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G.R. No. L-11668 April 1, 1918
ANTONIO ENRIQUEZ DE LA CAVADA, plaintiff-appellee,
vs.
ANTONIO DIAZ, defendant-appellant.
Ramon Diokno for appellant.
Alfredo Chicote and Jose Arnaiz for appellee.
JOHNSON, J.:
This action was instituted by the plaintiff for the purpose of requiring the defendant to
comply with a certain "contract of option" to purchase a certain piece or parcel of land
described in said contract and for damages for a noncompliance with said contract. After
the close of the trial the Honorable James A. Ostrand, judge, rendered a judgment the
dispositive part of which is as follows:
Wherefore, it is hereby ordered and adjudged that the defendant, within the
period of thirty days from the date upon which this decision becomes final,
convey to the plaintiff a good and sufficient title in fee simple to the land
described in decrees Nos. 13909 and 13919 of the Court of Land Registration,
upon payment or legal tender of payment by said plaintiff of the sum of thirty
thousand pesos (P30,000) in cash, and upon said plaintiff giving security
approved by this court for the payment within the term of 6 years from the date
of the conveyance for the additional sum of forty thousand pesos (P40,000) with
interest at the rate of 6 per cent per annum.
It is further ordered and adjudged that in the event of the failure of the defendant
to execute the conveyance as aforesaid, the plaintiff have and recover judgment
against him, the said defendant, for the sum of twenty thousand pesos
(P20,000), with interest at the rate of six per cent (6 per cent per annum from
the date upon which the conveyance should have been made). It is so ordered.
From that judgment the defendant appealed and made several assignment of error.
It appears from the record that on the 15th day of November, 1912, the defendant and
the plaintiff entered into the following "contract of option:"
(EXHIBIT A.)
CONTRACT OF OPTION.
I, the undersigned, Antonio Diaz, of legal age, with personal registration
certificate Number F-855949, issued at Pitogo, Tayabas, January 16, 1912, and
temporarily residing in Manila, P. I., do hereby grant an option to Antonio
Enriquez to purchase my hacienda at Pitogo consisting of 100 and odd
hectares, within the period necessary for the approval and issuance of a
Torrens title thereto by the Government for which he may pay me either the sum
of thirty thousand pesos (P30,000), Philippine currency, in cash, or within the
period of six (6) years, beginning with the date of the purchase, the sum of forty
thousand pesos (P40,000), Philippine currency, at six per cent interest per
annum, with due security for the payment of the said P40,000 in consideration
of the sale to him of my property described as follows, to wit:
About one hundred hectares of land in Pitogo, Tayabas, containing about
20,000 coconut trees and 10,000 nipa-palm trees, all belonging to me, which I
hereby sell to Antonio Enriquez de la Cavada for seventy thousand pesos,
under the conditions herein specified.
I declare that Antonio Enriquez is the sole person who has, and shall have,
during the period of this option, the right to purchase the property above-
mentioned.
I likewise declare that Antonio Enriquez shall be free to resell the said property
at whatever price he may desire, provided that he should comply with the
stipulations covenanted with me.
In witness of my entire conformity with the foregoing, I hereunto affix my
signature, in Manila, P. I., this 15th day of November, 1912.
(Sgd.) Antonio Diaz.
Signed in the presence of:
(Sgd.) J. VALDS DIAZ.
(EXHIBIT B.)
P. I., November 15, 1912.
Sr. Don ANTONIO DIAZ,
Calle Victoria, No. 125, W. C., Manila, P. I.
DEAR SIR: I have the honor to inform you that, in conformity with the letter of
option in my favor of even date, I will buy your coconut plantation in Pitogo,
containing one hundred hectares, together with all the coconut and nipa-palm
trees planted thereon, under the following conditions:
1. I shall send a surveyor to survey the said property, and to apply to the
Government for a Torrens title therefore, and, if the expenses incurred for the
same should not exceed P1,000, I shall pay the P500 and you the other
P500; Provided, however, that you shall give the surveyor all necessary
assistance during his stay at the hacienda.
2. I shall pay the purchase price to you in conformity with our letter of option of
this date, and after the Torrens title shall have been officially approved.
Yours respectfully,
(Sgd.) A. ENRIQUEZ
I acknowledge receipt of, and conform with, the foregoing.
(Sgd.) ANTONIO DIAZ
It appears from the record that soon after the execution of said contract, and in part
compliance with the terms thereof, the defendant presented two petitions in the Court of
Land Registration (Nos. 13909 and 13919), each for the purpose of obtaining the
registration of a part of the "Hacienda de Pitogo." Said petitions were granted, and each
parcel as registered and a certificate of title was issued for each part under the Torrens
system to the defendant herein. Later, and pretending to comply with the terms of said
contract, the defendant offered to transfer to the plaintiff one of said parcels only, which
was a part of said "hacienda." The plaintiff refused to accept said certificate for a part
only of said "hacienda" upon the ground (a) that it was only a part of the "Hacienda de
Pitogo," and (b) under the contract (Exhibits A and B) he was entitled to a transfer to him
all said "hacienda."
The theory of the defendant is that the contract of sale of said "Hacienda de Pitogo"
included only 100 hectares, more or less, of said "hacienda," and that by offering to
convey to the plaintiff a portion of said "hacienda" composed of "100 hectares, more or
less," he thereby complied with the terms of the contract. The theory of the plaintiff is that
he had purchased all of said "hacienda," and that the same contained, at least, 100
hectares, more or less. The lower court sustained the contention of the plaintiff, to wit,
that the sale was a sale of the "Hacienda de Pitogo" and not a sale of a part of it, and
rendered a judgment requiring the defendant to comply with the terms of the contract by
transferring to the plaintiff, by proper deeds of conveyance, all said "hacienda," or to pay
in lieu thereof the sum of P20,000 damages, together with 6 per cent interest from the
date upon which said conveyance should have been made.
After issue had been joined between the plaintiff and defendant upon their pleadings,
they entered into the following agreement with reference to the method of presenting
their proof:
The attorneys for the parties in this case make the following stipulations:

1. Each of the litigating parties shall present his evidence before Don Felipe
Canillas, assistant clerk of the Court of First Instance of Manila, who, for such
purpose, should be appointed commissioner.
2. Said commissioner shall set a day and hour for the presentation of the
evidence above-mentioned, both oral and documentary, and in the stenographic
notes shall have record entered of all objections made to the evidence by either
party, in order that they may afterwards be decided by the court.
3. The transcription of the stenographic notes, containing the record of the
evidence taken, shall be paid for in equal shares by both parties.
4. At the close of the taking of the evidence, each of the parties shall file his
brief in respect to such evidence, whereupon the case as it then stands shall be
submitted to the decision of the court.
The parties request the court to approve this agreement in the part thereof
which refers to the proceedings in this case.
Manila, P. I., December 21, 1914.
(Sgd.) ANTONIO V. HERRERO. (Sgd.) ALFREDO
CHICOTE.
Approved:
(Sgd.) GEO. R. HARVEY,
Judge.
Said agreement was approved by the lower court, and proof was taken in accordance
therewith. The defendant-appellant now alleges, giving several reasons therefor, that the
proof was improperly practiced, and that the judge was without authority o decide the
cause upon proof taken in the manner agreed upon by the respective parties. The
defendant-appellant makes no contention that he was not permitted to present all the
proof he desired to present. He makes no contention that he has been prejudiced in any
manner whatsoever by virtue of the method agreed upon for taking the testimony.
There is nothing in the law nor in public policy which prohibits the parties in a civil
litigation from making the agreement above quoted. While the law concedes to parties
litigant, generally, the right to have their proof taken in the presence of the judge, such
right is a renounceable one. In a civil action the parties litigant have a right to agree,
outside of the court, upon the facts in litigation. Under certain conditions the parties
litigant have a right to take the depositions of witnesses and submit the sworn statements
in that form to the court. The proof, as it was submitted to the court in the present case,
by virtue of said agreement, was, in effect, in the form of a deposition of the various
witnesses presented. Having agreed to the method of taking the proof, and the same
having been taking in compliance with said agreement, it is now too late, there being no
law to the contrary, for them to deny and repudiate the effect of their agreement. (Biunas
vs. Mora, R. G. No. 11464, March 11, 1918; Behr vs. Levy Hermanos, R. G. No 12211,
March 19, 1918.1)
Not only is there no law prohibiting the parties from entering into an agreement to submit
their proof to the court in civil actions as was done in the present case, but it may be a
method highly convenient, not only to the parties, but to busy courts. The judgment of the
lower court, therefore, should not be modified or reversed on account of the first
assignment of error.
In the second assignment of error, the appellant alleges (a) that the lower court
committed an error in declaring the contract (Exhibits A and B) a valid obligation, for the
reason that it not been admitted in evidence, and (b) that the same was null for a failure
of consideration. Upon the first question, an examination of the proof shows that said
contract (Exhibits A and B) was offered in evidence and admitted as proof without
objection. Said contract was, therefore, properly presented to the court as proof. Not only
was the contract before the court by reason of its having been presented in evidence, but
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the defendant himself made said contract an integral part of his pleadings. The defendant
admitted the execution and delivery of the contract, and alleged that he made an effort to
comply with its terms. His only defense is that he sold to the plaintiff a part of the
"hacienda" only and that he offered, in compliance with the terms of the contract, to
convey to the plaintiff all of the land which he had promised to sell.
With reference to the second objection, to wit, that there was no consideration for said
contract it may be said (a) that the contract was for the sale of a definite parcel of land;
(b) that it was reduced to writing; (c) that the defendant promised to convey to the plaintiff
said parcel of land; (d) that the plaintiff promised to pay therefor the sum of P70,000 in
the manner prescribed in said contract; (e) that the defendant admitted the execution and
delivery of the contract and alleged that he made an effort to comply with the same (par.
3 of defendant's answer) and requested the plaintiff to comply with his part of the
contract; and (f) that no defense or pretension was made in the lower court that there
was no consideration for his contract. Having admitted the execution and delivery of the
contract, having admitted an attempt to comply with its terms, and having failed in the
court below to raise any question whatsoever concerning the inadequacy of
consideration, it is rather late, in the face of said admissions, to raise that question for the
first time in this court. The only dispute between the parties in the lower court was
whether or not the defendant was obliged to convey to the plaintiff all of said "hacienda."
The plaintiff insisted that his contract entitled him to a conveyance of all of said
"hacienda." The defendant contended that he had complied with the terms of his contract
by offering to convey to the plaintiff a part of the said "hacienda" only. That was the only
question presented to the lower court and that was the only question decided.
A promise made by one party, if made in accordance with the forms required by the law,
may be a good consideration (causa) for a promise made by another party. (Art. 1274,
Civil Code.) In other words, the consideration (causa) need not pass from one to the
other at the time the contract is entered into. For example, A promises to sell a certain
parcel of land to B for the sum of P70,000. A, by virtue of the promise of B to pay
P70,000, promises to sell said parcel of land to B for said sum, then the contract is
complete, provided they have complied with the forms required by the law. The
consideration need not be paid at the time of the promise. The one promise is a
consideration for the other. Of course, A cannot enforce a compliance with the contract
and require B to pay said sum until he has complied with his part of the contract. In the
present case, the defendant promised to convey the land in question to the plaintiff as
soon as the same could be registered. The plaintiff promised to pay to the defendant
P70,000 therefor in accordance with the terms of their contract. The plaintiff stood ready
to comply with his part of the contract. The defendant, even though he had obtained a
registered title to said parcel of land, refused to comply with his promise. All of the
conditions of the contract on the part of the defendant had been concluded, except
delivering the deeds of transfer. Of course, if the defendant had been unable to obtain a
registration of his title, or if he had violated the terms of the alleged optional contract by
selling the same to some other person than the plaintiff, then he might have raised the
objection that he had received nothing from the plaintiff for the option which he had
conceded. That condition, of course, would have presented a different question from the
one which we have before us. The said contract (Exhibits A and B) was not, in fact, an
"optional contract" as that phrase is generally used. Reading the said contract from its
four corners it is clearly as absolute promise to sell a definite parcel of land for a fixed
price upon definite conditions. The defendant promised to convey to the plaintiff the land
in question as soon as the same was registered under the Torrens system, and the
plaintiff promised to pay to the defendant the sum of P70,000, under the conditions
named, upon the happening of that event. The contract was not, in fact, what is generally
known as a "contract of option." It differs very essentially from a contract of option. An
optional contract is a privilege existing in one person, for which he had paid a

consideration, which gives him the right to buy, for example, certain merchandise of
certain specified property, from another person, if he chooses, at any time within the
agreed period, at a fixed price. The contract of option is a separate and distinct contract
from the contract which the parties may enter into upon the consummation of the option.
A consideration for an optional contract is just as important as the consideration for any
other kind of contract. If there was no consideration for the contract of option, then it
cannot be entered any more than any other contract where no consideration exists. To
illustrate, A offers B the sum of P100,000 for the option of buying his property within the
period of 30 days. While it is true that the conditions upon which A promises to buy the
property at the end of the period mentioned are usually fixed in the option, the
consideration for the option is an entirely different consideration from the consideration of
the contract with reference to which the option exists. A contract of option is a contract by
virtue of the terms of which the parties thereto promise and obligate themselves to enter
into contract at a future time, upon the happening of certain events, or the fulfillment of
certain conditions.
Upon the other hand, suppose that the defendant had complied with his part of the
contract and had tendered the deeds of transfer of the "Hacienda de Pitogo" in
accordance with its terms and had demanded the payments specified in the contract, and
the plaintiff refused to comply — what then would have been the rights of the defendant?
Might he not have successfully maintained an action for the specific performance of the
contract, or for the damages resulting from the breach of said contract? When the
defendant alleged that he had complied with his part of the contract (par. 3 of defendant's
answer) and demanded that the plaintiff should immediately comply with his part of the
same, he evidently was laying the foundation for an action for damages, the nullification
or a specific compliance with the contract.
The appellant contends that the contract which he made was not with the plaintiff but with
Rosenstock, Elser and Co. That question was not presented in the court below. The
contract in question shows, upon its face, that the defendant made the same with the
plaintiff, Not having raised the question in the court below, and having admitted the
execution and delivery of the contract in question with the plaintiff, we are of the opinion
that his admission is conclusive upon that question (par. 1 of special defense of
defendant's answer) and need not be further discussed.
The appellant further contends that the action was premature, for the reason that the
plaintiff had not paid nor offered to pay the price agreed upon, under the conditions
named, for the land in question. That question was not raised in the court below, which
fact, ordinarily, would be a sufficient answer to the contention of the appellant. It may be
added, however, that the defendant could not demand the payment until he had offered
the deeds of conveyance, in accordance with the terms of his contract. He did not offer to
comply with the terms of his contract. True it is that he offered to comply partially with the
terms of the contract, but not fully. While the payment must be simultaneous with the
delivery of the deeds of conveyance, the payment need not be made until the deed of
conveyance is offered. The plaintiff (Dela Cavada) stood ready and willing to perform his
part of the contract immediately upon the performance on the part of the defendant.
(Arts. 1258 and 1451 of Civil Code.)
In the fifth assignment of error the appellant contends that the lower court committed an
error in not declaring that the defendant was not obligated to sell the "Hacienda de
Pitogo" to the plaintiff "por incumplimiento, renuncia abandono y negligencia del mismo
demandante, etc." (For nonfulfillment, renunciation, abandonment and negligence of
plaintiff himself, etc.) That question was not presented to the court below. But even
though it had been the record shows that the plaintiff, at all times, insisted upon a
compliance with the terms of the contract on the part of the defendant, standing ready to
comply with his part of the same.
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The appellant contends in his sixth assignment of error that the plaintiff had not suffered
the damages complained of, to wit, in the sum of P20,000. The only proof upon the
question of damages suffered by the plaintiff for the noncompliance with the terms of the
contract in question on the part of the defendant is that the plaintiff, in contemplation of
the compliance with the terms of the contract on the part of the defendant, entered into a
contract with a third party to sell the said "hacienda" at a profit of P30,000. That proof is
not disputed. No attempt was made in the lower court to deny that fact. The proof shows
that the person with whom the plaintiff had entered into a conditional sale of the land in
question had made a deposit for the purpose of guaranteeing the final consummation of
that contract. By reason of the failure of the defendant to comply with the contract here in
question, the plaintiff was obliged to return the sum deposited by said third party with a
promise to pay damages. The record does not show why the plaintiff did not ask for
damages in the sum of P30,000. He asked for a judgment only in the sum of P20,000.
He now asks that the judgment of the lower court be modified and that he be given a
judgment for P30,000. Considering the fact that he neither asked for a judgment for more
than P20,000 nor appealed from the judgment of the lower court, his request now cannot
be granted. We find no reason for modifying the judgment of the lower court by virtue of
the sixth assignment of error.
In the seventh assignment of error the appellant contends that the contract of sale was
not in effect a contract of sale. He alleges that the contract was, in fact, a contract by
virtue of which the plaintiff promised to find a buyer for the parcel of land in question; that
the plaintiff was not in fact the purchaser; that the only obligation that the plaintiff
assumed was to find some third person who would purchase the land from the
defendant. Again, it would be sufficient to say, in answer to that assignment of error, that
no contention of that nature was presented in the court below, and for that reason it is
improperly presented now for the first time. In addition, however, it may be added that the
defendant, in his answer, admitted that he not only sold the land in question, but offered
to transfer the same to the plaintiff, in compliance with the contract. (See answer of
defendant.)
In the eighth assignment of error the appellant contends that the lower court committed
an error in its order requiring him to convey to the plaintiff the "Hacienda de Pitogo," for
the reason that the plaintiff had not demanded a transfer of said property, and for the
additional reason that a portion of said "hacienda" had already been sold to a third
person. With reference to the first contention, the record clearly shows that the plaintiff
was constantly insisting upon a compliance with the terms of the contract, to wit, a
conveyance to him of the "Hacienda de Pitogo" by the defendant. Naturally, he refused,
under the contract, to accept a conveyance of a part only of said "hacienda." With
reference to the second contention, it may be said that the mere fact that the defendant
had sold a part of the "hacienda" to other persons, is no sufficient reason for not requiring
a strict compliance with the terms of his contract with the plaintiff, or to answer in
damages for his failure. (Arts. 1101 and 1252 of the Civil Code.)
In view of the foregoing, and after a consideration of the facts and the law applicable
thereto, we are persuaded that there is no reason given in the record justifying a
modification or reversal of the judgment of the lower court. The same is, however, hereby
affirmed, with costs. So ordered.
Arellano, C.J., Torres, Street, Malcolm and Fisher, JJ., concur.
G.R. No. L-15752 December 29, 1962
RUPERTO SORIANO, ET AL., plaintiffs-appellees,
vs.
BASILIO BAUTISTA, ET AL., defendants.
BASILIO BAUTISTA and SOFIA DE ROSAS, defendants-appellants.
---------------------------------
G.R. No. L-17457 December 29, 1962

BASILIO BAUTISTA, ET AL., plaintiffs,
BASILIO BAUTISTA and SOFIA DE ROSAS, plaintiffs-appellants,
vs.
RUPERTO SORIANO, ET AL., defendants appellees.
Amado T. Garrovillas, Ananias C. Ona, Norberto A. Ferrera and Pedro N. Belmi for
appellants Basilio Bautista and Sofia de Rosas.
Javier and Javier for appellees Ruperto Soriano, et al.
MAKALINTAL, J.:
The judgment appealed from, rendered on March 10, 1959 by the Court of First Instance
of Rizal, after a joint trial of both cases mentioned in the caption, orders "the spouses
Basilio Bautista and Sofia de Rosas to execute a deed of sale covering the property in
question in favor of Ruperto Soriano and Olimpia de Jesus upon payment by the latter of
P1,650.00 which is the balance of the price agreed upon, that is P3,900.00, and the
amount previously received by way of loan by the said spouses from the said Ruperto
Soriano and Olimpia de Jesus, to pay the sum of P500.00 by way of attorney's fees, and
to pay the costs.
Appellants Basilio Bautista and Sofia de Rosas have adopted in their appeal brief the
following factual findings of the trial court:
Spouses Basilio Bautista and Sofia de Rosas are the absolute and registered
owners of a parcel of land, situated in the municipality of Teresa, province of
Rizal, covered by Original Certificate of Title No. 3905, of the Register of Deeds
of Rizal and particularly described as follow:
A parcel of land (lot No. 4980) of the Cadastral Survey of Teresa;
situated in the municipality of Teresa; bounded on the NE. by Lot No.
5004; on the SE. by Lots Nos. 5003 and 4958; on the SW. by Lot
4949; and the W. and NW by a creek .... Containing the area of
THIRTY THOUSAND TWO HUNDRED TWENTY TWO (30,222)
square meters, more or less. Date of Survey, December 1913-June,
1914. (Full technical description appears on Original Certificate of Title
No. 3905.)lawphil.net
That, on May 30, 1956, the said spouses for and in consideration of the sum of
P1,800, signed a document entitled "Kasulatan Ng Sanglaan" in favor of
Ruperto Soriano and Olimpia de Jesus, under the following terms and
conditions:
1. Na ang sanglaang ito ay magpapatuloy lamang hanggang dalawang
(2) taon pasimula sa araw na lagdaan ang kasunduang ito, at
magpapalampas ng dalawang panahong ani o ani agricola.
2. Na ang aanihin ng bukid na isinangla ay mapupunta sa
pinagsanglaan bilang pakinabang ng nabanggit na halagang inutang.
3. Na ang buwis sa pamahalaan ng lupang ito ay ang magbabayad ay
ang Nagsangla o mayari.
4. Na ang lupang nasanglang ito ay hindi na maaaring isangla pang
muli sa ibang tao ng walang pahintulot ang Unang Pinagsanglaan.
5. Na pinagkasunduan din dinatnan na sakaling magkaroon ng
kakayahan ang Pinagsanglaan ay maaaring bilhin ng patuluyan ng
lupang nasanglang ito kahit anong araw sa loob ng taning na
dalawang taon ng sanglaan sa halagang Tatlong Libo at Siam na Raan
Piso (P3,900.00), salaping Pilipino na pinagkaisahan.
6. Na sakaling ang pagkakataon na ipinagkaloob ng Nagsangla sa
sinundang talata ay hindi maisagawa ng Pinagsanglaan sa Kawalan
ng maibayad at gayon din naman ang Nagsangla na hindi magbalik
ang halagang inutang sa taning na panahon, ang sanglaan ito ay
lulutasin alinsunod sa itinatagubilin ng batas sa bagay-bagay ng
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sanglaan, na ito ay ang tinatawag na (FORECLOSURE OF
MORTGAGES, JUDICIAL OR EXTRA JUDICIAL). Maaring makapili ng
hakbang ang Pinagsanglaan, alinsunod sa batas o kaya naman ay
pagusapan ng dalawang parte ang mabuting paraan ng paglutas ng
bagay na ito.
That simultaneously with the signing of the aforementioned deed, the spouses
Basilio Bautista and Sofia de Rosas transferred the possession of the said land
to Ruperto Soriano and Olimpia de Jesus who have been and are still in
possess of the said property and have since that date been and cultivating the
said land and have enjoyed and are still enjoying the produce thereof to the
exclusion of all other persons. Sometimes after May 30, 1956, the spouses
Basilio Bautista and Sofia de Rosas received from Ruperto Soriano and Olimpia
de Jesus, the sum of P450.00 pursuant to the condition agreed upon in the
aforementioned document for which no receipt issued and which was returned
by the spouses sometime on May 31, 1958. On May 13, 1958, a certain Atty.
Angel O. Ver wrote a letter to the spouses Bautista whose letter has been
marked Annex 'B' of the stipulation of facts informing the said spouses that his
clients Ruperto Soriano and Olimpia de Jesus have decided to buy the parcel of
land in question pursuant to paragraph 5 of the document in question, Annex
"A".
The spouses inspite of the receipt of the letter refused comply with the demand
contained therein. On May 31, 1958, Ruperto Soriano and Olimpia de Jesus
filed before this Court Civil Case No. 5023, praying that plaintiffs be allowed to
consign or deposit with the Clerk of Court the sum of P1,650 as the balance of
the purchase price of the parcel of land question and that after due hearing,
judgment be rendered considering the defendants to execute an absolute deed
of sale of said property in their favor, plus damages.
On June 9, 1958, spouses Basilio Bautista and Sofia Rosas filed a complaint
against Ruperto Soriano and Olimpia de Jesus marked as Annexed 'B' of the
Stipulation of Facys, which case after hearing was dismissed for lack of
jurisdiction On August 5, 1959, the spouses Bautista and De Rosas again filed a
case in the Court of First Instance against Soriano and De Jesus asking this
Court to order the defendants to accept the payment of the principal obligation
and release the mortgage and to make an accounting of the harvest for the
harvest seasons (1956-1957). The two cases, were by agreement of the parties
assigned to one branch so that they can be tried jointly.
The principal issue in this case is whether, having seasonably advised appellants that
they had decided to be the land in question pursuant to paragraph 5 of the instrument of
mortgage, appellees are entitled to special performance consisting of the execution by
appellants the corresponding deed of sale. As translated, paragraph 5 states: "That it has
likewise been agreed that if the financial condition of the mortgagees will permit, they
may purchase said land absolutely on any date within the two-year term of this mortgage
at the agreed price of P3,900.00."
Appellants contend that, being mortgagors, they can not be deprived of the right to
redeem the mortgaged property, because such right is inherent in and inseparable from
this kind of contract. The premise of the contention is not entirely accurate. While the
transaction is undoubtedly a mortgage and contains the customary stipulation concerning
redemption, it carries the added special provision aforequoted, which renders the
mortgagors' right to redeem defeasible at the election of the mortgagees. There is
nothing illegal or immoral in this. It is simply an option to buy, sanctioned by Article 1479
of the Civil Code, which states: "A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a

determinate thing for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price."
In this case the mortgagor's promise to sell is supported by the same consideration as
that of the mortgage itself, which is distinct from that which would support the sale, an
additional amount having been agreed upon to make up the entire price of P3,900.00,
should the option be exercised. The mortgagors' promise was in the nature of a
continuing offer, non-withdrawable during a period of two years, which upon acceptance
by the mortgagees gave rise to a perfected contract of purchase and sale. Appellants cite
the case of Iñigo vs. Court of Appeals, L-5572, O.G. No. 11, 5281, where we held that a
stipulation in a contract of mortgage to sell the property to the mortgagee does not bind
the same but creates only a personal obligation on the part of the mortgagor. The citation
instead of sustaining appellant's position, confirms that of appellees, who are not here
enforcing any real right to the disputed land but are rather seeking to obtain specific
performance of a personal obligation, namely, the execution of a deed of sale for the
price agreed upon, the corresponding amount to cover which was duly deposited in court
upon the filing of the complaint.
Reference is made in appellants' brief to the fact that they tendered the sum of
P1,800.00 to redeem mortgage before they filed their complaint in civil case No. 99 in the
Justice of the Peace Court of Morong, Rizal. That tender was ineffective for the purpose
intended. In the first place it must have been made after the option to purchase had been
exercised by appellees (Civil Case No. 99 was filed on June 9, 1958, only to be
dismissed for lack of jurisdiction); and secondly, appellants' to redeem could be defeated
by appellees' preemptive right to purchase within the period of two years from May 30,
1956. As already noted, such right was availed of appellants were accordingly notified by
letter dated May 13, 1958, which was received by them on the following May 22. Offer
and acceptance converged and gave to a perfected and binding contract of purchase
and sale.
The judgment appealed from is affirmed, with costs.
Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes,
Dizon and Regala, JJ.,concur.
G.R. No. L-32873 August 18, 1972
AQUILINO NIETES, petitioner,
vs.
HON. COURT OF APPEALS & DR. PABLO C. GARCIA, respondents.
Conrado V. del Rosario for petitioner.
Romeo D. Magat for private respondent.
CONCEPCION, C.J.:p
Petitioner Aquilino Nietes seeks a review on certiorari of a decision of the Court of
Appeals.
It appears that, on October 19, 1959, said petitioner and respondent Dr. Pablo C. Garcia
entered into a "Contract of Lease with Option to Buy," pursuant to the terms and
conditions set forth in the deed Exhibits A and A-1, (also, marked as Exhibit 2) namely:
That the LESSOR is an owner of the ANGELES EDUCATIONAL
INSTITUTE situated at Angeles, Pampanga, a school which is duly
recognized by the Government;
That the lessor agrees to lease the above stated school to the
LESSEE under the following terms and conditions:
1. That the term will be for a period of five (5) years;
2. That the price of the rent is FIVE THOUSAND PESOS (P5,000) per
year payable in the following manners:
5
a. That the amount of FIVE THOUSAND FIVE
HUNDRED PESOS (P5,500) will be paid upon the
execution of this Contract of Lease;
b. That the amount of FOUR THOUSAND FIVE
HUNDRED PESOS (P4,500) is payable on or before
the 30th day of October, 1959;
c. That the remaining balance of FIFTEEN
THOUSAND PESOS (P15,000) will be paid on or
before March 30, 1960;
3. That all improvements made during the lease by the LESSEE will be
owned by the LESSOR after the expiration of the term of this Contract
of Lease;
4. That the LESSOR agrees to give the LESSEE an option to buy the
land and the school building, for a price of ONE HUNDRED
THOUSAND PESOS (P100,000) within the period of the Contract of
Lease;
5. That should the LESSEE buy the lot, land and the school building
within the stipulated period, the unused payment for the Contract of
Lease will be considered as part payment for the sale of the land and
school;
6. That an inventory of all properties in the school will be made on
March 31, 1960;
6A. That the term of this Contract will commence in June 1960 and will
terminate in June 1965;
7. That the LESSEE will be given full control and responsibilities over
all the properties of the school and over all the supervisions and
administrations of the school;
8. That the LESSEE agrees to help the LESSOR to collect the back
accounts of students incurred before the execution of this contract.
Instead of paying the lessor in the manner set forth in paragraph 2 of said contract,
Nietes had, as of August 4, 1961, made payments as follows:
October 6,1960 ....................................... P18,957.00 (Exh. D)
November 23, 1960 ................................. 300.00 (Exh. E)
December 21, 1960 ................................. 200.00 (Exh. F)
January 14, 1961 ..................................... 500.00 (Exh. G)
February 16, 1961 ................................... 3,000.00 (Exh. H)
March 12, 1961 ....................................... 1,000.00 (Exh. I)
March 13, 1961 ....................................... 700.00 (Exh. J)
August 4, 1961 ........................................ 100.00 (Exh. K) _________
TOTAL ..................................... P24,757.00
Moreover, Nietes maintains that, on September 4, 1961, and December 13, 1962, he
paid Garcia the additional sums of P3,000 and P2,200, respectively, for which Garcia
issued receipts Exhibit B and C, reading:
Received the amount of (P3,000.00) Three Thousand Pesos from Mrs.
Nietes as per advance pay for the school, the contract of lease being
paid.
(Sgd.) PABLO GARCIA (Exh. B)
To Whom it May Concern:
This is to certify that I received the sum of Two Thousand Two
Hundred Pesos, Philippine Currency, from Mrs. Catherine R. Nietes as
the partial payment on the purchase of the property as specified on the
original contract of "Contract of Lease with the First Option to Buy"
originally contracted and duly signed.

(Sgd.) DR. PABLO GARCIA (Exh. C)
On or about July 31, 1964, Dr. Garcia's counsel wrote to Nietes the letter Exhibit 1 (also
Exhibit V) stating:
The Director
Philippine Institute of Electronics
Angeles, Pampanga
Sir:
I regret to inform you that our client, Dr. Pablo Garcia, desires to
rescind your contract, dated 19 October 1959 because of the following:
1. That you had not maintained the building, subject of the lease
contract in good condition.
2. That you had not been using the original name of the school —
Angeles Institute, thereby extinguishing its existence in the eyes of the
public and injuring its prestige.
3. That through your fault, no inventory has been made of all properties
of the school.
4. That up to this time, you had not collected or much less helped in
the collection of back accounts of former students.
This is to remind you that the foregoing obligations had been one, if
not, the principal moving factors which had induced the lessor in
agreeing with the terms embodied in your contract of lease, without
which fulfillment, said contract could not have come into existence. It is
not simply one of those reminders that we make mention, that our
client under the circumstances, is not only entitled to a rescission of
the contract. He is likewise entitled to damages — actual,
compensatory and exemplary.
In view of the serious nature of the breach which warrant and sanction
drastic legal remedies against you, we earnestly request you to please
see the undersigned at the above-named address two days from
receipt hereof. Otherwise, if we shall not hear from you, the foregoing
will serve notice on your part to vacate the premises within five (5)
days to be counted from date of notice.
Very truly yours,
(Sgd.) VICTOR T. LLAMAS, JR.
to which counsel for Nietes replied in the following language:
Atty. Victor T. Llamas, Jr.
Victor Llamas Law Office
Corner Rivera-Zamora Streets
Dagupan City
Dear Sir:
Your letter dated July 31, 1964 addressed to my client, the Director of
the Philippine Institute of Electronics, Angeles City, has been referred
to me and in reply, please, be informed that my client has not violated
any provision of the CONTRACT OF LEASE WITH OPTION TO BUY,
executed by him as LESSEE and Dr. Pablo Garcia as LESSOR. For
this reason, there is no basis for rescission of the contract nor of the
demands contained in your letter.
In this connection, I am also serving this formal notice upon your client
Dr. Pablo Garcia, thru you, that my client Mr. AQUILINO T. NIETES
will exercise his OPTION to buy the land and building subject matter of
the lease and that my said client is ready to pay the balance of the
purchase price in accordance with the contract. Please, inform Dr.
Pablo Garcia to make available the land title and execute the
6
corresponding Deed of Sale pursuant to this notice, and that if he fails
to do so within fifteen (15) days from the receipt of this letter, we shall
take the corresponding action to enforce the agreement.
Truly yours,
(Sgd.) CONRADO V. DEL ROSARIO
Counsel for Mr. Aquilino T. Nietes
Angeles City
On July 26, 1965, Nietes deposited with the branch office of the Agro-Industrial Bank in
Angeles City checks amounting to P84,860.50, as balance of the purchase price of the
property, but he withdrew said sum of P84,860.50 on August 12, 1965, after the checks
had been cleared. On August 2, 1965, he commenced the present action, in the Court of
First Instance of Pampanga, for specific performance of Dr. Garcia's alleged obligation to
execute in his (Nietes') favor a deed of absolute sale of the leased property, free from
any lien or encumbrance whatsoever, he having meanwhile mortgaged it to the People's
Bank and Trust Company, and to compel him (Garcia) to accept whatever balance of the
purchase price is due him, as well as to recover from him the aggregate sum of P90,000
by way of damages, apart from attorney's fees and the costs.
Dr. Garcia filed an answer admitting some allegations of the complaint and denying other
allegations thereof, as well as setting up a counterclaim for damages in the sum of
P150,000.
After due trial, said court rendered its decision, the dispositive part of which reads:
WHEREFORE, in view of the preponderance of evidence in favor of
the plaintiff and against the defendant, judgment is hereby rendered
ordering the latter to execute the Deed of Absolute Sale of property
originally leased together with the school building and other
improvements thereon which are covered by the contract, Annex "A",
upon payment of the former of the balance (whatever be the amount)
of the stipulated purchase price; to free the said property from any
mortgage or encumbrance and deliver the title thereto to the plaintiff
free from any lien or encumbrance, and should said defendant fail to
do so, the proceeds from the purchase price be applied to the payment
of the encumbrance so that the title may be conveyed to the plaintiff; to
pay the plaintiff the sum of P1,000.00 as attorney's fees, and the cost
of this suit.
Both parties appealed to the Court of Appeals, Dr. Garcia insofar as the trial court had
neither dismissed the complaint nor upheld his counterclaim and failed to order Nietes to
vacate the property in question, and Nietes insofar as the trial court had granted him no
more than nominal damages in the sum of P1,000, as attorney's fees.
After appropriate proceedings, a special division of Court of Appeals rendered its
decision, on October 18, 1969, affirming, in effect, that of the trial court, except as
regards said attorney's fees, which were eliminated. The dispositive part of said decision
of the Court of Appeals reads:
WHEREFORE, with the modification that the attorney's fees awarded by the trial court in
favor of the plaintiff is eliminated, the appealed judgment is hereby affirmed in all other
respects, and the defendant is ordered to execute the corresponding deed of sale for the
school building and lot in question in favor of the plaintiff upon the latter's full payment of
the balance of the purchase price. The costs of this proceedings shall be taxed against
the defendant-appellant.
On motion for reconsideration of defendant Garcia, said special division set aside its
aforementioned decision and rendered another one, promulgated on March 10, 1970
reversing the appealed decision of the court of first instance, and dismissing the
complaint of Nietes, with costs again him. Hence, the present petition of Nietes for review

certiorari of the second decision of the Court of Appeals, dated March 10, 1970, to which
petition We gave due course.
Said decision of the Court of Appeals, reversing that of the Court of First Instance, is
mainly predicated upon the theory that, under the contract between the parties, "the full
purchase price must be paid before the option counsel be exercised," because "there
was no need nor sense providing that "the unused payment for the Contract Lease will
be considered as part payment for the sale the land and school'" inasmuch as "otherwise
there is substantial amount from which such unused rental could be deducted"; that the
statement in the letter, Exhibit L, of Nietes, dated August 7, 1964, to the effect that he
"will exercise his OPTION to buy the land and building," indication that he did not
consider the receipts, Exhibits B and for P3,000 and P2,200, respectively, "as an
effective exercise of his option to buy"; that the checks for P84,860.50 deposited by
Nietes with the Agro-Industrial Development Bank, did not constitute a proper tender of
payment, which, at any rate, was "made beyond the stipulated 5-year period"; that such
deposit "was not seriously made, because on August 12, 1965, the same was withdrawn
from the Bank and ostensibly remains in the lessee's hand"; and that "the fact that such
deposit was made by the lessee shows that he himself believed that he should have paid
the entire amount of the purchase price before he could avail of the option to buy,
otherwise, the deposit was a senseless gesture ... ."
Dr. Garcia, in turn, maintained in his answer "that the sums paid" to him "were part of the
price of the contract of lease between the parties which were paid late and not within the
periods and/or schedules fixed by the contract (Annex A.)." What is more, on the witness
stand, Garcia claimed that he did "not know" whether the signatures on Exhibits B and C
— the receipt for P3,000 and P2,200, respectively — were his, and even said that he
was "doubtful" about it.
This testimony is manifestly incredible, for a man of his intelligence — a Doctor of
Medicine and the owner of an educational institution — could not possibly "not know" or
entertain doubts as to whether or not the aforementioned signatures are his and the
payments therein acknowledged had been received by him. His dubious veracity
becomes even more apparent when we consider the allegations in paragraph (4) of his
answer — referring to paragraphs 5 and 6 of the complaint alleging, inter alia, the
aforementioned partial payments of P3,000 and P2,200, on account of the stipulated sale
price — to the effect that said sums " paid to the herein defendant were part of the price
of the contract of lease." In other words, payment of said sums of P3,000 and P2,200
is admitted in said answer. Besides, the rentals for the whole period of the lease
aggregated P25,000 only, whereas said sums of P3,000 and P2,200, when added to the
payments previously made by Nietes, give a grand total of P29,957.00, or P4,957 in
excess of the agreed rentals for the entire period of five years. Thus, Dr. Garcia was less
than truthful when he tried to cast doubt upon the fact of payment of said sums of P3,000
and P2,200, as well as when he claimed that the same were part of the rentals collectible
by him.
We, likewise, find ourselves unable to share the view taken by the Court of Appeals.
Neither the tenor of the contract Exhibits A and A-1 (also Exhibit 2) nor the behaviour of
Dr. Garcia — as reflected in the receipts Exhibits B and C — justifies such view. The
contract does not say that Nietes had to pay the stipulated price of
P100,000 before exercising his option to buy the property in question. Accordingly, said
option is governed by the general principles on obligations, pursuants to which:
In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins.1
In the case of an option to buy, the creditor may validly and effectively exercise his right
by merely advising the debtor of the former's decision to buy and expressing his
7
readiness to pay the stipulated price, provided that the same is available and actually
delivered to the debtor upon execution and delivery by him of the corresponding deed of
sale. Unless and until the debtor shall have done this the creditor is not and cannot be in
default in the discharge of his obligation to pay.2 In other words, notice of the creditor's
decision to exercise his option to buy need not be coupled with actual payment of the
price, so long as this is delivered to the owner of the property upon performance of his
part of the agreement. Nietes need not have deposited, therefore, with the Agro-
Industrial Bank checks amounting altogether to P84,860.50 on July 26, 1965, and the
withdrawal thereof soon after does not and cannot affect his cause of action in the
present case. In making such deposit, he may have had the intent to show his ability to
pay the balance of the sum due to Dr. Garcia as the sale price of his property. In short,
said deposit and its subsequent withdrawal cannot affect the result of the present case.
Nietes was entitled to exercise his option to buy "within the period of the Contract of
Lease," which — pursuant to paragraph 6-A of said contract — commenced "in June
1960" and was to "terminate in June 1965." As early as September 4, 1961, or well
"within the period of the Contract of Lease," Nietes had paid Dr. Garcia the following
sums:
October 6, 1960 ............................ P18,957.00 (Exh. D)
November 23, 1960 ....................... 300.00 (Exh E)
December 21, 1960 ....................... 200.00 (Exh. F)
January 14, 1961 ........................... 500.00 (Exh. G)
February 16, 1961 ......................... 3,000.00 (Exh. H)
March 12, 1961 ............................. 1,000.00 (Exh. I)
March 13, 1961 ............................. 700.00 (Exh. J)
August 4, 1961 ............................... 100.00 (Exh. K)
September 4, 1961 ......................... 3,000.00 (Exh. B)
________
TOTAL ............................... P27,757.00
It is true that Nietes was bound, under the contract, to pay P5,500 on October 19, 1959,
P4,500 on or before October 30, 1959, and P15,000 on or before March 30, 1960, or the
total sum of P25,000, from October 19, 1959 to March 30, 1960, whereas his first
payment was not made until October 10, 1960, when he delivered the sum of P18,957 to
Dr. Garcia, and the latter had by August 4, 1961, received from the former the aggregate
sum of P24,757. This is, however, P243.00 only less than the P25,000 due as of March
30, 1960, so that Nietes may be considered as having complied substantially with the
terms agreed upon. Indeed, Dr. Garcia seems to have either agreed thereto or not
considered that Nietes had thereby violated the contract, because the letter of the former,
dated July 31, 1964, demanding rescission of the contract, did not mention said acts or
omissions of Nietes among his alleged violations thereof enumerated in said
communication. In fact, when, on September 4, 1961, Mrs. Nietes turned over the sum of
P3,000 to Dr. Garcia, he issued the receipt Exhibit B, stating that said payment had been
made "as per advance pay for the school, the Contract of Lease being paid" — in other
words, in accordance or conformity with said contract. Besides, when, on December 13,
1962, Mrs. Nietes delivered the additional sum of P2,200, Dr. Garcia issued a receipt
accepting said amount "as the partial payment on the purchase price of the property as
specified on the original contract," thus further indicating that the payment, in his
opinion, conformed with said contract, and that, accordingly, the same was in full force
and effect.
In any event, it is undisputed that, as of September 4, 1961, Dr. Garcia had received the
total sum of P27,757, or P2,757 in excess of the P25,000 representing the rentals for the
entire period of the lease, and over P21,200 in excess of the rentals for the unexpired
portion of the lease, from September 4, 1961 to June 1965. This circumstance indicates
clearly that Nietes had, on September 4, 1961, chosen to exercise and did exercise then

his option to buy. What is more, this is borne out by the receipt issued by Dr. Garcia for
the payment of P2,200, on December 13, 1962, to which he referred therein as a "partial
payment on the purchase of the property as specified on the original contract of 'Contract
of Lease with the First Option to Buy' ... ."
Further confirmation is furnished by the letter of Nietes, Exhibit L, of August 1964 — also,
within the period of the lease — stating that he "will exercise his OPTION to buy the land
and building subject matter of the lease." It is not correct to construe this expression —
as did the appealed decision — as implying that the option had not been or was not
yet being exercised, or as a mere announcement of the intent to avail of it at
some future time. This interpretation takes said expression out of the context of Exhibit L,
which positively states, also, that Nietes "is ready to pay the balance of the purchase
price in accordance with the contract," and requests counsel for Dr. Garcia to inform or
advise him "to make available the land title and execute the corresponding Deed of Sale
pursuant to this notice, and that if he fails to do so within fifteen (15) days ... we shall take
the corresponding action to enforce the agreement." Such demand and said readiness to
pay the balance of the purchase price leave no room for doubt that, as stated in Exhibit
L, the same is "a formal notice" that Nietes had exercised his option, and expected Dr.
Garcia to comply, within fifteen (15) days, with his part of the bargain. Surely, there would
have been no point for said demand and readiness to pay, if Nietes had not yet exercised
his option to buy.
The provision in paragraph 5 of the Contract, to the effect that "should the LESSEE"
choose to make use of his option to buy "the unused payment for the Contract of Lease
will be considered as payment for the sale of the land and school, "simply means that the
rental paid for the unused portion of the lease shall be applied to and deducted from the
sale price of P100,000 to be paid by Nietes at the proper time — in other
words, simultaneously with the delivery to him of the corresponding deed of sale, duly
executed by Dr. Garcia.
It is, consequently, Our considered opinion that Nietes had validly and effectively
exercised his option to buy the property of Dr. Garcia, at least, on December 13, 1962,
when he acknowledged receipt from Mrs. Nietes of the sum of P2,200 then delivered by
her "in partial payment on the purchase of the property" described in the "Contract of
Lease with Option to Buy"; that from the aggregate sum of P29,957.00 paid to him up to
that time, the sum of P12,708.33 should be deducted as rental for the period from June
1960 to December 13, 1962, or roughly thirty (30) months and a half, thereby leaving a
balance of P17,248.67, consisting of P12,291.67, representing the rentals for the unused
period of the lease, plus P4,957.00 paid in excess of said rental and advanced solely on
account of the purchase price; that deducting said sum of P17,248.67 from the agreed
price of P100,000.00, there results a balance of P82,751.33 which should be paid by
Nietes to Dr. Garcia, upon execution by the latter of the corresponding deed of absolute
sale of the property in question, free from any lien or encumbrance whatsoever, in favor
of Nietes, and the delivery to him of said deed of sale, as well as of the owner's duplicate
of the certificate of title to said property; and that Dr. Garcia should indemnify Nietes in
the sum of P2,500 as and for attorney's fees.
Thus modified, the decision of the Court of First Instance of Pampanga is hereby
affirmed in all other respects, and that of the Court of Appeals reversed, with costs
against respondent herein, Dr. Pablo C. Garcia. It is so ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Makasiar Antonio
and Esguerra, JJ., concur.
Castro, J., took no part.
8
G.R. No. L-35272 August 26, 1977
FLORENCIA CRONICO, substituted by LUCILLE E. VENTURANZA, petitioner-
appellant,
vs.
J. M. TUASON & CO., INC., and CLAUDIO R. RAMIREZ, respondents-appellees.
Antonio B. Alcera for appellant.
Araneta, Mendoza & Papa for appellee J. M. Tuason & Co., Inc.
Leonardo Abola for appellee Caludio R. Ramirez.
FERNANDEZ, J:
In Civil Case No. Q-6363 entitled "Florencia Cronies, substituted by Lucille E.
Venturanza, plaintiff, versus J. M. Tuason & Co., Inc., represented by Gregorio Araneta,
Inc., and Claudio Ramirez, defendants," the Court of First Instance of Rizal, Branch IV,
Quezon City, rendered its decision dated January 25, 1969, the dispositive part of which
reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor
of the plaintiff and against the defendants, as follows:
a) Declaring the Contract to Sell No. 10879 Exhibit 3-company,
executed by defendant corporation in favor of its co- defendant
Ramirez on April 2,1962, as NULL and VOID;
b) Ordering the defendant-corporations to execute a Contract to Sell in
favor of the substituted plaintiff Dr. Lucille E. Venturanza over Lot 22,
Block 461 of the Sta. Mesa Heights Subdivision, under the same terms
and conditions of their offer to the plaintiffs as contained in the letter of
Gregorio Araneta, Inc., representative of J. M. Tuason & Co., Inc., to
Florencia Cronico of March 20, 1962 (Exh. H) or under the same terms
given to defendant Ramirez;
c) Declaring as cancelled any and all transfer certificates of title that
might have been issued in favor of defendant Ramirez over said Lot
No. 22;
d) Ordering the defendants, jointly and severally, to pay the plaintiff
(Dr. Lucille E. Venturanza) the sum of P160,000.00, as damages
representing the rents derived from the property in question up to
December 2, 1968, plus the sum of P2,000.00 every month thereafter
until the lot in question is sold and delivered to plaintiff (Dr.
Venturanza);
e) Ordering defendants, jointly and severally, to pay plaintiff (Dr. Lucille
E. Venturanza) the sum of P10,000.00, as attorney's fees;
f) To pay the costs.
IT IS SO ORDERED Quezon City, Philippines, January 25, 1969.
s/t WALFRIDO DE LOS ANGELES J u d g e
(Rollo, p. 69, Joint Record on Appeal, pp. 49-50)
The defendants J. M. Tuason & Co., Inc. and Claudio R. Ramirez appealed to the Court
of Appeals which promulgated its decision on April 21, 1972 reversing the judgment
appealed from and dismissing the complaint with costs against the plaintiff-appellee.
(Rollo, p. 31, Decision in CA-G. R. No. 44479R, p. 19)
The plaintiff, Florencia Cronico substituted by Lucille E. Venturanza, filed with this Court
a petition for certiorari to review the decision of the Court of Appeals * assigning the
following errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN- HOLDING
THAT FLORENCIA CRONICO OBTAINED. THE DEFENDANT

