SECOND DIVISION
For
[G.R. No. 137290. July 31, 2000]
SAN MIGUEL PROPERTIES PHILIPPINES,
INC., petitioner, vs. SPOUSES ALFREDO HUANG and
GRACE HUANG, respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision,[1] dated
April 8, 1997, of the Court of Appeals which reversed
the decision of the Regional Trial Court, Branch 153,
Pasig City dismissing the complaint brought by
respondents against petitioner for enforcement of a
contract of sale.
The facts are not in dispute.
Petitioner San Miguel Properties Philippines, Inc. is
a domestic corporation engaged in the purchase
and sale of real properties. Part of its inventory are
two parcels of land totalling 1, 738 square meters at
the corner of Meralco Avenue and General Capinpin
Street, Barrio Oranbo, Pasig City, which are covered
by TCT Nos. PT-82395 and PT-82396 of the Register
of Deeds of Pasig City.
On February 21, 1994, the properties were offered
for sale for P52,140,000.00 in cash. The offer was
made to Atty. Helena M. Dauz who was acting for
respondent spouses as undisclosed principals. In a
letter[2] dated March 24, 1994, Atty. Dauz signified
her clients interest in purchasing the properties for
the amount for which they were offered by
petitioner, under the following terms: the sum
of P500,000.00 would be given as earnest money
and the balance would be paid in eight equal
monthly installments from May to December, 1994.
However, petitioner refused the counter-offer.
On March 29, 1994, Atty. Dauz wrote another
letter[3] proposing the following terms for the
purchase of the properties, viz:
This is to express our interest to buy
your-above-mentioned property
with an area of 1, 738 sq. meters.
this purpose, we are enclosing
herewith the sum of P1,000,000.00
representing earnest-deposit money,
subject to the following conditions.
1. We will be given the exclusive
option to purchase the property
within the 30 days from date of your
acceptance of this offer.
2. During said period, we will
negotiate on the terms and
conditions of the purchase; SMPPI
will secure the necessary
Management and Board approvals;
and we initiate the documentation if
there is mutual agreement between
us.
3. In the event that we do not come
to an agreement on this transaction,
the said amount of P1,000,000.00
shall be refundable to us in full upon
demand. . . .
Isidro A. Sobrecarey, petitioners vice-president and
operations manager for corporate real estate,
indicated his conformity to the offer by affixing his
signature to the letter and accepted the "earnest-
deposit" of P1 million. Upon request of respondent
spouses, Sobrecarey ordered the removal of the
"FOR SALE" sign from the properties.
Atty. Dauz and Sobrecarey then commenced
negotiations. During their meeting on April 8, 1994,
Sobrecarey informed Atty. Dauz that petitioner was
willing to sell the subject properties on a 90-day
term. Atty. Dauz countered with an offer of six
months within which to pay.
On April 14, 1994, the parties again met during
which Sobrecarey informed Atty. Dauz that
petitioner had not yet acted on her counter-offer.
This prompted Atty. Dauz to propose a four-month
period of amortization.
On April 25, 1994, Atty. Dauz asked for an extension
of 45 days from April 29, 1994 to June 13, 1994
within which to exercise her option to purchase the
property, adding that within that period, "[we] hope
to finalize [our] agreement on the matter."[4] Her
request was granted.
On July 7, 1994, petitioner, through its president
and chief executive officer, Federico Gonzales,
wrote Atty. Dauz informing her that because the
parties failed to agree on the terms and conditions
of the sale despite the extension granted by
petitioner, the latter was returning the amount
of P1 million given as "earnest-deposit."[5]
On July 20, 1994, respondent spouses, through
counsel, wrote petitioner demanding the execution
within five days of a deed of sale covering the
properties. Respondents attempted to return the
"earnest-deposit" but petitioner refused on the
ground that respondents option to purchase had
already expired.
On August 16, 1994, respondent spouses filed a
complaint for specific performance against
petitioner before the Regional Trial Court, Branch
133, Pasig City where it was docketed as Civil Case
No. 64660.
Within the period for filing a responsive pleading,
petitioner filed a motion to dismiss the complaint
alleging that (1) the alleged "exclusive option" of
respondent spouses lacked a consideration
separate and distinct from the purchase price and
was thus unenforceable and (2) the complaint did
not allege a cause of action because there was no
"meeting of the minds" between the parties and,
therefore, no perfected contract of sale. The motion
was opposed by respondents.
On December 12, 1994, the trial court granted
petitioners motion and dismissed the action.
Respondents filed a motion for reconsideration, but
it was denied by the trial court. They then appealed
to the Court of Appeals which, on April 8, 1997,
rendered a decision[6] reversing the judgment of the
trial court. The appellate court held that all the
requisites of a perfected contract of sale had been
complied with as the offer made on March 29, 1994,
in connection with which the earnest money in the
amount of P1 million was tendered by respondents,
had already been accepted by petitioner. The court
cited Art. 1482 of the Civil Code which provides that
"[w]henever earnest money is given in a contract of
sale, it shall be considered as part of the price and
as proof of the perfection of the contract." The fact
the parties had not agreed on the mode of payment
did not affect the contract as such is not an essential
element for its validity. In addition, the court found
that Sobrecarey had authority to act in behalf of
petitioner for the sale of the properties.[7]
Petitioner moved for reconsideration of the trial
courts decision, but its motion was denied. Hence,
this petition.
Petitioner contends that the Court of Appeals erred
in finding that there was a perfected contract of sale
between the parties because the March 29, 1994
letter of respondents, which petitioner accepted,
merely resulted in an option contract, albeit it was
unenforceable for lack of a distinct consideration.
Petitioner argues that the absence of agreement as
to the mode of payment was fatal to the perfection
of the contract of sale. Petitioner also disputes the
appellate courts ruling that Isidro A. Sobrecarey had
authority to sell the subject real properties.[8]
Respondents were required to comment within ten
(10) days from notice. However, despite 13
extensions totalling 142 days which the Court had
given to them, respondents failed to file their
comment. They were thus considered to have
waived the filing of a comment.
The petition is meritorious.
In holding that there is a perfected contract of sale,
the Court of Appeals relied on the following
findings: (1) earnest money was allegedly given by
respondents and accepted by petitioner through its
vice-president and operations manager, Isidro A.
Sobrecarey; and (2) the documentary evidence in
the records show that there was a perfected
contract of sale.
With regard to the alleged payment and acceptance
of earnest money, the Court holds that respondents
did not give the P1 million as "earnest money" as
provided by Art. 1482 of the Civil Code. They
presented the amount merely as a deposit of what
would eventually become the earnest money or
downpayment should a contract of sale be made by
them. The amount was thus given not as a part of
the purchase price and as proof of the perfection of
the contract of sale but only as a guarantee that
respondents would not back out of the sale.
Respondents in fact described the amount as an
"earnest-deposit." In Spouses Doromal, Sr. v. Court
of Appeals,[9] it was held:
. . . While the P5,000 might have
indeed been paid to Carlos in
October, 1967, there is nothing to
show that the same was in the
concept of the earnest money
contemplated in Art. 1482 of the Civil
Code, invoked by petitioner, as
signifying perfection of the
sale. Viewed in the backdrop of the
factual milieu thereof extant in the
record, We are more inclined to
believe that the said P5,000.00 were
paid in the concept of earnest money
as the term was understood under
the Old Civil Code, that is, as a
guarantee that the buyer would not
back out, considering that it is not
clear that there was already a
definite agreement as to the
price then and that petitioners were
decided to buy 6/7 only of the
property should respondent
Javellana refuse to agree to part with
her 1/7 share.[10]
In the present case, the P1 million "earnest-deposit"
could not have been given as earnest money as
contemplated in Art. 1482 because, at the time
when petitioner accepted the terms of respondents
offer of March 29, 1994, their contract had not yet
been perfected. This is evident from the following
conditions attached by respondents to their letter,
to wit: (1) that they be given the exclusive option to
purchase the property within 30 days from
acceptance of the offer; (2) that during the option
period, the parties would negotiate the terms and
conditions of the purchase; and (3) petitioner would
secure the necessary approvals while respondents
would handle the documentation.
The first condition for an option period of 30 days
sufficiently shows that a sale was never perfected.
As petitioner correctly points out, acceptance of this
condition did not give rise to a perfected sale but
merely to an option or an accepted unilateral
promise on the part of respondents to buy the
subject properties within 30 days from the date of
acceptance of the offer. Such option giving
respondents the exclusive right to buy the
properties within the period agreed upon is
separate and distinct from the contract of sale
which the parties may enter.[11] All that respondents
had was just the option to buy the properties which
privilege was not, however, exercised by them
because there was a failure to agree on the terms of
payment. No contract of sale may thus be enforced
by respondents.
Furthermore, even the option secured by
respondents from petitioner was fatally defective.
Under the second paragraph of Art. 1479, an
accepted unilateral promise to buy or sell a
determinate thing for a price certain is binding upon
the promisor only if the promise is supported by a
distinct consideration. Consideration in an option
contract may be anything of value, unlike in sale
where it must be the price certain in money or its
equivalent. There is no showing here of any
consideration for the option. Lacking any proof of
such consideration, the option is unenforceable.
Equally compelling as proof of the absence of a
perfected sale is the second condition that, during
the option period, the parties would negotiate the
terms and conditions of the purchase. The stages of
a contract of sale are as follows: (1) negotiation,
covering the period from the time the prospective
contracting parties indicate interest in the contract
to the time the contract is perfected; (2) perfection,
which takes place upon the concurrence of the
essential elements of the sale which are the meeting
of the minds of the parties as to the object of the
contract and upon the price; and (3) consummation,
which begins when the parties perform their
respective undertakings under the contract of sale,
culminating in the extinguishment thereof.[12] In the
present case, the parties never got past the petitioners delivered to the
negotiation stage. The alleged "indubitable respondent the sum of P10,000 as
evidence"[13] of a perfected sale cited by the part of the down-payment that they
appellate court was nothing more than offers and had to pay cannot be considered as
counter-offers which did not amount to any final sufficient proof of the perfection of
arrangement containing the essential elements of a any purchase and sale agreement
contract of sale. While the parties already agreed on between the parties herein under
the real properties which were the objects of the Art. 1482 of the new Civil Code, as
sale and on the purchase price, the fact remains that the petitioners themselves admit
they failed to arrive at mutually acceptable terms of that some essential matter - the
payment, despite the 45-day extension given by terms of the payment - still had to be
petitioner. mutually covenanted.[18]

The appellate court opined that the failure to agree
on the terms of payment was no bar to the
perfection of the sale because Art. 1475 only
requires agreement by the parties as to the price of
the object. This is error. In Navarro v. Sugar
Producers Cooperative Marketing Association,
Inc.,[14] we laid down the rule that the manner of
payment of the purchase price is an essential
element before a valid and binding contract of sale
can exist. Although the Civil Code does not expressly
state that the minds of the parties must also meet
on the terms or manner of payment of the price, the
same is needed, otherwise there is no sale. As held
in Toyota Shaw, Inc. v. Court of
[15]
Appeals, agreement on the manner of payment
goes into the price such that a disagreement on the
manner of payment is tantamount to a failure to
agree on the price.[16] In Velasco v. Court of
Appeals,[17] the parties to a proposed sale had
already agreed on the object of sale and on the
purchase price. By the buyers own admission,
however, the parties still had to agree on how and
when the downpayment and the installments were
to be paid. It was held:
Thus, it is not the giving of earnest money, but the
proof of the concurrence of all the essential
elements of the contract of sale which establishes
the existence of a perfected sale.
In the absence of a perfected contract of sale, it is
immaterial whether Isidro A. Sobrecarey had the
authority to enter into a contract of sale in behalf of
petitioner. This issue, therefore, needs no further
discussion.
WHEREFORE, the decision of the Court of Appeals is
REVERSED and respondents complaint is
DISMISSED.
SO ORDERED.
Quisumbing, Buena, and De Leon, Jr., JJ., concur.
Bellosillo, (Chairman), J., on leave.

