faith.
Otherwise stated, where it is an immovable property that is the subject
of a double sale, ownership shall be transferred: (1) to the person
acquiring it who in good faith first recorded it in the Registry of
Property; (2) in default thereof, to the person who in good faith was first
in possession; and (3) in default thereof, to the person who presents
the oldest title, provided there is good faith. The requirement of the law
then is two-fold: acquisition in good faith and registration in good
faith.12
In this case there was a first sale by Eugenia Reyes to Agaton
Pagaduan and a second sale by Eugenia Reyes to the
respondents.13 For a second buyer like the respondents to successfully
invoke the second paragraph, Article 1544 of the Civil Code, it must
possess good faith from the time of the sale in its favor until the
registration of the same. Respondents sorely failed to meet this
requirement of good faith since they had actual knowledge of
Eugenias prior sale of the southern portion property to the petitioners,
a fact antithetical to good faith. This cannot be denied by respondents
since in the same deed of sale that Eugenia sold them the northern
portion to the respondents for P1,500.00, Eugenia also sold the
southern portion of the land to Agaton Pagaduan forP500.00.14
It is to be emphasized that the Agaton Pagaduan never parted with the
ownership and possession of that portion of Lot No. 785 which he had
purchased from Eugenia Santos. Hence, the registration of the deed of
sale by respondents was ineffectual and vested upon them no
preferential rights to the property in derogation of the rights of the
petitioners.
Respondents had prior knowledge of the sale of the questioned portion
to Agaton Pagaduan as the same deed of sale that conveyed the
northern portion to them, conveyed the southern portion to Agaton
Pagaduan.15 Thus the subsequent issuance of TCT No. T-5425, to the
extent that it affects the Pagaduans portion, conferred no better right
than the registration which was the source of the authority to issue the
said title. Knowledge gained by respondents of the first sale defeats
their rights even if they were first to register the second sale.
Knowledge of the first sale blackens this prior registration with bad
faith.16 Good faith must concur with the registration.17Therefore,
because the registration by the respondents was in bad faith, it
amounted to no registration at all.
As the respondents gained no rights over the land, it is petitioners who
are the rightful owners, having established that their successor-ininterest Agaton Pagaduan had purchased the property from Eugenia
Reyes on November 26, 1961 and in fact took possession of the said
property. The action to recover the immovable is not barred by
prescription, as it was filed a little over 27 years after the title was
registered in bad faith by the Ocumas as per Article 1141 of the Civil
Code.18
WHEREFORE, the petition is GRANTED. The Decision of the Court of
Appeals dated January 25, 2006 and itsResolution dated May 5, 2006

are hereby REVERSED and SET ASIDE. The Decision of the Regional
Trial Court is hereby REINSTATED.
SO ORDERED.
G.R. No. 124242

January 21, 2005

SAN LORENZO DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU
and PACITA ZAVALLA LU, respondents.
DECISION
TINGA, J.:
From a coaptation of the records of this case, it appears that
respondents Miguel Lu and Pacita Zavalla, (hereinafter, the Spouses
Lu) owned two (2) parcels of land situated in Sta. Rosa, Laguna
covered by TCT No. T-39022 and TCT No. T-39023 both measuring
15,808 square meters or a total of 3.1616 hectares.
On 20 August 1986, the Spouses Lu purportedly sold the two parcels
of land to respondent Pablo Babasanta, (hereinafter, Babasanta) for
the price of fifteen pesos (P15.00) per square meter. Babasanta made
a downpayment of fifty thousand pesos (P50,000.00) as evidenced by
a memorandum receipt issued by Pacita Lu of the same date. Several
other payments totaling two hundred thousand pesos (P200,000.00)
were made by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to
demand the execution of a final deed of sale in his favor so that he
could effect full payment of the purchase price. In the same letter,
Babasanta notified the spouses about having received information that
the spouses sold the same property to another without his knowledge
and consent. He demanded that the second sale be cancelled and that
a final deed of sale be issued in his favor.
In response, Pacita Lu wrote a letter to Babasanta wherein she
acknowledged having agreed to sell the property to him at fifteen
pesos (P15.00) per square meter. She, however, reminded Babasanta
that when the balance of the purchase price became due, he
requested for a reduction of the price and when she refused,
Babasanta backed out of the sale. Pacita added that she returned the
sum of fifty thousand pesos (P50,000.00) to Babasanta through
Eugenio Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the
Regional Trial Court (RTC), Branch 31, of San Pedro, Laguna,
a Complaint for Specific Performance and Damages1 against his corespondents herein, the Spouses Lu. Babasanta alleged that the lands
covered by TCT No. T- 39022 and T-39023 had been sold to him by
the spouses at fifteen pesos (P15.00) per square meter. Despite his
repeated demands for the execution of a final deed of sale in his favor,
respondents allegedly refused.
In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans
from Babasanta and when the total advances of Pacita reached fifty
thousand pesos (P50,000.00), the latter and Babasanta, without the
knowledge and consent of Miguel Lu, had verbally agreed to transform
the transaction into a contract to sell the two parcels of land to
Babasanta with the fifty thousand pesos (P50,000.00) to be considered
as the downpayment for the property and the balance to be paid on or
before 31 December 1987. Respondents Lu added that as of
November 1987, total payments made by Babasanta amounted to only

two hundred thousand pesos (P200,000.00) and the latter allegedly

failed to pay the balance of two hundred sixty thousand pesos
(P260,000.00) despite repeated demands. Babasanta had purportedly
asked Pacita for a reduction of the price from fifteen pesos (P15.00) to
twelve pesos (P12.00) per square meter and when the Spouses Lu
refused to grant Babasantas request, the latter rescinded the contract
to sell and declared that the original loan transaction just be carried out
in that the spouses would be indebted to him in the amount of two
hundred thousand pesos (P200,000.00). Accordingly, on 6 July 1989,
they purchased Interbank Managers Check No. 05020269 in the
amount of two hundred thousand pesos (P200,000.00) in the name of
Babasanta to show that she was able and willing to pay the balance of
her loan obligation.
Babasanta later filed an Amended Complaint dated 17 January
19903 wherein he prayed for the issuance of a writ of preliminary
injunction with temporary restraining order and the inclusion of the
Register of Deeds of Calamba, Laguna as party defendant. He
contended that the issuance of a preliminary injunction was necessary
to restrain the transfer or conveyance by the Spouses Lu of the subject
property to other persons.
The Spouses Lu filed their Opposition4 to the amended complaint
contending that it raised new matters which seriously affect their
substantive rights under the original complaint. However, the trial court
in its Order dated 17 January 19905 admitted the amended complaint.
On 19 January 1990, herein petitioner San Lorenzo Development
Corporation (SLDC) filed a Motion for Intervention6 before the trial
court. SLDC alleged that it had legal interest in the subject matter
under litigation because on 3 May 1989, the two parcels of land
involved, namely Lot 1764-A and 1764-B, had been sold to it in a Deed
of Absolute Sale with Mortgage.7 It alleged that it was a buyer in good
faith and for value and therefore it had a better right over the property
in litigation.
In his Opposition to SLDCs motion for intervention,8 respondent
Babasanta demurred and argued that the latter had no legal interest in
the case because the two parcels of land involved herein had already
been conveyed to him by the Spouses Lu and hence, the vendors
were without legal capacity to transfer or dispose of the two parcels of
land to the intervenor.
Meanwhile, the trial court in its Order dated 21 March 1990 allowed
SLDC to intervene. SLDC filed its Complaint-in-Intervention on 19 April
1990.9 Respondent Babasantas motion for the issuance of a
preliminary injunction was likewise granted by the trial court in
its Order dated 11 January 199110 conditioned upon his filing of a bond
in the amount of fifty thousand pesos (P50,000.00).

SLDC in its Complaint-in-Intervention alleged that on 11 February

1989, the Spouses Lu executed in its favor anOption to Buy the lots
subject of the complaint. Accordingly, it paid an option money in the
amount of three hundred sixteen thousand one hundred sixty pesos
(P316,160.00) out of the total consideration for the purchase of the two
lots of one million two hundred sixty-four thousand six hundred forty
pesos (P1,264,640.00). After the Spouses Lu received a total amount
of six hundred thirty-two thousand three hundred twenty pesos
(P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale
with Mortgage in its favor. SLDC added that the certificates of title over
the property were delivered to it by the spouses clean and free from
any adverse claims and/or notice of lis pendens. SLDC further alleged
that it only learned of the filing of the complaint sometime in the early
part of January 1990 which prompted it to file the motion to intervene
without delay. Claiming that it was a buyer in good faith, SLDC argued
that it had no obligation to look beyond the titles submitted to it by the
Spouses Lu particularly because Babasantas claims were not
annotated on the certificates of title at the time the lands were sold to
it.
After a protracted trial, the RTC rendered its Decision on 30 July 1993
upholding the sale of the property to SLDC. It ordered the Spouses Lu
to pay Babasanta the sum of two hundred thousand pesos
(P200,000.00) with legal interest plus the further sum of fifty thousand
pesos (P50,000.00) as and for attorneys fees. On the complaint-inintervention, the trial court ordered the Register of Deeds of Laguna,
Calamba Branch to cancel the notice of lis pendens annotated on the
original of the TCT No. T-39022 (T-7218) and No. T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the trial court ruled that since
both Babasanta and SLDC did not register the respective sales in their
favor, ownership of the property should pertain to the buyer who first
acquired possession of the property. The trial court equated the
execution of a public instrument in favor of SLDC as sufficient delivery
of the property to the latter. It concluded that symbolic possession
could be considered to have been first transferred to SLDC and
consequently ownership of the property pertained to SLDC who
purchased the property in good faith.
Respondent Babasanta appealed the trial courts decision to the Court
of Appeals alleging in the main that the trial court erred in concluding
that SLDC is a purchaser in good faith and in upholding the validity of
the sale made by the Spouses Lu in favor of SLDC.
Respondent spouses likewise filed an appeal to the Court of Appeals.
They contended that the trial court erred in failing to consider that the
contract to sell between them and Babasanta had been novated when
the latter abandoned the verbal contract of sale and declared that the
original loan transaction just be carried out. The Spouses Lu argued
that since the properties involved were conjugal, the trial court should
have declared the verbal contract to sell between Pacita Lu and Pablo
Babasanta null and void ab initio for lack of knowledge and consent of
Miguel Lu. They further averred that the trial court erred in not
dismissing the complaint filed by Babasanta; in awarding damages in
his favor and in refusing to grant the reliefs prayed for in their answer.
On 4 October 1995, the Court of Appeals rendered its Decision11 which
set aside the judgment of the trial court. It declared that the sale
between Babasanta and the Spouses Lu was valid and subsisting and
ordered the spouses to execute the necessary deed of conveyance in
favor of Babasanta, and the latter to pay the balance of the purchase
price in the amount of two hundred sixty thousand pesos
(P260,000.00). The appellate court ruled that the Absolute Deed of
Sale with Mortgage in favor of SLDC was null and void on the ground
that SLDC was a purchaser in bad faith. The Spouses Lu were further
ordered to return all payments made by SLDC with legal interest and to
pay attorneys fees to Babasanta.

SLDC and the Spouses Lu filed separate motions for reconsideration

with the appellate court.12 However, in aManifestation dated 20
December 1995,13 the Spouses Lu informed the appellate court that
they are no longer contesting the decision dated 4 October 1995.

the prior sale to him but the latter failed to do so. SLDC pointed out
that the notice of lis pendens was annotated only on 2 June 1989 long
after the sale of the property to it was consummated on 3 May
1989.1awphi1.nt

In its Resolution dated 11 March 1996,14 the appellate court considered

as withdrawn the motion for reconsideration filed by the Spouses Lu in
view of their manifestation of 20 December 1995. The appellate court
denied SLDCs motion for reconsideration on the ground that no new
or substantial arguments were raised therein which would warrant
modification or reversal of the courts decision dated 4 October 1995.

Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999,

the Spouses Lu informed the Court that due to financial constraints
they have no more interest to pursue their rights in the instant case
and submit themselves to the decision of the Court of Appeals.16

Hence, this petition.

SLDC assigns the following errors allegedly committed by the
appellate court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN
LORENZO WAS NOT A BUYER IN GOOD FAITH BECAUSE WHEN
THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE CASH
ADVANCE OF P200,000.00, SAN LORENZO WAS PUT ON INQUIRY
OF A PRIOR TRANSACTION ON THE PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE
THE ESTABLISHED FACT THAT THE ALLEGED FIRST BUYER,
RESPONDENT BABASANTA, WAS NOT IN POSSESSION OF THE
DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND
TOOK POSSESSION OF THE PROPERTY AND NO ADVERSE
CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS
ANNOTATED ON THE TITLES.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE
THE FACT THAT RESPONDENT BABASANTA HAS SUBMITTED NO
EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF HIS
RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT
NOTWITHSTANDING ITS FULL CONCURRENCE ON THE
FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED AND
SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING
THE TITLE OF SAN LORENZO AS A BUYER AND FIRST
POSSESSOR IN GOOD FAITH. 15
SLDC contended that the appellate court erred in concluding that it had
prior notice of Babasantas claim over the property merely on the basis
of its having advanced the amount of two hundred thousand pesos
(P200,000.00) to Pacita Lu upon the latters representation that she
needed the money to pay her obligation to Babasanta. It argued that it
had no reason to suspect that Pacita was not telling the truth that the
money would be used to pay her indebtedness to Babasanta. At any
rate, SLDC averred that the amount of two hundred thousand pesos
(P200,000.00) which it advanced to Pacita Lu would be deducted from
the balance of the purchase price still due from it and should not be
construed as notice of the prior sale of the land to Babasanta. It added
that at no instance did Pacita Lu inform it that the lands had been
previously sold to Babasanta.
Moreover, SLDC stressed that after the execution of the sale in its
favor it immediately took possession of the property and asserted its
rights as new owner as opposed to Babasanta who has never
exercised acts of ownership. Since the titles bore no adverse claim,
encumbrance, or lien at the time it was sold to it, SLDC argued that it
had every reason to rely on the correctness of the certificate of title and
it was not obliged to go beyond the certificate to determine the
condition of the property. Invoking the presumption of good faith, it
added that the burden rests on Babasanta to prove that it was aware of

On the other hand, respondent Babasanta argued that SLDC could not
have acquired ownership of the property because it failed to comply
with the requirement of registration of the sale in good faith. He
emphasized that at the time SLDC registered the sale in its favor on 30
June 1990, there was already a notice of lis pendens annotated on the
titles of the property made as early as 2 June 1989. Hence, petitioners
registration of the sale did not confer upon it any right. Babasanta
further asserted that petitioners bad faith in the acquisition of the
property is evident from the fact that it failed to make necessary inquiry
regarding the purpose of the issuance of the two hundred thousand
pesos (P200,000.00) managers check in his favor.
The core issue presented for resolution in the instant petition is who
between SLDC and Babasanta has a better right over the two parcels
of land subject of the instant case in view of the successive
transactions executed by the Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta
presented a document signed by Pacita Lu acknowledging receipt of
the sum of fifty thousand pesos (P50,000.00) as partial payment for 3.6
hectares of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa,
Laguna.17 While the receipt signed by Pacita did not mention the price
for which the property was being sold, this deficiency was supplied by
Pacita Lus letter dated 29 May 198918 wherein she admitted that she
agreed to sell the 3.6 hectares of land to Babasanta for fifteen pesos
(P15.00) per square meter.
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 Babasanta and the Spouses Lu is a contract to
sell and not a contract of sale.
Contracts, in general, are perfected by mere consent,19 which is
manifested by the meeting of the offer and the acceptance upon the
thing which are to constitute the contract. The offer must be certain and
the acceptance absolute.20 Moreover, contracts shall be obligatory in
whatever form they may have been entered into, provided all the
essential requisites for their validity are present.21
The receipt signed by Pacita Lu merely states that she accepted the
sum of fifty thousand pesos (P50,000.00) from Babasanta as partial
payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna.
While there is no stipulation that the seller reserves the ownership of
the property until full payment of the price which is a distinguishing
feature of a contract to sell, the subsequent acts of the parties
convince us that the Spouses Lu never intended to transfer ownership
to Babasanta except upon full payment of the purchase price.
Babasantas letter dated 22 May 1989 was quite telling. He stated
therein that despite his repeated requests for the execution of the final
deed of sale in his favor so that he could effect full payment of the
price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself
recognized that ownership of the property would not be transferred to
him until such time as he shall have effected full payment of the price.
Moreover, had the sellers intended to transfer title, they could have
easily executed the document of sale in its required form
simultaneously with their acceptance of the partial payment, but they

did not. Doubtlessly, the receipt signed by Pacita Lu should legally be

considered as a perfected contract to sell.
The distinction between a contract to sell and a contract of sale is quite
germane. In a contract of sale, 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.22 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.23
The perfected contract to sell imposed upon Babasanta the obligation
to pay the balance of the purchase price. There being an obligation to
pay the price, Babasanta should have made the proper tender of
payment and consignation of the price in court as required by law.
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.24 Consignation of the amounts due in court is essential in
order to extinguish Babasantas obligation to pay the balance of the
purchase price. Glaringly absent from the records is any indication that
Babasanta even attempted to make the proper consignation of the
amounts due, thus, the obligation on the part of the sellers to convey
title never acquired obligatory force.
On the assumption that the transaction between the parties is a
contract of sale and not a contract to sell, Babasantas claim of
ownership should nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent25 and
from that moment, the parties may reciprocally demand
performance.26 The essential elements of a contract of sale, to wit: (1)
consent or meeting of the minds, that is, to transfer ownership in
exchange for the price; (2) object certain which is the subject matter of
the contract; (3) cause of the obligation which is established.27
The perfection of a contract of sale should not, however, be confused
with its consummation. In relation to the acquisition and transfer of
ownership, it should be noted that sale is not a mode, but merely a
title. A mode is the legal means by which dominion or ownership is
created, transferred or destroyed, but title is only the legal basis by
which to affect dominion or ownership.28 Under Article 712 of the Civil
Code, "ownership and other real rights over property are acquired and
transmitted by law, by donation, by testate and intestate succession,
and in consequence of certain contracts, by tradition." Contracts only
constitute titles or rights to the transfer or acquisition of ownership,
while delivery or tradition is the mode of accomplishing the
same.29 Therefore, sale by itself does not transfer or affect ownership;
the most that sale does is to create the obligation to transfer
ownership. It is tradition or delivery, as a consequence of sale, that
actually transfers ownership.

the delivery of the keys of the place where the movable sold is being
kept;33 traditio longa manu or by mere consent or agreement if the
movable sold cannot yet be transferred to the possession of the buyer
at the time of the sale;34 traditio brevi manu if the buyer already had
possession of the object even before the sale;35 and traditio
constitutum possessorium, where the seller remains in possession of
the property in a different capacity.36
Following the above disquisition, respondent Babasanta did not
acquire ownership by the mere execution of the receipt by Pacita Lu
acknowledging receipt of partial payment for the property. For one, the
agreement between Babasanta and the Spouses Lu, though valid, was
not embodied in a public instrument. Hence, no constructive delivery of
the lands could have been effected. For another, Babasanta had not
taken possession of the property at any time after the perfection of the
sale in his favor or exercised acts of dominion over it despite his
assertions that he was the rightful owner of the lands. Simply stated,
there was no delivery to Babasanta, whether actual or constructive,
which is essential to transfer ownership of the property. Thus, even on
the assumption that the perfected contract between the parties was a
sale, ownership could not have passed to Babasanta in the absence of
delivery, since in a contract of sale ownership is transferred to the
vendee only upon the delivery of the thing sold.37
However, it must be stressed that the juridical relationship between the
parties in a double sale is primarily governed by Article 1544 which
lays down the rules of preference between the two purchasers of the
same property. It provides:
Art. 1544. If the same thing should have been sold to different
vendees, the ownership shall be transferred to the person who may
have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in the Registry of
Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the
absence thereof, to the person who presents the oldest title, provided
there is good faith.
The principle of primus tempore, potior jure (first in time, stronger in
right) gains greater significance in case of double sale of immovable
property. When the thing sold twice is an immovable, the one who
acquires it and first records it in the Registry of Property, both made in
good faith, shall be deemed the owner.38 Verily, the act of registration
must be coupled with good faith that is, the registrant must have no
knowledge of the defect or lack of title of his vendor or must not have
been aware of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects in
the title of his vendor.39

Explicitly, the law provides that the ownership of the thing sold is
acquired by the vendee from the moment it is delivered to him in any of
the ways specified in Article 1497 to 1501.30 The word "delivered"
should not be taken restrictively to mean transfer of actual physical
possession of the property. The law recognizes two principal modes of
delivery, to wit: (1) actual delivery; and (2) legal or constructive
delivery.

Admittedly, SLDC registered the sale with the Registry of Deeds after it
had acquired knowledge of Babasantas claim. Babasanta, however,
strongly argues that the registration of the sale by SLDC was not
sufficient to confer upon the latter any title to the property since the
registration was attended by bad faith. Specifically, he points out that at
the time SLDC registered the sale on 30 June 1990, there was already
a notice of lis pendens on the file with the Register of Deeds, the same
having been filed one year before on 2 June 1989.

Actual delivery consists in placing the thing sold in the control and
possession of the vendee.31 Legal or constructive delivery, on the other
hand, may be had through any of the following ways: the execution of
a public instrument evidencing the sale;32 symbolical tradition such as

Did the registration of the sale after the annotation of the notice of lis
pendens obliterate the effects of delivery and possession in good faith
which admittedly had occurred prior to SLDCs knowledge of the
transaction in favor of Babasanta?

We do not hold so.

It must be stressed that as early as 11 February 1989, the Spouses Lu
executed the Option to Buy in favor of SLDC upon
receiving P316,160.00 as option money from SLDC. After SLDC had
paid more than one half of the agreed purchase price
of P1,264,640.00, the Spouses Lu subsequently executed on 3 May
1989 a Deed of Absolute Sale in favor or SLDC. At the time both deeds
were executed, SLDC had no knowledge of the prior transaction of the
Spouses Lu with Babasanta. Simply stated, from the time of execution
of the first deed up to the moment of transfer and delivery of
possession of the lands to SLDC, it had acted in good faith and the
subsequent annotation of lis pendens has no effect at all on the
consummated sale between SLDC and the Spouses Lu.
A purchaser in good faith is one who buys property of
another without notice that some other person has a right to, or interest
in, such property and pays a full and fair price for the same at the time
of such purchase, or beforehe has notice of the claim or interest of
some other person in the property.40 Following the foregoing definition,
we rule that SLDC qualifies as a buyer in good faith since there is no
evidence extant in the records that it had knowledge of the prior
transaction in favor of Babasanta. At the time of the sale of the
property to SLDC, the vendors were still the registered owners of the
property and were in fact in possession of the lands.l^vvphi1.net Time
and again, this Court has ruled that a person dealing with the owner of
registered land is not bound to go beyond the certificate of title as he is
charged with notice of burdens on the property which are noted on the
face of the register or on the certificate of title.41 In assailing knowledge
of the transaction between him and the Spouses Lu, Babasanta
apparently relies on the principle of constructive notice incorporated in
Section 52 of the Property Registration Decree (P.D. No. 1529) which
reads, thus:
Sec. 52. Constructive notice upon registration. Every conveyance,
mortgage, lease, lien, attachment, order, judgment, instrument or entry
affecting registered land shall, if registered, filed, or entered in the
office of the Register of Deeds for the province or city where the land
to which it relates lies, be constructive notice to all persons from the
time of such registering, filing, or entering.
However, the constructive notice operates as suchby the express
wording of Section 52from the time of the registration of the notice
of lis pendens which in this case was effected only on 2 June 1989, at
which time the sale in favor of SLDC had long been consummated
insofar as the obligation of the Spouses Lu to transfer ownership over
the property to SLDC is concerned.
More fundamentally, given the superiority of the right of SLDC to the
claim of Babasanta the annotation of the notice of lis pendens cannot
help Babasantas position a bit and it is irrelevant to the good or bad
faith characterization of SLDC as a purchaser. A notice of lis pendens,
as the Court held in Natao v. Esteban,42serves as a warning to a
prospective purchaser or incumbrancer that the particular property is in
litigation; and that he should keep his hands off the same, unless he
intends to gamble on the results of the litigation." Precisely, in this case
SLDC has intervened in the pending litigation to protect its rights.
Obviously, SLDCs faith in the merit of its cause has been vindicated
with the Courts present decision which is the ultimate denouement on
the controversy.
The Court of Appeals has made capital43 of SLDCs averment in
its Complaint-in-Intervention44 that at the instance of Pacita Lu it issued
a check for P200,000.00 payable to Babasanta and the confirmatory
testimony of Pacita Lu herself on cross-examination.45 However, there
is nothing in the said pleading and the testimony which explicitly
relates the amount to the transaction between the Spouses Lu and

Babasanta for what they attest to is that the amount was supposed to
pay off the advances made by Babasanta to Pacita Lu. In any event,
the incident took place after the Spouses Lu had already executed
the Deed of Absolute Sale with Mortgage in favor of SLDC and
therefore, as previously explained, it has no effect on the legal position
of SLDC.
Assuming ex gratia argumenti that SLDCs registration of the sale had
been tainted by the prior notice of lis pendens and assuming further for
the same nonce that this is a case of double sale, still Babasantas
claim could not prevail over that of SLDCs. In Abarquez v. Court of
Appeals,46 this Court had the occasion to rule that if a vendee in a
double sale registers the sale after he has acquired knowledge of a
previous sale, the registration constitutes a registration in bad faith and
does not confer upon him any right. If the registration is done in bad
faith, it is as if there is no registration at all, and the buyer who has
taken possession first of the property in good faith shall be preferred.
In Abarquez, the first sale to the spouses Israel was notarized and
registered only after the second vendee, Abarquez, registered their
deed of sale with the Registry of Deeds, but the Israels were first in
possession. This Court awarded the property to the Israels because
registration of the property by Abarquez lacked the element of good
faith. While the facts in the instant case substantially differ from that
in Abarquez, we would not hesitate to rule in favor of SLDC on the
basis of its prior possession of the property in good faith. Be it noted
that delivery of the property to SLDC was immediately effected after
the execution of the deed in its favor, at which time SLDC had no
knowledge at all of the prior transaction by the Spouses Lu in favor of
Babasanta.1a\^/phi1.net
The law speaks not only of one criterion. The first criterion is priority of
entry in the registry of property; there being no priority of such entry,
the second is priority of possession; and, in the absence of the two
priorities, the third priority is of the date of title, with good faith as the
common critical element. Since SLDC acquired possession of the
property in good faith in contrast to Babasanta, who neither registered
nor possessed the property at any time, SLDCs right is definitely
superior to that of Babasantas.
At any rate, the above discussion on the rules on double sale would be
purely academic for as earlier stated in this decision, the contract
between Babasanta and the Spouses Lu is not a contract of sale but
merely a contract to sell. In Dichoso v. Roxas,47 we had the occasion to
rule that Article 1544 does not apply to a case where there was a sale
to one party of the land itself while the other contract was a mere
promise to sell the land or at most an actual assignment of the right to
repurchase the same land. Accordingly, there was no double sale of
the same land in that case.
WHEREFORE, the instant petition is hereby GRANTED. The decision
of the Court of Appeals appealed from is REVERSED and SET ASIDE
and the decision of the Regional Trial Court, Branch 31, of San Pedro,
Laguna is REINSTATED. No costs.
SO ORDERED.
G.R. No. 103577 October 7, 1996
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A.
CORONEL, ANNABELLE C. GONZALES (for herself and on behalf
of Florida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL,
FLORAIDA A. ALMONTE, and CATALINA BALAIS
MABANAG, petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and

RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as

attorney-in-fact, respondents.

MELO, J.:p
The petition before us has its roots in a complaint for specific
performance to compel herein petitioners (except the last named,
Catalina Balais Mabanag) to consummate the sale of a parcel of land
with its improvements located along Roosevelt Avenue in Quezon City
entered into by the parties sometime in January 1985 for the price of
P1,240,000.00.
The undisputed facts of the case were summarized by respondent
court in this wise:
On January 19, 1985, defendants-appellants
Romulo Coronel, et al. (hereinafter referred to as
Coronels) executed a document entitled "Receipt
of Down Payment" (Exh. "A") in favor of plaintiff
Ramona Patricia Alcaraz (hereinafter referred to
as Ramona) which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 Total amount
50,000 Down payment

P1,190,000.00 Balance
Received from Miss Ramona Patricia Alcaraz of
146 Timog, Quezon City, the sum of Fifty
Thousand Pesos purchase price of our inherited
house and lot, covered by TCT No. 119627 of the
Registry of Deeds of Quezon City, in the total
amount of P1,240,000.00.
We bind ourselves to effect the transfer in our
names from our deceased father, Constancio P.
Coronel, the transfer certificate of title immediately
upon receipt of the down payment above-stated.
On our presentation of the TCT already in or
name, We will immediately execute the deed of
absolute sale of said property and Miss Ramona
Patricia Alcaraz shall immediately pay the balance
of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are
the following:
1. Ramona will make a down payment of Fifty
Thousand (P50,000.00) Pesos upon execution of
the document aforestated;
2. The Coronels will cause the transfer in their
names of the title of the property registered in the
name of their deceased father upon receipt of the
Fifty Thousand (P50,000.00) Pesos down
payment;

3. Upon the transfer in their names of the subject

property, the Coronels will execute the deed of
absolute sale in favor of Ramona and the latter will
pay the former the whole balance of One Million
One Hundred Ninety Thousand (P1,190,000.00)
Pesos.
On the same date (January 15, 1985), plaintiffappellee Concepcion D. Alcaraz (hereinafter
referred to as Concepcion), mother of Ramona,
paid the down payment of Fifty Thousand
(P50,000.00) Pesos (Exh. "B", Exh. "2").
On February 6, 1985, the property originally
registered in the name of the Coronels' father was
transferred in their names under TCT
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold the
property covered by TCT No. 327043 to
intervenor-appellant Catalina B. Mabanag
(hereinafter referred to as Catalina) for One Million
Five Hundred Eighty Thousand (P1,580,000.00)
Pesos after the latter has paid Three Hundred
Thousand (P300,000.00) Pesos (Exhs. "F-3"; Exh.
"6-C")
For this reason, Coronels canceled and rescinded
the contract (Exh. "A") with Ramona by depositing
the down payment paid by Concepcion in the
bank in trust for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al., filed a
complaint for specific performance against the
Coronels and caused the annotation of a notice
of lis pendens at the back of TCT No. 327403
(Exh. "E"; Exh. "5").
On April 2, 1985, Catalina caused the annotation
of a notice of adverse claim covering the same
property with the Registry of Deeds of Quezon
City (Exh. "F"; Exh. "6").
On April 25, 1985, the Coronels executed a Deed
of Absolute Sale over the subject property in favor
of Catalina (Exh. "G"; Exh. "7").
On June 5, 1985, a new title over the subject
property was issued in the name of Catalina under
TCT No. 351582 (Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83,
RTC, Quezon City) the parties agreed to submit the case for decision
solely on the basis of documentary exhibits. Thus, plaintiffs therein
(now private respondents) proffered their documentary evidence
accordingly marked as Exhibits "A" through "J", inclusive of their
corresponding submarkings. Adopting these same exhibits as their
own, then defendants (now petitioners) accordingly offered and
marked them as Exhibits "1" through "10", likewise inclusive of their
corresponding submarkings. Upon motion of the parties, the trial court
gave them thirty (30) days within which to simultaneously submit their
respective memoranda, and an additional 15 days within which to
submit their corresponding comment or reply thereof, after which, the
case would be deemed submitted for resolution.

On April 14, 1988, the case was submitted for resolution before Judge
Reynaldo Roura, who was then temporarily detailed to preside over
Branch 82 of the RTC of Quezon City. On March 1, 1989, judgment
was handed down by Judge Roura from his regular bench at
Macabebe, Pampanga for the Quezon City branch, disposing as
follows:
WHEREFORE, judgment for specific performance
is hereby rendered ordering defendant to execute
in favor of plaintiffs a deed of absolute sale
covering that parcel of land embraced in and
covered by Transfer Certificate of Title No. 327403
(now TCT No. 331582) of the Registry of Deeds
for Quezon City, together with all the
improvements existing thereon free from all liens
and encumbrances, and once accomplished, to
immediately deliver the said document of sale to
plaintiffs and upon receipt thereof, the said
document of sale to plaintiffs and upon receipt
thereof, the plaintiffs are ordered to pay
defendants the whole balance of the purchase
price amounting to P1,190,000.00 in cash.
Transfer Certificate of Title No. 331582 of the
Registry of Deeds for Quezon City in the name of
intervenor is hereby canceled and declared to be
without force and effect. Defendants and
intervenor and all other persons claiming under
them are hereby ordered to vacate the subject
property and deliver possession thereof to
plaintiffs. Plaintiffs' claim for damages and
attorney's fees, as well as the counterclaims of
defendants and intervenors are hereby dismissed.
No pronouncement as to costs.

from questioning said authority of Judge Roura

after they received the decision in question which
happens to be adverse to them; (3) While it is true
that Judge Reynaldo Roura was merely a Judgeon-detail at this Branch of the Court, he was in all
respects the Presiding Judge with full authority to
act on any pending incident submitted before this
Court during his incumbency. When he returned to
his Official Station at Macabebe, Pampanga, he
did not lose his authority to decide or resolve such
cases submitted to him for decision or resolution
because he continued as Judge of the Regional
Trial Court and is of co-equal rank with the
undersigned Presiding Judge. The standing rule
and supported by jurisprudence is that a Judge to
whom a case is submitted for decision has the
authority to decide the case notwithstanding his
transfer to another branch or region of the same
court (Sec. 9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration
of the Decision dated March 1, 1989 rendered in
the instant case, resolution of which now pertains
to the undersigned Presiding Judge, after a
meticulous examination of the documentary
evidence presented by the parties, she is
convinced that the Decision of March 1, 1989 is
supported by evidence and, therefore, should not
be disturbed.
IN VIEW OF THE FOREGOING, the "Motion for
Reconsideration and/or to Annul Decision and
Render Anew Decision by the Incumbent
Presiding Judge" dated March 20, 1989 is hereby
DENIED.

So Ordered.
SO ORDERED.
Macabebe, Pampanga for Quezon City, March 1,
1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner before the new
presiding judge of the Quezon City RTC but the same was denied by
Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to
annul the decision and to render anew decision by
the undersigned Presiding Judge should be
denied for the following reasons: (1) The instant
case became submitted for decision as of April 14,
1988 when the parties terminated the presentation
of their respective documentary evidence and
when the Presiding Judge at that time was Judge
Reynaldo Roura. The fact that they were allowed
to file memoranda at some future date did not
change the fact that the hearing of the case was
terminated before Judge Roura and therefore the
same should be submitted to him for decision; (2)
When the defendants and intervenor did not object
to the authority of Judge Reynaldo Roura to
decide the case prior to the rendition of the
decision, when they met for the first time before
the undersigned Presiding Judge at the hearing of
a pending incident in Civil Case No. Q-46145 on
November 11, 1988, they were deemed to have
acquiesced thereto and they are now estopped

Quezon City, Philippines, July 12, 1989.

(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16,
1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad Santos (P),
JJ.) rendered its decision fully agreeing with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The last
pleading, private respondents' Reply Memorandum, was filed on
September 15, 1993. The case was, however, re-raffled to
undersigned ponente only on August 28, 1996, due to the voluntary
inhibition of the Justice to whom the case was last assigned.
While we deem it necessary to introduce certain refinements in the
disquisition of respondent court in the affirmance of the trial court's
decision, we definitely find the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution
of the other issues in the case at bar is the precise determination of the
legal significance of the document entitled "Receipt of Down Payment"
which was offered in evidence by both parties. There is no dispute as
to the fact that said document embodied the binding contract between
Ramona Patricia Alcaraz on the one hand, and the heirs of Constancio
P. Coronel on the other, pertaining to a particular house and lot
covered by TCT No. 119627, as defined in Article 1305 of the Civil
Code of the Philippines which reads as follows:

Art. 1305. 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.
While, it is the position of private respondents that the "Receipt of
Down Payment" embodied a perfected contract of sale, which perforce,
they seek to enforce by means of an action for specific performance,
petitioners on their part insist that what the document signified was a
mere executory contract to sell, subject to certain suspensive
conditions, and because of the absence of Ramona P. Alcaraz, who left
for the United States of America, said contract could not possibly ripen
into a contract absolute sale.
Plainly, such variance in the contending parties' contentions is brought
about by the way each interprets the terms and/or conditions set forth
in said private instrument. Withal, based on whatever relevant and
admissible evidence may be available on record, this, Court, as were
the courts below, is now called upon to adjudge what the real intent of
the parties was at the time the said document was executed.

Stated positively, upon the fulfillment of the suspensive condition which

is the full payment of the purchase price, the prospective seller's
obligation to sell the subject property by entering into a contract of sale
with the prospective buyer becomes demandable as provided in Article
1479 of the Civil Code which states:
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 contract to sell may thus be defined as a bilateral contract whereby
the prospective seller, while expressly reserving the ownership of the
subject property despite delivery thereof to the prospective buyer,
binds himself to sell the said property exclusively to the prospective
buyer upon fulfillment of the condition agreed upon, that is, full
payment of the purchase price.

The Civil Code defines a contract of sale, thus:

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.
Sale, by its very nature, is a consensual contract because it is
perfected by mere consent. The essential elements of a contract of
sale are the following:
a) Consent or meeting of the minds, that is,
consent to transfer ownership in exchange for the
price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a
Contract of Sale because the first essential element is lacking. In a
contract to sell, the prospective seller explicity reserves the transfer of
title to the prospective buyer, meaning, the prospective seller does not
as yet agree or consent to transfer ownership of the property subject of
the contract to sell until the happening of an event, which for present
purposes we shall take as the full payment of the purchase price. What
the seller agrees or obliges himself to do is to fulfill is promise to sell
the subject property when the entire amount of the purchase price is
delivered to him. In other words the full payment of the purchase price
partakes of a suspensive condition, the non-fulfillment of which
prevents the obligation to sell from arising and thus, ownership is
retained by the prospective seller without further remedies by the
prospective buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this
Court had occasion to rule:
Hence, We hold that the contract between the
petitioner and the respondent was a contract to
sell where the ownership or title is retained by the
seller and is not to pass until the full payment of
the price, such payment being a positive
suspensive condition and failure of which is not a
breach, casual or serious, but simply an event that
prevented the obligation of the vendor to convey
title from acquiring binding force.

A contract to sell as defined hereinabove, may not even be considered

as a conditional contract of sale where the seller may likewise reserve
title to the property subject of the sale until the fulfillment of a
suspensive condition, because in a conditional contract of sale, the first
element of consent is present, although it is conditioned upon the
happening of a contingent event which may or may not occur. If the
suspensive condition is not fulfilled, the perfection of the contract of
sale is completely abated (cf. Homesite and housing Corp. vs. Court of
Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition
is fulfilled, the contract of sale is thereby perfected, such that if there
had already been previous delivery of the property subject of the sale
to the buyer, ownership thereto automatically transfers to the buyer by
operation of law without any further act having to be performed by the
seller.
In a contract to sell, upon the fulfillment of the suspensive condition
which is the full payment of the purchase price, ownership will not
automatically transfer to the buyer although the property may have
been previously delivered to him. The prospective seller still has to
convey title to the prospective buyer by entering into a contract of
absolute sale.
It is essential to distinguish between a contract to sell and a conditional
contract of sale specially in cases where the subject property is sold by
the owner not to the party the seller contracted with, but to a third
person, as in the case at bench. In a contract to sell, there being no
previous sale of the property, a third person buying such property
despite the fulfillment of the suspensive condition such as the full
payment of the purchase price, for instance, cannot be deemed a
buyer in bad faith and the prospective buyer cannot seek the relief of
reconveyance of the property. There is no double sale in such case.
Title to the property will transfer to the buyer after registration because
there is no defect in the owner-seller's title per se, but the latter, of
course, may be used for damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the
suspensive condition, the sale becomes absolute and this will definitely
affect the seller's title thereto. In fact, if there had been previous
delivery of the subject property, the seller's ownership or title to the
property is automatically transferred to the buyer such that, the seller
will no longer have any title to transfer to any third person. Applying
Article 1544 of the Civil Code, such second buyer of the property who
may have had actual or constructive knowledge of such defect in the
seller's title, or at least was charged with the obligation to discover
such defect, cannot be a registrant in good faith. Such second buyer

cannot defeat the first buyer's title. In case a title is issued to the
second buyer, the first buyer may seek reconveyance of the property
subject of the sale.
With the above postulates as guidelines, we now proceed to the task of
deciphering the real nature of the contract entered into by petitioners
and private respondents.
It is a canon in the interpretation of contracts that the words used
therein should be given their natural and ordinary meaning unless a
technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA
586 [1992]). Thus, when petitioners declared in the said "Receipt of
Down Payment" that they
Received from Miss Ramona Patricia Alcaraz of
146 Timog, Quezon City, the sum of Fifty
Thousand Pesos purchase price of our inherited
house and lot, covered by TCT No. 1199627 of the
Registry of Deeds of Quezon City, in the total
amount of P1,240,000.00.
without any reservation of title until full payment of the entire
purchase price, the natural and ordinary idea conveyed is
that they sold their property.
When the "Receipt of Down Payment" is considered in its entirety, it
becomes more manifest that there was a clear intent on the part of
petitioners to transfer title to the buyer, but since the transfer certificate
of title was still in the name of petitioner's father, they could not fully
effect such transfer although the buyer was then willing and able to
immediately pay the purchase price. Therefore, petitioners-sellers
undertook upon receipt of the down payment from private respondent
Ramona P. Alcaraz, to cause the issuance of a new certificate of title in
their names from that of their father, after which, they promised to
present said title, now in their names, to the latter and to execute the
deed of absolute sale whereupon, the latter shall, in turn, pay the entire
balance of the purchase price.
The agreement could not have been a contract to sell because the
sellers herein made no express reservation of ownership or title to the
subject parcel of land. Furthermore, the circumstance which prevented
the parties from entering into an absolute contract of sale pertained to
the sellers themselves (the certificate of title was not in their names)
and not the full payment of the purchase price. Under the established
facts and circumstances of the case, the Court may safely presume
that, had the certificate of title been in the names of petitioners-sellers
at that time, there would have been no reason why an absolute
contract of sale could not have been executed and consummated right
there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did
not merely promise to sell the properly to private respondent upon the
fulfillment of the suspensive condition. On the contrary, having already
agreed to sell the subject property, they undertook to have the
certificate of title changed to their names and immediately thereafter, to
execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the
sellers, after compliance by the buyer with certain terms and
conditions, promised to sell the property to the latter. What may be
perceived from the respective undertakings of the parties to the
contract is that petitioners had already agreed to sell the house and lot
they inherited from their father, completely willing to transfer full
ownership of the subject house and lot to the buyer if the documents
were then in order. It just happened, however, that the transfer
certificate of title was then still in the name of their father. It was more
expedient to first effect the change in the certificate of title so as to

bear their names. That is why they undertook to cause the issuance of
a new transfer of the certificate of title in their names upon receipt of
the down payment in the amount of P50,000.00. As soon as the new
certificate of title is issued in their names, petitioners were committed
to immediately execute the deed of absolute sale. Only then will the
obligation of the buyer to pay the remainder of the purchase price
arise.
There is no doubt that unlike in a contract to sell which is most
commonly entered into so as to protect the seller against a buyer who
intends to buy the property in installment by withholding ownership
over the property until the buyer effects full payment therefor, in the
contract entered into in the case at bar, the sellers were the one who
were unable to enter into a contract of absolute sale by reason of the
fact that the certificate of title to the property was still in the name of
their father. It was the sellers in this case who, as it were, had the
impediment which prevented, so to speak, the execution of an contract
of absolute sale.
What is clearly established by the plain language of the subject
document is that when the said "Receipt of Down Payment" was
prepared and signed by petitioners Romeo A. Coronel, et al., the
parties had agreed to a conditional contract of sale, consummation of
which is subject only to the successful transfer of the certificate of title
from the name of petitioners' father, Constancio P. Coronel, to their
names.
The Court significantly notes this suspensive condition was, in fact,
fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on said date,
the conditional contract of sale between petitioners and private
respondent Ramona P. Alcaraz became obligatory, the only act
required for the consummation thereof being the delivery of the
property by means of the execution of the deed of absolute sale in a
public instrument, which petitioners unequivocally committed
themselves to do as evidenced by the "Receipt of Down Payment."
Article 1475, in correlation with Article 1181, both of the Civil Code,
plainly applies to the case at bench. Thus,
Art. 1475. The contract of sale is perfected at the
moment there is a meeting of minds upon the
thing which is the object of the contract and upon
the price.
From the moment, the parties may reciprocally
demand performance, subject to the provisions of
the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition
of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the
happening of the event which constitutes the
condition.
Since the condition contemplated by the parties which is the issuance
of a certificate of title in petitioners' names was fulfilled on February 6,
1985, the respective obligations of the parties under the contract of
sale became mutually demandable, that is, petitioners, as sellers, were
obliged to present the transfer certificate of title already in their names
to private respondent Ramona P. Alcaraz, the buyer, and to
immediately execute the deed of absolute sale, while the buyer on her
part, was obliged to forthwith pay the balance of the purchase price
amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their
petition, petitioners conclusively admitted that:

3. The petitioners-sellers Coronel bound

themselves "to effect the transfer in our names
from our deceased father Constancio P. Coronel,
the transfer certificate of title immediately upon
receipt of the downpayment above-stated". The
sale was still subject to this suspensive condition.
(Emphasis supplied.)

Article 774 of the Civil Code defines Succession as a mode of

transferring ownership as follows:
Art. 774. Succession is a mode of acquisition by
virtue of which the property, rights and obligations
to be extent and value of the inheritance of a
person are transmitted through his death to
another or others by his will or by operation of law.

(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of
sale subject to a suspensive condition. Only, they contend, continuing
in the same paragraph, that:
. . . Had petitioners-sellers not complied with this
condition of first transferring the title to the
property under their names, there could be no
perfected contract of sale. (Emphasis supplied.)
(Ibid.)
not aware that they set their own trap for themselves, for
Article 1186 of the Civil Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled
when the obligor voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more
controlling than these mere hypothetical arguments is the fact that
the condition herein referred to was actually and indisputably fulfilled
on February 6, 1985, when a new title was issued in the names of
petitioners as evidenced by TCT No. 327403 (Exh. "D"; Exh. "4").
The inevitable conclusion is that on January 19, 1985, as evidenced by
the document denominated as "Receipt of Down Payment" (Exh. "A";
Exh. "1"), the parties entered into a contract of sale subject only to the
suspensive condition that the sellers shall effect the issuance of new
certificate title from that of their father's name to their names and that,
on February 6, 1985, this condition was fulfilled (Exh. "D"; Exh. "4").
We, therefore, hold that, in accordance with Article 1187 which
pertinently provides
Art. 1187. The effects of conditional obligation to
give, once the condition has been fulfilled, shall
retroact to the day of the constitution of the
obligation . . .
In obligation to do or not to do, the courts shall
determine, in each case, the retroactive effect of
the condition that has been complied with.
the rights and obligations of the parties with respect to the
perfected contract of sale became mutually due and
demandable as of the time of fulfillment or occurrence of the
suspensive condition on February 6, 1985. As of that point in
time, reciprocal obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on
January 19, 1985 because they were then not yet the absolute owners
of the inherited property.
We cannot sustain this argument.

Petitioners-sellers in the case at bar being the sons and

daughters of the decedent Constancio P. Coronel are
compulsory heirs who were called to succession by
operation of law. Thus, at the point their father drew his last
breath, petitioners stepped into his shoes insofar as the
subject property is concerned, such that any rights or
obligations pertaining thereto became binding and
enforceable upon them. It is expressly provided that rights to
the succession are transmitted from the moment of death of
the decedent (Article 777, Civil Code; Cuison vs. Villanueva,
90 Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession may not be
declared unless the creditors have been paid is rendered moot by the
fact that they were able to effect the transfer of the title to the property
from the decedent's name to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed
lack of capacity to enter into an agreement at that time and they cannot
be allowed to now take a posture contrary to that which they took when
they entered into the agreement with private respondent Ramona P.
Alcaraz. The Civil Code expressly states that:
Art. 1431. Through estoppel an admission or
representation is rendered conclusive upon the
person making it, and cannot be denied or
disproved as against the person relying thereon.
Having represented themselves as the true owners of the
subject property at the time of sale, petitioners cannot claim
now that they were not yet the absolute owners thereof at
that time.
Petitioners also contend that although there was in fact a perfected
contract of sale between them and Ramona P. Alcaraz, the latter
breached her reciprocal obligation when she rendered impossible the
consummation thereof by going to the United States of America,
without leaving her address, telephone number, and Special Power of
Attorney (Paragraphs 14 and 15, Answer with Compulsory
Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which
reason, so petitioners conclude, they were correct in unilaterally
rescinding rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission of
the contract of sale in the instant case. We note that these supposed
grounds for petitioners' rescission, are mere allegations found only in
their responsive pleadings, which by express provision of the rules, are
deemed controverted even if no reply is filed by the plaintiffs (Sec. 11,
Rule 6, Revised Rules of Court). The records are absolutely bereft of
any supporting evidence to substantiate petitioners' allegations. We
have stressed time and again that allegations must be proven by
sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961];
Recaro vs. Embisan, 2 SCRA 598 [1961]. Mere allegation is not an
evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United
States of America on February 6, 1985, we cannot justify petitioner-

sellers' act of unilaterally and extradicially rescinding the contract of

sale, there being no express stipulation authorizing the sellers to
extarjudicially rescind the contract of sale. (cf. Dignos vs. CA, 158
SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of
Ramona P. Alcaraz because although the evidence on record shows
that the sale was in the name of Ramona P. Alcaraz as the buyer, the
sellers had been dealing with Concepcion D. Alcaraz, Ramona's
mother, who had acted for and in behalf of her daughter, if not also in
her own behalf. Indeed, the down payment was made by Concepcion
D. Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and in
behalf of Ramona P. Alcaraz. There is no evidence showing that
petitioners ever questioned Concepcion's authority to represent
Ramona P. Alcaraz when they accepted her personal check. Neither
did they raise any objection as regards payment being effected by a
third person. Accordingly, as far as petitioners are concerned, the
physical absence of Ramona P. Alcaraz is not a ground to rescind the
contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default,
insofar as her obligation to pay the full purchase price is concerned.
Petitioners who are precluded from setting up the defense of the
physical absence of Ramona P. Alcaraz as above-explained offered no
proof whatsoever to show that they actually presented the new transfer
certificate of title in their names and signified their willingness and
readiness to execute the deed of absolute sale in accordance with their
agreement. Ramona's corresponding obligation to pay the balance of
the purchase price in the amount of P1,190,000.00 (as buyer) never
became due and demandable and, therefore, she cannot be deemed
to have been in default.
Article 1169 of the Civil Code defines when a party in a contract
involving reciprocal obligations may be considered in default, to wit:
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.
xxx xxx xxx
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 fulfill his obligation, delay by the other
begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of
sale between petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner,
Catalina B. Mabanag, gave rise to a case of double sale where Article
1544 of the Civil Code will apply, to wit:

Should there be no inscription, the ownership shall

pertain to the person who in good faith was first in
the possession; and, in the absence thereof to the
person who presents the oldest title, provided
there is good faith.
The record of the case shows that the Deed of Absolute Sale dated
April 25, 1985 as proof of the second contract of sale was registered
with the Registry of Deeds of Quezon City giving rise to the issuance of
a new certificate of title in the name of Catalina B. Mabanag on June 5,
1985. Thus, the second paragraph of Article 1544 shall apply.
The above-cited provision on double sale presumes title or ownership
to pass to the first buyer, the exceptions being: (a) when the second
buyer, in good faith, registers the sale ahead of the first buyer, and (b)
should there be no inscription by either of the two buyers, when the
second buyer, in good faith, acquires possession of the property ahead
of the first buyer. Unless, the second buyer satisfies these
requirements, title or ownership will not transfer to him to the prejudice
of the first buyer.
In his commentaries on the Civil Code, an accepted authority on the
subject, now a distinguished member of the Court, Justice Jose C.
Vitug, explains:
The governing principle is prius tempore, potior
jure (first in time, stronger in right). Knowledge by
the first buyer of the second sale cannot defeat the
first buyer's rights except when the second buyer
first registers in good faith the second sale
(Olivares vs. Gonzales, 159 SCRA 33).
Conversely, knowledge gained by the second
buyer of the first sale defeats his rights even if he
is first to register, since knowledge taints his
registration with bad faith (see also Astorga vs.
Court of Appeals, G.R. No. 58530, 26 December
1984). In Cruz vs. Cabana (G.R. No. 56232, 22
June 1984, 129 SCRA 656), it has held that it is
essential, to merit the protection of Art. 1544,
second paragraph, that the second realty buyer
must act in good faith in registering his deed of
sale (citing Carbonell vs. Court of Appeals, 69
SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02
September 1992).
(J. Vitug Compendium of Civil Law and
Jurisprudence, 1993 Edition, p. 604).
Petitioner point out that the notice of lis pendens in the case at bar was
annoted on the title of the subject property only on February 22, 1985,
whereas, the second sale between petitioners Coronels and petitioner
Mabanag was supposedly perfected prior thereto or on February 18,
1985. The idea conveyed is that at the time petitioner Mabanag, the
second buyer, bought the property under a clean title, she was
unaware of any adverse claim or previous sale, for which reason she is
buyer in good faith.
We are not persuaded by such argument.

Art. 1544. If the same thing should have been sold

to different vendees, the ownership shall be
transferred to the person who may have first taken
possession thereof in good faith, if it should be
movable property.
Should if be immovable property, the ownership
shall belong to the person acquiring it who in good
faith first recorded it in Registry of Property.

In a case of double sale, what finds relevance and materiality is not

whether or not the second buyer was a buyer in good faith but whether
or not said second buyer registers such second sale in good faith, that
is, without knowledge of any defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag
could not have in good faith, registered the sale entered into on
February 18, 1985 because as early as February 22, 1985, a notice
of lis pendens had been annotated on the transfer certificate of title in

the names of petitioners, whereas petitioner Mabanag registered the

said sale sometime in April, 1985. At the time of registration, therefore,
petitioner Mabanag knew that the same property had already been
previously sold to private respondents, or, at least, she was charged
with knowledge that a previous buyer is claiming title to the same
property. Petitioner Mabanag cannot close her eyes to the defect in
petitioners' title to the property at the time of the registration of the
property.
This Court had occasions to rule that:
If a vendee in a double sale registers that sale
after he has acquired knowledge that there was a
previous sale of the same property to a third party
or that another person claims said property in a
pervious sale, the registration will constitute a
registration in bad faith and will not confer upon
him any right. (Salvoro vs. Tanega, 87 SCRA 349
[1978]; citing Palarca vs. Director of Land, 43 Phil.
146; Cagaoan vs. Cagaoan, 43 Phil. 554;
Fernandez vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners and
Ramona P. Alcaraz, perfected on February 6, 1985, prior to that
between petitioners and Catalina B. Mabanag on February 18, 1985,
was correctly upheld by both the courts below.
Although there may be ample indications that there was in fact an
agency between Ramona as principal and Concepcion, her mother, as
agent insofar as the subject contract of sale is concerned, the issue of
whether or not Concepcion was also acting in her own behalf as a cobuyer is not squarely raised in the instant petition, nor in such
assumption disputed between mother and daughter. Thus, We will not
touch this issue and no longer disturb the lower courts' ruling on this
point.
WHEREFORE, premises considered, the instant petition is hereby
DISMISSED and the appealed judgment AFFIRMED.

Despite respondents repeated demands, petitioners failed and refused

to vacate the property. Thus, respondents filed with the Regional Trial
Court (RTC) Branch 10, Legazpi City, a Complaint for Recovery of
Ownership, Possession and Damages against petitioners, docketed as
Civil Case No. 9421.1avvphi1.net
In their Answer to the complaint, petitioners claimed that on March 25,
1997, spouses Belmes received from themP73,000.00 as advance
payment for the sale of the house and lot. On April 8, 1997, petitioners
and spouses Belmes executed a "Contract to Buy and Sell" covering
the same property. The parties agreed as follows: that the total
consideration is P350,000.00; that upon the signing of the contract,
petitioners shall pay spouses BelmesP220,000.00; and that the
balance of P130,000.00 shall be paid upon the issuance of the
certificate of title in the names of petitioners. To complete the agreed
partial payment of P220,000.00 mentioned in the contract, petitioners
paid spouses Belmes P130,000.00, but the latter refused to accept the
amount. Thus, on July 7, 1997, petitioners filed with the RTC, Branch
18, Tabaco, Albay, Civil Case No. T-1914, a Complaint for Specific
Performance against spouses Belmes.
On July 14, 2000, the RTC, in Civil Case No. 9421, now before us,
rendered a Decision3 in favor of respondents, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
a) declaring the plaintiffs as the owners and entitled to the
possession of the lot in question more particularly described
in par. 2 of the complaint including the improvements
thereon;
b) ordering the defendants or anyone acting for or with them
to vacate the premises; and

SO ORDERED.
G.R. No. 156405

On July 4, 1997, Lina Belmes wrote respondents wherein she

delivered the constructive possession of the house and lot to them.
However, on July 5, 1997, before they could take actual possession of
the property, spouses Gil and Brenda Torrecampo, petitioners, and
spouses Jonathan Lozares and Jocelyn Torrecampo, entered and
occupied the premises.

February 28, 2007

SPS. GIL TORRECAMPO and BRENDA TORRECAMPO, Petitioners

vs.
DENNIS ALINDOGAN, SR. and HEIDE DE GUZMAN
ALINDOGAN, Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Review on
Certiorari1 assailing the Decision2 of the Court of Appeals dated
November 18, 2002 in CA-G.R. CV No. 68583.

c) directing the defendants and/or their agents to turn over

the possession of the property in question to the plaintiffs.
No pronouncement as to costs.
SO ORDERED.
The trial court held that the transaction between petitioners and
spouses Belmes is a mere contract to sell. Thus, the latter did not
transfer ownership of the house and lot to petitioners.
On appeal, the Court of Appeals, in its assailed Decision,4 affirmed in
toto the RTC judgment.