COMPANY'S LETTER-OFFER TO HER DATED MARCH 20, 1962 BY
MEANS OF IRREGULAR AND PREMATURE DELIVERY.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT THE RECORDS DO NOT SHOW THAT DEFENDANT
COMPANY'S LETTER-OFFER OR UNILATERAL PROMISE TO SELL
W AS SUPPORTED BY A CONSIDERATION OTHER THAN THE
SELLING PRICE.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT PLAINTIFF CRONICO IS NOT PRINCIPALLY NOR
SUBSIDIARILY OBLIGED UNDER THE CONTRACT TO SELL (EXH.
3-Company) AND HENCE MAY NOT BRING SUIT TO ANNUL THE
SAME.
IV
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING
THE TRIAL COURT AND DISMISSING THE COMPLAINT.
(Rollo, p.74, Petitioner's Brief, pp. 1-2)
The facts, as found by the Court of Appeals, are:
Appellant J. M. Tuason & Co. Inc. hereinafter referred to as appellant
company was the registered owner of Lot No. 22, Block 461, Sta.
Mesa Heights Subdivision, located at the Northwestern corner of
Quezon Boulevard and Gregorio Araneta, Quezon City and embraced
by Transfer Certificate of Title No. 49235 of the registry of Deeds of
said city. In March, 1962, plaintiff Florencia Cronico offered to buy the
lot from the appellant company with the help of Mary E. Venturanza.
They personally talked to Benjamin F. Bautista, Manager of the Real
Estate Department of Gregorio Araneta, Inc. the appellant company's
attorney-in-fact, proposing to buy Lot No. 22. She was required to
present proofs to show her rights to the lot. On March 8, 1962,
Florencia Cronico exhibited certain documents showing her priority
rights to buy the lot.
In the first week of March, 1962, defendant-appellant Claudio Ramirez
also learned that the lot in question was being sold by the appellant
company. The occupants thereof who also had priority rights to buy the
land informed Claudio Ramirez, about the intended sale. Juanita
Semilla and Pedro Fernandez, who were the occupants of the said Lot
No. 22 expressed their willingness to waive their rights although-Pedro
Fernandez reserved a condition that a small portion of the land
whereon his house stands be sold to him. In the same month, March,
1962, plaintiff Cronico and defendant- appellant Ramirez sent separate
individual letters to appellant company wherein they expressed their
desire to purchase the land and requested information concerning the
area, the price and other terms and conditions of the contract to sell.
Two others intimated their desire to buying the lot. They were Bonifacio
Chung and Angeles Henson. Both, however, subsequently lost their
interest in said lot. On March 20, 1962, the appellant company sent
separate reply letters to prospective buyers including plaintiff Cronies
and defendant-appellant Ramirez. They were dropped in the Manila
Post Office at 11:00 in the morning of March 21, 1962 by registered
mail. It so happened that plaintiff Cronico went to the appellant
company's office on March 21, 1962, and she was informed that the
reply letter of the appellant company to prospective buyers of the same
9
lot had been mailed. With this information, plaintiff Cronies and Mary E.
Venturanza went to the post office in Manila and she was able to get
the letter at about 3:30 in the afternoon of the same date. After she got
the letter, plaintiff Cronies and Mary E. Venturanza went directly to the
office of Gregorio Araneta Inc., Escolta, Manila, and presented the
letter to Benjamin Bautista, Head of the Real Estate Department of
said company. Since she had no money, plaintiff Cronies requested
Mary E. Venturanza to issue a check in the amount of P33,572.00 to
cover the down payment for the lot. However, Benjamin Bautista did
not accept the cheek. He advised plaintiff Cronies that it is Gregorio
Araneta II who would decide whose offer to buy may be accepts after
the appellant company receives the registry return cards attached to
the registered letters sent to the offerors.
On March 22, 1962, between 10:00 and 11:00 a.m., appellant Ramirez
received from the post office at San Francisco del Monte, Quezon City,
the reply letter of the appellant company dated March 20, 1962,
wherein it stated that Lot 22, Block 461, Sta. Mesa Heights
Subdivision, was available for sale under the conditions therein set
forth and that the said lot was being offered for sale on a first come first
serve basis. Appellant Ramirez proceeded to the office of Benjamin
Bautista in the same morning stating that he accepted the conditions
stated in the appellant company's letter. Benjamin Bautista advised
appellant Ramirez to wait for the decision of Gregorio Araneta II. The
next day, March 23, 1962, appellant Ramirez presented his letter to the
appellant company confirming his verbal acceptance of the terms and
conditions in connection with the sale. On March 31, 1962, Atty. Jose
E. Patangco in behalf of appellant Ramirez wrote the appellant
company requesting the early execution of the proper contract to sell
over Lot No. 22. A check in the amount of P33,572 was enclosed in the
letter to cover the down payment for said lot. The request was
favorably considered.
On April 2, 1962, the J. M. Tuason & Co. Inc., and Claudio R. Ramirez
executed a contract to sell whereby the appellant company agreed to
sell to appellant Ramirez the lot in question for a total price of
P167,896.00 subject to the terms and conditions therein set forth.
Meanwhile, on March 27, 1962, the appellant company received a
letter from Atty. Godofredo Asuncion in behalf of Florencia Cronies
requesting that the lot subject of litigation be 'sold to her. She tendered
a check to cover the down payment which was, however, returned. On
April 4, 1962, the appellant company sent a letter to the plaintiff-
appellee informing her that it had decided to sell the lot in question to
appellant Ramirez. This triggered the instant suit.
On April 28,1962, plaintiff Florencia Cronico lodged in the Court of First
Instance of Rizal (Quezon City Branch) a complaint against the
defendants-appellants J. M. Tuason & Co., Inc. and Claudio Ramirez.
The main purpose of the said suit is to annul and set aside the contract
to sell executed by and between appellant company and appellant
Ramirez. On May 30, 1962, Gregorio Araneta, representing J. M.
Tuason & Co. Inc., filed its answer to the complaint with cross claim
against its co-defendant Claudio Ramirez and Luisa Patangco. On the
part of defendant Claudio Ramirez, he filed a motion to dismiss on the
ground that the complaint states no cause of action against him. He
contends that the action for the annulment of contract may only be

instituted by those who are parties thereto or those who are thereby
obliged principally or subsidiarily. According to Claudio Ramirez such
action to annul a deed of sale can not prosper against third persons as
they are not principally or subsidiarily obligated thereby. The motion to
dismiss was denied. So Claudio Ramirez filed his answer reiterating in
his affirmative defenses that since the plaintiff-appellee is not a party to
the contract to sell executed by him and the defendant company,
plaintiff Florencia Cronico has no right whatsoever to demand the
annulment of said contract.
On November 19, 1968, plaintiff together with Dr. Lucille E. Venturanza
filed a motion for substitution for party plaintiff whereby plaintiff
Florencia Cronico expressed her willingness to be substituted by Dr.
Lucille E. Venturanza as the former had transferred to the latter
whatever rights and interests which she may have over Lot 22, Block
261, Sta. Mesa Heights Subdivision by virtue of a deed of assignment
she executed on July 5, 1968. The court granted the substitution of the
party plaintiff by Dr. Lucille E. Venturanza. (Rollo, p. 31, Decision of
Court of Appeals, pp. 1- 71)
Anent the first error assigned, the petitioner contends that "No less than the chief of the
general service section of the Manila post office, Gaspar Bautista, speaking on the
regularity of plaintiff Cronico's receipt of the letter, testified before the trial court that the
means by which plaintiff Cronico received her letter is very regular." (Rollo, p. 74,
Petitioner's Brief, p. 18). And that "Anyway, the manner by which the offerees were to
receive their letters was not announced by the offeror to the contestant such that they
could not be bound thereby. Hence, the rule of the fittest and without lawlessness should
govern, and that was Cronies who proved her diligence and resourcefullness over
Claudio Ramirez." (Rollo, p. 74, Petitioner's Brief, p. 21)
The petitioner also averred that the capability of the plaintiff, Florencia Cronico to
purchase the land in question was not raised as an issue in the answer of the defendant
company and was developed as an afterthought during the trial.
It is a fact that the petitioner, Florencia Cronico upon being tipped by Benjamin Bautista,
head of the Real Estate Department of Gregorio Araneta Inc., that the reply letters of the
appellant company were already placed in the mails on March 21, 1962 at 11:00 o'clock
in the morning, immediately went to the Manila post office and claimed the registered
letter addressed to her without waiting for the ordinary course for registered mails to be
delivered. The petitioner took delivery of the registered letter addressed to her at the
entry section of the Manila post office. While this procedure may be tolerated by the
postal authorities, the act of the petitioner in taking delivery of her letter at the entry
section of the Manila post office without waiting for said letter to be delivered to her in
due course of mail is a violation of the "first come first served" condition imposed by the
respondent J. M. Tuason & Co. Inc., acting through Gregorio Araneta Inc.
The respondent, Claudio R. Ramirez, received on March 22, 1962 in the morning the
reply letter of the respondent company dated March 20, 1962 stating that Lot 22, Block
461, Sta. Mesa Heights Subdivision was available for sale under the conditions set forth
on the basis of "first come first served". The respondent, Claudio R. Ramirez, proceeded
to the office of Benjamin Bautista on the same date and manifested that he was
accepting the conditions stated in the respondent company's letter. On March 23, 1962,
respondent Ramirez presented his letter to the respondent company confirming his
verbal acceptance of the terms and conditions in connection with the sale.
It was only on March 27, 1962 that the respondent company received a letter from Atty.
Godofredo Asuncion in behalf of petitioner, Florencia Cronies, requesting that the lot
subject of litigation be sold to her. The enclosed cheek to cover the down payment was
10
returned to petitioner Cronico and on April 4, 1962, the respondent company wrote said
petitioner that it had decided to sell the lot in question to the respondent Ramirez.
In view of the foregoing circumstances, we concur in the finding of the Court of Appeals
that "Viewing the case from the standpoint of regularity of notice, plaintiff-appellee falls
short of the yardstick." (Rollo, p. 42, Decision of the Court of Appeal p.12)
The Court of Appeals entertained serious doubts as to the financial capability of
petitioner Florencia Cronico to purchase the property because she was receiving only the
amount of P150.00 a month as her salary from her employment and there was no
showing that she had sources of income other than her job. In fact, when petitioner
Cronico tried to pay the down payment for the purchase of the land, it was Mary E.
Venturanza who drew the check in the amount of P33,572.00 which was rejected by the
respondent company. It is also to be noted that in the trial court, Florencia cronico was
substituted by her assignee Lucille E. Venturanza, daughter of Mary E. Venturanza. It is
apparent that petitioner, Florencia Cronico, did not have the capability to pay and that
she acted only as a mere front of the Venturanzas. As correctly pointed out by the Court
of Appeals, realtors are given the right to choose their buyers so as to avoid delinquent
payments of monthly installments which may result in costly court litigations.
The contention of petitioner. Florencia Cronico that the promise to sell is supported by a
consideration as to her because she had established her link as successor of Gregorio
Venturanza who bought the lot from Juan Ramos who in turn acquired said lot from
Pedro Deudor. The petitioner then argues that since Clause Seventh of the Compromise
Agreement between the respondent company and the Deudors, et al. obligated the
respondent company to sell to the buyers of the Deudors 'listed in Annex B thereof,
Exhibit R-1, and Juan Ramos was the purchaser of the lot from Pedro Deudor with such
right to buy from the defendant company under a new contract with the latter, the said
petitioner had established the onerous cause or consideration apart from the selling price
of the lot. Granting, arguendo, that Clause Seventh of the Compromise Agreement
constitutes a valid consideration of the promise to sell apart from the selling price, it
appears that the Compromise Agreement upon which the petitioner Cronico predicates
her right to buy the lot in question has been rescinded and set aside. (Deudor vs. J.M.
Tuason & Co., Inc., 2 SCRA 129 and J. M. Tuason & Co., Inc. vs. Sanvictores 4 SCRA
123, 126) Hence, the promise of the respondent company to sell the lot in question to the
petitioner, Florencia Cronico has no consideration separate from the selling price of said
lot.
In order that a unilateral promise may be binding upon the promisor, Article 1479, Civil
Code of the Philippines, requires the concurrence of the condition that the promise be
"supported by a consideration distinct from the price. Accordingly, the promisee can not
compel the promisor to comply with the promise, unless the former establishes the
existence of said distinct consideration. The promisee has the burden of proving such
consideration. (Sanchez vs. Rigos, 45 SCRA 368, 372-373) The petitioner, Florencia
Cronies, has not established the existence of a consideration distinct from the price of
the lot in question.
The petitioner cannot claim that she had accepted the promise before it was withdrawn
because, as stated above, she had violated the condition of "first, come, first served"
Moreover, it was only on March 27, 1962 that the respondent company received a letter
from counsel of the petitioner requesting that the lot subject of this litigation be sold to
her. The respondent, Claudio R. Ramirez, had on March 23, 1962, confirmed in writing
his verbal acceptance of the terms and conditions of the sale of the lot in question.
The petitioner maintains that the contract to sell (Exhibit 3) executed by the respondent
company in favor of the respondent, Claudio R. Ramirez, contains a stipulation for her
benefit, which reads:
b) that the buyer Claudio Ramirez has been fully informed by the
company of all the circumstances relative to the offer of Florencia

Cronico to buy said lot and that he agrees and binds himself to hold
the company absolutely free and harmless from all claims and
damages to said Florencia Cronico in connection with this sale of the
lot to him. (Rollo, p. 74, Petitioner's Brief, pp. 31-32)
The foregoing clause cannot ' by any stretch of the imagination be considered as a
clause "pour autrui" or for the benefit of the petitioner. The stipulation does not confer
any right arising from the contract that may be enforced by the petitioner against any of
the parties thereto. Neither does it impose any obligation arising from the contract that
may be enforced by any of the parties thereto against the petitioner. The petitioner is not
"obliged principally or subsidiarily" by the contract to sell executed between the
respondent company and the respondent Claudio R. Ramirez. The said stipulation is for
the benefit of the respondent company.
The contention of the petitioner that she has become the obligee or creditor of the
respondent company because she was the first to comply with the terms of the letter-
offer has no merit. Her so-called acceptance has no effect because she violated the
condition of "first come, first served" by taking delivery of the reply letter of the
respondent company in the entry section of the Manila post office and of the fact that her
formal letter of acceptance was only received by the respondent company on March 27,
1962.
In view of all the foregoing, we find that the Court of Appeals has not committed any of
the errors assigned in the brief of the petitioner.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. 44479-R is hereby
affirmed, without pronouncement as to costs.
SO ORDERED.
Makasiar, Martin and Guerrero, JJ., concur.
Teehankee (Chairman), concurs in the result.
Muñ;oz Palma, J., took no part.
[G.R. No. 124791. February 10, 1999]
JOSE RAMON CARCELLER, petitioner, vs. COURT OF APPEALS and STATE
INVESTMENT HOUSES, INC., respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review of the Decision[1] dated September 21, 1995 of the
Court of Appeals[2]in CA - G. R. CV No. 37520, as well as its Resolution[3] dated April 25,
1996, denying both parties motion for partial reconsideration or clarification. The assailed
decision affirmed with modification the judgment[4] of the Regional Trial Court of Cebu
City, Branch 5, in Civil Case No. CEB 4700, and disposed of the controversy as follows:
However, We do not find it just that the appellee, in exercising his option to buy, should
pay appellant SIHI only P1,800,000.00. In fairness to appellant SIHI, the purchase price
must be based on the prevailing market price of real property in Bulacao, Cebu
City. (Emphasis supplied)
The factual background of this case is quite simple.
Private respondent State Investment Houses, Inc. (SIHI) is the registered owner of
two (2) parcels of land with a total area of 9,774 square meters, including all the
improvements thereon, located at Bulacao, Cebu City, covered by Transfer Certificate of
Titles Nos. T-89152 and T-89153 of the Registry of Deeds of Cebu City.
On January 10, 1985, petitioner and SIHI entered into a lease contract with option
to purchase[5] over said two parcels of land, at a monthly rental of Ten Thousand
(P10,000.00) pesos for a period of eighteen (18) months, beginning on August 1, 1984
until January 30, 1986. The pertinent portion of the lease contract subject of the dispute
reads in part:
11
4. As part of the consideration of this agreement, the LESSOR hereby grants unto the
LESSEE the exclusive right, option and privilege to purchase, within the lease period, the
leased premises thereon for the aggregate amount of P1,800,000.00 payable as follows:
a. Upon the signing of the Deed of Sale, the LESSEE shall immediately pay P360,000.
b. The balance of P1,440,000.00 shall be paid in equal installments of P41,425.87 over
sixty (60) consecutive months computed with interest at 24% per annum on the
diminishing balance; Provided, that the LESSEE shall have the right to accelerate
payments at anytime in which event the stipulated interest for the remaining installments
shall no longer be imposed.
x . . The option shall be exercised by a written notice to the LESSOR at anytime within
the option period and the document of sale over the afore-described properties has to be
consummated within the month immediately following the month when the LESSEE
exercised his option under this contract.[6]
On January 7, 1986, or approximately three (3) weeks before the expiration of the
lease contract, SIHI notified petitioner of the impending termination of the lease
agreement, and of the short period of time left within which he could still validly exercise
the option. It likewise requested petitioner to advise them of his decision on the option,
on or before January 20, 1986.[7]
In a letter dated January 15, 1986, which was received by SIHI on January 29,
1986, petitioner requested for a six-month extension of the lease contract, alleging that
he needs ample time to raise sufficient funds in order to exercise the option. To support
his request, petitioner averred that he had already made a substantial investment on the
property, and had been punctual in paying his monthly rentals.[8]
On February 14, 1986, SIHI notified petitioner that his request was disapproved.
Nevertheless, it offered to lease the same property to petitioner at the rate of Thirty
Thousand (P30,000.00) pesos a month, for a period of one (1) year. It further informed
the petitioner of its decision to offer for sale said leased property to the general public. [9]
On February 18, 1986, petitioner notified SIHI of his decision to exercise the option
to purchase the property and at the same time he made arrangements for the payment of
the downpayment thereon in the amount of Three Hundred Sixty Thousand
(P360,000.00) pesos.[10]
On February 20, 1986, SIHI sent another letter to petitioner, reiterating its previous
stand on the latters offer, stressing that the period within which the option should have
been exercised had already lapsed. SIHI asked petitioner to vacate the property within
ten (10) days from notice, and to pay rental and penalty due.[11]
Hence, on February 28, 1986, a complaint for specific performance and
damages[12] was filed by petitioner against SIHI before the Regional Trial Court of Cebu
City, to compel the latter to honor its commitment and execute the corresponding deed of
sale.
After trial, the court a quo promulgated its decision dated April 1, 1991, the
dispositive portion of which reads:
In the light of the foregoing considerations, the Court hereby renders judgment in Civil
Case No. CEB 4700, ordering the defendant to execute a deed of sale in favor of the
plaintiff, covering the parcels of land together with all the improvements thereon, covered
by Transfer Certificates of Title Nos. 89152 and 89153 of the Registry of Deeds of Cebu
City, in accordance with the lease contract executed on January 10, 1984 between the
plaintiff and the defendant, but the purchase price may be by one shot payment
of P1,800,000.00; and the defendant to pay attorneys fee of P20,000.00.
No damages awarded.[13]
Not satisfied with the judgment, SIHI elevated the case to the Court of Appeals by
way of a petition for review.
On September 21, 1995, respondent court rendered its decision, affirming the trial
courts judgment, but modified the basis for assessing the purchase price. While

respondent court affirmed appellees option to buy the property, it added that, the
purchase price must be based on the prevailing market price of real property in Bulacao,
Cebu City.[14]
Baffled by the modification made by respondent court, both parties filed a motion for
reconsideration and/or clarification, with petitioner, on one hand, praying that the
prevailing market price be the value of the property in February 1986, the time when the
sale would have been consummated. SIHI, on the other hand, prayed that the market
price of the property be based on the prevailing price index at least 10 years later, that is,
1996.
Respondent court conducted further hearings to clarify the matter, but no
agreement was reached by the parties. Thus, on April 25, 1996, respondent court
promulgated the assailed resolution, which denied both parties motions, and directed the
trial court to conduct further hearings to ascertain the prevailing market value of real
properties in Bulacao, Cebu City and fix the value of the property subject of the
controversy.14a
Hence, the instant petition for review.
The fundamental issue to be resolved is, should petitioner be allowed to exercise
the option to purchase the leased property, despite the alleged delay in giving the
required notice to private respondent?
An option is a preparatory contract in which one party grants to the other, for a fixed
period and under specified conditions, the power to decide, whether or not to enter into a
principal contract. It binds the party who has given the option, not to enter into the
principal contract with any other person during the period designated, and, within that
period, to enter into such contract with the one to whom the option was granted, if the
latter should decide to use the option.[15] It is a separate agreement distinct from the
contract which the parties may enter into upon the consummation of the option.[16]
Considering the circumstances in this case, we find no reason to disturb the
findings of respondent court, that petitioners letter to SIHI, dated January 15, 1986, was
fair notice to the latter of the formers intent to exercise the option, despite the request for
the extension of the lease contract. As stated in said letter to SIHI, petitioner was
requesting for an extension (of the contract) for six months to allow us to generate
sufficient funds in order to exercise our option to buy the subject property. [17] The
analysis by the Court of Appeals of the evidence on record and the process by which it
arrived at its findings on the basis thereof, impel this Courts assent to said findings. They
are consistent with the parties primary intent, as hereafter discussed, when they
executed the lease contract. As respondent court ruled:
We hold that the appellee [herein petitioner] acted with honesty and good faith. Verily,
We are in accord with the trial court that he should be allowed to exercise his option to
purchase the lease property. In fact, SIHI will not be prejudiced. A contrary ruling,
however, will definitely cause damage to the appellee, it appearing that he has
introduced considerable improvements on the property and has borrowed huge loan from
the Technology Resources Center.17a
The contracting parties primary intent in entering into said lease contract with option
to purchase confirms, in our view, the correctness of respondent courts ruling. Analysis
and construction, however, should not be limited to the words used in the contract, as
they may not accurately reflect the parties true intent. The reasonableness of the result
obtained, after said analysis, ought likewise to be carefully considered.
It is well-settled in both law and jurisprudence, that contracts are the law between
the contracting parties and should be fulfilled, if their terms are clear and leave no room
for doubt as to the intention of the contracting parties.[18] Further, it is well-settled that in
construing a written agreement, the reason behind and the circumstances surrounding its
execution are of paramount importance. Sound construction requires one to be placed
mentally in the situation occupied by the parties concerned at the time the writing was
12
executed. Thereby, the intention of the contracting parties could be made to prevail,
because their agreement has the force of law between them. [19]
Moreover, to ascertain the intent of the parties in a contractual relationship, it is
imperative that the various stipulations provided for in the contract be construed together,
consistent with the parties contemporaneous and subsequent acts as regards the
execution of the contract.[20] And once the intention of the parties has been ascertained,
that element is deemed as an integral part of the contract as though it has been originally
expressed in unequivocal terms.
As sufficiently established during the trial, SIHI, prior to its negotiation with
petitioner, was already beset with financial problems. SIHI was experiencing difficulty in
meeting the claims of its creditors. Thus, in order to reprogram the companys financial
investment plan and facilitate its rehabilitation and viability, SIHI, being a quasi-banking
financial institution, had been placed under the supervision and control of the Central
Bank (CB). It was in dire need of liquidating its assets, so to speak, in order to stay afloat
financially.
Thus, SIHI was compelled to dispose some of its assets, among which is the
subject leased property, to generate sufficient funds to augment its badly-depleted
financial resources. This then brought about the execution of the lease contract with
option to purchase between SIHI and the petitioner.
The lease contract provided that to exercise the option, petitioner had to send a
letter to SIHI, manifesting his intent to exercise said option within the lease period ending
January 30, 1986. However, what petitioner did was to request on January 15, 1986, for
a six-month extension of the lease contract, for the alleged purpose of raising funds
intended to purchase the property subject of the option. It was only after the request was
denied on February 14, 1986, that petitioner notified SIHI of his desire to exercise the
option formally. This was by letter dated February 18, 1986. In private respondents view,
there was already a delay of 18 days, fatal to petitioners cause. But respondent court
found the delay neither substantial nor fundamental and did not amount to a breach that
would defeat the intention of the parties when they executed the lease contract with
option to purchase.20a
In allowing petitioner to exercise the option, however, both lower courts are in
accord in their decision, rationalizing that a contrary ruling would definitely cause damage
to the petitioner, as he had the whole place renovated to make the same suitable and
conducive for the business he established there. Moreover, judging from the subsequent
acts of the parties, it is undeniable that SIHI really intended to dispose of said leased
property, which petitioner indubitably intended to buy.
SIHIs agreement to enter first into a lease contract with option to purchase with
herein petitioner, is a clear proof of its intent to promptly dispose said property although
the full financial returns may materialize only in a years time. Furthermore, its letter dated
January 7, 1986, reminding the petitioner of the short period of time left within which to
consummate their agreement, clearly showed its desire to sell that property. Also, SIHIs
letter dated February 14, 1986 supported the conclusion that it was bent on disposing
said property. For this letter made mention of the fact that, said property is now for sale
to the general public.
Petitioners determination to purchase said property is equally indubitable. He
introduced permanent improvements on the leased property, demonstrating his intent to
acquire dominion in a years time.To increase his chances of acquiring the property, he
secured an P8 Million loan from the Technology Resources Center (TRC), thereby
augmenting his capital. He averred that he applied for a loan since he planned to pay the
purchase price in one single payment, instead of paying in installment, which would entail
the payment of additional interest at the rate of 24% per annum, compared to 7% per
annum interest for the TRC loan. His letter earlier requesting extension was premised, in
fact, on his need for time to secure the needed financing through a TRC loan.

In contractual relations, the law allows the parties reasonable leeway on the terms
of their agreement, which is the law between them.[21] Note that by contract SIHI had
given petitioner 4 periods: (a) the option to purchase the property for P1,800,000.00
within the lease period, that is, until January 30, 1986; (b) the option to be exercised
within the option period by written notice at anytime; (c) the document of sale...to be
consummated within the month immediately following the month when petitioner
exercises the option; and (d) the payment in equal installments of the purchase price
over a period of 60 months. In our view, petitioners letter of January 15, 1986 and his
formal exercise of the option on February 18, 1986 were within a reasonable time-frame
consistent with periods given and the known intent of the parties to the agreement dated
January 10, 1985. A contrary view would be harsh and inequituous indeed.
In Tuason, Jr., etc. vs. De Asis,[22] this Court opined that in a contract of lease, if the
lessor makes an offer to the lessee to purchase the property on or before the termination
of the lease, and the lessee fails to accept or make the purchase on time, the lessee
losses the right to buy the property later on the terms and conditions set in the
offer. Thus, on one hand, petitioner herein could not insist on buying the said property
based on the price agreed upon in the lease agreement, even if his option to purchase it
is recognized. On the other hand, SIHI could not take advantage of the situation to
increase the selling price of said property by nearly 90% of the original price. Such leap
in the price quoted would show an opportunistic intent to exploit the situation as SIHI
knew for a fact that petitioner badly needed the property for his business and that he
could afford to pay such higher amount after having secured an P8 Million loan from the
TRC. If the courts were to allow SIHI to take advantage of the situation, the result would
have been an injustice to petitioner, because SIHI would be unjustly enriched at his
expense. Courts of law, being also courts of equity, may not countenance such grossly
unfair results without doing violence to its solemn obligation to administer fair and equal
justice for all.
WHEREFORE, the appealed decision of respondent court, insofar as it affirms the
judgment of the trial court in granting petitioner the opportunity to exercise the option to
purchase the subject property, is hereby AFFIRMED. However the purchase price should
be based on the fair market value of real property in Bulacao, Cebu City, as of February
1986, when the contract would have been consummated. Further, petitioner is hereby
ordered to pay private respondent SIHI legal interest on the said purchase price
beginning February 1986 up to the time it is actually paid, as well as the taxes due on
said property, considering that petitioner have enjoyed the beneficial use of said
property. The case is hereby remanded to Regional Trial Court of Cebu, Branch 5, for
further proceedings to determine promptly the fair market value of said real property as of
February 1986, in Bulacao, Cebu City.
Costs against private respondent.
SO ORDERED.
Bellosillo, (Chairman), Puno, Mendoza, and Buena, JJ., concur.
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.
CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of
Appeals, which certified the case to Us, upon the ground that it involves a question
purely of law.
13
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant
Severina Rigos executed an instrument entitled "Option to Purchase," whereby Mrs.
Rigos "agreed, promised and committed ... to sell" to Sanchez the sum of P1,510.00, a
parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose,
province of Nueva Ecija, and more particularly described in Transfer Certificate of Title
No. NT-12528 of said province, within two (2) years from said date with the
understanding that said option shall be deemed "terminated and elapsed," if "Sanchez
shall fail to exercise his right to buy the property" within the stipulated period. Inasmuch
as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said
period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said
amount with the Court of First Instance of Nueva Ecija and commenced against the latter
the present action, for specific performance and damages.
After the filing of defendant's answer — admitting some allegations of the complaint,
denying other allegations thereof, and alleging, as special defense, that the contract
between the parties "is a unilateral promise to sell, and the same being unsupported by
any valuable consideration, by force of the New Civil Code, is null and void" — on
February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a
judgment on the pleadings. Accordingly, on February 28, 1964, the lower court rendered
judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him
and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise,
sentenced to pay P200.00, as attorney's fees, and other costs. Hence, this appeal by
Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of our Civil Code,
which provides:
ART. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for
a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.
In his complaint, plaintiff alleges that, by virtue of the option under consideration,
"defendant agreed and committed to sell" and "the plaintiff agreed and committed to buy"
the land described in the option, copy of which was annexed to said pleading as Annex A
thereof and is quoted on the margin.1 Hence, plaintiff maintains that the promise
contained in the contract is "reciprocally demandable," pursuant to the first paragraph of
said Article 1479. Although defendant had really "agreed, promised and committed"
herself to sell the land to the plaintiff, it is not true that the latter had, in turn, "agreed and
committed himself " to buy said property. Said Annex A does not bear out plaintiff's
allegation to this effect. What is more, since Annex A has been made "an integral part" of
his complaint, the provisions of said instrument form part "and parcel" 2 of said pleading.
The option did not impose upon plaintiff the obligation to purchase defendant's property.
Annex A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy.
And both parties so understood it, as indicated by the caption, "Option to Purchase,"
given by them to said instrument. Under the provisions thereof, the defendant "agreed,
promised and committed" herself to sell the land therein described to the plaintiff for
P1,510.00, but there is nothing in the contract to indicate that her aforementioned
agreement, promise and undertaking is supported by a consideration "distinct from the
price" stipulated for the sale of the land.
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of
said consideration, and this would seem to be the main factor that influenced its decision
in plaintiff's favor. It should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article
1479 refers to "sales" in particular, and, more specifically, to "an accepted unilateral
promise to buy or to sell." In other words, Article 1479 is controlling in the case at bar.

(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479
requires the concurrence of a condition, namely, that the promise be "supported by a
consideration distinct from the price." Accordingly, the promisee can not compel the
promisor to comply with the promise, unless the former establishes the existence of said
distinct consideration. In other words, the promisee has the burden of proving such
consideration. Plaintiff herein has not even alleged the existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a
special defense, the absence of said consideration for her promise to sell and, by joining
in the petition for a judgment on the pleadings, plaintiff has impliedly admitted the truth of
said averment in defendant's answer. Indeed as early as March 14, 1908, it had been
held, in Bauermann v. Casas,3 that:
One who prays for judgment on the pleadings without offering proof as
to the truth of his own allegations, and without giving the opposing
party an opportunity to introduce evidence, must be understood
to admit the truth of all the material and relevant allegations of the
opposing party, and to rest his motion for judgment on those
allegations taken together with such of his own as are admitted in the
pleadings. (La Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis
supplied.)
This view was reiterated in Evangelista v. De la Rosa4 and Mercy's Incorporated v.
Herminia Verde.5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
Co.,6 from which We quote:
The main contention of appellant is that the option granted to appellee
to sell to it barge No. 10 for the sum of P30,000 under the terms stated
above has no legal effect because it is not supported by any
consideration and in support thereof it invokes article 1479 of the new
Civil Code. The article provides:
"ART. 1479. A promise to buy and sell a determinate
thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or sell a
determinate thing for a price certain is binding upon
the promisor if the promise is supported by a
consideration distinct from the price."
On the other hand, Appellee contends that, even granting that the
"offer of option" is not supported by any consideration, that option
became binding on appellant when the appellee gave notice to it of its
acceptance, and that having accepted it within the period of option, the
offer can no longer be withdrawn and in any event such withdrawal is
ineffective. In support this contention, appellee invokes article 1324 of
the Civil Code which provides:
"ART. 1324. When the offerer has allowed the
offeree a certain period to accept, the offer may be
withdrawn any time before acceptance by
communicating such withdrawal, except when the
option is founded upon consideration as something
paid or promised."
There is no question that under article 1479 of the new Civil Code "an
option to sell," or "a promise to buy or to sell," as used in said article, to
be valid must be "supported by a consideration distinct from the price."
This is clearly inferred from the context of said article that a unilateral
promise to buy or to sell, even if accepted, is only binding if supported
by consideration. In other words, "an accepted unilateral promise can
14
only have a binding effect if supported by a consideration which means
that the option can still be withdrawn, even if accepted, if the same is
not supported by any consideration. It is not disputed that the option is
without consideration. It can therefore be withdrawn notwithstanding
the acceptance of it by appellee.
It is true that under article 1324 of the new Civil Code, the general rule
regarding offer and acceptance is that, when the offerer gives to the
offeree a certain period to accept, "the offer may be withdrawn at any
time before acceptance" except when the option is founded upon
consideration, but this general rule must be interpreted as modified by
the provision of article 1479 above referred to, which applies to "a
promise to buy and sell" specifically. As already stated, this rule
requires that a promise to sell to be valid must be supported by a
consideration distinct from the price.
We are not oblivious of the existence of American authorities which
hold that an offer, once accepted, cannot be withdrawn, regardless of
whether it is supported or not by a consideration (12 Am. Jur. 528).
These authorities, we note, uphold the general rule applicable to offer
and acceptance as contained in our new Civil Code. But we are
prevented from applying them in view of the specific provision
embodied in article 1479. While under the "offer of option" in question
appellant has assumed a clear obligation to sell its barge to appellee
and the option has been exercised in accordance with its terms, and
there appears to be no valid or justifiable reason for appellant to
withdraw its offer, this Court cannot adopt a different attitude because
the law on the matter is clear. Our imperative duty is to apply it unless
modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian
Tek,8 decided later that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
Co.,9 saw no distinction between Articles 1324 and 1479 of the Civil Code and applied
the former where a unilateral promise to sell similar to the one sued upon here was
involved, treating such promise as an option which, although not binding as a contract in
itself for lack of a separate consideration, nevertheless generated a bilateral contract of
purchase and sale upon acceptance. Speaking through Associate Justice, later Chief
Justice, Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed
whenever the offeree should decide to exercise his option within the
specified time. After accepting the promise and before he exercises his
option, the holder of the option is not bound to buy. He is free either to
buy or not to buy later. In this case, however, upon accepting herein
petitioner's offer a bilateral promise to sell and to buy ensued, and the
respondent ipso facto assumed the obligation of a purchaser. He did
not just get the right subsequently to buy or not to buy. It was not a
mere option then; it was a bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which is not
binding for lack of consideration, the authorities hold that:
"If the option is given without a consideration, it is a
mere offer of a contract of sale, which is not binding
until accepted. If, however, acceptance is made
before a withdrawal, it constitutes a binding contract
of sale, even though the option was not supported by
a sufficient consideration. ... . (77 Corpus Juris

Secundum, p. 652. See also 27 Ruling Case Law
339 and cases cited.)
"It can be taken for granted, as contended by the
defendant, that the option contract was not valid for
lack of consideration. But it was, at least, an offer to
sell, which was accepted by letter, and of the
acceptance the offerer had knowledge before said
offer was withdrawn. The concurrence of both acts
— the offer and the acceptance — could at all
events have generated a contract, if none there was
before (arts. 1254 and 1262 of the Civil Code)."
(Zayco vs. Serra, 44 Phil. 331.)
In other words, since there may be no valid contract without a cause or consideration, the
promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice
of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell
which, if accepted, results in a perfected contract of sale.
This view has the advantage of avoiding a conflict between Articles 1324 — on the
general principles on contracts — and 1479 — on sales — of the Civil Code, in line with
the cardinal rule of statutory construction that, in construing different provisions of one
and the same law or code, such interpretation should be favored as will reconcile or
harmonize said provisions and avoid a conflict between the same. Indeed, the
presumption is that, in the process of drafting the Code, its author has maintained a
consistent philosophy or position. Moreover, the decision in Southwestern Sugar &
Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324 is modified by Art.
1479 of the Civil Code, in effect, considers the latter as an exception to the former, and
exceptions are not favored, unless the intention to the contrary is clear, and it is not so,
insofar as said two (2) articles are concerned. What is more, the reference, in both the
second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or
founded upon a consideration, strongly suggests that the two (2) provisions intended to
enforce or implement the same principle.
Upon mature deliberation, the Court is of the considered opinion that it should, as it
hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar
as inconsistent therewith, the view adhered to in the Southwestern Sugar & Molasses
Co. case should be deemed abandoned or modified.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against
defendant-appellant Severina Rigos. It is so ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur.
Castro, J., took no part.
G.R. No. 97332 October 10, 1991
SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR, petitioners,
vs.
THE HON. COURT OF APPEALS AND SPOUSES MACARIA LABINGISA REYES
AND ROBERTO REYES,respondents.
Tranquilino F. Meris for petitioners.
Agripino G. Morga for private respondents.
MEDIALDEA, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals in CA-
G.R. No. 24176 entitled, "Spouses Julio Villamor and Marina Villamor, Plaintiffs-
Appellees, versus Spouses Macaria Labing-isa Reyes and Roberto Reyes, Defendants-
15
Appellants," which reversed the decision of the Regional Trial Court (Branch 121) at
Caloocan City in Civil Case No. C-12942.
The facts of the case are as follows:
Macaria Labingisa Reyes was the owner of a 600-square meter lot located at Baesa,
Caloocan City, as evidenced by Transfer Certificate of Title No. (18431) 18938, of the
Register of Deeds of Rizal.
In July 1971, Macaria sold a portion of 300 square meters of the lot to the Spouses Julio
and Marina and Villamor for the total amount of P21,000.00. Earlier, Macaria borrowed
P2,000.00 from the spouses which amount was deducted from the total purchase price of
the 300 square meter lot sold. The portion sold to the Villamor spouses is now covered
by TCT No. 39935 while the remaining portion which is still in the name of Macaria
Labing-isa is covered by TCT No. 39934 (pars. 5 and 7, Complaint). On November 11,
1971, Macaria executed a "Deed of Option" in favor of Villamor in which the remaining
300 square meter portion (TCT No. 39934) of the lot would be sold to Villamor under the
conditions stated therein. The document reads:
DEED OF OPTION
This Deed of Option, entered into in the City of Manila, Philippines, this 11th day
of November, 1971, by and between Macaria Labing-isa, of age, married to
Roberto Reyes, likewise of age, and both resideing on Reparo St., Baesa,
Caloocan City, on the one hand, and on the other hand the spouses Julio
Villamor and Marina V. Villamor, also of age and residing at No. 552 Reparo St.,
corner Baesa Road, Baesa, Caloocan City.
WITNESSETH
That, I Macaria Labingisa, am the owner in fee simple of a parcel of land with an
area of 600 square meters, more or less, more particularly described in TCT No.
(18431) 18938 of the Office of the Register of Deeds for the province of Rizal,
issued in may name, I having inherited the same from my deceased parents, for
which reason it is my paraphernal property;
That I, with the conformity of my husband, Roberto Reyes, have sold one-half
thereof to the aforesaid spouses Julio Villamor and Marina V. Villamor at the
price of P70.00 per sq. meter, which was greatly higher than the actual
reasonable prevailing value of lands in that place at the time, which portion,
after segregation, is now covered by TCT No. 39935 of the Register of Deeds
for the City of Caloocan, issued on August 17, 1971 in the name of the
aforementioned spouses vendees;
That the only reason why the Spouses-vendees Julio Villamor and Marina V.
Villamor, agreed to buy the said one-half portion at the above-stated price of
about P70.00 per square meter, is because I, and my husband Roberto Reyes,
have agreed to sell and convey to them the remaining one-half portion still
owned by me and now covered by TCT No. 39935 of the Register of Deeds for
the City of Caloocan, whenever the need of such sale arises, either on our part
or on the part of the spouses (Julio) Villamor and Marina V. Villamor, at the
same price of P70.00 per square meter, excluding whatever improvement may
be found the thereon;
That I am willing to have this contract to sell inscribed on my aforesaid title as
an encumbrance upon the property covered thereby, upon payment of the
corresponding fees; and
That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept, the
above provisions of this Deed of Option.
IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila,
Philippines, by all the persons concerned, this 11th day of November, 1971.
JULIO VILLAMOR MACARIA LABINGISA
With My Conformity:

MARINA VILLAMOR ROBERTO REYES
Signed in the Presence Of:
MARIANO Z. SUNIGA
ROSALINDA S. EUGENIO
ACKNOWLEDGMENT
REPUBLIC OF THE PHILIPPINES)
CITY OF MANILA ) S.S.
At the City of Manila, on the 11th day of November, 1971, personally appeared
before me Roberto Reyes, Macaria Labingisa, Julio Villamor and Marina
Ventura-Villamor, known to me as the same persons who executed the
foregoing Deed of Option, which consists of two (2) pages including the page
whereon this acknowledgement is written, and signed at the left margin of the
first page and at the bottom of the instrument by the parties and their witnesses,
and sealed with my notarial seal, and said parties acknowledged to me that the
same is their free act and deed. The Residence Certificates of the parties were
exhibited to me as follows: Roberto Reyes, A-22494, issued at Manila on Jan.
27, 1971, and B-502025, issued at Makati, Rizal on Feb. 18, 1971; Macaria
Labingisa, A-3339130 and B-1266104, both issued at Caloocan City on April 15,
1971, their joint Tax Acct. Number being 3028-767-6; Julio Villamor, A-804,
issued at Manila on Jan. 14, 1971, and B-138, issued at Manila on March 1,
1971; and Marina Ventura-Villamor, A-803, issued at Manila on Jan. 14, 1971,
their joint Tax Acct. Number being 608-202-6.
ARTEMIO M. MALUBAY
Notary Public
Until December 31, 1972
PTR No. 338203, Manila
January 15, 1971
Doc. No. 1526;
Page No. 24;
Book No. 38;
Series of 1971. (pp. 25-29, Rollo)
According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to
repurchase the lot sold by them to the Villamor spouses but Marina Villamor refused and
reminded them instead that the Deed of Option in fact gave them the option to purchase
the remaining portion of the lot.
The Villamors, on the other hand, claimed that they had expressed their desire to
purchase the remaining 300 square meter portion of the lot but the Reyeses had been
ignoring them. Thus, on July 13, 1987, after conciliation proceedings in the barangay
level failed, they filed a complaint for specific performance against the Reyeses.
On July 26, 1989, judgment was rendered by the trial court in favor of the Villamor
spouses, the dispositive portion of which states:
WHEREFORE, and (sic) in view of the foregoing, judgment is hereby rendered
in favor of the plaintiffs and against the defendants ordering the defendant
MACARIA LABING-ISA REYES and ROBERTO REYES, to sell unto the
plaintiffs the land covered by T.C.T No. 39934 of the Register of Deeds of
Caloocan City, to pay the plaintiffs the sum of P3,000.00 as and for attorney's
fees and to pay the cost of suit.
The counterclaim is hereby DISMISSED, for LACK OF MERIT.
SO ORDERED. (pp. 24-25, Rollo)
Not satisfied with the decision of the trial court, the Reyes spouses appealed to the Court
of Appeals on the following assignment of errors:
1. HOLDING THAT THE DEED OF OPTION EXECUTED ON NOVEMBER 11,
1971 BETWEEN THE PLAINTIFF-APPELLEES AND DEFENDANT-
16
APPELLANTS IS STILL VALID AND BINDING DESPITE THE LAPSE OF
MORE THAN THIRTEEN (13) YEARS FROM THE EXECUTION OF THE
CONTRACT;
2. FAILING TO CONSIDER THAT THE DEED OF OPTION CONTAINS
OBSCURE WORDS AND STIPULATIONS WHICH SHOULD BE RESOLVED
AGAINST THE PLAINTIFF-APPELLEES WHO UNILATERALLY DRAFTED
AND PREPARED THE SAME;
3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE
INTENTION AND PURPOSE OF THE PARTIES DESPITE ADVERSE,
CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE PLAINTIFF-
APPELLEES;
4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON ACCOUNT
OF THEIR IGNORANCE PLACING THEM AT A DISADVANTAGE IN THE
DEED OF OPTION;
5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION TILT IN
FAVOR OF THE DEFENDANT-APPELLANTS; and
6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY PLAINTIFF-
APPELLEES THE AMOUNT OF P3,000.00 FOR AND BY WAY OF
ATTORNEY'S FEES. (pp. 31-32, Rollo)
On February 12, 1991, the Court of Appeals rendered a decision reversing the decision
of the trial court and dismissing the complaint. The reversal of the trial court's decision
was premised on the finding of respondent court that the Deed of Option is void for lack
of consideration.
The Villamor spouses brought the instant petition for review on certiorari on the following
grounds:
I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE
PHRASE WHENEVER THE NEED FOR SUCH SALE ARISES ON OUR
(PRIVATE RESPONDENT) PART OR ON THE PART OF THE SPOUSES
JULIO D. VILLAMOR AND MARINA V. VILLAMOR' CONTAINED IN THE
DEED OF OPTION DENOTES A SUSPENSIVE CONDITION;
II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED
PHRASE IS INDEED A CONDITION, THE COURT OF APPEALS ERRED IN
NOT FINDING, THAT THE SAID CONDITION HAD ALREADY BEEN
FULFILLED;
III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED
PHRASE IS INDEED A CONDITION, THE COURT OF APPEALS ERRED IN
HOLDING THAT THE IMPOSITION OF SAID CONDITION PREVENTED THE
PERFECTION OF THE CONTRACT OF SALE DESPITE THE EXPRESS
OFFER AND ACCEPTANCE CONTAINED IN THE DEED OF OPTION;
IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE DEED OF
OPTION IS VOID FOR LACK OF CONSIDERATION;
V. THE COURT OF APPEALS ERRED IN HOLDING THAT A DISTINCT
CONSIDERATION IS NECESSARY TO SUPPORT THE DEED OF OPTION
DESPITE THE EXPRESS OFFER AND ACCEPTANCE CONTAINED
THEREIN. (p. 12, Rollo)
The pivotal issue to be resolved in this case is the validity of the Deed of Option whereby
the private respondents agreed to sell their lot to petitioners "whenever the need of such
sale arises, either on our part (private respondents) or on the part of Julio Villamor and
Marina Villamor (petitioners)." The court a quo, rule that the Deed of Option was a
valid written agreement between the parties and made the following conclusions:
xxx xxx xxx
It is interesting to state that the agreement between the parties are evidence by
a writing, hence, the controverting oral testimonies of the herein defendants

cannot be any better than the documentary evidence, which, in this case, is the
Deed of Option (Exh. "A" and "A-a")
The law provides that when the terms of an agreement have been reduced to
writing it is to be considered as containing all such terms, and therefore, there
can be, between the parties and their successors in interest no evidence of their
terms of the agreement, other than the contents of the writing. ... (Section 7
Rule 130 Revised Rules of Court) Likewise, it is a general and most inflexible
rule that wherever written instruments are appointed either by the requirements
of law, or by the contract of the parties, to be the repositories and memorials of
truth, any other evidence is excluded from being used, either as a substitute for
such instruments, or to contradict or alter them. This is a matter both of principle
and of policy; of principle because such instruments are in their nature and
origin entitled to a much higher degree of credit than evidence of policy,
because it would be attended with great mischief if those instruments upon
which man's rights depended were liable to be impeached by loose collateral
evidence. Where the terms of an agreement are reduced to writing, the
document itself, being constituted by the parties as the expositor of their
intentions, it is the only instrument of evidence in respect of that
agreement which the law will recognize so long as it exists for the purpose of
evidence. (Starkie, EV, pp. 648, 655 cited in Kasheenath vs. Chundy, W.R. 68,
cited in Francisco's Rules of Court, Vol. VII Part I p. 153) (Emphasis supplied,
pp. 126-127, Records).
The respondent appellate court, however, ruled that the said deed of option is void for
lack of consideration. The appellate court made the following disquisitions:
Plaintiff-appellees say they agreed to pay P70.00 per square meter for the
portion purchased by them although the prevailing price at that time was only
P25.00 in consideration of the option to buy the remainder of the land. This
does not seem to be the case. In the first place, the deed of sale was never
produced by them to prove their claim. Defendant-appellants testified that no
copy of the deed of sale had ever been given to them by the plaintiff-appellees.
In the second place, if this was really the condition of the prior sale, we see no
reason why it should be reiterated in the Deed of Option. On the contrary, the
alleged overprice paid by the plaintiff-appellees is given in the Deed as reason
for the desire of the Villamors to acquire the land rather than as a consideration
for the option given to them, although one might wonder why they took nearly
13 years to invoke their right if they really were in due need of the lot.
At all events, the consideration needed to support a unilateral promise to sell is
a dinstinct one, not something that is as uncertain as P70.00 per square meter
which is allegedly 'greatly higher than the actual prevailing value of lands.' A
sale must be for a price certain (Art. 1458). For how much the portion conveyed
to the plaintiff-appellees was sold so that the balance could be considered the
consideration for the promise to sell has not been shown, beyond a mere
allegation that it was very much below P70.00 per square meter.
The fact that plaintiff-appellees might have paid P18.00 per square meter for
another land at the time of the sale to them of a portion of defendant-appellant's
lot does not necessarily prove that the prevailing market price at the time of the
sale was P18.00 per square meter. (In fact they claim it was P25.00). It is
improbable that plaintiff-appellees should pay P52.00 per square meter for the
privilege of buying when the value of the land itself was allegedly P18.00 per
square meter. (pp. 34-35, Rollo)
As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the
contracts, the essential reason which moves the contracting parties to enter into the
contract." The cause or the impelling reason on the part of private respondent executing
17
the deed of option as appearing in the deed itself is the petitioner's having agreed to buy
the 300 square meter portion of private respondents' land at P70.00 per square meter
"which was greatly higher than the actual reasonable prevailing price." This cause or
consideration is clear from the deed which stated:
That the only reason why the spouses-vendees Julio Villamor and Marina V.
Villamor agreed to buy the said one-half portion at the above stated price of
about P70.00 per square meter, is because I, and my husband Roberto Reyes,
have agreed to sell and convey to them the remaining one-half portion still
owned by me ... (p. 26, Rollo)
The respondent appellate court failed to give due consideration to petitioners' evidence
which shows that in 1969 the Villamor spouses bough an adjacent lot from the brother of
Macaria Labing-isa for only P18.00 per square meter which the private respondents did
not rebut. Thus, expressed in terms of money, the consideration for the deed of option is
the difference between the purchase price of the 300 square meter portion of the lot in
1971 (P70.00 per sq.m.) and the prevailing reasonable price of the same lot in 1971.
Whatever it is, (P25.00 or P18.00) though not specifically stated in the deed of option,
was ascertainable. Petitioner's allegedly paying P52.00 per square meter for the option
may, as opined by the appellate court, be improbable but improbabilities does not
invalidate a contract freely entered into by the parties.
The "deed of option" entered into by the parties in this case had unique features.
Ordinarily, an optional contract is a privilege existing in one person, for which he had paid
a consideration and which gives him the right to buy, for example, certain merchandise or
certain specified property, from another person, if he chooses, at any time within the
agreed period at a fixed price (Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We look
closely at the "deed of option" signed by the parties, We will notice that the first part
covered the statement on the sale of the 300 square meter portion of the lot to Spouses
Villamor at the price of P70.00 per square meter "which was higher than the actual
reasonable prevailing value of the lands in that place at that time (of sale)." The second
part stated that the only reason why the Villamor spouses agreed to buy the said lot at a
much higher price is because the vendor (Reyeses) also agreed to sell to the Villamors
the other half-portion of 300 square meters of the land. Had the deed stopped there,
there would be no dispute that the deed is really an ordinary deed of option granting the
Villamors the option to buy the remaining 300 square meter-half portion of the lot in
consideration for their having agreed to buy the other half of the land for a much higher
price. But, the "deed of option" went on and stated that the sale of the other half would be
made "whenever the need of such sale arises, either on our (Reyeses) part or on the part
of the Spouses Julio Villamor and Marina V. Villamor. It appears that while the option to
buy was granted to the Villamors, the Reyeses were likewise granted an option to sell. In
other words, it was not only the Villamors who were granted an option to buy for which
they paid a consideration. The Reyeses as well were granted an option to sell should the
need for such sale on their part arise.
In the instant case, the option offered by private respondents had been accepted by the
petitioner, the promise, in the same document. The acceptance of an offer to sell for a
price certain created a bilateral contract to sell and buy and upon acceptance, the
offer, ipso facto assumes obligations of a vendee (See Atkins, Kroll & Co. v. Cua Mian
Tek, 102 Phil. 948). Demandabilitiy may be exercised at any time after the execution of
the deed. In Sanchez v. Rigos, No. L-25494, June 14, 1972, 45 SCRA 368, 376, We
held:
In other words, since there may be no valid contract without a cause of
consideration, the promisory is not bound by his promise and may, accordingly
withdraw it. Pending notice of its withdrawal, his accepted promise partakes,
however, of the nature of an offer to sell which, if accepted, results in a
perfected contract of sale.