. . . Such being the situation, it can

not, therefore, be said that a definite
and firm sales agreement between
the parties had been perfected over
the lot in question. Indeed, this Court
has already ruled before that a
definite agreement on the manner of
payment of the purchase price is an
essential element in the formation of
a binding and enforceable contract of
sale. The fact, therefore, that the
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-36902 January 30, 1982
LUIS PICHEL, petitioner,
vs.
PRUDENCIO ALONZO, respondent.
GUERRERO, J.:
This is a petition to review on certiorari the decision
of the Court of First Instance of Basilan City dated
January 5, 1973 in Civil Case No. 820 entitled
"Prudencio Alonzo, plaintiff, vs. Luis Pichel,
defendant."
This case originated in the lower Court as an action
for the annulment of a "Deed of Sale" dated August
14, 1968 and executed by Prudencio Alonzo, as
vendor, in favor of Luis Pichel, as vendee, involving
property awarded to the former by the Philippine
Government under Republic Act No. 477. Pertinent
portions of the document sued upon read as
follows:
That the VENDOR for and in
consideration of the sum of FOUR
THOUSAND TWO HUNDRED PESOS
(P4,200.00), Philippine Currency, in
hand paid by the VENDEE to the
entire satisfaction of the VENDOR,
the VENDOR hereby sells transfers,
and conveys, by way of absolute sale,
all the coconut fruits of his coconut
land, designated as Lot No. 21 -
Subdivision Plan No. Psd- 32465,
situated at Balactasan Plantation,
Lamitan, Basilan City, Philippines;
That for the herein sale of the
coconut fruits are for all the fruits on
the aforementioned parcel of land
presently found therein as well as for
future fruits to be produced on the
said parcel of land during the years
period; which shag commence to run
as of SEPTEMBER 15,1968; up to
JANUARY 1, 1976 (sic);
That the delivery of the subject
matter of the Deed of Sale shall be
from time to time and at the expense
of the VENDEE who shall do the
harvesting and gathering of the
fruits;
That the Vendor's right, title, interest
and participation herein conveyed is
of his own exclusive and absolute
property, free from any liens and
encumbrances and he warrants to
the Vendee good title thereto and to
defend the same against any and all
claims of all persons whomsoever. 1
After the pre-trial conference, the Court a quo
issued an Order dated November 9, 1972 which in
part read thus:
The following facts are admitted by
the parties:
Plaintiff Prudencio Alonzo was
awarded by the Government that
parcel of land designated as Lot No.
21 of Subdivision Plan Psd 32465 of
Balactasan, Lamitan, Basilan City in
accordance with Republic Act No.
477. The award was cancelled by the
Board of Liquidators on January 27,
1965 on the ground that, previous
thereto, plaintiff was proved to have
alienated the land to another, in
violation of law. In 197 2, plaintiff's
rights to the land were reinstated.
On August 14, 1968, plaintiff and his
wife sold to defendant an the fruits
of the coconut trees which may be
harvested in the land in question for
the period, September 15, 1968 to
January 1, 1976, in consideration of
 P4,200.00. Even as of the date of
sale, however, the land was still
under lease to one, Ramon Sua, and
it was the agreement that part of the
consideration of the sale, in the sum
of P3,650.00, was to be paid by
defendant directly to Ramon Sua so
as to release the land from the
clutches of the latter. Pending said
payment plaintiff refused to snow
the defendant to make any harvest.
In July 1972, defendant for the first
time since the execution of the deed
of sale in his favor, caused the
harvest of the fruit of the coconut
trees in the land.
xxx xxx xxx
Considering the foregoing, two issues
appear posed by the complaint and
the answer which must needs be
tested in the crucible of a trial on the
merits, and they are:
First.— Whether or nor defendant
actually paid to plaintiff the full sum
of P4,200.00 upon execution of the
deed of sale.
Second.— Is the deed of sale, Exhibit
'A', the prohibited encumbrance
contemplated in Section 8 of
Republic Act No. 477? 2
Anent the first issue, counsel for plaintiff Alonzo
subsequently 'stipulated and agreed that his client
... admits fun payment thereof by defendant. 3 The
remaining issue being one of law, the Court below
considered the case submitted for summary
judgment on the basis of the pleadings of the
parties, and the admission of facts and documentary
evidence presented at the pre-trial conference.
The lower court rendered its decision now under
review, holding that although the agreement in
question is denominated by the parties as a deed of
sale of fruits of the coconut trees found in the
vendor's land, it actually is, for all legal intents and
purposes, a contract of lease of the land itself.
According to the Court:
... the sale aforestated has given
defendant complete control and
enjoyment of the improvements of
the land. That the contract is
consensual; that its purpose is to
allow the enjoyment or use of a
thing; that it is onerous because rent
or price certain is stipulated; and that
the enjoyment or use of the thing
certain is stipulated to be for a
certain and definite period of time,
are characteristics which admit of no
other conclusion. ... The provisions of
the contract itself and its
characteristics govern its nature. 4
The Court, therefore, concluded that the deed of
sale in question is an encumbrance prohibited by
Republic Act No. 477 which provides thus:
Sec. 8. Except in favor of the
Government or any of its branches,
units, or institutions, land acquired
under the provisions of this Act or
any permanent improvements
thereon shall not be thereon and for
a term of ten years from and after
the date of issuance of the certificate
of title, nor shall they become liable
to the satisfaction of any debt
contracted prior to the expiration of
such period.
Any occupant or applicant of lands
under this Act who transfers
whatever rights he has acquired on
said lands and/or on the
improvements thereon before the
date of the award or signature of the
contract of sale, shall not be entitled
to apply for another piece of
agricultural land or urban, homesite
or residential lot, as the case may be,
from the National Abaca and Other
 Fibers Corporation; and such transfer
shall be considered null and void. 5
The dispositive portion of the lower Court's decision
states:
WHEREFORE, it is the judgment of
this Court that the deed of sale,
Exhibit 'A', should be, as it is, hereby
declared nun and void; that plaintiff
be, as he is, ordered to pay back to
defendant the consideration of the
sale in the sum of P4,200.00 the
same to bear legal interest from the
date of the filing of the complaint
until paid; that defendant shall pay to
the plaintiff the sum of P500.00 as
attorney's fees.
Costs against the defendant. 6
Before going into the issues raised by the instant
Petition, the matter of whether, under the admitted
facts of this case, the respondent had the right or
authority to execute the "Deed of Sale" in 1968, his
award over Lot No. 21 having been cancelled
previously by the Board of Liquidators on January
27, 1965, must be clarified. The case in point is Ras
vs. Sua 7 wherein it was categorically stated by this
Court that a cancellation of an award granted
pursuant to the provisions of Republic Act No. 477
does not automatically divest the awardee of his
rights to the land. Such cancellation does not result
in the immediate reversion of the property subject
of the award, to the State. Speaking through Mr.
Justice J.B.L. Reyes, this Court ruled that "until and
unless an appropriate proceeding for reversion is
instituted by the State, and its reacquisition of the
ownership and possession of the land decreed by a
competent court, the grantee cannot be said to
have been divested of whatever right that he may
have over the same property." 8
There is nothing in the record to show that at any
time after the supposed cancellation of herein
respondent's award on January 27, 1965, reversion
proceedings against Lot No. 21 were instituted by
the State. Instead, the admitted fact is that the
award was reinstated in 1972. Applying the doctrine
announced in the above-cited Ras case, therefore,
herein respondent is not deemed to have lost any of
his rights as grantee of Lot No. 21 under Republic Act
No. 477 during the period material to the case at
bar, i.e., from the cancellation of the award in 1965
to its reinstatement in 1972. Within said period,
respondent could exercise all the rights pertaining
to a grantee with respect to Lot No. 21.
This brings Us to the issues raised by the instant
Petition. In his Brief, petitioner contends that the
lower Court erred:
1. In resorting to construction and
interpretation of the deed of sale in
question where the terms thereof
are clear and unambiguous and leave
no doubt as to the intention of the
parties;
2. In declaring — granting without
admitting that an interpretation is
necessary — the deed of sale in
question to be a contract of lease
over the land itself where the
respondent himself waived and
abandoned his claim that said deed
did not express the true agreement
of the parties, and on the contrary,
respondent admitted at the pre-trial
that his agreement with petitioner
was one of sale of the fruits of the
coconut trees on the land;
3. In deciding a question which was
not in issue when it declared the
deed of sale in question to be a
contract of lease over Lot 21;
4. In declaring furthermore the deed
of sale in question to be a contract of
lease over the land itself on the basis
of facts which were not proved in
evidence;
5. In not holding that the deed of
sale, Exhibit "A" and "2", expresses a
valid contract of sale;
 6. In not deciding squarely and to the
point the issue as to whether or not
the deed of sale in question is an
encumbrance on the land and its
improvements prohibited by Section
8 of Republic Act 477; and
7. In awarding respondent attorney's
fees even granting, without
admitting, that the deed of sale in
question is violative of Section 8 of
Republic Act 477.
The first five assigned errors are interrelated, hence,
We shall consider them together. To begin with, We
agree with petitioner that construction or
interpretation of the document in question is not
called for. A perusal of the deed fails to disclose any
ambiguity or obscurity in its provisions, nor is there
doubt as to the real intention of the contracting
parties. The terms of the agreement are clear and
unequivocal, hence the literal and plain meaning
thereof should be observed. Such is the mandate of
the Civil Code of the Philippines which provides that:
Art. 1370. If the terms of a contract
are clear and leave no doubt upon
the intention of the contracting
parties, the literal meaning of its
stipulation shall control ... .
Pursuant to the afore-quoted legal provision, the
first and fundamental duty of the courts is the