The facts are:

In affirming the trial courts finding that the transaction between

petitioners and spouses Belmes is a mere contract to sell, the Court of
Appeals held:

On May 24, 1997, spouses Jose and Lina Belmes executed a deed of
sale in favor of spouses Dennis and Heide Alindogan, respondents,
over Lot No. 5524-H and the house constructed thereon located in
Rawis, Legazpi City.

Thus, we shall now look into the transaction entered into by the
defendants with the Belmeses, with reference to the intention of the
parties. The Contract to Buy and Sell reads:
"That whereas, the vendor agreed to sell and the vendee agreed to
buy the above-described parcel of land, together with improvements

therein, for the sum of Three Hundred Fifty Thousand Pesos (P350,
000.00), Philippine currency, under the following terms and conditions
xxx"1awphi1.net

The argument is misplaced.

The tenor of the afore-quoted provision of the contract clearly confirms

that the transaction between the transaction between the defendants
and the Belmeses was not a contract of sale, as defined by Art. 1458
of the Civil Code. The reason for the same was clearly explained by
defendants own witness, Lourdes Narito, during her direct
examination. She testified that herein defendants themselves refused
to enter into a contract of sale and execute a deed of sale unless and
until the Belmeses will transfer the title to the property. This was the
reason why a mere contract to sell was executed. x x x (Emphasis
ours)

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

In a petition for review on certiorari under Rule 45 of the 1997 Rules of

Civil Procedure, as amended, we review only errors of law and not
errors of facts. The factual findings of the appellate court are generally
binding on this Court. This applies with greater force when both the
trial court and the Court of Appeals are in complete agreement on their
factual findings, as in this case. Here, the facts relied upon by the trial
and appellate courts are sustained by the record. There is no reason to
deviate from their findings.5
Nevertheless, in order to put rest all doubts on the matter, we hold that
the agreement between petitioners and spouses Belmes is not a
contract of sale but only a contract to sell. The distinction between a
contract of sale and a contract to sell is well-settled:
In a contract of sale, the title to the property passes to the vendee
upon the delivery of the thing sold; in a contract to sell, ownership is,
by agreement, reserved in the vendor and is not to pass to the vendee
until full payment of the purchase price. Otherwise stated, in a contract
of sale, the vendor loses ownership over the property and cannot
recover it until and unless the contract is resolved or rescinded;
whereas, in a contract to sell, title is retained by the vendor until full
payment of the price. In the latter contract, payment of the price is a
positive suspensive condition, failure of which is not a breach but an
event that prevents the obligation of the vendor to convey title from
becoming effective. (Underscoring supplied)6
Indeed, the true agreement between petitioners and spouses Belmes
is a contract to sell. Not only did the parties denominate their contract
as "Contract to Buy and Sell," but also specified therein that the
balance of the purchase price in the amount of P130,000.00 is to be
paid by petitioners upon the issuance of a certificate of title. That
spouses Belmes have in their possession the certificate of title
indicates that ownership of the subject property did not pass to
petitioners.

Petitioners invoke Article 1544 of the Civil Code which reads:

Should it be immovable property, the ownership shall belong to the

person acquiring it who in good faith first recorded it in the Registry of
Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in possession; and in the absence
thereof, to the person who presents the oldest title, provided there is
good faith. (Emphasis ours)
The above provision does not apply to the instant case considering
that the transaction between petitioners and spouses Belmes is a mere
contract to sell, not a contract of sale.
WHEREFORE, we DENY the petition and AFFIRM the assailed
Decision of the Court of Appeals dated November 18, 2002 in CA-G.R.
CV No. 68583.
Costs against petitioners.
SO ORDERED.
G.R. No. 123935

December 14, 2001

LEONCIO and ENRIQUETA, both surnamed BARRERA, petitioners,

vs.
COURT OF APPEALS and ROSENDO C.
PALABASAN, respondents.
PARDO, J.:
The Case
In this petition for certiorari,1 petitioners seek to annul the decision of
the Court of Appeals2 affirming the decision of the Regional Trial
Court,3 Makati, Branch 66, as well as its resolution4 denying
reconsideration thereof.
The Facts

In Ursal v. Court of Appeals, et al.,7 we held:

Indeed, in contracts to sell the obligation of the seller to sell becomes
demandable only upon the happening of the suspensive condition, that
is, the full payment of the purchase price by the buyer. It is only upon
the existence of the contract of sale that the seller becomes obligated
to transfer the ownership of the thing sold to the buyer. Prior to the
existence of the contract of sale, the seller is not obligated to transfer
the ownership to the buyer, even if there is a contract to sell between
them.
Petitioners further contend that when respondents bought the property
on May 24, 1997 from spouses Belmes, they knew that the same
property was previously sold to them (petitioners). Therefore, since
respondents are buyers in bad faith, ownership of the property must
pertain to petitioners who, in good faith, were first in possession.

Azalia Salome (Salome) owned a house and lot located at No. 2641
Bonifacio St., Bangkal, Makati City, covered by Transfer Certificate of
Title No. 61772. Salome mortgaged the property to Country Bankers
Insurance and Surety Company to secure a P10,000.00 loan.
On July 1, 1966, Salome sold the property to Rosendo C.
Palabasan.5 Transfer Certificate of Title No. 61772 was cancelled and
a new one, Transfer Certificate of Title No. 167387,6 was issued in the
name of Rosendo C. Palabasan and Bella S. Palabasan.
On April 19, 1989, Leoncio and Enriqueta Barrera (spouses Barrera)
filed with the Regional Trial Court, Makati City, Branch 138, a
complaint7 against Palabasan for reconveyance with damages. They
alleged that they had been in possession of the property since 1962 by
virtue of a Deed of Sale with Assumption of Mortgage which was not
notarized; that Salome executed a notarized Deed of Sale with

Assumption of Mortgage in their favor on March 31, 1966; that,

pursuant to this notarized deed, they settled Salome's obligations with
the Country Bankers Insurance and Surety Company; that they tried to
redeem the property but were not able to do so because Palabasan
had done so and the title to the property was released to Palabasan;
that in 1970, they signed a blank document which was supposed to
become Palabasan's authority to sell the land for them; that in 1975,
they were surprised to learn that the blank document which they had
signed turned out to be a contract of lease wherein they were the
lessees and Palabasan was the lessor of the property; and that
Palabasan registered the property in his name and was able to secure
Transfer Certificate of Title No. 167387.
In his answer to the complaint, Palabasan asserted that he bought the
property from Salome on June 30, 1966, after he had paid the
obligation of Salome with Country Bankers Insurance and Surety
Company; that he had been issued Transfer Certificate of Title No.
167387 in his name after he had the deed of sale registered; that the
spouses Barrera were in possession of the property as lessees of
Salome; and that a contract of lease was executed by and between the
spouses Barrera and Palabasan in 1970. Consequently, he claimed
that the spouses Barrera had no legal right to claim reconveyance of
the property in question.1wphi1.nt
On February 23, 1993, after trial, the lower court rendered a
decision8 declaring Palabasan to have validly acquired title to the
property in question. The trial court, ruling that the case is one of
double sale of an immovable, applied the second paragraph of Article
15449 of the Civil Code.
In time, the spouses Barrera appealed10 the decision to the Court of
Appeals.11
On October 25, 1995, the Court of Appeals promulgated a decision
affirming in toto the decision of the trial court. The appellate court,
however, found Article 1544 of the Civil Code inapplicable to the case
as there was no sale between the spouses Barrera and Salome
because Salome's testimony given in a previous case12 to this effect
was stricken off the record since she died prior to cross-examination;
the testimony of Cenon Mateo, the common-law husband of Salome
showed that he was not aware of the transaction entered into on March
31, 1966; and counsel for spouses Barrera admitted that the sale
transaction in 1962 did not materialize as the property was mortgaged
to Country Bankers Insurance and Surety Company.
On December 4, 1995, the spouses Barrera filed a motion for
reconsideration13 of the decision; however, on February 21, 1996, the
Court of Appeals denied the same.14

proceedings and set aside the decree of registration but only purports
to show that the person who secured the registration of the property in
controversy is not the real owner thereof.17 Fraud may be a ground for
reconveyance. For an action for reconveyance based on fraud to
prosper, the party seeking reconveyance must prove by clear and
convincing evidence his title to the property and the fact of fraud.18
It must be stressed that mere allegations of fraud are not enough.
Intentional acts to deceive and deprive another of his right, or in some
manner, injure him, must be specifically alleged and proved.19 The
burden of proof rests on petitioners; this, the petitioners failed to do.
Petitioners offered no proof that there was misrepresentation or
concealment in the registration of the deed that led to the issuance of
Transfer Certificate of Title No. 167387. With the presumption of
regularity in the performance of official functions, the claim of
petitioners that the issuance of Transfer Certificate of Title No. 167387
was tainted with fraud must fail.
As to proof of title to the property, respondent Palabasan offered the
following: Transfer Certificate of Title No. 167387,20 Tax Declaration No.
03251,21 the Deed of Absolute Sale22 dated June 30, 1966, executed
by Salome in favor of respondent Palabasan, the Contract of
Lease,23 with respondent Palabasan as the lessor and petitioner
Leoncio Barrera as the lessee, and the decision for the court of First
Instance, Pasig, Branch XIX in Civil Case No. 38608,24 finding
respondent Palabasan to be the lawful owner of the property covered
by Transfer Certificate of Title No. 167387.
On the other hand, petitioner spouses Barrera only have the Deed of
Absolute Sale with Assumption of Real Estate Mortgage25 evidencing a
transaction which occurred in 1962, a Deed of Sale with Assumption of
Mortgage26 dated March 31, 1966 and the testimonies of Cenon
Mateo27 and petitioner Leoncio Barrera.28 The spouses Barrera
attempted to offer in evidence the transcript of stenographic notes
taken of the testimony of Salome in Civil Case No.
14009.29 Respondent objected to the offer which opposition the trial
court sustained.30
We find respondent Palabasan to be the owner of the property.
The decision of the then Court of First Instance, Pasig, Branch XIX in
Civil Case No. 38608, promulgated on September 4, 198131 and
reinstated on August 10, 1990,32 finding respondent Palabasan to be
the lawful owner of the property covered by Transfer Certificate of Title
No. 167387 may not be invoked in this case since said decision had
become stale.33
Article 1144 (3) of the Civil Code provides that an action upon a
judgment must be brought within ten years from the time the right of
action accrues.

Hence, this petition.15

The Issues

On the other hand, Section 6, Rule 39, Revised Rules of Court, states:
The issues raised are: whether respondent Palabasan is the owner of
the property in question; and whether there was double sale of an
immovable property covered by Article 1544 of the Civil Code.
The Court's Ruling
The petition is without merit.
An action for reconveyance of a property is the sole remedy of a
landowner whose property has been wrongfully or erroneously
registered in another's name after one year from the date of the decree
so long as the property has not passed to an innocent purchaser for
value.16 The action does not seek to reopen the registration

"A final and executory judgment or order may be executed

on motion within five (5) years from the date of its entry. After
the lapse of such time, and before it is barred by the statute
of limitations, a judgment may be enforced by motion within
five (5) years from the date of its entry and thereafter by
action before it is barred by the statute of limitations."
The rule is that the court could issue a writ of execution by motion
within five (5) years from finality of the decision.34 A writ of execution
issued after the expiration of that period is null and void.35 There is a
need for the interested party to file an independent action for revival of
judgment. The judgment may be enforced after the lapse of this period

and before the same is barred by the statute of limitations, by

instituting an ordinary civil actions.36 "The reason is that after the lapse
of the five-year period, the judgment is reduced to a mere right of
action, which judgment must be enforced, as all other ordinary actions,
by the institution of a complaint in the regular form. Such action must
be filed within ten (10) years from the date the judgment became
final."37
The decision having become stale, "any action to enforce or revive it
has prescribed."38
This notwithstanding, the greater weight of evidence lies in favor of
respondent Palabasan's claim of ownership over the land. Surely,
Transfer Certificate of Title No. 167387 and Tax Declaration No. 03251
which respondent Palabasan offered in evidence is more convincing
than petitioners' evidence.
The certificate of title issued is an absolute and indefeasible evidence
of ownership of the property in favor of the person whose name
appears therein. It is binding and conclusive upon the whole world. 39
Anent the question of whether this case is one of double sale, suffice it
to say that there is no sufficient proof on the sale between Salome and
petitioners. There is no double sale that would warrant the application
of Article 1544 of the Civil Code.
As mentioned at the outset, the evidence petitioners adduced to prove
the sale was the notarized deed executed on March 31, 1966.
However, a perusal of the deed would show that the sale is conditioned
on the payment by the petitioners of Salome's obligation with the
Country Bankers Insurance and Surety Company under the contract of
mortgage.
Petitioners submitted no evidence to show that they complied with the
condition given. Hence, there was no consummation of the contract
which would transfer ownership of the property to the petitioners. All
that they presented was the self-serving testimony of petitioner
Leoncio Barrera40 to the effect that the obligations were paid by them.
Notable is Cenon Mateo's testimony that he has no knowledge of any
transaction entered into by Salome on March 31, 1966.41
Likewise, there is no sufficient evidence to show that the earlier
transaction in 1962 ever materialized. The testimony of Salome in Civil
Case No. 14009 confirming the existence of this transaction is
inadmissible for lack of cross-examination. Likewise, the Deed of
Absolute Sale with Assumption of Real Estate Mortgage42 not having
been notarized, its genuineness and due execution will have to be
proven. In this case, the petitioners only presented the testimony of
petitioner Leoncio Barrera and Cenon Mateo, which are, again, selfserving assertions if not corroborated by any other evidence. Notable
is the counsel of petitioners own admission that "the said transaction
however did not in any way materialize for the reason that the property,
subject of the transaction was mortgaged to Country Bankers and
Surety Company."43
The only sale that materialized in this case was the sale by Salome to
respondent Palabasan that was evidenced by a deed of absolute sale
that enabled respondent Palabasan to redeem the property from
Country Bankers Insurance and Surety Company and consequently to
secure Transfer Certificate of Title No. 167387 in his favor over the
same property.1wphi1.nt
The Fallo

WHEREFORE, the Court DENIES the petition and AFFIRMS the

decision of the Court of Appeals in CA-G.R. CV No. 40909 and its
resolution denying reconsideration.
No Costs.
SO ORDERED.
G.R. No. 119255

April 9, 2003

TOMAS K. CHUA, petitioner,

vs.
COURT OF APPEALS and ENCARNACION VALDESCHOY, respondents.
CARPIO, J.:
The Case
This is a petition for review on certiorari seeking to reverse the
decision1 of the Court of Appeals in an action for specific
performance2 filed in the Regional Trial Court3 by petitioner Tomas K.
Chua ("Chua") against respondent Encarnacion Valdes-Choy ("ValdesChoy"). Chua sought to compel Valdes-Choy to consummate the sale
of her paraphernal house and lot in Makati City. The Court of Appeals
reversed the decision4 rendered by the trial court in favor of Chua.
The Facts
Valdes-Choy advertised for sale her paraphernal house and lot
("Property") with an area of 718 square meters located at No. 40
Tampingco Street corner Hidalgo Street, San Lorenzo Village, Makati
City. The Property is covered by Transfer Certificate of Title No.
162955 ("TCT") issued by the Register of Deeds of Makati City in the
name of Valdes-Choy. Chua responded to the advertisement. After
several meetings, Chua and Valdes-Choy agreed on a purchase price
of P10,800,000.00 payable in cash.
On 30 June 1989, Valdes-Choy received from Chua a check for
P100,000.00. The receipt ("Receipt") evidencing the
transaction, signed by Valdes-Choy as seller, and Chua as buyer,
reads:

30 June 1989

RECEIPT
RECEIVED from MR. TOMAS K. CHUA PBCom Check No.
206011 in the amount of ONE HUNDRED THOUSAND
PESOS ONLY (P100,000.00) as EARNEST MONEY for the
sale of the property located at 40 Tampingco cor. Hidalgo,
San Lorenzo Village, Makati, Metro Manila (Area : 718 sq.
meters).
The balance of TEN MILLION SEVEN HUNDRED
THOUSAND (P10,700,000.00) is payable on or before
155 July 1989. Capital Gains Tax for the account of the
seller. Failure to pay balance on or before 15 July 1989
forfeits the earnest money. This provided that all papers are
in proper order.6

CONFORME:

ENCARNACION VALDES
Seller

TOMAS K. CHUA
Buyer

BALANCE DUE TO
ENCARNACION VALDEZ-CHOY

PLUS P80,000.00 for documentary stamps paid in

advance by seller

x x x.7
In the morning of 13 July 1989, Chua secured from Philippine Bank of
Commerce ("PBCom") a manager's check for P480,000.00. Strangely,
after securing the manager's check, Chua immediately gave PBCom a
verbal stop payment order claiming that this manager's check for
P480,000.00 "was lost and/or misplaced."8 On the same day, after
receipt of Chua's verbal order, PBCom Assistant VicePresident Julie
C. Pe notified in writing9 the PBCom Operations Group of Chua's stop
payment order.
In the afternoon of 13 July 1989, Chua and Valdes-Choy met with their
respective counsels to execute the necessary documents and arrange
the payments.10 Valdes-Choy as vendor and Chua as
vendee signed two Deeds of Absolute Sale ("Deeds of Sale"). The first
Deed of Sale covered the house and lot for the purchase price of
P8,000,000.00.11 The second Deed of Sale covered the furnishings,
fixtures and movable properties contained in the house for the
purchase price of P2,800,000.00.12 The parties also computed the
capital gains tax to amount to P485,000.00.
On 14 July 1989, the parties met again at the office of Valdes-Choy's
counsel. Chua handed to Valdes-Choy the PBCom manager's check
for P485,000.00 so Valdes-Choy could pay the capital gains tax as she
did not have sufficient funds to pay the tax. Valdes-Choy issued a
receipt showing that Chua had a remaining balance of P10,215,000.00
after deducting the advances made by Chua. This receipt reads:

July 14, 1989

Received from MR. TOMAS K. CHUA PBCom. Check No.

325851 in the amount of FOUR HUNDRED EIGHTY FIVE
THOUSAND PESOS ONLY (P485,000.00) as Partial
Payment for the sale of the property located at 40
Tampingco Cor. Hidalgo St., San Lorenzo Village, Makati,
Metro Manila (Area 718 sq. meters), covered by TCT No.
162955 of the Registry of Deeds of Makati, Metro Manila.
The total purchase price of the above-mentioned property is
TEN MILLION EIGHT HUNDRED THOUSAND PESOS only,
broken down as follows:

SELLING PRICE

EARNEST MONEY

PARTIAL PAYMENT

x x x.13
On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua,
deposited the P485,000.00 manager's check to her account with
Traders Royal Bank. She then purchased a Traders Royal Bank
manager's check for P480,000.00 payable to the Commissioner of
Internal Revenue for the capital gains tax. Valdes-Choy and Chua
returned to the office of Valdes-Choy's counsel and handed the
Traders Royal Bank check to the counsel who undertook to pay the
capital gains tax. It was then also that Chua showed to Valdes-Choy a
PBCom manager's check for P10,215,000.00 representing the balance
of the purchase price. Chua, however, did not give this PBCom
manager's check to Valdes-Choy because the TCT was still registered
in the name of Valdes-Choy. Chua required that the Property be
registered first in his name before he would turn over the check to
Valdes-Choy. This angered Valdes-Choy who tore up the Deeds of
Sale, claiming that what Chua required was not part of their
agreement.14
On the same day, 14 July 1989, Chua confirmed his stop payment
order by submitting to PBCom an affidavit of loss15 of the PBCom
Manager's Check for P480,000.00. PBCom Assistant Vice-President
Pe, however, testified that the manager's check was nevertheless
honored because Chua subsequently verbally advised the bank that he
was lifting the stop-payment order due to his "special arrangement"
with the bank.16
On 15 July 1989, the deadline for the payment of the balance of the
purchase price, Valdes-Choy suggested to her counsel that to break
the impasse Chua should deposit in escrow the P10,215,000.00
balance.17 Upon such deposit, Valdes-Choy was willing to cause the
issuance of a new TCT in the name of Chua even without receiving the
balance of the purchase price. Valdes-Choy believed this was the only
way she could protect herself if the certificate of title is transferred in
the name of the buyer before she is fully paid. Valdes-Choy's counsel
promised to relay her suggestion to Chua and his counsel, but nothing
came out of it.
On 17 July 1989, Chua filed a complaint for specific performance
against Valdes-Choy which the trial court dismissed on 22 November
1989. On 29 November 1989, Chua re-filed his complaint for specific
performance with damages. After trial in due course, the trial court
rendered judgment in favor of Chua, the dispositive portion of which
reads:
Applying the provisions of Article 1191 of the new Civil Code,
since this is an action for specific performance where the
plaintiff, as vendee, wants to pursue the sale, and in order
that the fears of the defendant may be allayed and still have
the sale materialize, judgment is hereby rendered:
I. 1. Ordering the defendant to deliver to the Court not later
than five (5) days from finality of this decision:

a. the owner's duplicate copy of TCT No. 162955

registered in her name;
b. the covering tax declaration and the latest tax
receipt evidencing payment of real estate taxes;
c. the two deeds of sale prepared by Atty. Mark
Bocobo on July 13, 1989, duly executed by
defendant in favor of the plaintiff, whether
notarized or not; and
2. Within five (5) days from compliance by the defendant of
the above, ordering the plaintiff to deliver to the Branch Clerk
of Court of this Court the sum of P10,295,000.00
representing the balance of the consideration (with the sum
of P80,000.00 for stamps already included);
3. Ordering the Branch Clerk of this Court or her duly
authorized representative:
a. to make representations with the BIR for the
payment of capital gains tax for the sale of the
house and lot (not to include the fixtures) and to
pay the same from the funds deposited with her;
b. to present the deed of sale executed in favor of
the plaintiff, together with the owner's duplicate
copy of TCT No. 162955, real estate tax receipt
and proof of payment of capital gains tax, to the
Makati Register of Deeds;
c. to pay the required registration fees and stamps
(if not yet advanced by the defendant) and if
needed update the real estate taxes all to be taken
from the funds deposited with her; and
d. surrender to the plaintiff the new Torrens title
over the property;

8. Ordering the defendant to surrender to the plaintiff or his

representatives the premises with the furnishings intact
within seventy-two (72) hours from receipt of the proceeds of
the sale;
9. No interest is imposed on the payment to be made by the
plaintiff because he had always been ready to pay the
balance and the premises had been used or occupied by the
defendant for the duration of this case.
II. In the event that specific performance cannot be done for
reasons or causes not attributable to the plaintiff, judgment is
hereby rendered ordering the defendant:
1. To refund to the plaintiff the earnest money in the sum of
P100,000.00, with interest at the legal rate from June 30,
1989 until fully paid;
2. To refund to the plaintiff the sum of P485,000.00 with
interest at the legal rate from July 14, 1989 until fully paid;
3. To pay to the plaintiff the sum of P700,000.00 in the
concept of moral damages and the additional sum of
P300,000.00 in the concept of exemplary damages; and
4. To pay to the plaintiff the sum of P100,000.00 as
reimbursement of attorney's fees and cost of litigation.
SO ORDERED.18
Valdes-Choy appealed to the Court of Appeals which reversed the
decision of the trial court. The Court of Appeals handed down a new
judgment, disposing as follows:
WHEREFORE, the decision appealed from is hereby
REVERSED and SET ASIDE, and another one is rendered:
(1) Dismissing Civil Case No. 89-5772;

4. Should the defendant fail or refuse to surrender the two

deeds of sale over the property and the fixtures that were
prepared by Atty. Mark Bocobo and executed by the parties,
the Branch Clerk of Court of this Court is hereby authorized
and empowered to prepare, sign and execute the said deeds
of sale for and in behalf of the defendant;
5. Ordering the defendant to pay to the plaintiff;

(2) Declaring the amount of P100,000.00,

representing earnest money as forfeited in favor of
defendant-appellant;
(3) Ordering defendant-appellant to return/refund
the amount of P485,000.00 to plaintiff-appellee
without interest;

a. the sum of P100,000.00 representing moral and

compensatory damages for the plaintiff; and

(4) Dismissing defendant-appellant's compulsory

counter-claim; and

b. the sum of P50,000.00 as reimbursement for

plaintiff's attorney's fees and cost of litigation.

(5) Ordering the plaintiff-appellee to pay the

costs.19

6. Authorizing the Branch Clerk of Court of this Court to

release to the plaintiff, to be taken from the funds said
plaintiff has deposited with the Court, the amounts covered
at paragraph 5 above;

Hence, the instant petition.

7. Ordering the release of the P10,295,000.00 to the

defendant after deducting therefrom the following amounts:

The trial court found that the transaction reached an impasse when
Valdes-Choy wanted to be first paid the full consideration before a new
TCT covering the Property is issued in the name of Chua. On the other
hand, Chua did not want to pay the consideration in full unless a new
TCT is first issued in his name. The trial court faulted Valdes-Choy for
this impasse.

a. the capital gains tax paid to the BIR;

b. the expenses incurred in the registration of the
sale, updating of real estate taxes, and transfer of
title; and
c. the amounts paid under this judgment to the
plaintiff.

The Trial Court's Ruling

The trial court held that the parties entered into a contract to sell on 30
June 1989, as evidenced by the Receipt for the P100,000.00 earnest
money. The trial court pointed out that the contract to sell was subject
to the following conditions: (1) the balance of P10,700,000.00 was
payable not later than 15 July 1989; (2) Valdes-Choy may stay in the

Property until 13 August 1989; and (3) all papers must be "in proper
order" before full payment is made.
The trial court held that Chua complied with the terms of the contract to
sell. Chua showed that he was prepared to pay Valdes-Choy the
consideration in full on 13 July 1989, two days before the deadline of
15 July 1989. Chua even added P80,000.00 for the documentary
stamp tax. He purchased from PBCom two manager's checks both
payable to Valdes-Choy. The first check for P485,000.00 was to pay
the capital gains tax. The second check for P10,215,000.00 was to pay
the balance of the purchase price. The trial court was convinced that
Chua demonstrated his capacity and readiness to pay the balance on
13 July 1989 with the production of the PBCom manager's check for
P10,215,000.00.
On the other hand, the trial court found that Valdes-Choy did not
perform her correlative obligation under the contract to sell to put all
the papers in order. The trial court noted that as of 14 July 1989, the
capital gains tax had not been paid because Valdes-Choy's counsel
who was suppose to pay the tax did not do so. The trial court declared
that Valdes-Choy was in a position to deliver only the owner's duplicate
copy of the TCT, the signed Deeds of Sale, the tax declarations, and
the latest realty tax receipt. The trial court concluded that these
documents were all useless without the Bureau of Internal Revenue
receipt evidencing full payment of the capital gains tax which is a prerequisite to the issuance of a new certificate of title in Chua's name.
The trial court held that Chua's non-payment of the balance of
P10,215,000.00 on the agreed date was due to Valdes-Choy's fault.
The Court of Appeals' Ruling
In reversing the trial court, the Court of Appeals ruled that Chua's
stance to pay the full consideration only after the Property is registered
in his name was not the agreement of the parties. The Court of
Appeals noted that there is a whale of difference between the phrases
"all papers are in proper order" as written on the Receipt, and "transfer
of title" as demanded by Chua.
Contrary to the findings of the trial court, the Court of Appeals found
that all the papers were in order and that Chua had no valid reason not
to pay on the agreed date. Valdes-Choy was in a position to deliver the
owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax
declarations, and the latest realty tax receipt. The Property was also
free from all liens and encumbrances.
The Court of Appeals declared that the trial court erred in considering
Chua's showing to Valdes-Choy of the PBCom manager's check for
P10,215,000.00 as compliance with Chua's obligation to pay on or
before 15 July 1989. The Court of Appeals pointed out that Chua did
not want to give up the check unless "the property was already in his
name."20 Although Chua demonstrated his capacity to pay, this could
not be equated with actual payment which he refused to do.
The Court of Appeals did not consider the non-payment of the capital
gains tax as failure by Valdes-Choy to put the papers "in proper order."
The Court of Appeals explained that the payment of the capital gains
tax has no bearing on the validity of the Deeds of Sale. It is only after
the deeds are signed and notarized can the final computation and
payment of the capital gains tax be made.
The Issues
In his Memorandum, Chua raises the following issues:
1. WHETHER THERE IS A PERFECTED CONTRACT OF
SALE OF IMMOVABLE PROPERTY;
2. WHETHER VALDES-CHOY MAY RESCIND THE
CONTRACT IN CONTROVERSY WITHOUT OBSERVING
THE PROVISIONS OF ARTICLE 1592 OF THE NEW CIVIL
CODE;

3. WHETHER THE WITHHOLDING OF PAYMENT OF THE

BALANCE OF THE PURCHASE PRICE ON THE PART OF
CHUA (AS VENDEE) WAS JUSTIFIED BY THE
CIRCUMSTANCES OBTAINING AND MAY NOT BE
RAISED AS GROUND FOR THE AUTOMATIC
RESCISSION OF THE CONTRACT OF SALE;
4. WHETHER THERE IS LEGAL AND FACTUAL BASIS
FOR THE COURT OF APPEALS TO DECLARE THE
"EARNEST MONEY" IN THE AMOUNT OF P100,000.00 AS
FORFEITED IN FAVOR OF VALDES-CHOY;
5. WHETHER THE TRIAL COURT'S JUDGMENT IS IN
ACCORD WITH LAW, REASON AND EQUITY DESERVING
OF BEING REINSTATED AND AFFIRMED.21
The issues for our resolution are: (a) whether the transaction between
Chua and Valdes-Choy is a perfected contract of sale or a mere
contract to sell, and (b) whether Chua can compel Valdes-Choy to
cause the issuance of a new TCT in Chua's name even before
payment of the full purchase price.
The Court's Ruling
The petition is bereft of merit.
There is no dispute that Valdes-Choy is the absolute owner of the
Property which is registered in her name under TCT No.162955, free
from all liens and encumbrances. She was ready, able and willing to
deliver to Chua the owner's duplicate copy of the TCT, the signed
Deeds of Sale, the tax declarations, and the latest realty tax receipt.
There is also no dispute that on 13 July 1989, Valdes-Choy received
PBCom Check No. 206011 for P100,000.00 as earnest money from
Chua. Likewise, there is no controversy that the Receipt for the
P100,000.00 earnest money embodied the terms of the binding
contract between Valdes-Choy and Chua.
Further, there is no controversy that as embodied in the Receipt,
Valdes-Choy and Chua agreed on the following terms: (1) the balance
of P10,215,000.00 is payable on or before 15 July 1989; (2) the capital
gains tax is for the account of Valdes-Choy; and (3) if Chua fails to pay
the balance of P10,215,000.00 on or before 15 July 1989, Valdes-Choy
has the right to forfeit the earnest money, provided that "all papers are
in proper order." On 13 July 1989, Chua gave Valdes-Choy the PBCom
manager's check for P485,000.00 to pay the capital gains tax.
Both the trial and appellate courts found that the balance of
P10,215,000.00 was not actually paid to Valdes-Choy on the agreed
date. On 13 July 1989, Chua did show to Valdes-Choy the PBCom
manager's check for P10,215,000.00, with Valdes-Choy as payee.
However, Chua refused to give this check to Valdes-Choy until a new
TCT covering the Property is registered in Chua's name. Or, as the trial
court put it, until there is proof of payment of the capital gains tax which
is a pre-requisite to the issuance of a new certificate of title.
First and Second Issues: Contract of Sale or Contract to Sell?
Chua has consistently characterized his agreement with Valdez-Choy,
as evidenced by the Receipt, as a contract to sell and not a contract of
sale. This has been Chua's persistent contention in his pleadings
before the trial and appellate courts.
Chua now pleads for the first time that there is a perfected contract of
sale rather than a contract to sell. He contends that there was no
reservation in the contract of sale that Valdes-Choy shall retain title to
the Property until after the sale. There was no agreement for an
automatic rescission of the contract in case of Chua's default. He
argues for the first time that his payment of earnest money and its
acceptance by Valdes-Choy precludes the latter from rejecting the
binding effect of the contract of sale. Thus, Chua claims that ValdesChoy may not validly rescind the contract of sale without following
Article 159222 of the Civil Code which requires demand, either judicially
or by notarial act, before rescission may take place.

Chua's new theory is not well taken in light of well-settled

jurisprudence. An issue not raised in the court below cannot be raised
for the first time on appeal, as this is offensive to the basic rules of fair
play, justice and due process.23 In addition, when a party deliberately
adopts a certain theory, and the case is tried and decided on that
theory in the court below, the party will not be permitted to change his
theory on appeal. To permit him to change his theory will be unfair to
the adverse party.24
Nevertheless, in order to put to rest all doubts on the matter, we hold
that the agreement between Chua and Valdes-Choy, as evidenced by
the Receipt, is a contract to sell and not a contract of sale. The
distinction between a contract of sale and contract to sell is wellsettled:
In a contract of sale, the title to the property passes to the
vendee upon the delivery of the thing sold; in a contract to
sell, ownership is, by agreement, reserved in the vendor and
is not to pass to the vendee until full payment of the
purchase price. Otherwise stated, in a contract of sale, the
vendor loses ownership over the property and cannot
recover it until and unless the contract is resolved or
rescinded; whereas, in a contract to sell, title is retained by
the vendor until full payment of the price. In the latter
contract, payment of the price is a positive suspensive
condition, failure of which is not a breach but an event that
prevents the obligation of the vendor to convey title from
becoming effective.25
A perusal of the Receipt shows that the true agreement between the
parties was a contract to sell. Ownership over the Property was
retained by Valdes-Choy and was not to pass to Chua until full
payment of the purchase price.
First, the Receipt provides that the earnest money shall be forfeited in
case the buyer fails to pay the balance of the purchase price on or
before 15 July 1989. In such event, Valdes-Choy can sell the Property
to other interested parties. There is in effect a right reserved in favor of
Valdes-Choy not to push through with the sale upon Chua's failure to
remit the balance of the purchase price before the deadline. This is in
the nature of a stipulation reserving ownership in the seller until full
payment of the purchase price. This is also similar to giving the seller
the right to rescind unilaterally the contract the moment the buyer fails
to pay within a fixed period.26
Second, the agreement between Chua and Valdes-Choy was
embodied in a receipt rather than in a deed of sale, ownership not
having passed between them. The signing of the Deeds of Sale came
later when Valdes-Choy was under the impression that Chua was
about to pay the balance of the purchase price. The absence of a
formal deed of conveyance is a strong indication that the parties did
not intend immediate transfer of ownership, but only a transfer after full
payment of the purchase price.27
Third, Valdes-Choy retained possession of the certificate of title and all
other documents relative to the sale. When Chua refused to pay
Valdes-Choy the balance of the purchase price, Valdes-Choy also
refused to turn-over to Chua these documents.28 These are additional
proof that the agreement did not transfer to Chua, either by actual or
constructive delivery, ownership of the Property.29

It is true that Article 1482 of the Civil Code provides that "[W]henever
earnest money is given in a contract of sale, it shall be considered as
part of the price and proof of the perfection of the contract." However,
this article speaks of earnest money given in a contract of sale. In this
case, the earnest money was given in a contract to sell. The Receipt
evidencing the contract to sell stipulates that the earnest money is a
forfeitable deposit, to be forfeited if the sale is not consummated
should Chua fail to pay the balance of the purchase price. The earnest
money forms part of the consideration only if the sale is consummated
upon full payment of the purchase price. If there is a contract of sale,
Valdes-Choy should have the right to compel Chua to pay the balance
of the purchase price. Chua, however, has the right to walk away from
the transaction, with no obligation to pay the balance, although he will
forfeit the earnest money. Clearly, there is no contract of sale. The
earnest money was given in a contract to sell, and thus Article 1482,
which speaks of a contract of sale, is not applicable.
Since the agreement between Valdes-Choy and Chua is a mere
contract to sell, the full payment of the purchase price partakes of a
suspensive condition. The non-fulfillment of the condition prevents the
obligation to sell from arising and ownership is retained by the seller
without further remedies by the buyer.30 Article 1592 of the Civil Code
permits the buyer to pay, even after the expiration of the period, as
long as no demand for rescission of the contract has been made upon
him either judicially or by notarial act. However, Article 1592 does not
apply to a contract to sell where the seller reserves the ownership until
full payment of the price.31
Third and Fourth Issues: Withholding of Payment of the
Balance of the Purchase Price and Forfeiture of the Earnest Money
Chua insists that he was ready to pay the balance of the purchase
price but withheld payment because Valdes-Choy did not fulfill her
contractual obligation to put all the papers in "proper order."
Specifically, Chua claims that Valdes-Choy failed to show that the
capital gains tax had been paid after he had advanced the money for
its payment. For the same reason, he contends that Valdes-Choy may
not forfeit the earnest money even if he did not pay on time.
There is a variance of interpretation on the phrase "all papers are in
proper order" as written in the Receipt. There is no dispute though, that
as long as the papers are "in proper order," Valdes-Choy has the right
to forfeit the earnest money if Chua fails to pay the balance before the
deadline.
The trial court interpreted the phrase to include payment of the capital
gains tax, with the Bureau of Internal Revenue receipt as proof of
payment. The Court of Appeals held otherwise. We quote verbatim the
ruling of the Court of Appeals on this matter:
The trial court made much fuss in connection with the
payment of the capital gains tax, of which Section 33 of the
National Internal Revenue Code of 1977, is the governing
provision insofar as its computation is concerned. The trial
court failed to consider Section 34-(a) of the said Code, the
last sentence of which provides, that "[t]he amount realized
from the sale or other disposition of property shall be the
sum of money received plus the fair market value of the
property (other than money) received;" and that the
computation of the capital gains tax can only be finally
assessed by the Commission on Internal Revenue upon the
presentation of the Deeds of Absolute Sale themselves,
without which any premature computation of the capital
gains tax becomes of no moment. At any rate, the
computation and payment of the capital gains tax has no
bearing insofar as the validity and effectiveness of the deeds
of sale in question are concerned, because it is only after the
contracts of sale are finally executed in due form and have
been duly notarized that the final computation of the capital
gains tax can follow as a matter of course. Indeed, exhibit D,
the PBC Check No. 325851, dated July 13, 1989, in the
amount of P485,000.00, which is considered as part of the
consideration of the sale, was deposited in the name of
appellant, from which she in turn, purchased the
corresponding check in the amount representing the sum to
be paid for capital gains tax and drawn in the name of the

Commissioner of Internal Revenue, which then allayed any

fear or doubt that that amount would not be paid to the
Government after all.32
We see no reason to disturb the ruling of the Court of Appeals.
In a contract to sell, the obligation of the seller to sell becomes
demandable only upon the happening of the suspensive condition. In
this case, the suspensive condition is the full payment of the purchase
price by Chua. Such full payment gives rise to Chua's right to demand
the execution of the contract of sale.
It is only upon the existence of the contract of sale that the seller
becomes obligated to transfer the ownership of the thing sold to the
buyer. Article 1458 of the Civil Code defines a contract of sale as
follows:
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownershipof and to
deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.
x x x. (Emphasis supplied)
Prior to the existence of the contract of sale, the seller is not obligated
to transfer ownership to the buyer, even if there is a contract to sell
between them. It is also upon the existence of the contract of sale that
the buyer is obligated to pay the purchase price to the seller. Since the
transfer of ownership is in exchange for the purchase price, these
obligations must be simultaneously fulfilled at the time of the execution
of the contract of sale, in the absence of a contrary stipulation.
In a contract of sale, the obligations of the seller are specified in Article
1495 of the Civil Code, as follows:
Art. 1495. The vendor is bound to transfer the ownership of
and deliver, as well as warrant the thing which is the object
of the sale. (Emphasis supplied)
The obligation of the seller is to transfer to the buyer ownership of the
thing sold. In the sale of real property, the seller is not obligated to
transfer in the name of the buyer a new certificate of title, but rather to
transfer ownership of the real property. There is a difference between
transfer of the certificate of title in the name of the buyer, and transfer
of ownership to the buyer. The buyer may become the owner of the
real property even if the certificate of title is still registered in the name
of the seller. As between the seller and buyer, ownership is transferred
not by the issuance of a new certificate of title in the name of the buyer
but by the execution of the instrument of sale in a public document.
In a contract of sale, ownership is transferred upon delivery of the thing
sold. As the noted civil law commentator Arturo M. Tolentino explains it,
Delivery is not only a necessary condition for the enjoyment
of the thing, but is a mode of acquiring dominion and
determines the transmission of ownership, the birth of the
real right. The delivery, therefore, made in any of the forms
provided in articles 1497 to 1505 signifies that the
transmission of ownership from vendor to vendee has taken
place. The delivery of the thing constitutes an indispensable
requisite for the purpose of acquiring ownership. Our law
does not admit the doctrine of transfer of property by mere
consent; the ownership, the property right, is derived only
from delivery of the thing. x x x.33 (Emphasis supplied)
In a contract of sale of real property, delivery is effected when the
instrument of sale is executed in a public document. When the deed of
absolute sale is signed by the parties and notarized, then delivery of
the real property is deemed made by the seller to the buyer. Article
1498 of the Civil Code provides that

Art. 1498. When the sale is made through a public

instrument, the execution thereof shall be equivalent to the
delivery of the thing which is the object of the contract, if
from the deed the contrary does not appear or cannot clearly
be inferred.
x x x.
Similarly, in a contract to sell real property, once the seller is ready,
able and willing to sign the deed of absolute sale before a notary
public, the seller is in a position to transfer ownership of the real
property to the buyer. At this point, the seller complies with his
undertaking to sell the real property in accordance with the contract to
sell, and to assume all the obligations of a vendor under a contract of
sale pursuant to the relevant articles of the Civil Code. In a contract to
sell, the seller is not obligated to transfer ownership to the buyer.
Neither is the seller obligated to cause the issuance of a new certificate
of title in the name of the buyer. However, the seller must put all his
papers in proper order to the point that he is in a position to transfer
ownership of the real property to the buyer upon the signing of the
contract of sale.
In the instant case, Valdes-Choy was in a position to comply with all
her obligations as a seller under the contract to sell. First, she already
signed the Deeds of Sale in the office of her counsel in the presence of
the buyer. Second, she was prepared to turn-over the owner's
duplicate of the TCT to the buyer, along with the tax declarations and
latest realty tax receipt. Clearly, at this point Valdes-Choy was ready,
able and willing to transfer ownership of the Property to the buyer as
required by the contract to sell, and by Articles 1458 and 1495 of the
Civil Code to consummate the contract of sale.
Chua, however, refused to give to Valdes-Choy the PBCom manager's
check for the balance of the purchase price. Chua imposed the
condition that a new TCT should first be issued in his name, a
condition that is found neither in the law nor in the contract to sell as
evidenced by the Receipt. Thus, at this point Chua was not ready, able
and willing to pay the full purchase price which is his obligation under
the contract to sell. Chua was also not in a position to assume the
principal obligation of a vendee in a contract of sale, which is also to
pay the full purchase price at the agreed time. Article 1582 of the Civil
Code provides that
Art. 1582. The vendee is bound to accept delivery and to
pay the price of the thing sold at the time and place
stipulated in the contract.
x x x. (Emphasis supplied)
In this case, the contract to sell stipulated that Chua should pay the
balance of the purchase price "on or before 15 July 1989." The signed
Deeds of Sale also stipulated that the buyer shall pay the balance of
the purchase price upon signing of the deeds. Thus, the Deeds of
Sale, both signed by Chua, state as follows:
Deed of Absolute Sale covering the lot:
xxx
For and in consideration of the sum of EIGHT MILLION
PESOS (P8,000,000.00), Philippine Currency,receipt of
which in full is hereby acknowledged by the VENDOR from
the VENDEE, the VENDOR sells, transfers and conveys
unto the VENDEE, his heirs, successors and assigns, the
said parcel of land, together with the improvements existing
thereon, free from all liens and encumbrances.34 (Emphasis
supplied)
Deed of Absolute Sale covering the furnishings:
xxx

For and in consideration of the sum of TWO MILLION EIGHT

HUNDRED THOUSAND PESOS (P2,800,000.00), Philippine
Currency, receipt of which in full is hereby acknowledged by
the VENDOR from the VENDEE, the VENDOR sells,
transfers and conveys unto the VENDEE, his heirs,
successors and assigns, the said furnitures, fixtures and
other movable properties thereon, free from all liens and
encumbrances.35 (Emphasis supplied)
However, on the agreed date, Chua refused to pay the balance of the
purchase price as required by the contract to sell, the signed Deeds of
Sale, and Article 1582 of the Civil Code. Chua was therefore in default
and has only himself to blame for the rescission by Valdes-Choy of the
contract to sell.
Even if measured under existing usage or custom, Valdes-Choy had all
her papers "in proper order." Article 1376 of the Civil Code provides
that:

Chua had no reason to fear being swindled. Valdes-Choy was

prepared to turn-over to him the owner's duplicate copy of the TCT, the
signed Deeds of Sale, the tax declarations, and the latest realty tax
receipt. There was no hindrance to paying the capital gains tax as
Chua himself had advanced the money to pay the same and ValdesChoy had procured a manager's check payable to the Bureau of
Internal Revenue covering the amount. It was only a matter of time
before the capital gains tax would be paid. Chua acted precipitately in
filing the action for specific performance a mere two days after the
deadline of 15 July 1989 when there was an impasse. While this case
was dismissed on 22 November 1989, he did not waste any time in refiling the same on 29 November 1989.
Accordingly, since Chua refused to pay the consideration in full on the
agreed date, which is a suspensive condition, Chua cannot compel
Valdes-Choy to consummate the sale of the Property. Article 1181 of
the Civil Code provides that ART. 1181. In conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those already
acquired shall depend upon the happening of the event
which constitutes the condition.

Art. 1376. The usage or custom of the place shall be borne

in mind in the interpretation of the ambiguities of a contract,
and shall fill the omission of stipulations which are ordinarily
established.
Customarily, in the absence of a contrary agreement, the submission
by an individual seller to the buyer of the following papers would
complete a sale of real estate: (1) owner's duplicate copy of the
Torrens title;36 (2) signed deed of absolute sale; (3) tax declaration; and
(3) latest realty tax receipt. The buyer can retain the amount for the
capital gains tax and pay it upon authority of the seller, or the seller can
pay the tax, depending on the agreement of the parties.
The buyer has more interest in having the capital gains tax paid
immediately since this is a pre-requisite to the issuance of a new
Torrens title in his name. Nevertheless, as far as the government is
concerned, the capital gains tax remains a liability of the seller since it
is a tax on the seller's gain from the sale of the real estate.Payment of
the capital gains tax, however, is not a pre-requisite to the transfer of
ownership to the buyer. The transfer of ownership takes effect upon
the signing and notarization of the deed of absolute sale.
The recording of the sale with the proper Registry of Deeds37 and the
transfer of the certificate of title in the name of the buyer are necessary
only to bind third parties to the transfer of ownership.38 As between the
seller and the buyer, the transfer of ownership takes effect upon the
execution of a public instrument conveying the real
estate.39 Registration of the sale with the Registry of Deeds, or the
issuance of a new certificate of title, does not confer ownership on the
buyer. Such registration or issuance of a new certificate of title is not
one of the modes of acquiring ownership.40
In this case, Valdes-Choy was ready, able and willing to submit to
Chua all the papers that customarily would complete the sale, and to
pay as well the capital gains tax. On the other hand, Chua's condition
that a new TCT be first issued in his name before he pays the balance
of P10,215,000.00, representing 94.58% of the purchase price, is not
customary in a sale of real estate. Such a condition, not specified in
the contract to sell as evidenced by the Receipt, cannot be considered
part of the "omissions of stipulations which are ordinarily established"
by usage or custom.41 What is increasingly becoming customary is to
deposit in escrow the balance of the purchase price pending the
issuance of a new certificate of title in the name of the buyer. ValdesChoy suggested this solution but unfortunately, it drew no response
from Chua.

Chua acquired no right to compel Valdes-Choy to transfer ownership of

the Property to him because the suspensive condition - the full
payment of the purchase price - did not happen. There is no correlative
obligation on the part of Valdes-Choy to transfer ownership of the
Property to Chua. There is also no obligation on the part of ValdesChoy to cause the issuance of a new TCT in the name of Chua since
unless expressly stipulated, this is not one of the obligations of a
vendor.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV
No. 37652 dated 23 February 1995 is AFFIRMED in toto.
SO ORDERED.
Tagatac Vs. Jimenez
Facts:

Trinidad Tagatac bought a car for $4,500 in the US. After 7

months, she brought the car to the Philippines.

Warner Feist, who pretended to be a wealthy man, offered to

buy Trinidads car for P15,000, and Tagatac was amenable to
the idea. Hnece, a deed of sale was exceuted.

Feist paid by means of a postdated check, and the car was

delivered to Feist. However, PNB refused to honor the checks
and told her that Feist had no account in said bank.

Tagatac notified the law enforcement agencies of the estafa

committed by Feist, but the latter was not apprehended and
the car disappeared.

Meanwhile, Feist managed succeeded in having the cars

registration certificate (RC) transferred in his name. He sold
the car to Sanchez, who was able to transfer the registration
certificate to his name.

Sanchez then offered to sell the car to defendant Liberato

Jimenez, who bought the car for P10,000 after investigating in
the Motor Vehicles Office.

Tagatac discovered that the car was in California Car

Exchanges (place where Jimenez displayed the car for sale),
so she demanded from the manager for the delivery of the car,
but the latter refused.

Tagatac filed a suit for the recovery of the cars possession,

and the sheriff, pursuant to a warrant of seizure that Tagatac
obtained, seized and impounded the car, but it was delivered
back to Jimenez upon his filing of a counter-bond.

The lower court held that Jimenez had the right of ownership
and possession over the car.

Issue: WON Jimenez was a purchaser in good faith and thus entitled
to the ownership and possession of the car. YES
Held:

It must be noted that Tagactac was not unlawfully deprived of his

car
In this case, there is a valid transmission of ownership from true owner
[Tagatac] to the swindler [Feist], considering that they had a contract of
sale (note: but such sale is voidable for the fraud and deceit by Feist).

Art. 559. The possession of movable property acquired in

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

The disputable presumption that a person found in possession of a

thing taken in the doing of a recent wrongful act is the taker and the
doer of the whole act does NOT apply in this case because the car
was not stolen from Tagatac, and Jimenez came into possession of the
car two months after Feist swindled Tagatac.

If the possessor of a movable lost or of which the owner has

been unlawfully deprived has acquired it in good faith at a
public sale, the owner cannot obtain its return without
reimbursing the price paid therefor.

Jimenez was a purchaser in good faith for he was not aware of

any flaw invalidating the title from the seller of the car
In addition, when Jimenez acquired the car, he had no knowledge of
any flaw in the title of the person from whom he acquired it. It was only
later that he became fully aware that there were some questions
regarding the car, when he filed a petition to dissolve Tagatacs search
warrant which had as its subject the car in question.

The movable property in this case consists of books, which were

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

The contract between Feist and Tagactac was a voidable contract,

it can be annulled or ratified
. . . The fraud and deceit practiced by Warner L. Feist earmarks this
sale as a voidable contract (Article 1390 N.C.C.). Being a voidable
contract, it is susceptible of either ratification or annulment.
(
If the contract is ratified, the action to annul it is extinguished (Article
1392, N.C.C.) and the contract is cleansed from all its defects (Article
1396, N.C.C.); if the contract is annulled, the contracting parties are
restored to their respective situations before the contract and mutual
restitution follows as a consequence (Article 1398, N.C.C.).
Being a voidable contract, it remains valid and binding until
annulled
However, as long as no action is taken by the party entitled, either that
of annulment or of ratification, the contract of sale remains valid and
binding. When plaintiff-appellant Trinidad C. Tagatac delivered the car
to Feist by virtue of said voidable contract of sale, the title to the car
passed to Feist. Of course, the title that Feist acquired was defective
and voidable.
Nevertheless, at the time he sold the car to Felix Sanchez, his title
thereto had not been avoided and he therefore conferred a good title
on the latter, provided he bought the car in good faith, for value and
without notice of the defect in Feist's title (Article 1506, N.C.C.). There
being no proof on record that Felix Sanchez acted in bad faith, it is
safe to assume that he acted in good faith.

G.R. No. 80298

April 26, 1990

EDCA PUBLISHING & DISTRIBUTING CORP., petitioner,

vs.
THE SPOUSES LEONOR and GERARDO SANTOS, doing business
under the name and style of "SANTOS BOOKSTORE," and THE
COURT OF APPEALS, respondents.
Emiliano S. Samson, R. Balderrama-Samson, Mary Anne B. Samson
for petitioner.
Cendana Santos, Delmundo & Cendana for private respondents.

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

This case arose when on October 5, 1981, a person identifying himself

as Professor Jose Cruz placed an order by telephone with the
petitioner company for 406 books, payable on delivery. 4 EDCA
prepared the corresponding invoice and delivered the books as
ordered, for which Cruz issued a personal check covering the
purchase price of P8,995.65. 5 On October 7, 1981, Cruz sold 120 of
the books to private respondent Leonor Santos who, after verifying the
seller's ownership from the invoice he showed her, paid him
P1,700.00. 6
Meanwhile, EDCA having become suspicious over a second order
placed by Cruz even before clearing of his first check, made inquiries
with the De la Salle College where he had claimed to be a dean and
was informed that there was no such person in its employ. Further
verification revealed that Cruz had no more account or deposit with the
Philippine Amanah Bank, against which he had drawn the payment
check. 7 EDCA then went to the police, which set a trap and arrested
Cruz on October 7, 1981. Investigation disclosed his real name as
Tomas de la Pea and his sale of 120 of the books he had ordered
from EDCA to the private respondents. 8
On the night of the same date, EDCA sought the assistance of the
police in Precinct 5 at the UN Avenue, which forced their way into the
store of the private respondents and threatened Leonor Santos with
prosecution for buying stolen property. They seized the 120 books
without warrant, loading them in a van belonging to EDCA, and
thereafter turned them over to the petitioner. 9
Protesting this high-handed action, the private respondents sued for
recovery of the books after demand for their return was rejected by
EDCA. A writ of preliminary attachment was issued and the petitioner,
after initial refusal, finally surrendered the books to the private
respondents. 10 As previously stated, the petitioner was successively
rebuffed in the three courts below and now hopes to secure relief from
us.
To begin with, the Court expresses its disapproval of the arbitrary
action of the petitioner in taking the law into its own hands and forcibly
recovering the disputed books from the private respondents. The
circumstance that it did so with the assistance of the police, which
should have been the first to uphold legal and peaceful processes, has
compounded the wrong even more deplorably. Questions like the one
at bar are decided not by policemen but by judges and with the use not
of brute force but of lawful writs.
Now to the merits

It is the contention of the petitioner that the private respondents have

not established their ownership of the disputed books because they
have not even produced a receipt to prove they had bought the stock.
This is unacceptable. Precisely, the first sentence of Article 559
provides that "the possession of movable property acquired in good
faith is equivalent to a title," thus dispensing with further proof.
The argument that the private respondents did not acquire the books in
good faith has been dismissed by the lower courts, and we agree.
Leonor Santos first ascertained the ownership of the books from the
EDCA invoice showing that they had been sold to Cruz, who said he
was selling them for a discount because he was in financial need.
Private respondents are in the business of buying and selling books
and often deal with hard-up sellers who urgently have to part with their
books at reduced prices. To Leonor Santos, Cruz must have been only
one of the many such sellers she was accustomed to dealing with. It is
hardly bad faith for any one in the business of buying and selling books
to buy them at a discount and resell them for a profit.
But the real issue here is whether the petitioner has been unlawfully
deprived of the books because the check issued by the impostor in
payment therefor was dishonored.
In its extended memorandum, EDCA cites numerous cases holding
that the owner who has been unlawfully deprived of personal property
is entitled to its recovery except only where the property was
purchased at a public sale, in which event its return is subject to
reimbursement of the purchase price. The petitioner is begging the
question. It is putting the cart before the horse. Unlike in the cases
invoked, it has yet to be established in the case at bar that EDCA has
been unlawfully deprived of the books.
The petitioner argues that it was, because the impostor acquired no
title to the books that he could have validly transferred to the private
respondents. Its reason is that as the payment check bounced for lack
of funds, there was a failure of consideration that nullified the contract
of sale between it and Cruz.
The contract of sale is consensual and is perfected once agreement is
reached between the parties on the subject matter and the
consideration. According to the Civil Code:
Art. 1475. The contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the
object of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing
the form of contracts.
xxx

xxx

xxx

Art. 1477. The ownership of the thing sold shall be

transferred to the vendee upon the actual or constructive
delivery thereof.
Art. 1478. The parties may stipulate that ownership in the
thing shall not pass to the purchaser until he has fully paid
the price.
It is clear from the above provisions, particularly the last one quoted,
that ownership in the thing sold shall not pass to the buyer until full
payment of the purchase only if there is a stipulation to that effect.
Otherwise, the rule is that such ownership shall pass from the vendor
to the vendee upon the actual or constructive delivery of the thing
sold even if the purchase price has not yet been paid.

