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MAKATI STOCK EXCHANGE, INC., MA.

VIVIAN YUCHENGCO,
ADOLFO M. DUARTE, MYRON C. PAPA, NORBERTO C.
NAZARENO, GEORGE UY-TIOCO, ANTONIO A. LOPA, RAMON B.
ARNAIZ, LUIS J.L. VIRATA, and ANTONIO GARCIA, JR.
Petitioners, versus MIGUEL V. CAMPOS, substituted by JULIA
ORTIGAS VDA. DE CAMPOS,[1] Respondent.
G.R. No. 138814 | 2009-04-16
DECISION
CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45


seeking the reversal of the Decision[2] dated 11 February 1997
and Resolution dated 18 May 1999 of the Court of Appeals in CA-
G.R. SP No. 38455.

The facts of the case are as follows:

SEC Case No. 02-94-4678 was instituted on 10 February 1994


by respondent Miguel V. Campos, who filed with the Securities,
Investigation and Clearing Department (SICD) of the Securities
and Exchange Commission (SEC), a Petition against herein
petitioners Makati Stock Exchange, Inc. (MKSE) and MKSE
directors, Ma. Vivian Yuchengco, Adolfo M. Duarte, Myron C.
Papa, Norberto C. Nazareno, George Uy-Tioco, Antonio A, Lopa,
Ramon B. Arnaiz, Luis J.L. Virata, and Antonio Garcia, Jr.
Respondent, in said Petition, sought: (1) the nullification of the
Resolution dated 3 June 1993 of the MKSE Board of Directors,
which allegedly deprived him of his right to participate equally in
the allocation of Initial Public Offerings (IPO) of corporations
registered with MKSE; (2) the delivery of the IPO shares he was
allegedly deprived of, for which he would pay IPO prices; and (3)
the payment of P2 million as moral damages, P1 million as
exemplary damages, and P500,000.00 as attorney's fees and
litigation expenses.
On 14 February 1994, the SICD issued an Order granting
respondent's prayer for the issuance of a Temporary Restraining
Order to enjoin petitioners from implementing or enforcing the
3 June 1993 Resolution of the MKSE Board of Directors.

The SICD subsequently issued another Order on 10 March


1994 granting respondent's application for a Writ of Preliminary
Injunction, to continuously enjoin, during the pendency of SEC
Case No. 02-94-4678, the implementation or enforcement of the
MKSE Board Resolution in question. Petitioners assailed this
SICD Order dated 10 March 1994 in a Petition for Certiorari filed
with the SEC en banc, docketed as SEC-EB No. 393.

On 11 March 1994, petitioners filed a Motion to Dismiss


respondent's Petition in SEC Case No. 02-94-4678, based on the
following grounds: (1) the Petition became moot due to the
cancellation of the license of MKSE; (2) the SICD had no
jurisdiction over the Petition; and (3) the Petition failed to state
a cause of action.

The SICD denied petitioner's Motion to Dismiss in an Order


dated 4 May 1994. Petitioners again challenged the 4 May 1994
Order of SICD before the SEC en banc through another Petition
for Certiorari, docketed as SEC-EB No. 403.

In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en


banc nullified the 10 March 1994 Order of SICD in SEC Case No.
02-94-4678 granting a Writ of Preliminary Injunction in favor of
respondent. Likewise, in an Order dated 14 August 1995 in SEC-
EB No. 403, the SEC en banc annulled the 4 May 1994 Order of
SICD in SEC Case No. 02-94-4678 denying petitioners' Motion to
Dismiss, and accordingly ordered the dismissal of respondent's
Petition before the SICD.
Respondent filed a Petition for Certiorari with the Court of
Appeals assailing the Orders of the SEC en banc dated 31 May
1995 and 14 August 1995 in SEC-EB No. 393 and SEC-EB No. 403,
respectively. Respondent's Petition before the appellate court
was docketed as CA-G.R. SP No. 38455.

On 11 February 1997, the Court of Appeals promulgated its


Decision in CA-G.R. SP No. 38455, granting respondent's Petition
for Certiorari, thus:

WHEREFORE, the petition in so far as it prays for annulment


of the Orders dated May 31, 1995 and August 14, 1995 in SEC-EB
Case Nos. 393 and 403 is GRANTED. The said orders are hereby
rendered null and void and set aside.

Petitioners filed a Motion for Reconsideration of the


foregoing Decision but it was denied by the Court of Appeals in a
Resolution dated 18 May 1999.

Hence, the present Petition for Review raising the following


arguments:

I. THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF


DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT DISMISSED THE PETITION FILED BY
RESPONDENT BECAUSE ON ITS FACE, IT FAILED TO STATE A
CAUSE OF ACTION.

II. THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF


RESPONDENT WAS A MERE ACCOMMODATION GIVEN TO HIM
BY THE BOARD OF [DIRECTORS] OF THE MAKATI STOCK
EXCHANGE, INC.

III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC


EN BANC COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT
MADE AN EXTENDED INQUIRY AND PROCEEDED TO MAKE A
DETERMINATION AS TO THE TRUTH OF RESPONDENT'S
ALLEGATIONS IN HIS PETITION AND USED AS BASIS THE
EVIDENCE ADDUCED DURING THE HEARING ON THE
APPLICATION FOR THE WRIT OF PRELIMINARY INJUNCTION TO
DETERMINE THE EXISTENCE OR VALIDITY OF A STATED CAUSE
OF ACTION.

IV. IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE


BOUGHT BY THE BROKERS FOR THEMSELVES BUT ARE TO BE
DISTRIBUTED TO THE INVESTING PUBLIC. HENCE,
RESPONDENT'S CLAIM FOR DAMAGES IS ILLUSORY AND HIS
PETITION A NUISANCE SUIT.[3]

On 18 September 2001, counsel for respondent manifested


to this Court that his client died on 7 May 2001. In a Resolution
dated 24 October 2001, the Court directed the substitution of
respondent by his surviving spouse, Julia Ortigas vda. de
Campos.

Petitioners want this Court to affirm the dismissal by the SEC


en banc of respondent's Petition in SEC Case No. 02-94-4678 for
failure to state a cause of action. On the other hand, respondent
insists on the sufficiency of his Petition and seeks the
continuation of the proceedings before the SICD.

A cause of action is the act or omission by which a party


violates a right of another.[4] A complaint states a cause of
action where it contains three essential elements of a cause of
action, namely: (1) the legal right of the plaintiff, (2) the
correlative obligation of the defendant, and (3) the act or
omission of the defendant in violation of said legal right. If these
elements are absent, the complaint becomes vulnerable to
dismissal on the ground of failure to state a cause of action.
If a defendant moves to dismiss the complaint on the ground
of lack of cause of action, he is regarded as having hypothetically
admitted all the averments thereof. The test of sufficiency of the
facts found in a complaint as constituting a cause of action is
whether or not admitting the facts alleged, the court can render
a valid judgment upon the same in accordance with the prayer
thereof. The hypothetical admission extends to the relevant and
material facts well pleaded in the complaint and inferences fairly
deducible therefrom. Hence, if the allegations in the complaint
furnish sufficient basis by which the complaint can be
maintained, the same should not be dismissed regardless of the
defense that may be assessed by the defendant.[5]

Given the foregoing, the issue of whether respondent's


Petition in SEC Case No. 02-94-4678 sufficiently states a cause of
action may be alternatively stated as whether, hypothetically
admitting to be true the allegations in respondent's Petition in
SEC Case No. 02-94-4678, the SICD may render a valid judgment
in accordance with the prayer of said Petition.

A reading of the exact text of respondent's Petition in SEC


Case No. 02-94-4678 is, therefore, unavoidable. Pertinent
portions of the said Petition reads:

7. In recognition of petitioner's invaluable services, the general


membership of respondent corporation [MKSE] passed a
resolution sometime in 1989 amending its Articles of
Incorporation, to include the following provision therein:

"ELEVENTH - WHEREAS, Mr. Miguel Campos is the only surviving


incorporator of the Makati Stock Exchange, Inc. who has
maintained his membership;

"WHEREAS, he has unselfishly served the Exchange in various


capacities, as governor from 1977 to the present and as President
from 1972 to 1976 and again as President from 1988 to the
present;

"WHEREAS, such dedicated service and leadership which has


contributed to the advancement and well being not only of the
Exchange and its members but also to the Securities industry,
needs to be recognized and appreciated;

"WHEREAS, as such, the Board of Governors in its meeting held


on February 09, 1989 has correspondingly adopted a resolution
recognizing his valuable service to the Exchange, reward the
same, and preserve for posterity such recognition by proposing
a resolution to the membership body which would make him as
Chairman Emeritus for life and install in the Exchange premises a
commemorative bronze plaque in his honor;

"NOW, THEREFORE, for and in consideration of the above


premises, the position of the "Chairman Emeritus" to be
occupied by Mr. Miguel Campos during his lifetime and
irregardless of his continued membership in the Exchange with
the Privilege to attend all membership meetings as well as the
meetings of the Board of Governors of the Exchange, is hereby
created."