application of the contract according to its express
terms, interpretation being resorted to only when
such literal application is impossible. 9
Simply and directly stated, the "Deed of Sale dated
August 14, 1968 is precisely what it purports to be.
It is a document evidencing the agreement of herein
parties for the sale of coconut fruits of Lot No. 21,
and not for the lease of the land itself as found by
the lower Court. In clear and express terms, the
document defines the object of the contract thus:
"the herein sale of the coconut fruits are for an the
fruits on the aforementioned parcel of land during
the years ...(from) SEPTEMBER 15, 1968; up to
JANUARY 1, 1976." Moreover, as petitioner
correctly asserts, the document in question
expresses a valid contract of sale. It has the essential
elements of a contract of sale as defined under
Article 1485 of the New Civil Code which provides
thus:
Art. 1458. By the contract of sale one
of the contracting parties obligates
himself to transfer the ownership of
and to deliver a determinate thing,
and the other to pay therefor a price
certain in money or its equivalent.
A contract of sale may be absolute or
conditional.
The subject matter of the contract of sale in
question are the fruits of the coconut trees on the
land during the years from September 15, 1968 up
to January 1, 1976, which subject matter is a
determinate thing. Under Article 1461 of the New
Civil Code, things having a potential existence may
be the object of the contract of sale. And in Sibal vs.
Valdez, 50 Phil. 512, pending crops which have
potential existence may be the subject matter of the
sale. Here, the Supreme Court, citing Mechem on
Sales and American cases said which have potential
existence may be the subject matter of sale. Here,
the Supreme Court, citing Mechem on Sales and
American cases said:
Mr. Mechem says that a valid sale
may be made of a thing, which
though not yet actually in existence,
is reasonably certain to come into
existence as the natural increment or
usual incident of something already
in existence, and then belonging to
the vendor, and the title will vest in
the buyer the moment the thing
comes into existence. (Emerson vs.
European Railway Co., 67 Me., 387;
Cutting vs. Packers Exchange, 21 Am.
St. Rep. 63) Things of this nature are
said to have a potential existence. A
man may sell property of which he is
potentially and not actually possess.
He may make a valid sale of the wine
that a vineyard is expected to
produce; or the grain a field may
 grow in a given time; or the milk a
cow may yield during the coming
year; or the wool that shall thereafter
grow upon sheep; or what may be
taken at the next case of a
fisherman's net; or fruits to grow; or
young animals not yet in existence;
or the goodwill of a trade and the
like. The thing sold, however, must
be specific and Identified. They must
be also owned at the time by the
vendor. (Hull vs. Hull 48 Conn. 250
(40 Am. Rep., 165) (pp. 522-523).
We do not agree with the trial court that the
contract executed by and between the parties is
"actually a contract of lease of the land and the
coconut trees there." (CFI Decision, p. 62, Records).
The Court's holding that the contract in question fits
the definition of a lease of things wherein one of the
parties binds himself to give to another the
enjoyment or use of a thing for a price certain and
for a period which may be definite or indefinite (Art.
1643, Civil Code of the Philippines) is erroneous. The
essential difference between a contract of sale and
a lease of things is that the delivery of the thing sold
transfers ownership, while in lease no such transfer
of ownership results as the rights of the lessee are
limited to the use and enjoyment of the thing
leased.
In Rodriguez vs. Borromeo, 43 Phil. 479, 490, the
Supreme Court held:
Since according to article 1543 of the
same Code the contract of lease is
defined as the giving or the
concession of the enjoyment or use
of a thing for a specified time and
fixed price, and since such contract is
a form of enjoyment of the property,
it is evident that it must be regarded
as one of the means of enjoyment
referred to in said article 398,
inasmuch as the terms enjoyment,
use, and benefit involve the same
and analogous meaning relative to
the general utility of which a given
thing is capable. (104 Jurisprudencia
Civil, 443)
In concluding that the possession and enjoyment of
the coconut trees can therefore be said to be the
possession and enjoyment of the land itself because
the defendant-lessee in order to enjoy his right
under the contract, he actually takes possession of
the land, at least during harvest time, gather all of
the fruits of the coconut trees in the land, and gain
exclusive use thereof without the interference or
intervention of the plaintiff-lessor such that said
plaintiff-lessor is excluded in fact from the land
during the period aforesaid, the trial court erred.
The contract was clearly a "sale of the coconut
fruits." The vendor sold, transferred and conveyed
"by way of absolute sale, all the coconut fruits of his
land," thereby divesting himself of all ownership or
dominion over the fruits during the seven-year
period. The possession and enjoyment of the
coconut trees cannot be said to be the possession
and enjoyment of the land itself because these
rights are distinct and separate from each other, the
first pertaining to the accessory or improvements
(coconut trees) while the second, to the principal
(the land). A transfer of the accessory or
improvement is not a transfer of the principal. It is
the other way around, the accessory follows the
principal. Hence, the sale of the nuts cannot be
interpreted nor construed to be a lease of the trees,
much less extended further to include the lease of
the land itself.
The real and pivotal issue of this case which is taken
up in petitioner's sixth assignment of error and as
already stated above, refers to the validity of the
"Deed of Sale", as such contract of sale, vis-a-vis the
provisions of Sec. 8, R.A. No. 477. The lower Court
did not rule on this question, having reached the
conclusion that the contract at bar was one of lease.
It was from the context of a lease contract that the
Court below determined the applicability of Sec. 8,
R.A. No. 477, to the instant case.
Resolving now this principal issue, We find after a
close and careful examination of the terms of the
first paragraph of Section 8 hereinabove quoted,
that the grantee of a parcel of land under R.A. No.
477 is not prohibited from alienating or disposing of
the natural and/or industrial fruits of the land
awarded to him. What the law expressly disallows is
the encumbrance or alienation of the land itself or
any of the permanent improvements thereon.
Permanent improvements on a parcel of land are
things incorporated or attached to the property in a
fixed manner, naturally or artificially. They include
whatever is built, planted or sown on the land which
is characterized by fixity, immutability or
immovability. Houses, buildings, machinery, animal
houses, trees and plants would fall under the
category of permanent improvements, the
alienation or encumbrance of which is prohibited by
R.A. No. 477. While coconut trees are permanent
improvements of a land, their nuts are natural or
industrial fruits which are meant to be gathered or
severed from the trees, to be used, enjoyed, sold or
otherwise disposed of by the owner of the land.
Herein respondents, as the grantee of Lot No. 21
from the Government, had the right and prerogative
to sell the coconut fruits of the trees growing on the
property.
By virtue of R.A. No. 477, bona fide occupants,
veterans, members of guerilla organizations and
other qualified persons were given the opportunity
to acquire government lands by purchase, taking
into account their limited means. It was intended for
these persons to make good and productive use of
the lands awarded to them, not only to enable them
to improve their standard of living, but likewise to
help provide for the annual payments to the
Government of the purchase price of the lots
awarded to them. Section 8 was included, as stated
by the Court a quo, to protect the grantees from
themselves and the incursions of opportunists who
prey on their misery and poverty." It is there to
insure that the grantees themselves benefit from
their respective lots, to the exclusion of other
persons.
The purpose of the law is not violated when a
grantee sells the produce or fruits of his land. On the
contrary, the aim of the law is thereby achieved, for
the grantee is encouraged and induced to be more
industrious and productive, thus making it possible
for him and his family to be economically self-
sufficient and to lead a respectable life. At the same
time, the Government is assured of payment on the
annual installments on the land. We agree with
herein petitioner that it could not have been the
intention of the legislature to prohibit the grantee
from selling the natural and industrial fruits of his
land, for otherwise, it would lead to an absurd
situation wherein the grantee would not be able to
receive and enjoy the fruits of the property in the
real and complete sense.
Respondent through counsel, in his Answer to the
Petition contends that even granting arguendo that
he executed a deed of sale of the coconut fruits, he
has the "privilege to change his mind and claim it as
(an) implied lease," and he has the "legitimate right"
to file an action for annulment "which no law can
stop." He claims it is his "sole construction of the
meaning of the transaction that should prevail and
not petitioner. (sic). 10 Respondent's counsel either
misapplies the law or is trying too hard and going
too far to defend his client's hopeless cause. Suffice
it to say that respondent-grantee, after having
received the consideration for the sale of his
coconut fruits, cannot be allowed to impugn the
validity of the contracts he entered into, to the
prejudice of petitioner who contracted in good faith
and for a consideration.
The issue raised by the seventh assignment of error
as to the propriety of the award of attorney's fees
made by the lower Court need not be passed upon,
such award having been apparently based on the
erroneous finding and conclusion that the contract
at bar is one of lease. We shall limit Ourselves to the
question of whether or not in accordance with Our
ruling in this case, respondent is entitled to an
award of attorney's fees. The Civil Code provides
that:
Art. 2208. In the absence of
stipulation, attorney's fees and
expenses of litigation, other than
judicial costs, cannot be recovered,
except:
(1) When exemplary damages are
awarded;
(2) When the defendant's act or
omission has compelled the plaintiff
 to litigate with third persons or to IN VIEW OF THE FOREGOING, the judgment of the
incur expenses to protect his lower Court is hereby set aside and another one is
interest; entered dismissing the Complaint. Without costs.