Non-payment only creates a right to demand payment or to rescind the

contract, or to criminal prosecution in the case of bouncing checks. But
absent the stipulation above noted, delivery of the thing sold will
effectively transfer ownership to the buyer who can in turn transfer it to
another.
In Asiatic Commercial Corporation v. Ang,11 the plaintiff sold some
cosmetics to Francisco Ang, who in turn sold them to Tan Sit Bin.
Asiatic not having been paid by Ang, it sued for the recovery of the
articles from Tan, who claimed he had validly bought them from Ang,
paying for the same in cash. Finding that there was no conspiracy
between Tan and Ang to deceive Asiatic the Court of Appeals declared:
Yet the defendant invoked Article 464 12 of the Civil Code
providing, among other things that "one who has been
unlawfully deprived of personal property may recover it from
any person possessing it." We do not believe that the plaintiff
has been unlawfully deprived of the cartons of Gloco Tonic
within the scope of this legal provision. It has voluntarily
parted with them pursuant to a contract of purchase and
sale. The circumstance that the price was not subsequently
paid did not render illegal a transaction which was valid and
legal at the beginning.
In Tagatac v. Jimenez,13 the plaintiff sold her car to Feist, who sold it to
Sanchez, who sold it to Jimenez. When the payment check issued to
Tagatac by Feist was dishonored, the plaintiff sued to recover the
vehicle from Jimenez on the ground that she had been unlawfully
deprived of it by reason of Feist's deception. In ruling for Jimenez, the
Court of Appeals held:
The point of inquiry is whether plaintiff-appellant Trinidad C.
Tagatac has been unlawfully deprived of her car. At first
blush, it would seem that she was unlawfully deprived
thereof, considering that she was induced to part with it by
reason of the chicanery practiced on her by Warner L. Feist.
Certainly, swindling, like robbery, is an illegal method of
deprivation of property. In a manner of speaking, plaintiffappellant was "illegally deprived" of her car, for the way by
which Warner L. Feist induced her to part with it is illegal and
is punished by law. But does this "unlawful deprivation"
come within the scope of Article 559 of the New Civil Code?
xxx

xxx

xxx

. . . The fraud and deceit practiced by Warner L. Feist

earmarks this sale as a voidable contract (Article 1390
N.C.C.). Being a voidable contract, it is susceptible of either
ratification or annulment. If the contract is ratified, the action
to annul it is extinguished (Article 1392, N.C.C.) and the
contract is cleansed from all its defects (Article 1396,
N.C.C.); if the contract is annulled, the contracting parties
are restored to their respective situations before the contract
and mutual restitution follows as a consequence (Article
1398, N.C.C.).
However, as long as no action is taken by the party entitled,
either that of annulment or of ratification, the contract of sale
remains valid and binding. When plaintiff-appellant Trinidad
C. Tagatac delivered the car to Feist by virtue of said
voidable contract of sale, the title to the car passed to Feist.
Of course, the title that Feist acquired was defective and
voidable. Nevertheless, at the time he sold the car to Felix
Sanchez, his title thereto had not been avoided and he
therefore conferred a good title on the latter, provided he
bought the car in good faith, for value and without notice of
the defect in Feist's title (Article 1506, N.C.C.). There being

no proof on record that Felix Sanchez acted in bad faith, it is

safe to assume that he acted in good faith.

Reyes, Santayana, Tayao & Picazo Law Office for petitioner.

Alampay, Alvero & Alampay Law Office for private respondent.

The above rulings are sound doctrine and reflect our own interpretation
of Article 559 as applied to the case before us.
Actual delivery of the books having been made, Cruz acquired
ownership over the books which he could then validly transfer to the
private respondents. The fact that he had not yet paid for them to
EDCA was a matter between him and EDCA and did not impair the title
acquired by the private respondents to the books.
One may well imagine the adverse consequences if the phrase
"unlawfully deprived" were to be interpreted in the manner suggested
by the petitioner. A person relying on the seller's title who buys a
movable property from him would have to surrender it to another
person claiming to be the original owner who had not yet been paid the
purchase price therefor. The buyer in the second sale would be left
holding the bag, so to speak, and would be compelled to return the
thing bought by him in good faith without even the right to
reimbursement of the amount he had paid for it.
It bears repeating that in the case before us, Leonor Santos took care
to ascertain first that the books belonged to Cruz before she agreed to
purchase them. The EDCA invoice Cruz showed her assured her that
the books had been paid for on delivery. By contrast, EDCA was less
than cautious in fact, too trusting in dealing with the impostor.
Although it had never transacted with him before, it readily delivered
the books he had ordered (by telephone) and as readily accepted his
personal check in payment. It did not verify his identity although it was
easy enough to do this. It did not wait to clear the check of this
unknown drawer. Worse, it indicated in the sales invoice issued to him,
by the printed terms thereon, that the books had been paid for on
delivery, thereby vesting ownership in the buyer.
Surely, the private respondent did not have to go beyond that invoice
to satisfy herself that the books being offered for sale by Cruz
belonged to him; yet she did. Although the title of Cruz was presumed
under Article 559 by his mere possession of the books, these being
movable property, Leonor Santos nevertheless demanded more proof
before deciding to buy them.
It would certainly be unfair now to make the private respondents bear
the prejudice sustained by EDCA as a result of its own
negligence.1wphi1 We cannot see the justice in transferring EDCA's
loss to the Santoses who had acted in good faith, and with proper care,
when they bought the books from Cruz.
While we sympathize with the petitioner for its plight, it is clear that its
remedy is not against the private respondents but against Tomas de la
Pea, who has apparently caused all this trouble. The private
respondents have themselves been unduly inconvenienced, and for
merely transacting a customary deal not really unusual in their kind of
business. It is they and not EDCA who have a right to complain.
WHEREFORE, the challenged decision is AFFIRMED and the petition
is DENIED, with costs against the petitioner.
G.R. No. L-55684 December 19, 1984
CHRYSLER PHILIPPINES CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and SAMBOK MOTORS
CO. (BACOLOD), respondents,

MELENCIO-HERRERA, J:
Subject of this Petition for Review is the Decision of the then Court of
Appeals in CA-G.R. No. 65328-R reversing the judgment of the then
Court of First Instance of Rizal, Branch XX, in Civil Case No. 16624,
and dismissing petitioner Chrysler Philippines Corporation's suit for
Damages against private respondent Sambok Motors Company
(Bacolod) arising from breach of contract.
Petitioner is a domestic corporation engaged in the assembling and
sale of motor vehicles and other automotive products. Respondent
Sambok Motors Co., a general partnership, during the period relevant
to these proceedings, was its dealer for automotive products with
offices at Bacolod (Sambok, Bacolod) and Iloilo (Sambok, Iloilo). The
two offices were run by relatives. Miguel Ng was Assistant Manager for
Sambok, Bacolod, while an elder brother, Pepito Ng, was the
President. 1
On September 7, 1972, petitioner filed with the Court of First Instance
of Rizal, Branch XX, Pasig, Rizal, a Complaint for Damages against
Allied Brokerage Corporation, Negros Navigation Company and
Sambok, Bacolod, alleging that on October 2, 1970, Sambok, Bacolod,
ordered from petitioner various automotive products worth P30,909.61,
payable in 45 days; that on November 25, 1970, petitioner delivered
said products to its forwarding agent, Allied Brokerage Corporation, for
shipment; that Allied Brokerage loaded the goods on board the M/S
Doa Florentina, a vessel owned and operated by Negros Navigation
Company, for delivery to Sambok, Bacolod; that when petitioner tried
to collect from the latter the amount of P31,037.56, representing the
price of the spare parts plus handling charges, Sambok, Bacolod,
refused to pay claiming that it had not received the merchandise; that
petitioner also demanded the return of the merchandise or their value
from Allied Brokerage and Negros Navigation, but both denied any
liability.
In its Answer, Sambok, Bacolod, denied having received from
petitioner or from any of its co-defendants, the automotive products
referred to in the Complaint, and professed no knowledge of having
ordered from petitioner said articles.
Upon a Joint Motion to Dismiss filed by petitioner and Allied Brokerage,
the Trial Court. on October 23, 1975, dismissed the case with prejudice
against Allied Brokerage for lack of cause of action, and also dismissed
the latter's counterclaim against petitioner.
On July 31, 1978, the Trial Court rendered its Decision dismissing the
Complaint against Negros Navigation for lack of cause of action, but
finding Sambok, Bacolod, liable for the claim of petitioner, thus:
PREMISES CONSIDERED, the Court renders
judgment as follows:
(1) The complaint against defendant Negros
Navigation is dismissed for lack of cause of action.
(2) Defendant Sambok Motors Co. (Bacolod) is
ordered to pay plaintiff Chrysler Philippines
Corporation:

(a) The sum of Thirty-One

Thousand Thirty Seven Pesos
and Fifty Six Centavos
(P31,037.56) with interest at
the rate of twelve percent (12)
per annum from January 1,
1971 until fully paid;
(b) The sum of Five Thousand
Pesos as and for attorney's
fees and expenses of
litigation;
(c) The costs of the suit.
(3) The counterclaim of defendant Negros
Navigation and Sambok Motors Co. (Bacolod) are
dismissed for lack of merit.
The case against Negros Navigation was dismissed for failure of
petitioner and Sambok, Bacolod, to file the necessary notices and
claims as conditions precedent for a judicial action. 2
On the other hand, the Trial Court found that the act of Sambok,
Bacolod, "in refusing to take delivery of the shipment for no justifiable
reason from Negros Navigation despite having received the Bill of
Lading constituted wrongful neglect or refusal to accept and pay for the
subject shipment, by reason of which defendant Sambok Motors may
be held liable for damages."
Sambok, Bacolod, appealed. On November 26, 1980, respondent
Appellate Court set aside the appealed judgment and dismissed
petitioner's Complaint, after finding that the latter had not performed its
part of the obligation under the contract by not delivering the goods at
Sambok, Iloilo, the place designated in the Parts Order Form (Exhibits
"A", "A-1" to "A-6"), and must, therefore, suffer the loss. In other words,
respondent Appellate Court found. that there was misdelivery.
Hence, this Petition for Review on Certiorari, with the following errors
assigned to respondent Court:
I
The Respondent Court of Appeals erred in finding
that the issue of misshipment or misdelivery of the
automotive spare parts involved in the litigation
was raised by the private respondent Sambok
Motors Co. (Bacolod) in the Trial Court.
II
The Respondent Court of Appeals erred in
refusing to apply the provisions of Section 18,
Rule 46 of the Revised Rules of Court quoted
below, that since the question of misshipment or
misdelivery was not raised by the private
respondent in the Trial Court, this issue cannot for
the first time be raised on appeal.
Section 18. Questions that
may be raised on appeal.
Whether or not the appellant
has filed a motion for new trial
in the court below, he may
include in his assignment of

errors any question of law or

fact that has been raised in
the court below and which is
within the issues framed by
the parties.
III
The Respondent Court of Appeals erred in finding
that the private respondent gave the alleged
instruction to the petitioner to ship the automotive
spare parts to Iloilo City and not to Bacolod City.
IV
The Respondent Court of Appeals erred in finding
that the defendant Negros Navigation notified the
private respondent of the arrival of the shipment at
Bacolod City.
V
The Respondent Court of Appeals erred in
reversing the decision of the Trial Court that the
act of the private respondent in refusing to take
delivery of the automotive spare parts that it
purchased from the petitioner after having been
notified of the shipment constitutes wrongful
neglect resulting in the loss of the cargo for which
it should be liable in damages to the petitioner.
To our minds, the matter of misdelivery is not the decisive factor for
relieving Sambok, Bacolod, of liability herein. While it may be that the
Parts Order Form (E exhibits "A", "A-1" to "A-6") specifically indicated
Iloilo as the destination, as testified to by Ernesto Ordonez, Parts Sales
Representative of petitioner, 3 Sambok, Bacolod, and Sambok, Iloilo,
are actually one. In fact, admittedly, the order for spare parts was
made by the President of Sambok, Pepito Ng, through its marketing
consultant. Notwithstanding, upon receipt of the Bill of Lading,
Sambok, Bacolod, initiated, but did not pursue, steps to take delivery
as they were advised by Negros Navigation that because some parts
were missing. they would just be informed as soon as the missing
parts were located. 4
It was only four years later, however, or in 1974, when a
warehouseman of Negros Navigation, Severino Aguarte, found in their
off-shore bodega, parts of the shipment.- in question, but already
deteriorated and valueless. 5
Under the circumstances, Sambok, Bacolod, cannot be faulted for not
accepting or refusing to accept the shipment from Negros Navigation
four years after shipment. The evidence is clear that Negros
Navigation could not produce the merchandise nor ascertain its
whereabouts at the time Sambok, Bacolod, was ready to take delivery.
Where the seller delivers to the buyer a quantity of goods less than he
contracted to sell, the buyer may reject them. 6
From the evidentiary record, Negros Navigation was the party
negligent in failing to deliver the complete shipment either to Sambok,
Bacolod, or to Sambok, Iloilo, but as the Trial Court found, petitioner
failed to comply with the conditions precedent to the filing of a judicial
action. Thus, in the last analysis, it is petitioner that must shoulder the
resulting loss. The general rule that before, delivery, the risk of loss is
home by the seller who is still the owner, under the principle of "res
petit domino", 7 is applicable in petitioner's case.

In sum, the judgment of respondent Appellate Court, will have to be

sustained not on the basis of misdelivery but on non-delivery since the
merchandise was never placed in the control and possession of
Sambok, Bacolod, the vendee. 8
WHEREFORE, we hereby affirm the Decision of the then Court of
Appeals in CA-G.R. No. 65328-R, without pronouncement as to costs.
SO ORDERED.
G.R. No. L-21263

April 30, 1965

LAWYERS COOPERATIVE PUBLISHING COMPANY, plaintiffappellee,

vs.
PERFECTO A. TABORA, defendant-appellant.
Paredes, Poblador, Cruz and Nazareno for plaintiff-appellee.
Tabora and Concon for defendant-appellant.
BAUTISTA ANGELO, J.:
On May 3, 1955, Perfecto A. Tabora bought from the Lawyers
Cooperative Publishing Company one complete set of American
Jurisprudence consisting of 48 volumes with 1954 pocket parts, plus
one set of American Jurisprudence, General Index, consisting of 4
volumes, for a total price of P1,675.50 which, in addition to the cost of
freight of P6.90, makes a total of P1,682.40. Tabora made a partial
payment of P300.00, leaving a balance of P1,382.40. The books were
duly delivered and receipted for by Tabora on May 15, 1955 in his law
office Ignacio Building, Naga City.
In the midnight of the same date, however, a big fire broke out in that
locality which destroyed and burned all the buildings standing on one
whole block including at the law office and library of Tabora As a result,
the books bought from the company as above stated, together with
Tabora's important documents and papers, were burned during the
conflagration. This unfortunate event was immediately reported by
Tabora to the company in a letter he sent on May 20, 1955. On May
23, the company replied and as a token of goodwill it sent to Tabora
free of charge volumes 75, 76, 77 and 78 of the Philippine Reports. As
Tabora failed to pay he monthly installments agreed upon on the
balance of the purchase price notwithstanding the long time that had
elapsed, the company demanded payment of the installments due, and
having failed, to pay the same, it commenced the present action before
the Court of First Instance of Manila for the recovery of the balance of
the obligation. Plaintiff also prayed that defendant be ordered to pay
25% of the amount due as liquidated damages, and the cost of action.
Defendant, in his answer, pleaded force majeure as a defense. He
alleged that the books bought from the plaintiff were burned during the
fire that broke out in Naga City on May 15, 1955, and since the loss
was due to force majeure he cannot be held responsible for the loss.
He prayed that the complaint be dismissed and that he be awarded
moral damages in the amount of P15,000.00.
After due hearing, the court a quo rendered judgment for the plaintiff. It
ordered the defendant to pay the sum of P1,382.40, with legal interest
thereon from the filing of the complaint, plus a sum equivalent to 25%
of the total amount due as liquidated damages, and the cost of action.
Defendant took the case to the Court of Appeals, but the same is now
before us by virtue of a certification issued by that Court that the case
involves only questions of law.

Appellant bought from appellee one set of American Jurisprudence,

including one set of general index, payable on installment plan. It was
provided in the contract that "title to and ownership of the books shall
remain with the seller until the purchase price shall have been fully
paid. Loss or damage to the books after delivery to the buyer shall be
borne by the buyer." The total price of the books, including the cost of
freight, amounts to P1,682.40. Appellant only made a down payment of
P300.00 thereby leaving a balance of P1,382.40. This is now the
import of the present action aside from liquidated damages.
Appellant now contends that since it was agreed that the title to and
the ownership of the books shall remain with the seller until the
purchase price shall have been fully paid, and the books were burned
or destroyed immediately after the transaction, appellee should be the
one to bear the loss for, as a result, the loss is always borne by the
owner. Moreover, even assuming that the ownership of the books were
transferred to the buyer after the perfection of the contract the latter
should not answer for the loss since the same occurred through force
majeure. Here, there is no evidence that appellant has contributed in
any way to the occurrence of the conflagration.1wph1.t
This contention cannot be sustained. While as a rule the loss of the
object of the contract of sale is borne by the owner or in case of force
majeure the one under obligation to deliver the object is exempt from
liability, the application of that rule does not here obtain because the
law on the contract entered into on the matter argues against it. It is
true that in the contract entered into between the parties the seller
agreed that the ownership of the books shall remain with it until the
purchase price shall have been fully paid, but such stipulation cannot
make the seller liable in case of loss not only because such was
agreed merely to secure the performance by the buyer of his obligation
but in the very contract it was expressly agreed that the "loss or
damage to the books after delivery to the buyer shall be borne by the
buyer." Any such stipulation is sanctioned by Article 1504 of our Civil
Code, which in part provides:
(1) Where delivery of the goods has been made to the buyer
or to a bailee for the buyer, in pursuance of the contract and
the ownership in the goods has been retained by the seller
merely to secure performance by the buyer of his obligations
under the contract, the goods are at the buyer's risk from the
time of such delivery.
Neither can appellant find comfort in the claim that since the books
were destroyed by fire without any fault on his part he should be
relieved from the resultant obligation under the rule that an obligor
should be held exempt from liability when the loss occurs thru a
fortuitous event. This is because this rule only holds true when the
obligation consists in the delivery of a determinate thing and there is no
stipulation holding him liable even in case of fortuitous event. Here
these qualifications are not present. The obligation does not refer to a
determinate thing, but is pecuniary in nature, and the obligor bound
himself to assume the loss after the delivery of the goods to him. In
other words, the obligor agreed to assume any risk concerning the
goods from the time of their delivery, which is an exception to the rule
provided for in Article 1262 of our Civil Code.
Appellant likewise contends that the court a quo erred in sentencing
him to pay attorney's fees. This is merely the result of a
misapprehension for what the court a quo ordered appellant to pay is
not 25% of the amount due as attorney's fees, but as liquidated
damages, which is in line with an express stipulation of the contract.
We believe, however, that the appellant should not be made to pay any
damages because his denial to pay the balance of the account is not
due to bad faith.

WHEREFORE, the decision appealed from is modified by eliminating

that portion which refers to liquidated damages. No costs.
G.R. No. L-46306

October 27, 1939

LEVY HERMANOS, INC., plaintiff-appellant,

vs.
LAZARO BLAS GERVACIO, defendant-appellee.
Felipe Caniblas for appellant.
Abreu, Lichaucco and Picazo for appellee.

MORAN, J.:
On February 9-4, 1938, plaintiff filed a complaint in the Court of First
Instance of Manila, which substantially recites the following facts:
On March 10, 1937, plaintiff Levy Hermanos, Inc., sold to defendant
Lazaro Blas Gervacio, a Packard car. Defendant, after making the
initial payment, executed a promissory note for the balance of P2,400,
payable on or before June 15, 1937, with interest at 12 per cent per
annum, to secure the payment of the note, he mortgaged the car to the
plaintiff. Defendant failed to pay the note it its maturity. Wherefore,
plaintiff foreclosed the mortgage and the car was sold at public auction,
at which plaintiff was the highest bidder for P1,800. The present action
is for the collection of the balance of P1,600 and interest.
Defendant admitted the allegations of the complaint, and with this
admission, the parties submitted the case for decision. The lower court
applied, the provisions of Act No. 4122, inserted as articles 1454-A of
the Civil Code, and rendered judgment in favor of the defendant.
Plaintiff appealed.

means. There is no such temptation where the price is to be paid in

cash, or, as in the instant case, partly in cash and partly in one term,
for, in the latter case, the partial payments are not so small as to place
purchasers off their guard and delude them to a miscalculation of their
ability to pay. The oretically, perhaps, there is no difference between
paying the price in tow installments, in so far as the size of each partial
payment is concerned; but in actual practice the difference exists, for,
according to the regular course of business, in contracts providing for
payment of the price in two installments, there is generally a provision
for initial payment. But all these considerations are immaterial, the
language of the law being so clear as to require no construction at
all.lwphi1.nt
The suggestion that the cash payment made in this case should be
considered as an installment in order to bring the contract sued upon
under the operation of the law, is completely untenable. A cash
payment cannot be considered as a payment by installment, and even
if it can be so considered, still the law does not apply, for it requires
non-payment of two or more installments in order that its provisions
may be invoked. Here, only one installment was unpaid.
Judgment is reversed, and the defendant-appellee is hereby
sentenced to pay plaintiff-appellant the sum of P1,600 with interest at
the rate of 12 per cent per annum from June 15, 1937, and the sum of
P52.08 with interest at the rate of 6 per cent from the date of the filing
of the complaint, with costs in both instances against the appellee.
[G.R. No. 61043. September 2, 1992.]
DELTA MOTOR SALES CORPORATION, Plaintiff-Appellee, v. NIU
KIM DUAN and CHAN FUE ENG, Defendants-Appellants.
Francisco C. Bonoan for Plaintiff-Appellee.
Agapito M. Joaquin, for Defendants-Appellants.

SYLLABUS
Article 1454-A of the Civil Code reads as follows:
In a contract for the sale of personal property payable in
installments shall confer upon the vendor the right to cancel
the sale or foreclose the mortgage if one has been given on
the property, without reimbursement to the purchaser of the
installments already paid, if there be an agreement to this
effect.
However, if the vendor has chosen to foreclose the mortgage
he shall have no further action against the purchaser for the
recovery of any unpaid balance owing by the same and any
agreement to the contrary shall be null and void.
In Macondray and Co. vs. De Santos (33 Off. Gaz., 2170), we held that
"in order to apply the provisions of article 1454-A of the Civil Code it
must appear that there was a contract for the sale of personal property
payable in installments and that there has been a failure to pay two or
more installments." The contract, in the instant case, while a sale of
personal property, is not, however, one on installments, but on straight
term, in which the balance, after payment of the initial sum, should be
paid in its totality at the time specified in the promissory note. The
transaction is not is not, therefore, the one contemplated in Act No.
4122 and accordingly the mortgagee is not bound by the prohibition
therein contained as to the right to the recovery of the unpaid balance.
Undoubtedly, the law is aimed at those sales where the price is
payable in several installments, for, generally, it is in these cases that
partial payments consist in relatively small amounts, constituting thus a
great temptation for improvident purchasers to buy beyond their

1. CIVIL LAW; SALES; TREATMENT OF THE INSTALLMENT

PAYMENTS AS RENTALS; STIPULATION IN A CONTRACT THAT
THE INSTALLMENTS PAID SHALL NOT BE RETURNED TO THE
VENDEE HELD VALID PROVIDED IT IS NOT UNCONSCIONABLE.
Defendants-appellants cannot complain that their downpayment of
P774.00 and installment payments of P5,655.92 were treated as
rentals even though the total amount of P6,429,92 which they had
paid, approximates one-third (1/3) of the cost of the three (3) airconditioners. A stipulation in a contract that the installments paid shall
not be returned to the vendee is valid insofar as the same may not be
unconscionable under the circumstances is sanctioned by Article 1486
of the New Civil Code. The monthly installment payable by defendantsappellants was P774.00. The P5,655.92 installment payments
correspond only to seven (7) monthly installments. Since they admit
having used the air-conditioners for twenty-two (22) months, this
means that they did not pay fifteen (15) monthly installments on the
said air-conditioners and were thus using the same FREE for said
period to the prejudice of plaintiff-appellee. Under the
circumstances, the treatment of the installment payments as rentals
cannot be said to be unconscionable.
2. REMEDIES OF THE VENDOR IN A SALE OF PERSONAL
PROPERTY PAYABLE IN INSTALLMENTS; REMEDIES ARE
ALTERNATIVE AND NOT CUMULATIVE. The vendor in a sale of
personal property payable in installments may exercise one of three
remedies, namely, (1) exact the fulfillment of the obligation, should the
vendee fail to pay; (2) cancel the sale upon the vendees failure to pay
two or more installments; (3) foreclose the chattel mortgage, if one has
been constituted on the property sold, upon the vendees failure to pay
two or more installments. The third option or remedy, however, is
subject to the limitation that the vendor cannot recover any unpaid
balance of the price and any agreement to the contrary is void (Art.
1484) The three (3) remedies are alternative and NOT cumulative. If

the creditor chooses one remedy, he cannot avail himself of the other
two.

DECISION

NOCON, J.:

"5. Should BUYER fail to pay any of the monthly installments when
due, or otherwise fail to comply with any of the terms and conditions
herein stipulated, this contract shall automatically become null and void
and all sums so paid by BUYER by reason thereof shall be considered
as rental and the SELLER shall then and there be free to take
possession thereof without liability for trespass or responsibility for any
article left in or attached to the PROPERTY:chanrob1es virtual 1aw
library
x

Elevated to this Court by the Court of Appeals, in its Resolution of May

20, 1982, on a pure question of law, 1 is the appeal therein by
defendants-appellants, Niu Kim Duan and Chan Fue Eng assailing the
trial courts decision promulgated on October 11, 1977, 2 which
ordered them to pay plaintiff-appellee, Delta Motor Sales Corporation,
the amount of P6,188.29 with a 14% per annum interest which was
due on the three (3) "Daikin" air-conditioners defendants-appellants
purchased from plaintiff-appellee under a Deed of Conditional Sale,
after the same was declared rescinded by the trial court. They were
likewise ordered to pay plaintiff-appellee P1,000.00 for and as
attorneys fees.chanrobles virtual lawlibrary
The events which led to the filing of the case in the lower court were
summarized by the Court of Appeals, as follows:jgc:chanrobles.com.ph
"On July 5, 1975, the defendants purchased from the plaintiff three (3)
units of DAIKIN air-conditioner all valued at P19,350.00 as evidenced
by the Deed of Conditional Sale, Exhibit A; that the aforesaid deed of
sale had the following terms and conditions:chanrob1es virtual 1aw
library
(a) the defendants shall pay a down payment of P774.00 and the
balance of P18,576.00 shall [be] paid by them in twenty four (24)
installments; (b) the title to the properties purchased shall remain with
the plaintiff until the purchase price thereof is fully paid; (c) if any two
installments are not paid by the defendants on their due dates, the
whole of the principal sum remaining unpaid shall become due, with
interest at the rate of 14% per annum: and (d) in case of a suit, the
defendants shall pay an amount equivalent to 25% of the remaining
unpaid obligation as damages, penalty and attorneys fees; that to
secure the payment of the balance of P18,576.00 the defendants
jointly and severally executed in favor of the plaintiff a promissory note,
Exhibit C; that the three (3) air-conditioners were delivered to and
received by the defendants as shown by the delivery receipt, Exhibit B;
that after paying the amount of P6,966.00, the defendants failed to pay
at least two (2) monthly installments; that as of January 6, 1977, the
remaining unpaid obligation of the defendants amounted to
P12,920.08; that statements of accounts were sent to the defendants
and the plaintiffs collectors personally went to the former to effect
collections but they failed to do so; that because of the unjustified
refusal of the defendants to pay their outstanding account and their
wrongful detention of the properties in question, the plaintiff tried to
recover the said properties extra-judicially but it failed to do so; that the
matter was later referred by the plaintiff to its legal counsel for legal
action; that in its verified complaint dated January 28, 1977, the plaintiff
prayed for the issuance of a writ of replevin, which the Court granted in
its Order dated February 28, 1977, after the plaintiff posted the
requisite bond; that on April 11, 1977, the plaintiff, by virtue of the
aforesaid writ, succeeded in retrieving the properties in question: that
as of October 3, 1977, the outstanding account of the defendants is
only in the amount of P6,188.29 as shown by the computation, Exhibit
F, after deducting the interests in arrears, cover charges, replevin bond
premiums, the value of the units repossessed and the like; and, that in
view of the failure of the defendants to pay their obligations, the
amount of P6,966.00 which had been paid by way of installments were
treated as rentals for the units in question for two (2) years pursuant to
the provisions of paragraph 5 of the Deed of Conditional Sale, Exhibit
A. (pp. 5-7, Record; pp. 4-6, Appellants Brief)." chanrobles law library
As above-stated, the trial court ruled in favor of Plaintiff-Appellee.
Defendants-appellants assail the Deed of Conditional Sale under
which they purchased the three (3) Daikin air-conditioners from
plaintiff-appellee as being contrary to law, morals, good custom, public
order or public policy. In particular, they point to the contracts
paragraphs 5 and 7 as iniquitous, which paragraphs state
that:jgc:chanrobles.com.ph

"7. Should SELLER rescind this contract for any of the reasons
stipulated in the preceding paragraph, the BUYER, by these presents
obligates himself to peacefully deliver the PROPERTY to the SELLER
in case of rescission, and should a suit be brought in court by the
SELLER to seek judicial declaration of rescission and take possession
of the PROPERTY, the BUYER hereby obligates himself to pay all the
expenses to be incurred by reason of such suit and in addition to pay
the sum equivalent to 25% of the remaining unpaid obligation as
damages, penalty and attorneys fees;" 3
Defendants-appellants claim that for the use of the plaintiff-appellees
three air-conditioners, from July 5, 1975 4 to April 11, 1977, 5 or for a
period of about 22 months, they, in effect, paid rentals in the amount of
P6,429,92, 6 or roughly one-third (1/3) of the entire price of said airconditioners which was P19,350.00. They also complain that for the
said period the trial court is ordering them to pay P6,188.29 as the
balance due for the three air-conditioners repossessed. Defendantsappellants were likewise ordered to pay P1,000.00 as attorneys fees
when plaintiff-appellee never sought for attorneys fees in its complaint.
They satirically pointed out that by putting "a few touches here and
there, the same units can be sold again to the next imprudent
customer" 7 by plaintiff-appellee. Thus, enforcement of the Deed of
Conditional Sale will unjustly enrich plaintiff-appellee at the expense of
defendants-appellants.chanrobles law library : red
I
Defendants-appellants cannot complain that their downpayment of
P774.00 and installment payments of P5,655.92 8 were treated as
rentals even though the total amount of P6,429,92 which they had
paid, approximates one-third (1/3) of the cost of the three (3) airconditioners. A stipulation in a contract that the installments paid shall
not be returned to the vendee is valid insofar as the same may not be
unconscionable under the circumstances is sanctioned by Article 1486
of the New Civil Code. 9 The monthly installment payable by
defendants-appellants was P774.00. 10 The P5,655.92 installment
payments correspond only to seven (7) monthly installments. Since
they admit having used the air-conditioners for twenty-two (22) months,
this means that they did not pay fifteen (15) monthly installments on
the said air-conditioners and were thus using the same FREE for said
period to the prejudice of plaintiff-appellee. Under the
circumstances, the treatment of the installment payments as rentals
cannot be said to be unconscionable.
II
The vendor in a sale of personal property payable in installments may
exercise one of three remedies, namely, (1) exact the fulfillment of the
obligation, should the vendee fail to pay; (2) cancel the sale upon the
vendees failure to pay two or more installments; (3) foreclose the
chattel mortgage, if one has been constituted on the property sold,
upon the vendees failure to pay two or more installments. The third
option or remedy, however, is subject to the limitation that the vendor
cannot recover any unpaid balance of the price and any agreement to
the contrary is void (Art. 1484) 11
The three (3) remedies are alternative and NOT cumulative. If the
creditor chooses one remedy, he cannot avail himself of the other
two.chanrobles lawlibrary : rednad
It is not disputed that the plaintiff-appellee had taken possession of the
three air-conditioners, through a writ of replevin when defendantsappellants refused to extra-judicially surrender the same. This was
done pursuant to paragraphs 5 and 7 of its Deed of Conditional Sale

when defendants-appellants failed to pay at least two (2) monthly

installments, so much so that as of January 6, 1977, the total amount
they owed plaintiff-appellee, inclusive of interest, was P12,920.08. 12
The case plaintiff-appellee filed was to seek a judicial declaration that it
had validly rescinded the Deed of Conditional Sale. 13
Clearly, plaintiff-appellee chose the second remedy of Article 1484 in
seeking enforcement of its contract with defendants-appellants. This is
shown from the fact that its Exhibit "F" which showed the computation
of the outstanding account of defendants-appellants as of October 3,
1977 took into account "the value of the units repossessed." 14 Having
done so, it is barred from exacting payment from defendantsappellants of the balance of the price of the three air-conditioning units
which it had already repossessed. It cannot have its cake and eat it
too. 15
WHEREFORE, the judgment of the trial court in Civil Case No. 25578
is hereby SET ASIDE and the complaint filed by plaintiff-appellee Delta
Motor Sales Corporation is hereby DISMISSED. No costs.
SO ORDERED.
G.R. No. L-10789

May 28, 1957

AMADOR TAJANLANGIT, ET AL., plaintiff-appellants,

vs.
SOUTHERN MOTORS, INC., ET AL., defendants-appellees.
Almacen and Almacen for appellants.
Diosdado Garingalao for appellees.
BENGZON, J.:
The case. Appellants seek to reverse the order of Hon. Pantaleon
Pelayo, Judge of the Iloilo court of first instance refusing to interfere
with the alias writ of execution issued in Civil Case No. 2942 pending
in another sala of the same court.
The facts. In April 1953 Amador Tajanlangit and his wife Angeles,
residents of Iloilo, bought, from the Southern Motors Inc. of Iloilo two
tractors and a thresher. In payment for the same, they executed the
promissory note Annex A whereby they undertook to satisfy the total
purchase price of P24,755.75 in several installments (with interest)
payable on stated dates from May 18, 1953 December 10, 1955. The
note stipulated that if default be made in the payment of interest or of
any installment, then the total principal sum still unpaid with interest
shall at once become demandable etc. The spouse failed to meet any
installment. Wherefore, they were sued, in the above Civil Case No.
2942, for the amount of the promissory note.1 The spouses defaulted,
and the court, after listening to the Southern Motors' evidence entered
Judgment for it in the total sum of P24,755.75 together with interest at
12 per cent, plus 10 per cent of the total amount due as attorney's fees
and costs of collection.
Carrying out the order of execution, the sheriff levied on the same
machineries and farm implements which had been bought by the
spouses; and later sold them at public auction to the highest bidder
which turned out to be the Southern Motors itself for the total sum of
P10,000.
As its judgment called for much more, the Southern Motors
subsequently asked and obtained, an alias writ of execution; and
pursuant thereto, the provincial sheriff levied attachment on the
Tajanlangits' rights and interests in certain real properties with a
view to another sale on execution.
To prevent such sale, the Tajanlangits instituted this action in the Iloilo
court of first instance for the purpose among others, of annulling
the alias writ of execution and all proceedings subsequent thereto.
Their two main theories: (1) They had returned the machineries and

farm implements to the Southern Motors Inc., the latter accepted them,
and had thereby settled their accounts; for that reason, said spouses
did not contest the action in Civil Case No. 2942; and (2) as the
Southern Motors Inc. had repossessed the machines purchased on
installment (and mortgaged) the buyers were thereby relieved from
further responsibility, in view of the Recto Law, now article 1484 of the
New Civil Code.
For answer, the company denied the alleged "settlement and
understanding" during the pendency of civil case No. 2949. It also
denied having repossessed the machineries, the truth being that they
were attached by the sheriff and then deposited by the latter in its shop
for safekeeping, before the sale at public auction.
The case was submitted for decision mostly upon a stipulation of facts.
Additional testimony was offered together with documentary evidence.
Everything considered the court entered judgment, saying in part;
The proceedings in Civil Case No. 2942 above referred to,
were had in the Court of First Instance (Branch 1) of the
Province and of the City of Iloilo. While this court (Branch IV)
sympathizes with plaintiffs, it cannot grant, in this action, the
relief prayed for the complaint because courts of similar
jurisdiction cannot invalidate the judgments and orders of
each other. Plaintiffs have not pursued the proper remedy.
This court is without authority and jurisdiction to declare null
and void the order directing the issuance of aliaswrit of
execution because it was made by another court of equal
rank and category (see Cabiao and Izquierdo vs. Del
Rosario and Lim, 44 Phil., 82-186).
WHEREFORE, judgement is hereby rendered dismissing the
complaint with costs against plaintiffs costs against plaintiffs.
Let the writ of preliminiary injunction issued on August 26,
1954, be lifted.
The plaintiffs reasonably brought the matter to the Court of Appeals,
but the latter forwarded the expediente, being of the opinion that the
appeal involved questions of jurisdiction and/or law
Discussion. Appellants' brief elaborately explains in the nine errors
assigned, their original two theories although their "settlement" idea
appears to be somewhat modified.
"What is being sought in this present action" say appellants "is to
prohibit and forbid the appellee Sheriff of Iloilo from attaching and
selling at public auction sale the real properties of appellants because
that is now forbidden by our law after the chattels that have been
purchased and duly mortgagee had already been repossessed by the
same vendor-mortgagee and later on sold at public auction sale and
purchased by the same at such meager sum of P10,000."
"Our law" provides,
ART. 1484. In a contract of sale of personal property the
price of which is payable in installments, the vendor may
exercise of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail
to pay;
(2) Cancel the sale, should the vendee's failure to pay cover
two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one

has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have
no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the contrary
shall be void. (New Civil Code.)
Appellants would invoke the last paragraph. But there has been no
foreclosure of the chattel mortgage nor a foreclosure sale. Therefore
the prohibition against further collection does not apply.
At any rate it is the actual sale of the mortgaged chattel in
accordance with section 14 Act No. 1508 that would bar the
creditor (who chooses to foreclose) from recovering any
unpaid balance. (Pacific Com. Co.vs. De la Rama, 72 Phil.
380.) (Manila Motor Co. vs. Fernandez, 99 Phil., 782.).
It is true that there was a chattel mortgage on the goods sold. But the
Southern Motors elected to sue on the note exclusively, i.e. to exact
fulfillment of the obligation to pay. It had a right to select among the
three remedies established in Article 1484. In choosing to sue on the
note, it was not thereby limited to the proceeds of the sale, on
execution, of the mortgaged good.2
In Southern Motors Inc. vs. Magbanua, (100 Phil., 155) a similar
situation arose in connection with the purchase on installment of a
Chevrolet truck by Magbanua. Upon the latter's default, suit on the
note was filed, and the truck levied on together with other properties of
the debtor. Contending that the seller was limited to the truck, the
debtor obtained a discharge of the other properties. This court said:
By praying that the defendant be ordered to pay the sum of
P4,690 together with the stipulated interest at 12% per
annum from 17 March 1954 until fully paid, plus 10 per cent
of the total amount due as attorney's fees and cost of
collection, the plaintiff acted to exact the fulfillment of the
obligation and not to foreclosethe mortgage on the truck. . . .
As the plaintiff has chosen to exact the fulfillment of the
defendant's obligation, the former may enforce execution of
the judgement rendered in its favor on the personal and real
properties of the latter not exempt from execution sufficient
to satisfy the judgment. That part of the judgement depriving
the plaintiff of its right to enforce judgment against the
properties of the defendant except the mortgaged truck and
discharging the writ of attachment on his other properties
is erroneous. (Emphasis ours.)
Concerning their second theory, settlement or cancellation
appellants allege that the very implements sold "were duly returned" by
them, and "were duly received and accepted by the said vendormortgagee". Therefore they argue, "upon the return of the same
chattels and due acceptance of the same by the vendor-mortgagee,
the conditional sale is ipso facto cancelled, with the right of the vendormortgagee to appropriate whatever downpayment and posterior
monthly installments made by the purchaser as it did happen in the
present case at bar."
The trouble with the argument is that it assumes that acceptance of the
goods by the Southern Motors Co, with a view to "cancellation" of the
sale. The company denies such acceptance and cancellation,
asserting the goods, were deposited in its shop when the sheriff
attached them in pursuance of the execution. Its assertion is backed
up by the sheriff, of whose credibility there is no reason to doubt.
Anyway this cancellation or settlement theory may not be heeded now,
because it would contravene the decision in Civil Case No. 2942
above-mentioned it would show the Tajanlangits owned nothing to

Southern Motors Inc. Such decision is binding upon them, unless and
until they manage to set it aside in a proper proceeding and this is
not it.
There are other points involved in the case, such as the authority of the
judge of one branch of a court of first instance to enjoin proceedings in
another branch of the same court. As stated, Judge Pelayo refused to
interfere on that ground. Appellants insist this was error on several
counts. We deem it unnecessary to deal with this procedural aspect,
inasmuch as we find that, on the merits, plaintiffs are not entitled to the
relief demanded.
Judgment. The decision dismissing the complaint, is affirmed, with
costs against appellants. So ordered.
G.R. No. 109966 May 31, 1999
ELISCO TOOL MANUFACTURING CORPORATION, petitioner,
vs.
COURT OF APPEALS, ROLANDO LANTAN, and RINA
LANTAN, respondents.

MENDOZA, J.:
This is a petition for review of the decision 1 of the Court of Appeals
which affirmed in toto the decision of the Regional Trial Court of Pasig,
Branch 51, declaring respondent spouses Rolando Lantan and Rina
Lantan owners of a 1979 model 2-door Colt Lancer car which they had
acquired under a car plan for top employees of the Elizalde group of
companies.
The facts are as follows:
Private respondent Rolando Lantan was employed at the Elisco Tool
Manufacturing Corporation as head of its cash department. On
January 9, 1980, he entered into an agreement with the company
which provided as follows: 2
That, EMPLOYER is the owner of a car Colt
Lancer 2 door, Model 1979, with Serial No. 3403
under LTC Registration Certificate No. 0526558;
That, for and in consideration of a monthly rental
of ONE THOUSAND TEN & 65/100 ONLY
(P1,010.65) Philippine Currency, EMPLOYER
desire to lease and EMPLOYEE accept in lease
the motor vehicle aforementioned for a period of
FIVE (5) years;
That, the EMPLOYEE agree as he hereby agreed
to pay the lease rental thru salary deduction from
his monthly remuneration in the amount as above
specified for a period of FIVE (5) years;
That, for the duration of the lease contract, all
expenses and costs of registration, insurance,
repair and maintenance, gasoline, oil, part
replacement inclusive of all expenses necessary
to maintain the vehicle in top condition shall be for
the account of the EMPLOYEE;

That, at the end of FIVE (5) year period or upon

payment of the 60th monthly rental, EMPLOYEE
may exercise the option to purchase the motor
vehicle from the EMPLOYER and all monthly
rentals shall be applied to the payment of the full
purchase price of the car and further, should
EMPLOYEE desire to exercise this option before
the 5-year period lapse, he may do so upon
payment of the remaining balance on the five year
rental unto the EMPLOYER, it being understood
however that the option is limited to the
EMPLOYEE;
That, upon failure of the EMPLOYEE to pay
THREE (3) accumulated monthly rentals will vest
upon the EMPLOYER the full right to lease the
vehicle to another EMPLOYEE;
That, in the event of resignation and or dismissal
from the service, the EMPLOYEE shall return the
subject motor vehicle to the EMPLOYER in its
compound at Kalawaan Sur, Pasig, Metro Manila
in good working and body condition.
On the same day, January 9, 1980, private respondent executed a
promissory note reading as follows: 3
PROMISSORY NOTE
P60,639.00
FOR VALUE RECEIVED, we promise to pay [to]
the order of ELISCO TOOL MFG. CORP.
SPECIAL PROJECT, at its office at Napindan,
Taguig, Metro Manila, Philippines, the sum of ONE
THOUSAND TEN & 65/100 PESOS (P1,010.65),
Philippine Currency, beginning January 9, 1980,
without the necessity of notice or demand in
accordance with the schedule of payment hereto
attached as an integral part hereof.
In case of default, in the payment of any
installment on the stipulated due date, we agree to
pay as liquidated damages 2% of the amount due
and unpaid for every thirty (30) days of default or
fraction thereof. Where the default covers two
successive installments, the entire unpaid balance
shall automatically become due and payable.
It is further agreed that if upon such default
attorney's services are availed of, an additional
sum equal to TWENTY (20%) percent of the total
amount due thereon, but in no case be less than
P1,000.00 shall be paid to holder(s) hereof as
attorney's fees in addition to the legal costs
provided for by law. We agree to submit to the
jurisdiction of the proper courts of Makati, Metro
Manila or the Province of Rizal, at the option of the
holder(s) waiving for this purpose any other
venue.1wphi1.nt
In case extraordinary inflation or deflation of the
currency stipulated should occur before this
obligation is paid in full, the value of the currency
at the time of the establishment of the obligation
will be the basis of payment.

Holder(s) may accept partial payment reserving

his right of recourse against each and all
endorsers who hereby waive DEMAND
PRESENTMENT and NOTICE.
Acceptance by the holder(s) of payment or any
part thereof after due date shall not be considered
as extending the time for the payment of the
aforesaid obligation or as a modification of any of
the condition hereof.
After taking possession of the car, private respondent installed
accessories therein worth P15,000.00.
In 1981, Elisco Tool ceased operations, as a result of which private
respondent Rolando Lantan was laid off. Nonetheless, as of December
4, 1984, private respondent was able to make payments for the car in
the total amount of P61,070.94.
On June 6, 1986, petitioner filed a complaint, entitled "replevin plus
sum of money," against private respondent Rolando Lantan, his wife
Rina, and two other persons, identified only as John and Susan Doe,
before the Regional Trial Court of Pasig, Metro Manila. Petitioner
alleged that private respondents failed to pay the monthly rentals
which, as of May 1986, totalled P39,054.86; that despite demands,
private respondents failed to settle their obligation thereby entitling
petitioner to the possession of the car; that petitioner was ready to post
a bond in an amount double the value of the car, which was P60,000;
and that in case private respondents could not return the car, they
should be held liable for the amount of P60,000 plus the accrued
monthly rentals thereof, with interest at the rate of 14% per annum,
until fully paid. Petitioner's complaint contained the following prayer:
WHEREFORE, plaintiffs prays that judgment be
rendered as follows:
ON THE FIRST CAUSE OF ACTION
Ordering defendant Rolando Lantan to pay the
plaintiff the sum of P39,054.86 plus legal interest
from the date of demand until the whole obligation
is fully paid;
ON THE SECOND CAUSE OF ACTION
To forthwith issue a Writ of Replevin ordering the
seizure of the motor vehicle more particularly
described in paragraph 3 of the Complaint, from
defendant Rolando Lantan and/or defendants Rina
Lantan, John Doe, Susan Doe and other person or
persons in whose possession the said motor
vehicle may be found, complete with accessories
and equipment, and direct deliver thereof to
plaintiff in accordance with law, and after due
hearing to confirm said seizure and plaintiff's
possession over the same;
ON THE ALTERNATIVE CAUSE OF ACTION
In the event that manual delivery of the subject
motor vehicle cannot be effected for any reason,
to render judgment in favor of plaintiff and against
defendant Rolando Lantan ordering the latter to
pay the sum of SIXTY THOUSAND PESOS
(P60,000.00) which is the estimated actual value
of the above-described motor vehicle, plus the

accrued monthly rentals thereof with interests at

the rate of fourteen percent (14%) per annum until
fully paid;
PRAYER COMMON TO ALL CAUSES OF
ACTION
1. Ordering the defendant Rolando Lantan to pay
the plaintiff an amount equivalent to twenty-five
percent (25%) of his outstanding obligation, for
and as attorney's fees;
2. Ordering defendants to pay the cost or
expenses of collection, repossession, bonding
fees and other incidental expenses to be proved
during the trial; and
3. Ordering defendants to pay the costs of suit.
Plaintiff also prays for such further reliefs as this
Honorable Court may deem just and equitable
under the premises.
Upon petitioner's posting a bond in the amount of P120,000, the sheriff
took possession of the car in question and after five (5) days turned it
over to petitioner. 4
In due time, private respondents filed their answer. They claimed that
the agreement on which the complaint was based had not been signed
by petitioner's representative, Jose Ma. S. del Gallego, although it had
been signed by private respondent Rolando Lantan; that their true
agreement was "to buy and sell and not lease with option to buy" the
car in question at a monthly amortization of P1,000; and that petitioner
accepted the installment payments made by them and, in January
1986, agreed that the balance of the purchase price would be paid on
or before December 31, 1986. Private respondents cited the provision
of the agreement making respondent Rolando Lantan liable for the
expenses for registration, insurance, repair and maintenance, gasoline,
oil and part replacements, inclusive of all necessary expenses, as
evidence that the transaction was one of sale. Private respondents
further alleged that, in any event, petitioner had waived its rights under
the agreement because of the following circumstances: (a) while the
parties agreed that payment was to be made through salary deduction,
petitioner accepted payments in cash or checks; (b) although they
agreed that upon the employee's resignation, the car should be
returned to the employer, private respondent Rolando Lantan was not
required to do so when he resigned in September 1982; (c) petitioner
did not lease the vehicle to another employee after private respondent
Rolando Lantan had allegedly failed to pay three monthly "rentals"; and
(d) petitioner failed to enforce the manner of payment under the
agreement by its acceptance of payments in various amounts and on
different dates.
In its reply, petitioner maintained that the contract between the parties
was one of lease with option to purchase and that the promissory note
was merely a "nominal security" for the agreement. It contended that
the mere acceptance of the amounts paid by private respondents and
for indefinite periods of time was not evidence that the parties'
agreement was one of purchase and sale. Neither was it guilty of
laches because, under the law, an action based on a written contract
can be brought within ten (10) years from the time the action accrues.
On August 31, 1987, the trial court 5 rendered its decision.

The trial court sustained private respondents' claim that the agreement
in question was one of sale and held that the latter had fully paid the
price of the car having paid the total amount of P61,070.94 aside from
installing accessories in the car worth P15,000.00. Said the trial court:
Plaintiff now comes claiming ownership of the car
in question and has succeeded in repossessing
the same by virtue of the writ of seizure issued in
this case on July 29, 1986. Not content with
recovering possession of the said car, plaintiff still
asks that defendants should pay it the sum of
P39,054.86, allegedly representing the rentals due
on the car from the time of the last payment made
by defendants to its repossession thereof. This is
indeed a classic case of one having his cake and
eating it too! Under the Recto law (Arts. 1484 &
1485, Civil Code), the vendor who repossesses
the goods sold on installments, has no right to sue
the vendee for the unpaid balance thereof.
The Court can take judicial notice of the practice
wherein executives enjoy car plans in progressive
companies. The agreement of January 9, 1980
between the parties is one such car plan. If
defendant Rolando Lantan failed to keep up with
his amortizations on the car in question, it was not
because of his own liking but rather he was
pushed to it by circumstances when his employer
folded up and sent him to the streets. That plaintiff
was giving all the chance to defendants to pay the
value of the car and acquire full ownership thereof
is shown by the delay in instituting the instant
case. . . .
The court likewise found that the amount of P61,070.94 included a 2%
penalty for late payments for which there was no stipulation in the
agreement:
. . . The agreement and defendant Rolando
Lantan's promissory note of January 9, 1980 do
not provide even for interest on the remaining
balance of the purchase price of the car. This
privilege extended by corporations to their top
executives is considered additional emolument to
them. And so the reason for the lack of provision
for interest, much less penalty charges. Therefore,
all payments made by defendant should be
applied to the principal account. Since the
principal was only P60,639.00, the defendants
have made an overpayment of P431.94 which
should be returned to defendant by plaintiff.
For this reason, it ordered petitioner to pay private
respondents the amount of P431.94 as excess payment, as
well as rentals at the rate of P1,000 a month for depriving
private respondents of the use of their car, and moral
damages for the worry, embarrassment, and mental torture
suffered by them on account of the repossession of the car.
The dispositive portion of the trial court's decision reads as follows:
WHEREFORE, judgment is hereby rendered in
favor of defendants and against plaintiff,
dismissing plaintiff's complaint; declaring
defendants the lawful owners of that Colt Lancer
2-door, Model 1979 with Serial No. 3403 under
Registration Certificate No. 0526558; ordering

plaintiff to deliver to defendants the aforesaid

motor vehicle complete with all the accessories
installed therein by defendants; should for any
reason plaintiff is unable to deliver the said car to
defendants, plaintiff is ordered to pay to
defendants the value of said car in the sum of
P60,639.00 plus P15,000.00, the value of the
accessories, plus interest of 12% on the said sums
from August 6, 1986; and sentencing plaintiff to
pay defendants the following sums:
a) P12,431.94 as actual
damages broken down as
follows:
1) P431.94 overpayment made by defendants to plaintiff; and
2) P12,000.00 rental on the car in question from August 6, 1986
to August 5, 1987, plus the sum of P1,000.00 a month beginning
August 6, 1987 until the car is returned by plaintiff to, and is
received by, defendant;
b) the sum of P20,000.00 as moral damages;
c) the sum of P5,000.00 as exemplary damages; and
d) the sum of P5,000.00 as attorney's fees.
Costs against the plaintiff.

treated as a sale on
installments, the respondent
Court of Appeals nonetheless
erred in not finding that the
parties have validly agreed
that the petitioner as seller
may [i] cancel the contract
upon the respondent's default
on three or more installments,
[ii] retake possession of the
personality, and [iii] keep the
rents already paid.
First. Petitioner does not deny that private respondent Rolando Lantan
acquired the vehicle in question under a car plan for executives of the
Elizalde group of companies. Under a typical car plan, the company
advances the purchase price of a car to be paid back by the employee
through monthly deductions from his salary. The company retains
ownership of the motor vehicle until it shall have been fully paid
for. 7 However, retention of registration of the car in the company's
name is only a form of a lien on the vehicle in the event that the
employee would abscond before he has fully paid for it. There are also
stipulations in car plan agreements to the effect that should the
employment of the employee concerned be terminated before all
installments are fully paid, the vehicle will be taken by the employer
and all installments paid shall be considered rentals per agreement. 8
This Court has long been aware of the practice of vendors of personal
property of denominating a contract of sale on installment as one of
lease to prevent the ownership of the object of the sale from passing to
the vendee until and unless the price is fully paid. As this Court noted
in Vda. de Jose v. Barrueco: 9

SO ORDERED.
Petitioner appealed to the Court of Appeals. On the other hand, private
respondents filed a motion for execution pending appeal. In its
resolution of March 9, 1989, the Court of Appeals granted private
respondents' motion and, upon the filing of a bond, in the amount of
P70,000.00, it issued a writ of execution, pursuant to which the car was
delivered to private respondents on April 16, 1989. 6
On August 26, 1992, the Court of Appeals rendered its decision,
affirming in toto the decision of the trial court. Hence, the instant
petition for review on certiorari.
Petitioner contends that the Court of Appeals erred
(a) in disregarding the
admission in the pleadings as
to what documents contain
the terms of the parties'
agreement.
(b) in holding that the interest
stipulation in respondents'
Promissory Note was not valid
and binding.
(c) in holding that respondents
had fully paid their obligations.
It further argues that
On the assumption that the
Lease Agreement with option
to buy in this case may be

Sellers desirous of malting conditional sales of

their goods, but who do not wish openly to make a
bargain in that form, for one reason or another,
have frequently resorted to the device of making
contracts in the form of leases either with options
to the buyer to purchase for a small consideration
at the end of term, provided the so-called rent has
been duly paid, or with stipulations that if the rent
throughout the term is paid, title shall thereupon
vest in the lessee. It is obvious that such
transactions are leases only in name. The socalled rent must necessarily be regarded as
payment of the price in installments since the due
payment of the agreed amount results, by the
terms of the bargain, in the transfer of title to the
lessee.
In an earlier case, Manila Gas Corporation v. Calupitan, 10 which
involved a lease agreement of a stove and a water heater, the Court
said:
. . . [W]e are of the opinion, and so hold, that when
in a so-called contract of lease of personal
property it is stipulated that the alleged lessee
shall pay a certain amount upon signing the
contract, and on or before the 5th of every month,
another specific amount, by way of rental, giving
the alleged lessee the right of option to buy the
said personal property before the expiration of the
period of lease, which is the period necessary for
the payment of the said amount at the rate of so
much a month, deducting the payments made by
way of advance and alleged monthly rentals, and
the said alleged lessee makes the advance
payment and other monthly installments, noting in

his account and in the receipts issued to him that

said payments are on account of the price of the
personal property allegedly leased, said contract is
one of sale on installment and not of lease. 11

(
1) Exact fulfillment of the obligation, should the
vendee fail to pay;
(

In U.S. Commercial v. Halili, 12 a lease agreement was declared to be

in fact a sale of personal property by installment. Said the Court: 13
. . . There can hardly be any question that the socalled contracts of lease on which the present
action is based were veritable leases of personal
property with option to purchase, and as such
come within the purview of the above article [Art.
1454-A of the old Civil Code on sale of personal
property by installment]. In fact the instruments
(exhibits "A" and "B") embodying the contracts
bear the heading or title "Lease-Sale (Lease-Sale
of Transportation and/or Mechanical Equipment)."
The contracts fix the value of the vehicles
conveyed to the lessee and expressly refer to the
remainder of said value after deduction of the
down payment made by the lessee as "the unpaid
balance of the purchase price of the leased
equipment." The contracts also provide that upon
the full value (plus stipulated interest) being paid,
the lease would terminate and title to the leased
property would be transferred to the lessee.
Indeed, as the defendant-appellant points out, the
inclusion of a clause waiving benefit of article
1454-A of the old Civil Code is conclusive proof of
the parties" understanding that they were entering
into a lease contract with option to purchase which
come within the purview of said article.
Being leases of personal property with option to
purchase as contemplated in the above article, the
contracts in question are subject to the provision
that when the lessor in such case "has chosen to
deprive the lessee of the enjoyment of such
personal property," "he shall have no further
action" against the lessee "for the recovery of any
unpaid balance" owing by the latter, "agreement to
the contrary being null and void."
It was held that in choosing to deprive the defendant of possession of
the leased vehicles, the plaintiff waived its right to bring an action to
recover unpaid rentals on the said vehicles.
In the case at bar, although the agreement provides for the payment by
private respondents of "monthly rentals," the fifth paragraph thereof
gives them the option to purchase the motor vehicle at the end of the
5th year or upon payment of the 60th monthly rental when "all monthly
rentals shall be applied to the payment of the full purchase price of the
car." It is clear that the transaction in this case is a lease in name only.
The so-called monthly rentals are in truth monthly amortizations on the
price of the car.
Second. The contract being one of sale on installment, the Court of
Appeals correctly applied to it the following provisions of the Civil
Code:
Art. 1484. In a contract of sale of personal
property the price of which is payable in
installments, the vendor may exercise any of the
following remedies:

2) Cancel the sale, should the vendee's failure to

pay cover two or more installments;
(
3) Foreclose the chattel mortgage on the thing
sold, if one has been constituted, should the
vendee's failure to pay cover two or more
installments. In this case, he shall have no further
action against the purchaser to recover any unpaid
balance of the price. Any agreement to the
contrary shall be void.
Art. 1485. The preceding article shall be applied to
contracts purporting to be leases of personal
property with option to buy, when the lessor has
deprived the lessee of the possession or
enjoyment of the thing.
The remedies provided for in Art. 1484 are alternative, not cumulative.
The exercise of one bars the exercise of the others. 14 This limitation
applies to contracts purporting to be leases of personal property with
option to buy by virtue of Art. 1485. 15 The condition that the lessor has
deprived the lessee of possession or enjoyment of the thing for the
purpose of applying Art. 1485 was fulfilled in this case by the filing by
petitioner of the complaint for replevin to recover possession of
movable property. By virtue of the writ of seizure issued by the trial
court, the deputy sheriff seized the vehicle on August 6, 1986 and
thereby deprived private respondents of its use. 16 The car was not
returned to private respondent until April 16, 1989, after two (2) years
and eight (8) months, upon issuance by the Court of Appeals of a writ
of execution. 17
Petitioner prayed that private respondents be made to pay the sum of
P39,054.86, the amount that they were supposed to pay as of May
1986, plus interest at the legal rate. 18 At the same time, it prayed for
the issuance of a writ of replevin or the delivery to it of the motor
vehicle "complete with accessories and equipment." 19 In the event the
car could not be delivered to petitioner, it was prayed that private
respondent Rolando Lantan be made to pay petitioner the amount of
P60,000.00, the "estimated actual value" of the car, "plus accrued
monthly rentals thereof with interests at the rate of fourteen percent
(14%) per annum until fully paid." 20 This prayer of course cannot be
granted, even assuming that private respondents have defaulted in the
payment of their obligation. This led the trial court to say that petitioner
wanted to eat its cake and have it too.
Notwithstanding this impossibility in petitioner's choice of remedy, this
case should be considered as one for specific performance, pursuant
to Art. 1484(1), consistent with its prayer with respect to the unpaid
installments as of May 1986. In this view, the prayer for the issuance of
a writ of replevin is only for the purpose of insuring specific
performance by private respondents.
Both the trial court and the Court of Appeals correctly ruled that private
respondents could no longer be held liable for the amounts of
P39,054.86 or P60,000.00 because private respondents had fulfilled
their part of the obligation. The agreement does not provide for the
payment of interest on unpaid monthly "rentals" or installments
because it was entered into in pursuance of a car plan adopted by the
company for the benefit of its deserving employees. As the trial court
correctly noted, the car plan was intended to give additional benefits to
executives of the Elizalde group of companies.

