WEEK 3 AUGUST 28
On 31 July 1974 the parties signed a similar contract concerning a six (6)-unit pre-fabricated
G.R. No. 143513 November 14, 2001
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and FIRESTONE CERAMICS, INC., respondents.
x---------------------------------------------------------x
G.R. No. 143590 November 14, 2001
NATIONAL DEVELOPMENT CORPORATION, petitioner,
vs.
FIRESTONE CERAMICS, INC., respondents.
BELLOSILLO, J.:
A litigation is not simply a contest of litigants before the bar of public opinion; more than that, it
is a pursuit of justice through legal and equitable means. To prevent the search for justice from
evolving into a competition for public approval, society invests the judiciary with complete
independence thereby insulating it from demands expressed through any medium, the press
not excluded. Thus, if the court would merely reflect, and worse, succumb to the great
pressures of the day, the end result, it is feared, would be a travesty of justice.
In the early sixties, petitioner National Development Corporation (NDC), a government owned
and controlled corporation created under CA 182 as amended by CA 311 and PD No. 668, had
in its disposal a ten (10)-hectare property located along Pureza St., Sta. Mesa, Manila. The
estate was popularly known as the NDC compound and covered by Transfer Certificates of
Title Nos. 92885, 110301 and 145470.
Sometime in May 1965 private respondent Firestone Ceramics Inc. (FIRESTONE) manifested
its desire to lease a portion of the property for its ceramic manufacturing business. On 24
August 1965 NDC and FIRESTONE entered into a contract of lease denominated as Contract
No. C-30-65 covering a portion of the property measured at 2.90118 hectares for use as a
manufacturing plant for a term of ten (10) years, renewable for another ten (10) years under
the same terms and conditions.1 In consequence of the agreement, FIRESTONE constructed
on the leased premises several warehouses and other improvements needed for the fabrication
of ceramic products.
Three and a half (3-1/2) years later, or on 8 January 1969, FIRESTONE entered into a second
contract of lease with NDC over the latter's four (4)-unit pre-fabricated reparation steel
warehouse stored in Daliao, Davao. FIRESTONE agreed to ship the warehouse to Manila for
eventual assembly within the NDC compound. The second contract, denominated as Contract
No. C-26-68, was for similar use as a ceramic manufacturing plant and was agreed expressly
to be "co-extensive with the lease of LESSEE with LESSOR on the 2.60 hectare-lot."2
steel warehouse which, as agreed upon by the parties, would expire on 2 December 1978.3
Prior to the expiration of the aforementioned contract, FIRESTONE wrote NDC requesting for
an extension of their lease agreement. Consequently on 29 November 1978 the Board of
Directors of NDC adopted Resolution No. 11-78-117 extending the term of the lease, subject
to several conditions among which was that in the event NDC "with the approval of higher
authorities, decide to dispose and sell these properties including the lot, priority should be given
to the LESSEE"4 (underscoring supplied). On 22 December 1978, in pursuance of the
resolution, the parties entered into a new agreement for a ten-year lease of the property,
renewable for another ten (10) years, expressly granting FIRESTONE the first option to
purchase the leased premises in the event that it decided "to dispose and sell these properties
including the lot . . . . "5
The contracts of lease conspicuously contain an identically worded provision requiring
FIRESTONE to construct buildings and other improvements within the leased premises worth
several hundred thousands of pesos.6
The parties' lessor-lessee relationship went smoothly until early 1988 when FIRESTONE,
cognizant of the impending expiration of their lease agreement with NDC, informed the latter
through several letters and telephone calls that it was renewing its lease over the property.
While its letter of 17 March 1988 was answered by Antonio A. Henson, General Manager of
NDC, who promised immediate action on the matter, the rest of its communications remained
unacknowledged.7 FIRESTONE's predicament worsened when rumors of NDC's supposed
plans to dispose of the subject property in favor of petitioner Polytechnic University of the
Philippines (PUP) came to its knowledge. Forthwith, FIRESTONE served notice on NDC
conveying its desire to purchase the property in the exercise of its contractual right of first
refusal.
Apprehensive that its interest in the property would be disregarded, FIRESTONE instituted an
action for specific performance to compel NDC to sell the leased property in its favor.
FIRESTONE averred that it was pre-empting the impending sale of the NDC compound to
petitioner PUP in violation of its leasehold rights over the 2.60-hectare8 property and the
warehouses thereon which would expire in 1999. FIRESTONE likewise prayed for the issuance
of a writ of preliminary injunction to enjoin NDC from disposing of the property pending the
settlement of the controversy.9
In support of its complaint, FIRESTONE adduced in evidence a letter of Antonio A. Henson
dated 15 July 1988 addressed to Mr. Jake C. Lagonera, Director and Special Assistant to
Executive Secretary Catalino Macaraeg, reviewing a proposed memorandum order submitted
to then President Corazon C. Aquino transferring the whole NDC compound, including the
leased property, in favor of petitioner PUP. Attached to the letter was a draft of the proposed
memorandum order as well as a summary of existing leases on the subject property. The
survey listed FIRESTONE as lessee of a portion of the property, placed at 29,00010 square
meters, whose contract with NDC was set to expire on 31 December 198911 renewable for
another ten (10) years at the option of the lessee. The report expressly recognized
FIRESTONE's right of first refusal to purchase the leased property "should the lessor decide to
sell the same."12
Meanwhile, on 21 February 1989 PUP moved to intervene and asserted its interest in the
subject property, arguing that a "purchaser pendente lite of property which is subject of a
litigation is entitled to intervene in the proceedings."13 PUP referred to Memorandum Order
No. 214 issued by then President Aquino ordering the transfer of the whole NDC compound to
the National Government, which in turn would convey the aforementioned property in favor of
PUP at acquisition cost. The issuance was supposedly made in recognition of PUP's status as
the "Poor Man's University" as well as its serious need to extend its campus in order to
accommodate the growing student population. The order of conveyance of the 10.31-hectare
property would automatically result in the cancellation of NDC's total obligation in favor of the
National Government in the amount of P57,193,201.64.
Convinced that PUP was a necessary party to the controversy that ought to be joined as party
defendant in order to avoid multiplicity of suits, the trial court granted PUP's motion to intervene.
FIRESTONE moved for reconsideration but was denied. On certiorari, the Court of Appeals
affirmed the order of the trial court. FIRESTONE came to us on review but in a Resolution
dated 11 July 1990 we upheld PUP's inclusion as party-defendant in the present controversy.
Following the denial of its petition, FIRESTONE amended its complaint to include PUP and
Executive Secretary Catalino Macaraeg, Jr., as party-defendants, and sought the annulment
of Memorandum Order No. 214. FIRESTONE alleged that although Memorandum Order No.
214 was issued "subject to such liens/leases existing [on the subject property]," PUP
disregarded and violated its existing lease by increasing the rental rate at P200,000.00 a month
while demanding that it vacated the premises immediately.14 FIRESTONE prayed that in the
event Memorandum Order No. 214 was not declared unconstitutional, the property should be
sold in its favor at the price for which it was sold to PUP - P554.74 per square meter or for a
total purchase price of P14,423,240.00.15
Petitioner PUP, in its answer to the amended complaint, argued in essence that the lease
contract covering the property had expired long before the institution of the complaint, and that
further, the right of first refusal invoked by FIRESTONE applied solely to the six-unit pre-
fabricated warehouse and not the lot upon which it stood.
After trial on the merits, judgment was rendered declaring the contracts of lease executed
between FIRESTONE and NDC covering the 2.60-hectare property and the warehouses
constructed thereon valid and existing until 2 June 1999. PUP was ordered and directed to sell
to FIRESTONE the "2.6 hectare leased premises or as may be determined by actual
verification and survey of the actual size of the leased properties where plaintiff's fire brick
factory is located" at P1,500.00 per square meter considering that, as admitted by
FIRESTONE, such was the prevailing market price thereof.
The trial court ruled that the contracts of lease executed between FIRESTONE and NDC were
interrelated and inseparable because "each of them forms part of the integral system of
plaintiff's brick manufacturing plant x x x if one of the leased premises will be taken apart or
otherwise detached from the two others, the purpose of the lease as well as plaintiff's business
operations would be rendered useless and inoperative."16 It thus decreed that FIRESTONE
could exercise its option to purchase the property until 2 June 1999 inasmuch as the 22
December 1978 contract embodied a covenant to renew the lease for another ten (10) years
at the option of the lessee as well as an agreement giving the lessee the right of first refusal.
The trial court also sustained the constitutionality of Memorandum Order No. 214 which was
not per se hostile to FIRESTONE's property rights, but deplored as prejudicial thereto the "very
manner with which defendants NDC and PUP interpreted and applied the same, ignoring in the
process that plaintiff has existing contracts of lease protectable by express provisions in the
Memorandum No. 214 itself."17 It further explained that the questioned memorandum was
issued "subject to such liens/leases existing thereon"18 and petitioner PUP was under express
instructions "to enter, occupy and take possession of the transferred property subject to such
leases or liens and encumbrances that may be existing thereon"19 (italics supplied).
Petitioners PUP, NDC and the Executive Secretary separately filed their Notice of Appeal, but
a few days thereafter, or on 3 September 1996, perhaps realizing the groundlessness and the
futility of it all, the Executive Secretary withdrew his appeal.20
Subsequently, the Court of Appeals affirmed the decision of the trial court ordering the sale of
the property in favor of FIRESTONE but deleted the award of attorney's fees in the amount of
Three Hundred Thousand Pesos (P300,000.00). Accordingly, FIRESTONE was given a grace
period of six (6) months from finality of the court's judgment within which to purchase the
property in questioned in the exercise of its right of first refusal. The Court of Appeals observed
that as there was a sale of the subject property, NDC could not excuse itself from its obligation
TO OFFER THE PROPERTY FOR SALE FIRST TO FIRESTONE BEFORE IT COULD TO
OTHER PARTIES. The Court of Appeals held: "NDC cannot look to Memorandum Order No.
214 to excuse or shield it from its contractual obligations to FIRESTONE. There is nothing
therein that allows NDC to disavow or repudiate the solemn engagement that it freely and
voluntarily undertook, or agreed to undertake."21
PUP moved for reconsideration asserting that in ordering the sale of the property in favor of
FIRESTONE the courts a quo unfairly created a contract to sell between the parties. It argued
that the "court cannot substitute or decree its mind or consent for that of the parties in
determining whether or not a contract (has been) perfected between PUP and NDC."22 PUP
further contended that since "a real property located in Sta. Mesa can readily command a sum
of P10,000.00 per square (meter)," the lower court gravely erred in ordering the sale of the
property at only P1,500.00 per square meter. PUP also advanced the theory that the enactment
of Memorandum Order No. 214 amounted to a withdrawal of the option to purchase the
property granted to FIRESTONE. NDC, for its part, vigorously contended that the contracts of
lease executed between the parties had expired without being renewed by FIRESTONE;
consequently, FIRESTONE was no longer entitled to any preferential right in the sale or
disposition of the leased property.
We do not see it the way PUP and NDC did. It is elementary that a party to a contract cannot
unilaterally withdraw a right of first refusal that stands upon valuable consideration. That
principle was clearly upheld by the Court of Appeals when it denied on 6 June 2000 the twin
motions for reconsideration filed by PUP and NDC on the ground that the appellants failed to
advance new arguments substantial enough to warrant a reversal of the Decision sought to be
reconsidered.23 On 28 June 2000 PUP filed an urgent motion for an additional period of fifteen
(15) days from 29 June 2000 or until 14 July 2000 within which to file a Petition for Review on
Certiorari of the Decision of the Court of Appeals.
On the last day of the extended period PUP filed its Petition for Review on Certiorari assailing
the Decision of the Court of Appeals of 6 December 1999 as well as the Resolution of 6 June
2000 denying reconsideration thereof. PUP raised two issues: (a) whether the courts a quo
erred when they "conjectured" that the transfer of the leased property from NDC to PUP
amounted to a sale; and, (b) whether FIRESTONE can rightfully invoke its right of first refusal.
Petitioner posited that if we were to place our imprimatur on the decisions of the courts a quo,
"public welfare or specifically the constitutional priority accorded to education" would greatly be
prejudiced.24
Paradoxically, our paramount interest in education does not license us, or any party for that
matter, to destroy the sanctity of binding obligations. Education may be prioritized for legislative
or budgetary purposes, but we doubt if such importance can be used to confiscate private
property such as FIRESTONE's right of first refusal.
On 17 July 2000 we denied PUP's motion for extension of fifteen (15) days within which to
appeal inasmuch as the aforesaid pleading lacked an affidavit of service of copies thereof on
the Court of Appeals and the adverse party, as well as written explanation for not filing and
serving the pleading personally.25
Accordingly, on 26 July 2000 we issued a Resolution dismissing PUP's Petition for Review for
having been filed out of time. PUP moved for reconsideration imploring a resolution or decision
on the merits of its petition. Strangely, about the same time, several articles came out in the
newspapers assailing the denial of the petition. The daily papers reported that we unreasonably
dismissed PUP's petition on technical grounds, affirming in the process the decision of the trial
court to sell the disputed property to the prejudice of the government in the amount of
P1,000,000,000.00.26 Counsel for petitioner PUP, alleged that the trial court and the Court of
Appeals "have decided a question of substance in a way definitely not in accord with law or
jurisprudence."27
At the outset, let it be noted that the amount of P1,000,000,000.00 as reported in the papers
was way too exaggerated, if not fantastic. We stress that NDC itself sold the whole 10.31-
hectare property to PUP at only P57,193,201.64 which represents NDC's obligation to the
national government that was, in exchange, written off. The price offered per square meter of
the property was pegged at P554.74. FIRESTONE's leased premises would therefore be worth
only P14,423,240.00. From any angle, this amount is certainly far below the ballyhooed price
of P1,000,000,000.00.
On 4 October 2000 we granted PUP's Motion for Reconsideration to give it a chance to ventilate
its right, if any it still had in the leased premises, thereby paving the way for a reinstatement of
its Petition for Review.28 In its appeal, PUP took to task the courts a quo for supposedly
"substituting or decreeing its mind or consent for that of the parties (referring to NDC and PUP)
in determining whether or not a contract of sale was perfected." PUP also argued that inasmuch
as "it is the parties alone whose minds must meet in reference to the subject matter and cause,"
it concluded that it was error for the lower courts to have decreed the existence of a sale of the
NDC compound thus allowing FIRESTONE to exercise its right of first refusal.
On the other hand, NDC separately filed its own Petition for Review and advanced arguments
which, in fine, centered on whether or not the transaction between petitioners NDC and PUP
amounted to a sale considering that "ownership of the property remained with the
government."29 Petitioner NDC introduced the novel proposition that if the parties involved are
both government entities the transaction cannot be legally called a sale.
In due course both petitions were consolidated.30
We believe that the courts a quo did not hypothesize, much less conjure, the sale of the
disputed property by NDC in favor of petitioner PUP. Aside from the fact that the intention of
NDC and PUP to enter into a contract of sale was clearly expressed in the Memorandum Order
No. 214,31 a close perusal of the circumstances of this case strengthens the theory that the
conveyance of the property from NDC to PUP was one of absolute sale, for a valuable
consideration, and not a mere paper transfer as argued by petitioners.
A contract of sale, as defined in the Civil Code, is a contract where one of the parties obligates
himself to transfer the ownership of and to deliver a determinate thing to the other or others
who shall pay therefore a sum certain in money or its equivalent.32 It is therefore a general
requisite for the existence of a valid and enforceable contract of sale that it be mutually
obligatory, i.e., there should be a concurrence of the promise of the vendor to sell a determinate
thing and the promise of the vendee to receive and pay for the property so delivered and
transferred. The Civil Code provision is, in effect, a "catch-all" provision which effectively brings
within its grasp a whole gamut of transfers whereby ownership of a thing is ceded for a
consideration.
Contrary to what petitioners PUP and NDC propose, there is not just one party involved in the
questioned transaction. Petitioners NDC and PUP have their respective charters and therefore
each possesses a separate and distinct individual personality.33 The inherent weakness of
NDC's proposition that there was no sale as it was only the government which was involved in
the transaction thus reveals itself. Tersely put, it is not necessary to write an extended
dissertation on government owned and controlled corporations and their legal personalities.
Beyond cavil, a government owned and controlled corporation has a personality of its own,
distinct and separate from that of the government.34 The intervention in the transaction of the
Office of the President through the Executive Secretary did not change the independent
existence of these entities. The involvement of the Office of the President was limited to
brokering the consequent relationship between NDC and PUP. But the withdrawal of the appeal
by the Executive Secretary is considered significant as he knew, after a review of the records,
that the transaction was subject to existing liens and encumbrances, particularly the priority to
purchase the leased premises in favor of FIRESTONE.

True that there may be instances when a particular deed does not disclose the real intentions
of the parties, but their action may nevertheless indicate that a binding obligation has been
undertaken. Since the conduct of the parties to a contract may be sufficient to establish the
existence of an agreement and the terms thereof, it becomes necessary for the courts to
examine the contemporaneous behavior of the parties in establishing the existence of their
contract.
The preponderance of evidence shows that NDC sold to PUP the whole NDC compound,
including the leased premises, without the knowledge much less consent of private respondent
FIRESTONE which had a valid and existing right of first refusal.
All three (3) essential elements of a valid sale, without which there can be no sale, were
attendant in the "disposition" and "transfer" of the property from NDC to PUP - consent of the
parties, determinate subject matter, and consideration therefor.
Consent to the sale is obvious from the prefatory clauses of Memorandum Order No. 214 which
explicitly states the acquiescence of the parties to the sale of the property -
WHEREAS, PUP has expressed its willingness to acquire said NDC properties and NDC has
expressed its willingness to sell the properties to PUP (underscoring supplied).35
Furthermore, the cancellation of NDC's liabilities in favor of the National Government in the
amount of P57,193,201.64 constituted the "consideration" for the sale. As correctly observed
by the Court of Appeals-
The defendants-appellants' interpretation that there was a mere transfer, and not a sale, apart
from being specious sophistry and a mere play of words, is too strained and hairsplitting. For it
is axiomatic that every sale imposes upon the vendor the obligation to transfer ownership as
an essential element of the contract. Transfer of title or an agreement to transfer title for a price
paid, or promised to be paid, is the very essence of sale (Kerr & Co. v. Lingad, 38 SCRA 524;
Schmid & Oberly, Inc., v. RJL Martinez Fishing Corp., 166 SCRA 493). At whatever legal angle
we view it, therefore, the inescapable fact remains that all the requisites of a valid sale were
attendant in the transaction between co-defendants-appellants NDC and PUP concerning the
realities subject of the present suit.36
What is more, the conduct of petitioner PUP immediately after the transaction is in itself an
admission that there was a sale of the NDC compound in its favor. Thus, after the issuance of
Memorandum Order No. 214 petitioner PUP asserted its ownership over the property by
posting notices within the compound advising residents and occupants to vacate the
premises.37 In its Motion for Intervention petitioner PUP also admitted that its interest as a
"purchaser pendente lite" would be better protected if it was joined as party-defendant in the
controversy thereby confessing that it indeed purchased the property.
In light of the foregoing disquisition, we now proceed to determine whether FIRESTONE should
be allowed to exercise its right of first refusal over the property. Such right was expressly stated
by NDC and FIRESTONE in par. XV of their third contract denominated as A-10-78 executed
on 22 December 1978 which, as found by the courts a quo, was interrelated to and inseparable
from their first contract denominated as C-30-65 executed on 24 August 1965 and their second
contract denominated as C-26-68 executed on 8 January 1969. Thus -
Should the LESSOR desire to sell the leased premises during the term of this Agreement, or
any extension thereof, the LESSOR shall first give to the LESSEE, which shall have the right
of first option to purchase the leased premises subject to mutual agreement of both parties.38
In the instant case, the right of first refusal is an integral and indivisible part of the contract of
lease and is inseparable from the whole contract. The consideration for the right is built into the
reciprocal obligations of the parties. Thus, it is not correct for petitioners to insist that there was
no consideration paid by FIRESTONE to entitle it to the exercise of the right, inasmuch as the
stipulation is part and parcel of the contract of lease making the consideration for the lease the
same as that for the option.
It is a settled principle in civil law that when a lease contract contains a right of first refusal, the
lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has
made an offer to sell to the latter at a certain price and the lessee has failed to accept it.39 The
lessee has a right that the lessor's first offer shall be in his favor.
The option in this case was incorporated in the contracts of lease by NDC for the benefit of
FIRESTONE which, in view of the total amount of its investments in the property, wanted to be
assured that it would be given the first opportunity to buy the property at a price for which it
would be offered. Consistent with their agreement, it was then implicit for NDC to have first
offered the leased premises of 2.60 hectares to FIRESTONE prior to the sale in favor of PUP.
Only if FIRESTONE failed to exercise its right of first priority could NDC lawfully sell the property
to petitioner PUP.
It now becomes apropos to ask whether the courts a quo were correct in fixing the proper
consideration of the sale at P1,500.00 per square meter. In contracts of sale, the basis of the
right of first refusal must be the current offer of the seller to sell or the offer to purchase of the
prospective buyer. Only after the lessee-grantee fails to exercise its right under the same terms
and within the period contemplated can the owner validly offer to sell the property to a third
person, again, under the same terms as offered to the grantee.40 It appearing that the whole
NDC compound was sold to PUP for P554.74 per square meter, it would have been more
proper for the courts below to have ordered the sale of the property also at the same price.
However, since FIRESTONE never raised this as an issue, while on the other hand it admitted
that the value of the property stood at P1,500.00 per square meter, then we see no compelling
reason to modify the holdings of the courts a quo that the leased premises be sold at that price.
Our attention is invited by petitioners to Ang Yu Asuncion v. CA41 in concluding that if our
holding in Ang Yu would be applied to the facts of this case then FIRESTONE's "option, if still
subsisting, is not enforceable," the option being merely a preparatory contract which cannot be
enforced.
The contention has no merit. At the heels of Ang Yu came Equatorial Realty Development, Inc.,
v. Mayfair Theater, Inc.,42 where after much deliberation we declared, and so we hold, that a
right of first refusal is neither "amorphous nor merely preparatory" and can be enforced and
executed according to its terms. Thus, in Equatorial we ordered the rescission of the sale which
was made in violation of the lessee's right of first refusal and further ordered the sale of the
leased property in favor of Mayfair Theater, as grantee of the right. Emphatically, we held that
"(a right of first priority) should be enforced according to the law on contracts instead of the
panoramic and indefinite rule on human relations." We then concluded that the execution of
the right of first refusal consists in directing the grantor to comply with his obligation according
to the terms at which he should have offered the property in favor of the grantee and at that
price when the offer should have been made.
One final word. Petitioner PUP should be cautioned against bidding for public sympathy by
bewailing the dismissal of its petition before the press. Such advocacy is not likely to elicit the
compassion of this Court or of any court for that matter. An entreaty for a favorable disposition
of a case not made directly through pleadings and oral arguments before the courts do not
persuade us, for as judges, we are ruled only by our forsworn duty to give justice where justice
is due.
WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are DENIED. Inasmuch
as the first contract of lease fixed the area of the leased premises at 2.90118 hectares while
the second contract placed it at 2.60 hectares, let a ground survey of the leased premises be
immediately conducted by a duly licensed, registered surveyor at the expense of private
respondent FIRESTONE CERAMICS, INC., within two (2) months from finality of the judgment
in this case. Thereafter, private respondent FIRESTONE CERAMICS, INC., shall have six (6)
months from receipt of the approved survey within which to exercise its right to purchase the
leased property at P1,500.00 per square meter, and petitioner Polytechnic University of the
Philippines is ordered to reconvey the property to FIRESTONE CERAMICS, INC., in the
exercise of its right of first refusal upon payment of the purchase price thereof.
SO ORDERED.
Mendoza, Buena, and De Leon, Jr., JJ., concur.
Quisumbing, J., no part due to prior close relations.
G.R. No. L-22487 May 21, 1969
ASUNCION ATILANO, CRISTINA ATILANO, ROSARIO ATILANO, assisted by their
respective husbands, HILARIO ROMANO, FELIPE BERNARDO, and MAXIMO
LACANDALO, ISABEL ATILANO and GREGORIO ATILANO, plaintiffs-appellees,
vs.
LADISLAO ATILANO and GREGORIO M. ATILANO, defendants-appellants.
Climaco and Azcarraga for plaintiff-appellee.
T. de los Santos for defendants-appellants.
MAKALINTAL, J.:
In 1916 Eulogio Atilano I acquired, by purchase from one Gerardo Villanueva, lot No. 535 of
the then municipality of Zamboanga cadastre. The vendee thereafter obtained transfer
certificate of title No. 1134 in his name. In 1920 he had the land subdivided into five parts,
identified as lots Nos. 535-A, 535-B, 535-C, 535-D and 535-E, respectively. On May 18 of the
same year, after the subdivision had been effected, Eulogio Atilano I, for the sum of P150.00,
executed a deed of sale covering lot No. 535-E in favor of his brother Eulogio Atilano II, who
thereupon obtained transfer certificate of title No. 3129 in his name. Three other portions,
namely lots Nos. 535-B, 535-C and 535-D, were likewise sold to other persons, the original
owner, Eulogio Atilano I, retaining for himself only the remaining portion of the land, presumably
covered by the title to lot No. 535-A. Upon his death the title to this lot passed to Ladislao
Atilano, defendant in this case, in whose name the corresponding certificate (No. T-5056) was
issued.
On December 6, 1952, Eulogio Atilano II having become a widower upon the death of his wife
Luisa Bautista, he and his children obtained transfer certificate of title No. 4889 over lot No.
535-E in their names as co-owners. Then, on July 16, 1959, desiring to put an end to the co-
ownership, they had the land resurveyed so that it could properly be subdivided; and it was
then discovered that the land they were actually occupying on the strength of the deed of sale
executed in 1920 was lot No. 535-A and not lot 535-E, as referred to in the deed, while the land
which remained in the possession of the vendor, Eulogio Atilano I, and which passed to his
successor, defendant Ladislao Atilano, was lot No. 535-E and not lot No. 535-A.
On January 25, 1960, the heirs of Eulogio Atilano II, who was by then also deceased, filed the
present action in the Court of First Instance of Zamboanga, alleging, inter alia, that they had
offered to surrender to the defendants the possession of lot No. 535-A and demanded in return
the possession of lot No. 535-E, but that the defendants had refused to accept the exchange.
The plaintiffs' insistence is quite understandable, since lot No. 535-E has an area of 2,612
square meters, as compared to the 1,808 square-meter area of lot No. 535-A.
In their answer to the complaint the defendants alleged that the reference to lot No. 535-E in
the deed of sale of May 18, 1920 was an involuntary error; that the intention of the parties to
that sale was to convey the lot correctly identified as lot No. 535-A; that since 1916, when he
acquired the entirety of lot No. 535, and up to the time of his death, Eulogio Atilano I had been
possessing and had his house on the portion designated as lot No. 535-E, after which he was
succeeded in such possession by the defendants herein; and that as a matter of fact Eulogio
Atilano I even increased the area under his possession when on June 11, 1920 he bought a
portion of an adjoining lot, No. 536, from its owner Fruto del Carpio. On the basis of the
foregoing allegations the defendants interposed a counterclaim, praying that the plaintiffs be
ordered to execute in their favor the corresponding deed of transfer with respect to lot No. 535-
E.
The trial court rendered judgment for the plaintiffs on the sole ground that since the property
was registered under the Land Registration Act the defendants could not acquire it through
prescription. There can be, of course, no dispute as to the correctness of this legal proposition;
but the defendants, aside from alleging adverse possession in their answer and counterclaim,
also alleged error in the deed of sale of May 18, 1920, thus: "Eulogio Atilano 1.o, por
equivocacion o error involuntario, cedio y traspaso a su hermano Eulogio Atilano 2.do el lote
No. 535-E en vez del Lote No. 535-A."lawphi1.ñet
The logic and common sense of the situation lean heavily in favor of the defendants' contention.
When one sells or buys real property — a piece of land, for example — one sells or buys the
property as he sees it, in its actual setting and by its physical metes and bounds, and not by
the mere lot number assigned to it in the certificate of title. In the particular case before us, the
portion correctly referred to as lot No. 535-A was already in the possession of the vendee,
Eulogio Atilano II, who had constructed his residence therein, even before the sale in his favor
even before the subdivision of the entire lot No. 535 at the instance of its owner, Eulogio Atillano
I. In like manner the latter had his house on the portion correctly identified, after the subdivision,
as lot No. 535-E, even adding to the area thereof by purchasing a portion of an adjoining
property belonging to a different owner. The two brothers continued in possession of the
respective portions the rest of their lives, obviously ignorant of the initial mistake in the
designation of the lot subject of the 1920 until 1959, when the mistake was discovered for the
first time.
The real issue here is not adverse possession, but the real intention of the parties to that sale.
From all the facts and circumstances we are convinced that the object thereof, as intended and
understood by the parties, was that specific portion where the vendee was then already
residing, where he reconstructed his house at the end of the war, and where his heirs, the
plaintiffs herein, continued to reside thereafter: namely, lot No. 535-A; and that its designation
as lot No. 535-E in the deed of sale was simple mistake in the drafting of the
document.1âwphi1.ñet The mistake did not vitiate the consent of the parties, or affect the
validity and binding effect of the contract between them. The new Civil Code provides a remedy
for such a situation by means of reformation of the instrument. This remedy is available when,
there having been a meeting of the funds of the parties to a contract, their true intention is not
expressed in the instrument purporting to embody the agreement by reason of mistake, fraud,
inequitable conduct on accident (Art. 1359, et seq.) In this case, the deed of sale executed in
1920 need no longer reformed. The parties have retained possession of their respective
properties conformably to the real intention of the parties to that sale, and all they should do is
to execute mutual deeds of conveyance.
WHEREFORE, the judgment appealed from is reversed. The plaintiffs are ordered to execute
a deed of conveyance of lot No. 535-E in favor of the defendants, and the latter in turn, are
ordered to execute a similar document, covering lot No. 595-A, in favor of the plaintiffs. Costs
against the latter.
Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Fernando and Capistrano, JJ., concur.
Teehankee and Barredo, JJ., took no part.
Concepcion C.J., and Castro, J., are on leave.
G.R. No. L-9935 February 1, 1915
YU TEK and CO., plaintiff-appellant,
vs.
BASILIO GONZALES, defendant-appellant.
Beaumont, Tenney and Ferrier for plaintiff.
Buencamino and Lontok for defendant.
TRENT, J.:
The basis of this action is a written contract, Exhibit A, the pertinent paragraphs of which follow:
1. That Mr. Basilio Gonzalez hereby acknowledges receipt of the sum of P3,000 Philippine
currency from Messrs. Yu Tek and Co., and that in consideration of said sum be obligates
himself to deliver to the said Yu Tek and Co., 600 piculs of sugar of the first and second grade,
according to the result of the polarization, within the period of three months, beginning on the
1st day of January, 1912, and ending on the 31st day of March of the same year, 1912.
2. That the said Mr. Basilio Gonzales obligates himself to deliver to the said Messrs. Yu Tek
and Co., of this city the said 600 piculs of sugar at any place within the said municipality of
Santa Rosa which the said Messrs. Yu Tek and Co., or a representative of the same may
designate.
3. That in case the said Mr. Basilio Gonzales does not deliver to Messrs. Yu Tek and Co. the
600 piculs of sugar within the period of three months, referred to in the second paragraph of
this document, this contract will be rescinded and the said Mr. Basilio Gonzales will then be
obligated to return to Messrs. Yu Tek and Co. the P3,000 received and also the sum of P1,200
by way of indemnity for loss and damages.
Plaintiff proved that no sugar had been delivered to it under this contract nor had it been able
to recover the P3,000. Plaintiff prayed for judgment for the P3,000 and, in addition, for P1,200
under paragraph 4, supra. Judgment was rendered for P3,000 only, and from this judgment
both parties appealed.
The points raised by the defendant will be considered first. He alleges that the court erred in
refusing to permit parol evidence showing that the parties intended that the sugar was to be
secured from the crop which the defendant raised on his plantation, and that he was unable to
fulfill the contract by reason of the almost total failure of his crop. This case appears to be one
to which the rule which excludes parol evidence to add to or vary the terms of a written contract
is decidedly applicable. There is not the slightest intimation in the contract that the sugar was
to be raised by the defendant. Parties are presumed to have reduced to writing all the essential
conditions of their contract. While parol evidence is admissible in a variety of ways to explain
the meaning of written contracts, it cannot serve the purpose of incorporating into the contract
additional contemporaneous conditions which are not mentioned at all in the writing, unless
there has been fraud or mistake. In an early case this court declined to allow parol evidence
showing that a party to a written contract was to become a partner in a firm instead of a creditor
of the firm. (Pastor vs. Gaspar, 2 Phil. Rep., 592.) Again, in Eveland vs. Eastern Mining Co.
(14 Phil. Rep., 509) a contract of employment provided that the plaintiff should receive from the
defendant a stipulated salary and expenses. The defendant sought to interpose as a defense
to recovery that the payment of the salary was contingent upon the plaintiff's employment
redounding to the benefit of the defendant company. The contract contained no such condition
and the court declined to receive parol evidence thereof.
In the case at bar, it is sought to show that the sugar was to be obtained exclusively from the
crop raised by the defendant. There is no clause in the written contract which even remotely
suggests such a condition. The defendant undertook to deliver a specified quantity of sugar
within a specified time. The contract placed no restriction upon the defendant in the matter of
obtaining the sugar. He was equally at liberty to purchase it on the market or raise it himself. It
may be true that defendant owned a plantation and expected to raise the sugar himself, but he
did not limit his obligation to his own crop of sugar. Our conclusion is that the condition which
the defendant seeks to add to the contract by parol evidence cannot be considered. The rights
of the parties must be determined by the writing itself.
The second contention of the defendant arises from the first. He assumes that the contract was
limited to the sugar he might raise upon his own plantation; that the contract represented a
perfected sale; and that by failure of his crop he was relieved from complying with his
undertaking by loss of the thing due. (Arts. 1452, 1096, and 1182, Civil Code.) This argument
is faulty in assuming that there was a perfected sale. Article 1450 defines a perfected sale as
follows:
The sale shall be perfected between vendor and vendee and shall be binding on both of them,
if they have agreed upon the thing which is the object of the contract and upon the price, even
when neither has been delivered.
Article 1452 reads: "The injury to or the profit of the thing sold shall, after the contract has been
perfected, be governed by the provisions of articles 1096 and 1182."
This court has consistently held that there is a perfected sale with regard to the "thing"
whenever the article of sale has been physically segregated from all other articles Thus, a
particular tobacco factory with its contents was held sold under a contract which did not provide
for either delivery of the price or of the thing until a future time. McCullough vs. Aenlle and Co.
(3 Phil. Rep., 295). Quite similar was the recent case of Barretto vs. Santa Marina (26 Phil.
Rep., 200) where specified shares of stock in a tobacco factory were held sold by a contract
which deferred delivery of both the price and the stock until the latter had been appraised by
an inventory of the entire assets of the company. In Borromeo vs. Franco (5 Phil. Rep., 49) a
sale of a specific house was held perfected between the vendor and vendee, although the
delivery of the price was withheld until the necessary documents of ownership were prepared
by the vendee. In Tan Leonco vs. Go Inqui (8 Phil. Rep., 531) the plaintiff had delivered a
quantity of hemp into the warehouse of the defendant. The defendant drew a bill of exchange
in the sum of P800, representing the price which had been agreed upon for the hemp thus
delivered. Prior to the presentation of the bill for payment, the hemp was destroyed.
Whereupon, the defendant suspended payment of the bill. It was held that the hemp having
been already delivered, the title had passed and the loss was the vendee's. It is our purpose
to distinguish the case at bar from all these cases.
In the case at bar the undertaking of the defendant was to sell to the plaintiff 600 piculs of sugar
of the first and second classes. Was this an agreement upon the "thing" which was the object
of the contract within the meaning of article 1450, supra? Sugar is one of the staple
commodities of this country. For the purpose of sale its bulk is weighed, the customary unit of
weight being denominated a "picul." There was no delivery under the contract. Now, if called
upon to designate the article sold, it is clear that the defendant could only say that it was
"sugar." He could only use this generic name for the thing sold. There was no "appropriation"
of any particular lot of sugar. Neither party could point to any specific quantity of sugar and say:
"This is the article which was the subject of our contract." How different is this from the contracts
discussed in the cases referred to above! In the McCullough case, for instance, the tobacco
factory which the parties dealt with was specifically pointed out and distinguished from all other
tobacco factories. So, in the Barretto case, the particular shares of stock which the parties
desired to transfer were capable of designation. In the Tan Leonco case, where a quantity of
hemp was the subject of the contract, it was shown that that quantity had been deposited in a
specific warehouse, and thus set apart and distinguished from all other hemp.
A number of cases have been decided in the State of Louisiana, where the civil law prevails,
which confirm our position. Perhaps the latest is Witt Shoe Co. vs. Seegars and Co. (122 La.,
145; 47 Sou., 444). In this case a contract was entered into by a traveling salesman for a
quantity of shoes, the sales having been made by sample. The court said of this contract:
But it is wholly immaterial, for the purpose of the main question, whether Mitchell was
authorized to make a definite contract of sale or not, since the only contract that he was in a
position to make was an agreement to sell or an executory contract of sale. He says that plaintiff
sends out 375 samples of shoes, and as he was offering to sell by sample shoes, part of which
had not been manufactured and the rest of which were incorporated in plaintiff's stock in
Lynchburg, Va., it was impossible that he and Seegars and Co. should at that time have agreed
upon the specific objects, the title to which was to pass, and hence there could have been no
sale. He and Seegars and Co. might have agreed, and did (in effect ) agree, that the
identification of the objects and their appropriation to the contract necessary to make a sale
should thereafter be made by the plaintiff, acting for itself and for Seegars and Co., and the
legend printed in red ink on plaintiff's billheads ("Our responsibility ceases when we take
transportation Co's. receipt `In good order'" indicates plaintiff's idea of the moment at which
such identification and appropriation would become effective. The question presented was
carefully considered in the case of State vs. Shields, et al. (110 La., 547, 34 Sou., 673) (in
which it was absolutely necessary that it should be decided), and it was there held that in
receiving an order for a quantity of goods, of a kind and at a price agreed on, to be supplied
from a general stock, warehoused at another place, the agent receiving the order merely enters
into an executory contract for the sale of the goods, which does not divest or transfer the title
of any determinate object, and which becomes effective for that purpose only when specific
goods are thereafter appropriated to the contract; and, in the absence of a more specific
agreement on the subject, that such appropriated takes place only when the goods as ordered
are delivered to the public carriers at the place from which they are to be shipped, consigned
to the person by whom the order is given, at which time and place, therefore, the sale is
perfected and the title passes.
This case and State vs. Shields, referred to in the above quotation are amply illustrative of the
position taken by the Louisiana court on the question before us. But we cannot refrain from
referring to the case of Larue and Prevost vs. Rugely, Blair and Co. (10 La. Ann., 242) which
is summarized by the court itself in the Shields case as follows:
. . . It appears that the defendants had made a contract for the sale, by weight, of a lot of cotton,
had received $3,000 on account of the price, and had given an order for its delivery, which had
been presented to the purchaser, and recognized by the press in which the cotton was stored,
but that the cotton had been destroyed by fire before it was weighed. It was held that it was still
at the risk of the seller, and that the buyer was entitled to recover the $3,000 paid on account
of the price.
We conclude that the contract in the case at bar was merely an executory agreement; a
promise of sale and not a sale. At there was no perfected sale, it is clear that articles 1452,
1096, and 1182 are not applicable. The defendant having defaulted in his engagement, the
plaintiff is entitled to recover the P3,000 which it advanced to the defendant, and this portion of
the judgment appealed from must therefore be affirmed.
The plaintiff has appealed from the judgment of the trial court on the ground that it is entitled to
recover the additional sum of P1,200 under paragraph 4 of the contract. The court below held
that this paragraph was simply a limitation upon the amount of damages which could be
recovered and not liquidated damages as contemplated by the law. "It also appears," said the
lower court, "that in any event the defendant was prevented from fulfilling the contract by the
delivery of the sugar by condition over which he had no control, but these conditions were not
sufficient to absolve him from the obligation of returning the money which he received."
The above quoted portion of the trial court's opinion appears to be based upon the proposition
that the sugar which was to be delivered by the defendant was that which he expected to obtain
from his own hacienda and, as the dry weather destroyed his growing cane, he could not
comply with his part of the contract. As we have indicated, this view is erroneous, as, under the
contract, the defendant was not limited to his growth crop in order to make the delivery. He
agreed to deliver the sugar and nothing is said in the contract about where he was to get it.
We think is a clear case of liquidated damages. The contract plainly states that if the defendant
fails to deliver the 600 piculs of sugar within the time agreed on, the contract will be rescinded
and he will be obliged to return the P3,000 and pay the sum of P1,200 by way of indemnity for
loss and damages. There cannot be the slightest doubt about the meaning of this language or
the intention of the parties. There is no room for either interpretation or construction. Under the
provisions of article 1255 of the Civil Code contracting parties are free to execute the contracts
that they may consider suitable, provided they are not in contravention of law, morals, or public
order. In our opinion there is nothing in the contract under consideration which is opposed to
any of these principles.
For the foregoing reasons the judgment appealed from is modified by allowing the recovery of
P1,200 under paragraph 4 of the contract. As thus modified, the judgment appealed from is
affirmed, without costs in this instance.
Arellano, C.J., Torres, Carson and Araullo, JJ., concur.
Johnson, J., dissents.
G.R. No. L-10907 January 29, 1916
ONG JANG CHUAN, plaintiff-appellee,
vs.
WISE & CO. (LTD), defendant-appellant.
A.J. Burke for appellant.
Beaumont and Tenney for appellee.
TRENT, J.:
An appeal from a judgment of the Court of First Instance of Manila condemning the defendant
to pay the plaintiff the sum of P1,237.50, together with interest and costs, as damages for a
breach of contract.
The contract which forms the basis of this action reads:
Between Messrs. Wise & Co. (Ltd.), Manila, and Mr. Ong Jang Chuan, Manila.
We Wise & Co. (Ltd.), have sold to Mr. Ong Jang Chuan the following goods, on this 29th day
of July, 1914:
One thousand (1,000) sacks of flour, "Mano" brand, at the net price of P11.05 (eleven pesos
and five centavos) per barrel, the expenses of transportation from the Binondo Canal to be
borne by the purchaser, 500 sacks to be delivered in September and 500 in October, which we
bind ourselves to deliver ... for which we shall receive a commission of ... per cent of the total
amount. Payment of the goods mentioned shall be made within 30 days counted from the date
of delivery, and interest at rate of ... per annum on any unpaid amount that may still be due
after the ... days mentioned.
The pertinent facts, as found by the trial court, are these:
It has been established by a preponderance of evidence that the reason for the nonfulfillment,
on the part of Wise & Co., of the contract made with the plaintiff, was that the "Mano" brand of
flour which the defendant bound itself to deliver during the months of September and October
had to come from Australia, and at the time the contract was executed Wise & Co. did not have
a sufficient stock of the said brand of flour; and that, as the government of Australia prohibited
the exportation of flour, because of the scarcity of grain in that country, due to the war that had
been declared between Great Britain, of which Australia is an integral part and the German
Empire, it was impossible for the importers to supply Wise & Co. with a sufficient quantity of
flour to enable the latter, in turn, to serve its customers.
It is urged that the trial court erred (1) in holding that the contract above set forth was an
agreement to sell and not a perfected sale, (2) in not finding that the noncompliance of the
contract was due to a fortuitous event, and (3) in condemning the defendant to pay to the
plaintiff the sum of P1,237.50.
In the argument, as appears in defendant's printed brief filed in this court, the third alleged error
is made dependent upon the result of the first and second, or, in other words, it is not insisted
that the judgment is excessive or that the plaintiff has not established that he is entitled to
P1,237.50, in case he is entitled to any amount. Neither does counsel contend that the
defendant is relieved from all liability for the noncompliance with the contract on account of the
order of the Australian government prohibiting the exportation of flour if the sale is not a
perfected one. As thus presented, our inquiry is limited to the determination of the question
whether or not the contract and the facts found show a perfected sale.
In the case of Yu Tek & Co. vs. Gonzales (29 Phil. Rep., 384) we said:
This court has consistently held that there is a perfected sale with regard to the "thing"
whenever the article of sale has been physically segregated from all other articles.
In the case under consideration, the undertaking of the defendant was to sell to the plaintiff
1,000 sacks of "Mano" flour at P11.05 per barrel, 500 sacks to be delivered in September and
500 in October. There was no delivery at all under the contract. If called upon to designate the
article sold, the defendant could only say that it was "Mano" flour. There was no appropriation
of any particular lot of flour. The flour mentioned in the contract was not "physically segregated
from all other articles.' In fact, the defendant did not have in its possession in Manila, at the
time the contract was entered into, the 1,000 sacks of flour which it agreed to deliver in
September and October. It is therefore clear that under the rule laid down in the case of Yu
Tek & Co., supra, and the case cited in that opinion, the sale here in question was not a
perfected one.
For the foregoing reasons, the judgment appealed from is affirmed, with costs against the
appellant. So ordered.
Arellano, C. J., Torres and Carson, JJ., concur.
Separate Opinions
MORELAND, J., concurring:
If the conclusions of law set out in the syllabus in this case are correct the judgment be reversed
instead of affirmed. The action is for breach of contract of sale. The only defense offered is that
the breach has, in law, been excused. The court holds, if its syllabus may be taken as a guide,
that there never was a contract at a all between the parties; which, if true, precludes a recovery
by plaintiff. The syllabus says:
A contract of sale is not perfected where the parties have agreed upon the price and the thing
sold, unless the latter has been selected and is capable of being physically designated and
distinguished from all others of the same class.
Note that this says that the contract of sale is not perfected, etc. In the body of the decision the
court says: "It is therefore clear that under the rule laid down ... the sale here in question was
not a perfected one." Note that this says that the "sale is not a perfected one." There is a very
wide difference between an unperfected (imperfect) contract and an unperfected sale. If a
contract is not complete, that is, perfected, it is no contract and creates no obligations; while a
"sale" will bind the parties to it even though not "perfected." There is a manifest inconsistency,
if not contradiction, between the decision of the court and the syllabus. If the syllabus is correct
then the decision is wrong; and if the decision is correct the syllabus is wrong. If the contract
was not perfected, completed, it was not binding and no action would lie for its breach; whereas
if, as the court holds, an action for breach lies, then the contract was a complete and perfect
contract.
The contract was a perfect contract. The essentials of a contract are found in article 1261 of
the Civil Code. It reads:
There is no contract unless the following requisites exists: (1) The consent of the contracting
parties. (2) A definite object which may be the subject of the contract. (3) The consideration for
the obligation which may be established.
Article 1254 provides that:
A contract exists from the moment one or more persons consent to bind himself or themselves,
with regard to another or others, to give something or to render some service;" while article
1258 declares when contracts are perfected. It provides:
Contracts are perfected by mere consent, and from that time they are binding, not only with
regard to the fulfillment of what has been expressly stipulated, but also with regard to all the
consequences which, according to their character, are in accordance with good faith, use, and
law.
There is nowhere in the Civil Code a requirement that, in order that a contract, of whatever
kind, shall be perfect, that is, binding on the parties, the subject-matter thereof must be
segregated or set apart by itself, or be "capable of being physically designated and
distinguished from all others of the same class." There is no such requirement even with
respect to a contract of sale. This contract is perfected in the same manner as all other
contracts — by mere consent; and the essentials thereof are those of all other contracts,
consent, subject-matter, and consideration: a contract of sale is perfected and binding "there
having been an agreement as to the thing and price."
Article 1451 provides this in express terms. It says:
A promise to sell or buy, there being an agreement as to the thing and price, gives a right to
the contracting parties to mutually demand the fulfillment of the contract.
Nothing is said about the necessity of the "thing" being "segregated" or "set apart by itself" or
of being "capable of being physically designated or distinguished from all others of the same
class." It is not even essential that the "thing" be in existence at the time the contract is made.
Innumerable binding contracts are made daily concerning matters not in existence.
From what has bee said I am forced to conclude that the statement of the syllabus that "a
contract of sale is not perfected where the parties have agreed upon the price and the thing
sold, unless the latter has been selected and is capable of being physically designated or
distinguished from all others of the same class," is not, as I understand it, a correct statement
of what the court decided or of the law on the subject.
The decision, however, is correct in saying that a sale (not a contract of sale) is not perfected
unless the subject-matter thereof "has been physically segregated from all other articles." But
the objection I make is that, while the statement, as a statement, is correct, it has nothing to do
with and bears no relation to the case before the court or the question raised or to be decided
therein. Otherwise, I am unable to follow the reasoning of the court in its decision. The action,
as I have said, is for a breach of contract of sale. The legality and validity of the contract are
admitted, as is also the breach thereof. The only question before the court, indeed, the only
question raised by anybody, is whether the breach has been excused. The only question
discussed by the court, as I understand it, is one altogether different. If the contract of sale is
valid, and no one questions that, and if there was a breach, and no one questions that (laying
to one side the claim of defendant that plaintiff waived the breach), what is there left for
consideration more than the justifiability of the breach and, in case it was not justifiable, the
amount of damages? Nothing; and the parties have parties have raised and discussed nothing
else, as I understand which the court has not touched.
What has the question whether the sale was perfected or not to do with this case? The parties
are not concerned with a perfected sale or any other kind of sale, but with a contract of sale
only. Indeed, the action is expressly brought for a breach of a contract of sale without regard
to the ownership of the property or the rights of the parties therein. Whether or not the sale was
a "perfected" sale is of no consequence in the resolution of this case. That question can be
material only when it is to be determined who must suffer if the thing sold is lost, destroyed, or
damaged, or who shall be entitled to the increase thereof or the profit produced by it before
actual delivery. Except for this purpose the question whether a sale is "perfected" or not is
immaterial — indeed, it cannot arise in any way in any case. To determine who shall run the
risk of loss or have the opportunity to claim the profits produced by the thing sold before actual
delivery thereof has been made, the Civil Code contains various cogent provisions. Article 1462
defines a delivery. It provides:
A thing sold shall be considered as delivered when it is placed in the hands and possession of
the vendee. When the sale should be made by means of a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of the contract, if in
said instrument the contrary does not appear or nay be clearly inferred.
It then tell us, by article 1450, when the title passes, i. e., from what instant the purchaser takes
the risk of the loss of the thing bought and is entitled to the profits produced by it. It states:
The sale (not contract) shall be perfected between vendor and vendee and shall be binding on
both of them, if they have agreed upon the thing which is the object of the contract and upon
the price, even when neither has been delivered.
Article 1452 declares what law shall govern the rights which accrue by virtue of article 1450. It
is as follows:
The injury to or the profit of the thing sold shall, after the contract has been perfected, be
governed by the provisions of articles 1096 and 1182.
Articles 1182 to 1186 declare the various conditions under which the vendor is excused from
delivery. They provide:
ART. 1182. An obligation, consisting in the delivery of a specified thing, shall be
extinguished when said thing should be lost or destroyed without fault of the debtor and before
he should be in default.
ART. 1183. Whenever the thing should be lost, when in the possession of the debtor, it
shall be presumed that the loss occurred by his fault and not by a fortuitous event, unless there
is proof to the contrary and without prejudice to the provisions of article 1096.
ART. 1184. In obligations to do, the debtor shall also be released when the prestation
appears to be legally or physically impossible.
ART. 1185. When the debt for a certain and specified thing arise from a crime or
misdemeanor the debtor shall not be exempted from the payment of its value, whatever the
cause of the loss may have been, unless, having offered the thing to the person who should
have received it, the latter should have refused to accept it without reason.
ART. 1186. After the obligation is extinguished by the loss of the thing, all the actions which
the debtor may have against third persons, by reason thereof shall pertain to the creditor.
Article 1096 defines the rights of the parties to the sale under other conditions:
Should the thing to be delivered be a specified one the creditor, independently of the right
granted him by article 1101, may compel the debtor to make the delivery. Should the thing be
undetermined or generic he may ask that the obligation be fulfilled at the expense of the debtor.
Should the person obligated be in default, or be bound to deliver the same thing to two or more
different persons, he shall be liable therefor with regard to unforeseen events until the delivery
is made.
Article 1105 deals with the liability of the parties when there intervenes fortuitous and
unavoidable events and is as follows:
No one shall be liable for event which could not be foreseen, or which having been foreseen
were inevitable, with the exception of the cases expressly mentioned in the law or those in
which the obligation so declares.
As is seen from article 1450, the relative rights of the parties to a contract of sale in the thing
sold date from the moment when the sale is perfected. Prior to that moment the purchaser has
no interest in the thing sold. It is owned absolutely by the vendor. After that moment the
purchaser has rights in it. Articles 1096 and 1182 determine what they are. The only reason for
the existence of article 1450 is to fix in as definite a way as possible the time when the
purchaser acquires rights, not in the contract of sale (rights in that contract date from the instant
it was perfected as provided in article 1451), but in the thing sold. This being so it is clear that
whether the sale is perfected or not has no significance, consequence, or materiality unless
the parties, or either of them, assert an interest in the property itself. If the sale is perfected the
purchaser may lay claim to the thing sold; if it is not perfected he cannot. It is only in the
determination of the rights of the parties in the thing sold that the question of whether the sale
is perfected becomes material. The articles quoted, and especially article 1450, have nothing
to do with the responsibility of the parties under the contract as defined by article 1445. Article
1450 simply paves the way for article 1452 which provides, as we have seen, that "the injury
to or the profit of the thing sold shall, after the contract has been perfected, be governed by the
provision of articles 1096 and 1182." Article 1450 simply states when the sale shall be deemed
to be perfected, the sole purpose of which is, as already set out, to determine definitely who
shall sustain the loss which the thing sold may suffer and who shall take the profits which it
produces, before actual delivery. These articles have nothing to do with validity of the contract
of sale or with the consequences flowing from a breach thereof as that contract is defined by
article 1445.
The action before us is one for simple breach of contract. There is no question here as to
plaintiff's or defendant's interest in the flour itself. The plaintiff claims no interest therein. The
defendant claims none. Both parties admit that defendant never obtained delivery of the flour;
that its delivery was prevented by the action of the Australian government as a war measure.
Not being able to secure delivery itself the defendant could not deliver it to plaintiff in pursuance
of the contract. This being so no question arose or could arise as to who must assume the
responsibility for loss of or damage to the flour or who take the increase of or the profits
produced by it. Therefore, no question arose or could arise as to whether the sale was
perfected or not, as that question presents itself only when it must be determined at whose risk
the property is, or questions involving an interest in the property.
I repeat, the only question raised or argued is, Was the breach of the contract excused by the
intervention of the European war by reason of which the exportation of flour from Australia was
prohibited? Whether the sale was a perfected sale or not has nothing to do with that question;
inasmuch as, if the completion of the contract was prevented by a fortuitous event, if we may
call the prohibition of the Australian government a fortuitous event as defined by the Civil Code
(art. 1105), the vendor would be excused whether the sale was perfected or not. No one
contends, least of all the appellant, that the title to the flour passed under the contract and
much less that there was a delivery. Neither does appellant contend that the flour was at the
vendee's risk. Appellant in its answer and in many places in its brief admits that title had not
passed and that no delivery had been made; indeed, its whole case is based on the proposition
that it had broken its contract with plaintiff and that it was liable in damage unless the breach
was excused by the supervention of war or by agreement of the parties. It is true that the
appellant discussed in its brief the question whether the document on which the action is
brought is an executory contract of sale or a "perfected sale," but not, however, for the purpose
of claiming that the title to the flour passed to plaintiff and that it was, therefore at risk, as
appellant nowhere claims that but admits the contrary, but under the wholly mistaken belief that
the law relating to fortuitous events a found in the Civil Code applies only to a "perfected sale"
and does not to an executory contract of sale. In other words, he argues for a "perfected sale"
not to put the flour at plaintiff's risk, but to bring his admitted breach of the contract within the
provisions of the Civil Code relating to fortuitous events. Appellant sums up its whole contention
in the last two paragraphs of its brief preceding the prayer for relief, which prove conclusively
that the only question really raised or presented by appellant was as I have stated. They read:
"Having arrived at the conclusion that Exhibit A is a contract of sale it is unquestionable that it
is subject to the law resulting to fortuitous events; in other words, that the contracting parties
are not responsible for unforeseen events, or those which, if foreseen, were unavoidable,
except in those cases where the law provides the contrary." It having been proved, as we have
said, that the failure to comply with the contract was due to a fortuitous event, the defendant is
relieved of all responsibility, and the court erred in giving judgment against it ... ." It is clear from
these quotations that the appellant never intended to raise the question exclusively considered
by the court, the sole purpose in speaking of perfected sale being to excuse the breach which,
if excusable at all, would be as much so whether the sale was perfected or not.
The remarks already made apply, generally speaking, with equal force to the case of Yu Tek
& Co. vs. Gonzales (29 Phil. Rep., 384), cited in the opinion of the court in this case. There
defendant agreed to sell and deliver to plaintiff a certain quantity of sugar which he did not have
and which, so far as known, was not in existence at the time the contract was made. No
question, therefore, of injury, loss, or profit could arise. His defense was that he was prevented
from delivering the sugar not because it was lost or destroyed but because the weather never
permitted him to produce it. Such a defense, if it is a defense at all, falls under article 1182,
cited by the court in that case, or any of them. Neither in the case cited nor in the one at bar
was there a claim that the thing sold was lost or injured. The sole claim and defense was that
the fulfillment of the contract was rendered impossible by an act of God which prevented the
thing sold from coming into existence. In one case the weather prevented the growth of the
sugar and in the other the war prevented the delivery of the flour. In neither cae was there a
claim that the thing sold was specified or set apart or even in existence; and the only question
presented in that case as well as in this was whether the defendants were relieved under article
1105 and not under 1450, 1452, 1182 and 1096.
The contract in the case at bar is one for the sale and delivery of a thing which in all probability
did not exist at the time the parties contracted. Certainly the parties did not know whether it
existed or not. It seems that the flour had to be manufactured in Australia before the delivery
agreed upon could be made. The whole trouble was caused by the failure of the manufacturers
in Australia to deliver to the defendant. To this kind of contract articles 1450, 1452, 1096, and
1182 do not apply; there can be no perfected sale when the thing sold is not yet in existence
and, consequently, there can be no question over the loss or injury to the thing or the profits
which it produces before delivery. The flour never had an existence and the relations between
the contracting parties never proceeded further than the mere words which formed the contract.
There was, therefore, never a moment when the question as to whether it was a perfected
contract could arise. The only articles applicable or claimed to be applicable were 1445 and
1105, to which I see no reference in the decision.
G.R. No. L-24732 April 30, 1968
PIO SIAN MELLIZA, petitioner,
vs.
CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT APPEALS,
respondents.
Cornelio P. Ravena for petitioner.
Office of the Solicitor General for respondents.
BENGZON, J.P., J.:
Juliana Melliza during her lifetime owned, among other properties, three parcels of residential
land in Iloilo City registered in her name under Original Certificate of Title No. 3462. Said
parcels of land were known as Lots Nos. 2, 5 and 1214. The total area of Lot No. 1214 was
29,073 square meters.
On November 27, 1931 she donated to the then Municipality of Iloilo, 9,000 square meters of
Lot 1214, to serve as site for the municipal hall. 1 The donation was however revoked by the
parties for the reason that the area donated was found inadequate to meet the requirements
of the development plan of the municipality, the so-called "Arellano Plan". 2
Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A and
1214-B. And still later, Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-B-2 and
Lot 1214-B-3. As approved by the Bureau of Lands, Lot 1214-B-1 with 4,562 square meters,
became known as Lot 1214-B; Lot 1214-B-2, with 6,653 square meters, was designated as Lot
1214-C; and Lot 1214-B-13, with 4,135 square meters, became Lot 1214-D.
On November 15, 1932 Juliana Melliza executed an instrument without any caption containing
the following:
Que en consideracion a la suma total de SEIS MIL CUATRO CIENTOS VEINTIDOS PESOS
(P6,422.00), moneda filipina que por la presente declaro haber recibido a mi entera
satisfaccion del Gobierno Municipal de Iloilo, cedo y traspaso en venta real y difinitiva a dicho
Gobierno Municipal de Iloilo los lotes y porciones de los mismos que a continuacion se
especifican a saber: el lote No. 5 en toda su extension; una porcion de 7669 metros cuadrados
del lote No. 2, cuya porcion esta designada como sub-lotes Nos. 2-B y 2-C del piano de
subdivision de dichos lotes preparado por la Certeza Surveying Co., Inc., y una porcion de
10,788 metros cuadrados del lote No. 1214 — cuya porcion esta designada como sub-lotes
Nos. 1214-B-2 y 1214-B-3 del mismo plano de subdivision.
Asimismo nago constar que la cesion y traspaso que ariba se mencionan es de venta difinitiva,
y que para la mejor identificacion de los lotes y porciones de los mismos que son objeto de la
presente, hago constar que dichos lotes y porciones son los que necesita el Gobierno
Municipal de Iloilo para la construccion de avenidas, parques y City Hall site del Municipal
Government Center de iloilo, segun el plano Arellano.
On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to Remedios Sian
Villanueva who thereafter obtained her own registered title thereto, under Transfer Certificate
of Title No. 18178. Remedios in turn on November 4, 1946 transferred her rights to said portion
of land to Pio Sian Melliza, who obtained Transfer Certificate of Title No. 2492 thereover in his
name. Annotated at the back of Pio Sian Melliza's title certificate was the following:
... (a) that a portion of 10,788 square meters of Lot 1214 now designated as Lots Nos. 1214-
B-2 and 1214-B-3 of the subdivision plan belongs to the Municipality of Iloilo as per instrument
dated November 15, 1932....
On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo, donated the
city hall site together with the building thereon, to the University of the Philippines (Iloilo
branch). The site donated consisted of Lots Nos. 1214-B, 1214-C and 1214-D, with a total area
of 15,350 square meters, more or less.
Sometime in 1952, the University of the Philippines enclosed the site donated with a wire fence.
Pio Sian Melliza thereupon made representations, thru his lawyer, with the city authorities for
payment of the value of the lot (Lot 1214-B). No recovery was obtained, because as alleged by
plaintiff, the City did not have funds (p. 9, Appellant's Brief.)
The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No. 7152
covering the three lots, Nos. 1214-B, 1214-C and 1214-D.
On December 10, 1955 Pio Sian Melliza filed an action in the Court of First Instance of Iloilo
against Iloilo City and the University of the Philippines for recovery of Lot 1214-B or of its value.
The defendants answered, contending that Lot 1214-B was included in the public instrument
executed by Juliana Melliza in favor of Iloilo municipality in 1932. After stipulation of facts and
trial, the Court of First Instance rendered its decision on August 15, 1957, dismissing the
complaint. Said court ruled that the instrument executed by Juliana Melliza in favor of Iloilo
municipality included in the conveyance Lot 1214-B. In support of this conclusion, it referred to
the portion of the instrument stating:
Asimismo hago constar que la cesion y traspaso que arriba se mencionan es de venta difinitiva,
y que para la major identificacion de los lotes y porciones de los mismos que son objeto de la
presente, hago constar que dichos lotes y porciones son los que necesita el Gobierno
municipal de Iloilo para la construccion de avenidas, parques y City Hall site del Municipal
Government Center de Iloilo, segun el plano Arellano.
and ruled that this meant that Juliana Melliza not only sold Lots 1214-C and 1214-D but also
such other portions of lots as were necessary for the municipal hall site, such as Lot 1214-B.
And thus it held that Iloilo City had the right to donate Lot 1214-B to the U.P.
Pio Sian Melliza appealed to the Court of Appeals. In its decision on May 19, 1965, the Court
of Appeals affirmed the interpretation of the Court of First Instance, that the portion of Lot 1214
sold by Juliana Melliza was not limited to the 10,788 square meters specifically mentioned but
included whatever was needed for the construction of avenues, parks and the city hall site.
Nonetheless, it ordered the remand of the case for reception of evidence to determine the area
actually taken by Iloilo City for the construction of avenues, parks and for city hall site.
The present appeal therefrom was then taken to Us by Pio Sian Melliza. Appellant maintains
that the public instrument is clear that only Lots Nos. 1214-C and 1214-D with a total area of
10,788 square meters were the portions of Lot 1214 included in the sale; that the purpose of
the second paragraph, relied upon for a contrary interpretation, was only to better identify the
lots sold and none other; and that to follow the interpretation accorded the deed of sale by the
Court of Appeals and the Court of First Instance would render the contract invalid because the
law requires as an essential element of sale, a "determinate" object (Art. 1445, now 1448, Civil
Code).
Appellees, on the other hand, contend that the present appeal improperly raises only questions
of fact. And, further, they argue that the parties to the document in question really intended to
include Lot 1214-B therein, as shown by the silence of the vendor after Iloilo City exercised
ownership thereover; that not to include it would have been absurd, because said lot is
contiguous to the others admittedly included in the conveyance, lying directly in front of the city
hall, separating that building from Lots 1214-C and 1214-D, which were included therein. And,
finally, appellees argue that the sale's object was determinate, because it could be ascertained,
at the time of the execution of the contract, what lots were needed by Iloilo municipality for
avenues, parks and city hall site "according to the Arellano Plan", since the Arellano plan was
then already in existence.
The appeal before Us calls for the interpretation of the public instrument dated November 15,
1932. And interpretation of such contract involves a question of law, since the contract is in the
nature of law as between the parties and their successors-in-interest.
At the outset, it is well to mark that the issue is whether or not the conveyance by Juliana
Melliza to Iloilo municipality included that portion of Lot 1214 known as Lot 1214-B. If not, then
the same was included, in the instrument subsequently executed by Juliana Melliza of her
remaining interest in Lot 1214 to Remedios Sian Villanueva, who in turn sold what she
thereunder had acquired, to Pio Sian Melliza. It should be stressed, also, that the sale to
Remedios Sian Villanueva — from which Pio Sian Melliza derived title — did not specifically
designate Lot 1214-B, but only such portions of Lot 1214 as were not included in the previous
sale to Iloilo municipality (Stipulation of Facts, par. 5, Record on Appeal, p. 23). And thus, if
said Lot 1214-B had been included in the prior conveyance to Iloilo municipality, then it was
excluded from the sale to Remedios Sian Villanueva and, later, to Pio Sian Melliza.
The point at issue here is then the true intention of the parties as to the object of the public
instrument Exhibit "D". Said issue revolves on the paragraph of the public instrument
aforequoted and its purpose, i.e., whether it was intended merely to further describe the lots
already specifically mentioned, or whether it was intended to cover other lots not yet specifically
mentioned.
First of all, there is no question that the paramount intention of the parties was to provide Iloilo
municipality with lots sufficient or adequate in area for the construction of the Iloilo City hall site,
with its avenues and parks. For this matter, a previous donation for this purpose between the
same parties was revoked by them, because of inadequacy of the area of the lot donated.
Secondly, reading the public instrument in toto, with special reference to the paragraphs
describing the lots included in the sale, shows that said instrument describes four parcels of
land by their lot numbers and area; and then it goes on to further describe, not only those lots
already mentioned, but the lots object of the sale, by stating that said lots are the ones needed
for the construction of the city hall site, avenues and parks according to the Arellano plan. If
the parties intended merely to cover the specified lots — Lots 2, 5, 1214-C and 1214-D, there
would scarcely have been any need for the next paragraph, since these lots are already plainly
and very clearly described by their respective lot number and area. Said next paragraph does
not really add to the clear description that was already given to them in the previous one.
It is therefore the more reasonable interpretation, to view it as describing those other portions
of land contiguous to the lots aforementioned that, by reference to the Arellano plan, will be
found needed for the purpose at hand, the construction of the city hall site.
Appellant however challenges this view on the ground that the description of said other lots in
the aforequoted second paragraph of the public instrument would thereby be legally
insufficient, because the object would allegedly not be determinate as required by law.
Such contention fails on several counts. The requirement of the law that a sale must have for
its object a determinate thing, is fulfilled as long as, at the time the contract is entered into, the
object of the sale is capable of being made determinate without the necessity of a new or further
agreement between the parties (Art. 1273, old Civil Code; Art. 1460, New Civil Code). The
specific mention of some of the lots plus the statement that the lots object of the sale are the
ones needed for city hall site, avenues and parks, according to the Arellano plan, sufficiently
provides a basis, as of the time of the execution of the contract, for rendering determinate said
lots without the need of a new and further agreement of the parties.