(3) In criminal cases of malicious SO ORDERED.

prosecution against the plaintiff;

(4) In case of a clearly unfounded civil

action or proceeding against the
plaintiff;

(5) Where the defendant acted in

gross and evident bad faith in
refusing to satisfy the plaintiff's
plainly valid, just and demandable
claim;

(6) In actions for legal support;

(7) In actions for the recovery of

wages of household helpers, laborers
and skilled workers;

(8) In actions for indemnity under

workmen's compensation and
employer's liability laws;

(9) In a separate civil action to

recover civil liability arising from a
crime;

(10) When at least double judicial

costs are awarded;

(11) In any other case where the

court deems it just and equitable that
attorney's fees and expenses of
litigation should be recovered.

In all cases, the attorney's fees and

expenses of litigation must be
reasonable.

We find that none of the legal grounds enumerated

above exists to justify or warrant the grant of
attorney's fees to herein respondent.
Republic of the Philippines
Supreme Court
Manila
SECOND DIVISION
MILA A. REYES ,
Petitioner,
- versus -
VICTORIA T. TUPARAN,
Respondent.
X ------------------------------------------------------------------
-----------------------------------X
DECISION
MENDOZA, J.:
Subject of this petition for review is the
February 13, 2009 Decision[1] of the Court of
Appeals (CA) which affirmed with modification the
February 22, 2006 Decision[2] of the Regional Trial
Court, Branch 172, Valenzuela City (RTC), in Civil
Case No. 3945-V-92, an action for Rescission of
Contract with Damages.
On September 10, 1992, Mila A.
Reyes (petitioner) filed a complaint for Rescission of
Contract with Damages against Victoria T.
Tuparan (respondent) before the RTC. In her
Complaint, petitioner alleged, among others, that
she was the registered owner of a 1,274 square
meter residential and commercial lot located in
Karuhatan, Valenzuela City, and covered by TCT No.
V-4130; that on that property, she put up a three-
storey commercial building known as RBJ Building
and a residential apartment building; that since
1990, she had been operating a drugstore and
cosmetics store on the ground floor of RBJ Building
G.R. No. 188064
where she also had been residing while the other
Present: areas of the buildings including the sidewalks were
being leased and occupied by tenants and street
CARPIO, J., Chairperson,
vendors.
NACHURA,
PERALTA,
ABAD, and In December 1989, respondent leased from
MENDOZA, JJ.petitioner a space on the ground floor of
the RBJ Building for her pawnshop business for a
Promulgated:monthly rental of ₱4,000.00. A close friendship
June 1, 2011developed between the two which led to the
respondent investing thousands of pesos in
petitioners financing/lending business
from February 7, 1990 to May 27, 1990, with
interest at the rate of 6% a month.
On June 20, 1988, petitioner mortgaged the
subject real properties to the Farmers Savings Bank
and Loan Bank, Inc. (FSL Bank) to secure a loan of
₱2,000,000.00 payable in installments.
On November 15, 1990, petitioners outstanding
account on the mortgage reached ₱2,278,078.13.
Petitioner then decided to sell her real properties
for at least ₱6,500,000.00 so she could liquidate her
bank loan and finance her businesses. As a gesture
of friendship, respondent verbally offered to
conditionally buy petitioners real properties for
₱4,200,000.00 payable on installment basis without
interest and to assume the bank loan. To induce the
petitioner to accept her offer, respondent offered
the following conditions/concessions:
 1. That the conditional sale
will be cancelled if the plaintiff
(petitioner) can find a buyer of said
properties for the amount of
₱6,500,000.00 within the next three
(3) months provided all amounts
received by the plaintiff from the
defendant (respondent) including
payments actually made by
defendant to Farmers Savings and
Loan Bank would be refunded to the
defendant with additional interest of
six (6%) monthly;
2. That the plaintiff would
continue using the space occupied by
her and drugstore and cosmetics
store without any rentals for the
duration of the installment
payments;
3. That there will be a lease
for fifteen (15) years in favor of the
plaintiff over the space for drugstore
and cosmetics store at a monthly
rental of only ₱8,000.00 after full
payment of the stipulated
installment payments are made by
the defendant;
4. That the defendant will
undertake the renewal and payment
of the fire insurance policies on the
two (2) subject buildings following
the expiration of the then existing
fire insurance policy of the plaintiff
up to the time that plaintiff is fully
paid of the total purchase price of
₱4,200,000.00.[3]
After petitioners verbal acceptance of all the
conditions/concessions, both parties worked
together to obtain FSL Banks approval for
respondent to assume her (petitioners) outstanding
bank account. The assumption would be part of
respondents purchase price for petitioners
mortgaged real properties. FSL Bank approved their
proposal on the condition that petitioner would sign
or remain as co-maker for the mortgage obligation
assumed by respondent.
On November 26, 1990, the parties and FSL
Bank executed the corresponding Deed of
Conditional Sale of Real Properties with Assumption
of Mortgage. Due to their close personal friendship
and business relationship, both parties chose not to
reduce into writing the other terms of their
agreement mentioned in paragraph 11 of the
complaint. Besides, FSL Bank did not want to
incorporate in the Deed of Conditional Sale of Real
Properties with Assumption of Mortgage any other
side agreement between petitioner and
respondent.
Under the Deed of Conditional Sale of Real
Properties with Assumption of Mortgage,
respondent was bound to pay the petitioner a lump
sum of ₱1.2 million pesos without interest as part of
the purchase price in three (3) fixed installments as
follows:
a) ₱200,000.00 due January 31, 1991
b) ₱200,000.00 due June 30, 1991
c) ₱800,000.00 due December 31, 1991
Respondent, however, defaulted in the
payment of her obligations on their due dates.
Instead of paying the amounts due in lump sum on
their respective maturity dates, respondent paid
petitioner in small amounts from time to time. To
compensate for her delayed payments, respondent
agreed to pay petitioner an interest of 6% a month.
As of August 31, 1992, respondent had only paid
₱395,000.00, leaving a balance of ₱805,000.00 as
principal on the unpaid installments and
₱466,893.25 as unpaid accumulated interest.
 Petitioner further averred that despite her
success in finding a prospective buyer for the
subject real properties within the 3-month period
agreed upon, respondent reneged on her promise
to allow the cancellation of their deed of conditional
sale. Instead, respondent became interested in
owning the subject real properties and even wanted
to convert the entire property into a modern
commercial complex. Nonetheless, she consented
because respondent repeatedly professed
friendship and assured her that all their verbal side
agreement would be honored as shown by the fact
that since December 1990, she (respondent) had
not collected any rentals from the petitioner for the
space occupied by her drugstore and cosmetics
store.
On March 19, 1992, the residential building
was gutted by fire which caused the petitioner to
lose rental income in the amount of ₱8,000.00 a
month since April 1992. Respondent neglected to
renew the fire insurance policy on the subject
buildings.
Since December 1990, respondent had taken
possession of the subject real properties and had
been continuously collecting and receiving monthly
rental income from the tenants of the buildings and
vendors of the sidewalk fronting the RBJ building
without sharing it with petitioner.
On September 2, 1992, respondent offered
the amount of ₱751,000.00 only payable
on September 7, 1992, as full payment of the
purchase price of the subject real properties and
demanded the simultaneous execution of the
corresponding deed of absolute sale.
Respondents Answer
Respondent countered, among others, that
the tripartite agreement erroneously designated by
the petitioner as a Deed of Conditional Sale of Real
Property with Assumption of Mortgage was actually
a pure and absolute contract of sale with a term
period. It could not be considered a conditional sale
because the acquisition of contractual rights and the
performance of the obligation therein did not
depend upon a future and uncertain event.
Moreover, the capital gains and documentary
stamps and other miscellaneous expenses and real
estate taxes up to 1990 were supposed to be paid
by petitioner but she failed to do so.
Respondent further averred that she
successfully rescued the properties from a definite
foreclosure by paying the assumed mortgage in the
amount of ₱2,278,078.13 plus interest and other
finance charges. Because of her payment, she was
able to obtain a deed of cancellation of mortgage
and secure a release of mortgage on the subject real
properties including petitioners ancestral
residential property in Sta. Maria, Bulacan.
Petitioners claim for the balance of the
purchase price of the subject real properties was
baseless and unwarranted because the full amount
of the purchase price had already been paid, as she
did pay more than ₱4,200,000.00, the agreed
purchase price of the subject real properties, and
she had even introduced improvements thereon
worth more than ₱4,800,000.00. As the parties
could no longer be restored to their original
positions, rescission could not be resorted to.
Respondent added that as a result of their
business relationship, petitioner was able to obtain
from her a loan in the amount of ₱400,000.00 with
interest and took several pieces of jewelry worth
₱120,000.00. Petitioner also failed and refused to
pay the monthly rental of ₱20,000.00
since November 16, 1990 up to the present for the
use and occupancy of the ground floor of the
building on the subject real property, thus,
accumulating arrearages in the amount of
₱470,000.00 as of October 1992.
Ruling of the RTC
On February 22, 2006, the RTC handed down its
decision finding that respondent failed to pay in full
the ₱4.2 million total purchase price of the subject