Petitioner contends that the promissory note provides for such interest
payment. However, as the Court of Appeals held:
The promissory note in which the 2% monthly
interest on delayed payments appears does not
form part of the contract. There is no consideration
for the promissory note. There is nothing to show
that plaintiff advanced the purchase price of the
vehicle for Lantan so as to make the latter
indebted to the former for the amount stated in the
promissory note. Thus, as stated in the complaint:
"That sometime in January, 1980, defendant
Rolando Lantan entered into an agreement with
the plaintiff for the lease of a motor vehicle
supplied by the latter, with the option to purchase
at the end of the period of lease . . . ." In other
words, plaintiff did not buy the vehicle for Rolando
Lantan, advancing the purchase price for that
purpose. There is nothing in the complaint or in
the evidence to show such arrangement.
Therefore, there was no indebtedness secured by
a promissory note to speak of. There being no
consideration for the promissory note, the same,
including the penalty clause contained thereon,
has no binding effect. 21
There is no evidence that private respondents received the amount of
P60,639.00 indicated in the promissory note as its value. What was
proven below is the fact that private respondents received from
petitioner the 2-door Colt Lancer car which was valued at P60,000 and
for which private respondent Rolando Lantan paid monthly
amortizations of P1,010.65 through salary deductions.
Indeed, as already stated, private respondents' default in paying
installments was due to the cessation of operations of Elizalde Steel
Corporation, petitioner's sister company. Petitioner's acceptance of
payments made by private respondents through cash and checks
could have been impelled solely by petitioner's inability to deduct the
amortizations from private respondent Rolando Lantan's salary which
he stopped receiving when his employment was terminated in
September 1982. Apparently, to minimize the adverse consequences
of the termination of private respondent's employment, petitioner
accepted even late payments. That petitioner accepted payments from
private respondent Rolando Lantan more than two (2) years after the
latter's employment had been terminated constitutes a waiver of
petitioner's right to collect interest upon the delayed payments. The 2%
surcharge is not provided for in the agreement. Its collection by the
company would in fact run counter to the purpose of providing "added
emoluments" to its deserving employees. Consequently, the total
amount of P61,070.94 already paid to petitioner should be considered
payment of the full purchase price of the car or the total installments
paid.
Third. Private respondents presented evidence that they "felt bad, were
worried, embarrassed and mentally tortured" by the repossession of
the car. 22 This has not been rebutted by petitioner. There is thus a
factual basis for the award of moral damages. In addition, petitioner
acted in a wanton, fraudulent, reckless and oppressive manner in filing
the instant case, hence, the award of exemplary damages is
justified. 23 The award of attorney's fees is likewise proper considering
that private respondents were compelled to incur expenses to protect
their rights. 24
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
costs against petitioner.1wphi1.nt
SO ORDERED.

G.R. No. 130347 March 3, 1999

ABELARDO VALARAO, GLORIOSA VALARAO and CARLOS
VALARAO, petitioners,
vs.
COURT OF APPEALS and MEDEN A. ARELLANO, respondents.

PANGANIBAN, J.:
Art. 1592 of the Civil Code applies only to contracts of sale, and not to
contracts to sell or conditional sales where title passes to the vendee
only upon full payment of the purchase price. Furthermore, in order to
enforce the automatic forfeiture clause in a deed of conditional sale,
the vendors have the burden of proving a contractual breach on the
part of the vendee.
The Case
Before us is a Petition for Review assailing the June 13, 1997 Decision
of the Court of Appeals (CA) 1 which reversed and set aside the
October 10, 1994 Decision 2 of the Regional Trial Court (RTC) of
Quezon City, Branch 82. The dispositive portion of the assailed CA
Decision reads:
WHEREFORE, the decision appealed from is
REVERSED and SET ASIDE, and a new one is
entered (1) ordering [herein private respondent] to
pay the amount of [o]ne [m]illion [o]ne [h]undred
[n]inety [s]even [t]housand [p]esos
(P1,197,000.00) in favor of [herein petitioners],
with legal interest thereon from December 31,
1992; (2) and directing [herein petitioners] to
execute in favor of [herein respondent], upon
receipt of the aforesaid amount, the final and
absolute deed of sale of the subject property with
all the improvements. 3
Also assailed by petitioners is the August 21, 1997 CA Resolution
denying reconsideration.
The aforementioned RTC Decision, which was reversed and set aside
by the CA, disposed as follows:
WHEREFORE, premises considered, judgment is
hereby rendered declaring the aforesaid Deed of
Conditional Sale as automatically rescinded and
all payments made thereunder by the [private
respondent] to the [petitioners] as forfeited in favor
of the latter, by way of rentals and as liquidated
damages, as well as declaring all improvements
introduced on the property subject to the said
Deed of Condition[al] Sale to belong to the
[petitioners] without any right of reimbursement.
Further, the [private respondent] and all persons
claiming right under her are hereby ordered to
vacate the said property and to turnover
possession thereof to the [petitioners]. FINALLY,
the [private respondent] is hereby ordered to pay
to the [petitioners] the amount of P50,000.00 as
attorney's fees and for expenses of litigation, as
well as to pay the costs of the suit. The Writ of
Preliminary Injunction previously issued is hereby
ordered LIFTED and DISSOLVED, and the bond
posted for its issuance held liable for the

satisfaction of the money judgment herein made in

favor of the
[petitioners]. 4
The Facts
The undisputed facts of the case as narrated by the Court of Appeals
are as follows:
On September 4, 1987, spouses Abelardo and
Gloriosa Valarao, thru their son Carlos Valarao as
their attorney-in-fact, sold to [Private Respondent]
Meden Arellano under a Deed of Conditional Sale
a parcel of land situated in the District of Diliman,
Q. C., covered by TCT No. 152879 with an area of
1,504 square meters, for the sum of THREE
MILLION TWO HUNDRED TWENTY FIVE
THOUSAND PESOS (P3,225,000.00) payable
under a schedule of payment stated therein.
In the same Deed of Conditional Sale, the [private
respondent] vendee obligated herself to encumber
by way of real estate mortgage in favor of
[petitioners] vendors her separate piece of
property with the condition that upon full payment
of the balance of P2,225.000.00, the said
mortgage shall become null and void and without
further force and effect. (Item No. 3, pp. 2-3 of
Deed of Conditional Sale).
It was further stipulated upon that should the
vendee fail to pay three (3) successive monthly
installments or anyone year-end lump sum
payment within the period stipulated, the sale shall
be considered automatically rescinded without the
necessity of judicial action and all payments made
by the vendee shall be forfeited in favor of the
vendors by way of rental for the use and
occupancy of the property and as liquidated
damages. All improvements introduced by the
vendee to the property shall belong to the vendors
without any right of reimbursement. (Par. (2), Item
No. 3, p. 3 of Deed of Conditional Sale).
[Private respondent] appellant alleged that as of
September, 1990, she had already paid the
amount of [t]wo [m]illion [t]wenty-[e]ight [t]housand
(P2,028,000.00) [p]esos, although she admitted
having failed to pay the installments due in
October and November, 1990. Petitioner, however,
[had] tried to pay the installments due [in] the said
months, including the amount due [in] the month of
December, 1990 on December 30 and 31, 1990,
but was turned down by the vendors-[petitioners]
thru their maid, Mary Gonzales, who refused to
accept the payment offered. [Private respondent]
maintains that on previous occasions, the same
maid was the one who [had] received payments
tendered by her. It appears that Mary Gonzales
refused to receive payment allegedly on orders of
her employers who were not at home.

[Private respondent] then reported the matter to,

and sought the help of, the local barangay
officials. Efforts to settle the controversy before the
barangay proved unavailing as vendors[petitioners] never appeared in the meetings
arranged by the barangay lupon.
[Private respondent] tried to get in touch with
[petitioners] over the phone and was able to talk
with [Petitioner] Gloriosa Valarao who told her that
she [would] no longer accept the payments being
offered and that [private respondent] should
instead confer with her lawyer, a certain Atty.
Tuazon. When all her efforts to make payment
were unsuccessful, [private respondent] sought
judicial action. by filing this petition for
consignation on January 4, 1991.
On the other hand, vendors-[petitioners], thru
counsel, sent [private respondent] a letter dated 4
January 1991 (Exh. "C") notifying her that they
were enforcing the provision on automatic
rescission as a consequence of which the Deed of
Conditional Sale [was deemed] null and void, and .
. . all payments made, as well as the
improvements introduced on the property, [were]
thereby forfeited. The letter also made a formal
demand on the [private respondent] to vacate the
property should she not heed the demand of
[petitioners] to sign a contract of lease for her
continued stay in the property (p. 2 of Letter dated
Jan. 4, 1991; Exh. "C").
In reply, [private respondent] sent a letter dated
January 14, 1991 (Exh. "D"), denying that she
[had] refused to pay the installments due [in] the
months of October, November and December, and
countered that it was [petitioners] who refused to
accept payment, thus constraining her to file a
petition for consignation before the Regional Trial
Court of Quezon City docketed as Civil Case No.
Q-91-7603.
Notwithstanding their knowledge of the filing by
[private respondent] of a consignation case
against them in the Regional Trial Court of Quezon
City docketed as Civil Case No. Q-91-7603,
[petitioners], through counsel, sent the [private
respondent] another letter dated January 19, 1991
(Exh. "F"), denying the allegations of her attempts
to tender payment on December 30 and 31, 1990,
and demanding that [private respondent] vacate
and turnover the property and pay a monthly
compensation for her continued occupation of the
subject property at the rate of P20,000.00, until
she shall have vacated the same.
Ruling of the Court of Appeals
In reversing the Regional Trial Court, the Court of Appeals held that the
refusal of herein petitioners "to accept the tender of payment was
unjustified." Notwithstanding the stipulation in the Deed of Conditional
Sale that "the rescission of the contract shall of right take place" upon
the failure of the vendee to pay three successive monthly installments,
the appellate court observed that a judicial demand or a notarial act
was still required pursuant to Article 1592 of the Civil Code. Thus,
petitioners' letter informing private respondent of the rescission of the

contract did not suffice, for it was not notarized. The CA also observed
that "the alleged breach of contract arising from the failure of the
vendee to pay the monthly installments for October and November
1990 within the stipulated time is rather slight and not substantial, and
to authorize the automatic rescission on account thereof will work
injustice to the other party, who has paid a total of P2,028,000.00 out
of a total obligation of P3,225,000.00. The rule is that rescission cannot
be availed of as to unjustly enrich one party."
The Issues
In their Memorandum before us, petitioners raise the following issues:

I Whether the Answer [ (a)] categorically

indicating willingness to accept the amount
already due if the [private respondent] would
update the account, [(b)] praying that "if she
fail[ed] to do so immediately, . . . the Deed of
Conditional Sale be declared rescinded, pursuant
to the second paragraph of Section 3 thereof, with
costs against the [private respondent], [(c)]
ordering the latter to vacate and turnover
possession of the premises to the [petitioners],
and to pay the latter attorney's fees in the amount
of P50,000.00 and the expenses of litigation" []
is tantamount to a judicial demand and notice of
rescission under Art. 1592 of the Civil Code.
II Whether the automatic forfeiture clause is valid
and binding between the parties.
III Whether the action for consignation may
prosper without actual deposit [in court] of the
amount due . . . [so as] to produce the effect of
payment.
The Court's Ruling
The petition 6 is devoid of merit.
Preliminary Matter:
Notarial or Judicial Demand
Citing Article 1592 of the Civil Code, the Court of Appeals ruled that the
petitioners' letter dated January 4, 1991, could not effect the rescission
of the Deed of Conditional Sale, because the said letter was not
notarized. On the other hand, petitioners argue that they made a
judicial demand, which was embodied in their Manifestation filed on
May 1, 1991, and Answer submitted on July 1,1991. 7
We believe, however, that the issue of whether the requirement of a
judicial demand or a notarial act has been fulfilled is immaterial to the
resolution of the present case. Article 1592 of the Civil Code. states:
Art. 1592. In the sale of immovable property, even
though it may have been stipulated that upon
failure to pay the price at the time agreed upon the
rescission of the contract shall of right take place,
the vendee may pay, even after the expiration of
the period, as long as no demand for rescission of
the contract has been made upon him either
judicially or by notarial act. After the demand, the
court may not grant him a new term.

It is well-settled that the above-quoted provision applies only to a

contract of sale, 8 and not to a sale on installment9 or a contract to
sell. 10 Thus, in Luzon Brokerage v. Maritime Building, 11 this Court
ruled that "Art. 1592 of the new Civil Code (Art. 1504 of the old Civil
Code) requiring demand by suit or notarial act in case the vendor of
realty wants to rescind does not apply to a contract to sell or promise
to sell, where title remains with the vendor until" full payment of the
price. The Court stresses the difference between these two types of
contract. In a contract to sell, "the title over the subject property is
transferred to the vendee only upon the full payment of the stipulated
consideration. Unlike in a contract of sale, the title does not pass to the
vendee upon the execution of the agreement or the delivery of the
thing sold." 12
In the present case, the Deed of Conditional Sale is of the same nature
as a sale on installment or a contract to sell, which is not covered by
Article 1592. The aforementioned agreement provides:
xxx xxx xxx
Should the VENDEE fail to
pay three (3) successive
monthly installments or any
one year-end lump sum
payment within the period
stipulated herein, this Deed of
Conditional Sale shall be
considered . . . automatically
rescinded without the
necessity of judicial action[,]
and all payments made by the
VENDEE shall be forfeited in
favor of the VENDORS by
way of rental for the use and
occupancy of the property and
as liquidated damages. All
improvements introduced by
the VENDEE to the property
shall belong to the VENDORS
without any right of
reimbursement. The
VENDORS and/or their
agents or representatives
shall have the right to enter
the premises of the property
and to eject the VENDEE and
all persons claiming right
under her therefrom with the
use of reasonable force if
necessary.
That upon full payment to the VENDORS of the
total consideration of P3,225,000.00, the
VENDORS shall immediately and without delay
execute in favor of the VENDEE the final and
absolute deed of sale of the property and all its
improvements.
Petitioners-vendors unmistakably reserved for themselves the title to
the property until full payment of the purchase price by the vendee.
Clearly, the agreement was not a deed of sale, but more in he nature
of a contract to sell or of a sale on installments. 13 Even after the
execution of the Deed of Conditional Sale, the Torrens Certificate of
Title remained with and in the name of the vendors. In rejecting the
application of Article 1592 to a contract to sell, the Court held in Luzon
Brokerage 14 that "the full payment of the price (through the punctual
performance of the monthly payments) was a condition precedent to
the execution of the final sale and to the transfer of the property from

[the vendor] to the [vendee]; so that there was to be no actual sale until
and unless full payment was to be no actual sale until and unless full
payment was made."
Main Issue: Enforcement of the
Automatic Forfeiture Clause
As a general rule, a contract is the law between the parties. 15 Thus,
"from the moment the contract is perfected, the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to
all consequences which, according to their nature, may be in keeping
with good faith, usage and law." 16 Also, "the stipulations of the contract
being the law between the parties, courts have no alternative but to
enforce them as they were agreed [upon] and written, there being no
law or public policy against the stipulated forfeiture of payments
already made." 17 However, it must be shown that private respondentvendee failed to perform her obligation, thereby giving petitionersvendors the right to demand the enforcement of the contract.
We concede the validity of the automatic forfeiture clause, which
deems any previous payments forfeited and the contract automatically
rescinded upon the failure of the vendee to pay three successive
monthly installments or any one yearend lump sum payment. However,
petitioners failed to prove the conditions that would warrant the
implementation of this clause.
Both the appellate and the trial courts agree on the following:
1. The Deed of Conditional Sale provided for automatic rescission in
case the vendee failed to pay three (3) successive monthly
installments or any one yearend lump sum payment within the
stipulated period therein.
2. Each monthly installment was due at the end of the month.
3. The installments for October and November 1990 were not paid.
4. The private respondent-vendee, Meden Arellano, went to the house
of the petitioners-vendors on December 30, 1990.
5. Arellano offered to pay P48,000 (total amount of installments due in
October, November, and December 1990) to Mary Gonzales, the
petitioner's maid, but the latter refused to accept it upon instruction of
petitioners.
6. Arellano returned the next day, December 31, 1990, and insisted on
paying, but again the maid refused to accept it.
7. Arellano proceeded to the barangay office around 10:00 a.m. to file
a case against petitioners for their refusal to accept the payments.
8. Four (4) days later, on January 4, 1991, private respondents filed a
Petition for Consignation.
9. Despite the said petition, the money was nevertheless not deposited
in court.
10. Negotiations between both parties went under way, culminating in
the vendee's filing a Motion to Deposit the entire balance due, which
was duly opposed by the vendor, and hence was denied by the trial
court.

From the foregoing, it is clear that petitioners were not justified in

refusing to accept the tender of payment made by private respondent
on December 30 and 31, 1990. Had they accepted it on either of said
dates, she would have paid all three monthly installments due. In other
words, there was no deliberate failure on her part to meet her
responsibility to pay. 18 The Court takes note of her willingness and
persistence to do so, and, petitioners cannot now say otherwise. The
fact is: they refused to accept her payment and thus have no reason to
demand the enforcement of the automatic forfeiture clause. They
cannot be rewarded for their own misdeed.
Because their maid had received monthly payments in the past, 19 it is
futile for petitioners to insist now that she could not have accepted the
aforementioned tender of payment, on the ground that she did not
have a special power of attorney to do so. Clearly, they are estopped
from denying that she had such authority. Under Article 1241 of the
Civil Code, payment through a third person is valid "[i]f by the creditor's
conduct, the debtor has been led to believe that the third person had
authority to receive the payment."
Failure to Consign the
Amount Due
Petitioners also maintain that the consignation was not valid because
the amount tendered was not deposited with the trial court. True, there
is no showing that she deposited the money with the proper judicial
authority which, taken together with the other requisites for a valid
consignation, 20 would have released her from her obligation to pay.
However, she does not deny her obligation and, in fact, is willing to pay
not only the three monthly installments due but also the entire residual
amount of the purchase price. Verily, she even filed a Motion to
Deposit the said entire balance with the trial court, which however
denied said motion upon opposition of the petitioners. 21
Accordingly, we agree with the Court of Appeals that it would be
inequitable to allow the forfeiture of the amount of more than two
million pesos already paid by private respondent, a sum which
constitutes two thirds of the total consideration. Because she did make
a tender of payment which was unjustifiably refused, we hold that
petitioners cannot enforce the automatic forfeiture clause of the
contract.
Application of the Maceda Law
In any event, the rescission of the contract and the forfeiture of the
payments already made could not be effected, because the case falls
squarely under Republic Act No. 6552, 22 otherwise known as the
"Maceda Law." Section 3 of said law provides:
Sec. 3. In all transactions or contracts involving
the sale or financing of real estate on installment
payments, including residential condominium
apartments but excluding industrial lots,
commercial buildings and sales to tenants under
Republic Act. Numbered Thirty-eight hundred
Forty-four as amended by Republic Act Numbered
Sixty-three hundred eighty-nine, where the buyer
has paid at least two years of installments, the
buyer is entitled to the following rights in case he
defaults in the payment of succeeding
installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period
earned by him, which is hereby fixed at the rate of

one month grace period for every year of

installment payments made: Provided, That this
right shall be exercised by the buyer only once in
every five years of the life of the contract and its
extensions, if any.
(b) If the contract is cancelled, the seller shall
refund to the buyer the cash surrender value on
the payments on the property equivalent to fifty
percent of the total payments made and, after five
years of installments, an additional five percent
every year but not to exceed ninety percent of the
total payments made: Provided, That the actual
cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice
of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of
the cash surrender value to the buyer.
Down payments, deposits or options on the
contract shall be included in the computation of
the total number of installments made.
Hence, the private respondent was entitled to a one-month grace
period for every year of installments paid, which means that she had a
total grace period of three months from December 31, 1990. Indeed, to
rule in favor of petitioner would result in patent injustice and unjust
enrichment. This tribunal is not merely a court of law, but also a court
of justice.
WHEREFORE, the Petition is DENIED and the dispositive portion of
the appealed Decision of the Court of Appeals is hereby AFFIRMED.
The CA's discussion on the need for judicial or notarial demand is
MODIFIED in accordance with this Decision. Costs against petitioners.
SO ORDERED.
G.R. No. 147695

September 13, 2007

MANUEL C. PAGTALUNAN, petitioner,

vs.
RUFINA DELA CRUZ VDA. DE MANZANO, respondent.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court of the Court of Appeals (CA) Decision promulgated on October
30, 2000 and its Resolution dated March 23, 2001 denying petitioners
motion for reconsideration. The Decision of the CA affirmed the
Decision of the Regional Trial Court (RTC) of Malolos, Bulacan, dated
June 25, 1999 dismissing the case of unlawful detainer for lack of
merit.
The facts are as follows:
On July 19, 1974, Patricio Pagtalunan (Patricio), petitioners stepfather
and predecessor-in-interest, entered into a Contract to Sell with
respondent, wife of Patricios former mechanic, Teodoro Manzano,
whereby the former agreed to sell, and the latter to buy, a house and
lot which formed half of a parcel of land, covered by Transfer
Certificate of Title (TCT) No. T-10029 (now TCT No. RT59929 [T254773]), with an area of 236 square meters. The consideration
of P17,800 was agreed to be paid in the following manner: P1,500 as

downpayment upon execution of the Contract to Sell, and the balance

to be paid in equal monthly installments of P150 on or before the last
day of each month until fully paid.
It was also stipulated in the contract that respondent could immediately
occupy the house and lot; that in case of default in the payment of any
of the installments for 90 days after its due date, the contract would be
automatically rescinded without need of judicial declaration, and that all
payments made and all improvements done on the premises by
respondent would be considered as rentals for the use and occupation
of the property or payment for damages suffered, and respondent was
obliged to peacefully vacate the premises and deliver the possession
thereof to the vendor.
Petitioner claimed that respondent paid only P12,950. She allegedly
stopped paying after December 1979 without any justification or
explanation. Moreover, in a "Kasunduan"1 dated November 18, 1979,
respondent borrowedP3,000 from Patricio payable in one year either in
one lump sum payment or by installments, failing which the balance of
the loan would be added to the principal subject of the monthly
amortizations on the land.
Lastly, petitioner asserted that when respondent ceased paying her
installments, her status of buyer was automatically transformed to that
of a lessee. Therefore, she continued to possess the property by mere
tolerance of Patricio and, subsequently, of petitioner.
On the other hand, respondent alleged that she paid her monthly
installments religiously, until sometime in 1980 when Patricio changed
his mind and offered to refund all her payments provided she would
surrender the house. She refused. Patricio then started harassing her
and began demolishing the house portion by portion. Respondent
admitted that she failed to pay some installments after December
1979, but that she resumed paying in 1980 until her balance dwindled
to P5,650. She claimed that despite several months of delay in
payment, Patricio never sued for ejectment and even accepted her late
payments.
Respondent also averred that on September 14, 1981, she and
Patricio signed an agreement (Exh. 2) whereby he consented to the
suspension of respondents monthly payments until December 1981.
However, even before the lapse of said period, Patricio resumed
demolishing respondents house, prompting her to lodge a complaint
with the Barangay Captain who advised her that she could continue
suspending payment even beyond December 31, 1981 until Patricio
returned all the materials he took from her house. This Patricio failed to
do until his death.
Respondent did not deny that she still owed Patricio P5,650, but
claimed that she did not resume paying her monthly installment
because of the unlawful acts committed by Patricio, as well as the filing
of the ejectment case against her. She denied having any knowledge
of the Kasunduan of November 18, 1979.
Patricio and his wife died on September 17, 1992 and on October 17,
1994, respectively. Petitioner became their sole successor-in-interest
pursuant to a waiver by the other heirs. On March 5, 1997, respondent
received a letter from petitioners counsel dated February 24, 1997
demanding that she vacate the premises within five days on the
ground that her possession had become unlawful. Respondent ignored
the demand. The Punong Barangayfailed to settle the dispute
amicably.
On April 8, 1997, petitioner filed a Complaint for unlawful detainer
against respondent with the Municipal Trial Court (MTC) of Guiguinto,
Bulacan praying that, after hearing, judgment be rendered ordering
respondent to immediately vacate the subject property and surrender it

to petitioner; forfeiting the amount of P12,950 in favor of petitioner as

rentals; ordering respondent to pay petitioner the amount of P3,000
under the Kasunduan and the amount of P500 per month from January
1980 until she vacates the property, and to pay petitioner attorneys
fees and the costs.
On December 22, 1998, the MTC rendered a decision in favor of
petitioner. It stated that although the Contract to Sell provides for a
rescission of the agreement upon failure of the vendee to pay any
installment, what the contract actually allows is properly termed a
resolution under Art. 1191 of the Civil Code.
The MTC held that respondents failure to pay not a few installments
caused the resolution or termination of the Contract to Sell. The last
payment made by respondent was on January 9, 1980 (Exh. 71).
Thereafter, respondents right of possession ipso facto ceased to be a
legal right, and became possession by mere tolerance of Patricio and
his successors-in-interest. Said tolerance ceased upon demand on
respondent to vacate the property.
The dispositive portion of the MTC Decision reads:
Wherefore, all the foregoing considered, judgment is hereby
rendered, ordering the defendant:
a. to vacate the property covered by Transfer
Certificate of Title No. T-10029 of the Register of
Deeds of Bulacan (now TCT No. RT-59929 of the
Register of Deeds of Bulacan), and to surrender
possession thereof to the plaintiff;

In a Decision promulgated on October 30, 2000, the CA denied the

petition and affirmed the Decision of the RTC. The dispositive portion
of the Decision reads:
WHEREFORE, the petition for review on certiorari is Denied.
The assailed Decision of the Regional Trial Court of Malolos,
Bulacan dated 25 June 1999 and its Order dated 10 August
1999 are hereby AFFIRMED.
SO ORDERED. 4
The CA found that the parties, as well as the MTC and RTC failed to
advert to and to apply Republic Act (R.A.) No. 6552, more commonly
referred to as the Maceda Law, which is a special law enacted in 1972
to protect buyers of real estate on installment payments against
onerous and oppressive conditions.
The CA held that the Contract to Sell was not validly cancelled or
rescinded under Sec. 3 (b) of R.A. No. 6552, and recognized
respondents right to continue occupying unmolested the property
subject of the contract to sell.
The CA denied petitioners motion for reconsideration in a Resolution
dated March 23, 2001.
Hence, this petition for review on certiorari.
Petitioner contends that:

b. to pay the plaintiff the amount of P113,500

representing rentals from January 1980 to the
present;

A. Respondent Dela Cruz must bear the consequences of

her deliberate withholding of, and refusal to pay, the monthly
payment. The Court of Appeals erred in allowing Dela Cruz
who acted in bad faith from benefiting under the Maceda
Law.

c. to pay the plaintiff such amount of rentals,

at P500/month, that may become due after the
date of judgment, until she finally vacates the
subject property;

B. The Court of Appeals erred in resolving the issue on the

applicability of the Maceda Law, which issue was not raised
in the proceedings a quo.

d. to pay to the plaintiff the amount of P25,000 as

attorneys fees.
SO ORDERED.2
On appeal, the RTC of Malolos, Bulacan, in a Decision dated June 25,
1999, reversed the decision of the MTC and dismissed the case for
lack of merit. According to the RTC, the agreement could not be
automatically rescinded since there was delivery to the buyer. A judicial
determination of rescission must be secured by petitioner as a
condition precedent to convert the possession de facto of respondent
from lawful to unlawful.
The dispositive portion of the RTC Decision states:
WHEREFORE, judgment is hereby rendered reversing the
decision of the Municipal Trial Court of Guiguinto, Bulacan
and the ejectment case instead be dismissed for lack of
merit.3
The motion for reconsideration and motion for execution filed by
petitioner were denied by the RTC for lack of merit in an Order dated
August 10, 1999.
Thereafter, petitioner filed a petition for review with the CA.

C. Assuming arguendo that the RTC was correct in ruling

that the MTC has no jurisdiction over a rescission case, the
Court of Appeals erred in not remanding the case to the RTC
for trial.5
Petitioner submits that the Maceda Law supports and recognizes the
right of vendors of real estate to cancel the sale outside of court,
without need for a judicial declaration of rescission, citing Luzon
Brokerage Co., Inc., v. Maritime Building Co., Inc.6
Petitioner contends that respondent also had more than the grace
periods provided under the Maceda Law within which to pay. Under
Sec. 37 of the said law, a buyer who has paid at least two years of
installments has a grace period of one month for every year of
installment paid. Based on the amount of P12,950 which respondent
had already paid, she is entitled to a grace period of six months within
which to pay her unpaid installments after December, 1979.
Respondent was given more than six months from January 1980 within
which to settle her unpaid installments, but she failed to do so.
Petitioners demand to vacate was sent to respondent in February
1997.
There is nothing in the Maceda Law, petitioner asserts, which gives the
buyer a right to pay arrearages after the grace periods have lapsed, in
the event of an invalid demand for rescission. The Maceda Law only
provides that actual cancellation shall take place after 30 days from

receipt of the notice of cancellation or demand for rescission and upon

full payment of the cash surrender value to the buyer.
Petitioner contends that his demand letter dated February 24, 1997
should be considered the notice of cancellation since the demand letter
informed respondent that she had "long ceased to have any right to
possess the premises in question due to [her] failure to pay without
justifiable cause." In support of his contention, he citedLayug v.
Intermediate Appellate Court8 which held that "the additional formality
of a demand on [the sellers] part for rescission by notarial act would
appear, in the premises, to be merely circuitous and consequently
superfluous." He stated that in Layug, the seller already made a written
demand upon the buyer.
In addition, petitioner asserts that whatever cash surrender value
respondent is entitled to have been applied and must be applied to
rentals for her use of the house and lot after December, 1979 or after
she stopped payment of her installments.
Petitioner argues that assuming Patricio accepted respondents
delayed installments in 1981, such act cannot prevent the cancellation
of the Contract to Sell. Installments after 1981 were still unpaid and the
applicable grace periods under the Maceda Law on the unpaid
installments have long lapsed. Respondent cannot be allowed to hide
behind the Maceda Law. She acted with bad faith and must bear the
consequences of her deliberate withholding of and refusal to make the
monthly payments.
Petitioner also contends that the applicability of the Maceda Law was
never raised in the proceedings below; hence, it should not have been
applied by the CA in resolving the case.

percent every year but not to exceed ninety percent of the

total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty
days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the
cash surrender value to the buyer.9
R.A. No. 6552, otherwise known as the "Realty Installment Buyer
Protection Act," recognizes in conditional sales of all kinds of real
estate (industrial, commercial, residential) the right of the seller to
cancel the contract upon non-payment of an installment by the buyer,
which is simply an event that prevents the obligation of the vendor to
convey title from acquiring binding force.10 The Court agrees with
petitioner that the cancellation of the Contract to Sell may be done
outside the court particularly when the buyer agrees to such
cancellation.
However, the cancellation of the contract by the seller must be in
accordance with Sec. 3 (b) of R.A. No. 6552, which requires a notarial
act of rescission and the refund to the buyer of the full payment of the
cash surrender value of the payments on the property. Actual
cancellation of the contract takes place after 30 days from receipt by
the buyer of the notice of cancellation or the demand for rescission of
the contract by a notarial act and upon full payment of the cash
surrender value to the buyer.
Based on the records of the case, the Contract to Sell was not validly
cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552.
First, Patricio, the vendor in the Contract to Sell, died on September
17, 1992 without canceling the Contract to Sell.

The Court is not persuaded.

The CA correctly ruled that R.A No. 6552, which governs sales of real
estate on installment, is applicable in the resolution of this case.
This case originated as an action for unlawful detainer. Respondent is
alleged to be illegally withholding possession of the subject property
after the termination of the Contract to Sell between Patricio and
respondent. It is, therefore, incumbent upon petitioner to prove that the
Contract to Sell had been cancelled in accordance with R.A. No. 6552.
The pertinent provision of R.A. No. 6552 reads:
Sec. 3. In all transactions or contracts involving the sale or
financing of real estate on installment payments, including
residential condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants under
Republic Act Numbered Thirty-eight hundred forty-four as
amended by Republic Act Numbered Sixty-three hundred
eighty-nine, where the buyer has paid at least two years of
installments, the buyer is entitled to the following rights in
case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments
due within the total grace period earned by him, which is
hereby fixed at the rate of one month grace period for every
one year of installment payments made: Provided, That this
right shall be exercised by the buyer only once in every five
years of the life of the contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to
the buyer the cash surrender value of the payments on
the property equivalent to fifty percent of the total payments
made and, after five years of installments, an additional five

Second, petitioner also failed to cancel the Contract to Sell in

accordance with law.
Petitioner contends that he has complied with the requirements of
cancellation under Sec. 3 (b) of R.A. No. 6552. He asserts that his
demand letter dated February 24, 1997 should be considered as the
notice of cancellation or demand for rescission by notarial act and that
the cash surrender value of the payments on the property has been
applied to rentals for the use of the house and lot after respondent
stopped payment after January 1980.
The Court, however, finds that the letter11 dated February 24, 1997,
which was written by petitioners counsel, merely made formal demand
upon respondent to vacate the premises in question within five days
from receipt thereof since she had "long ceased to have any right to
possess the premises x x x due to [her] failure to pay without justifiable
cause the installment payments x x x."
Clearly, the demand letter is not the same as the notice of cancellation
or demand for rescission by a notarial actrequired by R.A No. 6552.
Petitioner cannot rely on Layug v. Intermediate Appellate Court12 to
support his contention that the demand letter was sufficient
compliance. Layug held that "the additional formality of a demand on
[the sellers] part for rescission by notarial act would appear, in the
premises, to be merely circuitous and consequently superfluous" since
the seller therein filed an action for annulment of contract, which is a
kindred concept of rescission by notarial act.13 Evidently, the case of
unlawful detainer filed by petitioner does not exempt him from
complying with the said requirement.
In addition, Sec. 3 (b) of R.A. No. 6552 requires refund of the cash
surrender value of the payments on the property to the buyer before
cancellation of the contract. The provision does not provide a different

requirement for contracts to sell which allow possession of the property

by the buyer upon execution of the contract like the instant case.
Hence, petitioner cannot insist on compliance with the requirement by
assuming that the cash surrender value payable to the buyer had been
applied to rentals of the property after respondent failed to pay the
installments due.

No costs.

There being no valid cancellation of the Contract to Sell, the CA

correctly recognized respondents right to continue occupying the
property subject of the Contract to Sell and affirmed the dismissal of
the unlawful detainer case by the RTC.

SPOUSES FAUSTINO AND JOSEFINA GARCIA, SPOUSES

MELITON GALVEZ AND HELEN GALVEZ, and CONSTANCIA
ARCAIRA represented by their Attorney-in-Fact JULIANA O.
MOTAS, Petitioners,
vs.
COURT OF APPEALS, EMERLITA DE LA CRUZ, and DIOGENES G.
BARTOLOME, Respondents.

The Court notes that this case has been pending for more than ten
years. Both parties prayed for other reliefs that are just and equitable
under the premises. Hence, the rights of the parties over the subject
property shall be resolved to finally dispose of that issue in this case.
Considering that the Contract to Sell was not cancelled by the vendor,
Patricio, during his lifetime or by petitioner in accordance with R.A. No.
6552 when petitioner filed this case of unlawful detainer after 22 years
of continuous possession of the property by respondent who has paid
the substantial amount of P12,300 out of the purchase price
of P17,800, the Court agrees with the CA that it is only right and just to
allow respondent to pay her arrears and settle the balance of the
purchase price.
For respondents delay in the payment of the installments, the Court, in
its discretion, and applying Article 220914of the Civil Code, may award
interest at the rate of 6% per annum15 on the unpaid balance
considering that there is no stipulation in the Contract to Sell for such
interest. For purposes of computing the legal interest, the reckoning
period should be the filing of the complaint for unlawful detainer on
April 8, 1997.
Based on respondents evidence16 of payments made, the MTC found
that respondent paid a total of P12,300 out of the purchase price
of P17,800. Hence, respondent still has a balance of P5,500, plus legal
interest at the rate of 6% per annum on the unpaid balance starting
April 8, 1997.
The third issue is disregarded since petitioner assails an inexistent
ruling of the RTC on the lack of jurisdiction of the MTC over a
rescission case when the instant case he filed is for unlawful detainer.
WHEREFORE, the Decision of the Court of Appeals dated October 30,
2000 sustaining the dismissal of the unlawful detainer case by the RTC
is AFFIRMED with the following MODIFICATIONS:
1. Respondent Rufina Dela Cruz Vda. de Manzano shall pay
petitioner Manuel C. Pagtalunan the balance of the purchase
price in the amount of Five Thousand Five Hundred Pesos
(P5,500) plus interest at 6% per annum from April 8, 1997 up
to the finality of this judgment, and thereafter, at the rate of
12% per annum;
2. Upon payment, petitioner Manuel C. Pagtalunan shall
execute a Deed of Absolute Sale of the subject property and
deliver the certificate of title in favor of respondent Rufina
Dela Cruz Vda. de Manzano; and
3. In case of failure to pay within 60 days from finality of this
Decision, respondent Rufina Dela Cruz Vda. de Manzano
shall immediately vacate the premises without need of
further demand, and the downpayment and installment
payments of P12,300 paid by her shall constitute rental for
the subject property.

SO ORDERED.
G.R. No. 172036

April 23, 2010

DECISION
CARPIO, J.:
G.R. No. 172036 is a petition for review1 assailing the
Decision2 promulgated on 25 January 2006 as well as the
Resolution3 promulgated on 16 March 2006 of the Court of Appeals
(appellate court) in CA-G.R. CV No. 63651. The appellate court
reversed and set aside the decision of Branch 23 of the Regional Trial
Court of Trece Martires City, Cavite (trial court) in Civil Case No. TM622. The appellate court ordered Emerlita Dela Cruz (Dela Cruz) to
return to spouses Faustino and Josefina Garcia, spouses Meliton and
Helen Galvez, and Constancia Arcaira (collectively, petitioners) the
amount in excess of one-half percent of P1,500,000. Dela Cruzs codefendant, Diogenes Bartolome (Bartolome), did not incur any liability.
The appellate court narrated the facts as follows:
On May 28, 1993, plaintiffs spouses Faustino and Josefina Garcia and
spouses Meliton and Helen Galvez (herein appellees) and defendant
Emerlita dela Cruz (herein appellant) entered into a Contract to Sell
wherein the latter agreed to sell to the former, for Three Million One
Hundred Seventy Thousand Two Hundred Twenty (P3,170,220.00)
Pesos, five (5) parcels of land situated at Tanza, Cavite particularly
known as Lot Nos. 47, 2768, 2776, 2767, 2769 and covered by
Transfer Certificate of Title Nos. T-340674, T-340673, T-29028, T29026, T-29027, respectively. At the time of the execution of the said
contract, three of the subject lots, namely, Lot Nos. 2776, 2767, and
2769 were registered in the name of one Angel Abelida from whom
defendant allegedly acquired said properties by virtue of a Deed of
Absolute Sale dated March 31, 1989.
As agreed upon, plaintiffs shall make a down payment of Five Hundred
Thousand (P500,000.00) Pesos upon signing of the contract. The
balance of Two Million Six Hundred Seventy Thousand Two Hundred
Twenty (P2,670,220.00) Pesos shall be paid in three installments, viz:
Five Hundred Thousand (P500,000.00) Pesos on June 30, 1993; Five
Hundred Thousand (P500,000.00) Pesos on August 30, 1993; One
Million Six Hundred Seventy Thousand Two Hundred Twenty
(P1,670,220.00) Pesos on December 31, 1993.
On its due date, December 31, 1993, plaintiffs failed to pay the last
installment in the amount of One Million Six Hundred Seventy
Thousand Two Hundred Twenty (P1,670,220.00) Pesos. Sometime in
July 1995, plaintiffs offered to pay the unpaid balance, which had
already been delayed by one and [a] half year, which defendant
refused to accept. On September 23, 1995, defendant sold the same
parcels of land to intervenor Diogenes G. Bartolome for Seven Million
Seven Hundred Ninety Three Thousand (P7,793,000.00) Pesos.

In order to compel defendant to accept plaintiffs payment in full

satisfaction of the purchase price and, thereafter, execute the
necessary document of transfer in their favor, plaintiffs filed before the
RTC a complaint for specific performance.

of P7,793,000.00 which was paid by intervenor Bartolome to Emerlita

dela Cruz as the consideration of the sale of the five (5) parcels of land
is hereby directed to be returned by Emerlita dela Cruz to Atty.
Diogenes Bartolome within ten (10) days from the finality of judgment.

In their complaint, plaintiffs alleged that they discovered the infirmity of

the Deed of Absolute Sale covering Lot Nos. 2776, 2767 and 2769,
between their former owner Angel Abelida and defendant, the same
being spurious because the signature of Angel Abelida and his wife
were falsified; that at the time of the execution of the said deed, said
spouses were in the United States; that due to their apprehension
regarding the authenticity of the document, they withheld payment of
the last installment which was supposedly due on December 31, 1993;
that they tendered payment of the unpaid balance sometime in July
1995, after Angel Abelida ratified the sale made in favor [of] defendant,
but defendant refused to accept their payment for no jusitifiable
reason.

Further, defendant is directed to pay plaintiff the sum of P100,000.00

as attorneys fees.

In her answer, defendant denied the allegation that the Deed of

Absolute Sale was spurious and argued that plaintiffs failed to pay in
full the agreed purchase price on its due date despite repeated
demands; that the Contract to Sell contains a proviso that failure of
plaintiffs to pay the purchase price in full shall cause the rescission of
the contract and forfeiture of one-half (1/2%) percent of the total
amount paid to defendant; that a notarized letter stating the indended
rescission of the contract to sell and forfeiture of payments was sent to
plaintiffs at their last known address but it was returned with a notation
"insufficient address."
Intervenor Diogenes G. Bartolome filed a complaint in intervention
alleging that the Contract to Sell dated May 31, 1993 between plaintiffs
and defendant was rescinded and became ineffective due to
unwarranted failure of the plaintiffs to pay the unpaid balance of the
purchase price on or before the stipulated date; that he became
interested in the subject parcels of land because of their clean titles;
that he purchased the same from defendant by virtue of an Absolute
Deed of Sale executed on September 23, 1995 in consideration of the
sum of Seven Million Seven Hundred Ninety Three Thousand
(P7,793,000.00) Pesos.4

SO ORDERED.5
Dela Cruz and Bartolome appealed from the judgment of the trial court.
The Decision of the Appellate Court
The appellate court reversed the trial courts decision and dismissed
Civil Case No. TM-622. Dela Cruzs obligation under the Contract to
Sell did not arise because of petitioners undue failure to pay in full the
agreed purchase price on the stipulated date. Moreover, judicial action
for the rescission of a contract is not necessary where the contract
provides that it may be revoked and cancelled for violation of any of its
terms and conditions. The dispositive portion of the appellate courts
decision reads:
WHEREFORE, in view of all the foregoing, the appealed decision of
the Regional Trial Court is hereby REVERSED and SET ASIDE and
Civil Case No. TM-622 is, consequently, DISMISSED. Defendant is
however ordered to return to plaintiffs the amount in excess of one-half
(1/2%) percent of One Million Five Hundred Thousand (P1,500,000.00)
Pesos which was earlier paid by plaintiffs.
SO ORDERED.6
The appellate court likewise resolved to deny petitioners Motion for
Reconsideration for lack of merit.7
Hence, this petition.
Issues

The Decision of the Trial Court

Petitioners raised the following grounds for the grant of their petition:
In its Decision dated 15 April 1999, the trial court ruled that Dela Cruzs
rescission of the contract was not valid. The trial court applied Republic
Act No. 6552 (Maceda Law) and stated that Dela Cruz is not allowed to
unilaterally cancel the Contract to Sell. The trial court found that
petitioners are justified in withholding the payment of the balance of the
consideration because of the alleged spurious sale between Angel
Abelida and Emerlita Dela Cruz. Moreover, intervenor Diogenes
Bartolome (Bartolome) is not a purchaser in good faith because he
was aware of petitioners interest in the subject parcels of land.

I. The Honorable Court of Appeals erred when it failed to

consider the provisions of Republic Act 6552, otherwise
known as the Maceda Law.

The dispositive portion of the trial courts decision reads:

II. The Honorable Court of Appeals erred when it failed to

consider that Respondent Dela Cruz could not pass title over
the three (3) properties at the time she entered to a Contract
to Sell as her purported ownership was tainted with fraud,
thereby justifying Petitioners Spouses Garcia, Spouses
Galvez and Arcairas suspension of payment.

ACCORDINGLY, defendant Emerlita dela Cruz is ordered to accept the

balance of the purchase price in the amount of P1,670,220.00 within
ten (10) days after the judgment of this Court in the above-entitled
case has become final and executory and to execute immediately the
final deed of sale in favor of plaintiffs.

III. The Honorable Court of Appeals gravely erred when it

failed to consider that Respondent Dela Cruzs "rescission"
was done in evident bad faith and malice on account of a
second sale she entered with Respondent Bartolome for a
much bigger amount.

Defendant is further directed to pay plaintiffs the amount

of P400,000.00 as moral damages and P100,000.00 as exemplary
damages.

IV. The Honorable Court of Appeals erred when it failed to

declare Respondent Bartolome is not an innocent purchaser
for value despite the presence of evidence as to his bad
faith.8

The deed of sale executed by defendant Emerlita dela Cruz in favor of

Atty. Diogenes Bartolome is declared null and void and the amount

The Courts Ruling

The petition has no merit.

Both parties admit the following: (1) the contract between petitioners
and Dela Cruz was a contract to sell; (2) petitioners failed to pay in full
the agreed purchase price of the subject property on the stipulated
date; and (3) Dela Cruz did not want to accept petitioners offer of
payment and did not want to execute a document of transfer in
petitioners favor.

Art. 1191. The power to rescind obligations is implied in reciprocal

ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.

The pertinent provisions of the contract, denominated Contract to Sell,

between the parties read:

The Court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.

Failure on the part of the vendees to comply with the herein stipulation
as to the terms of payment shall cause the rescission of this contract
and the payments made shall be returned to the vendees subject
however, to forfeiture in favor of the Vendor equivalent to 1/2% of the
total amount paid.

This is understood to be without prejudice to the rights of third persons

who have acquired the thing, in accordance with Articles 1385 and
1388 and the Mortgage Law. (1124)

xxx
It is hereby agreed and covenanted that possession shall be retained
by the VENDOR until a Deed of Absolute Sale shall be executed by
her in favor of the Vendees. Violation of this provision shall
authorize/empower the VENDOR [to] demolish any
construction/improvement without need of judicial action or court order.
That upon and after the full payment of the balance, a Deed of
Absolute Sale shall be executed by the Vendor in favor of the Vendees.
That the duplicate original of the owners copy of the Transfer
Certificate of Title of the above subject parcels of land shall remain in
the possession of the Vendor until the execution of the Deed of
Absolute Sale.9
Contracts are law between the parties, and they are bound by its
stipulations. It is clear from the above-quoted provisions that the
parties intended their agreement to be a Contract to Sell: Dela Cruz
retains ownership of the subject lands and does not have the obligation
to execute a Deed of Absolute Sale until petitioners payment of the full
purchase price. Payment of the price is a positive suspensive
condition, failure of which is not a breach but an event that prevents
the obligation of the vendor to convey title from becoming effective.
Strictly speaking, there can be no rescission or resolution of an
obligation that is still non-existent due to the non-happening of the
suspensive condition.10 Dela Cruz is thus not obliged to execute a
Deed of Absolute Sale in petitioners favor because of petitioners
failure to make full payment on the stipulated date.
We ruled thus in Pangilinan v. Court of Appeals:11
Article 1592 of the New Civil Code, requiring demand by suit or by
notarial act in case the vendor of realty wants to rescind does not apply
to a contract to sell but only to contract of sale. In contracts to sell,
where ownership is retained by the seller and is not to pass until the
full payment, such payment, as we said, is a positive suspensive
condition, the failure of which is not a breach, casual or serious, but
simply an event that prevented the obligation of the vendor to convey
title from acquiring binding force. To argue that there was only a casual
breach is to proceed from the assumption that the contract is one of
absolute sale, where non-payment is a resolutory condition, which is
not the case.
The applicable provision of law in instant case is Article 1191 of the
New Civil Code which provides as follows:

Pursuant to the above, the law makes it available to the injured party
alternative remedies such as the power to rescind or enforce fulfillment
of the contract, with damages in either case if the obligor does not
comply with what is incumbent upon him. There is nothing in this law
which prohibits the parties from entering into an agreement that a
violation of the terms of the contract would cause its cancellation even
without court intervention. The rationale for the foregoing is that in
contracts providing for automatic revocation, judicial intervention is
necessary not for purposes of obtaining a judicial declaration
rescinding a contract already deemed rescinded by virtue of an
agreement providing for rescission even without judicial intervention,
but in order to determine whether or not the rescission was proper.
Where such propriety is sustained, the decision of the court will be
merely declaratory of the revocation, but it is not in itself the revocatory
act. Moreover, the vendors right in contracts to sell with reserved title
to extrajudicially cancel the sale upon failure of the vendee to pay the
stipulated installments and retain the sums and installments already
received has long been recognized by the well-established doctrine of
39 years standing. The validity of the stipulation in the contract
providing for automatic rescission upon non-payment cannot be
doubted. It is in the nature of an agreement granting a party the right to
rescind a contract unilaterally in case of breach without need of going
to court. Thus, rescission under Article 1191 was inevitable due to
petitioners failure to pay the stipulated price within the original period
fixed in the agreement.
Petitioners justify the delay in payment by stating that they had notice
that Dela Cruz is not the owner of the subject land, and that they took
pains to rectify the alleged defect in Dela Cruzs title. Be that as it may,
Angel Abelidas (Abelida) affidavit12 confirming the sale to Dela Cruz
only serves to strengthen Dela Cruzs claim that she is the absolute
owner of the subject lands at the time the Contract to Sell between
herself and petitioners was executed. Dela Cruz did not conceal
from petitioners that the title to Lot Nos. 2776, 2767 and 2769 still
remained under Abelidas name, and the Contract to Sell13 even
provided that petitioners should shoulder the attendant expenses
for the transfer of ownership from Abelida to Dela Cruz.
The trial court erred in applying R.A. 6552,14 or the Maceda Law, to the
present case. The Maceda Law applies to contracts of sale of real
estate on installment payments, including residential condominium
apartments but excluding industrial lots, commercial buildings and
sales to tenants. The subject lands, comprising five (5) parcels and
aggregating 69,028 square meters, do not comprise residential real
estate within the contemplation of the Maceda Law.15 Moreover, even if
we apply the Maceda Law to the present case, petitioners offer of
payment to Dela Cruz was made a year and a half after the stipulated
date. This is beyond the sixty-day grace period under Section 4 of the
Maceda Law.16 Petitioners still cannot use the second sentence of
Section 4 of the Maceda Law against Dela Cruz for Dela Cruzs
alleged failure to give an effective notice of cancellation or demand for

rescission because Dela Cruz merely sent the notice to the address
supplied by petitioners in the Contract to Sell.
It is undeniable that petitioners failed to pay the balance of the
purchase price on the stipulated date of the Contract to Sell. Thus,
Dela Cruz is within her rights to sell the subject lands to Bartolome.
Neither Dela Cruz nor Bartolome can be said to be in bad faith.
WHEREFORE, we DENY the petition. We AFFIRM in toto the Court of
Appeals Decision promulgated on 25 January 2006 as well as the
Resolution promulgated on 16 March 2006 in CA-G.R. CV No. 63651.
Costs against petitioners.
SO ORDERED.
G.R. No. 146839

March 23, 2011

ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T.