The Arellano plan was in existence as early as 1928. As stated, the previous donation of land
for city hall site on November 27, 1931 was revoked on March 6, 1932 for being inadequate in
area under said Arellano plan. Appellant claims that although said plan existed, its metes and
bounds were not fixed until 1935, and thus it could not be a basis for determining the lots sold
on November 15, 1932. Appellant however fails to consider that the area needed under that
plan for city hall site was then already known; that the specific mention of some of the lots
covered by the sale in effect fixed the corresponding location of the city hall site under the plan;
that, therefore, considering the said lots specifically mentioned in the public instrument Exhibit
"D", and the projected city hall site, with its area, as then shown in the Arellano plan (Exhibit
2), it could be determined which, and how much of the portions of land contiguous to those
specifically named, were needed for the construction of the city hall site.
And, moreover, there is no question either that Lot 1214-B is contiguous to Lots 1214-C and
1214-D, admittedly covered by the public instrument. It is stipulated that, after execution of the
contract Exhibit "D", the Municipality of Iloilo possessed it together with the other lots sold. It
sits practically in the heart of the city hall site. Furthermore, Pio Sian Melliza, from the stipulation
of facts, was the notary public of the public instrument. As such, he was aware of its terms.
Said instrument was also registered with the Register of Deeds and such registration was
annotated at the back of the corresponding title certificate of Juliana Melliza. From these
stipulated facts, it can be inferred that Pio Sian Melliza knew of the aforesaid terms of the
instrument or is chargeable with knowledge of them; that knowing so, he should have examined
the Arellano plan in relation to the public instrument Exhibit "D"; that, furthermore, he should
have taken notice of the possession first by the Municipality of Iloilo, then by the City of Iloilo
and later by the University of the Philippines of Lot 1214-B as part of the city hall site conveyed
under that public instrument, and raised proper objections thereto if it was his position that the
same was not included in the same. The fact remains that, instead, for twenty long years, Pio
Sian Melliza and his predecessors-in-interest, did not object to said possession, nor exercise
any act of possession over Lot 1214-B. Applying, therefore, principles of civil law, as well as
laches, estoppel, and equity, said lot must necessarily be deemed included in the conveyance
in favor of Iloilo municipality, now Iloilo City.
WHEREFORE, the decision appealed from is affirmed insofar as it affirms that of the Court of
First Instance, and the complaint in this case is dismissed. No costs. So ordered.
Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando,
JJ., concur.
Concepcion , C.J., is on leave.
G.R. No. L-68741 January 28, 1988
NATIONAL GRAINS AUTHORITY, plaintiff-appellee,
vs.
INTERMEDIATE APPELLATE COURT, MELECIO MAGCAMIT, NENA COSICO and
EMELITA MAGCAMIT, defendants-appellants.
PARAS, J.:
This is a petition for review of the decision of the then Intermediate Appellate Court * (now
Court of Appeals) dated January 31, 1984, reversing the decision of the Court of First Instance
of Laguna and San Pablo City, 8th Judicial District, Branch III, and of the resolution dated
August 28, 1984 denying the motion for reconsideration filed thereof.
The undisputed facts of this case as found by the Trial Court and the Intermediate Appellate
Court are as follows:
On December 2,1971, the spouses Paulino Vivas and Engracia Lizards, as owners of a parcel
of land situated in Bo. San Francisco, Victoria, Laguna, comprising more or less 105,710
square meters, sold for P30,000.00 said property in favor of spouses Melencio Magcamit and
Nena Cosico, and Amelita Magcamit (herein private respondents) as evidenced by "Kasulatan
Ng Bilihang Mabiling Muli." This sale with right to repurchase was recorded in the Office of the
Register of Deeds of Laguna on December 6,1971 under Act No. 3344. On January 31,1972
the sale was made absolute by the spouses Vivas and Lizardo in favor of the private
respondents for the sum of P90,000.00; P50,000.00 of which was paid upon the execution of
the instrument, entitled "Kasulatan Ng Bilihan Tuluyan," after being credited with the
P30,000.00 consideration of the "Kasulatan Ng Mabibiling Muli," and the balance of P40,000.00
was to be paid the moment that the certificate of title is issued. From the execution of said
Kasulatan, private respondent have remained in peaceful, adverse and open possession of
subject property.
On February 26, 1975, an Original Certificate of Title No. T-1728 covering the property in
question was issued to and in the name of the spouses Vivas and Lizardo without the
knowledge of the private respondents and on April 30, 1975, said Spouses executed a Special
Power of Attorney in favor of Irenea Ramirez authorizing the latter to mortgage the property
with the petitioner, National Grains Authority.
On May 2, 1974, the counsel for the petitioner wrote the Provincial Sheriff in Sta. Cruz, Laguna,
requesting for the extrajudicial foreclosure of the mortgage executed by Irenea Ramirez on
May 18, 1975, covering, among others, the property involved in this case covered by OCT No.
T-1728, for unpaid indebtedness in the amount of P63,948.80 in favor of the petitioner.
On May 31, 1974, the Provincial Sheriff caused the issuance of the notice of sale of the property
in question, scheduling the public auction sale on June 28, 1974. The petitioner was the highest
and successful bidder so that a Certificate of Sale was issued in its favor on the same date by
the Provincial Sheriff.
On July 10, 1974, the petitioner in its capacity as attorney-in-fact of the mortgagor sold the
subject real property in favor of itself. By virtue of the deed of absolute sale, TCT No. T-75171
of the Register of Deeds for the Province of Laguna was issued in the name of the petitioner
on July 16, 1974. It was only in July 1974, that private respondents learned that a title in the
name of the Vivas spouses had been issued covering the property in question and that the
same property had been mortgaged in favor of the petitioner. Private respondent Nena
Magcamit offered to pay the petitioner NGA the amount of P40,000.00 which is the balance of
the amount due the Vivas spouses under the terms of the absolute deed of sale but the
petitioner refused to accept the payment. On July 31, 1974, counsel for private respondents
made a formal demand on the spouses Vivas and Lizardo to comply with their obligation under
the terms of the absolute deed of sale; and soon after reiterated to the NGA, the offer to pay
the balance of P40,000.00 due under the absolute deed of sale. On August 13, 1974 petitioner
in its reply informed counsel of private respondents that petitioner is now the owner of the
property in question and has no intention of disposing of the same.
The private respondents, who as previously stated, are in possession of subject property were
asked by petitioner to vacate it but the former refused. Petitioner filed a suit for ejectment
against private respondents in the Municipal Court of Victoria, Laguna, but the case was
dismissed.
On June 4, 1975, private respondents filed a complaint before the then Court of First Instance
of Laguna and San Pablo City, Branch III, San Pablo City, against the petitioner and the
spouses Vivas and Lizardo, praying, among others, that they be declared the owners of the
property in question and entitled to continue in possession of the same, and if the petitioner is
declared the owner of the said property, then, to order it to reconvey or transfer the ownership
to them under such terms and conditions as the court may find just, fair and equitable under
the premises. (Record on Appeal, pp. 2-11).
In its answer to the complaint, the petitioner (defendant therein) maintained that it was never a
privy to any transaction between the private respondents (plaintiffs therein) and the spouses
Paulino Vivas and Engracia Lizardo that it is a purchaser in good faith and for value of the
property formerly covered by OCT No. 1728; and that the title is now indefeasible, hence,
private respondents' cause of action has' already prescribed. (Record on Appeal, pp. 16-22).
After due hearing, the trial court ** rendered its decision on March 17, 1981, in favor of the
petitioner, the dispositive portion of said judgment reading as follows:
WHEREFORE, judgment is hereby rendered as follows:
(1) declaring defendant National Grains Authority the lawful owner of the property in
question by virtue of its indefeasible title to the same;
(2) ordering plaintiffs to turn over possession of the land to defendant National Grains
Authority;
(3) ordering defendants-spouses Paulino Vivas and Engracia Lizardo to pay plaintiffs the
sum of P56,000.00 representing the amount paid pursuant to the Kasulatan Ng Bilihang
Tuluyan marked Exhibit "3", with legal interest thereon from January 31, 1972 until the amount
is paid, to pay an additional amount of P5,000.00 for and as attorney's fees, an additional
amount of Pl0,000.00 as moral damages, another amount of P5,000.00 by way of exemplary
damages and to pay the costs of this suit. (Rollo, P. 35).
The private respondents interposed an appeal from the decision of the trial court to the
Intermediate Appellate Court.
After proper proceedings, the appellate court rendered its decision on January 31, 1984,
reversing and setting aside the decision of the trial court as follows:
WHEREFORE, the decision of the lower court is hereby reversed and set aside and another
one is rendered ordering the National Grains Authority to execute a deed of reconveyance
sufficient in law for purposes of registration and cancellation of transfer Certificate of Title No.
T-75171 and the issuance of another title in the names of plaintiff-appellants, and ordering
defendants-appellees Paulino Vivas and Engracia Lizardo to pay the National Grains Authority
the sum of P78,375.00 (Exh. 3) within thirty (30) days from the receipts of the writ of execution.
No damages and costs. (Rollo, p. 19).
The petitioner filed a motion for reconsideration of the said decision but the same was denied.
(Rollo, p. 26).
Hence, this petition.
In the resolution of May 20, 1985, the petition was given due course and the parties were
required to submit simultaneous memoranda (Rollo, p. 128). The memorandum for the
petitioner was filed on July 3, 1985 (Rollo, p. 129) while the memorandum for the private
respondents was filed on August 26, 1985 1 Rollo p. 192).
The main issue in this case is whether or not violation of the terms of the agreement between
the spouses Vivas and Lizardo, the sellers, and private respondents, the buyers, to deliver the
certificate of title to the latter, upon its issuance, constitutes a breach of trust sufficient to defeat
the title and right acquired by petitioner NGA, an innocent purchaser for value.
It is undisputed that: (1) there are two deeds of sale of the same land in favor of private
respondents, namely: (a) the conditional sale with right to repurchase or the 'Kasulatan Ng
Bilihang Mabibiling Muli" which was registered under Act 3344 and (b) the deed of absolute
sale or "Kasulatan ng Bilihang Tuluyan" which was not registered; (2) the condition that the
Certificate of Title will be delivered to the buyers upon its issuance and upon payment of the
balance of P40,000.00 is contained in the deed of absolute sale; and (3) the land in question
at the time of the execution of both sales was not yet covered by the Torrens System of
registration.
It is axiomatic, that while the registration of the conditional sale with right of repurchase may
be binding on third persons, it is by provision of law "understood to be without prejudice to third
party who has better right" (Section 194 of the Administrative Code, as amended by Act No.
3344). In this case, it will be noted that the third party NGA, is a registered owner under the
Torrens System and has obviously a better right than private respondents and that the deed of
absolute sale with the suspensive condition is not registered and is necessarily binding only on
the spouses Vivas and Lizardo and private respondents.
In their complaint at the Regional Trial Court, private respondents prayed among others, for
two alternative reliefs, such as: (a) to be declared the owners of the property in question or (b)
to order the declared owner to reconvey or transfer the ownership of the property in their favor.
Private respondents claim a better right to the property in question by virtue of the Conditional
Sale, later changed to a deed of Absolute Sale which although unregistered under the Torrens
System allegedly transferred to them the ownership and the possession of the property in
question. In fact, they argue that they have been and are still in possession of the same openly,
continuously, publicly under a claim of ownership adverse to all other claims since the purchase
on December 2, 1971 (Rollo, p. 165). It is stressed that not until the month of July, 1974 did
the plaintiff learn that a title had been issued covering the property in question (Rollo, p. 15).
Time and time again, this Court has ruled that the proceedings for the registration of title to
land under the Torrens System is an action in rem not in personam, hence, personal notice to
all claimants of the res is not necessary in order that the court may have jurisdiction to deal
with and dispose of the res. Neither may lack of such personal notice vitiate or invalidate the
decree or title issued in a registration proceeding, for the State, as sovereign over the land
situated within it, may provide for the adjudication of title in a proceeding in rem or one in the
nature of or akin a to proceeding in rem which shall be binding upon all persons, known or
unknown (Moscoso vs. Court of appeals, 128 SCRA 719 [1984], citing: City of Manila vs. Lack,
et al., 19 Phil. 324, 337; Roxas vs. Enriquez, 29 Phil. 31; Director of Lands vs. Roman Catholic
Archbishop of Manila, 41 Phil. 120; Aguilar vs. Caogdan, 105 Phil. 661). It is thus evident that
respondents' right over the property was barred by res judicata when the decree of registration
was issued to spouses Vivas and Lizards. It does not matter that they may have had some
right even the right of ownership, BEFORE the grant of the Torrens Title.
Thus, under Section 44 of P.D. 1529, every registered owner receiving a certificate of title in
pursuance of a decree of registration, and every subsequent purchaser of registered land
taking a certificate of title for value and in good faith, shall hold the same free from all
encumbrances except those noted on the certificate and any of the encumbrances which may
be subsisting, and enumerated in the law. Under said provision, claims and liens of whatever
character, except those mentioned by law as existing, against the land prior to the issuance of
certificate of title, are cut off by such certificate if not noted thereon, and the certificate so issued
binds the whole world, including the government (Aldecoa and Co. vs. Warner Barns & Co., 30
Phil. 209 [1915]; Snyder vs. Fiscal of Cebu and Avila, 42 Phil. 766 [1922]). Under said ruling,
if the purchaser is the only party who appears in the deeds and the registration of titles in the
property registry, no one except such purchaser may be deemed by law to be the owner of the
properties in question (Ibid). Moreover, no title to registered land in derogation to that of the
registered owner shall be acquired by prescription or adverse possession (Umbay vs. Alecha,
135 SCRA 427 [1985]).
It does not appear that private respondents' claim falls under any of the exceptions provided
for under Section 44 of P.D. 1529 which can be enforced against petitioner herein.
Thus, it has been invariably restated by this Court, that "The real purpose of the Torrens System
is to quiet title to land and to stop forever any question as to its legality. "Once a title is
registered, the owner may rest secure, without the necessity of waiting in the portals of the
court, or sitting on the "mirador su casato," avoid the possibility of losing his land." "An indirect
or collateral attack on a Torrens Title is not allowed (Dominga vs. Santos, 55 Phil. 361; Singian
vs. Manila Railroad, 62 Phil. 467)."
The only exception to this rule is where a person obtains a certificate of title to a land belonging
to another and he has full knowledge of the rights of the true owner. He is then considered as
guilty of fraud and he may be compelled to transfer the land to the defrauded owner so long as
the property has not passed to the hands of an innocent purchaser for value (Angeles vs. Sania,
66 Phil. 444 [1938], emphasis supplied).
It will be noted that the spouses Vivas and Lizardo never committed any fraud in procuring the
registration of the property in question. On the contrary, their application for registration which
resulted in the issuance of OCT No. 1728 was with complete knowledge and implied authority
of private respondents who retained a portion of the consideration until the issuance to said
spouses of a certificate of title applied for under the Torrens Act and the corresponding delivery
of said title to them. The question therefore, is not about the validity of OCT No. 1728 but in the
breach of contract between private respondents and the Vivas spouses. Petitioner NGA was
never a privy to this transaction. Neither was it shown that it had any knowledge at the time of
the execution of the mortgage, of the existence of the suspensive condition in the deed of
absolute sale much less of its violation. Nothing appeared to excite suspicion. The Special
Power of Attorney was regular on its face; the OCT was in the name of the mortgagor and the
NGA was the highest bidder in the public auction. Unquestionably, therefore, the NGA is an
innocent purchaser for value, first as an innocent mortgagee under Section 32 of P.D. 1529
and later as innocent purchaser for value in the public auction sale.
Private respondents claim that NGA did not even field any representative to the land which was
not even in the possession of the supposed mortgagors, nor present any witness to prove its
allegations in the ANSWER nor submit its DEED OF MORTGAGE to show its being a
mortgages in good faith and for value (Rollo, p. 110).
Such contention is, however, untenable. Well settled is the rule that all persons dealing with
property covered by a torrens certificate of title are not required to go beyond what appears on
the face of the title. When there is nothing on the certificate of title to indicate any cloud or vice
in the ownership of the property, or any encumbrance thereon, the purchaser is not required to
explore further than what the torrens title upon its face indicates in quest for any hidden defect
or inchoate right that may subsequently defeat his right thereto (Centeno vs. Court of Appeals,
139 SCRA 545 [1985]).
More specifically, the Court has ruled that a bank is not required before accepting a mortgage
to make an investigation of the title of the property being given as security (Phil. National
Cooperative Bank vs. Carandang Villalon, 139 SCRA 570 [1985]), and where innocent third
persons like mortgagee relying on the certificate of title acquire rights over the property, their
rights cannot be disregarded (Duran vs. IAC, 138 SCRA 489 [1985]).
Under the circumstances, the Regional Trial Court could not have erred in ruling that plaintiffs
(private respondents herein) complaint insofar as it prays that they be declared owners of the
land in question can not prosper in view of the doctrine of indefeasibility of title under the
Torrens System, because it is an established principle that a petition for review of the decree
of registration will not prosper even if filed within one year from the entry of the decree if the
title has passed into the hands of an innocent purchaser for value (Pres. Decree No. 1529,
Sec. 32). The setting aside of the decree of registration issued in land registration proceedings
is operative only between the parties to the fraud and the parties defrauded and their privies,
but not against acquirers in good faith and for value and the successors in interest of the latter;
as to them the decree shall remain in full force and effect forever (Domingo vs. The Mayon
Realty Corp. et al., 102 Phil. 32 [19571). Assuming, therefore, that there was fraud committed
by the sellers against the buyers in the instant case, petitioner NGA who was not privy therein
cannot be made to suffer the consequences thereof As correctly declared by the trial court, the
National Grains Authority is the lawful owner of the property in question by virtue of its
indefeasible title.
As to private respondents' alternative prayer that the declared owner be ordered to reconvey
or transfer the ownership of the property in their favor, it is clear that there is absolutely no
reason why petitioner, an innocent purchaser for value, should reconvey the land to the private
respondents.
PREMISES CONSIDERED, the decision of the Court of Appeals is REVERSED and SET
ASIDE, and the decision of the Court of First Instance of Laguna and San Pablo City, now
Regional Trial Court, is REINSTATED.
SO ORDERED.
Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur.
G.R. No. 105387 November 11, 1993
JOHANNES SCHUBACK & SONS PHILIPPINE TRADING CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, RAMON SAN JOSE, JR., doing business under the
name and style "PHILIPPINE SJ INDUSTRIAL TRADING," respondents.
Hernandez, Velicaria, Vibar & Santiago for petitioner.
Ernesto M. Tomaneng for private respondent.
ROMERO, J.:
In this petition for review on certiorari, petitioner questions the reversal by the Court of Appeals
1 of the trial court's ruling that a contract of sale had been perfected between petitioner and
private respondent over bus spare parts.
The facts as quoted from the decision of the Court of Appeals are as follows:
Sometime in 1981, defendant 2 established contact with plaintiff 3 through the Philippine
Consulate General in Hamburg, West Germany, because he wanted to purchase MAN bus
spare parts from Germany. Plaintiff communicated with its trading partner. Johannes Schuback
and Sohne Handelsgesellschaft m.b.n. & Co. (Schuback Hamburg) regarding the spare parts
defendant wanted to order.
On October 16, 1981, defendant submitted to plaintiff a list of the parts (Exhibit B) he wanted
to purchase with specific part numbers and description. Plaintiff referred the list to Schuback
Hamburg for quotations. Upon receipt of the quotations, plaintiff sent to defendant a letter dated
25 November, 1981 (Exh. C) enclosing its offer on the items listed by defendant.
On December 4, 1981, defendant informed plaintiff that he preferred genuine to replacement
parts, and requested that he be given 15% on all items (Exh. D).
On December 17, 1981, plaintiff submitted its formal offer (Exh. E) containing the item number,
quantity, part number, description, unit price and total to defendant. On December, 24, 1981,
defendant informed plaintiff of his desire to avail of the prices of the parts at that time and
enclosed Purchase Order No. 0101 dated 14 December 1981 (Exh. F to F-4). Said Purchase
Order contained the item number, part number and description. Defendant promised to submit
the quantity per unit he wanted to order on December 28 or 29 (Exh. F).
On December 29, 1981, defendant personally submitted the quantities he wanted to Mr. Dieter
Reichert, General Manager of plaintiff, at the latter's residence (t.s.n., 13 December, 1984, p.
36). The quantities were written in ink by defendant in the same Purchase Order previously
submitted. At the bottom of said Purchase Order, defendant wrote in ink above his signature:
"NOTE: Above P.O. will include a 3% discount. The above will serve as our initial P.O." (Exhs.
G to G-3-a).
Plaintiff immediately ordered the items needed by defendant from Schuback Hamburg to
enable defendant to avail of the old prices. Schuback Hamburg in turn ordered (Order No.
12204) the items from NDK, a supplier of MAN spare parts in West Germany. On January 4,
1982, Schuback Hamburg sent plaintiff a proforma invoice (Exhs. N-1 to N-3) to be used by
defendant in applying for a letter of credit. Said invoice required that the letter of credit be
opened in favor of Schuback Hamburg. Defendant acknowledged receipt of the invoice (t.s.n.,
19 December 1984, p. 40).
An order confirmation (Exhs. I, I-1) was later sent by Schuback Hamburg to plaintiff which was
forwarded to and received by defendant on February 3, 1981 (t.s.n., 13 Dec. 1984, p. 42).
On February 16, 1982, plaintiff reminded defendant to open the letter of credit to avoid delay
in shipment and payment of interest (Exh. J). Defendant replied, mentioning, among others,
the difficulty he was encountering in securing: the required dollar allocations and applying for
the letter of credit, procuring a loan and looking for a partner-financier, and of finding ways 'to
proceed with our orders" (Exh. K).
In the meantime, Schuback Hamburg received invoices from, NDK for partial deliveries on
Order No.12204 (Direct Interrogatories., 07 Oct, 1985, p. 3). Schuback Hamburg paid NDK.
The latter confirmed receipt of payments made on February 16, 1984 (Exh.C-Deposition).
On October 18, 1982, Plaintiff again reminded defendant of his order and advised that the case
may be endorsed to its lawyers (Exh. L). Defendant replied that he did not make any valid
Purchase Order and that there was no definite contract between him and plaintiff (Exh. M).
Plaintiff sent a rejoinder explaining that there is a valid Purchase Order and suggesting that
defendant either proceed with the order and open a letter of credit or cancel the order and pay
the cancellation fee of 30% of F.O.B. value, or plaintiff will endorse the case to its lawyers (Exh.
N).
Schuback Hamburg issued a Statement of Account (Exh. P) to plaintiff enclosing therewith
Debit Note (Exh. O) charging plaintiff 30% cancellation fee, storage and interest charges in the
total amount of DM 51,917.81. Said amount was deducted from plaintiff's account with
Schuback Hamburg (Direct Interrogatories, 07 October, 1985).
Demand letters sent to defendant by plaintiff's counsel dated March 22, 1983 and June 9, 1983
were to no avail (Exhs R and S).
Consequently, petitioner filed a complaint for recovery of actual or compensatory damages,
unearned profits, interest, attorney's fees and costs against private respondent.
In its decision dated June 13, 1988, the trial court4 ruled in favor of petitioner by ordering private
respondent to pay petitioner, among others, actual compensatory damages in the amount of
DM 51,917.81, unearned profits in the amount of DM 14,061.07, or their peso equivalent.
Thereafter, private respondent elevated his case before the Court of Appeals. On February 18,
1992, the appellate court reversed the decision of the trial court and dismissed the complaint
of petitioner. It ruled that there was no perfection of contract since there was no meeting of the
minds as to the price between the last week of December 1981 and the first week of January
1982.
The issue posed for resolution is whether or not a contract of sale has been perfected between
the parties.
We reverse the decision of the Court of Appeals and reinstate the decision of the trial court. It
bears emphasizing that a "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. . . . " 5
Article 1319 of the Civil Code states: "Consent is manifested by the meeting of the offer and
acceptance upon the thing and the cause which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified acceptance constitutes a counter offer."
The facts presented to us indicate that consent on both sides has been manifested.
The offer by petitioner was manifested on December 17, 1981 when petitioner submitted its
proposal containing the item number, quantity, part number, description, the unit price and total
to private respondent. On December 24, 1981, private respondent informed petitioner of his
desire to avail of the prices of the parts at that time and simultaneously enclosed its Purchase
Order No. 0l01 dated December 14, 1981. At this stage, a meeting of the minds between
vendor and vendee has occurred, the object of the contract: being the spare parts and the
consideration, the price stated in petitioner's offer dated December 17, 1981 and accepted by
the respondent on December 24,1981.
Although said purchase order did not contain the quantity he wanted to order, private
respondent made good, his promise to communicate the same on December 29, 1981. At this
juncture, it should be pointed out that private respondent was already in the process of
executing the agreement previously reached between the parties.
Below Exh. G-3, marked as Exhibit G-3-A, there appears this statement made by private
respondent: "Note. above P.O. will include a 3% discount. The above will serve as our initial
P.O." This notation on the purchase order was another indication of acceptance on the part of
the vendee, for by requesting a 3% discount, he implicitly accepted the price as first offered by
the vendor. The immediate acceptance by the vendee of the offer was impelled by the fact that
on January 1, 1982, prices would go up, as in fact, the petitioner informed him that there would
be a 7% increase, effective January 1982. On the other hand, concurrence by the vendor with
the said discount requested by the vendee was manifested when petitioner immediately
ordered the items needed by private respondent from Schuback Hamburg which in turn ordered
from NDK, a supplier of MAN spare parts in West Germany.
When petitioner forwarded its purchase order to NDK, the price was still pegged at the old one.
Thus, the pronouncement of the Court Appeals that there as no confirmed price on or about
the last week of December 1981 and/or the first week of January 1982 was erroneous.
While we agree with the trial court's conclusion that indeed a perfection of contract was reached
between the parties, we differ as to the exact date when it occurred, for perfection took place,
not on December 29, 1981. Although the quantity to be ordered was made determinate only
on December 29, 1981, quantity is immaterial in the perfection of a sales contract. What is of
importance is the meeting of the minds as to the object and cause, which from the facts
disclosed, show that as of December 24, 1981, these essential elements had already occurred.
On the part of the buyer, the situation reveals that private respondent failed to open an
irrevocable letter of credit without recourse in favor of Johannes Schuback of Hamburg,
Germany. This omission, however. does not prevent the perfection of the contract between the
parties, for the opening of the letter of credit is not to be deemed a suspensive condition. The
facts herein do not show that petitioner reserved title to the goods until private respondent had
opened a letter of credit. Petitioner, in the course of its dealings with private respondent, did
not incorporate any provision declaring their contract of sale without effect until after the
fulfillment of the act of opening a letter of credit.
The opening of a etter of credit in favor of a vendor is only a mode of payment. It is not among
the essential requirements of a contract of sale enumerated in Article 1305 and 1474 of the
Civil Code, the absence of any of which will prevent the perfection of the contract from taking
place.
To adopt the Court of Appeals' ruling that the contract of sale was dependent on the opening
of a letter of credit would be untenable from a pragmatic point of view because private
respondent would not be able to avail of the old prices which were open to him only for a limited
period of time. This explains why private respondent immediately placed the order with
petitioner which, in turn promptly contacted its trading partner in Germany. As succinctly stated
by petitioner, "it would have been impossible for respondent to avail of the said old prices since
the perfection of the contract would arise much later, or after the end of the year 1981, or when
he finally opens the letter of credit." 6
WHEREFORE, the petition is GRANTED and the decision of the trial court dated June 13, 1988
is REINSTATED with modification.
SO ORDERED.
Feliciano, Bidin, Melo and Vitug, JJ., concur.
G.R. No. L-21489 and L-21628 May 19, 1966
MIGUEL MAPALO, ET AL., petitioners,
vs.
MAXIMO MAPALO, ET AL., respondents.
Pedro P. Tuason for petitioners.
Primicias and Del Castillo for respondents.
BENGZON, J.P., J.:
The spouses Miguel Mapalo and Candida Quiba, simple illiterate farmers, were registered
owners, with Torrens title certificate O.C.T. No. 46503, of a 1,635-square-meter residential land
in Manaoag, Pangasinan. Said spouses-owners, out of love and affection for Maximo Mapalo
— a brother of Miguel who was about to get married — decided to donate the eastern half of
the land to him. O.C.T. No. 46503 was delivered. As a result, however, they were deceived into
signing, on October 15, 1936, a deed of absolute sale over the entire land in his favor. Their
signatures thereto were procured by fraud, that is, they were made to believe by Maximo
Mapalo and by the attorney who acted as notary public who "translated" the document, that the
same was a deed of donation in Maximo's favor covering one-half (the eastern half) of their
land. Although the document of sale stated a consideration of Five Hundred (P500.00) Pesos,
the aforesaid spouses did not receive anything of value for the land. The attorney's
misbehaviour was the subject of an investigation but its result does not appear on record.
However we took note of the fact that during the hearing of these cases said notary public was
present but did not take the witness stand to rebut the plaintiffs' testimony supporting the
allegation of fraud in the preparation of the document.
Following the execution of the afore-stated document, the spouses Miguel Mapalo and Candida
Quiba immediately built a fence of permanent structure in the middle of their land segregating
the eastern portion from its western portion. Said fence still exists. The spouses have always
been in continued possession over the western half of the land up to the present.
Not known to them, meanwhile, Maximo Mapalo, on March 15, 1938, registered the deed of
sale in his favor and obtained in his name Transfer Certificate of Title No. 12829 over the entire
land. Thirteen years later on October 20, 1951, he sold for P2,500.00 said entire land in favor
of Evaristo, Petronila Pacifico and Miguel all surnamed Narciso. The sale to the Narcisos was
in turn registered on November 5, 1951 and Transfer Certificate of Title No. 11350 was issued
for the whole land in their names.
The Narcisos took possession only of the eastern portion of the land in 1951, after the sale in
their favor was made. On February 7, 1952 they filed suit in the Court of First Instance of
Pangasinan (Civil Case No. 1191) to be declared owners of the entire land, for possession of
its western portion; for damages; and for rentals. It was brought against the Mapalo spouses
as well as against Floro Guieb and Rosalia Mapalo Guieb who had a house on the western
part of the land with the consent of the spouses Mapalo and Quiba.
The Mapalo spouses filed their answer with a counterclaim on March 17, 1965, seeking
cancellation of the Transfer Certificate of Title of the Narcisos as to the western half of the land,
on the grounds that their (Mapalo spouses) signatures to the deed of sale of 1936 was procured
by fraud and that the Narcisos were buyers in bad faith. They asked for reconveyance to them
of the western portion of the land and issuance of a Transfer Certificate of Title in their names
as to said portion.
In addition, the Mapalo spouses filed on December 16, 1957 their own complaint in the Court
of First Instance of Pangasinan (Civil Case No. U-133) against the aforestated Narcisos and
Maximo Mapalo. They asked that the deeds of sale of 1936 and of 1951 over the land in
question be declared null and void as to the western half of said land.
Judge Amado Santiago of the Court of First Instance of Pangasinan located in the municipality
of Urdaneta tried the two cases jointly. Said court rendered judgment on January 18, 1961, as
follows:
WHEREFORE, judgment is hereby rendered as follows, to wit:
(a) dismissing the complaint in Civil Case No. 11991;
(b) declaring Exhibit A, plaintiffs in Case No. 11991 and Exhibit 1, defendants in Case No. U-
133 as a donation only over the eastern half portion of the above-described land, and as null
and void with respect to the western half portion thereof;
(c) declaring as null and void and without legal force and effect Transfer Certificate of Title No.
12829 issued in favor of Maximo Mapalo as regards the western half portion of the land covered
therein;
(d) declaring as null and void Transfer Certificate of Title No. 11350 in the names of the
Narcisos insofar as the western half portion of the land covered therein is concerned;
(e) ordering the spouses Mapalo and Quiba and the Narcisos to have the above-described land
be subdivided by a competent land surveyor and that the expenses incident thereto be borne
out by said parties pro rata;
(f) ordering the Register of Deeds of Pangasinan to issue in lieu of Transfer Certificate of Title
No. 11350 two new titles upon completion of the subdivision plan, one in favor of the spouses
Miguel Mapalo and Candida Quiba covering the western half portion and another for the
Narcisos covering the eastern half portion of the said land, upon payment of the legal fees;
meanwhile the right of the spouses Mapalo and Quiba is hereby ordered to be annotated on
the back of Transfer Certificate of Title No. 11350; and
(g) sentencing Maximo Mapalo and the Narcisos to pay the costs.
IT IS SO ORDERED.
The Narcisos appealed to the Court of Appeals. In its decision on May 28, 1963, the Court of
Appeals reversed the judgment of the Court of First Instance, solely on the ground that the
consent of the Mapalo spouses to the deed of sale of 1936 having been obtained by fraud, the
same was voidable, not void ab initio, and, therefore, the action to annul the same, within four
years from notice of the fraud, had long prescribed. It reckoned said notice of the fraud from
the date of registration of the sale on March 15, 1938. The Court of First Instance and the Court
of Appeals are therefore unanimous that the spouses Mapalo and Quiba were definitely the
victims of fraud. It was only on prescription that they lost in the Court of Appeals.
From said decision of the Court of Appeals, the Mapalo spouses appealed to this Court.
And here appellants press the contention that the document dated October 15, 1936,
purporting to sell the entire land in favor of Maximo Mapalo, is void, not merely voidable, as to
the western portion of the land for being absolutely simulated or fictitious.
Starting with fundamentals, under the Civil Code, either the old or the new, for a contract to
exist at all, three essential requisites must concur: (1) consent, (2) object, and (3) cause or
consideration.1 The Court of Appeals is right in that the element of consent is present as to the
deed of sale of October 15, 1936. For consent was admittedly given, albeit obtained by fraud.
Accordingly, said consent, although defective, did exist. In such case, the defect in the consent
would provide a ground for annulment of a voidable contract, not a reason for nullity ab initio.
The parties are agreed that the second element of object is likewise present in the deed of
October 15, 1936, namely, the parcel of land subject matter of the same.
Not so, however, as to the third element of cause or consideration. And on this point the
decision of the Court of Appeals is silent.
As regards the eastern portion of the land, the Mapalo spouses are not claiming the same, it
being their stand that they have donated and freely given said half of their land to Maximo
Mapalo. And since they did not appeal from the decision of the trial court finding that there was
a valid and effective donation of the eastern portion of their land in favor of Maximo Mapalo,
the same pronouncement has become final as to them, rendering it no longer proper herein to
examine the existence, validity efficacy of said donation as to said eastern portion.1äwphï1.ñët
Now, as to the western portion, however, the fact not disputed herein is that no donation by the
Mapalo spouses obtained as to said portion. Accordingly, we start with the fact that liberality
as a cause or consideration does not exist as regards the western portion of the land in relation
to the deed of 1936; that there was no donation with respect to the same.
It is reduced, then, to the question whether there was an onerous conveyance of ownership,
that is, a sale, by virtue of said deed of October 15, 1936, with respect to said western portion.
Specifically, was there a cause or consideration to support the existence of a contrary of sale?
The rule under the Civil Code, again be it the old or the new, is that contracts without a cause
or consideration produce no effect whatsoever.2 Nonetheless, under the Old Civil Code, the
statement of a false consideration renders the contract voidable, unless it is proven that it is
supported by another real and licit consideration.3 And it is further provided by the Old Civil
Code that the action for annulment of a contract on the ground of falsity of consideration shall
last four years, the term to run from the date of the consummation of the contract.4
Accordingly, since the deed of sale of 1936 is governed by the Old Civil Code, it should be
asked whether its case is one wherein there is no consideration, or one with a statement of a
false consideration. If the former, it is void and inexistent; if the latter, only voidable, under the
Old Civil Code. As observed earlier, the deed of sale of 1936 stated that it had for its
consideration Five Hundred (P500.00) Pesos. In fact, however, said consideration was totally
absent. The problem, therefore, is whether a deed which states a consideration that in fact did
not exist, is a contract without consideration, and therefore void ab initio, or a contract with a
false consideration, and therefore, at least under the Old Civil Code, voidable.
According to Manresa, what is meant by a contract that states a false consideration is one that
has in fact a real consideration but the same is not the one stated in the document. Thus he
says:
En primer lugar, nor interesa recordar la diferencia entre simulacion y el contrato con proposito
fraudulento. Este aunque ilicito es real; mas el primero es falso en realidad, aunque se le
presente como verdadero. (Manresa, Codigo Civil, Tomo VIII, Vol. II, p. 354.)
And citing a decision of the Supreme Court of Spain on the matter, Manresa further clarifies
the difference of false cause and no cause, thus:
Insiste en el distingo con mas detenida descripcion la sentencia de 25 de mayo de 1944, en la
que se argumenta:
Si bien es elemento fundamental de todo negocio, la declaracion de voluntad substracto de
una voluntad efectiva, y la existencia de una causa que leconfiera significado juridico
señalando la finalidad que con este se persigue, no ha de deducirse de esta doctrina,
fundamentalmente recogida en el articulo 1.261 y concordantes del Codigo civil, que cualquier
falta de adecuacion entre cualquier incongruencia entre la causa expresada y la verdadera, y,
en general, entre la estructuracion y la finalidad economica; hayan de producir la ineficacia del
negocio, pues por el contrario, puede este ser valido y producir sus efectos tanto en el caso
de la mera disonancia entre el medio juridico adoptado y el fin practico perseguido, por
utilizacion de una via oblicua o combinacion de formas juridicas entrelazadas que permita la
obtencion de un resultado no previsto en los cuadros de la ley — negocios indirectos y
negocios fiduciarlos, validos cuando no envuelven fraude de ley, como en el caso de la
verdadera disconformidad entre la apariencia del acto y su real contenido, preparada
deliberadamente por las partes — negocio simulado — , ya que, cuando esta divergencia
implica no una ausencia total de voluntad y de acto real, sino mera ocultacion de un negocio
verdadero bajo la falsa apariencia de un negocio fingido "sirulacion relativa", la ineficacia de la
forma externa simulada, no es obstaculo para la posible validez del negocio disimulado que
contiene, en tanto este ultimo sea licito y reuna no solo los requisitos generales, sino tambien
los que corresponden a su naturaleza especial, doctrina, en obligada aplicacion de los
preceptos de nuestra Ley civil, especialmente en su art. 1.276, que, al establecer el principio
de nulidad de los contratos en los que se hace expresion de una causa falsa, deja a salvo el
caso de que esten fundados en otra verdadera y licita. (Manresa, Codigo Civil, Tomo VIII, Vol.
II pp. 357-358)
Sanchez Roman says:
Ya hemos dicho que la intervencion de causa en los contratos es necesaria, y que sin ellos
son nulos; solo se concibe que un hombre perturbado en su razon pueda contratar sin causa.
...
Por la misma razon de la necesidad de la intervencion de causa en el contrato, es preciso que
esta sea verdadera y no supuesta, aparente o figurada. Que la falsedad de la causa vicia el
consentimiento y anula el contrato, es, no solo doctrina indudable de Derecho Cientifico sino
tambien de antiguo Derecho de Castilla, que en multitud de leyes asi lo declararon. (Sanchez
Roman, Derecho Civil, Tomo IV, p. 206.).
In a clearer exposition of the above distinction, Castan states:
2.º. La causa ha de ser verdadera. La causa falsa puede ser erronea o simulada. Es erronea
como dice Giorgi, la causa que tiene por base la credulidad en un hecho no existente; y
simulada la que tiene lugar cuando se hace aparecer artificiosamente una distinta de la
verdadera. La erronea produce siempre la inexistencia del contrato; la simulada no siempre
produce este efecto, porque puede suceder que la causa oculta, pero verdadera, baste para
sostener el contrato. De acuerdo con esta doctrina, dice el art. 1.276 de nuestro Codigo que
"la expresion de una causa falsa en los contratos dara lugar a la nulidad, si no se probase que
estaban fundados en otra verdadera y licita". (Castan Derecho Civil Español, Tomo II, pp. 618-
619)
From the foregoing it can be seen that where, as in this case, there was in fact no consideration,
the statement of one in the deed will not suffice to bring it under the rule of Article 1276 of the
Old Civil Code as stating a false consideration. Returning to Manresa:
Figurando en nuestro Derecho positivo la causa, como un elemento esential del contrato, es
consecuencia ineludible, se reputar simulada la entrega del precio en la compraventa de autos,
el que haya que declararla nula por inexistente haciendose aplicacion indebida de art. 1.276
por el Tribunal sentenciador al cohonestar la falta de precio admitiendo se pueda tratar de una
donacion, ya que la recta aplicacion del citado precepto exige que los negocios simulados, o
sea con causa falsa, se justifique la verdadera y licita en que se funda el acto que las partes
han querido ocultar y el cumplimiento de las formalidades impuestas por la Ley y, cual dice la
sentencia de 3 de marzo de 1932, esta rigurosa doctrina ha de ser especialmente impuesta
en la donaciones puras y simples; de los que deduce que la sentencia recurrida al no decretar
la nulidad instada por falta de causa, incide en la infraccion de los articulos 1.261, 1.274, 1.275
y 1.276 del Codigo Civil. (Sentencia de 22 de febrero de 1940). (Manresa, Codigo Civil, Tomo
VIII, Vol. II, p. 356)
In our view, therefore, the ruling of this Court in Ocejo, Perez & Co. vs. Flores, 40 Phil. 921, is
squarely applicable herein. In that case we ruled that a contract of purchase and sale is null
and void and produces no effect whatsoever where the same is without cause or consideration
in that the purchase price which appears thereon as paid has in fact never been paid by the
purchaser to the vendor.
Needless to add, the inexistence of a contract is permanent and incurable and cannot be the
subject of prescription. In the words of Castan: "La inexistencia es perpetua e insubsanable no
pudiendo ser objecto de confirmacion ni prescripcion (Op. cit., p. 644.) In Eugenio v. Perdido,
97 Phil. 41, 42-43, involving a sale dated 1932, this Court, speaking through Justice Cesar
Bengzon, now Chief Justice, stated:
Under the existing classification, such contract would be "inexisting" and "the action or defense
for declaration" of such inexistence "does not prescribe". (Art. 1410, New Civil Code). While it
is true that this is a new provision of the New Civil Code, it is nevertheless a principle recognized
since Tipton vs. Velasco, 6 Phil. 67 that "mere lapse of time cannot give efficacy to contracts
that are null and void".
Anent the matter of whether the Narcisos were purchasers in good faith, the trial court in its
decision resolved this issue, thus:
With regard to the second issue, the Narcisos contend that they are the owners of the above-
described property by virtue of the deed of sale (Exh. B, plaintiffs in 11991 and Exh. 2,
defendants in U-133) executed in their favor by Maximo Mapalo, and further claim that they are
purchasers for value and in good faith. This court, however, cannot also give weight and credit
on this theory of the Narcisos on the following reasons: Firstly, it has been positively shown by
the undisputed testimony of Candida Quiba that Pacifico Narciso and Evaristo Narciso stayed
for some days on the western side (the portion in question) of the above-described land until
their house was removed in 1940 by the spouses Mapalo and Quiba; secondly, Pacifica
Narciso admitted in his testimony in chief that when they bought the property, Miguel Mapalo
was still in the premises in question (western part) which he is occupying and his house is still
standing thereon; and thirdly, said Pacifico Narciso when presented as a rebuttal and sub-
rebuttal witness categorically declared that before buying the land in question he went to the
house of Miguel Mapalo and Candida Quiba and asked them if they will permit their elder
brother Maximo to sell the property.
Aside from the fact that all the parties in these cases are neighbors, except Maximo Mapalo
the foregoing facts are explicit enough and sufficiently reveal that the Narcisos were aware of
the nature and extent of the interest of Maximo Mapalo their vendor, over the above-described
land before and at the time the deed of sale in their favor was executed.
Upon the aforestated declaration of Pacifico Narciso the following question arises: What was
the necessity, purpose and reason of Pacifico Narciso in still going to the spouses Mapalo and
asked them to permit their brother Maximo to dispose of the above-described land? To this
question it is safe to state that this act of Pacifico Narciso is a conclusive manifestation that
they (the Narcisos) did not only have prior knowledge of the ownership of said spouses over
the western half portion in question but that they also have recognized said ownership. It also
conclusively shows their prior knowledge of the want of dominion on the part of their vendor
Maximo Mapalo over the whole land and also of the flaw of his title thereto. Under this situation,
the Narcisos may be considered purchasers in value but certainly not as purchasers in good
faith. ... (pp. 97-98, Record on Appeal.)
And said finding — which is one of fact — is found by us not a bit disturbed by the Court of
Appeals. Said the Court of Appeals:
In view of the conclusion thus reached, it becomes unnecessary to pass on the other errors
assigned. Suffice it to say that, on the merits the appealed decision could have been upheld
under Article 1332 of the new Civil Code and the following authorities: Ayola vs. Valderrama
Lumber Manufacturers Co., Inc., 49 O.G. 980, 982; Trasporte vs. Beltran, 51 O.G. 1434, 1435;
Cortez vs. Cortez, CA-G.R. No. 18451-R, August 8, 1961; Castillo vs. Laberinto, CA-G.R. No.
18118-R, December 20, 1961; and 13 C.J. 372-373, as well as the several facts and
circumstances appreciated by the trial court as supporting appellees' case.
thereby in effect sustaining — barring only its ruling on prescription — the judgment and
findings of the trial court, including that of bad faith on the part of the Narcisos in purchasing
the land in question. We therefore see no need to further remand this case to the Court of
Appeals for a ruling on this point, as appellees request in their brief in the event we hold the
contract of 1936 to be inexistent as regards the western portion of the land.
In view of defendants' bad faith under the circumstances we deem it just and equitable to
award, in plaintiffs' favor, attorneys' fees on appeal, in the amount of P1,000.00 as prayed for
in the counterclaim.
Wherefore, the decision of the Court of Appeals is hereby reversed and set aside, and another
one is hereby rendered affirming in toto the judgment of the Court of First Instance a quo, with
attorney's fees on appeal in favor of appellants in the amount of P1,000.00, plus the costs, both
against the private appellees. So ordered.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Dizon, Regala,
Makalintal, Zaldivar and Sanchez, JJ., concur.
G.R. No. 83974 August 17, 1998
SPOUSES NARCISO RONGAVILLA and DOLORES RONGAVILLA, petitioners,
vs.
COURT OF APPEALS and MERCEDES DELA CRUZ and FLORENCIA DELA CRUZ,
respondents.
QUISUMBING, J.:
For review on appeal by certiorari are the Decision 1 of the Court of Appeals in CA-G.R. CV
No. 06543, promulgated on March 11, 1988, and the Resolution 2 dated June 28, 1988,
denying petitioners' motion for reconsideration.
The appealed decision affirmed in toto the judgment of the Regional Trial Court of Pasay City
in Civil Case No. LP-8790-P, which disposed of the controversy as follows:
WHEREFORE, judgment is hereby rendered declaring void and inexistent the Deed of
Absolute Sale (Exh. "1") dated June 3, 1976 allegedly executed by plaintiffs in favor of
defendant spouses, which document is now particularly identified as Doc. No. 164; Page No.
34; Book No. I; Series of 1976 in the Notarial Register of Arcadio Espiritu, a Notary Public for
and in the Province of Cavite. Further, defendant spouses are hereby ordered —
a. To reconvey to the plaintiffs, free from all liens and encumbrances, the property
covered by Transfer Certificate of Title No. S-28903 of the Registry of Deeds for the Province
of Rizal;
b. To pay to plaintiffs the sum of P5,000.00 as attorney's fees; and
c. To pay the costs of the suit.3
As gleaned from the record, the private parties are closely related. Plaintiffs below, now the
private respondents, are the aunts of herein petitioner Dolores Rongavilla. Both spinsters, they
earn their livelihood as embroiderers ("magbuburda") and dressmakers; although unschooled
in English, they are however able to read and write in Tagalog. Since they are of advanced age
(Mercedes de la Cruz, 60 and Florencia de la Cruz, 71), their day to day activities were confined
mostly close to home.
The property subject of this controversy between kith and kin is a parcel of land, located in
Manuyo, Las Piñas, Rizal (now Metro Manila) owned by private respondents, in the proportion
of one-half (1/2) pro-indiviso, with another niece named Juanita Jimenez as co-owner of the
other one-half. The whole parcel consisted of 131 square meters and was covered by Original
Certificate of Title (OCT) No. 5415 of the Register of Deeds of the Province of Rizal. This OCT,
as well as the Transfer Certificate of Title (TCT) No. S-28903 after the parcel was subdivided,
was kept in the possession of Juanita Jimenez, who is the elder sister of Dolores Rongavilla.
Although the basic fact situation here might appear all too familiar, the legal controversy itself
is notable for having passed through the entire channel of the justice system. 4 The present
petition before us was given due course per Resolution 5 dated June 26, 1989; but it was
denied on September 20, 1989, for non-compliance with certain requirements; 6 although,
upon motion for reconsideration by the petitioners showing compliance, it was reinstated7 on
September 2, 1991.
Considering the circumstances in this case, including the relationship of the parties, it behooves
this Court now to examine closely and carefully the questioned judgment and the record below.
For the Court could not but be mindful of the codal admonition that:
In all contractual, property or other relations, when one of the parties is at a disadvantage on
account of his moral dependence, ignorance, indigence, mental weakness, tender age, or other
handicap, the courts must be vigilant for his protection. (Art. 24, Civil Code)
From the facts found below, it appears that in the month of May, 1976, the private respondents
borrowed the amount of two thousand (P2,000) from the petitioners for the purpose of having
their (respondents') dilapidated rooftop repaired.
A month later, petitioner Dolores Rongavilla and her sister Juanita Jimenez visited their aunts'
home, bringing with them a document for the signature of their aunts. The document is
admittedly typewritten in English. When asked in Tagalog by one of the aunts, respondent
Mercedes de la Cruz, what the paper was all about, Dolores Rongavilla answered also in
Tagalog, that it was just a document to show that the private respondents had a debt amounting
to P2,000. On account of that representation, private respondents signed the document.
In September 1980, or after a lapse of over four years, petitioner Dolores Rongavilla went to
private respondents' place and asked them to vacate the parcel in question, claiming that she
and her husband were already the new owners of the land.
Surprised by petitioners' moves, private respondents with the help of friends went to the Office
of the Register of Deeds of the Province of Rizal to verify the matter. They discovered that their
Certificate of Title had been cancelled and a new one, Transfer Certificate of Title No. S-28903,
had been issued in favor of petitioners. They further discovered that said parcel of land had
been mortgaged with the Cavite Development Bank by the petitioners. It was only then that the
private respondents realized that the document they had previously been asked by their nieces
to sign was a deed of sale.
On February 3, 1981, private respondents filed with the Court of First Instance, now Regional
Trial Court, of Pasay City the sworn complaint 8 to have the purported deed of sale declared
void and inexistent, for being fictitious and simulated, and secured by means of fraud and
misrepresentation. They alleged that they did not sell their property in question to the
defendants; that they did not receive any consideration on the supposed sale; that their Original
Certificate of Title was cancelled and TCT No. S-28903 was issued in favor of defendants
(herein petitioners), who thereafter mortgaged said title for a total of P40,000.00 to the damage
and prejudice of the plaintiffs. They also claimed moral and exemplary damages, as the court
might determine.
Petitioners duly filed their answer 9 after the denial of their motion to dismiss, alleging that
plaintiffs (now the private respondents) sold their parcel of land voluntarily, that there was
consent to the deed of sale, that there was sufficient consideration therefor, and that the
document on the sale was complete in itself and in due form, enabling the Register of Deeds
to cancel their old TCT and issue a new one. Petitioners further stated that private respondents
were fully apprised by the Notary Public, Atty. Arcadio G. Espiritu, on what the document was
all about, and having understood the explanation made by said Notary Public, they voluntarily
affixed their signatures on said document. Petitioners also asserted as affirmative and/or
special defenses that prescription had set in and that private respondents no longer had a
cause of action, and that the deed of sale contained all the pre-requisites of a contract, namely
consent of the parties, consideration or a price certain, and determinate thing or object; and
could no longer be annulled. They also claimed moral and exemplary damages.
The trial court's judgment, quoted at the outset, being adverse to the petitioners, they
seasonably appealed. And after their rebuff at the appellate level, they come now to this Court
on certiorari under Rule 45 of the Rules of Court, citing the following grounds for their petition:
(1) It is clear and patent error of the Court of Appeals to declare as void and inexistent the
Deed of Absolute Sale (Exhibit 1) dated June 3, 1976.
(2) The Court of Appeals committed grave error of law in holding that the action to declare
nullity of the Deed of Absolute Sale (Exhibit 1) does not prescribe.
(3) The Court of Appeals committed grave abuse of discretion in relying on a purported
Certificate of the Bureau of Internal Revenue which was not offered in evidence.
(4) The Court of Appeals committed grave error of law and abuse of discretion and grave
abuse of discretion amounting to lack or excess of jurisdiction in ordering the petitioners to
reconvey the subject parcel of land to the private respondents. 10
With a slight variation but consistent with the grounds they have relied on, petitioners raise in
their Memorandum 11 the following:
ISSUES
1. Did the Court of Appeals commit a clear and patent error in declaring as "void and
inexistent" the Deed of Absolute Sale (Exhibit 1) dated June 3, 1976?
2. Did the Court of Appeals commit grave error in holding that the action to annul the
Deed of Sale (Exhibit 1) does not prescribe?
3. Did the Court of Appeals commit grave abuse of discretion in relying on a purported
Certificate of the Bureau of Internal Revenue which was not offered in evidence?
4. Did the Court of Appeals commit grave error of law and grave abuse of discretion
amounting to lack of jurisdiction or in excess of jurisdiction in ordering petitioners to reconvey
the subject parcel of land to the private respondents?
These issues may be synthesized into one: Did the respondent Court of Appeals commit
reversible error when it upheld the trial court's judgment that the disputed Deed of Sale (Exhibit
"1") is void and inexistent?
To resolve this pivotal issue, it must be noted that private respondents, as plaintiffs below,
based their complaint to declare the disputed deed void and inexistent on two fundamental
grounds: (1) lack of consent and (2) want of consideration. Under oath, they strongly denied
selling or even just agreeing to sell, their parcel of land to their niece and nephew-in-law. During
the hearing, they also denied going to and appearing before the Notary Public who prepared
the deed of sale. They also vehemently denied receiving any consideration for the alleged sale.
They added that their signatures on the purported deed of sale were obtained by fraud and
misrepresentation as petitioners had misled them to believe the document was just a paper to
evidence a debt of P2,000 they obtained to buy G.I. sheets for the repair of their leaking roof.
12 Private respondents were shocked and got sick when they were told by petitioners that they
(respondents) were no longer the owners of the land. 13
On these two points of consent and consideration, the trial court found that:
. . . . A careful analysis and meticulous evaluation of the evidence on record has convinced the
Court that the sale of their property to the defendants was farthest from the plaintiffs' minds.
The Court believes that when plaintiffs voluntarily signed the document which turned out to be
a deed of sale, they were misled by defendant Dolores Rongavilla and her sister Juanita
Jimenez into believing that what they signed was a document acknowledging the loan of
P2,000.00 extended them by said defendant.
The Deed of Absolute Sale (Exh. "1") mentions a consideration of P2,000.00. Three years after
the alleged sale, the same property was mortgaged by defendant spouses with the Cavite
Development Bank for P40,000.00. Clearly enough, the gross inadequacy and
unconsciounableness [sic] of the consideration deters the Court from subscribing to
defendants' theory that plaintiffs sold the property to them. It is more reasonable to assume
that the amount of P2,000.00 mentioned in the deed refers to the loan defendants extended to
plaintiffs for the same amount.
Plaintiffs are now of advanced age. Their only property is the lot in question and the house
erected thereon. . . . .
As there is no indication that plaintiffs were in dire need of money, except for a few [sic] amount
necessary for the repair of the roof of their house for which they obtained a loan of P2,000.00
from defendants, there was no reason for plaintiffs to dispose of their property. To do so would
be inconsistent with the regular norm of human conduct and the natural course of events. It is
not in accord with the natural promptings and instincts of human nature. 14