real properties leaving a balance of ₱805,000.00. It
stated that the checks and receipts presented by
respondent refer to her payments of the mortgage
obligation with FSL Bank and not the payment of the
balance of ₱1,200,000.00. The RTC also considered
the Deed of Conditional Sale of Real Property with
Assumption of Mortgage executed by and among
the two parties and FSL Bank a contract to sell, and
not a contract of sale. It was of the opinion that
although the petitioner was entitled to a rescission
of the contract, it could not be permitted because
her non-payment in full of the purchase price may
not be considered as substantial and fundamental
breach of the contract as to defeat the object of the
parties in entering into the contract.[4] The RTC
believed that the respondents offer stated in her
counsels letter dated September 2, 1992 to settle
what she thought was her unpaid balance of
₱751,000.00 showed her sincerity and willingness to
settle her obligation. Hence, it would be more
equitable to give respondent a chance to pay the
balance plus interest within a given period of time.
Finally, the RTC stated that there was no factual or
legal basis to award damages and attorneys fees
because there was no proof that either party acted
fraudulently or in bad faith.
Thus, the dispositive portion of the RTC
Decision reads:
WHEREFORE, judgment is
hereby rendered as follows:
1. Allowing the defendant to
pay the plaintiff within thirty (30)
days from the finality hereof the
amount of ₱805,000.00,
representing the unpaid purchase
price of the subject property, with
interest thereon at 2% a month
from January 1, 1992 until fully paid.
Failure of the defendant to pay said
amount within the said period shall
cause the automatic rescission of the
contract (Deed of Conditional Sale of
Real Property with Assumption of
Mortgage) and the plaintiff and the
defendant shall be restored to their
former positions relative to the
subject property with each returning
to the other whatever benefits each
derived from the transaction;
2. Directing the defendant to
allow the plaintiff to continue using
the space occupied by her for
drugstore and cosmetic store
without any rental pending payment
of the aforesaid balance of the
purchase price.
3. Ordering the defendant,
upon her full payment of the
purchase price together with
interest, to execute a contract of
lease for fifteen (15) years in favor of
the plaintiff over the space for the
drugstore and cosmetic store at a
fixed monthly rental of ₱8,000.00;
and
 4. Directing the plaintiff, upon
full payment to her by the defendant
of the purchase price together with
interest, to execute the necessary
deed of sale, as well as to pay the
Capital Gains Tax, documentary
stamps and other miscellaneous
expenses necessary for securing the
BIR Clearance, and to pay the real
estate taxes due on the subject
property up to 1990, all necessary to
transfer ownership of the subject
property to the defendant.
No pronouncement as to
damages, attorneys fees and costs.
SO ORDERED.[5]
Ruling of the CA
On February 13, 2009, the CA rendered its decision
affirming with modification the RTC Decision. The
CA agreed with the RTC that the contract entered
into by the parties is a contract to sell but ruled that
the remedy of rescission could not apply because
the respondents failure to pay the petitioner the
balance of the purchase price in the total amount of
₱805,000.00 was not a breach of contract, but
merely an event that prevented the seller
(petitioner) from conveying title to the purchaser
(respondent). It reasoned that out of the total
purchase price of the subject property in the
amount of ₱4,200,000.00, respondents remaining
unpaid balance was only ₱805,000.00. Since
respondent had already paid a substantial amount
of the purchase price, it was but right and just to
allow her to pay the unpaid balance of the purchase
price plus interest. Thus, the decretal portion of the
CA Decision reads:
WHEREFORE, premises
considered, the Decision dated 22
February 2006 and Order dated 22
December 2006 of the Regional Trial
Court of Valenzuela City, Branch 172
in Civil Case No. 3945-V-92 are
AFFIRMED with MODIFICATION in
that defendant-appellant Victoria T.
Tuparan is hereby ORDERED to pay
plaintiff-appellee/appellant Mila A.
Reyes, within 30 days from finality of
this Decision, the amount
of ₱805,000.00 representing the
unpaid balance of the purchase price
of the subject property, plus interest
thereon at the rate of 6% per annum
from 11 September 1992 up to
finality of this Decision and,
thereafter, at the rate of 12% per
annum until full payment. The ruling
of the trial court on the automatic
rescission of the Deed of Conditional
Sale with Assumption of Mortgage is
hereby DELETED. Subject to the
foregoing, the dispositive portion of
the trial courts decision is AFFIRMED
in all other respects.
SO ORDERED.[6]
After the denial of petitioners motion for
reconsideration and respondents motion for partial
reconsideration, petitioner filed the subject petition
for review praying for the reversal and setting aside
of the CA Decision anchored on the following
ASSIGNMENT OF ERRORS
A. THE COURT OF APPEALS
SERIOUSLY ERRED AND ABUSED ITS
DISCRETION IN DISALLOWING THE
OUTRIGHT RESCISSION OF THE
SUBJECT DEED OF CONDITIONAL
SALE OF REAL PROPERTIES WITH
ASSUMPTION OF MORTGAGE ON
THE GROUND THAT RESPONDENT
TUPARANS FAILURE TO PAY
PETITIONER REYES THE BALANCE OF
THE PURCHASE PRICE OF
₱805,000.00 IS NOT A BREACH OF
CONTRACT DESPITE ITS OWN
FINDINGS THAT PETITIONER STILL
RETAINS OWNERSHIP AND TITLE
OVER THE SUBJECT REAL
PROPERTIES DUE TO RESPONDENTS
REFUSAL TO PAY THE BALANCE OF
THE TOTAL PURCHASE PRICE OF
₱805,000.00 WHICH IS EQUAL TO
20% OF THE TOTAL PURCHASE PRICE
OF ₱4,200,000.00 OR 66% OF THE
STIPULATED LAST INSTALLMENT OF
₱1,200,000.00 PLUS THE INTEREST
THEREON. IN EFFECT, THE COURT OF
APPEALS AFFIRMED AND ADOPTED
THE TRIAL COURTS CONCLUSION
THAT THE RESPONDENTS NON-
PAYMENT OF THE ₱805,000.00 IS
ONLY A SLIGHT OR CASUAL BREACH
OF CONTRACT.
B. THE COURT OF APPEALS
SERIOUSLY ERRED AND ABUSED ITS
DISCRETION IN DISREGARDING AS
GROUND FOR THE RESCISSION OF
THE SUBJECT CONTRACT THE OTHER
FRAUDULENT AND MALICIOUS ACTS
COMMITTED BY THE RESPONDENT
AGAINST THE PETITIONER WHICH
BY THEMSELVES SUFFICIENTLY
JUSTIFY A DENIAL OF A GRACE
PERIOD OF THIRTY (30) DAYS TO THE
RESPONDENT WITHIN WHICH TO
PAY TO THE PETITIONER THE
₱805,000.00 PLUS INTEREST
THEREON.
C. EVEN ASSUMING
ARGUENDO THAT PETITIONER IS
NOT ENTITLED TO THE RESCISSION
OF THE SUBJECT CONTRACT, THE
COURT OF APPEALS STILL
SERIOUSLY ERRED AND ABUSED ITS
DISCRETION IN REDUCING THE
INTEREST ON THE ₱805,000.00 TO
ONLY 6% PER ANNUM STARTING
FROM THE DATE OF FILING OF THE
COMPLAINT ON SEPTEMBER 11,
1992 DESPITE THE PERSONAL
COMMITMENT OF THE
RESPONDENT AND AGREEMENT
BETWEEN THE PARTIES THAT
RESPONDENT WILL PAY INTEREST
ON THE ₱805,000.00 AT THE RATE
OF 6% MONTHLY STARTING THE
DATE OF DELINQUENCY ON
DECEMBER 31, 1991.
D. THE COURT OF APPEALS
SERIOUSLY ERRED AND ABUSED ITS
DISCRETION IN THE APPRECIATION
AND/OR MISAPPRECIATION OF
FACTS RESULTING INTO THE DENIAL
OF THE CLAIM OF PETITIONER REYES
FOR ACTUAL DAMAGES WHICH
CORRESPOND TO THE MILLIONS OF
PESOS OF RENTALS/FRUITS OF THE
SUBJECT REAL PROPERTIES WHICH
RESPONDENT TUPARAN COLLECTED
CONTINUOUSLY SINCE DECEMBER
1990, EVEN WITH THE UNPAID
BALANCE OF ₱805,000.00 AND
DESPITE THE FACT THAT
RESPONDENT DID NOT
CONTROVERT SUCH CLAIM OF THE
PETITIONER AS CONTAINED IN HER
AMENDED COMPLAINT DATED
APRIL 22, 2006.
E. THE COURT OF APPEALS
SERIOUSLY ERRED AND ABUSED ITS
DISCRETION IN THE APPRECIATION
OF FACTS RESULTING INTO THE
DENIAL OF THE CLAIM OF
PETITIONER REYES FOR THE
₱29,609.00 BACK RENTALS THAT
WERE COLLECTED BY RESPONDENT
TUPARAN FROM THE OLD TENANTS
OF THE PETITIONER.
F. THE COURT OF APPEALS
SERIOUSLY ERRED AND ABUSED ITS
DISCRETION IN DENYING THE
 PETITIONERS EARLIER URGENT ruling that there was no legal basis for the rescission
MOTION FOR ISSUANCE OF A
of the Deed of Conditional Sale with Assumption of
PRELIMINARY MANDATORY AND
PROHIBITORY INJUNCTION DATED Mortgage.
JULY 7, 2008 AND THE SUPPLEMENT
THERETO DATED AUGUST 4, 2008 Position of the Petitioner
THEREBY CONDONING THE
UNJUSTIFIABLE FAILURE/REFUSAL
OF JUDGE FLORO ALEJO TO RESOLVE The petitioner basically argues that the CA should
WITHIN ELEVEN (11) YEARS THE have granted the rescission of the subject Deed of
PETITIONERS THREE (3) SEPARATE Conditional Sale of Real Properties with Assumption
MOTIONS FOR PRELIMINARY of Mortgage for the following reasons:
INJUNCTION/ TEMPORARY
RESTRAINING ORDER, ACCOUNTING
1. The subject deed of
AND DEPOSIT OF RENTAL INCOME
conditional sale is a reciprocal
DATED MARCH 17, 1995, AUGUST
obligation whose outstanding
19, 1996 AND JANUARY 7, 2006
characteristic is reciprocity arising
THEREBY PERMITTING THE
from identity of cause by virtue of
RESPONDENT TO UNJUSTLY ENRICH
which one obligation is correlative of
HERSELF BY CONTINUOUSLY
the other.
COLLECTING ALL THE
RENTALS/FRUITS OF THE SUBJECT
2. The petitioner was
REAL PROPERTIES WITHOUT ANY
rescinding not enforcing the subject
ACCOUNTING AND COURT DEPOSIT
Deed of Conditional Sale pursuant to
OF THE COLLECTED RENTALS/FRUITS
Article 1191 of the Civil Code because
AND THE PETITIONERS URGENT
of the respondents failure/refusal to
MOTION TO DIRECT DEFENDANT
pay the ₱805,000.00 balance of the
VICTORIA TUPARAN TO PAY THE
total purchase price of the
ACCUMULATED UNPAID REAL
petitioners properties within the
ESTATE TAXES AND SEF TAXES ON
stipulated period ending December
THE SUBJECT REAL PROPERTIES
31, 1991.
DATED JANUARY 13, 2007 THEREBY
EXPOSING THE SUBJECT REAL
3. There was no slight or
PROPERTIES TO IMMINENT
casual breach on the part of the
AUCTION SALE BY THE CITY
respondent because she
TREASURER OF VALENZUELA CITY.
(respondent) deliberately failed to
comply with her contractual
obligations with the petitioner by
G. THE COURT OF APPEALS
violating the terms or manner of
SERIOUSLY ERRED AND ABUSED ITS
payment of the ₱1,200,000.00
DISCRETION IN DENYING THE
balance and unjustly enriched herself
PETITIONERS CLAIM FOR MORAL
at the expense of the petitioner by
AND EXEMPLARY DAMAGES AND
collecting all rental payments for her
ATTORNEYS FEES AGAINST THE
personal benefit and enjoyment.
RESPONDENT.