A contract of sale is, under Article 1475 of the Civil Code, "perfected at the moment there
is a meeting of minds upon the thing which is the object of the contract and upon the
price. From that moment, the parties may reciprocally demand perform of contracts."
Since there was, between the parties, a meeting of minds upon the object and the price,
there was already a perfected contract of sale. What was, however, left to be done was
for either party to demand from the other their respective undertakings under the
contract. It may be demanded at any time either by the private respondents, who may
compel the petitioners to pay for the property or the petitioners, who may compel the
private respondents to deliver the property.
However, the Deed of Option did not provide for the period within which the parties may
demand the performance of their respective undertakings in the instrument. The parties
could not have contemplated that the delivery of the property and the payment thereof
could be made indefinitely and render uncertain the status of the land. The failure of
either parties to demand performance of the obligation of the other for an unreasonable
length of time renders the contract ineffective.
Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought
within ten (10) years. The Deed of Option was executed on November 11, 1971. The
acceptance, as already mentioned, was also accepted in the same instrument. The
complaint in this case was filed by the petitioners on July 13, 1987, seventeen (17) years
from the time of the execution of the contract. Hence, the right of action had prescribed.
There were allegations by the petitioners that they demanded from the private
respondents as early as 1984 the enforcement of their rights under the contract. Still, it
was beyond the ten (10) years period prescribed by the Civil Code. In the case of Santos
v. Ganayo, L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and
subscribing to the observations of the court a quo held, thus:
... Assuming that Rosa Ganayo, the oppositor herein, had the right based on the
Agreement to Convey and Transfer as contained in Exhibits '1' and '1-A', her
failure or the abandonment of her right to file an action against Pulmano
Molintas when he was still a co-owner of the on-half (1/2) portion of the 10,000
square meters is now barred by laches and/or prescribed by law because she
failed to bring such action within ten (10) years from the date of the written
agreement in 1941, pursuant to Art. 1144 of the New Civil Code, so that when
she filed the adverse claim through her counsel in 1959 she had absolutely no
more right whatsoever on the same, having been barred by laches.
It is of judicial notice that the price of real estate in Metro Manila is continuously on the
rise. To allow the petitioner to demand the delivery of the property subject of this case
thirteen (13) years or seventeen (17) years after the execution of the deed at the price of
only P70.00 per square meter is inequitous. For reasons also of equity and in
consideration of the fact that the private respondents have no other decent place to live,
this Court, in the exercise of its equity jurisdiction is not inclined to grant petitioners'
prayer.
ACCORDINGLY, the petition is DENIED. The decision of respondent appellate court is
AFFIRMED for reasons cited in this decision. Judgement is rendered dismissing the
complaint in Civil Case No. C-12942 on the ground of prescription and laches.
SO ORDERED.
Narvasa (Chairman) and Cruz, JJ., concur.
Griño-Aquino, J., took no part.
18
G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.
VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04
December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and
effect the orders of execution of the trial court, dated 30 August 1991 and 27 September
1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific
Performance was filed by Ang Yu Asuncion and Keh Tiong, et al.,
against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the
Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058,
alleging, among others, that plaintiffs are tenants or lessees of
residential and commercial spaces owned by defendants described as
Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied
said spaces since 1935 and have been religiously paying the rental
and complying with all the conditions of the lease contract; that on
several occasions before October 9, 1986, defendants informed
plaintiffs that they are offering to sell the premises and are giving them
priority to acquire the same; that during the negotiations, Bobby Cu
Unjieng offered a price of P6-million while plaintiffs made a counter
offer of P5-million; that plaintiffs thereafter asked the defendants to put
their offer in writing to which request defendants acceded; that in reply
to defendant's letter, plaintiffs wrote them on October 24, 1986 asking
that they specify the terms and conditions of the offer to sell; that when
plaintiffs did not receive any reply, they sent another letter dated
January 28, 1987 with the same request; that since defendants failed
to specify the terms and conditions of the offer to sell and because of
information received that defendants were about to sell the property,
plaintiffs were compelled to file the complaint to compel defendants to
sell the property to them.
Defendants filed their answer denying the material allegations of the
complaint and interposing a special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary
judgment which was granted by the lower court. The trial court found
that defendants' offer to sell was never accepted by the plaintiffs for
the reason that the parties did not agree upon the terms and conditions
of the proposed sale, hence, there was no contract of sale at all.
Nonetheless, the lower court ruled that should the defendants
subsequently offer their property for sale at a price of P11-million or
below, plaintiffs will have the right of first refusal. Thus the dispositive
portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor
of the defendants and against the plaintiffs
summarily dismissing the complaint subject to the
aforementioned condition that if the defendants
subsequently decide to offer their property for sale

for a purchase price of Eleven Million Pesos or
lower, then the plaintiffs has the option to purchase
the property or of first refusal, otherwise, defendants
need not offer the property to the plaintiffs if the
purchase price is higher than Eleven Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September 21,
1990 (penned by Justice Segundino G. Chua and concurred in by
Justices Vicente V. Mendoza and Fernando A. Santiago), this Court
affirmed with modification the lower court's judgment, holding:
In resume, there was no meeting of the minds
between the parties concerning the sale of the
property. Absent such requirement, the claim for
specific performance will not lie. Appellants' demand
for actual, moral and exemplary damages will
likewise fail as there exists no justifiable ground for
its award. Summary judgment for defendants was
properly granted. Courts may render summary
judgment when there is no genuine issue as to any
material fact and the moving party is entitled to a
judgment as a matter of law (Garcia vs. Court of
Appeals, 176 SCRA 815). All requisites obtaining,
the decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the
judgment appealed from is hereby AFFIRMED, but
subject to the following modification: The court a
quo in the aforestated decision gave the plaintiffs-
appellants the right of first refusal only if the property
is sold for a purchase price of Eleven Million pesos
or lower; however, considering the mercurial and
uncertain forces in our market economy today. We
find no reason not to grant the same right of first
refusal to herein appellants in the event that the
subject property is sold for a price in excess of
Eleven Million pesos. No pronouncement as to
costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by
petition for review on certiorari. The Supreme Court denied the appeal
on May 6, 1991 "for insufficiency in form and substances" (Annex H,
Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending
consideration by this Court, the Cu Unjieng spouses executed a Deed
of Sale (Annex D, Petition) transferring the property in question to
herein petitioner Buen Realty and Development Corporation, subject to
the following terms and conditions:
1. That for and in consideration of the sum of
FIFTEEN MILLION PESOS (P15,000,000.00),
receipt of which in full is hereby acknowledged, the
VENDORS hereby sells, transfers and conveys for
and in favor of the VENDEE, his heirs, executors,
administrators or assigns, the above-described
19
property with all the improvements found therein
including all the rights and interest in the said
property free from all liens and encumbrances of
whatever nature, except the pending ejectment
proceeding;
2. That the VENDEE shall pay the Documentary
Stamp Tax, registration fees for the transfer of title in
his favor and other expenses incidental to the sale of
above-described property including capital gains tax
and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of
the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No.
195816 was issued in the name of petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject property
wrote a letter to the lessees demanding that the latter vacate the
premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that
petitioner brought the property subject to the notice of lis
pendens regarding Civil Case No. 87-41058 annotated on TCT No.
105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the
Decision in Civil Case No. 87-41058 as modified by the Court of
Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A,
Petition) quoted as follows:
Presented before the Court is a Motion for Execution
filed by plaintiff represented by Atty. Antonio Albano.
Both defendants Bobby Cu Unjieng and Rose Cu
Unjieng represented by Atty. Vicente Sison and Atty.
Anacleto Magno respectively were duly notified in
today's consideration of the motion as evidenced by
the rubber stamp and signatures upon the copy of
the Motion for Execution.
The gist of the motion is that the Decision of the
Court dated September 21, 1990 as modified by the
Court of Appeals in its decision in CA G.R. CV-
21123, and elevated to the Supreme Court upon the
petition for review and that the same was denied by
the highest tribunal in its resolution dated May 6,
1991 in G.R. No.
L-97276, had now become final and executory. As a
consequence, there was an Entry of Judgment by
the Supreme Court as of June 6, 1991, stating that
the aforesaid modified decision had already become
final and executory.
It is the observation of the Court that this property in
dispute was the subject of the Notice of Lis
Pendens and that the modified decision of this Court
promulgated by the Court of Appeals which had
become final to the effect that should the defendants
decide to offer the property for sale for a price of P11
Million or lower, and considering the mercurial and
uncertain forces in our market economy today, the

same right of first refusal to herein
plaintiffs/appellants in the event that the subject
property is sold for a price in excess of Eleven
Million pesos or more.
WHEREFORE, defendants are hereby ordered to
execute the necessary Deed of Sale of the property
in litigation in favor of plaintiffs Ang Yu Asuncion,
Keh Tiong and Arthur Go for the consideration of
P15 Million pesos in recognition of plaintiffs' right of
first refusal and that a new Transfer Certificate of
Title be issued in favor of the buyer.
All previous transactions involving the same property
notwithstanding the issuance of another title to Buen
Realty Corporation, is hereby set aside as having
been executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the
dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution issue
in the above-entitled case directing the Deputy
Sheriff Ramon Enriquez of this Court to implement
said Writ of Execution ordering the defendants
among others to comply with the aforesaid Order of
this Court within a period of one (1) week from
receipt of this Order and for defendants to execute
the necessary Deed of Sale of the property in
litigation in favor of the plaintiffs Ang Yu Asuncion,
Keh Tiong and Arthur Go for the consideration of
P15,000,000.00 and ordering the Register of Deeds
of the City of Manila, to cancel and set aside the title
already issued in favor of Buen Realty Corporation
which was previously executed between the latter
and defendants and to register the new title in favor
of the aforesaid plaintiffs Ang Yu Asuncion, Keh
Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of
execution (Annex C, Petition) was issued.1
On 04 December 1991, the appellate court, on appeal to it by private respondent, set
aside and declared without force and effect the above questioned orders of the court a
quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be held
bound by the writ of execution by virtue of the notice of lis pendens, carried over on TCT
No. 195816 issued in the name of Buen Realty, at the time of the latter's purchase of the
property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of such
arrangements as the right of first refusal, a purchase option and a contract to sell. For
ready reference, we might point out some fundamental precepts that may find some
relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The
obligation is constituted upon the concurrence of the essential elements thereof, viz: (a)
The vinculum juris or juridical tie which is the efficient cause established by the various
20
sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b)
the object which is the prestation or conduct; required to be observed (to give, to do or
not to do); and (c) the subject-persons who, viewed from the demandability of the
obligation, are the active (obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a
meeting of minds between two persons whereby one binds himself, with respect to the
other, to give something or to render some service (Art. 1305, Civil Code). A contract
undergoes various stages that include its negotiation or preparation, its perfection and,
finally, its consummation. Negotiation covers the period from the time the prospective
contracting parties indicate interest in the contract to the time the contract is concluded
(perfected). The perfection of the contract takes place upon the concurrence of the
essential elements thereof. A contract which is consensual as to perfection is so
established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance,
on the object and on the cause thereof. A contract which requires, in addition to the
above, the delivery of the object of the agreement, as in a pledge or commodatum, is
commonly referred to as a real contract. In a solemn contract, compliance with certain
formalities prescribed by law, such as in a donation of real property, is essential in order
to make the act valid, the prescribed form being thereby an essential element thereof.
The stage of consummation begins when the parties perform their respective
undertakings under the contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve as
a binding juridical relation. In sales, particularly, to which the topic for discussion about
the case at bench belongs, the contract is perfected when a person, called the seller,
obligates himself, for a price certain, to deliver and to transfer ownership of a thing or
right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil
Code provides:
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where
invariably the ownership of the thing sold is retained until the fulfillment of a positive
suspensive condition (normally, the full payment of the purchase price), the breach of the
condition will prevent the obligation to convey title from acquiring an obligatory
force.2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although
denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is
devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated,
e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon
actual or constructive delivery (e.g., by the execution of a public document) of the
property sold. Where the condition is imposed upon the perfection of the contract itself,
the failure of the condition would prevent such perfection. 3 If the condition is imposed on
the obligation of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil Code).4
An unconditional mutual promise to buy and sell, as long as the object is made
determinate and the price is fixed, can be obligatory on the parties, and compliance
therewith may accordingly be exacted.5
An accepted unilateral promise which specifies the thing to be sold and the price to
be paid, when coupled with a valuable consideration distinct and separate from the price,
is what may properly be termed a perfected contract of option. This contract is legally
binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil
Code, viz:
Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for
a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price. (1451a)6
Observe, however, that the option is not the contract of sale itself.7 The optionee has the
right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is
accepted before a breach of the option, a bilateral promise to sell and to buy ensues and
both parties are then reciprocally bound to comply with their respective undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect
promise (policitacion) is merely an offer. Public advertisements or solicitations and the
like are ordinarily construed as mere invitations to make offers or only as proposals.
These relations, until a contract is perfected, are not considered binding commitments.
Thus, at any time prior to the perfection of the contract, either negotiating party may stop
the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective
immediately after its manifestation, such as by its mailing and not necessarily when the
offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given
to the offeree within which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is
still free and has the right to withdraw the offer before its acceptance, or, if an
acceptance has been made, before the offeror's coming to know of such fact, by
communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins,
Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral
promise to sell under Art. 1479, modifying the previous decision in South Western Sugar
vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Parañaque,
Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to
withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could
give rise to a damage claim under Article 19 of the Civil Code which ordains that "every
person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is deemed perfected,
and it would be a breach of that contract to withdraw the offer during the agreed period.
The option, however, is an independent contract by itself, and it is to be distinguished
from the projected main agreement (subject matter of the option) which is obviously yet
to be concluded. If, in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree, the latter may not sue
for specific performance on the proposed contract ("object" of the option) since it has
failed to reach its own stage of perfection. The optioner-offeror, however, renders himself
liable for damages for breach of the option. In these cases, care should be taken of the
real nature of the consideration given, for if, in fact, it has been intended to be part of the
consideration for the main contract with a right of withdrawal on the part of the optionee,
the main contract could be deemed perfected; a similar instance would be an "earnest
money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract of sale under Article
1458 of the Civil Code. Neither can the right of first refusal, understood in its normal
concept, per se be brought within the purview of an option under the second paragraph
of Article 1479, aforequoted, or possibly of an offer under Article 13199 of the same
Code. An option or an offer would require, among other things, 10 a clear certainty on both
the object and the cause or consideration of the envisioned contract. In a right of first
refusal, while the object might be made determinate, the exercise of the right, however,
would be dependent not only on the grantor's eventual intention to enter into a binding
juridical relation with another but also on terms, including the price, that obviously are yet
to be later firmed up. Prior thereto, it can at best be so described as merely belonging to
a class of preparatory juridical relations governed not by contracts (since the essential
21
elements to establish the vinculum juris would still be indefinite and inconclusive) but by,
among other laws of general application, the pertinent scattered provisions of the Civil
Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final
judgment, like here, its breach cannot justify correspondingly an issuance of a writ of
execution under a judgment that merely recognizes its existence, nor would it sanction
an action for specific performance without thereby negating the indispensable element of
consensuality in the perfection of contracts.11 It is not to say, however, that the right of
first refusal would be inconsequential for, such as already intimated above, an unjustified
disregard thereof, given, for instance, the circumstances expressed in Article 1912 of the
Civil Code, can warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded
a "right of first refusal" in favor of petitioners. The consequence of such a declaration
entails no more than what has heretofore been said. In fine, if, as it is here so conveyed
to us, petitioners are aggrieved by the failure of private respondents to honor the right of
first refusal, the remedy is not a writ of execution on the judgment, since there is none to
execute, but an action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the
alleged purchaser of the property, has acted in good faith or bad faith and whether or not
it should, in any case, be considered bound to respect the registration of the lis
pendens in Civil Case No. 87-41058 are matters that must be independently addressed
in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No.
87-41058, cannot be held subject to the writ of execution issued by respondent Judge, let
alone ousted from the ownership and possession of the property, without first being duly
afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred in
holding that the writ of execution varies the terms of the judgment in Civil Case No. 87-
41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has
observed:
Finally, the questioned writ of execution is in variance with the decision
of the trial court as modified by this Court. As already stated, there was
nothing in said decision 13 that decreed the execution of a deed of sale
between the Cu Unjiengs and respondent lessees, or the fixing of the
price of the sale, or the cancellation of title in the name of petitioner
(Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila
vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor
vs. CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not
have decreed at the time the execution of any deed of sale between the Cu Unjiengs and
petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the
questioned Orders, dated 30 August 1991 and 27 September 1991, of the court a quo.
Costs against petitioners.
SO ORDERED.
Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason,
Puno and Mendoza, JJ., concur.
Kapunan, J., took no part.
Feliciano, J., is on leave.
EN BANC

G.R. No. 106063 November 21, 1996
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN,
INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.
HERMOSISIMA, JR., J.:
Before us is a petition for review of the decision1 of the Court of
Appeals2 involving questions in the resolution of which the respondent appellate
court analyzed and interpreted particular provisions of our laws on contracts and
sales. In its assailed decision, the respondent court reversed the trial
court3 which, in dismissing the complaint for specific performance with damages
and annulment of contract,4 found the option clause in the lease contracts
entered into by private respondent Mayfair Theater, Inc. (hereafter, Mayfair) and
petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to be impossible of
performance and unsupported by a consideration and the subsequent sale of
the subject property to petitioner Equatorial Realty Development, Inc. (hereafter,
Equatorial) to have been made without any breach of or prejudice to, the said
lease contracts.5
We reproduce below the facts as narrated by the respondent court, which
narration, we note, is almost verbatim the basis of the statement of facts as
rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land, together with two 2-storey buildings
constructed thereon located at Claro M Recto Avenue, Manila, and
covered by TCT No. 18529 issued in its name by the Register of
Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease with Mayfair
for the latter's lease of a portion of Carmelo's property particularly
described, to wit:
A PORTION OF THE SECOND FLOOR of the two-
storey building, situated at C.M. Recto Avenue,
Manila, with a floor area of 1,610 square meters.
THE SECOND FLOOR AND MEZZANINE of the
two-storey building, situated at C.M. Recto Avenue,
Manila, with a floor area of 150 square meters.
for use by Mayfair as a motion picture theater and for a term of twenty
(20) years. Mayfair thereafter constructed on the leased property a
movie house known as "Maxim Theatre."
Two years later, on March 31, 1969, Mayfair entered into a second
contract of lease with Carmelo for the lease of another portion of
Carmelo's property, to wit:
A PORTION OF THE SECOND FLOOR of the two-
storey building, situated at C.M. Recto Avenue,
Manila, with a floor area of 1,064 square meters.
THE TWO (2) STORE SPACES AT THE GROUND
FLOOR and MEZZANINE of the two-storey building
situated at C.M. Recto Avenue, Manila, with a floor
area of 300 square meters and bearing street
numbers 1871 and 1875,
for similar use as a movie theater and for a similar term of twenty (20)
years. Mayfair put up another movie house known as "Miramar
Theatre" on this leased property.
22
Both contracts of lease provides (sic) identically worded paragraph 8,
which reads:
That if the LESSOR should desire to sell the leased
premises, the LESSEE shall be given 30-days
exclusive option to purchase the same.
In the event, however, that the leased premises is
sold to someone other than the LESSEE, the
LESSOR is bound and obligated, as it hereby binds
and obligates itself, to stipulate in the Deed of Sale
hereof that the purchaser shall recognize this lease
and be bound by all the terms and conditions
thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr.
Henry Yang, President of Mayfair, through a telephone conversation
that Carmelo was desirous of selling the entire Claro M. Recto
property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was
offering to buy the whole property for US Dollars 1,200,000, and Mr.
Pascal asked Mr. Yang if the latter was willing to buy the property for
Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his decision. On
August 23, 1974, Mayfair replied through a letter stating as follows:
It appears that on August 19, 1974 your Mr. Henry
Pascal informed our client's Mr. Henry Yang through
the telephone that your company desires to sell your
above-mentioned C.M. Recto Avenue property.
Under your company's two lease contracts with our
client, it is uniformly provided:
8. That if the LESSOR should desire to sell the
leased premises the LESSEE shall be given 30-days
exclusive option to purchase the same. In the event,
however, that the leased premises is sold to
someone other than the LESSEE, the LESSOR is
bound and obligated, as it is (sic) herebinds (sic) and
obligates itself, to stipulate in the Deed of Sale
thereof that the purchaser shall recognize this lease
and be bound by all the terms and conditions hereof
(sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another letter to Carmelo
purporting to express interest in acquiring not only the leased premises
but "the entire building and other improvements if the price is
reasonable. However, both Carmelo and Equatorial questioned the
authenticity of the second letter.
Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto
Avenue land and building, which included the leased premises housing
the "Maxim" and "Miramar" theatres, to Equatorial by virtue of a Deed
of Absolute Sale, for the total sum of P11,300,000.00.
In September 1978, Mayfair instituted the action a quo for specific
performance and annulment of the sale of the leased premises to
Equatorial. In its Answer, Carmelo alleged as special and affirmative
defense (a) that it had informed Mayfair of its desire to sell the entire
C.M. Recto Avenue property and offered the same to Mayfair, but the
latter answered that it was interested only in buying the areas under

lease, which was impossible since the property was not a
condominium; and (b) that the option to purchase invoked by Mayfair is
null and void for lack of consideration. Equatorial, in its Answer,
pleaded as special and affirmative defense that the option is void for
lack of consideration (sic) and is unenforceable by reason of its
impossibility of performance because the leased premises could not be
sold separately from the other portions of the land and building. It
counterclaimed for cancellation of the contracts of lease, and for
increase of rentals in view of alleged supervening extraordinary
devaluation of the currency. Equatorial likewise cross-claimed against
co-defendant Carmelo for indemnification in respect of Mayfair's
claims.
During the pre-trial conference held on January 23, 1979, the parties
stipulated on the following:
1. That there was a deed of sale of the contested
premises by the defendant Carmelo . . . in favor of
defendant Equatorial . . .;
2. That in both contracts of lease there appear (sic)
the stipulation granting the plaintiff exclusive option
to purchase the leased premises should the lessor
desire to sell the same (admitted subject to the
contention that the stipulation is null and void);
3. That the two buildings erected on this land are not
of the condominium plan;
4. That the amounts stipulated and mentioned in
paragraphs 3 (a) and (b) of the contracts of lease
constitute the consideration for the plaintiff's
occupancy of the leased premises, subject of the
same contracts of lease, Exhibits A and B;
xxx xxx xxx
6. That there was no consideration specified in the
option to buy embodied in the contract;
7. That Carmelo & Bauermann owned the land and
the two buildings erected thereon;
8. That the leased premises constitute only the
portions actually occupied by the theaters; and
9. That what was sold by Carmelo & Bauermann to
defendant Equatorial Realty is the land and the two
buildings erected thereon.
xxx xxx xxx
After assessing the evidence, the court a quo rendered the appealed
decision, the decretal portion of which reads as follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs against the
plaintiff;
(2) Ordering plaintiff to pay defendant Carmelo &
Bauermann P40,000.00 by way of attorney's fees on
its counterclaim;
(3) Ordering plaintiff to pay defendant Equatorial
Realty P35,000.00 per month as reasonable
compensation for the use of areas not covered by
the contract (sic) of lease from July 31, 1979 until
plaintiff vacates said area (sic) plus legal interest
23
from July 31, 1978; P70,000 00 per month as
reasonable compensation for the use of the
premises covered by the contracts (sic) of lease
dated (June 1, 1967 from June 1, 1987 until plaintiff
vacates the premises plus legal interest from June 1,
1987; P55,000.00 per month as reasonable
compensation for the use of the premises covered
by the contract of lease dated March 31, 1969 from
March 30, 1989 until plaintiff vacates the premises
plus legal interest from March 30, 1989; and
P40,000.00 as attorney's fees;
(4) Dismissing defendant Equatorial's crossclaim
against defendant Carmelo & Bauermann.
The contracts of lease dated June 1, 1967 and
March 31, 1969 are declared expired and all persons
claiming rights under these contracts are directed to
vacate the premises.6
The trial court adjudged the identically worded paragraph 8 found in both
aforecited lease contracts to be an option clause which however cannot be
deemed to be binding on Carmelo because of lack of distinct consideration
therefor.
The court a quo ratiocinated:
Significantly, during the pre-trial, it was admitted by the parties that the
option in the contract of lease is not supported by a separate
consideration. Without a consideration, the option is therefore not
binding on defendant Carmelo & Bauermann to sell the C.M. Recto
property to the former. The option invoked by the plaintiff appears in
the contracts of lease . . . in effect there is no option, on the ground
that there is no consideration. Article 1352 of the Civil Code, provides:
Contracts without cause or with unlawful cause,
produce no effect whatever. The cause is unlawful if
it is contrary to law, morals, good custom, public
order or public policy.
Contracts therefore without consideration produce no effect
whatsoever. Article 1324 provides:
When the offeror has allowed the offeree a certain
period to accept, the offer may be withdrawn at any
time before acceptance by communicating such
withdrawal, except when the option is founded upon
consideration, as something paid or promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a determine thing for a
price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determine thing for a price certain is binding upon
the promissor if the promise is supported by a
consideration distinct from the price.
The plaintiff cannot compel defendant Carmelo to comply with the
promise unless the former establishes the existence of a distinct
consideration. In other words, the promisee has the burden of proving
the consideration. The consideration cannot be presumed as in Article
1354:

Although the cause is not stated in the contract, it is
presumed that it exists and is lawful unless the
debtor proves the contrary.
where consideration is legally presumed to exists. Article 1354 applies
to contracts in general, whereas when it comes to an option it is
governed particularly and more specifically by Article 1479 whereby
the promisee has the burden of proving the existence of consideration
distinct from the price. Thus, in the case of Sanchez vs. Rigor, 45
SCRA 368, 372-373, the Court said:
(1) Article 1354 applies to contracts in general,
whereas the second paragraph of Article 1479 refers
to sales in particular, and, more specifically, to an
accepted unilateral promise to buy or to sell. In other
words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be
binding upon the promissor, Article 1479 requires the
concurrence of a condition, namely, that the promise
be supported by a consideration distinct from the
price.
Accordingly, the promisee cannot compel the
promissor to comply with the promise, unless the
former establishes the existence of said distinct
consideration. In other words, the promisee has the
burden of proving such consideration. Plaintiff herein
has not even alleged the existence thereof in his
complaint. 7
It follows that plaintiff cannot compel defendant Carmelo & Bauermann
to sell the C.M. Recto property to the former.
Mayfair taking exception to the decision of the trial court, the battleground
shifted to the respondent Court of Appeals. Respondent appellate court
reversed the court a quo and rendered judgment:
1. Reversing and setting aside the appealed Decision;
2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and
return to Equatorial the amount of P11,300,000.00 within fifteen (15)
days from notice of this Decision, and ordering Equatorial Realty
Development, Inc. to accept such payment;
3. Upon payment of the sum of P11,300,000, directing Equatorial
Realty Development, Inc. to execute the deeds and documents
necessary for the issuance and transfer of ownership to Mayfair of the
lot registered under TCT Nos. 17350, 118612, 60936, and 52571; and
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the
amount as adjudged, declaring the Deed of Absolute Sale between the
defendants-appellants Carmelo & Bauermann, Inc. and Equatorial
Realty Development, Inc. as valid and binding upon all the parties.8
Rereading the law on the matter of sales and option contracts, respondent
Court of Appeals differentiated between Article 1324 and Article 1479 of the
Civil Code, analyzed their application to the facts of this case, and concluded
that since paragraph 8 of the two lease contracts does not state a fixed price for
the purchase of the leased premises, which is an essential element for a
contract of sale to be perfected, what paragraph 8 is, must be a right of first
refusal and not an option contract. It explicated:
Firstly, the court a quo misapplied the provisions of Articles 1324 and
1479, second paragraph, of the Civil Code.
24
Article 1324 speaks of an "offer" made by an offeror which the offeree
may or may not accept within a certain period. Under this article, the
offer may be withdrawn by the offeror before the expiration of the
period and while the offeree has not yet accepted the offer. However,
the offer cannot be withdrawn by the offeror within the period if a
consideration has been promised or given by the offeree in exchange
for the privilege of being given that period within which to accept the
offer. The consideration is distinct from the price which is part of the
offer. The contract that arises is known as option. In the case
of Beaumont vs. Prieto, 41 Phil. 670, the Supreme court, citing
Bouvier, defined an option as follows: "A contract by virtue of which A,
in consideration of the payment of a certain sum to B, acquires the
privilege of buying from or selling to B, certain securities or properties
within a limited time at a specified price," (pp. 686-7).
Article 1479, second paragraph, on the other hand, contemplates of an
"accepted unilateral promise to buy or to sell a determinate thing for a
price within (which) is binding upon the promisee if the promise is
supported by a consideration distinct from the price." That "unilateral
promise to buy or to sell a determinate thing for a price certain" is
called an offer. An "offer", in laws, is a proposal to enter into a contract
(Rosenstock vs. Burke, 46 Phil. 217). To constitute a legal offer, the
proposal must be certain as to the object, the price and other essential
terms of the contract (Art. 1319, Civil Code).
Based on the foregoing discussion, it is evident that the provision
granting Mayfair "30-days exclusive option to purchase" the leased
premises is NOT AN OPTION in the context of Arts. 1324 and 1479,
second paragraph, of the Civil Code. Although the provision is certain
as to the object (the sale of the leased premises) the price for which
the object is to be sold is not stated in the provision Otherwise stated,
the questioned stipulation is not by itself, an "option" or the "offer to
sell" because the clause does not specify the price for the subject
property.
Although the provision giving Mayfair "30-days exclusive option to
purchase" cannot be legally categorized as an option, it is,
nevertheless, a valid and binding stipulation. What the trial court failed
to appreciate was the intention of the parties behind the questioned
proviso.
xxx xxx xxx
The provision in question is not of the pro-forma type customarily found
in a contract of lease. Even appellees have recognized that the
stipulation was incorporated in the two Contracts of Lease at the
initiative and behest of Mayfair. Evidently, the stipulation was intended
to benefit and protect Mayfair in its rights as lessee in case Carmelo
should decide, during the term of the lease, to sell the leased property.
This intention of the parties is achieved in two ways in accordance with
the stipulation. The first is by giving Mayfair "30-days exclusive option
to purchase" the leased property. The second is, in case Mayfair would
opt not to purchase the leased property, "that the purchaser (the new
owner of the leased property) shall recognize the lease and be bound
by all the terms and conditions thereof."
In other words, paragraph 8 of the two Contracts of lease, particularly
the stipulation giving Mayfair "30-days exclusive option to purchase the
(leased premises)," was meant to provide Mayfair the opportunity to

purchase and acquire the leased property in the event that Carmelo
should decide to dispose of the property. In order to realize this
intention, the implicit obligation of Carmelo once it had decided to sell
the leased property, was not only to notify Mayfair of such decision to
sell the property, but, more importantly, to make an offer to sell the
leased premises to Mayfair, giving the latter a fair and reasonable
opportunity to accept or reject the offer, before offering to sell or selling
the leased property to third parties. The right vested in Mayfair is
analogous to the right of first refusal, which means that Carmelo
should have offered the sale of the leased premises to Mayfair before
offering it to other parties, or, if Carmelo should receive any offer from
third parties to purchase the leased premises, then Carmelo must first
give Mayfair the opportunity to match that offer.
In fact, Mr. Pascal understood the provision as giving Mayfair a right of
first refusal when he made the telephone call to Mr. Yang in 1974. Mr.
Pascal thus testified:
Q Can you tell this Honorable
Court how you made the offer to
Mr. Henry Yang by telephone?
A I have an offer from another
party to buy the property and
having the offer we decided to
make an offer to Henry Yang on a
first-refusal basis. (TSN November
8, 1983, p. 12.).
and on cross-examination:
Q When you called Mr. Yang on
August 1974 can you remember
exactly what you have told him in
connection with that matter, Mr.
Pascal?
A More or less, I told him that I
received an offer from another
party to buy the property and I was
offering him first choice of the
enter property. (TSN, November
29, 1983, p. 18).
We rule, therefore, that the foregoing interpretation best renders
effectual the intention of the parties.9
Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to
which the requirement of distinct consideration indispensable in an option
contract, has no application, respondent appellate court also addressed the
claim of Carmelo and Equatorial that assuming arguendo that the option is valid
and effective, it is impossible of performance because it covered only the leased
premises and not the entire Claro M. Recto property, while Carmelo's offer to
sell pertained to the entire property in question. The Court of Appeals ruled as
to this issue in this wise:
We are not persuaded by the contentions of the defendants-appellees.
It is to be noted that the Deed of Absolute Sale between Carmelo and
Equatorial covering the whole Claro M. Recto property, made
reference to four titles: TCT Nos. 17350, 118612, 60936 and 52571.
Based on the information submitted by Mayfair in its appellant's Brief
(pp. 5 and 46) which has not been controverted by the appellees, and
25
which We, therefore, take judicial notice of the two theaters stand on
the parcels of land covered by TCT No. 17350 with an area of 622.10
sq. m and TCT No. 118612 with an area of 2,100.10 sq. m. The
existence of four separate parcels of land covering the whole Recto
property demonstrates the legal and physical possibility that each
parcel of land, together with the buildings and improvements thereof,
could have been sold independently of the other parcels.
At the time both parties executed the contracts, they were aware of the
physical and structural conditions of the buildings on which the
theaters were to be constructed in relation to the remainder of the
whole Recto property. The peculiar language of the stipulation would
tend to limit Mayfair's right under paragraph 8 of the Contract of Lease
to the acquisition of the leased areas only. Indeed, what is being
contemplated by the questioned stipulation is a departure from the
customary situation wherein the buildings and improvements are
included in and form part of the sale of the subjacent land. Although
this situation is not common, especially considering the non-
condominium nature of the buildings, the sale would be valid and
capable of being performed. A sale limited to the leased premises only,
if hypothetically assumed, would have brought into operation the
provisions of co-ownership under which Mayfair would have become
the exclusive owner of the leased premises and at the same time a co-
owner with Carmelo of the subjacent land in proportion to Mayfair's
interest over the premises sold to it.10
Carmelo and Equatorial now comes before us questioning the correctness and
legal basis for the decision of respondent Court of Appeals on the basis of the
following assigned errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING
THAT THE OPTION CLAUSE IN THE CONTRACTS OF LEASE IS
ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN DOING SO
THE COURT OF APPEALS DISREGARDED THE CONTRACTS OF
LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR
AN OPTION, AND THE ADMISSION OF THE PARTIES OF SUCH
OPTION IN THEIR STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE
COURT OF APPEALS ERRED IN DIRECTING EQUATORIAL TO
EXECUTE A DEED OF SALE EIGHTEEN (18) YEARS AFTER
MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS
RIGHT OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE
CONTRACTS LIMITED THE EXERCISE OF SUCH OPTION TO 30
DAYS FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT
DIRECTED IMPLEMENTATION OF ITS DECISION EVEN BEFORE
ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF THAT
WAS NOT EVEN PRAYED FOR IN THE COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES
IN THE ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED
THE SAME DIVISION XII, PARTICULARLY JUSTICE MANUEL
HERRERA, TO RESOLVE ALL THE MOTIONS IN THE

"COMPLETION PROCESS" AND TO STILL RESOLVE THE MERITS
OF THE CASE IN THE "DECISION STAGE".11
We shall first dispose of the fourth assigned error respecting alleged
irregularities in the raffle of this case in the Court of Appeals. Suffice it to say
that in our Resolution,12 dated December 9, 1992, we already took note of this
matter and set out the proper applicable procedure to be the following:
On September 20, 1992, counsel for petitioner Equatorial Realty
Development, Inc. wrote a letter-complaint to this Court alleging certain
irregularities and infractions committed by certain lawyers, and
Justices of the Court of Appeals and of this Court in connection with
case CA-G.R. CV No. 32918 (now G.R. No. 106063). This partakes of
the nature of an administrative complaint for misconduct against
members of the judiciary. While the letter-complaint arose as an
incident in case CA-G.R. CV No. 32918 (now G.R. No. 106063), the
disposition thereof should be separate and independent from Case
G.R. No. 106063. However, for purposes of receiving the requisite
pleadings necessary in disposing of the administrative complaint, this
Division shall continue to have control of the case. Upon completion
thereof, the same shall be referred to the Court En Banc for proper
disposition.13
This court having ruled the procedural irregularities raised in the fourth assigned
error of Carmelo and Equatorial, to be an independent and separate subject for
an administrative complaint based on misconduct by the lawyers and justices
implicated therein, it is the correct, prudent and consistent course of action not
to pre-empt the administrative proceedings to be undertaken respecting the said
irregularities. Certainly, a discussion thereupon by us in this case would entail a
finding on the merits as to the real nature of the questioned procedures and the
true intentions and motives of the players therein.
In essence, our task is two-fold: (1) to define the true nature, scope and efficacy
of paragraph 8 stipulated in the two contracts of lease between Carmelo and
Mayfair in the face of conflicting findings by the trial court and the Court of
Appeals; and (2) to determine the rights and obligations of Carmelo and
Mayfair, as well as Equatorial, in the aftermath of the sale by Carmelo of the
entire Claro M. Recto property to Equatorial.
Both contracts of lease in question provide the identically worded paragraph 8,
which reads:
That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the
same.
In the event, however, that the leased premises is sold to someone
other than the LESSEE, the LESSOR is bound and obligated, as it
hereby binds and obligates itself, to stipulate in the Deed of Sale
thereof that the purchaser shall recognize this lease and be bound by
all the terms and conditions thereof.14
We agree with the respondent Court of Appeals that the aforecited contractual
stipulation provides for a right of first refusal in favor of Mayfair. It is not an
option clause or an option contract. It is a contract of a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto,15 unequivocal was our
characterization of an option contract as one necessarily involving the choice
granted to another for a distinct and separate consideration as to whether or not
to purchase a determinate thing at a predetermined fixed price.
26
It is unquestionable that, by means of the document Exhibit E, to wit,
the letter of December 4, 1911, quoted at the beginning of this
decision, the defendant Valdes granted to the plaintiff Borck the right to
purchase the Nagtajan Hacienda belonging to Benito Legarda, during
the period of three months and for its assessed valuation, a grant
which necessarily implied the offer or obligation on the part of the
defendant Valdes to sell to Borck the said hacienda during the period
and for the price mentioned . . . There was, therefore, a meeting of
minds on the part of the one and the other, with regard to the
stipulations made in the said document. But it is not shown that there
was any cause or consideration for that agreement, and this omission
is a bar which precludes our holding that the stipulations contained in
Exhibit E is a contract of option, for, . . . there can be no contract
without the requisite, among others, of the cause for the obligation to
be established.
In his Law Dictionary, edition of 1897, Bouvier defines an option as a
contract, in the following language:
A contract by virtue of which A, in consideration of
the payment of a certain sum to B, acquires the
privilege of buying from, or selling to B, certain
securities or properties within a limited time at a
specified price. (Story vs. Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and Phrases," citing the
case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17)
the following quotation has been taken:
An agreement in writing to give a person the option
to purchase lands within a given time at a named
price is neither a sale nor an agreement to sell. It is
simply a contract by which the owner of property
agrees with another person that he shall have the
right to buy his property at a fixed price within a
certain time. He does not sell his land; he does not
then agree to sell it; but he does sell something; that
is, the right or privilege to buy at the election or
option of the other party. The second party gets in
praesenti, not lands, nor an agreement that he shall
have lands, but he does get something of value; that
is, the right to call for and receive lands if he elects.
The owner parts with his right to sell his lands,
except to the second party, for a limited period. The
second party receives this right, or, rather, from his
point of view, he receives the right to elect to buy.
But the two definitions above cited refer to the contract of option, or,
what amounts to the same thing, to the case where there was cause or
consideration for the obligation, the subject of the agreement made by
the parties; while in the case at bar there was no such cause or
consideration. 16 (Emphasis ours.)
The rule so early established in this jurisdiction is that the deed of option or the
option clause in a contract, in order to be valid and enforceable, must, among
other things, indicate the definite price at which the person granting the option,
is willing to sell.
Notably, in one case we held that the lessee loses his right to buy the leased property for
a named price per square meter upon failure to make the purchase within the time

specified;17 in one other case we freed the landowner from her promise to sell her land if
the prospective buyer could raise P4,500.00 in three weeks because such option was not
supported by a distinct consideration;18 in the same vein in yet one other case, we also
invalidated an instrument entitled, "Option to Purchase" a parcel of land for the sum of
P1,510.00 because of lack of consideration;19 and as an exception to the doctrine
enumerated in the two preceding cases, in another case, we ruled that the option to buy
the leased premises for P12,000.00 as stipulated in the lease contract, is not without
consideration for in reciprocal contracts, like lease, the obligation or promise of each
party is the consideration for that of the other. 20 In all these cases, the selling price of the
object thereof is always predetermined and specified in the option clause in the contract
or in the separate deed of option. We elucidated, thus, in the very recent case of Ang Yu
Asuncion vs. Court of Appeals21 that:
. . . In sales, particularly, to which the topic for discussion about the
case at bench belongs, the contract is perfected when a person, called
the seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the buyer, over
which the latter agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or
its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to
Sell" where invariably the ownership of the thing sold in retained until
the fulfillment of a positive suspensive condition (normally, the full
payment of the purchase price), the breach of the condition will prevent
the obligation to convey title from acquiring an obligatory force. . . .
An unconditional mutual promise to buy and sell, as long as the object
is made determinate and the price is fixed, can be obligatory on the
parties, and compliance therewith may accordingly be exacted.
An accepted unilateral promise which specifies the thing to be sold and
the price to be paid, when coupled with a valuable consideration
distinct and separate from the price, is what may properly be termed a
perfected contract of option. This contract is legally binding, and in
sales, it conforms with the second paragraph of Article 1479 of the Civil
Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon
the promisor if the promise is supported by a
consideration distinct from the price. (1451a).
Observe, however, that the option is not the contract of sale itself. The
optionee has the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of the
option, a bilateral promise to sell and to buy ensues and both parties
are then reciprocally bound to comply with their respective
undertakings.
Let us elucidate a little. A negotiation is formally initiated by an offer.
An imperfect promise (policitacion) is merely an offer. Public
advertisements or solicitations and the like are ordinarily construed as
mere invitations to make offers or only as proposals. These relations,
until a contract is perfected, are not considered binding commitments.
27
Thus, at any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. The offer, at this stage,
may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the
offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270).
Where a period is given to the offeree within which to accept the offer,
the following rules generally govern:
(1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to withdraw the
offer before its acceptance, or if an acceptance has been made, before
the offeror's coming to know of such fact, by communicating that
withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins,
Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to
a unilateral promise to sell under Art. 1479, modifying the previous
decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see
also Art. 1319, Civil Code; Rural Bank of Parañaque, Inc. vs.
Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The
right to withdraw, however, must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage claim under Article
19 of the Civil Code which ordains that "every person must, in the
exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option"
deemed perfected, and it would be a breach of that contract to
withdraw the offer during the agreed period. The option, however, is an
independent contract by itself; and it is to be distinguished from the
projected main agreement (subject matter of the option) which is
obviously yet to be concluded. If, in fact, the optioner-offeror withdraws
the offer before its acceptance (exercise of the option) by the optionee-
offeree, the latter may not sue for specific performance on the
proposed contract ("object" of the option) since it has failed to reach its
own stage of perfection. The optioner-offeror, however, renders himself
liable for damages for breach of the opinion. . .
In the light of the foregoing disquisition and in view of the wording of the
questioned provision in the two lease contracts involved in the instant case, we
so hold that no option to purchase in contemplation of the second paragraph of
Article 1479 of the Civil Code, has been granted to Mayfair under the said lease
contracts.
Respondent Court of Appeals correctly ruled that the said paragraph 8 grants
the right of first refusal to Mayfair and is not an option contract. It also correctly
reasoned that as such, the requirement of a separate consideration for the
option, has no applicability in the instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March
31, 1969 contracts which would bring them into the ambit of the usual offer or
option requiring an independent consideration.
An option is a contract granting a privilege to buy or sell within an agreed time
and at a determined price. It is a separate and distinct contract from that which
the parties may enter into upon the consummation of the option. It must be
supported by consideration.22 In the instant case, the right of first refusal is an
integral part of the contracts of lease. The consideration is built into the
reciprocal obligations of the parties.
To rule that a contractual stipulation such as that found in paragraph 8 of the
contracts is governed by Article 1324 on withdrawal of the offer or Article 1479

on promise to buy and sell would render in effectual or "inutile" the provisions on
right of first refusal so commonly inserted in leases of real estate nowadays.
The Court of Appeals is correct in stating that Paragraph 8 was incorporated
into the contracts of lease for the benefit of Mayfair which wanted to be assured
that it shall be given the first crack or the first option to buy the property at the
price which Carmelo is willing to accept. It is not also correct to say that there is
no consideration in an agreement of right of first refusal. The stipulation is part
and parcel of the entire contract of lease. The consideration for the lease
includes the consideration for the right of first refusal. Thus, Mayfair is in effect
stating that it consents to lease the premises and to pay the price agreed upon
provided the lessor also consents that, should it sell the leased property, then,
Mayfair shall be given the right to match the offered purchase price and to buy
the property at that price. As stated in Vda. De Quirino vs. Palarca,23 in
reciprocal contract, the obligation or promise of each party is the consideration
for that of the other.
The respondent Court of Appeals was correct in ascertaining the true nature of
the aforecited paragraph 8 to be that of a contractual grant of the right of first
refusal to Mayfair.
We shall now determine the consequential rights, obligations and liabilities of
Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an amplification of the
precedent in Ang Yu Asuncion vs. Court of Appeals.24
First and foremost is that the petitioners acted in bad faith to render Paragraph
8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two lease contracts, was
that Mayfair will have the right of first refusal in the event Carmelo sells the
leased premises. It is undisputed that Carmelo did recognize this right of
Mayfair, for it informed the latter of its intention to sell the said property in 1974.
There was an exchange of letters evidencing the offer and counter-offers made
by both parties. Carmelo, however, did not pursue the exercise to its logical
end. While it initially recognized Mayfair's right of first refusal, Carmelo violated
such right when without affording its negotiations with Mayfair the full process to
ripen to at least an interface of a definite offer and a possible corresponding
acceptance within the "30-day exclusive option" time granted Mayfair, Carmelo
abandoned negotiations, kept a low profile for some time, and then sold, without
prior notice to Mayfair, the entire Claro M Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the
property in question rescissible. We agree with respondent Appellate Court that
the records bear out the fact that Equatorial was aware of the lease contracts
because its lawyers had, prior to the sale, studied the said contracts. As such,
Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore,
rescission lies.
. . . Contract of Sale was not voidable but rescissible. Under Article
1380 to 1381(3) of the Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason of injury to third
persons, like creditors. The status of creditors could be validly
accorded the Bonnevies for they had substantial interests that were
prejudiced by the sale of the subject property to the petitioner without
recognizing their right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the
contracting parties and even to third persons, to secure reparation for
damages caused to them by a contract, even if this should be valid, by
means of the restoration of things to their condition at the moment prior
28
to the celebration of said contract. It is a relief allowed for the
protection of one of the contracting parties and even third persons from
all injury and damage the contract may cause, or to protect some
incompatible and preferent right created by the contract. Rescission
implies a contract which, even if initially valid, produces a lesion or
pecuniary damage to someone that justifies its invalidation for reasons
of equity.
It is true that the acquisition by a third person of the property subject of
the contract is an obstacle to the action for its rescission where it is
shown that such third person is in lawful possession of the subject of
the contract and that he did not act in bad faith. However, this rule is
not applicable in the case before us because the petitioner is not
considered a third party in relation to the Contract of Sale nor may its
possession of the subject property be regarded as acquired lawfully
and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of
Sale. Moreover, the petitioner cannot be deemed a purchaser in good
faith for the record shows that it categorically admitted it was aware of
the lease in favor of the Bonnevies, who were actually occupying the
subject property at the time it was sold to it. Although the Contract of
Lease was not annotated on the transfer certificate of title in the name
of the late Jose Reynoso and Africa Reynoso, the petitioner cannot
deny actual knowledge of such lease which was equivalent to and
indeed more binding than presumed notice by registration.
A purchaser in good faith and for value is one who buys the property of
another without notice that some other person has a right to or interest
in such property and pays a full and fair price for the same at the time
of such purchase or before he has notice of the claim or interest of
some other person in the property. Good faith connotes an honest
intention to abstain from taking unconscientious advantage of another.
Tested by these principles, the petitioner cannot tenably claim to be a
buyer in good faith as it had notice of the lease of the property by the
Bonnevies and such knowledge should have cautioned it to look
deeper into the agreement to determine if it involved stipulations that
would prejudice its own interests.
The petitioner insists that it was not aware of the right of first priority
granted by the Contract of Lease. Assuming this to be true, we
nevertheless agree with the observation of the respondent court that:
If Guzman-Bocaling failed to inquire about the terms
of the Lease Contract, which includes Par. 20 on
priority right given to the Bonnevies, it had only itself
to blame. Having known that the property it was
buying was under lease, it behooved it as a prudent
person to have required Reynoso or the broker to
show to it the Contract of Lease in which Par. 20 is
contained.25
Petitioners assert the alleged impossibility of performance because the entire
property is indivisible property. It was petitioner Carmelo which fixed the limits of
the property it was leasing out. Common sense and fairness dictate that instead
of nullifying the agreement on that basis, the stipulation should be given effect
by including the indivisible appurtenances in the sale of the dominant portion
under the right of first refusal. A valid and legal contract where the ascendant or
the more important of the two parties is the landowner should be given effect, if

possible, instead of being nullified on a selfish pretext posited by the owner.
Following the arguments of petitioners and the participation of the owner in the
attempt to strip Mayfair of its rights, the right of first refusal should include not
only the property specified in the contracts of lease but also the appurtenant
portions sold to Equatorial which are claimed by petitioners to be indivisible.
Carmelo acted in bad faith when it sold the entire property to Equatorial without
informing Mayfair, a clear violation of Mayfair's rights. While there was a series
of exchanges of letters evidencing the offer and counter-offers between the
parties, Carmelo abandoned the negotiations without giving Mayfair full
opportunity to negotiate within the 30-day period.
Accordingly, even as it recognizes the right of first refusal, this Court should also
order that Mayfair be authorized to exercise its right of first refusal under the
contract to include the entirety of the indivisible property. The boundaries of the
property sold should be the boundaries of the offer under the right of first
refusal. As to the remedy to enforce Mayfair's right, the Court disagrees to a
certain extent with the concluding part of the dissenting opinion of Justice Vitug.
The doctrine enunciated in Ang Yu Asuncion vs.Court of Appeals should be
modified, if not amplified under the peculiar facts of this case.
As also earlier emphasized, the contract of sale between Equatorial and
Carmelo is characterized by bad faith, since it was knowingly entered into in
violation of the rights of and to the prejudice of Mayfair. In fact, as correctly
observed by the Court of Appeals, Equatorial admitted that its lawyers had
studied the contract of lease prior to the sale. Equatorial's knowledge of the
stipulations therein should have cautioned it to look further into the agreement
to determine if it involved stipulations that would prejudice its own interests.
Since Mayfair has a right of first refusal, it can exercise the right only if the
fraudulent sale is first set aside or rescinded. All of these matters are now
before us and so there should be no piecemeal determination of this case and
leave festering sores to deteriorate into endless litigation. The facts of the case
and considerations of justice and equity require that we order rescission here
and now. Rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and damage the
contract may cause or to protect some incompatible and preferred right by the
contract.26 The sale of the subject real property by Carmelo to Equatorial should
now be rescinded considering that Mayfair, which had substantial interest over
the subject property, was prejudiced by the sale of the subject property to
Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate
within the 30-day stipulated period.27
This Court has always been against multiplicity of suits where all remedies
according to the facts and the law can be included. Since Carmelo sold the
property for P11,300,000.00 to Equatorial, the price at which Mayfair could have
purchased the property is, therefore, fixed. It can neither be more nor less.
There is no dispute over it. The damages which Mayfair suffered are in terms of
actual injury and lost opportunities. The fairest solution would be to allow
Mayfair to exercise its right of first refusal at the price which it was entitled to
accept or reject which is P11,300,000.00. This is clear from the records.
To follow an alternative solution that Carmelo and Mayfair may resume
negotiations for the sale to the latter of the disputed property would be unjust
and unkind to Mayfair because it is once more compelled to litigate to enforce
its right. It is not proper to give it an empty or vacuous victory in this case. From
the viewpoint of Carmelo, it is like asking a fish if it would accept the choice of
being thrown back into the river. Why should Carmelo be rewarded for and
allowed to profit from, its wrongdoing? Prices of real estate have skyrocketed.
29
After having sold the property for P11,300,000.00, why should it be given
another chance to sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that
there was nothing to execute because a contract over the right of first refusal
belongs to a class of preparatory juridical relations governed not by the law on
contracts but by the codal provisions on human relations. This may apply here if
the contract is limited to the buying and selling of the real property. However,
the obligation of Carmelo to first offer the property to Mayfair is embodied in a
contract. It is Paragraph 8 on the right of first refusal which created the
obligation. It should be enforced according to the law on contracts instead of the
panoramic and indefinite rule on human relations. The latter remedy
encourages multiplicity of suits. There is something to execute and that is for
Carmelo to comply with its obligation to the property under the right of the first
refusal according to the terms at which they should have been offered then to
Mayfair, at the price when that offer should have been made. Also, Mayfair has
to accept the offer. This juridical relation is not amorphous nor is it merely
preparatory. Paragraphs 8 of the two leases can be executed according to their
terms.
On the question of interest payments on the principal amount of
P11,300,000.00, it must be borne in mind that both Carmelo and Equatorial
acted in bad faith. Carmelo knowingly and deliberately broke a contract entered
into with Mayfair. It sold the property to Equatorial with purpose and intend to
withhold any notice or knowledge of the sale coming to the attention of Mayfair.
All the circumstances point to a calculated and contrived plan of non-
compliance with the agreement of first refusal.
On the part of Equatorial, it cannot be a buyer in good faith because it bought
the property with notice and full knowledge that Mayfair had a right to or interest
in the property superior to its own. Carmelo and Equatorial took unconscientious
advantage of Mayfair.
Neither may Carmelo and Equatorial avail of considerations based on equity
which might warrant the grant of interests. The vendor received as payment
from the vendee what, at the time, was a full and fair price for the property. It
has used the P11,300,000.00 all these years earning income or interest from
the amount. Equatorial, on the other hand, has received rents and otherwise
profited from the use of the property turned over to it by Carmelo. In fact, during
all the years that this controversy was being litigated, Mayfair paid rentals
regularly to the buyer who had an inferior right to purchase the property. Mayfair
is under no obligation to pay any interests arising from this judgment to either
Carmelo or Equatorial.
WHEREFORE, the petition for review of the decision of the Court of Appeals,
dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The
Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc.
and Carmelo & Bauermann, Inc. is hereby deemed rescinded; petitioner
Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty
Development the purchase price. The latter is directed to execute the deeds
and documents necessary to return ownership to Carmelo and Bauermann of
the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair Theater,
Inc. to buy the aforesaid lots for P11,300,000.00.
SO ORDERED.
Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza and Francisco, JJ.,
concur.
Narvasa, C.J., took no part.