To these findings by the trial court, the Court of Appeals in its own decision assented. In
addition, it laid stress an the point of lack of consideration by quoting agreeably the trial judge's
holding thereon:
By more than mere preponderance of evidence plaintiffs [herein private respondents] have
established the merit of their cause of action. The Court is of the opinion and so holds that
there was fraud exercised by defendant Dolores Rongavilla and her sister Juanita Jimenez in
securing the signature of the Deed of Absolute Sale (Exh. "1") and there was no consideration
whatsoever for the alleged sale. Undoubtedly, the said deed of sale is simulated, fictitious and
void. 15
And before concluding, the appellate court reiterated the proper characterization of the deed
of sale in question, not as an annullable contract, but as a void and inexistent contract as found
by the trial court:
. . . In the case at bar, however, We are dealing not merely with a voidable contract which is
tainted with fraud, mistake, undue influence, violence or intimidation which may justify the
annulment of a contract, but with a contract that is null and void ab initio.
In the present case, plaintiffs-appellees declared under oath in their complaint that they signed
the alleged document without knowing that said document was deed of absolute sale. This
means that plaintiffs-appellees consent was not only vitiated, but that plaintiffs-appellees have
not given their consent at all. And since there was no consent, the deed of absolute sale is,
therefore, null and void ab initio. . . . 16
Dissatisfied, petitioners now seek from this Court the reversal of the judgment below. They
insist in their petition before us that the deed is valid; and that because of the statute of
limitations, after the lapse of four years from its execution and registration, it could no longer
be annulled.
They assert that "the presumption that contracts are presumed to be valid and to be supported
by lawful and good consideration has not been overthrown;" and that "a stipulation in
consideration of one dollar is just as effectual and valuable as a larger sum stipulated or paid".
17
They further assert that since private respondents signed the Deed of Sale, as a public
instrument, the truth of the recitals therein embodied could only be impugned and disproved,
not by mere preponderance of evidence, but by evidence of "the clearest and most satisfactory
character, convincing and overwhelming." 18 Petitioners further state that since they have been
the ones paying real estate taxes on the property, rather than their aunts, the latter by their
acts had confirmed the deed executed by them. 19
Despite the petitioners' insistence that the deed of sale is presumed valid and, being registered,
could not be disturbed anymore, we however find their arguments and ratiocination less than
persuasive. While petitioners would not want the deed of sale to be impugned, they themselves
contradict the recitals therein. On the vital point of consideration, they and their witnesses,
namely Juanita Jimenez and Atty. Arcadio Espiritu repeatedly declared that the true
consideration paid for the sale of the land was not P2,000 as stated in their own Exhibit "1", the
Deed of Sale, but in fact P7,800.00. 20
Petitioner Dolores Rongavilla herself on cross-examination testified as follows:
ATTY. RODRIGUEZ:
Q. You stated that you were present when this was explained by the notary public, how
did the notary public explain this deed of sale in English or Tagalog?
A. It was explained by the notary public that the property is being sold by them to us and
that the consideration was only P2,000.00 as appearing in the document in order that we may
be able to save for the payment of taxes and documentary stamps.
Q. Did the plaintiffs not say anything when the notary public according to you explained
that instead of P7,800.00, P2,000.00 will be stated in the document?
A. They did not say anything because we gave to them the amount of the consideration
agreed between us the sum of P7,800.00. (t.s.n., Sept. 2, 1982, pp. 9-10) 21
By their own testimony, the petitioners are pictured as not exactly averse to bending the truth,
particularly the purported consideration. Sadly, the irony of it is that while they claimed they
were regularly paying taxes on the land in question they had no second thoughts stating at the
trial and later on appeal that they had resorted to doctoring the price stated in the disputed
Deed of Sale, allegedly "to save on taxes". That admission surely opens the door to questions
on the integrity, genuineness and veracity of said public instrument.
Thus, the trial court could not be said to err in asserting that "while it is true that public
documents are presumed genuine and regular under the provisions of the Rules of Court, this
presumption is a rebuttable presumption which may be overcome by clear, strong and
convincing evidence." 22
Moreover, Exhibit "1", the deed itself, shows that contrary to the testimony of the notary public,
who appeared as a witness for petitioners, what was originally typed therein was the amount
of "Three Thousand Pesos (P3,000)", which later on was substituted by the handwritten amount
now of "Two Thousand Pesos (P2,000)." 23 There is no need to speculate on the motivation
for this alteration. The notary public might have just wanted to further save on taxes, rather
than short-change the coffers of the government. But, again, the whole fabric of petitioners'
claim to the sanctity of the deed as public instrument had thereby been shredded.
If as petitioners claimed on trial, the price paid was P7,800 while their deed showed only
P2,000, after the amount of P3,000 in the deed was altered, one may well inquire: which figure
could this Court believe? Could one say that the trial and the appellate courts both erred in
holding that no consideration passed from the buyer to the seller?

But petitioners herein would further take to task the appellate court for grave abuse of
discretion, as well as for a reversible error, in having relied on the "purported Certification of
the Bureau of Internal Revenue which was not offered in evidence". Since this is a petition
under Rule 45, however, we will not dwell on the alleged grave abuse of discretion but limit our
observation to the alleged error of law. The BIR certificate was the subject of the testimony of
witnesses at the hearing where both parties took full advantage of the opportunity for direct
and cross-examination as well as rebuttal and
sur-rebuttal. 24 On the witness stand, private respondents as plaintiffs below denied that they
had any tax account number nor even residence certificates. They were supported by their
witnesses, testifying also under oath. They contradicted the claim of the petitioners' lawyer-
notary public, that the disputed deed of sale was complete and in due form and was signed in
his presence by the private respondents. They further denied even having gone to the office of
the lawyer-notary public in Bacoor, Cavite, on June 3, 1976, the date of execution shown in the
deed, or on any other date. While indeed the BIR certificate was not formally offered in
evidence, hence no longer available on review, the record would show that said BIR certificate
was presented during the testimony on rebuttal of respondent Mercedes de la Cruz: 25
ATTY. RODRIGUEZ:
According to the defendants, there was the alleged deed of sale executed by you and your
sister in favor of the defendants before Notary Public Arcadio G. Espiritu. It appears you have
presented Tax Account No. (TAN) 2345-463-6 and your sister Florencia de la Cruz also
presented Tax Account No. (TAN) 2345-468-4. Now, do you have any tax account number?
WITNESS:
None, sir. 26
xxx xxx xxx
ATTY. RODRIGUEZ:
I am showing to you this certification from the "Kawanihan ng Rentas, Quezon City, dated June
16, 1982, addressed to Miss Florencia de la Cruz and Miss Mercedes de la Cruz, Las Piñas,
Metro-Manila, issued by the accounting chief, stating that in reply to you[r] request dated June
14, 1982, requesting certification of your TAN, the records of their office do not show that you
were issued any tax account number, what relation has this document which for purposes of
identification, we respectfully request that the same be marked Exhibit "C" to the certification
issued by the BIR?
WITNESS:
Yes, this is the one. 27
Now even if the matter of the official certification by the BIR is set aside, the whole question of
the TAN being fake or belonging to somebody else, would boil down to one of credibility
between the two camps. Unfortunately for the petitioners herein, the trial court found them and
their witnesses far from credible. As remarked by the trial Judge, "the declarations of
defendants [herein petitioners] do not inspire rational belief." 28 It would thus appear that the
trial court and the appellate court committed no grave error of law, that would impel us on this
point to override their judgment.
Neither can we give assent to the assertion of petitioners that the appealed Court of Appeals
(CA) decision here as well as the judgment below is "contrary to settled jurisprudence". This
Court in Rivero v. Court of Appeals, 80 SCRA 411 (1977) had occasion already to affirm a trial
court's judgment declaring null and void the questioned deed of sale where it found:
The undisputed facts of record support the finding of the trial court that the consent of Ana
Concepcion to the deed of sale was obtained through fraudulent misrepresentation of [her
nephew] Jaime Rivero that the contract she was signing was one of mortgage.
The land in question is located in the municipality of Polo, Bulacan, very near Manila. It has an
area of 2 hectares, 32 ares and 45 centares. The consideration for the sale of said land is only
P5,000.00 which is not only grossly inadequate but shocking to the conscience . . . 29
In Ocejo, Perez & Co. vs. Flores, 40 Phil. 921 (1920), regarding the sale of land in Tayabas,
Quezon, the Court confronted a similar question:
The first question presented is whether the contract of sale executed by Isabel Flores in favor
of Joaquin Bas is valid or not.
By relying upon the documents executed in his favor by Isabel Flores evidencing the contract
of sale, Joaquin Bas insists that there has been a perfect and valid contract of sale of real
estate between them and that he paid to her the consideration of P20,000 mentioned in said
documents. . . . .
Isabel Flores, on the other hand, maintained that there was neither a real sale nor did she
receive a centavo from the defendant, as the price of said sale, . . . 30
Concluded the Court, after reviewing the series of transactions on record:
It is then evident that the contract of sale mentioned in the notarial document of May 7, 1915,
lacks cause or consideration and is therefore null and void and without any effect whatsoever
according to Article 1275 of the Civil Code, for it has been satisfactorily and conclusively proven
that the purchaser Joaquin Bas has not paid Isabel Flores for the price of the lands that the
latter has sold to him, and after being contented with having for a long time given several
promises showing that he had no intention to comply with his contract, he concluded by
executing four promissory notes payable to the vendor, which recite the aforementioned
purchase price and which were not also paid, there appearing in the record facts from which it
can be inferred that fraud has been committed. 31