8. Hence, to this day, petitioner is not only an active member of


the respondent corporation, but its Chairman Emeritus as well.

9. Correspondingly, at all times material to this petition, as an


active member and Chairman Emeritus of respondent
corporation, petitioner has always enjoyed the right given to all
the other members to participate equally in the Initial Public
Offerings (IPOs for brevity) of corporations.

10. IPOs are shares of corporations offered for sale to the public,
prior to the listing in the trading floor of the country's two stock
exchanges. Normally, Twenty Five Percent (25%) of these shares
are divided equally between the two stock exchanges which in
turn divide these equally among their members, who pay
therefor at the offering price.

11. However, on June 3, 1993, during a meeting of the Board of


Directors of respondent-corporation, individual respondents
passed a resolution to stop giving petitioner the IPOs he is
entitled to, based on the ground that these shares were allegedly
benefiting Gerardo O. Lanuza, Jr., who these individual
respondents wanted to get even with, for having filed cases
before the Securities and Exchange (SEC) for their
disqualification as member of the Board of Directors of
respondent corporation.

12. Hence, from June 3, 1993 up to the present time, petitioner


has been deprived of his right to subscribe to the IPOs of
corporations listing in the stock market at their offering prices.

13. The collective act of the individual respondents in depriving


petitioner of his right to a share in the IPOs for the
aforementioned reason, is unjust, dishonest and done in bad
faith, causing petitioner substantial financial damage.[6]

There is no question that the Petition in SEC Case No. 02-94-


4678 asserts a right in favor of respondent, particularly,
respondent's alleged right to subscribe to the IPOs of
corporations listed in the stock market at their offering prices;
and stipulates the correlative obligation of petitioners to respect
respondent's right, specifically, by continuing to allow
respondent to subscribe to the IPOs of corporations listed in the
stock market at their offering prices.

However, the terms right and obligation in respondent's


Petition are not magic words that would automatically lead to
the conclusion that such Petition sufficiently states a cause of
action. Right and obligation are legal terms with specific legal
meaning. A right is a claim or title to an interest in anything
whatsoever that is enforceable by law.[7] An obligation is
defined in the Civil Code as a juridical necessity to give, to do or
not to do.[8] For every right enjoyed by any person, there is a
corresponding obligation on the part of another person to
respect such right. Thus, Justice J.B.L. Reyes offers[9] the
definition given by Arias Ramos as a more complete definition:

An obligation is a juridical relation whereby a person (called


the creditor) may demand from another (called the debtor) the
observance of a determinative conduct (the giving, doing or not
doing), and in case of breach, may demand satisfaction from the
assets of the latter.

The Civil Code enumerates the sources of obligations:

Art. 1157. Obligations arise from:


(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.

Therefore, an obligation imposed on a person, and the


corresponding right granted to another, must be rooted in at
least one of these five sources. The mere assertion of a right and
claim of an obligation in an initiatory pleading, whether a
Complaint or Petition, without identifying the basis or source
thereof, is merely a conclusion of fact and law. A pleading should
state the ultimate facts essential to the rights of action or
defense asserted, as distinguished from mere conclusions of fact
or conclusions of law.[10] Thus, a Complaint or Petition filed by a
person claiming a right to the Office of the President of this
Republic, but without stating the source of his purported right,
cannot be said to have sufficiently stated a cause of action. Also,
a person claiming to be the owner of a parcel of land cannot
merely state that he has a right to the ownership thereof, but
must likewise assert in the Complaint either a mode of
acquisition of ownership or at least a certificate of title in his
name.

In the case at bar, although the Petition in SEC Case No. 02-
94-4678 does allege respondent's right to subscribe to the IPOs
of corporations listed in the stock market at their offering prices,
and petitioners' obligation to continue respecting and observing
such right, the Petition utterly failed to lay down the source or
basis of respondent's right and/or petitioners' obligation.

Respondent merely quoted in his Petition the MKSE Board


Resolution, passed sometime in 1989, granting him the position
of Chairman Emeritus of MKSE for life. However, there is nothing
in the said Petition from which the Court can deduce that
respondent, by virtue of his position as Chairman Emeritus of
MKSE, was granted by law, contract, or any other legal source,
the right to subscribe to the IPOs of corporations listed in the
stock market at their offering prices.

A meticulous review of the Petition reveals that the


allocation of IPO shares was merely alleged to have been done in
accord with a practice normally observed by the members of the
stock exchange, to wit:

IPOs are shares of corporations offered for sale to the public,


prior to their listing in the trading floor of the country's two stock
exchanges. Normally, Twenty-Five Percent (25%) of these shares
are divided equally between the two stock exchanges which in
turn divide these equally among their members, who pay
therefor at the offering price.[11] (Emphasis supplied)
A practice or custom is, as a general rule, not a source of a
legally demandable or enforceable right.[12] Indeed, in labor
cases, benefits which were voluntarily given by the employer,
and which have ripened into company practice, are considered
as rights that cannot be diminished by the employer.[13]
Nevertheless, even in such cases, the source of the employees'
right is not custom, but ultimately, the law, since Article 100 of
the Labor Code explicitly prohibits elimination or diminution of
benefits.

There is no such law in this case that converts the practice of


allocating IPO shares to MKSE members, for subscription at their
offering prices, into an enforceable or demandable right. Thus,
even if it is hypothetically admitted that normally, twenty five
percent (25%) of the IPOs are divided equally between the two
stock exchanges -- which, in turn, divide their respective
allocation equally among their members, including the Chairman
Emeritus, who pay for IPO shares at the offering price -- the Court
cannot grant respondent's prayer for damages which allegedly
resulted from the MKSE Board Resolution dated 3 June 1993
deviating from said practice by no longer allocating any shares to
respondent.

Accordingly, the instant Petition should be granted. The


Petition in SEC Case No. 02-94-4678 should be dismissed for
failure to state a cause of action. It does not matter that the SEC
en banc, in its Order dated 14 August 1995 in SEC-EB No. 403,
overstepped its bounds by not limiting itself to the issue of
whether respondent's Petition before the SICD sufficiently
stated a cause of action. The SEC en banc may have been
mistaken in considering extraneous evidence in granting
petitioners' Motion to Dismiss, but its discussion thereof are
merely superfluous and obiter dictum. In the main, the SEC en
banc did correctly dismiss the Petition in SEC Case No. 02-94-
4678 for its failure to state the basis for respondent's alleged
right, to wit:

Private respondent Campos has failed to establish the basis


or authority for his alleged right to participate equally in the IPO
allocations of the Exchange. He cited paragraph 11 of the
amended articles of incorporation of the Exchange in support of
his position but a careful reading of the said provision shows
nothing therein that would bear out his claim. The provision
merely created the position of chairman emeritus of the
Exchange but it mentioned nothing about conferring upon the
occupant thereof the right to receive IPO allocations.[14]

With the dismissal of respondent's Petition in SEC Case No.


02-94-4678, there is no more need for this Court to resolve the
propriety of the issuance by SCID of a writ of preliminary
injunction in said case.

WHEREFORE, the Petition is GRANTED. The Decision of the


Court of Appeals dated 11 February 1997 and its Resolution dated
18 May 1999 in CA-G.R. SP No. 38455 are REVERSED and SET
ASIDE. The Orders dated 31 May 1995 and 14 August 1995 of the
Securities and Exchange Commission en banc in SEC-EB Case No.
393 and No. 403, respectively, are hereby reinstated. No
pronouncement as to costs.

SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
ANTONIO EDUARDO B. NACHURA
Associate Justice
DIOSDADO M. PERALTA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, it
is hereby certified that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.
REYNATO S. PUNO
Chief Justice
[1] Per Resolution of 24 October 2001.
[2] Penned by Associate Justice Eubulo G. Verzola with Associate Justices Jesus M. Elbinias and Hilarion L.
Aquino, concurring; rollo, pp. 30-36.
[3] Rollo, p. 144.
[4] Revised Rules of Court, Rule 2, Section 2.
[5] Fil-Estate Golf and Development, Inc. v. Court of Appeals, 333 Phil. 465, 490-491 (1996).
[6] Rollo, pp. 50-52.
[7] Bailey v. Miller, 91 N.E. 24, 25, Ind. App. 475, cited in 37A Words and Phrases 363.
[8] Civil Code, Article 1156.
[9] Lawyer's Journal, 31 January 1951, p. 47.
[10] Abad v. Court of First Instance of Pangasinan, G.R. Nos. 58507-08, 26 February 1992, 206 SCRA 567, 579-
580.
[11] Rollo, pp. 51-52.
[12] A distinction, however, should be made between Municipal Law and Public International Law. Custom
is one of the primary sources of International Law, and is thus a source of legal rights within such sphere.
[13] Arco Metal Products Co., Inc. v. Samahan ng mga Manggagawa sa Arco Metal-NAFLU, G.R. No. 170734,
14 May 2008, 554 SCRA 110, 118.
[14] Rollo, p. 95.
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs. THE HON. COURT OF APPEALS and BUEN REALTY
DEVELOPMENT CORPORATION, respondents.
G.R. No. 109125 | 1994-12-02
DECISION
VITUG, J.:

Assailed, in this petition for review, is the decision of the


Court of Appeals, dated 04 December 1991, in CA-G.R. SP No.
26345 setting aside and declaring without force and effect the
orders of execution of the trial court, dated 30 August 1991 and
27 September 1991, in Civil Case No. 87-41058.

The antecedents are recited in good detail by the appellate


court thusly:

"On July 29, 1987 a Second Amended Complaint for Specific


Performance was filed by Ang Yu Asuncion and Keh Tiong, et al.,
against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before
the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-
41058, alleging, among others, that plaintiffs are tenants or
lessees of residential and commercial spaces owned by
defendants described as Nos. 630-638 Ongpin Street, Binondo,
Manila; that they have occupied said spaces since 1935 and have
been religiously paying the rental and complying with all the
conditions of the lease contract; that on several occasions before
October 9, 1986, defendants informed plaintiffs that they are
offering to sell the premises and are giving them priority to
acquire the same; that during the negotiations, Bobby Cu
Unjieng offered a price of P6-million while plaintiffs made a
counter offer of P5-million; that plaintiffs thereafter asked the
defendants to put their offer in writing to which request
defendants acceded; that in reply to defendant's letter, plaintiffs
wrote them on October 24, 1986 asking that they specify the
terms and conditions of the offer to sell; that when plaintiffs did
not receive any reply, they sent another letter dated January 28,
1987 with the same request; that since defendants failed to
specify the terms and conditions of the offer to sell and because
of information received that defendants were about to sell the
property, plaintiffs were compelled to file the complaint to
compel defendants to sell the property to them.

"Defendants filed their answer denying the material allegations


of the complaint and interposing a special defense of lack of
cause of action.

"After the issues were joined, defendants filed a motion for


summary judgment which was granted by the lower court. The
trial court found that defendants' offer to sell was never
accepted by the plaintiffs for the reason that the parties did not
agree upon the terms and conditions of the proposed sale,
hence, there was no contract of sale at all. Nonetheless, the
lower court ruled that should the defendants subsequently offer
their property for sale at a price of P11-million or below, plaintiffs
will have the right of first refusal. Thus the dispositive portion of
the decision states:

"'WHEREFORE, judgment is hereby rendered in favor of the


defendants and against the plaintiffs summarily dismissing the
complaint subject to the aforementioned condition that if the
defendants subsequently decide to offer their property for sale
for a purchase price of Eleven Million Pesos or lower, then the
plaintiffs has the option to purchase the property or of first
refusal, otherwise, defendants need not offer the property to
the plaintiffs if the purchase price is higher than Eleven Million
Pesos.

"'SO ORDERED.'

"Aggrieved by the decision, plaintiffs appealed to this Court in


CA-G.R. CV No. 21123. In a decision promulgated on September 21,
1990 (penned by Justice Segundino G. Chua and concurred in by
Justices Vicente V. Mendoza and Fernando A. Santiago), this
Court affirmed with modification the lower court's judgment,
holding:

"'In resume, there was no meeting of the minds between the


parties concerning the sale of the property. Absent such
requirement, the claim for specific performance will not lie.
Appellants' demand for actual, moral and exemplary damages
will likewise fail as there exists no justifiable ground for its award.
Summary judgment for defendants was properly granted. Courts
may render summary judgment when there is no genuine issue
as to any material fact and the moving party is entitled to a
judgment as a matter of law (Garcia vs. Court of Appeals, 176
SCRA 815). All requisites obtaining, the decision of the court a
quo is legally justifiable.

'WHEREFORE, finding the appeal unmeritorious, the judgment


appealed from is hereby AFFIRMED, but subject to the following
modification: The court a quo in the aforestated decision gave
the plaintiffs-appellants the right of first refusal only if the
property is sold for a purchase price of Eleven Million pesos or
lower; however, considering the mercurial and uncertain forces
in our market economy today. We find no reason not to grant the
same right of first refusal to herein appellants in the event that
the subject property is sold for a price in excess of Eleven Million
pesos. No pronouncement as to costs.

'SO ORDERED.'

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


petition for review on certiorari. The Supreme Court denied the
appeal on May 6, 1991 'for insufficiency in form and substances'
(Annex H, Petition).
"On November 15, 1990, while CA-G.R. CV No. 21123 was pending
consideration by this Court, the Cu Unjieng spouses executed a
Deed of Sale (Annex D, Petition) transferring the property in
question to herein petitioner Buen Realty and Development
Corporation, subject to the following terms and conditions:

"'1. That for and in consideration of the sum of FIFTEEN MILLION


PESOS (P15,000,000.00), receipt of which in full is hereby
acknowledged, the VENDORS hereby sells, transfers and
conveys for and in favor of the VENDEE, his heirs, executors,
administrators or assigns, the above-described property with all
the improvements found therein including all the rights and
interest in the said property free from all liens and encumbrances
of whatever nature, except the pending ejectment proceeding;

'2. That the VENDEE shall pay the Documentary Stamp Tax,
registration fees for the transfer of title in his favor and other
expenses incidental to the sale of above-described property
including capital gains tax and accrued real estate taxes.'

"As a consequence of the sale, TCT No. 105254/T-881 in the name


of the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT
No. 195816 was issued in the name of petitioner on December 3,
1990.

"On July 1, 1991, petitioner as the new owner of the subject


property wrote a letter to the lessees demanding that the latter
vacate the premises.

"On July 16, 1991, the lessees wrote a reply to petitioner stating
that petitioner brought the property subject to the notice of lis
pendens regarding Civil Case No. 87-41058 annotated on TCT No.
105254/T-881 in the name of the Cu Unjiengs.
"The lessees filed a Motion for Execution dated August 27, 1991
of the Decision in Civil Case No. 87-41058 as modified by the Court
of Appeals in CA-G.R. CV No. 21123.

"On August 30, 1991, respondent Judge issued an order (Annex


A, Petition) quoted as follows:

"'Presented before the Court is a Motion for Execution filed by


plaintiff represented by Atty. Antonio Albano. Both defendants
Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty.
Vicente Sison and Atty. Anacleto Magno respectively were duly
notified in today's consideration of the motion as evidenced by
the rubber stamp and signatures upon the copy of the Motion
for Execution.

'The gist of the motion is that the Decision of the Court dated
September 21, 1990 as modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated to the Supreme Court
upon the petition for review and that the same was denied by
the highest tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a
consequence, there was an Entry of Judgment by the Supreme
Court as of June 6, 1991, stating that the aforesaid modified
decision had already become final and executory.

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


was the subject of the Notice of Lis Pendens and that the
modified decision of this Court promulgated by the Court of
Appeals which had become final to the effect that should the
defendants decide to offer the property for sale for a price of P11
Million or lower, and considering the mercurial and uncertain
forces in our market economy today, the same right of first
refusal to herein plaintiffs/appellants in the event that the
subject property is sold for a price in excess of Eleven Million
pesos or more.
'WHEREFORE, defendants are hereby ordered to execute the
necessary Deed of Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs'
right of first refusal and that a new Transfer Certificate of Title be
issued in favor of the buyer.

'All previous transactions involving the same property


notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in bad
faith.

'SO ORDERED.'

"On September 22, 1991 respondent Judge issue another order,


the dispositive portion of which reads:

"'WHEREFORE, let there be Writ of Execution issue in the above-


entitled case directing the Deputy Sheriff Ramon Enriquez of this
Court to implement said Writ of Execution ordering the
defendants among others to comply with the aforesaid Order of
this Court within a period of one (1) week from receipt of this
Order and for defendants to execute the necessary Deed of Sale
of the property in litigation in favor of the plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go for the consideration of
P15,000,000.00 and ordering the Register of Deeds of the City of
Manila, to cancel and set aside the title already issued in favor of
Buen Realty Corporation which was previously executed
between the latter and defendants and to register the new title
in favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong
and Arthur Go.