In sum, the crucial issue that needs to be Furthermore, the petitioner claims that the
resolved is whether or not the CA was correct in respondent is liable to pay interest at the rate of 6%
per month on her unpaid installment of
₱805,000.00 from the date of the
delinquency, December 31, 1991, because she
obligated herself to do so.
Finally, the petitioner asserts that her claim
for damages or lost income as well as for the back
rentals in the amount of ₱29,609.00 has been fully
substantiated and, therefore, should have been
granted by the CA. Her claim for moral and
exemplary damages and attorneys fees has been
likewise substantiated.
Position of the Respondent
The respondent counters that the subject Deed of
Conditional Sale with Assumption of Mortgage
entered into between the parties is a contract to sell
and not a contract of sale because the title of the
subject properties still remains with the petitioner
as she failed to pay the installment payments in
accordance with their agreement.
Respondent echoes the RTC position that her
inability to pay the full balance on the purchase
price may not be considered as a substantial and
fundamental breach of the subject contract and it
would be more equitable if she would be allowed to
pay the balance including interest within a certain
period of time. She claims that as early as 1992, she
has shown her sincerity by offering to pay a certain
amount which was, however, rejected by the
petitioner.
Finally, respondent states that the subject deed of
conditional sale explicitly provides that the
installment payments shall not bear any interest.
Moreover, petitioner failed to prove that she was
entitled to back rentals.
The Courts Ruling
The petition lacks merit.
The Court agrees with the ruling of the
courts below that the subject Deed of Conditional
Sale with Assumption of Mortgage entered into by
and among the two parties and FSL Bank
on November 26, 1990 is a contract to sell and not a
contract of sale. The subject contract was correctly
classified as a contract to sell based on the following
pertinent stipulations:
8. That the title and
ownership of the subject real
properties shall remain with the First
Party until the full payment of the
Second Party of the balance of the
purchase price and liquidation of the
mortgage obligation
of ₱2,000,000.00. Pending payment
of the balance of the purchase price
and liquidation of the mortgage
obligation that was assumed by the
Second Party, the Second Party shall
not sell, transfer and convey and
otherwise encumber the subject real
properties without the written
consent of the First and Third Party.
9. That upon full payment by
the Second Party of the full balance
of the purchase price and the
assumed mortgage obligation herein
mentioned the Third Party shall issue
the corresponding Deed of
Cancellation of Mortgage and the
First Party shall execute the
corresponding Deed of Absolute Sale
in favor of the Second Party.[7]
Based on the above provisions, the title and
ownership of the subject properties remains with
the petitioner until the respondent fully pays the
balance of the purchase price and the assumed
mortgage obligation. Thereafter, FSL Bank shall then
issue the corresponding deed of cancellation of
mortgage and the petitioner shall execute the
corresponding deed of absolute sale in favor of the
respondent.
Accordingly, the petitioners obligation to sell
the subject properties becomes demandable only
upon the happening of the positive suspensive
condition, which is the respondents full payment of
the purchase price. Without respondents full
payment, there can be no breach of contract to
speak of because petitioner has no obligation yet to
turn over the title. Respondents failure to pay in full
the purchase price is not the breach of contract
contemplated under Article 1191 of the New Civil
Code but rather just an event that prevents the
petitioner from being bound to convey title to the
respondent. The 2009 case of Nabus v. Joaquin &
Julia Pacson[8] is enlightening:
The Court holds that the
contract entered into by the Spouses
Nabus and respondents was a
contract to sell, not a contract of sale.
A contract of sale is defined in
Article 1458 of the Civil Code, thus:
Art. 1458. By the contract of
sale, one of the contracting parties
obligates himself to transfer the
ownership of and to deliver a
determinate thing, and the other to
pay therefor a price certain in money
or its equivalent.
xxx
Sale, by its very nature, is a
consensual contract because it is
perfected by mere consent. The
essential elements of a contract of
sale are the following:
a) Consent or meeting
of the minds, that
is, consent to
transfer
ownership in
exchange for the
price;
b) Determinate
subject matter;
and
c) Price certain in
money or its
equivalent.
Under this definition, a
Contract to Sell may not be
considered as a Contract of Sale
because the first essential element is
lacking. In a contract to sell, the
prospective seller explicitly reserves
the transfer of title to the
prospective buyer, meaning, the
prospective seller does not as yet
agree or consent to transfer
ownership of the property subject of
the contract to sell until the
happening of an event, which for
present purposes we shall take as the
full payment of the purchase
price. What the seller agrees or
obliges himself to do is to fulfill his
promise to sell the subject property
when the entire amount of the
purchase price is delivered to him. In
other words, the full payment of the
purchase price partakes of a
suspensive condition, the non-
fulfillment of which prevents the
obligation to sell from arising and,
thus, ownership is retained by the
prospective seller without further
remedies by the prospective buyer.
xxx xxx xxx
Stated positively, upon the
fulfillment of the suspensive
condition which is the full payment of
the purchase price, the prospective
sellers obligation to sell the subject
property by entering into a contract
of sale with the prospective buyer
becomes demandable as provided in
Article 1479 of the Civil Code which
states:
Art. 1479. A promise to buy
and sell a determinate thing for a
price certain is reciprocally
demandable.
An accepted unilateral
promise to buy or to sell a
determinate thing for a price certain
is binding upon the promissor if the
promise is supported by a
consideration distinct from the price.
A contract to sell may thus be
defined as a bilateral contract
whereby the prospective seller, while
expressly reserving the ownership of
the subject property despite delivery
thereof to the prospective buyer,
binds himself to sell the said property
exclusively to the prospective buyer
upon fulfillment of the condition
agreed upon, that is, full payment of
the purchase price.
A contract to sell as defined
hereinabove, may not even be
considered as a conditional contract
of sale where the seller may likewise
reserve title to the property subject
of the sale until the fulfillment of a
suspensive condition, because in a
conditional contract of sale, the first
element of consent is present,
although it is conditioned upon the
happening of a contingent event
which may or may not occur. If the
suspensive condition is not fulfilled,
the perfection of the contract of sale
is completely abated. However, if the
suspensive condition is fulfilled, the
contract of sale is thereby perfected,
such that if there had already been
previous delivery of the property
subject of the sale to the buyer,
ownership thereto automatically
transfers to the buyer by operation
of law without any further act having
to be performed by the seller.
In a contract to sell, upon the
fulfillment of the suspensive
condition which is the full payment of
the purchase price, ownership will
not automatically transfer to the
buyer although the property may
have been previously delivered to
him. The prospective seller still has
to convey title to the prospective
buyer by entering into a contract of
absolute sale.
Further, Chua v. Court of
Appeals, cited this distinction
between a contract of sale and a
contract to sell:
In a contract of
sale, the title to the
property passes to the
vendee upon the
delivery of the thing
sold; in a contract to
sell, ownership is, by
agreement, reserved
in the vendor and is
not to pass to the
vendee until full
payment of the
purchase price.
Otherwise stated, in a
contract of sale, the
vendor loses
ownership over the
property and cannot
recover it until and
unless the contract is
resolved or rescinded;
whereas, in a contract
to sell, title is retained
by the vendor until
full payment of the
price. In the latter
 contract, payment of
the price is a positive
suspensive condition,
failure of which is not
a breach but an event
that prevents the
obligation of the
vendor to convey title
from becoming
effective.
It is not the title of the
contract, but its express terms or
stipulations that determine the kind
of contract entered into by the
parties. In this case, the contract
entitled Deed of Conditional Sale is
actually a contract to sell. The
contract stipulated that as soon as
the full consideration of the sale has
been paid by the vendee, the
corresponding transfer documents
shall be executed by the vendor to
the vendee for the portion sold.
Where the vendor promises to
execute a deed of absolute sale upon
the completion by the vendee of the
payment of the price, the contract is
only a contract to sell. The aforecited
stipulation shows that the vendors
reserved title to the subject property
until full payment of the purchase
price.
xxx
Unfortunately for the
Spouses Pacson, since the Deed of
Conditional Sale executed in their
favor was merely a contract to sell,
the obligation of the seller to sell
becomes demandable only upon the
happening of the suspensive
condition. The full payment of the
purchase price is the positive
suspensive condition, the failure of
which is not a breach of contract, but
simply an event that prevented the
obligation of the vendor to convey
title from acquiring binding
force. Thus, for its non-fulfilment,
there is no contract to speak of, the
obligor having failed to perform the
suspensive condition which enforces
a juridical relation. With this
circumstance, there can be no
rescission or fulfillment of an
obligation that is still non-existent,
the suspensive condition not having
occurred as yet. Emphasis should be
made that the breach contemplated
in Article 1191 of the New Civil Code
is the obligors failure to comply with
an obligation already extant, not a
failure of a condition to render
binding that obligation.[Emphases
and underscoring supplied]
Consistently, the Court handed down a
similar ruling in the 2010 case of Heirs of Atienza v.
Espidol, [9] where it was written:
Regarding the right to cancel
the contract for non-payment of an
installment, there is need to initially
determine if what the parties had
was a contract of sale or a contract
to sell. In a contract of sale, the title
to the property passes to the buyer
upon the delivery of the thing sold. In
a contract to sell, on the other hand,
the ownership is, by agreement,
retained by the seller and is not to
pass to the vendee until full payment
of the purchase price. In the contract
of sale, the buyers non-payment of
the price is a negative resolutory
condition; in the contract to sell, the
buyers full payment of the price is a
positive suspensive condition to the
coming into effect of the
agreement. In the first case, the
seller has lost and cannot recover the
ownership of the property unless he
takes action to set aside the contract
of sale. In the second case, the title
 simply remains in the seller if the
buyer does not comply with the
condition precedent of making
payment at the time specified in the
contract. Here, it is quite evident that
the contract involved was one of a
contract to sell since the Atienzas, as
sellers, were to retain title of
ownership to the land until
respondent Espidol, the buyer, has
paid the agreed price. Indeed, there
seems no question that the parties
understood this to be the case.
Admittedly, Espidol was
unable to pay the second installment
of P1,750,000.00 that fell due in
December 2002. That payment, said
both the RTC and the CA, was a
positive suspensive condition failure
of which was not regarded a breach
in the sense that there can be no
rescission of an obligation (to turn
over title) that did not yet exist since
the suspensive condition had not
taken place. x x x. [Emphases and
underscoring supplied]
Thus, the Court fully agrees with the CA
when it resolved: Considering, however, that the
Deed of Conditional Sale was not cancelled by
Vendor Reyes (petitioner) and that out of the total
purchase price of the subject property in the
amount of ₱4,200,000.00, the remaining unpaid
balance of Tuparan (respondent) is only
₱805,000.00, a substantial amount of the purchase
price has already been paid. It is only right and just
to allow Tuparan to pay the said unpaid balance of
the purchase price to Reyes.[10]
Granting that a rescission can be permitted
under Article 1191, the Court still cannot allow it for
the reason that, considering the circumstances,
there was only a slight or casual breach in the
fulfillment of the obligation.
Unless the parties stipulated it, rescission is
allowed only when the breach of the contract is
substantial and fundamental to the fulfillment of
the obligation. Whether the breach is slight or
substantial is largely determined by the attendant
circumstances.[11] In the case at bench, the subject
contract stipulated the following important
provisions:
2. That the purchase price of
₱4,200,000.00 shall be paid as
follows:
a) ₱278,078.13 received in
cash by the First Party but directly
paid to the Third Party as partial
payment of the mortgage obligation
of the First Party in order to reduce
the amount to ₱2,000,000.00 only as
of November 15, 1990;
b) ₱721,921.87 received in
cash by the First Party as additional
payment of the Second Party;
c) ₱1,200,000.00 to
be paid in installments as follows:
1. ₱200,000.00
payable on or
before January
31, 1991;
2. ₱200,000.00
payable on or
before June 30,
1991;
3. ₱800,000.00
payable on or
before Decemb
er 31, 1991;
Note: All the installments
shall not bear any interest.
 d) ₱2,000,000.00
outstanding balance of the mortgage
obligation as of November 15,
1990 which is hereby assumed by the
Second Party.
xxx
3. That the Third Party
hereby acknowledges receipts from
the Second Party P278,078.13 as
partial payment of the loan
obligation of First Party in order to
reduce the account to only
₱2,000,000.00 as of November 15,
1990 to be assumed by the Second
Party effective November 15,
1990.[12]
From the records, it cannot be denied that
respondent paid to FSL Bank petitioners mortgage
obligation in the amount of ₱2,278,078.13, which
formed part of the purchase price of the subject
property. Likewise, it is not disputed that
respondent paid directly to petitioner the amount of
₱721,921.87 representing the additional payment
for the purchase of the subject property. Clearly, out
of the total price of ₱4,200,000.00, respondent was
able to pay the total amount of ₱3,000,000.00,
leaving a balance of ₱1,200,000.00 payable in three
(3) installments.
Out of the ₱1,200,000.00 remaining balance,
respondent paid on several dates the first and
second installments of ₱200,000.00 each. She,
however, failed to pay the third and last installment
of ₱800,000.00 due on December 31, 1991.
Nevertheless, on August 31, 1992, respondent,
through counsel, offered to pay the amount of
₱751,000.00, which was rejected by petitioner for
the reason that the actual balance was ₱805,000.00
excluding the interest charges.
Considering that out of the total purchase
price of ₱4,200,000.00, respondent has already paid
the substantial amount of ₱3,400,000.00, more or
less, leaving an unpaid balance of only ₱805,000.00,
it is right and just to allow her to settle, within a
reasonable period of time, the balance of the unpaid
purchase price. The Court agrees with the courts
below that the respondent showed her sincerity and
willingness to comply with her obligation when she
offered to pay the petitioner the amount of
₱751,000.00.
On the issue of interest, petitioner failed to
substantiate her claim that respondent made a
personal commitment to pay a 6% monthly interest
on the ₱805,000.00 from the date of
delinquency, December 31, 1991. As can be gleaned
from the contract, there was a stipulation stating
that: All the installments shall not bear interest. The
CA was, however, correct in imposing interest at the
rate of 6% per annum starting from the filing of the
complaint on September 11, 1992.
Finally, the Court upholds the ruling of the
courts below regarding the non-imposition of
damages and attorneys fees. Aside from petitioners
self-serving statements, there is not enough
evidence on record to prove that respondent acted
fraudulently and maliciously against the
petitioner. In the case of Heirs of Atienza v.
Espidol,[13] it was stated:
Respondents are not entitled
to moral damages because contracts
are not referred to in Article 2219 of
the Civil Code, which enumerates the
cases when moral damages may be
recovered. Article 2220 of the Civil
Code allows the recovery of moral
damages in breaches of contract
where the defendant acted
fraudulently or in bad faith.
However, this case involves a
contract to sell, wherein full
payment of the purchase price is a
positive suspensive condition, the
non-fulfillment of which is not a
breach of contract, but merely an
event that prevents the seller from
conveying title to the
purchaser. Since there is no breach
of contract in this case, respondents
are not entitled to moral damages.