This Court in Mapalo v. Mapalo, 17 SCRA 114 (1966) stated:
The rule under the Civil Code, again be it the old or the new, is that contracts without a cause
or consideration produce no effect whatsoever. 32
The "problem" before the Court "is whether a deed which states a consideration that in fact did
not exist, is a contract, without consideration, and therefore void ab initio, or a contract with a
false consideration, and therefore, at least under the Old Civil Code, voidable." This problem
arose, as observed by the Court, because the questioned "deed of sale" between the brothers
Magpalo, in 1936, stated that it had for its consideration Five Hundred (P500.00) Pesos. In fact,
however, said "consideration was totally absent." 33
Thus, the Court concluded:
In our view, therefore, the ruling of this Court in Ocejo, Perez & Co. vs. Flores, 40 Phil. 921 is
squarely applicable herein. In that case we ruled that a contract of purchase and sale is null
and void and produces no effect whatsoever where the same is without cause or consideration
in that the purchase price which appears thereon as paid has in fact never been paid by the
purchaser to the vendor. 34
Turning now to the issue of prescription, it follows that once the disputed deed is found to be
inexistent and void, the statute of limitations cannot apply. As the courts below ruled, the cause
of action for its declaration as such is imprescriptible. 35 Petitioners-spouses contend,
however, that this is contrary to settled jurisprudence because the applicable precedent should
be Pangadil v. CFI of Cotabato, 116 SCRA 347 (1982). But the fact situation of that case differs
radically from the present controversy. There the Court upheld the dismissal of the action to
declare a document known as "Ratificacion de Una Venta" as inexistent and void after finding
that it was "not a contract wherein the parties do not intend to be bound at all," that no
circumstance was alleged to sustain the contention "that the execution of the aforesaid
document is contrary to public policy;" 36 and that for 27 years the petitioners did not even care
to verify the status of the land in question. "Their inaction for such a considerable period of time
reflects on the credibility of their pretense that they merely intended to confirm an oral
mortgage, instead of a sale of the land in
question." 37
Here in the present case, there is no doubt about the credibility of plaintiffs below (herein private
respondents) in pursuing their cause promptly and forcefully. They never intended to sell, nor
acceded to be bound by the sale of their land. Public policy is also well served in defending the
rights of the aged to legal protection, including their right to property that is their home, as
against fraud, misrepresentation, chicanery and abuse of trust and confidence by those who
owed them candor and respect.
More to the point, in our view, is Baranda v. Baranda, 150 SCRA 59 (1987), where this Court
found that:
The Civil Code provides in Article 1391 that an action to annul a contract on the ground of
vitiated consent must be filed within four years from the discovery of the vice of consent. In the
instant case, however, we are dealing not with a voidable contract tainted with fraud, mistake,
undue influence, violence or intimidation that can justify its nullification, but with a contract that
is null and void ab initio.
Paulina Baranda declared under oath in her complaint that she signed the deeds of sale without
knowing what they were, which means that her consent was not merely marred by the above-
stated vices, so as to make the contracts voidable, but that she had not given her consent at
all. We are also satisfied that there was no void consideration either for the alleged transfers,
for reasons already discussed. Lack of consent and consideration made the deeds of sale void
altogether 38 and rendered them subject to attack at any time, conformably to the rule in Article
1410 that an action to declare the inexistence of void contracts "does not prescribe". 39
And if the passage of time could not cure the fatal flaw in the inexistent and void contract,
neither could an alleged ratification or confirmation thereof. Further, as in the case before us,
reconveyance is proper. "The defect of inexistence of a contract is permanent and incurable,
hence it cannot be cured either by ratification or by prescription. . . . There is no need of an
action to set aside a void or inexistent contract; in fact such action cannot logically exist.
However, an action to declare the non-existence of the contract can be maintained; and in the
same action, the plaintiff may recover what he has given by virtue of the contract." 40
Given the circumstances of the case and there being no reversible error in the challenged
decision, we are in accord with the judgment below and find the petitioners' appeal without
merit. For as well said in the Court of Appeals' Decision and Resolution under review, "We
cannot contemplate of the rather absurd situation, which defendants-appellants would
ineluctably lead [u]s to, where plaintiffs-appellees would sell their only house, in which they
have lived for so many years, in order to secure the measly sum of P2,000.00 to repair the roof
of their only house, which would all be lost to them anyway upon the consummation of the sale.
They would then become homeless, and the repaired roof would be of no use to them." 41
Experience which is the life of the law — as well as logic and common sense — militates
against the petitioners' cause.
WHEREFORE, the instant petition is hereby DENIED. The Decision and the Resolution of the
Court of Appeals in CA-G.R. CV No. 06543 are hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
Davide, Jr., Bellosillo, Vitug and Panganiban, JJ., concur.
G.R. No. 120724-25 May 21, 1998
FERNANDO T. MATE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and INOCENCIO TAN, respondents.
MARTINEZ, J.:
In this petition for review, petitioner assails the Decision 1 of the Court of Appeals dated August
29, 1994 in CA-G.R. CV No. 28225-26, which affirmed with modification the decision of the trial
court, the dispositive portion of which reads, to wit:
WHEREFORE, this Court finds the Deed of Sale with Right of Repurchase executed October
6, 1986 valid and binding between plaintiff and defendant (as vendor and vendee-a-retro
respectively); that as the period to redeem has expired, ownership thereof was consolidated
by operation of law, and the Register of Deeds is hereby ordered to REGISTER this decision
consolidating the defendant's ownership over the properties covered by Transfer Certificate of
Title No. T-90-71, covering Lot 8; Original Certificate of Title No. N-311 covering Lot 5370, all
of the Tacloban Cadastre, and issuing to defendant Inocencio Tan his titles after cancellation
of the titles presently registered in plaintiff Fernando T. Mate's name and that of his wife.
The plaintiff Fernando Mate is further ordered to pay defendant the sum of ONE HUNDRED
FORTY THOUSAND (P140,000.00) PESOS, for and as attorney's fees.
With costs against the plaintiff Fernando Mate.
SO ORDERED.2
The facts of this case, as summarized in the petition, are reproduced hereunder:
On October 6, 1986 Josefina R. Rey (hereafter referred to as "Josie" for short) and private
respondent went to the residence of petitioner at Tacloban City. Josie who is a cousin of
petitioner's wife solicited his help to stave off her and her family's prosecution by private
respondent for violation of B.P. 22 on account of the rubber checks that she, her mother, sister
and brother issued to private respondent amounting to P4,435067.00. She requested petitioner
to cede to private respondent his three (3) lots in Tacloban City in order to placate him. On
hearing Josie's proposal he immediately rejected it as he owed private respondent nothing and
he was under no obligation to convey to him his properties. Furthermore, his lots were not for
sale. Josie explained to him that he was in no danger of losing his properties as he will merely
execute a simulated document transferring them to private respondent but they will be
redeemed by her with her own funds. After a long discussion, he agreed to execute a fictitious
deed of sale with right to repurchase covering his three (3) lots mentioned above subject to the
following conditions:
1. The amount to be stated in the document is P1,400,000.00 with interest thereon at 5%
a month;
2. The properties will be repurchased within six (6) months or on or before April 4, 1987;
3. Although it would appear in the document that petitioner is the vendor, it is Josie who
will provide the money for the redemption of the properties with her own funds;
4. Titles to the properties will be delivered to private respondent but the sale will not be
registered in the Register of Deeds and annotated on the titles.
To assure petitioner that Josie will redeem the aforesaid properties, she issued to him two (2)
BPI checks both postdated December 15, 1986. One check was for P1,400,000.00 supposedly
for the selling price and the other was for P420,000.00 corresponding to the interests for 6
months. Immediately thereafter petitioner prepared the Deed of Sale with Right to Repurchase
(Exh. A) and after it has been signed and notarized, it was given to private respondent together
with the titles of the properties and the latter did not register the transaction in the Register of
Deeds as agreed upon.
On January 14, 1987, petitioner deposited the check for P1,400,000.00 (Exh. B) in his account
at the United Coconut Planters Bank and the other check for P420,000.00 (Exh. D) in his
account at METROBANK preparatory to the redemption of his properties. However, both of
them were dishonored by the drawee bank for having been drawn against a closed account.
Realizing that he was swindled, he sent Josie a telegram about her checks and when she failed
to respond, he went to Manila to look for her but she could not be found. So he returned to
Tacloban City and filed Criminal Cases Nos. 8310 and 8312 against her for violation of B.P. 22
but the cases were later archived as the accused (Josie) could not be found as she went into
hiding. To protect his interest, he filed Civil Case No. 7396 of the Regional Trial Court of Leyte,
Branch VII, entitled "Fernando T. Mate vs. Josefina R. Rey and Inocencio Tan" for Annulment
of Contract with Damages. Defendant Josefina R. Rey (Josie) was declared in default and the
case proceeded against private respondent. But during the trial the RTC court asked private
respondent to file an action for consolidation of ownership of the properties subject of the sale
and pursuant thereto he filed Civil Case No. 7587 that was consolidated with the case he filed
earlier which were later decided jointly by the trial court in favor of private respondent and was
subsequently appealed to respondent Court that affirmed it with modification. Thereupon,
petitioner filed a motion to reconsider the decision but it was denied. Hence, the instant petition
for review.3
In this petition for review, the petitioner presents as the sole issue the validity of the Deed of
Sale with Right to Repurchase. He contends that it is null and void for lack of consideration
because allegedly no money changed hands when he signed it and the checks that were issued
for redemption of the properties involved in the sale have been dishonored by the drawee bank
for having been drawn against a closed account. 4
The contention is without merit.
There was a consideration. The respondent court aptly observed that —
In preparing and executing the deed of sale with right of repurchase and in delivering to Tan
the land titles, appellant actually accommodated Josefina so she would not be charged
criminally by Tan. To ensure that he could repurchase his lots, appellant got a check of
P1,400,000.00 from her. Also, by allowing his titles to be in possession of Tan for a period of
six months, appellant secured from her another check for P420,000.00. With this arrangement,
appellant was convinced he had a good bargain. Unfortunately his expectation crumbled. For
this tragic incident, not only Josefina, but also Tan, according to appellant must be answerable.
xxx xxx xxx
It is plain that consideration existed at the time of the execution of the deed of sale with right of
repurchase. It is not only appellant's kindness to Josefina, being his cousin, but also his receipt
of P420,000.00 from her which impelled him to execute such contract. 5
Furthermore, while petitioner did not receive the P1.4 Million purchase prices from respondent
Tan, he had in his possession a postdated check of Josie Rey in an equivalent amount
precisely to repurchase the two lots on or before the sixth month.
As admitted by petitioner, by virtue of the sale with pacto de retro, Josie Rey gave him, as
vendor-a-retro, a postdated check in the amount of P1.4 Million, which represented the
repurchase price of the two (2) lots. Aside from the P1.4 Million check, Josie gave another
postdated check to petitioner in the amount of P420,000.00, ostensibly as interest for six (6)
months but which apparently was his fee for having executed the pacto de retro document.
Josie thus assumed the responsibility of paying the repurchase price on behalf of petitioner to
private respondent.
Unfortunately, the two checks issued by Josie Rey were worthless. Both were dishonored upon
presentment by petitioner with the drawee banks. However, there is absolutely no basis for
petitioner to file a complaint against private respondent Tan and Josie Rey to annul the pacto
de retro sale on the ground of lack of consideration, invoking his failure to encash the two
checks. Petitioner's cause of action was to file criminal actions against Josie Rey under B.P.
22, which he did. The filing of the criminal cases was a tacit admission by petitioner that there
was a consideration of the pacto de retro sale.
Petitioner further claims that the pacto de retro sale was subject to the condition that in the
event the checks given by Josie Reyes to him for the repurchase of the property were
dishonored, then the document shall be declared null and void for lack of consideration.
We are not persuaded.
Private respondent Tan was already poised to file criminal cases against Josie Rey and her
family. It would not be logical for respondent Tan to agree to the conditions allegedly imposed
by petitioner. Petitioner knew that he was bound by the deed of sale with right to repurchase,
as evidenced by his filing criminal cases against Josie Rey when the two checks bounced.
The respondent court further made the candid but true observation that:
If there is anybody to blame for his predicament, it is appellant himself. He is a lawyer. He was
the one who prepared the contract. He knew what he was entering into. Surely, he must have
been aware of the risk involved. When Josefina's checks bounced, he should have
repurchased his lots with his own money. Instead, he sued not only Josefina but also Tan for
annulment of contract on the ground of lack of consideration and false pretenses on their part.
Petitioner then postulates that "it is not only illegal but immoral to require him to repurchase his
own properties with his own money when he did not derive any benefit from the transaction."
Thus, he invokes the case of Singson vs. Isabela Sawmill, 88 SCRA 633, 643, where the Court
said that "where one or two innocent persons must suffer, that person who gave occasion for
the damages to be caused must bear consequences." Petitioner's reliance on this doctrine is
misplaced. He is not an innocent person. As a matter of fact, he gave occasion for the damage
caused by virtue of the deed of sale with right to repurchase which he prepared and signed.
Thus, there is the equitable maxim that between two innocent parties, the one who made it
possible for the wrong to be done should be the one to bear the resulting loss.6
Petitioner further insinuates that private respondent deceived him into signing the deed of sale
with right to repurchase. This is not borne out by the evidence nor by petitioner's own statement
of facts which we heretofore produced. As aptly observed by the respondent court "We are at
a loss why herein appellant ascribes false pretenses to Tan who merely signed the contract."
7 Contrary to petitioner's pretension, respondent Tan did not employ any devious scheme to
make the former sign the deed of sale. It is to be noted that Tan waived his right to collect from
Josefina Rey by virtue of the pacto de retro sale. In turn, Josefina gave petitioner a postdated
check in the amount of P1.4 Million to ensure that the latter would not lose his two lots.
Petitioner, a lawyer, should have known that the transaction was fraught with risks since
Josefina Rey and family had a checkered history of issuing worthless checks. But had petitioner
not agreed to the arrangement, respondent Tan would not have agreed to waive prosecution
of Josefina Rey.
Apparently, it was petitioner's agreed for a huge profit that impelled him to accede to the
scheme of Josefina Rey even if he knew it was a dangerous undertaking. When the drafted the
pacto de retro document, he threw caution to the winds forgetting that prudence might have
been the better course of action. We can only sympathize with petitioner's predicament.
However, a contract is a contract. One agreed upon, and provided all the essential elements
are present, it is valid and binding between the parties.
Petitioner has no one to blame but himself for his misfortune.
WHEREFORE, the Decision of the Court of Appeals dated August 29, 1994 is hereby
AFFIRMED. The petition for review is hereby DENIED DUE COURSE for lack of merit.
SO ORDERED.
Regalado, Melo, Puno and Mendoza, JJ., concur.
G.R. No. 144735 October 18, 2001
YU BUN GUAN, petitioner,
vs.
ELVIRA ONG, respondent.
PANGANIBAN, J.:
A simulated deed of sale has no legal effect, and the transfer certificate of title issued in
consequence thereof should be cancelled. Pari delicto does not apply to simulated sales.
Statement of the Case
Before us is a Petition for Review under rule 45 of the Rules of Court, assailing the April 25,
2000 Decision1 and the August 31, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR
CV No. 61364. The decretal portion of the Decision reads as follows:
"We cannot see any justification for the setting aside of the contested Decision.
"THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED."4
The assailed Resolution denied petitioner's "Supplemental Motion for Reconsideration with
Leave to Submit [Newly] Discovered Evidence."
The CA sustained the Decision of the Regional Trial Court (RTC) of Makati City (Branch 60),
which had disposed as follows:5
"23. WHEREFORE, the Court hereby renders judgment as follows:
23.1 The Deed of Sale dated July 24, 1992 (Exh. EE on Exh. 3) is declared VOID.
23.2 The plaintiff ELVIRA ONG is declared the OWNER of the property covered by Transfer
Certificate of Title No. 217614, Registry of Deeds, Makati (Exh. DD).
23.3 The Register of Deeds, City of Makati is ordered to:
23.2.1. Cancel Transfer Certificate of Title No. 181033 (Exh. HH); and
23.2.2. Issue in lieu thereof, a transfer certificate of title in the name of ELVIRA A. ONG, of
legal age, single, Filipino';
23.[4]. The defendant YU BUN GUAN is ordered to pay to the said plaintiff, the following:
23.[4].1. P48,631.00 – As reimbursement of the capital gains tax (Exh. FF);
23.[4].2. Six (6) percent of P48,631.00 – per annum from November 23, 1993, until the said
P48,631.00 is paid – as damages;
23.[4].3. P100,000.00 – as moral damages;
23.[4].4. P50,000.00 as exemplary damages;
23.[4].5. P100,000.00 – as attorney's fees.
23.[5]. The COUNTERCLAIM is DISMISSED.
23.[6]. Cost is taxed against the defendant.
"24. In Chambers, City of Makati, June 23, 1998.
The Facts
The antecedents of the case are succinctly summarized by the Court of Appeals in this wise:
'[Herein respondent] said that she and [petitioner] are husband and wife, having been married
according to Chinese rites on April 30, 1961. They lived together until she and her children
were abandoned by [petitioner] on August 26, 1992, because of the latter's 'incurable
promiscuity, volcanic temper and other vicious vices'; out of the reunion were born three (3)
children, now living with her [respondent].
"She purchased on March 20, 1968, out of her personal funds, a parcel of land, then referred
to as the Rizal property, from Aurora Seneris, and supported by Title No. 26795, then
subsequently registered on April 17, 1968, in her name.1âwphi1.nêt
"Also during their marriage, they purchased, out of their conjugal funds, a house and lot, in
1983, thereafter, registered in their names, under Title No. 118884.
'Before their separation in 1992, she 'reluctantly agreed' to the [petitioner's] 'importunings' that
she execute a Deed of Sale of the J.P. Rizal property in his favor, but on the promise that he
would construct a commercial building for the benefit of the children. He suggested that the
J.P. Rizal property should be in his name alone so that she would not be involved in any
obligation. The consideration for the 'simulated sale' was that, after its execution in which he
would represent himself as single, a Deed of Absolute Sale would be executed in favor of the
three (3) children and that he would pay the Allied Bank, Inc. the loan he obtained.
"Because of the 'glib assurances' of [petitioner], [respondent] executed a Deed of Absolute
Sale in 1992, but then he did not pay the consideration of P200,000.00, supposedly the
'ostensible' valuable consideration. On the contrary, she paid for the capital gains tax and all
the other assessments even amounting to not less than P60,000.00, out of her personal funds.
"Because of the sale, a new title (TCT No. 181033) was issued in his name, but to 'insure' that
he would comply with his commitment, she did not deliver the owner's copy of the title to him.
"Because of the refusal of [petitioner] to perform his promise, and also because he insisted on
delivering to him the owner's copy of the title [to] the JP Rizal property, in addition to threats
and physical violence, she decided executing an Affidavit of Adverse Claim.
Also to avoid burdening the JP Rizal property with an additional loan amount, she wrote the
Allied Bank, Inc. on August 25, 1992, withdrawing her authority for [petitioner] to apply for
additional loans.
"To save their marriage, she even sought the help of relatives in an earnest effort [at]
reconciliation, not to mention a letter to [petitioner] on November 3, 1992.
"[Petitioner], on the other hand, filed with the RTC, Makati, in 1993 (Case No. M-2905), a
'Petition for Replacement' of an owner's duplicate title.
"Attached to the Petition was the Affidavit of Loss dated March 26, 1993, in which he falsely
made it appear that the owner's copy of the title was lost or misplaced, and that was granted
by the court in an Order dated September 17, 1993, following which a new owner's copy of the
title was issued to [petitioner].
"Upon discovery of the 'fraudulent steps' taken by the [petitioner], [respondent] immediately
executed an Affidavit of Adverse Claim on November 29, 1993.
"She precisely asked the court that the sale of the JP Rizal property be declared as null and
void; for the title to be cancelled; payment of actual, moral and exemplary damages; and
attorney's fees.
"It was, on the other hand, the version of [petitioner] that sometime in 1968 or before he became
a Filipino, 'through naturalization' the JP Rizal property was being offered to him for sale.
Because he was not a Filipino, he utilized [respondent] as his 'dummy' and agreed to have the
sale executed in the name of [respondent], although the consideration was his own and from
his personal funds.
"When he finally acquired a Filipino citizenship in 1972, he purchased another property being
referred to as the 'Juno lot' out of his own funds. If only to reflect the true ownership of the JP
Rizal property, a Deed of Sale was then executed in 1972. Believing in good faith that his
owner's copy of the title was lost and not knowing that the same was surreptitiously 'concealed'
by [respondent], he filed in 1993 a petition for replacement of the owner's copy of the title, in
court.
"[Petitioner] added that [respondent] could not have purchased the property because she had
no financial capacity to do so; on the other hand, he was financially capable although he was
financially capable although he was disqualified to acquire the property by reason of his
nationality. [Respondent] was in pari delicto being privy to the simulated sale.
"Before the court a quo, the issues were: who purchased the JP Rizal property? [W]as the
Deed of Sale void? and damages.6
Ruling of the Trial Court
After examining the evidence adduced by both parties, the RTC found that the JP Rizal property
was the paraphernal property of the respondent, because (1) the title had been issued in her
name; (2) petitioner had categorically admitted that the property was in her name; (3) petitioner
was estopped from claiming otherwise, since he had signed the Deed of Absolute Sale that
stated that she was the "absolute and registered owner"; (4) she had paid the real property
taxes thereon.7
The trial court further held that the in pari delicto rule found in Articles 1411 and 1412 of the
Civil Code was not applicable to the present case, because it would apply only to existing
contracts with an illegal cause or object, not to simulated or fictitious contracts or to those that
were inexistent due to lack of an essential requisite such as cause or consideration.8 It likewise
voided the Deed of Absolute Sale of the JP Rizal property for having been simulated and
executed during the marriage of the parties.9
Ruling of the Court of Appeals
The Court of Appeals upheld the trial court's findings that the JP Rizal property had been
acquired by respondent alone, out of her own personal funds. It ruled thus:
"x x x [T]he JP Rizal property was purchased by the [respondent] alone; therefore it is a
paraphernal property. As a matter of fact, the title was issued in her name, Exh. 'DD' This was
even admitted by [petitioner] in the Answer that the sale was executed in her name alone. He
also signed the sale mentioning [respondent] to be an absolute owner; therefore he should be
estopped from claiming otherwise. She alone likewise did the payment of the taxes.10
The CA debunked the contention of petitioner that he had purchased the property out of his
own funds and merely used respondent as his dummy.11 It also held that the latter was not in
pari delicto with him, because the contract was simulated or fictitious due to the lack of
consideration. The contract was deemed void for having been executed during the couple's
marriage.12 The CA likewise affirmed the award of actual, moral and exemplary damages to
respondent.13
Hence, this Petition.14
Issues
In his Memorandum, petitioner raises the following issues for the Court's consideration:
I
"Whether or not the Court of Appeals gravely erred in not applying [the] rules on co-ownership
under Article 144 of the New Civil Code in determining the proprietary rights of the parties
herein even as respondent herself expressly declared that the money with which she allegedly
bought the property in question in 1968 came from her funds, salaries and savings at the time
she and petitioner already lived as husband and wife.
II
"Whether or not the Court of Appeals likewise palpably erred in declaring the sale of the subject
property to herein petitioner in 1992 to be fictitious, simulated and inexistent.
III
"Whether or not the Court of Appeals further erred in not applying the '[in] pari delicto' rule to
the sale of the subject property in favor of the petitioner in 1992 contrary to the express
declaration to that effect in the very same case it cited (Rodriguez v. Rodriguez; 20 SCRA 908)
in the decision herein sought to be reviewed.
IV
"Whether or not the Court of Appeals gravely erred in annul[l]ing the title (TCT No. 181033) to
the subject property in the name of herein petitioner in the absence of actual fraud."15
(Underscoring in the original.)
This Court's Ruling
The Petition is devoid of merit.
First Issue:
Nature of the Property
Petitioner contends that the JP Rizal property should be deemed as co-owned, considering
that respondent testified during trial that the money she used in purchasing it had come from
her income, salaries and savings, which are conjugal in nature.
On the other hand, respondent maintains that the finding of the two lower courts that the
property was acquired using funds solely owned by her is binding and supported by evidence.
She further argues that the two defenses of petitioner are contradictory to each other because,
if the property is co-owned, he cannot claim to own it in its entirety.
We find no reason to disturb the findings of the RTC and the CA that the source of the money
used to acquire the property was paraphernal. This issue is factual in nature. It is axiomatic
that "factual findings of the trial court, especially when affirmed by the Court of Appeals, as in
this case, are binding and conclusive on the Supreme Court. It is not the function of this Court
to reexamine the lower courts' findings of fact. While there are exceptions to this rule, petitioner
has not shown its entitlement to any of them."16
The testimony of petitioner as to the source of the money he had supposedly used to purchase
the property was at best vague and unclear. At first he maintained that the money came from
his own personal funds. Then he said that it came from his mother; and next, from his father.
Time and time again, "we [have] held that the unnatural and contradictory testimony of a
witness, x x x makes him unreliable x x x."17 His statement that the JP Rizal property was
bought with his own money can hardly be believed, when he himself was unsure as to the
source of those funds.
On the other hand, the capacity of respondent to purchase the subject property cannot be
questioned. It was sufficiently established during trial that she had the means to do so. In fact,
her testimony that she had purchased several other lots using her personal funds was not
disputed.
Equally without merit is the contention of petitioner that, because he was a Chinese national at
the time, respondent was merely used as a dummy in acquiring the property; thus, she could
not have legally acquired title thereto. He testified that sometime during the last month of 1968,
he had consulted a certain Atty. Flores, who advised him that the property be registered in the
name of respondent. However, TCT No. 217614 had been issued earlier on April 17, 1968.
Thus, it appears that the subject property had already been bought and registered in the name
of respondent, long before Atty. Flores allegedly advised him to have the property registered
in her name.
We therefore agree with the CA's affirmation of the RTC's findings that the property had been
acquired using respondent's paraphernal property. The CA rule thus:
"The fact however, is that Yu never refuted Elvira's testimony that: (a) the money with which
she acquired the JP Rizal property came from": (1) her income as a cashier in the Hong Kiat
Hardware: a (2) income from her paraphernal property – a lot in Guadalupe; (3) her savings
from the money which her parents gave her while she was still a student; and (4) the money
which her sister gave her for helping her run the beauty parlor; (b) her parents were well off –
they had stores, apartments and beauty parlors from which they derived income; (c) before her
marriage she bought lots in different places (p. 8, TSN, Jan. 26, 1998; pp. 22-23, TSN March
10, 1998)."18
Second Issue:
Fictitious, Simulated and Inexistent Sale
Next, petitioner argues that there was a valid sale between the parties, and that the
consideration consisted of his promise to construct a commercial building for the benefit of their
three children and to pay the loan he had obtained from Allied Bank.
We disagree. In Rongavilla v. Court of Appeals,19 the Court declared that a deed of sale, in
which the stated consideration had not in fact been paid, is null and void:
"The 'problem' before the Court is whether a deed which states a consideration that in fact did
not exist, is a contract, without consideration, and therefore void ab initio, or a contract with a
false consideration, and therefore, at least under the Old Civil Code, voidable. x x x."
"In our view, therefore, the ruling of this Court in Ocejo, Perez & Co. vs. Flores, 40 Phil. 921[,]
is squarely applicable herein. In that case we ruled that a contract of purchase and sale is null
and null and void and produces no effect whatsoever where the same is without cause or
consideration in that the purchase price which appears thereon as paid has in fact never been
paid by the purchaser to vendor."20
In the present case, it is clear from the factual findings of both lower courts that the Deed of
Sale was completely simulated and, hence, void and without effect. No portion of the P200,000
consideration stated in the Deed was ever paid. And, from the facts of the case, it is clear that
neither party had any intention whatsoever to pay that amount.
Instead, the Deed of Sale was executed merely to facilitate the transfer of the property to
petitioner pursuant to an agreement between the parties to enable him to construct a
commercial building and to sell the Juno property to their children. Being merely a subterfuge,
that agreement cannot be taken as the consideration for the sale.
Third Issue:
Inapplicability of the in Pari Delicto Principle
The principle of in pari delicto provides that when two parties are equally at fault, the law leaves
them as they are and denies recovery by either one of them. However, this principle does not
apply with respect to inexistent and void contracts. Said this Court in Modina v. Court of
Appeals:21
"The principle of in pari delicto non oritur actio denies all recovery to the guilty parties inter se.
It applies to cases where the nullity arises from the illegality of the consideration or the purpose
of the contract. When two persons are equally at fault, the law does not relieve them. The
exception to this general rule is when the principle is invoked with respect to inexistent
contracts."22
Fourth Issue:
Cancellation of TCT
Finally, based on the foregoing disquisition, it is quite obvious that the Court of Appeals did not
err in ordering the cancellation of TCT No. 181033, because the Deed of Absolute Sale
transferring ownership to petitioner was completely simulated, void and without effect. In fact,
there was no legal basis for the issuance of the certificate itself.1âwphi1.nêt
WHEREFORE, the Petition is hereby DENIED and the assailed. Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.
Melo, and Sandoval-Gutierrez, JJ., concur.
Vitug, J. On Official Leave.
G.R. No. L-67888 October 8, 1985
IMELDA ONG, ET AL., petitioners,
vs.
ALFREDO ONG, ET AL., respondents.
Faustino Y Bautista and Fernando M. Mangubat for private respondent.
RELOVA, J.:
This is a petition for review on certiorari of the decision, dated June 20, 1984, of the
Intermediate Appellate Court, in AC-G.R. No. CV-01748, affirming the judgment of the Regional
Trial Court of Makati, Metro Manila. Petitioner Imelda Ong assails the interpretation given by
respondent Appellate Court to the questioned Quitclaim Deed.
Records show that on February 25, 1976 Imelda Ong, for and in consideration of One (P1.00)
Peso and other valuable considerations, executed in favor of private respondent Sandra
Maruzzo, then a minor, a Quitclaim Deed whereby she transferred, released, assigned and
forever quit-claimed to Sandra Maruzzo, her heirs and assigns, all her rights, title, interest and
participation in the ONE-HALF (½) undivided portion of the parcel of land, particularly described
as follows:
A parcel of land (Lot 10-B of the subdivision plan (LRC) Psd 157841, being a portion of Lot 10,
Block 18, Psd-13288, LRC (GLRC) Record No. 2029, situated in the Municipality of Makati,
Province of Rizal, Island of Luzon ... containing an area of ONE HUNDRED AND TWENTY
FIVE (125) SQUARE METERS, more or less.
On November 19, 1980, Imelda Ong revoked the aforesaid Deed of Quitclaim and, thereafter,
on January 20, 1982 donated the whole property described above to her son, Rex Ong-
Jimenez.
On June 20, 1983, Sandra Maruzzo, through her guardian (ad litem) Alfredo Ong, filed with the
Regional Trial Court of Makati, Metro Manila an action against petitioners, for the recovery of
ownership/possession and nullification of the Deed of Donation over the portion belonging to
her and for Accounting.
In their responsive pleading, petitioners claimed that the Quitclaim Deed is null and void
inasmuch as it is equivalent to a Deed of Donation, acceptance of which by the donee is
necessary to give it validity. Further, it is averred that the donee, Sandra Maruzzo, being a
minor, had no legal personality and therefore incapable of accepting the donation.
Upon admission of the documents involved, the parties filed their responsive memoranda and
submitted the case for decision.
On December 12, 1983, the trial court rendered judgment in favor of respondent Maruzzo and
held that the Quitclaim Deed is equivalent to a Deed of Sale and, hence, there was a valid
conveyance in favor of the latter.
Petitioners appealed to the respondent Intermediate Appellate Court. They reiterated their
argument below and, in addition, contended that the One (P1.00) Peso consideration is not a
consideration at all to sustain the ruling that the Deed of Quitclaim is equivalent to a sale.
On June 20, 1984, respondent Intermediate Appellate Court promulgated its Decision affirming
the appealed judgment and held that the Quitclaim Deed is a conveyance of property with a
valid cause or consideration; that the consideration is the One (P1.00) Peso which is clearly
stated in the deed itself; that the apparent inadequacy is of no moment since it is the usual
practice in deeds of conveyance to place a nominal amount although there is a more valuable
consideration given.
Not satisfied with the decision of the respondent Intermediate Appellate Court, petitioners came
to Us questioning the interpretation given by the former to this particular document.
On March 15, 1985, respondent Sandra Maruzzo, through her guardian ad litem Alfredo Ong,
filed an Omnibus Motion informing this Court that she has reached the age of majority as
evidenced by her Birth Certificate and she prays that she be substituted as private respondent
in place of her guardian ad litem Alfredo Ong. On April 15, 1985, the Court issued a resolution
granting the same.
A careful perusal of the subject deed reveals that the conveyance of the one- half (½) undivided
portion of the above-described property was for and in consideration of the One (P 1.00) Peso
and the other valuable considerations (emphasis supplied) paid by private respondent Sandra
Maruzzo through her representative, Alfredo Ong, to petitioner Imelda Ong. Stated differently,
the cause or consideration is not the One (P1.00) Peso alone but also the other valuable
considerations. As aptly stated by the Appellate Court-
... although the cause is not stated in the contract it is presumed that it is existing unless the
debtor proves the contrary (Article 1354 of the Civil Code). One of the disputable presumptions
is that there is a sufficient cause of the contract (Section 5, (r), Rule 131, Rules of Court). It is
a legal presumption of sufficient cause or consideration supporting a contract even if such
cause is not stated therein (Article 1354, New Civil Code of the Philippines.) This presumption
cannot be overcome by a simple assertion of lack of consideration especially when the contract
itself states that consideration was given, and the same has been reduced into a public
instrument with all due formalities and solemnities. To overcome the presumption of
consideration the alleged lack of consideration must be shown by preponderance of evidence
in a proper action. (Samanilla vs, Cajucom, et al., 107 Phil. 432).
The execution of a deed purporting to convey ownership of a realty is in itself prima facie
evidence of the existence of a valuable consideration, the party alleging lack of consideration
has the burden of proving such allegation. (Caballero, et al. vs. Caballero, et al., (CA), 45 O.G.
2536).
Moreover, even granting that the Quitclaim deed in question is a donation, Article 741 of the
Civil Code provides that the requirement of the acceptance of the donation in favor of minor by
parents of legal representatives applies only to onerous and conditional donations where the
donation may have to assume certain charges or burdens (Article 726, Civil Code). The
acceptance by a legal guardian of a simple or pure donation does not seem to be necessary
(Perez vs. Calingo, CA-40 O.G. 53). Thus, Supreme Court ruled in Kapunan vs. Casilan and
Court of Appeals, (109 Phil. 889) that the donation to an incapacitated donee does not need
the acceptance by the lawful representative if said donation does not contain any condition. In
simple and pure donation, the formal acceptance is not important for the donor requires no
right to be protected and the donee neither undertakes to do anything nor assumes any
obligation. The Quitclaim now in question does not impose any condition.
The above pronouncement of respondent Appellate Court finds support in the ruling of this
Court in Morales Development Co., Inc. vs. CA, 27 SCRA 484, which states that "the major
premise thereof is based upon the fact that the consideration stated in the deeds of sale in
favor of Reyes and the Abellas is P1.00. It is not unusual, however, in deeds of conveyance
adhering to the Anglo-Saxon practice of stating that the consideration given is the sum of P1.00,
although the actual consideration may have been much more. Moreover, assuming that said
consideration of P1.00 is suspicious, this circumstance, alone, does not necessarily justify the
inference that Reyes and the Abellas were not purchasers in good faith and for value. Neither
does this inference warrant the conclusion that the sales were null and void ab initio. Indeed,
bad faith and inadequacy of the monetary consideration do not render a conveyance inexistent,
for the assignor's liberality may be sufficient cause for a valid contract (Article 1350, Civil Code),
whereas fraud or bad faith may render either rescissible or voidable, although valid until
annulled, a contract concerning an object certain entered into with a cause and with the consent
of the contracting parties, as in the case at bar."
WHEREFORE. the appealed decision of the Intermediate Appellate Court should be, as it is
hereby AFFIRMED, with costs against herein petitioners.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, De la Fuente and Patajo, JJ., concur.
Gutierrez, Jr., J., in the result.
G.R. No. L-38498 August 10, 1989
ISAAC BAGNAS, ENCARNACION BAGNAS, SILVESTRE BAGNAS MAXIMINA BAGNAS,
SIXTO BAGNAS and AGATONA ENCARNACION, petitioners,
vs.
HON. COURT OF APPEALS, ROSA L. RETONIL TEOFILO ENCARNACION, and JOSE B.
NAMBAYAN respondents.
Beltran, Beltran & Beltran for petitioners.
Jose M. Legaspi for private respondents.
NARVASA, J.:
The facts underlying this appeal by certiorari are not in dispute. Hilario Mateum of Kawit, Cavite,
died on March 11, 1964, single, without ascendants or descendants, and survived only by
collateral relatives, of whom petitioners herein, his first cousins, were the nearest. Mateum left
no will, no debts, and an estate consisting of twenty-nine parcels of land in Kawit and Imus,
Cavite, ten of which are involved in this appeal. 1
On April 3, 1964, the private respondents, themselves collateral relatives of Mateum though
more remote in degree than the petitioners, 2 registered with the Registry of Deeds for the
Province of Cavite two deeds of sale purportedly executed by Mateum in their (respondents')
favor covering ten parcels of land. Both deeds were in Tagalog, save for the English
descriptions of the lands conveyed under one of them; and each recited the reconsideration of
the sale to be" ... halagang ISANG PISO (Pl.00), salaping Pilipino, at mga naipaglingkod,
ipinaglilingkod sa aking kapakanan ..." ("the sum of ONE PESO Pl.00), Philippine Currency,
and services rendered, being rendered and to be rendered for my benefit"). One deed was
dated February 6,1963 and covered five parcels of land, and the other was dated March 4,
1963, covering five other parcels, both, therefore, antedating Mateum's death by more than a
year. 3 It is asserted by the petitioners, but denied by the respondents, that said sales
notwithstanding, Mateum continued in the possession of the lands purportedly conveyed until
his death, that he remained the declared owner thereof and that the tax payments thereon
continued to be paid in his name. 4 Whatever the truth, however, is not crucial. What is not
disputed is that on the strength of the deeds of sale, the respondents were able to secure title
in their favor over three of the ten parcels of land conveyed thereby. 5
On May 22,1964 the petitioners commenced suit against the respondents in the Court of First
Instance of Cavite, seeking annulment of the deeds of sale as fictitious, fraudulent or falsified,
or, alternatively, as donations void for want of acceptance embodied in a public instrument.
Claiming ownership pro indiviso of the lands subject of the deeds by virtue of being intestate
heirs of Hilario Mateum, the petitioners prayed for recovery of ownership and possession of
said lands, accounting of the fruits thereof and damages. Although the complaint originally
sought recovery of all the twenty-nine parcels of land left by Mateum, at the pre-trial the parties
agreed that the controversy be limited to the ten parcels subject of the questioned sales, and
the Trial Court ordered the exclusion of the nineteen other parcels from the action. 6 Of the ten
parcels which remained in litigation, nine were assessed for purposes of taxation at values
aggregating P10,500 00. The record does not disclose the assessed value of the tenth parcel,
which has an area of 1,443 square meters. 7
In answer to the complaint, the defendants (respondents here) denied the alleged fictitious or
fraudulent character of the sales in their favor, asserting that said sales were made for good
and valuable consideration; that while "... they may have the effect of donations, yet the
formalities and solemnities of donation are not required for their validity and effectivity, ... that
defendants were collateral relatives of Hilario Mateum and had done many good things for him,
nursing him in his last illness, which services constituted the bulk of the consideration of the
sales; and (by way of affirmative defense) that the plaintiffs could not question or seek
annulment of the sales because they were mere collateral relatives of the deceased vendor
and were not bound, principally or subsidiarily, thereby. 8
After the plaintiffs had presented their evidence, the defendants filed a motion for dismissal in
effect, a demurrer to the evidence reasserting the defense set up in their answer that the
plaintiffs, as mere collateral relatives of Hilario Mateum, had no light to impugn the latter's
disposition of his properties by means of the questioned conveyances and submitting,
additionally, that no evidence of fraud maintaining said transfers had been presented. 9
The Trial Court granted the motion to dismiss, holding (a) on the authority of Armentia vs.
Patriarca, 10 that the plaintiffs, as mere collateral relatives, not forced heirs, of Hilario Mateum,
could not legally question the disposition made by said deceased during his lifetime, regardless
of whether, as a matter of objective reality, said dispositions were valid or not; and (b) that the
plaintiffs evidence of alleged fraud was insufficient, the fact that the deeds of sale each stated
a consideration of only Pl.00 not being in itself evidence of fraud or simulation. 11
On appeal by the plaintiffs to the Court of Appeals, that court affirmed, adverting with approval
to the Trial Court's reliance on the Armentia ruling which, it would appear, both courts saw as
denying, without exception, to collaterals, of a decedent, not forced heirs, the right to impugn
the latter's dispositions inter vivos of his property. The Appellate Court also analyzed the
testimony of the plaintiffs' witnesses, declared that it failed to establish fraud of any kind or that
Mateum had continued paying taxes on the lands in question even after executing the deeds
conveying them to the defendants, and closed with the statement that "... since in duly notarized
and registered deeds of sale consideration is presumed, we do not and it necessary to rule on
the alternative allegations of the appellants that the said deed of sale were (sic) in reality
donations. 12
One issue clearly predominates here. It is whether, in view of the fact that, for properties
assuredly worth in actual value many times over their total assessed valuation of more than
P10,000.00, the questioned deeds of sale each state a price of only one peso (P1.00) plus
unspecified past, present and future services to which no value is assigned, said deeds were
void or inexistent from the beginning ("nulo") or merely voidable, that is, valid until annulled. If
they were only voidable, then it is a correct proposition that since the vendor Mateum had no
forced heirs whose legitimes may have been impaired, and the petitioners, his collateral
relatives, not being bound either principally or subsidiarily to the terms of said deeds, the latter
had and have no actionable right to question those transfers.
On the other hand, if said deeds were void ab initio because to all intents and purposes without
consideration, then a different legal situation arises, and quite another result obtains, as pointed
out by the eminent civil law authority, Mr. Justice J.B.L. Reyes who, in his concurring opinion
in Armentia, said:
I ... cannot bring myself to agree to the proposition that the heirs intestate would have no legal
standing to contest the conveyance made by the deceased if the same were made without any
consideration, or for a false and fictitious consideration. For under the Civil Code of the
Philippines, Art. 1409, par. 3, contracts with a cause that did not exist at the time of the
transaction are inexistent and void from the beginning. The same is true of contracts stating a
false cause (consideration) unless the persons interested in upholding the contract should
prove that there is another true and lawful consideration therefor. (lbid., Art. 1353).
If therefore the contract has no causa or consideration, or the causa is false and fictitious (and
no true hidden causa is proved) the property allegedly conveyed never really leaves the
patrimony of the transferor, and upon the latter's death without a testament, such property
would pass to the transferor's heirs intestate and be recoverable by them or by the
Administrator of the transferor's estate. In this particular regard, I think Concepcion vs. Sta.
Ana, 87 Phil. 787 and Sobs vs. Chua Pua Hermanos, 50 Phil. 536, do not correctly state the
present law, and must be clarified.
To be sure the quoted passage does not reject and is not to be construed as rejecting the
Concepcion and Solis rulings 13 as outrightly erroneous, far from it. On the contrary, those
rulings undoubtedly read and applied correctly the law extant in their time: Art. 1276 of the Civil
Code of 1889 under which the statement of a false cause in a contract rendered it voidable
only, not void ab initio. In observing that they "... do not correctly state the present law and must
be clarified," Justice Reyes clearly had in mind the fact that the law as it is now (and already
was in the time Armentia) no longer deems contracts with a false cause, or which are absolutely
simulated or fictitious, merely voidable, but declares them void, i.e., inexistent ("nulo") unless it
is shown that they are supported by another true and lawful cause or consideration. 14 A logical
consequence of that change is the juridical status of contracts without, or with a false, cause is
that conveyances of property affected with such a vice cannot operate to divest and transfer
ownership, even if unimpugned. If afterwards the transferor dies the property descends to his
heirs, and without regard to the manner in which they are called to the succession, said heirs
may bring an action to recover the property from the purported transferee. As pointed out, such
an action is not founded on fraud, but on the premise that the property never leaves the estate
of the transferor and is transmitted upon his death to heirs, who would labor under no incapacity
to maintain the action from the mere fact that they may be only collateral relatives and bound
neither principally or subsidiarily under the deed or contract of conveyance.
In Armentia the Court determined that the conveyance questioned was merely annullable not
void ab initio, and that the plaintiff s action was based on fraud vitiating said conveyance. The
Court said:
Hypothetically admitting the truth of these allegations (of plaintiffs complaint), the conclusion is
irresistible that the sale is merely voidable. Because Marta Armentia executed the document,
and this is not controverted by plaintiff. Besides, the fact that the vendees were minors, makes
the contract, at worst, annullable by them, Then again, inadequacy of consideration does not
imply total want of consideration. Without more, the parted acts of Marta Armentia after the
sale did not indicate that the said sale was void from the being.
The sum total of all these is that, in essence, plaintiffs case is bottomed on fraud, which renders
the contract voidable.
It therefore seems clear that insofar as it may be considered as setting or reaffirming precedent,
Armentia only ruled that transfers made by a decedent in his lifetime, which are voidable for
having been fraudulently made or obtained, cannot be posthumously impugned by collateral
relatives succeeding to his estate who are not principally or subsidiarily bound by such
transfers. For the reasons already stated, that ruling is not extendible to transfers which, though
made under closely similar circumstances, are void ab initio for lack or falsity of consideration.
The petitioners here argue on a broad front that the very recitals of the questioned deeds of
sale reveal such want or spuriousness of consideration and therefore the void character of said
sales. They:
1. advert to a decision of the Court of Appeals in Montinola vs. Herbosa (59 O.G. No. 47,
pp, 8101, 8118) holding that a price of P l.00 for the sale of things worth at least P20,000.00 is
so insignificant as to amount to no price at all, and does not satisfy the law which, while not
requiring for the validity of a sale that the price be adequate, prescribes that it must be real, not
fictitious, stressing the obvious parallel between that case and the present one in stated price
and actual value of the property sold;
2. cite Manresa to the same effect: that true price, which is essential to the validity of a
sale, means existent, real and effective price, that which does not consist in an insignificant
amount as, say, P.20 for a house; that it is not the same as the concept of a just price which
entails weighing and measuring, for economic equivalence, the amount of price against all the
factors that determine the value of the thing sold; but that there is no need of such a close
examination when the immense disproportion between such economic values is patent a case
of insignificant or ridiculous price, the unbelievable amount of which at once points out its
inexistence; 15
3. assert that Art. 1458 of the Civil Code, in prescribing that a sale be for a ... price certain
in money or its equivalent ... requires that "equivalent" be something representative of money,
e.g., a check or draft, again citing Manresa 16 to the effect that services are not the equivalent
of money insofar as said requirement is concerned and that a contract is not a true sale where
the price consists of services or prestations;
4. once more citing Manresa 17 also point out that the "services" mentioned in the
questioned deeds of sale are not only vague and uncertain, but are unknown and not
susceptible of determination without the necessity of a new agreement between the parties to
said deeds.
Without necessarily according all these assertions its full concurrence, but upon the
consideration alone that the apparent gross, not to say enormous, disproportion between the
stipulated price (in each deed) of P l.00 plus unspecified and unquantified services and the
undisputably valuable real estate allegedly sold worth at least P10,500.00 going only by
assessments for tax purposes which, it is well-known, are notoriously low indicators of actual
value plainly and unquestionably demonstrates that they state a false and fictitious
consideration, and no other true and lawful cause having been shown, the Court finds both
said deeds, insofar as they purport to be sales, not merely voidable, but void ab initio.
Neither can the validity of said conveyances be defended on the theory that their true causa is
the liberality of the transferor and they may be considered in reality donations 18 because the
law 19 also prescribes that donations of immovable property, to be valid, must be made and
accepted in a public instrument, and it is not denied by the respondents that there has been no
such acceptance which they claim is not required. 20
The transfers in question being void, it follows as a necessary consequence and conformably
to the concurring opinion in Armentia, with which the Court fully agrees, that the properties
purportedly conveyed remained part of the estate of Hilario Mateum, said transfers
notwithstanding, recoverable by his intestate heirs, the petitioners herein, whose status as such
is not challenged.
The private respondents have only themselves to blame for the lack of proof that might have
saved the questioned transfers from the taint of invalidity as being fictitious and without ilicit
cause; proof, to be brief, of the character and value of the services, past, present, and future,
constituting according to the very terms of said transfers the principal consideration therefor.
The petitioners' complaint (par. 6) 21 averred that the transfers were "... fraudulent, fictitious
and/or falsified and (were) ... in reality donations of immovables ...," an averment that the
private respondents not only specifically denied, alleging that the transfers had been made "...
for good and valuable consideration ...," but to which they also interposed the affirmative
defenses that said transfers were "... valid, binding and effective ...," and, in an obvious
reference to the services mentioned in the deeds, that they "... had done many good things to
(the transferor) during his lifetime, nursed him during his ripe years and took care of him during
his previous and last illness ...," (pars. 4, 6, 16 and 17, their answer).lâwphî1.ñèt 22 The onus,
therefore, of showing the existence of valid and illicit consideration for the questioned
conveyances rested on the private respondents. But even on a contrary assumption, and
positing that the petitioners initially had the burden of showing that the transfers lacked such
consideration as they alleged in their complaint, that burden was shifted to the private
respondents when the petitioners presented the deeds which they claimed showed that defect
on their face and it became the duty of said respondents to offer evidence of existent lawful
consideration.
As the record clearly demonstrates, the respondents not only failed to offer any proof
whatsoever, opting to rely on a demurrer to the petitioner's evidence and upon the thesis, which
they have maintained all the way to this Court, that petitioners, being mere collateral relatives
of the deceased transferor, were without right to the conveyances in question. In effect, they
gambled their right to adduce evidence on a dismissal in the Trial Court and lost, it being the
rule that when a dismissal thus obtained is reversed on appeal, the movant loses the right to
present evidence in his behalf. 23
WHEREFORE, the appealed Decision of the Court of Appeals is reversed. The questioned
transfers are declared void and of no force or effect. Such certificates of title as the private
respondents may have obtained over the properties subject of said transfers are hereby
annulled, and said respondents are ordered to return to the petitioners possession of an the
properties involved in tills action, to account to the petitioners for the fruits thereof during the
period of their possession, and to pay the costs. No damages, attorney's fees or litigation
expenses are awarded, there being no evidence thereof before the Court.
SO ORDERED.
Cruz, Gancayco, Griñ;o-Aquino and Medialdea, JJ., concur.
G.R. No. 134971 March 25, 2004
HERMINIO TAYAG, petitioner,
vs.
AMANCIA LACSON, ROSENDO LACSON, ANTONIO LACSON, JUAN LACSON,
TEODISIA LACSON-ESPINOSA and THE COURT OF APPEALS, respondents.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the Decision1 and the Resolution2 of
respondent Court of Appeals in CA-G.R. SP No. 44883.
The Case for the Petitioner
Respondents Angelica Tiotuyco Vda. de Lacson,3 and her children Amancia, Antonio, Juan,
and Teodosia, all surnamed Lacson, were the registered owners of three parcels of land
located in Mabalacat, Pampanga, covered by Transfer Certificates of Title (TCT) Nos. 35922-
R, 35923-R, and 35925-R, registered in the Register of Deeds of San Fernando, Pampanga.
The properties, which were tenanted agricultural lands,4 were administered by Renato
Espinosa for the owner.
On March 17, 1996, a group of original farmers/tillers, namely, Julio Tiamson, Renato Gozun,
Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino,
Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue,
Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, and another group, namely, Felino
G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman
Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo
Sosa, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino,
Ceferino de Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores,5 individually
executed in favor of the petitioner separate Deeds of Assignment6 in which the assignees
assigned to the petitioner their respective rights as tenants/tillers of the landholdings possessed
and tilled by them for and in consideration of P50.00 per square meter. The said amount was
made payable "when the legal impediments to the sale of the property to the petitioner no
longer existed." The petitioner was also granted the exclusive right to buy the property if and
when the respondents, with the concurrence of the defendants-tenants, agreed to sell the
property. In the interim, the petitioner gave varied sums of money to the tenants as partial
payments, and the latter issued receipts for the said amounts.
covered by Transfer Certificate of Title Nos. 35922-R, 35923-R and 35925-R which are
registered in the names of defendants LACSONS; while defendants Felino G. Tolentino, Rica
Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San
Luis, Alfredo Gozun, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao,
Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, and Aurelio Flores are sub-tenants over
the same parcel of land.
5. That on March 17, 1996 the defendants TIAMSON, et al., entered into Deeds of Assignment
with the plaintiff by which the defendants assigned all their rights and interests on their
landholdings to the plaintiff and that on the same date (March 17, 1996), the defendants
received from the plaintiff partial payments in the amounts corresponding to their names.
Subsequent payments were also received:

On July 24, 1996, the petitioner called a meeting of the defendants-tenants to work out the
implementation of the terms of their separate agreements.7 However, on August 8, 1996, the
defendants-tenants, through Joven Mariano, wrote the petitioner stating that they were not
attending the meeting and instead gave notice of their collective decision to sell all their rights
and interests, as tenants/lessees, over the landholding to the respondents.8 Explaining their
reasons for their collective decision, they wrote as follows:

Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng ating napagkasunduan, hindi
tumanggap ng ibang buyer o ahente, pero sinira ninyo ang aming pagtitiwala sa pamamagitan
ng demanda ninyo at pagbibigay ng problema sa amin na hindi naman nagbenta ng lupa.

Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming karapatan o ang aming
lupang sinasaka sa landowner o sa mga pamilyang Lacson, dahil ayaw naming magkaroon ng
problema.

Kaya kung ang sasabihin ninyong ito’y katangahan, lalo sigurong magiging katangahan kung
ibebenta pa namin sa inyo ang aming lupang sinasaka, kaya pasensya na lang Mister Tayag.
Dahil sinira ninyo ang aming pagtitiwala at katapatan.9

On August 19, 1996, the petitioner filed a complaint with the Regional Trial Court of San
Fernando, Pampanga, Branch 44, against the defendants-tenants, as well as the respondents,
for the court to fix a period within which to pay the agreed purchase price of P50.00 per square
meter to the defendants, as provided for in the Deeds of Assignment. The petitioner also prayed
for a writ of preliminary injunction against the defendants and the respondents therein.10 The
case was docketed as Civil Case No. 10910.

In his complaint, the petitioner alleged, inter alia, the following:

4. That defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol,
Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr.,
Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de
Leon, Emiliano Ramos are original farmers or direct tillers of landholdings over parcels of lands

6. That on July 24, 1996, the plaintiff wrote the defendants TIAMSON, et al., inviting them for
a meeting regarding the negotiations/implementations of the terms of their Deeds of
Assignment;
7. That on August 8, 1996, the defendants TIAMSON, et al., through Joven Mariano, replied
that they are no longer willing to pursue with the negotiations, and instead they gave notice to
the plaintiff that they will sell all their rights and interests to the registered owners (defendants
LACSONS).
A copy of the letter is hereto attached as Annex "A" etc.;
8. That the defendants TIAMSON, et. al., have no right to deal with the defendants LACSON
or with any third persons while their contracts with the plaintiff are subsisting; defendants
LACSONS are inducing or have induced the defendants TIAMSON, et. al., to violate their
contracts with the plaintiff;
9. That by reason of the malicious acts of all the defendants, plaintiff suffered moral damages
in the forms of mental anguish, mental torture and serious anxiety which in the sum of
P500,000.00 for which defendants should be held liable jointly and severally.11
In support of his plea for injunctive relief, the petitioner, as plaintiff, also alleged the following
in his complaint:
11. That to maintain the status quo, the defendants TIAMSON, et al., should be restrained from
rescinding their contracts with the plaintiff, and the defendants LACSONS should also be
restrained from accepting any offer of sale or alienation with the defendants TIAMSON, et al.,
in whatever form, the latter’s rights and interests in the properties mentioned in paragraph 4
hereof; further, the LACSONS should be restrained from encumbering/alienating the subject
properties covered by TCT No. 35922-R, 35923-R and TCT No. 35925-R, Registry of Deeds
of San Fernando, Pampanga;
12. That the defendants TIAMSON, et al., threaten to rescind their contracts with the plaintiff
and are also bent on selling/alienating their rights and interests over the subject properties to
their co-defendants (LACSONS) or any other persons to the damage and prejudice of the
plaintiff who already invested much money, efforts and time in the said transactions;
13. That the plaintiff is entitled to the reliefs being demanded in the complaint;
14. That to prevent irreparable damages and prejudice to the plaintiff, as the latter has no
speedy and adequate remedy under the ordinary course of law, it is essential that a Writ of
Preliminary Injunction be issued enjoining and restraining the defendants TIAMSON, et al.,
from rescinding their contracts with the plaintiff and from selling/alienating their properties to
the LACSONS or other persons;
15. That the plaintiff is willing and able to put up a reasonable bond to answer for the damages
which the defendants would suffer should the injunction prayed for and granted be found
without basis.12
The petitioner prayed, that after the proceedings, judgment be rendered as follows:
1. Pending the hearing, a Writ of Preliminary Injunction be issued prohibiting, enjoining and
restraining defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol,
Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino Sr.,
Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de
Leon, Emiliano Ramos, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino,
Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana
Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Ceferino de Leon,
Alberto Hernandez, Orlando Flores, and Aurelio Flores from rescinding their contracts with the
plaintiff and from alienating their rights and interest over the aforementioned properties in favor
of defendants LACSONS or any other third persons; and prohibiting the defendants LACSONS
from encumbering/alienating TCT Nos. 35922-R, 35923-R and 35925-R of the Registry of
Deeds of San Fernando, Pampanga.
2. And pending the hearing of the Prayer for a Writ of Preliminary Injunction, it is prayed that a
restraining order be issued restraining the aforementioned defendants (TIAMSON, et al.) from
rescinding their contracts with the plaintiff and from alienating the subject properties to the
defendants LACSONS or any third persons; further, restraining and enjoining the defendants
LACSONS from encumbering/selling the properties covered by TCT Nos. 35922-R, 35923-R,
and 35925-R of the Registry of Deeds of San Fernando, Pampanga.
3. Fixing the period within which plaintiff shall pay the balance of the purchase price to the
defendants TIAMSON, et al., after the lapse of legal impediment, if any.
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants to pay the plaintiff the sum of P500,000.00 as moral damages;
6. Ordering the defendants to pay the plaintiff attorney’s fees in the sum of P100,000.00 plus
litigation expenses of P50,000.00;
Plaintiff prays for such other relief as may be just and equitable under the premises.13
In their answer to the complaint, the respondents as defendants asserted that (a) the defendant
Angelica Vda. de Lacson had died on April 24, 1993; (b) twelve of the defendants were
tenants/lessees of respondents, but the tenancy status of the rest of the defendants was
uncertain; (c) they never induced the defendants Tiamson to violate their contracts with the
petitioner; and, (d) being merely tenants-tillers, the defendants-tenants had no right to enter
into any transactions involving their properties without their knowledge and consent. They also
averred that the transfers or assignments of leasehold rights made by the defendants-tenants
to the petitioner is contrary to Presidential Decree (P.D.) No. 27 and Republic Act No. 6657,
the Comprehensive Agrarian Reform Program (CARP).14 The respondents interposed
counterclaims for damages against the petitioner as plaintiff.
The defendants-tenants Tiamson, et al., alleged in their answer with counterclaim for damages,
that the money each of them received from the petitioner were in the form of loans, and that
they were deceived into signing the deeds of assignment:
a) That all the foregoing allegations in the Answer are hereby repleaded and incorporated in
so far as they are material and relevant herein;
b) That the defendants Tiamson, et al., in so far as the Deeds of Assignment are concern[ed]
never knew that what they did sign is a Deed of Assignment. What they knew was that they
were made to sign a document that will serve as a receipt for the loan granted [to] them by the
plaintiff;
c) That the Deeds of Assignment were signed through the employment of fraud, deceit and
false pretenses of plaintiff and made the defendants believe that what they sign[ed] was a mere
receipt for amounts received by way of loans;
d) That the documents signed in blank were filled up and completed after the defendants
Tiamson, et al., signed the documents and their completion and accomplishment was done in
the absence of said defendants and, worst of all, defendants were not provided a copy thereof;
e) That as completed, the Deeds of Assignment reflected that the defendants Tiamson, et al.,
did assign all their rights and interests in the properties or landholdings they were tilling in favor
of the plaintiff. That if this is so, assuming arguendo that the documents were voluntarily
executed, the defendants Tiamson, et al., do not have any right to transfer their interest in the
landholdings they are tilling as they have no right whatsoever in the landholdings, the
landholdings belong to their co-defendants, Lacson, et al., and therefore, the contract is null
and void;
f) That while it is admitted that the defendants Tiamson, et al., received sums of money from
plaintiffs, the same were received as approved loans granted by plaintiff to the defendants
Tiamson, et al., and not as part consideration of the alleged Deeds of Assignment; and by way
of:…15
At the hearing of the petitioner’s plea for a writ of preliminary injunction, the respondents’
counsel failed to appear. In support of his plea for a writ of preliminary injunction, the petitioner
adduced in evidence the Deeds of Assignment,16 the receipts17 issued by the defendants-
tenants for the amounts they received from him; and the letter18 the petitioner received from
the defendants-tenants. The petitioner then rested his case.
The respondents, thereafter, filed a Comment/Motion to dismiss/deny the petitioner’s plea for
injunctive relief on the following grounds: (a) the Deeds of Assignment executed by the
defendants-tenants were contrary to public policy and P.D. No. 27 and Rep. Act No. 6657; (b)
the petitioner failed to prove that the respondents induced the defendants-tenants to renege
on their obligations under the "Deeds of Assignment;" (c) not being privy to the said deeds, the
respondents are not bound by the said deeds; and, (d) the respondents had the absolute right
to sell and dispose of their property and to encumber the same and cannot be enjoined from
doing so by the trial court.
The petitioner opposed the motion, contending that it was premature for the trial court to resolve
his plea for injunctive relief, before the respondents and the defendants-tenants adduced
evidence in opposition thereto, to afford the petitioner a chance to adduce rebuttal evidence
and prove his entitlement to a writ of preliminary injunction. The respondents replied that it was
the burden of the petitioner to establish the requisites of a writ of preliminary injunction without
any evidence on their part, and that they were not bound to adduce any evidence in opposition
to the petitioner’s plea for a writ of preliminary injunction.
On February 13, 1997, the court issued an Order19 denying the motion of the respondents for
being premature. It directed the hearing to proceed for the respondents to adduce their
evidence. The court ruled that the petitioner, on the basis of the material allegations of the
complaint, was entitled to injunctive relief. It also held that before the court could resolve the
petitioner’s plea for injunctive relief, there was need for a hearing to enable the respondents
and the defendants-tenants to adduce evidence to controvert that of the petitioner. The
respondents filed a motion for reconsideration, which the court denied in its Order dated April
16, 1997. The trial court ruled that on the face of the averments of the complaint, the pleadings
of the parties and the evidence adduced by the petitioner, the latter was entitled to injunctive
relief unless the respondents and the defendants-tenants adduced controverting evidence.
The respondents, the petitioners therein, filed a petition for certiorari in the Court of Appeals
for the nullification of the February 13, 1997 and April 16, 1997 Orders of the trial court. The
case was docketed as CA-G.R. SP No. 44883. The petitioners therein prayed in their petition
that:
1. An order be issued declaring the orders of respondent court dated February 13, 1997 and
April 16, 1997 as null and void;
2. An order be issued directing the respondent court to issue an order denying the application
of respondent Herminio Tayag for the issuance of a Writ of Preliminary Injunction and/or
restraining order.
3. In the meantime, a Writ of Preliminary Injunction be issued against the respondent court,
prohibiting it from issuing its own writ of injunction against Petitioners, and thereafter making
said injunction to be issued by this Court permanent.
Such other orders as may be deemed just & equitable under the premises also prayed for.20
The respondents asserted that the Deeds of Assignment executed by the assignees in favor
of the petitioner were contrary to paragraph 13 of P.D. No. 27 and the second paragraph of
Section 70 of Rep. Act No. 6657, and, as such, could not be enforced by the petitioner for being
null and void. The respondents also claimed that the enforcement of the deeds of assignment
was subject to a supervening condition:
3. That this exclusive and absolute right given to the assignee shall be exercised only when no
legal impediments exist to the lot to effect the smooth transfer of lawful ownership of the
lot/property in the name of the ASSIGNEE.21
The respondents argued that until such condition took place, the petitioner would not acquire
any right to enforce the deeds by injunctive relief. Furthermore, the petitioner’s plea in his
complaint before the trial court, to fix a period within which to pay the balance of the amounts
due to the tenants under said deeds after the "lapse" of any legal impediment, assumed that
the deeds were valid, when, in fact and in law, they were not. According to the respondents,
they were not parties to the deeds of assignment; hence, they were not bound by the said
deeds. The issuance of a writ of preliminary injunction would restrict and impede the exercise
of their right to dispose of their property, as provided for in Article 428 of the New Civil Code.
They asserted that the petitioner had no cause of action against them and the defendants-
tenants.
On April 17, 1998, the Court of Appeals rendered its decision against the petitioner, annulling
and setting aside the assailed orders of the trial court; and permanently enjoining the said trial
court from proceeding with Civil Case No. 10901. The decretal portion of the decision reads as
follows:
However, even if private respondent is denied of the injunctive relief he demands in the lower
court still he could avail of other course of action in order to protect his interest such as the
institution of a simple civil case of collection of money against TIAMSON, et al.
For all the foregoing considerations, the orders dated 13 February 1997 and 16 April 1997 are
hereby NULLIFIED and ordered SET ASIDE for having been issued with grave abuse of
discretion amounting to lack or excess of jurisdiction. Accordingly, public respondent is
permanently enjoined from proceeding with the case designated as Civil Case No. 10901.22
The CA ruled that the respondents could not be enjoined from alienating or even encumbering
their property, especially so since they were not privies to the deeds of assignment executed
by the defendants-tenants. The defendants-tenants were not yet owners of the portions of the
landholdings respectively tilled by them; as such, they had nothing to assign to the petitioner.
Finally, the CA ruled that the deeds of assignment executed by the defendants-tenants were
contrary to P.D. No. 27 and Rep. Act No. 6657.
On August 4, 1998, the CA issued a Resolution denying the petitioner’s motion for
reconsideration.23
Hence, the petitioner filed his petition for review on certiorari before this Court, contending as
follows:
I
A MERE ALLEGATION IN THE ANSWER OF THE TENANTS COULD NOT BE USED AS
EVIDENCE OR BASIS FOR ANY CONCLUSION, AS THIS ALLEGATION, IS STILL THE
SUBJECT OF TRIAL IN THE LOWER COURT (RTC).24
II
THE COURT OF APPEALS CANNOT ENJOIN THE HEARING OF A PETITION FOR
PRELIMINARY INJUNCTION AT A TIME WHEN THE LOWER COURT (RTC) IS STILL
RECEIVING EVIDENCE PRECISELY TO DETERMINE WHETHER OR NOT THE WRIT OF
PRELIMINARY INJUNCTION BEING PRAYED FOR BY TAYAG SHOULD BE GRANTED OR
NOT.25
III
THE COURT OF APPEALS CANNOT USE "FACTS" NOT IN EVIDENCE, TO SUPPORT ITS
CONCLUSION THAT THE TENANTS ARE NOT YET "AWARDEES OF THE LAND
REFORM.26