[G.R. No. 111538. February 26, 1997]
PARAAQUE KINGS ENTERPRISES, INCORPORATED, petitioner, vs. COURT OF
APPEALS, CATALINA L. SANTOS, represented by her attorney-in-fact,
LUZ B. PROTACIO, and DAVID A. RAYMUNDO, respondents.
DECISION
PANGANIBAN, J.:
Do allegations in a complaint showing violation of a contractual right of first option
or priority to buy the properties subject of the lease constitute a valid cause of action? Is
the grantee of such right entitled to be offered the same terms and conditions as those
given to a third party who eventually bought such properties? In short, is such right of first
refusal enforceable by an action for specific performance?
These questions are answered in the affirmative by this Court in resolving this
petition for review under Rule 45 of the Rules of Court challenging the Decision[1] of the
Court of Appeals[2] promulgated on March 29, 1993, in CA-G.R. CV No. 34987
entitled Paraaque Kings Enterprises, Inc. vs. Catalina L. Santos, et al., which affirmed
the order[3] of September 2, 1991, of the Regional Trial Court of Makati, Branch
57,[4] dismissing Civil Case No. 91-786 for lack of a valid cause of action.
Facts of the Case
On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati
a complaint,[5] which is reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and existing under and by virtue
of the laws of the Philippines, with principal place of business of (sic) Dr. A.
Santos Avenue, Paraaque, Metro Manila, while defendant Catalina L. Santos,
is of legal age, widow, with residence and postal address at 444 Plato Street,
Ct., Stockton, California, USA, represented in this action by her attorney-in-
fact, Luz B. Protacio, with residence and postal address at No, 12, San
Antonio Street, Magallanes Village, Makati, Metro Manila, by virtue of a
general power of attorney. Defendant David A. Raymundo, is of legal age,
single, with residence and postal address at 1918 Kamias Street, Damarias
Village, Makati, Metro Manila, where they (sic) may be served with summons
and other court processes. Xerox copy of the general power of attorney is
hereto attached as Annex A.
2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land
located at (sic) Paraaque, Metro Manila with transfer certificate of title nos. S-
19637, S-19638 and S-19643 to S-19648. Xerox copies of the said title (sic)
are hereto attached as Annexes B to I, respectively.
3. On November 28, 1977, a certain Frederick Chua leased the above-
described property from defendant Catalina L. Santos, the said lease was
registered in the Register of Deeds. Xerox copy of the lease is hereto
attached as Annex J.
4. On February 12, 1979, Frederick Chua assigned all his rights and interest
and participation in the leased property to Lee Ching Bing, by virtue of a deed
of assignment and with the conformity of defendant Santos, the said
assignment was also registered. Xerox copy of the deed of assignment is
hereto attached as Annex K.
5. On August 6, 1979, Lee Ching Bing also assigned all his rights and interest
in the leased property to Paraaque Kings Enterprises, Incorporated by virtue
of a deed of assignment and with the conformity of defendant Santos, the
same was duly registered, Xerox copy of the deed of assignment is hereto
attached as Annex L.
6. Paragraph 9 of the assigned leased (sic) contract provides among others that:
30
9. That in case the properties subject of the lease agreement are sold or
encumbered, Lessors shall impose as a condition that the buyer or
mortgagee thereof shall recognize and be bound by all the terms and
conditions of this lease agreement and shall respect this Contract of
Lease as if they are the LESSORS thereof and in case of sale, LESSEE
shall have the first option or priority to buy the properties subject of the
lease;
7. On September 21, 1988, defendant Santos sold the eight parcels of land
subject of the lease to defendant David Raymundo for a consideration of
FIVE MILLION (P5,000,000.00) PESOS. The said sale was in contravention
of the contract of lease, for the first option or priority to buy was not offered by
defendant Santos to the plaintiff.Xerox copy of the deed of sale is hereto
attached as Annex M.
8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing
the same of the sale of the properties to defendant Raymundo, the said letter
was personally handed by the attorney-in-fact of defendant Santos, Xerox
copy of the letter is hereto attached as Annex N.
9. Upon learning of this fact plaintiffs representative wrote a letter to defendant
Santos, requesting her to rectify the error and consequently realizing the
error, she had it reconveyed to her for the same consideration of FIVE
MILLION (P5,000,000.00) PESOS. Xerox copies of the letter and the deed of
reconveyance are hereto attached as Annexes O and P.
10. Subsequently the property was offered for sale to plaintiff by the defendant
for the sum of FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was
given ten (10) days to make good of the offer, but therefore (sic) the said
period expired another letter came from the counsel of defendant Santos,
containing the same tenor of (sic) the former letter.Xerox copies of the letters
are hereto attached as Annexes Q and R.
11. On May 8, 1989, before the period given in the letter offering the
properties for sale expired, plaintiffs counsel wrote counsel of defendant
Santos offering to buy the properties for FIVE MILLION (P5,000,000.00)
PESOS. Xerox copy of the letter is hereto attached as Annex S.
12. On May 15, 1989, before they replied to the offer to purchase, another
deed of sale was executed by defendant Santos (in favor of) defendant
Raymundo for a consideration of NINE MILLION (P9,000,000.00)
PESOS. Xerox copy of the second deed of sale is hereto attached as Annex
T.
13. Defendant Santos violated again paragraph 9 of the contract of lease by
executing a second deed of sale to defendant Raymundo.
14. It was only on May 17, 1989, that defendant Santos replied to the letter of
the plaintiffs offer to buy or two days after she sold her properties. In her reply
she stated among others that the period has lapsed and the plaintiff is not a
privy (sic) to the contract. Xerox copy of the letter is hereto attached as Annex
U.
15. On June 28, 1989, counsel for plaintiff informed counsel of defendant
Santos of the fact that plaintiff is the assignee of all rights and interest of the
former lessor. Xerox copy of the letter is hereto attached as Annex V.
16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that
the new owner is defendant Raymundo. Xerox copy of the letter is hereto
attached as Annex W.
17. From the preceding facts it is clear that the sale was simulated and that
there was a collusion between the defendants in the sales of the leased
properties, on the ground that when plaintiff wrote a letter to defendant

Santos to rectify the error, she immediately have (sic) the property
reconveyed it (sic) to her in a matter of twelve (12) days.
18. Defendants have the same counsel who represented both of them in their
exchange of communication with plaintiffs counsel, a fact that led to the
conclusion that a collusion exist (sic) between the defendants.
19. When the property was still registered in the name of defendant Santos,
her collector of the rental of the leased properties was her brother-in-law
David Santos and when it was transferred to defendant Raymundo the
collector was still David Santos up to the month of June, 1990. Xerox copies
of cash vouchers are hereto attached as Annexes X to HH, respectively.
20. The purpose of this unholy alliance between defendants Santos and
Raymundo is to mislead the plaintiff and make it appear that the price of the
leased property is much higher than its actual value of FIVE MILLION
(P5,000,000.00) PESOS, so that plaintiff would purchase the properties at a
higher price.
21. Plaintiff has made considerable investments in the said leased property by
erecting a two (2) storey, six (6) doors commercial building amounting to
THREE MILLION (P3,000,000.00) PESOS. This considerable improvement
was made on the belief that eventually the said premises shall be sold to the
plaintiff.
22. As a consequence of this unlawful act of the defendants, plaintiff will incurr
(sic) total loss of THREE MILLION (P3,000,000.00) PESOS as the actual cost
of the building and as such defendants should be charged of the same
amount for actual damages.
23. As a consequence of the collusion, evil design and illegal acts of the
defendants, plaintiff in the process suffered mental anguish, sleepless nights,
bismirched (sic) reputation which entitles plaintiff to moral damages in the
amount of FIVE MILLION (P5,000,000.00) PESOS.
24. The defendants acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner and as a deterrent to the commission of similar acts, they
should be made to answer for exemplary damages, the amount left to the
discretion of the Court.
25. Plaintiff demanded from the defendants to rectify their unlawful acts that
they committed, but defendants refused and failed to comply with plaintiffs
just and valid and (sic) demands. Xerox copies of the demand letters are
hereto attached as Annexes KK to LL, respectively.
26. Despite repeated demands, defendants failed and refused without
justifiable cause to satisfy plaintiffs claim, and was constrained to engaged
(sic) the services of undersigned counsel to institute this action at a contract
fee of P200,000.00, as and for attorneys fees, exclusive of cost and expenses
of litigation.
PRAYER
WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the
plaintiff and against defendants and ordering that:
a. The Deed of Sale between defendants dated May 15, 1989, be annulled
and the leased properties be sold to the plaintiff in the amount
of P5,000,000.00;
b. Dependants (sic) pay plaintiff the sum of P3,000,000.00 as actual
damages;
c. Defendants pay the sum of P5,000,000.00 as moral damages;
d. Defendants pay exemplary damages left to the discretion of the Court;
e. Defendants pay the sum of not less than P200,000.00 as attorneys fees.
Plaintiff further prays for other just and equitable reliefs plus cost of suit.
31
Instead of filing their respective answers, respondents filed motions to dismiss
anchored on the grounds of lack of cause of action, estoppel and laches.
On September 2, 1991, the trial court issued the order dismissing the complaint for
lack of a valid cause of action. It ratiocinated thus:
Upon the very face of the plaintiffs Complaint itself, it therefore indubitably appears that
the defendant Santos had verily complied with paragraph 9 of the Lease Agreement by
twice offering the properties for sale to the plaintiff for P15 M. The said offers, however,
were plainly rejected by the plaintiff which scorned the said offer as RIDICULOUS. There
was therefore a definite refusal on the part of the plaintiff to accept the offer of defendant
Santos. For in acquiring the said properties back to her name, and in so making the
offers to sell both by herself (attorney-in-fact) and through her counsel, defendant Santos
was indeed conscientiously complying with her obligation under paragraph 9 of the
Lease Agreement. x x x
xxxxxxxxx
This is indeed one instance where a Complaint, after barely commencing to create a
cause of action, neutralized itself by its subsequent averments which erased or
extinguished its earlier allegations of an impending wrong. Consequently, absent any
actionable wrong in the very face of the Complaint itself, the plaintiffs subsequent
protestations of collusion is bereft or devoid of any meaning or purpose. x x x
The inescapable result of the foregoing considerations point to no other conclusion than
that the Complaint actually does not contain any valid cause of action and should
therefore be as it is hereby ordered DISMISSED. The Court finds no further need to
consider the other grounds of estoppel and laches inasmuch as this resolution is
sufficient to dispose the matter.[6]
Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the
trial court, and further reasoned that:
x x x Appellants protestations that the P15 million price quoted by appellee Santos was
reduced to P9 million when she later resold the leased properties to Raymundo has no
valid legal moorings because appellant, as a prospective buyer, cannot dictate its own
price and forcibly ram it against appellee Santos, as owner, to buy off her leased
properties considering the total absence of any stipulation or agreement as to the price or
as to how the price should be computed under paragraph 9 of the lease contract, x x x[7]
Petitioner moved for reconsideration but was denied in an order dated August 20,
1993.[8]
Hence this petition. Subsequently, petitioner filed an Urgent Motion for the Issuance
of Restraining Order and/or Writ of Preliminary Injunction and to Hold Respondent David
A. Raymundo in Contempt of Court.[9] The motion sought to enjoin respondent
Raymundo and his counsel from pursuing the ejectment complaint filed before the
barangay captain of San Isidro, Paraaque, Metro Manila; to direct the dismissal of said
ejectment complaint or of any similar action that may have been filed; and to require
respondent Raymundo to explain why he should not be held in contempt of court for
forum-shopping. The ejectment suit initiated by respondent Raymundo against petitioner
arose from the expiration of the lease contract covering the property subject of this
case. The ejectment suit was decided in favor of Raymundo, and the entry of final
judgment in respect thereof renders the said motion moot and academic.
Issue
The principal legal issue presented before us for resolution is whether the
aforequoted complaint alleging breach of the contractual right of first option or priority to
buy states a valid cause of action.
Petitioner contends that the trial court as well as the appellate tribunal erred in
dismissing the complaint because it in fact had not just one but at least three (3) valid
causes of action, to wit: (1) breach of contract, (2) its right of first refusal founded in law,
and (3) damages.

Respondents Santos and Raymundo, in their separate comments, aver that the
petition should be denied for not raising a question of law as the issue involved is purely
factual -- whether respondent Santos complied with paragraph 9 of the lease agreement
-- and for not having complied with Section 2, Rule 45 of the Rules of Court, requiring the
filing of twelve (12) copies of the petitioners brief. Both maintain that the complaint filed
by petitioner before the Regional Trial Court of Makati stated no valid cause of action and
that petitioner failed to substantiate its claim that the lower courts decided the same in a
way not in accord with law and applicable decisions of the Supreme Court; or that the
Court of Appeals has sanctioned departure by a trial court from the accepted and usual
course of judicial proceedings so as to merit the exercise by this Court of the power of
review under Rule 45 of the Rules of Court. Furthermore, they reiterate estoppel and
laches as grounds for dismissal, claiming that petitioners payment of rentals of the
leased property to respondent Raymundo from June 15, 1989, to June 30, 1990, was an
acknowledgment of the latters status as new owner-lessor of said property, by virtue of
which petitioner is deemed to have waived or abandoned its first option to purchase.
Private respondents likewise contend that the deed of assignment of the lease
agreement did not include the assignment of the option to purchase. Respondent
Raymundo further avers that he was not privy to the contract of lease, being neither the
lessor nor lessee adverted to therein, hence he could not be held liable for violation
thereof.
The Courts Ruling
Preliminary Issue: Failure to File Sufficient Copies of Brief
We first dispose of the procedural issue raised by respondents, particularly
petitioners failure to file twelve (12) copies of its brief. We have ruled that when non-
compliance with the Rules was not intended for delay or did not result in prejudice to the
adverse party, dismissal of appeal on mere technicalities in cases where appeal is a
matter of right -- may be stayed, in the exercise of the courts equity jurisdiction. [10] It does
not appear that respondents were unduly prejudiced by petitioners nonfeasance. Neither
has it been shown that such failure was intentional.
Main Issue: Validity of Cause of Action
We do not agree with respondents contention that the issue involved
is purely factual. The principal legal question, as stated earlier, is whether the complaint
filed by herein petitioner in the lower court states a valid cause of action. Since such
question assumes the facts alleged in the complaint as true, it follows that the
determination thereof is one of law, and not of facts. There is a question of law in a given
case when the doubt or difference arises as to what the law is on a certain state of facts,
and there is a question of fact when the doubt or difference arises as to the truth or the
falsehood of alleged facts.[11]
At the outset, petitioner concedes that when the ground for a motion to dismiss is
lack of cause of action, such ground must appear on the face of the complaint; that to
determine the sufficiency of a cause of action, only the facts alleged in the complaint and
no others should be considered; and that the test of sufficiency of the facts alleged in a
petition or complaint to constitute a cause of action is whether, admitting the facts
alleged, the court could render a valid judgment upon the same in accordance with the
prayer of the petition or complaint.
A cause of action exists if the following elements are present: (1) a right in favor of
the plaintiff by whatever means and under whatever law it arises or is created; (2) an
obligation on the part of the named defendant to respect or not to violate such right, and
(3) an act or omission on the part of such defendant violative of the right of plaintiff or
constituting a breach of the obligation of defendant to the plaintiff for which the latter may
maintain an action for recovery of damages.[12]
In determining whether allegations of a complaint are sufficient to support a cause
of action, it must be borne in mind that the complaint does not have to establish or allege
32
facts proving the existence of a cause of action at the outset; this will have to be done at
the trial on the merits of the case. To sustain a motion to dismiss for lack of cause of
action, the complaint must show that the claim for relief does not exist, rather than that a
claim has been defectively stated, or is ambiguous, indefinite or uncertain. [13]
Equally important, a defendant moving to dismiss a complaint on the ground of lack
of cause of action is regarded as having hypothetically admitted all the averments
thereof.[14]
A careful examination of the complaint reveals that it sufficiently alleges an
actionable contractual breach on the part of private respondents. Under paragraph 9 of
the contract of lease between respondent Santos and petitioner, the latter was granted
the first option or priority to purchase the leased properties in case Santos decided to
sell. If Santos never decided to sell at all, there can never be a breach, much less an
enforcement of such right. But on September 21, 1988, Santos sold said properties to
Respondent Raymundo without first offering these to petitioner. Santos indeed realized
her error, since she repurchased the properties after petitioner complained. Thereafter,
she offered to sell the properties to petitioner for P15 million, which petitioner, however,
rejected because of the ridiculous price. But Santos again appeared to have violated the
same provision of the lease contract when she finally resold the properties to respondent
Raymundo for only P9 million without first offering them to petitioner at such
price. Whether there was actual breach which entitled petitioner to damages and/or other
just or equitable relief, is a question which can better be resolved after trial on the merits
where each party can present evidence to prove their respective allegations and
defenses.[15]
The trial and appellate courts based their decision to sustain respondents motion to
dismiss on the allegations of Paraaque Kings Enterprises that Santos had actually
offered the subject properties for sale to it prior to the final sale in favor of Raymundo, but
that the offer was rejected. According to said courts, with such offer, Santos had verily
complied with her obligation to grant the right of first refusal to petitioner.
We hold, however, that in order to have full compliance with the contractual right
granting petitioner the first option to purchase, the sale of the properties for the amount
of P9 million, the price for which they were finally sold to respondent Raymundo, should
have likewise been first offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and
obligations under, a right of first refusal in the case of Guzman, Bocaling & Co. vs.
Bonnevie.[16] In that case, under a contract of lease, the lessees (Raul and Christopher
Bonnevie) were given a right of first priority to purchase the leased property in case the
lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies
was P600,000.00 to be fully paid in cash, less a mortgage lien of P100,000.00. On the
other hand, the selling price offered by Reynoso to and accepted by Guzman was
only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to
be paid only when the property was cleared of occupants. We held that even if the
Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso
could not sell it to another for a lower price and under more favorable terms and
conditions without first offering said favorable terms and price to the Bonnevies as
well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso
thereafter lawfully sell the subject property to others, and only under the same terms and
conditions previously offered to the Bonnevies.
Of course, under their contract, they specifically stipulated that the Bonnevies could
exercise the right of first priority, all things and conditions being equal. This Court
interpreted this proviso to mean that there should be identity of terms and conditions to
be offered to the Bonnevies and all other prospective buyers, with the Bonnevies to enjoy
the right of first priority.We hold that the same rule applies even without the same proviso
if the right of first refusal (or the first option to buy) is not to be rendered illusory.

From the foregoing, the basis of the right of the first refusal * must be the current
offer to sell of the seller or offer to purchase of any prospective buyer. Only after the
grantee** fails to exercise its right of first priority under the same terms and within the
period contemplated, could the owner validly offer to sell the property to a third person,
again, under the same terms as offered to the grantee ***.
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair
Theater, Inc.[17] which was decided en banc. This Court upheld the right of first refusal of
the lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to
Equatorial Realty considering that Mayfair, which had substantial interest over the
subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to
Mayfair every opportunity to negotiate within the 30-day stipulated period (underscoring
supplied).
In that case, two contracts of lease between Carmelo and Mayfair provided that if
the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30
days exclusive option to purchase the same. Carmelo initially offered to sell the leased
property to Mayfair for six to seven million pesos. Mayfair indicated interest in purchasing
the property though it invoked the 30-day period. Nothing was heard thereafter from
Carmelo. Four years later, the latter sold its entire Recto Avenue property, including the
leased premises, to Equatorial for P11,300,000.00 without priorly informing Mayfair. The
Court held that both Carmelo and Equatorial acted in bad faith: Carmelo for knowingly
violating the right of first refusal* of Mayfair, and Equatorial for purchasing the property
despite being aware of the contract stipulation. In addition to rescission of the contract of
sale, the Court ordered Carmelo to allow Mayfair to buy the subject property at the same
price of P11,300,000.00.
No cause of action under P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform
Law, as another source of its right of first refusal. It claims to be covered under said law,
being the rightful occupant of the land and its structures since it is the lawful lessee
thereof by reason of contract. Under the lease contract, petitioner would have occupied
the property for fourteen (14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a beneficiary under said law,
suffice it to say that this Court has previously ruled that under Section 6[18] of P.D. 1517,
the terms and conditions of the sale in the exercise of the lessees right of first refusal to
purchase shall be determined by the Urban Zone Expropriation and Land Management
Committee. Hence, x x x certain prerequisites must be complied with by anyone who
wishes to avail himself of the benefits of the decree.[19] There being no allegation in its
complaint that the prerequisites were complied with, it is clear that the complaint did fail
to state a cause of action on this ground.
Deed of Assignment included the option to purchase
Neither do we find merit in the contention of respondent Santos that the assignment
of the lease contract to petitioner did not include the option to purchase. The provisions
of the deeds of assignment with regard to matters assigned were very clear. Under the
first assignment between Frederick Chua as assignor and Lee Ching Bing as assignee, it
was expressly stated that:
x x x the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein
ASSIGNEE, all his rights, interest and participation over said premises afore-described, x
x x[20](underscoring supplied)
And under the subsequent assignment executed between Lee Ching Bing as
assignor and the petitioner, represented by its Vice President Vicenta Lo Chiong, as
assignee, it was likewise expressly stipulated that:
x x x the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and
participation over said leased premises, x x x[21] (underscoring supplied)
33
One of such rights included in the contract of lease and, therefore, in the
assignments of rights was the lessees right of first option or priority to buy the properties
subject of the lease, as provided in paragraph 9 of the assigned lease contract. The deed
of assignment need not be very specific as to which rights and obligations were passed
on to the assignee. It is understood in the general provision aforequoted that all specific
rights and obligations contained in the contract of lease are those referred to as being
assigned. Needless to state, respondent Santos gave her unqualified conformity to both
assignments of rights.
Respondent Raymundo privy to the Contract of Lease
With respect to the contention of respondent Raymundo that he is not privy to the
lease contract, not being the lessor nor the lessee referred to therein, he could thus not
have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped
into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed
all the obligations of the lessor under the lease contract. Moreover, he received benefits
in the form of rental payments. Furthermore, the complaint, as well as the petition,
prayed for the annulment of the sale of the properties to him. Both pleadings also alleged
collusion between him and respondent Santos which defeated the exercise by petitioner
of its right of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo was a
necessary, if not indispensable, party to the case.[22] A favorable judgment for the
petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the
property over which petitioner would like to assert its right of first option to buy.
Having come to the conclusion that the complaint states a valid cause of action for
breach of the right of first refusal and that the trial court should thus not have dismissed
the complaint, we find no more need to pass upon the question of whether the complaint
states a cause of action for damages or whether the complaint is barred by estoppel or
laches. As these matters require presentation and/or determination of facts, they can be
best resolved after trial on the merits.
While the lower courts erred in dismissing the complaint, private respondents,
however, cannot be denied their day in court. While, in the resolution of a motion to
dismiss, the truth of the facts alleged in the complaint are theoretically admitted, such
admission is merely hypothetical and only for the purpose of resolving the motion. In
case of denial, the movant is not to be deprived of the right to submit its own case and to
submit evidence to rebut the allegations in the complaint. Neither will the grant of the
motion by a trial court and the ultimate reversal thereof by an appellate court have the
effect of stifling such right.[23] So too, the trial court should be given the opportunity to
evaluate the evidence, apply the law and decree the proper remedy. Hence, we remand
the instant case to the trial court to allow private respondents to have their day in court.
WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court
and Court of Appeals are hereby REVERSED and SET ASIDE. The case
is REMANDED to the Regional Trial Court of Makati for further proceedings.
SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.
[G.R. No. 140479. March 8, 2001]
ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN, petitioners,
vs. PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN,
FERNANDO MAGBANUA and LIZZA TIANGCO, respondents.
DECISION
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking reversal of the Decision[1] of the Court of Appeals dated June 25, 1999 in CA-
G.R. CV No. 53963. The Court of Appeals decision reversed and set aside the

Decision[2]dated May 13, 1996 of Branch 217 of the Regional Trial Court of Quezon City
in Civil Case No. Q-93-18582.
The case was originally filed on December 10, 1993 by Paterno Inquing, Irene
Guillermo and Federico Bantugan, herein respondents, against Rosencor Development
Corporation (hereinafter Rosencor), Rene Joaquin, and Eufrocina de Leon. Originally,
the complaint was one for annulment of absolute deed of sale but was later amended to
one for rescission of absolute deed of sale. A complaint-for intervention was thereafter
filed by respondents Fernando Magbanua and Danna Lizza Tiangco. The complaint-in-
intervention was admitted by the trial court in an Order dated May 4, 1994. [3]
The facts of the case, as stated by the trial court and adopted by the appellate
court, are as follows:
This action was originally for the annulment of the Deed of Absolute Sale dated
September 4, 1990 between defendants Rosencor and Eufrocina de Leon but later
amended (sic) praying for the rescission of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the lessees since 1971 of a two-
story residential apartment located at No. 150 Tomas Morato Ave., Quezon City covered
by TCT No. 96161 and owned by spouses Faustino and Cresencia Tiangco. The lease
was not covered by any contract. The lessees were renting the premises then for
P150.00 a month and were allegedly verbally granted by the lessors the pre-emptive
right to purchase the property if ever they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the management of the property was
adjudicated to their heirs who were represented by Eufrocina de Leon. The lessees were
allegedly promised the same pre-emptive right by the heirs of Tiangcos since the latter
had knowledge that this right was extended to the former by the late spouses
Tiangcos. The lessees continued to stay in the premises and allegedly spent their own
money amounting from P50,000.00 to P100,000.00 for its upkeep. These expenses were
never deducted from the rentals which already increased to P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda Aguila demanding that they
vacate the premises so that the demolition of the building be undertaken. They refused to
leave the premises. In that same month, de Leon refused to accept the lessees rental
payment claiming that they have run out of receipts and that a new collector has been
assigned to receive the payments. Thereafter, they received a letter from Eufrocina de
Leon offering to sell to them the property they were leasing for P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for the amount of
P1,000,000.00. De Leon told them that she will be submitting the offer to the other
heirs. Since then, no answer was given by de Leon as to their offer to buy the property.
However, in November 1990, Rene Joaquin came to the leased premises introducing
himself as its new owner.
In January 1991, the lessees again received another letter from Atty. Aguila demanding
that they vacate the premises. A month thereafter, the lessees received a letter from de
Leon advising them that the heirs of the late spouses Tiangcos have already sold the
property to Rosencor. The following month Atty. Aguila wrote them another letter
demanding the rental payment and introducing herself as counsel for Rosencor/Rene
Joaquin, the new owners of the premises.
The lessees requested from de Leon why she had disregarded the pre-emptive right she
and the late Tiangcos have promised them. They also asked for a copy of the deed of
sale between her and the new owners thereof but she refused to heed their request. In
the same manner, when they asked Rene Joaquin a copy of the deed of sale, the latter
turned down their request and instead Atty. Aguila wrote them several letters demanding
that they vacate the premises. The lessees offered to tender their rental payment to de
Leon but she refused to accept the same.
In April 1992 before the demolition can be undertaken by the Buiding Official, the
barangay interceded between the parties herein after which Rosencor raised the issue as
34
to the rental payment of the premises. It was also at this instance that the lessees were
furnished with a copy of the Deed of Sale and discovered that they were deceived by de
Leon since the sale between her and Rene Joaquin/Rosencor took place in September
4, 1990 while de Leon made the offer to them only in October 1990 or after the sale with
Rosencor had been consummated. The lessees also noted that the property was sold
only for P726,000.00.
The lessees offered to reimburse de Leon the selling price of P726,000.00 plus an
additional P274,000.00 to complete their P1,000.000.00 earlier offer. When their offer
was refused, they filed the present action praying for the following: a) rescission of the
Deed of Absolute Sale between de Leon and Rosencor dated September 4, 1990; b) the
defendants Rosencor/Rene Joaquin be ordered to reconvey the property to de Leon; and
c) de Leon be ordered to reimburse the plaintiffs for the repairs of the property, or apply
the said amount as part of the price for the purchase of the property in the sum of
P100,000.00.[4]
After trial on the merits, the Regional Trial Court rendered a Decision[5] dated May
13, 1996 dismissing the complaint. The trial court held that the right of redemption on
which the complaint was based was merely an oral one and as such, is unenforceable
under the law. The dispositive portion of the May 13, 1996 Decision is as follows:
WHEREFORE, in view of the foregoing, the Court DISMISSES the instant
action. Plaintiffs and plaintiffs-intervenors are hereby ordered to pay their respective
monthly rental of P1,000.00 per month reckoned from May 1990 up to the time they
leave the premises. No costs.
SO ORDERED.[6]
Not satisfied with the decision of the trial court, respondents herein filed a Notice of
Appeal dated June 3, 1996. On the same date, the trial court issued an Order for the
elevation of the records of the case to the Court of Appeals. On August 8, 1997,
respondents filed their appellate brief before the Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its decision[7] reversing the
decision of the trial court. The dispositive portion of the June 25, 1999 decision is as
follows:
WHEREFORE, premises considered, the appealed decision (dated May 13, 1996) of the
Regional Trial Court (Branch 217) in Quezon City in Case No. Q-93-18582 is hereby
REVERSED and SET ASIDE. In its stead, a new one is rendered ordering:
(1) The rescission of the Deed of Absolute Sale executed between the
appellees on September 4, 1990;
(2) The reconveyance of the subject premises to appellee Eufrocina de Leon;
(3) The heirs of Faustino and Crescencia Tiangco, thru appellee Eufrocina de
Leon, to afford the appellants thirty days within which to exercise their right
of first refusal by paying the amount of ONE MILLION PESOS
(P1,000,000.00) for the subject property; and
(4) The appellants to, in turn, pay the appellees back rentals from May 1990
up to the time this decision is promulgated.
No pronouncement as to costs.
SO ORDERED.[8]
Petitioners herein filed a Motion for Reconsideration of the decision of the Court of
Appeals but the same was denied in a Resolution dated October 15, 1999.[9]
Hence, this petition for review on certiorari where petitioners Rosencor
Development Corporation and Rene Joaquin raise the following assignment of errors [10]:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE
RESCISSION OF THE ABSOLUTE DEED OF SALE BETWEEN EUFROCINA DE
LEON AND PETITIONER ROSENCOR.
II.

THE COURT OF APPEALS COMMITTED MANIFEST ERROR IN MANDATING
THAT EUFROCINA DE LEON AFFORD RESPONDENTS THE OPPORTUNITY
TO EXERCISE THEIR RIGHT OF FIRST REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT
RESPONDENTS HAVE ESTABLISHED THEIR RIGHT OF FIRST REFUSAL
DESPITE PETITIONERS RELIANCE ON THEIR DEFENSE BASED ON THE
STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the spouses Faustino and
Crescencia Tiangco, did not appeal the decision of the Court of Appeals.
At the onset, we note that both the Court of Appeals and the Regional Trial Court
relied on Article 1403 of the New Civil Code, more specifically the provisions on the
statute of frauds, in coming out with their respective decisions. The trial court, in denying
the petition for reconveyance, held that right of first refusal relied upon by petitioners was
not reduced to writing and as such, is unenforceable by virtue of the said article. The
Court of Appeals, on the other hand, also held that the statute of frauds governs the right
of first refusal claimed by respondents. However, the appellate court ruled that
respondents had duly proven the same by reason of petitioners waiver of the protection
of the statute by reason of their failure to object to the presentation of oral evidence of
the said right.
Both the appellate court and the trial court failed to discuss, however, the threshold
issue of whether or not a right of first refusal is indeed covered by the provisions of the
New Civil Code on the statute of frauds. The resolution of the issue on the applicability of
the statute of frauds is important as it will determine the type of evidence which may be
considered by the trial court as proof of the alleged right of first refusal.
The term statute of frauds is descriptive of statutes which require certain classes of
contracts to be in writing. This statute does not deprive the parties of the right to contract
with respect to the matters therein involved, but merely regulates the formalities of the
contract necessary to render it enforceable. Thus, they are included in the provisions of
the New Civil Code regarding unenforceable contracts, more particularly Art. 1403,
paragraph 2. Said article provides, as follows:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless
the same, or some note or memorandum thereof, be in writing, and subscribed by the
party charged, or by his agent; evidence, therefore, of the agreement cannot be received
without the writing, or a secondary evidence of its contents:
a) An agreement that by its terms is not to be performed within a year from the making
thereof;
b) A special promise to answer for the debt, default, or miscarriage of another;
c) An agreement made in consideration of marriage, other than a mutual promise to
marry;
d) An agreement for the sale of goods, chattels or things in action, at a price not less
than five hundred pesos, unless the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such things in action, or pay at the time
some part of the purchase money; but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of purchasers and person on whose account
the sale is made, it is a sufficient memorandum;
e) An agreement for the leasing of a longer period than one year, or for the sale of real
property or of an interest therein;
f) A representation to the credit of a third person.
35
The purpose of the statute is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence on the unassisted memory of witnesses by
requiring certain enumerated contracts and transactions to be evidenced by a writing
signed by the party to be charged.[11] Moreover, the statute of frauds refers to specific
kinds of transactions and cannot apply to any other transaction that is not enumerated
therein.[12] The application of such statute presupposes the existence of a perfected
contract.[13]
The question now is whether a right of first refusal is among those enumerated in
the list of contracts covered by the Statute of Frauds. More specifically, is a right of first
refusal akin to an agreement for the leasing of a longer period than one year, or for the
sale of real property or of an interest therein as contemplated by Article 1403, par. 2(e) of
the New Civil Code.
We have previously held that not all agreements affecting land must be put into
writing to attain enforceability[14]. Thus, we have held that the setting up of
boundaries,[15] the oral partition of real property[16], and an agreement creating a right of
way[17] are not covered by the provisions of the statute of frauds. The reason simply is
that these agreements are not among those enumerated in Article 1403 of the New Civil
Code.
A right of first refusal is not among those listed as unenforceable under the statute
of frauds. Furthermore, the application of Article 1403, par. 2(e) of the New Civil Code
presupposes the existence of a perfected, albeit unwritten, contract of sale.[18] A right of
first refusal, such as the one involved in the instant case, is not by any means a
perfected contract of sale of real property. At best, it is a contractual grant, not of the sale
of the real property involved, but of the right of first refusal over the property sought to be
sold[19]
It is thus evident that the statute of frauds does not contemplate cases involving a
right of first refusal. As such, a right of first refusal need not be written to be enforceable
and may be proven by oral evidence.
The next question to be ascertained is whether or not respondents have
satisfactorily proven their right of first refusal over the property subject of the Deed of
Absolute Sale dated September 4, 1990 between petitioner Rosencor and Eufrocina de
Leon.
On this point, we agree with the factual findings of the Court of Appeals that
respondents have adequately proven the existence of their right of first refusal. Federico
Bantugan, Irene Guillermo, and Paterno Inquing uniformly testified that they were
promised by the late spouses Faustino and Crescencia Tiangco and, later on, by their
heirs a right of first refusal over the property they were currently leasing should they
decide to sell the same. Moreover, respondents presented a letter[20] dated October 9,
1990 where Eufrocina de Leon, the representative of the heirs of the spouses Tiangco,
informed them that they had received an offer to buy the disputed property for
P2,000,000.00 and offered to sell the same to the respondents at the same price if they
were interested. Verily, if Eufrocina de Leon did not recognize respondents right of first
refusal over the property they were leasing, then she would not have bothered to offer
the property for sale to the respondents.
It must be noted that petitioners did not present evidence before the trial court
contradicting the existence of the right of first refusal of respondents over the disputed
property. They only presented petitioner Rene Joaquin, the vice-president of petitioner
Rosencor, who admitted having no personal knowledge of the details of the sales
transaction between Rosencor and the heirs of the spouses Tiangco [21] They also
dispensed with the testimony of Eufrocina de Leon[22] who could have denied the
existence or knowledge of the right of first refusal. As such, there being no evidence to
the contrary, the right of first refusal claimed by respondents was substantially proven by
respondents before the lower court.

Having ruled upon the question as to the existence of respondents right of first
refusal, the next issue to be answered is whether or not the Court of Appeals erred in
ordering the rescission of the Deed of Absolute Sale dated September 4, 1990 between
Rosencor and Eufrocina de Leon and in decreeing that the heirs of the spouses Tiangco
should afford respondents the exercise of their right of first refusal. In other words, may a
contract of sale entered into in violation of a third partys right of first refusal be rescinded
in order that such third party can exercise said right?
The issue is not one of first impression.
In Guzman, Bocaling and Co, Inc. vs. Bonnevie[23], the Court upheld the decision of
a lower court ordering the rescission of a deed of sale which violated a right of first
refusal granted to one of the parties therein. The Court held:
xxx Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381 (3) of
the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by
reason of injury to third persons, like creditors. The status of creditors could be validly
accorded the Bonnevies for they had substantial interests that were prejudiced by the
sale of the subject property to the petitioner without recognizing their right of first priority
under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties
and even to third persons, to secure reparations for damages caused to them by a
contract, even if this should be valid, by means of the restoration of things to their
condition at the moment prior to the celebration of said contract. It is a relief allowed for
the protection of one of the contracting parties and even third persons from all injury and
damage the contract may cause, or to protect some incompatible and preferent right
created by the contract. Rescission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that justifies its invalidation for
reasons of equity.
It is true that the acquisition by a third person of the property subject of the contract is an
obstacle to the action for its rescission where it is shown that such third person is in
lawful possession of the subject of the contract and that he did not act in bad
faith. However, this rule is not applicable in the case before us because the petitioner is
not considered a third party in relation to the Contract of Sale nor may its possession of
the subject property be regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover,
the petitioner cannot be deemed a purchaser in good faith for the record shows that it
categorically admitted that it was aware of the lease in favor of the Bonnevies, who were
actually occupying the subject property at the time it was sold to it. Although the Contract
of Lease was not annotated on the transfer certificate of title in the name of the late Jose
Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of such lease
which was equivalent to and indeed more binding than presumed notice by registration.
A purchaser in good faith and for value is one who buys the property of another without
notice that some other person has a right to or interest in such property without and pays
a full and fair price for the same at the time of such purchase or before he has notice of
the claim or interest of some other person in the property. Good faith connotes an honest
intention to abstain from taking unconscientious advantage of another. Tested by these
principles, the petitioner cannot tenably claim to be a buyer in good faith as it had notice
of the lease of the property by the Bonnevies and such knowledge should have
cautioned it to look deeper into the agreement to determine if it involved stipulations that
would prejudice its own interests.
Subsequently[24] in Equatorial Realty and Development, Inc. vs. Mayfair Theater,
Inc. , the Court, en banc, with three justices dissenting,[26] ordered the rescission of a
[25]
contract entered into in violation of a right of first refusal. Using the ruling in Guzman
Bocaling & Co., Inc. vs. Bonnevie as basis, the Court decreed that since respondent
36
therein had a right of first refusal over the said property, it could only exercise the said
right if the fraudulent sale is first set aside or rescinded. Thus:
What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that
Mayfair will have the right of first refusal in the event Carmelo sells the leased
premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it informed
the latter of its intention to sell the said property in 1974. There was an exchange of
letters evidencing the offer and counter-offers made by both parties. Carmelo, however,
did not pursue the exercise to its logical end. While it initially recognized Mayfairs right of
first refusal, Carmelo violated such right when without affording its negotiations with
Mayfair the full process to ripen to at least an interface of a definite offer and a possible
corresponding acceptance within the 30-day exclusive option time granted Mayfair,
Carmelo abandoned negotiations, kept a low profile for some time, and then sold, without
prior notice to Mayfair, the entire Claro M. Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property
in question, rescissible. We agree with respondent Appellate Court that the records bear
out the fact that Equatorial was aware of the lease contracts because its lawyers had,
prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim that
to be a purchaser in good faith, and, therefore, rescission lies.
XXX
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is
characterized by bad faith, since it was knowingly entered into in violation of the rights of
and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals,
Equatorial admitted that its lawyers had studied the contract of lease prior to the
sale. Equatorials knowledge of the stipulations therein should have cautioned it to look
further into the agreement to determine if it involved stipulations that would prejudice its
own interests.
Since Mayfair had a right of first refusal, it can exercise the right only if the fraudulent
sale is first set aside or rescinded. All of these matters are now before us and so there
should be no piecemeal determination of this case and leave festering sores to
deteriorate into endless litigation. The facts of the case and considerations of justice and
equity require that we order rescission here and now. Rescission is a relief allowed for
the protection of one of the contracting parties and even third persons from all injury and
damage the contract may cause or to protect some incompatible and preferred right by
the contract. The sale of the subject real property should now be rescinded considering
that Mayfair, which had substantial interest over the subject property, was prejudiced by
the sale of the subject property to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulate period.[27]
In Paranaque Kings Enterprises, Inc. vs. Court of Appeals,[28] the Court held that
the allegations in a complaint showing violation of a contractual right of first option or
priority to buy the properties subject of the lease constitute a valid cause of action
enforceable by an action for specific performance. Summarizing the rulings in the two
previously cited cases, the Court affirmed the nature of and concomitant rights and
obligations of parties under a right of first refusal. Thus:
We hold however, that in order to have full compliance with the contractual right granting
petitioner the first option to purchase, the sale of the properties for the amount of
P9,000,000.00, the price for which they were finally sold to respondent Raymundo,
should have likewise been offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and
obligations under, a right of first refusal in the case of Guzman, Bocaling & Co. vs.
Bonnevie. In that case, under a contract of lease, the lessees (Raul and Christopher
Bonnevie) were given a "right of first priority" to purchase the leased property in case the
lessor (Reynoso) decided to sell.The selling price quoted to the Bonnevies was
600,000.00 to be fully paid in cash, less a mortgage lien of P100,000.00. On the other

hand, the selling price offered by Reynoso to and accepted by Guzman was only
P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be
paid only when the property was cleared of occupants. We held that even if the
Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso
could not sell it to another for a lower price and under more favorable terms and
conditions without first offering said favorable terms and price to the Bonnevies as
well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso
thereafter lawfully sell the subject property to others, and only under the same terms and
conditions previously offered to the Bonnevies.
XXX
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair
Theater, Inc. which was decided en banc. This Court upheld the right of first refusal of
the lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to
Equatorial Realty "considering that Mayfair, which had substantial interest over the
subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to
Mayfair every opportunity to negotiate within the 30-day stipulated period"
In that case, two contracts of lease between Carmelo and Mayfair provided "that if the
LESSOR should desire to sell the leased premises, the LESSEE shall be given 30 days
exclusive option to purchase the same." Carmelo initially offered to sell the leased
property to Mayfair for six to seven million pesos. Mayfair indicated interest in purchasing
the property though it invoked the 30-day period. Nothing was heard thereafter from
Carmelo. Four years later, the latter sold its entire Recto Avenue property, including the
leased premises, to Equatorial for P11,300,000.00 without priorly informing Mayfair. The
Court held that both Carmelo and Equatorial acted in bad faith: Carmelo for knowingly
violating the right of first option of Mayfair, and Equatorial for purchasing the property
despite being aware of the contract stipulation. In addition to rescission of the contract of
sale, the Court ordered Carmelo to allow Mayfair to buy the subject property at the same
price of P11,300,000.00.
In the recent case of Litonjua vs. L&R Corporation,[29] the Court, also citing the case
of Guzman, Bocaling & Co. vs. Bonnevie, held that the sale made therein in violation of a
right of first refusal embodied in a mortgage contract, was rescissible. Thus:
While petitioners question the validity of paragraph 8 of their mortgage contract, they
appear to be silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants
upon L&R Corporation the right of first refusal over the mortgaged property in the event
the mortgagor decides to sell the same. We see nothing wrong in this provision. The right
of first refusal has long been recognized as valid in our jurisdiction. The consideration for
the loan mortgage includes the consideration for the right of first refusal. L&R
Corporation is in effect stating that it consents to lend out money to the spouses Litonjua
provided that in case they decide to sell the property mortgaged to it, then L&R
Corporation shall be given the right to match the offered purchase price and to buy the
property at that price. Thus, while the spouses Litonjua had every right to sell their
mortgaged property to PWHAS without securing the prior written consent of L&R
Corporation, they had the obligation under paragraph 9, which is a perfectly valid
provision, to notify the latter of their intention to sell the property and give it priority over
other buyers. It is only upon the failure of L&R Corporation to exercise its right of first
refusal could the spouses Litonjua validly sell the subject properties to the others, under
the same terms and conditions offered to L&R Corporation.
What then is the status of the sale made to PWHAS in violation of L & R Corporation's
contractual right of first refusal? On this score, we agree with the Amended Decision of
the Court of Appeals that the sale made to PWHAS is rescissible. The case of Guzman,
Bocaling & Co. v. Bonnevie is instructive on this point.
XXX
37
It was then held that the Contract of Sale there, which violated the right of first refusal,
was rescissible.
In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L
& R Corporation over the subject properties since the Deed of Real Estate Mortgage
containing such a provision was duly registered with the Register of Deeds. As such,
PWHAS is presumed to have been notified thereof by registration, which equates to
notice to the whole world.
XXX
All things considered, what then are the relative rights and obligations of the parties? To
recapitulate: the sale between the spouses Litonjua and PWHAS is valid, notwithstanding
the absence of L & R Corporation's prior written consent thereto. Inasmuch as the sale to
PWHAS was valid, its offer to redeem and its tender of the redemption price, as
successor-in-interest of the spouses Litonjua, within the one-year period should have
been accepted as valid by the L & R Corporation. However, while the sale is, indeed,
valid, the same is rescissible because it ignored L & R Corporation's right of first refusal.
Thus, the prevailing doctrine, as enunciated in the cited cases, is that a contract of
sale entered into in violation of a right of first refusal of another person, while valid, is
rescissible.
There is, however, a circumstance which prevents the application of this doctrine in
the case at bench. In the cases cited above, the Court ordered the rescission of sales
made in violation of a right of first refusal precisely because the vendees therein could
not have acted in good faith as they were aware or should have been aware of the right
of first refusal granted to another person by the vendors therein. The rationale for this is
found in the provisions of the New Civil Code on rescissible contracts. Under Article 1381
of the New Civil Code, paragraph 3, a contract validly agreed upon may be rescinded if it
is undertaken in fraud of creditors when the latter cannot in any manner collect the claim
due them. Moreover, under Article 1385, rescission shall not take place when the things
which are the object of the contract are legally in the possession of third persons who did
not act in bad faith.[30]
It must be borne in mind that, unlike the cases cited above, the right of first refusal
involved in the instant case was an oral one given to respondents by the deceased
spouses Tiangco and subsequently recognized by their heirs. As such, in order to hold
that petitioners were in bad faith, there must be clear and convincing proof that
petitioners were made aware of the said right of first refusal either by the respondents or
by the heirs of the spouses Tiangco.
It is axiomatic that good faith is always presumed unless contrary evidence is
adduced.[31] A purchaser in good faith is one who buys the property of another without
notice that some other person has a right or interest in such a property and pays a full
and fair price at the time of the purchase or before he has notice of the claim or interest
of some other person in the property.[32] In this regard, the rule on constructive notice
would be inapplicable as it is undisputed that the right of first refusal was an oral one and
that the same was never reduced to writing, much less registered with the Registry of
Deeds. In fact, even the lease contract by which respondents derive their right to
possess the property involved was an oral one.
On this point, we hold that the evidence on record fails to show that petitioners
acted in bad faith in entering into the deed of sale over the disputed property with the
heirs of the spouses Tiangco.Respondents failed to present any evidence that prior to
the sale of the property on September 4, 1990, petitioners were aware or had notice of
the oral right of first refusal.
Respondents point to the letter dated June 1, 1990[33] as indicative of petitioners
knowledge of the said right. In this letter, a certain Atty. Erlinda Aguila demanded that
respondent Irene Guillermo vacate the structure they were occupying to make way for its
demolition.