CATUNGAL and ERLINDA CATUNGAL-WESSEL, Petitioners,
vs.
ANGEL S. RODRIGUEZ, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari, assailing the
following issuances of the Court of Appeals in CA-G.R. CV No. 40627
consolidated with CA-G.R. SP No. 27565: (a) the August 8, 2000
Decision,1 which affirmed the Decision2 dated May 30, 1992 of the
Regional Trial Court (RTC), Branch 27 of Lapu-lapu City, Cebu in Civil
Case No. 2365-L, and (b) the January 30, 2001 Resolution,3 denying
herein petitioners motion for reconsideration of the August 8, 2000
Decision.
The relevant factual and procedural antecedents of this case are as
follows:

1. The VENDOR for and in consideration of the sum of

TWENTY[-]FIVE MILLION PESOS (P25,000,000.00) payable as
follows:
a. FIVE HUNDRED THOUSAND PESOS (P500,000.00)
downpayment upon the signing of this agreement, receipt of
which sum is hereby acknowledged in full from the VENDEE.
b. The balance of TWENTY[-]FOUR MILLION FIVE
HUNDRED THOUSAND PESOS (P24,500,000.00) shall be
payable in five separate checks, made to the order of JOSE
Ch. CATUNGAL, the first check shall be for FOUR MILLION
FIVE HUNDRED THOUSAND PESOS (P4,500,000.00) and
the remaining balance to be paid in four checks in the
amounts of FIVE MILLION PESOS (P5,000,000.00) each
after the VENDEE have (sic) successfully negotiated,
secured and provided a Road Right of Way consisting of 12
meters in width cutting across Lot 10884 up to the national
road, either by widening the existing Road Right of Way or
by securing a new Road Right of Way of 12 meters in width.
If however said Road Right of Way could not be negotiated,
the VENDEE shall give notice to the VENDOR for them to
reassess and solve the problem by taking other options and
should the situation ultimately prove futile, he shall take
steps to rescind or cancel the herein Conditional Deed of
Sale.
c. That the access road or Road Right of Way leading to Lot
10963 shall be the responsibility of the VENDEE to secure
and any or all cost relative to the acquisition thereof shall be
borne solely by the VENDEE. He shall, however, be
accorded with enough time necessary for the success of his
endeavor, granting him a free hand in negotiating for the
passage.
BY THESE PRESENTS, the VENDOR do hereby agree to sell by way
of herein CONDITIONAL DEED OF SALE to VENDEE, his heirs,
successors and assigns, the real property described in the Original
Certificate of Title No. 105 x x x.
xxxx

This controversy arose from a Complaint for Damages and Injunction

with Preliminary Injunction/Restraining Order4 filed on December 10,
1990 by herein respondent Angel S. Rodriguez (Rodriguez), with the
RTC, Branch 27, Lapu-lapu City, Cebu, docketed as Civil Case No.
2365-L against the spouses Agapita and Jose Catungal (the spouses
Catungal), the parents of petitioners.
In the said Complaint, it was alleged that Agapita T. Catungal (Agapita)
owned a parcel of land (Lot 10963) with an area of 65,246 square
meters, covered by Original Certificate of Title (OCT) No. 1055 in her
name situated in the Barrio of Talamban, Cebu City. The said property
was allegedly the exclusive paraphernal property of Agapita.
On April 23, 1990, Agapita, with the consent of her husband Jose,
entered into a Contract to Sell6 with respondent Rodriguez.
Subsequently, the Contract to Sell was purportedly "upgraded" into a
Conditional Deed of Sale7 dated July 26, 1990 between the same
parties. Both the Contract to Sell and the Conditional Deed of Sale
were annotated on the title.
The provisions of the Conditional Deed of Sale pertinent to the present
dispute are quoted below:

5. That the VENDEE has the option to rescind the sale. In the event
the VENDEE exercises his option to rescind the herein Conditional
Deed of Sale, the VENDEE shall notify the VENDOR by way of a
written notice relinquishing his rights over the property. The VENDEE
shall then be reimbursed by the VENDOR the sum of FIVE HUNDRED
THOUSAND PESOS (P500,000.00) representing the downpayment,
interest free, payable but contingent upon the event that the VENDOR
shall have been able to sell the property to another party.8
In accordance with the Conditional Deed of Sale, Rodriguez
purportedly secured the necessary surveys and plans and through his
efforts, the property was reclassified from agricultural land into
residential land which he claimed substantially increased the propertys
value. He likewise alleged that he actively negotiated for the road right
of way as stipulated in the contract.9
Rodriguez further claimed that on August 31, 1990 the spouses
Catungal requested an advance ofP5,000,000.00 on the purchase
price for personal reasons. Rodriquez allegedly refused on the ground
that the amount was substantial and was not due under the terms of
their agreement. Shortly after his refusal to pay the advance, he
purportedly learned that the Catungals were offering the property for
sale to third parties.10

Thereafter, Rodriguez received letters dated October 22,

1990,11 October 24, 199012 and October 29, 1990,13all signed by Jose
Catungal who was a lawyer, essentially demanding that the former
make up his mind about buying the land or exercising his "option" to
buy because the spouses Catungal allegedly received other offers and
they needed money to pay for personal obligations and for investing in
other properties/business ventures. Should Rodriguez fail to exercise
his option to buy the land, the Catungals warned that they would
consider the contract cancelled and that they were free to look for
other buyers.
14

In a letter dated November 4, 1990, Rodriguez registered his

objections to what he termed the Catungals unwarranted demands in
view of the terms of the Conditional Deed of Sale which allowed him
sufficient time to negotiate a road right of way and granted him, the
vendee, the exclusive right to rescind the contract. Still, on November
15, 1990, Rodriguez purportedly received a letter dated November 9,
199015 from Atty. Catungal, stating that the contract had been cancelled
and terminated.
Contending that the Catungals unilateral rescission of the Conditional
Deed of Sale was unjustified, arbitrary and unwarranted, Rodriquez
prayed in his Complaint, that:
1. Upon the filing of this complaint, a restraining order be
issued enjoining defendants [the spouses Catungal], their
employees, agents, representatives or other persons acting
in their behalf from offering the property subject of this case
for sale to third persons; from entertaining offers or
proposals by third persons to purchase the said property;
and, in general, from performing acts in furtherance or
implementation of defendants rescission of their Conditional
Deed of Sale with plaintiff [Rodriguez].
2. After hearing, a writ of preliminary injunction be issued
upon such reasonable bond as may be fixed by the court
enjoining defendants and other persons acting in their behalf
from performing any of the acts mentioned in the next
preceding paragraph.
3. After trial, a Decision be rendered:
a) Making the injunction permanent;
b) Condemning defendants to pay to plaintiff,
jointly and solidarily:
Actual damages in the amount of P400,000.00 for their unlawful
rescission of the Agreement and their performance of acts in violation
or disregard of the said Agreement;
Moral damages in the amount of P200,000.00;
Exemplary damages in the amount of P200,000.00; Expenses of
litigation and attorneys fees in the amount ofP100,000.00; and
Costs of suit.16
On December 12, 1990, the trial court issued a temporary restraining
order and set the application for a writ of preliminary injunction for
hearing on December 21, 1990 with a directive to the spouses
Catungal to show cause within five days from notice why preliminary
injunction should not be granted. The trial court likewise ordered that
summons be served on them.17

Thereafter, the spouses Catungal filed their opposition18 to the

issuance of a writ of preliminary injunction and later filed a motion to
dismiss19 on the ground of improper venue. According to the
Catungals, the subject property was located in Cebu City and thus, the
complaint should have been filed in Cebu City, not Lapu-lapu City.
Rodriguez opposed the motion to dismiss on the ground that his action
was a personal action as its subject was breach of a contract, the
Conditional Deed of Sale, and not title to, or possession of real
property.20
In an Order dated January 17, 1991,21 the trial court denied the motion
to dismiss and ruled that the complaint involved a personal action,
being merely for damages with a prayer for injunction.
Subsequently, on January 30, 1991, the trial court ordered the
issuance of a writ of preliminary injunction upon posting by Rodriguez
of a bond in the amount of P100,000.00 to answer for damages that
the defendants may sustain by reason of the injunction.
On February 1, 1991, the spouses Catungal filed their Answer with
Counterclaim22 alleging that they had the right to rescind the contract in
view of (1) Rodriguezs failure to negotiate the road right of way
despite the lapse of several months since the signing of the contract,
and (2) his refusal to pay the additional amount ofP5,000,000.00 asked
by the Catungals, which to them indicated his lack of funds to purchase
the property. The Catungals likewise contended that Rodriguez did not
have an exclusive right to rescind the contract and that the contract,
being reciprocal, meant both parties had the right to rescind.23 The
spouses Catungal further claimed that it was Rodriguez who was in
breach of their agreement and guilty of bad faith which justified their
rescission of the contract.24 By way of counterclaim, the spouses
Catungal prayed for actual and consequential damages in the form of
unearned interests from the balance (of the purchase price in the
amount) of P24,500,000.00, moral and exemplary damages in the
amount of P2,000,000.00, attorneys fees in the amount
of P200,000.00 and costs of suits and litigation expenses in the
amount of P10,000.00.25 The spouses Catungal prayed for the
dismissal of the complaint and the grant of their counterclaim.
The Catungals amended their Answer twice,26 retaining their basic
allegations but amplifying their charges of contractual breach and bad
faith on the part of Rodriguez and adding the argument that in view of
Article 1191 of the Civil Code, the power to rescind reciprocal
obligations is granted by the law itself to both parties and does not
need an express stipulation to grant the same to the injured party. In
the Second Amended Answer with Counterclaim, the spouses
Catungal added a prayer for the trial court to order the Register of
Deeds to cancel the annotations of the two contracts at the back of
their OCT.27
On October 24, 1991, Rodriguez filed an Amended Complaint,28 adding
allegations to the effect that the Catungals were guilty of several
misrepresentations which purportedly induced Rodriguez to buy the
property at the price of P25,000,000.00. Among others, it was alleged
that the spouses Catungal misrepresented that their Lot 10963
includes a flat portion of land which later turned out to be a separate lot
(Lot 10986) owned by Teodora Tudtud who sold the same to one
Antonio Pablo. The Catungals also allegedly misrepresented that the
road right of way will only traverse two lots owned by Anatolia Tudtud
and her daughter Sally who were their relatives and who had already
agreed to sell a portion of the said lots for the road right of way at a
price of P550.00 per square meter. However, because of the
Catungals acts of offering the property to other buyers who offered to
buy the road lots for P2,500.00 per square meter, the adjacent lot
owners were no longer willing to sell the road lots to Rodriguez
at P550.00 per square meter but were asking for a price of P3,500.00
per square meter. In other words, instead of assisting Rodriguez in his
efforts to negotiate the road right of way, the spouses Catungal

allegedly intentionally and maliciously defeated Rodriguezs

negotiations for a road right of way in order to justify rescission of the
said contract and enable them to offer the property to other buyers.
Despite requesting the trial court for an extension of time to file an
amended Answer,29 the Catungals did not file an amended Answer and
instead filed an Urgent Motion to Dismiss30 again invoking the ground
of improper venue. In the meantime, for failure to file an amended
Answer within the period allowed, the trial court set the case for pretrial on December 20, 1991.
During the pre-trial held on December 20, 1991, the trial court denied
in open court the Catungals Urgent Motion to Dismiss for violation of
the rules and for being repetitious and having been previously
denied.31 However, Atty. Catungal refused to enter into pre-trial which
prompted the trial court to declare the defendants in default and to set
the presentation of the plaintiffs evidence on February 14, 1992.32
On December 23, 1991, the Catungals filed a motion for
reconsideration33 of the December 20, 1991 Order denying their Urgent
Motion to Dismiss but the trial court denied reconsideration in an Order
dated February 3, 1992.34 Undeterred, the Catungals subsequently
filed a Motion to Lift and to Set Aside Order of Default35 but it was
likewise denied for being in violation of the rules and for being not
meritorious.36 On February 28, 1992, the Catungals filed a Petition
for Certiorari and Prohibition37 with the Court of Appeals, questioning
the denial of their motion to dismiss and the order of default. This was
docketed as CA-G.R. SP No. 27565.
Meanwhile, Rodriguez proceeded to present his evidence before the
trial court.
In a Decision dated May 30, 1992, the trial court ruled in favor of
Rodriguez, finding that: (a) under the contract it was complainant
(Rodriguez) that had the option to rescind the sale; (b) Rodriguezs
obligation to pay the balance of the purchase price arises only upon
successful negotiation of the road right of way; (c) he proved his
diligent efforts to negotiate the road right of way; (d) the spouses
Catungal were guilty of misrepresentation which defeated Rodriguezs
efforts to acquire the road right of way; and (e) the Catungals
rescission of the contract had no basis and was in bad faith. Thus, the
trial court made the injunction permanent, ordered the Catungals to
reduce the purchase price by the amount of acquisition of Lot 10963
which they misrepresented was part of the property sold but was in fact
owned by a third party and ordered them to pay P100,000.00 as
damages,P30,000.00 as attorneys fees and costs.
The Catungals appealed the decision to the Court of Appeals,
asserting the commission of the following errors by the trial court in
their appellants brief38 dated February 9, 1994:
I
THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE
CASE ON THE GROUNDS OF IMPROPER VENUE AND LACK OF
JURISDICTION.
II
THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A
PERSONAL AND NOT A REAL ACTION.
III

GRANTING WITHOUT ADMITTING THAT VENUE WAS PROPERLY

LAID AND THE CASE IS A PERSONAL ACTION, THE COURT A QUO
ERRED IN DECLARING THE DEFENDANTS IN DEFAULT DURING
THE PRE-TRIAL WHEN AT THAT TIME THE DEFENDANTS HAD
ALREADY FILED THEIR ANSWER TO THE COMPLAINT.
IV
THE COURT A QUO ERRED IN CONSIDERING THE DEFENDANTS
AS HAVING LOST THEIR LEGAL STANDING IN COURT WHEN AT
MOST THEY COULD ONLY BE CONSIDERED AS IN DEFAULT AND
STILL ENTITLED TO NOTICES OF ALL FURTHER PROCEEDINGS
ESPECIALLY AFTER THEY HAD FILED THE MOTION TO LIFT THE
ORDER OF DEFAULT.
V
THE COURT A QUO ERRED IN ISSUING THE WRIT [OF]
PRELIMINARY INJUNCTION RESTRAINING THE EXERCISE OF
ACTS OF OWNERSHIP AND OTHER RIGHTS OVER REAL
PROPERTY OUTSIDE OF THE COURTS TERRITORIAL
JURISDICTION AND INCLUDING PERSONS WHO WERE NOT
BROUGHT UNDER ITS JURISDICTION, THUS THE NULLITY OF
THE WRIT.
VI
THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF MOTU
PROP[R]IO FROM CONTINUING WITH THE PROCEEDINGS IN THE
CASE AND IN RENDERING DECISION THEREIN IF ONLY FOR
REASON OF COURTESY AND FAIRNESS BEING MANDATED AS
DISPENSER OF FAIR AND EQUAL JUSTICE TO ALL AND SUNDRY
WITHOUT FEAR OR FAVOR IT HAVING BEEN SERVED EARLIER
WITH A COPY OF THE PETITION FOR CERTIORARI QUESTIONING
ITS VENUE AND JURISDICTION IN CA-G.R. NO. SP 27565 IN FACT
NOTICES FOR THE FILING OF COMMENT THERETO HAD
ALREADY BEEN SENT OUT BY THE HONORABLE COURT OF
APPEALS, SECOND DIVISION, AND THE COURT A QUO WAS
FURNISHED WITH COPY OF SAID NOTICE.
VII
THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR OF
THE PLAINTIFF AND AGAINST THE DEFENDANTS ON THE BASIS
OF EVIDENCE WHICH ARE IMAGINARY, FABRICATED, AND
DEVOID OF TRUTH, TO BE STATED IN DETAIL IN THE
DISCUSSION OF THIS PARTICULAR ERROR, AND, THEREFORE,
THE DECISION IS REVERSIBLE.39
On August 31, 1995, after being granted several extensions, Rodriguez
filed his appellees brief,40 essentially arguing the correctness of the
trial courts Decision regarding the foregoing issues raised by the
Catungals. Subsequently, the Catungals filed a Reply Brief41 dated
October 16, 1995.
From the filing of the appellants brief in 1994 up to the filing of the
Reply Brief, the spouses Catungal were represented by appellant Jose
Catungal himself. However, a new counsel for the Catungals, Atty.
Jesus N. Borromeo (Atty. Borromeo), entered his appearance before
the Court of Appeals on September 2, 1997.42 On the same date, Atty.
Borromeo filed a Motion for Leave of Court to File Citation of
Authorities43 and a Citation of Authorities.44 This would be followed by
Atty. Borromeos filing of an Additional Citation of Authority and Second
Additional Citation of Authority both on November 17, 1997.45

During the pendency of the case with the Court of Appeals, Agapita
Catungal passed away and thus, her husband, Jose, filed on February
17, 1999 a motion for Agapitas substitution by her surviving children.46
On August 8, 2000, the Court of Appeals rendered a Decision in the
consolidated cases CA-G.R. CV No. 40627 and CA-G.R. SP No.
27565,47 affirming the trial courts Decision.
In a Motion for Reconsideration dated August 21, 2000,48 counsel for
the Catungals, Atty. Borromeo, argued for the first time that paragraphs
1(b) and 549 of the Conditional Deed of Sale, whether taken separately
or jointly, violated the principle of mutuality of contracts under Article
1308 of the Civil Code and thus, said contract was void ab initio. He
adverted to the cases mentioned in his various citations of authorities
to support his argument of nullity of the contract and his position that
this issue may be raised for the first time on appeal.
Meanwhile, a Second Motion for Substitution50 was filed by Atty.
Borromeo in view of the death of Jose Catungal.
In a Resolution dated January 30, 2001, the Court of Appeals allowed
the substitution of the deceased Agapita and Jose Catungal by their
surviving heirs and denied the motion for reconsideration for lack of
merit
Hence, the heirs of Agapita and Jose Catungal filed on March 27, 2001
the present petition for review,51 which essentially argued that the Court
of Appeals erred in not finding that paragraphs 1(b) and/or 5 of the
Conditional Deed of Sale, violated the principle of mutuality of
contracts under Article 1308 of the Civil Code. Thus, said contract was
supposedly void ab initio and the Catungals rescission thereof was
superfluous.
In his Comment,52 Rodriguez highlighted that (a) petitioners were
raising new matters that cannot be passed upon on appeal; (b) the
validity of the Conditional Deed of Sale was already admitted and
petitioners cannot be allowed to change theories on appeal; (c) the
questioned paragraphs of the Conditional Deed of Sale were valid; and
(d) petitioners were the ones who committed fraud and breach of
contract and were not entitled to relief for not having come to court with
clean hands.
The Court gave due course to the Petition53 and the parties filed their
respective Memoranda.
The issues to be resolved in the case at bar can be summed into two
questions:
I. Are petitioners allowed to raise their theory of nullity of the
Conditional Deed of Sale for the first time on appeal?
II. Do paragraphs 1(b) and 5 of the Conditional Deed of Sale
violate the principle of mutuality of contracts under Article
1308 of the Civil Code?
On petitioners change of theory
Petitioners claimed that the Court of Appeals should have reversed the
trial courts Decision on the ground of the alleged nullity of paragraphs
1(b) and 5 of the Conditional Deed of Sale notwithstanding that the
same was not raised as an error in their appellants brief. Citing
Catholic Bishop of Balanga v. Court of Appeals,54 petitioners argued in
the Petition that this case falls under the following exceptions:

(3) Matters not assigned as errors on appeal but

consideration of which is necessary in arriving at a just
decision and complete resolution of the case or to serve the
interest of justice or to avoid dispensing piecemeal justice;
(4) Matters not specifically assigned as errors on appeal but
raised in the trial court and are matters of record having
some bearing on the issue submitted which the parties failed
to raise or which the lower court ignored;
(5) Matters not assigned as errors on appeal but closely
related to an error assigned; and
(6) Matters not assigned as errors but upon which the
determination of a question properly assigned is
dependent.55
We are not persuaded.
This is not an instance where a party merely failed to assign an issue
as an error in the brief nor failed to argue a material point on appeal
that was raised in the trial court and supported by the record. Neither is
this a case where a party raised an error closely related to, nor
dependent on the resolution of, an error properly assigned in his brief.
This is a situation where a party completely changes his theory of the
case on appeal and abandons his previous assignment of errors in his
brief, which plainly should not be allowed as anathema to due process.
Petitioners should be reminded that the object of pleadings is to draw
the lines of battle between the litigants and to indicate fairly the nature
of the claims or defenses of both parties.56 In Philippine National
Construction Corporation v. Court of Appeals,57 we held that "[w]hen a
party adopts a certain theory in the trial court, he will not be permitted
to change his theory on appeal, for to permit him to do so would not
only be unfair to the other party but it would also be offensive to the
basic rules of fair play, justice and due process."58
We have also previously ruled that "courts of justice have no
jurisdiction or power to decide a question not in issue. Thus, a
judgment that goes beyond the issues and purports to adjudicate
something on which the court did not hear the parties, is not only
irregular but also extrajudicial and invalid. The rule rests on the
fundamental tenets of fair play."59
During the proceedings before the trial court, the spouses Catungal
never claimed that the provisions in the Conditional Deed of Sale,
stipulating that the payment of the balance of the purchase price was
contingent upon the successful negotiation of a road right of way
(paragraph 1[b]) and granting Rodriguez the option to rescind
(paragraph 5), were void for allegedly making the fulfillment of the
contract dependent solely on the will of Rodriguez.
On the contrary, with respect to paragraph 1(b), the Catungals did not
aver in the Answer (and its amended versions) that the payment of the
purchase price was subject to the will of Rodriguez but rather they
claimed that paragraph 1(b) in relation to 1(c) only presupposed a
reasonable time be given to Rodriguez to negotiate the road right of
way. However, it was petitioners theory that more than sufficient time
had already been given Rodriguez to negotiate the road right of way.
Consequently, Rodriguezs refusal/failure to pay the balance of the
purchase price, upon demand, was allegedly indicative of lack of funds
and a breach of the contract on the part of Rodriguez.
Anent paragraph 5 of the Conditional Deed of Sale, regarding
Rodriguezs option to rescind, it was petitioners theory in the court a
quo that notwithstanding such provision, they retained the right to

rescind the contract for Rodriguezs breach of the same under Article
1191 of the Civil Code.
Verily, the first time petitioners raised their theory of the nullity of the
Conditional Deed of Sale in view of the questioned provisions was only
in their Motion for Reconsideration of the Court of Appeals Decision,
affirming the trial courts judgment. The previous filing of various
citations of authorities by Atty. Borromeo and the Court of Appeals
resolutions noting such citations were of no moment. The citations of
authorities merely listed cases and their main rulings without even any
mention of their relevance to the present case or any prayer for the
Court of Appeals to consider them.1wphi1 In sum, the Court of
Appeals did not err in disregarding the citations of authorities or in
denying petitioners motion for reconsideration of the assailed August
8, 2000 Decision in view of the proscription against changing legal
theories on appeal.
Ruling on the questioned provisions of the Conditional Deed of Sale
Even assuming for the sake of argument that this Court may overlook
the procedural misstep of petitioners, we still cannot uphold their
belatedly proffered arguments.
At the outset, it should be noted that what the parties entered into is a
Conditional Deed of Sale, whereby the spouses Catungal agreed to
sell and Rodriguez agreed to buy Lot 10963 conditioned on the
payment of a certain price but the payment of the purchase price was
additionally made contingent on the successful negotiation of a road
right of way. It is elementary that "[i]n conditional obligations, the
acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event which
constitutes the condition."60
Petitioners rely on Article 1308 of the Civil Code to support their
conclusion regarding the claimed nullity of the aforementioned
provisions. Article 1308 states that "[t]he contract must bind both
contracting parties; its validity or compliance cannot be left to the will of
one of them."
Article 1182 of the Civil Code, in turn, provides:
Art. 1182. When the fulfillment of the condition depends upon the sole
will of the debtor, the conditional obligation shall be void. If it depends
upon chance or upon the will of a third person, the obligation shall take
effect in conformity with the provisions of this Code.
In the past, this Court has distinguished between a condition imposed
on the perfection of a contract and a condition imposed merely on the
performance of an obligation. While failure to comply with the first
condition results in the failure of a contract, failure to comply with the
second merely gives the other party the option to either refuse to
proceed with the sale or to waive the condition.61 This principle is
evident in Article 1545 of the Civil Code on sales, which provides in
part:
Art. 1545. Where the obligation of either party to a contract of sale is
subject to any condition which is not performed, such party may refuse
to proceed with the contract or he may waive performance of the
condition x x x.
Paragraph 1(b) of the Conditional Deed of Sale, stating that
respondent shall pay the balance of the purchase price when he has
successfully negotiated and secured a road right of way, is not a
condition on the perfection of the contract nor on the validity of the
entire contract or its compliance as contemplated in Article 1308. It is a
condition imposed only on respondents obligation to pay the

remainder of the purchase price. In our view and applying Article 1182,
such a condition is not purely potestative as petitioners contend. It is
not dependent on the sole will of the debtor but also on the will of third
persons who own the adjacent land and from whom the road right of
way shall be negotiated. In a manner of speaking, such a condition is
likewise dependent on chance as there is no guarantee that
respondent and the third party-landowners would come to an
agreement regarding the road right of way. This type of mixed condition
is expressly allowed under Article 1182 of the Civil Code.
Analogous to the present case is Romero v. Court of
Appeals,62 wherein the Court interpreted the legal effect of a condition
in a deed of sale that the balance of the purchase price would be paid
by the vendee when the vendor has successfully ejected the informal
settlers occupying the property. In Romero, we found that such a
condition did not affect the perfection of the contract but only imposed
a condition on the fulfillment of the obligation to pay the balance of the
purchase price, to wit:
From the moment the contract is perfected, 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. Under the agreement, private
respondent is obligated to evict the squatters on the property. The
ejectment of the squatters is a condition the operative act of which sets
into motion the period of compliance by petitioner of his own
obligation, i.e., to pay the balance of the purchase price. Private
respondent's failure "to remove the squatters from the property" within
the stipulated period gives petitioner the right to either refuse to
proceed with the agreement or waive that condition in consonance with
Article 1545 of the Civil Code. This option clearly belongs to petitioner
and not to private respondent.
We share the opinion of the appellate court that the undertaking
required of private respondent does not constitute a "potestative
condition dependent solely on his will" that might, otherwise, be void in
accordance with Article 1182 of the Civil Code but a "mixed" condition
"dependent not on the will of the vendor alone but also of third persons
like the squatters and government agencies and personnel
concerned." We must hasten to add, however, that where the so-called
"potestative condition" is imposed not on the birth of the obligation but
on its fulfillment, only the condition is avoided, leaving unaffected the
obligation itself.63 (Emphases supplied.)
From the provisions of the Conditional Deed of Sale subject matter of
this case, it was the vendee (Rodriguez) that had the obligation to
successfully negotiate and secure the road right of way. However, in
the decision of the trial court, which was affirmed by the Court of
Appeals, it was found that respondent Rodriguez diligently exerted
efforts to secure the road right of way but the spouses Catungal, in bad
faith, contributed to the collapse of the negotiations for said road right
of way. To quote from the trial courts decision:
It is therefore apparent that the vendees obligations (sic) to pay the
balance of the purchase price arises only when the road-right-of-way to
the property shall have been successfully negotiated, secured and
provided. In other words, the obligation to pay the balance is
conditioned upon the acquisition of the road-right-of-way, in
accordance with paragraph 2 of Article 1181 of the New Civil Code.
Accordingly, "an obligation dependent upon a suspensive condition
cannot be demanded until after the condition takes place because it is
only after the fulfillment of the condition that the obligation arises."
(Javier v[s] CA 183 SCRA) Exhibits H, D, P, R, T, FF and JJ show that
plaintiff [Rodriguez] indeed was diligent in his efforts to negotiate for a
road-right-of-way to the property. The written offers, proposals and
follow-up of his proposals show that plaintiff [Rodriguez] went all out in
his efforts to immediately acquire an access road to the property, even
going to the extent of offering P3,000.00 per square meter for the road

lots (Exh. Q) from the original P550.00 per sq. meter. This Court also
notes that defendant (sic) [the Catungals] made misrepresentation in
the negotiation they have entered into with plaintiff [Rodriguez]. (Exhs.
F and G) The misrepresentation of defendant (sic) [the Catungals] as
to the third lot (Lot 10986) to be part and parcel of the subject property
[(]Lot 10963) contributed in defeating the plaintiffs [Rodriguezs] effort
in acquiring the road-right-of-way to the property. Defendants [the
Catungals] cannot now invoke the non-fulfillment of the condition in the
contract as a ground for rescission when defendants [the Catungals]
themselves are guilty of preventing the fulfillment of such condition.
From the foregoing, this Court is of the considered view that rescission
of the conditional deed of sale by the defendants is without any legal or
factual basis.64 x x x. (Emphases supplied.)
In all, we see no cogent reason to disturb the foregoing factual findings
of the trial court.
Furthermore, it is evident from the language of paragraph 1(b) that the
condition precedent (for respondents obligation to pay the balance of
the purchase price to arise) in itself partly involves an obligation to do,
i.e., the undertaking of respondent to negotiate and secure a road right
of way at his own expense.65 It does not escape our notice as well, that
far from disclaiming paragraph 1(b) as void, it was the Catungals
contention before the trial court that said provision should be read in
relation to paragraph 1(c) which stated:
c. That the access road or Road Right of Way leading to Lot 10963
shall be the responsibility of the VENDEE to secure and any or all cost
relative to the acquisition thereof shall be borne solely by the VENDEE.
He shall, however, be accorded with enough time necessary for the
success of his endeavor, granting him a free hand in negotiating for the
passage.66 (Emphasis supplied.)
The Catungals interpretation of the foregoing stipulation was that
Rodriguezs obligation to negotiate and secure a road right of way was
one with a period and that period, i.e., "enough time" to negotiate, had
already lapsed by the time they demanded the payment
of P5,000,000.00 from respondent. Even assuming arguendo that the
Catungals were correct that the respondents obligation to negotiate a
road right of way was one with an uncertain period, their rescission of
the Conditional Deed of Sale would still be unwarranted. Based on
their own theory, the Catungals had a remedy under Article 1197 of the
Civil Code, which mandates:
Art. 1197. If the obligation does not fix a period, but from its nature and
the circumstances it can be inferred that a period was intended, the
courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends
upon the will of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once
fixed by the courts, the period cannot be changed by them.
What the Catungals should have done was to first file an action in court
to fix the period within which Rodriguez should accomplish the
successful negotiation of the road right of way pursuant to the above
quoted provision. Thus, the Catungals demand for Rodriguez to make
an additional payment of P5,000,000.00 was premature and
Rodriguezs failure to accede to such demand did not justify the
rescission of the contract.

With respect to petitioners argument that paragraph 5 of the

Conditional Deed of Sale likewise rendered the said contract void, we
find no merit to this theory. Paragraph 5 provides:
5. That the VENDEE has the option to rescind the sale. In the event
the VENDEE exercises his option to rescind the herein Conditional
Deed of Sale, the VENDEE shall notify the VENDOR by way of a
written notice relinquishing his rights over the property. The VENDEE
shall then be reimbursed by the VENDOR the sum of FIVE HUNDRED
THOUSAND PESOS (P500,000.00) representing the downpayment,
interest free, payable but contingent upon the event that the VENDOR
shall have been able to sell the property to another party.67
Petitioners posited that the above stipulation was the "deadliest"
provision in the Conditional Deed of Sale for violating the principle of
mutuality of contracts since it purportedly rendered the contract subject
to the will of respondent.
We do not agree.
It is petitioners strategy to insist that the Court examine the first
sentence of paragraph 5 alone and resist a correlation of such
sentence with other provisions of the contract. Petitioners view,
however, ignores a basic rule in the interpretation of contracts that
the contract should be taken as a whole.
Article 1374 of the Civil Code provides that "[t]he various stipulations of
a contract shall be interpreted together, attributing to the doubtful ones
that sense which may result from all of them taken jointly." The same
Code further sets down the rule that "[i]f some stipulation of any
contract should admit of several meanings, it shall be understood as
bearing that import which is most adequate to render it effectual."68
Similarly, under the Rules of Court it is prescribed that "[i]n the
construction of an instrument where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will
give effect to all"69 and "for the proper construction of an instrument,
the circumstances under which it was made, including the situation of
the subject thereof and of the parties to it, may be shown, so that the
judge may be placed in the position of those whose language he is to
interpret."70
Bearing in mind the aforementioned interpretative rules, we find that
the first sentence of paragraph 5 must be taken in relation with the rest
of paragraph 5 and with the other provisions of the Conditional Deed of
Sale.
Reading paragraph 5 in its entirety will show that Rodriguezs option to
rescind the contract is not absolute as it is subject to the requirement
that there should be written notice to the vendor and the vendor shall
only return Rodriguezs downpayment of P500,000.00, without interest,
when the vendor shall have been able to sell the property to another
party. That what is stipulated to be returned is only the downpayment
of P500,000.00 in the event that Rodriguez exercises his option to
rescind is significant. To recall, paragraph 1(b) of the contract clearly
states that the installments on the balance of the purchase price shall
only be paid upon successful negotiation and procurement of a road
right of way. It is clear from such provision that the existence of a road
right of way is a material consideration for Rodriguez to purchase the
property. Thus, prior to him being able to procure the road right of way,
by express stipulation in the contract, he is not bound to make
additional payments to the Catungals. It was further stipulated in
paragraph 1(b) that: "[i]f however said road right of way cannot be
negotiated, the VENDEE shall give notice to the VENDOR for them to
reassess and solve the problem by taking other options and should the
situation ultimately prove futile, he [Rodriguez] shall take steps to
rescind or [cancel] the herein Conditional Deed of Sale." The intention

of the parties for providing subsequently in paragraph 5 that Rodriguez

has the option to rescind the sale is undeniably only limited to the
contingency that Rodriguez shall not be able to secure the road right of
way. Indeed, if the parties intended to give Rodriguez the absolute
option to rescind the sale at any time, the contract would have
provided for the return of all payments made by Rodriguez and not
only the downpayment. To our mind, the reason only the downpayment
was stipulated to be returned is that the vendees option to rescind can
only be exercised in the event that no road right of way is secured and,
thus, the vendee has not made any additional payments, other than his
downpayment.

the parties shall reassess and discuss other options as stipulated in

paragraph 1(b) of the Conditional Deed of Sale and, for this purpose,
they are given a period of thirty (30) days to agree on a course of
action. Should the discussions of the parties prove futile after the said
thirty (30)-day period, immediately upon the expiration of said period
for discussion, Rodriguez may (a) exercise his option to rescind the
contract, subject to the return of his downpayment, in accordance with
the provisions of paragraphs 1(b) and 5 of the Conditional Deed of
Sale or (b) waive the road right of way and pay the balance of the
deducted purchase price as determined in the RTC Decision dated
May 30, 1992.

In sum, Rodriguezs option to rescind the contract is not purely

potestative but rather also subject to the same mixed condition as his
obligation to pay the balance of the purchase price i.e., the
negotiation of a road right of way. In the event the condition is fulfilled
(or the negotiation is successful), Rodriguez must pay the balance of
the purchase price. In the event the condition is not fulfilled (or the
negotiation fails), Rodriguez has the choice either (a) to not proceed
with the sale and demand return of his downpayment or (b)
considering that the condition was imposed for his benefit, to waive the
condition and still pay the purchase price despite the lack of road
access. This is the most just interpretation of the parties contract that
gives effect to all its provisions.

WHEREFORE, the Decision dated August 8, 2000 and the Resolution

dated January 30, 2001 of the Court of Appeals in CA-G.R. CV No.
40627 consolidated with CA-G.R. SP No. 27565 are AFFIRMED with
the following modification:

In any event, even if we assume for the sake of argument that the
grant to Rodriguez of an option to rescind, in the manner provided for
in the contract, is tantamount to a potestative condition, not being a
condition affecting the perfection of the contract, only the said condition
would be considered void and the rest of the contract will remain valid.
In Romero, the Court observed that "where the so-called potestative
condition is imposed not on the birth of the obligation but on its
fulfillment, only the condition is avoided, leaving unaffected the
obligation itself."71
It cannot be gainsaid that "contracts have the force of law between the
contracting parties and should be complied with in good faith."72 We
have also previously ruled that "[b]eing the primary law between the
parties, the contract governs the adjudication of their rights and
obligations. A court has no alternative but to enforce the contractual
stipulations in the manner they have been agreed upon and
written."73 We find no merit in petitioners contention that their parents
were merely "duped" into accepting the questioned provisions in the
Conditional Deed of Sale. We note that although the contract was
between Agapita Catungal and Rodriguez, Jose Catungal nonetheless
signed thereon to signify his marital consent to the same. We concur
with the trial courts finding that the spouses Catungals claim of being
misled into signing the contract was contrary to human experience and
conventional wisdom since it was Jose Catungal who was a practicing
lawyer while Rodriquez was a non-lawyer.74 It can be reasonably
presumed that Atty. Catungal and his wife reviewed the provisions of
the contract, understood and accepted its provisions before they
affixed their signatures thereon.
After thorough review of the records of this case, we have come to the
conclusion that petitioners failed to demonstrate that the Court of
Appeals committed any reversible error in deciding the present
controversy. However, having made the observation that it was
desirable for the Catungals to file a separate action to fix the period for
respondent Rodriguezs obligation to negotiate a road right of way, the
Court finds it necessary to fix said period in these proceedings. It is but
equitable for us to make a determination of the issue here to obviate
further delay and in line with the judicial policy of avoiding multiplicity of
suits.
If still warranted, Rodriguez is given a period of thirty (30) days from
the finality of this decision to negotiate a road right of way. In the event
no road right of way is secured by Rodriquez at the end of said period,

If still warranted, respondent Angel S. Rodriguez is given a period of

thirty (30) days from the finality of this Decision to negotiate a road
right of way. In the event no road right of way is secured by respondent
at the end of said period, the parties shall reassess and discuss other
options as stipulated in paragraph 1(b) of the Conditional Deed of Sale
and, for this purpose, they are given a period of thirty (30) days to
agree on a course of action. Should the discussions of the parties
prove futile after the said thirty (30)-day period, immediately upon the
expiration of said period for discussion, Rodriguez may (a) exercise his
option to rescind the contract, subject to the return of his
downpayment, in accordance with the provisions of paragraphs 1(b)
and 5 of the Conditional Deed of Sale or (b) waive the road right of way
and pay the balance of the deducted purchase price as determined in
the RTC Decision dated May 30, 1992.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 132269

April 27, 2000

HARRISON MOTORS CORPORATION, petitioner,

vs.
RACHEL A. NAVARRO, respondent.

BELLOSILLO, J.:
This is a review on certiorari of the Decision of the Court of Appeals
affirming that of the Regional Trial Court of Makati which ordered
petitioner to pay private respondent P32,943.00 as reimbursement for
taxes paid, P7,500.00 as attorney's fees and the costs of suit. 1
Sometime in June of 1987 Harrison Motors Corporation through its
president, Renato Claros, sold two (2) Isuzu Elf trucks to private
respondent Rachel Navarro, owner of RN Freight Lines, a franchise
holder operating and maintaining a fleet of cargo trucks all over Luzon.
Petitioner, a known importer, assembler and manufacturer, assembled
the two (2) trucks using imported component parts. 2 Prior to the sale,
Renato Claros represented to private respondent that all the BIR taxes
and customs duties for the parts used on the two (2) trucks had been
paid for. 3
On 10 September 1987 the Bureau of Internal Revenue (BIR) and the
Land Transportation Office (LTO) entered into a Memorandum of
Agreement (MOA) which provided that prior to registration in the LTO
of any assembled or re-assembled motor vehicle which used imported

parts, a Certificate of Payment should first be obtained from the BIR to

prove payment of all taxes required under existing laws. 4
On 12 October 1987 the Bureau of Customs (BOC) issued Customs
Memorandum Order No. 44-87 promulgating rules, regulations and
procedure for the voluntary payment of duties and taxes on imported
motor vehicles assembled by non-assemblers. 5
Pursuant to the 10 September 1987 MOA between the BIR and the
LTO, the BIR issued on 18 December 1987 Revenue Memorandum
Order No. 44-87 which provided the procedure governing the
processing and issuance of the Certificate of Payment of internal
revenue taxes for purposes of registering motor vehicles. 6
On 16 June 1988 the BIR, BOC and LTO entered into a tripartite MOA
which provided that prior to the registration in the LTO of any locally
assembled motor vehicle using imported component parts, a
Certificate of Payment should first be obtained from the BIR and the
BOC to prove that all existing taxes and customs duties have been
paid. 7
In December of 1988 government agents seized and detained the two
(2) Elf trucks of respondent after discovering that there were still
unpaid BIR taxes and customs duties thereon. The BIR and the BOC
ordered private respondent to pay the proper assessments or her
trucks would be impounded. 8 Private respondent went to Claros to ask
for the receipts evidencing payment of BIR taxes and customs duties;
however, Claros refused to comply. 9 Private respondent then
demanded from Claros that he pay the assessed taxes and warned
him that he would have to reimburse her should she be forced to pay
for the assessments herself. Her demands were again ignored.
But wanting to secure the immediate release of the trucks to comply
with her business commitments, private respondent paid the assessed
BIR taxes and customs duties amounting to
P32,943.00. 10 Consequently, she returned to petitioner's office to ask
for reimbursement, but petitioner again refused, prompting her to send
a demand letter through her lawyer. 11 When petitioner still ignored her
letter, she filed a complaint for a sum of money on 24 September 1990
with the Regional Trial Court of Makati. 12
On 24 May 1991 private respondent filed a Motion to Declare
Defendant in Default which was granted by the RTC on the same day.
On 18 November 1991 private respondent filed a Manifestation and
Motion praying for the scheduling of the reception of her evidence exparte since petitioner had not as yet filed a Motion to Lift Order of
Default. Thus, on 22 November 1991 the trial court ordered the
reception of private respondent's evidence ex-parte.13
It was only on 2 December 1991 when petitioner finally filed a Motion
to Lift Order of Default. However, on 20 January 1992 the trial court
denied petitioner's motion for its failure to attach an affidavit of merit
showing that it had a valid and meritorious defense. 14
On 5 March 1992 the trial court rendered a decision ordering petitioner
to reimburse private respondent in the amount of P32,943.00 for the
customs duties and internal revenue taxes the latter had to pay to
discharge her two (2) Elf trucks from government custody. Petitioner
was also required to pay P7,500.00 for attorney's fees plus the costs. 15
The Court of Appeals subsequently sustained the lower court, hence
this recourse of petitioner. 16
Petitioner argues that it was no longer obliged to pay for the additional
taxes and customs duties imposed on the imported component parts

by the Memorandum Orders and the two (2) Memoranda of Agreement

since such administrative regulations only took effect after the
execution of its contract of sale with private respondent. Holding it
liable for payment of the taxes specified in the administrative
regulations, which have the force and effect of laws, would not only
violate the non-impairment clause of the Constitution but also the
principle of non-retroactivity of laws provided in Art. 4 of the Civil
Code. 17 Furthermore, petitioner claims that it did pay the assessed
taxes and duties otherwise it would not have been able to secure the
release of such spare parts from the customs and to register the
vehicles with the LTO under its name.
The records however reveal that the Memorandum Orders and
Memoranda of Agreement do not impose any additional BIR taxes or
customs duties.
Customs Memorandum Order No. 44-87 is concerned with the Rules,
Regulations and Procedures in the Payment of Duties and Taxes on
Imported Vehicles Locally Assembled by Non-Assemblers. 18 It does
not charge any new tax. It simply provides the procedure on how
owners/consignees or their purchasers could voluntarily initiate
payment for any unpaid customs duties on locally assembled vehicles
using imported component parts.
Neither does BIR Revenue Memorandum Order No. 44-87 19 exact any
tax. It merely outlines the procedure which governs the processing and
issuance of the Certificate of Payment of internal revenue taxes for
purposes of registering motor vehicles with the arms and telling her
she looked beautiful. The special treatment and sexual advances
continued during her employment for four (4) years but she never
reciprocated his flirtations, until finally, she noticed that his attitude
towards her changed. He made her understand that if she would not
give in to his sexual advances he would cause her termination from the
service; and he made good his threat when he started harassing her.
She just found out one day that her table which was equipped with
telephone and intercom units and containing her personal belongings
was transferred without her knowledge to a place with neither
telephone nor intercom, for which reason, an argument ensued when
she confronted William Chua resulting in her being charged with gross
disrespect. 11
Respondent Cortez explains, as regards the second charge, that the
money entrusted to her for transmittal was not lost; instead, she gave it
to the company personnel in-charge for proper transmittal as
evidenced by a receipt duly signed by the latter. 12
With respect to the third imputation, private respondent admits that she
asked someone to punch-in her time card because at that time she
was doing an errand for one of the company's officers, Richard Tan,
and that was with the permission of William Chua. She maintains that
she did it in good faith believing that she was anyway only
accommodating the request of a company executive and done for the
benefit of the company with the acquiescence of her boss, William
Chua. Besides, the practice was apparently tolerated as the
employees were not getting any the BIR which would then transmit the
Certificate to the LTO to prove that all the BIR taxes required under
existing laws have been paid.
The 16 June 1988 tripartite MOA among the BIR, LTO and the BOC
virtually contained the same provisions. The MOA provided that prior to
registration with the LTO of any assembled motor vehicle using
imported component parts, a certificate of Payment should first be
secured from the BIR or the BOC which should then be duly forwarded
to LTO. The Certificate would serve as proof that all taxes and customs
duties required under existing laws, rules and regulations had already
been settled.

Clearly, petitioner's contention is unmeritorious. What Sec. 10, Art. III,

of the Constitution prohibits is the passage of a law which enlarges,
abridges or in any manner changes the intention of the contracting
parties. 21 The Memorandum Orders and the two (2) Memoranda of
Agreement do not impose any additional taxes which would unduly
impair the contract of sale between petitioner and private respondent.
Instead, these administrative regulations were passed to enforce
payment of existing BIR taxes and customs duties at the time of
importation.
But who should pay the BIR taxes and customs duties which the
administrative regulations sought to enforce?
Petitioner contends that private respondent should be the one to pay
the internal revenue taxes and customs duties. It claims that at the
time the Memorandum Orders and the two (2) Memoranda of
Agreement took effect the two (2) Elf trucks were already sold to
private respondent, thus, it no longer owned the vehicles. Whatever
payments private respondent made to the government after the sale
were solely her concern and such burden should not be passed on to
petitioner. 22 Petitioner further argues that holding it liable for payment
of BIR taxes and customs duties required under the administrative
regulations violates the principle of non-retroactivity of laws under the
Civil Code.
Such contention deserves scant consideration. It is true that
administrative rulings and regulations are generally prospective in
nature.23 An inspection of the two (2) Memoranda of Agreement
however demonstrates that their intent is to enforce payment of taxes
on assemblers/manufacturers who import component parts without
paying the correct assessments. The WHEREAS clause of the 10
September 1987 MOA clearly illustrates this
WHEREAS, in order to avoid or evade the higher taxes on
imported motor vehicles, certain persons import parts and
assemble and re-assemble them into complete motor
vehicles, or assemble or re-assemble motor vehicles using
imported parts;
While the WHEREAS clause of the 16 June 1988 MOA provides
WHEREAS, in order to avoid or evade the higher taxes on
imported motor vehicles, certain persons, firms or
corporations who are non-BOI licensed assemblers of
imported motor vehicle component parts would assemble or
re-assemble them into whole unit motor vehicles;
It is also apparent in Par. 9 of the 16 June 1988 MOA that the taxes to
be enforced are designated as assembler's/manufacturer's tax. It
states
9. The BIR shall collect the assembler's/manufacturer's tax,
while the BOC shall collect the duties and taxes and ad
valorem tax.
Thus, although private respondent is the one required by the
administrative regulations to secure the Certificate of Payment for the
purpose of registration, petitioner as the importer and the
assembler/manufacturer of the two (2) Elf trucks is still the one liable
for payment of revenue taxes and customs duties. Petitioner's
obligation to pay does not arise from the administrative regulations but
from the tax laws existing at the time of importation. Hence, even if
private respondent already owned the two (2) trucks when the
Memorandum Orders and Memoranda of Agreement took effect, the
fact remains that petitioner was still the one duty-bound to pay for the
BIR taxes and customs duties.

It is also quite obvious that as between petitioner, who is the importerassembler/manufacturer, and private respondent, who is merely the
buyer, it is petitioner which has the obligation to pay taxes to the BIR
and the BOC. Petitioner would be unjustly enriched if private
respondent should be denied reimbursement. 24 It would inequitably
amass profits from selling assembled trucks even if it did not pay the
taxes due on its imported spare parts. Imposing the tax burden on
private respondent would only encourage the proliferation of smugglers
who scheme to evade taxes by passing on their tax obligations to their
unsuspecting buyers.
In a last ditch effort to exempt itself from liability, petitioner claims that it
had paid the taxes due on the imported parts otherwise it would not
have been able to obtain their release from the BOC and to register the
vehicles with the LTO.
Non-sequitur. The fact that petitioner was able to secure the release of
the parts from customs and to register the assembled trucks with the
LTO does not necessarily mean that all taxes and customs duties were
legally settled. As a matter of fact, the provisions of the two (2)
Memoranda of Agreement clearly establish that the government is
aware of the widespread registration of assembled motor vehicles with
the LTO even if the taxes due on their imported component parts
remain unpaid. Paragraph 1 of the 10 September 1987 MOA states
The LTO shall make as one of the requirements for the
registration of motor vehicles that were assembled or reassembled using imported parts, the payment to the BIR of
the taxes required under existing laws.
The same requirement shall be imposed with respect to the
renewal of the registration of such motor vehicles had they
been registered or their registration been renewed in the
past without the payment of the required taxes.
While par. 1 of the 16 June 1988 MOA states
The LTO shall make as one of the requirements for the
registration of motor vehicles that were assembled or reassembled by non-BOI licensed assemblers using imported
component parts, the payment to the BIR and the BOC of
taxes and duties required under existing laws, rules and
regulations;
The same requirement shall be imposed with respect to the
renewal of the registration of such motor vehicles even if
they were already registered or their registration had been
renewed in the past without the payment of the required
taxes.
Obviously, the two (2) Memoranda of Agreement were executed to
prevent the anomalous circumstance, as in the case at bar, where
assembled vehicles are registered with the LTO even if taxes and
customs duties remain unpaid.
Besides, petitioner's allegation that it already paid the BIR taxes and
customs duties is highly doubtful. This entire controversy would have
been avoided had petitioner simply furnished private respondent with
the receipts evidencing payment of BIR taxes and customs duties. If
only private respondent had the receipts to prove payment of such
assessments then she would have easily secured the release of her
two (2) Elf trucks. But petitioner arbitrarily and unjustly denied private
respondent's demands. Instead, petitioner obstinately insisted that it
was no longer concerned with the problem involving the two (2) trucks
since it no longer owned the vehicles after the consummation of the
sale.

It is true that the ownership of the trucks shifted to private respondent

after the sale. But petitioner must remember that prior to its
consummation it expressly intimated to her that it had already paid the
taxes and customs duties.25 Such representation shall be considered
as a seller's express warranty under Art. 1546 of the Civil Code which
covers any affirmation of fact or any promise by the seller which
induces the buyer to purchase the thing and actually purchases it
relying on such affirmation or promise. 26 It includes all warranties
which are derived from express language, whether the language is in
the form of a promise or representation. 27Presumably, therefore,
private respondent would not have purchased the two (2) Elf trucks
were it not for petitioner's assertion and assurance that all taxes on its
imported parts were already settled.
This express warranty was breached the moment petitioner refused to
furnish private respondent with the corresponding receipts since such
documents were the best evidence she could present to the
government to prove that all BIR taxes and customs duties on the
imported component parts were fully paid. Without evidence of
payment, she was powerless to prevent the trucks from being
impounded.
Under Art. 1599 of the Civil Code, once an express warranty is
breached the buyer can accept or keep the goods and maintain an
action against the seller for damages. This was what private
respondent did. She opted to keep the two (2) trucks which she
apparently needed for her business and filed a complaint for damages,
particularly seeking the reimbursement of the amount she paid to
secure the release of her vehicles.
WHEREFORE, the Decision of the Court of Appeals dated 22 January
1998 ordering petitioner HARRISON MOTORS CORPORATION to
reimburse private respondent RACHEL A. NAVARRO for the taxes and
duties she paid in the amount of P32,943.00 and to pay her attorney's
fees in the amount of P7,500.00 is AFFIRMED. In addition, the amount
of P32,943.00 shall earn interest at the legal rate from 24 September
1990 when private respondent filed her complaint with the trial court
until fully paid. Costs against petitioner.
SO ORDERED.1wphi1.nt
G.R. No. L-42636 August 1, 1985
MARIA LUISA DE LEON ESCALER and ERNESTO ESCALER,
CECILIA J. ROXAS and PEDRO ROXAS,petitioners,
vs.
COURT OF APPEALS, JOSE L. REYNOSO, now deceased, to be
substituted by his heirs or legal representatives and AFRICA V.
REYNOSO, respondents.
Avancea Law Office for petitioners.
Bauza, Ampil, Suarez, and Paredes Law Office for respondent Africa
V. Reynoso.

The following are the pertinent background facts:

On March 7, 1958, the spouses Africa V. Reynoso and Jose L,
Reynoso sold to petitioners several others, a parcel of land, situated in
Antipolo, Rizal with an area of 239,479 square meters and covered by
TCT No. 57400 of the Register of Deeds of the Province of Rizal. The
Deed of Sale 1 contained the following covenant against eviction, to
wit:
That the VENDOR is the absolute owner of a
parcel of land ... the ownership thereof being
evidenced by an absolute deed of sale executed in
her favor by registered owner ANGELINA C.
REYNOSO, ...;
That the VENDOR warrants valid title to and
ownership of said parcel of land and further,
warrant to defend the property herein sold and
conveyed, unto the VENDEES, their heirs, and
assignees, from any and all claims of any persons
whatsoever.
On April 21, 1961, the Register of Deeds of Rizal and A. Doronilla
Resources Development, Inc. filed Case No. 4252 before the Court of
First Instance of Rizal for the cancellation of OCT No. 1526 issued in
the name of Angelina C. Reynoso (predecessor-in-interest of private
respondents-vendors) on February 26, 1958 under Decree No. 62373,
LRC Record No. N-13783, on the ground that the property covered by
said title is already previously registered under Transfer Certificate of
Title No. 42999 issued in the name of A. Doronilla Development, Inc.
Petitioners as vendees filed their opposition to the said petition.
On June 10, 1964, an Order 2 was issued in the said case, the
dispositive portion of which reads:
IN VIEW OF THE ABOVE CONSIDERATIONS,
this Court is constrained to set aside Decree No.
62373 issued in LRC. Rec. No. N-13783 and the
Register of Deeds of Rizal is directed to cancel
OCT No. 1526 of his office and all Transfer
Certificates of Title issued subsequently thereafter
to purchaser of said property or portions thereof,
the same being null and void, the expenses for
such cancellation to be charged to spouses
Angelina Reynoso and Floro Reynoso. The
owner's duplicates in the possession of the
transferees of the property covered by OCT No.
1526 are declared null and void and said
transferees are directed to surrender to the
Register of Deeds of Rizal, said owner's duplicates
for cancellation.
The other reliefs sought for by the party oppositors
are denied the same not falling within the
jurisdiction of this Court under this proceeding.
SO ORDERED.

CUEVAS, J.:
This is a Petition for Review on certiorari of the Decision of the then
Court of Appeals (now the Intermediate Appellate Court) and of its
Resolution denying petitioners' Motion for Reconsideration, in CA G.R.
No. 41953-R, which was an appeal from the judgment of the Court of
First Instance of Rizal in Civil Case No. 9014 entitled "Maria Luisa de
Leon Escaler, et al vs. Jose L. Reynoso and Africa Reynoso."

On August 31, 1965, herein petitioners, spouses Maria de Leon

Escaler and Ernesto Escaler and spouses Cecilia J. Roxas and Pedro
Roxas, filed Civil Case No. 9014 before the Court of First Instance of
Rizal against their vendors, herein private respondents, spouses Jose
L. Reynoso and Africa Reynoso for the recovery of the value of the
property sold to them plus damages on the ground that the latter have
violated the vendors' "warranty against eviction."

The complaint among others, alleged that the Order issued in Case
No. 4252 which cancelled the title of Angelina C. Reynoso and all
subsequent Transfer Certificates of Title derived and/or emanating
therefrom and which includes the titles of petitioners, is now final, and
by reason thereof petitioners lost their right over the property sold; and
that in said Case No. 4252, the respondents were summoned and/or
given their day in court at the instance of the petitioners. 3
The respondents, as defendants, filed their answer alleging, among
others, by way of affirmative defenses that "the cause of action, if any,
of plaintiffs against defendants have been fully adjudicated in Case No.
4252 when plaintiffs failed to file a third-party complaint against
defendants." 4
On August 18, 1967, petitioners, as plaintiffs, filed a Motion for
Summary Judgment, alleging the facts already averred in the
complaint, and further alleging that the defendants were summoned
and were given their day in court at the instance of plaintiffs in Case
No. 4252. In support of their said motion, the plaintiffs attached the
affidavit of Atty. Alberto R. Avancea who had represented the plaintiffs
in Case No. 4252 and had filed a joint opposition in behalf of all the
vendees. The pertinent portion of that affidavit, states
4. That he has furnished a copy of said joint
opposition to Africa Reynoso, wife of Jose L.
Reynoso, at her given address at c/o Antipolo
Enterprises, Antipolo, Rizal and the latter had
received the same, as evidenced by the
photostatic copy of the Registry Return Receipt
thereto affixed as Annex "C-l";

reimburse to each one of the plaintiffs the

expenses of contract and litigation and the amount
of P2,250.00 to pay the attorney's fees of
P1,000.00 plus the costs of suit.
SO ORDERED.
Private respondents appealed the aforesaid decision to the then Court
of Appeals 5 assigning as sole errorthat the lower court erred in
finding that they were summoned and were given their day in court at
the instance of petitioners-plaintiffs in Case No. 4252.
In reversing the decision of the trial court and dismissing the case, the
then Court of Appeals found and so ruled that petitioners as vendees
had not given private respondents-vendors, formal notice of the
eviction case as mandated by Arts. 1558 and 1559 of the New Civil
Code.
Hence, the instant recourse, petitioners contending
1) that the Court of Appeals erred in applying
strictly to the instant case the provisions of Articles
1558 and 1559 of the new Civil Code; and
2) that the decision of the Court of First Instance of
Rizal should have been affirmed by the Court of
Appeals or at least, the, Court of Appeals should
have remanded the case to the trial court, for
hearing on the merits.

xxx xxx xxx

The petition is devoid of merit. Consequently, it must be dismissed.

6. That he hereby executed this Affidavit to prove

that said defendants Africa Reynoso and Jose L.
Reynoso were given their day in Court and/or
were afforded their opportunity to be heard in
Case No. 4252 aforecited.

Article 1548, in relation to Articles 1558. and 1559 of the New Civil
Code reads as follows:

On September 27, 1967, judgment was rendered by the trial court, the
pertinent portion of which reads
Considering the foregoing motion for summary
judgment and it appearing that the defendants
under a Deed of Absolute Sale (Annex "C") have
expressly warranted their valid title and ownership
of the said parcel of land and further warranted to
defend said property from any and all claims of
any persons whomever in favor of plaintiffs; that
the said warranties were violated when on June
10, 1964, an Order was promulgated by the Court
of First Instance of Rizal in Case No. 4252
(Related to LRC Case No. 1559, LRC Record No.
N13293). In Re: Petition for Cancellation of
Original Registration, etc., covering the parcel of
land in question; that said order of June 10, 1964
has become final and executory there being no
appeal interposed thereto and defendants were
summoned and were given a day in court at the
instance of the plaintiffs in Case No. 4252, the
Court hereby grants the motion for summary
judgment, and hereby orders the defendants to
jointly and severally return to the plaintiffs Maria
Luisa de Leon Escaler and Ernesto Escaler,
Cecilia J. Roxas and Pedro Roxas, the value of
the property sold to them at the time of eviction
which is not to be less than P5,500.00 to

Art. 1548, Eviction shall take place whenever by a

final judgment based on a right prior to the sale or
an act imputable to the vendor, the vendee is
deprived of the whole or of a part of the thing
purchased.
The vendor shall answer for the eviction even
though nothing has been said in the contract on
the subject.
The contracting parties, however, may increase,
diminish, or suppress this legal obligation of the
vendor.
Art. 1558. The vendor shall not be obliged to make
good the proper warranty, unless he is summoned
in the suit for eviction at the instance of the
vendee. (emphasis supplied)
Art. 1559. The defendant vendee shall ask, within
the time fixed in the Rules of Court for answering
the complaint that the vendor be made as codefendant.
In order that a vendor's liability for eviction may be enforced, the
following requisites must concura) there must be a final judgment; b)
the purchaser has been deprived of the whole or part of the thing sold;
c) said deprivation was by virtue of a right prior to the sale made by the
vendor; and d) the vendor has been summoned and made codefendant in the suit for eviction at the instance of the vendee. 6

In the case at bar, the fourth requisitethat of being summoned in the

suit for eviction (Case No. 4252) at the instance of the vendeeis not
present. All that the petitioners did, per their very admission, was to
furnish respondents, by registered mail, with a copy of the opposition
they (petitioners filed in the eviction suit. Decidedly, this is not the kind
of notice prescribed by the aforequoted Articles 1558 and 1559 of the
New Civil Code. The term "unless he is summoned in the suit for
eviction at the instance of the vendee" means that the respondents as
vendor/s should be made parties to the suit at the instance of
petitioners-vendees, either by way of asking that the former be made a
co-defendant or by the filing of a third-party complaint against said
vendors. Nothing of that sort appeared to have been done by the
petitioners in the instant case.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the petition is
DISMISSED and the appealed decision of the then Court of Appeals is
AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 119745 June 20, 1997
POWER COMMERCIAL AND INDUSTRIAL
CORPORATION, petitioner,
vs.
COURT OF APPEALS, SPOUSES REYNALDO and ANGELITA R.
QUIAMBAO and PHILIPPINE NATIONAL BANK, respondents.

PANGANIBAN, J.:
Is the seller's failure to eject the lessees from a lot that is the subject of
a contract of sale with assumption of mortgage a ground (1) for
rescission of such contract and (2) for a return by the mortgagee of the
amortization payments made by the buyer who assumed such
mortgage?
Petitioner posits an affirmative answer to such question in this petition
for review on certiorari of the March 27, 1995 Decision 1 of the Court of
Appeals, Eighth Division, in CA-G.R. CV Case No. 32298 upholding
the validity of the contract of sale with assumption of mortgage and
absolving the mortgagee from the liability of returning the mortgage
payments already made. 2
The Facts
Petitioner Power Commercial & Industrial Development Corporation,
an industrial asbestos manufacturer, needed a bigger office space and
warehouse for its products. For this purpose, on January 31, 1979, it
entered into a contract of sale with the spouses Reynaldo and Angelita
R. Quiambao, herein private respondents. The contract involved a 612sq. m. parcel of land covered by Transfer Certificate of Title No. S-6686
located at the corner of Bagtican and St. Paul Streets, San Antonio
Village, Makati City. The parties agreed that petitioner would pay
private respondents P108,000.00 as down payment, and the balance
of P295,000.00 upon the execution of the deed of transfer of the title
over the property. Further, petitioner assumed, as part of the purchase
price, the existing mortgage on the land. In full satisfaction thereof, he
paid P79,145.77 to Respondent Philippine National Bank ("PNB" for
brevity).