'SO ORDERED.'
"On the same day, September 27, 1991 the corresponding writ of
execution (Annex C, Petition) was issued". 1

On 04 December 1991, the appellate court, on appeal to it by


private respondent, set aside and declared without force and
effect the above questioned orders of the court a quo.

In this petition for review on certiorari, petitioners contend that


Buen Realty can be held bound by the writ of execution by virtue
of the notice of lis pendens, carried over on TCT No. 195816
issued in the name of Buen Realty, at the time of the latter's
purchase of the property on 15 November 1991 from the Cu
Unjiengs.

We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the


adoption of such arrangements as the right of first refusal, a
purchase option and a contract to sell. For ready reference, we
might point out some fundamental precepts that may find some
relevance to this discussion.

An obligation is a juridical necessity to give, to do or not to do


(Art. 1156, Civil Code). The obligation is constituted upon the
concurrence of the essential elements thereof, viz: (a) The
vinculum juris or juridical tie which is the efficient cause
established by the various sources of obligations (law, contracts,
quasi-contracts, delicts and quasi-delicts); (b) the object which is
the prestation or conduct; required to be observed (to give, to
do or not to do); and (c) the subject-persons who, viewed from
the demandability of the obligation, are the active (obligee) and
the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil
Code), which is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give
something or to render some service (Art. 1305, Civil Code). A
contract undergoes various stages that include its negotiation or
preparation, its perfection and, finally, its consummation.
Negotiation covers the period from the time the prospective
contracting parties indicate interest in the contract to the time
the contract is concluded (perfected). The perfection of the
contract takes place upon the concurrence of the essential
elements thereof. A contract which is consensual as to
perfection is so established upon a mere meeting of minds, i.e.,
the concurrence of offer and acceptance, on the object and on
the cause thereof. A contract which requires, in addition to the
above, the delivery of the object of the agreement, as in a pledge
or commodatum, is commonly referred to as a real contract. In a
solemn contract, compliance with certain formalities prescribed
by law, such as in a donation of real property, is essential in order
to make the act valid, the prescribed form being thereby an
essential element thereof. The stage of consummation begins
when the parties perform their respective undertakings under
the contract culminating in the extinguishment thereof.

Until the contract is perfected, it cannot, as an independent


source of obligation, serve as a binding juridical relation. In sales,
particularly, to which the topic for discussion about the case at
bench belongs, the contract is perfected when a person, called
the seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the
buyer, over which the latter agrees. Article 1458 of the Civil Code
provides:

"Art. 1458. By the contract of sale one of the contracting parties


obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain
in money or its equivalent.

"A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a


"Contract to Sell" where invariably the ownership of the thing
sold is retained until the fulfillment of a positive suspensive
condition (normally, the full payment of the purchase price), the
breach of the condition will prevent the obligation to convey title
from acquiring an obligatory force. 2 In Dignos vs. Court of
Appeals (158 SCRA 375), we have said that, although
denominated a "Deed of Conditional Sale," a sale is still absolute
where the contract is devoid of any proviso that title is reserved
or the right to unilaterally rescind is stipulated, e.g., until or
unless the price is paid. Ownership will then be transferred to the
buyer upon actual or constructive delivery (e.g., by the execution
of a public document) of the property sold. Where the condition
is imposed upon the perfection of the contract itself, the failure
of the condition would prevent such perfection. 3 If the
condition is imposed on the obligation of a party which is not
fulfilled, the other party may either waive the condition or refuse
to proceed with the sale (Art. 1545, Civil Code). 4

An unconditional mutual promise to buy and sell, as long as the


object is made determinate and the price is fixed, can be
obligatory on the parties, and compliance therewith may
accordingly be exacted. 5

An accepted unilateral promise which specifies the thing to be


sold and the price to be paid, when coupled with a valuable
consideration distinct and separate from the price, is what may
properly be termed a perfected contract of option. This contract
is legally binding, and in sales, it conforms with the second
paragraph of Article 1479 of the Civil Code, viz:
"ART. 1479. . . . .

"An accepted unilateral promise to buy or to sell a determinate


thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.
(1451a) 6

Observe, however, that the option is not the contract of sale


itself. 7 The optionee has the right, but not the obligation, to buy.
Once the option is exercised timely, i.e., the offer is accepted
before a breach of the option, a bilateral promise to sell and to
buy ensues and both parties are then reciprocally bound to
comply with their respective undertakings. 8

Let us elucidate a little. A negotiation is formally initiated by an


offer. An imperfect promise (policitacion) is merely an offer.
Public advertisements or solicitations and the like are ordinarily
construed as mere invitations to make offers or only as
proposals. These relations, until a contract is perfected, are not
considered binding commitments. Thus, at any time prior to the
perfection of the contract, either negotiating party may stop the
negotiation. The offer, at this stage, may be withdrawn; the
withdrawal is effective immediately after its manifestation, such
as by its mailing and not necessarily when the offeree learns of
the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is
given to the offeree within which to accept the offer, the
following rules generally govern:

(1) If the period is not itself founded upon or supported by a


consideration, the offeror is still free and has the right to
withdrawal the offer before its acceptance, or, if an acceptance
has been made, before the offeror's coming to know of such
fact, by communicating that withdrawal to the offeree (see Art.
1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948,
holding that this rule is applicable to a unilateral promise to sell
under Art. 1479, modifying the previous decision in South
Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319,
Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado, 135 SCRA
409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw,
however, must not be exercised whimsically or arbitrarily;
otherwise, it could give rise to a damage claim under Article 19 of
the Civil Code which ordains that "every person must, in the
exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and
good faith."

(2) If the period has a separate consideration, a contract of


"option" is deemed perfected, and it would be a breach of that
contract to withdraw the offer during the agreed period. The
option, however, is an independent contract by itself, and it is to
be distinguished from the projected main agreement (subject
matter of the option) which is obviously yet to be concluded. If,
in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree, the
latter may not sue for specific performance on the proposed
contract ("object" of the option) since it has failed to reach its
own stage of perfection. The optioner-offeror, however, renders
himself liable for damages for breach of the option. In these
cases, care should be taken of the real nature of the
consideration given, for if, in fact, it has been intended to be part
of the consideration for the main contract with a right of
withdrawal on the part of the optionee, the main contract could
be deemed perfected; a similar instance would be an "earnest
money" in a contract of sale that can evidence its perfection (Art.
1482, Civil Code).

In the law on sales, the so-called "right of first refusal" is an


innovative juridical relation. Needless to point out, it cannot be
deemed a perfected contract of sale under Article 1458 of the
Civil Code. Neither can the right of first refusal, understood in its
normal concept, per se be brought within the purview of an
option under the second paragraph of Article 1479, aforequoted,
or possibly of an offer under Article 1319 9 of the same Code.

Even on the premise that such right of first refusal has been
decreed under a final judgment, like here, its breach cannot
justify correspondingly an issuance of a writ of execution under
a judgment that merely recognizes its existence, nor would it
sanction an action for specific performance without thereby
negating the indispensable element of consensuality in the
perfection of contracts. 11 It is not to say, however, that the right
of first refusal would be inconsequential for, such as already
intimated above, an unjustified disregard thereof, given, for
instance, the circumstances expressed in Article 1912 of the Civil
Code, can warrant a recovery for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed,


has merely accorded a "right of first refusal" in favor of
petitioners. The consequence of such a declaration entails no
more than what has heretofore been said. In fine, if, as it is here
so conveyed to us, petitioners are aggrieved by the failure of
private respondents to honor the right of first refusal, the
remedy is not a writ of execution on the judgment, since there is
none to execute, but an action for damages in a proper forum for
the purpose.

Furthermore, whether private respondent Buen Realty


Development Corporation, the alleged purchaser of the
property, has acted in good faith or bad faith and whether or not
it should, in any case, be considered bound to respect the
registration of the lis pendens in Civil Case No. 87-41058 are
matters that must be independently addressed in appropriate
proceedings. Buen Realty, not having been impleaded in Civil
Case No. 87-41058, cannot be held subject to the writ of
execution issued by respondent Judge, let alone ousted from the
ownership and possession of the property, without first being
duly afforded its day in court.

We are also unable to agree with petitioners that the Court of


Appeals has erred in holding that the writ of execution varies the
terms of the judgment in Civil Case No. 87-41058, later affirmed
in CA-G.R. CV-21123. The Court of Appeals, in this regard, has
observed:

"Finally, the questioned writ of execution is in variance with the


decision of the trial court as modified by this Court. As already
stated, there was nothing in said decision 13 that decreed the
execution of a deed of sale between the Cu Unjiengs and
respondent lessees, or the fixing of the price of the sale, or the
cancellation of title in the name of petitioner (Limpin vs. IAC, 147
SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA
311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA
885)."