We fail to see how the letter could give rise to bad faith on the part of the
petitioner. No mention is made of the right of first refusal granted to respondents. The
name of petitioner Rosencor or any of it officers did not appear on the letter and the letter
did not state that Atty. Aguila was writing in behalf of petitioner. In fact, Atty. Aguila stated
during trial that she wrote the letter in behalf of the heirs of the spouses
Tiangco. Moreover, even assuming that Atty. Aguila was indeed writing in behalf of
petitioner Rosencor, there is no showing that Rosencor was aware at that time that such
a right of first refusal existed.
Neither was there any showing that after receipt of this June 1, 1990 letter,
respondents notified Rosencor or Atty. Aguila of their right of first refusal over the
property. Respondents did not try to communicate with Atty. Aguila and inform her about
their preferential right over the disputed property. There is even no showing that they
contacted the heirs of the spouses Tiangco after they received this letter to remind them
of their right over the property.
Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de
Leon, where she recognized the right of first refusal of respondents, as indicative of the
bad faith of petitioners. We do not agree. Eufrocina de Leon wrote the letter on her own
behalf and not on behalf of petitioners and, as such, it only shows that Eufrocina de Leon
was aware of the existence of the oral right of first refusal. It does not show that
petitioners were likewise aware of the existence of the said right. Moreover, the letter
was made a month after the execution of the Deed of Absolute Sale on September 4,
1990 between petitioner Rosencor and the heirs of the spouses Tiangco. There is no
showing that prior to the date of the execution of the said Deed, petitioners were put on
notice of the existence of the right of first refusal.
Clearly, if there was any indication of bad faith based on respondents evidence, it
would only be on the part of Eufrocina de Leon as she was aware of the right of first
refusal of respondents yet she still sold the disputed property to Rosencor. However, bad
faith on the part of Eufrocina de Leon does not mean that petitioner Rosencor likewise
acted in bad faith. There is no showing that prior to the execution of the Deed of Absolute
Sale, petitioners were made aware or put on notice of the existence of the oral right of
first refusal. Thus, absent clear and convincing evidence to the contrary, petitioner
Rosencor will be presumed to have acted in good faith in entering into the Deed of
Absolute Sale over the disputed property.
Considering that there is no showing of bad faith on the part of the petitioners, the
Court of Appeals thus erred in ordering the rescission of the Deed of Absolute Sale dated
September 4, 1990 between petitioner Rosencor and the heirs of the spouses
Tiangco. The acquisition by Rosencor of the property subject of the right of first refusal is
an obstacle to the action for its rescission where, as in this case, it was shown that
Rosencor is in lawful possession of the subject of the contract and that it did not act in
bad faith.[34]
This does not mean however that respondents are left without any remedy for the
unjustified violation of their right of first refusal. Their remedy however is not an action for
the rescission of the Deed of Absolute Sale but an action for damages against the heirs
of the spouses Tiangco for the unjustified disregard of their right of first refusal[35].
WHEREFORE, premises considered, the decision of the Court of Appeals dated
June 25, 1999 is REVERSED and SET ASIDE. The Decision dated May 13, 1996 of the
Quezon City Regional Trial Court, Branch 217 is hereby REINSTATED insofar as it
dismisses the action for rescission of the Deed of Absolute Sale dated September 4,
1990 and orders the payment of monthly rentals of P1,000.00 per month reckoned from
May 1990 up to the time respondents leave the premises.
SO ORDERED.
Melo, (Chairman), Panganiban, and Sandoval-Gutierrez, JJ., concur.
38
Vitug, J., in the result; reiterated the Courts opinion in Ang Yu vs. CA (238 SCRA
602).
[G.R. No. 140182. April 12, 2005]
TANAY RECREATION CENTER AND DEVELOPMENT CORP., petitioner,
vs. CATALINA MATIENZO FAUSTO+ and ANUNCIACION FAUSTO
PACUNAYEN, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the lessee
of a 3,090-square meter property located in Sitio Gayas, Tanay, Rizal, owned by Catalina
Matienzo Fausto,[1] under a Contract of Lease executed on August 1, 1971. On this
property stands the Tanay Coliseum Cockpit operated by petitioner. The lease contract
provided for a 20-year term, subject to renewal within sixty days prior to its expiration.
The contract also provided that should Fausto decide to sell the property, petitioner shall
have the priority right to purchase the same.[2]
On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew the
lease.[3] However, it was Faustos daughter, respondent Anunciacion F. Pacunayen, who
replied, asking that petitioner remove the improvements built thereon, as she is now the
absolute owner of the property.[4] It appears that Fausto had earlier sold the property to
Pacunayen on August 8, 1990, for the sum of P10,000.00 under a Kasulatan ng Bilihan
Patuluyan ng Lupa,[5] and title has already been transferred in her name under Transfer
Certificate of Title (TCT) No. M-35468.[6]
Despite efforts, the matter was not resolved. Hence, on September 4, 1991,
petitioner filed an Amended Complaint for Annulment of Deed of Sale, Specific
Performance with Damages, and Injunction, docketed as Civil Case No. 372-M.[7]
In her Answer, respondent claimed that petitioner is estopped from assailing the
validity of the deed of sale as the latter acknowledged her ownership when it merely
asked for a renewal of the lease. According to respondent, when they met to discuss the
matter, petitioner did not demand for the exercise of its option to purchase the property,
and it even asked for grace period to vacate the premises. [8]
After trial on the merits, the Regional Trial Court of Morong, Rizal (Branch 78),
rendered judgment extending the period of the lease for another seven years from
August 1, 1991 at a monthly rental of P10,000.00, and dismissed petitioners claim for
damages.[9]
On appeal, docketed as CA-G.R. CV No. 43770, the Court of Appeals (CA) affirmed
with modifications the trial courts judgment per its Decision dated June 14, 1999. [10] The
dispositive portion of the decision reads:
WHEREFORE, the appealed decision is AFFIRMED AND ACCORDINGLY MODIFIED
AS DISCUSSED.
Furthermore, we resolved:
1.0. That TRCDC VACATE the leased premises immediately;
2.0. To GRANT the motion of Pacunayen to allow her to withdraw the amount
of P320,000.00, deposited according to records, with this court.
3.0. To order TRCDC to MAKE THE NECESSARY ACCOUNTING regarding the
amounts it had already deposited (for unpaid rentals for the extended period of seven [7]
years of the contract of lease). In case it had not yet completed its deposit, to
immediately pay the remaining balance to Pacunayen.
4.0. To order TRCDC to PAY the amount of P10,000.00 as monthly rental, with regard to
its continued stay in the leased premises even after the expiration of the extended period
of seven (7) years, computed from August 1, 1998, until it finally vacates therefrom.
SO ORDERED.[11]

In arriving at the assailed decision, the CA acknowledged the priority right of
TRCDC to purchase the property in question. However, the CA interpreted such right to
mean that it shall be applicable only in case the property is sold to strangers and not to
Faustos relative. The CA stated that (T)o interpret it otherwise as to comprehend all
sales including those made to relatives and to the compulsory heirs of the seller at that
would be an absurdity, and her (Faustos) only motive for such transfer was precisely one
of preserving the property within her bloodline and that someone administer the
property.[12] The CA also ruled that petitioner already acknowledged the transfer of
ownership and is deemed to have waived its right to purchase the property.[13] The CA
even further went on to rule that even if the sale is annulled, petitioner could not achieve
anything because the property will be eventually transferred to Pacunayen after Faustos
death.[14]
Petitioner filed a motion for reconsideration but it was denied per Resolution dated
September 14, 1999.[15]
Dissatisfied, petitioner elevated the case to this Court on petition for review
on certiorari, raising the following grounds:
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE
ERROR IN HOLDING THAT THE CONTRACTUAL STIPULATION GIVING
PETITIONER THE PRIORITY RIGHT TO PURCHASE THE LEASED PREMISES
SHALL ONLY APPLY IF THE LESSOR DECIDES TO SELL THE SAME TO
STRANGERS;
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE
ERROR IN HOLDING THAT PETITIONERS PRIORITY RIGHT TO PURCHASE THE
LEASED PREMISES IS INCONSEQUENTIAL.[16]
The principal bone of contention in this case refers to petitioners priority right to
purchase, also referred to as the right of first refusal.
Petitioners right of first refusal in this case is expressly provided for in the notarized
Contract of Lease dated August 1, 1971, between Fausto and petitioner, to wit:
7. That should the LESSOR decide to sell the leased premises, the LESSEE shall have
the priority right to purchase the same;[17]
When a lease contract contains a right of first refusal, the lessor is under a legal
duty to the lessee not to sell to anybody at any price until after he has made an offer to
sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a
right that the lessor's first offer shall be in his favor. [18] Petitioners right of first refusal is
an integral and indivisible part of the contract of lease and is inseparable from the whole
contract. The consideration for the lease includes the consideration for the right of first
refusal[19] and is built into the reciprocal obligations of the parties.
It was erroneous for the CA to rule that the right of first refusal does not apply when
the property is sold to Faustos relative.[20] When the terms of an agreement have been
reduced to writing, it is considered as containing all the terms agreed upon. As such,
there can be, between the parties and their successors in interest, no evidence of such
terms other than the contents of the written agreement, except when it fails to express
the true intent and agreement of the parties.[21] In this case, the wording of the stipulation
giving petitioner the right of first refusal is plain and unambiguous, and leaves no room
for interpretation. It simply means that should Fausto decide to sell the leased property
during the term of the lease, such sale should first be offered to petitioner. The stipulation
does not provide for the qualification that such right may be exercised only when the sale
is made to strangers or persons other than Faustos kin. Thus, under the terms of
petitioners right of first refusal, Fausto has the legal duty to petitioner not to sell the
property to anybody, even her relatives, at any price until after she has made an offer to
sell to petitioner at a certain price and said offer was rejected by petitioner. Pursuant to
their contract, it was essential that Fausto should have first offered the property to
39
petitioner before she sold it to respondent. It was only after petitioner failed to exercise its
right of first priority could Fausto then lawfully sell the property to respondent.
The rule is that a sale made in violation of a right of first refusal is valid. However, it
may be rescinded, or, as in this case, may be the subject of an action for specific
performance.[22]In Riviera Filipina, Inc. vs. Court of Appeals,[23] the Court discussed the
concept and interpretation of the right of first refusal and the consequences of a breach
thereof, to wit:
. . . It all started in 1992 with Guzman, Bocaling & Co. v. Bonnevie where the Court
held that a lease with a proviso granting the lessee the right of first priority all things and
conditions being equal meant that there should be identity of the terms and conditions to
be offered to the lessee and all other prospective buyers, with the lessee to enjoy the
right of first priority. A deed of sale executed in favor of a third party who cannot be
deemed a purchaser in good faith, and which is in violation of a right of first refusal
granted to the lessee is not voidable under the Statute of Frauds but rescissible under
Articles 1380 to 1381 (3) of the New Civil Code.
Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals, the
Court en banc departed from the doctrine laid down in Guzman, Bocaling & Co. v.
Bonnevie and refused to rescind a contract of sale which violated the right of first
refusal. The Court held that the so-called right of first refusal cannot be deemed a
perfected contract of sale under Article 1458 of the New Civil Code and, as such, a
breach thereof decreed under a final judgment does not entitle the aggrieved party to a
writ of execution of the judgment but to an action for damages in a proper forum for the
purpose.
In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., the
Court en banc reverted back to the doctrine in Guzman Bocaling & Co. v.
Bonnevie stating that rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and damage the contract may
cause or to protect some incompatible and preferred right by the contract.
Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v. Court of Appeals, the
Court affirmed the nature of and the concomitant rights and obligations of parties under a
right of first refusal. The Court, summarizing the rulings in Guzman, Bocaling & Co. v.
Bonnevie and Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., held that
in order to have full compliance with the contractual right granting petitioner the first
option to purchase, the sale of the properties for the price for which they were finally sold
to a third person should have likewise been first offered to the former. Further, there
should be identity of terms and conditions to be offered to the buyer holding a right of first
refusal if such right is not to be rendered illusory. Lastly, the basis of the right of first
refusal must be the current offer to sell of the seller or offer to purchase of any
prospective buyer.
The prevailing doctrine therefore, is that a right of first refusal means identity of
terms and conditions to be offered to the lessee and all other prospective buyers and a
contract of sale entered into in violation of a right of first refusal of another person, while
valid, is rescissible.[24]
It was also incorrect for the CA to rule that it would be useless to annul the sale
between Fausto and respondent because the property would still remain with respondent
after the death of her mother by virtue of succession, as in fact, Fausto died in March
1996, and the property now belongs to respondent, being Faustos heir. [25]
For one, Fausto was bound by the terms and conditions of the lease contract.
Under the right of first refusal clause, she was obligated to offer the property first to
petitioner before selling it to anybody else. When she sold the property to respondent
without offering it to petitioner, the sale while valid is rescissible so that petitioner may
exercise its option under the contract.

With the death of Fausto, whatever rights and obligations she had over the
property, including her obligation under the lease contract, were transmitted to her heirs
by way of succession, a mode of acquiring the property, rights and obligation of the
decedent to the extent of the value of the inheritance of the heirs. Article 1311 of the Civil
Code provides:
ART. 1311. Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir is not liable
beyond the value of the property he received from the decedent.
A lease contract is not essentially personal in character. [26] Thus, the rights and
obligations therein are transmissible to the heirs. The general rule is that heirs are bound
by contracts entered into by their predecessors-in-interest except when the rights and
obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3)
provision of law.[27]
In this case, the nature of the rights and obligations are, by their nature,
transmissible. There is also neither contractual stipulation nor provision of law that makes
the rights and obligations under the lease contract intransmissible. The lease contract
between petitioner and Fausto is a property right, which is a right that passed on to
respondent and the other heirs, if any, upon the death of Fausto.
In DKC Holdings Corporation vs. Court of Appeals,[28] the Court held that the
Contract of Lease with Option to Buy entered into by the late Encarnacion Bartolome with
DKC Holdings Corporation was binding upon her sole heir, Victor, even after her demise
and it subsists even after her death. The Court ruled that:
. . . Indeed, being an heir of Encarnacion, there is privity of interest between him and his
deceased mother. He only succeeds to what rights his mother had and what is valid
and binding against her is also valid and binding as against him. This is clear
from Paraaque Kings Enterprises vs. Court of Appeals, where this Court rejected a
similar defense-
With respect to the contention of respondent Raymundo that he is not privy to
the lease contract, not being the lessor nor the lessee referred to therein, he
could thus not have violated its provisions, but he is nevertheless a proper
party. Clearly, he stepped into the shoes of the owner-lessor of the land as,
by virtue of his purchase, he assumed all the obligations of the lessor under
the lease contract. Moreover, he received benefits in the form of rental
payments. Furthermore, the complaint, as well as the petition, prayed for the
annulment of the sale of the properties to him. Both pleadings also alleged
collusion between him and respondent Santos which defeated the exercise by
petitioner of its right of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo
was a necessary, if not indispensable, party to the case. A favorable
judgment for the petitioner will necessarily affect the rights of respondent
Raymundo as the buyer of the property over which petitioner would like to
assert its right of first option to buy.[29] (Emphasis supplied)
Likewise in this case, the contract of lease, with all its concomitant provisions,
continues even after Faustos death and her heirs merely stepped into her
shoes.[30] Respondent, as an heir of Fausto, is therefore bound to fulfill all its terms and
conditions.
There is no personal act required from Fausto such that respondent cannot perform
it. Faustos obligation to deliver possession of the property to petitioner upon the exercise
by the latter of its right of first refusal may be performed by respondent and the other
heirs, if any. Similarly, nonperformance is not excused by the death of the party when the
other party has a property interest in the subject matter of the contract. [31]
40
The CA likewise found that petitioner acknowledged the legitimacy of the sale to
respondent and it is now barred from exercising its right of first refusal. According to the
appellate court:
Second, when TRCDC, in a letter to Fausto, signified its intention to renew the lease
contract, it was Pacunayen who answered the letter on June 19, 1991. In that letter
Pacunayen demanded that TRCDC vacate the leased premises within sixty (60) days
and informed it of her ownership of the leased premises. The pertinent portion of the
letter reads:
Furtherly, please be advised that the land is no longer under the absolute ownership of
my mother and the undersigned is now the real and absolute owner of the land.
Instead of raising a howl over the contents of the letter, as would be its expected and
natural reaction under the circumstances, TRCDC surprisingly kept silent about the
whole thing. As we mentioned in the factual antecedents of this case, it even invited
Pacunayen to its special board meeting particularly to discuss with her the renewal of the
lease contract. Again, during that meeting, TRCDC did not mention anything that could
be construed as challenging Pacunayens ownership of the leased premises. Neither did
TRCDC assert its priority right to purchase the same against Pacunayen.[32]
The essential elements of estoppel are: (1) conduct of a party amounting to false
representation or concealment of material facts or at least calculated to convey the
impression that the facts are otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (2) intent, or at least expectation, that this conduct shall
be acted upon by, or at least influence, the other party; and (3) knowledge, actual or
constructive, of the real facts.[33]
The records are bereft of any proposition that petitioner waived its right of first
refusal under the contract such that it is now estopped from exercising the same. In a
letter dated June 17, 1991, petitioner wrote to Fausto asking for a renewal of the term of
lease.[34] Petitioner cannot be faulted for merely seeking a renewal of the lease contract
because obviously, it was working on the assumption that title to the property is still in
Faustos name and the latter has the sole authority to decide on the fate of the property.
Instead, it was respondent who replied, advising petitioner to remove all the
improvements on the property, as the lease is to expire on the 1 st of August 1991.
Respondent also informed petitioner that her mother has already sold the property to
her.[35] In order to resolve the matter, a meeting was called among petitioners
stockholders, including respondent, on July 27, 1991, where petitioner, again, proposed
that the lease be renewed. Respondent, however, declined. While petitioner may have
sought the renewal of the lease, it cannot be construed as a relinquishment of its right of
first refusal. Estoppel must be intentional and unequivocal. [36]
Also, in the excerpts from the minutes of the special meeting, it was further stated
that the possibility of a sale was likewise considered.[37] But respondent also refused to
sell the land, while the improvements, if for sale shall be subject for appraisal.[38] After
respondent refused to sell the land, it was then that petitioner filed the complaint for
annulment of sale, specific performance and damages.[39] Petitioners acts of seeking all
possible avenues for the amenable resolution of the conflict do not amount to an
intentional and unequivocal abandonment of its right of first refusal.
Respondent was well aware of petitioners right to priority of sale, and that the sale
made to her by her mother was merely for her to be able to take charge of the latters
affairs. As admitted by respondent in her Appellees Brief filed before the CA, viz.:
After June 19, 1991, TRCDC invited Pacunayen to meeting with the officers of the
corporation. . . . In the same meeting, Pacunayens attention was called to the
provision of the Contract of Lease had by her mother with TRCDC, particularly
paragraph 7 thereof, which states:
7. That should the lessor decide to sell the leased premises, the LESSEE shall have the
priority right to purchase the same.

Of course, in the meeting she had with the officers of TRCDC, Pacunayen explained that
the sale made in her favor by her mother was just a formality so that she may have the
proper representation with TRCDC in the absence of her parents, more so that her father
had already passed away, and there was no malice in her mine (sic) and that of her
mother, or any intention on their part to deceive TRCDC. All these notwithstanding, and
for her to show their good faith in dealing with TRCDC, Pacunayen started the ground
work to reconvey ownership over the whole land, now covered by Transfer Certificare
(sic) of Title No. M-259, to and in the name of her mother (Fausto), but the latter was
becoming sickly, old and weak, and they found no time to do it as early as they wanted
to.[40] (Emphasis supplied)
Given the foregoing, the Kasulatan ng Bilihan Patuluyan ng Lupa dated August 8,
1990 between Fausto and respondent must be rescinded. Considering, however, that
Fausto already died on March 16, 1996, during the pendency of this case with the
CA, her heirs should have been substituted as respondents in this case. Considering
further that the Court cannot declare respondent Pacunayen as the sole heir, as it is not
the proper forum for that purpose, the right of petitioner may only be enforced against the
heirs of the deceased Catalina Matienzo Fausto, represented by respondent Pacunayen.
In Paraaque Kings Enterprises, Inc. vs. Court of Appeals,[41] it was ruled that the
basis of the right of the first refusal must be the current offer to sell of the seller or offer to
purchase of any prospective buyer. It is only after the grantee fails to exercise its right of
first priority under the same terms and within the period contemplated, could the owner
validly offer to sell the property to a third person, again, under the same terms as offered
to the grantee. The circumstances of this case, however, dictate the application of a
different ruling. An offer of the property to petitioner under identical terms and conditions
of the offer previously given to respondent Pacunayen would be inequitable. The subject
property was sold in 1990 to respondent Pacunayen for a measly sum of P10,000.00.
Obviously, the value is in a small amount because the sale was between a mother and
daughter. As admitted by said respondent, the sale made in her favor by her mother was
just a formality so that she may have the proper representation with TRCDC in the
absence of her parents[42] Consequently, the offer to be made to petitioner in this case
should be under reasonable terms and conditions, taking into account the fair market
value of the property at the time it was sold to respondent.
In its complaint, petitioner prayed for the cancellation of TCT No. M-35468 in the
name of respondent Pacunayen,[43] which was issued by the Register of Deeds of
Morong on February 7, 1991.[44] Under ordinary circumstances, this would be the logical
effect of the rescission of the Kasulatan ng Bilihan Patuluyan ng Lupa between the
deceased Fausto and respondent Pacunayen. However, the circumstances in this case
are not ordinary. The buyer of the subject property is the sellers own daughter. If and
when the title (TCT No. M-35468) in respondent Pacunayens name is cancelled and
reinstated in Faustos name, and thereafter negotiations between petitioner and
respondent Pacunayen for the purchase of the subject property break down, then the
subject property will again revert to respondent Pacunayen as she appears to be one of
Faustos heirs. This would certainly be a winding route to traverse. Sound reason
therefore dictates that title should remain in the name of respondent Pacunayen, for and
in behalf of the other heirs, if any, to be cancelled only when petitioner successfully
exercises its right of first refusal and purchases the subject property.
Petitioner further seeks the award of the following damages in its favor:
(1) P100,000.00 as actual damages; (2) P1,100,000.00 as compensation for lost goodwill
or reputation; (3) P100,000.00 as moral damages; (4) P100,000.00 as exemplary
damages; (5) P50,000.00 as attorneys fees; (6) P1,000.00 appearance fee per hearing;
and (7) the costs of suit.[45]
According to petitioner, respondents act in fencing the property led to the closure of
the Tanay Coliseum Cockpit and petitioner was unable to conduct cockfights and
41
generate income of not less than P100,000.00 until the end of September 1991, aside
from the expected rentals from the cockpit space lessees in the amount of P11,000.00.[46]
Under Article 2199 of the Civil Code, it is provided that:
Except as provided by law or by stipulation, one is entitled to an adequate
compensation only for such pecuniary loss suffered by him as he has duly proved.
Such compensation is referred to as actual or compensatory damages. (Emphasis
supplied)
The rule is that actual or compensatory damages cannot be presumed, but must be
proved with reasonable degree of certainty. A court cannot rely on speculations,
conjectures, or guesswork as to the fact and amount of damages, but must depend upon
competent proof that they have been suffered by the injured party and on the best
obtainable evidence of the actual amount thereof. It must point out specific facts, which
could afford a basis for measuring whatever compensatory or actual damages are
borne.[47]
In the present case, there is no question that the Tanay Coliseum Cockpit was
closed for two months and TRCDC did not gain any income during said period. But there
is nothing on record to substantiate petitioners claim that it was bound to lose
some P111,000.00 from such closure. TRCDCs president, Ambrosio Sacramento,
testified that they suffered income losses with the closure of the cockpit from August 2,
1991 until it re-opened on October 20, 1991.[48] Mr. Sacramento, however, cannot state
with certainty the amount of such unrealized income.[49] Meanwhile, TRCDCs accountant,
Merle Cruz, stated that based on the corporations financial statement for the years 1990
and 1991,[50] they derived the amount of P120,000.00 as annual income from
rent.[51] From said financial statement, it is safe to presume that TRCDC generated a
monthly income of P10,000.00 a month (P120,000.00 annual income divided by 12
months). At best therefore, whatever actual damages that petitioner suffered from the
cockpits closure for a period of two months can be reasonably summed up only
to P20,000.00.
Such award of damages shall earn interest at the legal rate of six percent (6%) per
annum, which shall be computed from the time of the filing of the Complaint on August
22, 1991, until the finality of this decision. After the present decision becomes final and
executory, the rate of interest shall increase to twelve percent (12%) per annum from
such finality until its satisfaction, this interim period being deemed to be equivalent to a
forbearance of credit.[52] This is in accord with the guidelines laid down by the Court
in Eastern Shipping Lines, Inc. vs. Court of Appeals,[53] regarding the manner of
computing legal interest, viz.:
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the

date the judgment of the court is made (at which time quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit. [54]
Petitioner also claims the amount of P1,100,000.00 as compensation for lost
goodwill or reputation. It alleged that with the unjust and wrongful conduct of the
defendants as above-described, plaintiff stands to lose its goodwill and reputation
established for the past 20 years.[55]
An award of damages for loss of goodwill or reputation falls under actual or
compensatory damages as provided in Article 2205 of the Civil Code, to wit:
Art. 2205. Damages may be recovered:
(1) For loss or impairment of earning capacity in cases of temporary or permanent
personal injury;
(2) For injury to the plaintiffs business standing or commercial credit.
Even if it is not recoverable as compensatory damages, it may still be awarded in
the concept of temperate or moderate damages.[56] In arriving at a reasonable level of
temperate damages to be awarded, trial courts are guided by the ruling that:
. . . There are cases where from the nature of the case, definite proof of pecuniary loss
cannot be offered, although the court is convinced that there has been such loss. For
instance, injury to one's commercial credit or to the goodwill of a business firm is often
hard to show certainty in terms of money. Should damages be denied for that reason?
The judge should be empowered to calculate moderate damages in such cases, rather
than that the plaintiff should suffer, without redress from the defendant's wrongful act.
(Araneta v. Bank of America, 40 SCRA 144, 145)[57]
In this case, aside from the nebulous allegation of petitioner in its amended
complaint, there is no evidence on record, whether testimonial or documentary, to
adequately support such claim. Hence, it must be denied.
Petitioners claim for moral damages must likewise be denied. The award of moral
damages cannot be granted in favor of a corporation because, being an artificial person
and having existence only in legal contemplation, it has no feelings, no emotions, no
senses. It cannot, therefore, experience physical suffering and mental anguish, which
can be experienced only by one having a nervous system.[58] Petitioner being a
corporation,[59] the claim for moral damages must be denied.
With regard to the claim for exemplary damages, it is a requisite in the grant thereof
that the act of the offender must be accompanied by bad faith or done in wanton,
fraudulent or malevolent manner.[60] Moreover, where a party is not entitled to actual or
moral damages, an award of exemplary damages is likewise baseless. [61] In this case,
petitioner failed to show that respondent acted in bad faith, or in wanton, fraudulent or
malevolent manner.
Petitioner likewise claims the amount of P50,000.00 as attorneys fees, the sum
of P1,000.00 for every appearance of its counsel, plus costs of suit. It is well settled that
no premium should be placed on the right to litigate and not every winning party is
entitled to an automatic grant of attorney's fees. The party must show that he falls under
one of the instances enumerated in Article 2208 of the Civil Code. In this case, since
petitioner was compelled to engage the services of a lawyer and incurred expenses to
protect its interest and right over the subject property, the award of attorneys fees is
proper. However there are certain standards in fixing attorney's fees, to wit: (1) the
amount and the character of the services rendered; (2) labor, time and trouble involved;
(3) the nature and importance of the litigation and business in which the services were
rendered; (4) the responsibility imposed; (5) the amount of money and the value of the
42
property affected by the controversy or involved in the employment; (6) the skill and the
experience called for in the performance of the services; (7) the professional character
and the social standing of the attorney; and (8) the results secured, it being a recognized
rule that an attorney may properly charge a much larger fee when it is contingent than
when it is not.[62] Considering the foregoing, the award of P10,000.00 as attorneys fees,
including the costs of suit, is reasonable under the circumstances.
WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. The
Court of Appeals Decision dated June 14, 1999 in CA-G.R. CV No. 43770 is MODIFIED
as follows:
(1) the Kasulatan ng Bilihan Patuluyan ng Lupa dated August 8, 1990 between Catalina
Matienzo Fausto and respondent Anunciacion Fausto Pacunayen is hereby deemed
rescinded;
(2) The Heirs of the deceased Catalina Matienzo Fausto who are hereby deemed
substituted as respondents, represented by respondent Anunciacion Fausto Pacunayen,
are ORDEREDto recognize the obligation of Catalina Matienzo Fausto under the
Contract of Lease with respect to the priority right of petitioner Tanay Recreation Center
and Development Corp. to purchase the subject property under reasonable terms and
conditions;
(3) Transfer Certificate of Title No. M-35468 shall remain in the name of respondent
Anunciacion Fausto Pacunayen, which shall be cancelled in the event petitioner
successfully purchases the subject property;
(4) Respondent is ORDERED to pay petitioner Tanay Recreation Center and
Development Corporation the amount of Twenty Thousand Pesos (P20,000.00) as actual
damages, plus interest thereon at the legal rate of six percent (6%) per annum from the
filing of the Complaint until the finality of this Decision. After this Decision becomes final
and executory, the applicable rate shall be twelve percent (12%) per annum until its
satisfaction; and,
(5) Respondent is ORDERED to pay petitioner the amount of Ten Thousand Pesos
(P10,000.00) as attorneys fees, and to pay the costs of suit.
(6) Let the case be remanded to the Regional Trial Court, Morong, Rizal (Branch 78) for
further proceedings on the determination of the reasonable terms and conditions of the
offer to sell by respondents to petitioner, without prejudice to possible mediation between
the parties.
The rest of the unaffected dispositive portion of the Court of Appeals Decision is
AFFIRMED.
SO ORDERED.
Puno, (Chairman), Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.
[G.R. No. 103577. October 7, 1996]
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL,
ANNABELLE C. GONZALES (for herself and on behalf of Floraida C.
Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A.
ALMONTE, and CATALINA BALAIS MABANAG, petitioners, vs. THE
COURT OF APPEALS, CONCEPCION D. ALCARAZ and RAMONA
PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-
fact, respondents.
DECISION
MELO, J.:
The petition before us has its roots in a complaint for specific performance to
compel herein petitioners (except the last named, Catalina Balais Mabanag) to
consummate the sale of a parcel of land with its improvements located along Roosevelt
Avenue in Quezon City entered into by the parties sometime in January 1985 for the
price of P1,240,000.00.

The undisputed facts of the case were summarized by respondent court in this
wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et. al. (hereinafter referred
to as Coronels) executed a document entitled Receipt of Down Payment (Exh. A) in favor
of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as Ramona) which is
reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 - Total amount
50,000.00 - Down payment
------------------------------------------
P1,190,000.00 - Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No.
119627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased father,
Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the
down payment above-stated.
On our presentation of the TCT already in or name, We will immediately execute the
deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall
immediately pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00) pesos upon
execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the property
registered in the name of their deceased father upon receipt of the Fifty Thousand
(P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels will execute the
deed of absolute sale in favor of Ramona and the latter will pay the former the whole
balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz
(hereinafter referred to as Concepcion), mother of Ramona, paid the down payment of
Fifty Thousand (P50,000.00) Pesos (Exh. B, Exh. 2).
On February 6, 1985, the property originally registered in the name of the Coronels father
was transferred in their names under TCT No. 327043 (Exh. D; Exh 4)
On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to
intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One
Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid
Three Hundred Thousand (P300,000.00) Pesos (Exhs. F-3; Exh. 6-C)
For this reason, Coronels canceled and rescinded the contract (Exh. A) with Ramona by
depositing the down payment paid by Concepcion in the bank in trust for Ramona
Patricia Alcaraz.
On February 22, 1985, Concepcion, et. al., filed a complaint for a specific performance
against the Coronels and caused the annotation of a notice of lis pendens at the back of
TCT No. 327403 (Exh. E; Exh. 5).
On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering
the same property with the Registry of Deeds of Quezon City (Exh. F; Exh. 6).
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject
property in favor of Catalina (Exh. G; Exh. 7).
On June 5, 1985, a new title over the subject property was issued in the name of
Catalina under TCT No. 351582 (Exh. H; Exh. 8).
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83, RTC, Quezon
City) the parties agreed to submit the case for decision solely on the basis of
43
documentary exhibits.Thus, plaintiffs therein (now private respondents) proffered their
documentary evidence accordingly marked as Exhibits A through J, inclusive of their
corresponding submarkings.Adopting these same exhibits as their own, then defendants
(now petitioners) accordingly offered and marked them as Exhibits 1 through 10, likewise
inclusive of their corresponding submarkings. Upon motion of the parties, the trial court
gave them thirty (30) days within which to simultaneously submit their respective
memoranda, and an additional 15 days within which to submit their corresponding
comment or reply thereto, after which, the case would be deemed submitted for
resolution.
On April 14, 1988, the case was submitted for resolution before Judge Reynaldo
Roura, who was then temporarily detailed to preside over Branch 82 of the RTC of
Quezon City. On March 1, 1989, judgment was handed down by Judge Roura from his
regular bench at Macabebe, Pampanga for the Quezon City branch, disposing as
follows:
WHEREFORE, judgment for specific performance is hereby rendered ordering defendant
to execute in favor of plaintiffs a deed of absolute sale covering that parcel of land
embraced in and covered by Transfer Certificate of Title No. 327403 (now TCT No.
331582) of the Registry of Deeds for Quezon City, together with all the improvements
existing thereon free from all liens and encumbrances, and once accomplished, to
immediately deliver the said document of sale to plaintiffs and upon receipt thereof, the
plaintiffs are ordered to pay defendants the whole balance of the purchase price
amounting to P1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the
Registry of Deeds for Quezon City in the name of intervenor is hereby canceled and
declared to be without force and effect. Defendants and intervenor and all other persons
claiming under them are hereby ordered to vacate the subject property and deliver
possession thereof to plaintiffs. Plaintiffs claim for damages and attorneys fees, as well
as the counterclaims of defendants and intervenors are hereby dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioners before the new presiding judge
of the Quezon City RTC but the same was denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and to render anew
decision by the undersigned Presiding Judge should be denied for the following
reasons: (1) The instant case became submitted for decision as of April 14, 1988 when
the parties terminated the presentation of their respective documentary evidence and
when the Presiding Judge at that time was Judge Reynaldo Roura. The fact that they
were allowed to file memoranda at some future date did not change the fact that the
hearing of the case was terminated before Judge Roura and therefore the same should
be submitted to him for decision; (2) When the defendants and intervenor did not object
to the authority of Judge Reynaldo Roura to decide the case prior to the rendition of the
decision, when they met for the first time before the undersigned Presiding Judge at the
hearing of a pending incident in Civil Case No. Q-46145 on November 11, 1988, they
were deemed to have acquiesced thereto and they are now estopped from questioning
said authority of Judge Roura after they received the decision in question which happens
to be adverse to them; (3) While it is true that Judge Reynaldo Roura was merely a
Judge-on-detail at this Branch of the Court, he was in all respects the Presiding Judge
with full authority to act on any pending incident submitted before this Court during his
incumbency. When he returned to his Official Station at Macabebe, Pampanga, he did
not lose his authority to decide or resolve cases submitted to him for decision or
resolution because he continued as Judge of the Regional Trial Court and is of co-equal
rank with the undersigned Presiding Judge. The standing rule and supported by

jurisprudence is that a Judge to whom a case is submitted for decision has the authority
to decide the case notwithstanding his transfer to another branch or region of the same
court (Sec. 9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989
rendered in the instant case, resolution of which now pertains to the undersigned
Presiding Judge, after a meticulous examination of the documentary evidence presented
by the parties, she is convinced that the Decision of March 1, 1989 is supported by
evidence and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration and/or to Annul
Decision and Render Anew Decision by the Incumbent Presiding Judge dated March 20,
1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court
of Appeals (Buena, Gonzaga-Reyes, Abad-Santos (P), JJ.) rendered its decision fully
agreeing with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The last pleading,
private respondents Reply Memorandum, was filed on September 15, 1993. The case
was, however, re-raffled to undersigned ponente only on August 28, 1996, due to the
voluntary inhibition of the Justice to whom the case was last assigned.
While we deem it necessary to introduce certain refinements in the disquisition of
respondent court in the affirmance of the trial courts decision, we definitely find the
instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of the other
issues in the case at bar is the precise determination of the legal significance of the
document entitled Receipt of Down Payment which was offered in evidence by both
parties. There is no dispute as to the fact that the said document embodied the binding
contract between Ramona Patricia Alcaraz on the one hand, and the heirs of Constancio
P. Coronel on the other, pertaining to a particular house and lot covered by TCT No.
119627, as defined in Article 1305 of the Civil Code of the Philippines which reads as
follows:
Art. 1305. A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service.
While, it is the position of private respondents that the Receipt of Down Payment
embodied a perfected contract of sale, which perforce, they seek to enforce by means of
an action for specific performance, petitioners on their part insist that what the document
signified was a mere executory contract to sell, subject to certain suspensive conditions,
and because of the absence of Ramona P. Alcaraz, who left for the United States of
America, said contract could not possibly ripen into a contract of absolute sale.
Plainly, such variance in the contending parties contention is brought about by the
way each interprets the terms and/or conditions set forth in said private
instrument. Withal, based on whatever relevant and admissible evidence may be
available on record, this Court, as were the courts below, is now called upon to adjudge
what the real intent of the parties was at the time the said document was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by mere
consent. The essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange
for the price;
44
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. In Roque vs. Lapuz
(96 SCRA 741 [1980]), this Court had occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent was a
contract to sell where the ownership or title is retained by the seller and is not to pass
until the full payment of the price, such payment being a positive suspensive condition
and failure of which is not a breach, casual or serious, but simply an event that prevented
the obligation of the vendor to convey title from acquiring binding force.
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 of 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
(cf. Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However,
if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that
if there had already been previous delivery of the property subject of the sale to the
buyer, ownership thereto automatically transfers to the buyer by operation of law without
any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full
payment of the purchase price, ownership will not automatically transfer to the buyer
although the property may have been previously delivered to him. The prospective seller
still has to convey title to the prospective buyer by entering into a contract of absolute
sale.
It is essential to distinguish between a contract to sell and a conditional contract of
sale specially in cases where the subject property is sold by the owner not to the party
the seller contracted with, but to a third person, as in the case at bench. In a contract to
sell, there being no previous sale of the property, a third person buying such property

despite the fulfillment of the suspensive condition such as the full payment of the
purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective
buyer cannot seek the relief of reconveyance of the property. There is no double sale in
such case. Title to the property will transfer to the buyer after registration because there
is no defect in the owner-sellers title per se, but the latter, of course, may be sued for
damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the suspensive
condition, the sale becomes absolute and this will definitely affect the sellers title
thereto. In fact, if there had been previous delivery of the subject property, the sellers
ownership or title to the property is automatically transferred to the buyer such that, the
seller will no longer have any title to transfer to any third person. Applying Article 1544 of
the Civil Code, such second buyer of the property who may have had actual or
constructive knowledge of such defect in the sellers title, or at least was charged with the
obligation to discover such defect, cannot be a registrant in good faith. Such second
buyer cannot defeat the first buyers title. In case a title is issued to the second buyer, the
first buyer may seek reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now proceed to the task of deciphering
the real nature of the contract entered into by petitioners and private respondents.
It is a canon in the interpretation of contracts that the words used therein should be
given their natural and ordinary meaning unless a technical meaning was intended (Tan
vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said
Receipt of Down Payment that they --
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT
No. 1199627 of the Registry of Deeds of Quezon City, in the total amount
of P1,240,000.00.
without any reservation of title until full payment of the entire purchase price, the natural
and ordinary idea conveyed is that they sold their property.
When the Receipt of Down payment is considered in its entirety, it becomes more
manifest that there was a clear intent on the part of petitioners to transfer title to the
buyer, but since the transfer certificate of title was still in the name of petitioners father,
they could not fully effect such transfer although the buyer was then willing and able to
immediately pay the purchase price. Therefore, petitioners-sellers undertook upon
receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the
issuance of a new certificate of title in their names from that of their father, after which,
they promised to present said title, now in their names, to the latter and to execute the
deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the
purchase price.
The agreement could not have been a contract to sell because the sellers herein
made no express reservation of ownership or title to the subject parcel of
land. Furthermore, the circumstance which prevented the parties from entering into an
absolute contract of sale pertained to the sellers themselves (the certificate of title was
not in their names) and not the full payment of the purchase price. Under the established
facts and circumstances of the case, the Court may safely presume that, had the
certificate of title been in the names of petitioners-sellers at that time, there would have
been no reason why an absolute contract of sale could not have been executed and
consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely
promise to sell the property to private respondent upon the fulfillment of the suspensive
condition.On the contrary, having already agreed to sell the subject property, they
undertook to have the certificate of title change to their names and immediately
thereafter, to execute the written deed of absolute sale.
45
Thus, the parties did not merely enter into a contract to sell where the sellers, after
compliance by the buyer with certain terms and conditions, promised to sell the property
to the latter. What may be perceived from the respective undertakings of the parties to
the contract is that petitioners had already agreed to sell the house and lot they inherited
from their father, completely willing to transfer ownership of the subject house and lot to
the buyer if the documents were then in order. It just so happened, however, that the
transfer certificate of title was then still in the name of their father. It was more expedient
to first effect the change in the certificate of title so as to bear their names. That is why
they undertook to cause the issuance of a new transfer of the certificate of title in their
names upon receipt of the down payment in the amount of P50,000.00. As soon as the
new certificate of title is issued in their names, petitioners were committed to immediately
execute the deed of absolute sale. Only then will the obligation of the buyer to pay the
remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is most commonly entered
into so as to protect the seller against a buyer who intends to buy the property in
installment by withholding ownership over the property until the buyer effects full
payment therefor, in the contract entered into in the case at bar, the sellers were the
ones who were unable to enter into a contract of absolute sale by reason of the fact that
the certificate of title to the property was still in the name of their father. It was the sellers
in this case who, as it were, had the impediment which prevented, so to speak, the
execution of an contract of absolute sale.
What is clearly established by the plain language of the subject document is that
when the said Receipt of Down Payment was prepared and signed by petitioners Romulo
A. Coronel, et. al., the parties had agreed to a conditional contract of sale, consummation
of which is subject only to the successful transfer of the certificate of title from the name
of petitioners father, Constancio P. Coronel, to their names.
The Court significantly notes that this suspensive condition was, in fact, fulfilled on
February 6, 1985 (Exh. D; Exh. 4). Thus, on said date, the conditional contract of sale
between petitioners and private respondent Ramona P. Alcaraz became obligatory, the
only act required for the consummation thereof being the delivery of the property by
means of the execution of the deed of absolute sale in a public instrument, which
petitioners unequivocally committed themselves to do as evidenced by the Receipt of
Down Payment.
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies
to the case at bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening of
the event which constitutes the condition.
Since the condition contemplated by the parties which is the issuance of a
certificate of title in petitioners names was fulfilled on February 6, 1985, the respective
obligations of the parties under the contract of sale became mutually demandable, that
is, petitioners, as sellers, were obliged to present the transfer certificate of title already in
their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately
execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith
pay the balance of the purchase price amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their petition,
petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves to effect the transfer in
our names from our deceased father Constancio P. Coronel, the transfer

certificate of title immediately upon receipt of the downpayment above-
stated". The sale was still subject to this suspensive
condition. (Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale subject
to a suspensive condition. Only, they contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first transferring the title to
the property under their names, there could be no perfected contract of sale. (Emphasis
supplied.)
(Ibid.)
not aware that they have set their own trap for themselves, for Article 1186 of the Civil
Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents
its fulfillment.
Besides, it should be stressed and emphasized that what is more controlling than
these mere hypothetical arguments is the fact that the condition herein referred to was
actually and indisputably fulfilled on February 6, 1985, when a new title was issued in
the names of petitioners as evidenced by TCT No. 327403 (Exh. D; Exh. 4).
The inevitable conclusion is that on January 19, 1985, as evidenced by the
document denominated as Receipt of Down Payment (Exh. A; Exh. 1), the parties
entered into a contract of sale subject to the suspensive condition that the sellers shall
effect the issuance of new certificate title from that of their fathers name to their names
and that, on February 6, 1985, this condition was fulfilled (Exh. D; Exh. 4).
We, therefore, hold that, in accordance with Article 1187 which pertinently provides
- 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere allegation is not an evidence
Art. 1187. The effects of conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation . . .
In obligations to do or not to do, the courts shall determine, in each case, the retroactive
effect of the condition that has been complied with.
the rights and obligations of the parties with respect to the perfected contract of sale
became mutually due and demandable as of the time of fulfillment or occurrence of the
suspensive condition on February 6, 1985. As of that point in time, reciprocal obligations
of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on January 19, 1985
because they were then not yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring
ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and
obligations to the extent and value of the inheritance of a person are transmitted through
his death to another or others by his will or by operation of law.
Petitioners-sellers in the case at bar being the sons and daughters of the decedent
Constancio P. Coronel are compulsory heirs who were called to succession by operation
of law.Thus, at the point their father drew his last breath, petitioners stepped into his
shoes insofar as the subject property is concerned, such that any rights or obligations
pertaining thereto became binding and enforceable upon them. It is expressly provided
that rights to the succession are transmitted from the moment of death of the decedent
(Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners claim that succession may not be declared unless
the creditors have been paid is rendered moot by the fact that they were able to effect
the transfer of the title to the property from the decedents name to their names on
February 6, 1985.
46
Aside from this, petitioners are precluded from raising their supposed lack of
capacity to enter into an agreement at that time and they cannot be allowed to now take
a posture contrary to that which they took when they entered into the agreement with
private respondent Ramona P. Alcaraz. The Civil Code expressly states that:
Art. 1431. Through estoppel an admission or representation is rendered conclusive upon
the person making it, and cannot be denied or disproved as against the person relying
thereon.
Having represented themselves as the true owners of the subject property at the time of
sale, petitioners cannot claim now that they were not yet the absolute owners thereof at
that time.
Petitioners also contend that although there was in fact a perfected contract of sale
between them and Ramona P. Alcaraz, the latter breach her reciprocal obligation when
she rendered impossible the consummation thereof by going to the United States of
America, without leaving her address, telephone number, and Special Power of Attorney
(Paragraphs 14 and 15, Answer with Compulsory Counterclaim to the Amended
Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they were
correct in unilaterally rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission of the contract of
sale in the instant case. We note that these supposed grounds for petitioners rescission,
are mere allegations found only in their responsive pleadings, which by express provision
of the rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11,
Rule 6, Revised Rules of Court). The records are absolutely bereft of any supporting
evidence to substantiate petitioners allegations. We have stressed time and again that
allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil.
(Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United States of
America on February 6, 1985, we cannot justify petitioners-sellers act of unilaterally and
extrajudicially rescinding the contract of sale, there being no express stipulation
authorizing the sellers to extrajudicially rescind the contract of sale. (cf. Dignos vs. CA,
158 SCRA 375 [1988]; Taguba vs. Vda. De Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of Ramona P.
Alcaraz because although the evidence on record shows that the sale was in the name of
Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D.
Alcaraz, Ramonas mother, who had acted for and in behalf of her daughter, if not also in
her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with her
own personal Check (Exh. B; Exh. 2) for and in behalf of Ramona P. Alcaraz. There is no
evidence showing that petitioners ever questioned Concepcions authority to represent
Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any
objection as regards payment being effected by a third person. Accordingly, as far as
petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to
rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as
her obligation to pay the full purchase price is concerned. Petitioners who are precluded
from setting up the defense of the physical absence of Ramona P. Alcaraz as above-
explained offered no proof whatsoever to show that they actually presented the new
transfer certificate of title in their names and signified their willingness and readiness to
execute the deed of absolute sale in accordance with their agreement. Ramonas
corresponding obligation to pay the balance of the purchase price in the amount
of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she
cannot be deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a contract involving reciprocal
obligations may be considered in default, to wit:

Art. 1169. Those obliged to deliver or to do something, incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
xxx
In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfill his obligation, delay by the other begins. (Emphasis
supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale between
petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B.
Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code will
apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees, the ownership
shall be transferred to the person who may have first taken possession thereof in good
faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof to the person who presents
the oldest title, provided there is good faith.
The record of the case shows that the Deed of Absolute Sale dated April 25, 1985
as proof of the second contract of sale was registered with the Registry of Deeds of
Quezon City giving rise to the issuance of a new certificate of title in the name of Catalina
B. Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544 shall apply.
The above-cited provision on double sale presumes title or ownership to pass to the
buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale
ahead of the first buyer, and (b) should there be no inscription by either of the two
buyers, when the second buyer, in good faith, acquires possession of the property ahead
of the first buyer.Unless, the second buyer satisfies these requirements, title or
ownership will not transfer to him to the prejudice of the first buyer.
In his commentaries on the Civil Code, an accepted authority on the subject, now a
distinguished member of the Court, Justice Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time, stronger in
right). Knowledge by the first buyer of the second sale cannot defeat the first buyers
rights except when the second buyer first registers in good faith the second sale
(Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second
buyer of the first sale defeats his rights even if he is first to register, since knowledge
taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No.
58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129
SCRA 656), it was held that it is essential, to merit the protection of Art. 1544, second
paragraph, that the second realty buyer must act in good faith in registering his deed of
sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No.
95843, 02 September 1992).
(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).
Petitioners point out that the notice of lis pendens in the case at bar was annotated
on the title of the subject property only on February 22, 1985, whereas, the second sale
between petitioners Coronels and petitioner Mabanag was supposedly perfected prior
thereto or on February 18, 1985. The idea conveyed is that at the time petitioner
Mabanag, the second buyer, bought the property under a clean title, she was unaware of
any adverse claim or previous sale, for which reason she is a buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not whether or not
the second buyer in good faith but whether or not said second buyer registers such
47
second sale in good faith, that is, without knowledge of any defect in the title of the
property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag could not
have in good faith, registered the sale entered into on February 18, 1985 because as
early as February 22, 1985, a notice of lis pendens had been annotated on the transfer
certificate of title in the names of petitioners, whereas petitioner Mabanag registered the
said sale sometime in April, 1985. At the time of registration, therefore, petitioner
Mabanag knew that the same property had already been previously sold to private
respondents, or, at least, she was charged with knowledge that a previous buyer is
claiming title to the same property. Petitioner Mabanag cannot close her eyes to the
defect in petitioners title to the property at the time of the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers the sale after he has acquired knowledge that there
was a previous sale of the same property to a third party or that another person claims
said property in a previous sale, the registration will constitute a registration in bad faith
and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing
Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554;
Fernandez vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners and Ramona P.
Alcaraz, perfected on February 6, 1985, prior to that between petitioners and Catalina B.
Mabanag on February 18, 1985, was correctly upheld by both the courts below.
Although there may be ample indications that there was in fact an agency between
Ramona as principal and Concepcion, her mother, as agent insofar as the subject
contract of sale is concerned, the issue of whether or not Concepcion was also acting in
her own behalf as a co-buyer is not squarely raised in the instant petition, nor in such
assumption disputed between mother and daughter. Thus, We will not touch this issue
and no longer disturb the lower courts ruling on this point.
WHEREFORE, premises considered, the instant petition is hereby DISMISSED and
the appealed judgment AFFIRMED.
SO ORDERED.
Narvasa, C.J. (Chairman), Davide, Jr., and Francisco, JJ., concur.
Panganiban, J., no part.
G.R. No. 124242 January 21, 2005
SAN LORENZO DEVELOPMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA
ZAVALLA LU, respondents.
DECISION
TINGA, J.:
From a coaptation of the records of this case, it appears that respondents Miguel Lu and
Pacita Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in
Sta. Rosa, Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring
15,808 square meters or a total of 3.1616 hectares.
On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to
respondent Pablo Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos
(₱15.00) per square meter. Babasanta made a downpayment of fifty thousand pesos
(₱50,000.00) as evidenced by a memorandum receipt issued by Pacita Lu of the same
date. Several other payments totaling two hundred thousand pesos (₱200,000.00) were
made by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution
of a final deed of sale in his favor so that he could effect full payment of the purchase
price. In the same letter, Babasanta notified the spouses about having received

information that the spouses sold the same property to another without his knowledge
and consent. He demanded that the second sale be cancelled and that a final deed of
sale be issued in his favor.
In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having
agreed to sell the property to him at fifteen pesos (₱15.00) per square meter. She,
however, reminded Babasanta that when the balance of the purchase price became due,
he requested for a reduction of the price and when she refused, Babasanta backed out of
the sale. Pacita added that she returned the sum of fifty thousand pesos (₱50,000.00) to
Babasanta through Eugenio Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court
(RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and
Damages1 against his co-respondents herein, the Spouses Lu. Babasanta alleged that
the lands covered by TCT No. T- 39022 and T-39023 had been sold to him by the
spouses at fifteen pesos (₱15.00) per square meter. Despite his repeated demands for
the execution of a final deed of sale in his favor, respondents allegedly refused.
In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta
and when the total advances of Pacita reached fifty thousand pesos (₱50,000.00), the
latter and Babasanta, without the knowledge and consent of Miguel Lu, had verbally
agreed to transform the transaction into a contract to sell the two parcels of land to
Babasanta with the fifty thousand pesos (₱50,000.00) to be considered as the
downpayment for the property and the balance to be paid on or before 31 December
1987. Respondents Lu added that as of November 1987, total payments made by
Babasanta amounted to only two hundred thousand pesos (₱200,000.00) and the latter
allegedly failed to pay the balance of two hundred sixty thousand pesos (₱260,000.00)
despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of
the price from fifteen pesos (₱15.00) to twelve pesos (₱12.00) per square meter and
when the Spouses Lu refused to grant Babasanta’s request, the latter rescinded the
contract to sell and declared that the original loan transaction just be carried out in that
the spouses would be indebted to him in the amount of two hundred thousand pesos
(₱200,000.00). Accordingly, on 6 July 1989, they purchased Interbank Manager’s Check
No. 05020269 in the amount of two hundred thousand pesos (₱200,000.00) in the name
of Babasanta to show that she was able and willing to pay the balance of her loan
obligation.
Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he prayed
for the issuance of a writ of preliminary injunction with temporary restraining order and
the inclusion of the Register of Deeds of Calamba, Laguna as party defendant. He
contended that the issuance of a preliminary injunction was necessary to restrain the
transfer or conveyance by the Spouses Lu of the subject property to other persons.
The Spouses Lu filed their Opposition4 to the amended complaint contending that it
raised new matters which seriously affect their substantive rights under the original
complaint. However, the trial court in its Order dated 17 January 1990 5 admitted the
amended complaint.
On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC)
filed a Motion for Intervention6 before the trial court. SLDC alleged that it had legal
interest in the subject matter under litigation because on 3 May 1989, the two parcels of
land involved, namely Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute
Sale with Mortgage.7 It alleged that it was a buyer in good faith and for value and
therefore it had a better right over the property in litigation.
In his Opposition to SLDC’s motion for intervention,8 respondent Babasanta demurred
and argued that the latter had no legal interest in the case because the two parcels of
land involved herein had already been conveyed to him by the Spouses Lu and hence,
the vendors were without legal capacity to transfer or dispose of the two parcels of land
to the intervenor.
48
Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene.
SLDC filed its Complaint-in-Intervention on 19 April 1990.9 Respondent Babasanta’s
motion for the issuance of a preliminary injunction was likewise granted by the trial court
in its Order dated 11 January 199110 conditioned upon his filing of a bond in the amount
of fifty thousand pesos (₱50,000.00).
SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu
executed in its favor an Option to Buy the lots subject of the complaint. Accordingly, it
paid an option money in the amount of three hundred sixteen thousand one hundred
sixty pesos (₱316,160.00) out of the total consideration for the purchase of the two lots of
one million two hundred sixty-four thousand six hundred forty pesos (₱1,264,640.00).
After the Spouses Lu received a total amount of six hundred thirty-two thousand three
hundred twenty pesos (₱632,320.00) they executed on 3 May 1989 a Deed of Absolute
Sale with Mortgage in its favor. SLDC added that the certificates of title over the property
were delivered to it by the spouses clean and free from any adverse claims and/or notice
of lis pendens. SLDC further alleged that it only learned of the filing of the complaint
sometime in the early part of January 1990 which prompted it to file the motion to
intervene without delay. Claiming that it was a buyer in good faith, SLDC argued that it
had no obligation to look beyond the titles submitted to it by the Spouses Lu particularly
because Babasanta’s claims were not annotated on the certificates of title at the time the
lands were sold to it.
After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale
of the property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two
hundred thousand pesos (₱200,000.00) with legal interest plus the further sum of fifty
thousand pesos (₱50,000.00) as and for attorney’s fees. On the complaint-in-
intervention, the trial court ordered the Register of Deeds of Laguna, Calamba Branch to
cancel the notice of lis pendens annotated on the original of the TCT No. T-39022 (T-
7218) and No. T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta
and SLDC did not register the respective sales in their favor, ownership of the property
should pertain to the buyer who first acquired possession of the property. The trial court
equated the execution of a public instrument in favor of SLDC as sufficient delivery of the
property to the latter. It concluded that symbolic possession could be considered to have
been first transferred to SLDC and consequently ownership of the property pertained to
SLDC who purchased the property in good faith.
Respondent Babasanta appealed the trial court’s decision to the Court of Appeals
alleging in the main that the trial court erred in concluding that SLDC is a purchaser in
good faith and in upholding the validity of the sale made by the Spouses Lu in favor of
SLDC.
Respondent spouses likewise filed an appeal to the Court of Appeals. They contended
that the trial court erred in failing to consider that the contract to sell between them and
Babasanta had been novated when the latter abandoned the verbal contract of sale and
declared that the original loan transaction just be carried out. The Spouses Lu argued
that since the properties involved were conjugal, the trial court should have declared the
verbal contract to sell between Pacita Lu and Pablo Babasanta null and void ab initio for
lack of knowledge and consent of Miguel Lu. They further averred that the trial court
erred in not dismissing the complaint filed by Babasanta; in awarding damages in his
favor and in refusing to grant the reliefs prayed for in their answer.
On 4 October 1995, the Court of Appeals rendered its Decision11 which set aside the
judgment of the trial court. It declared that the sale between Babasanta and the Spouses
Lu was valid and subsisting and ordered the spouses to execute the necessary deed of
conveyance in favor of Babasanta, and the latter to pay the balance of the purchase
price in the amount of two hundred sixty thousand pesos (₱260,000.00). The appellate
court ruled that the Absolute Deed of Sale with Mortgage in favor of SLDC was null and