On June 1, 1979, respondent spouses mortgaged again said land to

PNB to guarantee a loan of P145,000.00, P80,000.00 of which was
paid to respondent spouses. Petitioner agreed to assume payment of
the loan.
On June 26, 1979, the parties executed a Deed of Absolute Sale With
Assumption of Mortgage which contained the following terms and
conditions: 3
That for and in consideration of the sum of Two
Hundred Ninety-Five Thousand Pesos
(P295,000.00) Philippine Currency, to us in hand
paid in cash, and which we hereby acknowledge
to be payment in full and received to our entire
satisfaction, by POWER COMMERCIAL AND
INDUSTRIAL DEVELOPMENT CORPORATION, a
100% Filipino Corporation, organized and existing
under and by virtue of Philippine Laws with offices
located at 252-C Vito Cruz Extension, we hereby
by these presents SELL, TRANSFER and
CONVEY by way of absolute sale the above
described property with all the improvements
existing thereon unto the said Power Commercial
and Industrial Development Corporation, its
successors and assigns, free from all liens and
encumbrances.
We hereby certify that the aforesaid property is not
subject to nor covered by the provisions of the
Land Reform Code the same having no
agricultural lessee and/or tenant.
We hereby also warrant that we are the lawful and
absolute owners of the above described property,
free from any lien and/or encumbrance, and we
hereby agree and warrant to defend its title and
peaceful possession thereof in favor of the said
Power Commercial and Industrial Development
Corporation, its successors and assigns, against
any claims whatsoever of any and all third
persons; subject, however, to the provisions
hereunder provided to wit:
That the above described property is mortgaged to
the Philippine National Bank, Cubao, Branch,
Quezon City for the amount of one hundred fortyfive thousand pesos, Philippine, evidenced by
document No. 163, found on page No. 34 of Book
No. XV, Series of 1979 of Notary Public Herita
L. Altamirano registered with the Register of
Deeds of Pasig (Makati), Rizal . . . ;
That the said Power Commercial and Industrial
Development Corporation assumes to pay in full
the entire amount of the said mortgage above
described plus interest and bank charges, to the
said mortgagee bank, thus holding the herein
vendor free from all claims by the said bank;
That both parties herein agree to seek and secure
the agreement and approval of the said Philippine
National Bank to the herein sale of this property,
hereby agreeing to abide by any and all
requirements of the said bank, agreeing that
failure to do so shall give to the bank first lieu (sic)
over the herein described property.

On the same date, Mrs. C.D. Constantino, then General Manager of

petitioner-corporation, submitted to PNB said deed with a formal
application for assumption of mortgage. 4
On February 15, 1980, PNB informed respondent spouses that, for
petitioner's failure to submit the papers necessary for approval
pursuant to the former's letter dated January 15, 1980, the application
for assumption of mortgage was considered withdrawn; that the
outstanding balance of P145,000.00 was deemed fully due and
demandable; and that said loan was to be paid in full within fifteen (15)
days from notice. 5
Petitioner paid PNB P41,880.45 on June 24, 1980 and P20,283.14 on
December 23, 1980, payments which were to be applied to the
outstanding loan. On December 23, 1980, PNB received a letter from
petitioner which reads: 6

On March 17, 1982, petitioner filed Civil Case No. 45217 against
respondent spouses for rescission and damages before the Regional
Trial Court of Pasig, Branch 159. Then, in its reply to PNB's letter of
February 19, 1982, petitioner demanded the return of the payments it
made on the ground that its assumption of mortgage was never
approved. On May 31, 1983, 8 while this case was pending, the
mortgage was foreclosed. The property was subsequently bought by
PNB during the public auction. Thus, an amended complaint was filed
impleading PNB as party defendant.
On July 12, 1990, the trial court 9 ruled that the failure of respondent
spouses to deliver actual possession to petitioner entitled the latter to
rescind the sale, and in view of such failure and of the denial of the
latter's assumption of mortgage, PNB was obliged to return the
payments made by the latter. The dispositive portion of said decision
states: 10

With regard to the presence of the people who are

currently in physical occupancy of the (l)ot . . . it is
our desire as buyers and new owners of this lot to
make use of this lot for our own purpose, which is
why it is our desire and intention that all the people
who are currently physically present and in
occupation of said lot should be removed
immediately.

IN VIEW OF ALL THE FOREGOING, the Court

hereby renders judgment in favor of plaintiff and
against defendants:

For this purpose we respectfully request that . . .

our assumption of mortgage be given favorable
consideration, and that the mortgage and title be
transferred to our name so that we may undertake
the necessary procedures to make use of this lot
ourselves.

(2) Ordering defendants Spouses Quiambao to

return to plaintiff the amount of P187,144.77
(P108,000.00 plus P79,145.77) with legal interest
of 12% per annum from date of filing of herein
complaint, that is, March 17, 1982 until the same
is fully paid;

It was our understanding that this lot was free and

clear of problems of this nature, and that the
previous owner would be responsible for the
removal of the people who were there. Inasmuch
as the previous owner has not been able to keep
his commitment, it will be necessary for us to take
legal possession of this lot inorder (sic) to take
physical possession.

(3) Ordering defendant PNB to return to plaintiff

the amount of P62,163.59 (P41,880.45 and
P20,283.14) with 12% interest thereon from date
of herein judgment until the same is fully paid.

On February 19, 1982, PNB sent petitioner a letter as follows: 7

(T)his refers to the loan granted to Mr. Reynaldo
Quiambao which was assumed by you on June 4,
1979 for P101,500.00. It was last renewed on
December 24, 1980 to mature on June 4, 1981.
A review of our records show that it has been past
due from last maturity with interest arrearages
amounting to P25,826.08 as of February 19, 1982.
The last payment received by us was on
December 24, 1980 for P20,283. 14. In order to
place your account in current form, we request you
to remit payments to cover interest, charges, and
at least part of the principal.

(1) Declaring the rescission of the Deed of Sale

with Assumption of Mortgage executed between
plaintiff and defendants Spouses Quiambao, dated
June 26, 1979;

No award of other damages and attorney's fees,

the same not being warranted under the facts and
circumstances of the case.
The counterclaim of both defendants spouses
Quiambao and PNB are dismissed for lack of
merit.
No pronouncement as to costs.
SO ORDERED.
On appeal by respondent-spouses and PNB, Respondent Court of
Appeals reversed the trial court. In the assailed Decision, it held that
the deed of sale between respondent spouses and petitioner did not
obligate the former to eject the lessees from the land in question as a
condition of the sale, nor was the occupation thereof by said lessees a
violation of the warranty against eviction. Hence, there was no
substantial breach to justify the rescission of said contract or the return
of the payments made. The dispositive portion of said Decision
reads: 11
WHEREFORE, the Decision appealed from is
hereby REVERSED and the complaint filed by
Power Commercial and Industrial Development
Corporation against the spouses Reynaldo and
Angelita Quiambao and the Philippine National
Bank is DISMISSED. No costs.

Hence, the recourse to this Court.

Issues
Petitioner contends that: (1) there was a substantial breach of the
contract between the parties warranting rescission; and (2) there was a
"mistake in payment" made by petitioner, obligating PNB to return such
payments. In its Memorandum, it specifically assigns the following
errors of law on the part of Respondent Court: 12
A. Respondent Court of Appeals gravely erred in
failing to consider in its decision that a breach of
implied warranty under Article 1547 in relation to
Article 1545 of the Civil Code applies in the caseat-bar.
B. Respondent Court of Appeals gravely erred in
failing to consider in its decision that a mistake in
payment giving rise to a situation where the
principle of solutio indebiti applies is obtaining in
the case-at-bar.
The Court's Ruling
The petition is devoid of merit. It fails to appreciate the difference
between a condition and a warranty and the consequences of such
distinction.
Conspicuous Absence of an Imposed Condition
The alleged "failure" of respondent spouses to eject the lessees from
the lot in question and to deliver actual and physical possession
thereof cannot be considered a substantial breach of a condition for
two reasons: first, such "failure" was not stipulated as a condition
whether resolutory or suspensive in the contract; and second, its
effects and consequences were not specified either. 13

contract a provision similar to that referred to in Romero vs. Court of

Appeals, 17where the ejectment of the occupants of the lot sold by
private respondent was the operative act which set into motion the
period of petitioner's compliance with his own obligation, i.e., to pay the
balance of the purchase price. Failure to remove the squatters within
the stipulated period gave the other party the right to either refuse to
proceed with the agreement or to waive that condition of ejectment in
consonance with Article 1545 of the Civil Code. In the case cited, the
contract specifically stipulated that the ejectment was a condition to be
fulfilled; otherwise, the obligation to pay the balance would not arise.
This is not so in the case at bar.
Absent a stipulation therefor, we cannot say that the parties intended to
make its nonfulfillment a ground for rescission. If they did intend this,
their contract should have expressly stipulated so. In Ang
vs. C.A., 18 rescission was sought on the ground that the petitioners
had failed to fulfill their obligation "to remove and clear" the lot sold, the
performance of which would have given rise to the payment of the
consideration by private respondent. Rescission was not allowed,
however, because the breach was not substantial and fundamental to
the fulfillment by the petitioners of the obligation to sell.
As stated, the provision adverted to in the contract pertains to the
usual warranty against eviction, and not to a condition that was not
met.
The terms of the contract are so clear as to leave no room for any
other interpretation. 19
Furthermore, petitioner was well aware of the presence of the tenants
at the time it entered into the sales transaction. As testified to by
Reynaldo, 20 petitioner's counsel during the sales negotiation even
undertook the job of ejecting the squatters. In fact, petitioner actually
filed suit to eject the occupants. Finally, petitioner in its letter to PNB of
December 23, 1980 admitted that it was the "buyer(s) and new
owner(s) of this lot."
Effective Symbolic Delivery

The provision adverted to by petitioner does not impose a condition or

an obligation to eject the lessees from the lot. The deed of sale
provides in part: 14
We hereby also warrant that we are the lawful and
absolute owners of the above described property,
free from any lien and/or encumbrance, and we
hereby agree and warrant to defend its title and
peaceful possession thereof in favor of the said
Power Commercial and Industrial Development
Corporation, its successors and assigns, against
any claims whatsoever of any and all third
persons; subject, however, to the provisions
hereunder provided to wit:
By his own admission, Anthony Powers, General Manager of
petitioner-corporation, did not ask the corporation's lawyers to stipulate
in the contract that Respondent Reynaldo was guaranteeing the
ejectment of the occupants, because there was already a proviso in
said deed of sale that the sellers were guaranteeing the peaceful
possession by the buyer of the land in question. 15 Any obscurity in a
contract, if the above-quoted provision can be so described, must be
construed against the party who caused it. 16 Petitioner itself caused
the obscurity because it omitted this alleged condition when its lawyer
drafted said contract.
If the parties intended to impose on respondent spouses the obligation
to eject the tenants from the lot sold, it should have included in the

The Court disagrees with petitioner's allegation that the respondent

spouses failed to deliver the lot sold. Petitioner asserts that the legal
fiction of symbolic delivery yielded to the truth that, at the execution of
the deed of sale, transfer of possession of said lot was impossible due
to the presence of occupants on the lot sold. We find this misleading.
Although most authorities consider transfer of ownership as the
primary purpose of sale, delivery remains an indispensable requisite as
our law does not admit the doctrine of transfer of property by mere
consent. 21 The Civil Code provides that delivery can either be (1)
actual (Article 1497) or (2) constructive (Articles 1498-1501). Symbolic
delivery (Article 1498), as a species of constructive delivery, effects the
transfer of ownership through the execution of a public document. Its
efficacy can, however, be prevented if the vendor does not possess
control over the thing sold, 22 in which case this legal fiction must yield
to reality.
The key word is control, not possession, of the land as petitioner would
like us to believe. The Court has consistently held that: 23
. . . (I)n order that this symbolic delivery may
produce the effect of tradition, it is necessary that
the vendor shall have had such control over the
thing sold that . . . its material delivery could have
been made. It is not enough to confer upon the
purchaser the ownership and the right of
possession. The thing sold must be placed in

his control. When there is no impediment whatever

to prevent the thing sold passing into the tenancy
of the purchaser by the sole will of the vendor,
symbolic delivery through the execution of a public
instrument is sufficient. But if, notwithstanding the
execution of the instrument, the purchaser cannot
have the enjoyment and material tenancy of the
thing and make use of it himself or through
another in his name, because such tenancy and
enjoyment are opposed by the interposition of
another will, then fiction yields to reality the
delivery has not been effected.
Considering that the deed of sale between the parties did not stipulate
or infer otherwise, delivery was effected through the execution of said
deed. The lot sold had been placed under the control of petitioner;
thus, the filing of the ejectment suit was subsequently done. It signified
that its new owner intended to obtain for itself and to terminate said
occupants' actual possession thereof. Prior physical delivery or
possession is not legally required and the execution of the deed of sale
is deemed equivalent to delivery. 24 This deed operates as a formal or
symbolic delivery of the property sold and authorizes the buyer to use
the document as proof of ownership. Nothing more is required.
Requisites of Breach of Warranty Against Eviction
Obvious to us in the ambivalent stance of petitioner is its failure to
establish any breach of the warranty against eviction. Despite its
protestation that its acquisition of the lot was to enable it to set up a
warehouse for its asbestos products and that failure to deliver actual
possession thereof defeated this purpose, still no breach of warranty
against eviction can be appreciated because the facts of the case do
not show that the requisites for such breach have been satisfied. A
breach of this warranty requires the concurrence of the following
circumstances:
(1) The purchaser has been deprived of the whole or part of the thing
sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale made by the
vendor; and
(4) The vendor has been summoned and made co-defendant in the
suit for eviction at the instance of the vendee.25
In the absence of these requisites, a breach of the warranty
against eviction under Article 1547 cannot be declared.
Petitioner argues in its memorandum that it has not yet ejected the
occupants of said lot, and not that it has been evicted therefrom. As
correctly pointed out by Respondent Court, the presence of lessees
does not constitute an encumbrance of the land, 26 nor does it deprive
petitioner of its control thereof.
We note, however, that petitioner's deprivation of ownership and
control finally occurred when it failed and/or discontinued paying the
amortizations on the mortgage, causing the lot to be foreclosed and
sold at public auction. But this deprivation is due to petitioner's fault,
and not to any act attributable to the vendor-spouses.
Because petitioner failed to impugn its integrity, the contract is
presumed, under the law, to be valid and subsisting.

Absence of Mistake In Payment

Contrary to the contention of petitioner that a return of the payments it
made to PNB is warranted under Article 2154 of the Code, solutio
indebiti does not apply in this case. This doctrine applies where: (1) a
payment is made when there exists no binding relation between the
payor, who has no duty to pay, and the person who received the
payment, and (2) the payment is made through mistake, and not
through liberality or some other cause. 27
In this case, petitioner was under obligation to pay the amortizations on
the mortgage under the contract of sale and the deed of real estate
mortgage. Under the deed of sale (Exh. "2"), 28 both parties agreed to
abide by any and all the requirements of PNB in connection with the
real estate mortgage. Petitioner was aware that the deed of mortgage
(Exh. "C") made it solidarily and, therefore, primarily 29 liable for the
mortgage obligation: 30
(e) The Mortgagor shall neither lease the
mortgaged property. . . nor sell or dispose of the
same in any manner, without the written consent
of the Mortgagee. However, if not withstanding this
stipulation and during the existence of this
mortgage, the property herein mortgaged, or any
portion thereof, is . . . sold, it shall be the
obligation of the Mortgagor to impose as a
condition of the sale, alienation or encumbrance
that the vendee, or the party in whose favor the
alienation or encumbrance is to be made, should
take the property subject to the obligation of this
mortgage in the same terms and condition under
which it is constituted, it being understood that the
Mortgagor is not in any manner relieved of his
obligation to the Mortgagee under this mortgage
by such sale, alienation or encumbrance; on the
contrary both the vendor and the vendee, or the
party in whose favor the alienation or
encumbrance is made shall be jointly and
severally liable for said mortgage obligations. . . .
Therefore, it cannot be said that it did not have a duty to pay
to PNB the amortization on the mortgage.
Also, petitioner insists that its payment of the amortization was a
mistake because PNB disapproved its assumption of mortgage after it
failed to submit the necessary papers for the approval of such
assumption.
But even if petitioner was a third party in regard to the mortgage of the
land purchased, the payment of the loan by petitioner was a condition
clearly imposed by the contract of sale. This fact alone disproves
petitioner's insistence that there was a "mistake" in payment. On the
contrary, such payments were necessary to protect its interest as a
"the buyer(s) and new owner(s) of the lot."
The quasi-contract of solutio indebiti is one of the concrete
manifestations of the ancient principle that no one shall enrich himself
unjustly at the expense of another. 31 But as shown earlier, the
payment of the mortgage was an obligation petitioner assumed under
the contract of sale. There is no unjust enrichment where the
transaction, as in this case, is quid pro quo, value for value.
All told, respondent Court did not commit any reversible error which
would warrant the reversal of the assailed Decision.

WHEREFORE, the petition is hereby DENIED, and the assailed

Decision is AFFIRMED.
SO ORDERED.
G.R. No. 148173

December 10, 2004

SUPERCARS MANAGEMENT & DEVELOPMENT CORPORATION,

represented by its President Benigno Chan, petitioner,
vs.
THE LATE FILEMON FLORES, substituted by his surviving
spouse, NORA C. FLORES,1 respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari assailing the
Decision2 dated November 29, 2000 and Resolution3dated April 26,
2001, both issued by the Court of Appeals in CA-G.R. CV No. 40419,
entitled "Filemon Flores vs. Supercars Management & Development
Corporation, Mamerto Catley, Pablito Marquez, and Rizal Commercial
Banking Corporation."
In the second week of December 1988, Filemon Flores, respondent,
purchased from Supercars Management and Development
Corporation, petitioner, an Isuzu Carter Crew Cab for P212,000.00
payable monthly with a down payment equivalent to 30% of the price
or P63,600.00. The balance was to be financed by the Rizal
Commercial Banking Corporation (RCBC). The sale was coursed
through Pablito Marquez, petitioner's salesman.
Upon delivery of the vehicle on December 27, 1988, respondent paid
petitioner the 30% down payment, plus premium for the vehicle's
comprehensive insurance policy amounting to P7,374.80. The RCBC
financed the balance of the purchase price. Its payment was secured
by a chattel mortgage of the same vehicle.
A day after the vehicle was delivered, respondent used it for his
family's trip to Bauang, La Union. While traversing the national highway
in Tarlac, Tarlac, the fan belt of the vehicle snapped. Then its brakes
hardened after several stops and did not function properly; the heater
plug did not also function; the engine could not start; and the fuel
consumption increased.4
Upon their return to Manila in the first week of January 1989,
respondent complained to petitioner about the defects of the vehicle.
Marquez then had the vehicle repaired and returned it to respondent
that same day, assuring the latter that it was already in good condition.
But after driving the vehicle for a few days, the same defects
resurfaced, prompting respondent to send petitioner a letter dated
January 30, 1989 rescinding the contract of sale and returning the
vehicle due to breach of warranty against hidden defects. A copy of the
letter was furnished RCBC.

In response to respondent's letter, petitioner directed Marquez to have

the vehicle fixed. Thereafter, he returned the vehicle to respondent with
the assurance that it has no more defects. However, when respondent
drove it for a few days, he found that the vehicle was still defective.
Hence, on February 7, 1989, respondent sent petitioner another letter
restating that he is rescinding the contract of sale, a copy of which was
furnished RCBC. On February 9, 1989, he returned the vehicle to
petitioner. Later, Marquez and Mamerto Catley, petitioner's salesman,
tried to convince respondent to accept the vehicle as it had been
completely repaired. But respondent refused.
On March 1, 1989, respondent sent petitioner a letter demanding the
refund of his down payment, plus the premium he paid for the vehicle's
insurance.
Petitioner failed to comply with petitioner's demand. Consequently,
respondent stopped paying the monthly amortization for the vehicle.
On March 21, 1989, RCBC sent respondent a letter demanding that he
settle his past overdue accounts for February 15 and March 15, 1989.
In reply, respondent, through a letter dated March 31, 1989, informed
RCBC that he had rescinded the contract of sale and had returned the
vehicle to petitioner. This prompted RCBC to file with the Office of the
Clerk of Court and Ex-Officio Sheriff, Regional Trial Court, Quezon
City, a Petition for Extra-judicial Foreclosure of Chattel Mortgage.
On June 2, 1989, a Notice of Sheriff's Sale of the vehicle was set.
On June 1, 1989, respondent filed with the same Office
a Manifestation/Motion asking for the postponement of the scheduled
auction sale until such time that petitioner and/or RCBC shall have
reimbursed him of the amount he paid for the vehicle; and that should
the auction sale be conducted, the proceeds thereof equivalent to the
amount he spent be withheld and turned over to him.
The auction sale proceeded as scheduled. RCBC, being the highest
bidder, purchased the vehicle. Subsequently, RCBC sold the vehicle to
a third party.
On November 3, 1989, respondent filed with the Regional Trial Court
(RTC), Branch 150, Makati City a complaint5 for rescission of contract
with damages against petitioner, Marquez, Catley and RCBC,
docketed as Civil Case No. 89-5566.
In their separate answers, petitioner, Marquez and Catley denied
having committed any breach of warranty against hidden defects,
claiming that the vehicle had only "minor and inconsequential defects"
which "were promptly and satisfactorily repaired by petitioner
Supercars pursuant to its warranty as the seller."6 For its part, RCBC
claimed that it has no liability whatsoever against respondent because
it merely enforced its right under the chattel mortgage law. All the
defendants prayed for the dismissal of the complaint.
On April 13, 1992, the RTC rendered its Decision in favor of
respondent and against the defendants, thus:
"WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendants, ordering the latter to
jointly and severally pay the plaintiff as follows:
1. the amount of P70,974.80 representing the 30%
down payment and premium paid for one year
comprehensive motor vehicle insurance plus
interests at the rate of 14% per annum from date

of filing of this complaint on October 30, 1989 until

fully paid;
2. the sum of P50,000.00 as moral damages;
3. the sum of P25,000.00 as exemplary damages;
4. the sum of P20,000.00 as attorney's fees; and

xxx
"It is with respect to appellants Catley and Marquez' liability
that we are minded to modify the (appealed) Decision. The
two being mere employees (of appellant Supercars
Management and Development Corporation), they cannot be
held liable to refund the amount claimed by Flores. Nor can
they be made liable for damages and attorney's fees, there
being no clear evidence that they had a hand in giving rise
thereto.

5. the costs of suit.

SO ORDERED."7
Upon motion for reconsideration by RCBC, the RTC, in an Order dated
December 21, 1992, modified its Decision by absolving RCBC from
any liability and dismissing the complaint against it, thus:
xxx
"Going into the merits of defendant bank's contention that it
has valid and meritorious defense which should ultimately
exculpate it from any liability, jointly and severally, with the
other defendants, the Court, after a careful review of the
evidence on hand, reconsiders its Decision insofar as the
said bank is concerned. The valid exercise by the plaintiff of
its right to rescind the contract of sale for the purchase of the
motor vehicle in question does not apply to defendant bank.
Said contract is effective only as against defendant
Supercars Management and Development Corporation,
which must principally suffer the consequence of its breach
of the contract.
This Court likewise takes notice of the fact that since the
motor vehicle was voluntarily surrendered by the plaintiff and
that defendant bank merely exercised its right under the
chattel mortgage law, no fault can be attributed to the latter.
The fact that the plaintiff sent a letter to the Office of the City
Sheriff of Quezon City, copy furnished the bank, seeking the
postponement of the auction sale of the subject motor
vehicle, will not and cannot be considered as a valid ground
to hold said bank liable for only exercising its rights under
the law. At most, the liability must really be imputed only
against defendants Supercars Management and
Development Corporation, Mamerto Catley and Pablito
Marquez.
"WHEREFORE, considering the foregoing premises, the
Decision of this Court dated April 13, 1992, insofar as it
holds defendant Rizal Commercial Banking Corporation
jointly and severally liable to the plaintiff, is hereby
MODIFIED and the case against said bank DISMISSED.
Similarly, the compulsory counterclaim against the plaintiff is
likewise dismissed.
The dispositive portion of the same Decision insofar as the
rest of the defendants are concerned is hereby maintained
and affirmed in toto.
SO ORDERED."8
From the above Decision and Order, petitioner, Marquez and Catley
interposed an appeal to the Court of Appeals, docketed as CA-G.R. CV
No. 40419. In a Decision dated November 29, 2000, the Appellate
Court affirmed the RTC Decision with modification in the sense that the
complaint against Marquez and Catley was dismissed, thus:

WHEREFORE, the appealed Amended Decision is

AFFIRMED, with the MODIFICATION that the complaint
insofar as defendants-appellants Mamerto Catley and
Pablito Marquez is hereby DISMISSED.
SO ORDERED.9
Petitioner filed a motion for reconsideration but denied in a Resolution
dated April 26, 2001.10
Hence, the instant petition.
Petitioner contends that respondent has "no right to rescind the
contract of sale"11 because "the motor vehicle in question, as found by
the RTC and the Court of Appeals, is already in the hands of a third
party, one Mr. Lim an innocent purchaser for value."12 Thus, both
courts erred in ordering petitioner to refund respondent of the amounts
he paid for the vehicle.
The issue here is whether respondent has the right to rescind the
contract of sale and to claim damages as a result thereof.
We rule for respondent.
Respondent's complaint filed with the RTC seeks to recover from
petitioner the money he paid for the vehicle due to the latter's breach of
his warranty against hidden defects under Articles 1547,13 1561,14 and
156615 of the Civil Code. The vehicle, after it was delivered to
respondent, malfunctioned despite repeated repairs by petitioner.
Obviously, the vehicle has hidden defects. A hidden defect is one
which is unknown or could not have been known to the vendee.16
The findings of both the RTC and Court of Appeals that petitioner
committed a breach of warranty against hidden defects are fully
supported by the records. The Appellate Court correctly ruled:
"The evidence clearly shows that Flores [now respondent]
was justified in opting to rescind the sale given the hidden
defects of the vehicle, allowance for the repair of which he
patiently extended, but which repair did not turn out to be
satisfactory.
xxx
For when by letters of January 30, 1989 and February 7,
1989, which were followed up by another dated March 1,
1989, Flores declared his rescission of the sale, which
rescission was not impugned or opposed by appellants as in
fact they accepted the return of the vehicle on February 9,
1989, such extra-judicial rescission x x x produced legal
effect (UP vs. de los Angeles, 35 SCRA 102
[1970]; Tolentino Commentaries and Jurisprudence on the
Civil Code, citing Magdalena Estate v. Myrick, 71 Phil. 344
[1940-1941]).

x x x"17
It is well within respondent's right to recover damages from petitioner
who committed a breach of warranty against hidden defects. Article
1599 of the Civil Code partly provides:
"Article 1599. Where there is a breach of warranty by the
seller, the buyer may, at his election:
xxx
(4) Rescind the contract of sale and refuse to receive the
goods, or if the goods have already been received, return
them or offer to return them to the seller and recover the
price or any part thereof which has been paid.
When the buyer has claimed and been granted a remedy in
anyone of these ways, no other remedy can thereafter be
granted, without prejudice to the provisions of the second
paragraph of Article 1191.
x x x." (Underscoring supplied)
Petitioner's contention that under Article 1191 of the Civil Code,
rescission can no longer be availed of as the vehicle was already in the
hands of an innocent purchaser for value lacks merit. Rescission is
proper if one of the parties to a contract commits a substantial breach
of its provisions. It creates an obligation to return the object of the
contract. It can be carried out only when the one who demands
rescission can return whatever he may be obliged to restore.
Rescission abrogates the contract from its inception and requires a
mutual restitution of the benefits received.18 Petitioner is thus
mandated by law to give back to respondent the purchase price upon
his return of the vehicle. Records show that at the time respondent
opted to rescind the contract, the vehicle was still in his possession. He
returned it to petitioner who, without objection, accepted it. Accordingly,
the 30% down payment equivalent to P63,600.00, plus the premium for
the comprehensive insurance amounting to P7,374.80 paid by
respondent should be returned by petitioner.
As further stated by the Court of Appeals:
"Appellant's invocation of Article 1191 of the Civil Code in
support of his argument that as the vehicle had been sold to
a third party, rescission can no longer ensue is misplaced.

While no proof of pecuniary loss is necessary in order that moral

damages may be awarded, the amount of indemnity being left to the
discretion of the court, it is nevertheless essential that the claimant
satisfactorily prove the existence of the factual basis of the damage
and its causal relation to defendant's acts. Moral damages are in the
category of an award designed to compensate the claimant for actual
injurysuffered and not to impose a penalty to the wrongdoer. This has
not been proved by respondent.
In contracts and quasi-contracts, the court may award exemplary
damages if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.20 Likewise, respondent failed to
establish that petitioner acted in such manner.
As to the award of attorney's fees, the same must be deleted since the
award of moral and exemplary damages are eliminated.21 Moreover,
the trial court did not give any justification for granting it in its decision.
It is now settled that awards of attorney's fees must be based on
findings of fact and law, stated in the decision of the trial court.22
WHEREFORE, the petition is DENIED. The assailed Decision dated
September 20, 1999 and Resolution dated February 1, 2000 of the
Court of Appeals in CA-G.R. CV No. 52177 are AFFIRMED with
MODIFICATION. The award of moral and exemplary damages and
attorney's fees are DELETED. Costs against petitioner.
SO ORDERED.
G.R. No. 152219

NUTRIMIX FEEDS CORPORATION, petitioner,

vs.
COURT OF APPEALS and SPOUSES EFREN AND MAURA
EVANGELISTA, respondents.
DECISION
CALLEJO, SR., J.:
For review on certiorari is the Decision1 of the Court of Appeals in CAG.R. CV No. 59615 modifying, on appeal, the Joint Decision2 of the
Regional Trial Court of Malolos, Bulacan, Branch 9, in Civil Case No.
1026-M-933 for sum of money and damages with prayer for issuance of
writ of preliminary attachment, and Civil Case No. 49-M-944 for
damages. The trial court dismissed the complaint of the respondents,
ordering them to pay the petitioner the unpaid value of the assorted
animal feeds delivered to the former by the latter, with legal interest
thereon from the filing of the complaint, including attorneys fees.

For, Flores is asking for the refund of the downpayment and

payment for insurance premiums. This brings us to
appellant's final argument.
Appellant's professed excuse from their inability to give
refund that refund would necessitate the return of the
subject motor vehicle which is impossible because it is now
in the hands of an innocent purchaser for value miserably
fails.
x x x appellant Supercars was paid the balance of the
purchase price by RCBC and, therefore, in addition to the
downpayment given by Flores, it had been fully paid for the
vehicle.
Ergo, Supercars had nothing more to do with the vehicle."19
However, the lower court's award of P50,000.00 as moral damages
and P25,000.00 as exemplary damages to respondent is erroneous.

October 25, 2004

The Factual Antecedents

On April 5, 1993, the Spouses Efren and Maura Evangelista, the
respondents herein, started to directly procure various kinds of animal
feeds from petitioner Nutrimix Feeds Corporation. The petitioner gave
the respondents a credit period of thirty to forty-five days to postdate
checks to be issued in payment for the delivery of the feeds. The
accommodation was made apparently because of the company
presidents close friendship with Eugenio Evangelista, the brother of
respondent Efren Evangelista. The various animal feeds were paid and
covered by checks with due dates from July 1993 to September 1993.
Initially, the respondents were good paying customers. In some
instances, however, they failed to issue checks despite the deliveries
of animal feeds which were appropriately covered by sales invoices.
Consequently, the
Sales Invoice
Number
21334

Date
June 23, 1993

Amount
P 7,260.00

21420

June 26, 1993

21437

June 28, 1993

21722

July 12, 1993

22048

July 26, 1993

22054

July 27, 1993

6,990.00 consolidation of the case with Civil Case No. 1026-M-93. On May 13,
1994, the petitioner filed its Answer with Counterclaim, alleging that the
41,510.00 death of the respondents animals was due to the widespread
pestilence in their farm. The petitioner, likewise, maintained that it
45,185.00 received information that the respondents were in an unstable financial
condition and even sold their animals to settle their obligations from
44,540.00 other enraged and insistent creditors. It, moreover, theorized that it
was the respondents who mixed poison to its feeds to make it appear
45,246.00 that the feeds were contaminated.

22186

August 2, 1993

84,900.00
A joint trial thereafter ensued.
Total:

P275,631.00 During the hearing, the petitioner presented Rufino Arenas, Nutrimix
=========== Assistant Manager, as its lone witness. He testified that on the first
week of August 1993, Nutrimix President Efren Bartolome met the
respondents to discuss the possible settlement of their unpaid account.
respondents incurred an aggregate unsettled account with the
The said respondents still pleaded to the petitioner to continue to
petitioner in the amount of P766,151.00. The breakdown of the unpaid
supply them with animal feeds because their livestock were
obligation is as follows:
supposedly suffering from a disease.6
Bank

Check
Number

Due Date

United Coconut
Planters Bank

BTS052084

July 30, 1993

-do-

BTS052087

July 30, 1993

-do-

BTS052091

July 30, 1993

-do-

BTS062721

August 4, 1993

For her part, respondent Maura Evangelista testified that as direct

buyers of animal feeds from the petitioner, Mr. Bartolome, the company
president, gave them a discount of P12.00 per bag and a credit term of
7
P 47,760.00 forty-five to seventy-five days. For the operation of the respondents
poultry and piggery farm, the assorted animal feeds sold by the
petitioner were delivered in their residence and stored in an adjacent
131,340.00 bodega made of concrete wall and galvanized iron sheet roofing with
8
59,700.00 monolithic flooring.
Amount

47,860.00 It appears that in the morning of July 26, 1993, three various kinds of
animal feeds, numbering 130 bags, were delivered to the residence of
-doBTS062720
August 5, 1993
43,780.00
the respondents in Sta. Rosa, Marilao, Bulacan. The deliveries came
-doBTS062774
August 6, 1993
15,000.00 at about 10:00 a.m. and were fed to the animals at approximately 1:30
p.m. at the respondents farm in Balasing, Sta. Maria, Bulacan. At
about 8:30 p.m., respondent Maura Evangelista received a radio
September 11,
-doBTS062748
47,180.00 message from a worker in her farm, warning her that the chickens
1993
were dying at rapid intervals. When the respondents arrived at their
September 11,
farm, they witnessed the death of 18,000 broilers, averaging 1.7 kilos
-doBTS062763
48,440.00
1993
in weight, approximately forty-one to forty-five days old. The broilers
then had a prevailing market price of P46.00 per kilo.9
September 18,
-doBTS062766
49,460.00
1993
On July 27, 1993, the respondents received another delivery of 160
bags of animal feeds from the petitioner, some of which were
distributed to the contract growers of the respondents. At that time,
Total:
P490,520.00
respondent Maura Evangelista requested the representative of the
==========
petitioner to notify Mr. Bartolome of the fact that their broilers died after
having been fed with the animal feeds delivered by the petitioner the
previous day. She, likewise, asked that a technician or veterinarian be
When the above-mentioned checks were deposited at the petitioners
sent to oversee the untoward occurrence. Nevertheless, the various
depository bank, the same were, consequently, dishonored because
feeds delivered on that day were still fed to the animals. On July 27,
respondent Maura Evangelista had already closed her account. The
1993, the witness recounted that all of the chickens and hogs
petitioner made several demands for the respondents to settle their
died.10 Efren Evangelista suffered from a heart attack and was
unpaid obligation, but the latter failed and refused to pay their
hospitalized as a consequence of the massive death of their animals in
remaining balance with the petitioner.
the farm. On August 2, 1993, another set of animal feeds were
delivered to the respondents, but the same were not returned as the
On December 15, 1993, the petitioner filed with the Regional Trial
latter were not yet cognizant of the fact that the cause of the death of
Court of Malolos, Bulacan, a complaint, docketed as Civil Case No.
their animals was the polluted feeds of the petitioner.11
1026-M-93, against the respondents for sum of money and damages
with a prayer for issuance of writ of preliminary attachment. In their
When respondent Maura Evangelista eventually met with Mr.
answer with counterclaim, the respondents admitted their unpaid
Bartolome on an undisclosed date, she attributed the improbable
obligation but impugned their liability to the petitioner. They asserted
incident to the animal feeds supplied by the petitioner, and asked Mr.
that the nine checks issued by respondent Maura Evangelista were
Bartolome for indemnity for the massive death of her livestock. Mr.
made to guarantee the payment of the purchases, which was
Bartolome disavowed liability thereon and, thereafter, filed a case
previously determined to be procured from the expected proceeds in
against the respondents.12
the sale of their broilers and hogs. They contended that inasmuch as
the sudden and massive death of their animals was caused by the
contaminated products of the petitioner, the nonpayment of their
After the meeting with Mr. Bartolome, respondent Maura Evangelista
obligation was based on a just and legal ground.
requested Dr. Rolando Sanchez, a veterinarian, to conduct an
inspection in the respondents poultry. On October 20, 1993, the
respondents took ample amounts remaining from the feeds sold by the
On January 19, 1994, the respondents also lodged a complaint for
petitioner and furnished the same to various government agencies for
damages against the petitioner, docketed as Civil Case No. 49-M-94,
laboratory examination.
for the untimely and unforeseen death of their animals supposedly
effected by the adulterated animal feeds the petitioner sold to them.
Within the period to file an answer, the petitioner moved to dismiss the
respondents complaint on the ground of litis pendentia. The trial court
denied the same in a Resolution5 dated April 26, 1994, and ordered the

Dr. Juliana G. Garcia, a doctor of veterinary medicine and the

Supervising Agriculturist of the Bureau of Animal Industry, testified that
on October 20, 1993, sample feeds for chickens contained in a pail

were presented to her for examination by respondent Efren

Evangelista and a certain veterinarian.13 The Clinical Laboratory Report
revealed that the feeds were negative of salmonella14 and that the very
high aflatoxin level15 found therein would not cause instantaneous
death if taken orally by birds.
Dr. Rodrigo Diaz, the veterinarian who accompanied Efren at the
Bureau of Animal Industry, testified that sometime in October 1993,
Efren sought for his advice regarding the death of the respondents
chickens. He suggested that the remaining feeds from their warehouse
be brought to a laboratory for examination. The witness claimed that
the feeds brought to the laboratory came from one bag of sealed
Nutrimix feeds which was covered with a sack.
Dr. Florencio Isagani S. Medina III, Chief Scientist Research Specialist
of the Philippine Nuclear Research Institute, informed the trial court
that respondent Maura Evangelista and Dr. Garcia brought sample
feeds and four live and healthy chickens to him for laboratory
examination. In his Cytogenetic Analysis,16 Dr. Medina reported that he
divided the chickens into two categories, which he separately fed at
6:00 a.m. with the animal feeds of a different commercial brand and
with the sample feeds supposedly supplied by the petitioner. At noon of
the same day, one of the chickens which had been fed with the
Nutrimix feeds died, and a second chicken died at 5:45 p.m. of the
same day. Samples of blood and bone marrow were taken for
chromosome analysis, which showed pulverized chromosomes both
from bone marrow and blood chromosomes. On cross-examination,
the witness admitted that the feeds brought to him were merely placed
in a small unmarked plastic bag and that he had no way of ascertaining
whether the feeds were indeed manufactured by the petitioner.
Another witness for the respondents, Aida Viloria Magsipoc, Forensic
Chemist III of the Forensic Chemist Division of the National Bureau of
Investigation, affirmed that she performed a chemical analysis 17 of the
animal feeds, submitted to her by respondent Maura Evangelista and
Dr. Garcia in a sealed plastic bag, to determine the presence of poison
in the said specimen. The witness verified that the sample feeds
yielded positive results to the tests for COUMATETRALYL
Compound,18 the active component of RACUMIN, a brand name for a
commercially known rat poison.19 According to the witness, the
presence of the compound in the chicken feeds would be fatal to
internal organs of the chickens, as it would give a delayed blood
clotting effect and eventually lead to internal hemorrhage, culminating
in their inevitable death.
Paz Austria, the Chief of the Pesticide Analytical Section of the Bureau
of Plants Industry, conducted a laboratory examination to determine
the presence of pesticide residue in the animal feeds submitted by
respondent Maura Evangelista and Dr. Garcia. The tests disclosed that
no pesticide residue was detected in the samples received20but it was
discovered that the animal feeds were positive for Warfarin, a
rodenticide (anticoagulant), which is the chemical family of Coumarin.21
After due consideration of the evidence presented, the trial court ruled
in favor of the petitioner. The dispositive portion of the decision reads:
WHEREFORE, in light of the evidence on record and the
laws/jurisprudence applicable thereon, judgment is hereby
rendered:
1) in Civil Case No. 1026-M-93, ordering
defendant spouses Efren and Maura Evangelista
to pay unto plaintiff Nutrimix Feeds Corporation
the amount of P766,151.00 representing the
unpaid value of assorted animal feeds delivered
by the latter to and received by the former, with
legal interest thereon from the filing of the
complaint on December 15, 1993 until the same
shall have been paid in full, and the amount
of P50,000.00 as attorneys fees. Costs against
the aforenamed defendants; and
2) dismissing the complaint as well as
counterclaims in Civil Case No. 49-M-94 for

inadequacy of evidence to sustain the same. No

pronouncement as to costs.
SO ORDERED.22
In finding for the petitioner, the trial court ratiocinated as follows:
On the strength of the foregoing disquisition, the Court
cannot sustain the Evangelistas contention that Nutrimix is
liable under Articles 1561 and 1566 of the Civil Code
governing "hidden defects" of commodities sold. As already
explained, the Court is predisposed to believe that the
subject feeds were contaminated sometime between their
storage at the bodega of the Evangelistas and their
consumption by the poultry and hogs fed therewith, and that
the contamination was perpetrated by unidentified or
unidentifiable ill-meaning mischief-maker(s) over whom
Nutrimix had no control in whichever way.
All told, the Court finds and so holds that for inadequacy of
proof to the contrary, Nutrimix was not responsible at all for
the contamination or poisoning of the feeds supplied by it to
the Evangelistas which precipitated the mass death of the
latters chickens and hogs. By no means and under no
circumstance, therefore, may Nutrimix be held liable for the
sundry damages prayed for by the Evangelistas in their
complaint in Civil Case No. 49-M-94 and answer in Civil
Case No. 1026-M-93. In fine, Civil Case No. 49-M-94
deserves dismissal.
Parenthetically, vis--vis the fulminations of the Evangelistas
in this specific regard, the Court does not perceive any act or
omission on the part of Nutrimix constitutive of "abuse of
rights" as would render said corporation liable for damages
under Arts. 19 and 21 of the Civil Code. The alleged "callous
attitude and lack of concern of Nutrimix" have not been
established with more definitiveness.
As regards Civil Case No. 1026-M-93, on the other hand, the
Court is perfectly convinced that the deliveries of animal
feeds by Nutrimix to the Evangelistas constituted a simple
contract of sale, albeit on a continuing basis and on terms or
installment payments.23
Undaunted, the respondents sought a review of the trial courts
decision to the Court of Appeals (CA), principally arguing that the trial
court erred in holding that they failed to prove that their broilers and
hogs died as a result of consuming the petitioners feeds.
On February 12, 2002, the CA modified the decision of the trial court.
The fallo of the decision reads:
WHEREFORE, premises considered, the appealed decision
is hereby MODIFIED such that the complaint in Civil Case
No. 1026-M-93 is dismissed for lack of merit.
So ordered.24
In dismissing the complaint in Civil Case No. 1026-M-93, the CA ruled
that the respondents were not obligated to pay their outstanding
obligation to the petitioner in view of its breach of warranty against
hidden defects. The CA gave much credence to the testimony of Dr.
Rodrigo Diaz, who attested that the sample feeds distributed to the
various governmental agencies for laboratory examination were taken
from a sealed sack bearing the brand name Nutrimix. The CA further
argued that the declarations of Dr. Diaz were not effectively impugned
during cross-examination, nor was there any contrary evidence
adduced to destroy his damning allegations.
On March 7, 2002, the petitioner filed with this Court the instant petition
for review on the sole ground that

THE HONORABLE COURT OF APPEALS ERRED IN

CONCLUDING THAT THE CLAIMS OF HEREIN
PETITIONER FOR COLLECTION OF SUM OF MONEY
AGAINST PRIVATE RESPONDENTS MUST BE DENIED
BECAUSE OF HIDDEN DEFECTS.
The Present Petition
The petitioner resolutely avers that the testimony of Dr. Diaz can hardly
be considered as conclusive evidence of hidden defects that can be
attributed to the petitioner. Parenthetically, the petitioner asserts,
assuming that the sample feeds were taken from a sealed sack
bearing the brand name Nutrimix, it cannot decisively be presumed
that these were the same feeds brought to the respondents farm and
given to their chickens and hogs for consumption.
It is the contention of the respondents that the appellate court correctly
ordered the dismissal of the complaint in Civil Case No. 1026-M-93.
They further add that there was sufficient basis for the CA to hold the
petitioner guilty of breach of warranty thereby releasing the
respondents from paying their outstanding obligation.
The Ruling of the Court
Oft repeated is the rule that the Supreme Court reviews only errors of
law in petitions for review on certiorari under Rule 45. However, this
rule is not absolute. The Court may review the factual findings of the
CA should they be contrary to those of the trial court. Conformably, this
Court may review findings of facts when the judgment of the CA is
premised on a misapprehension of facts.25
The threshold issue is whether or not there is sufficient evidence to
hold the petitioner guilty of breach of warranty due to hidden defects.
The petition is meritorious.
The provisions on warranty against hidden defects are found in Articles
1561 and 1566 of the New Civil Code of the Philippines, which read as
follows:
Art. 1561. The vendor shall be responsible for warranty
against hidden defects which the thing sold may have,
should they render it unfit for the use for which it is intended,
or should they diminish its fitness for such use to such an
extent that, had the vendee been aware thereof, he would
not have acquired it or would have given a lower price for it;
but said vendor shall not be answerable for patent defects or
those which may be visible, or for those which are not visible
if the vendee is an expert who, by reason of his trade or
profession, should have known them.
Art. 1566. The vendor is responsible to the vendee for any
hidden faults or defects in the thing sold, even though he
was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and
the vendor was not aware of the hidden faults or defects in the thing
sold.

(d) the defect, must be important (renders thing UNFIT or

considerably decreases FITNESS);
(e) the action must be instituted within the statute of
limitations.27
In the sale of animal feeds, there is an implied warranty that it is
reasonably fit and suitable to be used for the purpose which both
parties contemplated.28 To be able to prove liability on the basis of
breach of implied warranty, three things must be established by the
respondents. The first is that they sustained injury because of the
product; the second is that the injury occurred because the product
was defective or unreasonably unsafe; and finally, the defect existed
when the product left the hands of the petitioner.29 A manufacturer or
seller of a product cannot be held liable for any damage allegedly
caused by the product in the absence of any proof that the product in
question was defective.30 The defect must be present upon the delivery
or manufacture of the product;31 or when the product left the sellers or
manufacturers control;32 or when the product was sold to the
purchaser;33 or the product must have reached the user or consumer
without substantial change in the condition it was sold. Tracing the
defect to the petitioner requires some evidence that there was no
tampering with, or changing of the animal feeds. The nature of the
animal feeds makes it necessarily difficult for the respondents to prove
that the defect was existing when the product left the premises of the
petitioner.
A review of the facts of the case would reveal that the petitioner
delivered the animal feeds, allegedly containing rat poison, on July 26,
1993; but it is astonishing that the respondents had the animal feeds
examined only on October 20, 1993, or barely three months after their
broilers and hogs had died. On cross-examination, respondent Maura
Evangelista testified in this manner:
Atty. Cruz:
Q Madam Witness, you said in the last hearing that believing
that the 250 bags of feeds delivered to (sic) the Nutrimix
Feeds Corporation on August 2, 1993 were poison (sic),
allegedly your husband Efren Evangelista burned the same
with the chicken[s], is that right?
A Yes, Sir. Some, Sir.
Q And is it not a fact, Madam Witness, that you did not, as
according to you, used (sic) any of these deliveries made on
August 2, 1993?
A We were able to feed (sic) some of those deliveries
because we did not know yet during that time that it is the
cause of the death of our chicks (sic), Sir.
Q But according to you, the previous deliveries were not
used by you because you believe (sic) that they were poison
(sic)?
A Which previous deliveries, Sir[?]
Q Those delivered on July 26 and 22 (sic), 1993?

A hidden defect is one which is unknown or could not have been

known to the vendee.26 Under the law, the requisites to recover on
account of hidden defects are as follows:
(a) the defect must be hidden;

A Those were fed to the chickens, Sir. This is the cause of

the death of the chickens.
Q And you stated that this last delivery on August 2 were
poison (sic) also and you did not use them, is that right?

(b) the defect must exist at the time the sale was made;
Atty. Roxas:
(c) the defect must ordinarily have been excluded from the
contract;

That is misleading.
Atty. Cruz:

She stated that.

Atty. Roxas:
She said some were fed because they did not know yet of
the poisoning.

Likewise, there was evidence tending to show that the respondents

combined different kinds of animal feeds and that the mixture was
given to the animals. Respondent Maura Evangelista testified that it
was common practice among chicken and hog raisers to mix animal
feeds. The testimonies of respondent Maura Evangelista may be thus
summarized:
Cross-Examination

Court:
Atty. Cruz:
And when the chickens died, they stopped naturally feeding
it to the chickens.
Atty. Cruz:
Q You mean to say, Madam Witness, that although you
believe (sic) that the chickens were allegedly poisoned, you
used the same for feeding your animals?
A We did not know yet during that time that the feeds
contained poison, only during that time when we learned
about the same after the analysis.
Q Therefore you have known only of the alleged poison in
the Nutrimix Feeds only after you have caused the analysis
of the same?
A Yes, Sir.
Q When was that, Madam Witness?
A I cannot be sure about the exact time but it is within the
months of October to November, Sir.
Q So, before this analysis of about October and November,
you were not aware that the feeds of Nutrimix Feeds
Corporation were, according to you, with poison?
A We did not know yet that it contained poison but we were
sure that the feeds were the cause of the death of our
animals.34
We find it difficult to believe that the feeds delivered on July 26 and 27,
1993 and fed to the broilers and hogs contained poison at the time
they reached the respondents. A difference of approximately three
months enfeebles the respondents theory that the petitioner is guilty of
breach of warranty by virtue of hidden defects. In a span of three
months, the feeds could have already been contaminated by outside
factors and subjected to many conditions unquestionably beyond the
control of the petitioner. In fact, Dr. Garcia, one of the witnesses for the
respondents, testified that the animal feeds submitted to her for
laboratory examination contained very high level of aflatoxin, possibly
caused by mold (aspergillus flavus).35 We agree with the contention of
the petitioner that there is no evidence on record to prove that the
animal feeds taken to the various governmental agencies for laboratory
examination were the same animal feeds given to the respondents
broilers and hogs for their consumption. Moreover, Dr. Diaz even
admitted that the feeds that were submitted for analysis came from a
sealed bag. There is simply no evidence to show that the feeds given
to the animals on July 26 and 27, 1993 were identical to those
submitted to the expert witnesses in October 1993.

Q Because, Madam Witness, you ordered chicken booster

mash from Nutrimix Feeds Corporation because in July 1993
you were taking care of many chickens, as a matter of fact,
majority of the chickens you were taking care [of] were
chicks and not chickens which are marketable?
A What I can remember was that I ordered chicken booster
mash on that month of July 1993 because we have some
chicks which have to be fed with chicken booster mash and I
now remember that on the particular month of July 1993 we
ordered several bags of chicken booster mash for the
consumption also of our chicken in our other poultry and at
the same time they were also used to be mixed with the
feeds that were given to the hogs.
Q You mean to say [that], as a practice, you are mixing
chicken booster mash which is specifically made for chick
feeds you are feeding the same to the hogs, is that what you
want the Court to believe?
A Yes, Sir, because when you mix chicken booster mash in
the feeds of hogs there is a better result, Sir, in raising
hogs.37

Re-Direct Examination
Atty. Roxas:
Q Now, you mentioned that shortly before July 26 and 27,
1993, various types of Nutrimix feeds were delivered to you
like chicks booster mash, broiler starter mash and hog
finisher or hog grower mash. What is the reason for
simultaneous deliveries of various types of feeds?
A Because we used to mix all those together in one feeding,
Sir.
Q And what is the reason for mixing the chick booster mash
with broiler starter mash?
A So that the chickens will get fat, Sir.

Re-Cross Examination
Atty. Cruz:

It bears stressing, too, that the chickens brought to the Philippine

Nuclear Research Institute for laboratory tests were healthy animals,
and were not the ones that were ostensibly poisoned. There was even
no attempt to have the dead fowls examined. Neither was there any
analysis of the stomach of the dead chickens to determine whether the
petitioners feeds really caused their sudden death. Mere sickness and
death of the chickens is not satisfactory evidence in itself to establish a
prima facie case of breach of warranty.36

Q Madam Witness, is it not a fact that the mixing of these

feeds by you is your own concuction (sic) and without the
advice of a veterinarian expert to do so?
A That is common practice among raisers to mix two feeds,
Sir.