It is likewise quite obvious to us that the decision in Civil Case No.


87-41058 could not have decreed at the time the execution of any
deed of sale between the Cu Unjiengs and petitioners.

WHEREFORE, we UPHOLD the Court of Appeals in ultimately


setting aside the questioned Orders, dated 30 August 1991 and
27 September 1991, of the court a quo. Costs against petitioners.

SO ORDERED.

Narvasa, C. J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Mendoza,
JJ., concur.
Kapunan, J., took no part.
Feliciano, J., is on leave.

---------------
Footnotes
1. Rollo, pp. 32-38.
2. Roque vs. Lapuz, 96 SCRA 741; Agustin vs. CA, 186 SCRA 375.
3. See People's Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777.
4. Delta Motor Corporation vs. Genuino, 170 SCRA 29.
5. See Art. 1459; Atkins, Kroll and Co., Inc. vs. Cua Hian Tek, 102 Phil. 948.
6. It is well to note that when the consideration given, for what otherwise would have been an option,
partakes the nature in reality of a part payment of the purchase price (termed as "earnest money" and
considered as an initial payment thereof), an actual contract of sale is deemed entered into and enforceable
as such.
7. Enriquez de la Cavada vs. Diaz, 37 Phil. 982.
8. Atkins, Kroll & Co., Inc., vs. Cua Hian Tek, 102 Phil. 948.
9. Article 1319, Civil Code, provides:
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer. (Emphasis supplied.)
10. It is also essential for an option to be binding that valuable consideration distinct from the price should
be given (see Montilla vs. Court of Appeals, 161 SCRA 167; Sps. Natino vs. IAC, 197 SCRA 323; Cronico vs. J.M.
Tuason & Co., Inc., 78 SCRA 331).
11. See Article 1315 and 1318, Civil Code; Madrigal & Co. vs. Stevenson & Co., 15 Phil. 38; Salonga vs. Ferrales,
105 SCRA 359).
12. Art. 19. 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.
13. The decision referred to read:

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 --
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.
Ang Yu Asuncion vs. Court of Appeals (1994)
G.R. No. 109125 | 1994-12-02

Subject: Stages in the execution of a Contract; Conditional


Contract of Sale; Option Contract; Offer to purchase with a
period; Failure to honor a “right of first refusal” only gives rise to
a claim for damages under Article 19, Civil Code , not an action for
specific performance

Facts:
Ang Yu Asuncion, Keh Tiong and Arthur Go (Asuncion et al.
or “the tenants”) are lessees of residential and commercial
spaces in Ongpin Street,Binondo, Manila owned by Bobby Cu
Unjieng, Rose Cu Unjieng and Jose Tan (Cu-Unjiengs or “the
owners”).

Asuncion et al. have occupied said spaces since 1935 and


have been religiously paying the rentals due thereon. They allege
that, on several occasions before October 9, 1986, the owners
had informed them that they are offering to sell the premises
and are giving them (the tenants) priority to acquire the same.
During the negotiations, Bobby Cu Unjieng offered a price of P6
Million while Asuncion et al. made a counter offer of P5 Million.

On October 24, 1986, Asuncion et al wrote a letter asking


that the owners to specify the terms and conditions of the offer
to sell. They sent another letter dated January 28, 1987 with the
same request. The owners failed to reply to both letters.

Because of information received that the owners were


about to sell the property, Asuncion et al. filed a Complaint for
Specific Performance in the Regional Trial Court to compel the
Cu-Unjiengs to sell the property to them.
The trial court (RTC) found that the Cu-Unjiengs' offer to sell
was never accepted by Asuncion et al. 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 RTC ruled that should the Cu-Unjiengs
subsequently offer their property for sale at a price of P11-million
or below, Asuncion et al will have the right of first refusal.

The Court of Appeals (CA) affirmed the lower court's


decision, with the modification that Asuncion et al will have the
right of first refusal over the property even if the offer price is
higher than P11 Million.

On November 15, 1990, while the case was pending in the CA,
the Cu Unjieng spouses sold the property to Buen Realty and
Development Corporation for a sum of P15 Million.
Consequently, a new title (TCT) was issued in the latter's name.

On July 1, 1991, Buen Realty, as the new owner, wrote a letter


to the tenants Asuncion et al demanding that they vacate the
premises. Asuncion et al wrote a reply stating that Buen Realty
brought the property subject to the notice of lis pendens
annotated in the TCT of the Cu Unjiengs.

Asuncion et al thereafter filed a Motion for Execution of the


RTC decision, as modified by the CA, granting them right offirst
refusal over the property. The RTC, acting on said motion, set
aside the sale to Buen Realty for being executed in bad faith and
ordered the Cu Unjieng spouses to execute a Deed of Sale in
favor of Asuncion et al. for the consideration of P15 Million pesos
in recognition of their right of first refusal.

However, on appeal, the Court of Appeals set aside the


orders of the RTC. Hence, this petition filed by Asuncion et al.
Held:
Stages in the execution of a Contract
1. 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.

(a) The negotiation covers the period from the time the
prospective contracting parties indicate interest in the contract
to the time the contract is concluded (perfected).

(b) 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.

(c) The stage of consummation begins when the parties perform


their respective undertakings under the contract culminating in
the extinguishment thereof.

2. Until the contract is perfected, it cannot, as an independent


source of obligation, serve as a binding juridical relation.

Conditional Contract of Sale


3. 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.

4. 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. [see Dignos vs. Court of Appeals]

5. Where the condition is imposed upon the perfection of the


contract itself, the failure of the condition would prevent such
perfection. 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)

Option Contract
6. 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 perfectedcontract of option. This contract
is legally binding, and in sales, it conforms with the second
paragraph ofArticle 1479 of the Civil Code, viz:

"ART. 1479. Xxx

"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.
7. The option is not the contract of sale itself. The optionee
has the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of the
option, a bilateral promise to sell and to buy ensues and both
parties are then reciprocally bound to comply with their
respective undertakings.

Offer to purchase with a period


8. 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).

9. Where a period is given to the offeree within which to accept


the offer, the following rules generally govern:

(A) If the period is not itself founded upon or supported by a


consideration, the offeror is still free and has the right to
withdrawal the offer before its acceptance, or, if an acceptance
has been made, before the offeror's coming to know of such
fact, by communicating that withdrawal to the offeree (see Art.
1324, Civil Code). 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."
(B) If the period has a separate consideration, a contract of
"option" is deemed perfected, and it would be abreach of that
contract to withdraw the offer during the agreed period.
The option, however, is an independent contract by itself, and it
is to be distinguished from the projected main agreement
(subject matter of the option) which is obviously yet to be
concluded. If, in fact, the optioner-offeror withdraws the offer
before its acceptance (exercise of the option) by the optionee-
offeree, the latter may not sue for specific performance on the
proposed contract ("object" of the option) since it has failed to
reach its own stage of perfection. The optioner-offeror,
however, renders himself liable for damages for breach of the
option. I

(C) Note that if the consideration 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 consideration is akin
to an "earnest money" in a contract of sale. Upon acceptance of
the offer, the main contract could be deemed perfected, with
the "earnest money" to evidence its perfection (Art. 1482, Civil
Code).

Failure to honor a “right of first refusal” only gives rise to a


claim for damages under Article 19, Civil Code , not an action for
specific performance
10. In the law on sales, the so-called "right of first refusal" is an
innovative juridical relation. 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 of the same Code.

11. 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.

12. 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 of the Civil Code, can
warrant a recovery for damages.

13. The final judgment has merely accorded a "right of first


refusal" in favor of Asuncion et al. If 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.

14. Furthermore, whether 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 are matters that must be independently addressed in
appropriate proceedings. Buen Realty, not having been
impleaded in the case, 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.
Ang Yu Asuncion Vs. CA

Facts:
 July 29, 1987: An amended Complaint for Specific Performance was

filed by petitioners Ang Yu Asuncion and others against Bobby Cu


Unjieng, Rose Cu Unjieng and Jose Tan before RTC.
 Petitioners (Ang Yu) alleged that:

- they are the tenants or lessees of residential and commercial


spaces owned by Bobby Unijeng and others located in Binondo, Manila
(since 1935)
- that on several occasions before October 9, 1986, the lessors
informed the lessees (petitioners) 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 they made a counter offer of P5-million;
- that they 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;

 The RTC found that Cu Unjiengs’ offer to sell was never accepted by
the petitioners (Ang Yu) for the reason that they did not agree upon
the terms and conditions of the proposed sale, hence, there was no
contract of sale at all. The Court of Appeals affirmed the decision of
the lower court. This decision was brought to the Supreme Court by
petition for review on certiorari which subsequently denied the
appeal on May 6, 1991 “for insufficiency in form and substance”.
(Referring to the first case filed by Ang Yu)
 November 15, 1990: While the case was pending consideration by
this Court, the Cu Unjieng spouses executed a Deed of Sale
transferring the subject petitioner to petitioner Buen Realty and
Development Corporation.
 Petitioner Buen Realty and Development Corporation, as the new
owner of the subject property, wrote a letter to the lessees
demanding that the latter vacate the premises.
 August 30, 1991: the RTC ordered the Cu Unjiengs 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 petitioners’ right
of first refusal and that a new Transfer Certificate of Title be issued
in favor of the buyer. The court also set aside the title issued to Buen
Realty Corporation for having been executed in bad faith. On
September 22, 1991, the Judge issued a writ of execution.
 The CA reversed the RTC ruling.