In the absence of moral,

temperate, liquidated or
compensatory damages, exemplary
damages cannot be granted for they
are allowed only in addition to any of
the four kinds of damages
mentioned.

WHEREFORE, the petition is DENIED.

SO ORDERED.
THIRD DIVISION No. T-133026[3] issued by the Register of Deeds of
Metro Manila, District III. Later, petitioners, Spouses
SPOUSES JOSE T. G.R. No. 163244
Jose T. Valenzuela and Gloria Valenzuela (Gloria),
VALENZUELA and Present:
GLORIA VALENZUELA, YNARES-SANTIAGO, J., occupied the said property and introduced several
Petitioners, Chairperson, improvements thereon.
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and When Kalayaan discovered that the lot was
- versus - PERALTA, JJ.
Promulgated: being illegally occupied by the petitioners, it
demanded that they immediately vacate the
June 22, 2009
premises and surrender possession
KALAYAAN thereof. Petitioners then negotiated with Kalayaan
DEVELOPMENT & to purchase the portion of the lot they were
INDUSTRIAL
CORPORATION, occupying. On August 5, 1994, the parties executed
Respondent. a Contract to Sell[4] wherein they stipulated that

x-------------------------------------- petitioners would purchase 236 square meters of

- - - - - - - - - - - - -x the subject property for P1,416,000.00. Petitioners
initially gave P500,000.00 upon signing the contract
DECISION and agreed to pay the balance of P916,000.00 in
twelve (12) equal monthly installments,
PERALTA, J.: or P76,333.75 a month until fully paid.[5] The parties
also agreed that, in case petitioners failed to pay any
of the installments, they would be liable for
This is a petition for review liquidated penalty at the rate of 3% a month
on certiorari assailing the Decision[1] dated January compounded monthly until fully paid. It was also
23, 2004 of the Court of Appeals in CA-G.R. CV No. stipulated that Kalayaan shall execute the
69814, and its Resolution[2] dated April 20, 2004, corresponding deed of absolute sale over the
denying petitioners motion for reconsideration. subject property only upon full payment of the total
purchase price.[6]
The factual and procedural antecedents are
as follows: Thereafter, petitioners made the following
payments: P70,000.00 on October 20,
Kalayaan Development and Industrial 1994; P70,000.00 on November 23, 1994;
Corporation (Kalayaan) is the owner of a parcel of and P68,000.00 on December 20, 1994, or a total
land covered by Transfer Certificate of Title (TCT)
of P208,000.00. After these payments, petitioners
failed to pay the agreed monthly installments.
In a letter[7] dated September 6, 1995,
petitioners requested Kalayaan that they be issued
a deed of sale for the 118 sq. m. portion of the lot
where their house was standing, considering that
they no longer had the resources to pay the
remaining balance. They reasoned that, since they
had already paid one-half of the purchase price, or
a total of P708,000.00 representing 118 sq. m. of the
subject property, they should be issued a deed of
sale for the said portion of the property.
In a letter[8] dated December 15, 1995,
Kalayaan reminded petitioners of their unpaid
balance and asked that they settle it within the next
few days. In a demand letter[9] dated January 30,
1996, Kalayaan, through counsel, demanded that
petitioners pay their outstanding obligation,
including the agreed penalties, within ten (10) days
from receipt of the letter, or they would be
constrained to file the necessary actions against
them. Again, in a letter[10] dated March 30, 1996,
Kalayaan gave petitioners another opportunity to
settle their obligation within a period of ten (10)
days from receipt thereof.
On June 13, 1996, petitioners wrote Atty.
Atilano Huaben Lim, then counsel of Kalayaan, and
requested him to intercede on their behalf and to
propose to Kalayaan that Glorias sister, Juliet Flores
Giron (Juliet), was willing to assume payment of the
remaining balance for the 118 sq. m. portion of the
subject property at P10,000.00 a
month.[11] Petitioners stated that they had already
separated the said 118 sq. m. portion and had the
property surveyed by a licensed geodetic engineer
to determine the unpaid portion of the property
that needed to be separated from their lot.
On January 20, 1997, March 20, 1997, April
20, 1997, June 20, 1997, July 20, 1997, September
20, 1997, October 20, 1997, and December 20,
1997, Juliet made payments of P10,000.00 per
month to Kalayaan, which the latter accepted for
and in behalf of her sister Gloria.[12]
Thereafter, Kalayaans in-house counsel,
Atty. Reynaldo Romero, demanded that petitioners
pay their outstanding obligation. However, his
demands remained unheeded. Thus, on June 19,
1998, Kalayaan filed a Complaint for Rescission of
Contract and Damages[13] against petitioners before
the Regional Trial Court (RTC) of Caloocan City,
Branch 126, which was later docketed as Civil Case
No. C-18378.
On September 3, 1998, petitioners filed their
Answer with Counterclaim[14] praying, among other
things, that the RTC dismiss the complaint and for
Kalayaan to deliver the corresponding TCT to the
subject property, so that the same may be cancelled
and a new one issued in the name of the
petitioners. Petitioners also prayed for the award of
exemplary damages, moral damages, attorneys
fees, and cost of suit.[15]
 OBLIGATION IS NOT APPLICABLE IN
After filing their respective pleadings, trial
THE INSTANT CASE;
on the merits ensued. On August 2, 2000, the RTC
rendered a Decision[16] in favor of Kalayaan, IT RULED THAT THE PRINCIPLE OF
RESCISSION IS APPLICABLE IN THE
rescinding the contract between the parties; CASE AND THAT THE PLAINTIFF-
ordering the petitioners to vacate the premises; and APPELLEE IS ENTITLED THERETO VIS--
VIS THE DEFENDANTS-APPELLANTS;
to pay the amount of P100,000.00 as attorneys
fees.The decretal portion of the Decision reads: IT FAILED TO RULE THAT THE
PLAINTIFF-APPELLEE IS BARRED BY
ESTOPPEL FROM ASKING FOR THE
IN VIEW OF ALL THE
RESCISSION OF THE CONTRACT TO
FOREGOING, judgment is hereby
SELL.
rendered rescinding the contract
between the plaintiff and the
IT RULED THAT THE DEFENDANTS-
defendants and ordering the
APPELLANTS DID NOT HAVE THE
defendants and all persons claiming
FINANCIAL CAPACITY TO PAY THE
rights under them to vacate the
REMAINING BALANCE OF THE
premises and to surrender
OBLIGATION AND THAT,
possession thereof to the
CONSEQUENTLY, COMPLIANCE WITH
plaintiff. Moreover, defendants shall
THE TERMS OF THE SAID
pay the amount of P100,000.00 as
OBLIGATION HAS BECOME
attorneys fees.
IMPOSSIBLE.