Q By yourself, Madam Witness, who advised you to do the

mixing of these two types of feeds for feeding your
chickens?
A That is common practice of chicken raisers, Sir.38
Even more surprising is the fact that during the meeting with Nutrimix
President Mr. Bartolome, the respondents claimed that their animals
were plagued by disease, and that they needed more time to settle
their obligations with the petitioner. It was only after a few months that
the respondents changed their justification for not paying their
unsettled accounts, claiming anew that their animals were poisoned
with the animal feeds supplied by the petitioner. The volte-face of the
respondents deserves scant consideration for having been conjured as
a mere afterthought.
In essence, we hold that the respondents failed to prove that the
petitioner is guilty of breach of warranty due to hidden defects. It is,
likewise, rudimentary that common law places upon the buyer of the
product the burden of proving that the seller of the product breached its
warranty.39 The bevy of expert evidence adduced by the respondents is
too shaky and utterly insufficient to prove that the Nutrimix feeds
caused the death of their animals. For these reasons, the expert
testimonies lack probative weight. The respondents case of breach of
implied warranty was fundamentally based upon the circumstantial
evidence that the chickens and hogs sickened, stunted, and died after
eating Nutrimix feeds; but this was not enough to raise a reasonable
supposition that the unwholesome feeds were the proximate cause of
the death with that degree of certainty and probability required.40 The
rule is well-settled that if there be no evidence, or if evidence be so
slight as not reasonably to warrant inference of the fact in issue or
furnish more than materials for a mere conjecture, the court will not
hesitate to strike down the evidence and rule in favor of the other
party.41 This rule is both fair and sound. Any other interpretation of the
law would unloose the courts to meander aimlessly in the arena of
speculation.42
It must be stressed, however, that the remedy against violations of
warranty against hidden defects is either to withdraw from the contract
(accion redhibitoria) or to demand a proportionate reduction of the
price (accion quanti minoris), with damages in either case.43 In any
case, the respondents have already admitted, both in their testimonies
and pleadings submitted, that they are indeed indebted to the
petitioner for the unpaid animal feeds delivered to them. For this
reason alone, they should be held liable for their unsettled obligations
to the petitioner.
WHEREFORE, in light of all the foregoing, the petition is GRANTED.
The assailed Decision of the Court of Appeals, dated February 12,
2002, is REVERSED and SET ASIDE. The Decision of the Regional
Trial Court of Malolos, Bulacan, Branch 9, dated January 12, 1998,
is REINSTATED. No costs.
SO ORDERED.
G.R. No. 170023

November 27, 2009

KINGS PROPERTIES CORPORATION, Petitioner,

vs.
CANUTO A. GALIDO, Respondent.
DECISION
CARPIO, J.:
The Case
Kings Properties Corporation (petitioner) filed this Petition for Review
on Certiorari 1 assailing the Court of Appeals Decision 2 dated 20
December 2004 in CA-G.R. CV No. 68828 as well as the
Resolution 3 dated 10 October 2005 denying the Motion for

Reconsideration. In the assailed decision, the Court of Appeals

reversed the Regional Trial Courts Decision 4 dated 4 July 2000. This
case involves an action for cancellation of certificates of title,
registration of deed of sale and issuance of certificates of title filed by
Canuto A. Galido (respondent) before Branch 71 of the Regional Trial
Court of Antipolo City (trial court).
The Facts
On 18 April 1966, the heirs of Domingo Eniceo, namely Rufina Eniceo
and Maria Eniceo, were awarded with Homestead Patent No. 112947
consisting of four parcels of land located in San Isidro, Antipolo, Rizal
(Antipolo property) and particularly described as follows:
1. Lot No. 1 containing an area of 96,297 square meters;
Lot No. 3 containing an area of 25,170 square meters;
Lot No. 4 containing an area of 26,812 square meters; and
Lot No. 5 containing an area of 603 square meters.
The Antipolo property with a total area of 14.8882 hectares was
registered under Original Certificate of Title (OCT) No. 535. 5 The
issuance of the homestead patent was subject to the following
conditions:
To have and to hold the said tract of land, with the appurtenances
thereunto of right belonging unto the said Heirs of Domingo Eniceo and
to his heir or heirs and assigns forever, subject to the provisions of
sections 118, 121, 122 and 124 of Commonwealth Act No. 141, as
amended, which provide that except in favor of the Government or any
of its branches, units or institutions, the land hereby acquired shall be
inalienable and shall not be subject to incumbrance for a period of five
(5) years next following the date of this patent, and shall not be liable
for the satisfaction of any debt contracted prior to the expiration of that
period; that it shall not be alienated, transferred or conveyed after five
(5) years and before twenty-five (25) years next following the issuance
of title, without the approval of the Secretary of Agriculture and Natural
Resources; that it shall not be incumbered, alienated, or transferred to
any person, corporation, association, or partnership not qualified to
acquire public lands under the said Act and its amendments; x x x 6
On 10 September 1973, a deed of sale covering the Antipolo property
was executed between Rufina Eniceo and Maria Eniceo as vendors
and respondent as vendee. Rufina Eniceo and Maria Eniceo sold the
Antipolo property to respondent for P250,000. 7 A certain Carmen
Aldana delivered the owners duplicate copy of OCT No. 535 to
respondent. 8
Petitioner alleges that when Maria Eniceo died in June 1975, Rufina
Eniceo and the heirs of Maria Eniceo (Eniceo heirs), 9 who continued
to occupy the Antipolo property as owners, thought that the owners
duplicate copy of OCT No. 535 was lost. 10
On 5 April 1988, the Eniceo heirs registered with the Registry of Deeds
of Marikina City (Registry of Deeds) a Notice of Loss dated 2 April
1988 of the owners copy of OCT No. 535. The Eniceo heirs also filed
a petition for the issuance of a new owners duplicate copy of OCT No.
535 with Branch 72 of the Regional Trial Court (RTC) of Antipolo, Rizal.
The case was docketed as LRC Case No. 584-A. 11
On 31 January 1989, the RTC rendered a decision finding that the
certified true copy of OCT No. 535 contained no annotation in favor of
any person, corporation or entity. The RTC ordered the Registry of

Deeds to issue a second owners copy of OCT No. 535 in favor of the
Eniceo heirs and declared the original owners copy of OCT NO. 535
cancelled and considered of no further value. 12
On 6 April 1989, the Registry of Deeds issued a second owners copy
of OCT No. 535 in favor of the Eniceo heirs.13
Petitioner states that as early as 1991, respondent knew of the RTC
decision in LRC Case No. 584-A because respondent filed a criminal
case against Rufina Eniceo and Leonila Bolinas (Bolinas) for giving
false testimony upon a material fact during the trial of LRC Case No.
584-A. 14
Petitioner alleges that sometime in February 1995, Bolinas came to the
office of Alberto Tronio Jr. (Tronio), petitioners general manager, and
offered to sell the Antipolo property. During an on-site inspection,
Tronio saw a house and ascertained that the occupants were Bolinas
relatives. Tronio also went to the Registry of Deeds to verify the
records on file. Tronio ascertained that OCT No. 535 was clean and
had no lien and encumbrances. After the necessary verification,
petitioner decided to buy the Antipolo property. 15
On 14 March 1995, respondent caused the annotation of his adverse
claim in OCT No. 535. 16
On 20 March 1995, the Eniceo heirs executed a deed of absolute sale
in favor of petitioner covering lots 3 and 4 of the Antipolo property
for P500,000. 17
On the same date, Transfer Certificate of Title (TCT) Nos. 277747 and
277120 were issued. TCT No. 277747 covering lots 1 and 5 of the
Antipolo property was registered in the names of Rufina Eniceo,
Ambrosio Eniceo, Rodolfo Calove, Fernando Calove and Leonila
Calove Bolinas. 18 TCT No. 277120 covering lots 3 and 4 of the
Antipolo property was registered in the name of petitioner. 19
On 5 April 1995, the Eniceo heirs executed another deed of sale in
favor of petitioner covering lots 1 and 5 of the Antipolo property
for P1,000,000. TCT No. 278588 was issued in the name of petitioner
and TCT No. 277120 was cancelled. 20
On 17 August 1995, the Secretary of the Department of Environment
and Natural Resources (DENR Secretary) approved the deed of sale
between the Eniceo heirs and respondent. 21
On 16 January 1996, respondent filed a civil complaint with the trial
court against the Eniceo heirs and petitioner. Respondent prayed for
the cancellation of the certificates of title issued in favor of petitioner,
and the registration of the deed of sale and issuance of a new transfer
certificate of title in favor of respondent. 22
On 4 July 2000, the trial court rendered its decision dismissing the
case for lack of legal and factual basis. 23
Respondent appealed to the Court of Appeals (CA). On 20 December
2004, the CA rendered a decision reversing the trial courts
decision. 24 Respondent filed a motion for reconsideration, which the
CA denied in its Resolution dated 10 October 2005.
Aggrieved by the CAs decision and resolution, petitioner elevated the
case before this Court.
The Ruling of the Trial Court

The trial court stated that although respondent claims that the Eniceo
heirs sold to him the Antipolo property, respondent did not testify in
court as to the existence, validity and genuineness of the purported
deed of sale and his possession of the duplicate owners copy of OCT
No. 535. The trial court stated that as owner of a property consisting of
hectares of land, respondent should have come to court to substantiate
his claim and show that the allegations of the Eniceo heirs and
petitioner are mere fabrications. 25
The trial court noticed that respondent did not register the deed of sale
with the Register of Deeds immediately after its alleged execution on
10 September 1973. Further, respondent waited for 22 long years
before he had the sale approved by the DENR Secretary. The trial
court declared that respondent slept on his rights. The trial court
concluded that respondents failure to register the sale and secure the
cancellation of OCT No. 535 militates against his claim of ownership.
The trial court believed that respondent has not established the
preponderance of evidence necessary to justify the relief prayed for in
his complaint. 26
The trial court stated that Bolinas was able to prove that the Eniceo
heirs have remained in actual possession of the land. The filing of a
petition for the issuance of a new owners duplicate copy requires the
posting of the petition in three different places which serves as a notice
to the whole world. Respondents failure to oppose this petition can be
deemed as a waiver of his right, which is fatal to his cause. 27
The trial court noted that petitioner is a buyer in good faith and for
value because petitioner has exercised due diligence in inspecting the
property and verifying the title with the Register of Deeds. 28
The trial court held that even if the court were to believe that the deed
of sale in favor of respondent were genuine, still it could not be
considered a legitimate disposition of property, but merely an equitable
mortgage. The trial court stated that respondent never obtained
possession of the Antipolo property at any given time and a buyer who
does not take possession of a property sold to him is presumed to be a
mortgagee only and not a vendee. 29
The Ruling of the Court of Appeals
The CA ruled that the deed of sale in favor of respondent, being a
notarized document, has in its favor the presumption of regularity and
carries the evidentiary weight conferred upon it with respect to its due
execution. The CA added that whoever asserts forgery has the burden
of proving it by clear, positive and convincing evidence because
forgery can never be presumed. The CA found that petitioner and the
Eniceo heirs have not substantiated the allegation of forgery. 30
The CA pointed out that laches has not set in. One of the requisites of
laches, which is injury or prejudice to the defendant in the event relief
is accorded to the complainant or the suit is not held to be barred, is
wanting in the instant case. The CA added that unrecorded sales of
land brought under the Torrens system are valid between parties
because registration of the instrument is merely intended to bind third
persons. 31
The CA declared that petitioners contention regarding the validity of
the questioned deed on the ground that it was executed without the
approval of the DENR Secretary is untenable. The DENR Secretary
approved the deed of sale on 17 August 1995. However, even
supposing that the sale was not approved, the requirement for the
DENR Secretarys approval is merely directory and its absence does
not invalidate any alienation, transfer or conveyance of the homestead
after 5 years and before 25 years from the issuance of the title which
can be complied with at any time in the future. 32

The CA ruled that petitioner is a buyer in bad faith because it

purchased the disputed properties from the Eniceo heirs after
respondent had caused the inscription on OCT No. 535 of an adverse
claim. Registration of the adverse claim serves as a constructive notice
to the whole world. Petitioner cannot feign ignorance of facts which
should have put it on guard and then claim that it acted under the
honest belief that there was no defect in the title of the vendors.
Knowing that an adverse claim was annotated in the certificates of title
of the Eniceo heirs, petitioner was forewarned that someone is
claiming an interest in the disputed properties. 33
The CA found no merit in petitioners contention that the questioned
deed of sale is an equitable mortgage. The CA stated that for the
presumption of an equitable mortgage to arise, one must first satisfy
the requirement that the parties entered into a contract denominated
as a contract of sale and that their intention was to secure an existing
debt by way of mortgage. 34
The CA stated that the execution of the notarized deed of sale, even
without actual delivery of the disputed properties, transferred
ownership from the Eniceo heirs to respondent. The CA held that
respondents possession of the owners duplicate copy of OCT No. 535
bolsters the contention that the Eniceo heirs sold the disputed
properties to him by virtue of the questioned deed. 35
The CA reversed the trial courts decision. The dispositive portion of
the CA decision reads:
WHEREFORE, the appealed decision of the Regional Trial Court of
Rizal (Antipolo, Branch 71) is REVERSED and SET ASIDE and
another rendered as follows:
1. Declaring null and void Transfer Certificates of Titles Nos. 277747,
277120 and 278588 of the Registry of Deeds of Marikina City (the last
two in the name of defendant-appellee Kings Properties Corporation),
the derivative titles thereof and the instruments which were the bases
of the issuance of said certificates of title; and
2. Declaring plaintiff-appellant Canuto A. Galido the owner of fee
simple of Lot Nos. 1, 3, 4, 5 formerly registered under Original
Certificate of Title No. 535 in the name of the Heirs of Domingo Eniceo,
represented by Rufina Eniceo, and ordering the Register of Deeds of
Marikina City to issue new transfer certificates of title for said parcels of
land in the name of plaintiff-appellant Canuto A. Galido, upon payment
of the proper fees and presentation of the deed of sale dated
September 10, 1973 executed by Rufina Eniceo and Maria Eniceo, as
sole heirs of the late Domingo Eniceo, in favor of the latter. 36
The Issues
Petitioner raises two issues in this petition:
1. Whether the adverse claim of respondent over the
Antipolo property should be barred by laches; 37 and
2. Whether the deed of sale delivered to respondent should
be presumed an equitable mortgage pursuant to Article
1602(2) and 1604 of the Civil Code. 38
The Ruling of the Court
Validity of the deed of sale to respondent
The contract between the Eniceo heirs and respondent executed on 10
September 1973 was a perfected contract of sale. A contract is

perfected once there is consent of the contracting parties on the object

certain and on the cause of the obligation. 39 In the present case, the
object of the sale is the Antipolo property and the price certain
is P250,000.
The contract of sale has also been consummated because the vendors
and vendee 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. 40 The execution of the notarized deed of sale and the delivery of
the owners duplicate copy of OCT No. 535 to respondent is
tantamount to a constructive delivery of the object of the sale. In
Navera v. Court of Appeals, the Court ruled that since the sale was
made in a public instrument, it was clearly tantamount to a delivery of
the land resulting in the symbolic possession thereof being transferred
to the buyer. 41
Petitioner alleges that the deed of sale is a forgery. The Eniceo heirs
also claimed in their answer that the deed of sale is fake and
spurious. 42 However, as correctly held by the CA, forgery can never be
presumed. The party alleging forgery is mandated to prove it with clear
and convincing evidence. 43 Whoever alleges forgery has the burden of
proving it. In this case, petitioner and the Eniceo heirs failed to
discharge this burden.
Petitioner invokes the belated approval by the DENR Secretary, made
within 25 years from the issuance of the homestead, to nullify the sale
of the Antipolo property. The sale of the Antipolo property cannot be
annulled on the ground that the DENR Secretary gave his approval
after 21 years from the date the deed of sale in favor of respondent
was executed. Section 118 of Commonwealth Act No. 141 or the
Public Land Act (CA 141), as amended by Commonwealth Act No.
456, 44 reads:
SEC. 118. Except in favor of the Government or any of its branches,
units, or institutions, or legally constituted banking corporations, 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 x x x
No alienation, transfer, or conveyance of any homestead after five
years and before twenty-five years after the issuance of title shall be
valid without the approval of the Secretary of Agriculture and Natural
Resources, 45which approval shall not be denied except on
constitutional and legal grounds.
In Spouses Alfredo v. Spouses Borras, 46 the Court explained the
implications of Section 118 of CA 141. Thus:
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. A violation of this prohibition renders a sale void. This ,
however, expires on the fifth year. From then on until the next 20 years,
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
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
factomake a sale void. The absence of approval by the Secretary does
not 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 or a formality. The approval may be secured later,

producing the effect of ratifying and adopting the transaction as if the

sale had been previously authorized. (Underscoring supplied)
Equitable Mortgage
Petitioner contends that the deed of sale in favor of respondent is an
equitable mortgage because the Eniceo heirs remained in possession
of the Antipolo property despite the execution of the deed of sale.
An equitable mortgage is "one which although lacking in some
formality, or form or words, or other requisites demanded by a statute,
nevertheless reveals the intention of the parties to charge real property
as security for a debt, and contains nothing impossible or contrary to
law." 47 The essential requisites of an equitable mortgage are:
1. The parties entered into a contract denominated as a
contract of sale; and
2. Their intention was to secure existing debt by way of a
mortgage. 48
In Lim v. Calaguas, 49 the Court held that in order for the presumption
of equitable mortgage to apply, there must be: (1) something in the
language of the contract; or (2) in the conduct of the parties which
shows clearly and beyond doubt that they intended the contract to be a
mortgage and not a pacto de retro sale. 50 Proof by parol evidence
should be presented in court. Parol evidence is admissible to support
the allegation that an instrument in writing, purporting on its face to
transfer the absolute title to property, was in truth and in fact given
merely as security for the payment of a loan. The presumption of
equitable mortgage under Article 1602 of the Civil Code is not
conclusive. It may be rebutted by competent and satisfactory proof of
the contrary. 51
Petitioner claims that an equitable mortgage can be presumed
because the Eniceo heirs remained in possession of the Antipolo
property. Apart from the fact that the Eniceo heirs remained in
possession of the Antipolo property, petitioner has failed to
substantiate its claim that the contract of sale was intended to secure
an existing debt by way of mortgage. In fact, mere tolerated
possession is not enough to prove that the transaction was an
equitable mortgage. 52
Furthermore, petitioner has not shown any proof that the Eniceo heirs
were indebted to respondent. On the contrary, the deed of sale
executed in favor of respondent was drafted clearly to convey that the
Eniceo heirs sold and transferred the Antipolo property to respondent.
The deed of sale even inserted a provision about defrayment of
registration expenses to effect the transfer of title to respondent.
In any event, as pointed out by respondent in his Memorandum, this
defense of equitable mortgage is available only to petitioners
predecessors-in-interest who should have demanded, but did not, for
the reformation of the deed of sale. 53 A perusal of the records shows
that the Eniceo heirs never presented the defense of equitable
mortgage before the trial court. In their Answer 54 and
Memorandum 55 filed before the trial court, the Eniceo heirs claimed
that the alleged deed of sale dated 10 September 1973 between
Rufina Eniceo and Maria Eniceo was fake and spurious. The Eniceo
heirs contended that even assuming there was a contract, no
consideration was involved. It was only in the Appellees Brief 56 filed
before the CA that the Eniceo heirs claimed as an alternative defense
that the deed should be presumed as an equitable mortgage.
In Philippine Ports Authority v. City of Iloilo, 57 we ruled that a party who
adopts a certain theory upon which the case is tried and decided by

the lower court will not be permitted to change the theory on appeal. A
theory of the case not brought to the attention of the lower court will not
be considered by a reviewing court, as a new theory cannot be raised
for the first time at such late stage.
Although petitioner raised the defense of equitable mortgage in the
lower court, he cannot claim that the deed was an equitable mortgage
because petitioner was not a privy to the deed of sale dated 10
September 1973. Petitioner merely stepped into the shoes of the
Eniceo heirs. Petitioner, who merely acquired all the rights of its
predecessors, cannot espouse a theory that is contrary to the theory of
the case claimed by the Eniceo heirs.
The Court notes that the Eniceo heirs have not appealed the CAs
decision, hence, as to the Eniceo heirs, the CAs decision that the
contract was a sale and not an equitable mortgage is now final. Since
petitioner merely assumed the rights of the Eniceo heirs, petitioner is
now estopped from questioning the deed of sale dated 10 September
1973.
Petitioner is not a buyer in good faith
Petitioner maintains that the subsequent sale must be upheld because
petitioner is a buyer in good faith, having exercised due diligence by
inspecting the property and the title sometime in February 1995.
In Agricultural and Home Extension Development Group v. Court of
Appeals, 58 a buyer in good faith is defined as "one who buys the
property of another without notice that some other person has a right to
or interest in such property and pays a full and fair price for the same
at the time of such purchase or before he has notice of the claim or
interest of some other person in the property."
In Balatbat v. Court of Appeals, 59 the Court held that in the realm of
double sales, the registration of an adverse claim places any
subsequent buyer of the registered land in bad faith because such
annotation was made in the title of the property before the Register of
Deeds and he could have discovered that the subject property was
already sold. 60 The Court explained further, thus:
A purchaser of a valued piece of property cannot just close his eyes to
facts which should put a reasonable man upon his guard and then
claim that he acted in good faith and under the belief that there were
no defect in the title of the vendor. One who purchases real estate with
knowledge of a defect or lack of title in his vendor cannot claim that he
has acquired title thereto in good faith as against the true owner of the
land or of an interest therein; and the same rule must be applied to one
who has knowledge of facts which should have put him upon such
inquiry and investigation as be necessary to acquaint him with the
defects in the title of his vendor. 61
Petitioner does not dispute that respondent registered his adverse
claim with the Registry of Deeds on 14 March 1995. The registration of
the adverse claim constituted, by operation of law, notice to the whole
world. 62 From that date onwards, subsequent buyers were deemed to
have constructive notice of respondents adverse claim.
Petitioner purchased the Antipolo property only on 20 March 1995 and
5 April 1995 as shown by the dates in the deeds of sale. On the same
dates, the Registry of Deeds issued new TCTs in favor of petitioner
with the annotated adverse claim. Consequently, the adverse claim
registered prior to the second sale charged petitioner with constructive
notice of the defect in the title of Eniceo heirs. Therefore, petitioner
cannot be deemed as a purchaser in good faith when they bought and
registered the Antipolo property.

In Carbonell v. Court of Appeals, 63 this Court ruled that in double sales,

the first buyer always has priority rights over subsequent buyers of the
same property. Being the first buyer, he is necessarily in good faith
compared to subsequent buyers. The good faith of the first buyer
remains all throughout despite his subsequent acquisition of
knowledge of the subsequent sale. On the other hand, the subsequent
buyer, who may have entered into a contract of sale in good faith,
would become a buyer in bad faith by his subsequent acquisition of
actual or constructive knowledge of the first sale. 64 The separate
opinion of then Justice Teehankee is instructive, thus:

SO ORDERED.
G.R. No. 171250

July 4, 2007

SPS. CARLOS AND EULALIA RAYMUNDO and SPS. ANGELITO

AND JOCELYN BUENAOBRA, Petitioners,
vs.
SPS. DOMINADOR and ROSALIA BANDONG, Respondents.
DECISION

The governing principle here is prius tempore, potior jure(first in time,

stronger in right). Knowledge gained by the first buyer of the second
sale cannot defeat the first buyers rights except only as provided by
the Code and that is where the second buyer first registers in good
faith the second sale ahead of the first. Such knowledge of the first
buyer does bar her from availing of her rights under the law, among
them, to first her purchase as against the second buyer. But in
converso knowledge gained by the second buyer of the first sale
defeats his rights even if he is first to register the second sale, since
such knowledge taints his prior registration with bad faith.
This is the price exacted by Article 1544 of the Civil Code for the
second buyer being able to displace the first buyer: that before the
second buyer can obtain priority over the first, he must show that he
acted in good faith throughout (i.e., in ignorance of the first sale and of
the first buyers rights) from the time of acquisition until the title is
transferred to him by registration or failing registration, by delivery of
possession. The second buyer must show continuing good faith and
innocence or lack of knowledge of the first sale until his contract ripens
into full ownership through prior registration as provided by law. 65
Laches
Petitioner contends that respondent is guilty of laches because he
slept on his rights by failing to register the sale of the Antipolo property
at the earliest possible time. Petitioner claims that despite respondents
knowledge of the subsequent sale in 1991, respondent still failed to
have the deed of sale registered with the Registry of Deeds.
The essence of laches is the failure or neglect, for an unreasonable
and unexplained length of time, to do that which, through due
diligence, could have been done earlier, thus giving rise to a
presumption that the party entitled to assert it had either abandoned or
declined to assert it. 66
Respondent discovered in 1991 that a new owners copy of OCT No.
535 was issued to the Eniceo heirs. Respondent filed a criminal case
against the Eniceo heirs for false testimony. When respondent learned
that the Eniceo heirs were planning to sell the Antipolo property,
respondent caused the annotation of an adverse claim. On 16 January
1996, when respondent learned that OCT No. 535 was cancelled and
new TCTs were issued, respondent filed a civil complaint with the trial
court against the Eniceo heirs and petitioner. Respondents actions
negate petitioners argument that respondent is guilty of laches.
True, unrecorded sales of land brought under Presidential Decree No.
1529 or the Property Registration Decree (PD 1529) are effective
between and binding only upon the immediate parties. The registration
required in Section 51 of PD 1529 is intended to protect innocent third
persons, that is, persons who, without knowledge of the sale and in
good faith, acquire rights to the property. 67 Petitioner, however, is not
an innocent purchaser for value.
WHEREFORE, we DENY the petition. We AFFIRM the 20 December
2004 Decision and 10 October 2005 Resolution of the Court of Appeals
in CA-G.R. CV No. 68828.

CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Revised
Rules of Court, filed by petitioners Spouses Carlos and Eulalia
Raymundo and Spouses Angelito and Jocelyn Buenaobra seeking the
reversal and setting aside of the Decision1 of the Court of Appeals
dated 26 September 2005 and its Resolution2 dated 24 January 2006
in CA-G.R. CV No. 59557. The Court of Appeals, in its assailed
Decision and Resolution, reversed the Decision3 of the Regional Trial
Court (RTC) dated 28 January 1998, in Civil Case No. C-14980,
declaring the Deed of Sale executed by respondent Dominador
Bandong (Dominador) in favor of petitioner Eulalia Raymundo (Eulalia)
as valid and binding. The dispositive portion of the asailed Court of
Appeals Decision reads:
WHEREFORE, premises considered, we hereby GRANT the appeal.
The January 28, 1998 decision of the RTC, Branch 126, Caloocan City
is hereby REVERSED and SET ASIDE and a new one entered:
1. ANNULLING the Deed of Absolute Sale dated February 3,
1989 as a deed of sale, and considering it instead as a real
estate mortgage of the disputed property to secure the
payment of the P70,000.00 the plaintiffs-appellants spouses
Bandong owe the defendants-appellees spouses
Raymundo. The spouses Bandong are given one (1) year
from the finality of this Decision within which to pay
the P70,000.00 owed to the spouses Raymundo, at 12%
interest per annum computed from July 17, 1991 until its full
payment.
2. ANNULLING the Deed of Absolute Sale dated September
25, 1990, between the spouses Raymundo as vendors and
the spouses Buenaobra as vendees.
3. ORDERING the Register of Deeds of Caloocan City to
issue a new Transfer Certificate of Title covering Lot 18,
Block 2 of the subdivision plan PSD 16599, a portion of Lot
1073 of the Cadastral Survey of Caloocan, in the names of
the spouses Dominador and Rosalia Bandong, after the
cancellation pursuant to this Decision of TCT No. 222871
currently in the names of the spouses Angelito and Jocelyn
Buenaobra; and FURTHER ORDERING the said Register of
Deeds to annotate in the new Transfer Certificate of Title in
the names of the spouses Bandong a real estate mortgage
in favor of the spouses Carlos and Eulalia Raymundo
reflecting the terms of this Decision.
4. AWARDING moral damages in the amount
of P50,000.00; exemplary damages of P20,000.00; and
attorneys fees and expenses of litigation of P20,000.00,
plus P500.00 per proven appearance of the plaintiffsappellants counsel in court all solidarily payable by the
spouses Carlos and Eulalia Raymundo and the spouses
Angelito and Jocelyn Buenaobra, to the spouses Dominador
and Rosalia Bandong.

5. ORDERING the payment of the costs of the suit, payable

by the spouses Carlos and Eulalia Raymundo and the
spouses Angelito and Jocelyn Buenaobra.4
The factual and procedural backdrop of this case are as follows:
Eulalia was engaged in the business of buying and selling large cattle
from different provinces within the Philippines. For this purpose, she
employed "biyaheros" whose primary task involved the procuring of
large cattle with the financial capital provided by Eulalia and delivering
the procured cattle to her for further disposal. In order to secure the
financial capital she advanced for the "biyaheros," Eulalia required
them to surrender the Transfer Certificates of Title (TCTs) of their
properties and to execute the corresponding Deeds of Sale in her
favor.
Dominador had been working for Eulalia as one of her biyaheros for
three decades. Considering his long years of service without any
previous derogatory record, Eulalia no longer required Dominador to
post any security in the performance of his duties.5
However, in 1989, Eulalia found that Dominador incurred shortage in
his cattle procurement operation in the amount of P70,000.00.
Dominador and his wife Rosalia Bandong (Rosalia) then executed a
Deed of Sale6 in favor of Eulalia on 3 February 1989, covering a parcel
of land with an area of 96 square meters, more or less, located at
Caloocan City and registered under TCT No. 1421 (subject property),
in the name of the Spouses Bandong. On the strength of the aforesaid
deed, the subject property was registered in the names of Eulalia and
her husband Carlos Raymundo (Carlos). The subject property was
thereafter sold by the Spouses Raymundo to Eulalias grandniece and
herein co-petitioner, Jocelyn Buenaobra (Jocelyn). Thus, the subject
property came to be registered in the name of Jocelyn and her
husband Angelito Buenaobra (Angelito).
After the TCT of the subject property was transferred to their names,
the Spouses Buenaobra instituted before the Metropolitan Trial Court
(MeTC) of Caloocan City, an action for ejectment against the Spouses
Bandong, docketed as Civil Case No. 20053, seeking the eviction of
the latter from the subject property, which the Spouses Bandong
opposed on the ground that they are the rightful owners and
possessors thereof. The MeTC ruled in favor of the Spouses
Buenaobra which, on appeal, was affirmed in toto by the RTC7 and
subsequently, by the Court of Appeals.8 Finally, when the case was
raised on appeal before us in G.R. No. 109422, we issued a
Resolution9 dated 12 July 1993, finding that no substantial arguments
were raised therein to warrant the reversal of the appealed decision.
To assert their right to the subject property, the Spouses Bandong
instituted an action for annulment of sale before the RTC against
Eulalia and Jocelyn on the ground that their consent to the sale of the
subject property was vitiated by Eulalia after they were served by
Jocelyns counsel with the demand to vacate. This was docketed as
Civil Case No. C-14980. The Spouses Bandong alleged that there was
no sale intended but only equitable mortgage for the purpose of
securing the shortage incurred by Dominador in the amount of P70,000
while employed as "biyahero" by Eulalia.
Eulalia countered that Dominador received from her a significant sum
of money, either as cash advances for the purpose of procuring large
cattle or as personal loan, and when he could no longer pay his
obligations, the Spouses Bandong voluntarily ceded the subject
property to her by executing the corresponding deed of sale in her
favor. Indeed, the Spouses Bandong personally appeared before the
Notary Public and manifested that the deed was their own voluntary
act and deed.

For her part, Jocelyn maintained that she was a buyer in good faith
and for value for she personally inquired from the Register of Deeds of
the presence of any liens and encumbrances on the TCT of the subject
property and found that the same was completely free therefrom. While
she admitted that she had previous notice that Dominador and a
certain Lourdes Santos (Lourdes) were in possession of the subject
property, Jocelyn claimed that the said possessors already
acknowledged her ownership thereof and even asked for time to
vacate. In the end, though, they refused to leave the premises.
On 28 June 1998, the RTC rendered a Decision10 in Civil Case No. C14980 in favor of Eulalia and Jocelyn by declaring that the Deed of
Sale between Dominador and Eulalia was valid and binding and,
consequently, the subsequent sale between Eulalia and Jocelyn was
also lawful absent any showing that Jocelyn was a buyer in bad faith.
The dispositive portion of the said decision reads:
WHEREFORE, judgment is hereby rendered DISMISSING the
complaint filed by the [Spouses Bandong] and ordering said [Spouses
Bandong] to pay [herein petitioners] spouses Raymundo and
Buenaobra the amount ofP50,000 and P30,000, respectively, as
attorneys fees and costs of the suit.
On appeal in CA-G.R. SP No. 59557, the Court of Appeals reversed
the RTC Decision and found that the transaction entered into by
Dominador and Eulalia was not one of sale but an equitable mortgage
considering that the purchase price was grossly inadequate and the
Spouses Bandong remained as possessors of the subject property
after Eulalias alleged purchase thereof. The appellate court likewise
charged Jocelyn with knowledge that the Spouses Raymundo were not
the absolute owners of the subject property negating the presumption
that she was an innocent purchaser for value.
The Court of Appeals found the Motion for Reconsideration filed by
petitioners unmeritorious and denied the same in its Resolution11 dated
24 January 2006.
Hence, this instant Petition for Review on Certiorari filed by the
petitioners assailing the Decision dated 26 September 2005 and the
Resolution dated 24 January 2006 rendered by the Court of Appeals.
For the resolution of this Court are the following issues:
I.
WHETHER OR NOT THE DEED OF SALE BETWEEN
DOMINADOR AND EULALIA IS VALID AND BINDING.
II.
WHETHER OR NOT JOCELYN IS A BUYER IN GOOD
FAITH.
In arguing that the sale between Dominador and Eulalia is valid,
petitioners posit that gross inadequacy of the price is not sufficient to
invalidate the sale, and granting arguendo that insufficient
consideration may void a sale, it has not been proven that the
consideration of sale between Dominador and Eulalia was grossly
inadequate.
Elaborating, petitioners maintain that the amount of P110,000.00
(which they claimed they have given to Dominador), or even the sum
of P70,000.00 (which respondents admitted receiving), was a
substantial consideration, sufficient to support a sale contract. Mere
inadequacy of the price is not sufficient to invalidate a sale; the price
must be grossly inadequate or utterly shocking to the conscience in
order to avoid a contract of sale.

Petitioners further aver that the alleged market value of the subject
property as submitted by the appraiser, one of respondents witnesses,
would not serve as an objective basis in determining the actual value
of the subject property, much less the supposed amount of its
purchase price, in the absence of any logical and valid basis for its
determination.
Finally, petitioners contend that so long as the contract was voluntarily
entered into by the parties and in the absence of a clear showing that
their consent thereto was vitiated by fraud, mistake, violence or undue
influence, such as in the case at bar, the said contract should be
upheld.
We do not agree.
An equitable mortgage is one that - although lacking in some formality,
forms and words, or other requisites demanded by a statute nevertheless reveals the intention of the parties to charge a real
property as security for a debt and contains nothing impossible or
contrary to law.12
The instances when a contract - regardless of its nomenclature - may
be presumed to be an equitable mortgage are enumerated in the Civil
Code as follows:
Art. 1602. The contract shall be presumed to be an equitable
mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is
unusually inadequate;
(2) When the vendor remains in possession as lessee or
otherwise;

In resolving this kind of controversy, the doctrine in Reyes v. Court of

Appeals15 directs us to give utmost consideration to the intention of the
parties in light of the relative situation of each and the circumstances
surrounding the execution of the contract, thus:
In determining whether a deed absolute in form is a mortgage, the
court is not limited to the written memorials of the transaction. The
decisive factor in evaluating such agreement is the intention of
the parties, as shown not necessarily by the terminology used in
the contract but by all the surrounding circumstances, such as
the relative situation of the parties at that time, the attitude acts,
conduct, declarations of the parties, the negotiations between them
leading to the deed, and generally, all pertinent facts having a
tendency to fix and determine the real nature of their design and
understanding. x x x16 (Emphasis supplied.)
By applying the aforestated principle to the case at bar, we are
constrained to rule that in executing the said Deed of Sale, Dominador
and Eulalia never intended the transfer of ownership of the subject
property but to burden the same with an encumbrance to secure the
indebtedness incurred by Dominador on the occasion of his
employment with Eulalia.
By Eulalias own admission,17 it was her customary business practice
to require her biyaheros to deliver to her the titles to their real
properties and to execute in her favor the corresponding deeds of sale
over the said properties as security for the money she provided for
their cattle procurement task, and since Dominador worked for
Eulalias business for years, he was allowed to advance the money
without any security. Significantly, it was only after he incurred a
shortage that the sale contract was executed.

(4) When the purchaser retains for himself a part of the

purchase price;

We are not inclined to believe the contention of the petitioners that

Dominador ceded his property to Eulalia as payment for his obligation
for it is contrary to human experience that a person would easily part
with his property after sustaining a debt. Rather, he would first look for
means to settle his obligation, and the selling of a property on which
the house that shelters him and his family stands, would be his last
resort. The only reasonable conclusion that may be derived from
Dominadors act of executing a Deed of Sale in favor of Eulalia is that
the latter required him to do so in order to ensure that he will
subsequently pay his obligation to her.

(5) When the vendor binds himself to pay the taxes on the
thing sold.

This conclusion is in accord with the doctrine we enunciated in Aguirre

v. Court of Appeals,18 that:

(6) In any other case where it may be fairly inferred that the
real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any
other obligation.

The explicit provision of Article 1602 that any of those

circumstances would suffice to construe a contract of sale to be
one of equitable mortgage is in consonance with the rule that the
law favors the least transmission of property rights. To stress, the
existence of any one of the conditions under Article 1602, not a
concurrence, or an overwhelming number of such circumstances,
suffices to give rise to the presumption that the contract is an equitable
mortgage.

(3) When upon or after the expiration of the right to

repurchase another instrument extending the period of
redemption or granting a new period is executed;

Art. 1604. The provisions of Article 1602 shall also apply to a contract
purporting to be an absolute sale.
For Articles 1602 and 1604 to apply, two requisites must concur: one,
the parties entered into a contract denominated as a contract of sale;
and two, their intention was to secure an existing debt by way of an
equitable mortgage.13
There is no question that Dominador and Eulalia entered into a
contract of sale as evidenced by the document denominated as Deed
of Sale14 signed by them. As to whether the parties intended to transfer
ownership of the subject property or merely to constitute a security for
an existing debt is an issue that needs to be addressed by this Court.

While we agree in the petitioners insistence that inadequacy of the

price is not sufficient to nullify the contract of sale, their persistence is,
however, misplaced. It is worthy to note that the factual circumstances
attendant in the case at bar call not for the application of the legal and
jurisprudential principles on annulment of contract per se,but more
aptly, of the provisions of Articles 1602 and 1604 of the Civil Code on
the construction of the contract of sale as an equitable mortgage.
Consequently, the agreement between Dominador and Eulalia was not
avoided in its entirety so as to prevent it from producing any legal
effect at all. Instead, we construe that said transaction is an equitable
mortgage, thereby merely altering the relationship of the parties from

seller and buyer, to mortgagor and mortgagee, while the subject

property is not transferred but subjected to a lien in favor of the latter.

put Jocelyn on guard for any possible abuses that Eulalia may commit
with the titles and the deeds of sale in her possession.

Moreover, granting that the purchase price is adequate, the fact that
respondents remain in possession of the subject property after its
supposed sale is sufficient to support our finding that the contract is
one of equitable mortgage and not of sale. To reiterate, the existence
of any one of the conditions under Article 1602, not a
concurrence, or an overwhelming number of such circumstances,
suffices to give rise to the presumption that the contract is an
equitable mortgage.19

The glaring lack of good faith of Jocelyn is more apparent in her own
admission that she was aware that Dominador and a certain Lourdes
were in possession of the subject property. A buyer of real property that
is in the possession of a person other than the seller must be wary. A
buyer who does not investigate the rights of the one in possession can
hardly be regarded as a buyer in good faith.25 Jocelyns self-serving
statement that she personally talked to Dominador and Lourdes about
her acquisition of the subject property and intention to take possession
of the same, and that Dominador and Lourdes even pleaded for time to
vacate the subject property cannot be given credence in light of the
prompt filing by the Spouses Bandong of an action for the annulment
of the sale contract between Dominador and Eulalia after they received
the demand to vacate from Jocelyns lawyer.

Having threshed the issue that there was no sale in favor of

Eulalia but an equitable mortgage leads us to an inevitable
conclusion that she has no right to subsequently transfer
ownership of the subject property, in consonance with the
principle that nobody can dispose of what he does not
have.20 One of the exceptions21 to this rule, however, can be found
in Article 1506 of the Civil Code, wherein the seller has voidable
title to a property but his title has not yet been nullified at the time
of the sale, and the subsequent buyer of the property was in good
faith.
An innocent purchaser for value is one who buys the property of
another, without notice that some other person has a right or interest in
the property, for which a full and fair price is paid by the buyer at the
time of the purchase or before receipt of any notice of claims or
interest of some other person in the property.22
Petitioners are harping on the contention that Jocelyn was an innocent
purchaser for value. Invoking the indefeasibility of a Torrens title, they
assert that there is nothing in the subject propertys TCT that should
arouse Jocelyns suspicion as to put her on guard that there is a defect
in Eulalias title.
Again, we are not persuaded. The burden of proving the purchasers
good faith lies in the one who asserts the same. In discharging the
burden, it is not enough to invoke the ordinary presumption of good
faith.23 In Arrofo v. Quio,24 we have elucidated that:
[A] person dealing with registered land, [is not required] to inquire
further that what the Torrens title on its face indicates. This rule,
however, is not absolute but admits of exceptions.
Thus, while it is true x x x that a person dealing with registered
lands need not go beyond the certificate of title, it is likewise a
well-settled rule that a purchaser or mortgagee cannot close his
eyes to facts which should put a reasonable man on his guard,
and then claim that he acted in good faith under the belief that
there was no defect in the title of the vendor or mortgagor. His
mere refusal to face up to the fact that such defect exists, or his willful
closing of his eyes to the possibility of the existence of a defect in the
vendors or mortgagors title, will not make him an innocent purchaser
for value, if it afterwards develops that the title was in fact defective,
and it appears that he had such notice of the defect as would have led
to its discovery had he acted with the measure of precaution which
may be required of a prudent man in a like situation.

In the last analysis, good faith, or the lack of it, is a question of

intention.1awphi1 But in ascertaining the intention that impels one on a
given occasion, the courts are necessarily controlled by the evidence
as to the conduct and other outward acts by which the motive may be
safely determined.26
Petitioners question further the belated filing by the Spouses Bandong
of an action for the annulment of sale, since the Spouses Bandong
filed the same only after they received the notice to vacate, and not
immediately after the execution of the assailed Deed of Sale. We have
repeatedly held that the one who is in actual possession of a piece of
land claiming to be the owner thereof may await to vindicate his right.
His undisturbed possession gives him a continuing right to seek the aid
of a court of equity to ascertain and determine the nature of the
adverse claim of a third party and its effect on his own title, which right
can be claimed only by one who is in possession.27
Finally, we agree with the Court of Appeals that the ejectment case
which had been litigated to finality by the Spouses Buenaobra and the
respondents need not alter our conclusion in the present case. Well
entrenched is the doctrine that in ejectment cases, the sole question
for resolution is the physical or material possession of the property in
question, so that neither the claim of juridical possession nor an
averment of ownership can outrightly prevent the court from taking
cognizance of the case.28 In ejectment cases, all the court may do is to
resolve who is entitled to its possession although, in doing so, it may
make a determination of who is the owner of the property in order to
resolve the issue of possession. But such determination of ownership
is not clothed with finality. Neither will it affect ownership of the property
or constitute a binding and conclusive adjudication on the merits with
respect to the issue of ownership.29
WHEREFORE, IN VIEW OF THE FOREGOING, the instant Petition
is DENIED. The Decision dated 26 September 2005, and the
Resolution dated 24 January 2006, rendered by the Court of Appeals
in CA-G.R. SP No. 59957, are hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.
G.R. No. 158377

In the present case, we are not convinced by the petitioners incessant

assertion that Jocelyn is an innocent purchaser for value. To begin
with, she is a grandniece of Eulalia and resides in the same locality
where the latter lives and conducts her principal business. It is
therefore impossible for her not to acquire knowledge of her grand
aunts business practice of requiring her biyaheros to surrender the
titles to their properties and to sign the corresponding deeds of sale
over said properties in her favor, as security. This alone should have

August 13, 2010

HEIRS OF JOSE REYES, JR., namely: MAGDALENA C. REYES,

OSCAR C. REYES, GAMALIEL C. REYES, NENITA R. DELA CRUZ,
RODOLFO C. REYES, and RODRIGO C. REYES, Petitioners,
vs.
AMANDA S. REYES, CONSOLACION S. REYES, EUGENIA R.
ELVAMBUENA, LUCINA R. MENDOZA, PEDRITO S. REYES,

MERLINDA R. FAMODULAN, EDUARDO S. REYES, and JUNE S.

REYES, Respondents.
DECISION
BERSAMIN, J.:
The petitioners1 assail the decision dated July 31, 2002 rendered in
C.A.-G.R. CV No. 53039,2 by which the Court of Appeals (CA) affirmed
the decision dated May 21, 1996 of the Regional Trial Court (RTC),
Branch 9, in Malolos, Bulacan.3
Antecedents
Antonio Reyes and his wife, Leoncia Mag-isa Reyes (Leoncia), were
owners of a parcel of residential land with an area of 442 square
meters, more or less, located in Pulilan, Bulacan and covered by Tax
Declaration No. 7590. On that land they constructed their dwelling. The
couple had four children, namely: Jose Reyes, Sr. (Jose, Sr.), Teofilo
Reyes (Teofilo), Jose Reyes, Jr. (Jose, Jr.) and Potenciana ReyesValenzuela (Potenciana). Antonio Reyes died intestate, and was
survived by Leoncia and their three sons, Potenciana having
predeceased her father. Potenciana also died intestate, survived by
her children, namely: Gloria ReyesValenzuela, Maria Reyes
Valenzuela, and Alfredo Reyes Valenzuela. Jose, Jr., and his family
resided in the house of the parents, but Teofilo constructed on the
property his own house, where he and his family resided.
On July 9, 1955, Leoncia and her three sons executed a deed
denominated Kasulatan ng Biling Mabibiling Muli,4whereby they sold
the land and its existing improvements to the Spouses Benedicto
Francia and Monica Ajoco (Spouses Francia) for P500.00, subject to
the vendors' right to repurchase for the same amount sa oras na sila'y
makinabang. Potenciana's heirs did not assent to that deed.
Nonetheless, Teofilo and Jose, Jr. and their respective families
remained in possession of the property and paid the realty taxes
thereon.
Leoncia and her children did not repay the amount of P500.00.
The Spouses Francia both died intestate (i.e., Monica Ajoco on
September 16, 1963, and Benedicto Francia on January 13, 1964).
Alejandro Reyes (Alejandro), the son of Jose, Sr., first partially paid to
the Spouses Francia the amount ofP265.00 for the obligation of
Leoncia, his uncles and his father. Alejandro later paid the balance
of P235.00. Thus, on August 11, 1970, the heirs of Spouses Francia
executed a deed entitled Pagsasa-ayos ng Pag-aari at
Pagsasalin,5 whereby they transferred and conveyed to Alejandro all
their rights and interests in the property forP500.00.
On August 21, 1970, Alejandro executed a Kasulatan ng Pagmemeari,6 wherein he declared that he had acquired all the rights and
interests of the heirs of the Spouses Francia, including the ownership
of the property, after the vendors had failed to repurchase within the
given period. On the basis of the Kasulatan ng Pagmeme-ari, Tax
Declaration No. 3703 covering the property7 was canceled by Tax
Declaration No. 8715,8 effective 1971, issued to Alejandro. From then
on, he had paid the realty taxes for the property.
Nevertheless, on October 17, 1970, Alejandro, his grandmother
(Leoncia), and his father (Jose, Sr.) executed aMagkakalakip na
Salaysay,9 by which Alejandro acknowledged the right of Leoncia,
Jose, Jr., and Jose, Sr. to repurchase the property at any time for the
same amount of P500.00.

On October 22, 1970, Leoncia died intestate.10 She was survived by

Jose, Sr., Teofilo, Jose, Jr. and the heirs of Potenciana. Even after
Leonica's death, Teofilo and Jose, Jr., with their respective families,
continued to reside in the property.
Subsequently, Tax Declaration 1228,11 under the name of Alejandro,
was issued effective 1980. All of Leoncia's sons eventually died
intestate, survived by their respective heirs, namely:
Name of
Decedent

Surviving Heirs

Teofilo Jose,
Sr.

Romeo Reyes, Leonardo Reyes, and Leonora C.

Reyes Rodrigo Reyes, Nenita Reyes- dela Cruz,
Rodolfo Reyes, Oscar Reyes, Gamaliel Reyes,
Magdalena Reyes (petitioners herein), Efren Reyes
and Amado Reyes dela Cruz

Jose, Sr.

Alejandro Reyes (respondents' predecessor)12

On September 2, 1993, Alejandro also died intestate.13 Surviving him

were his wife, Amanda Reyes, and their children, namely: Consolacion
Reyes, Eugenia Reyes-Elvambuena, Luciana Reyes-Mendoza, Pedrito
S. Reyes, Merlinda Reyes-Famodulan, Eduardo Reyes and June S.
Reyes (respondents herein).
In 1994, respondent Amanda Reyes asked the heirs of Teofilo and
Jose, Jr., to vacate the property because she and her children already
needed it. After the petitioners refused to comply, she filed a complaint
against the petitioners in the barangay, seeking their eviction from the
property. When no amicable settlement was reached, the Barangay
Lupon issued a certification to file action to the respondents on
September 26, 1994.14
In the interim, petitioner Nenita R. de la Cruz and her brother Romeo
Reyes also constructed their respective houses on the property.15
RTC Proceedings and Ruling
On September 28, 1994, the respondents initiated this suit for quieting
of title and reconveyance in the RTC.16The complaint, docketed as Civil
Case No. 817-M-94 and entitled Amanda Reyes, et al. v. Heirs of Jose
Reyes, Jr., et al., was later amended.17 They alleged that their
predecessor Alejandro had acquired ownership of the property by
virtue of the deed Pagsasa-ayos ng Pag-aari at Pagsasalin executed
on August 11, 1970 by the heirs of the Spouses Francia; that on the
basis of such deed of assignment, Alejandro had consolidated his
ownership of the property via his Kasulatan ng Pagmeme-ari; and that
under the Magkasanib na Salaysay, Alejandro had granted to Leoncia,
his father Jose, Sr., and his uncles, Teofilo and Jose, Jr. the right to
repurchase the property, but they had failed to do so.
The respondents prayed for judgment in their favor, as follows:
WHEREFORE, it is respectfully prayed that judgment be rendered:
1. Quieting the title to the property by declaring the plaintiffs
(respondents herein) as the rightful and lawful owners
thereof;
2. Ordering the defendants (petitioners herein) to vacate
subject premises and reconvey and or surrender possession
thereof to the plaintiffs;

3. Ordering the defendants to recognize the right of the

plaintiffs as the lawful owners of subject property;
4. Ordering the defendants to pay plaintiffs the following:
a. Moral damages in the amount of P50,000.00;
b. Exemplary damages in the amount of
P20,000.00;
c. Attorney's fees of P20,000.00, acceptance fee
of P10,000.00 and P500.00 per recorded Court
appearance of counsel;
d. The costs of this suit.
Plaintiffs further pray for such other relief which the Honorable Court
may deem just and equitable under the premises.18
19

In their answer, the petitioners averred that the Kasulatan ng Biling

Mabibiling Muli was an equitable mortgage, not a pacto de retro sale;
that the mortgagors had retained ownership of the property; that the
heirs of the Spouses Francia could not have validly sold the property to
Alejandro through the Pagsasaayos ng Pag-aari at Pagsasalin; that
Alejandro's right was only to seek reimbursement of the P500.00 he
had paid from the co-owners, namely: Leoncia, Teofilo, Jose, Jr. and
Jose, Sr. and the heirs of Potenciana; and that Alejandro could not
have also validly consolidated ownership through the Kasulatan ng
Pagmeme-ari, because a consolidation of ownership could only be
effected via a court order.

c) confirming the consolidation of ownership, by operation of

law, of spouses Alejandro M. Reyes and Amanda Salonga
over the residential lot mentioned and referred to in Exhibit
B/Exhibit 1 and Exhibit C/Exhibit 4;
d) allowing the registration with the Registry of Deeds for the
Province of Bulacan of the "Kasulatan ng Pagmemeari" (Document of Ownership) [Exh. E/Exh. 5] executed by
Alejandro M. Reyes on August 21, 1970 or of any
appropriate deed of consolidation of ownership over the
residential lot covered by Exhibit E/Exhibit 5 which the
plaintiffs, as eventual owners by succession of the
aforementioned proeprty, may deem proper to execute;
e) ordering the defendants and all persons claiming rights
under them to vacate the residential lot subject of the aboveentitled case and to restore possession thereof unto the
plaintiffs;
f) directing the defendants (except the heirs of Potenciana
Reyes-Valenzuela) to pay unto the plaintiffs the amount of
P20,000.00 as attorney's fees; and
g) dismissing the complaint in so far as the defendant heirs
of Potenciana Reyes-Valenzuela are concerned as well as
their counterclaim for damages and attorney's fees.1avvphi1
No pronouncement as to costs.
SO ORDERED. 20

The petitioners interposed a counterclaim for the declaration of the

transaction as an equitable mortgage, and of their property as owned
in common by all the heirs of Leoncia, Teofilo, Jose, Jr. and Jose, Sr.

Aggrieved, the petitioners appealed to the CA.

On May 21, 1996, the RTC ruled in favor of the respondents, declaring
that Alejandro had acquired ownership of the property in 1965 by
operation of law upon the failure of the petitioners' predecessors to
repurchase the property; that the joint affidavit executed by Alejandro,
Leoncia and Jose, Jr. and Jose, Sr., to extend the period of redemption
was inefficacious, because there was no more period to extend due to
the redemption period having long lapsed by the time of its execution;
and that the action should be dismissed insofar as the heirs of
Potenciana were concerned, considering that Potenciana, who had
predeceased her parents, had no successional rights in the property.

In the CA, the petitioners assailed the RTC's dispositions, except the
dismissal of the complaint as against Potenciana's heirs.

Accordingly, the RTC decreed as follows:

WHEREFORE, on the basis of the evidence adduced and the
law/jurisprudence applicable thereon, judgment is hereby rendered:
a) sustaining the validity of the "Kasulatan ng Biling
Mabibiling Muli" (Exh. B/Exh. 1) executed on July 9, 1955 by
Leoncia Mag-isa and her sons Teofilo, Jose, Sr. and Jose,
Jr., all surnamed Reyes, in favor of Spouses Benedicto
Francia and Monica Ajoco as well as the "Pagsasa-ayos ng
Pag-aari at Pagsasalin"(Settlement of Estate and
Assignment) [Exh. C/Exh. 4] executed on August 11, 1970 by
the heirs of spouses Benedicto Francia and Monica Ajoco in
favor of the spouses Alejandro Reyes and Amanda Salonga;
b) declaring the aforementioned "Kasulatan Ng Biling
Mabibili Muli" (Exh. B/ Exh. 1) to be a contract of sale with
right to repurchase and not an equitable mortgage;

CA Ruling

In its decision dated July 31, 2002, the CA ruled that the transaction
covered by the Kasulatan ng Biling Mabibiling Muli was not a pacto de
retro sale but an equitable mortgage under Article 1602 of the Civil
Code; that even after the deed's execution, Leoncia, Teofilo, Jose, Jr.
and their families had remained in possession of the property and
continued paying realty taxes for the property; that the purported
vendees had not declared the property for taxation purposes under
their own names; and that such circumstances proved that the parties
envisaged an equitable mortgage in the Kasulatan ng Biling Mabibiling
Muli.
The CA observed that the heirs of the Spouses Francia had
themselves admitted in paragraph 5 of the Pagsasa-ayos ng Pag-aari
at Pagsasalin that the property had been mortgaged to their
predecessors-in-interest, viz:
Na, sa oras ng kamatayan ay nakaiwan sila ng isang lagay na lupang
nakasanla sa kanila na makikilala sa kasulatang kalakip nito sa
halagang LIMANG DAANG PISO (P500.00). Ngunit nuong nabubuhay
pa ang magasawang Benedicto Francia at Monica Ajoco ay
nakatanggap na ng halagang P265.00 kay Alejandro Reyes - Filipino,
kasal kay Amanda Salonga, may sapat na gulang at naninirahan sa
Pulilan, Bulacan.21
However, the CA held that the appellants' (petitioners herein) failure to
file an action for the reformation of theKasulatan ng Biling Mabibiling
Muli to reflect the true intention of the parties within ten years from the

deed's execution on July 9, 1955, pursuant to Article 1144 of the Civil

Code,22 already barred them from claiming that the transaction
executed between Leoncia and her children, on one hand, and the
Spouses Francia, on the other hand, was an equitable mortgage. The
CA agreed with the RTC that the Magkakalakip na Salaysay did not
effectively extend the period for Leoncia and her children to
repurchase the property, considering that the period to repurchase had
long lapsed by the time the agreement to extend it was executed on
October 17, 1970.
Issues
In this appeal, therefore, the petitioners insist that:23
I.
The Honorable Court of Appeals erred in finding that respondents
(were) already barred from claiming that the transaction entered into by
their predecessors-in-interest was an equitable mortgage and not
a pacto de retro sale;
II.
The Honorable Court of Appeals erred in affirming the findings of the
court a quo that theMagkasanib na Salaysay (Joint Affidavit), executed
by Alejandro, Leoncia and Jose, Jr., wherein Leoncia and her children
were granted by Alejandro the right to repurchase the property at
anytime for the amount of P500.00, was of no legal significance.
Ruling of the Court
The petition is meritorious.
A.
The CA correctly concluded that the true agreement of the
parties vis--vis the Kasulatan ng Biling Mabibiling Muli was
an equitable mortgage, not a pacto de retro sale. There was
no dispute that the purported vendors had continued in the
possession of the property even after the execution of the
agreement; and that the property had remained declared for
taxation purposes under Leoncia's name, with the realty
taxes due being paid by Leoncia, despite the execution of
the agreement. Such established circumstances are among
the badges of an equitable mortgage enumerated in Article
1602, paragraphs 2 and 5 of the Civil Code, to wit:
Art. 1602. The contract shall be presumed to be an equitable
mortgage, in any of the following cases:
xxx
(2) When the vendor remains in possession as lessee or
otherwise;

or of a majority thereof, suffices to give rise to the

presumption that the contract is an equitable
mortgage.24 Consequently, the contract between the vendors
and vendees (Spouses Francia) was an equitable mortgage.
B.
Are the petitioners now barred from claiming that the
transaction under the Kasulatan ng Biling Mabibiling
Muli was an equitable mortgage by their failure to redeem
the property for a long period of time?
The petitioners contend that prescription, if it must apply to
them, should as well be applied to the respondents, who had
similarly failed to enforce their right under the equitable
mortgage within ten years from its execution on July 9, 1955.
Consequently, they urge the upholding of the original
intention of the parties to the Kasulatan ng Biling Mabibiling
Muli, without taking prescription into account, because both
parties did not enforce their respective rights within the tenyear prescriptive period, is more in keeping with fairness and
equity.
We agree with the petitioners.
Considering that sa oras na sila'y makinabang, the period of
redemption stated in theKasulatan ng Biling Mabibiling
Muli, signified that no definite period had been stated, the
period to redeem should be ten years from the execution of
the contract, pursuant to Articles 1142 and 1144 of the Civil
Code.25 Thus, the full redemption price should have been
paid by July 9, 1955; and upon the expiration of said 10-year
period, mortgagees Spouses Francia or their heirs should
have foreclosed the mortgage, but they did not do so.
Instead, they accepted Alejandro's payments, until the debt
was fully satisfied by August 11, 1970.
The acceptance of the payments even beyond the 10-year
period of redemption estopped the mortgagees' heirs from
insisting that the period to redeem the property had already
expired. Their actions impliedly recognized the continued
existence of the equitable mortgage. The conduct of the
original parties as well as of their successors-in-interest
manifested that the parties to the Kasulatan ng Biling
Mabibiling Muli really intended their transaction to be an
equitable mortgage, not a pacto de retro sale.
In Cuyugan v. Santos,26 the purported buyer under a socalled contract to sell with right to repurchase also accepted
partial payments from the purported seller. We held that the
acceptance of partial payments was absolutely incompatible
with the idea of irrevocability of the title of ownership of the
purchaser upon the expiration of the term stipulated in the
original contract for the exercise of the right of redemption.
Thereby, the conduct of the parties manifested that they had
intended the contract to be a mortgage, not a pacto de
retro sale.

xxx
C.
(5) When the vendor binds himself to pay the taxes on the
thing sold;
xxx
The existence of any one of the conditions enumerated
under Article 1602 of the Civil Code, not a concurrence of all

When Alejandro redeemed the property on August 11, 1970,

he did not thereby become a co-owner thereof, because his
father Jose, Sr. was then still alive. Alejandro merely became
the assignee of the mortgage, and the property continued to
be co-owned by Leoncia and her sons Jose, Sr., Jose Jr.,
and Teofilo. As an assignee of the mortgage and the

mortgage credit, Alejandro acquired only the rights of his

assignors, nothing more. He himself confirmed so in
the Magkasanib na Salaysay, whereby he acknowledged the
co-owners' right to redeem the property from him at any time
(sa ano mang oras) for the same redemption price
of P500.00.
It is worthy to note that Alejandro's confirmation in
the Magkasanib na Salaysay of the co-owners' right to
redeem was made despite 15 years having meanwhile
elapsed from the execution of the original Kasulatan ng
Biling Mabibiling Muli (July 9, 1955) until the execution of
the Magkasanib na Salaysay (August 21, 1970).
D.
Neither did the petitioners' failure to initiate an action for
reformation within ten years from the execution of
the Kasulatan ng Biling Mabibiling Muli bar them from
insisting on their rights in the property. The records show that
the parties in the Kasulatan ng Biling Mabibiling Muli had
abided by their true agreement under the deed, to the extent
that they and their successors-in-interest still deemed the
agreement as an equitable mortgage despite the lapse of 15
years from the execution of the purported pacto de
retro sale. Hence, an action for reformation of theKasulatan
ng Biling Mabibiling Muli was unnecessary, if not
superfluous, considering that the reason underlying the
requirement for an action for reformation of instrument has
been to ensure that the parties to a contract abide by their
true intended agreement.
The Kasulatan ng Pagmeme-ari executed by Alejandro on
August 21, 1970 was ineffectual to predicate the exclusion of
the petitioners and their predecessors in interest from
insisting on their claim to the property. Alejandro's being an
assignee of the mortgage did not authorize him or his heirs
to appropriate the mortgaged property for himself without
violating the prohibition against pactum
commissorium contained in Article 2088 of the Civil Code, to
the effect that "[t]he creditor cannot appropriate the things
given by way of pledge or mortgage, or dispose of them[;]
[a]ny stipulation to the contrary is null and void." Aptly did the
Court hold inMontevirgen v. Court of Appeals:27
The declaration, therefore, in the decision of July 1, 1971 to
the effect that absolute ownership over the subject premises
has become consolidated in the respondents upon failure of
the petitioners to pay their obligation within the specified
period, is a nullity, for consolidation of ownership is an
improper and inappropriate remedy to enforce a transaction
declared to be one of mortgage. It is the duty of
respondents, as mortgagees, to foreclose the mortgage if he
wishes to secure a perfect title to the mortgaged property if
he buys it in the foreclosure sale.
Moreover, the respondents, as Alejandro's heirs, were
entirely bound by his previous acts as their predecessors-ininterest. Thus, Alejandro's acknowledgment of the effectivity
of the equitable mortgage agreement precluded the
respondents from claiming that the property had been sold to
him with right to repurchase.28
E.
What was the effect of the Magkasanib na Salaysay?