void on the ground that SLDC was a purchaser in bad faith. The Spouses Lu were further
ordered to return all payments made by SLDC with legal interest and to pay attorney’s
fees to Babasanta.
SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate
court.12 However, in a Manifestation dated 20 December 1995,13 the Spouses Lu
informed the appellate court that they are no longer contesting the decision dated 4
October 1995.
In its Resolution dated 11 March 1996,14 the appellate court considered as withdrawn the
motion for reconsideration filed by the Spouses Lu in view of their manifestation of 20
December 1995. The appellate court denied SLDC’s motion for reconsideration on the
ground that no new or substantial arguments were raised therein which would warrant
modification or reversal of the court’s decision dated 4 October 1995.
Hence, this petition.
SLDC assigns the following errors allegedly committed by the appellate court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A
BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU
OBTAINED FROM IT THE CASH ADVANCE OF ₱200,000.00, SAN LORENZO WAS
PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED
FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT
IN POSSESSION OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT
AND TOOK POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN,
ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT
RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN
LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED
PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS
FULL CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT
REVERSED AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING
THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD
FAITH. 15
SLDC contended that the appellate court erred in concluding that it had prior notice of
Babasanta’s claim over the property merely on the basis of its having advanced the
amount of two hundred thousand pesos (₱200,000.00) to Pacita Lu upon the latter’s
representation that she needed the money to pay her obligation to Babasanta. It argued
that it had no reason to suspect that Pacita was not telling the truth that the money would
be used to pay her indebtedness to Babasanta. At any rate, SLDC averred that the
amount of two hundred thousand pesos (₱200,000.00) which it advanced to Pacita Lu
would be deducted from the balance of the purchase price still due from it and should not
be construed as notice of the prior sale of the land to Babasanta. It added that at no
instance did Pacita Lu inform it that the lands had been previously sold to Babasanta.
Moreover, SLDC stressed that after the execution of the sale in its favor it immediately
took possession of the property and asserted its rights as new owner as opposed to
Babasanta who has never exercised acts of ownership. Since the titles bore no adverse
claim, encumbrance, or lien at the time it was sold to it, SLDC argued that it had every
reason to rely on the correctness of the certificate of title and it was not obliged to go
beyond the certificate to determine the condition of the property. Invoking the
presumption of good faith, it added that the burden rests on Babasanta to prove that it
was aware of the prior sale to him but the latter failed to do so. SLDC pointed out that the
notice of lis pendens was annotated only on 2 June 1989 long after the sale of the
property to it was consummated on 3 May 1989.1awphi1.nét
49
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu
informed the Court that due to financial constraints they have no more interest to pursue
their rights in the instant case and submit themselves to the decision of the Court of
Appeals.16
On the other hand, respondent Babasanta argued that SLDC could not have acquired
ownership of the property because it failed to comply with the requirement of registration
of the sale in good faith. He emphasized that at the time SLDC registered the sale in its
favor on 30 June 1990, there was already a notice of lis pendens annotated on the titles
of the property made as early as 2 June 1989. Hence, petitioner’s registration of the sale
did not confer upon it any right. Babasanta further asserted that petitioner’s bad faith in
the acquisition of the property is evident from the fact that it failed to make necessary
inquiry regarding the purpose of the issuance of the two hundred thousand pesos
(₱200,000.00) manager’s check in his favor.
The core issue presented for resolution in the instant petition is who between SLDC and
Babasanta has a better right over the two parcels of land subject of the instant case in
view of the successive transactions executed by the Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta presented a
document signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos
(₱50,000.00) as partial payment for 3.6 hectares of farm lot situated at Barangay Pulong,
Sta. Cruz, Sta. Rosa, Laguna.17 While the receipt signed by Pacita did not mention the
price for which the property was being sold, this deficiency was supplied by Pacita Lu’s
letter dated 29 May 198918 wherein she admitted that she agreed to sell the 3.6 hectares
of land to Babasanta for fifteen pesos (₱15.00) per square meter.
An analysis of the facts obtaining in this case, as well as the evidence presented by the
parties, irresistibly leads to the conclusion that the agreement between Babasanta and
the Spouses Lu is a contract to sell and not a contract of sale.
Contracts, in general, are perfected by mere consent,19 which is manifested by the
meeting of the offer and the acceptance upon the thing which are to constitute the
contract. The offer must be certain and the acceptance absolute. 20 Moreover, contracts
shall be obligatory in whatever form they may have been entered into, provided all the
essential requisites for their validity are present.21
The receipt signed by Pacita Lu merely states that she accepted the sum of fifty
thousand pesos (₱50,000.00) from Babasanta as partial payment of 3.6 hectares of farm
lot situated in Sta. Rosa, Laguna. While there is no stipulation that the seller reserves the
ownership of the property until full payment of the price which is a distinguishing feature
of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu
never intended to transfer ownership to Babasanta except upon full payment of the
purchase price.
Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that despite his
repeated requests for the execution of the final deed of sale in his favor so that he could
effect full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta
himself recognized that ownership of the property would not be transferred to him until
such time as he shall have effected full payment of the price. Moreover, had the sellers
intended to transfer title, they could have easily executed the document of sale in its
required form simultaneously with their acceptance of the partial payment, but they did
not. Doubtlessly, the receipt signed by Pacita Lu should legally be considered as a
perfected contract to sell.
The distinction between a contract to sell and a contract of sale is quite germane. In a
contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in
a contract to sell, by agreement the ownership is reserved in the vendor and is not to
pass until the full payment of the price.22 In a contract of sale, the vendor has lost and
cannot recover ownership until and unless the contract is resolved or rescinded; whereas
in a contract to sell, title is retained by the vendor until the full payment of the price, such

payment being a positive suspensive condition and failure of which is not a breach but an
event that prevents the obligation of the vendor to convey title from becoming effective. 23
The perfected contract to sell imposed upon Babasanta the obligation to pay the balance
of the purchase price. There being an obligation to pay the price, Babasanta should have
made the proper tender of payment and consignation of the price in court as required by
law. Mere sending of a letter by the vendee expressing the intention to pay without the
accompanying payment is not considered a valid tender of payment. 24 Consignation of
the amounts due in court is essential in order to extinguish Babasanta’s obligation to pay
the balance of the purchase price. Glaringly absent from the records is any indication that
Babasanta even attempted to make the proper consignation of the amounts due, thus,
the obligation on the part of the sellers to convey title never acquired obligatory force.
On the assumption that the transaction between the parties is a contract of sale and not
a contract to sell, Babasanta’s claim of ownership should nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent 25 and from that
moment, the parties may reciprocally demand performance. 26 The essential elements of
a contract of sale, to wit: (1) consent or meeting of the minds, that is, to transfer
ownership in exchange for the price; (2) object certain which is the subject matter of the
contract; (3) cause of the obligation which is established. 27
The perfection of a contract of sale should not, however, be confused with its
consummation. In relation to the acquisition and transfer of ownership, it should be noted
that sale is not a mode, but merely a title. A mode is the legal means by which dominion
or ownership is created, transferred or destroyed, but title is only the legal basis by which
to affect dominion or ownership.28 Under Article 712 of the Civil Code, "ownership and
other real rights over property are acquired and transmitted by law, by donation, by
testate and intestate succession, and in consequence of certain contracts, by tradition."
Contracts only constitute titles or rights to the transfer or acquisition of ownership, while
delivery or tradition is the mode of accomplishing the same. 29 Therefore, sale by itself
does not transfer or affect ownership; the most that sale does is to create the obligation
to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually
transfers ownership.
Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee
from the moment it is delivered to him in any of the ways specified in Article 1497 to
1501.30 The word "delivered" should not be taken restrictively to mean transfer of actual
physical possession of the property. The law recognizes two principal modes of delivery,
to wit: (1) actual delivery; and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in the control and possession of the
vendee.31 Legal or constructive delivery, on the other hand, may be had through any of
the following ways: the execution of a public instrument evidencing the sale; 32 symbolical
tradition such as the delivery of the keys of the place where the movable sold is being
kept;33 traditio longa manu or by mere consent or agreement if the movable sold cannot
yet be transferred to the possession of the buyer at the time of the sale; 34 traditio brevi
manu if the buyer already had possession of the object even before the
sale;35 and traditio constitutum possessorium, where the seller remains in possession of
the property in a different capacity.36
Following the above disquisition, respondent Babasanta did not acquire ownership by the
mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment for
the property. For one, the agreement between Babasanta and the Spouses Lu, though
valid, was not embodied in a public instrument. Hence, no constructive delivery of the
lands could have been effected. For another, Babasanta had not taken possession of the
property at any time after the perfection of the sale in his favor or exercised acts of
dominion over it despite his assertions that he was the rightful owner of the lands. Simply
stated, there was no delivery to Babasanta, whether actual or constructive, which is
essential to transfer ownership of the property. Thus, even on the assumption that the
50
perfected contract between the parties was a sale, ownership could not have passed to
Babasanta in the absence of delivery, since in a contract of sale ownership is transferred
to the vendee only upon the delivery of the thing sold.37
However, it must be stressed that the juridical relationship between the parties in a
double sale is primarily governed by Article 1544 which lays down the rules of preference
between the two purchasers of the same property. It provides:
Art. 1544. If the same thing should have been sold to different vendees, the ownership
shall be transferred to the person who may have first taken possession thereof in good
faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who presents
the oldest title, provided there is good faith.
The principle of primus tempore, potior jure (first in time, stronger in right) gains greater
significance in case of double sale of immovable property. When the thing sold twice is
an immovable, the one who acquires it and first records it in the Registry of Property,
both made in good faith, shall be deemed the owner.38 Verily, the act of registration must
be coupled with good faith— that is, the registrant must have no knowledge of the defect
or lack of title of his vendor or must not have been aware of facts which should have put
him upon such inquiry and investigation as might be necessary to acquaint him with the
defects in the title of his vendor.39
Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired
knowledge of Babasanta’s claim. Babasanta, however, strongly argues that the
registration of the sale by SLDC was not sufficient to confer upon the latter any title to the
property since the registration was attended by bad faith. Specifically, he points out that
at the time SLDC registered the sale on 30 June 1990, there was already a notice of lis
pendens on the file with the Register of Deeds, the same having been filed one year
before on 2 June 1989.
Did the registration of the sale after the annotation of the notice of lis pendens obliterate
the effects of delivery and possession in good faith which admittedly had occurred prior
to SLDC’s knowledge of the transaction in favor of Babasanta?
We do not hold so.
It must be stressed that as early as 11 February 1989, the Spouses Lu executed
the Option to Buy in favor of SLDC upon receiving ₱316,160.00 as option money from
SLDC. After SLDC had paid more than one half of the agreed purchase price of
₱1,264,640.00, the Spouses Lu subsequently executed on 3 May 1989 a Deed of
Absolute Salein favor or SLDC. At the time both deeds were executed, SLDC had no
knowledge of the prior transaction of the Spouses Lu with Babasanta. Simply stated,
from the time of execution of the first deed up to the moment of transfer and delivery of
possession of the lands to SLDC, it had acted in good faith and the subsequent
annotation of lis pendens has no effect at all on the consummated sale between SLDC
and the Spouses Lu.
A purchaser in good faith is one who buys property of another without notice that some
other person has a right to, or interest in, such property and pays a full and fair price for
the same at the time of such purchase, or before he has notice of the claim or interest of
some other person in the property.40 Following the foregoing definition, we rule that
SLDC qualifies as a buyer in good faith since there is no evidence extant in the records
that it had knowledge of the prior transaction in favor of Babasanta. At the time of the
sale of the property to SLDC, the vendors were still the registered owners of the property
and were in fact in possession of the lands.l^vvphi1.net Time and again, this Court has
ruled that a person dealing with the owner of registered land is not bound to go beyond
the certificate of title as he is charged with notice of burdens on the property which are

noted on the face of the register or on the certificate of title. 41 In assailing knowledge of
the transaction between him and the Spouses Lu, Babasanta apparently relies on the
principle of constructive notice incorporated in Section 52 of the Property Registration
Decree (P.D. No. 1529) which reads, thus:
Sec. 52. Constructive notice upon registration. – Every conveyance, mortgage, lease,
lien, attachment, order, judgment, instrument or entry affecting registered land shall, if
registered, filed, or entered in the office of the Register of Deeds for the province or city
where the land to which it relates lies, be constructive notice to all persons from the time
of such registering, filing, or entering.
However, the constructive notice operates as such¾by the express wording of Section
52¾from the time of the registration of the notice of lis pendens which in this case was
effected only on 2 June 1989, at which time the sale in favor of SLDC had long been
consummated insofar as the obligation of the Spouses Lu to transfer ownership over the
property to SLDC is concerned.
More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta
the annotation of the notice of lis pendens cannot help Babasanta’s position a bit and it is
irrelevant to the good or bad faith characterization of SLDC as a purchaser. A notice of lis
pendens, as the Court held in Nataño v. Esteban,42 serves as a warning to a prospective
purchaser or incumbrancer that the particular property is in litigation; and that he should
keep his hands off the same, unless he intends to gamble on the results of the litigation."
Precisely, in this case SLDC has intervened in the pending litigation to protect its rights.
Obviously, SLDC’s faith in the merit of its cause has been vindicated with the Court’s
present decision which is the ultimate denouement on the controversy.
The Court of Appeals has made capital43 of SLDC’s averment in its Complaint-in-
Intervention44 that at the instance of Pacita Lu it issued a check for ₱200,000.00 payable
to Babasanta and the confirmatory testimony of Pacita Lu herself on cross-
examination.45 However, there is nothing in the said pleading and the testimony which
explicitly relates the amount to the transaction between the Spouses Lu and Babasanta
for what they attest to is that the amount was supposed to pay off the advances made by
Babasanta to Pacita Lu. In any event, the incident took place after the Spouses Lu had
already executed the Deed of Absolute Sale with Mortgage in favor of SLDC and
therefore, as previously explained, it has no effect on the legal position of SLDC.
Assuming ex gratia argumenti that SLDC’s registration of the sale had been tainted by
the prior notice of lis pendensand assuming further for the same nonce that this is a case
of double sale, still Babasanta’s claim could not prevail over that of SLDC’s. In Abarquez
v. Court of Appeals,46 this Court had the occasion to rule that if a vendee in a double sale
registers the sale after he has acquired knowledge of a previous sale, the registration
constitutes a registration in bad faith and does not confer upon him any right. If the
registration is done in bad faith, it is as if there is no registration at all, and the buyer who
has taken possession first of the property in good faith shall be preferred.
In Abarquez, the first sale to the spouses Israel was notarized and registered only after
the second vendee, Abarquez, registered their deed of sale with the Registry of Deeds,
but the Israels were first in possession. This Court awarded the property to the Israels
because registration of the property by Abarquez lacked the element of good faith. While
the facts in the instant case substantially differ from that in Abarquez, we would not
hesitate to rule in favor of SLDC on the basis of its prior possession of the property in
good faith. Be it noted that delivery of the property to SLDC was immediately effected
after the execution of the deed in its favor, at which time SLDC had no knowledge at all
of the prior transaction by the Spouses Lu in favor of Babasanta.1a\^/phi1.net
The law speaks not only of one criterion. The first criterion is priority of entry in the
registry of property; there being no priority of such entry, the second is priority of
possession; and, in the absence of the two priorities, the third priority is of the date of
title, with good faith as the common critical element. Since SLDC acquired possession of
51
the property in good faith in contrast to Babasanta, who neither registered nor possessed
the property at any time, SLDC’s right is definitely superior to that of Babasanta’s.
At any rate, the above discussion on the rules on double sale would be purely academic
for as earlier stated in this decision, the contract between Babasanta and the Spouses Lu
is not a contract of sale but merely a contract to sell. In Dichoso v. Roxas,47 we had the
occasion to rule that Article 1544 does not apply to a case where there was a sale to one
party of the land itself while the other contract was a mere promise to sell the land or at
most an actual assignment of the right to repurchase the same land. Accordingly, there
was no double sale of the same land in that case.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of
Appeals appealed from is REVERSED and SET ASIDE and the decision of the Regional
Trial Court, Branch 31, of San Pedro, Laguna is REINSTATED. No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.
MANILA METAL CONTAINER G.R. No. 166862
CORPORATION,
Petitioner,
Present:
REYNALDO C. TOLENTINO,
Intervenor, PANGANIBAN, C.J., Chairperson,*
YNARES-SANTIAGO,**
AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR., and
CHICO-NAZARIO, JJ.
PHILIPPINE NATIONAL BANK,
Respondent,
DMCI-PROJECT DEVELOPERS, Promulgated:
INC.,
Intervenor. December 20, 2006
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the Decision[1] of the Court of
Appeals (CA) in CA-G.R. No. 46153 which affirmed the decision[2] of the Regional Trial
Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551, and its
Resolution[3] denying the motion for reconsideration filed by petitioner Manila Metal
Container Corporation (MMCC).
The Antecedents
Petitioner was the owner of a 8,015 square meter parcel of land located
in Mandaluyong (now a City), Metro Manila. The property was covered by Transfer
Certificate of Title (TCT) No. 332098 of the Registry of Deeds of Rizal. To secure
a P900,000.00 loan it had obtained from respondent Philippine National Bank (PNB),
petitioner executed a real estate mortgage over the lot. Respondent PNB later granted
petitioner a new credit accommodation of P1,000,000.00; and, on November 16,
1973, petitioner executed an Amendment[4] of Real Estate Mortgage over its property.

On March 31, 1981, petitioner secured another loan of P653,000.00 from respondent
PNB, payable in quarterly installments of P32,650.00, plus interests and other charges.[5]
On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure
of the real estate mortgage and sought to have the property sold at public auction
for P911,532.21, petitioners outstanding obligation to respondent PNB as of June 30,
1982,[6] plus interests and attorneys fees.
After due notice and publication, the property was sold at public auction
on September 28, 1982 where respondent PNB was declared the winning bidder
for P1,000,000.00. The Certificate of Sale[7] issued in its favor was registered with the
Office of the Register of Deeds of Rizal, and was annotated at the dorsal portion of the
title on February 17, 1983. Thus, the period to redeem the property was to expire
on February 17, 1984.
Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be
granted an extension of time to redeem/repurchase the property. [8] In its reply
dated August 30, 1983, respondent PNB informed petitioner that the request had been
referred to its Pasay City Branch for appropriate action and recommendation.[9]
In a letter[10] dated February 10, 1984, petitioner reiterated its request for a one year
extension from February 17, 1984 within which to redeem/repurchase the property on
installment basis. It reiterated its request to repurchase the property on
installment.[11] Meanwhile, some PNB Pasay City Branch personnel informed petitioner
that as a matter of policy, the bank does not accept partial redemption. [12]
Since petitioner failed to redeem the property, the Register of Deeds cancelled
TCT No. 32098 on June 1, 1984, and issued a new title in favor of respondent
PNB.[13]Petitioners offers had not yet been acted upon by respondent PNB.
Meanwhile, the Special Assets Management Department (SAMD) had prepared a
statement of account, and as of June 25, 1984 petitioners obligation amounted
to P1,574,560.47. This included the bid price of P1,056,924.50, interest, advances of
insurance premiums, advances on realty taxes, registration expenses, miscellaneous
expenses and publication cost.[14] When apprised of the statement of account, petitioner
remitted P725,000.00 to respondent PNB as deposit to repurchase, and Official Receipt
No. 978191 was issued to it.[15]
In the meantime, the SAMD recommended to the management of respondent PNB that
petitioner be allowed to repurchase the property for P1,574,560.00. In a letter
dated November 14, 1984, the PNB management informed petitioner that it was rejecting
the offer and the recommendation of the SAMD. It was suggested that petitioner
purchase the property for P2,660,000.00, its minimum market value. Respondent PNB
gave petitioner until December 15, 1984 to act on the proposal; otherwise,
its P725,000.00 deposit would be returned and the property would be sold to other
interested buyers.[16]
Petitioner, however, did not agree to respondent PNBs proposal. Instead, it wrote another
letter dated December 12, 1984 requesting for a reconsideration. Respondent PNB replied
in a letter dated December 28, 1984, wherein it reiterated its proposal that petitioner
purchase the property for P2,660,000.00. PNB again informed petitioner that it would
return the deposit should petitioner desire to withdraw its offer to purchase the
property.[17] On February 25, 1985, petitioner, through counsel, requested that PNB
52
reconsider its letter dated December 28, 1984. Petitioner declared that it had already
agreed to the SAMDs offer to purchase the property for P1,574,560.47, and that was why
it had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial
recourse should PNB insist on the position.[18]
On June 4, 1985, respondent PNB informed petitioner that the PNB Board of
Directors had accepted petitioners offer to purchase the property, but for P1,931,389.53
in cash less the P725,000.00 already deposited with it.[19] On page two of the letter was a
space above the typewritten name of petitioners President, Pablo Gabriel, where he was
to affix his signature. However, Pablo Gabriel did not conform to the letter but merely
indicated therein that he had received it.[20] Petitioner did not respond, so PNB requested
petitioner in a letter dated June 30, 1988 to submit an amended offer to repurchase.
Petitioner rejected respondents proposal in a letter dated July 14, 1988. It
maintained that respondent PNB had agreed to sell the property for P1,574,560.47, and
that since its P725,000.00 downpayment had been accepted, respondent PNB was
proscribed from increasing the purchase price of the property.[21] Petitioner averred that it
had a net balance payable in the amount of P643,452.34. Respondent PNB, however,
rejected petitioners offer to pay the balance of P643,452.34 in a letter dated August 1,
1989.[22]
On August 28, 1989, petitioner filed a complaint against respondent PNB for
Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific
Performance with Damages. To support its cause of action for specific performance, it
alleged the following:
34. As early as June 25, 1984, PNB had accepted the down payment
from Manila Metal in the substantial amount of P725,000.00 for
the redemption/repurchase price of P1,574,560.47 as approved by
its SMAD and considering the reliance made by Manila Metal and
the long time that has elapsed, the approval of the higher
management of the Bank to confirm the agreement of its SMAD is
clearly a potestative condition which cannot legally prejudice
Manila Metal which has acted and relied on the approval of
SMAD. The Bank cannot take advantage of a condition which is
entirely dependent upon its own will after accepting and benefiting
from the substantial payment made by Manila Metal.
35. PNB approved the repurchase price of P1,574,560.47 for which it
accepted P725,000.00 from Manila Metal. PNB cannot take
advantage of its own delay and long inaction in demanding a
higher amount based on unilateral computation of interest rate
without the consent of Manila Metal.
Petitioner later filed an amended complaint and supported its claim for damages
with the following arguments:
36. That in order to protect itself against the wrongful and malicious
acts of the defendant Bank, plaintiff is constrained to engage the
services of counsel at an agreed fee of P50,000.00 and to incur
litigation expenses of at least P30,000.00, which the defendant
PNB should be condemned to pay the plaintiff Manila Metal.

37. That by reason of the wrongful and malicious actuations of
defendant PNB, plaintiff Manila Metal suffered besmirched
reputation for which defendant PNB is liable for moral damages of
at least P50,000.00.
38. That for the wrongful and malicious act of defendant PNB which
are highly reprehensible, exemplary damages should be awarded
in favor of the plaintiff by way of example or correction for the
public good of at least P30,000.00.[23]
Petitioner prayed that, after due proceedings, judgment be rendered in its favor,
thus:
a) Declaring the Amended Real Estate Mortgage (Annex A) null and
void and without any legal force and effect.
b) Declaring defendants acts of extra-judicially foreclosing the
mortgage over plaintiffs property and setting it for auction sale null
and void.
c) Ordering the defendant Register of Deeds to cancel the new title
issued in the name of PNB (TCT NO. 43792) covering the
property described in paragraph 4 of the Complaint, to reinstate
TCT No. 37025 in the name of Manila Metal and to cancel the
annotation of the mortgage in question at the back of the TCT
No. 37025 described in paragraph 4 of this Complaint.
d) Ordering the defendant PNB to return and/or deliver physical
possession of the TCT No. 37025 described in paragraph 4 of this
Complaint to the plaintiff Manila Metal.
e) Ordering the defendant PNB to pay the plaintiff Manila Metals
actual damages, moral and exemplary damages in the aggregate
amount of not less than P80,000.00 as may be warranted by the
evidence and fixed by this Honorable Court in the exercise of its
sound discretion, and attorneys fees of P50,000.00 and litigation
expenses of at least P30,000.00 as may be proved during the trial,
and costs of suit.
Plaintiff likewise prays for such further reliefs which may be
deemed just and equitable in the premises.[24]
In its Answer to the complaint, respondent PNB averred, as a special and
affirmative defense, that it had acquired ownership over the property after the period to
redeem had elapsed. It claimed that no contract of sale was perfected between it and
petitioner after the period to redeem the property had expired.
During pre-trial, the parties agreed to submit the case for decision, based on
their stipulation of facts.[25] The parties agreed to limit the issues to the following:
53
1. Whether or not the June 4, 1985 letter of the defendant
approving/accepting plaintiffs offer to purchase the property is still
valid and legally enforceable.
2. Whether or not the plaintiff has waived its right to purchase the
property when it failed to conform with the conditions set forth by
the defendant in its letter dated June 4, 1985.
3. Whether or not there is a perfected contract of sale between the
parties.[26]
While the case was pending, respondent PNB demanded, on September 20,
1989, that petitioner vacate the property within 15 days from notice,[27] but petitioners
refused to do so.
On March 18, 1993, petitioner offered to repurchase the property
for P3,500,000.00.[28] The offer was however rejected by respondent PNB, in a letter
dated April 13, 1993. According to it, the prevailing market value of the property was
approximately P30,000,000.00, and as a matter of policy, it could not sell the property for
less than its market value.[29] On June 21, 1993, petitioner offered to purchase the
property for P4,250,000.00 in cash.[30] The offer was again rejected by respondent PNB
on September 13, 1993.[31]
On May 31, 1994, the trial court rendered judgment dismissing the amended
complaint and respondent PNBs counterclaim. It ordered respondent PNB to refund
theP725,000.00 deposit petitioner had made.[32] The trial court ruled that there was no
perfected contract of sale between the parties; hence, petitioner had no cause of action
for specific performance against respondent. The trial court declared that respondent had
rejected petitioners offer to repurchase the property. Petitioner, in turn, rejected the terms
and conditions contained in the June 4, 1985 letter of the SAMD. While petitioner had
offered to repurchase the property per its letter of July 14, 1988, the amount
of P643,422.34 was way below the P1,206,389.53 which respondent PNB had
demanded. It further declared that the P725,000.00 remitted by petitioner to respondent
PNB on June 4, 1985 was a deposit, and not a downpayment or earnest money.
On appeal to the CA, petitioner made the following allegations:
I
THE LOWER COURT ERRED IN RULING THAT DEFENDANT-
APPELLEES LETTER DATED 4 JUNE
1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANTS OFFER
TO PURCHASE THE SUBJECT PROPERTY IS NOT VALID AND
ENFORCEABLE.
II
THE LOWER COURT ERRED IN RULING THAT THERE WAS NO
PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-
APPELLANT AND DEFENDANT-APPELLEE.
III
THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-
APPELLLANT WAIVED ITS RIGHT TO PURCHASE THE SUBJECT

PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS
SET FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4
JUNE 1985.
IV
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT
IT WAS THE DEFENDANT-APPELLEE WHICH RENDERED IT
DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO
COMPLETE THE BALANCE OF THEIR PURCHASE PRICE.
V Thus, petitioner filed the instant petition for review on certiorari, alleging that:
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT
THERE WAS NO VALID RESCISSION OR CANCELLATION OF
SUBJECT CONTRACT OF REPURCHASE.
VI
THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF
FAILED AND REFUSED TO SUBMIT THE AMENDED REPURCHASE
OFFER.
VII
THE LOWER COURT ERRED IN DISMISSING THE AMENDED
COMPLAINT OF PLAINTIFF-APPELLANT.
VIII
THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-
APPELLANT ACTUAL, MORAL AND EXEMPLARY DAMAGES,
ATTOTRNEYS FEES AND LITIGATION EXPENSES.[33]
Meanwhile, on June 17, 1993, petitioners Board of Directors approved
Resolution No. 3-004, where it waived, assigned and transferred its rights over the
property covered by TCT No. 33099 and TCT No. 37025 in favor of Bayani Gabriel, one
of its Directors.[34] Thereafter, Bayani Gabriel executed a Deed of Assignment over 51%
of the ownership and management of the property in favor of Reynaldo Tolentino, who
later moved for leave to intervene as plaintiff-appellant. On July 14, 1993, the CA issued
a resolution granting the motion,[35] and likewise granted the motion of
Reynaldo Tolentino substituting petitioner MMCC, as plaintiff-appellant, and his motion to
withdraw as intervenor.[36]
The CA rendered judgment on May 11, 2000 affirming the decision of the
RTC.[37] It declared that petitioner obviously never agreed to the selling price proposed by
respondent PNB (P1,931,389.53) since petitioner had kept on insisting that the selling
price should be lowered to P1,574,560.47. Clearly therefore, there was no meeting of the
minds between the parties as to the price or consideration of the sale.
The CA ratiocinated that petitioners original offer to purchase the subject
property had not been accepted by respondent PNB. In fact, it made a counter-offer
through its June 4, 1985 letter specifically on the selling price; petitioner did not agree to
the counter-offer; and the negotiations did not prosper. Moreover, petitioner did not pay
the balance of the purchase price within the sixty-day period set in the June 4, 1985 letter
of respondent PNB. Consequently, there was no perfected contract of sale, and as such,
there was no contract to rescind.
54
According to the appellate court, the claim for damages and the counterclaim
were correctly dismissed by the court a quo for no evidence was presented to support
it.Respondent PNBs letter dated June 30, 1988 cannot revive the failed negotiations
between the parties. Respondent PNB merely asked petitioner to submit an amended
offer to repurchase. While petitioner reiterated its request for a lower selling price and
that the balance of the repurchase be reduced, however, respondent rejected the
proposal in a letter dated August 1, 1989.
Petitioner filed a motion for reconsideration, which the CA likewise denied.
I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
WHEN IT RULED THAT THERE IS NO PERFECTED
CONTRACT OF SALE BETWEEN THE PETITIONER AND
RESPONDENT.
II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
WHEN IT RULED THAT THE AMOUNT OF PHP725,000.00
PAID BY THE PETITIONER IS NOT AN EARNEST MONEY.
III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
WHEN IT RULED THAT THE FAILURE OF THE
PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY
TO THE TERMS CONTAINED IN PNBS JUNE 4, 1985
LETTER MEANS THAT THERE WAS NO VALID AND
LEGALLY ENFORCEABLE CONTRACT OF SALE
BETWEEN THE PARTIES.
IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
THAT NON-PAYMENT OF THE PETITIONER-APPELLANT
OF THE BALANCE OF THE OFFERED PRICE IN THE
LETTER OF PNB DATED JUNE 4, 1985, WITHIN SIXTY (60)
DAYS FROM NOTICE OF APPROVAL CONSTITUTES NO
VALID AND LEGALLY ENFORCEABLE CONTRACT OF
SALE BETWEEN THE PARTIES.
V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD
THAT THE LETTERS OF PETITIONER-APPELLANT
DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING
TO BUY THE SUBJECT PROPERTY AT DIFFERENT
AMOUNT WERE PROOF THAT THERE IS NO PERFECTED
CONTRACT OF SALE.[38]
The threshold issue is whether or not petitioner and respondent PNB had entered into a
perfected contract for petitioner to repurchase the property from respondent.
Petitioner maintains that it had accepted respondents offer made through the
SAMD, to sell the property for P1,574,560.00. When the acceptance was made in its
letter dated June 25, 1984; it then deposited P725,000.00 with the SAMD as partial
payment, evidenced by Receipt No. 978194 which respondent had issued. Petitioner
avers that the SAMDs acceptance of the deposit amounted to an acceptance of its offer

to repurchase. Moreover, as gleaned from the letter of SAMD dated June 4, 1985, the
PNB Board of Directors had approved petitioners offer to purchase the property. It claims
that this was the suspensive condition, the fulfillment of which gave rise to the
contract. Respondent could no longer unilaterally withdraw its offer to sell the property
for P1,574,560.47, since the acceptance of the offer resulted in a perfected contract of
sale; it was obliged to remit to respondent the balance of the original purchase price
of P1,574,560.47, while respondent was obliged to transfer ownership and deliver the
property to petitioner, conformably with Article 1159 of the New Civil Code.
Petitioner posits that respondent was proscribed from increasing the interest
rate after it had accepted respondents offer to sell the property
for P1,574,560.00.Consequently, respondent could no longer validly make a counter-
offer of P1,931,789.88 for the purchase of the property. It likewise maintains that,
although the P725,000.00 was considered as deposit for the repurchase of the property
in the receipt issued by the SAMD, the amount constitutes earnest money as
contemplated in Article 1482 of the New Civil Code. Petitioner cites the rulings of this
Court in Villonco v. Bormaheco[39] and Topacio v. Court of Appeals.[40]
Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of
respondent and its failure to pay the balance of the price as fixed by respondent within
the 60-day period from notice was to protest respondents breach of its obligation to
petitioner. It did not amount to a rejection of respondents offer to sell the property since
respondent was merely seeking to enforce its right to pay the balance
of P1,570,564.47. In any event, respondent had the option either to accept the balance of
the offered price or to cause the rescission of the contract.
Petitioners letters dated March 18, 1993 and June 21, 1993 to respondent during the
pendency of the case in the RTC were merely to compromise the pending lawsuit, they
did not constitute separate offers to repurchase the property. Such offer to compromise
should not be taken against it, in accordance with Section 27, Rule 130 of the Revised
Rules of Court.
For its part, respondent contends that the parties never graduated from the
negotiation stage as they could not agree on the amount of the repurchase price of the
property.All that transpired was an exchange of proposals and counter-proposals,
nothing more. It insists that a definite agreement on the amount and manner of payment
of the price are essential elements in the formation of a binding and enforceable contract
of sale. There was no such agreement in this case. Primarily, the concept
of suspensive condition signifies a future and uncertain event upon the fulfillment of
which the obligation becomes effective. It clearly presupposes the existence of a valid
and binding agreement, the effectivity of which is subordinated to its fulfillment. Since
there is no perfected contract in the first place, there is no basis for the application of the
principles governing suspensive conditions.
According to respondent, the Statement of Account prepared by SAMD as of June 25,
1984 cannot be classified as a counter-offer; it is simply a recital of its total monetary
claims against petitioner. Moreover, the amount stated therein could not likewise be
considered as the counter-offer since as admitted by petitioner, it was only
recommendation which was subject to approval of the PNB Board of Directors.
Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a
perfected sale contract. As gleaned from the parties Stipulation of Facts during the
proceedings in the court a quo, the amount is merely an acknowledgment of the receipt
55
of P725,000.00 as deposit to repurchase the property. The deposit of P725,000.00 was
accepted by respondent on the condition that the purchase price would still be approved
by its Board of Directors. Respondent maintains that its acceptance of the amount was
qualified by that condition, thus not absolute. Pending such approval, it cannot be legally
claimed that respondent is already bound by any contract of sale with petitioner.
According to respondent, petitioner knew that the SAMD has no capacity to bind
respondent and that its authority is limited to administering, managing and preserving the
properties and other special assets of PNB. The SAMD does not have the power to sell,
encumber, dispose of, or otherwise alienate the assets, since the power to do so must
emanate from its Board of Directors. The SAMD was not authorized by respondents
Board to enter into contracts of sale with third persons involving corporate assets. There
is absolutely nothing on record that respondent authorized the SAMD, or made it appear
to petitioner that it represented itself as having such authority.
Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had
been approved by the Board subject to the condition, among others, that the selling price
shall be the total banks claim as of documentation date x x x payable in cash
(P725,000.00 already deposited)
within 60 days from notice of approval. A new Statement of Account was attached therein
indicating the total banks claim to be P1,931,389.53 less deposit of P725,000.00,
or P1,206,389.00. Furthermore, while respondents Board of Directors accepted
petitioners offer to repurchase the property, the acceptance was qualified, in that it
required a higher sale price and subject to specified terms and conditions enumerated
therein. This qualified acceptance was in effect a counter-offer, necessitating petitioners
acceptance in return.
The Ruling of the Court
The ruling of the appellate court that there was no perfected contract of sale between the
parties on June 4, 1985 is correct.
A contract is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service. [41] Under Article 1318
of the New Civil Code, there is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Contracts are perfected by mere consent which is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to constitute the
contract.[42] Once perfected, they bind other contracting parties and the obligations
arising therefrom have the form of law between the parties and should be complied with
in good faith. The parties are bound not only to the fulfillment of what has been expressly
stipulated but also to the consequences which, according to their nature, may be in
keeping with good faith, usage and law.[43]

By the contract of sale, one of the contracting parties obligates himself to transfer the
ownership of and deliver a determinate thing, and the other to pay therefor a price certain
in money or its equivalent.[44] The absence of any of the essential elements will negate
the existence of a perfected contract of sale. As the Court ruled in Boston Bank of the
Philippines v. Manalo:[45]
A definite agreement as to the price is an essential element of a
binding agreement to sell personal or real property because it seriously
affects the rights and obligations of the parties. Price is an essential
element in the formation of a binding and enforceable contract of
sale. The fixing of the price can never be left to the decision of one of
the contracting parties. But a price fixed by one of the contracting
parties, if accepted by the other, gives rise to a perfected sale. [46]
A contract of sale is consensual in nature and is perfected upon mere meeting of the
minds. When there is merely an offer by one party without acceptance of the other, there
is no contract.[47] When the contract of sale is not perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation between the parties. [48]
In San Miguel Properties Philippines, Inc. v. Huang,[49] the Court ruled that the stages of
a contract of sale are as follows: (1) negotiation, covering the period from the time the
prospective contracting parties indicate interest in the contract to the time the contract is
perfected; (2) perfection, which takes place upon the concurrence of the essential
elements of the sale which are the meeting of the minds of the parties as to the object of
the contract and upon the price; and (3) consummation, which begins when the parties
perform their respective undertakings under the contract of sale, culminating in the
extinguishment thereof.
A negotiation is formally initiated by an offer, which, however, must be certain.[50] At any
time prior to the perfection of the contract, either negotiating party may stop the
negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective
immediately after its manifestation. To convert the offer into a contract, the acceptance
must be absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional and without variance of any sort from the
proposal. In Adelfa Properties, Inc. v. Court of Appeals,[51] the Court ruled that:
x x x The rule is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly made and
must be evidenced by some acts or conduct communicated to
the offeror, it may be shown by acts, conduct, or words of the
accepting party that clearly manifest a present intention or
determination to accept the offer to buy or sell.Thus, acceptance may
be shown by the acts, conduct, or words of a party recognizing the
existence of the contract of sale.[52]
A qualified acceptance or one that involves a new proposal constitutes a counter-offer
and a rejection of the original offer. A counter-offer is considered in law, a rejection of the
original offer and an attempt to end the negotiation between the parties on a different
basis.[53] Consequently, when something is desired which is not exactly what is proposed
in the offer, such acceptance is not sufficient to guarantee consent because any
modification or variation from the terms of the offer annuls the offer. [54] The acceptance
56
must be identical in all respects with that of the offer so as to produce consent or meeting
of the minds.
In this case, petitioner had until February 17, 1984 within which to redeem the
property. However, since it lacked the resources, it requested for more time to
redeem/repurchase the property under such terms and conditions agreed upon by the
parties.[55] The request, which was made through a letter dated August 25, 1983, was
referred to the respondents main branch for appropriate action. [56] Before respondent
could act on the request, petitioner again wrote respondent as follows:
1. Upon approval of our request, we will pay
your goodselves ONE HUNDRED & FIFTY THOUSAND PESOS
(P150,000.00);
2. Within six months from date of approval of our request, we will pay
another FOUR HUNDRED FIFTY THOUSAND PESOS
(P450,000.00); and
3. The remaining balance together with the interest and other
expenses that will be incurred will be paid within the last six
months of the one year grave period requested for.[57]
When the petitioner was told that respondent did not allow partial redemption,[58] it sent
a letter to respondents President reiterating its offer to purchase the property.[59]There
was no response to petitioners letters dated February 10 and 15, 1984.
The statement of account prepared by the SAMD stating that the net claim of
respondent as of June 25, 1984 was P1,574,560.47 cannot be considered an unqualified
acceptance to petitioners offer to purchase the property. The statement is but a
computation of the amount which petitioner was obliged to pay in case respondent would
later agree to sell the property, including interests, advances on insurance premium,
advances on realty taxes, publication cost, registration expenses and miscellaneous
expenses.
There is no evidence that the SAMD was authorized by respondents Board of
Directors to accept petitioners offer and sell the property for P1,574,560.47. Any
acceptance by the SAMD of petitioners offer would not bind respondent. As this Court
ruled in AF Realty Development, Inc. vs. Diesehuan Freight Services, Inc.:[60]
Section 23 of the Corporation Code expressly provides that
the corporate powers of all corporations shall be exercised by the
board of directors. Just as a natural person may authorize another to
do certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual
officers or agents appointed by it. Thus, contracts or acts of a
corporation must be made either by the board of directors or by a
corporate agent duly authorized by the board. Absent such valid
delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but not in

the course of, or connected with the performance of authorized duties
of such director, are held not binding on the corporation.
Thus, a corporation can only execute its powers and transact its business
through its Board of Directors and through its officers and agents when authorized by a
board resolution or its by-laws.[61]
It appears that the SAMD had prepared a recommendation for respondent to
accept petitioners offer to repurchase the property even beyond the one-year period; it
recommended that petitioner be allowed to redeem the property and pay P1,574,560.00
as the purchase price. Respondent later approved the recommendation that the property
be sold to petitioner. But instead of the P1,574,560.47 recommended by the SAMD and
to which petitioner had previously conformed, respondent set the purchase price
at P2,660,000.00. In fine, respondents acceptance of petitioners offer was qualified,
hence can be at most considered as a counter-offer. If petitioner had accepted this
counter-offer, a perfected contract of sale would have arisen; as it turns out, however,
petitioner merely sought to have the counter-offer reconsidered. This request for
reconsideration would later be rejected by respondent.
We do not agree with petitioners contention that the P725,000.00 it had remitted
to respondent was earnest money which could be considered as proof of the perfection
of a contract of sale under Article 1482 of the New Civil Code. The provision reads:
ART. 1482. Whenever earnest money is given in a contract of
sale, it shall be considered as part of the price and as proof of the
perfection of the contract.
This contention is likewise negated by the stipulation of facts which the parties
entered into in the trial court:
8. On June 8, 1984, the Special Assets Management
Department (SAMD) of PNB prepared an updated Statement of
Account showing MMCCs total liability to PNB as of June 25, 1984 to
be P1,574,560.47 and recommended this amount as the repurchase
price of the subject property.
9. On June 25, 1984, MMCC paid P725,000.00 to PNB as
deposit to repurchase the property. The deposit of P725,000 was
accepted by PNB on the condition that the purchase price is still
subject to the approval of the PNB Board.[62]
Thus, the P725,000.00 was merely a deposit to be applied as part of the
purchase price of the property, in the event that respondent would approve the
recommendation of SAMD for respondent to accept petitioners offer to purchase the
property for P1,574,560.47. Unless and until the respondent accepted the offer on these
terms, no perfected contract of sale would arise. Absent proof of the concurrence of all
the essential elements of a contract of sale, the giving of earnest money cannot establish
the existence of a perfected contract of sale.[63]
57
It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided
to accept the offer to purchase the property for P1,931,389.53. However, this amounted
to an amendment of respondents qualified acceptance, or an amended counter-offer,
because while the respondent lowered the purchase price, it still declared that its
acceptance was subject to the following terms and conditions:
1. That the selling price shall be the total Banks claim as of
documentation date (pls. see attached statement of account as
of 5-31-85), payable in cash (P725,000.00 already deposited)
within sixty (60) days from notice of approval;
2. The Bank sells only whatever rights, interests and
participation it may have in the property and you are charged
with full knowledge of the nature and extent of said rights,
interests and participation and waive your right to warranty
against eviction.
3. All taxes and other government imposts due or to become due
on the property, as well as expenses including costs of
documents and science stamps, transfer fees, etc., to be
incurred in connection with the execution and registration of all
covering documents shall be borne by you;
4. That you shall undertake at your own expense and account
the ejectment of the occupants of the property subject of the
sale, if there are any;
5. That upon your failure to pay the balance of the purchase
price within sixty (60) days from receipt of advice accepting your
offer, your deposit shall be forfeited and the Bank is thenceforth
authorized to sell the property to other interested parties.
6. That the sale shall be subject to such other terms and
conditions that the Legal Department may impose to protect the
interest of the Bank.[64]
It appears that although respondent requested petitioner to conform to its
amended counter-offer, petitioner refused and instead requested respondent to
reconsider its amended counter-offer. Petitioners request was ultimately rejected and
respondent offered to refund its P725,000.00 deposit.
In sum, then, there was no perfected contract of sale between petitioner and
respondent over the subject property.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.
 58

The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Roman Cuison Sr., wrote the banks Officer-in-Charge, Remedios Calaguas, a letter
Corporation. indicating her offered terms of repurchase. She stated:
1. That I will pay the interest of P115,538.66, plus the
SO ORDERED. additional expenses of P17,293.69, the total amount of which
is P132,832.35 on August 8, 1986;

TRADERS ROYAL BANK, G.R. No. 174286 2. That I will pay 20% of the bid price of P949,632.84, plus
Petitioner, whatever interest accruing within sixty (60) days from August
Present: 8, 1986;

- versus - QUISUMBING, Chairperson,
*YNARES-SANTIAGO,
VELASCO, JR.,
**LEONARDO-DE CASTRO, and
BRION, JJ.
CUISON LUMBER CO., INC.,
and JOSEFA JERODIAS VDA. DE CUISON,
Respondents. Promulgated:
June 5, 2009
x ----------------------------------------------------------------------------------------x
DECISION
BRION, J.:
We review in this petition for review on certiorari[1] the decision[2] and resolution[3] of the
Court of Appeals (CA) in CA-G.R. CV No. 49900. The CA affirmed with modifications the
decision[4] of the Regional Trial Court (RTC), Davao City, Branch 13. The RTC ruled in
favor of respondents Cuison Lumber Co., Inc. (CLCI) and Josefa Vda. De Cuison (Mrs.
Cuison), collectively referred to as respondents, in the action they commenced for breach
of contract, specific performance, damages, and attorneys fees, with prayer for the
issuance of a writ of preliminary injunction against petitioner Traders Royal Bank (bank).
THE BACKGROUND FACTS
On July 14, 1978 and December 9, 1979, respectively, CLCI, through its then president,
Roman Cuison Sr., obtained two loans from the bank. The loans were secured by a real
estate mortgage over a parcel of land covered by Transfer Certificate of Title No. 10282
(subject property). CLCI failed to pay the loan, prompting the bank to extrajudicially
foreclose the mortgage on the subject property. The bank was declared the highest
bidder at the public auction that followed, conducted on August 1, 1985. A Certificate of
Sale and a Sheriffs Final Certificate of Sale were subsequently issued in the banks favor.
In a series of written communications between CLCI and the bank, CLCI
manifested its intention to restructure its loan obligations and to repurchase the subject
property. On July 31, 1986, Mrs. Cuison, the widow and administratrix of the estate of
3. That whatever remaining balance after the above two (2)
payments shall be amortized for five (5) years on equal
monthly installments including whatever interest accruing
lease on diminishing balance.[5]
CLCI paid the bank P50,000.00 (on August 8, 1986) and P85,000.00 (on
September 3, 1986). The bank received and regarded these amounts as earnest money
for the repurchase of the subject property. On October 20, 1986, the bank sent Atty.
Roman Cuison, Jr. (Atty. Cuison), as the president and general manager of CLCI, a letter
informing CLCI of the banks board of directors resolution of October 10, 1986 (TRB
Repurchase Agreement), laying down the conditions for the repurchase of the subject
property:
This is to formally inform you that our Board of Directors, in its
regular meeting held on October 10, 1986, passed a resolution for the
repurchase of your property acquired by the bank, subject to the
following terms and conditions, viz:
1. That the repurchase price shall be at total banks claim as
of the date of implementation;
2. That client shall initially pay P132,000.00 within fifteen (15)
days from the expiration of the redemption period (August 8, 1986) and
further payment of P200,632.84, representing 20% of the bid price, to
be remitted on or before October 31, 1986;
3. That the balance of P749,000.00 to be paid in three (3)
years in twelve (12) quarterly amortizations, with interest rate at 26%
computed on diminishing balance;
4. That all the interest and other charges starting from August
8, 1986 to date of approval shall be paid first before implementation of
the request; interest as of October 31, 1986 is P65,669.53;
5. Possession of the property shall be deemed transferred
after signing of the Contract to Sell. However, title to the property shall
be delivered only upon full payment of the repurchase price via Deed
of Absolute Sale;
6. Registration fees, documentary stamps, transfer taxes at
the date of sale and other similar government impost shall be for the
exclusive account of the buyer;

7. The improvement of the property shall at all times be
covered by insurance against loss with a policy to be obtained from a
reputable company which designates the bank as beneficiary but
premiums shall be paid by the client;
8. That the sale is good for thirty (30) days from the buyers
receipt of notice of approval of the offer; otherwise, sale is
automatically cancelled;
9. Effective upon signing of the Contract to Sell, all realty
taxes which will become due on the property shall be for the account of
the buyer;
10. That the first quarterly installment shall be due within
ninety (90) days of approval hereof, and the succeeding installment
shall be due every three (3) months thereafter;
11. Upon default of the buyer to pay two (2) successive
quarterly installments, contract is automatically cancelled at the Banks
option and all payments already made shall be treated as rentals or as
liquidated damages; and
12. Other terms and conditions that the bank may further
impose to protect its interest.
Should you agree with the above terms and conditions please
sign under Conforme on the space provided below.
We attach herewith your Statement of Account[6] as of
October 31, 1986, for your reference.
Thank you.
Very truly yours,
(Signed)
Conforme: (Not signed)[7]
CLCI failed to comply with the above terms notwithstanding the extensions of
time given by the bank. Nevertheless, CLCI tendered, on February 3, 1987, a check
forP135,091.57 to cover fifty percent (50%) of the twenty percent (20%) bid price. The
check, however, was returned for insufficiency of funds. On May 13, 1987, CLCI
tendered an additional P50,000.00.[8] On May 29, 1987, the bank sent Atty. Cuison a
letter informing him that the P185,000.00 CLCI paid was not a deposit, but formed part of
the earnest money under the TRB Repurchase Agreement. On August 28, 1987, Atty.
Cuison, by letter, requested that CLCIs outstanding obligation of P1,221,075.61 (as of
July 31, 1987) be reduced to P1 million, and the amount of P221,075.61 be condoned by
the bank. To show its commitment to the request, CLCI paid the bank P100,000.00
and P200,000.00 on August 28, 1987. The bank credited both payments as earnest
money.
59
A year later, CLCI inquired about the status of its request. The bank responded
that the request was still under consideration by the banks Manila office. On September
30, 1988, the bank informed CLCI that it would resell the subject property at an offered
price of P3 million, and gave CLCI 15 days to make a formal offer; otherwise, the bank
would sell the subject property to third parties. On October 26, 1988, CLCI offered to
repurchase the subject property for P1.5 million, given that it had already tendered the
amount of P400,000.00 as earnest money.
CLCI subsequently claimed that the bank breached the terms of repurchase, as
it had wrongly considered its payments (in the amounts of P140,485.18, P200,000.00
and P100,000.00) as earnest money, instead of applying them to the purchase price.
Through its counsel, CLCI demanded that the bank rectify the repurchase agreement to
reflect the true consideration agreed upon for which the earnest money had been given.
The bank did not act on the demand. Instead, it informed CLCI that the amounts it
received were not earnest money, and that the bank was willing to return these sums,
less the amounts forfeited to answer for the unremitted rentals on the subject property.
In view of these developments, CLCI and Mrs. Cuison, on February 10, 1989,
filed with the RTC a complaint for breach of contract, specific performance, damages,
and attorneys fees against the bank. On April 20, 1989, the bank filed its Answer alleging
that the TRB repurchase agreement was already cancelled given CLCIs failure to comply
with its provisions; by way of counterclaim, the bank also demanded the payment of the
accrued rentals in the subject property as of January 31, 1989, and the award of moral
damages and exemplary damages as well as attorneys fees and litigation expenses for
the unfounded suit instituted against the bank by CLCI.[9] After trial on the merits, the
RTC ruled in respondents favor. The dispositive portion of its November 4, 1994 Decision
states:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of plaintiffs and against the defendant bank, ordering said
defendant bank to:
1. Execute and consummate a Contract to Sell which is
reflective of the true consideration indicated in the Resolution of the
Board of Directors of Traders Royal Bank held on October 10, 1986
(Exhibit F and Exhibit 13), duly accrediting the amount of P435,000 as
earnest money to be part of the price, the mode of payment being on
quarterly installment, but the period within which the first quarterly
payment being on quarterly payment shall be made to commence
upon the execution of said Contract to Sell;
2. Pay to plaintiffs the amounts of P50,000.00 in concept of
moral damages, P20,000.00 as exemplary damages;
3. Pay attorneys fees of P20,000.00; and
4. Pay litigation expenses in the amount of P2,000.00.
The counterclaim of defendant bank is hereby dismissed.
SO ORDERED.