Issue: WON Buen Realty can be 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. NO

Held:
Right of first refusal is not a perfected contract of sale under Article
1458 of the 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.

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.

The proper action for violation of the right of first refysal is to file an
action for damages and NOT writ of execution
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 (Ang
Yu et. al). 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.
Unconditional mutual promise to buy vs. Accepted unilateral promise
An unconditional mutual promise to buy and sell, as long as the object is
made determinate and the price is fixed, can be obligatory on the
parties, and compliance therewith may accordingly be exacted.

An accepted unilateral promise which specifies the thing to be sold and


the price to be paid, when coupled with a valuable consideration distinct
and separate from the price, is what may properly be termed a
perfected contract of option. This contract is legally binding, and in
sales, it conforms with the second paragraph of Article 1479 of the Civil
Code, viz:

Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for
a price certain is binding upon the promissor if the promise is supported
by a consideration distinct from the price. (1451a)

Observe, however, that the option is not the contract of sale itself. The
optionee has the right, but not the obligation, to buy. Once the option
is exercised timely, i.e., the offer is accepted before a breach of the
option, a bilateral promise to sell and to buy ensues and both parties are
then reciprocally bound to comply with their respective undertakings.

Buen Realty cannot be ousted from the ownership and possession of


the property
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.
FRANCISCO MARTINEZ, plaintiff-appellee, vs. PEDRO
MARTINEZ, defendant-appellant.
G.R. No. 858 | 1903-01-23
DECISION
WILLARD, J.:
In the decision in this case it is found as a fact that the titles
to the steamer Balayan and the coasting vessel Ogoño are
registered in the name of the defendant. It must be assumed
from this that the defendant has the legal title to the vessels, as
without it they could not be so registered.
These facts standing alone show that the defendant is the
owner of the property.
Two other facts, however, appear in the decision which the
appellee claims warranted the court below in deciding that the
defendant was not the owner.
1. The court found that the money with which the vessels were
purchased was furnished by the plaintiff, the father of the
defendant. Does this fact make him the owner of them, the title
having been taken and registered in the son's name?
The various ways in which the title to property may be
acquired are stated in article 609 of the Civil Code.
The plaintiff never acquired the title to these vessels in any
one of the ways therein described. He did not acquire it by
donation or succession. He did not acquire it by means of any
contract.
The court does not find that the father and son had between
themselves any contract of any kind by virtue of the son agreed
to transfer the title to the father or to hold it for his benefit.
There is an allegation in the complaint that the defendant
acted as the agent of the plaintiff in the purchase. This is denied
in the answer and there is no finding in the decision which
supports this allegation of the complaint.
There is only the bare fact that the price of property which
was conveyed to the defendant by a third person was paid by the
plaintiff. It can not be said that the law by reason of this fact
transfers any title or interest in the thing itself to the plaintiff.
Article 1090 of the Civil Code provides that "obligations
derived from the law are not to be presumed. Only those
expressly provided for in this Code or in special laws are
enforceable."
It is provided in Article 161 of the same Code, relating to
minors, that "the ownership or enjoyment of property acquired
by a minor child with funds of his parents, pertain to the latter."
This article does not apply to the present case, for the son was of
age.
This is the only provision which we have found anywhere in
the laws now in force that declares the property to belong to the
person who paid the money.
Nor can such general doctrine be found in the former law.
Law 49, title 5, partida 5, the effect of which is incorrectly stated
in the brief of the appellee, expressly provided that property
bought with another's money should not belong to the owner of
the money except in certain enumerated cases of which this is
not one.
Law 48, title 5, partida 5, also expressly provided that where
one bought with his own money property the title to which he
procured to be transferred to a third person, such third person
had the right to keep it by reimbursing the other for his outlay.
It may be true that the laws in some of the United States
would in this case raise a resulting trust in favor of the plaintiff.
But such laws are not in force here; and whatever other right the
plaintiff may have against the defendant, either for the recovery
of the money paid or for damages, it is clear that such payment
gave him no title either legal or equitable to these vessels.
If there were evidence in the case which would have justified
the court below in finding that the defendant acted as the agent
of the plaintiff or that there was some other contract between
them, he should have incorporated such findings in his decision.
Article 133 of the Code of Civil Procedure requires the court
to file a written decision. If the facts stated in that decision
together with those admitted in the pleadings are not sufficient
as a matter of law to support the judgment, it must be reversed,
if excepted to.
The record, however, contains all the evidence and an
examination of it shows that no such findings would have been
warranted. As to the Balayan, it appears that the son had nothing
whatever to do with its purchase. It was bought by the father
with the money of the conjugal partnership, and the title by his
direction placed in the son's name.
As to the Ogoño, the father's intervention in the purchase
nowhere appears. He simply testified that it was bought with his
money.
It is said that the court below found as a fact that the father
was the owner of the vessels and that we can not disturb this
finding because there was no motion for a new trial. This
contention can not be sustained. The ultimate question in the
whose case was: Who owned this property? The resolution of
that question depended upon the application of legal principles
to the facts connected with its acquisition and subsequent
management. Those facts were that the father bought and paid
for it, and that the titles to it were taken and registered in the
son's name. A statement that by reason of these facts the father
is the owner is a statement of law and not a finding of fact.
2. It was found as a fact the father had exercised acts of
ownership over the vessel. That finding is entirely consistent
with the legal ownership by the son. The exercise of such acts
could not transfer such ownership from the son.
3. There is in the record a letter written by the defendant to the
plaintiff in which the latter is asked if he desires to sell the
Balayan. This letter is not incorporated into the findings and we
have no right to consider it. But, if we had, it would not in our
opinion change the result. Such a letter might well have been
written by a son to a father, both of them recognizing the fact
that the son was the owner of the property as to which the
inquiry was made.
4. In conclusion we may say that even on the supposition that a
written and recorded title to vessels may be overcome by parol
evidence, that offered in this case was insufficient to accomplish
such a result. As to the Balayan, there is nothing whatever to
show why the father placed the title in his son's name. It may
have been either as a gift or a loan. As to the Ogoño, there is the
simple declaration of the father that he paid for it. This may have
been either a gift or a loan.
The judgment is reversed and a new trial is granted with
costs against the appellee.
Torres, Mapa and Ladd, JJ., concur.
Arellano, C.J., did not sit in this case.