Both the trial court and the CA declared that the Magkasanib na
Salaysay, which extended the redemption period of the mortgaged
property, was inefficacious, because the period to redeem could no
longer be extended after the original redemption period had already
expired.
In contrast, the petitioners submit that disregarding the Magkasanib na
Salaysay made no sense,considering that the respondents'
predecessors-in-interest admitted therein that the petitioners had a
right to redeem the property.
The respondents counter, however, that the Magkasanib na Salaysay,
which acknowledged the other co-owners' right to redeem the property,
was void; that the petitioners could no longer claim to be co-owners
entitled to redeem the property, because the co-ownership had come
to an end by Alejandro having openly repudiated the co-ownership;
that Alejandro's acts of repudiation had consisted of: (a) redeeming the
property from the Spouses Francia; (b) acquiring the property from the
heirs of Spouses Francia by virtue of a deed of assignment
denominated as Pag-aayos ng Pag-aari at Pagsasalin; (c) executing
an affidavit of consolidation of ownership over the property (Kasulatan
ng Pagmeme-ari); (d) applying for the cancellation of the tax
declaration of property in the name of Leoncia, and the subsequent
issuance of a new tax declaration in his name; (e) his continuous
possession of the property from 1955, which possession the
respondents as his heirs had continued up to the present time, or for a
period of almost 50 years already; and (f) the payment of the taxes by
Alejandro and the respondents for more than 30 years without any
contribution from the petitioners; and that such repudiation established
that Alejandro and his successors-in-interest had already acquired sole
title over the property through acquisitive prescription.
The respondents' and the lower courts' positions cannot be sustained.
The provisions of the Civil Code governing equitable mortgages
disguised as sale contracts, like the one herein, are primarily designed
to curtail the evils brought about by contracts of sale with right to
repurchase, particularly the circumvention of the usury law and pactum
commissorium.29 Courts have taken judicial notice of the well-known
fact that contracts of sale with right to repurchase have been frequently
resorted to in order to conceal the true nature of a contract, that is, a
loan secured by a mortgage. It is a reality that grave financial distress
renders persons hard-pressed to meet even their basic needs or to
respond to an emergency, leaving no choice to them but to sign deeds
of absolute sale of property or deeds of sale with pacto de retro if only
to obtain the much-needed loan from unscrupulous money
lenders.30 This reality precisely explains why the pertinent provision of
the Civil Code includes a peculiar rule concerning the period of
redemption, to wit:
Art. 1602. The contract shall be presumed to be an equitable
mortgage, in any of the following cases:
xxx
(3)When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period
is executed;
xxx
Ostensibly, the law allows a new period of redemption to be agreed
upon or granted even after the expiration of the equitable mortgagor's
right to repurchase, and treats such extension as one of the indicators
that the true agreement between the parties is an equitable mortgage,
not a sale with right to repurchase. It was indubitable, therefore, that

the Magkasanib na Salaysay effectively afforded to Leoncia, Teofilo,

Jose, Sr. and Jose, Jr. a fresh period within which to pay to Alejandro
the redemption price of P500.00.
F.
Did Alejandro and his heirs (respondents herein) acquire the
mortgaged property through prescription?
It is true that Alejandro became a co-owner of the property by right of
representation upon the death of his father, Jose Sr.31 As a co-owner,
however, his possession was like that of a trustee and was not
regarded as adverse to his co-owners but in fact beneficial to all of
them.32
Yet, the respondents except to the general rule, asserting that
Alejandro, having earlier repudiated the co-ownership, acquired
ownership of the property through prescription.
The Court cannot accept the respondents' posture.
In order that a co-owner's possession may be deemed adverse to that
of the cestui que trust or the other co-owners, the following elements
must concur:
1. The co-owner has performed unequivocal acts of
repudiation of the co-ownership amounting to an ouster of
the cestui que trust or the other co-owners;
2. Such positive acts of repudiation have been made known
to the cestui que trust or the other co-owners;
3. The evidence on the repudiation is clear and conclusive;
and
4. His possession is open, continuous, exclusive, and
notorious.33
The concurrence of the foregoing elements was not established herein.
For one, Alejandro did not have adverse and exclusive possession of
the property, as, in fact, the other co-owners had continued to possess
it, with Alejandro and his heirs occupying only a portion of it. Neither
did the cancellation of the previous tax declarations in the name of
Leoncia, the previous co-owner, and the issuance of a new one in
Alejandro's name, and Alejandro's payment of the realty taxes
constitute repudiation of the co-ownership. The sole fact of a co-owner
declaring the land in question in his name for taxation purposes and
paying the land taxes did not constitute an unequivocal act of
repudiation amounting to an ouster of the other co-owner and could not
constitute adverse possession as basis for title by
prescription.34 Moreover, according to Blatero v. Intermediate Appellate
Court,35 if a sale a retro is construed as an equitable mortgage, then
the execution of an affidavit of consolidation by the purported buyer to
consolidate ownership of the parcel of land is of no consequence and
the "constructive possession" of the parcel of land will not ripen into
ownership, because only possession acquired and enjoyed in the
concept of owner can serve as title for acquiring dominion.36
In fine, the respondents did not present proof showing that Alejandro
had effectively repudiated the co-ownership. Their bare claim that
Alejandro had made oral demands to vacate to his co-owners was selfserving and insufficient. Alejandro's execution of the affidavit of
consolidation of ownership on August 21, 197037 and his subsequent
execution on October 17, 1970 of the joint affidavit38 were really

equivocal and ambivalent acts that did not manifest his desire to
repudiate the co-ownership.
The only unequivocal act of repudiation was done by the respondents
when they filed the instant action for quieting of title on September 28,
1994, nearly a year after Alejandro's death on September 2, 1993.
However, their possession could not ripen into ownership considering
that their act of repudiation was not coupled with their exclusive
possession of the property.
G.
The respondents can only demand from the petitioners the partition of
the co-owned property and the reimbursement from their co-owners of
the amount advanced by Alejandro to repay the obligation. They may
also seek from their co-owners the proportional reimbursement of the
realty taxes paid for the property, pursuant to Article 488 of the Civil
Code.39 In the alternative, they may opt to foreclose the equitable
mortgage, considering that the petitioners' period to redeem the
mortgaged property, which was ten years from the execution on
October 17, 1970 of theMagkakasanib na Salaysay, had already long
lapsed. We clarify, however, that the respondents may take these
recourses only through the appropriate actions commenced in court.
H.
The petitioners' counterclaim for damages is dismissed for their failure
to prove their entitlement to it.40
WHEREFORE, we grant the petition for review on certiorari.
The decision dated July 31, 2002 rendered by the Court of Appeals is
reversed and set aside, and another judgment is rendered:
a) Upholding the validity of the Kasulatan ng Biling
Mabibiling Muli (Deed of Sale with Right of Repurchase)
executed on July 9, 1955 by Leoncia Mag-isa Reyes and her
sons Teofilo, Jose, Sr. and Jose, Jr., all surnamed Reyes, in
favor of the late Spouses Benedicto Francia and Monica
Ajoco as well as the Pagsasa-ayos ng Pag-aari at
Pagsasalin (Settlement of Estate and Assignment) executed
on August 11, 1970 by the heirs of the late Spouses
Benedicto Francia and Monica Ajoco in favor of the spouses
Alejandro Reyes and Amanda Salonga;
b) Declaring the Kasulatan ng Biling Mabibili Muli to be an
equitable mortgage, not a contract of sale with right to
repurchase;1avvphi1
c) Finding the Magkakalakip na Salaysay executed on
October 17, 1970 by and among Leoncia Mag-isa Reyes,
Jose Reyes, Sr. and Alejandro Reyes valid and effective;
c) Nullifying the Kasulatan ng Pagmeme-ari executed by
Alejandro M. Reyes on August 21, 1970; and
d) Dismissing the petitioners' counterclaim.
Costs of suit to be paid by the respondents.
SO ORDERED.
G.R. No. 165285

June 18, 2012

LOMISES ALUDOS, deceased, substituted by FLORA

ALUDOS, Petitioner,
vs.
JOHNNY M. SUERTE,* Respondent.

[Signature affixed]
Domes M. Suerte (witness)

[Signature a
Agnes M. Boras

DECISION
[Signature affixed]
Ana Comnad (witness)

BRION, J.:
Before the Court is a petition for review on certiorari filed under Rule
45 of the Rules of Court by Lomises Aludos, through his wife Flora
Aludos (Lomises).1 Lomises seeks the reversal of the decision2 dated
August 29, 2002 of the Court of Appeals (CA) in CA-G.R. CV No.
63113, as well as the resolution3 dated August 17, 2004.
THE FACTS

Johnny made a subsequent payment of P23,000.00; hence, a total

of P68,000.00 of the P260,000.00 purchase price had been made as of
1984. Before full payment could be made, however, Lomises backed
out of the agreement and returned the P68,000.00 to Domes and
Jaime Suerte, the mother and the father of Johnny, respectively. The
return of the P68,000.00 down payment was embodied in a
handwritten receipt6 dated October 9, 1985:

Sometime in January 1969, Lomises acquired from the Baguio City

Government the right to occupy two stalls in the Hangar Market in
Baguio City, as evidenced by a permit issued by the City Treasurer.4
On September 8, 1984, Lomises entered into an agreement with
respondent Johnny M. Suerte for the transfer of all improvements and
rights over the two market stalls (Stall Nos. 9 and 10) for the amount
of P260,000.00. Johnny gave a down payment of P45,000.00 to
Lomises, who acknowledged receipt of the amount in a
document5 executed on the same date as the agreement:
RECEIPT

[Signature a
Dolores Aludo
her consent/w

RECEIPT
P68,000.00
Received from Mr. Lomises Aludos the sum of Sixty-eight thousand
(P68,000.00) Pesos as reimbursement of my money.
Baguio City, October 9, 1985.
[Signature affixed]
JAIME SUERTE

P45,000.00 September 8, 1984

Received the Sum of Forty Five Thousand Pesos (P45,000.00) from
JOHNNY M. SUERTE, with postal address at Kamog, Sablan, Benguet
Province, Philippine Currency as an advance or partial downpayment
of Improvements and Rights over Stall Nos. 9 and 10, situated at
Refreshment Section, Hangar Market Compound, Baguio City, and the
said amount will be deducted from the agreed proceeds of the
transaction in the amount of Two Hundred Sixty Thousand Pesos
(P260,000.00), Philippine Currency and payable starting from
September 1984 up to December 1985, and/or (16) months.
This receipt will be formalise (sic) later, and the Deed of Absolute
Transfer of Improvements and Rights over the said Stall be executed
immediately upon full payment of the balance stated in the above.

bmark:
[Thumbmark affixed]
LOMISES F. ALUDOS
(Registered Stall Holder)

t of the Wife:

mbmark and/or
ence of:

[Signature affixed]
FLORA MENES
(Wife)

Witnesses
[Illegible signature]
Through a letter dated October 15, 1985, Johnny protested the return
of his money, and insisted on the continuation and enforcement of his
agreement with Lomises. When Lomises refused Johnnys protest,
Johnny filed a complaint against Lomises before the Regional Trial
Court (RTC), Branch 7, Baguio City, for specific performance with
damages, docketed as Civil Case No. 720-R. Johnny prayed that, after
due proceedings, judgment be rendered ordering Lomises to (1)
accept the payment of the balance of P192,000.00; and (2) execute a
final deed of sale and/or transfer the improvements and rights over the
two market stalls in his favor.
In a decision dated November 24, 1998,7 the RTC nullified the
agreement between Johnny and Lomises for failure to secure the
consent of the Baguio City Government to the agreement. The RTC
found that Lomises was a mere lessee of the market stalls, and the
Baguio City Government was the owner-lessor of the stalls. Under
Article 1649 of the Civil Code, "[t]he lessee cannot assign the lease
without the consent of the lessor, unless there is a stipulation to the
contrary." As the permit issued to Lomises did not contain any
provision that the lease of the market stalls could further be assigned,
and in the absence of the consent of the Baguio City Government to
the agreement, the RTC declared the agreement between Lomises
and Johnny null and void. The nullification of the agreement required
the parties to return what had been received under the agreement;
thus, the RTC ordered Lomises to return the down payment made by
Johnny, with interest of 12% per annum, computed from the time the
complaint was filed until the amount is fully paid. It dismissed the
parties claims for damages.

Lomises appealed the RTC decision to the CA, arguing that the real
agreement between the parties was merely one of loan, and not of
sale; he further claimed that the loan had been extinguished upon the
return of theP68,000.00 to Johnnys mother, Domes.
In a decision dated August 29, 2002,8 the CA rejected Lomises claim
that the true agreement was one of loan. The CA found that there were
two agreements entered into between Johnny and Lomises: one was
for the assignment of leasehold rights and the other was for the sale of
the improvements on the market stalls. The CA agreed with the RTC
that the assignment of the leasehold rights was void for lack of consent
of the lessor, the Baguio City Government. The sale of the
improvements, however, was valid because these were Lomises
private properties. For this reason, the CA remanded the case to the
RTC to determine the value of the improvements on the two market
stalls, existing at the time of the execution of the agreement.

are leased by Flora and her daughter who both obtained the lease in
their own right and not as Lomises successors.
Johnny, through his remaining successor Domes (Johnnys mother),
opposed Lomises claim. The receipt dated September 8, 1984 clearly
referred to a contract of sale of the market stalls and not a contract of
loan that Lomises alleges. Although Johnny conceded that the sale of
leasehold rights to the market stalls were void for lack of consent of the
Baguio City Government, he alleged that the sale of the improvements
should be upheld as valid, as the CA did.
THE COURTS RULING
The Court does not find the petition meritorious.
The Nature of the Agreement between the Parties

Lomises moved for the reconsideration of the CA ruling, contending

that no valid sale of the improvements could be made because the
lease contract, dated May 1, 1985, between Lomises and the Baguio
City Government, supposedly marked as Exh. "A," provided that "[a]ll
improvements [introduced shall] ipso facto become properties of the
City of Baguio."9
In a resolution dated August 17, 2004,10 the CA denied the motion after
finding that Lomises lawyer, Atty. Rodolfo Lockey, misrepresented Exh.
"A" as the governing lease contract between Lomises and the Baguio
City Government; the records reveal that Exh. "A" was merely a permit
issued by the City Treasurer in favor of Lomises. The contract of lease
dated May 1, 1985 was never formally offered in evidence before the
RTC and could thus not be considered pursuant to the rules of
evidence.
Lomises now appeals the CA rulings through the present petition for
review on certiorari.

Lomises questions the nature of the agreement between him and

Johnny, insisting that it was a contract of loan, not an assignment of
leasehold rights and sale of improvements. In other words, what
existed was an equitable mortgage, as contemplated in Article 1602, in
relation with Article 1604, of the Civil Code. "An equitable mortgage
has been defined as one which although lacking in some formality, or
form or words, or other requisites demanded by a statute, nevertheless
reveals the intention of the parties to charge real property as security
for a debt, there being no impossibility nor anything contrary to law in
this intent."11 Article 1602 of the Civil Code lists down the
circumstances that may indicate that a contract is an equitable
mortgage:
Art. 1602. The contract shall be presumed to be an equitable
mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is
unusually inadequate;

THE PARTIES ARGUMENTS

Lomises insists that the agreement was merely one of loan, not of sale
of improvements and leasehold rights. Johnny could not afford to
purchase from Lomises the two market stalls for P260,000.00 because
the former was a mere college student when the agreement was
entered into in 1984 and was dependent on his parents for support.
The actual lender of the amount was Johnnys mother, Domes;
Johnnys name was placed on the receipt dated September 8, 1984 so
that in case the loan was not paid, the rights over the market stalls
would be transferred to Johnnys name, not to Domes who already had
a market stall and was thus disqualified from acquiring another. The
receipt dated September 8, 1984, Lomises pointed out, bears the
signature of Domes, not of Johnny.
Even assuming that Johnny was the real creditor, Lomises alleges that
the loan had been fully paid when he turned over the amount
of P68,000.00 to Johnnys parents, as evidenced by the receipt dated
October 9, 1985. Domes claim that she was pressured to accept the
amount is an implied admission that payment had nonetheless been
received. When Johnny died during the pendency of the case before
the RTC, his parents became his successors and inherited all his
rights. For having received the full amount of the loan, Johnnys
parents can no longer enforce payment of the loan.
Lomises contends that there were no improvements made on the
market stalls other than the stalls themselves, and these belong to the
Baguio City Government as the lessor. A transfer of the stalls cannot
be made without a transfer of the leasehold rights, in which case, there
would be an indirect violation of the lease contract with the Baguio City
Government. Lomises further alleges that, at present, the market stalls

(2) When the vendor remains in possession as lessee or

otherwise;
(3) When upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the
purchase price;
(5) When the vendor binds himself to pay the taxes on the
thing sold;
(6) In any other case where it may be fairly inferred that the
real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any
other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be
received by the vendee as rent or otherwise shall be considered as
interest which shall be subject to the usury laws. [Emphases ours.]
Based on Lomises allegations in his pleadings, we consider three
circumstances to determine whether his claim is well-supported. First,
Johnny was a mere college student dependent on his parents for
support when the agreement was executed, and it was Johnnys
mother, Domes, who was the party actually interested in acquiring the
market stalls. Second, Lomises received only P48,000.00 of
the P68,000.00 that Johnny claimed he gave as down payment;

Lomises said that the P20,000.00 represented interests on the loan.

Third, Lomises retained possession of the market stalls even after the
execution of the agreement.

without the consent of the lessor, the Baguio City Government, as

required under Article 1649 of the Civil Code.20 Neither party appears
to have contested this ruling.

Whether separately or taken together, these circumstances do not

support a conclusion that the parties only intended to enter into a
contract of loan.

Lomises, however, objects to the CA ruling upholding the validity of the

agreement insofar as it involved the sale of improvements on the stalls.
Lomises alleges that the sale of the improvements should similarly be
voided because it was made without the consent of the Baguio City
Government, the owner of the improvements, pursuant to the May 1,
1985 lease contract.21 Lomises further claims that the stalls themselves
are the only improvements on the property and a transfer of the stalls
cannot be made without transferring the leasehold rights. Hence, both
the assignment of leasehold rights and the sale of improvements
should be voided.

That Johnny was a mere student when the agreement was executed
does not indicate that he had no financial capacity to pay the purchase
price of P260,000.00. At that time, Johnny was a 26-year old third year
engineering student who operated as a businessman as a sideline
activity and who helped his family sell goods in the Hangar
Market.12 During trial, Johnny was asked where he was to get the funds
to pay the P260,000.00 purchase price, and he said he would get a
loan from his grandfather.13 That he did not have the full amount at the
time the agreement was executed does not necessarily negate his
capacity to pay the purchase price, since he had 16 months to
complete the payment. Apart from Lomises bare claim that it was
Johnnys mother, Domes, who was interested in acquiring his market
stalls, we find no other evidence supporting the claim that Johnny was
merely acting as a dummy for his mother.
Lomises contends that of the P68,000.00 given by Johnny, he only
received P48,000.00, with the remainingP20,000.00 retained by
Johnny as interest on the loan. However, the testimonies of the
witnesses presented during trial, including Lomises himself, negate this
claim. Judge Rodolfo Rodrigo (RTC of Baguio City, Branch VII) asked
Lomises lawyer, Atty. Lockey, if they deny receipt of the P68,000.00;
Atty. Lockey said that they were not denying receipt, and added that
they had in fact returned the same amount.14 Judge Rodrigo accurately
summarized their point by stating that "there is no need to dispute
whether the P68,000.00 was given, because if [Lomises] tried to return
that x x x he had received that."15 Witness Atty. Albert Umaming said he
counted the money before he drafted the October 9, 1985 receipt
evidencing the return; he said that Lomises returnedP68,000.00 in
total.16 Thus, if the transaction was indeed a loan and the P20,000.00
interest was already prepaid by Lomises, the return of the full amount
of P68,000.00 by Lomises to Johnny (through his mother, Domes)
would not make sense.
That Lomises retained possession of the market stalls even after the
execution of his agreement with Johnny is also not an indication that
the true transaction between them was one of loan. Johnny had yet to
complete his payment and, until Lomises decided to forego with their
agreement, had four more months to pay; until then, Lomises retained
ownership and possession of the market stalls.17
Lomises cannot feign ignorance of the import of the terms of the
receipt of September 8, 1984 by claiming that he was an illiterate old
man. A witness (Ana Comnad) testified not only of the fact of the sale,
but also that Lomises daughter, Dolores, translated the terms of the
agreement from English to Ilocano for Lomises benefit;18 Lomises
himself admitted this fact.19 If Lomises believed that the receipt of
September 8, 1984 did not express the parties true intent, he could
have refused to sign it or subsequently requested for a reformation of
its terms. Lomises rejected the agreement only after Johnny sought to
enforce it.
Hence, the CA was correct in characterizing the agreement between
Johnny and Lomises as a sale of improvements and assignment of
leasehold rights.
The Validity of the Agreement
Both the RTC and the CA correctly declared that the assignment of the
leasehold rights over the two market stalls was void since it was made

The CA has already rejected the evidentiary value of the May 1, 1985
lease contract between the Baguio City Government and Lomises, as it
was not formally offered in evidence before the RTC; in fact, the CA
admonished Lomises lawyer, Atty. Lockey, for making it appear that it
was part of the records of the case. Under Section 34, Rule 132 of the
Rules of Court, the court shall consider no evidence which has not
been formally offered. "The offer of evidence is necessary because it is
the duty of the court to rest its findings of fact and its judgment only
and strictly upon the evidence offered by the parties. Unless and until
admitted by the court in evidence for the purpose or purposes for
which such document is offered, the same is merely a scrap of paper
barren of probative weight."22 Although the contract was referred to in
Lomises answer to Johnnys complaint23 and marked as Exhibit "2" in
his pre-trial brief,24 a copy of it was never attached. In fact, a copy of
the May 1, 1985 lease contract "surfaced" only after Lomises filed a
motion for reconsideration of the CA decision. What was formally
offered was the 1969 permit, which only stated that Lomises was
permitted to occupy a stall in the Baguio City market and nothing
else.25 In other words, no evidence was presented and formally offered
showing that any and all improvements in the market stalls shall be
owned by the Baguio City Government.
Likewise unsupported by evidence is Lomises claim that the stalls
themselves were the only improvements. Hence, the CA found it
proper to order the remand of the case for the RTC to determine the
value of the improvements on the market stalls existing as of
September 8, 1984.26 We agree with the CAs order of remand. We
note, however, that Lomises had already returned the P68,000.00 and
receipt of the amount has been duly acknowledged by Johnnys
mother, Domes. Johnny testified on October 6, 1986 that the money
was still with his mother.27 Thus, upon determination by the RTC of the
actual value of the improvements on the market stalls, the heirs of
Johnny Suerte should pay the ascertained value of these
improvements to Lomises, who shall thereafter be required to execute
the deed of sale over the improvements in favor of the heirs of Johnny.
WHEREFORE, under these premises, the Court hereby AFFIRMS the
ruling of the Court of Appeals for the remand of the case to the
Regional Trial Court of Baguio City, Branch 7, for the determination of
the value of the improvements on Stall Nos. 9 and 10 at the
Refreshment Section of the Hangar Market Compound, Baguio City as
of September 8, 1984. After this determination, the Court ORDERS the
heirs of Johnny M. Suerte to pay the amount determined to the heirs of
Lomises Aludos, who shall thereafter execute the deed of sale
covering the improvements in favor of the heirs of Johnny M. Suerte
and deliver the deed to them. Costs against the petitioner.
SO ORDERED.
G.R. No. 122544 January 28, 1999

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D.

BLAZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON,
RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON,
JR., petitioners,
vs.
COURT OF APPEALS and OVERLAND EXPRESS LINES,
INC., respondents.
G.R. No. 124741 January 28, 1999
REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D.
BALZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON,
RAYMUND A. DIZON, GERARD A. DIZON, and Jose A. DIZON,
JR., petitioners,
vs.
COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and
OVERLAND EXPRESS LINES, INC.,respondents.

MARTINEZ, J.:
Two consolidated petitions were filed before us seeking to set aside
and annul the decisions and resolutions of respondent Court of
Appeals. What seemed to be a simple ejectment suit was juxtaposed
with procedural intricacies which finally found its way to this Court.
G.R. No. 122544:
On May 23, 1974, private respondent Overland Express Lines, Inc.
(lessee) entered into a Contract of Lease with Option to Buy with
petitioners 1 (lessors) involving a 1,755.80 square meter parcel of land
situated at corner MacArthur Highway and South "H" Street, Diliman,
Quezon City. The term of the lease was for one (1) year commencing
from May 16, 1974 up to May 15, 1975. During this period, private
respondent was granted an option to purchase for the amount of
P3,000.00 per square meter. Thereafter, the lease shall be on a per
month basis with a monthly rental of P3,000.00.
For failure of private respondent to pay the increased rental of
P8,000.00 per month effective June 1976, petitioners filed an action for
ejectment (Civil Case No. VIII-29155) on November 10, 1976 before
the then City Court (now Metropolitan Trial Court) of Quezon City,
Branch VIII. On November 22, 1982, the City Court rendered
judgment 2 ordering private respondent to vacate the leased premises
and to pay the sum of P624,000.00 representing rentals in arrears
and/or as damages in the form of reasonable compensation for the use
and occupation of the premises during the period of illegal detainer
from June 1976 to November 1982 at the monthly rental of P8,000.00,
less payments made, plus 12% interest per annum from November 18,
1976, the date of filing of the complaint, until fully paid, the sum of
P8,000.00 a month starting December 1982, until private respondent
fully vacates the premises, and to pay P20,000.00 as and by way of
attorney's fees.
Private respondent filed a certiorari petition praying for the issuance of
a restraining order enjoining the enforcement of said judgment and
dismissal of the case for lack of jurisdiction of the City Court.
On September 26, 1984, the then Intermidiate Appellate Court 3 (now
Court of Appeals) rendered a decision 4 stating that:
. . ., the alleged question of whether petitioner was
granted an extension of the option to buy the
property; whether such option, if any, extended the
lease or whether petitioner actually paid the

alleged P300,000.00 to Fidela Dizon, as

representative of private respondents in
consideration of the option and, whether petitioner
thereafter offered to pay the balance of the
supposed purchase price, are all merely incidental
and do not remove the unlawful detainer case
from the jurisdiction or respondent court. In
consonance with the ruling in the case of Teodoro,
Jr. vs. Mirasol (supra), the above matters may be
raised and decided in the unlawful detainer suit as,
to rule otherwise, would be a violation of the
principle prohibiting multiplicity of suits. (Original
Records, pp. 38-39).
The motion for reconsideration was denied. On review, this Court
dismissed the petition in a resolution dated June 19, 1985 and likewise
denied private respondent's subsequent motion for reconsideration in a
resolution dated September 9, 1985. 5
On October 7, 1985, private respondent filed before the Regional Trial
Court (RTC) of Quezon City (Civil Case No. Q-45541) an action for
Specific Performance and Fixing of Period for Obligation with prayer
for the issuance of a restraining order pending hearing on the prayer
for a writ of preliminary injunction. It sought to compel the execution of
a deed of sale pursuant to the option to purchase and the receipt of the
partial payment, and to fix the period to pay the balance. In an Order
dated October 25, 1985, the trial court denied the issuance of a writ of
preliminary injunction on the ground that the decision of the then City
Court for the ejectment of the private respondent, having been affirmed
by the then Intermediate Appellate Court and the Supreme Court, has
become final and executory.
Unable to secure an injunction, private respondent also filed before the
RTC of Quezon City, Branch 102 (Civil Case No. Q-46487) on
November 15, 1985 a complaint for Annulment of and Relief from
Judgment with injunction and damages. In its decision 6 dated May 12,
1986, the trial court dismissed the complaint for annulment on the
ground of res judicata, and the writ of preliminary injunction previously
issued was dissolved. It also ordered private respondent to pay
P3,000.00 as attorney's fees. As a consequence of private
respondent's motion for reconsideration, the preliminary injunction was
reinstated, thereby restraining the execution of the City Court's
judgment on the ejectment case.
The two cases were the after consolidated before the RTC of Quezon
City, Branch 77. On April 28, 1989, a decision 7 was rendered
dismissing private respondent's complaint in Civil Case No. Q-45541
(specific performance case) and denying its motion for reconsideration
in Civil Case No. 46487 (annulment of the ejectment case). The motion
for reconsideration of said decision was likewise denied.
On appeal, 8 respondent Court of Appeals rendered a
decision 9 upholding the jurisdiction of the City Court of Quezon City in
the ejectment case. It also concluded that there was a perfected
contract of sale between the parties on the leased premises and that
pursuant to the option to buy agreement, private respondent had
acquired the rights of a vendee in a contract of sale. It opined that the
payment by private respondent of P300,000.00 on June 20, 1975 as
partial payment for the leased property, which petitioners accepted
(through Alice A. Dizon) and for which an official receipt was issued,
was the operative act that gave rise to a perfected contract of sale, and
that for failure of petitioners to deny receipt thereof, private respondent
can therefore assume that Alice A. Dizon, acting as agent of
petitioners, was authorized by them to receive the money in their
behalf. The Court of Appeals went further by stating that in fact, what
was entered into was a "conditional contract of sale" wherein
ownership over the leased property shall not pass to the private
respondent until it has fully paid the purchase price. Since private

respondent did not consign to the court the balance of the purchase
price and continued to occupy the subject premises, it had the
obligation to pay the amount of P1,700.00 in monthly rentals until full
payment of the purchase price. The dispositive portion of said decision
reads:
WHEREFORE, the appealed decision in Case No.
46387 is AFFIRMED. The appealed decision in
Case No. 45541 is, on the other hand, ANNULLED
and SET ASIDE. The defendants-appellees are
ordered to execute the deed of absolute sale of
the property in question, free from any lien or
encumbrance whatsoever, in favor of the plaintiffappellant, and to deliver to the latter the said deed
of sale, as well as the owner's duplicate of the
certificate of title to said property upon payment of
the balance of the purchase price by the plaintiffappellant. The plaintiff-appellant is ordered to pay
P1,700.00 per month from June 1976, plus 6%
interest per annum, until payment of the balance
of the purchase price, as previously agreed upon
by the parties.
SO ORDERED.
Upon denial of the motion for partil reconsideration (Civil Case No. Q45541) by respondent Court of Appeals, 10petitioners elevated the
case via petition for certiorari questioning the authority of Alice A. Dizon
as agent of petitioners in receiving private respondent's partial
payment amounting to P300,000.00 pursuant to the Contract of Lease
with Option to Buy. Petitioner also assail the propriety of private
respondent's exercise of the option when it tendered the said amount
on June 20, 1975 which purportedly resulted in a perfected contract of
sale.
G.R. No. 124741:
Petitioners filed with respondent Court of Appeals a motion to remand
the records of Civil Case No. 38-29155 (ejectment case) to the
Metropolitan Trial Court (MTC), then City Court of Quezon City, Branch
38, for execution of the judgment 11 dated November 22, 1982 which
was granted in a resolution dated June 29, 1992. Private respondent
filed a motion to reconsider said resolution which was denied.
Aggrieved, private respondent filed a petition for certiorari, prohibition
with preliminary injunction and/or restraining order with this Court (G.R.
Nos. 106750-51) which was dismissed in a resolution dated
September 16, 1992 on the ground that the same was a refiled case
previously dismissed for lack of merit. On November 26, 1992, entry of
judgment was issued by this Court.

On January 11, 1994, RTC of Quezon City, Branch 104 issued an

order 12 granting the issuance of a writ of preliminary injunction upon
private respondent's' posting of an injunction bond of P50,000.00.
Assailing the aforequoted order after denial of their motion for partial
reconsideration, petitioners filed a petition 13for certiorari and
prohibition with a prayer for a temporary restraining order and/or
preliminary injunction with the Court of Appeals. In its decision, 14 the
Court of Appeals dismissed the petition and ruled that:
The avowed purpose of this petition is to enjoin
the public respondent from restraining the
ejectment of the private respondent. To grant the
petition would be to allow the ejectment of the
private respondent. We cannot do that now in view
of the decision of this Court in CA-G.R. CV Nos.
25153-54. Petitioners' alleged right to eject private
respondent has been demonstrated to be without
basis in the said civil case. The petitioners have
been shown, after all, to have no right to eject
private respondents.
WHEREFORE, the petition is DENIED due course
and is accordingly DISMISSED.
SO ORDERED. 15
Petitioners' motion for reconsideration was denied in a resolution
the Court of Appeals stating that:

16

by

This court in its decision in CA-G.R. CV Nos.

25153-54 declared that the plaintiff-appellant
(private respondent herein) acquired the rights of a
vendee in a contract of sale, in effect, recognizing
the right of the private respondent to possess the
subject premises. Considering said decision, we
should not allow ejectment; to do so would disturb
the status quo of the parties since the petitioners
are not in possession of the subject property. It
would be unfair and unjust to deprive the private
respondent of its possession of the subject
property after its rights have been established in a
subsequent ruling.
WHEREFORE, the motion for reconsideration is
DENIED for lack of merit.
SO ORDERED. 17
Hence, this instant petition.

On July 14, 1993, petitioners filed an urgent ex-parte motion for

execution of the decision in Civil Case No. 38-29155 with the MTC of
Quezon City, Branch 38. On September 13, 1993, the trial court
ordered the issuance of a third alias writ of execution. In denying
private respondent's motion for reconsideration, it ordered the
immediate implementation of the third writ of execution without delay.
On December 22, 1993, private respondent filed with the Regional Trial
Court (RTC) of Quezon City, Branch 104 a petition for certiorari and
prohibition with preliminary injunction/restraining order (SP. PROC. No.
93-18722) challenging the enforceability and validity of the MTC
judgment as well as the order for its execution.

We find both petitions impressed with merit.

First. Petitioners have established a right to evict private respondent
from the subject premises for non-payment of rentals. The term of the
Contract of Lease with Option to Buy was for a period of one (1) year
(May 16, 1974 to May 15, 1975) during which the private respondent
was given an option to purchase said property at P3,000.00 square
meter. After the expiration thereof, the lease was for P3,000.00 per
month.
Admittedly, no definite period beyond the one-year term of lease was
agreed upon by petitioners and private respondent. However, since the
rent was paid on a monthly basis, the period of lease is considered to
be from month to month in accordance with Article 1687 of the New

Civil Code. 18 Where the rentals are paid monthly, the lease, even if
verbal may be deemed to be on a monthly basis, expiring at the end of
every month pursuant to Article 1687, in relation to Article 1673 of the
Civil Code. 19 In such case, a demand to vacate is not even necessary
for judicial action after the expiration of every month. 20

that petitioners' filing of the ejectment case against it based on the

contract of lease with option to buy holds petitioners in estoppel to
question the authority of petitioner Fidela Dizon. It insisted that the
payment of P300,000.00 as partial payment of the purchase price
constituted a valid exercise of the option to buy.

When private respondent failed to pay the increased rental of

P8,000.00 per month in June 1976, the petitioners had a cause of
action to institute an ejectment suit against the former with the then
City Court. In this regard, the City Court (now MTC) had exclusive
jurisdiction over the ejectment suit. The filing by private respondent of
a suit with the Regional Trial Court for specific performance to enforce
the option to purchase did not divest the then City Court of its
jurisdiction to take cognizance over the ejectment case. Of note is the
fact that the decision of the City Court was affirmed by both the
Intermediate Appellate Court and this Court.

Under Article 1475 of the New 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." Thus, the
elements of a contract of sale are consent, object, and price in money
or its equivalent. It bears stressing that the absence of any of these
essential elements negates the existence of a perfected contract of
sale. Sale is a consensual contract and he who alleges it must show its
existence by competent proof. 25

Second. Having failed to exercise the option within the stipulated oneyear period, private respondent cannot enforce its option to purchase
anymore. Moreover, even assuming arguendo that the right to exercise
the option still subsists at the time private respondent tendered the
amount on June 20, 1975, the suit for specific performance to enforce
the option to purchase was filed only on October 7, 1985 or more than
ten (10) years after accrual of the cause of action as provided under
Article 1144 of the New Civil Code. 21

In an attempt to resurrect the lapsed option, private respondent gave

P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous
presumption that the said amount tendered would constitute a
perfected contract of sale pursuant to the contract of lease with option
to buy. There was no valid consent by the petitioners (as co-owners of
the leased premises) on the supposed sale entered into by Alice A.
Dizon, as petitioners' alleged agent, and private respondent. The basis
for agency is representation and a person dealing with an agent is put
upon inquiry and must discover upon his peril the authority of the
agent. 26 As provided in Article 1868 of the New Civil Code, 27there was
no showing that petitioners consented to the act of Alice A. Dizon nor
authorized her to act on their behalf with regard to her transaction with
private respondent. The most prudent thing private respondent should
have done was to ascertain the extent of the authority of Alice A.
Dizon. Being negligent in this regard, private respondent cannot seek
relief on the basis of a supposed agency.

In this case, there was a contract of lease for one (1) year with option
to purchase. The contract of lease expired without the private
respondent, as lessee, purchasing the property but remained in
possession thereof. Hence, there was an implicit renewal of the
contract of 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 New Civil Code 22 are only those terms which are
germane to the lessee's right of continued enjoyment of the property
leased. 23 Therefore, an implied new lease does not ipso facto carry
with it any implied revival of private respondent's option to purchase
(as lessee thereof) the leased premises. 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. Private respondent's right to exercise the
option to purchase expired with the termination of the original contract
of lease for one year. The rationale of this Court is that:
This is a reasonable construction of the provision,
which is based on the presumption that when the
lessor allows the lessee to continue enjoying
possession of the property for fifteen days after
the expiration of the contract he is willing that such
enjoyment shall be for the entire period
corresponding to the rent which is customarily paid
in this case up to the end of the month because
the rent was paid monthly. Necessarily, if the
presumed will of the parties refers to the
enjoyment of possession the presumption covers
the other terms of the contract related to such
possession, such as the amount of rental, the date
when it must be paid, the care of the property, the
responsibility for repairs, etc. But no such
presumption may be indulged in with respect to
special agreements which by nature are foreign to
the right of occupancy or enjoyment inherent in a
contract of lease. 24
Third. There was no perfected contract of sale between petitioners and
private respondent. Private respondent argued that it delivered the
check of P300,000.00 to Alice A. Dizon who acted as agent of
petitioners pursuant to the supposed authority given by petitioner
Fidela Dizon, the payee thereof. Private respondent further contended

In Bacaltos Coal Mines vs. Court of Appeals, 28 we explained the rule in

dealing with an agent:
Every person dealing with an agent is put upon
inquiry and must discover upon his peril the
authority of the agent. If he does not make such
inquiry, he is chargeable with knowledge of the
agent's authority, and his ignorance of that
authority will not be any excuse. Persons dealing
with an assumed agency, whether the assumed
agency be a general or special one, are bound at
their peril, if they would hold the principal, to
ascertain not only the fact of the agency but also
the nature and extent of the authority, and in case
either is controverted, the burden of proof is upon
them to establish it.
For the long years that private respondent was able to thwart the
execution of the ejectment suit rendered in favor of petitioners, we now
write finis to this controversy and shun further delay so as to ensure
that this case would really attain finality.
WHEREFORE, in view of the foregoing, both petitions are GRANTED.
The decision dated March 29, 1994 and the resolution dated October
19, 1995 in CA-G.R. CV No. 25153-54, as well as the decision dated
December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R.
SP No. 33113 of the Court of Appeals are hereby REVERSED and
SET ASIDE.
Let the records of this case be remanded to the trial court for
immediate execution of the judgment dated November 22, 1982 in Civil
Case No. VIII-29155 of the then City Court (now Metropolitan Trial
Court) of Quezon City, Branch VIII as affirmed in the decision dated

September 26, 1984 of the then Intermediate Appellate Court (now

Court of Appeals) and in the resolution dated June 19, 1985 of this
Court.
However, petitioners are ordered to REFUND to private respondent the
amount of P300,000.00 which they received through Alice A. Dizon on
June 20, 1975.1wphi1.nt
SO ORDERED.
G.R. No. 179382

January 14, 2013

SPOUSES BENJAMIN C. MAMARIL AND SONIA P.

MAMARIL, Petitioners,
vs.
THE BOY SCOUT OF THE PHILIPPINES, AIB SECURITY AGENCY,
INC., CESARIO PEA,* AND VICENTE GADDI, Respondents.
DECISION
PERLAS-BERNABE, J.:
This is a Petition for Review on Certiorari assailing the May 31, 2007
Decision1 and August 16, 2007 Resolution2of the Court of Appeals (CA)
in CA-G.R. CV No. 75978. The dispositive portion of the said Decision
reads:
WHEREFORE, the Decision dated November 28, 2001 and the Order
dated June 11, 2002 rendered by the Regional Trial Court of Manila,
Branch 39 is hereby MODIFIED to the effect that only defendants AIB
Security Agency, Inc., Cesario Pea and Vicente Gaddi are held jointly
and severally liable to pay plaintiffs-appellees Spouses Benjamin C.
Mamaril and Sonia P. Mamaril the amount of Two Hundred Thousand
Pesos (P200,000.00) representing the cost of the lost vehicle, and to
pay the cost of suit. The other monetary awards are DELETED for lack
of merit and/or basis.
Defendant-Appellant Boy Scout of the Philippines is absolved from any
liability.
SO ORDERED.3
The Antecedent Facts
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril)
are jeepney operators since 1971. They would park their six (6)
passenger jeepneys every night at the Boy Scout of the Philippines'
(BSP) compound located at 181 Concepcion Street, Malate, Manila for
a fee of P300.00 per month for each unit. On May 26, 1995 at 8 o'clock
in the evening, all these vehicles were parked inside the BSP
compound. The following morning, however, one of the vehicles with
Plate No. DCG 392 was missing and was never recovered.4 According
to the security guards Cesario Pea (Pea) and Vicente Gaddi (Gaddi)
of AIB Security Agency, Inc. (AIB) with whom BSP had contracted5 for
its security and protection, a male person who looked familiar to them
took the subject vehicle out of the compound.
On November 20, 1996, Sps. Mamaril filed a complaint6 for damages
before the Regional Trial Court (RTC) of Manila, Branch 39, against
BSP, AIB, Pea and Gaddi. In support thereof, Sps. Mamaril averred
that the loss of the subject vehicle was due to the gross negligence of
the above-named security guards on-duty who allowed the subject
vehicle to be driven out by a stranger despite their agreement that only
authorized drivers duly endorsed by the owners could do so. Pea and
Gaddi even admitted their negligence during the ensuing investigation.

Notwithstanding, BSP and AIB did not heed Sps. Mamaril's demands
for a conference to settle the matter. They therefore prayed that Pea
and Gaddi, together with AIB and BSP, be held liable for: (a) the value
of the subject vehicle and its accessories in the aggregate amount
of P300,000.00; (b) P275.00 representing daily loss of
income/boundary reckoned from the day the vehicle was lost; (c)
exemplary damages; (d) moral damages; (e) attorney's fees; and (f)
cost of suit.
In its Answer,7 BSP denied any liability contending that not only did
Sps. Mamaril directly deal with AIB with respect to the manner by
which the parked vehicles would be handled, but the parking
ticket8 itself expressly stated that the "Management shall not be
responsible for loss of vehicle or any of its accessories or article left
therein." It also claimed that Sps. Mamaril erroneously relied on the
Guard Service Contract. Apart from not being parties thereto, its
provisions cover only the protection of BSP's properties, its officers,
and employees.
In addition to the foregoing defenses, AIB alleged that it has observed
due diligence in the selection, training and supervision of its security
guards while Pea and Gaddi claimed that the person who drove out
the lost vehicle from the BSP compound represented himself as the
owners' authorized driver and had with him a key to the subject
vehicle. Thus, they contended that Sps. Mamaril have no cause of
action against them.
The RTC Ruling
After due proceedings, the RTC rendered a Decision9 dated November
28, 2001 in favor of Sps. Mamaril. The dispositive portion of the RTC
decision reads:
WHEREFORE, judgment is hereby rendered ordering the defendants
Boy Scout of the Philippines and AIB Security Agency, with security
guards Cesario Pena and Vicente Gaddi: 1. To pay the plaintiffs jointly and severally the cost of the
vehicle which is P250,000.00 plus accessories
ofP50,000.00;
2. To pay jointly and severally to the plaintiffs the daily loss of
the income/boundary of the said jeepney to be reckoned
fromits loss up to the final adjudication of the case, which
is P275.00 a day;
3. To pay jointly and severally to the plaintiffs moral damages
in the amount of P50,000.00;
4. To pay jointly and severally to the plaintiffs exemplary
damages in the amount of P50,000.00;
5. To pay jointly and severally the attorney's fees
of P50,000.00 and appearances in court the amount
ofP1,500.00 per appearance; and
6. To pay cost.
SO ORDERED.10
The RTC found that the act of Pea and Gaddi in allowing the entry of
an unidentified person and letting him drive out the subject vehicle in
violation of their internal agreement with Sps. Mamaril constituted
gross negligence, rendering AIB and its security guards liable for the
former's loss. BSP was also adjudged liable because the Guard

Service Contract it entered into with AIB offered protection to all

properties inside the BSP premises, which necessarily included Sps.
Mamaril's vehicles. Moreover, the said contract stipulated AIB's
obligation to indemnify BSP for all losses or damages that may be
caused by any act or negligence of its security guards. Accordingly, the
BSP, AIB, and security guards Pea and Gaddi were held jointly and
severally liable for the loss suffered by Sps. Mamaril.

THE HONORABLE COURT OF APPEALS COMMITTED

SERIOUS ERROR IN THE INTERPRETATION OF LAW
WHEN IT CONSIDERED THE AGREEMENT BETWEEN
BOY SCOUT OF THE PHILIPPINES AND PETITIONERS A
CONTRACT OF LEASE, WHEREBY THE BOY SCOUT IS
NOT DUTY BOUND TO PROTECT OR TAKE CARE OF
PETITIONERS' VEHICLES.

On June 11, 2002, the RTC modified its decision reducing the cost of
the stolen vehicle from P250,000.00 toP200,000.00.11
Only BSP appealed the foregoing disquisition before the CA.

IV.
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED WHEN IT RULED THAT PETITIONERS ARE NOT
ENTITLED TO DAMAGES AND ATTORNEY'S FEES.14

The CA Ruling
12

In its assailed Decision, the CA affirmed the finding of negligence on

the part of security guards Pea and Gaddi. However, it absolved BSP
from any liability, holding that the Guard Service Contract is purely
between BSP and AIB and that there was nothing therein that would
indicate any obligation and/or liability on the part of BSP in favor of
third persons, such as Sps. Mamaril. Nor was there evidence sufficient
to establish that BSP was negligent.
It further ruled that the agreement between Sps. Mamaril and BSP was
substantially a contract of lease whereby the former paid parking fees
to the latter for the lease of parking slots. As such, the lessor, BSP, was
not an insurer nor bound to take care and/or protect the lessees'
vehicles.
On the matter of damages, the CA deleted the award of P50,000.00
representing the value of the accessories inside the lost vehicle and
the P275.00 a day for loss of income in the absence of proof to support
them. It also deleted the award of moral and exemplary damages and
attorney's fees for lack of factual and legal bases.
Sps. Mamaril's motion for reconsideration thereof was denied in the
August 16, 2007 Resolution.13
Issues Before the Court
Hence, the instant petition based on the following assignment of errors,
to wit:
I.
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN ABSOLVING RESPONDENT BOY SCOUT OF
THE PHILIPPINES FROM ANY LIABILITY.
II.
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS MISTAKE WHEN IT RULED THAT THE GUARD
SERVICE CONTRACT IS PURELY BETWEEN BOY SCOUT
OF THE
PHILIPPINES AND AIB SECURITY AGENCY, INC., AND IN
HOLDING THAT THERE IS ABSOLUTELY NOTHING IN
THE SAID CONTRACT THAT WOULD INDICATE ANY
OBLIGATION AND/OR LIABILITY ON THE PART OF THE
PARTIES THEREIN IN FAVOR OF THIRD PERSONS,
SUCH AS PETITIONERS HEREIN.
III.

In fine, Sps. Mamaril maintain that: (1) BSP should be held liable for
the loss of their vehicle based on the Guard Service Contract and the
parking ticket it issued; and (2) the CA erred in deleting the RTC
awards of damages and attorney's fees.
The Court's Ruling
The petition lacks merit.
Article 20 of the Civil Code provides that every person, who, contrary
to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same. Similarly, Article 2176 of the Civil
Code states:
Art. 2176. Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage done.
Such fault or negligence, if there is no preexisting contractual relation
between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.
In this case, it is undisputed that the proximate cause of the loss of
Sps. Mamaril's vehicle was the negligent act of security guards Pea
and Gaddi in allowing an unidentified person to drive out the subject
vehicle. Proximate cause has been defined as that cause, which, in
natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury or loss, and without which the
result would not have occurred.15
Moreover, Pea and Gaddi failed to refute Sps. Mamaril's
contention16 that they readily admitted being at fault during the
investigation that ensued.
On the other hand, the records are bereft of any finding of negligence
on the part of BSP. Hence, no reversible error was committed by the
CA in absolving it from any liability for the loss of the subject vehicle
based on fault or negligence.
Neither will the vicarious liability of an employer under Article 2180 17 of
the Civil Code apply in this case. It is uncontested that Pea and Gaddi
were assigned as security guards by AIB to BSP pursuant to the Guard
Service Contract. Clearly, therefore, no employer-employee
relationship existed between BSP and the security guards assigned in
its premises. Consequently, the latter's negligence cannot be imputed
against BSP but should be attributed to AIB, the true employer of Pea
and Gaddi.18
In the case of Soliman, Jr. v. Tuazon,19 the Court enunciated thus:
It is settled that where the security agency, as here, recruits, hires and
assigns the work of its watchmen or security guards, the agency is the
employer of such guards and watchmen. Liability for illegal or harmful

acts committed by the security guards attaches to the employer

agency, and not to the clients or customers of such agency. As a
general rule, a client or customer of a security agency has no hand in
selecting who among the pool of security guards or watchmen
employed by the agency shall be assigned to it; the duty to observe the
diligence of a good father of a family in the selection of the guards
cannot, in the ordinary course of events, be demanded from the client
whose premises or property are protected by the security guards. The
fact that a client company may give instructions or directions to the
security guards assigned to it, does not, by itself, render the client
responsible as an employer of the security guards concerned and
liable for their wrongful acts or omissions. Those instructions or
directions are ordinarily no more than requests commonly envisaged in
the contract for services entered into with the security agency.20
Nor can it be said that a principal-agent relationship existed between
BSP and the security guards Pea and Gaddi as to make the former
liable for the latter's complained act. Article 1868 of the Civil Code
states that "by the contract of agency, a person binds himself to render
some service or to do something in representation or on behalf of
another, with the consent or authority of the latter." The basis for
agency therefore is representation,21which element is absent in the
instant case. Records show that BSP merely hired the services of AIB,
which, in turn, assigned security guards, solely for the protection of its
properties and premises. Nowhere can it be inferred in the Guard
Service Contract that AIB was appointed as an agent of BSP. Instead,
what the parties intended was a pure principal-client relationship
whereby for a consideration, AIB rendered its security services to BSP.
Notwithstanding, however, Sps. Mamaril insist that BSP should be held
liable for their loss on the basis of the Guard Service Contract that the
latter entered into with AIB and their parking agreement with BSP.
Such contention cannot be sustained.
Article 1311 of the Civil Code states:
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.
If a contract should contain some stipulation in favor of a third person,
he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties
must have clearly and deliberately conferred a favor upon a third
person.
Thus, in order that a third person benefited by the second paragraph of
Article 1311, referred to as a stipulation pour autrui, may demand its
fulfillment, the following requisites must concur: (1) There is a
stipulation in favor of a third person; (2) The stipulation is a part, not
the whole, of the contract; (3) The contracting parties clearly and
deliberately conferred a favor to the third person - the favor is not
merely incidental; (4) The favor is unconditional and uncompensated;
(5) The third person communicated his or her acceptance of the favor
before its revocation; and (6) The contracting parties do not represent,
or are not authorized, by the third party.22 However, none of the
foregoing elements obtains in this case.
It is undisputed that Sps. Mamaril are not parties to the Guard Service
Contract.1wphi1 Neither did the subject agreement contain any
stipulation pour autrui. And even if there was, Sps. Mamaril did not
convey any acceptance thereof. Thus, under the principle of relativity

of contracts, they cannot validly claim any rights or favor under the said
agreement.23 As correctly found by the CA:
First, the Guard Service Contract between defendant-appellant BSP
and defendant AIB Security Agency is purely between the parties
therein. It may be observed that although the whereas clause of the
said agreement provides that defendant-appellant desires security and
protection for its compound and all properties therein, as well as for its
officers and employees, while inside the premises, the same should be
correlated with paragraph 3(a) thereof which provides that the security
agency shall indemnify defendant-appellant for all losses and damages
suffered by it attributable to any act or negligence of the former's
guards.
Otherwise stated, defendant-appellant sought the services of
defendant AIB Security Agency for the purpose of the security and
protection of its properties, as well as that of its officers and
employees, so much so that in case of loss of [sic] damage suffered by
it as a result of any act or negligence of the guards, the security
agency would then be held responsible therefor. There is absolutely
nothing in the said contract that would indicate any obligation and/or
liability on the part of the parties therein in favor of third persons such
as herein plaintiffs-appellees.24
Moreover, the Court concurs with the finding of the CA that the contract
between the parties herein was one of lease25 as defined under Article
164326 of the Civil Code. It has been held that the act of parking a
vehicle in a garage, upon payment of a fixed amount, is a lease.27 Even
in a majority of American cases, it has been ruled that where a
customer simply pays a fee, parks his car in any available space in the
lot, locks the car and takes the key with him, the possession and
control of the car, necessary elements in bailment, do not pass to the
parking lot operator, hence, the contractual relationship between the
parties is one of lease.28
In the instant case, the owners parked their six (6) passenger jeepneys
inside the BSP compound for a monthly fee of P300.00 for each unit
and took the keys home with them. Hence, a lessor-lessee relationship
indubitably existed between them and BSP. On this score, Article 1654
of the Civil Code provides that "the lessor (BSP) is obliged: (1) to
deliver the thing which is the object of the contract in such a condition
as to render it fit for the use intended; (2) to make on the same during
the lease all the necessary repairs in order to keep it suitable for the
use to which it has been devoted, unless there is a stipulation to the
contrary; and (3) to maintain the lessee in the peaceful and adequate
enjoyment of the lease for the entire duration of the contract." In
relation thereto, Article 1664 of the same Code states that "the lessor is
not obliged to answer for a mere act of trespass which a third person
may cause on the use of the thing leased; but the lessee shall have a
direct action against the intruder." Here, BSP was not remiss in its
obligation to provide Sps. Mamaril a suitable parking space for their
jeepneys as it even hired security guards to secure the premises;
hence, it should not be held liable for the loss suffered by Sps.
Mamaril.
It bears to reiterate that the subject loss was caused by the negligence
of the security guards in allowing a stranger to drive out plaintiffsappellants' vehicle despite the latter's instructions that only their
authorized drivers may do so. Moreover, the agreement with respect to
the ingress and egress of Sps. Mamaril's vehicles were coordinated
only with AIB and its security guards,29 without the knowledge and
consent of BSP. Accordingly, the mishandling of the parked vehicles
that resulted in herein complained loss should be recovered only from
the tort feasors (Pea and Gaddi) and their employer, AIB; and not
against the lessor, BSP.30

Anent Sps. Mamaril's claim that the exculpatory clause: "Management

shall not be responsible for loss of vehicle or any of its accessories or
article left therein"31 contained in the BSP issued parking ticket was
void for being a contract of adhesion and against public policy, suffice it
to state that contracts of adhesion are not void per se. It is binding as
any other ordinary contract and a party who enters into it is free to
reject the stipulations in its entirety. If the terms thereof are accepted
without objection, as in this case, where plaintiffs-appellants have been
leasing BSP's parking space for more or less 20 years,32 then the
contract serves as the law between them.33 Besides, the parking fee
of P300.00 per month or P10.00 a day for each unit is too minimal an
amount to even create an inference that BSP undertook to be an
insurer of the safety of plaintiffs-appellants' vehicles.
On the matter of damages, the Court noted that while Sonia P. Mamaril
testified that the subject vehicle had accessories worth around !
J50,000.00, she failed to present any receipt to substantiate her
claim.34 Neither did she submit any record or journal that would have
established the purported P275.0035 daily earnings of their jeepney. It
is axiomatic that actual damages must be proved with reasonable

degree of certainty and a party is entitled only to such compensation

for the pecuniary loss that was duly proven. Thus, absent any
competent proof of the amount of damages sustained, the CA properly
deleted the said awards.36
Similarly, the awards of moral and exemplary damages and attorney's
fees were properly disallowed by the CA for lack of factual and legal
bases. While the RTC granted these awards in the dispositive portion
of its November 28, 2001 decision, it failed to provide sufficient
justification therefor.37
WHEREFORE premises considered, the instant petition is DENIED.
The May 31, 2007 Decision and Augaust 16, 2007 Resolution of the
Court of Appeals in CA-G.R. CV No. 75978 are AFFIRMFED.
SO ORDERED.