IV
THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT STOPPAGE OF THE
ENTIRE PROCEEDINGS BELOW INCLUDING THE TRIAL ON THE MERITS OF THE CASE
CONSIDERING THAT THE ISSUE INVOLVED ONLY THE PROPRIETY OF MAINTAINING
THE STATUS QUO.27
V evidence in support thereof. The petitioner adduced his evidence to support his plea for a writ
THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION THE CASE OF THE
OTHER 35 TENANTS WHO DO NOT QUESTION THE JURISDICTION OF THE LOWER
COURT (RTC) OVER THE CASE AND WHO ARE IN FACT STILL PRESENTING THEIR
EVIDENCE TO OPPOSE THE INJUNCTION PRAYED FOR, AND TO PROVE AT THE SAME
TIME THE COUNTER-CLAIMS THEY FILED AGAINST THE PETITIONER.28
VI
THE LOWER COURT (RTC) HAS JURISDICTION OVER THE CASE FILED BY TAYAG FOR
"FIXING OF PERIOD" UNDER ART. 1197 OF THE NEW CIVIL CODE AND FOR "DAMAGES"
AGAINST THE LACSONS UNDER ART. 1314 OF THE SAME CODE. THIS CASE CANNOT
BE SUPPRESSED OR RENDERED NUGATORY UNCEREMONIOUSLY.29
The petitioner faults the Court of Appeals for permanently enjoining the trial court from
proceeding with Civil Case No. 10910. He opines that the same was too drastic, tantamount to
a dismissal of the case. He argues that at that stage, it was premature for the appellate court
to determine the merits of the case since no evidentiary hearing thereon was conducted by the
trial court. This, the Court of Appeals cannot do, since neither party moved for the dismissal of
Civil Case No. 10910. The petitioner points out that the Court of Appeals, in making its findings,
went beyond the issue raised by the private respondents, namely, whether or not the trial court
committed a grave abuse of discretion amounting to excess or lack of jurisdiction when it denied
the respondent’s motion for the denial/dismissal of the petitioner’s plea for a writ of preliminary
injunction. He, likewise, points out that the appellate court erroneously presumed that the
leaseholders were not DAR awardees and that the deeds of assignment were contrary to law.
He contends that leasehold tenants are not prohibited from conveying or waiving their
leasehold rights in his favor. He insists that there is nothing illegal with his contracts with the
leaseholders, since the same shall be effected only when there are no more "legal
impediments."
At bottom, the petitioner contends that, at that stage, it was premature for the appellate court
to determine the merits of his case since no evidentiary hearing on the merits of his complaint
had yet been conducted by the trial court.
The Comment/Motion of the
Respondents to Dismiss/Deny
Petitioner’s Plea for a Writ
of Preliminary Injunction
Was Not Premature.
Contrary to the ruling of the trial court, the motion of the respondents to dismiss/deny the
petitioner’s plea for a writ of preliminary injunction after the petitioner had adduced his
evidence, testimonial and documentary, and had rested his case on the incident, was proper
and timely. It bears stressing that the petitioner had the burden to prove his right to a writ of
preliminary injunction. He may rely solely on the material allegations of his complaint or adduce
of preliminary injunction against the respondents and the defendants-tenants and rested his
case on the said incident. The respondents then had three options: (a) file a motion to
deny/dismiss the motion on the ground that the petitioner failed to discharge his burden to
prove the factual and legal basis for his plea for a writ of preliminary injunction and, if the trial
court denies his motion, for them to adduce evidence in opposition to the petitioner’s plea; (b)
forgo their motion and adduce testimonial and/or documentary evidence in opposition to the
petitioner’s plea for a writ of preliminary injunction; or, (c) waive their right to adduce evidence
and submit the incident for consideration on the basis of the pleadings of the parties and the
evidence of the petitioner. The respondents opted not to adduce any evidence, and instead
filed a motion to deny or dismiss the petitioner’s plea for a writ of preliminary injunction against
them, on their claim that the petitioner failed to prove his entitlement thereto. The trial court
cannot compel the respondents to adduce evidence in opposition to the petitioner’s plea if the
respondents opt to waive their right to adduce such evidence. Thus, the trial court should have
resolved the respondents’ motion even without the latter’s opposition and the presentation of
evidence thereon.
The RTC Committed a Grave
Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders
In its February 13, 1997 Order, the trial court ruled that the petitioner was entitled to a writ of
preliminary injunction against the respondents on the basis of the material averments of the
complaint. In its April 16, 1997 Order, the trial court denied the respondents’ motion for
reconsideration of the previous order, on its finding that the petitioner was entitled to a writ of
preliminary injunction based on the material allegations of his complaint, the evidence on
record, the pleadings of the parties, as well as the applicable laws:
… For the record, the Court denied the LACSONS’ COMMENT/MOTION on the basis of the
facts culled from the evidence presented, the pleadings and the law applicable unswayed by
the partisan or personal interests, public opinion or fear of criticism (Canon 3, Rule 3.02, Code
of Judicial Ethics).30
Section 3, Rule 58 of the Rules of Court, as amended, enumerates the grounds for the issuance
of a writ of preliminary injunction, thus:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief
consists in restraining the commission or continuance of the act or acts complained of, or in
requiring the performance of an act or acts, either for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts complained of
during the litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is
procuring or suffering to be done, some act or acts probably in violation of the rights of the
applicant respecting the subject of the action or proceeding, and tending to render the judgment
ineffectual.
A preliminary injunction is an extraordinary event calculated to preserve or maintain the status
quo of things ante litem and is generally availed of to prevent actual or threatened acts, until
the merits of the case can be heard. Injunction is accepted as the strong arm of equity or a
transcendent remedy.31 While generally the grant of a writ of preliminary injunction rests on
the sound discretion of the trial court taking cognizance of the case, extreme caution must be
observed in the exercise of such discretion.32 Indeed, in Olalia v. Hizon,33 we held:
It has been consistently held that there is no power the exercise of which is more delicate,
which requires greater caution, deliberation and sound discretion, or more dangerous in a
doubtful case, than the issuance of an injunction. It is the strong arm of equity that should never
be extended unless to cases of great injury, where courts of law cannot afford an adequate or
commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon the freedom of action of the
defendant and should not be granted lightly or precipitately. It should be granted only when the
court is fully satisfied that the law permits it and the emergency demands it.34
The very foundation of the jurisdiction to issue writ of injunction rests in the existence of a cause
of action and in the probability of irreparable injury, inadequacy of pecuniary compensation and
the prevention of the multiplicity of suits. Where facts are not shown to bring the case within
these conditions, the relief of injunction should be refused.35
For the court to issue a writ of preliminary injunction, the petitioner was burdened to establish
the following: (1) a right in esse or a clear and unmistakable right to be protected; (2) a violation
of that right; (3) that there is an urgent and permanent act and urgent necessity for the writ to
prevent serious damage.36 Thus, in the absence of a clear legal right, the issuance of the
injunctive writ constitutes a grave abuse of discretion. Where the complainant’s right is doubtful
or disputed, injunction is not proper. Injunction is a preservative remedy aimed at protecting
substantial rights and interests. It is not designed to protect contingent or future rights. The
possibility of irreparable damage without proof of adequate existing rights is not a ground for
injunction.37
We have reviewed the pleadings of the parties and found that, as contended by the
respondents, the petitioner failed to establish the essential requisites for the issuance of a writ
of preliminary injunction. Hence, the trial court committed a grave abuse of its discretion
amounting to excess or lack of jurisdiction in denying the respondents’ comment/motion as well
as their motion for reconsideration.
First. The trial court cannot enjoin the respondents, at the instance of the petitioner, from
selling, disposing of and encumbering their property. As the registered owners of the property,
the respondents have the right to enjoy and dispose of their property without any other
limitations than those established by law, in accordance with Article 428 of the Civil Code. The
right to dispose of the property is the power of the owner to sell, encumber, transfer, and even
destroy the property. Ownership also includes the right to recover the possession of the
property from any other person to whom the owner has not transmitted such property, by the
appropriate action for restitution, with the fruits, and for indemnification for damages.38 The
right of ownership of the respondents is not, of course, absolute. It is limited by those set forth
by law, such as the agrarian reform laws. Under Article 1306 of the New Civil Code, the
respondents may enter into contracts covering their property with another under such terms
and conditions as they may deem beneficial provided they are not contrary to law, morals, good
conduct, public order or public policy.
The respondents cannot be enjoined from selling or encumbering their property simply and
merely because they had executed Deeds of Assignment in favor of the petitioner, obliging
themselves to assign and transfer their rights or interests as agricultural farmers/laborers/sub-
tenants over the landholding, and granting the petitioner the exclusive right to buy the property
subject to the occurrence of certain conditions. The respondents were not parties to the said
deeds. There is no evidence that the respondents agreed, expressly or impliedly, to the said
deeds or to the terms and conditions set forth therein. Indeed, they assailed the validity of the
said deeds on their claim that the same were contrary to the letter and spirit of P.D. No. 27 and
Rep. Act No. 6657. The petitioner even admitted when he testified that he did not know any of
the respondents, and that he had not met any of them before he filed his complaint in the RTC.
He did not even know that one of those whom he had impleaded as defendant, Angelica Vda.
de Lacson, was already dead.
Q: But you have not met any of these Lacsons?
A: Not yet, sir.
Q: Do you know that two (2) of the defendants are residents of the United States?
A: I do not know, sir.
Q: You do not know also that Angela Tiotuvie (sic) Vda. de Lacson had already been dead?
A: I am aware of that, sir.39
We are one with the Court of Appeals in its ruling that:
We cannot see our way clear on how or why injunction should lie against petitioners. As owners
of the lands being tilled by TIAMSON, et al., petitioners, under the law, have the right to enjoy
and dispose of the same. Thus, they have the right to possess the lands, as well as the right
to encumber or alienate them. This principle of law notwithstanding, private respondent in the
lower court sought to restrain the petitioners from encumbering and/or alienating the properties
covered by TCT No. 35922-R, 35923-R and TCT No. 35925-R of the Registry of Deeds of San
Fernando, Pampanga. This cannot be allowed to prosper since it would constitute a limitation
or restriction, not otherwise established by law on their right of ownership, more so considering
that petitioners were not even privy to the alleged transaction between private respondent and
TIAMSON, et al.40
Second. A reading the averments of the complaint will show that the petitioner clearly has no
cause of action against the respondents for the principal relief prayed for therein, for the trial
court to fix a period within which to pay to each of the defendants-tenants the balance of the
P50.00 per square meter, the consideration under the Deeds of Assignment executed by the
defendants-tenants. The respondents are not parties or privies to the deeds of assignment.
The matter of the period for the petitioner to pay the balance of the said amount to each of the
defendants-tenants is an issue between them, the parties to the deed.
Third. On the face of the complaint, the action of the petitioner against the respondents and the
defendants-tenants has no legal basis. Under the Deeds of Assignment, the obligation of the
petitioner to pay to each of the defendants-tenants the balance of the purchase price was
conditioned on the occurrence of the following events: (a) the respondents agree to sell their
property to the petitioner; (b) the legal impediments to the sale of the landholding to the
petitioner no longer exist; and, (c) the petitioner decides to buy the property. When he testified,
the petitioner admitted that the legal impediments referred to in the deeds were (a) the
respondents’ refusal to sell their property; and, (b) the lack of approval of the Department of
Agrarian Reform:
Q : There is no specific agreement prior to the execution of those documents as when they will
pay?
A : We agreed to that, that I will pay them when there are no legal impediment, sir.
Q : Many of the documents are unlattered (sic) and you want to convey to this Honorable Court
that prior to the execution of these documents you have those tentative agreement for instance
that the amount or the cost of the price is to be paid when there are no legal impediment, you
are using the word "legal impediment," do you know the meaning of that?
A : When there are (sic) no more legal impediment exist, sir.
Q : Did you make how (sic) to the effect that the meaning of that phrase that you used the
unlettered defendants?
A : We have agreed to that, sir.
ATTY. OCAMPO:
May I ask, Your Honor, that the witness please answer my question not to answer in the way
he wanted it.
COURT:
Just answer the question, Mr. Tayag.
WITNESS:
Yes, Your Honor.
ATTY. OCAMPO:
Q : Did you explain to them?
A : Yes, sir.
Q : What did you tell them?
A : I explain[ed] to them, sir, that the legal impediment then especially if the Lacsons will not
agree to sell their shares to me or to us it would be hard to (sic) me to pay them in full. And
those covered by DAR. I explain[ed] to them and it was clearly stated in the title that there is
[a] prohibited period of time before you can sell the property. I explained every detail to them.41
It is only upon the occurrence of the foregoing conditions that the petitioner would be obliged
to pay to the defendants-tenants the balance of the P50.00 per square meter under the deeds
of assignment. Thus:
2. That in case the ASSIGNOR and LANDOWNER will mutually agree to sell the said lot to the
ASSIGNEE, who is given an exclusive and absolute right to buy the lot, the ASSIGNOR shall
receive the sum of FIFTY PESOS (P50.00) per square meter as consideration of the total area
actually tilled and possessed by the ASSIGNOR, less whatever amount received by the
ASSIGNOR including commissions, taxes and all allowable deductions relative to the sale of
the subject properties.
3. That this exclusive and absolute right given to the ASSIGNEE shall be exercised only when
no legal impediments exist to the lot to effect the smooth transfer of lawful ownership of the
lot/property in the name of the ASSIGNEE;
4. That the ASSIGNOR will remain in peaceful possession over the said property and shall
enjoy the fruits/earnings and/or harvest of the said lot until such time that full payment of the
agreed purchase price had been made by the ASSIGNEE.42
There is no showing in the petitioner’s complaint that the respondents had agreed to sell their
property, and that the legal impediments to the agreement no longer existed. The petitioner
and the defendants-tenants had yet to submit the Deeds of Assignment to the Department of
Agrarian Reform which, in turn, had to act on and approve or disapprove the same. In fact, as
alleged by the petitioner in his complaint, he was yet to meet with the defendants-tenants to
discuss the implementation of the deeds of assignment. Unless and until the Department of
Agrarian Reform approved the said deeds, if at all, the petitioner had no right to enforce the
same in a court of law by asking the trial court to fix a period within which to pay the balance
of the purchase price and praying for injunctive relief.
We do not agree with the contention of the petitioner that the deeds of assignment executed
by the defendants-tenants are perfected option contracts.43 An option is a contract by which
the owner of the property agrees with another person that he shall have the right to buy his
property at a fixed price within a certain time. It is a condition offered or contract by which the
owner stipulates with another that the latter shall have the right to buy the property at a fixed
price within a certain time, or under, or in compliance with certain terms and conditions, or
which gives to the owner of the property the right to sell or demand a sale. It imposes no binding
obligation on the person holding the option, aside from the consideration for the offer. Until
accepted, it is not, properly speaking, treated as a contract.44 The second party gets in
praesenti, not lands, not an agreement that he shall have the lands, but the right to call for and
receive lands if he elects.45 An option contract is a separate and distinct contract from which
the parties may enter into upon the conjunction of the option.46
In this case, the defendants-tenants-subtenants, under the deeds of assignment, granted to
the petitioner not only an option but the exclusive right to buy the landholding. But the grantors
were merely the defendants-tenants, and not the respondents, the registered owners of the
property. Not being the registered owners of the property, the defendants-tenants could not
legally grant to the petitioner the option, much less the "exclusive right" to buy the property. As
the Latin saying goes, "NEMO DAT QUOD NON HABET."
Fourth. The petitioner impleaded the respondents as parties-defendants solely on his allegation
that the latter induced or are inducing the defendants-tenants to violate the deeds of
assignment, contrary to the provisions of Article 1314 of the New Civil Code which reads:
Art. 1314. Any third person who induces another to violate his contract shall be liable for
damages to the other contracting party.
In So Ping Bun v. Court of Appeals,47 we held that for the said law to apply, the pleader is
burdened to prove the following: (1) the existence of a valid contract; (2) knowledge by the third
person of the existence of the contract; and (3) interference by the third person in the
contractual relation without legal justification.
Where there was no malice in the interference of a contract, and the impulse behind one’s
conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a
malicious interferer. Where the alleged interferer is financially interested, and such interest
motivates his conduct, it cannot be said that he is an officious or malicious intermeddler.48
In fine, one who is not a party to a contract and who interferes thereon is not necessarily an
officious or malicious intermeddler. The only evidence adduced by the petitioner to prove his
claim is the letter from the defendants-tenants informing him that they had decided to sell their
rights and interests over the landholding to the respondents, instead of honoring their obligation
under the deeds of assignment because, according to them, the petitioner harassed those
tenants who did not want to execute deeds of assignment in his favor, and because the said
defendants-tenants did not want to have any problem with the respondents who could cause
their eviction for executing with the petitioner the deeds of assignment as the said deeds are
in violation of P.D. No. 27 and Rep. Act No. 6657.49 The defendants-tenants did not allege
therein that the respondents induced them to breach their contracts with the petitioner. The
petitioner himself admitted when he testified that his claim that the respondents induced the
defendants-assignees to violate contracts with him was based merely on what "he heard," thus:
Q: Going to your last statement that the Lacsons induces (sic) the defendants, did you see that
the Lacsons were inducing the defendants?
A: I heard and sometime in [the] first week of August, sir, they went in the barrio (sic). As a
matter of fact, that is the reason why they sent me letter that they will sell it to the Lacsons.
Q: Incidentally, do you knew (sic) these Lacsons individually?
A: No, sir, it was only Mr. Espinosa who I knew (sic) personally, the alleged negotiator and has
the authority to sell the property.50
Even if the respondents received an offer from the defendants-tenants to assign and transfer
their rights and interests on the landholding, the respondents cannot be enjoined from
entertaining the said offer, or even negotiating with the defendants-tenants. The respondents
could not even be expected to warn the defendants-tenants for executing the said deeds in
violation of P.D. No. 27 and Rep. Act No. 6657. Under Section 22 of the latter law, beneficiaries
under P.D. No. 27 who have culpably sold, disposed of, or abandoned their land, are
disqualified from becoming beneficiaries.
From the pleadings of the petitioner, it is quite evident that his purpose in having the
defendants-tenants execute the Deeds of Assignment in his favor was to acquire the
landholding without any tenants thereon, in the event that the respondents agreed to sell the
property to him. The petitioner knew that under Section 11 of Rep. Act No. 3844, if the
respondents agreed to sell the property, the defendants-tenants shall have preferential right to
buy the same under reasonable terms and conditions:
SECTION 11. Lessee’s Right of Pre-emption. – In case the agricultural lessor desires to sell
the landholding, the agricultural lessee shall have the preferential right to buy the same under
reasonable terms and conditions: Provided, That the entire landholding offered for sale must
be pre-empted by the Land Authority if the landowner so desires, unless the majority of the
lessees object to such acquisition: Provided, further, That where there are two or more
agricultural lessees, each shall be entitled to said preferential right only to the extent of the area
actually cultivated by him. …51
Under Section 12 of the law, if the property was sold to a third person without the knowledge
of the tenants thereon, the latter shall have the right to redeem the same at a reasonable price
and consideration. By assigning their rights and interests on the landholding under the deeds
of assignment in favor of the petitioner, the defendants-tenants thereby waived, in favor of the
petitioner, who is not a beneficiary under Section 22 of Rep. Act No. 6657, their rights of
preemption or redemption under Rep. Act No. 3844. The defendants-tenants would then have
to vacate the property in favor of the petitioner upon full payment of the purchase price. Instead
of acquiring ownership of the portions of the landholding respectively tilled by them, the
defendants-tenants would again become landless for a measly sum of P50.00 per square
meter. The petitioner’s scheme is subversive, not only of public policy, but also of the letter and
spirit of the agrarian laws. That the scheme of the petitioner had yet to take effect in the future
or ten years hence is not a justification. The respondents may well argue that the agrarian laws
had been violated by the defendants-tenants and the petitioner by the mere execution of the
deeds of assignment. In fact, the petitioner has implemented the deeds by paying the
defendants-tenants amounts of money and even sought their immediate implementation by
setting a meeting with the defendants-tenants. In fine, the petitioner would not wait for ten years
to evict the defendants-tenants. For him, time is of the essence.
The Appellate Court Erred
In Permanently Enjoining
The Regional Trial Court
From Continuing with the
Proceedings in Civil Case No. 10910.
We agree with the petitioner’s contention that the appellate court erred when it permanently
enjoined the RTC from continuing with the proceedings in Civil Case No. 10910. The only issue
before the appellate court was whether or not the trial court committed a grave abuse of
discretion amounting to excess or lack of jurisdiction in denying the respondents’ motion to
deny or dismiss the petitioner’s plea for a writ of preliminary injunction. Not one of the parties
prayed to permanently enjoin the trial court from further proceeding with Civil Case No. 10910
or to dismiss the complaint. It bears stressing that the petitioner may still amend his complaint,
and the respondents and the defendants-tenants may file motions to dismiss the complaint. By
permanently enjoining the trial court from proceeding with Civil Case No. 10910, the appellate
court acted arbitrarily and effectively dismissed the complaint motu proprio, including the
counterclaims of the respondents and that of the defendants-tenants. The defendants-tenants
were even deprived of their right to prove their special and affirmative defenses.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of
the Court of Appeals nullifying the February 13, 1996 and April 16, 1997 Orders of the RTC is
AFFIRMED. The writ of injunction issued by the Court of Appeals permanently enjoining the
RTC from further proceeding with Civil Case No. 10910 is hereby LIFTED and SET ASIDE.
The Regional Trial Court of Mabalacat, Pampanga, Branch 44, is ORDERED to continue with
the proceedings in Civil Case No. 10910 as provided for by the Rules of Court, as amended.
SO ORDERED.
Puno, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concur.
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-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-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 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.
G.R. No. 202050
PHILIPPINE NATIONAL OIL COMPANY and PNOC DOCKYARD & ENGINEERING
CORPORATION, Petitioners
vs.
KEPPEL PHILIPPINES HOLDINGS, INC., Respondent
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari filed under Rule 45 of the Rules of Court,
appealing the decision dated 19 De.cember 20111 and resolution dated 14 May 20122 of the
Court of Appeals (CA) in CA-G.R. CV No. 86830. These assailed CA rulings affirmed in toto
the decision dated 12 January 20063 of the Regional Trial Court (RTC) of Batangas City,
Branch 84, in Civil Case No. 7364.
THE FACTS
The 1976 Lease Agreement and Option to Purchase
Almost 40 years ago or on 6 August 1976, the respondent Keppel Philippines Holdings, Inc.4
(Keppel) entered into a lease agreement5 (the agreement) with Luzon Stevedoring Corporation
(Lusteveco) covering 11 hectares of land located in Bauan, Batangas. The lease was for a
period of 25 years for a consideration of P2.1 million.6 At the option of Lusteveco, the rental
fee could be totally or partially converted into equity shares in Keppel.7
At the end of the 25-year lease period, Keppel was given the "firm and absolute option to
purchase"8 the land for ₱4.09 million, provided that it had acquired the necessary qualification
to own land under Philippine laws at the time the option is exercised.9 Apparently, when the
lease agreement was executed, less than 60% of Keppel’s shareholding was Filipino-owned,
hence, it was not constitutionally qualified to acquire private lands in the country.10
If, at the end of the 25-year lease period (or in 2001), Keppel remained unqualified to own
private lands, the agreement provided that the lease would be automatically renewed for
another 25 years.11 Keppel was further allowed to exercise the option to purchase the land up
to the 30th year of the lease (or in 2006), also on the condition that, by then, it would have
acquired the requisite qualification to own land in the Philippines.12
Together with Keppel’s lease rights and option to purchase, Lusteveco warranted not to sell
the land or assign its rights to the land for the duration of the lease unless with the prior written
consent of Keppel.13 Accordingly, when the petitioner Philippine National Oil Corporation14
(PNOC) acquired the land from Lusteveco and took over the rights and obligations under the
agreement, Keppel did not object to the assignment so long as the agreement was annotated
on PNOC’s title.15 With PNOC’s consent and cooperation, the agreement was recorded as
Entry No. 65340 on PNOC’s Transfer of Certificate of Title No. T-50724.16

The Case and the Lower Court Rulings
On 8 December 2000, Keppel wrote PNOC informing the latter that at least 60% of its shares
were now owned by Filipinos.17 Consequently, Keppel expressed its readiness to exercise its
option to purchase the land. Keppel reiterated its demand to purchase the land several times,
but on every occasion, PNOC did not favourably respond.18
To compel PNOC to comply with the Agreement, Keppel instituted a complaint for specific
performance with the RTC on 26 September 2003 against PNOC.19 PNOC countered Keppel’s
claims by contending that the agreement was illegal for circumventing the constitutional
prohibition against aliens holding lands in the Philippines.20 It further asserted that the option
contract was void, as it was unsupported by a separate valuable consideration.21 It also
claimed that it was not privy to the agreement.22
After due proceedings, the RTC rendered a decision23 in favour of Keppel and ordered PNOC
to execute a deed of absolute sale upon payment by Keppel of the purchase price of ₱4.09
million.24
PNOC elevated the case to the CA to appeal the RTC decision.25 Affirming the RTC decision
in toto, the CA upheld Keppel’s right to acquire the land.26 It found that since the option contract
was embodied in the agreement – a reciprocal contract – the consideration was the obligation
that each of the contracting party assumed.27 Since Keppel was already a Filipino-owned
corporation, it satisfied the condition that entitled it to purchase the land.28
Failing to secure a reconsideration of the CA decision,29 PNOC filed the present Rule 45
petition before this Court to assail the CA rulings.
THE PARTIES’ ARGUMENTS and THE ISSUES
PNOC argues that the CA failed to resolve the constitutionality of the agreement. It contends
that the terms of the agreement amounted to a virtual sale of the land to Keppel who, at the
time of the agreement’s enactment, was a foreign corporation and, thus, violated the 1973
Constitution.
Specifically, PNOC refers to (a) the 25-year duration of the lease that was automatically
renewable for another 25 years30; (b) the option to purchase the land for a nominal
consideration of ₱100.00 if the option is exercised anytime between the 25th and the 30th year
of the lease31; and (c) the prohibition imposed on Lusteveco to sell the land or assign its rights
therein during the lifetime of the lease.32 Taken together, PNOC submits that these provisions
amounted to a virtual transfer of ownership of the land to an alien which act the 1973
Constitution prohibited.
PNOC claims that the agreement is no different from the lease contract in Philippine Banking
Corporation v. Lui She,33 which the Court struck down as unconstitutional. In Lui She, the
lease contract allowed the gradual divestment of ownership rights by the Filipino owner-lessor
in favour of the foreigner-lessee.34 The arrangement in Lui She was declared as a scheme
designed to enable the parties to circumvent the constitutional prohibition.35 PNOC posits that
a similar intent is apparent from the terms of the agreement with Keppel and accordingly should
also be nullified.36
PNOC additionally contends the illegality of the option contract for lack of a separate
consideration, as required by Article 1479 of the Civil Code.37 It claims that the option contract
is distinct from the main contract of lease and must be supported by a consideration other than
the rental fees provided in the agreement.38
On the other hand, Keppel maintains the validity of both the agreement and the option contract
it contains. It opposes the claim that there was "virtual sale" of the land, noting that the option
is subject to the condition that Keppel becomes qualified to own private lands in the
Philippines.39 This condition ripened in 2000, when at least 60% of Keppel’s equity became
Filipino-owned.
Keppel contends that the agreement is not a scheme designed to circumvent the constitutional
prohibition. Lusteveco was not proscribed from alienating its ownership rights over the land but
was simply required to secure Keppel’s prior written consent.40 Indeed, Lusteveco was able
to transfer its interest to PNOC without any objection from Keppel.41
Keppel also posits that the requirement of a separate consideration for an option to purchase
applies only when the option is granted in a separate contract.42 In the present case, the option
is embodied in a reciprocal contract and, following the Court’s ruling in Vda. De Quirino v.
Palarca,43 the option is supported by the same consideration supporting the main contract.
From the parties’ arguments, the following ISSUES emerge:
First, the constitutionality of the Agreement, i.e., whether the terms of the Agreement amounted
to a virtual sale of the land to Keppel that was designed to circumvent the constitutional
prohibition on aliens owning lands in the Philippines.
Second, the validity of the option contract, i.e., whether the option to purchase the land given
to Keppel is supported by a separate valuable consideration.
If these issues are resolved in favour of Keppel, a third issue emerges – one that was not
considered by the lower courts, but is critical in terms of determining Keppel’s right to own and
acquire full title to the land, i.e., whether Keppel’s equity ownership meets the 60% Filipino-
owned capital requirement of the Constitution, in accordance with the Court’s ruling in Gamboa
v. Teves.44
THE COURT’S RULING
I. The constitutionality of the Agreement
The Court affirms the constitutionality of the Agreement.

Preserving the ownership of land, whether public or private, in Filipino hands is the policy
consistently adopted in all three of our constitutions.45 Under the 1935,46 1973,47 and 198748
Constitutions, no private land shall be transferred, assigned, or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain.
Consequently, only Filipino citizens, or corporations or associations whose capital is 60%
owned by Filipinos citizens, are constitutionally qualified to own private lands.
Upholding this nationalization policy, the Court has voided not only outright conveyances of
land to foreigners,49 but also arrangements where the rights of ownership were gradually
transferred to foreigners.50 In Lui Shui,51 we considered a 99-year lease agreement, which
gave the foreigner-lessee the option to buy the land and prohibited the Filipino owner-lessor
from selling or otherwise disposing the land, amounted to –
a virtual transfer of ownership whereby the owner divests himself in stages not only of the right
to enjoy the land (jus possidendi, jus utendi, jus fruendi, and jus abutendi) but also of the right
to dispose of it (jus disponendi) — rights the sum total of which make up ownership.52
[emphasis supplied]
In the present case, PNOC submits that a similar scheme is apparent from the agreement’s
terms, but a review of the overall circumstances leads us to reject PNOC’s claim.
The agreement was executed to enable Keppel to use the land for its shipbuilding and ship
repair business.53 The industrial/commercial purpose behind the agreement differentiates the
present case from Lui She where the leased property was primarily devoted to residential
use.54 Undoubtedly, the establishment and operation of a shipyard business involve significant
investments. Keppel’s uncontested testimony showed that it incurred P60 million costs solely
for preliminary activities to make the land suitable as a shipyard, and subsequently introduced
improvements worth P177 million.55 Taking these investments into account and the nature of
the business that Keppel conducts on the land, we find it reasonable that the agreement’s terms
provided for an extended duration of the lease and a restriction on the rights of Lusteveco.
We observe that, unlike in Lui She,56 Lusteveco was not completely denied its ownership rights
during the course of the lease. It could dispose of the lands or assign its rights thereto, provided
it secured Keppel’s prior written consent.57 That Lusteveco was able to convey the land in
favour of PNOC during the pendency of the lease58 should negate a finding that the
agreement’s terms amounted to a virtual transfer of ownership of the land to Keppel.
II. The validity of the option contract
II.A An option contract must be supported by a separate consideration that is either clearly
specified as such in the contract or duly proven by the offeree/promisee.
An option contract is defined in the second paragraph of Article 1479 of the Civil Code:
Article 1479. x x x An accepted 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.
An option contract is a contract where one person (the offeror/promissor) grants to another
person (the offeree/promisee) the right or privilege to buy (or to sell) a determinate thing at a
fixed price, if he or she chooses to do so within an agreed period.59
As a contract, it must necessarily have the essential elements of subject matter, consent, and
consideration.60 Although an option contract is deemed a preparatory contract to the principal
contract of sale,61 it is separate and distinct therefrom,62 thus, its essential elements should
be distinguished from those of a sale.63
In an option contract, the subject matter is the right or privilege to buy (or to sell) a determinate
thing for a price certain,64 while in a sales contract, the subject matter is the determinate thing
itself.65 The consent in an option contract is the acceptance by the offeree of the offeror’s
promise to sell (or to buy) the determinate thing, i.e., the offeree agrees to hold the right or
privilege to buy (or to sell) within a specified period. This acceptance is different from the
acceptance of the offer itself whereby the offeree asserts his or her right or privilege to buy (or
to sell), which constitutes as his or her consent to the sales contract. The consideration in an
option contract may be anything of value, unlike in a sale where the purchase price must be in
money or its equivalent.66 There is sufficient consideration for a promise if there is any benefit
to the offeree or any detriment to the offeror.67
In the present case, PNOC claims the option contract is void for want of consideration distinct
from the purchase price for the land.68 The option is incorporated as paragraph 5 of the
Agreement and reads as
5. If within the period of the first [25] years [Keppel] becomes qualified to own land under the
laws of the Philippines, it has the firm and absolute option to purchase the above property for
a total price of [₱4,090,000.00] at the end of the 25th year, discounted at 16% annual for every
year before the end of the 25th year, which amount may be converted into equity of [Keppel]
at book value prevailing at the time of sale, or paid in cash at Lusteveco’s option.
However, if after the first [25] years, [Keppel] is still not qualified to own land under the laws of
the Republic of the Philippines, [Keppel’s] lease of the above stated property shall be
automatically renewed for another [25] years, under the same terms and conditions save for
the rental price which shall be for the sum of ₱4,090,000.00... and which sum may be totally
converted into equity of [Keppel] at book value prevailing at the time of conversion, or paid in
cash at Lusteveco’s option.
If anytime within the second [25] years up to the [30th] year from the date of this agreement,
[Keppel] becomes qualified to own land under the laws of the Republic of the Philippines,
[Keppel] has the firm and absolute option to buy and Lusteveco hereby undertakes to sell the
above stated property for the nominal consideration of [₱100.00.00]...69
Keppel counters that a separate consideration is not necessary to support its option to buy
because the option is one of the stipulations of the lease contract. It claims that a separate
consideration is required only when an option to buy is embodied in an independent contract.70
It relies on Vda. de Quirino v. Palarca,71 where the Court declared that the option to buy the
leased property is supported by the same consideration as that of the lease itself: "in reciprocal
contracts [such as lease], the obligation or promise of each party is the consideration for that
of the other."72
In considering Keppel’s submission, we note that the Court’s ruling in 1969 in Vda. de Quirino
v. Palarca has been taken out of context and erroneously applied in subsequent cases. In 2004,
through Bible Baptist Church v. CA,73 we revisited Vda. de Quirino v. Palarca and observed
that the option to buy given to the lessee Palarca by the lessor Quirino was in fact supported
by a separate consideration: Palarca paid a higher amount of rent and, in the event that he
does not exercise the option to buy the leased property, gave Quirino the option to buy the
improvements he introduced thereon. These additional concessions were separate from the
purchase price and deemed by the Court as sufficient consideration to support the option
contract.
Vda. de Quirino v. Palarca, therefore, should not be regarded as authority that the mere
inclusion of an option contract in a reciprocal lease contract provides it with the requisite
separate consideration for its validity. The reciprocal contract should be closely scrutinized and
assessed whether it contains additional concessions that the parties intended to constitute as
a consideration for the option contract, separate from that of the purchase price.
In the present case, paragraph 5 of the agreement provided that should Keppel exercise its
option to buy, Lusteveco could opt to convert the purchase price into equity in Keppel. May
Lusteveco’s option to convert the price for shares be deemed as a sufficient separate
consideration for Keppel’s option to buy?
As earlier mentioned, the consideration for an option contract does not need to be monetary
and may be anything of value.74 However, when the consideration is not monetary, the
consideration must be clearly specified as such in the option contract or clause.75
In Villamor v. CA,76 the parties executed a deed expressly acknowledging that the purchase
price of ₱70.00 per square meter "was greatly higher than the actual reasonable prevailing
value of lands in that place at that time."77 The difference between the purchase price and the
prevailing value constituted as the consideration for the option contract. Although the actual
amount of the consideration was not stated, it was ascertainable from the contract whose terms
evinced the parties’ intent to constitute this amount as consideration for the option contract.78
Thus, the Court upheld the validity of the option contract.79 In the light of the offeree’s
acceptance of the option, the Court further declared that a bilateral contract to sell and buy was
created and that the parties’ respective obligations became reciprocally demandable.80
When the written agreement itself does not state the consideration for the option contract, the
offeree or promisee bears the burden of proving the existence of a separate consideration for
the option.81 The offeree cannot rely on Article 1354 of the Civil Code,82 which presumes the
existence of consideration, since Article 1479 of the Civil Code is a specific provision on option
contracts that explicitly requires the existence of a consideration distinct from the purchase
price.83
In the present case, none of the above rules were observed. We find nothing in paragraph 5 of
the Agreement indicating that the grant to Lusteveco of the option to convert the purchase price
for Keppel shares was intended by the parties as the consideration for Keppel’s option to buy
the land; Keppel itself as the offeree presented no evidence to support this finding. On the
contrary, the option to convert the purchase price for shares should be deemed part of the
consideration for the contract of sale itself, since the shares are merely an alternative to the
actual cash price.1âwphi1
There are, however cases where, despite the absence of an express intent in the parties’
agreements, the Court considered the additional concessions stipulated in an agreement to
constitute a sufficient separate consideration for the option contract.
In Teodoro v. CA,84 the sub-lessee (Teodoro) who was given the option to buy the land
assumed the obligation to pay not only her rent as sub-lessee, but also the rent of the sub-
lessor (Ariola) to the primary lessor (Manila Railroad Company).85 In other words, Teodoro
paid an amount over and above the amount due for her own occupation of the property, and
this amount was found by the Court as sufficient consideration for the option contract.86
In Dijamco v. CA,87 the spouses Dijamco failed to pay their loan with the bank, allowing the
latter to foreclose the mortgage.88 Since the spouses Dijamco did not exercise their right to
redeem, the bank consolidated its ownership over the mortgaged property.89 The spouses
Dijamco later proposed to purchase the same property by paying a purchase price of
₱622,095.00 (equivalent to their principal loan) and a monthly amount of ₱13,478.00 payable
for 12 months (equivalent to the interest on their principal loan). They further stated that should
they fail to make a monthly payment, the proposal should be automatically revoked and all
payments be treated as rentals for their continued use of the property.90 The Court treated the
spouses Dijamco’s proposal to purchase the property as an option contract, and the
consideration for which was the monthly interest payments.91 Interestingly, this ruling was
made despite the categorical stipulation that the monthly interest payments should be treated
as rent for the spouses Dijamco’s continued possession and use of the foreclosed property.
At the other end of the jurisprudential spectrum are cases where the Court refused to consider
the additional concessions stipulated in agreements as separate consideration for the option
contract.
In Bible Baptist Church v. CA,92 the lessee (Bible Baptist Church) paid in advance ₱84,000.00
to the lessor in order to free the property from an encumbrance. The lessee claimed that the
advance payment constituted as the separate consideration for its option to buy the property.93
The Court, however, disagreed noting that the ₱84,000.00 paid in advance was eventually
offset against the rent due for the first year of the lease, "such that for the entire year from 1985
to 1986 the [Bible Baptist Church] did not pay monthly rent."94 Hence, the Court refused to
recognize the existence of a valid option contract.95

What Teodoro, Dijamco, and Bible Baptist Church show is that the determination of whether
the additional concessions in agreements are sufficient to support an option contract, is fraught
with danger; in ascertaining the parties’ intent on this matter, a court may read too much or too
little from the facts before it.
For uniformity and consistency in contract interpretation, the better rule to follow is that the
consideration for the option contract should be clearly specified as such in the option contract
or clause. Otherwise, the offeree must bear the burden of proving that a separate consideration
for the option contract exists.
Given our finding that the Agreement did not categorically refer to any consideration to support
Keppel’s option to buy and for Keppel’s failure to present evidence in this regard, we cannot
uphold the existence of an option contract in this case.
II.B. An option, though unsupported by a separate consideration, remains an offer that, if duly
accepted, generates into a contract to sell where the parties’ respective obligations become
reciprocally demandable
The absence of a consideration supporting the option contract, however, does not invalidate
an offer to buy (or to sell). An option unsupported by a separate consideration stands as an
unaccepted offer to buy (or to sell) which, when properly accepted, ripens into a contract to
sell. This is the rule established by the Court en banc as early as 1958 in Atkins v. Cua Hian
Tek,96 and upheld in 1972 in Sanchez v. Rigos.97
Sanchez v. Rigos reconciled the apparent conflict between Articles 1324 and 1479 of the Civil
Code, which are quoted below:
Article 1324. When the offerer has allowed the offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by communicating such withdrawal, except when
the option is founded upon a consideration, as something paid or promised.
Article 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.
[emphases supplied]
The Court en banc declared that there is no distinction between these two provisions because
the scenario contemplated in the second paragraph of Article 1479 is the same as that in the
last clause of Article 1324.98 Instead of finding a conflict, Sanchez v. Rigos harmonised the
two provisions, consistent with the established rules of statutory construction.99
Thus, when an offer is supported by a separate consideration, a valid option contract exists,
i.e., there is a contracted offer100 which the offeror cannot withdraw from without incurring
liability in damages.
On the other hand, when the offer is not supported by a separate consideration, the offer stands
but, in the absence of a binding contract, the offeror may withdraw it any time.101 In either
case, once the acceptance of the offer is duly communicated before the withdrawal of the offer,
a bilateral contract to buy and sell is generated which, in accordance with the first paragraph
of Article 1479 of the Civil Code, becomes reciprocally demandable.102
Sanchez v. Rigos expressly overturned the 1955 case of Southwestern Sugar v. AGPC,103
which declared that
a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a
consideration... In other words, an accepted unilateral promise can only have a binding effect
if supported by a consideration, which means that the option can still be withdrawn, even if
accepted, if the same is not supported by any consideration.104 [emphasis supplied]
The Southwestern Sugar doctrine was based on the reasoning that Article 1479 of the Civil
Code is distinct from Article 1324 of the Civil Code and is a provision that specifically governs
options to buy (or to sell).105 As mentioned, Sanchez v. Rigos found no conflict between these
two provisions and accordingly abandoned the Southwestern Sugar doctrine.
Unfortunately, without expressly overturning or abandoning the Sanchez ruling, subsequent
cases reverted back to the Southwestern Sugar doctrine.106 In 2009, Eulogio v. Apeles107
referred to Southwestern Sugar v. AGPC as the controlling doctrine108 and, due to the lack of
a separate consideration, refused to recognize the option to buy as an offer that would have
resulted in a sale given its timely acceptance by the offeree. In 2010, Tuazon v. Del Rosario-
Suarez109 referred to Sanchez v. Rigos but erroneously cited as part of its ratio decidendi that
portion of the Southwestern Sugar doctrine that Sanchez had expressly abandoned.110
Given that the issue raised in the present case involves the application of Article 1324 and
1479 of the Civil Code, it becomes imperative for the Court [en banc] to clarify and declare here
which between Sanchez and Southwestern Sugar is the controlling doctrine.
The Constitution itself declares that "no doctrine or principle of law laid down by the court in a
decision rendered en banc or in division may be modified or reversed except by the court sitting
en banc."111 Sanchez v. Rigos was an en banc decision which was affirmed in 1994 in
Asuncion v. CA,112 also an en banc decision, while the decisions citing the Southwestern
Sugar doctrine are all division cases.113 Based on the constitutional rule (as well as the
inherent logic in reconciling Civil Code provisions), there should be no doubt that Sanchez v.
Rigos remains as the controlling doctrine.
Accordingly, when an option to buy or to sell is not supported by a consideration separate from
the purchase price, the option constitutes as an offer to buy or to sell, which may be withdrawn
by the offeror at any time prior to the communication of the offeree’s acceptance. When the
offer is duly accepted, a mutual promise to buy and to sell under the first paragraph of Article
1479 of the Civil Code ensues and the parties’ respective obligations become reciprocally
demandable.
Applied to the present case, we find that the offer to buy the land was timely accepted by
Keppel.
As early as 1994, Keppel expressed its desire to exercise its option to buy the land. Instead of
rejecting outright Keppel’s acceptance, PNOC referred the matter to the Office of the
Government Corporate Counsel (OGCC). In its Opinion No. 160, series of 1994, the OGCC
opined that Keppel "did not yet have the right to purchase the Bauan lands."114 On account of
the OGCC opinion, the PNOC did not agree with Keppel’s attempt to buy the land;115
nonetheless, the PNOC made no categorical withdrawal of the offer to sell provided under the
Agreement.
By 2000, Keppel had met the required Filipino equity proportion and duly communicated its
acceptance of the offer to buy to PNOC.116 Keppel met with the board of directors and officials
of PNOC who interposed no objection to the sale.117 It was only when the amount of purchase
price was raised that the conflict between the parties arose,118 with PNOC backtracking in its
position and questioning the validity of the option.119
Thus, when Keppel communicated its acceptance, the offer to purchase the Bauan land stood,
not having been withdrawn by PNOC. The offer having been duly accepted, a contract to sell
the land ensued which Keppel can rightfully demand PNOC to comply with.
III. Keppel’s constitutional right to acquire full title to the land
Filipinization is the spirit that pervades the constitutional provisions on national patrimony and
economy. The Constitution has reserved the ownership of public and private lands,120 the
ownership and operation of public utilities,121 and certain areas of investment122 to Filipino
citizens, associations, and corporations. To qualify, sixty per cent (60%) of the association or
corporation’s capital must be owned by Filipino citizens. Although the 60% Filipino equity
proportion has been adopted in our Constitution since 1935, it was only in 2011 that the Court
interpreted what the term capital constituted.
In Gamboa v. Teves,123 the Court declared that the "legal and beneficial ownership of 60
percent of the outstanding capital stock must rest in the hands of Filipino nationals."124
Clarifying the ruling, the Court decreed that the 60% Filipino ownership requirement applies
separately to each class of shares, whether with or without voting rights,125 thus:
Applying uniformly the 60-40 ownership requirement in favour of Filipino citizens to each class
of shares, regardless of differences in voting rights, privileges and restrictions, guarantees
effective Filipino control of public utilities, as mandated by the Constitution.126
Although the ruling was made in the context of ownership and operation of public utilities, the
same should be applied to the ownership of public and private lands, since the same proportion
of Filipino ownership is required and the same nationalist policy pervades.
The uncontested fact is that, as of November 2000, Keppel's capital is 60% Filipino-owned.127
However, there is nothing in the records showing the nature and composition of Keppel' s
shareholdings, i.e., whether its shareholdings are divided into different classes, and 60% of
each share class is legally and beneficially owned by Filipinos - understandably because when
Keppel exercised its option to buy the land in 2000, the Gamboa ruling had not yet been
promulgated. The Court cannot deny Keppel its option to buy the land by retroactively applying
the Gamboa ruling without violating Keppel's vested right. Thus, Keppel's failure to prove the
nature and composition of its shareholdings in 2000 could not prevent it from validly exercising
its option to buy the land.
Nonetheless, the Court cannot completely disregard the effect of the Gamboa ruling; the 60%
Filipino equity proportion is a continuing requirement to hold land in the Philippines. Even in
Gamboa, the Court prospectively applied its ruling, thus enabling the public utilities to meet the
nationality requirement before the Securities and Exchange Commission commences
administrative investigation and cases, and imposes sanctions for noncompliance on erring
corporations.128 In this case, Keppel must be allowed to prove whether it meets the required
Filipino equity ownership and proportion in accordance with the Gamboa ruling before it can
acquire full title to the land.
In view of the foregoing, the Court AFFIRMS the decision dated 19 December 2011 and the
resolution dated 14 May 2012 of the CA in CA-G.R. CV No. 86830 insofar as these rulings
uphold the respondent Keppel Philippines Holdings, Inc.' s option to buy the land, and
REMANDS the case to the Regional Trial Court of Batangas City, Branch 84, for the
determination of whether the respondent Keppel Philippines Holdings, Inc. meets the required
Filipino equity ownership and proportion in accordance with the Court's ruling in Gamboa v.
Teves, to allow it to acquire full title to the land.
SO ORDERED.
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.
CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals,
which certified the case to Us, upon the ground that it involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina
Rigos executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed,
promised and committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land situated
in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more
particularly described in Transfer Certificate of Title No. NT-12528 of said province, within two
(2) years from said date with the understanding that said option shall be deemed "terminated
and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated
period. Inasmuch as several tenders of payment of the sum of Pl,510.00, made by Sanchez
within said period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said
amount with the Court of First Instance of Nueva Ecija and commenced against the latter the
present action, for specific performance and damages.
After the filing of defendant's answer — admitting some allegations of the complaint, denying
other allegations thereof, and alleging, as special defense, that the contract between the parties
"is a unilateral promise to sell, and the same being unsupported by any valuable consideration,
by force of the New Civil Code, is null and void" — on February 11, 1964, both parties, assisted
by their respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on
February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to
accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of
conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney's fees, and other
costs. Hence, this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which
provides:
ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.
In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant
agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land
described in the option, copy of which was annexed to said pleading as Annex A thereof and
is quoted on the margin.1 Hence, plaintiff maintains that the promise contained in the contract
is "reciprocally demandable," pursuant to the first paragraph of said Article 1479. Although
defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff,
it is not true that the latter had, in turn, "agreed and committed himself " to buy said property.
Said Annex A does not bear out plaintiff's allegation to this effect. What is more, since Annex
A has been made "an integral part" of his complaint, the provisions of said instrument form part
"and parcel"2 of said pleading.
The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex
A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both
parties so understood it, as indicated by the caption, "Option to Purchase," given by them to
said instrument. Under the provisions thereof, the defendant "agreed, promised and
committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there is
nothing in the contract to indicate that her aforementioned agreement, promise and undertaking
is supported by a consideration "distinct from the price" stipulated for the sale of the land.
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said
consideration, and this would seem to be the main factor that influenced its decision in plaintiff's
favor. It should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article
1479 refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise
to buy or to sell." In other words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479
requires the concurrence of a condition, namely, that the promise be "supported by a
consideration distinct from the price." Accordingly, the promisee can not compel the promisor
to comply with the promise, unless the former establishes the existence of said distinct
consideration. In other words, the promisee has the burden of proving such consideration.
Plaintiff herein has not even alleged the existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a
special defense, the absence of said consideration for her promise to sell and, by joining in the
petition for a judgment on the pleadings, plaintiff has impliedly admitted the truth of said
averment in defendant's answer. Indeed as early as March 14, 1908, it had been held, in
Bauermann v. Casas,3 that:
One who prays for judgment on the pleadings without offering proof as to the truth of his own
allegations, and without giving the opposing party an opportunity to introduce evidence, must
be understood to admit the truth of all the material and relevant allegations of the opposing
party, and to rest his motion for judgment on those allegations taken together with such of his
own as are admitted in the pleadings. (La Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis
supplied.)

This view was reiterated in Evangelista v. De la 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 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.
SEPARATE OPINIONS
ANTONIO, J., concurring:
I concur in the opinion of the Chief Justice.
I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar &
Molasses Co. vs. Atlantic Gulf and Pacific Co.,1 which holds that an option to sell can still be
withdrawn, even if accepted, if the same is not supported by any consideration, and the
reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek,2 holding that "an
option implies ... the legal obligation to keep the offer (to sell) open for the time specified;" that
it could be withdrawn before acceptance, if there was no consideration for the option, but once
the "offer to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree ipso
facto assumes the obligations of a purchaser. In other words, if the option is given without a
consideration, it is a mere offer to sell, which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a binding contract of sale. The
concurrence of both acts — the offer and the acceptance — could in such event generate a
contract.
While the law permits the offeror to withdraw the offer at any time before acceptance even
before the period has expired, some writers hold the view, that the offeror can not exercise this
right in an arbitrary or capricious manner. This is upon the principle that an offer implies an
obligation on the part of the offeror to maintain in such length of time as to permit the offeree
to decide whether to accept or not, and therefore cannot arbitrarily revoke the offer without
being liable for damages which the offeree may suffer. A contrary view would remove the
stability and security of business transactions.3
In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the
sum of Pl,510.00 before any withdrawal from the contract has been made by the Defendant
(Severina Rigos)." Since Rigos' offer sell was accepted by Sanchez, before she could withdraw
her offer, a bilateral reciprocal contract — to sell and to buy — was generated.
SEPARATE OPINIONS
ANTONIO, J., concurring:
I concur in the opinion of the Chief Justice.
I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar &
Molasses Co. vs. Atlantic Gulf and Pacific Co.,1 which holds that an option to sell can still be
withdrawn, even if accepted, if the same is not supported by any consideration, and the
reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek,2 holding that "an
option implies ... the legal obligation to keep the offer (to sell) open for the time specified;" that
it could be withdrawn before acceptance, if there was no consideration for the option, but once
the "offer to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree ipso
facto assumes the obligations of a purchaser. In other words, if the option is given without a
consideration, it is a mere offer to sell, which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a binding contract of sale. The
concurrence of both acts — the offer and the acceptance — could in such event generate a
contract.
While the law permits the offeror to withdraw the offer at any time before acceptance even
before the period has expired, some writers hold the view, that the offeror can not exercise this
right in an arbitrary or capricious manner. This is upon the principle that an offer implies an
obligation on the part of the offeror to maintain in such length of time as to permit the offeree
to decide whether to accept or not, and therefore cannot arbitrarily revoke the offer without
being liable for damages which the offeree may suffer. A contrary view would remove the
stability and security of business transactions.3
In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the
sum of Pl,510.00 before any withdrawal from the contract has been made by the Defendant
(Severina Rigos)." Since Rigos' offer sell was accepted by Sanchez, before she could withdraw
her offer, a bilateral reciprocal contract — to sell and to buy — was generated.
G.R. No. 83759 July 12, 1991
SPOUSES CIPRIANO VASQUEZ and VALERIANA GAYANELO, petitioners,
vs.
HONORABLE COURT OF APPEALS and SPOUSES MARTIN VALLEJERA and
APOLONIA OLEA, respondents.
Dionisio C. Isidto for petitioners.
Raymundo Lozada, Jr. for private respondents.
GUTIERREZ, JR., J.:
This petition seeks to reverse the decision of the Court of Appeals which affirmed the earlier
decision of the Regional Trial Court, 6th Judicial Region, Branch 56, Himamaylan, Negros
Occidental in Civil Case No. 839 (for specific performance and damages) ordering the
petitioners (defendants in the civil case) to resell Lot No. 1860 of the Cadastral Survey of
Himamaylan, Negros Occidental to the respondents (plaintiffs in the civil case) upon payment
by the latter of the amount of P24,000.00 as well as the appellate court's resolution denying a
motion for reconsideration. In addition, the appellate court ordered the petitioners to pay the
amount of P5,000.00 as necessary and useful expenses in accordance with Article 1616 of the
Civil Code.
The facts of the case are not in dispute. They are summarized by the appellate court as follows:
On January 15, 1975, the plaintiffs-spouses (respondents herein) filed this action against the
defendants-spouses (petitioners herein) seeking to redeem Lot No. 1860 of the Himamaylan
Cadastre which was previously sold by plaintiffs to defendants on September 21, 1964.
The said lot was registered in the name of plaintiffs. On October 1959, the same was leased
by plaintiffs to the defendants up to crop year 1966-67, which was extended to crop year 1968-
69. After the execution of the lease, defendants took possession of the lot, up to now and
devoted the same to the cultivation of sugar.
On September 21, 1964, the plaintiffs sold the lot to the defendants under a Deed of Sale for
the amount of P9,000.00. The Deed of Sale was duly ratified and notarized. On the same day
and along with the execution of the Deed of Sale, a separate instrument, denominated as Right
to Repurchase (Exh. E), was executed by the parties granting plaintiffs the right to repurchase
the lot for P12,000.00, said Exh. E likewise duly ratified and notarized. By virtue of the sale,
defendants secured TCT No. T-58898 in their name. On January 2, 1969, plaintiffs sold the
same lot to Benito Derrama, Jr., after securing the defendants' title, for the sum of P12,000.00.
Upon the protestations of defendant, assisted by counsel, the said second sale was cancelled
after the payment of P12,000.00 by the defendants to Derrama.
Defendants resisted this action for redemption on the premise that Exh. E is just an option to
buy since it is not embodied in the same document of sale but in a separate document, and
since such option is not supported by a consideration distinct from the price, said deed for right
to repurchase is not binding upon them.
After trial, the court below rendered judgment against the defendants, ordering them to resell
lot No. 1860 of the Himamaylan Cadastre to the plaintiffs for the repurchase price of
P24,000.00, which amount combines the price paid for the first sale and the price paid by
defendants to Benito Derrama, Jr.
Defendants moved for, but were denied reconsideration. Excepting thereto, defendants-
appealed, . . . (Rollo, pp. 44-45)
The petition was given due course in a resolution dated February 12, 1990.
The petitioners insist that they can not be compelled to resell Lot No. 1860 of the Himamaylan
Cadastre. They contend that the nature of the sale over the said lot between them and the
private respondents was that of an absolute deed of sale and that the right thereafter granted
by them to the private respondents (Right to Repurchase, Exhibit "E") can only be either an
option to buy or a mere promise on their part to resell the property. They opine that since the
"RIGHT TO REPURCHASE" was not supported by any consideration distinct from the
purchase price it is not valid and binding on the petitioners pursuant to Article 1479 of the Civil
Code.
The document denominated as "RIGHT TO REPURCHASE" (Exhibit E) provides:
RIGHT TO REPURCHASE
KNOW ALL MEN BY THESE PRESENTS:
I, CIPRIANO VASQUEZ, . . ., do hereby grant the spouses Martin Vallejera and Apolonia Olea,
their heirs and assigns, the right to repurchase said Lot No. 1860 for the sum of TWELVE
THOUSAND PESOS (P12,000.00), Philippine Currency, within the period TEN (10) YEARS
from the agricultural year 1969-1970 when my contract of lease over the property shall expire
and until the agricultural year 1979-1980.
IN WITNESS WHEREOF, I have hereunto signed my name at Binalbagan, Negros Occidental,
this 21st day of September, 1964.
SGD. CIPRIANO VASQUEZ
SGD. VALERIANA G. VASQUEZ SGD. FRANCISCO SANICAS
(Rollo, p. 47)
The Court of Appeals, applying the principles laid down in the case of Sanchez v. Rigos, 45
SCRA 368 [1972] decided in favor of the private respondents.
In the Sanchez case, plaintiff-appellee Nicolas Sanchez and defendant-appellant Severino
Rigos executed a document entitled "Option to Purchase," whereby Mrs. Rigos "agreed,
promised and committed . . . to sell" to Sanchez for the sum of P1,510.00, a registered parcel
of land within 2 years from execution of the document with the condition that said option shall
be deemed "terminated and lapsed," if "Sanchez shall fail to exercise his right to buy the
property" within the stipulated period. In the same document, Sanchez" . . . hereby agree and
conform with all the conditions set forth in the option to purchase executed in my favor, that I
bind myself with all the terms and conditions." (Emphasis supplied) The notarized document
was signed both by Sanchez and Rigos.
After several tenders of payment of the agreed sum of P1,510.00 made by Sanchez within the
stipulated period were rejected by Rigos, the former deposited said amount with the Court of
First Instance of Nueva Ecija and filed an action for specific performance and damages against
Rigos.
The lower court rendered judgment in favor of Sanchez and ordered Rigos to accept the sum
judicially consigned and to execute in Sanchez' favor the requisite deed of conveyance. Rigos
appealed the case to the Court of Appeals which certified to this Court on the ground that it
involves a pure question of law.
This Court after deliberating on two conflicting principles laid down in the cases of
Southwestern Sugar and Molasses Co. v. Atlantic Gulf and Pacific Co., (97 Phil. 249 [1955])
and Atkins, Kroll & Co., Inc. v. Cua Hian Tek, 102 Phil. 948 [1958]) arrived at the conclusion
that Article 1479 of the Civil Code which provides: ––
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissory if the promise is supported by a consideration distinct from the price.
and Article 1324 thereof which provides:
Art. 1324. When the offerer has allowed the offerer a certain period to accept, the offer
may be withdrawn at any time before acceptance by communicating such withdrawal, except
when the option is founded upon a consideration, as something paid or promised.
should be reconciled and harmonized to avoid a conflict between the two provisions. In effect,
the Court abandoned the ruling in the Southwestern Sugar and Molasses Co. case and
reiterated the ruling in the Atkins, Kroll and Co. case, to wit:
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, (102 Phil.
948, 951-952) decided later than Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
Co., (supra) saw no distinction between Articles 1324 and 1479 of the Civil Code and applied
the former where a unilateral promise to sell similar to the one sued upon here was involved,
treating such promise as an option which, although not binding as a contract in itself for lack of
separate consideration, nevertheless generated a bilateral contract of purchase and sale upon
acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this
Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree
should decide to exercise his option within the specified time. After accepting the promise and
before he exercises his option, the holder of the option is not bound to buy. He is free either to
buy or not to buy later. In this case however, upon accepting herein petitioner's offer a bilateral
promise to sell and to buy ensued, and the respondent ipso facto assumed the obligation of a
purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere
option then; it was bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding for lack of
consideration, the authorities hold that
If the option is given without a consideration, it is a mere offer of a contract of sale, which is not
binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a
binding contract of sale, even though the option was not supported by a sufficient consideration
. . . (77 Corpus Juris Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.)
This Court affirmed the lower court's decision although the promise to sell was not supported
by a consideration distinct from the price. It was obvious that Sanchez, the promisee, accepted
the option to buy before Rigos, the promisor, withdrew the same. Under such circumstances,
the option to purchase was converted into a bilateral contract of sale which bound both parties.
In the instant case and contrary to the appellate court's finding, it is clear that the right to
repurchase was not supported by a consideration distinct from the price. The rule is that the
promisee has the burden of proving such consideration. Unfortunately, the private respondents,
promisees in the right to repurchase failed to prove such consideration. They did not even
allege the existence thereof in their complaint. (See Sanchez v. Rigos supra)
Therefore, in order that the Sanchez case can be applied, the evidence must show that the
private respondents accepted the right to repurchase.
The record, however, does not show that the private respondents accepted the "Right to
Repurchase" the land in question. We disagree with the appellate court's finding that the private
respondents accepted the "right to repurchase" under the following circumstances: . . as
evidenced by the annotation and registration of the same on the back of the transfer of
certificate of title in the name of appellants. As vividly appearing therein, it was signed by
appellant himself and witnessed by his wife so that for all intents and purposes the Vasquez
spouses are estopped from disregarding its obvious purpose and intention."
The annotation and registration of the right to repurchase at the back of the certificate of title
of the petitioners can not be considered as acceptance of the right to repurchase. Annotation
at the back of the certificate of title of registered land is for the purpose of binding purchasers
of such registered land. Thus, we ruled in the case of Bel Air Village Association, Inc. v. Dionisio
(174 SCRA 589 [1989]), citing Tanchoco v. Aquino (154 SCRA 1 [1987]), and Constantino v.
Espiritu (45 SCRA 557 [1972]) that purchasers of a registered land are bound by the
annotations found at the back of the certificate of title covering the subject parcel of land. In
effect, the annotation of the right to repurchase found at the back of the certificate of title over
the subject parcel of land of the private respondents only served as notice of the existence of
such unilateral promise of the petitioners to resell the same to the private respondents. This,
however, can not be equated with acceptance of such right to repurchase by the private
respondent.
Neither can the signature of the petitioners in the document called "right to repurchase" signify
acceptance of the right to repurchase. The respondents did not sign the offer. Acceptance
should be made by the promisee, in this case, the private respondents and not the promisors,
the petitioners herein. It would be absurd to require the promisor of an option to buy to accept
his own offer instead of the promisee to whom the option to buy is given.
Furthermore, the actions of the private respondents –– (a) filing a complaint to compel re-sale
and their demands for resale prior to filing of the complaint cannot be considered acceptance.
As stated in Vda. de Zulueta v. Octaviano (121 SCRA 314 [1983]):
And even granting, arguendo that the sale was a pacto de retro sale, the evidence shows that
Olimpia, through her lawyer, opted to repurchase the land only on 16 February 1962,
approximately two years beyond the stipulated period, that is not later than May, 1960.
If Olimpia could not locate Aurelio, as she contends, and based on her allegation that the
contract between her was one of sale with right to repurchase, neither, however, did she tender
the redemption price to private respondent Isauro, but merely wrote him letters expressing her
readiness to repurchase the property.
It is clear that the mere sending of letters by the vendor expressing his desire to repurchase
the property without accompanying tender of the redemption price fell short of the requirements
of law. (Lee v. Court of Appeals, 68 SCRA 197 [1972])
Neither did petitioner make a judicial consignation of the repurchase price within the agreed
period.
In a contract of sale with a right of repurchase, the redemptioner who may offer to make the
repurchase on the option date of redemption should deposit the full amount in court . . .
(Rumbaoa v. Arzaga, 84 Phil. 812 [1949])
To effectively exercise the right to repurchase the vendor a retro must make an actual and
simultaneous tender of payment or consignation. (Catangcatang v. Legayada, 84 SCRA 51
[1978])
The private respondents' ineffectual acceptance of the option to buy validated the petitioner's
refusal to sell the parcel which can be considered as a withdrawal of the option to buy.
We agree with the petitioners that the case of Vda. de Zulueta v. Octaviano, (supra) is in point.
Stripped of non-essentials the facts of the Zulueta case are as follows: On November 25, 1952
(Emphasis supplied) Olimpia Fernandez Vda. de Zulueta, the registered owner of a 5.5 hectare
riceland sold the lot to private respondent Aurelio B. Octaviano for P8,600.00 subject to certain
terms and conditions. The contract was an absolute and definite sale. On the same day,
November 25, 1952, (Emphasis supplied) the vendee, Aurelio signed another document giving
the vendor Zulueta the "option to repurchase" the property at anytime after May 1958 but not
later than May 1960. When however, Zulueta tried to exercise her "option to buy" the property,
Aurelio resisted the same prompting Zulueta to commence suit for recovery of ownership and
possession of the property with the then Court of First Instance of Iloilo.
The trial court ruled in favor of Zulueta. Upon appeal, however, the Court of Appeals reversed
the trial court's decision.
We affirmed the appellate court's decision and ruled:
The nature of the transaction between Olimpia and Aurelio, from the context of Exhibit "E" is
not a sale with right to repurchase. Conventional redemption takes place "when the vendor
reserves the right to repurchase the thing sold, with the obligation to comply with the provisions
of Article 1616 and other stipulations which may have been agreed upon. (Article 1601, Civil
Code).
In this case, there was no reservation made by the vendor, Olimpia, in the document Exhibit
"E" the "option to repurchase" was contained in a subsequent document and was made by the
vendee, Aurelio. Thus, it was more of an option to buy or a mere promise on the part of the
vendee, Aurelio, to resell the property to the vendor, Olimpia. (10 Manresa, p. 311 cited in
Padilla's Civil Code Annotated, Vol. V, 1974 ed., p. 467) As held in Villarica v. Court of Appeals
(26 SCRA 189 [1968]):
The right of repurchase is not a right granted the vendor by the vendee in a subsequent
instrument, but is a right reserved by the vendor in the same instrument of sale as one of the
stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can
no longer reserve the right to repurchase, and any right thereafter granted the vendor by the
vendee in a separate instrument cannot be a right of repurchase but some other right like the
option to buy in the instant case. . . (Emphasis supplied)
The appellate court rejected the application of the Zulueta case by stating:
. . . [A]s found by the trial court from which we quote with approval below, the said cases involve
the lapse of several days for the execution of separate instruments after the execution of the
deed of sale, while the instant case involves the execution of an instrument, separate as it is,
but executed on the same day, and notarized by the same notary public, to wit:
A close examination of Exh. "E" reveals that although it is a separate document in itself, it is far
different from the document which was pronounced as an option by the Supreme Court in the
Villarica case. The option in the Villarica case was executed several days after the execution G.R. No. L-32873 August 18, 1972
of the deed of sale. In the present case, Exh. "E" was executed and ratified by the same notary
public and the Deed of Sale of Lot No. 1860 by the plaintiffs to the defendants were notarized AQUILINO NIETES, petitioner,
by the same notary public and entered in the same page of the same notarial register . . . vs.
HON. COURT OF APPEALS & DR. PABLO C. GARCIA, respondents.
The latter case (Vda. de Zulueta v. Octaviano, supra), likewise involved the execution of the
separate document after an intervention of several days and the question of laches was Conrado V. del Rosario for petitioner.
decided therein, which is not present in the instant case. That distinction is therefore crucial Romeo D. Magat for private respondent.
and We are of the opinion that the appellee's right to repurchase has been adequately provided
for and reserved in conformity with Article 1601 of the Civil Code, which states:
CONCEPCION, C.J.:p
Conventional redemption shall take place when the vendor reserves the right to repurchase
the thing sold, with the obligation to comply with the provision of Article 1616 and other Petitioner Aquilino Nietes seeks a review on certiorari of a decision of the Court of Appeals.
stipulations which may have been agreed upon. (Rollo, pp. 46-47)
It appears that, on October 19, 1959, said petitioner and respondent Dr. Pablo C. Garcia
Obviously, the appellate court's findings are not reflected in the cited decision.1âwphi1 As in entered into a "Contract of Lease with Option to Buy," pursuant to the terms and conditions set
the instant case, the option to repurchase involved in the Zulueta case was executed in a forth in the deed Exhibits A and A-1, (also, marked as Exhibit 2) namely:
separate document but on the same date that the deed of definite sale was executed.
That the LESSOR is an owner of the ANGELES EDUCATIONAL INSTITUTE situated at
While it is true that this Court in the Zulueta case found Zulueta guilty of laches, this, however, Angeles, Pampanga, a school which is duly recognized by the Government;
was not the primary reason why this Court disallowed the redemption of the property by
Zulueta. It is clear from the decision that the ruling in the Zulueta case was based mainly on That the lessor agrees to lease the above stated school to the LESSEE under the following
the finding that the transaction between Zulueta and Octaviano was not a sale with right to terms and conditions:
repurchase and that the "option to repurchase was but an option to buy or a mere promise on
the part of Octaviano to resell the property to Zulueta. 1. That the term will be for a period of five (5) years;