On appeal to the CA, the bank pointed out the misappreciation of facts the RTC
committed and argued that: first, the repurchase agreement did not ripen into a perfected
contract; and second, even assuming that there was a perfected repurchase agreement,
the bank had the right to revoke it and apply the payments already made to the rentals
due for the use of the subject property, or as liquidated damages under paragraph 11 of
the TRB Repurchase Agreement, since CLCI violated its terms and conditions. Further,
the bank contended that CLCI had abandoned the TRB Repurchase Agreement in its
letters dated August 28, 1987 and October 26, 1988 when it proposed to repurchase the
subject property for P1 million and P1.5 million, respectively. Lastly, the bank objected to
the award of damages in the plaintiffs favor.
THE CA DECISION
On March 31, 2006, the CA issued the challenged Decision and affirmed the RTCs
factual findings and legal conclusions. Although it deleted the awards of attorneys fees,
moral and exemplary damages, the CA ruled that there was a perfected contract to
repurchase the subject property given the banks acceptance (as stated in the letter dated
October 20, 1986) of CLCIs proposal contained in Mrs. Cuisons letter of July 31,
1986. The CA distinguished between a condition imposed on the perfection of the
contract and a condition imposed on the performance of an obligation, and declared that
the conditions laid down in the letter dated October 20, 1986 merely relate to the manner
the obligation is to be performed and implemented; failure to comply with the latter
obligation does not result in the failure of the contract and only gives the other party the
options and/or remedies to protect its interest. The CA held that the same conclusion
obtains even if the letter of October 20, 1986 is considered a counter-offer by the bank;
CLCIs payment of P135,000.00 operated as an implied acceptance of the banks counter-
offer, notwithstanding CLCIs failure to expressly manifest its conforme. In light of these
findings, the CA went on to acknowledge the validity of the terms of paragraph 11 of the
TRB Repurchase Agreement, but nonetheless held that CLCI has not yet violated its
terms given the banks previous acts (i.e., the grant of extensions to pay), which showed
that it had waived the agreements original terms of payment.
The CA rejected the theory that CLCI had abandoned the terms of the TRB
Repurchase Agreement and found no incompatibility between the agreement and the
contents of the August 28, 1987 and October 26, 1988 letters which did not show an
implied abandonment by CLCI, nor the latters expressed intent to cancel or abandon the
perfected repurchase agreement. In the same manner, the CA struck down the banks
position that CLCIs payments were deposits rather than earnest money. The appellate
court reasoned that while the amounts tendered cannot be strictly considered as earnest
money under Article 1482 of the New Civil Code,[10] they were nevertheless within the
concept of earnest money under this Courts ruling in Spouses Doromal, Sr. v.
CA,[11] since they were paid as a guarantee so that the buyer would not back out of the
contract.
The CA however ruled that the award of moral and exemplary damages,
attorneys fees and litigation expenses lacked factual and legal support. The CA found
that the bank acted in good faith and based its actions on the erroneous belief that CLCI
had already abandoned the repurchase agreement. Likewise, the award of moral
damages was not in order as there was no showing that CLCIs reputation was debased
or besmirched by the banks action of applying the previous payments made to the
interest and rentals due on the subject property; neither is Mrs. Cuison entitled to moral
damages without any evidence to justify this award. The CA also ruled that there was
nothing in the records to warrant the awards of exemplary damages and attorneys fees.
60
The bank subsequently moved but failed to secure a reconsideration of the CA
decision. The bank thus came to us with the following
ISSUES
I.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
APPREHENDING THE SIGNIFICATION (SIC) OF THE TERM OFFER
ON THE ONE HAND AND ACCEPTANCE ON THE OTHER HAND IN
SALES CONTRACT WHICH ERROR LED IT TO ARRIVE AT A
WRONG CONCLUSION OF LAW.
II.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN ITS
INTERPRETATION OF THE STIPULATIONS AND TERMS AND
CONDITIONS EMBODIED IN THE PROPOSED REPURCHASE
AGREEMENT xxx WHICH LED IT TO ERRONEOUSLY CONCLUDE
THAT THERE WAS A PERFECTED REPURCHASE AGREEMENT
BETWEEN RESPONDENTS AND PETITIONER AND WHICH
INTERPRETATION IS NOT IN ACCORDANCE WITH THE
APPLICABLE LAW AND ESTABLISHED JURISPRUDENCE.
Reduced to the most basic, the main issue posed is whether or not a
perfected contract of repurchase existed and can be enforced between the parties.
THE COURTS RULING
We GRANT the petition.
The case presents to us as threshold issue the presence or absence of consent
as a requisite for a perfected contract to repurchase the subject property. The RTC ruled
that a perfected contract existed based mainly on the following facts: first, the existence
of the TRB Repurchase Agreement which clearly depicts the repurchase agreement of
the subject property under the terms therein embodied; and second, the payment of
earnest money in the total amount of P435,000.00 which forms part of the price and, as
initial payment, is proof of the perfection of the contract.[12] In concurring with the
foregoing findings on appeal, the CA, in turn, declared that there was a meeting of the
minds between the parties on the offer and acceptance
for the repurchase of the subject property under the following quoted facts:
It may be recalled that it was Mrs. Cuison, through her letter
of July 31, 1986, who proposed to repurchase the foreclosed property.
She in fact had tendered right away an amount of P50,000.00 as
partial payment of the P132,000.00 she had promised to pay as initial
payment. In response, TRB sent a letter dated October 20, 1986 to
Atty. Cuison informing him of the resolution passed by the Board of
Directors of TRB acknowledging the proposal of Ms. Cuison to
repurchase the property. Under the circumstance, the proposal made
by Ms. Cuison constituted the offer contemplated by law, and the reply
of TRB was the corresponding acceptance of the proposal-offer.

xxx
Conceding arguendo that TRBs letter-response October 20, 1986
constituted a counter-offer or politacion, CLCIs ensuing remittance
of P135,000.00 as initial payment of the price, operates effectively as
an implied acceptance of TRBs counter-offer. The absence of a
signature to signify plaintiffs conforme to the repurchase agreement is
of no moment. While the conformeportion of the subject repurchase
agreement indeed bears no signature at all, this fact, however, does
not detract from the accomplished fact that plaintiffs had acquiesced or
assented to the standing conditional counter-offer of TRB.
Plaintiffs conforme would at best be a mere formality considering that
the repurchase agreement had already been perfected, if impliedly. [13]
Based on these findings, the crucial points that the lower courts apparently
considered were Mrs. Cuisons letter of July 31, 1986 to the bank; the banks letter of
October 20, 1986 to CLCI; and the parties subsequent conduct showing their
acknowledgement of the existence of their agreement, specifically, the respondents
payments (designated as earnest money) and the banks acceptance of these
payments. However, unlike the RTCs conclusion that relied on CLCIs payment and the
banks acceptance of the payment as earnest money, the CA concluded that there was a
perfected contract, either because of the banks acceptance of CLCIs offer (made through
Mrs. Cuisons letter of July 31, 1986), or by CLCIs implied acceptance indicated by its
initial payments in compliance with the terms of the TRB Repurchase Agreement.
The petitioner bank, of course, argues differently and concludes that the
undisputed facts of the case show that there was no meeting of the minds between the
parties given CLCIs failure to give its consent and conformity to the banks letter of
October 20, 1986, confirmed by the testimony of Atty. Cuison, no less, when he denied
that CLCI consented to the agreements terms of implementation.
Our task in this petition for review on certiorari is not to review the factual
findings of the CA and the RTC, but to determine whether or not, on the basis of the said
findings, the conclusions of law reached by the said courts are correct.
Under the law, a contract is perfected by mere consent, that is, from the
moment that there is a meeting of the offer and the acceptance upon the thing and the
cause that constitute the contract.[14] The law requires that the offer must be certain and
the acceptance absolute and unqualified.[15] An acceptance of an offer may be express
and implied; a qualified offer constitutes a counter-offer.[16] Case law holds that an offer,
to be considered certain, must be definite,[17] while an acceptance is considered absolute
and unqualified when it is identical in all respects with that of the offer so as to produce
consent or a meeting of the minds.[18] We have also previously held that the
ascertainment of whether there is a meeting of minds on the offer and acceptance
depends on the circumstances surrounding the case.[19]
In Villonco Realty Co. v. Bormacheco,[20] the Court found a perfected contract of
sale between the parties after considering the parties written communications showing
the offer (counter-offer) and acceptance by the seller who formally manifested his
conformity with the offer in the buyers letter. We took note of the acts of the parties the
payment of the buyer of an amount representing the partial payment under the contract;
the acceptance of the partial payment by the seller; the allowance of the buyer for the
seller to encash the check containing the partial payment; the subsequent return of the
61
amount representing the partial payment by the buyer with the corresponding interest
stated in the buyers letter (offer) and considered them evidence of the perfection of the
sale. Under these circumstances, we also declared that a change in a phrase in the offer
to purchase, that does not essentially change the terms of the offer, does not amount to
a rejection of the offer and the tender of a counter-offer.
In Schuback & Sons Philippine Trading Corp. v. CA,[21] we declared a meeting
of minds between the vendor and the vendee even though the quantity of goods
purchased had not been fully determined. We noted that the vendee, after expressing his
intention to purchase the merchandise, simultaneously enclosed a purchase order whose
receipt prompted the vendor to immediately order the merchandise. We also took into
account the act of the vendee in requesting for a discount as proof of his acceptance of
the quoted price.
Yuviengco v. Dacuycuy[22] yielded a different result, as we considered that the
letter and telegrams sent by the parties to each other showed that there was no meeting
of minds in the absence of an unconditional acceptance to the terms of the contract of
sale; otherwise, the buyers would not have included the phrase to negotiate details when
they agreed to the property that was subject of the proposed contract.
Similarly, in Philippine National Bank v. CA,[23] we ruled that there was no
perfected contract of sale because the specified terms and conditions imposed under the
facts of the case constituted counter-offers against each other that were not accepted by
either of the parties. This case involved a first contract, involving the same property,
which the parties mutually cancelled; we said that the terms of this earlier contract cannot
be considered in determining the acceptance and compliance with the terms of a
proposed second contract a distinct and separate contract from the one earlier aborted.
The incomplete details of the agreement led us to conclude in Insular Life
Assurance Co. Ltd. v. Assets Builders Corp.[24] that no perfected contract existed; there
were other matters or details in addition to the subject matter and the consideration [that]
would be stipulated and agreed. We likewise considered the subsequent acts between
the parties and the existence of a second proposal which belied the perfection of any
initial contract.
The recent Navarra v. Planters Development Bank[25] is another case where we
saw no perfected contract, as the offer was incomplete for lack of agreed details on the
manner of paying the purchase price; there was also no acceptance as the letter of
Planters Development Bank indicated the need to discuss other details of the
transaction.
All these cases illustrate the rule that the concurrence of the offer and
acceptance is vital to the birth and the perfection of a contract. The clear and neat
principle is that the offer must be certain and definite with respect to the cause or
consideration and object of the proposed contract, while the acceptance of this offer
express or implied must be unmistakable, unqualified, and identical in all respects to the
offer. The required concurrence, however, may not always be immediately clear and may
have to be read from the attendant circumstances; in fact, a binding contract may exist
between the parties whose minds have met, although they did not affix their signatures to
any written document.[26]

The facts of the present case, although ambivalent in some respects,
point on the whole to the conclusion that both parties agreed to the repurchase of
the subject property.
A reading of the petitioners letter of October 20, 1986 informing CLCI that the
banks board of directors passed a resolution for the repurchase of [your] property shows
that the tenor of acceptance, except for the repurchase price, was subject to conditions
not identical in all respects with the CLCIs letter-offer of July 31, 1986. In this sense, the
banks October 20, 1986 letter was effectively a counter-offer that CLCI must be shown to
have accepted absolutely and unqualifiedly in order to give birth to a perfected contract.
Evidence exists showing that CLCI did not sign any document to show its conformity with
the banks counter-offer. Testimony also exists explaining why CLCI did not sign; Atty.
Cuison testified that CLCI did not agree with the implementation of the repurchase
transaction since the bank made a wrong computation.[27]
These indicators notwithstanding, we find that CLCI accepted the terms of the TRC
Repurchase Agreement and thus unqualifiedly accepted the banks counter-offer under
the TRB Repurchase Agreement and, in fact, partially executed the agreement, as
shown from the following undisputed evidence:
(a) The letter-reply dated November 29, 1986 of Atty. Cuison, as president
and general manager of CLCI, to the bank (in response to the banks
demand letter dated November 27, 1986 to pay 20% of the bid price);
CLCI requested an extension of time, until the end of December 1986, to
pay its due obligation;[28]
(b) Mrs. Cuisons letter-reply of February 3, 1987 (to the banks letter of
January 13, 1987) showed that she acknowledged CLCIs failure to
comply with its requested extension and proposed a new payment
scheme that would be reasonable given CLCIs critical economic
difficulties; Mrs. Cuizon tendered a check for P135,091.57, which
represented 50% of the 20% bid price;[29]
(c) The CLCIs continuous payments of the repurchase price after their
receipt of the banks letter of October 20, 1986;
(d) CLCIs possession of the subject property pursuant to paragraph 5 of the
TRB Repurchase Agreement, notwithstanding the absence of a signed
contract to sell between the parties;
xxx
We counted the following facts, too, as indicators leading to the conclusion that a
perfected contract existed: CLCI did not raise any objection to the terms and conditions
of the TRB Repurchase Agreement, and instead, unconditionally paid without protests or
objections[30]; CLCIs acknowledgment of their obligations under the TRB Repurchase
Agreement (as shown by Atty. Cuisons letter of November 29, 1986); and Atty. Cuisons
admission that the TRB Repurchase Agreement was already a negotiated agreement
between CLCI and the bank, as shown by the following testimony:
Q When you received this document, this Exh. F from the defendant
bank, did you already consider this as an agreement?
62
A We consider that as a negotiated agreement pending the
documentation of the formal contract to sell which is stated
under the repurchase agreement.
Q In other words, at the time you received this document Exh. F, which
was on October 23, 1986 date of receipt, was there already a
meeting of the minds between the parties?
A That is precisely we put [sic] the earnest money because we were of
the opinion that the bank is already agreeable to the
implementation of the repurchase agreement.
xxx
COURT
Q Insofar as Exh. F is concerned?
A There was initially, that is precisely we [sic] deposited in
consideration of the repurchase agreement.[31]
The bank, for its part, showed its recognition of the existence of a repurchase agreement
between itself and CLCI by the following acts:
(a) The letter dated November 27, 1986 of the bank, reminding CLCI that it
was remiss in its commitments to pay 20% of the bid price under the
terms of the TRB Repurchase Agreement;
(b) In the same letter, the bank gave CLCI an extension of time (until
November 30, 1986) to comply with its past due obligations under the
agreement;
(c) The banks acceptance of CLCIs payments as earnest money for the
repurchase of the property;
(d) CLCIs continued possession of the subject property with the banks
consent;
(e) The banks grant of extensions to CLCI for the payment of its obligations
under the contract;
(f) The Statement of Account dated July 31, 1987 showing that the bank
applied CLCIs payments according to the terms of the TRB Repurchase
Agreement;
(g) The letter of January 26, 1989 of the banks counsel, Atty. Abarquez,
addressed to CLCIs counsel, showing the banks recognition that there
was an agreement between the bank and CLCI, which the latter failed to
honor; and
(h) The testimonies of the banks witnesses Mr. Eulogio Giramis[32] and Ms.
Arlene Aportadera,[33] the banks employees who handled the CLCI
transactions who admitted the existence of the repurchase agreement
with CLCI and the latters failure to comply with the agreements terms.

Admittedly, some evidence on record may be argued to point to the absence of
a meeting of the minds (more particularly, the previous offers made by CLCI to change
the payment scheme of the repurchase of the subject property which was not accepted;
the banks expressed intent to offer the subject property for sale to third persons at a
higher price; and the unaccepted counter-offer by the respondents after the bank
increased the purchase price).[34] These incidents, however, were the results of CLCIs
failure to comply with its obligations to pay the amounts due on the stipulated time and
were made after the parties minds had met on the terms of the contract. The seemingly
contrary indications, therefore, do not go into and affect the perfection of the contract;
they came after the contract had been perfected and, as discussed below, were
indicative of the banks cancellation of the repurchase agreement.
In light of this conclusion, we now determine the consequential rights,
obligations and liabilities of the parties. It is at this point that we diverge from the
conclusions of the CA and the RTC, as we conclude that while there was a perfected
contract between the parties, the bank effectively cancelled the contract when it
communicated with CLCI that it would sell the subject property at a higher price to third
parties, giving CLCI 15 days to make a formal offer, and disregarding CLCIs counter-
offer to buy the subject property for P1.5 million. We arrive at this conclusion after
considering the following reasons:
First, the bank communicated its intent not to proceed with the repurchase as
above outlined and formally cancelled the TRB Repurchase Agreement in its letters
dated January 11 and 30, 1989 to CLCI.[35] Thus, CLCIs rights acquired under the TRB
Repurchase Agreement to repurchase the subject property have been defeated by its
own failure to comply with its obligations under the agreement. The right to cancel for
breach is provided under paragraph 11 of the TRB Repurchase Agreement, as follows:
11. Upon default of the buyer to pay two (2) successive quarterly
installments, contract is automatically cancelled at the Banks
option and all payments already made shall be treated as rentals
or as liquidated damages;
We note, additionally, that the TRB Repurchase Agreement is in the nature of a contract
to sell where the title to the subject property remains in the banks name, as the vendor,
and shall only pass to the respondents, as vendees, upon the full payment of the
repurchase price.[36] The settled rule for contracts to sell is that the full payment of the
purchase price is a positive suspensive condition; the failure to pay in full is not to be
considered a breach, casual or serious, but simply an event that prevents the obligation
of the vendor to convey title from acquiring any obligatory force.[37] Viewed in this light,
the bank cannot be compelled to perform its obligations under the TRB Repurchase
Agreement that has been rendered ineffective by the respondents non-performance of
their own obligations.
Second, the respondents violated the terms and conditions of the TRB
Repurchase Agreement when they failed to pay their obligations under the agreement as
these obligations fell due. Paragraphs 2 and 10 of the TRB Repurchase Agreement are
clear on the respondents obligation to pay the bid price and the quarterly
installments.Paragraphs 2 and 10 state:
2. That client shall initially pay P132,000.00 within fifteen (15) days
from the expiration of the redemption period (August 8, 1986) and
further payment of P200,632.84 representing 20% of the bid price
to be remitted on or before October 31, 1986;
63
xxx xxx xxx
10. That the first quarterly installment shall be due within ninety (90)
days of approval hereof, and the succeeding installment shall be
due every three (3) months thereafter;
The approval referred to under paragraph 10 is the approval by the bank of the
repurchase of the subject property, as indicated in the banks letter of October 20, 1986
which states, This is to formally inform you that our Board of Directors in its regular
meeting held on October 10, 1986, passed a resolution for the repurchase of your
property acquired by the bank. It was on the basis of this approval and the quoted terms
of the agreement that the bank issued its Statement of Account dated July 31, 1987
indicating that the respondents were already in default, not only with respect to the 20%
of the bid price, but also with the three quarterly installments.
Third, the respondents themselves claim that the bank violated the agreement
when it applied the respondents payments to the interest and penalties due without the
respondents consent, instead of applying these to the repurchase price for the subject
property.[38] An examination of the provisions of the TRB Repurchase Agreement reveals
that the bank is allowed to apply the respondents payments first to the amounts due as
interests and other charges, before applying any payment to the repurchase
price. Paragraph 4 of the agreement provides:
4. That all the interest and other charges starting from August 8, 1986
to date of approval shall be paid first before implementation of the
request; interest as of October 31, 1986 is P65,669.53;
Under these terms, the bank cannot be faulted for the application of payments it made.
Likewise, the bank cannot be faulted for the application of other amounts paid as rentals
as this is allowed under paragraph 11, quoted above, of the agreement.
Fourth, the petitioner bank cannot be said, as the CA ruled, to have already
waived the terms of the TRB Repurchase Agreement by extending the time to pay and
subsequently accepting late payments. The CAs conclusion lacks factual and legal basis
taking into account that the Statement of Account of July 31, 1987, heretofore cited,
which shows that the bank considered the respondents already in default. At this point,
Atty. Cuison, by letter, requested that part of its outstanding obligation be condoned by
the bank, paying P300,000.00 as of August 31, 1987, which amount the bank accepted
as earnest money. For one whole year thereafter, neither party moved. Significantly, the
respondents, who had continuing payments to make and who had the burden of
complying with the terms of the agreement, failed to act except to ask the bank for the
status of its requested condonation. Under these facts, a continuing breach of the
agreement took place, even granting that a waiver had intervened as of August 31,
1987. Thus, the bank was well within its right to consider the agreement cancelled when,
in September 1988, it changed the repurchase terms to P3.0 million. We find it significant
that the respondents, instead of asserting its rights under the TRB Repurchase
Agreement, counter-offered P1.5 million with the P400,000.00 already paid as part of the
purchase price.At that point, it was clear that even the respondents themselves
considered the TRB Repurchase Agreement cancelled.
Lastly, the perfected repurchase agreement itself provides for the respondents
possession of the subject property; in fact, the respondents have been in continuous

possession of the subject property since October 1986, despite the absence of a contract
to sell apparently with the banks consent. The agreement also provides under its
paragraph 11 that upon the respondents default and the cancellation of the agreement,
all payments already made shall be treated as rentals or as liquidated damages.
The undisputed facts show that the bank has been deprived of the use and
benefit of its property that has been in the possession of the respondents for the latters
use and benefit without paying any rentals thereon. The records reveal that until now, the
respondents are still in possession of the subject property. [39]
We note that subsequent to the banks counterclaim for the payment of rentals
due as of January 31, 1989, the bank also seeks to recover the rentals that accrued after
January 31, 1989, which as of August 8, 1993 amounted to P1,123,500.00 as shown by
the evidence presented by the bank before the RTC and in the pleadings it had filed
before the RTC, CA, and the Court.[40] Although this claim was not alleged in the banks
Answer being an after-acquired claim which was only raised during the trial proper
through the testimony dated August 17, 1993 of Ms. Arlene Aportadera, [41] the bank is
not barred from recovering these rentals. As we explained in Banco de Oro Universal
Bank v. CA,[42] a party is not barred from setting up a claim even after the filing of the
answer if the claim did not exist or had not matured at the time said party filed its answer.
Moreover, we note that the respondents did not object to the presentation of this
evidence, hence, the issue of rentals from August 8, 1993 and onwards was tried with
the implied consent of the parties; applying Section 5, Rule 10 of the 1997 Rules of Civil
Procedure,[43] the issue should be treated in all respects as if it had been raised in the
pleadings.[44] Given the implied consent, judgment may be validly rendered on this issue
even if no motion had been filed and no amendment had been ordered. [45]
In National Power Corporation v. CA,[46] we held that where there is a variance
in the defendants pleadings and the evidence adduced by it at the trial, the Court may
treat the pleading as amended to conform to the evidence.
Additionally, the respondents are also liable to pay interest by way of damages
for their failure to pay the rentals due for the use of the subject property. In Eastern
Shipping Lines v. CA,[47] we laid down the following guidelines with respect to the award
and the computation of legal interest, as follows:
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial
or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be
established with reasonable certainty.Accordingly, where the
demand is established with reasonable certainty, the interest
64
shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169 Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time quantification
of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
[Emphasis supplied]
The records are unclear on when the bank made a demand outside of the
judicial proceedings for the rentals on the subject property. [48] However, the records show
that the bank made a counterclaim for the payments of the rentals due as of January 31,
1989 in its Answer and subsequently, a claim for the after-acquired rentals was made by
the bank through the testimony of Ms. Arlene Aportadera. Applying Eastern Shipping
Lines, the payment of interest for the rentals shall be reckoned from the date the judicial
demand was made by the bank or on April 20, 1989 when the bank set up its
counterclaim for rentals in the subject property.
Under the circumstances, we can impose a 6% interest on the rentals from April
20, 1989 up to the finality of this decision. Thereafter, the interest shall be computed at
12% per annum from such finality up to full satisfaction.
We find no basis for the award of exemplary damages. Article 2232 of the Civil
Code declares:
Article 2232. In contracts and quasi-contracts, the court may
award exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
Considering the factual circumstances we have discussed above, we can hardly
characterize respondents act of insisting on the enforcement of the repurchase
agreement as wanton, fraudulent, reckless, oppressive, or malevolent.
As there is no basis for an award of exemplary damages, the awards of
attorneys fees and litigation expenses to the bank are not justified under Article 2208 of
the Civil Code.
WHEREFORE, premises considered, we hereby GRANT the petition. The
Decision dated March 31, 2006 and Resolution dated August 11, 2006 of the Court of
Appeals in CA-G.R. CV No. 49900 are hereby REVERSED and SET ASIDE.
The complaint in Civil Case No. 19416-89 for breach of contract, specific
performance, damages, and attorneys fees, with preliminary injunction filed by Cuison
Lumber Co., Inc. and Mrs. Cuison against Traders Royal Bank is hereby DISMISSED.
The respondents are ordered to vacate the subject property and to restore its possession
to the petitioner bank.

The respondents are further ordered to pay reasonable compensation, for the
use and occupation of the subject property in the amount of P1,123,500.00, representing
the accrued rentals as of August 8, 1993, less the amount of P485,000.00 representing
deposits paid by the respondents. In additiodn, respondents are also ordered to pay the
amount of P13,700.00 a month by way of rentals starting from August 8, 1993 until they
vacate the subject property. The rentals shall earn a corresponding legal interest of six
percent (6%) per annum to be computed from April 20, 1989 until the finality of this
decision. After this decision becomes final and executory, the rate of legal interest shall
be computed at twelve percent (12%) per annum from such finality until its satisfaction.
Costs against the respondents.
SO ORDERED.
DEVELOPMENT BANK OF THE PHILIPPINES, G.R. No. 167004
Petitioner,
Present:
CARPIO MORALES, J.,
- versus - Chairperson,
BRION,
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.
BEN P. MEDRANO and PRIVATIZATION Promulgated:
MANAGEMENT OFFICE [PMO],
Respondents. February 7, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
VILLARAMA, JR., J.:
This petition for review on certiorari assails the Decision[1]dated December 14, 2004 and
Resolution[2]dated February 8, 2005 of the Court of Appeals (CA) in CA-G.R. CV No.
65436. The CA affirmed in toto the Decision[3]dated January 26, 1999 of the Regional
Trial Court (RTC) of Pasig City, Branch 158, ordering petitioner Development Bank of the
Philippines (DBP) to pay respondent Ben Medrano the following: (1) the amount
of P2,449,265.00 representing the value of the purchase price of Medranos 37,681
shares in Paragon Paper Industries, Inc. plus legal interest from date of first demand; (2)
attorneys fees in the amount of P100,000.00; and (3) the cost of suit.
The facts, as culled from the records, are as follows.
Respondent Ben Medrano was the President and General Manager of Paragon Paper
Industries, Inc. (Paragon) wherein he owned 37,681 shares. Sometime in 1980,
petitioner DBP sought to consolidate its ownership in Paragon. In one of the meetings of
the Paragon Executive Committee, the Chairman Jose B. de Ocampo, instructed
65
Medrano, as President and General Manager of Paragon, to contact or sound off the
minority stockholders and to convince them to sell their shares to DBP at P65.00 per
share, or 65% of the stocks par value of P100.00. Medrano followed the instructions and
began to contact each member of the minority stockholders. He was able to contact all
except one who was in Singapore. Medrano testified that all, including himself, agreed to
sell, and all took steps to have their shares surrendered to DBP for payment.[4]They
made proposals to DBP and the Board of Directors of DBP approved the sale under DBP
Resolution No. 4270 subject to the following terms and conditions: (1) that prior to the
implementation of the approval, 57,596 shares of Paragons stock issued to the
stockholders concerned shall first be surrendered to the DBP; (2) that all the parties
concerned shall give their written conformity to the arrangement; and (3) that the
transaction shall be implemented within forty-five (45) days from the date of approval
(December 24, 1980); otherwise, the same shall be deemed canceled. Medrano then
indorsed and delivered to DBP all his 37,681 shares which had a value of P2,449,265.00.
DBP accepted said shares and took over Paragon.
DBP, through Jose de Ocampo, who was also a member of its Board of Governors, also
offered Medrano a commission of P185,010.00 if the latter could persuade all the other
Paragon minority stockholders to sell their shares. Medrano was able to convince only
two stockholders, Alberto Wong and Gerardo Ledonio III, to sell their respective shares.
Thus, his commission was reduced to P155,455.00.
Thereafter, Medrano demanded that DBP pay the value of his shares, which he had
already turned over, and his P155,455.00 commission. When DBP did not heed his
demand, Medrano filed a complaint for specific performance and damages against DBP
on September 2, 1981.
DBP filed an Answer arguing that there was no perfected contract of sale as the three
conditions in DBP Resolution No. 4270 were not fulfilled. Likewise, certain minority
stockholders owning 17,635 shares refused to sell their shares. Hence, DBP exercised
its right to cancel the sale under Resolution No. 4270.
Later, during the pendency of the case, DBP conveyed the shares to the Asset
Privatization Trust (APT) in a Deed of Transfer when the APT took over certain assets,
and assumed the liabilities, of government financial institutions including DBP. As the
transferee of the shares, the APT was impleaded as party-defendant. DBP thereafter
filed a cross-claim against the APT which was later on substituted by the Privatization
Management Office (PMO). Medrano adopted his evidence against DBP as his evidence
against the APT while the APT adopted DBPs evidence and defenses against Medrano.
On the cross-claim, the APT raised the defense that the liabilities assumed by the
National Government and referred to in the Deed of Transfer are liabilities to local and
foreign intermediaries and guarantees and not to individual persons like Medrano.
On January 26, 1999, the RTC ruled in Medranos favor and dismissed DBPs cross-
claim against the APT, to wit:
WHEREFORE, in view of the foregoing, judgment is rendered in favor
of the plaintiff and against defendant Development Bank of the
Philippines ordering the latter to pay the former the following: (1) the
amount of P2,449,265.00 representing the value of the purchase price
of plaintiff's 37,681 shares in Paragon plus legal rate of interest from
date of first demand; (2) attorneys fees in the amount of P100,000.00;
and (3) the cost of suit.
The cross-claim of defendant DBP against the other defendant Asset
Privatization Trust is dismissed because defendant Development Bank
of the Philippines accountability to the plaintiff [is] based on act[s]
solely imputable to it.

SO ORDERED.[5]
Dissatisfied, DBP elevated the case to the CA. DBP prayed that the trial courts decision
be reversed and that DBP be absolved from any and all liabilities to Medrano.
Medrano, for his part, prayed in his appellees brief that DBP be ordered to pay his
commission of P155,445.00.[6]
On December 14, 2004, the CA issued the challenged Decision[7]and affirmed the
decision of the trial court. The CA, however, refused to grant Medranos prayer for the
payment of commission because Medrano did not appeal the trial courts decision but
instead prayed for the payment of his commission only in his appellees brief.
The CA held that there existed between DBP and Medrano a contract of sale
and the conditions imposed by Resolution No. 4270 were merely conditions imposed on
the performance of an obligation. Hence, while under Article 1545[8]of the Civil Code,
DBP had the right not to proceed with the agreement upon Medranos failure to comply
with the conditions, DBP was deemed to have waived the performance of the conditions
when it chose to retain Medranos shares and later transfer them to the APT. The CA
noted that the retention of the shares was contrary to DBPs claim of rescission because
if indeed DBP rescinded the sale, then it should have returned to Medrano his shares
together with their fruits and the price with interests, as provided by Article 1385 [9]of
the Civil Code.
DBP filed a motion for reconsideration, but the same was denied by the CA in a
Resolution[10]dated February 8, 2005. Hence, this appeal.
DBP alleges that the CA erred
I exercised the second option under Article 1545 of the Civil Code, that is, it waived
WHEN IT REACHED A CONCLUSION WHICH IS NOT A LOGICAL
CONSEQUENCE OF ITS FINDING THAT THERE WAS NO
PERFECTED CONTRACT OF SALE BETWEEN DBP AND
MEDRANO AND PROCEEDED TO MAKE A CONTRACT FOR THE
PARTIES IN THE INSTANT CASE.
II
WHEN IT APPLIED ARTICLE 1545 OF THE CIVIL CODE OF THE
PHILIPPINES NOTWITHSTANDING ITS FINDING THAT THERE
WAS NO PERFECTED CONTRACT OF SALE BETWEEN MEDRANO
AND DBP.
III
WHEN IT FAILED TO EXERCISE ITS AUTHORITY TO RULE ON
MATTERS WHICH ARE THE NATURAL AND LOGICAL
CONSEQUENCE OF ITS FINDINGS OF FACTS OR THAT ARE
INDISPENSABLE AND NECESSARY TO THE JUST RESOLUTION
OF THE PLEADED ISSUES, EVEN IF NOT RAISED AS ISSUES IN
THE APPEAL.
IV
WHEN IT FAILED TO CONSIDER THE ESTABLISHED FACT THAT
THE ASSETS OF PARAGON PAPER INDUSTRIES, INC.,
INCLUDING THE SUBJECT CERTIFICATE OF STOCKS, WERE
TRANSFERRED TO THE ASSET PRIVATIZATION TRUST, NOW
THE PRIVATIZATION MANAGEMENT OFFICE, HEREIN CO-
DEFENDANT. HENCE, THE PMO SHOULD BE THE PARTY THAT
SHOULD BE MADE TO RETURN THE SUBJECT CERTIFICATES OF
STOCKS OR PAY THE SAID SHARES OF STOCKS.
V the case.
WHEN IT AFFIRMED THE AWARD OF ATTORNEYS FEES,
DAMAGES AND COST OF SUIT IN FAVOR OF RESPONDENT
66
MEDRANO CONTRARY TO LAW AND THE PERTINENT
DECISIONS OF THIS HONORABLE SUPREME COURT.[11]
Essentially, the issue in this case is whether the CA erred in applying Article
1545 of the Civil Code and holding that DBP exercised the second option under the said
article to justify the order against DBP to pay the value of Medranos shares of stock. As a
side issue, DBP also questions the award of attorneys fees in Medranos favor.
In fine, DBP contends that the trial court and the CA both ruled that there was no
perfected contract of sale in this case and that accordingly, it was erroneous for them to
order DBP to pay Medrano the value or price of the object of the sale. DBP insists that
the proper order was to direct DBP or the PMO, which now has possession of the
shares, to return the shares of stock. By ordering DBP to pay the purchase price of the
stocks, DBP argues that the CA in effect created a new contract of sale between the
parties.[12]
DBP adds that the CA erred in applying Article 1545 of the Civil Code. According to DBP,
Article 1545 of the Civil Code only applies to a perfected contract of sale and since there
is no such perfected contract in this case because of Medranos failure to meet all the
conditions agreed upon, the application of this article by the CA is misplaced.
Lastly, DBP questions the award of attorneys fees to Medrano. DBP maintains that there
was no unjustified refusal to pay for the shares of stock transferred to DBP as there was
no perfected contract of sale.
Medrano, for his part, argues that by retaining the shares of stock transferred to it and
later even appropriating and transferring them to the APT, DBP is deemed to have
performance of the conditions imposed by Resolution No. 4270. The original conditional
sale was thus converted into, and correctly treated by the courts a quo, as an absolute,
unconditional sale where compliance with the obligation of the buyer to pay the purchase
price may be demanded.
As regards the award of attorneys fees, Medrano maintains that he was constrained to
acquire the services of a lawyer and use legal means to enforce his rights over the
shares in question. He argues that since DBP refused to pay for or return the shares that
he transferred to it, he was left with no other option but to go to court. Hence, the award
of attorney's fees is legally justified.
We sustain the CA.
As a rule, a contract is perfected upon the meeting of the minds of the two parties. Under
Article 1475[13]of the Civil Code, a contract of sale is perfected the moment there is a
meeting of the minds on the thing which is the object of the contract and on the price.
In the case of Traders Royal Bank v. Cuison Lumber Co., Inc.,[14]the Court ruled:
Under the law, a contract is perfected by mere consent, that
is, from the moment that there is a meeting of the offer and
the acceptance upon the thing and the cause that constitute the
contract. The law requires that the offer must be certain
and the acceptance absolute and unqualified. An acceptance
of an offer may be express and implied; a qualified offer constitutes a
counter-offer. Case law holds that an offer, to be considered certain,
must be definite, while an acceptance is considered absolute and
unqualified when it is identical in all respects with that of the offer so as
to produce consent or a meeting of the minds. We have also previously
held that the ascertainment of whether there is a meeting of minds on
the offer and acceptance depends on the circumstances surrounding
the offer must be certain and definite with respect to the
cause or consideration and object of the proposed contract, while
the acceptance of this offer - express or implied - must be

unmistakable, unqualified, and identical in all respects to
the offer. The required concurrence, however, may not always be
immediately clear and may have to be read from the attendant
circumstances; in fact, a binding contract may exist between the
parties whose minds have met, although they did not affix their
signatures to any written document. (Italics supplied.)
Also, in Manila Metal Container Corporation v. Philippine National Bank,[15]the Court
ruled,
A qualified acceptance or one that involves a new proposal constitutes
a counter-offer and a rejection of the original offer. A counter-offer is
considered in law, a rejection of the original offer and an attempt to end
the negotiation between the parties on a different basis.
Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to guarantee
consent because any modification or variation from the terms of the
offer annuls the offer. The acceptance must be identical in all respects
with that of the offer so as to produce consent or meeting of the
minds. (Italics supplied.)
In the present case, Medranos offer to sell the shares of the minority stockholders at the
price of 65% of the par value was not absolutely and unconditionally accepted by
DBP.DBP imposed several conditions to its acceptance and it is clear that Medrano
indeed tried in good faith to comply with the conditions given by DBP but unfortunately
failed to do so. Hence, there was no birth of a perfected contract of sale between the
parties.
The petitioner is also correct that Paragraph 1, Article 1545 of the Civil Code speaks of a
perfected contract of sale. Paragraph 1, Article 1545 of the Civil Code provides:
ART. 1545. Where the obligation of either party to a contract of sale is
subject to any condition which is not performed, such party may refuse
to proceed with the contract or he may waive performance of the
condition. If the other party has promised that the condition should
happen or be performed, such first mentioned party may also treat the
nonperformance of the condition as a breach of warranty.
x x x x (Italics supplied.)
It is clear from a plain reading of this article that it speaks of a party to a contract of sale
who fails in the performance of his/her obligation. The application of this article
presupposes that there is a perfected contract between the parties and that one of them
fails in the performance of an obligation under the contract.
The present case does not fall under this article because there is no perfected contract of
sale to speak of. Medranos failure to comply with the conditions set forth by DBP
prevented the perfection of the contract of sale. Hence, Medrano and DBP remained as
prospective-seller and prospective-buyer and not parties to a contract of sale.
This notwithstanding, however, we cannot simply agree with DBPs argument that since
there is no perfected contract of sale, DBP should not be ordered to pay Medrano any
amount.
The factual scenario of this case took place in 1980 or over thirty (30) years
ago. Medrano had turned over and delivered his own shares of stock to DBP in his
attempt to comply with the conditions given by DBP. DBP then accepted the shares of
stock as partial fulfillment of the conditions that it imposed on Medrano. However, after
the lapse of some time and after it became clear that Medrano would not be able to
comply with the conditions, DBP decided to retain Medranos shares of stock without
paying Medrano.After the realization that DBP would in fact not pay him for his shares of
stock, Medrano was constrained to file a suit to enforce his rights.[16]
67
In civil law, DBPs act of keeping the shares delivered by Medrano without paying for
them constitutes unjust enrichment. As we held in Car Cool Philippines, Inc. v. Ushio
Realty and Development Corporation[17],
[t]here is unjust enrichment when a person unjustly retains a benefit to
the loss of another, or when a person retains money or property of
another against the fundamental principles of justice, equity and good
conscience. Article 22 of the Civil Code provides that [e]very person
who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the
latter without just or legal ground, shall return the same to him. The
principle of unjust enrichment under Article 22 requires two conditions:
(1) that a person is benefited without a valid basis or justification, and
(2) that such benefit is derived at anothers expense or damage.
It was not proper for DBP to hold on to Medranos shares of stock after it became obvious
that he will not be able to comply with the conditions for the contract of sale. From that
point onwards, the prudent and fair thing to do for DBP was to return Medranos shares
because DBP had no just or legal ground to retain them.
We find that equitable considerations militate against DBPs claimed right over the subject
shares. First, it is clear that DBP did not buy the shares from Medrano as it even asserts
there was no perfected contract of sale because of the failure of the latter to comply with
DBPs conditions. Second, it cannot be said that Medrano voluntarily donated his shares
of stock as he is in fact still trying to recover them 30 years later. Third, it cannot be said
that DBP was merely holding the shares of stock for safekeeping as DBP even claims
that the shares were transferred to the APT (now PMO). In fine, there is no reason
whatsoever for DBP to continue in the possession of the shares of stock against
Medrano. For nearly 30 years, Medrano was deprived of his shares without any
compensation at all from DBP. To this Court, such situation is tantamount to the loss of
respondent's shares of stock, by reason of DBPs unjustified retention.
As to the issue of attorneys fees, it is well settled that the law allows the courts discretion
as to the determination of whether or not attorney's fees are appropriate. The
surrounding circumstances of each case are to be considered in order to determine if
such fees are to be awarded. In the case of Servicewide Specialists, Incorporated v.
Court of Appeals,[18]the Court ruled:
Article 2208 of the Civil Code allows attorney's fees to be
awarded by a court when its claimant is compelled to litigate with third
persons or to incur expenses to protect his interest by reason of an
unjustified act or omission on the part of the party from whom it is
sought.
In the present case, it is clear that Medrano was constrained to use legal means to
recover his shares of stock. Records showed that indeed respondent Medrano followed
up[19]the payment of his shares of stock that were transferred to DBP. After some time,
he became convinced that DBP will not pay for the shares of stock for reasons unknown
to him. That was when he decided to bring the matter to court.
DBPs unjustified refusal to pay for the shares or even offer an explanation to Medrano
why payment was being withheld indicates bad faith on its part. Besides having no legal
or just reason to hold on to Medranos shares of stock, DBP also refused to enlighten
Medrano of the reason why he was being denied payment. Further, Medranos failure to
comply with the conditions of the acceptance should have prompted DBP either to return
the shares of Medrano or accept the shares of Medrano as a sale and pay a fair price or
at least communicate to Medrano why his shares were being withheld. Instead, DBP did
nothing but to hold on to the shares. Because of this, Medrano was left with no other
option but to seek redress from the courts.
 68

WHEREFORE, the Decision dated December 14, 2004 and Resolution dated February
8, 2005 of the Court of Appeals in CA-G.R. CV No. 65436 are hereby AFFIRMED. by the sellers: by the buyer:
No pronouncement as to costs.
LEONCIO G. CIFRA JR.
SO ORDERED.
and
G.R. No. 91901 June 3, 1991
SPOUSES LEONCIO G. CIFRA and AURORA R. JONGCO-CIFRA, petitioners,
AURORA R. JONGCO-CIFRA (s/t) MANUEL G. YU CHUA, M
vs.
COURT OF APPEALS and MANUEL G. YU CHUA, respondents. By:
Niceforo S. Agaton for petitioners.
Marcelino P. Arias for private respondent. (s/t) BENEDICTO F. CATALAN
Attorney-in-Fact
SIGNED IN THE PRESENCE OF: (s/t) LOURDES J. CATALAN
GANCAYCO, J.: EARNEST MONEY
The interpretation of a contract to sell or a promise to sell real property is in issue in this (on Page 2)
case. Addendum:
On December 27, 1985, petitioners spouses, represented by their attorney-in-fact In the event that the buyer shall fail to purchase the property
Benedicto Catalan, entered into an agreement with private respondent denominated after he is formally notified by the seller of the surrender of the
"Earnest Money" which provides as follows: premises by the present tenant or occupant, in addition to the
EARNEST MONEY forfeiture of the earnest money the buyer binds himself to pay
Received from Dr. Manuel G. Yu Chua the cash sum of FIVE the seller the sum of TWENTY THOUSAND PESOS
THOUSAND PESOS (P5,000.00) Philippine currency as earnest (P20,000.00) Philippine currency plus the attorney's fees and
money for the house and lot owned by the spouses Leoncio G. Cifra, other costs for any court case that may arise.
Jr. and Aurora R. Jongco-Cifra. The property is located at 665 Boni On the other hand, if the seller shall not make good his
Avenue, Mandaluyong, Metro-Manila, Philippines and more particularly promise to sell the above property even after the present
described in the Transfer Certificate of Title (TCT) No. 490040 (6093). tenant, William Lim Valencia, shall have surrendered the
The above property is presently mortgaged with the Social Security premises the seller binds himself to return the earnest money
System (SSS) with an outstanding balance of more or less FORTY and in addition pay the buyer the sum of TWENTY
THOUSAND PESOS (P40,000.00) as of November, 1985. The agreed THOUSAND PESOS (P20,000.00) Philippine currency plus
purchase price being ONE MILLION and ONE HUNDRED the attorney's fees and other costs of any court case that may
THOUSAND PESOS (1.1 M) shall be payable as follows: The sum arise.
equivalent to the above purchase price minus the outstanding
mortgage balance with the SSS and the above earnest money shall be
paid by the buyer to the seller upon the removal of the present tenant (s/t) BENEDICTO F. CATALAN <(s/t) MANUEL G. YU CHUA, M.D.br
or occupant from the premises and upon the execution of the Deed of />
Absolute Sale. (s/t) LOURDES J. CATALAN (s/t) Illegible1
It is the understanding of the parties that the buyer shall assume the
On May 25, 1986, Catalan informed private respondent of the desire of
mortgage or obligation of the seller with the SSS as of November
petitioners to rescind the contract by a letter which reads:
1985. The monthly amortization was last paid by the seller on
May 25, 1986
November 13, 1985 as evidenced by the Official Receipt (OR) No.
Dr. Manuel G. Yu Chua
988474 K issued by Bank of the Philippine Islands (BPI), Ayala (Main).
649-D Boni Avenue
Further, the seller promises to secure at the shortest possible time the
Mandaluyong, M.M.
certification of balance or up to date statement of account from the
Dear Dr. Yu Chua:
SSS and deliver the same to the buyer.
I regret to inform you that my sister-in law, Mrs. Aurora Cifra,
If and when the buyer purchases the property according to the terms
has asked me to request for a rescission of her offer to sell
and conditions above specified, the herein earnest money shall form a
their property at 665 Born Avenue. The negotiations for the
part of the purchase price otherwise the same shall be forfeited in favor
sale of the house and lot have taken such a long time without
of the seller.
your fault nor their fault and they have now missed the
IN WITNESS, WHEREOF. the parties executed this instrument at the
opportunity for which they wanted to apply the proceeds of
Municipality of Mandaluyong, Metro-Manila, Philippines, this 27th day
the sale.
of December 1985.
I intend to see you on May 31, 1986 to return the earnest
Earnest money received Earnest money paid money that you gave us. I would like to personally apologize
for the way thing turned out.