Separate Opinions
COOPER, J., dissenting:
This action was brought by Don Francisco Martinez against
Don Pedro Martinez, the appellant, for the recovery as owner of
two certain vessels, the steamship Balayan and the schooner
Ogoño.
The plaintiff brings the suit for himself and in representation
of his deceased wife, alleging that the ships were bought with
funds belonging to the community estate.
The defendant in his answer claims that he is the exclusive
owner of the ships, basing his right to such ownership upon their
registration in his name in the office of the Captain of the Port,
and further, that the ships were purchased with his individual
money.
The first assignment of error is that "the court erred in
adjudging the ownership of the property of the ships Balayan
and Ogoño to Don Francisco Martinez, the latter not having
presented written documents of the acquisition of said ships nor
certificates of incsription in the registry."
1. This assignment of error raises the question of the
sufficiency of the proof to sustain the judgment of the court
below and requires an examination of the evidence taken in the
court below and a trial of the questions of fact as to the
ownership of the property.
Section 497 of the Code of Civil Procedure provides that in
the hearings upon bills of exceptions in civil actions and special
proceedings, the Supreme Court shall not review the evidence
taken in the court below nor retry the questions of fact except
as in that section provided, which are in the following cases:
(1) Where assessors have sat with the judge and both assessors
are of the opinion that the findings of fact and judgment are
wrong and have certified their dissent.
(2) Upon the ground of the discovery of new and material
evidence.
(3) Where the excepting party files a motion in the Court of First
Instance for a new trial upon the grounds that the findings of fact
are plainly and manifestly against the weight of evidence and the
judge overrules the motion and die exception was taken to his
overruling the same.
There was no motion for a new trial in the Court of First Instance,
not is it contended that this case falls within either of the other
exceptions.
It is insisted that while this court will not review or retry
questions of fact, yet if it appears from the findings of fact as
contained in the decision of the lower court that the facts do not
justify the judgment or conclusions of law the case will be
reversed for a new trial.
There was no exception taken to the judgment, the exception
being only such as is inferred from the presentation and
allowance of the bill of exceptions.
This is not sufficient to justify this court in entertaining such
objection; the rule is that were a judgment is entered not
warranted by the findings the proper remedy is by application to
the court in which it is entered to correct or vacate the judgment,
and unless the action of the court has been thus invoked the
petition will not be considered on appeal. (Scott vs. Minneapolis
R. R. Co., 42 Minn., 179).
But had the exception been properly taken an examination of
the findings clearly shows that the judgment is sustained by
them. The following findings of fact were made by the lower
court and are contained in the judgment, to wit: "I am of the
opinion that Don Francisco Martinez, for himself and in
representation of his wife, is the actual and true owner of said
steamship and schooner and has exercised over them acts of
ownership and dominion, and that these ships were bought with
the funds by him furnished. With respect to the fact that the
steamship and schooner may have been registered in the name
of the defendant, Pedro Martinez, it is my opinion that this fact
can not be considered as prejudicial to the true right of the
plaintiff."
An analysis of this finding will show that it consists of the finding
of, first, an ultimate fact, that is, that the plaintiff D. Francisco
Martinez is the actual and true owner of the steamship and
schooner, the property in controversy; second, the probative
fact that he has exercised over them acts of ownership and
dominion and that these ships were bought with funds furnished
by him, and, third, the probative fact that the ships were
registered in the name of the defendant, Pedro Martinez.
The majority of the court regard the first finding ---- that is, that
the plaintiff is the actual and true owner of the property in
controversy ---- as a statement of law and not a finding of fact,
and have rejected it as a finding of fact. In reversing the case for
a new trial the decision is based upon the finding that the vessels
are registered in the name of the defendant, and it is said that it
must be assumed that the defendant has a title to the vessels as
without it they could not be so registered.
The conclusion I reach is the reverse of that reached by the court.
The finding of the plaintiff's ownership of the vessel and
schooner is not a conclusion of law, but is the finding of an
ultimate fact in the case, and was the proper and the only finding
that could have been made. As stated in the opinion, the ultimate
question in the whole case was, Who owned this property?
The supreme court of Minnesota has passed upon the precise
question in the case of Common vs. Grace (36 Minn., 276). The
finding of the lower court in that case was that "John Grace was,
at the time of his death, the owner in fee simple of the real
estate." The appellant made a request in the court below for
additional findings. Upon the refusal of the lower court to make
such additional findings it was assigned as error on appeal.
Mitchell, J., says: "The facts required to be found are the ultimate
facts forming the issued presented by the pleadings and which
constitute the foundation of a judgment and not those which are
simply evidentiary of them. The court is not required to find
merely evidentiary facts or to set forth and explain the means or
processes by which it arrived at such findings. Neither evidence,
argument, nor comment has any legitimate place in the findings
of fact. The test of the sufficiency of the findings of fact by a
court, we apprehend, is, Would they answer if presented by a
jury in the form of a special verdict, which is required to present
the conclusions of fact as established by the evidence, and not
the evidence to prove them, and to present those conclusions of
fact so that nothing remains to the court but to draw from them
conclusion of law? In the case at bar the finding of fact that John
Grace was, at the time of his death, the owner in fee simple of
the real estate in question was the ultimate fact upon which the
decision of the case depended. It covered the only issue in the
case, and was a sufficient foundation for a judgment in favor of
defendants. It could only be arrived at upon the hypothesis that
the deeds in dispute were duly executed, and the finding
necessarily implied and included this."
In the case of Daly vs. Socorro (80 Cal., 367) it is said: "The
appellant further contends that the cause should be reversed
because the court failed to find upon certain other issues
presented. His right to maintain the action was based wholly
upon his ownership and right of possession, and these being
found against him it is immaterial to him whether the court found
as to other facts or not, as the judgment must have been against
him whatever the other finding might have been."
The finding of the court that the ships were registered in the
name of the defendant is the finding only of a probative or
evidentiary fact, that is, it is the finding simply of evidence
tending to prove the ultimate fact, to wit, the fact of ownership.
The various means of proving this ultimate fact is the evidence.
Thus, a bill of sale is evidence of ownership. The possession of
property is prima facie evidence of ownership, and so perhaps is
the registry of ship evidence of the ownership of the person in
whose name it is made; but while it is evidence tending to prove
ownership, there may be other evidence in the case totally
destroying its value, such as a sale and conveyance of the ship by
the owner or person in whose name it is registered made
subsequent to the date of the registration; title by prescription
as against the party in whose name the ship is registered; by
proof that the party in whose name the ship is registered held
the title simply as agent of the party claiming ownership. For this
reason the finding that the vessels are registered in the name of
the defendant is inconclusive and is entirely insufficient as a
finding of fact.
The finding of fact must be such as includes the entire issue or
the ultimate fact to be proven, and in this case, as is stated in the
opinion, the ultimate question in the whole case was who owned
this property. The lower court has responded to this issue by
saying that "while the ships are registered in the name of the
defendant that this fact can not be considered as prejudicial to
the direct ownership of the plaintiff. That D. Francisco Martinez,
the plaintiff, for himself and in representation of his wife, is the
actual and true owner of said ships and has exercised over them
acts of ownership and dominion."
There is not conflict in the findings, for, as stated by the lower
court, the ship may be registered in the name of the defendant
and still be owned by the plaintiff. But, if any such conflict exists,
then the finding of the ultimate fact that the ownership is with
the plaintiff.

When the ultimate fact is found no finding of probative facts


which may tend to establish that the ultimate fact was found
against the evidence can overcome the finding of the ultimate
fact. (Smith vs. Acker, 52 Cal., 217; Perry vs. Quackenbush, 105
Cal., 299; Smith vs. Jones, 131 Ind.)
Not only is the ultimate fact of ownership which is the
paramount finding in the case allowed to be overthrown by the
less important and subsidiary finding of the evidentiary fact of
registration of the ship, but the opinion wholly ignores the other
finding of the probative fact, that is, that the plaintiff has
exercised acts of ownership and dominion over the property and
that the ships were purchased with funds furnished by him.
II. It is said in the opinion in referring to a letter written by the
defendant to the plaintiff that this letter is not incorporated in
the findings and we have no right to consider it, yet the court in
its decision has gone into an examination of the evidence thus
improperly brought here.
This ambiguity in the opinion makes it necessary to refer briefly
to the evidence. Such review will show that the evidence before
the lower court was entirely sufficient to support the finding of
ownership in the plaintiff. It consists of letters written to the
plaintiff by his agents, Armstrong & Sloan, who acted for him in
the purchase of the ship Balayan; the testimony of the plaintiff
as to his purchase an payment of the price of the ship; proof of
witnesses of the acts of ownership on the part of the plaintiff
after the purchase of the ships by him; that the defendant
resided with the plaintiff, who was his father, and that the
defendant had no means with which to make such purchase;
various acts of the defendant recognizing the plaintiff's
ownership in the vessel; evidence introduced on the part of the
plaintiff tending to show his ownership and tending to show that
the defendant acted simply as plaintiff's agent in the control
which he exercised over the ship.
In one of the letters written by Armstrong & Sloan to the plaintiff
dated August 22, 1892, they say:
"We have credited to your account $18,843.65 which you left
before your departure for the cost of the ship bought for you in
Hongkong." Also the book entries in the mercantile office of
Armstrong & Sloan, in which appear the following:
Cash, August, 1892.
Aug. 24. Francisco Martinez, received from him account of cost
of one launch in Hongkong $18,843.65
Cash, September, 1892.
Sept. 13. Francisco Martinez to Chartered Bank, remittance
to Hongkong accounts of steam launch, $18,300 at 3/4 per cent
discount 16,881.75
Cost of message 3.23
_______
TOTAL $16,884.98
Another letter is evidence from the same parties to the plaintiff
dated October 13, 1892, in which they say that they had
telegraphed the day before to Hongkong for the ship to sail "and
we have written that the name Balayan be given it."
Several other letters were introduced written by the same
parties to the plaintiff concerning the ship Balayan, in which they
say the deal was closed and by which they make arrangements
for incidental expenses in the equipment of ship, insurance upon
it, and its sailing from Hongkong to Manila.
A letter is also contained in the record written by the defendant
to the plaintiff on the 27th of October, 1899, which is as follows:

"Manila, October 27, 1899. ---- Esteemed Father: With my kindest


regards (beso a V. la mano). With respect to the steamship
Balayan, Señor Sloan sends word to you that there is an American
who wishes to purchase it for 24,000 pesos, and asks whether
you desire to sell it or not that you reply because he awaits your
answer . . ."
It also appears in evidence that the ship Balayan had the initials
of the plaintiff "F. M." on the smokestack, and that at some
recent date the defendant had caused these initials to be erased
and those of his own substituted.
The defendant for a number of years managed the plaintiff's
business under a general power of attorney, and was a member
of his family, and such acts of ownership as he exercised over
these ships may be properly referred to this authority.
When the relationship of the parties ---- that is, that of son and
father ---- is considered in connection with other proof in the
case, the conclusion is irresistible that the ships are owned by the
plaintiff and that there has been a most flagrant abuse on the
part of the defendant of a father's confidence.
For the reason above stated I dissent from the decision.
PEDRO ALCANTARA, plaintiff-appellee, vs. AMBROSIO ALINEA,
ET AL., defendants-appellants.
G.R. No. L-3227 | 1907-03-22
DECISION
TORRES, J.:
On the 13th day of March, 1905, the plaintiff filed a complaint
in the Court of First Instance of La Laguna, praying that judgment
be rendered in his behalf ordering the defendants to de liver to
him the house and lot claimed, and to pay him in addition thereto
as rent the sum of 8 pesos per month from February of that year,
and to pay the costs of the action; and the plaintiff alleged in
effect that on the 29th day of February, 1904, the defendants,
Ambrosio Alinea and Eudosia Belarmino, borrowed from him the
sum of 480 pesos, payable in January of said year 1905 under the
agreement that if, at the expiration of the said period, said
amount should not be paid it would be understood that the
house and lot, the house being constructed of strong materials,
owned by the said defendants and located in the town of San
Pablo on the street of the same name, Province of La Laguna, be
considered as absolutely sold to the plaintiff for the said sum;
that the superficial extent and boundaries of said property are
described in the complaint; and that, notwithstanding that the
time for the payment of said sum has expired and no payment
has been made, the defendants refuse to deliver to plaintiff the
said property, openly violating that which they contracted to do
and depriving him to his loss of the rents which plaintiff should
received, the same counting from February, 1905.

The defendants, after the overruling of a demurrer to the


complaint herein, answered denying generally and specifically all
the allegations contained in the complaint, except those which
were expressly admitted, and alleged that the amount claimed
included the interest; and that the principal borrowed was only
200 pesos and that the interest was 280 pesos, although in
drawing the document by mutual consent of the parties thereto
the amount of indebtedness was made to appear in the sum of
480 pesos; and that as their special defense defendants alleged
that they offered to pay the plaintiff the sum of 480 pesos, but
the plaintiff had refused to accept the same, therefore they
persisted in making said offer and tender of payment, placing at
the disposal of the plaintiff the said 480 pesos first tendered; and
defendants asked for the costs of action.

After having taken the evidence of both parties and


attaching the documents presented in evidence to the record,
the judge on November 27, 1905, rendered a judgment ordering
the defendants to deliver to the plaintiff the house and lot, the
object of this litigation, and to pay the costs of the action, not
making any finding upon the question of loss or damages by
reason of the absence of proof on these points. The defendants
duly took exception to this decision, and asked for a new trial of
the case on the ground that the findings of the court below in its
decision were plainly contrary to law, which motion was
overruled and from which ruling defendants also excepted.

We have in this case a contract of loan and a promise of sale


of a house and lot, the price of which should be the amount
loaned, if within a fixed period of time such amount should not
be paid by the debtor-vendor of the property to the creditor-
vendee of same.

Either one of the contracts are perfectly legal and both are
authorized respectively by articles 1451, 1740, and 1753, and those
following, of the Civil Code. The fact that the parties have agreed
at the same time, in such a manner that the fulfillment of the
promise of sale would depend upon the nonpayment or return
of the amount loaned, has not produced any charge in the nature
and legal conditions of either contract, or any essential defect
which would tend to nullify the same.

If the promise of sale is not vitiated because, according to


the agreement between the parties thereto, the price of the
same is to be the amount loaned and not repaid, neither would
the loan be null or illegal, for the reason that the added
agreement provides that in the event of failure of payment the
sale of property as agreed will take effect, the consideration
being the amount loaned and not paid. No article of the Civil
Code, under the rules or regulations of which such double
contract was executed, prohibits expressly, or by inference from
any of its provisions, that an agreement could not be made in the
form in which the same has been executed; on the contrary,
article 1278 of the aforesaid code provides that "contracts shall
be binding, whatever may be the form in which they may have
been executed, provided the essential conditions required for
their validity exist." This legal prescription appears firmly
sustained by the settled practice of the courts.

The property, the sale of which was agreed to by the


debtors, does not appear mortgaged in favor of the creditor,
because in order to constitute a valid mortgage it is
indispensable that the instrument be registered in the Register
of Property, in accordance with article 1875 of the Civil Code, and
the document of contract, Exhibit A, does not constitute a
mortgage, nor could it possibly be a mortgage, for the reason of
said document is not vested with the character and conditions of
a public instrument.
By the aforesaid document, Exhibit A, said property could
not be pledged, not being personal property, and
notwithstanding the said double contract the debtor continued
in possession thereof and the said property has never been
occupied by the creditor.

Neither was there ever any contract of antichresis by reason


of the said contract of loan, as is provided in articles 1881 and
those following of the Civil Code, inasmuch as the creditor-
plaintiff has never been in possession thereof, nor has he
enjoyed the said property, nor for one moment ever received its
rents; therefore, there are no proper terms in law, taking into
consideration the terms of the conditions contained in the
aforesaid contract, whereby this court can find that the contract
was null, and under no consideration whatever would it be just
to apply to the plaintiff articles 1859 and 1884 of the same code.

The contract (pactum commissorium) referred to in Law 41,


title 5, and law 12, title 12, of the fifth Partida, and perhaps
included in the prohibition and declaration of nullity expressed in
articles 1859 and 1884 of the Civil Code, indicates the existence
of the contracts of mortgage or of pledge or that of antichresis,
none of which have coincided in the loan indicated herein.

It is a principle in law, invariably applied by the courts in the


decisions of actions instituted in the matter of compliance with
obligations, that the will of the contracting parties is the law of
contracts and that a man obligates himself to that to which he
promises to be bound, a principle in accordance with Law 1, title
1, book 10 of the Novisima Recopilacion, and article 1091 of the
Civil Code. That which is agreed to in a contract is law between
the parties, a doctrine established, among others, in judgments
of the supreme court of Spain of February 20, 1897, and February
13, 1904.

It was agreed between plaintiff and defendants herein that


if defendants should not pay the loan of 480 pesos in January,
1905, the property belonging to the defendants and described in
the contract should remain sold for the aforesaid sum, and such
agreement must be complied with, inasmuch as there is no
ground in law to oppose the compliance with that which has
been agreed upon, having been so acknowledged by the
obligated parties.

The supreme court of Spain, applying the aforementioned


laws of Spanish origin to a similar case, establishes in its decision
of January 16, 1872, the following legal doctrine:

"Basing the complaint upon the obligation signed by the


debtor, which judicially recognized his signature; and after
confessing to have received from the plaintiff a certain amount,
binding himself to return same to the satisfaction of the plaintiff
within the term of four years, or in case of default to transfer
direct domain of the properties described in the obligation and
to execute the necessary sale; and the term having expired and
the aforesaid amount not having been paid, said plaintiff has his
right free from impediment to claim same against the heirs of the
debtor."

The document of contract has been recognized by the


defendant Alinea and by the witnesses who signed same with
him, being therefore an authentic and efficacious document, in
accordance with article 1225 of the Civil Code; and as the amount
loaned has not been paid and continues in possession of the
debtor, it is only just that the promise of sale be carried into
effect, and the necessary instrument be executed by the
vendees.

Therefore, by virtue of the reasons given above and


accepting the findings given in the judgment appealed from, we
affirm the said judgment herein, with the costs against the
appellants.
After expiration of twenty days from the date of the
notification of this decision let judgment be entered in
accordance herewith and ten days thereafter let the case be
remanded to the court from whence it came for proper action.

So ordered.

Arellano, C.J., Mapa, Johnson, and Tracey, JJ., concur.

Separate Opinions
WILLARD, J., dissenting:
This contract violates the fundamental principle of the
Spanish law, which does not permit a debtor, at the time he
secures a loan of money, to make an agreement whereby the
mere failure to pay the loan at maturity shall divest him
irrevocably of allow his interest in the specific property
mentioned in the agreement without any right on his part to
redeem or to have the property sold to pay the debt. (Civil Code,
arts. 1859, 1872, and 1884.) I therefore dissent.