In the instant case, since the transaction between the petitioners and private respondents was 2. That the price of the rent is FIVE THOUSAND PESOS (P5,000) per year payable in
not a sale with right to repurchase, the private respondents cannot avail of Article 1601 of the the following manners:
Civil Code which provides for conventional redemption.
a. That the amount of FIVE THOUSAND FIVE HUNDRED PESOS (P5,500) will be paid
WHEREFORE, the petition is GRANTED. The questioned decision and resolution of the Court upon the execution of this Contract of Lease;
of Appeals are hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 839 of
the then Court of First Instance of Negros Occidental 12th Judicial District Branch 6 is b. That the amount of FOUR THOUSAND FIVE HUNDRED PESOS (P4,500) is payable
DISMISSED. No costs. on or before the 30th day of October, 1959;

SO ORDERED. c. That the remaining balance of FIFTEEN THOUSAND PESOS (P15,000) will be paid
on or before March 30, 1960;
Fernan, C.J., Feliciano, Bidin and Davide, Jr., JJ., concur.
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 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 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.
G.R. No. 124791 February 10, 1999
JOSE RAMON CARCELLER, petitioner,
vs.
COURT OF APPEALS and STATE INVESTMENT HOUSES, INC., respondents.
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:
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 P360,000.00.
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 latter's 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 attorney's 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 court's
judgment, but modified the basis for assessing the purchase price. While respondent court
affirmed appellee's 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 hearing 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 petitioner's letter to SIHI, dated January 15, 1986, was fair notice to the
latter of the former's 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 Court's
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 court's 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 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 company's 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 respondent's view, there was already a delay of 18 days, fatal to
petitioner's 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.
SIHI's 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 year's 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, SIHI's 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".
Petitioner's determination to purchase said property is equally indubitable. He introduced
permanent improvements on the leased property, demonstrating his intent to acquire dominion
in a year's 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 73/4% 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, petitioner's
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, Puno, Mendoza and Buena, JJ., concur.
WEEK 4 SEPTEMBER 4
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 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 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 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.
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.
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 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.
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 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 Division shall continue to have control of the case. Upon completion thereof, the same shall be
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
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.
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. 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
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. 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.