Very truly yours,
(s/t) Benedicto F. Catalan2
Atty. Marcelino Arias replied in behalf of private respondent:
MR. BENEDICTO F. CATALAN
12 T. Evangelista, B.F. Homes
Parañaque, Metro Manila
Dear Mr. Catalan:
This is in behalf of my client, Dr. Manuel G. Yu Chua, of 649-D Boni Ave., Mandaluyong,
Metro Manila.
Your letter dated May 25, 1986 sent through registered mail to my client was received by
my client today, May 29, 1986 and immediately referred the same to my office for proper
legal comment.
My client shall pursue the agreement you have entered into and my client is willing to buy
the property right now at 1.1 Million Pesos minus of course the Five Thousand
(P5,000.00) Pesos earnest money and the outstanding SSS mortgage account over the
premises which my client had assumed to pay.
You have stated of course, that it is not the fault of my client nor the fault of your principal
and there being no fault of any of them, then there is no reason why the contract of
agreement to sell shall not be pushed through.
My client is even willing to pay the amount of 1.1 Million Pesos as per agreement even if
the present tenant in the premises is still occupying the said premises. Please take note
that the contract of lease executed by and between your principal and the present tenant
clearly provides that the tenant shall vacate the premises within ninety (90) days from
notice of the sale of the property in question to any other third person.
Off hand, my client shall certainly take this matter to court to enforce his right and should
this happen, then we shall be asking for proper damages.
Consequently, we reiterate that we are willing to buy the property now in the agreed
amount as previously agreed upon. [sic]
You are aware also that my client was deprived to buy a cheaper property of 614 sq.
m. located at the corner of Boni and Mayon Sts. also in Mandaluyong for Nine Hundred
Thousand (P900,000.00) Pesos only in order to buy your property at 1.1 Million Pesos.
Now, the property at the corner of Boni and Mayon Sts. is no longer for sale to the
damage and prejudice of my client.
Furthermore, my client had deposited the 1.1 Million Pesos in a bank earning only the
usual interest instead of a higher yielding business venture because he was anticipating
for the consummation of your agreement to sell the property to my client.
I hope we shall not meet in court to enforce my client's right over the premises to avoid
extra unnecessary expenses in court litigation.
Very truly yours,
(s/t) MARCELINO P. ARIAS
(Original reply received May 31, 1986 by (s/t) B.F. Catalan) 3
This was followed by another letter:
June 13, 1986
R. BENEDICTO F. CATALAN
12 T. Evangelists, B.F. Homes
Parañaque, Metro Manila
Dear Mr. Catalan:
This is a reiteration of our letter dated May 29, 1986 and received by you on May 31,
1986. Up to now, we have not received any response from you. We will give you ten (10)
days from receipt hereof within which to tell us in clear terms whether you will still
proceed with the sale of the property to my client, Dr. Manuel G. Yu Chua or not.
Your silence would be interpreted by us to mean that you want us to take this matter to
court to vindicate the rights of our client and should this happen, it will be an additional
69
unnecessary expenses on your part and on our part, but most of all, on your part as we
will file an action for damages aside from attorney's fees.
I hope we shall not go to court to avoid unnecessary expenses. We shall wait for your
answer.
(s/t) MARCELINO P. ARIAS4
Private respondent himself wrote a letter to Catalan dated June 18, 1986:
MR. & MRS. BENEDICTO CATALAN
12 Evangelista Street BF Homes,
Parañaque, Metro Manila
Dear Mr. & Mrs. Catalan:
At the outset, you knew I disliked attending court trials, that is why to avoid such
possibility with your tenant, I agreed to the stiff price of P1.1 Million for the property at
665 Boni Avenue, Mandaluyong in exchange for your assurance that you will take care of
ejecting your tenant. We signed our agreement to this effect last Dec. 27, 1985. You
gave your tenant a 90-day notice to vacate so that gave him up to the end of March 1986
to look for another residence. Then suddenly, at the end of the 90-day period, you told
me that the tenant had just offered you a better price for the property and you were
considering it. That was bad faith, loud and clear! The tenant had waived any right to the
property to all of us personally during the negotiations; and again, he confirmed this
when he accepted the 90 day notice to vacate. Without showing my indignation at this
trampling of my rights, I told you I was ready to buy the property even while the tenant
was still residing there. In other words, I was willing now to suffer the inconvenience and
added costs of trying to eject the tenant. You answered that you had to consult with your
principal first and this would take about two weeks. The 2 weeks extended to two (2)
months and last May 29, 1986 1 received your letter rescinding our contract. So any
undue delay has been on your part and deliberately at that. What you kept referring to as
lengthy negotiations were simply delaying tactics on your part.
As I write this letter, you may have received my lawyer's second letter. Now as then, let
me say again that I do not like going to court if I can help it. But I feel you have done me
a grave injustice and a court suit is the only civilized way to get a redress. My lawyer said
the law is on my side and the court can compel you to sell me the property, aside from
making you pay for the trial expenses, the damages and attorney's fees. At this late
stage, I am still hoping you would change your mind and decide to proceed with the sale
without court intervention. Atty. Mar Arias gave you 10 days to reply. You can reach him
at his address or at his radio program at DZME, 7:00 to 8:00 A.M., Monday to Friday.
Please reply favorably but do it soon.
Sincerely yours,
(s/t) Dr. MANUEL G. YU CHUN5
On June 20,1986, Atty. Narciso Tadeo, representative of petitioners replied thereto:
Dr. Manuel G. Yu Chua
649-D Boni Avenue,
Mandaluyong, Metro Manila
Dear Dr. Yu Chua:
Our clients, Mr. & Mrs. Leoncio Cifra, thru their attorney-in-fact, Mr.
Benedicto F. Catalan have endorsed to us the letter of your lawyer,
Atty. Marcelino P. Arias dated May 29, 1986 relative to the cancellation
of the sale agreement on their property situated at 665 Boni Avenue,
Mandaluyong, Metro Manila.
You will kindly note that you paid on December 27, 1985 an earnest
money of P5,000.00. Under your said agreement, the balance of the
agreed consideration of ONE MILLION ONE HUNDRED THOUSAND
PESOS (P1,100,000.00) shall be paid to the seller (our clients) upon
removal of the present tenant of occupant from the premises and upon

the execution of the Deed of Absolute Sale. As correctly pointed out by
your counsel, the contract of lease between our clients and the present
tenant provides, among others, that the tenant shall vacate the
premises within ninety (90) days from notice of the sale of the property
to any third party.
To date, the tenant of the premises is still occupying the premises in
question. The tenant's refusal to comply with his contractual obligation
to vacate the premises within the said period is certainly not the fault of
our clients nor yourself. However, the unexpected delay had caused
our clients' lost opportunity to apply the proceeds of the sale to a
business venture abroad. This matter was relayed to you by our
clients' attorney-in-fact in his letter dated May 25, 1986.
Under the foregoing circumstances, we believe that the rescission of
our client's offer to sell their said property is reasonable and justified.
Our clients' attorney-in-fact is ready to refund the P5,000.00 earnest
money.
Very truly yours,
(s/t) NARCISO A. TADEO6
On July 3, 1986 private respondent filed an action for specific performance of the above
agreement in the Regional Trial Court at Pasig, Rizal, wherein after the issues were
joined and the trial on the merits a decision was rendered on May 25, 1987, the
dispositive part of which reads:
IN VIEW OF THE FOREGOING, this Court renders judgment in favor of the
plaintiff and against the defendant ordering the said defendants:
a) To execute the corresponding deed of absolute sale in favor of plaintiff
Manuel Yu Chua, over a parcel of land, together with all the improvements
found and existing thereon, located at 665 Boni Avenue, Mandaluyong, Metro
Manila, covered by Transfer Certificate of Title (TCT) No. 490040 of the
Registry of Deeds of Pasig, Metro Manila, upon payment by the plaintiff of the
amount of ONE MILLION ONE HUNDRED THOUSAND PESOS
(P1,100,000.00), minus the earnest money of P5,000.00 and the outstanding
mortgage balance with the Social Security System;
b) Pay to the plaintiff the amount of P100,000.00 by way of moral damages;
c) Pay to the said plaintiff the amount of P50,000.00 as attorney's fees; and
d) Pay the costs of this suit.7
Acting on a motion for reconsideration filed by petitioners the trial court modified its
decision by absolving Catalan, the agent, from paying moral damages, attorney's fees
and costs of the suit.
Petitioners interposed an appeal to the Court of Appeals wherein in due course a
decision was rendered on December 20, 1989 which affirmed the appealed judgment
with the modification deleting the award of moral damages. A motion for reconsideration
filed by petitioners was denied on January 30, 1990.
Hence, this petition for review on certiorari which presents two legal issues:
1) The major legal issue can be framed as follows:
Q — DOES CHUA, THE RESPONDENT BUYER, HAVE THE RIGHT
TO DEMAND SPECIFIC PERFORMANCE FROM THE PETITIONERS
TO SELL THE HOUSE AND LOT TO HIM DESPITE THE FACT THAT
HE HAD AGREED TO A WAIVER OF SUCH A RIGHT WHEN HE
CONSENTED TO THE ADDENDUM STIPULATION RECOGNIZING
THE RIGHT ON THE PART OF THE PETITIONERS TO CANCEL OR
ABROGATE THE SALE FOR ANY REASON BY PAYING THE
LIQUIDATED DAMAGES AGES STIPULATED THEREIN?
2) The minor legal issue may be framed as follows:
70
Q — IS THE AWARD OF ATTORNEY'S FEES FOR P50,000.00
PROPER DESPITE THE FACT THAT THE OBLIGATION TO SELL IS
COUPLED WITH A PENAL CLAUSE IN CASE OF FAILURE TO
PERFORM, WHICH PENALTY IS CONSIDERED IN LAW A
SUBSTITUTE FOR THE INDEMNITY OF WHATEVER KIND OF
DAMAGES PURSUANT TO THE EXPRESS PROVISIONS OF
ARTICLE 1226 OF THE CIVIL CODE?8
The petition is impressed with merit.
The provisions of Articles 1370 to 1375 of the Civil Code on the interpretation of
contracts are squarely applicable to this case:
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 stipulations shall
control.
If the words appear to be contrary to the evident intention of the parties, the
latter shall prevail over the former.
Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
Art. 1372. However generally the terms of a contract may be, they shall not be
understood to comprehend things that are distinct and cases that are different
from those upon which the parties intended to agree.
Art. 1373. If some stipulation of any contract should admit of several meanings,
it shall be understood as bearing that import which is most adequate to render it
effectual.
Art. 1374. The various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them
taken jointly.
Art. 1375. Words which may have different significations shall be understood in
that which is most in keeping with the nature and object of the contract.
A reading of the subject contract which the parties labeled as "Earnest money" shows
that it is an agreement to sell the real property described therein for the amount of P1.1
M with assumption of the P40,000.00 mortgage, by which P5,000.00 was paid upon
signing of the agreement by private respondent to petitioner as earnest money, which is
part of the consideration. The balance of the consideration shall be paid upon the
removal of the tenant or occupant from the premises and upon the execution of the deed
of absolute sale.
In the addendum to the agreement it is stipulated that in case the buyer fails to purchase
the property after the seller formally notified him of the surrender of the premises by the
tenant or occupant, in addition to the forfeiture of the earnest money, the buyer must pay
the seller P20,000.00 plus attorney's fees and other costs in case of litigation. On the
other hand, if the seller does not make good his promise to sell the property even after
the present tenant shall have surrendered the premises, the seller binds himself to return
the earnest money and in addition pay the buyer P20,000.00 plus the attorney's fees and
other costs in case of litigation.
This is the literal and clear agreement of the parties.1âwphi1 From their
contemporaneous and subsequent acts it also appears that the proceeds of the sale of
the property by petitioners were intended to apply to a proposed business venture of
petitioners abroad. As said proposed business did not prosper and the tenants/occupants
of the premises have not yet vacated the premises, petitioners decided to rescind the
contract of sale in accordance with the agreement.
Under the addendum to the same agreement, both parties are given the freedom to back
out of the transaction provided that, in tie case of the seller, he must return the earnest
money in addition to being liable to the buyer for P20,000.00, plus attorney's fees and
other costs in case of litigation; and in case of the buyer, the earnest money is forfeited,

and he is liable to pay the seller P20,000.00 in damages plus attorneys fees and other
costs in case of litigation to the seller. This right which is afforded to both parties may be
availed of by them, irrespective of whether or not the occupant of the premises had
vacated the same. This stipulation is the law between the parties.
Consequently, the action for specific performance must fail. For the rescission of the
contract, petitioners must return the P5,000.00 earnest money and pay P20,000.00 to the
private respondent. However, they are not liable for attorneys fees, for it was private
respondent who brought the case to court as a result of which petitioners unnecessarily
incurred expenses of litigation.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated
December 20, 1989 and its resolution dated January 30, 1990 are hereby REVERSED
and SET ASIDE. Another judgment is hereby rendered dismissing the complaint and
rescinding the subject contract to sell dated December 27, 1985 upon the petitioners
reimbursing to private respondent the P5,000.00 earnest money and paying them
P20,000.00 as damages according to the same agreement. No costs in this instance.
SO ORDERED.
Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.
[G.R. No. 137552. June 16, 2000]
ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z. LAFORTEZA,
DENNIS Z. LAFORTEZA, and LEA Z. LAFORTEZA, petitioners, vs. ALONZO
MACHUCA, respondent.
DECISION
GONZAGA_REYES, J.:
This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of
Appeals[1] in CA G.R. CV No. 47457 entitled "ALONZO MACHUCA versus ROBERTO Z.
LAFORTEZA, GONZALO Z. LAFORTEZA, LEA ZULUETA-LAFORTEZA MICHAEL Z.
LAFORTEZA, and DENNIS Z. LAFORTEZA".
The following facts as found by the Court of Appeals are undisputed:
"The property involved consists of a house and lot located at No. 7757
Sherwood Street, Marcelo Green Village, Paraaque, Metro Manila,
covered by Transfer Certificate of Title (TCT) No. (220656) 8941 of the
Registered of Deeds of Paraaque (Exhibit "D", Plaintiff, record, pp.
331-332). The subject property is registered in the name of the late
Francisco Q. Laforteza, although it is conjugal in nature (Exhibit "8",
Defendants, record pp. 331-386).
On August 2, 1988, defendant Lea Zulueta-Laforteza executed a
Special Power of Attorney in favor of defendants Roberto Z. Laforteza
and Gonzalo Z. Laforteza, Jr., appointing both as her Attorney-in-fact
authorizing them jointly to sell the subject property and sign any
document for the settlement of the estate of the late Francisco Q.
Laforteza (Exh. "A", Plaintiff, record, pp. 323-325).
Likewise on the same day, defendant Michael Z. Laforteza executed a
Special Power of Attorney in favor of defendants Roberto Z. Laforteza
and Gonzalo Laforteza, Jr., likewise, granting the same authority (Exh.
"B", record, pp. 326-328). Both agency instruments contained a
provision that in any document or paper to exercise authority granted,
the signature of both attorneys-in-fact must be affixed.
On October 27, 1988, defendant Dennis Z. Laforteza executed a
Special Power of Attorney in favor of defendant Roberto Z. Laforteza
for the purpose of selling the subject property (Exh. "C", Plaintiff,
record, pp. 329-330). A year later, on October 30, 1989, Dennis Z.
Laforteza executed another Special Power of Attorney in favor of
defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr. naming
71
both attorneys-in-fact for the purpose of selling the subject property
and signing any document for the settlement of the estate of the late
Francisco Q. Laforteza. The subsequent agency instrument (Exh. "2",
record, pp. 371-373) contained similar provisions that both attorneys-
in-fact should sign any document or paper executed in the exercise of
their authority.
In the exercise of the above authority, on January 20, 1989, the heirs
of the late Francisco Q. Laforteza represented by Roberto Z. Laforteza
and Gonzalo Z. Laforteza, Jr. entered into a Memorandum of
Agreement (Contract to Sell) with the plaintiff[2] over the subject
property for the sum of SIX HUNDRED THIRTY THOUSAND PESOS
(P630,000.00) payable as follows:
(a) P30,000.00 as earnest money, to be forfeited in favor of the
defendants if the sale is not effected due to the fault of the plaintiff;
(b) P600,000.00 upon issuance of the new certificate of title in the
name of the late Francisco Q. Laforteza and upon execution of an
extra-judicial settlement of the decedents estate with sale in favor of
the plaintiff (Par. 2, Exh. "E", record, pp. 335-336).
Significantly, the fourth paragraph of the Memorandum of Agreement
(Contract to Sell) dated January 20, 1989 (Exh. "E", supra.) contained
a provision as follows:
xxx. Upon issuance by the proper Court of the new title, the
BUYER-LESSEE shall be notified in writing and said BUYER-
LESSEE shall have thirty (30) days to produce the balance
of P600,000.00 which shall be paid to the SELLER-LESSORS
upon the execution of the Extrajudicial Settlement with sale.
On January 20, 1989, plaintiff paid the earnest money of THIRTY
THOUSAND PESOS (P30,000.00), plus rentals for the subject
property (Exh. "F", Plaintiff, record, p. 339).
On September 18, 1998[3], defendant heirs, through their counsel
wrote a letter (Exh. 1, Defendants, record, p. 370) to the plaintiff
furnishing the latter a copy of the reconstituted title to the subject
property, advising him that he had thirty (3) days to produce the
balance of SIX HUNDRED PESOS (sic) (P600,000.00) under the
Memorandum of Agreement which plaintiff received on the same date.
On October 18, 1989, plaintiff sent the defendant heirs a letter
requesting for an extension of the THIRTY (30) DAYS deadline up to
November 15, 1989 within which to produce the balance of SIX
HUNDRED THOUSAND PESOS (P600,000.00) (Exh. "G", Plaintiff,
record, pp. 341-342). Defendant Roberto Z. Laforteza, assisted by his
counsel Atty. Romeo L. Gutierrez, signed his conformity to the plaintiffs
letter request (Exh. "G-1 and "G-2", Plaintiff, record, p. 342). The
extension, however, does not appear to have been approved by
Gonzalo Z. Laforteza, the second attorney-in-fact as his conformity
does not appear to have been secured.
On November 15, 1989, plaintiff informed the defendant heirs, through
defendant Roberto Z. Laforteza, that he already had the balance of SIX
HUNDRED THOUSAND PESOS (P600,000.00) covered by United
Coconut Planters Bank Managers Check No. 000814 dated November
15, 1989 (TSN, August 25, 1992, p. 11; Exhs. "H", record, pp. 343-344;
"M", records p. 350; and "N", record, p. 351). However, the defendants,
refused to accept the balance (TSN, August 24, 1992, p. 14; Exhs. "M-
1", Plaintiff, record, p. 350; and "N-1", Plaintiff, record, p. 351).

Defendant Roberto Z. Laforteza had told him that the subject property
was no longer for sale (TSN, October 20, 1992, p. 19; Exh. "J", record,
p. 347).
On November 20, 1998[4], defendants informed the plaintiff that they
were canceling the Memorandum of Agreement (Contract to Sell) in
view of the plaintiffs failure to comply with his contractual obligations
(Exh. "3").
Thereafter, plaintiff reiterated his request to tender payment of the
balance of SIX HUNDRED THOUSAND PESOS (P600,000.00).
Defendants, however, insisted on the rescission of the Memorandum
of Agreement. Thereafter, plaintiff filed the instant action for specific
performance. The lower court rendered judgment on July 6, 1994 in
favor of the plaintiff, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of
plaintiff Alonzo Machuca and against the defendant heirs of
the late Francisco Q. Laforteza, ordering the said defendants.
(a) To accept the balance of P600,000.00 as full payment of the
consideration for the purchase of the house and lot located at No. 7757
Sherwood Street, Marcelo Green Village, Paraaque, Metro Manila,
covered by Transfer Certificate of Title No. (220656) 8941 of the
Registry of Deeds of Rizal Paraaque, Branch;
(b) To execute a registrable deed of absolute sale over the subject
property in favor of the plaintiff;
(c) Jointly and severally to pay the plaintiff the sum of P20,000.00 as
attorneys fees plus cost of suit.
SO ORDERED. (Rollo, pp. 74-75)."[5]
Petitioners appealed to the Court of Appeals, which affirmed with modification the
decision of the lower court; the dispositive portion of the Decision reads:
"WHEREFORE, the questioned decision of the lower court is hereby
AFFIRMED with the MODIFICATION that defendant heirs Lea Zulueta-
Laforteza, Michael Z. Laforteza, Dennis Z. Laforteza and Roberto Z.
Laforteza including Gonzalo Z. Laforteza, Jr. are hereby ordered to pay
jointly and severally the sum of FIFTY THOUSAND PESOS
(P50,000.00) as moral damages.
SO ORDERED."[6]
Motion for Reconsideration was denied but the Decision was modified so as to absolve
Gonzalo Z. Laforteza, Jr. from liability for the payment of moral damages. [7] Hence this
petition wherein the petitioners raise the following issues:
"I. WHETHER THE TRIAL AND APPELLATE COURTS
CORRECTLY CONSTRUED THE MEMORANDUM OF AGREEMENT
AS IMPOSING RECIPROCAL OBLIGATIONS.
II. WHETHER THE COURTS A QUO CORRECTLY RULED THAT
RESCISSION WILL NOT LIE IN THE INSTANT CASE.
III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL FROM
RAISING THE ALLEGED DEFECT IN THE SPECIAL POWER OF
ATTORNEY DATED 30 OCTOBER 1989 EXECUTED BY DENNIS
LAFORTEZA.
IV. SUPPOSING EX GRATIA ARGUMENTI THE MEMORANDUM OF
AGREEMENT IMPOSES RECIPROCAL OBLIGATIONS, WHETHER
THE PETITIONERS MAY BE COMPELLED TO SELL THE SUBJECT
PROPERTY WHEN THE RESPONDENT FAILED TO MAKE A
JUDICIAL CONSIGNATION OF THE PURCHASE PRICE?
72
V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO TO AS
MAKE THEM LIABLE FOR MORAL DAMAGES?"[8]
The petitioners contend that the Memorandum of Agreement is merely a lease
agreement with "option to purchase". As it was merely an option, it only gave the
respondent a right to purchase the subject property within a limited period without
imposing upon them any obligation to purchase it. Since the respondents tender of
payment was made after the lapse of the option agreement, his tender did not give rise to
the perfection of a contract of sale.
It is further maintained by the petitioners that the Court of Appeals erred in ruling that
rescission of the contract was already out of the question. Rescission implies that a
contract of sale was perfected unlike the Memorandum of Agreement in question which
as previously stated is allegedly only an option contract.
Petitioner adds that at most, the Memorandum of Agreement (Contract to Sell) is a mere
contract to sell, as indicated in its title. The obligation of the petitioners to sell the
property to the respondent was conditioned upon the issuance of a new certificate of title
and the execution of the extrajudicial partition with sale and payment of the P600,000.00.
This is why possession of the subject property was not delivered to the respondent as
the owner of the property but only as the lessee thereof. And the failure of the
respondent to pay the purchase price in full prevented the petitioners obligation to
convey title from acquiring obligatory force.
Petitioners also allege that assuming for the sake of argument that a contract of sale was
indeed perfected, the Court of Appeals still erred in holding that respondents failure to
pay the purchase price of P600,000.00 was only a "slight or casual breach".
The petitioners also claim that the Court of Appeals erred in ruling that they were not
ready to comply with their obligation to execute the extrajudicial settlement. The Power of
Attorney to execute a Deed of Sale made by Dennis Z. Laforteza was sufficient and
necessarily included the power to execute an extrajudicial settlement. At any rate, the
respondent is estopped from claiming that the petitioners were not ready to comply with
their obligation for he acknowledged the petitioners ability to do so when he requested for
an extension of time within which to pay the purchase price. Had he truly believed that
the petitioners were not ready, he would not have needed to ask for said extension.
Finally, the petitioners allege that the respondents uncorroborated testimony that third
persons offered a higher price for the property is hearsay and should not be given any
evidentiary weight. Thus, the order of the lower court awarding moral damages was
without any legal basis.
The appeal is bereft of merit.
A perusal of the Memorandum Agreement shows that the transaction between the
petitioners and the respondent was one of sale and lease. The terms of the agreement
read:
"1. For and in consideration of the sum of PESOS: SIX HUNDRED
THIRTY THOUSAND (P630,000.00) payable in a manner herein below
indicated, SELLER-LESSOR hereby agree to sell unto BUYER-
LESSEE the property described in the first WHEREAS of this
Agreement within six (6) months from the execution date hereof, or
upon issuance by the Court of a new owners certificate of title and the
execution of extrajudicial partition with sale of the estate of Francisco
Laforteza, whichever is earlier;
2. The above-mentioned sum of PESOS: SIX HUNDRED THIRTY
THOUSAND (P630,000.00) shall be paid in the following manner:
P30,000.00- as earnest money and as consideration for this
Agreement, which amount shall be forfeited in favor of
SELLER-LESSORS if the sale is not effected because of the
fault or option of BUYER-LESSEE;

P600,000.00- upon the issuance of the new certificate of title
in the name of the late Francisco Laforteza and upon the
execution of an Extrajudicial Settlement of his estate with sale
in favor of BUYER-LESSEE free from lien or any
encumbrances.
3. Parties reasonably estimate that the issuance of a new title in place
of the lost one, as well as the execution of extrajudicial settlement of
estate with sale to herein BUYER-LESSEE will be completed within six
(6) months from the execution of this Agreement. It is therefore agreed
that during the six months period, BUYER-LESSEE will be leasing the
subject property for six months period at the monthly rate of PESOS:
THREE THOUSAND FIVE HUNDRED (P3,500.00). Provided however,
that if the issuance of new title and the execution of Extrajudicial
Partition is completed prior to the expiration of the six months period,
BUYER-LESSEE shall only be liable for rentals for the corresponding
period commencing from his occupancy of the premises to the
execution and completion of the Extrajudicial Settlement of the estate,
provided further that if after the expiration of six (6) months, the lost
title is not yet replaced and the extra judicial partition is not executed,
BUYER-LESSEE shall no longer be required to pay rentals and shall
continue to occupy, and use the premises until subject condition is
complied by SELLER-LESSOR;
4. It is hereby agreed that within reasonable time from the execution of
this Agreement and the payment by BUYER-LESSEE of the amount of
P30,000.00 as herein above provided, SELLER-LESSORS shall
immediately file the corresponding petition for the issuance of a new
title in lieu of the lost one in the proper Courts. Upon issuance by the
proper Courts of the new title, the BUYER-LESSEE shall have thirty
(30) days to produce the balance of P600,000.00 which shall be paid
to the SELLER-LESSORS upon the execution of the Extrajudicial
Settlement with sale."[9]
A contract of sale is a consensual contract and is perfected at the moment there is a
meeting of the minds upon the thing which is the object of the contract and upon the
price.[10] From that moment the parties may reciprocally demand performance subject to
the provisions of the law governing the form of contracts.[11] The elements of a valid
contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of the
minds; (2) determinate subject matter and (3) price certain in money or its equivalent. [12]
In the case at bench, there was a perfected agreement between the petitioners and the
respondent whereby the petitioners obligated themselves to transfer the ownership of
and deliver the house and lot located at 7757 Sherwood St., Marcelo Green Village,
Paraaque and the respondent to pay the price amounting to six hundred thousand pesos
(P600,000.00). All the elements of a contract of sale were thus present. However, the
balance of the purchase price was to be paid only upon the issuance of the new
certificate of title in lieu of the one in the name of the late Francisco Laforteza and upon
the execution of an extrajudicial settlement of his estate. Prior to the issuance of the
"reconstituted" title, the respondent was already placed in possession of the house and
lot as lessee thereof for six months at a monthly rate of three thousand five hundred
pesos (P3,500.00). It was stipulated that should the issuance of the new title and the
execution of the extrajudicial settlement be completed prior to expiration of the six-month
period, the respondent would be liable only for the rentals pertaining to the period
commencing from the date of the execution of the agreement up to the execution of the
extrajudicial settlement. It was also expressly stipulated that if after the expiration of the
six month period, the lost title was not yet replaced and the extrajudicial partition was not
73
yet executed, the respondent would no longer be required to pay rentals and would
continue to occupy and use the premises until the subject condition was complied with by
the petitioners.
The six-month period during which the respondent would be in possession of the
property as lessee, was clearly not a period within which to exercise an option. An option
is a contract granting a privilege to buy or sell within an agreed time and at a determined
price. An option contract is a separate and distinct contract from that which the parties
may enter into upon the consummation of the option.[13] An option must be supported by
consideration.[14] An option contract is governed by the second paragraph of Article 1479
of the Civil Code[15], which reads:
"Article 1479. xxx
An accepted unilateral promise to buy or to sell a determinate thing for
a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price."
In the present case, the six-month period merely delayed the demandability of the
contract of sale and did not determine its perfection for after the expiration of the six-
month period, there was an absolute obligation on the part of the petitioners and the
respondent to comply with the terms of the sale. The parties made a "reasonable
estimate" that the reconstitution of the lost title of the house and lot would take
approximately six months and thus presumed that after six months, both parties would be
able to comply with what was reciprocally incumbent upon them. The fact that after the
expiration of the six-month period, the respondent would retain possession of the house
and lot without need of paying rentals for the use therefor, clearly indicated that the
parties contemplated that ownership over the property would already be transferred by
that time.
The issuance of the new certificate of title in the name of the late Francisco Laforteza
and the execution of an extrajudicial settlement of his estate was not a condition which
determined the perfection of the contract of sale. Petitioners contention that since the
condition was not met, they no longer had an obligation to proceed with the sale of the
house and lot is unconvincing. The petitioners fail to distinguish between a condition
imposed upon the perfection of the contract and a condition imposed on the performance
of an obligation. Failure to comply with the first condition results in the failure of a
contract, while the failure to comply with the second condition only gives the other party
the option either to refuse to proceed with the sale or to waive the condition. Thus, Art.
1545 of the Civil Code states:
"Art. 1545. Where the obligation of either party to a contract of sale is
subject to any condition which is not performed, such party may refuse
to proceed with the contract or he may waive performance of the
condition. If the other party has promised that the condition should
happen or be performed, such first mentioned party may also treat the
nonperformance of the condition as a breach of warranty.
Where the ownership in the things has not passed, the buyer may treat
the fulfillment by the seller of his obligation to deliver the same as
described and as warranted expressly or by implication in the contract
of sale as a condition of the obligation of the buyer to perform his
promise to accept and pay for the thing."[16]
In the case at bar, there was already a perfected contract. The condition was imposed
only on the performance of the obligations contained therein. Considering however that
the title was eventually "reconstituted" and that the petitioners admit their ability to
execute the extrajudicial settlement of their fathers estate, the respondent had a right to
demand fulfillment of the petitioners obligation to deliver and transfer ownership of the
house and lot.

What further militates against petitioners argument that they did not enter into a contract
of sale is the fact that the respondent paid thirty thousand pesos (P30,000.00) as earnest
money. Earnest money is something of value to show that the buyer was really in
earnest, and given to the seller to bind the bargain.[17] Whenever earnest money is given
in a contract of sale, it is considered as part of the purchase price and proof of the
perfection of the contract.[18]
We do not subscribe to the petitioners view that the Memorandum Agreement was a
contract to sell. There is nothing contained in the Memorandum Agreement from which it
can reasonably be deduced that the parties intended to enter into a contract to sell, i.e.
one whereby the prospective seller would explicitly reserve 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 full payment of
the price, such payment being a positive suspensive condition, the failure of which is not
considered a breach, casual or serious, but simply an event which prevented the
obligation from acquiring any obligatory force.[19] There is clearly no express reservation
of title made by the petitioners over the property, or any provision which would impose
non-payment of the price as a condition for the contracts entering into force. Although the
memorandum agreement was also denominated as a "Contract to Sell", we hold that the
parties contemplated a contract of sale. A deed of sale is absolute in nature although
denominated a conditional sale in the absence of a stipulation reserving title in the
petitioners until full payment of the purchase price.[20] In such cases, ownership of the
thing sold passes to the vendee upon actual or constructive delivery thereof. [21] The mere
fact that the obligation of the respondent to pay the balance of the purchase price was
made subject to the condition that the petitioners first deliver the reconstituted title of the
house and lot does not make the contract a contract to sell for such condition is not
inconsistent with a contract of sale.[22]
The next issue to be addressed is whether the failure of the respondent to pay the
balance of the purchase price within the period allowed is fatal to his right to enforce the
agreement.
We rule in the negative.
Admittedly, the failure of the respondent to pay the balance of the purchase price was a
breach of the contract and was a ground for rescission thereof. The extension of thirty
(30) days allegedly granted to the respondent by Roberto Z. Laforteza (assisted by his
counsel Attorney Romeo Gutierrez) was correctly found by the Court of Appeals to be
ineffective inasmuch as the signature of Gonzalo Z. Laforteza did not appear thereon as
required by the Special Powers of Attorney.[23] However, the evidence reveals that after
the expiration of the six-month period provided for in the contract, the petitioners were
not ready to comply with what was incumbent upon them, i.e. the delivery of the
reconstituted title of the house and lot. It was only on September 18, 1989 or nearly eight
months after the execution of the Memorandum of Agreement when the petitioners
informed the respondent that they already had a copy of the reconstituted title and
demanded the payment of the balance of the purchase price. The respondent could not
therefore be considered in delay for in reciprocal obligations, neither party incurs in delay
if the other party does not comply or is not ready to comply in a proper manner with what
was incumbent upon him.[24]
Even assuming for the sake of argument that the petitioners were ready to comply with
their obligation, we find that rescission of the contract will still not prosper. The rescission
of a sale of an immovable property is specifically governed by Article 1592 of the New
Civil Code, which reads:
"In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon the
rescission of the contract shall of right take place, the vendee may pay,
even after the expiration of the period, as long as no demand for
74
rescission of the contract has been made upon him either judicially or
by a notarial act. After the demand, the court may not grant him a new
term."[25]
It is not disputed that the petitioners did not make a judicial or notarial demand for
rescission. The November 20, 1989 letter of the petitioners informing the respondent of
the automatic rescission of the agreement did not amount to a demand for rescission, as
it was not notarized.[26] It was also made five days after the respondents attempt to make
the payment of the purchase price. This offer to pay prior to the demand for rescission is
sufficient to defeat the petitioners right under article 1592 of the Civil Code.[27] Besides,
the Memorandum Agreement between the parties did not contain a clause expressly
authorizing the automatic cancellation of the contract without court intervention in the
event that the terms thereof were violated. A seller cannot unilaterally and extrajudicially
rescind a contract of sale where there is no express stipulation authorizing him to
extrajudicially rescind.[28] Neither was there a judicial demand for the rescission thereof.
Thus, when the respondent filed his complaint for specific performance, the agreement
was still in force inasmuch as the contract was not yet rescinded. At any rate, considering
that the six-month period was merely an approximation of the time it would take to
reconstitute the lost title and was not a condition imposed on the perfection of the
contract and considering further that the delay in payment was only thirty days which was
caused by the respondents justified but mistaken belief that an extension to pay was
granted to him, we agree with the Court of Appeals that the delay of one month in
payment was a mere casual breach that would not entitle the respondents to rescind the
contract. Rescission of a contract will not be permitted for a slight or casual breach, but
only such substantial and fundamental breach as would defeat the very object of the
parties in making the agreement.[29]
Petitioners insistence that the respondent should have consignated the amount is not
determinative of whether respondents action for specific performance will lie. Petitioners
themselves point out that the effect of consignation is to extinguish the obligation. It
releases the debtor from responsibility therefor.[30] The failure of the respondent to
consignate the P600,000.00 is not tantamount to a breach of the contract for by the fact
of tendering payment, he was willing and able to comply with his obligation.
The Court of Appeals correctly found the petitioners guilty of bad faith and awarded
moral damages to the respondent. As found by the said Court, the petitioners refused to
comply with their obligation for the reason that they were offered a higher price therefor
and the respondent was even offered P100,000.00 by the petitioners lawyer, Attorney
Gutierrez, to relinquish his rights over the property. The award of moral damages is in
accordance with Article 1191[31] of the Civil Code pursuant to Article 2220 which provides
that moral damages may be awarded in case of a breach of contract where the
defendant acted in bad faith. The amount awarded depends on the discretion of the court
based on the circumstances of each case.[32]Under the circumstances, the award given
by the Court of Appeals amounting to P50,000.00 appears to us to be fair and
reasonable.
ACCORDINGLY, the decision of the Court of Appeals in CA G.R. CV No. 47457 is
AFFIRMED and the instant petition is hereby DENIED.
No pronouncement as to costs.
SO ORDERED.
Melo, (Chairman), Panganiban, and Purisima, JJ., concur.
Vitug, J., Abroad, On Official Business.
[G.R. No. 135929. April 20, 2001]
LOURDES ONG LIMSON, petitioner, vs. COURT OF APPEALS, SPOUSES
LORENZO DE VERA and ASUNCION SANTOS-DE VERA, TOMAS
CUENCA, JR., and SUNVAR REALTY DEVELOPMENT
CORPORATION, respondents.

DECISION
BELLOSILLO, J.:
Filed under Rule 45 of the Rules of Court this Petition for Review on
Certiorari seeks to review, reverse and set aside the Decision[1] of the Court of Appeals
dated 18 May 1998 reversing that of the Regional Trial Court dated 30 June 1993. The
petition likewise assails the Resolution[2] of the appellate court of 19 October 1998
denying petitioners Motion for Reconsideration.
Petitioner Lourdes Ong Limson, in her 14 May 1979 Complaint filed before the trial
court,[3] alleged that in July 1978 respondent spouses Lorenzo de Vera and Asuncion
Santos-de Vera, through their agent Marcosa Sanchez, offered to sell to petitioner a
parcel of land consisting of 48,260 square meters, more or less, situated in Barrio San
Dionisio, Paraaque, Metro Manila; that respondent spouses informed her that they were
the owners of the subject property; that on 31 July 1978 she agreed to buy the property
at the price of P34.00 per square meter and gave the sum of P20,000.00 to respondent
spouses as "earnest money;" that respondent spouses signed a receipt therefor and
gave her a 10-day option period to purchase the property; that respondent Lorenzo de
Vera then informed her that the subject property was mortgaged to Emilio Ramos and
Isidro Ramos; that respondent Lorenzo de Vera asked her to pay the balance of the
purchase price to enable him and his wife to settle their obligation with the Ramoses.
Petitioner also averred that she agreed to meet respondent spouses and the
Ramoses on 5 August 1978 at the Office of the Registry of Deeds of Makati, Metro
Manila, to consummate the transaction but due to the failure of respondent Asuncion
Santos-de Vera and the Ramoses to appear, no transaction was formalized. In a second
meeting scheduled on 11 August 1978 she claimed that she was willing and ready to pay
the balance of the purchase price but the transaction again did not materialize as
respondent spouses failed to pay the back taxes of subject property. Subsequently, on
23 August 1978 petitioner allegedly gave respondent Lorenzo de Vera three (3) checks
in the total amount of P36,170.00 for the settlement of the back taxes of the property and
for the payment of the quitclaims of the three (3) tenants of subject land. The amount
was purportedly considered part of the purchase price and respondent Lorenzo de Vera
signed the receipts therefor.
Petitioner alleged that on 5 September 1978 she was surprised to learn from the
agent of respondent spouses that the property was the subject of a negotiation for the
sale to respondent Sunvar Realty Development Corporation (SUNVAR) represented by
respondent Tomas Cuenca, Jr. On 15 September 1978 petitioner discovered that
although respondent spouses purchased the property from the Ramoses on 20 March
1970 it was only on 15 September 1978 that TCT No. S-72946 covering the property was
issued to respondent spouses. As a consequence, she filed on the same day an Affidavit
of Adverse Claim with the Office of the Registry of Deeds of Makati, Metro Manila, which
was annotated on TCT No. S-72946. She also claimed that on the same day she
informed respondent Cuenca of her "contract" to purchase the property.
The Deed of Sale between respondent spouses and respondent SUNVAR was
executed on 15 September 1978 and TCT No. S-72377 was issued in favor of the latter
on 26 September 1978 with the Adverse Claim of petitioner annotated thereon. Petitioner
claimed that when respondent spouses sold the property in dispute to SUNVAR, her
valid and legal right to purchase it was ignored if not violated.Moreover, she maintained
that SUNVAR was in bad faith as it knew of her "contract" to purchase the subject
property from respondent spouses.
Finally, for the alleged unlawful and unjust acts of respondent spouses, which
caused her damage, prejudice and injury, petitioner claimed that the Deed of Sale,
should be annuled and TCT No. S-72377 in the name of respondent SUNVAR canceled
and TCT No. S-72946 restored. She also insisted that a Deed of Sale between her and
75
respondent spouses be now executed upon her payment of the balance of the purchase
price agreed upon, plus damages and attorneys fees.
In their Answer[4] respondent spouses maintained that petitioner had no sufficient
cause of action against them; that she was not the real party in interest; that the option to
buy the property had long expired; that there was no perfected contract to sell between
them; and, that petitioner had no legal capacity to sue. Additionally, respondent spouses
claimed actual, moral and exemplary damages, and attorneys fees against petitioner.
On the other hand, respondents SUNVAR and Cuenca, in their Answer,[5] alleged
that petitioner was not the proper party in interest and/or had no cause of action against
them. But, even assuming that petitioner was the proper party in interest, they claimed
that she could only be entitled to the return of any amount received by respondent
spouses. In the alternative, they argued that petitioner had lost her option to buy the
property for failure to comply with the terms and conditions of the agreement as
embodied in the receipt issued therefor. Moreover, they contended that at the time of the
execution of the Deed of Sale and the payment of consideration to respondent spouses,
they "did not know nor was informed" of petitioners interest or claim over the subject
property. They claimed furthermore that it was only after the signing of the Deed of
Sale and the payment of the corresponding amounts to respondent spouses that they
came to know of the claim of petitioner as it was only then that they were furnished copy
of the title to the property where the Adverse Claim of petitioner was
annotated. Consequently, they also instituted a Cross-Claim against respondent spouses
for bad faith in encouraging the negotiations between them without telling them of the
claim of petitioner. The same respondents maintained that had they known of the claim
of petitioner, they would not have initiated negotiations with respondent spouses for the
purchase of the property. Thus, they prayed for reimbursement of all amounts and
monies received from them by respondent spouses, attorneys fees and expenses for
litigation in the event that the trial court should annul the Deed of Sale and deprive them
of their ownership and possession of the subject land.
In their Answer to the Cross-Claim[6] of respondents SUNVAR and Cuenca,
respondent spouses insisted that they negotiated with the former only after the expiration
of the option period given to petitioner and her failure to comply with her commitments
thereunder. Respondent spouses contended that they acted legally and validly, in all
honesty and good faith. According to them, respondent SUNVAR made a verification of
the title with the Office of the Register of Deeds of Metro Manila District IV before the
execution of the Deed of Absolute Sale. Also, they claimed that the Cross-Claimwas
barred by a written waiver executed by respondent SUNVAR in their favor. Thus,
respondent spouses prayed for actual damages for the unjustified filing of the Cross-
Claim, moral damages for the mental anguish and similar injuries they suffered by reason
thereof, exemplary damages "to prevent others from emulating the bad example" of
respondents SUNVAR and Cuenca, plus attorneys fees.
After a protracted trial and reconstitution of the court records due to the fire that
razed the Pasay City Hall on 18 January 1992, the Regional Trial Court rendered its 30
June 1993 Decision[7] in favor of petitioner. It ordered (a) the annulment and rescission of
the Deed of Absolute Sale executed on 15 September 1978 by respondent spouses in
favor of respondent SUNVAR; (b) the cancellation and revocation of TCT No. S-75377 of
the Registry of Deeds, Makati, Metro Manila, issued in the name of respondent Sunvar
Realty Development Corporation, and the restoration or reinstatement of TCT No. S-
72946 of the same Registry issued in the name of respondent spouses; (c) respondent
spouses to execute a deed of sale conveying ownership of the property covered by TCT
No. S-72946 in favor of petitioner upon her payment of the balance of the purchase price
agreed upon; and, (d) respondent spouses to pay petitioner P50,000.00 as and for
attorneys fees, and to pay the costs.

On appeal, the Court of Appeals completely reversed the decision of the trial
court. It ordered (a) the Register of Deeds of Makati City to lift the Adverse Claim and
such other encumbrances petitioner might have filed or caused to be annotated on TCT
No. S-75377; and, (b) petitioner to pay (1) respondent SUNVAR P50,000.00 as nominal
damages, P30,000.00 as exemplary damages and P20,000 as attorneys fees; (2)
respondent spouses, P15,000.00 as nominal damages, P10,000.00 as exemplary
damages and P10,000.00 as attorneys fees; and, (3) the costs.
Petitioner timely filed a Motion for Reconsideration which was denied by the Court
of Appeals on 19 October 1998. Hence, this petition.
At issue for resolution by the Court is the nature of the contract entered into
between petitioner Lourdes Ong Limson on one hand, and respondent spouses Lorenzo
de Vera and Asuncion Santos-de Vera on the other.
The main argument of petitioner is that there was a perfected contract to sell
between her and respondent spouses. On the other hand, respondent spouses and
respondents SUNVAR and Cuenca argue that what was perfected between petitioner
and respondent spouses was a mere option.
A scrutiny of the facts as well as the evidence of the parties overwhelmingly leads
to the conclusion that the agreement between the parties was a contract of option and
not a contract to sell.
An option, as used in the law of sales, is a continuing offer or contract by which the
owner stipulates with another that the latter shall have the right to buy the property at a
fixed price within a time certain, or under, or in compliance with, certain terms and
conditions, or which gives to the owner of the property the right to sell or demand a
sale. It is also sometimes called an "unaccepted offer." An option is not of itself a
purchase, but merely secures the privilege to buy. [8] It is not a sale of property but a sale
of the right to purchase.[9] It is simply a contract by which the owner of property agrees
with another person that he shall have the right to buy his property at a fixed price within
a certain time. He does not sell his land; he does not then agree to sell it; but he does
sell something, i.e., the right or privilege to buy at the election or option of the other
party.[10] Its distinguishing characteristic is that it imposes no binding obligation on the
person holding the option, aside from the consideration for the offer. Until acceptance, it
is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any
title to, or any interest or right in the subject matter, but is merely a contract by which the
owner of the property gives the optionee the right or privilege of accepting the offer and
buying the property on certain terms.[11]
On the other hand, a contract, like a contract to sell, involves the meeting of minds
between two persons whereby one binds himself, with respect to the other, to give
something or to render some service.[12] Contracts, in general, are perfected by mere
consent,[13] which is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer must be certain and
the acceptance absolute.[14]
The Receipt[15] that contains the contract between petitioner and respondent
spouses provides
Received from Lourdes Limson the sum of Twenty Thousand Pesos (P20,000.00) under
Check No. 22391 dated July 31, 1978 as earnest money with option to purchase a parcel
of land owned by Lorenzo de Vera located at Barrio San Dionisio, Municipality of
Paraaque, Province of Rizal with an area of forty eight thousand two hundred sixty
square meters more or less at the price of Thirty Four Pesos (P34.00)[16] cash subject to
the condition and stipulation that have been agreed upon by the buyer and me which will
form part of the receipt. Should the transaction of the property not materialize not on the
fault of the buyer, I obligate myself to return the full amount of P20,000.00 earnest money
with option to buy or forfeit on the fault of the buyer. I guarantee to notify the buyer
Lourdes Limson or her representative and get her conformity should I sell or encumber
76
this property to a third person. This option to buy is good within ten (10) days until the
absolute deed of sale is finally signed by the parties or the failure of the buyer to comply
with the terms of the option to buy as herein attached.
In the interpretation of contracts, the ascertainment of the intention of the
contracting parties is to be discharged by looking to the words they used to project that
intention in their contract, all the words, not just a particular word or two, and words in
context, not words standing alone.[17] The above Receipt readily shows that respondent
spouses and petitioner only entered into a contract of option; a contract by which
respondent spouses agreed with petitioner that the latter shall have the right to buy the
formers property at a fixed price of P34.00 per square meter within ten (10) days from 31
July 1978.Respondent spouses did not sell their property; they did not also agree to sell
it; but they sold something, i.e., the privilege to buy at the election or option of
petitioner. The agreement imposed no binding obligation on petitioner, aside from the
consideration for the offer.
The consideration of P20,000.00 paid by petitioner to respondent spouses was
referred to as "earnest money." However, a careful examination of the words used
indicates that the money is not earnest money but option money. "Earnest money" and
"option money" are not the same but distinguished thus: (a) earnest money is part of the
purchase price, while option money is the money given as a distinct consideration for an
option contract; (b) earnest money is given only where there is already a sale, while
option money applies to a sale not yet perfected; and, (c) when earnest money is given,
the buyer is bound to pay the balance, while when the would-be buyer gives option
money, he is not required to buy,[18] but may even forfeit it depending on the terms of the
option.
There is nothing in the Receipt which indicates that the P20,000.00 was part of the
purchase price. Moreover, it was not shown that there was a perfected sale between the
parties where earnest money was given. Finally, when petitioner gave the "earnest
money," the Receipt did not reveal that she was bound to pay the balance of the
purchase price. In fact, she could even forfeit the money given if the terms of the option
were not met. Thus, the P20,000.00 could only be money given as consideration for the
option contract. That the contract between the parties is one of option is buttressed by
the provision therein that should the transaction of the property not materialize without
fault of petitioner as buyer, respondent Lorenzo de Vera obligates himself to return the
full amount of P20,000.00 "earnest money" with option to buy or forfeit the same on the
fault of petitioner. It is further bolstered by the provision therein that guarantees petitioner
that she or her representative would be notified in case the subject property was sold or
encumbered to a third person. Finally, the Receipt provided for a period within which the
option to buy was to be exercised, i.e., "within ten (10) days" from 31 July 1978.
Doubtless, the agreement between respondent spouses and petitioner was an
"option contract" or what is sometimes called an "unaccepted offer." During the option
period the agreement was not converted into a bilateral promise to sell and to buy where
both respondent spouses and petitioner were then reciprocally bound to comply with their
respective undertakings as petitioner did not timely, affirmatively and clearly accept the
offer of respondent spouses.
The rule is that except where a formal acceptance is not required, although the
acceptance must be affirmatively and clearly made and evidenced by some acts or
conduct communicated to the offeror, it may be made either in a formal or an informal
manner, and may be shown by acts, conduct or words by the accepting party that clearly
manifest a present intention or determination to accept the offer to buy or sell. But there
is nothing in the acts, conduct or words of petitioner that clearly manifest a present
intention or determination to accept the offer to buy the property of respondent spouses
within the 10-day option period. The only occasion within the option period when
petitioner could have demonstrated her acceptance was on 5 August 1978 when,

according to her, she agreed to meet respondent spouses and the Ramoses at the Office
of the Register of Deeds of Makati. Petitioners agreement to meet with respondent
spouses presupposes an invitation from the latter, which only emphasizes their
persistence in offering the property to the former. But whether that showed acceptance
by petitioner of the offer is hazy and dubious.
On or before 10 August 1978, the last day of the option period, no affirmative or
clear manifestation was made by petitioner to accept the offer. Certainly, there was no
concurrence of private respondent spouses offer and petitioners acceptance thereof
within the option period. Consequently, there was no perfected contract to sell between
the parties.
On 11 August 1978 the option period expired and the exclusive right of petitioner to
buy the property of respondent spouses ceased. The subsequent meetings and
negotiations, specifically on 11 and 23 August 1978, between the parties only showed
the desire of respondent spouses to sell their property to petitioner. Also, on 14
September 1978 when respondent spouses sent a telegram to petitioner demanding full
payment of the purchase price on even date simply demonstrated an inclination to give
her preference to buy subject property. Collectively, these instances did not indicate that
petitioner still had the exclusive right to purchase subject property. Verily, the
commencement of negotiations between respondent spouses and respondent SUNVAR
clearly manifested that their offer to sell subject property to petitioner was no longer
exclusive to her.
We cannot subscribe to the argument of petitioner that respondent spouses
extended the option period when they extended the authority of their agent until 31
August 1978. The extension of the contract of agency could not operate to extend the
option period between the parties in the instant case. The extension must not be implied
but categorical and must show the clear intention of the parties.
As to whether respondent spouses were at fault for the non-consummation of their
contract with petitioner, we agree with the appellate court that they were not to be
blamed. First, within the option period, or on 4 August 1978, it was respondent spouses
and not petitioner who initiated the meeting at the Office of the Register of Deeds of
Makati. Second, that the Ramoses failed to appear on 4 August 1978 was beyond the
control of respondent spouses. Third, the succeeding meetings that transpired to
consummate the contract were all beyond the option period and, as declared by the
Court of Appeals, the question of who was at fault was already immaterial. Fourth, even
assuming that the meetings were within the option period, the presence of petitioner was
not enough as she was not even prepared to pay the purchase price in cash as agreed
upon. Finally, even without the presence of the Ramoses, petitioner could have easily
made the necessary payment in cash as the price of the property was already set
at P34.00 per square meter and payment of the mortgage could very well be left to
respondent spouses.
Petitioner further claims that when respondent spouses sent her a telegram
demanding full payment of the purchase price on 14 September 1978 it was an
acknowledgment of their contract to sell, thus denying them the right to claim otherwise.
We do not agree. As explained above, there was no contract to sell between
petitioner and respondent spouses to speak of. Verily, the telegram could not operate to
estop them from claiming that there was such contract between them and
petitioner. Neither could it mean that respondent spouses extended the option
period. The telegram only showed that respondent spouses were willing to give petitioner
a chance to buy subject property even if it was no longer exclusive.
The option period having expired and acceptance was not effectively made by
petitioner, the purchase of subject property by respondent SUNVAR was perfectly valid
and entered into in good faith.Petitioner claims that in August 1978 Hermigildo Sanchez,
the son of respondent spouses agent, Marcosa Sanchez, informed Marixi Prieto, a
77
member of the Board of Directors of respondent SUNVAR, that the property was already
sold to petitioner. Also, petitioner maintains that on 5 September 1978 respondent
Cuenca met with her and offered to buy the property from her at P45.00 per square
meter.Petitioner contends that these incidents, including the annotation of her Adverse
Claim on the title of subject property on 15 September 1978 show that respondent
SUNVAR was aware of the perfected sale between her and respondent spouses, thus
making respondent SUNVAR a buyer in bad faith.
Petitioner is not correct. The dates mentioned, at least 5 and 15 September 1978,
are immaterial as they were beyond the option period given to petitioner. On the other
hand, the referral to sometime in August 1978 in the testimony of Hermigildo Sanchez as
emphasized by petitioner in her petition is very vague. It could be within or beyond the
option period. Clearly then, even assuming that the meeting with Marixi Prieto actually
transpired, it could not necessarily mean that she knew of the agreement between
petitioner and respondent spouses for the purchase of subject property as the meeting
could have occurred beyond the option period. In which case, no bad faith could be
attributed to respondent SUNVAR. If, on the other hand, the meeting was within the
option period, petitioner was remiss in her duty to prove so. Necessarily, we are left with
the conclusion that respondent SUNVAR bought subject property from respondent
spouses in good faith, for value and without knowledge of any flaw or defect in its title.
The appellate court awarded nominal and exemplary damages plus attorneys fees
to respondent spouses and respondent SUNVAR. But nominal damages are adjudicated
to vindicate or recognize the right of the plaintiff that has been violated or invaded by the
defendant.[19] In the instant case, the Court recognizes the rights of all the parties and
finds no violation or invasion of the rights of respondents by petitioner. Petitioner, in filing
her complaint, only seeks relief, in good faith, for what she believes she was entitled to
and should not be made to suffer therefor. Neither should exemplary damages be
awarded to respondents as they are imposed only by way of example or correction for
the public good and only in addition to the moral, temperate, liquidated or compensatory
damages.[20] No such kinds of damages were awarded by the Court of Appeals, only
nominal, which was not justified in this case. Finally, attorneys fees could not also be
recovered as the Court does not deem it just and equitable under the circumstances.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals
ordering the Register of Deeds of Makati City to lift the adverse claim and such other
encumbrances petitioner Lourdes Ong Limson may have filed or caused to be annotated
on TCT No. S-75377 is AFFIRMED, with the MODIFICATION that the award of nominal
and exemplary damages as well as attorneys fees is DELETED.
SO ORDERED.
Mendoza, Quisumbing and Buena JJ., concur.
De Leon, Jr., J., on leave.
[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. For 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
78
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
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decided to buy 6/7 only of the property should respondent Javellana agreed on the object of sale and on the purchase price. By the buyers own admission,
refuse to agree to part with her 1/7 share.[10] however, the parties still had to agree on how and when the downpayment and the
In the present case, the P1 million "earnest-deposit" could not have been given as installments were to be paid. It was held:
earnest money as contemplated in Art. 1482 because, at the time when petitioner . . . Such being the situation, it can not, therefore, be said that a
accepted the terms of respondents offer of March 29, 1994, their contract had not yet definite and firm sales agreement between the parties had been
been perfected. This is evident from the following conditions attached by respondents to perfected over the lot in question. Indeed, this Court has already ruled
their letter, to wit: (1) that they be given the exclusive option to purchase the property before that a definite agreement on the manner of payment of the
within 30 days from acceptance of the offer; (2) that during the option period, the parties purchase price is an essential element in the formation of a binding
would negotiate the terms and conditions of the purchase; and (3) petitioner would and enforceable contract of sale. The fact, therefore, that the
secure the necessary approvals while respondents would handle the documentation. petitioners delivered to the respondent the sum of P10,000 as part of
The first condition for an option period of 30 days sufficiently shows that a sale was never the down-payment that they had to pay cannot be considered as
perfected. As petitioner correctly points out, acceptance of this condition did not give rise sufficient proof of the perfection of any purchase and sale agreement
to a perfected sale but merely to an option or an accepted unilateral promise on the part between the parties herein under Art. 1482 of the new Civil Code, as
of respondents to buy the subject properties within 30 days from the date of acceptance the petitioners themselves admit that some essential matter - the terms
of the offer. Such option giving respondents the exclusive right to buy the properties of the payment - still had to be mutually covenanted.[18]
within the period agreed upon is separate and distinct from the contract of sale which the Thus, it is not the giving of earnest money, but the proof of the concurrence of all the
parties may enter.[11] All that respondents had was just the option to buy the properties essential elements of the contract of sale which establishes the existence of a perfected
which privilege was not, however, exercised by them because there was a failure to sale.
agree on the terms of payment. No contract of sale may thus be enforced by In the absence of a perfected contract of sale, it is immaterial whether Isidro A.
respondents. Sobrecarey had the authority to enter into a contract of sale in behalf of petitioner. This
Furthermore, even the option secured by respondents from petitioner was fatally issue, therefore, needs no further discussion.
defective. Under the second paragraph of Art. 1479, an accepted unilateral promise to WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents
buy or sell a determinate thing for a price certain is binding upon the promisor only if the complaint is DISMISSED.
promise is supported by a distinct consideration. Consideration in an option contract may SO ORDERED.
be anything of value, unlike in sale where it must be the price certain in money or its Quisumbing, Buena, and De Leon, Jr., JJ., concur.
equivalent. There is no showing here of any consideration for the option. Lacking any Bellosillo, (Chairman), J., on leave.
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 negotiation stage. The alleged "indubitable evidence" [13] of a perfected sale cited
by the appellate court was nothing more than offers and counter-offers which did not
amount to any final arrangement containing the essential elements of a contract of sale.
While the parties already agreed on the real properties which were the objects of the sale
and on the purchase price, the fact remains that they failed to arrive at mutually
acceptable terms of payment, despite the 45-day extension given by petitioner.
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
Appeals,[15] 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