IT RULED THAT THE PLAINTIFF-

The counterclaim of the
APPELLEE IS ENTITLED TO ITS CLAIM
defendants is hereby ordered
FOR ATTORNEYS FEES AND THE COST
DISMISSED for lack of merit.
OF SUIT.[18]
SO ORDERED.[17]

On January 23, 2004, the CA rendered a

Aggrieved, petitioners sought recourse Decision affirming the Decision of the RTC, the
before the Court of Appeals (CA) in their appeal dispositive portion of which reads:
docketed as CA-G.R. CV No. 163244. Petitioners
argued that the RTC erred when: WHEREFORE, premises
considered, the assailed decision
dated August 2, 2000 is hereby
IT RULED THAT THE PLAINTIFF-
AFFIRMED, and the present appeal
APPELLEE MADE A VALID FORMAL
is hereby DISMISSED for lack of
DEMAND UPON THE DEFENDANTS-
merit.
APPELANTS TO PAY THE LATTERS
DUE AND OUTSTANDING
SO ORDERED. (Emphasis
OBLIGATION; [19]
supplied.)
IT RULED THAT THE PRINCIPLE OF
NOVATION OF AN EXISTING
 Petitioners filed a Motion for
Reconsideration,[20] but it was denied for lack of
merit in a Resolution[21] dated April 20, 2004.
Hence, the present petition assigning the
following errors:
I. THE HONORABLE COURT OF
APPEALS ERRED IN FAILING TO
APPLY THE PROVISIONS OF THE
NEW CIVIL CODE REGARDING
SUBSTANTIAL PERFORMANCE IN
THE JUST RESOLUTION OF THE
PETITIONERS APPEAL.
II. THE HONORABLE COURT OF
APPEALS SHOULD HAVE APPLIED
THE APPLICABLE PROVISIONS OF
THE LAW VIS--VIS THE
RESCISSION OF CONTRACTS TO
SELL REAL PROPERTY,
SPECIFICALLY THE
REQUIREMENT OF A PRIOR AND
VALIDLY NOTARIZED LETTER OF
DEMAND.
III. THE HONORABLE COURT OF
APPEALS FAILED TO APPLY TO
THE INSTANT CASE THE
PERTINENT PROVISIONS OF THE
NEW CIVIL CODE REGARDING
THE PRINCIPLE OF NOVATION AS
A MODE OF EXTINGUISHING AN
OBLIGATION.
IV. THE AWARD, BY THE COURT OF
APPEALS, OF ATTORNEYS FEES,
WAS NOT IN ACCORD WITH THE
FACTS AND THE LAW.
Petitioners maintain that they should have
been entitled to get at least one-half of the subject
property, because payment equivalent to its value
has been made to, and received by
Kalayaan. Petitioners posit that the RTC should have
applied Article 1234[22] of the Civil Code to the
present case, considering that it has been factually
established that they were able to pay at least one-
half of the total obligation in good faith.
Petitioners contend that Kalayaan allowed
Juliet to continue with the payment of the other half
of the property in installments of P10,000.00 a
month. They also insist that they or Juliet was not
given proper demand. They maintain that the
demand letters that were previously sent to them
were for their previous obligation with Kalayaan and
not for the new agreement between Juliet and
Kalayaan to assume payment of the unpaid portion
of the subject property. Petitioners aver that, for a
demand of rescission to be valid, it is an absolute
requirement that should be made by way of a duly
notarized written notice.
Petitioners likewise claim that there was a
valid novation in the present case. They aver that
the CA failed to see that the original contract
between the petitioners and Kalayaan was altered,
changed, modified and restructured, as a
consequence of the change in the person of the
principal debtor and the monthly amortization to be
paid for the subject property. When they agreed to
a monthly amortization of P10,000.00 per month,
the original contract was changed; and Kalayaan
recognized Juliets capacity to pay, as well as her
designation as the new debtor. The original contract
was novated and the principal obligation to pay for
the remaining half of the subject property was
transferred from petitioners to Juliet. When
Kalayaan accepted the payments made by the new
debtor, Juliet, it waived its right to rescind the
previous contract. Thus, the action for rescission
filed by Kalayaan against them, was unfounded,
since the contract sought to be rescinded was no
longer in existence.
Finally, petitioners question the RTCs award
of attorneys fees. They maintain that there was no
basis for the RTC to have awarded the same.They
claim that Kalayaan was not forced, by their acts, to
litigate, because Juliet was offering to pay the
installments, but the offer was denied by
Kalayaan. Moreover, since there were no awards for
moral and exemplary damages, the award of
attorneys fees would have no basis and should be
deleted.
The petition is devoid of merit.
In the present case, the nature and
characteristics of a contract to sell is determinative
of the propriety of the remedy of rescission and the
award of attorneys fees.
Under a contract to sell, the seller retains
title to the thing to be sold until the purchaser fully
pays the agreed purchase price. The full payment is
a positive suspensive condition, the non-fulfillment
of which is not a breach of contract, but merely an
event that prevents the seller from conveying title
to the purchaser. The non-payment of the purchase
price renders the contract to sell ineffective and
without force and effect.[23] Unlike a contract of
sale, where the title to the property passes to the
vendee upon the delivery of the thing sold, in a
contract to sell, ownership is, by agreement,
reserved to the vendor and is not to pass to the
vendee until full payment of the purchase
price. Otherwise stated, in a contract of sale, the
vendor loses ownership over the property and
cannot recover it until and unless the contract is
resolved or rescinded; whereas, in a contract
to sell, title is retained by the vendor until full
payment of the purchase price. In the latter
contract, payment of the price is a positive
suspensive condition, failure ofwhich is not a breach
but an event that prevents the obligation of the
vendor to convey title from becoming effective.[24]
Since the obligation of respondent did not
arise because of the failure of petitioners to fully pay
the purchase price, Article 1191[25] of the Civil Code
would have no application.
Rayos v. Court of Appeals[26] elucidates:
Construing the contracts
together, it is evident that the parties
executed a contract to sell and not a
contract of sale. The petitioners
retained ownership without further
remedies by the respondents until
the payment of the purchase price of
the property in full. Such payment is
a positive suspensive condition,
failure of which is not really a
breach, serious or otherwise, but an
 event that prevents the obligation
of the petitioners to convey title
from arising, in accordance with
Article 1184 of the Civil Code. x x x
xxxx
The non-fulfillment by the
respondent of his obligation to pay,
which is a suspensive condition to
the obligation of the petitioners to
sell and deliver the title to the
property, rendered the contract to
sell ineffective and without force
and effect. The parties stand as if the
conditional obligation had never
existed. Article 1191 of the New Civil
Code will not apply because it
presupposes an obligation already
extant. There can be no rescission of
an obligation that is still non-
existing, the suspensive condition
not having happened.
The parties contract to sell explicitly
provides that Kalayaan shall execute and deliver the
corresponding deed of absolute sale over the
subject property to the petitioners upon full
payment of the total purchase price. Since
petitioners failed to fully pay the purchase price for
the entire property, Kalayaans obligation to convey
title to the property did not arise. Thus, Kalayaan
may validly cancel the contract to sell its land to
petitioner, not because it had the power to rescind
the contract, but because their obligation
thereunder did not arise.
Petitioners failed to pay the balance of the
purchase price. Such payment is a positive
suspensive condition, failure of which is not a
breach, serious or otherwise, but an event that
prevents the obligation of the seller to convey title
from arising.[27] The non-fulfillment by petitioners of
their obligation to pay, which is a suspensive
condition for the obligation of Kalayaan to sell and
deliver the title to the property, rendered the
Contract to Sell ineffective and without force and
effect. The parties stand as if the conditional
obligation had never existed.[28] Inasmuch as the
suspensive condition did not take place, Kalayaan
cannot be compelled to transfer ownership of the
property to petitioners.
As regards petitioners claim of novation, we
do not give credence to petitioners assertion that
the contract to sell was novated when Juliet was
allegedly designated as the new debtor and
substituted the petitioners in paying the balance of
the purchase price.
Novation is the extinguishment of an
obligation by the substitution or change of the
obligation by a subsequent one which extinguishes
or modifies the first, either by changing the object
or principal conditions, or by substituting another in
place of the debtor, or by subrogating a third person
in the rights of the creditor.[29]
Article 1292 of the Civil Code provides that
[i]n order that an obligation may be extinguished by
another which substitutes the same, it is imperative
that it be so declared in unequivocal terms, or that
the old and the new obligations be on every point
incompatible with each other.Novation is never
presumed. Parties to a contract must expressly
agree that they are abrogating their old contract in
favor of a new one. In the absence of an express
agreement, novation takes place only when the old
and the new obligations are incompatible on every
point.[30] The test of incompatibility is whether or
not the two obligations can stand together, each
one having its independent existence. If they
cannot, they are incompatible and the latter
obligation novates the first.[31]
Thus, in order that a novation can take place,
the concurrence of the following requisites are
indispensable:
1) There must be a previous valid
obligation;
2) There must be an agreement of
the parties concerned to a new
contract;
3) There must be the extinguishment
of the old contract; and
4) There must be the validity of the new
contract.
In the instant case, none of the requisites are
present. There is only one existing and binding
contract between the parties, because Kalayaan
never agreed to the creation of a new contract
between them or Juliet. True, petitioners may have
offered that they be substituted by Juliet as the new
debtor to pay for the remaining
obligation. Nonetheless, Kalayaan did not acquiesce
to the proposal.
Its acceptance of several payments after it
demanded that petitioners pay their outstanding
obligation did not modify their original
contract.Petitioners, admittedly, have been in
default; and Kalayaans acceptance of the late
payments is, at best, an act of tolerance on the part
of Kalayaan that could not have modified the
contract.
As to the partial payments made by
petitioners from September 16, 1994 to December
20, 1997, amounting to P788,000.00, this Court
resolves that the said amount be returned to the
petitioners, there being no provision regarding
forfeiture of payments made in the Contract to
Sell. To rule otherwise will be unjust enrichment on
the part of Kalayaan at the expense of the
petitioners.
Also, the three percent (3%) penalty interest
appearing in the contract is patently iniquitous and
unconscionable as to warrant the exercise by this
Court of its judicial discretion. Article 2227 of the
Civil Code provides that [l]iquidated damages,
whether intended as an indemnity or a penalty, shall
be equitably reduced if they are iniquitous or
unconscionable. A perusal of the Contract to Sell
reveals that the three percent (3%) penalty interest
on unpaid monthly installments (per condition No.
3) would translate to a yearly penalty interest of
thirty-six percent (36%).
Although this Court on various occasions has
eliminated altogether the three percent (3%)
penalty interest for being unconscionable,[32] We
are not inclined to do the same in the present fees is reduced to P50,000.00. Respondent is
case. A reduction is more consistent with fairness further ordered to refund the amount paid by the
and equity. We should not lose sight of the fact that petitioners after deducting the penalty interest
Kalayaan remains an unpaid seller and that it has due. In all other aspects, the Decision stands.
suffered, one way or another, from petitioners non-
performance of its contractual obligations. In view
Subject to the above disquisitions, the
of such glaring reality, We invoke the authority
Decision dated January 23, 2004 and the Resolution
granted to us by Article 1229[33] of the Civil Code,
dated April 20, 2004, of the Court of Appeals in CA-
and as equity dictates, the penalty interest is
G.R. CV No. 69814, are AFFIRMED.
accordingly reimposed at a reduced rate of one
percent (1%) interest per month, or twelve percent
SO ORDERED.
(12%) per annum,[34] to be deducted from the
partial payments made by the petitioners.

As to the award of attorneys fees, the

undeniable source of the present controversy is the
failure of petitioners to pay the balance of the
purchase price. It is elementary that when attorneys
fees is awarded, they are so adjudicated, because it
is in the nature of actual damages suffered by the
party to whom it is awarded, as he was constrained
to engage the services of a counsel to represent him
for the protection of his interest.[35] Thus, although
the award of attorneys fees to Kalayaan was
warranted by the circumstances obtained in this
case, we find it equitable to reduce the award
from P100,000.00 to P50,000.00.

WHEREFORE, premises considered, the

Decision of the Regional Trial Court in Civil Case No.
C-18378, dated August 2, 2000, is
hereby MODIFIED to the extent that the contract
between the parties is cancelled and the attorneys