Separate Opinions
PADILLA, J., concurring:
I am of the considered view (like Mr. Justice Jose A. R. Melo) that the Court in this case should
categorically recognize Mayfair's right of first refusal under its contract of lease with Carmelo
and Bauermann, Inc. (hereafter, Carmelo) and, because of Carmelo's and Equatorial's bad
faith in riding "roughshod" over Mayfair's right of first refusal, the Court should order the
rescission of the sale of the Claro M. Recto property by the latter to Equatorial (Art. 1380-
1381[3], Civil Code). The Court should, in this same case, to avoid multiplicity of suits, likewise
allow Mayfair to effectively exercise said right of first refusal, by paying Carmelo the sum of
P11,300,000.00 for the entire subject property, without any need of instituting a separate action
for damages against Carmelo and/or Equatorial.
I do not agree with the proposition that, in addition to the aforesaid purchase price, Mayfair
should be required to pay a compounded interest of 12% per annum of said amount computed
from 1 August 1978. Under the Civil Code, a party to a contract may recover interest as
indemnity for damages in the following instances:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be
the payment of the interest agreed upon, and in the absence of stipulation, the legal interest,
which is six per cent per annum.
Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded
for breach of contract.
There appears to be no basis in law for adding 12% per annum compounded interest to the
purchase price of P11,300,000.00 payable by Mayfair to Carmelo since there was no such
stipulation in writing between the parties (Mayfair and Carmelo) but, more importantly, because
Mayfair neither incurred in delay in the performance of its obligation nor committed any breach
of contract. Indeed, why should Mayfair be penalized by way of making it pay 12% per annum
compounded interest when it was Carmelo which violated Mayfair's right of first refusal under
the contract?
The equities of the case support the foregoing legal disposition. During the intervening years
between 1 August 1978 and this date, Equatorial (after acquiring the C.M. Recto property for
the price of P11,300,000.00) had been leasing the property and deriving rental income
therefrom. In fact, one of the lessees in the property was Mayfair. Carmelo had, in turn, been
using the proceeds of the sale, investment-wise and/or operation-wise in its own business.
It may appear, at first blush, that Mayfair is unduly favored by the solution submitted by this
opinion, because the price of P11,300,000.00 which it has to pay Carmelo in the exercise of its
right of first refusal, has been subjected to the inroads of inflation so that its purchasing power
today is less than when the same amount was paid by Equatorial to Carmelo. But then it cannot
be overlooked that it was Carmelo's breach of Mayfair's right of first refusal that prevented
Mayfair from paying the price of P11,300,000.00 to Carmelo at about the same time the amount
was paid by Equatorial to Carmelo. Moreover, it cannot be ignored that Mayfair had also
incurred consequential or "opportunity" losses by reason of its failure to acquire and use the
property under its right of first refusal. In fine, any loss in purchasing power of the price of
P11,300,000.00 is for Carmelo to incur or absorb on account of its bad faith in breaching
Mayfair's contractual right of first refusal to the subject property.
ACCORDINGLY, I vote to order the rescission of the contract of sale between Carmelo and
Equatorial of the Claro M. Recto property in question, so that within thirty (30) days from the
finality of the Court's decision, the property should be retransferred and delivered by Equatorial
to Carmelo with the latter simultaneously returning to Equatorial the sum of P11,300, 000.00.
I also vote to allow Mayfair to exercise its right of first refusal, by paying to Carmelo the sum of
P11,300,000.00 without interest for the entire subject property, within thirty (30) days from re-
acquisition by Carmelo of the titles to the property, with the corresponding obligation of Carmelo
to sell and transfer the property to Mayfair within the same period of thirty (30) days.
PANGANIBAN, J., concurring:
In the main, I concur with the ponencia of my esteemed colleague, Mr. Justice Regino C.
Hermosisima, Jr., especially with the following doctrinal pronouncements:
1. That while no option to purchase within the meaning of the second paragraph of Article
1479 of the Civil Code was given to Mayfair Theater, Inc. ("Mayfair"), under the two lease
contracts a right of first refusal was in fact granted, for which no separate consideration is
required by law to be paid or given so as to make it binding upon Carmelo & Bauermann, Inc.
("Carmelo");
2. That such right was violated by the latter when it sold the entire property to Equatorial
Realty Development, Inc. ("Equatorial") on July 30, 1978, for the sum of P11,300,000.00;
3. That Equatorial is a buyer in bad faith as it was aware of the lease contracts, its own
lawyers having studied said contracts prior to the sale; and
4. That, consequently, the contract of sale is rescissible.
5. That, finally, under the proven facts, the right of first refusal may be enforced by an
action for specific performance.
There appears to be unanimity in the Court insofar as items 1, 2 and 3 above are concerned.
It is in items 4 and 5 that there is a marked divergence of opinion. Hence, I shall limit the
discussion in this Separate Concurring Opinion to such issues, namely: Is the contract of sale
between Carmelo and Equatorial rescissible, and corollarily, may the right of first refusal
granted to Mayfair be enforced by an action for specific performance?
It is with a great amount of trepidation that I respectfully disagree with the legal proposition
espoused by two equally well-respected colleagues, Mme. Justice Flerida Ruth P. Romero and
Mr. Justice Jose C. Vitug — who are both acknowledged authorities on Civil Law — that a
breach of the covenanted right of first refusal, while warranting a suit for damages under Article
19 of the Civil Code, cannot sanction an action for specific performance without thereby
negating the indispensable element of con-sensuality in the perfection of contracts.
Ang Yu Asuncion Not In Point
Such statement is anchored upon a pronouncement in Ang Yu Asuncion vs. CA, 1 which was
penned by Mr. Justice Vitug himself. I respectfully submit, however, that that case turned
largely on the issue of whether or not the sale of an immovable in breach of a right of first
refusal that had been decreed in a final judgment would justify the issuance of certain orders
of execution in the same case. The validity of said orders was the subject of the attack before
this Court. These orders had not only directed the defendants to execute a deed of sale in favor
of the plaintiffs, when there was nothing in the judgment itself decreeing it, but had also set
aside the sale made in breach of said right of first refusal and even canceled the title that had
been issued to the buyer, who was not a party to the suit and had obviously not been given its
day in court. It was thus aptly held:
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.2
In other words, the question of whether specific performance of one's right of first refusal is
available as a remedy in case of breach thereof was not before the Supreme Court at all in Ang
Yu Asuncion. Consequently, the pronouncements there made bearing on such unlitigated
question were mere obiter. Moreover, as will be shown later, the pronouncement that a breach
of the right of first refusal would not sanction an action for specific performance but only an
action for damages (at p. 615) is at best debatable (and in my humble view, imprecise or
incorrect), on top of its being contradicted by extant jurisprudence.
Worth bearing in mind is the fact that two juridical relations, both contractual, are involved in
the instant case: (1) the deed of sale between the petitioners dated July 30, 1978, and (2) the
contract clause establishing Mayfair's right of first refusal which was violated by said sale.
With respect to the sale of the property, Mayfair was not a party. It therefore had no personality
to sue for its annulment, since Art. 1397 of the Civil Code provides, inter alia, that "(t)he action
for the annulment of contracts may be instituted by all who are thereby obliged principally or
subsidiarily."
But the facts as alleged and proved clearly in the case at bar make out a case for rescission
under Art. 1177, in relation to Art. 1381(3), of the Civil Code, which pertinently read as follows:
Art. 1177. The creditors, after having pursued the property in possession of the debtor to
satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same
purpose, save those which are inherent in his person; they may also impugn the acts which the
debtor may have done to defraud them.
Art. 1381. The following contracts are rescissible:
xxx xxx xxx
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them;
xxx xxx xxx
(emphasis supplied)
The term "creditors" as used in these provisions of the Civil Code is broad enough to include
the obligee under an option contract3 as well as under a right of first refusal, sometimes known
as a right of first priority.4 Thus, in Nietes, the Supreme Court, speaking through then Mr. Chief
Justice Roberto Concepcion, repeatedly referred to the grantee or optionee as "the creditor"
and to the grantor or optioner as "the debtor".5 In any case, the personal elements of an
obligation are the active and passive subjects thereof, the former being known as creditors or
obligees and the latter as debtors or obligors.6 Insofar as the right of first refusal is concerned,
Mayfair is the obligee or creditor.
As such creditor, Mayfair had, therefore, the right to impugn the sale in question by way of
accion pauliana under the last clause of Art. 1177, aforequoted, because the sale was an act
done by the debtor to defraud him of his right to acquire the property.7 Rescission was also
available under par. 3, Art. 1381, abovequoted, as was expressly held in Guzman, Bocaling &
Co., a case closely analogous to this one as it was also an action brought by the lessee to
enforce his "right of first priority" — which is just another name for the right of first refusal —
and to annul a sale made by the lessor in violation of such right. In said case, this Court,
speaking through Mr. Justice Isagani A. Cruz, affirmed the invalidation of the sale and the
enforcement of the lessee's right of first priority this wise:8
The petitioner argues that assuming the Contract of Sale to be voidable, only the parties thereto
could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is stressed that
private respondents are strangers to that agreement and therefore have no personality to seek
its annulment.
The respondent court correctly held that the Contract of Sale was not voidable but rescissible.
Under Article(s) 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. (emphasis supplied)
By the same token, the status of a defrauded creditor can, and should, be granted to Mayfair,
for it certainly had substantial interests that were prejudiced by the sale of the subject property
to petitioner Equatorial in open violation of Mayfair's right of first refusal under its existing
contracts with Carmelo.
In fact, the parity between that case and the present one does not stop there but extends to
the crucial and critical fact that there was manifest bad faith on the part of the buyer. Thus, in
Guzman, this Court affirmed in toto the appealed judgment of the Court of Appeals which, in
turn, had affirmed the trial court's decision insofar as it invalidated the deed of sale in favor of
the petitioner-buyer, cancelled its TCT, and ordered the lessor to execute a deed of sale over
the leased property in favor of the lessee for the same price and "under the same terms and
conditions", aside from affirming as well the damages awarded, but at a reduced amount.9 In
other words, the aggrieved party was allowed to acquire the property itself.
The inescapable conclusion from all of the foregoing is not only that rescission is the proper
remedy but also — and more importantly — that specific performance was actually used and
given free rein as an effective remedy to enforce a right of first refusal in the wake of its violation,
in the cited case of Guzman.
On the other hand, and as already commented on above, the pronouncement in Ang Yu
Asuncion to the effect that specific performance is unavailable to enforce a violated right of first
refusal is at best a debatable legal proposition, aside from being contradicted by extant
jurisprudence. Let me explain why.
The consensuality required for a contract of sale is distinct from, and should not be confused
with, the consensuality attendant to the right of first refusal itself. While indeed, prior to the
actual sale of the property to Equatorial and the filing of Mayfair's complaint for specific
performance, no perfected contract of sale involving the property ever existed between
Carmelo as seller and Mayfair as buyer, there already was, in law and in fact, a perfected
contract between them which established a right of first refusal, or of first priority.
Specific Performance Is
Viable Remedy
The question is: Can this right (of first refusal) be enforced by an action for specific performance
upon a showing of its breach by an actual sale of the property under circumstances showing
palpable bad faith on the part of both seller and buyer?
The answer, I respectfully submit, should be 'yes'.
As already noted, Mayfair's right of first refusal in the case before us is embodied in an express
covenant in the lease contracts between it as lessee and Carmelo as lessor, hence the right
created is one springing from contract. 10 Indubitably, this had the force of law between the
parties, who should thus comply with it in good faith. 11 Such right also established a correlative
obligation on the part of Carmelo to give or deliver to Mayfair a formal offer of sale of the
property in the event Carmelo decides to sell it. The decision to sell was eventually made. But
instead of giving or tendering to Mayfair the proper offer to sell, Carmelo gave it to its now co-
petitioner, Equatorial, with whom it eventually perfected and consummated, on July 30, 1978,
an absolute sale of the property, doing so within the period of effectivity of Mayfair's right of first
refusal. Less than two months later, or in September 1978, with the lease still in full force,
Mayfair filed the present suit.
Worth stressing at this juncture is the fact that Mayfair had the right to require that the offer to
sell the property be sent to it by Carmelo, and not to anybody else. This was violated when the
offer was made to Equatorial. Under its covenant with Carmelo, Mayfair had the right, at that
point, to sue for either specific performance or rescission, with damages in either case,
pursuant to Arts. 1165 and 1191, Civil Code. 12 An action for specific performance and
damages seasonably filed, fortified by a writ of preliminary injunction, would have enabled
Mayfair to prevent the sale to Equatorial from taking place and to compel Carmelo to sell the
property to Mayfair for the same terms and price, for the reason that the filing of the action for
specific performance may juridically be considered as a solemn, formal, and unqualified
acceptance by Mayfair of the specific terms of the offer of sale. Note that by that time, the price
and other terms of the proposed sale by Carmelo had already been determined, being set forth
in the offer of sale that had wrongfully been directed to Equatorial.
As it turned out, however, Mayfair did not have a chance to file such suit, for it learned of the
sale to Equatorial only after it had taken place. But it did file the present action for specific
performance and for invalidation of the wrongful sale immediately after learning about the latter
act. The act of promptly filing this suit, coupled with the fact that it is one for specific
performance, indicates beyond cavil or doubt Mayfair's unqualified acceptance of the
misdirected offer of sale, giving rise, thereby, to a demandable obligation on the part of Carmelo
to execute the corresponding document of sale upon the payment of the price of
P11,300,000.00. In other words, the principle of consensuality of a contract of sale should be
deemed satisfied. The aggrieved party's consent to, or acceptance of, the misdirected offer of
sale should be legally presumed in the context of the proven facts.
To say, therefore, that the wrongful breach of a right of first refusal does not sanction an action
for specific performance simply because, factually, there was no meeting of the minds as to
the particulars of the sale since ostensibly no offer was ever made to, let alone accepted by,
Mayfair, is to ignore the proven fact of presumed consent. To repeat, that consent was deemed
given by Mayfair when it sued for invalidation of the sale and for specific performance of
Carmelo's obligation to Mayfair. Nothing in the law as it now stands will be violated, or even
simply emasculated, by this holding. On the contrary, the decision in Guzman supports it.
Moreover, under the Civil Code provisions on the nature, effect and kinds of obligations,13
Mayfair's right of first refusal may be classified as one subject to a suspensive condition —
namely, if Carmelo should decide to sell the leased premises during the life of the lease
contracts, then it should make an offer of sale to Mayfair. Futurity and uncertainty, which are
the essential characteristics of a condition, 14 were distinctly present. Before the decision to
sell was made, Carmelo had absolutely no obligation to sell the property to Mayfair, nor even
to make an offer to sell, because in conditional obligations, where the condition is suspensive,
the acquisition of rights depends upon the happening of the event which constitutes the
condition. 15 Had the decision to sell not been made at all, or had it been made after the expiry
of the lease, the parties would have stood as if the conditional obligation had never existed. 16
But the decision to sell was in fact made. And it was made during the life and efficacy of the
lease. Undoubtedly, the condition was duly fulfilled; the right of first refusal effectively accrued
and became enforceable; and correlatively, Carmelo's obligation to make and send the offer to
Mayfair became immediately due and demandable. 17 That obligation was to deliver to Mayfair
an offer to sell a determinate thing for a determinate price. As things turned out, a definite and
specific offer to sell the entire property for the price of P11,300,000.00 was actually made by
Carmelo — but to the wrong party. It was that particular offer, and no other, which Carmelo
should have delivered to Mayfair, but failed to deliver. Hence, by the time the obligation of
Carmelo accrued through the fulfillment of the suspensive condition, the offer to sell had
become a determinate thing.
Art. 1165 of the Civil Code, earlier quoted in footnote 12, indicates the remedies available to
the creditor against the debtor, when it provides that "(w)hen what is to be delivered is a
determinate thing, the creditor, in addition to the right granted him by article 1170, may compel
the debtor to make the delivery," clearly authorizing not only the recovery of damages under
Art. 1170 but also an action for specific performance.
But even assuming that Carmelo's prestation did not involve the delivery of a determinate offer
but only a generic one, the second paragraph of Art. 1165 explicitly gives to the creditor the
right "to ask that the obligation be complied with at the expense of the debtor." The availability
of an action for specific performance is thus clear and beyond doubt. And the correctness of
Guzman becomes all the more manifest.
Upon the other hand, the obiter in Ang Yu Asuncion is further weakened by the fact that the
jurisprudence upon which it supposedly rests — namely, the cases of Madrigal & CO. vs.
Stevenson & Co. 18 and Salonga vs. Farrales 19 — did NOT involve a right of first refusal or
of first priority. Nor did those two cases involve an option to buy. In Madrigal, plaintiff sued
defendant for damages claiming wrongful breach of an alleged contract of sale of 2,000 tons
of coal. The case was dismissed because "the minds of the parties never met upon a contract
of sale by defendant to plaintiff", 20 each party having signed the broker's memorandum as
buyer, erroneously thinking that the other party was the seller! In Salonga, a lessee, who was
one of several lessees ordered by final judgment to vacate the leased premises, sued the lessor
to compel the latter to sell the leased premises to him, but his suit was not founded upon any
right of first refusal and was therefore dismissed on the ground that there was no perfected
sale in his favor. He just thought that because the lessor had decided to sell and in fact sold
portions of the property to her other lessees, she was likewise obligated to sell to him even in
the absence of a perfected contract of sale. In fine, neither of the two cases cited in support of
the legal proposition that a breach of the right of first refusal does not sanction an action for
specific performance but, at best, only one for damages, provides such support.
Finally, the fact that what was eventually sold to Equatorial was the entire property, not just the
portions leased to Mayfair, is no reason to deprive the latter of its right to receive a formal and
specific offer. The offer of a larger property might have led Mayfair to reject the offer, but until
and unless such rejection was actually made, its right of first refusal still stood. Upon the other
hand, an acceptance by Mayfair would have saved all concerned the time, trouble, and
expense of this protracted litigation. In any case, the disquisition by the Court of Appeals on
this point can hardly be faulted; in fact, it amply justifies the conclusions reached in its decision,
as well as the dispositions made therein.
IN VIEW OF THE FOREGOING, I vote to DENY the petition and to AFFIRM the assailed
Decision.
ROMERO, J., concurring and dissenting:
I share the opinion that the right granted to Mayfair Theater under the identical par 8 of the
June 1, 1967 and March 31, 1969 contracts constitute a right of first refusal.
An option is a privilege granted to buy a determinate thing at a price certain within a specified
time and is usually supported by a consideration which is why, it may be regarded as a contract
in itself. The option results in a perfected contract of sale once the person to whom it is granted
decides to exercise it. The right of first refusal is unlike an option which requires a certainty as
to the object and consideration of the anticipated contract. When the right of first refusal is
exercised, there is no perfected contract of sale because the other terms of the sale have yet
to be determined. Hence, in case the offeror reneges on his promise to negotiate with offeree,
the latter may only recover damages in the belief that a contract could have been perfected
under Article 19 of the New Civil Code.
I beg to disagree, however, with the majority opinion that the contract of sale entered into by
Carmelo and Bauermann, Inc. and Equatorial Realty Inc., should be rescinded. Justice
Hermosisima, in citing Art. 1381 (3) as ground for recission apparently relied on the case of
Guzman, Bocaling and Co. v. Bonnevie (206 SCRA 668 [1992]) where the offeree was likened
to the status of a creditor. The case, in citing Tolentino, stated that rescission is a remedy
granted by law to 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 restoration of
things to their condition prior to celebration of the contract. It is my opinion that "third persons"
should be construed to refer to the wards, creditors, absentees, heirs and others enumerated
under the law who are prejudiced by the contract sought to be rescinded.
It should be borne in mind that rescission is an extreme remedy which may be exercised only
in the specific instances provided by law. Article 1381 (3) specifically refers to contracts
undertaken in fraud of creditors when the latter cannot in any manner collect the claims due
them. If rescission were allowed for analogous cases, the law would have so stated. While
Article 1381 (5) itself says that rescission may be granted to all other contracts specially
declared by law to be subject to rescission, there is nothing in the law that states that an offeree
who failed to exercise his right of refusal because of bad faith on the part of the offeror may
rescind the subsequent contract entered into by the offeror and a third person. Hence, there is
no legal justification to rescind the contract between Carmelo and Bauermann, Inc. and
Equatorial Realty.
Neither do I agree with Justice Melo that Mayfair Theater should pay Carmelo and Bauermann,
Inc. the amount of P11,300,000.00 plus compounded interest of 12% p.a. Justice Melo
rationalized that had Carmelo and Bauermann sold the property to Mayfair, the latter would
have paid the property for the same price that Equatorial bought it. It bears emphasis that
Carmelo and Bauermann, Inc. and Mayfair never reached an agreement as to the price of the
property in dispute because the negotiations between the two parties were not pursued to its
very end. We cannot, even for reasons of equity, compel Carmelo to sell the entire property to
Mayfair at P11,300,000.00 without violating the consensual nature of contracts.
I vote, therefore, not to rescind the contract of sale entered into by Carmelo and Bauermann,
Inc. and Equatorial Realty Development Corp.
VITUG, J., dissenting:
I share the opinion that the right granted to Mayfair Theater, Inc., is neither an offer nor an
option but merely a right of first refusal as has been so well and amply essayed in the ponencia
of our distinguished colleague Mr. Justice Regino C. Hermosisima, Jr.
Unfortunately, it would seem that Article 1381 (paragraph 3) of the Civil Code invoked to be the
statutory authority for the rescission of the contract of sale between Carmelo & Bauermann,
Inc., and Equatorial Realty Development, Inc., has been misapplied. The action for rescission
under that provision of the law, unlike in the resolution of reciprocal obligations under Article
1191 of the Code, is merely subsidiary and relates to the specific instance when a debtor, in
an attempt to defraud his creditor, enters into a contract with another that deprives the creditor
to recover his just claim and leaves him with no other legal means, than by rescission, to obtain
reparation. Thus, the rescission is only to the extent necessary to cover the damages caused
(Article 1384, Civil Code) and, consistent with its subsidiary nature, would require the debtor to
be an indispensable party in the action (see Gigante vs. Republic Savings Bank, 135 Phil. 359).
The concept of a right of first refusal as a simple juridical relation, and so governed (basically)
by the Civil Code's title on "Human Relations," is not altered by the fact alone that it might be
among the stipulated items in a separate document or even in another contract. A "breach" of
the right of first refusal can only give rise to an action for damages primarily under Article 19 of
the Civil Code, as well as its related provisions, but not to an action for specific performance
set out under Book IV of the Code on "Obligations and Contracts." That right, standing by itself,
is far distant from being the obligation referred to in Article 1159 of the Code which would have
the force of law sufficient to compel compliance per se or to establish a creditor-debtor or
obligee-obligor relation between the parties. If, as it is rightly so, a right of first refusal cannot
even be properly classed as an offer or as an option, certainly, and with much greater reason,
it cannot be the equivalent of, nor be given the same legal effect as, a duly perfected contract.
It is not possible to cross out, such as we have said in Ang Yu Asuncion vs. Court of Appeals
(238 SCRA 602), the indispensable element of consensuality in the perfection of contracts. It
is basic that without mutual consent on the object and on the cause, a contract cannot exist
(Art. 1305, Civil Code); corollary to it, no one can be forced, least of all perhaps by a court, into
a contract against his will or compelled to perform thereunder.
It is sufficiently clear, I submit, that, there being no binding contract between Carmelo and
Mayfair, neither the rescission of the contract between Carmelo and Equatorial nor the directive
to Carmelo to sell the property to Mayfair would be legally appropriate.
My brief disquisition should have ended here except for some personal impressions expressed
by my esteemed colleague, Mr. Justice Artemio V. Panganiban, on the Ang Yu decision which
perhaps need to be addressed.
The discussion by the Court in Ang Yu on the right of first refusal is branded as a mere obiter
dictum. Justice Panganiban states: The case "turned largely on the issue of whether or not the
sale of an immovable in breach of a right of first refusal that had been decreed in a final
judgment would justify the issuance of certain orders of execution in the same case. . . . . In
other words, the question of whether specific performance of one's right of first refusal is
available as a remedy in case of breach thereof was not before the Supreme Court at all in Ang
Yu Asuncion."
Black defines an obiter dictum as "an opinion entirely unnecessary for the decision of the case"
and thus "are not binding as precedent." (Black's Law Dictionary, 6th edition, 1990). A close
look at the antecedents of Ang Yu as found by the Court of Appeals and as later quoted by this
Court would readily disclose that the "right of first refusal" was a major point in the controversy.
Indeed, the trial and the appellate courts had rule on it. With due respect, I would not deem it
"entirely unnecessary" for this Court to itself discuss the legal connotation and significance of
the decreed (confirmatory) right of first refusal. I should add that when the ponencia recognized
that, in the case of Buen Realty Development Corporation (the alleged purchaser of the
property), the latter could not be held subject of the writ of execution and be ousted from the
ownership and possession of the disputed property without first affording it due process, the
Court decided to simply put a cap in the final disposition of the case but it could not have
intended to thereby mitigate the import of its basic ratio decidendi.
Justice Panganiban opines that the pronouncement in Ang Yu, i.e., that a breach of the right
of first refusal does not sanction an action for specific performance but only an action for
damages, "is at best debatable (. . . imprecise or incorrect), on to top of its being contradicted
by extant jurisprudence." He then comes up with the novel proposition that "Mayfair's right of
first refusal may be classified as one subject to a suspensive condition — namely, if Carmelo
should decide to sell the leased premises during the life of the lease contracts, then it should
make an offer of sale to Mayfair," presumably enforceable by action for specific performance.
It would be perilous a journey, first of all, to try to seek out a common path for such juridical
relations as contracts, options, and rights of first refusal since they differ, substantially enough,
in their concepts, consequences and legal implications. Very briefly, in the area on sales
particularly, I borrow from Ang Yu, a unanimous decision of the Supreme Court En Banc, which
held:
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of
the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be
brought within the purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 1319 of the same Code. An option or an offer
would require, among other things, a clear certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the object might be
made determinate, the exercise of the right, however, would be dependent not only on the
grantor's eventual intention to enter into a binding juridical relation with another but also on
terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at
best be so described as merely belonging to a class of preparatory juridical relations governed
not by contracts (since the essential elements to establish the vinculum juris would still be
indefinite and inconclusive) but by, among other laws of general application, the pertinent
scattered provisions of the Civil Code on human conduct.
An obligation, and so a conditional obligation as well (albeit subject to the occurrence of the
condition), in its context under Book IV of the Civil Code, can only be "a juridical necessity to
give, to do or not to do" (Art. 1156, Civil Code), and one that is constituted by law, contracts,
quasi-contracts, delicts and quasi-delicts (Art. 1157, Civil Code) which all have their respective
legal significance rather well settled in law. The law certainly must have meant to provide
congruous, albeit contextual, consequences to its provisions. Interpretare et concordore
legibus est optimus interpretendi. As a valid source of an obligation, a contract must have the
concurrence of (a) consent of the contracting parties, (b) object certain (subject matter of the
contract) and (c) cause (Art. 1318, Civil Code). These requirements, clearly defined, are
essential. The consent contemplated by the law is that which is manifested by the meeting of
the offer and of the acceptance upon the object and the cause of the obligation. The offer must
be certain and the acceptance absolute (Article 1319 of the Civil Code). Thus, a right of first
refusal cannot have the effect of a contract because, by its very essence, certain basic terms
would have yet to be determined and fixed. How its "breach" be also its perfection escapes me.
It is only when the elements concur that the juridical act would have the force of law between
the contracting parties that must be complied with in good faith (Article 1159 of the Civil Code;
see also Article 1308, of the Civil Code), and, in case of its breach, would allow the creditor or
obligee (the passive subject) to invoke the remedy that specifically appertains to it.
The judicial remedies, in general, would, of course, include: (a) The principal remedies (i) of
specific performance in obligations to give specific things (Articles 1165 and 1167 of the Civil
Code), substitute performance in an obligation to do or to deliver generic things (Article 1165
of the Civil Code) and equivalent performance for damages (Articles 1168 and 1170 of the Civil
Code); and (ii) of rescission or resolution of reciprocal obligations; and (b) the subsidiary
remedies that may be availed of when the principal remedies are unavailable or ineffective
such as (i) accion subrogatoria or subrogatory action (Article 1177 of the Civil Code; see also
Articles 1729 and 1893 of the Civil Code); and (ii) accion pauliana or rescissory action (Articles
1177 and 1381 of the Civil Code). And, in order to secure the integrity of final judgments, such
ancillary remedies as attachments, replevin, garnishments, receivership, examination of the
debtor, and similar remedies, are additionally provided for in procedural law.
Might it be possible, however, that Justice Panganiban was referring to how Ang Yu could
relate to the instant case for, verily, his remark, earlier quoted, was followed by an extensive
discussion on the factual and case milieu of the present petition? If it were, then I guess it was
the applicability of the Ang Yu decision to the instant case that he questioned, but that would
not make Ang Yu "imprecise" or "incorrect."
Justice Panganiban would hold the Ang Yu ruling to be inconsistent with Guzman, Bocaling &
Co. vs. Bonnevie (206 SCRA 668). I would not be too hasty in concluding similarly. In Guzman,
the stipulation involved, although loosely termed a "right of first priority," was, in fact, a contract
of option. The provision in the agreement there stated:
20. — In case the LESSOR desires or decides to sell the leased property, the
LESSEES shall be given a first priority to purchase the same, all things and considerations
being equal.(At page 670; emphasis supplied.)
In the above stipulation, the Court ruled, in effect, that the basic terms had been adequately,
albeit briefly, spelled out with the lease consideration being deemed likewise to be the essential
cause for the option. The situation undoubtedly was not the same that prevailed in Ang Yu or,
for that matter, in the case at bar. The stipulation between Mayfair Theater, Inc., and Carmelo
& Bauermann, Inc., merely read:
That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-
days exclusive option to purchase the same.
The provision was too indefinite to allow it to even come close to within the area of the Guzman
ruling.
Justice Panganiban was correct in saying that the "cases of Madrigal & Co. vs. Stevenson &
Co. and Salonga vs. Farrales (cited in Ang Yu) did NOT involve a right of first refusal or of first
priority. Nor did those two cases involve an option to buy." The two cases, to set the record
straight, were cited, not because they were thought to involve a right of first refusal or an option
to buy but to emphasize the indispensability of consensuality over the object and cause of
contracts in their perfection which would explain why, parallel therewith, Articles 1315 and 1318
of the Civil Code were also mentioned.
One final note: A right of first refusal, in its proper usage, is not a contract; when parties
instead make certain the object and the cause thereof and support their understanding with an
adequate consideration, that juridical relation is not to be taken as just a right of first refusal but
as a contract in itself (termed an "option"). There is, unfortunately, in law a limit to an unabated
use of common parlance.
With all due respect, I hold that the judgment of the trial court, although not for all the reasons
it has advanced, should be REINSTATED.
Separate Opinions
PADILLA, J., concurring:
I am of the considered view (like Mr. Justice Jose A. R. Melo) that the Court in this case should
categorically recognize Mayfair's right of first refusal under its contract of lease with Carmelo
and Bauermann, Inc. (hereafter, Carmelo) and, because of Carmelo's and Equatorial's bad
faith in riding "roughshod" over Mayfair's right of first refusal, the Court should order the
rescission of the sale of the Claro M. Recto property by the latter to Equatorial (Art. 1380-
1381[3], Civil Code). The Court should, in this same case, to avoid multiplicity of suits, likewise
allow Mayfair to effectively exercise said right of first refusal, by paying Carmelo the sum of
P11,300,000.00 for the entire subject property, without any need of instituting a separate action
for damages against Carmelo and/or Equatorial.
I do not agree with the proposition that, in addition to the aforesaid purchase price, Mayfair
should be required to pay a compounded interest of 12% per annum of said amount computed
from 1 August 1978. Under the Civil Code, a party to a contract may recover interest as
indemnity for damages in the following instances:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be
the payment of the interest agreed upon, and in the absence of stipulation, the legal interest,
which is six per cent per annum.
Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded
for breach of contract.
There appears to be no basis in law for adding 12% per annum compounded interest to the
purchase price of P11,300,000.00 payable by Mayfair to Carmelo since there was no such
stipulation in writing between the parties (Mayfair and Carmelo) but, more importantly, because
Mayfair neither incurred in delay in the performance of its obligation nor committed any breach
of contract. Indeed, why should Mayfair be penalized by way of making it pay 12% per annum
compounded interest when it was Carmelo which violated Mayfair's right of first refusal under
the contract?
The equities of the case support the foregoing legal disposition. During the intervening years
between 1 August 1978 and this date, Equatorial (after acquiring the C.M. Recto property for
the price of P11,300,000.00) had been leasing the property and deriving rental income
therefrom. In fact, one of the lessees in the property was Mayfair. Carmelo had, in turn, been
using the proceeds of the sale, investment-wise and/or operation-wise in its own business.
It may appear, at first blush, that Mayfair is unduly favored by the solution submitted by this
opinion, because the price of P11,300,000.00 which it has to pay Carmelo in the exercise of its
right of first refusal, has been subjected to the inroads of inflation so that its purchasing power
today is less than when the same amount was paid by Equatorial to Carmelo. But then it cannot
be overlooked that it was Carmelo's breach of Mayfair's right of first refusal that prevented
Mayfair from paying the price of P11,300,000.00 to Carmelo at about the same time the amount
was paid by Equatorial to Carmelo. Moreover, it cannot be ignored that Mayfair had also
incurred consequential or "opportunity" losses by reason of its failure to acquire and use the
property under its right of first refusal. In fine, any loss in purchasing power of the price of
P11,300,000.00 is for Carmelo to incur or absorb on account of its bad faith in breaching
Mayfair's contractual right of first refusal to the subject property.
ACCORDINGLY, I vote to order the rescission of the contract of sale between Carmelo and
Equatorial of the Claro M. Recto property in question, so that within thirty (30) days from the
finality of the Court's decision, the property should be retransferred and delivered by Equatorial
to Carmelo with the latter simultaneously returning to Equatorial the sum of P11,300, 000.00.
I also vote to allow Mayfair to exercise its right of first refusal, by paying to Carmelo the sum of
P11,300,000.00 without interest for the entire subject property, within thirty (30) days from re-
acquisition by Carmelo of the titles to the property, with the corresponding obligation of Carmelo
to sell and transfer the property to Mayfair within the same period of thirty (30) days.
PANGANIBAN, J., concurring:
In the main, I concur with the ponencia of my esteemed colleague, Mr. Justice Regino C.
Hermosisima, Jr., especially with the following doctrinal pronouncements:
1. That while no option to purchase within the meaning of the second paragraph of Article
1479 of the Civil Code was given to Mayfair Theater, Inc. ("Mayfair"), under the two lease
contracts a right of first refusal was in fact granted, for which no separate consideration is
required by law to be paid or given so as to make it binding upon Carmelo & Bauermann, Inc.
("Carmelo");
2. That such right was violated by the latter when it sold the entire property to Equatorial
Realty Development, Inc. ("Equatorial") on July 30, 1978, for the sum of P11,300,000.00;
3. That Equatorial is a buyer in bad faith as it was aware of the lease contracts, its own
lawyers having studied said contracts prior to the sale; and
4. That, consequently, the contract of sale is rescissible.
5. That, finally, under the proven facts, the right of first refusal may be enforced by an
action for specific performance.
There appears to be unanimity in the Court insofar as items 1, 2 and 3 above are concerned.
It is in items 4 and 5 that there is a marked divergence of opinion. Hence, I shall limit the
discussion in this Separate Concurring Opinion to such issues, namely: Is the contract of sale
between Carmelo and Equatorial rescissible, and corollarily, may the right of first refusal
granted to Mayfair be enforced by an action for specific performance?
It is with a great amount of trepidation that I respectfully disagree with the legal proposition
espoused by two equally well-respected colleagues, Mme. Justice Flerida Ruth P. Romero and
Mr. Justice Jose C. Vitug — who are both acknowledged authorities on Civil Law — that a
breach of the covenanted right of first refusal, while warranting a suit for damages under Article
19 of the Civil Code, cannot sanction an action for specific performance without thereby
negating the indispensable element of con-sensuality in the perfection of contracts.
Ang Yu Asuncion Not In Point
Such statement is anchored upon a pronouncement in Ang Yu Asuncion vs. CA, 1 which was
penned by Mr. Justice Vitug himself. I respectfully submit, however, that that case turned
largely on the issue of whether or not the sale of an immovable in breach of a right of first
refusal that had been decreed in a final judgment would justify the issuance of certain orders
of execution in the same case. The validity of said orders was the subject of the attack before
this Court. These orders had not only directed the defendants to execute a deed of sale in favor
of the plaintiffs, when there was nothing in the judgment itself decreeing it, but had also set
aside the sale made in breach of said right of first refusal and even canceled the title that had
been issued to the buyer, who was not a party to the suit and had obviously not been given its
day in court. It was thus aptly held:
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.2
In other words, the question of whether specific performance of one's right of first refusal is
available as a remedy in case of breach thereof was not before the Supreme Court at all in Ang
Yu Asuncion. Consequently, the pronouncements there made bearing on such unlitigated
question were mere obiter. Moreover, as will be shown later, the pronouncement that a breach
of the right of first refusal would not sanction an action for specific performance but only an
action for damages (at p. 615) is at best debatable (and in my humble view, imprecise or
incorrect), on top of its being contradicted by extant jurisprudence.
Worth bearing in mind is the fact that two juridical relations, both contractual, are involved in
the instant case: (1) the deed of sale between the petitioners dated July 30, 1978, and (2) the
contract clause establishing Mayfair's right of first refusal which was violated by said sale.
With respect to the sale of the property, Mayfair was not a party. It therefore had no personality
to sue for its annulment, since Art. 1397 of the Civil Code provides, inter alia, that "(t)he action
for the annulment of contracts may be instituted by all who are thereby obliged principally or
subsidiarily."
But the facts as alleged and proved clearly in the case at bar make out a case for rescission
under Art. 1177, in relation to Art. 1381(3), of the Civil Code, which pertinently read as follows:
Art. 1177. The creditors, after having pursued the property in possession of the debtor to
satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same
purpose, save those which are inherent in his person; they may also impugn the acts which the
debtor may have done to defraud them.
Art. 1381. The following contracts are rescissible:
xxx xxx xxx
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them;
xxx xxx xxx
(emphasis supplied)
The term "creditors" as used in these provisions of the Civil Code is broad enough to include
the obligee under an option contract3 as well as under a right of first refusal, sometimes known
as a right of first priority.4 Thus, in Nietes, the Supreme Court, speaking through then Mr. Chief
Justice Roberto Concepcion, repeatedly referred to the grantee or optionee as "the creditor"
and to the grantor or optioner as "the debtor".5 In any case, the personal elements of an
obligation are the active and passive subjects thereof, the former being known as creditors or
obligees and the latter as debtors or obligors.6 Insofar as the right of first refusal is concerned,
Mayfair is the obligee or creditor.
As such creditor, Mayfair had, therefore, the right to impugn the sale in question by way of
accion pauliana under the last clause of Art. 1177, aforequoted, because the sale was an act
done by the debtor to defraud him of his right to acquire the property.7 Rescission was also
available under par. 3, Art. 1381, abovequoted, as was expressly held in Guzman, Bocaling &
Co., a case closely analogous to this one as it was also an action brought by the lessee to
enforce his "right of first priority" — which is just another name for the right of first refusal —
and to annul a sale made by the lessor in violation of such right. In said case, this Court,
speaking through Mr. Justice Isagani A. Cruz, affirmed the invalidation of the sale and the
enforcement of the lessee's right of first priority this wise:8
The petitioner argues that assuming the Contract of Sale to be voidable, only the parties thereto
could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is stressed that
private respondents are strangers to that agreement and therefore have no personality to seek
its annulment.
The respondent court correctly held that the Contract of Sale was not voidable but rescissible.
Under Article(s) 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. (emphasis supplied)
By the same token, the status of a defrauded creditor can, and should, be granted to Mayfair,
for it certainly had substantial interests that were prejudiced by the sale of the subject property
to petitioner Equatorial in open violation of Mayfair's right of first refusal under its existing
contracts with Carmelo.
In fact, the parity between that case and the present one does not stop there but extends to
the crucial and critical fact that there was manifest bad faith on the part of the buyer. Thus, in
Guzman, this Court affirmed in toto the appealed judgment of the Court of Appeals which, in
turn, had affirmed the trial court's decision insofar as it invalidated the deed of sale in favor of
the petitioner-buyer, cancelled its TCT, and ordered the lessor to execute a deed of sale over
the leased property in favor of the lessee for the same price and "under the same terms and
conditions", aside from affirming as well the damages awarded, but at a reduced amount.9 In
other words, the aggrieved party was allowed to acquire the property itself.
The inescapable conclusion from all of the foregoing is not only that rescission is the proper
remedy but also — and more importantly — that specific performance was actually used and
given free rein as an effective remedy to enforce a right of first refusal in the wake of its violation,
in the cited case of Guzman.
On the other hand, and as already commented on above, the pronouncement in Ang Yu
Asuncion to the effect that specific performance is unavailable to enforce a violated right of first
refusal is at best a debatable legal proposition, aside from being contradicted by extant
jurisprudence. Let me explain why.
The consensuality required for a contract of sale is distinct from, and should not be confused
with, the consensuality attendant to the right of first refusal itself. While indeed, prior to the
actual sale of the property to Equatorial and the filing of Mayfair's complaint for specific
performance, no perfected contract of sale involving the property ever existed between
Carmelo as seller and Mayfair as buyer, there already was, in law and in fact, a perfected
contract between them which established a right of first refusal, or of first priority.
Specific Performance Is
Viable Remedy
The question is: Can this right (of first refusal) be enforced by an action for specific performance
upon a showing of its breach by an actual sale of the property under circumstances showing
palpable bad faith on the part of both seller and buyer?
The answer, I respectfully submit, should be 'yes'.
As already noted, Mayfair's right of first refusal in the case before us is embodied in an express
covenant in the lease contracts between it as lessee and Carmelo as lessor, hence the right
created is one springing from contract. 10 Indubitably, this had the force of law between the
parties, who should thus comply with it in good faith. 11 Such right also established a correlative
obligation on the part of Carmelo to give or deliver to Mayfair a formal offer of sale of the
property in the event Carmelo decides to sell it. The decision to sell was eventually made. But
instead of giving or tendering to Mayfair the proper offer to sell, Carmelo gave it to its now co-
petitioner, Equatorial, with whom it eventually perfected and consummated, on July 30, 1978,
an absolute sale of the property, doing so within the period of effectivity of Mayfair's right of first
refusal. Less than two months later, or in September 1978, with the lease still in full force,
Mayfair filed the present suit.
Worth stressing at this juncture is the fact that Mayfair had the right to require that the offer to
sell the property be sent to it by Carmelo, and not to anybody else. This was violated when the
offer was made to Equatorial. Under its covenant with Carmelo, Mayfair had the right, at that
point, to sue for either specific performance or rescission, with damages in either case,
pursuant to Arts. 1165 and 1191, Civil Code. 12 An action for specific performance and
damages seasonably filed, fortified by a writ of preliminary injunction, would have enabled
Mayfair to prevent the sale to Equatorial from taking place and to compel Carmelo to sell the
property to Mayfair for the same terms and price, for the reason that the filing of the action for
specific performance may juridically be considered as a solemn, formal, and unqualified
acceptance by Mayfair of the specific terms of the offer of sale. Note that by that time, the price
and other terms of the proposed sale by Carmelo had already been determined, being set forth
in the offer of sale that had wrongfully been directed to Equatorial.
As it turned out, however, Mayfair did not have a chance to file such suit, for it learned of the
sale to Equatorial only after it had taken place. But it did file the present action for specific
performance and for invalidation of the wrongful sale immediately after learning about the latter
act. The act of promptly filing this suit, coupled with the fact that it is one for specific
performance, indicates beyond cavil or doubt Mayfair's unqualified acceptance of the
misdirected offer of sale, giving rise, thereby, to a demandable obligation on the part of Carmelo
to execute the corresponding document of sale upon the payment of the price of
P11,300,000.00. In other words, the principle of consensuality of a contract of sale should be
deemed satisfied. The aggrieved party's consent to, or acceptance of, the misdirected offer of
sale should be legally presumed in the context of the proven facts.
To say, therefore, that the wrongful breach of a right of first refusal does not sanction an action
for specific performance simply because, factually, there was no meeting of the minds as to
the particulars of the sale since ostensibly no offer was ever made to, let alone accepted by,
Mayfair, is to ignore the proven fact of presumed consent. To repeat, that consent was deemed
given by Mayfair when it sued for invalidation of the sale and for specific performance of
Carmelo's obligation to Mayfair. Nothing in the law as it now stands will be violated, or even
simply emasculated, by this holding. On the contrary, the decision in Guzman supports it.
Moreover, under the Civil Code provisions on the nature, effect and kinds of obligations,13
Mayfair's right of first refusal may be classified as one subject to a suspensive condition —
namely, if Carmelo should decide to sell the leased premises during the life of the lease
contracts, then it should make an offer of sale to Mayfair. Futurity and uncertainty, which are
the essential characteristics of a condition, 14 were distinctly present. Before the decision to
sell was made, Carmelo had absolutely no obligation to sell the property to Mayfair, nor even
to make an offer to sell, because in conditional obligations, where the condition is suspensive,
the acquisition of rights depends upon the happening of the event which constitutes the
condition. 15 Had the decision to sell not been made at all, or had it been made after the expiry
of the lease, the parties would have stood as if the conditional obligation had never existed. 16
But the decision to sell was in fact made. And it was made during the life and efficacy of the
lease. Undoubtedly, the condition was duly fulfilled; the right of first refusal effectively accrued
and became enforceable; and correlatively, Carmelo's obligation to make and send the offer to
Mayfair became immediately due and demandable. 17 That obligation was to deliver to Mayfair
an offer to sell a determinate thing for a determinate price. As things turned out, a definite and
specific offer to sell the entire property for the price of P11,300,000.00 was actually made by
Carmelo — but to the wrong party. It was that particular offer, and no other, which Carmelo
should have delivered to Mayfair, but failed to deliver. Hence, by the time the obligation of
Carmelo accrued through the fulfillment of the suspensive condition, the offer to sell had
become a determinate thing.
Art. 1165 of the Civil Code, earlier quoted in footnote 12, indicates the remedies available to
the creditor against the debtor, when it provides that "(w)hen what is to be delivered is a
determinate thing, the creditor, in addition to the right granted him by article 1170, may compel
the debtor to make the delivery," clearly authorizing not only the recovery of damages under
Art. 1170 but also an action for specific performance.
But even assuming that Carmelo's prestation did not involve the delivery of a determinate offer
but only a generic one, the second paragraph of Art. 1165 explicitly gives to the creditor the
right "to ask that the obligation be complied with at the expense of the debtor." The availability
of an action for specific performance is thus clear and beyond doubt. And the correctness of
Guzman becomes all the more manifest.
Upon the other hand, the obiter in Ang Yu Asuncion is further weakened by the fact that the
jurisprudence upon which it supposedly rests — namely, the cases of Madrigal & CO. vs.
Stevenson & Co. 18 and Salonga vs. Farrales 19 — did NOT involve a right of first refusal or
of first priority. Nor did those two cases involve an option to buy. In Madrigal, plaintiff sued
defendant for damages claiming wrongful breach of an alleged contract of sale of 2,000 tons
of coal. The case was dismissed because "the minds of the parties never met upon a contract
of sale by defendant to plaintiff", 20 each party having signed the broker's memorandum as
buyer, erroneously thinking that the other party was the seller! In Salonga, a lessee, who was
one of several lessees ordered by final judgment to vacate the leased premises, sued the lessor
to compel the latter to sell the leased premises to him, but his suit was not founded upon any
right of first refusal and was therefore dismissed on the ground that there was no perfected
sale in his favor. He just thought that because the lessor had decided to sell and in fact sold
portions of the property to her other lessees, she was likewise obligated to sell to him even in
the absence of a perfected contract of sale. In fine, neither of the two cases cited in support of
the legal proposition that a breach of the right of first refusal does not sanction an action for
specific performance but, at best, only one for damages, provides such support.
Finally, the fact that what was eventually sold to Equatorial was the entire property, not just the
portions leased to Mayfair, is no reason to deprive the latter of its right to receive a formal and
specific offer. The offer of a larger property might have led Mayfair to reject the offer, but until
and unless such rejection was actually made, its right of first refusal still stood. Upon the other
hand, an acceptance by Mayfair would have saved all concerned the time, trouble, and
expense of this protracted litigation. In any case, the disquisition by the Court of Appeals on
this point can hardly be faulted; in fact, it amply justifies the conclusions reached in its decision,
as well as the dispositions made therein.
IN VIEW OF THE FOREGOING, I vote to DENY the petition and to AFFIRM the assailed
Decision.
ROMERO, J., concurring and dissenting:
I share the opinion that the right granted to Mayfair Theater under the identical par 8 of the
June 1, 1967 and March 31, 1969 contracts constitute a right of first refusal.
An option is a privilege granted to buy a determinate thing at a price certain within a specified
time and is usually supported by a consideration which is why, it may be regarded as a contract
in itself. The option results in a perfected contract of sale once the person to whom it is granted
decides to exercise it. The right of first refusal is unlike an option which requires a certainty as
to the object and consideration of the anticipated contract. When the right of first refusal is
exercised, there is no perfected contract of sale because the other terms of the sale have yet
to be determined. Hence, in case the offeror reneges on his promise to negotiate with offeree,
the latter may only recover damages in the belief that a contract could have been perfected
under Article 19 of the New Civil Code.
I beg to disagree, however, with the majority opinion that the contract of sale entered into by
Carmelo and Bauermann, Inc. and Equatorial Realty Inc., should be rescinded. Justice
Hermosisima, in citing Art. 1381 (3) as ground for recission apparently relied on the case of
Guzman, Bocaling and Co. v. Bonnevie (206 SCRA 668 [1992]) where the offeree was likened
to the status of a creditor. The case, in citing Tolentino, stated that rescission is a remedy
granted by law to 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 restoration of
things to their condition prior to celebration of the contract. It is my opinion that "third persons"
should be construed to refer to the wards, creditors, absentees, heirs and others enumerated
under the law who are prejudiced by the contract sought to be rescinded.
It should be borne in mind that rescission is an extreme remedy which may be exercised only
in the specific instances provided by law. Article 1381 (3) specifically refers to contracts
undertaken in fraud of creditors when the latter cannot in any manner collect the claims due
them. If rescission were allowed for analogous cases, the law would have so stated. While
Article 1381 (5) itself says that rescission may be granted to all other contracts specially
declared by law to be subject to rescission, there is nothing in the law that states that an offeree
who failed to exercise his right of refusal because of bad faith on the part of the offeror may
rescind the subsequent contract entered into by the offeror and a third person. Hence, there is
no legal justification to rescind the contract between Carmelo and Bauermann, Inc. and
Equatorial Realty.
Neither do I agree with Justice Melo that Mayfair Theater should pay Carmelo and Bauermann,
Inc. the amount of P11,300,000.00 plus compounded interest of 12% p.a. Justice Melo
rationalized that had Carmelo and Bauermann sold the property to Mayfair, the latter would
have paid the property for the same price that Equatorial bought it. It bears emphasis that
Carmelo and Bauermann, Inc. and Mayfair never reached an agreement as to the price of the
property in dispute because the negotiations between the two parties were not pursued to its
very end. We cannot, even for reasons of equity, compel Carmelo to sell the entire property to
Mayfair at P11,300,000.00 without violating the consensual nature of contracts.
I vote, therefore, not to rescind the contract of sale entered into by Carmelo and Bauermann,
Inc. and Equatorial Realty Development Corp.
VITUG, J., dissenting:
I share the opinion that the right granted to Mayfair Theater, Inc., is neither an offer nor an
option but merely a right of first refusal as has been so well and amply essayed in the ponencia
of our distinguished colleague Mr. Justice Regino C. Hermosisima, Jr.
Unfortunately, it would seem that Article 1381 (paragraph 3) of the Civil Code invoked to be the
statutory authority for the rescission of the contract of sale between Carmelo & Bauermann,
Inc., and Equatorial Realty Development, Inc., has been misapplied. The action for rescission
under that provision of the law, unlike in the resolution of reciprocal obligations under Article
1191 of the Code, is merely subsidiary and relates to the specific instance when a debtor, in
an attempt to defraud his creditor, enters into a contract with another that deprives the creditor
to recover his just claim and leaves him with no other legal means, than by rescission, to obtain
reparation. Thus, the rescission is only to the extent necessary to cover the damages caused
(Article 1384, Civil Code) and, consistent with its subsidiary nature, would require the debtor to
be an indispensable party in the action (see Gigante vs. Republic Savings Bank, 135 Phil. 359).
The concept of a right of first refusal as a simple juridical relation, and so governed (basically)
by the Civil Code's title on "Human Relations," is not altered by the fact alone that it might be
among the stipulated items in a separate document or even in another contract. A "breach" of
the right of first refusal can only give rise to an action for damages primarily under Article 19 of
the Civil Code, as well as its related provisions, but not to an action for specific performance
set out under Book IV of the Code on "Obligations and Contracts." That right, standing by itself,
is far distant from being the obligation referred to in Article 1159 of the Code which would have
the force of law sufficient to compel compliance per se or to establish a creditor-debtor or
obligee-obligor relation between the parties. If, as it is rightly so, a right of first refusal cannot
even be properly classed as an offer or as an option, certainly, and with much greater reason,
it cannot be the equivalent of, nor be given the same legal effect as, a duly perfected contract.
It is not possible to cross out, such as we have said in Ang Yu Asuncion vs. Court of Appeals
(238 SCRA 602), the indispensable element of consensuality in the perfection of contracts. It
is basic that without mutual consent on the object and on the cause, a contract cannot exist
(Art. 1305, Civil Code); corollary to it, no one can be forced, least of all perhaps by a court, into
a contract against his will or compelled to perform thereunder.
It is sufficiently clear, I submit, that, there being no binding contract between Carmelo and
Mayfair, neither the rescission of the contract between Carmelo and Equatorial nor the directive
to Carmelo to sell the property to Mayfair would be legally appropriate.
My brief disquisition should have ended here except for some personal impressions expressed
by my esteemed colleague, Mr. Justice Artemio V. Panganiban, on the Ang Yu decision which
perhaps need to be addressed.
The discussion by the Court in Ang Yu on the right of first refusal is branded as a mere obiter
dictum. Justice Panganiban states: The case "turned largely on the issue of whether or not the
sale of an immovable in breach of a right of first refusal that had been decreed in a final
judgment would justify the issuance of certain orders of execution in the same case. . . . . In
other words, the question of whether specific performance of one's right of first refusal is
available as a remedy in case of breach thereof was not before the Supreme Court at all in Ang
Yu Asuncion."
Black defines an obiter dictum as "an opinion entirely unnecessary for the decision of the case"
and thus "are not binding as precedent." (Black's Law Dictionary, 6th edition, 1990). A close
look at the antecedents of Ang Yu as found by the Court of Appeals and as later quoted by this
Court would readily disclose that the "right of first refusal" was a major point in the controversy.
Indeed, the trial and the appellate courts had rule on it. With due respect, I would not deem it
"entirely unnecessary" for this Court to itself discuss the legal connotation and significance of
the decreed (confirmatory) right of first refusal. I should add that when the ponencia recognized
that, in the case of Buen Realty Development Corporation (the alleged purchaser of the
property), the latter could not be held subject of the writ of execution and be ousted from the
ownership and possession of the disputed property without first affording it due process, the
Court decided to simply put a cap in the final disposition of the case but it could not have
intended to thereby mitigate the import of its basic ratio decidendi.
Justice Panganiban opines that the pronouncement in Ang Yu, i.e., that a breach of the right
of first refusal does not sanction an action for specific performance but only an action for
damages, "is at best debatable (. . . imprecise or incorrect), on to top of its being contradicted
by extant jurisprudence." He then comes up with the novel proposition that "Mayfair's right of
first refusal may be classified as one subject to a suspensive condition — namely, if Carmelo
should decide to sell the leased premises during the life of the lease contracts, then it should
make an offer of sale to Mayfair," presumably enforceable by action for specific performance.
It would be perilous a journey, first of all, to try to seek out a common path for such juridical
relations as contracts, options, and rights of first refusal since they differ, substantially enough,
in their concepts, consequences and legal implications. Very briefly, in the area on sales
particularly, I borrow from Ang Yu, a unanimous decision of the Supreme Court En Banc, which
held:
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of
the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be
brought within the purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 1319 of the same Code. An option or an offer
would require, among other things, a clear certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the object might be
made determinate, the exercise of the right, however, would be dependent not only on the
grantor's eventual intention to enter into a binding juridical relation with another but also on
terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at
best be so described as merely belonging to a class of preparatory juridical relations governed
not by contracts (since the essential elements to establish the vinculum juris would still be
indefinite and inconclusive) but by, among other laws of general application, the pertinent
scattered provisions of the Civil Code on human conduct.
An obligation, and so a conditional obligation as well (albeit subject to the occurrence of the
condition), in its context under Book IV of the Civil Code, can only be "a juridical necessity to
give, to do or not to do" (Art. 1156, Civil Code), and one that is constituted by law, contracts,
quasi-contracts, delicts and quasi-delicts (Art. 1157, Civil Code) which all have their respective
legal significance rather well settled in law. The law certainly must have meant to provide
congruous, albeit contextual, consequences to its provisions. Interpretare et concordore
legibus est optimus interpretendi. As a valid source of an obligation, a contract must have the
concurrence of (a) consent of the contracting parties, (b) object certain (subject matter of the
contract) and (c) cause (Art. 1318, Civil Code). These requirements, clearly defined, are
essential. The consent contemplated by the law is that which is manifested by the meeting of
the offer and of the acceptance upon the object and the cause of the obligation. The offer must
be certain and the acceptance absolute (Article 1319 of the Civil Code). Thus, a right of first
refusal cannot have the effect of a contract because, by its very essence, certain basic terms
would have yet to be determined and fixed. How its "breach" be also its perfection escapes me.
It is only when the elements concur that the juridical act would have the force of law between
the contracting parties that must be complied with in good faith (Article 1159 of the Civil Code;
see also Article 1308, of the Civil Code), and, in case of its breach, would allow the creditor or
obligee (the passive subject) to invoke the remedy that specifically appertains to it.
The judicial remedies, in general, would, of course, include: (a) The principal remedies (i) of
specific performance in obligations to give specific things (Articles 1165 and 1167 of the Civil
Code), substitute performance in an obligation to do or to deliver generic things (Article 1165
of the Civil Code) and equivalent performance for damages (Articles 1168 and 1170 of the Civil
Code); and (ii) of rescission or resolution of reciprocal obligations; and (b) the subsidiary
remedies that may be availed of when the principal remedies are unavailable or ineffective
such as (i) accion subrogatoria or subrogatory action (Article 1177 of the Civil Code; see also
Articles 1729 and 1893 of the Civil Code); and (ii) accion pauliana or rescissory action (Articles
1177 and 1381 of the Civil Code). And, in order to secure the integrity of final judgments, such
ancillary remedies as attachments, replevin, garnishments, receivership, examination of the
debtor, and similar remedies, are additionally provided for in procedural law.
Might it be possible, however, that Justice Panganiban was referring to how Ang Yu could
relate to the instant case for, verily, his remark, earlier quoted, was followed by an extensive
discussion on the factual and case milieu of the present petition? If it were, then I guess it was
the applicability of the Ang Yu decision to the instant case that he questioned, but that would
not make Ang Yu "imprecise" or "incorrect."
Justice Panganiban would hold the Ang Yu ruling to be inconsistent with Guzman, Bocaling &
Co. vs. Bonnevie (206 SCRA 668). I would not be too hasty in concluding similarly. In Guzman,
the stipulation involved, although loosely termed a "right of first priority," was, in fact, a contract
of option. The provision in the agreement there stated:
20. — In case the LESSOR desires or decides to sell the leased property, the
LESSEES shall be given a first priority to purchase the same, all things and considerations
being equal.(At page 670; emphasis supplied.)
In the above stipulation, the Court ruled, in effect, that the basic terms had been adequately,
albeit briefly, spelled out with the lease consideration being deemed likewise to be the essential
cause for the option. The situation undoubtedly was not the same that prevailed in Ang Yu or,
for that matter, in the case at bar. The stipulation between Mayfair Theater, Inc., and Carmelo
& Bauermann, Inc., merely read:
That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-
days exclusive option to purchase the same.
The provision was too indefinite to allow it to even come close to within the area of the Guzman
ruling.
Justice Panganiban was correct in saying that the "cases of Madrigal & Co. vs. Stevenson &
Co. and Salonga vs. Farrales (cited in Ang Yu) did NOT involve a right of first refusal or of first
priority. Nor did those two cases involve an option to buy." The two cases, to set the record
straight, were cited, not because they were thought to involve a right of first refusal or an option
to buy but to emphasize the indispensability of consensuality over the object and cause of
contracts in their perfection which would explain why, parallel therewith, Articles 1315 and 1318
of the Civil Code were also mentioned.
One final note: A right of first refusal, in its proper usage, is not a contract; when parties
instead make certain the object and the cause thereof and support their understanding with an
adequate consideration, that juridical relation is not to be taken as just a right of first refusal but
as a contract in itself (termed an "option"). There is, unfortunately, in law a limit to an unabated
use of common parlance.
With all due respect, I hold that the judgment of the trial court, although not for all the reasons
it has advanced, should be REINSTATED.
G.R. No. 111538 February 26, 1997
PARAÑAQUE KINGS ENTERPRISES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS, CATALINA L. SANTOS, represented by her attorney-in-fact, LUZ
B. PROTACIO, and DAVID A. RAYMUNDO, respondents.
PANGANIBAN, J.:
Do allegations in a complaint showing violation of a contractual right of "first option or priority
to buy the properties subject of the lease" constitute a valid cause of action? Is the grantee of
such right entitled to be offered the same terms and conditions as those given to a third party
who eventually bought such properties? In short, is such right of first refusal enforceable by an
action for specific performance?
These questions are answered in the affirmative by this Court in resolving this petition for
review under Rule 45 of the Rules of Court challenging the Decision 1 of the Court of Appeals
2 promulgated on March 29, 1993, in CA-G.R. CV No. 34987 entitled "Parañaque 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, Parañaque,
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, Damariñas 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)
Parañaque, 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 Parañaque Kings Enterprises, Incorporated by virtue of a deed of
assignment and with the conformity of defendant Santos, the same was duly registered, Xerox
copy of the deed of assignment is hereto attached as Annex "L".
6. Paragraph 9 of the assigned leased (sic) contract provides among others that:
"9. That in case the properties subject of the lease agreement are sold or encumbered,
Lessors shall impose as a condition that the buyer or mortgagee thereof shall recognize and
be bound by all the terms and conditions of this lease agreement and shall respect this Contract
of Lease as if they are the LESSORS thereof and in case of sale, LESSEE shall have the first
option or priority to buy the properties subject of the lease;"
7. On September 21, 1988, defendant Santos sold the eight parcels of land subject of the
lease to defendant David Raymundo for a consideration of FIVE MILLION (P5,000,000.00)
PESOS. The said sale was in contravention of the contract of lease, for the first option or priority
to buy was not offered by defendant Santos to the plaintiff. Xerox copy of the deed of sale is
hereto attached as Annex "M".
8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing the same
of the sale of the properties to defendant Raymundo, the said letter was personally handed by
the attorney-in-fact of defendant Santos, Xerox copy of the letter is hereto attached as Annex
"N".
9. Upon learning of this fact plaintiff's representative wrote a letter to defendant Santos,
requesting her to rectify the error and consequently realizing the error, she had it reconveyed
to her for the same consideration of FIVE MILLION (P5,000,000.00) PESOS. Xerox copies of
the letter and the deed of reconveyance are hereto attached as Annexes "O" and "P".
10. Subsequently the property was offered for sale to plaintiff by the defendant for the sum
of FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was given ten (10) days to make
good of the offer, but therefore (sic) the said period expired another letter came from the
counsel of defendant Santos, containing the same tenor of (sic) the former letter. Xerox copies
of the letters are hereto attached as Annexes "Q" and "R".
11. On May 8, 1989, before the period given in the letter offering the properties for sale
expired, plaintiff's counsel wrote counsel of defendant Santos offering to buy the properties for
FIVE MILLION (P5,000,000.00) PESOS. Xerox copy of the letter is hereto attached as Annex
"S".
12. On May 15, 1989, before they replied to the offer to purchase, another deed of sale
was executed by defendant Santos (in favor of) defendant Raymundo for a consideration of
NINE MILLION (P9,000,000.00) PESOS. Xerox copy of the second deed of sale is hereto
attached as Annex "T".
13. Defendant Santos violated again paragraph 9 of the contract of lease by executing a
second deed of sale to defendant Raymundo.
14. It was only on May 17, 1989, that defendant Santos replied to the letter of the plaintiff's
offer to buy or two days after she sold her properties. In her reply she stated among others that
the period has lapsed and the plaintiff is not a privy (sic) to the contract. Xerox copy of the letter
is hereto attached as Annex "U".
15. On June 28, 1989, counsel for plaintiff informed counsel of defendant Santos of the
fact that plaintiff is the assignee of all rights and interest of the former lessor. Xerox copy of the
letter is hereto attached as Annex "V".
16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the new owner
is defendant Raymundo. Xerox copy of the letter is hereto attached as Annex "W".
17. From the preceding facts it is clear that the sale was simulated and that there was a
collusion between the defendants in the sales of the leased properties, on the ground that when
plaintiff wrote a letter to defendant Santos to rectify the error, she immediately have (sic) the
property reconveyed it (sic) to her in a matter of twelve (12) days.
18. Defendants have the same counsel who represented both of them in their exchange
of communication with plaintiff's counsel, a fact that led to the conclusion that a collusion exist
(sic) between the defendants.
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 plaintiff's claim, and was constrained to engaged (sic) the services of undersigned
counsel to institute this action at a contract fee of P200,000.00, as and for attorney's fees,
exclusive of cost and expenses of litigation.
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 attorney's fees.
Plaintiff further prays for other just and equitable reliefs plus cost of suit.
Instead of filing their respective answers, respondents filed motions to dismiss anchored on the
grounds of lack of cause of action, estoppel and laches.
On September 2, 1991, the trial court issued the order dismissing the complaint for lack of a
valid cause of action. It ratiocinated thus:
Upon the very face of the plaintiff's Complaint itself, it therefore indubitably appears that the
defendant Santos had verily complied with paragraph 9 of the Lease Agreement by twice
offering the properties for sale to the plaintiff for ~1 5 M. The said offers, however, were plainly
rejected by the plaintiff which scorned the said offer as "RIDICULOUS". There was therefore a
definite refusal on the part of the plaintiff to accept the offer of defendant Santos. For in
acquiring the said properties back to her name, and in so making the offers to sell both by
herself (attorney-in-fact) and through her counsel, defendant Santos was indeed
conscientiously complying with her obligation under paragraph 9 of the Lease Agreement. . . .
.
xxx xxx xxx
This is indeed one instance where a Complaint, after barely commencing to create a cause of
action, neutralized itself by its subsequent averments which erased or extinguished its earlier
allegations of an impending wrong. Consequently, absent any actionable wrong in the very
face of the Complaint itself, the plaintiffs subsequent protestations of collusion is bereft or
devoid of any meaning or purpose. . . . .
The inescapable result of the foregoing considerations point to no other conclusion than that
the Complaint actually does not contain any valid cause of action and should therefore be as it
is hereby ordered DISMISSED. The Court finds no further need to consider the other grounds
of estoppel and laches inasmuch as this resolution is sufficient to dispose the matter. 6
Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the trial court,
and further reasoned that:
. . . . Appellant's protestations that the P15 million price quoted by appellee Santos was reduced
to P9 million when she later resold the leased properties to Raymundo has no valid legal
moorings because appellant, as a prospective buyer, cannot dictate its own price and forcibly
ram it against appellee Santos, as owner, to buy off her leased properties considering the total
absence of any stipulation or agreement as to the price or as to how the price should be
computed under paragraph 9 of the lease contract, . . . . 7
Petitioner moved for reconsideration but was denied in an order dated August 20, 1993. 8
Hence this petition. Subsequently, petitioner filed an "Urgent Motion for the Issuance of
Restraining Order and/or Writ of Preliminary Injunction and to Hold Respondent David A.
Raymundo in Contempt of Court." 9 The motion sought to enjoin respondent Raymundo and
his counsel from pursuing the ejectment complaint filed before the barangay captain of San
Isidro, Parañaque, Metro Manila; to direct the dismissal of said ejectment complaint or of any
similar action that may have been filed; and to require respondent Raymundo to explain why
he should not be held in contempt of court for forum-shopping. The ejectment suit initiated by
respondent Raymundo against petitioner arose from the expiration of the lease contract
covering the property subject of this case. The ejectment suit was decided in favor of
Raymundo, and the entry of final judgment in respect thereof renders the said motion moot and
academic.
Issue
The principal legal issue presented before us for resolution is whether the aforequoted
complaint alleging breach of the contractual right of "first option or priority to buy" states a valid
cause of action.
Petitioner contends that the trial court as well as the appellate tribunal erred in dismissing the
complaint because it in fact had not just one but at least three (3) valid causes of action, to wit:
(1) breach of contract, (2) its right of first refusal founded in law, and (3) damages.
Respondents Santos and Raymundo, in their separate comments, aver that the petition should
be denied for not raising a question of law as the issue involved is purely factual — whether
respondent Santos complied with paragraph 9 of the lease agreement — and for not having
complied with Section 2, Rule 45 of the Rules of Court, requiring the filing of twelve (12) copies
of the petitioner's brief. Both maintain that the complaint filed by petitioner before the Regional
Trial Court of Makati stated no valid cause of action and that petitioner failed to substantiate its
claim that the lower courts decided the same "in a way not in accord with law and applicable
decisions of the Supreme Court"; or that the Court of Appeals has "sanctioned departure by a
trial court from the accepted and usual course of judicial proceedings" so as to merit the
exercise by this Court of the power of review under Rule 45 of the Rules of Court. Furthermore,
they reiterate estoppel and laches as grounds for dismissal, claiming that petitioner's payment
of rentals of the leased property to respondent Raymundo from June 15, 1989, to June 30,
1990, was an acknowledgment of the latter's status as new owner-lessor of said property, by
virtue of which petitioner is deemed to have waived or abandoned its first option to purchase.
Private respondents likewise contend that the deed of assignment of the lease agreement did
not include the assignment of the option to purchase. Respondent Raymundo further avers that
he was not privy to the contract of lease, being neither the lessor nor lessee adverted to therein,
hence he could not be held liable for violation thereof.
The Court's Ruling
Preliminary Issue: Failure to File
Sufficient Copies of Brief
We first dispose of the procedural issue raised by respondents, particularly petitioner's failure
to file twelve (12) copies of its brief. We have ruled that when non-compliance with the Rules
was not intended for delay or did not result in prejudice to the adverse party, dismissal of appeal
on mere technicalities — in cases where appeal is a matter of right — may be stayed, in the
exercise of the court's equity jurisdiction. 10 It does not appear that respondents were unduly
prejudiced by petitioner's nonfeasance. Neither has it been shown that such failure was
intentional.
Main Issue: Validity of Cause of Action
We do not agree with respondents' contention that the issue involved is purely factual. The
principal legal question, as stated earlier, is whether the complaint filed by herein petitioner in
the lower court states a valid cause of action. Since such question assumes the facts alleged
in the complaint as true, it follows that the determination thereof is one of law, and not of facts.
There is a question of law in a given case when the doubt or difference arises as to what the
law is on a certain state of facts, and there is a question of fact when the doubt or difference
arises as to the truth or the falsehood of alleged facts. 11
At the outset, petitioner concedes that when the ground for a motion to dismiss is lack of cause
of action, such ground must appear on the face of the complaint; that to determine the
sufficiency of a cause of action, only the facts alleged in the complaint and no others should be
considered; and that the test of sufficiency of the facts alleged in a petition or complaint to
constitute a cause of action is whether, admitting the facts alleged, the court could render a
valid judgment upon the same in accordance with the prayer of the petition or complaint.
A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff
by whatever means and under whatever law it arises or is created; (2) an obligation on the part
of the named defendant to respect or not to violate such right, and (3) an act or omission on
the part of such defendant violative of the right of plaintiff or constituting a breach of the
obligation of defendant to the plaintiff for which the latter may maintain an action for recovery
of damages. 12
In determining whether allegations of a complaint are sufficient to support a cause of action, it
must be borne in mind that the complaint does not have to establish or allege facts proving the
existence of a cause of action at the outset; this will have to be done at the trial on the merits
of the case. To sustain a motion to dismiss for lack of cause of action, the complaint must show
that the claim for relief does not exist, rather than that a claim has been defectively stated, or
is ambiguous, indefinite or uncertain. 13
Equally important, a defendant moving to dismiss a complaint on the ground of lack of cause
of action is regarded as having hypothetically admitted all the averments thereof. 14
A careful examination of the complaint reveals that it sufficiently alleges an actionable
contractual breach on the part of private respondents. Under paragraph 9 of the contract of
lease between respondent Santos and petitioner, the latter was granted the "first option or
priority" to purchase the leased properties in case Santos decided to sell. If Santos never
decided to sell at all, there can never be a breach, much less an enforcement of such "right."
But on September 21, 1988, Santos sold said properties to Respondent Raymundo without
first offering these to petitioner. Santos indeed realized her error, since she repurchased the
properties after petitioner complained. Thereafter, she offered to sell the properties to petitioner
for P15 million, which petitioner, however, rejected because of the "ridiculous" price. But Santos
again appeared to have violated the same provision of the lease contract when she finally
resold the properties to respondent Raymundo for only P9 million without first offering them to
petitioner at such price. Whether there was actual breach which entitled petitioner to damages
and/or other just or equitable relief, is a question which can better be resolved after trial on the
merits where each party can present evidence to prove their respective allegations and
defenses. 15
The trial and appellate courts based their decision to sustain respondents' motion to dismiss
on the allegations of Parañaque Kings Enterprises that Santos had actually offered the subject
properties for sale to it prior to the final sale in favor of Raymundo, but that the offer was
rejected. According to said courts, with such offer, Santos had verily complied with her
obligation to grant the right of first refusal to petitioner.
We hold, however, that in order to have full compliance with the contractual right granting
petitioner the first option to purchase, the sale of the properties for the amount of P9 million,
the price for which they were finally sold to respondent Raymundo, should have likewise been
first offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and obligations
under, a right of first refusal in the case of Guzman, Bocaling & Co. vs. Bonnevie. 16 In that
case, under a contract of lease, the lessees (Raul and Christopher Bonnevie) were given a
"right of first priority" to purchase the leased property in case the lessor (Reynoso) decided to
sell. The selling price quoted to the Bonnevies was 600,000.00 to be fully paid in cash, less a
mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and
accepted by Guzman was only P400,000.00 of which P137,500.00 was to be paid in cash while
the balance was to be paid only when the property was cleared of occupants. We held that
even if the Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso
could not sell it to another for a lower price and under more favorable terms and conditions
without first offering said favorable terms and price to the Bonnevies as well. Only if the
Bonnevies failed to exercise their right of first priority could Reynoso thereafter lawfully sell the
subject property to others, and only under the same terms and conditions previously offered to
the Bonnevies.
Of course, under their contract, they specifically stipulated that the Bonnevies could exercise
the right of first priority, "all things and conditions being equal." This Court interpreted this
proviso to mean that there should be identity of terms and conditions to be offered to the
Bonnevies and all other prospective buyers, with the Bonnevies to enjoy the right of first priority.
We hold that the same rule applies even without the same proviso if the right of first refusal (or
the first option to buy) is not to be rendered illusory.
From the foregoing, the basis of the right of first refusal* must be the current offer to sell of the
seller or offer to purchase of any prospective buyer. Only after the optionee fails to exercise its
right of first priority under the same terms and within the period contemplated, could the owner
validly offer to sell the property to a third person, again, under the same terms as offered to the
optionee.
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater,
Inc. 17 which was decided en banc. This Court upheld the right of first refusal of the lessee
Mayfair, and rescinded the sale of the property by the lessor Carmelo to Equatorial Realty
"considering that Mayfair, which had substantial interest over the subject property, was
prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every opportunity to
negotiate within the 30-day stipulated period" (emphasis supplied).
In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR
should desire to sell the leased premises, the LESSEE shall be given 30 days exclusive option
to purchase the same." Carmelo initially offered to sell the leased property to Mayfair for six to
seven million pesos. Mayfair indicated interest in purchasing the property though it invoked the
30-day period. Nothing was heard thereafter from Carmelo. Four years later, the latter sold its
entire Recto Avenue property, including the leased premises, to Equatorial for P11,300,000.00
without priorly informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad
faith: Carmelo for knowingly violating the right of first option of Mayfair, and Equatorial for
purchasing the property despite being aware of the contract stipulation. In addition to rescission
of the contract of sale, the Court ordered Carmelo to allow Mayfair to buy the subject property
at the same price of P11,300,000.00.
No cause of action
under P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law, as
another source of its right of first refusal. It claims to be covered under said law, being the
"rightful occupant of the land and its structures" since it is the lawful lessee thereof by reason
of contract. Under the lease contract, petitioner would have occupied the property for fourteen
(14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a beneficiary under said law, suffice it to say
that this Court has previously ruled that under
Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the exercise of the lessee's
right of first refusal to purchase shall be determined by the Urban Zone Expropriation and Land
Management Committee. Hence, . . . . certain prerequisites must be complied with by anyone
who wishes to avail himself of the benefits of the decree." 19 There being no allegation in its
complaint that the prerequisites were complied with, it is clear that the complaint did fail to state
a cause of action on this ground.
Deed of Assignment included
the option to purchase
Neither do we find merit in the contention of respondent Santos that the assignment of the
lease contract to petitioner did not include the option to purchase. The provisions of the deeds
of assignment with regard to matters assigned were very clear. Under the first assignment
between Frederick Chua as assignor and Lee Ching Bing as assignee, it was expressly stated
that:
. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all
his rights, interest and participation over said premises afore-described, . . . . 20 (emphasis
supplied)
And under the subsequent assignment executed between Lee Ching Bing as assignor and the
petitioner, represented by its Vice President Vicenta Lo Chiong, as assignee, it was likewise
expressly stipulated that;
. . . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and participation
over said leased premises, . . . . 21 (emphasis supplied)
One of such rights included in the contract of lease and, therefore, in the assignments of rights
was the lessee's right of first option or priority to buy the properties subject of the lease, as
provided in paragraph 9 of the assigned lease contract. The deed of assignment need not be
very specific as to which rights and obligations were passed on to the assignee. It is understood
in the general provision aforequoted that all specific rights and 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., 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.
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking reversal
of the Decision1 of the Court of Appeals dated June 25, 1999 in CA-G.R. CV No. 53963. The
Court of Appeals decision reversed and set aside the Decision2 dated May 13, 1996 of Branch
217 of the Regional Trial Court of Quezon City in Civil Case No. Q-93-18582.1âwphi1.nêt
The case was originally filed on December 10, 1993 by Paterno Inquing, Irene Guillermo and
Federico Bantugan, herein respondents, against Rosencor Development Corporation
(hereinafter "Rosencor"), Rene Joaquin, and Eufrocina de Leon. Originally, the complaint was
one for annulment of absolute deed of sale but was later amended to one for rescission of
absolute deed of sale. A complaint-for intervention was thereafter filed by respondents
Fernando Magbanua and Danna Lizza Tiangco. The complaint-in-intervention was admitted by
the trial court in an Order dated May 4, 1994.3
The facts of the case, as stated by the trial court and adopted by the appellate court, are as
follows:
"This action was originally for the annulment of the Deed of Absolute Sale dated September 4,
1990 between defendants Rosencor and Eufrocina de Leon but later amended (sic) praying
for the rescission of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the lessees since 1971 of a two-story
residential apartment located at No. 150 Tomas Morato Ave., Quezon City covered by TCT No.
96161 and owned by spouses Faustino and Cresencia Tiangco. The lease was not covered by
any contract. The lessees were renting the premises then for P150.00 a month and were
allegedly verbally granted by the lessors the pre-emptive right to purchase the property if ever
they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the management of the property was
adjudicated to their heirs who were represented by Eufrocina de Leon. The lessees were
allegedly promised the same pre-emptive right by the heirs of Tiangcos since the latter had
knowledge that this right was extended to the former by the late spouses Tiangcos. The lessees
continued to stay in the premises and allegedly spent their own money amounting from
P50,000.00 to P100,000.00 for its upkeep. These expenses were never deducted from the
rentals which already increased to P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda Aguila demanding that they vacate
the premises so that the demolition of the building be undertaken. They refused to leave the
premises. In that same month, de Leon refused to accept the lessees’ rental payment claiming
that they have run out of receipts and that a new collector has been assigned to receive the
payments. Thereafter, they received a letter from Eufrocina de Leon offering to sell to them the
property they were leasing for P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for the amount of P1,000,000.00. De
Leon told them that she will be submitting the offer to the other heirs. Since then, no answer
was given by de Leon as to their offer to buy the property. However, in November 1990, Rene
Joaquin came to the leased premises introducing himself as its new owner.
In January 1991, the lessees again received another letter from Atty. Aguila demanding that
they vacate the premises. A month thereafter, the lessees received a letter from de Leon
advising them that the heirs of the late spouses Tiangcos have already sold the property to
Rosencor. The following month Atty. Aguila wrote them another letter demanding the rental
payment and introducing herself as counsel for Rosencor/Rene Joaquin, the new owners of
the premises.
The lessees requested from de Leon why she had disregarded the pre-emptive right she and
the late Tiangcos have promised them. They also asked for a copy of the deed of sale between
her and the new owners thereof but she refused to heed their request. In the same manner,
when they asked Rene Joaquin a copy of the deed of sale, the latter turned down their request
and instead Atty. Aguila wrote them several letters demanding that they vacate the premises.
The lessees offered to tender their rental payment to de Leon but she refused to accept the
same.
In April 1992 before the demolition can be undertaken by the Building Official, the barangay
interceded between the parties herein after which Rosencor raised the issue as to the rental
payment of the premises. It was also at this instance that the lessees were furnished with a
copy of the Deed of Sale and discovered that they were deceived by de Leon since the sale
between her and Rene Joaquin/Rosencor took place in September 4, 1990 while de Leon made
the offer to them only in October 1990 or after the sale with Rosencor had been consummated.
The lessees also noted that the property was sold only for P726,000.00.
The lessees offered to reimburse de Leon the selling price of P726,000.00 plus an additional
P274,000.00 to complete their P1,000.000.00 earlier offer. When their offer was refused, they
filed the present action praying for the following: a) rescission of the Deed of Absolute Sale
between de Leon and Rosencor dated September 4, 1990; b) the defendants Rosencor/Rene
Joaquin be ordered to reconvey the property to de Leon; and c) de Leon be ordered to
reimburse the plaintiffs for the repairs of the property, or apply the said amount as part of the
price for the purchase of the property in the sum of P100,000.00."4
After trial on the merits, the Regional Trial Court rendered a Decision5 dated May 13, 1996
dismissing the complaint. The trial court held that the right of redemption on which the
complaint. The trial court held that the right of redemption on which the complaint was based
was merely an oral one and as such, is unenforceable under the law. The dispositive portion
of the May 13, 1996 Decision is as follows:
"WHEREFORE, in view of the foregoing, the Court DISMISSES the instant action. Plaintiffs
and 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 decision7 reversing the decision of the
trial court. The dispositive portion of the June 25, 1999 decision is as follows:
"WHEREFORE, premises considered, the appealed decision (dated May 13, 1996) of the
Regional Trial Court (Branch 217) in Quezon City in Case No. Q-93-18582 is hereby
REVERSED and SET ASIDE. In its stead, a new one is rendered ordering:
(1) The rescission of the Deed of Absolute Sale executed between the appellees on September
4, 1990;
(2) The reconveyance of the subject premises to appellee Eufrocina de Leon;
(3) The heirs of Faustino and Crescencia Tiangco, thru appellee Eufrocina de Leon, to afford
the appellants thirty days within which to exercise their right of first refusal by paying the amount
of ONE MILLION PESOS (P1,000,000.00) for the subject property; and
(4) The appellants to, in turn, pay the appellees back rentals from May 1990 up to the time this
decision is promulgated.
No pronouncement as to costs.
SO ORDERED".8
Petitioners herein filed a Motion for Reconsideration of the decision of the Court of Appeals but
the same was denied in a Resolution dated October 15, 1999.9
Hence, this petition for review on certiorari where petitioners Rosencor Development
Corporation and Rene Joaquin raise the following assignment of errors10:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE RESCISSION OF
THE ABSOLUTE DEED OF SALE BETWEEN EUFROCINA DE LEON AND PETITIONER
ROSENCOR.
II.
THE COURT OF APPEALS COMMTITED MANIFEST ERROR IN MANDATING THAT
EUFROCINA DE LEON AFFORD RESPONDENTS THE OPPORTUNITY TO EXERCISE
THEIR RIGHT OF FIRST REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT RESPONDENTS
HAVE ESTABLISHED THEIR RIGHT OF FIRST REFUSAL DESPITE PETITIONERS’
RELIANCE ON THEIR DEFENSE BASED ON THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the spouses Faustino and Crescencia
Tiangco, did not appeal the decision of the Court of Appeals.
At the onset, we not that both the Court of Appeals and the Regional Trial Court relied on Article
1403 of the New Civil Code, more specifically the provisions on the statute of frauds, in coming
out with their respective decisions. The trial court, in denying the petition for reconveyance,
held that right of first refusal relied upon by petitioners was not reduced to writing and as such,
is unenforceable by virtue of the said article. The Court of Appeals, on the other hand, also
held that the statute of frauds governs the "right of first refusal" claimed by respondents.
However, the appellate court ruled that respondents had duly proven the same by reason of
petitioners’ waiver of the protection of the statute by reason of their failure to object to the
presentation of oral evidence of the said right.
Both the appellate court and the trial court failed to discuss, however, the threshold issue of
whether or not a right of first refusal is indeed covered by the provisions of the New Civil Code
on the statute of frauds. The resolution of the issue on the applicability of the statute of frauds
is important as it will determine the type of evidence which may be considered by the trial court
as proof of the alleged right of first refusal.
The term "statute of frauds" is descriptive of statutes which require certain classes of contracts
to be in writing. This statute does not deprive the parties of the right to contract with respect to
the matters therein involved, but merely regulates the formalities of the contract necessary to
render it enforceable. Thus, they are included in the provisions of the New Civil Code regarding
unenforceable contracts, more particularly Art. 1403, paragraph 2. Said article provides, as
follows:
"Art. 1403. The following contracts are unenforceable, unless they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
a) An agreement that by its terms is not to be performed within a year from the making thereof;
b) A special promise to answer for the debt, default, or miscarriage of another;
c) An agreement made in consideration of marriage, other than a mutual promise to marry;
d) An agreement for the sale of goods, chattels or things in action, at a price not less than five
hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is made by the auctioneer in
his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale,
price, names of purchasers and person on whose account the sale is made, it is a sufficient
memorandum;
e) An agreement for the leasing of a longer period than one year, or for the sale of real property
or of an interest therein;
f) A representation to the credit of a third person."
The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence on the unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the party to be
charged.11 Moreover, the statute of frauds refers to specific kinds of transactions and cannot
apply to any other transaction that is not enumerated therein.12 The application of such statute
presupposes the existence of a perfected contract.13
The question now is whether a "right of first refusal" is among those enumerated in the list of
contracts covered by the Statute of Frauds. More specifically, is a right of first refusal akin to
"an agreement for the leasing of a longer period than one year, or for the sale of real property
or of an interest therein" as contemplated by Article 1403, par. 2(e) of the New Civil Code.
We have previously held that not all agreements "affecting land" must be put into writing to
attain enforceability.14 Thus, we have held that the setting up of boundaries,15 the oral partition
of real property16, and an agreement creating a right of way17 are not covered by the
provisions of the statute of frauds. The reason simply is that these agreements are not among
those enumerated in Article 1403 of the New Civil Code.
A right of first refusal is not among those listed as unenforceable under the statute of frauds.
Furthermore, the application of Article 1403, par. 2(e) of the New Civil Code presupposes the
existence of a perfected, albeit unwritten, contract of sale.18 A right of first refusal, such as the
one involved in the instant case, is not by any means a perfected contract of sale of real
property. At best, it is a contractual grant, not of the sale of the real property involved, but of
the right of first refusal over the property sought to be sold19.
It is thus evident that the statute of frauds does not contemplate cases involving a right of first
refusal. As such, a right of first refusal need not be written to be enforceable and may be proven
by oral evidence.
The next question to be ascertained is whether or not respondents have satisfactorily proven
their right of first refusal over the property subject of the Deed of Absolute Sale dated
September 4, 1990 between petitioner Rosencor and Eufrocina de Leon.
On this point, we agree with the factual findings of the Court of Appeals that respondents have
adequately proven the existence of their right of first refusal. Federico Bantugan, Irene
Guillermo, and Paterno Inquing uniformly testified that they were promised by the late spouses
Faustino and Crescencia Tiangco and, later on, by their heirs a right of first refusal over the
property they were currently leasing should they decide to sell the same. Moreover,
respondents presented a letter20 dated October 9, 1990 where Eufrocina de Leon, the
representative of the heirs of the spouses Tiangco, informed them that they had received an
offer to buy the disputed property for P2,000,000.00 and offered to sell the same to the
respondents at the same price if they were interested. Verily, if Eufrocina de Leon did not
recognize respondents’ right of first refusal over the property they were leasing, then she would
not have bothered to offer the property for sale to the respondents.
It must be noted that petitioners did not present evidence before the trial court contradicting the
existence of the right of first refusal of respondents over the disputed property. They only
presented petitioner Rene Joaquin, the vice-president of petitioner Rosencor, who admitted
having no personal knowledge of the details of the sales transaction between Rosencor and
the heirs of the spouses Tiangco21. They also dispensed with the testimony of Eufrocina de
Leon22 who could have denied the existence or knowledge of the right of first refusal. As such,
there being no evidence to the contrary, the right of first refusal claimed by respondents was
substantially proven by respondents before the lower court.
Having ruled upon the question as to the existence of respondents’ right of first refusal, the
next issue to be answered is whether or not the Court of Appeals erred in ordering the
rescission of the Deed of Absolute Sale dated September 4, 1990 between Rosencor and
Eufrocina de Leon and in decreeing that the heirs of the spouses Tiangco should afford
respondents the exercise of their right of first refusal. In other words, may a contract of sale
entered into in violation of a third party’s right of first refusal be rescinded in order that such
third party can exercise said right?
The issue is not one of first impression.
In Guzman, Bocaling and Co, Inc. vs. Bonnevie23, the Court upheld the decision of a lower
court ordering the rescission of a deed of sale which violated a right of first refusal granted to
one of the parties therein. The Court held:
"xxx Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381 (3) of the
Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason
of injury to third persons, like creditors. The status of creditors could be validly accorded the
Bonnevies for they had substantial interests that were prejudiced by the sale of the subject
property to the petitioner without recognizing their right of first priority under the Contract of
Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties and
even to third persons, to secure reparations for damages caused to them by a contract, even
if this should be valid, by means of the restoration of things to their condition at the moment
prior to the celebration of said contract. It is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and damage the contract may cause,
or to protect some incompatible and preferent right created by the contract. Rescission implies
a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that
justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property subject of the contract is an
obstacle to the action for its rescission where it is shown that such third person is in lawful
possession of the subject of the contract and that he did not act in bad faith. However, this rule
is not applicable in the case before us because the petitioner is not considered a third party in
relation to the Contract of Sale nor may its possession of the subject property be regarded as
acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the
petitioner cannot be deemed a purchaser in good faith for the record shows that it categorically
admitted that it was aware of the lease in favor of the Bonnevies, who were actually occupying
the subject property at the time it was sold to it. Although the occupying the subject property at
the time it was sold to it. Although the Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner
cannot deny actual knowledge of such lease which was equivalent to and indeed more binding
than presumed notice by registration.
A purchaser in good faith and for value is one who buys the property of another without notice
that some other person has a right to or interest in such property without and pays a full and
fair price for the same at the time of such purchase or before he has notice of the claim or
interest of some other person in the property. Good faith connotes an honest intention to
abstain from taking unconscientious advantage of another. Tested by these principles, the
petitioner cannot tenably claim to be a buyer in good faith as it had notice of the lease of the
property by the Bonnevies and such knowledge should have cautioned it to look deeper into
the agreement to determine if it involved stipulations that would prejudice its own interests."
Subsequently24 in Equatorial Realty and Development, Inc. vs. Mayfair Theater, Inc.25, the
Court, en banc, with three justices dissenting,26 ordered the rescission of a contract entered
into in violation of a right of first refusal. Using the ruling in Guzman Bocaling & Co., Inc. vs.
Bonnevie as basis, the Court decreed that since respondent therein had a right of first refusal
over the said property, it could only exercise the said right if the fraudulent sale is first set aside
or rescinded. Thus:
"What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair
will have the right of first refusal in the event Carmelo sells the leased premises. It is undisputed
that Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell
the said property in 1974. There was an exchange of letters evidencing the offer and counter-
offers made by both parties. Carmelo, however, did not pursue the exercise to its logical end.
While it initially recognized 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 that to be a purchaser in
good faith, and, therefore, rescission lies.
XX X Bonnevies.
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is
characterized by bad faith, since it was knowingly entered into in violation of the rights of and
to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial
admitted that its lawyers had studied the contract or lease prior to the sale. 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 had a right of first refusal, it can exercise the right only if the fraudulent sale is
first set aside or rescinded. All of these matters are now before us and so there should be no
piecemeal determination of this case and leave festering sores to deteriorate into endless
litigation. The facts of the case and considerations of justice and equity require that we order
rescission here and now. Rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and damage the contract may cause
or to protect some incompatible and preferred right by the contract. The sale of the subject real
property should now be rescinded considering that Mayfair, which had substantial interest over
the subject property, was prejudiced by the sale of the subject property to Equatorial without
Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day stipulate
periond.27
In Paranaque Kings Enterprises, Inc. vs. Court of Appeals,28 the Court held that the allegations
in a complaint showing violation of a contractual right of "first option or priority to buy the
properties subject of the lease" constitute a valid cause of action enforceable by an action for
specific performance. Summarizing the rulings in the two previously cited cases, the Court
affirmed the nature of and concomitant rights and obligations of parties under a right of first
refusal. Thus:
"We hold however, that in order to have full compliance with the contractual right granting
petitioner the first option to purchase, the sale of the properties for the amount of
P9,000,000.00, the price for which they were finally sold to respondent Raymundo, should have
likewise been offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and obligations
under, a right of first refusal in the case of Guzman, Bocaling & Co. vs. Bonnevie. In that case,
under a contract of lease, the lessees (Raul and Christopher Bonnevie) were given a "right of
first priority" to purchase the leased property in case the lessor (Reynoso) decided to sell. The
selling price quoted to the Bonnevies was 600,000.00 to be fully paid in cash, less a mortgage
lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and accepted
by Guzman was only P400,000.00 of which P137,500.00 was to be paid in cash while the
balance was to be paid only when the property was cleared of occupants. We held that even if
the Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso could
not sell it to another for a lower price and under more favorable terms and conditions without
first offering said favorable terms and price to the Bonnevies as well. Only if the Bonnevies
failed to exercise their right of first priority could Reynoso thereafter lawfully sell the subject
property to others, and only under the same terms and conditions previously offered to the
X X X
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater,
Inc. which was decided en banc. This Court upheld the right of first refusal of the lessee Mayfair,
and rescinded the sale of the property by the lessor Carmelo to Equatorial Realty "considering
that Mayfair, which had substantial interest over the subject property, was prejudiced by its sale
to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the
30-day stipulated period"
In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR
should desire to sell the leased premises, the LESSEE shall be given 30 days exclusive option
to purchase the same." Carmelo initially offered to sell the leased property to Mayfair for six to
seven million pesos. Mayfair indicated interest in purchasing the property though it invoked the
30-day period. Nothing was heard thereafter from Carmelo. Four years later, the latter sold its
entire Recto Avenue property, including the leased premises, to Equatorial for P11,300,000.00
without priorly informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad
faith: Carmelo or knowingly violating the right of first option of Mayfair, and Equatorial for
purchasing the property despite being aware of the contract stipulation. In addition to rescission
of the contract of sale, the Court ordered Carmelo to allow Mayfair to buy the subject property
at the same price of P11,300,000.00.
In the recent case of Litonjua vs L&R Corporation,29 the Court, also citing the case of Guzman,
Bocaling & Co. vs. Bonnevie, held that the sale made therein in violation of a right of first refusal
embodied in a mortgage contract, was rescissible. Thus:
"While petitioners question the validity of paragraph 8 of their mortgage contract, they appear
to be silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants upon L&R
Corporation the right of first refusal over the mortgaged property in the event the mortgagor
decides to sell the same. We see nothing wrong in this provision. The right of first refusal has
long been recognized as valid in our jurisdiction. The consideration for the loan mortgage
includes the consideration for the right of first refusal. L&R Corporation is in effect stating that
it consents to lend out money to the spouses Litonjua provided that in case they decide to sell
the property mortgaged to it, then L&R Corporation shall be given the right to match the offered
purchase price and to buy the property at that price. Thus, while the spouses Litonjua had
every right to sell their mortgaged property to PWHAS without securing the prior written consent
of L&R Corporation, they had the obligation under paragraph 9, which is a perfectly valid
provision, to notify the latter of their intention to sell the property and give it priority over other
buyers. It is only upon the failure of L&R Corporation to exercise its right of first refusal could
the spouses Litonjua validly sell the subject properties to the others, under the same terms and
conditions offered to L&R Corporation.
What then is the status of the sale made to PWHAS in violation of L & R Corporation’s
contractual right of first refusal? On this score, we agree with the Amended Decision of the
Court of Appeals that the sale made to PWHAS is rescissible. The case of Guzman, Bocaling
& Co. v. Bonnevie is instructive on this point.
X X X registered with the Registry of Deeds. In fact, even the lease contract by which respondents
It was then held that the Contract of Sale there, which violated the right of first refusal, was
rescissible.
In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R
Corporation over the subject properties since the Deed of Real Estate Mortgage containing
such a provision was duly registered with the Register of Deeds. As such, PWHAS is presumed
to have been notified thereof by registration, which equates to notice to the whole world.
X X X Guillermo vacate the structure they were occupying to make way for its demolition.
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
derive their right to possess the property involved was an oral one.
On this point, we hold that the evidence on record fails to show that petitioners acted in bad
faith in entering into the deed of sale over the disputed property with the heirs of the spouses
Tiangco. Respondents failed to present any evidence that prior to the sale of the property on
September 4, 1990, petitioners were aware or had notice of the oral right of first refusal.
Respondents point to the letter dated June 1, 199033 as indicative of petitioners’ knowledge of
the said right. In this letter, a certain Atty. Erlinda Aguila demanded that respondent Irene
We fail to see how the letter could give rise to bad faith on the part of the petitioner. No mention
is made of the right of first refusal granted to respondents. The name of petitioner Rosencor or
any of it officers did not appear on the letter and the letter did not state that Atty. Aguila was
writing in behalf of petitioner. In fact, Atty. Aguila stated during trial that she wrote the letter in
behalf of the heirs of the spouses Tiangco. Moreover, even assuming that Atty. Aguila was
indeed writing in behalf of petitioner Rosencor, there is no showing that Rosencor was aware
at that time that such a right of first refusal existed.
Neither was there any showing that after receipt of this June 1, 1990 letter, respondents notified
Rosencor or Atty. Aguila of their right of first refusal over the property. Respondents did not try
to communicate with Atty. Aguila and inform her about their preferential right over the disputed
property. There is even no showing that they contacted the heirs of the spouses Tiangco after
they received this letter to remind them of their right over the property.
Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de Leon, where
she recognized the right of first refusal of respondents, as indicative of the bad faith of
petitioners. We do not agree. Eufrocina de Leon wrote the letter on her own behalf and not on
behalf of petitioners and, as such, it only shows that Eufrocina de Leon was aware of the
existence of the oral right of first refusal. It does not show that petitioners were likewise aware
of the existence of the said right. Moreover, the letter was made a month after the execution of
the Deed of Absolute Sale on September 4, 1990 between petitioner Rosencor and the heirs
of the spouses Tiangco. There is no showing that prior to the date of the execution of the said
Deed, petitioners were put on notice of the existence of the right of first refusal.
Clearly, if there was any indication of bad faith based on respondents’ evidence, it would only
be on the part of Eufrocina de Leon as she was aware of the right of first refusal of respondents
yet she still sold the disputed property to Rosencor. However, bad faith on the part of Eufrocina
de Leon does not mean that petitioner Rosencor likewise acted in bad faith. There is no
showing that prior to the execution of the Deed of Absolute Sale, petitioners were made aware
or put on notice of the existence of the oral right of first refusal. Thus, absent clear and
convincing evidence to the contrary, petitioner Rosencor will be presumed to have acted in
good faith in entering into the Deed of Absolute Sale over the disputed property.
Considering that there is no showing of bad faith on the part of the petitioners, the Court of
Appeals thus erred in ordering the rescission of the Deed of Absolute Sale dated September
4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco. The acquisition by
Rosencor of the property subject of the right of first refusal is an obstacle to the action for its
rescission where, as in this case, it was shown that Rosencor is in lawful possession of the
subject of the contract and that it did not act in bad faith.34
This does not mean however that respondents are left without any remedy for the unjustified
violation of their right of first refusal. Their remedy however is not an action for the rescission
of the Deed of Absolute Sale but an action for damages against the heirs of the spouses
Tiangco for the unjustified disregard of their right of first refusal35.
WHEREFORE, premises considered, the decision of the Court of Appeals dated June 25, 1999
is REVERSED and SET ASIDE. The Decision dated May 13, 1996 of the Quezon City Regional
Trial Court, Branch 217 is hereby REINSTATED insofar as it dismisses the action for rescission
of the Deed of Absolute Sale dated September 4, 1990 and orders the payment of monthly
rentals of P1,000.00 per month reckoned from May 1990 up to the time respondents leave the
premises.
SO ORDERED.
Melo, Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.
G.R. No. 149734 November 19, 2004
DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners,
vs.
AYALA CORPORATION, respondent.
DECISION
TINGA, J.:
The rise in value of four lots in one of the country's prime residential developments, Ayala
Alabang Village in Muntinlupa City, over a period of six (6) years only, represents big money.
The huge price difference lies at the heart of the present controversy. Petitioners insist that the
lots should be sold to them at 1984 prices while respondent maintains that the prevailing market
price in 1990 should be the selling price.
Dr. Daniel Vazquez and Ma. Luisa Vazquez1 filed this Petition for Review on Certiorari2 dated
October 11, 2001 assailing the Decision3 of the Court of Appeals dated September 6, 2001
which reversed the Decision4 of the Regional Trial Court (RTC) and dismissed their complaint
for specific performance and damages against Ayala Corporation.
Despite their disparate rulings, the RTC and the appellate court agree on the following
antecedents:5
On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez (hereafter, Vasquez
spouses) entered into a Memorandum of Agreement (MOA) with Ayala Corporation (hereafter,
AYALA) with AYALA buying from the Vazquez spouses, all of the latter's shares of stock in
Conduit Development, Inc. (hereafter, Conduit). The main asset of Conduit was a 49.9 hectare
property in Ayala Alabang, Muntinlupa, which was then being developed by Conduit under a
development plan where the land was divided into Villages 1, 2 and 3 of the "Don Vicente
Village." The development was then being undertaken for Conduit by G.P. Construction and
Development Corp. (hereafter, GP Construction).
Under the MOA, Ayala was to develop the entire property, less what was defined as the
"Retained Area" consisting of 18,736 square meters. This "Retained Area" was to be retained
by the Vazquez spouses. The area to be developed by Ayala was called the "Remaining Area".
In this "Remaining Area" were 4 lots adjacent to the "Retained Area" and Ayala agreed to offer
these lots for sale to the Vazquez spouses at the prevailing price at the time of purchase. The
relevant provisions of the MOA on this point are:
"5.7. The BUYER hereby commits that it will develop the 'Remaining Property' into a first class
residential subdivision of the same class as its New Alabang Subdivision, and that it intends to
complete the first phase under its amended development plan within three (3) years from the
date of this Agreement. x x x"
5.15. The BUYER agrees to give the SELLERS a first option to purchase four developed lots
next to the "Retained Area" at the prevailing market price at the time of the purchase."
The parties are agreed that the development plan referred to in paragraph 5.7 is not Conduit's
development plan, but Ayala's amended development plan which was still to be formulated as
of the time of the MOA. While in the Conduit plan, the 4 lots to be offered for sale to the Vasquez
Spouses were in the first phase thereof or Village 1, in the Ayala plan which was formulated a
year later, it was in the third phase, or Phase II-c.
Under the MOA, the Vasquez spouses made several express warranties, as follows:
"3.1. The SELLERS shall deliver to the BUYER:
xxx
3.1.2. The true and complete list, certified by the Secretary and Treasurer of the Company
showing:
xxx
D. A list of all persons and/or entities with whom the Company has pending contracts, if any.
xxx
3.1.5. Audited financial statements of the Company as at Closing date.
4. Conditions Precedent
All obligations of the BUYER under this Agreement are subject to fulfillment prior to or at the
Closing, of the following conditions:
4.1. The representations and warranties by the SELLERS contained in this Agreement shall be
true and correct at the time of Closing as though such representations and warranties were
made at such time; and
xxx
6. Representation and Warranties by the SELLERS
The SELLERS jointly and severally represent and warrant to the BUYER that at the time of the
execution of this Agreement and at the Closing:
xxx
6.2.3. There are no actions, suits or proceedings pending, or to the knowledge of the SELLERS,
threatened against or affecting the SELLERS with respect to the Shares or the Property; and
7. Additional Warranties by the SELLERS
7.1. With respect to the Audited Financial Statements required to be submitted at Closing in
accordance with Par. 3.1.5 above, the SELLER jointly and severally warrant to the BUYER
that:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the
Company shall own the "Remaining Property", free from all liens and encumbrances and that
the Company shall have no obligation to any party except for billings payable to GP
Construction & Development Corporation and advances made by Daniel Vazquez for which
BUYER shall be responsible in accordance with Par. 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the
Company as of Closing, and those disclosed to BUYER, the Company as of the date thereof,
has no liabilities of any nature whether accrued, absolute, contingent or otherwise, including,
without limitation, tax liabilities due or to become due and whether incurred in respect of or
measured in respect of the Company's income prior to Closing or arising out of transactions or
state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion
against the Company as at closing or any liability of any nature and in any amount not fully
reflected or reserved against such Audited Financial Statements referred to above, and those
disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the
Company is not engaged in or a party to, or to the best of the knowledge of the SELLERS,
threatened with, any legal action or other proceedings before any court or administrative body,
nor do the SELLERS know or have reasonable grounds to know of any basis for any such
action or proceeding or of any governmental investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance
and observance by the Company of any term, covenant or condition of any instrument or
agreement to which the company is a party or by which it is bound, and no condition exists
which, with notice or lapse of time or both, will constitute such default or breach."
After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the Don
Vicente Project. Ayala then received a letter from one Maximo Del Rosario of Lancer General
Builder Corporation informing Ayala that he was claiming the amount of P1,509,558.80 as the
subcontractor of G.P. Construction...
G.P. Construction not being able to reach an amicable settlement with Lancer, on March 22,
1982, Lancer sued G.P. Construction, Conduit and Ayala in the then Court of First Instance of
Manila in Civil Case No. 82-8598. G.P. Construction in turn filed a cross-claim against Ayala.
G.P. Construction and Lancer both tried to enjoin Ayala from undertaking the development of
the property. The suit was terminated only on February 19, 1987, when it was dismissed with
prejudice after Ayala paid both Lancer and GP Construction the total of P4,686,113.39.
Taking the position that Ayala was obligated to sell the 4 lots adjacent to the "Retained Area"
within 3 years from the date of the MOA, the Vasquez spouses sent several "reminder" letters
of the approaching so-called deadline. However, no demand after April 23, 1984, was ever
made by the Vasquez spouses for Ayala to sell the 4 lots. On the contrary, one of the letters
signed by their authorized agent, Engr. Eduardo Turla, categorically stated that they expected
"development of Phase 1 to be completed by February 19, 1990, three years from the
settlement of the legal problems with the previous contractor."
By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered for sale.
The four lots were then offered to be sold to the Vasquez spouses at the prevailing price in
1990. This was rejected by the Vasquez spouses who wanted to pay at 1984 prices, thereby
leading to the suit below.
After trial, the court a quo rendered its decision, the dispositive portion of which states:
"THEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant,
ordering defendant to sell to plaintiffs the relevant lots described in the Complaint in the Ayala
Alabang Village at the price of P460.00 per square meter amounting to P1,349,540.00; ordering
defendant to reimburse to plaintiffs attorney's fees in the sum of P200,000.00 and to pay the
cost of the suit."
In its decision, the court a quo concluded that the Vasquez spouses were not obligated to
disclose the potential claims of GP Construction, Lancer and Del Rosario; Ayala's accountants
should have opened the records of Conduit to find out all claims; the warranty against suit is
with respect to "the shares of the Property" and the Lancer suit does not affect the shares of
stock sold to Ayala; Ayala was obligated to develop within 3 years; to say that Ayala was under
no obligation to follow a time frame was to put the Vasquezes at Ayala's mercy; Ayala did not
develop because of a slump in the real estate market; the MOA was drafted and prepared by
the AYALA who should suffer its ambiguities; the option to purchase the 4 lots is valid because
it was supported by consideration as the option is incorporated in the MOA where the parties
had prestations to each other. [Emphasis supplied]
Ayala Corporation filed an appeal, alleging that the trial court erred in holding that petitioners
did not breach their warranties under the MOA6 dated April 23, 1981; that it was obliged to
develop the land where the four (4) lots subject of the option to purchase are located within
three (3) years from the date of the MOA; that it was in delay; and that the option to purchase
was valid because it was incorporated in the MOA and the consideration therefor was the
commitment by Ayala Corporation to petitioners embodied in the MOA.
As previously mentioned, the Court of Appeals reversed the RTC Decision. According to the
appellate court, Ayala Corporation was never informed beforehand of the existence of the
Lancer claim. In fact, Ayala Corporation got a copy of the Lancer subcontract only on May 29,
1981 from G.P. Construction's lawyers. The Court of Appeals thus held that petitioners violated
their warranties under the MOA when they failed to disclose Lancer's claims. Hence, even
conceding that Ayala Corporation was obliged to develop and sell the four (4) lots in question
within three (3) years from the date of the MOA, the obligation was suspended during the
pendency of the case filed by Lancer.
Interpreting the MOA's paragraph 5.7 above-quoted, the appellate court held that Ayala
Corporation committed to develop the first phase of its own amended development plan and
not Conduit's development plan. Nowhere does the MOA provide that Ayala Corporation shall
follow Conduit's development plan nor is Ayala Corporation prohibited from changing the
sequence of the phases of the property it will develop.
Anent the question of delay, the Court of Appeals ruled that there was no delay as petitioners
never made a demand for Ayala Corporation to sell the subject lots to them. According to the
appellate court, what petitioners sent were mere reminder letters the last of which was dated
prior to April 23, 1984 when the obligation was not yet demandable. At any rate, the Court of
Appeals found that petitioners in fact waived the three (3)-year period when they sent a letter
through their agent, Engr. Eduardo Turla, stating that they "expect that the development of
Phase I will be completed by 19 February 1990, three years from the settlement of the legal
problems with the previous contractor."7
The appellate court likewise ruled that paragraph 5.15 above-quoted is not an option contract
but a right of first refusal there being no separate consideration therefor. Since petitioners
refused Ayala Corporation's offer to sell the subject lots at the reduced 1990 price of P5,000.00
per square meter, they have effectively waived their right to buy the same.
In the instant Petition, petitioners allege that the appellate court erred in ruling that they violated
their warranties under the MOA; that Ayala Corporation was not obliged to develop the
"Remaining Property" within three (3) years from the execution of the MOA; that Ayala was not
in delay; and that paragraph 5.15 of the MOA is a mere right of first refusal. Additionally,
petitioners insist that the Court should review the factual findings of the Court of Appeals as
they are in conflict with those of the trial court.
Ayala Corporation filed a Comment on the Petition8 dated March 26, 2002, contending that the
petition raises questions of fact and seeks a review of evidence which is within the domain of
the Court of Appeals. Ayala Corporation maintains that the subcontract between GP
Construction, with whom Conduit contracted for the development of the property under a
Construction Contract dated October 10, 1980, and Lancer was not disclosed by petitioners
during the negotiations. Neither was the liability for Lancer's claim included in the Audited
Financial Statements submitted by petitioners after the signing of the MOA. These justify the
conclusion that petitioners breached their warranties under the afore-quoted paragraphs of the
MOA. Since the Lancer suit ended only in February 1989, the three (3)-year period within which
Ayala Corporation committed to develop the property should only be counted thence. Thus,
when it offered the subject lots to petitioners in 1990, Ayala Corporation was not yet in delay.
In response to petitioners' contention that there was no action or proceeding against them at
the time of the execution of the MOA on April 23, 1981, Ayala Corporation avers that the facts
and circumstances which gave rise to the Lancer claim were already extant then. Petitioners
warranted that their representations under the MOA shall be true and correct at the time of
"Closing" which shall take place within four (4) weeks from the signing of the MOA.9 Since the
MOA was signed on April 23, 1981, "Closing" was approximately the third week of May 1981.
Hence, Lancer's claims, articulated in a letter which Ayala Corporation received on May 4,
1981, are among the liabilities warranted against under paragraph 7.1.2 of the MOA.
Moreover, Ayala Corporation asserts that the warranties under the MOA are not just against
suits but against all kinds of liabilities not reflected in the Audited Financial Statements. It
cannot be faulted for relying on the express warranty that except for billings payable to GP
Construction and advances made by petitioner Daniel Vazquez in the amount of P38,766.04,
Conduit has no other liabilities. Hence, petitioners cannot claim that Ayala Corporation should
have examined and investigated the Audited Financial Statements of Conduit and should now
assume all its obligations and liabilities including the Lancer suit and the cross-claim of GP
Construction.
Furthermore, Ayala Corporation did not make a commitment to complete the development of
the first phase of the property within three (3) years from the execution of the MOA. The
provision refers to a mere declaration of intent to develop the first phase of its (Ayala
Corporation's) own development plan and not Conduit's. True to its intention, Ayala Corporation
did complete the development of the first phase (Phase II-A) of its amended development plan
within three (3) years from the execution of the MOA. However, it is not obliged to develop the
third phase (Phase II-C) where the subject lots are located within the same time frame because
there is no contractual stipulation in the MOA therefor. It is free to decide on its own the period
for the development of Phase II-C. If petitioners wanted to impose the same three (3)-year
timetable upon the third phase of the amended development plan, they should have filed a suit
to fix the time table in accordance with Article 119710 of the Civil Code. Having failed to do so,
Ayala Corporation cannot be declared to have been in delay.
Ayala Corporation further contends that no demand was made on it for the performance of its
alleged obligation. The letter dated October 4, 1983 sent when petitioners were already aware
of the Lancer suit did not demand the delivery of the subject lots by April 23, 1984. Instead, it
requested Ayala Corporation to keep petitioners posted on the status of the case. Likewise, the
letter dated March 4, 1984 was merely an inquiry as to the date when the development of
Phase 1 will be completed. More importantly, their letter dated June 27, 1988 through Engr.
Eduardo Turla expressed petitioners' expectation that Phase 1 will be completed by February
19, 1990.
Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a right of first refusal
and not an option contract.
Petitioners filed their Reply11 dated August 15, 2002 reiterating the arguments in their Petition
and contending further that they did not violate their warranties under the MOA because the
case was filed by Lancer only on April 1, 1982, eleven (11) months and eight (8) days after the
signing of the MOA on April 23, 1981. Ayala Corporation admitted that it received Lancer's
claim before the "Closing" date. It therefore had all the time to rescind the MOA. Not having
done so, it can be concluded that Ayala Corporation itself did not consider the matter a violation
of petitioners' warranty.
Moreover, petitioners submitted the Audited Financial Statements of Conduit and allowed an
acquisition audit to be conducted by Ayala Corporation. Thus, the latter bought Conduit with
"open eyes."
Petitioners also maintain that they had no knowledge of the impending case against Conduit
at the time of the execution of the MOA. Further, the MOA makes Ayala Corporation liable for
the payment of all billings of GP Construction. Since Lancer's claim was actually a claim against
GP Construction being its sub-contractor, it is Ayala Corporation and not petitioners which is
liable.
Likewise, petitioners aver that although Ayala Corporation may change the sequence of its
development plan, it is obliged under the MOA to develop the entire area where the subject
lots are located in three (3) years.
They also assert that demand was made on Ayala Corporation to comply with their obligation
under the MOA. Apart from their reminder letters dated January 24, February 18 and March 5,
1984, they also sent a letter dated March 4, 1984 which they claim is a categorical demand for
Ayala Corporation to comply with the provisions of the MOA.
The parties were required to submit their respective memoranda in the Resolution12 dated
November 18, 2002. In compliance with this directive, petitioners submitted their
Memorandum13 dated February 14, 2003 on even date, while Ayala Corporation filed its
Memorandum14 dated February 14, 2003 on February 17, 2003.
We shall first dispose of the procedural question raised by the instant petition.
It is well-settled that the jurisdiction of this Court in cases brought to it from the Court of Appeals
by way of petition for review under Rule 45 is limited to reviewing or revising errors of law
imputed to it, its findings of fact being conclusive on this Court as a matter of general principle.
However, since in the instant case there is a conflict between the factual findings of the trial
court and the appellate court, particularly as regards the issues of breach of warranty, obligation
to develop and incurrence of delay, we have to consider the evidence on record and resolve
such factual issues as an exception to the general rule.15 In any event, the submitted issue
relating to the categorization of the right to purchase granted to petitioners under the MOA is
legal in character.
The next issue that presents itself is whether petitioners breached their warranties under the
MOA when they failed to disclose the Lancer claim. The trial court declared they did not; the
appellate court found otherwise.
Ayala Corporation summarizes the clauses of the MOA which petitioners allegedly breached
when they failed to disclose the Lancer claim:
a) Clause 7.1.1. – that Conduit shall not be obligated to anyone except to GP Construction for
P38,766.04, and for advances made by Daniel Vazquez;
b) Clause 7.1.2. – that except as reflected in the audited financial statements Conduit had no
other liabilities whether accrued, absolute, contingent or otherwise;
c) Clause 7.2. – that there is no basis for any assertion against Conduit of any liability of any
value not reflected or reserved in the financial statements, and those disclosed to Ayala;
d) Clause 7.6.3. – that Conduit is not threatened with any legal action or other proceedings;
and
e) Clause 7.6.4. – that Conduit had not breached any term, condition, or covenant of any
instrument or agreement to which it is a party or by which it is bound.16
The Court is convinced that petitioners did not violate the foregoing warranties.
The exchanges of communication between the parties indicate that petitioners substantially
apprised Ayala Corporation of the Lancer claim or the possibility thereof during the period of
negotiations for the sale of Conduit.
In a letter17 dated March 5, 1984, petitioner Daniel Vazquez reminded Ayala Corporation's Mr.
Adolfo Duarte (Mr. Duarte) that prior to the completion of the sale of Conduit, Ayala Corporation
asked for and was given information that GP Construction sub-contracted, presumably to
Lancer, a greater percentage of the project than it was allowed. Petitioners gave this
information to Ayala Corporation because the latter intimated a desire to "break the contract of
Conduit with GP." Ayala Corporation did not deny this. In fact, Mr. Duarte's letter18 dated March
6, 1984 indicates that Ayala Corporation had knowledge of the Lancer subcontract prior to its
acquisition of Conduit. Ayala Corporation even admitted that it "tried to explore…legal basis to
discontinue the contract of Conduit with GP" but found this "not feasible when information
surfaced about the tacit consent of Conduit to the sub-contracts of GP with Lancer."
At the latest, Ayala Corporation came to know of the Lancer claim before the date of Closing
of the MOA. Lancer's letter19 dated April 30, 1981 informing Ayala Corporation of its unsettled
claim with GP Construction was received by Ayala Corporation on May 4, 1981, well before the
"Closing"20 which occurred four (4) weeks after the date of signing of the MOA on April 23,
1981, or on May 23, 1981.
The full text of the pertinent clauses of the MOA quoted hereunder likewise indicate that certain
matters pertaining to the liabilities of Conduit were disclosed by petitioners to Ayala Corporation
although the specifics thereof were no longer included in the MOA:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the
Company shall own the "Remaining Property", free from all liens and encumbrances and that
the Company shall have no obligation to any party except for billings payable to GP
Construction & Development Corporation and advances made by Daniel Vazquez for which
BUYER shall be responsible in accordance with Paragraph 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the
Company as of Closing, and those disclosed to BUYER, the Company as of the date hereof,
has no liabilities of any nature whether accrued, absolute, contingent or otherwise, including,
without limitation, tax liabilities due or to become due and whether incurred in respect of or
measured in respect of the Company's income prior to Closing or arising out of transactions or
state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion
against the Company as at Closing of any liability of any nature and in any amount not fully
reflected or reserved against such Audited Financial Statements referred to above, and those
disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the
Company is not engaged in or a party to, or to the best of the knowledge of the SELLERS,
threatened with, any legal action or other proceedings before any court or administrative body,
nor do the SELLERS know or have reasonable grounds to know of any basis for any such
action or proceeding or of any governmental investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance
and observance by the Company of any term, covenant or condition of any instrument or
agreement to which the Company is a party or by which it is bound, and no condition exists
which, with notice or lapse of time or both, will constitute such default or breach."21 [Emphasis
supplied]
Hence, petitioners' warranty that Conduit is not engaged in, a party to, or threatened with any
legal action or proceeding is qualified by Ayala Corporation's actual knowledge of the Lancer
claim which was disclosed to Ayala Corporation before the "Closing."
At any rate, Ayala Corporation bound itself to pay all billings payable to GP Construction and
the advances made by petitioner Daniel Vazquez. Specifically, under paragraph 2 of the MOA
referred to in paragraph 7.1.1, Ayala Corporation undertook responsibility "for the payment of
all billings of the contractor GP Construction & Development Corporation after the first billing
and any payments made by the company and/or SELLERS shall be reimbursed by BUYER on
closing which advances to date is P1,159,012.87."22
The billings knowingly assumed by Ayala Corporation necessarily include the Lancer claim for
which GP Construction is liable. Proof of this is Ayala Corporation's letter23 to GP Construction
dated before "Closing" on May 4, 1981, informing the latter of Ayala Corporation's receipt of
the Lancer claim embodied in the letter dated April 30, 1981, acknowledging that it is taking
over the contractual responsibilities of Conduit, and requesting copies of all sub-contracts
affecting the Conduit property. The pertinent excerpts of the letter read:
…
In this connection, we wish to inform you that this morning we received a letter from Mr. Maximo
D. Del Rosario, President of Lancer General Builders Corporation apprising us of the existence
of subcontracts that they have with your corporation. They have also furnished us with a copy
of their letter to you dated 30 April 1981.
Since we are taking over the contractual responsibilities of Conduit Development, Inc., we
believe that it is necessary, at this point in time, that you furnish us with copies of all your
subcontracts affecting the property of Conduit, not only with Lancer General Builders
Corporation, but all subcontracts with other parties as well…24
Quite tellingly, Ayala Corporation even attached to its Pre-Trial Brief25 dated July 9, 1992 a
copy of the letter26 dated May 28, 1981 of GP Construction's counsel addressed to Conduit
furnishing the latter with copies of all sub-contract agreements entered into by GP Construction.
Since it was addressed to Conduit, it can be presumed that it was the latter which gave Ayala
Corporation a copy of the letter thereby disclosing to the latter the existence of the Lancer sub-
contract.
The ineluctable conclusion is that petitioners did not violate their warranties under the MOA.
The Lancer sub-contract and claim were substantially disclosed to Ayala Corporation before
the "Closing" date of the MOA. Ayala Corporation cannot disavow knowledge of the claim.
Moreover, while in its correspondence with petitioners, Ayala Corporation did mention the filing
of the Lancer suit as an obstacle to its development of the property, it never actually brought
up nor sought redress for petitioners' alleged breach of warranty for failure to disclose the
Lancer claim until it filed its Answer27 dated February 17, 1992.
We now come to the correct interpretation of paragraph 5.7 of the MOA. Does this paragraph
express a commitment or a mere intent on the part of Ayala Corporation to develop the property
within three (3) years from date thereof? Paragraph 5.7 provides:
5.7. The BUYER hereby commits that it will develop the 'Remaining Property' into a first class
residential subdivision of the same class as its New Alabang Subdivision, and that it intends to
complete the first phase under its amended development plan within three (3) years from the
date of this Agreement….28
Notably, while the first phrase of the paragraph uses the word "commits" in reference to the
development of the "Remaining Property" into a first class residential subdivision, the second
phrase uses the word "intends" in relation to the development of the first phase of the property
within three (3) years from the date of the MOA. The variance in wording is significant. While
"commit"29 connotes a pledge to do something, "intend"30 merely signifies a design or
proposition.
Atty. Leopoldo Francisco, former Vice President of Ayala Corporation's legal division who
assisted in drafting the MOA, testified:
COURT
You only ask what do you mean by that intent. Just answer on that point.
ATTY. BLANCO
Don't talk about standard.
WITNESS
A Well, the word intent here, your Honor, was used to emphasize the tentative character of the
period of development because it will be noted that the sentence refers to and I quote "to
complete the first phase under its amended development plan within three (3) years from the
date of this agreement, at the time of the execution of this agreement, your Honor." That
amended development plan was not yet in existence because the buyer had manifested to the
seller that the buyer could amend the subdivision plan originally belonging to the seller to
conform with its own standard of development and second, your Honor, (interrupted)31
It is thus unmistakable that this paragraph merely expresses an intention on Ayala
Corporation's part to complete the first phase under its amended development plan within three
(3) years from the execution of the MOA. Indeed, this paragraph is so plainly worded that to
misunderstand its import is deplorable.
More focal to the resolution of the instant case is paragraph 5.7's clear reference to the first
phase of Ayala Corporation's amended development plan as the subject of the three (3)-year
intended timeframe for development. Even petitioner Daniel Vazquez admitted on cross-
examination that the paragraph refers not to Conduit's but to Ayala Corporation's development
plan which was yet to be formulated when the MOA was executed:
Q: Now, turning to Section 5.7 of this Memorandum of Agreement, it is stated as follows: "The
Buyer hereby commits that to develop the remaining property into a first class residential
subdivision of the same class as New Alabang Subdivision, and that they intend to complete
the first phase under its amended development plan within three years from the date of this
agreement."
Now, my question to you, Dr. Vasquez is that there is no dispute that the amended development
plan here is the amended development plan of Ayala?
A: Yes, sir.
Q: In other words, it is not Exhibit "D-5" which is the original plan of Conduit?
A: No, it is not.
Q: This Exhibit "D-5" was the plan that was being followed by GP Construction in 1981?
A: Yes, sir.
Q: And point of fact during your direct examination as of the date of the agreement, this
amended development plan was still to be formulated by Ayala?
A: Yes, sir.32
As correctly held by the appellate court, this admission is crucial because while the subject lots
to be sold to petitioners were in the first phase of the Conduit development plan, they were in
the third or last phase of the Ayala Corporation development plan. Hence, even assuming that
paragraph 5.7 expresses a commitment on the part of Ayala Corporation to develop the first
phase of its amended development plan within three (3) years from the execution of the MOA,
there was no parallel commitment made as to the timeframe for the development of the third
phase where the subject lots are located.
Lest it be forgotten, the point of this petition is the alleged failure of Ayala Corporation to offer
the subject lots for sale to petitioners within three (3) years from the execution of the MOA. It
is not that Ayala Corporation committed or intended to develop the first phase of its amended
development plan within three (3) years. Whether it did or did not is actually beside the point
since the subject lots are not located in the first phase anyway.
We now come to the issue of default or delay in the fulfillment of the obligation.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment one
of the parties fulfills his obligation, delay by the other begins.
In order that the debtor may be in default it is necessary that the following requisites be present:
(1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially or extrajudicially.33
Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has been
fixed shall be demandable only when that day comes. However, no such day certain was fixed
in the MOA. Petitioners, therefore, cannot demand performance after the three (3) year period
fixed by the MOA for the development of the first phase of the property since this is not the
same period contemplated for the development of the subject lots. Since the MOA does not
specify a period for the development of the subject lots, petitioners should have petitioned the
court to fix the period in accordance with Article 119734 of the Civil Code. As no such action
was filed by petitioners, their complaint for specific performance was premature, the obligation
not being demandable at that point. Accordingly, Ayala Corporation cannot likewise be said to
have delayed performance of the obligation.
Even assuming that the MOA imposes an obligation on Ayala Corporation to develop the
subject lots within three (3) years from date thereof, Ayala Corporation could still not be held
to have been in delay since no demand was made by petitioners for the performance of its
obligation.
As found by the appellate court, petitioners' letters which dealt with the three (3)-year timetable
were all dated prior to April 23, 1984, the date when the period was supposed to expire. In
other words, the letters were sent before the obligation could become legally demandable.
Moreover, the letters were mere reminders and not categorical demands to perform. More
importantly, petitioners waived the three (3)-year period as evidenced by their agent, Engr.
Eduardo Turla's letter to the effect that petitioners agreed that the three (3)-year period should
be counted from the termination of the case filed by Lancer. The letter reads in part:
I. Completion of Phase I
As per the memorandum of Agreement also dated April 23, 1981, it was undertaken by your
goodselves to complete the development of Phase I within three (3) years. Dr. & Mrs. Vazquez
were made to understand that you were unable to accomplish this because of legal problems
with the previous contractor. These legal problems were resolved as of February 19, 1987, and
Dr. & Mrs. Vazquez therefore expect that the development of Phase I will be completed by
February 19, 1990, three years from the settlement of the legal problems with the previous
contractor. The reason for this is, as you know, that security-wise, Dr. & Mrs. Vazquez have
been advised not to construct their residence till the surrounding area (which is Phase I) is
developed and occupied. They have been anxious to build their residence for quite some time
now, and would like to receive assurance from your goodselves regarding this, in compliance
with the agreement.
II. Option on the adjoining lots
We have already written your goodselves regarding the intention of Dr. & Mrs. Vazquez to
exercise their option to purchase the two lots on each side (a total of 4 lots) adjacent to their
"Retained Area". They are concerned that although over a year has elapsed since the
settlement of the legal problems, you have not presented them with the size, configuration, etc.
of these lots. They would appreciate being provided with these at your earliest convenience.35
Manifestly, this letter expresses not only petitioners' acknowledgement that the delay in the
development of Phase I was due to the legal problems with GP Construction, but also their
acquiescence to the completion of the development of Phase I at the much later date of
February 19, 1990. More importantly, by no stretch of semantic interpretation can it be
construed as a categorical demand on Ayala Corporation to offer the subject lots for sale to
petitioners as the letter merely articulates petitioners' desire to exercise their option to purchase
the subject lots and concern over the fact that they have not been provided with the
specifications of these lots.
The letters of petitioners' children, Juan Miguel and Victoria Vazquez, dated January 23,
198436 and February 18, 198437 can also not be considered categorical demands on Ayala
Corporation to develop the first phase of the property within the three (3)-year period much less
to offer the subject lots for sale to petitioners. The letter dated January 23, 1984 reads in part:
You will understand our interest in the completion of the roads to our property, since we cannot
develop it till you have constructed the same. Allow us to remind you of our Memorandum of
Agreement, as per which you committed to develop the roads to our property "as per the
original plans of the company", and that
1. The back portion should have been developed before the front portion – which has not been
the case.
2. The whole project – front and back portions be completed by 1984.38
The letter dated February 18, 1984 is similarly worded. It states:
In this regard, we would like to remind you of Articles 5.7 and 5.9 of our Memorandum of
Agreement which states respectively:…39
Even petitioner Daniel Vazquez' letter40 dated March 5, 1984 does not make out a categorical
demand for Ayala Corporation to offer the subject lots for sale on or before April 23, 1984. The
letter reads in part:
…and that we expect from your goodselves compliance with our Memorandum of Agreement,
and a definite date as to when the road to our property and the development of Phase I will be
completed.41
At best, petitioners' letters can only be construed as mere reminders which cannot be
considered demands for performance because it must appear that the tolerance or
benevolence of the creditor must have ended.42
The petition finally asks us to determine whether paragraph 5.15 of the MOA can properly be
construed as an option contract or a right of first refusal. Paragraph 5.15 states:
5.15 The BUYER agrees to give the SELLERS first option to purchase four developed lots next
to the "Retained Area" at the prevailing market price at the time of the purchase.43
The Court has clearly distinguished between an option contract and a right of first refusal. An
option is a preparatory contract in which one party grants to another, for a fixed period and at
a determined price, the privilege to buy or sell, or to decide whether or not to enter into a
principal contract. It binds the party who has given the option not to enter into the principal
contract with any other person during the period designated, and within that period, to enter
into such contract with the one to whom the option was granted, if the latter should decide to
use the option. It is a separate and distinct contract from that which the parties may enter into
upon the consummation of the option. It must be supported by consideration.44
In a right of first refusal, on the other hand, while the object might be made determinate, the
exercise of the right would be dependent not only on the grantor's eventual intention to enter
into a binding juridical relation with another but also on terms, including the price, that are yet
to be firmed up.45
Applied to the instant case, paragraph 5.15 is obviously a mere right of first refusal and not an
option contract. Although the paragraph has a definite object, i.e., the sale of subject lots, the
period within which they will be offered for sale to petitioners and, necessarily, the price for
which the subject lots will be sold are not specified. The phrase "at the prevailing market price
at the time of the purchase" connotes that there is no definite period within which Ayala
Corporation is bound to reserve the subject lots for petitioners to exercise their privilege to
purchase. Neither is there a fixed or determinable price at which the subject lots will be offered
for sale. The price is considered certain if it may be determined with reference to another thing
certain or if the determination thereof is left to the judgment of a specified person or persons.46
Further, paragraph 5.15 was inserted into the MOA to give petitioners the first crack to buy the
subject lots at the price which Ayala Corporation would be willing to accept when it offers the
subject lots for sale. It is not supported by an independent consideration. As such it is not
governed by Articles 1324 and 1479 of the Civil Code, viz:

Art. 1324. When the offeror has allowed the offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by communicating such withdrawal, except when
the option is founded upon a consideration, as something paid or promised.
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.
Consequently, the "offer" may be withdrawn anytime by communicating the withdrawal to the
other party.47
In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price of
P6,500.00/square meter, the prevailing market price for the property when the offer was made
on June 18, 1990.48 Insisting on paying for the lots at the prevailing market price in 1984 of
P460.00/square meter, petitioners rejected the offer. Ayala Corporation reduced the price to
P5,000.00/square meter but again, petitioners rejected the offer and instead made a counter-
offer in the amount of P2,000.00/square meter.49 Ayala Corporation rejected petitioners'
counter-offer. With this rejection, petitioners lost their right to purchase the subject lots.
It cannot, therefore, be said that Ayala Corporation breached petitioners' right of first refusal
and should be compelled by an action for specific performance to sell the subject lots to
petitioners at the prevailing market price in 1984.
WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.
G.R. No. 117355 April 5, 2002
RIVIERA FILIPINA, INC., petitioner,
vs.
COURT OF APPEALS, JUAN L. REYES, (now deceased), substituted by his heirs,
namely, Estefania B. Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel B. Reyes,
PHILIPPINE CYPRESS CONSTRUCTION & DEVELOPMENT CORPORATION, CORNHILL
TRADING CORPORATION and URBAN DEVELOPMENT BANK, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals2 dated
June 6, 1994 in CA-G.R. CV No. 26513 affirming the Decision3 dated March 20, 1990 of the
Regional Trial Court of Quezon City, Branch 89 dismissing Civil Case No. Q-89-3371.
Civil Case No. Q-89-3371 is a suit instituted by Riviera Filipina, Inc. (Riviera) on August 31,
19894 to compel the defendants therein Juan L. Reyes, now deceased, Philippine Cypress
Construction & Development Corporation (Cypress), Cornhill Trading Corporation (Cornhill)
and Urban Development Bank to transfer the title covering a 1,018 square meter parcel of land
located along EDSA, Quezon City for alleged violation of Riviera’s right of first refusal.
It appears that on November 23, 1982, respondent Juan L. Reyes (Reyes, for brevity) executed
a Contract of Lease with Riviera. The ten-year (10) renewable lease of Riviera, which started
on August 1, 1982, involved a 1,018 square meter parcel of land located along Edsa, Quezon
City, covered and described in Transfer Certificate of Title No. 186326 of the Registry of Deeds
of Quezon City in the name of Juan L. Reyes.5
The said parcel of land was subject of a Real Estate Mortgage executed by Reyes in favor of
Prudential Bank. Since the loan with Prudential Bank remained unpaid upon maturity, the
mortgagee bank extrajudicially foreclosed the mortgage thereon. At the public auction sale, the
mortgagee bank emerged as the highest bidder. The redemption period was set to expire on
March 7, 1989. Realizing that he could not possibly raise in time the money needed to redeem
the subject property, Reyes decided to sell the same.6
Since paragraph 11 of the lease contract expressly provided that the "LESSEE shall have the
right of first refusal should the LESSOR decide to sell the property during the term of the
lease,"7 Reyes offered to sell the subject property to Riviera, through its President Vicente C.
Angeles, for Five Thousand Pesos (P5,000.00) per square meter. However, Angeles bargained
for Three Thousand Five Hundred Pesos (P3,500.00) per square meter. Since Reyes was not
amenable to the said price and insisted on Five Thousand Pesos (P5,000.00) per square meter,
Angeles requested Reyes to allow him to consult the other members of the Board of Directors
of Riviera.8
Seven (7) months later, or sometime in October 1988, Angeles communicated with Reyes
Riviera’s offer to purchase the subject property for Four Thousand Pesos (P4,000.00) per
square meter. However, Reyes did not accept the offer. This time he asked for Six Thousand
Pesos (P6,000.00) per square meter since the value of the property in the area had appreciated
in view of the plans of Araneta to develop the vicinity.9
In a letter dated November 2, 1988, Atty. Irineo S. Juan, acting as counsel for Reyes, informed
Riviera that Reyes was selling the subject property for Six Thousand Pesos (P6,000.00) per
square meter, net of capital gains and transfer taxes, registration fees, notarial fees and all
other attendant charges. He further stated therein that:
In this connection, conformably to the provisions stipulated in Paragraph/Item No. 11 of your
CONTRACT OF LEASE (Doc. No. 365, Page No. 63, Book No. X, Series of 1982, of the
Notarial Registry of Notary Public Leovillo S. Agustin), notice is served upon your goodselves
for you to exercise "the right of first refusal" in the sale of said property, for which purpose you
are hereby given a period of ten (10) days from your receipt hereof within which to thus
purchase the same under the terms and conditions aforestated, and failing which you shall be
deemed to have thereby waived such pre-emptive right and my client shall thereafter be
absolutely free to sell the subject property to interested buyers.10
To answer the foregoing letter and confirm their telephone conversation on the matter, Riviera
sent a letter dated November 22, 1988 to Atty. Juan, counsel for Reyes, expressing Riviera’s
interest to purchase the subject property and that Riviera is already negotiating with Reyes
which will take a couple of days to formalize.11 Riviera increased its offer to Five Thousand
Pesos (P5,000.00) per square meter but Reyes did not accede to said price as it was still lower
than his quoted price of Six Thousand Pesos (P6,000.00) per square meter.12 Angeles asked
Reyes to give him until the end of November 1988 for Riviera’s final decision. 1âwphi1.nêt
In a letter dated December 2, 1988, Angeles wrote Reyes confirming Riviera’s intent to
purchase the subject property for the fixed and final13 price of Five Thousand Pesos
(P5,000.00) per square meter, complete payment within sixty (60) to ninety (90) days which
"offer is what we feel should be the market price of your property." Angeles asked that the
decision of Reyes and his written reply to the offer be given within fifteen (15) days since there
are also other properties being offered to them at the moment.14
In response to the foregoing letter, Atty. Juan sent a letter to Riviera dated December 5, 1988
informing Riviera that Riviera’s offer is not acceptable to his client. He further expressed, "let it
be made clear that, much as it is the earnest desire of my client to really give you the preference
to purchase the subject property, you have unfortunately failed to take advantage of such
opportunity and thus lost your right of first refusal in sale of said property."15
Meanwhile, on December 4, 1988, Reyes confided to Rolando P. Traballo, a close family friend
and President of Cypress, his predicament about the nearing expiry date of the redemption
period of the foreclosed mortgaged property with Prudential Bank, the money for which he
could not raise on time thereby offering the subject property to him for Six Thousand Pesos
(P6,000.00) per square meter. Traballo expressed interest in buying the said property, told
Reyes that he will study the matter and suggested for them to meet the next day.16
They met the next day, December 5, 1988, at which time Traballo bargained for Five Thousand
Three Hundred Pesos (P5,300.00) per square meter. After considering the reasons cited by
Traballo for his quoted price, Reyes accepted the same. However, since Traballo did not have
the amount with which to pay Reyes, he told the latter that he will look for a partner for that
purpose.17 Reyes told Traballo that he had already afforded Riviera its right of first refusal but
they cannot agree because Riviera’s final offer was for Five Thousand Pesos (P5,000.00) per
square meter.18
Sometime in January 1989, apprehensive of the impending expiration in March 1989 of the
redemption period of the foreclosed mortgaged property with Prudential Bank and the deal
between Reyes and Traballo was not yet formally concluded, Reyes decided to approach anew
Riviera. For this purpose, he requested his nephew, Atty. Estanislao Alinea, to approach
Angeles and find out if the latter was still interested in buying the subject property and ask him
to raise his offer for the purchase of the said property a little higher. As instructed, Atty. Alinea
met with Angeles and asked the latter to increase his offer of Five Thousand Pesos (P5,000.00)
per square meter but Angeles said that his offer is Five Thousand Pesos (P5,000.00) per
square meter.19
Following the meeting, Angeles sent a letter dated February 4, 1989 to Reyes, through Atty.
Alinea, that his offer is Five Thousand Pesos (P5,000.00) per square meter payment of which
would be fifty percent (50%) down within thirty (30) days upon submission of certain documents
in three (3) days, the balance payable in five (5) years in equal monthly installments at twelve
percent (12%) interest in diminishing balance.20 With the terms of this second offer, Angeles
admittedly downgraded the previous offer of Riviera on December 2, 1988.21
Atty. Alinea conveyed to Reyes Riviera’s offer of Five Thousand Pesos (P5,000.00) per square
meter but Reyes did not agree. Consequently, Atty. Alinea contacted again Angeles and asked
him if he can increase his price. Angeles, however, said he cannot add anymore.22 Reyes did
not expressly offer his subject property to Riviera at the price of Five Thousand Three Hundred
Pesos (₱5,300.00) per square meter.23
Sometime in February 1989, Cypress and its partner in the venture, Cornhill Trading
Corporation, were able to come up with the amount sufficient to cover the redemption money,
with which Reyes paid to the Prudential Bank to redeem the subject property.24 On May 1,
1989, a Deed of Absolute Sale covering the subject property was executed by Reyes in favor
of Cypress and Cornhill for the consideration of Five Million Three Hundred Ninety Five
Thousand Four Hundred Pesos (₱5,395,400.00).25 On the same date, Cypress and Cornhill
mortgaged the subject property to Urban Development Bank for Three Million Pesos
(₱3,000,000.00).26
Thereafter, Riviera sought from Reyes, Cypress and Cornhill a resale of the subject property
to it claiming that its right of first refusal under the lease contract was violated. After several
unsuccessful attempts,27 Riviera filed the suit to compel Reyes, Cypress, Cornhill and Urban
Development Bank to transfer the disputed title to the land in favor of Riviera upon its payment
of the price paid by Cypress and Cornhill.
Following trial on the merits, the trial court dismissed the complaint of Riviera as well as the
counterclaims and cross-claims of the other parties.28 It ruled that the defendants therein did
not violate Riviera’s right of first refusal, ratiocinating in this wise:
Resolving the first issue, this Court takes note that since the beginning of the negotiation
between the plaintiff and defendant Reyes for the purchase of the property, in question, the
plaintiff was firm and steadfast in its position, expressed in writing by its President Vicente
Angeles, that it was not willing to buy the said property higher than ₱5,000.00, per square
meter, which was far lower than the asking price of defendant Reyes for ₱6,000.00, per square
meter, undoubtedly, because, in its perception, it would be difficult for other parties to buy the
property, at a higher price than what it was offering, since it is in occupation of the property, as
lessee, the term of which was to expire after about four (4) years more.

On the other hand, it was obvious, upon the basis of the last ditch effort of defendant Reyes,
thru his nephew, Atty. Alinea, to have the plaintiff buy the property, in question, that he was
willing to sell the said property at a price less than ₱6,000.00 and a little higher than ₱5,000.00,
per square meter, precisely, because Atty. Alinea, in behalf of his uncle, defendant Reyes,
sought plaintiff’s Angeles and asked him to raise his price a little higher, indicating thereby the
willingness of defendant Reyes to sell said property at less than his offer of ₱6,000.00, per
square meter.
This being the case, it can hardly be validly said by the plaintiff that he was deprived of his right
of first refusal to buy the subject property at a price of ₱5,300.00, per square meter which is
the amount defendants Cypress/Cornhill bought the said property from defendant Reyes. For,
it was again given such an opportunity to exercise its right of first refusal by defendant Reyes
had it only signified its willingness to increase a little higher its purchase price above ₱5,000.00,
per square meter, when its President, Angeles, was asked by Atty. Alinea to do so, instead of
adamantly sticking to its offer of only ₱5,000.00 per square meter, by reason of which,
therefore, the plaintiff had lost, for the second time, its right of first refusal, even if defendant
Reyes did not expressly offer to sell to it the subject land at ₱5,300.00, per square meter,
considering that by the plea of Atty. Alinea, in behalf of defendant Reyes, for it to increase its
price a little, the plaintiff is to be considered as having forfeited again its right of first refusal, it
having refused to budged from its regid (sic) offer to buy the subject property at no more than
₱5,000.00, per square meter.
As such, this Court holds that it was no longer necessary for the defendant Reyes to expressly
and categorically offer to the plaintiff the subject property at ₱5,300.00, per square meter, in
order that he can comply with his obligation to give first refusal to the plaintiff as stipulated in
the Contract of Lease, the plaintiff having had already lost its right of first refusal, at the first
instance, by refusing to buy the said property at ₱6,000.00, per square meter, which was the
asking price of defendant Reyes, since to do so would be a useless ceremony and would only
be an exercise in futility, considering the firm and unbending position of the plaintiff, which
defendant Reyes already knew, that the plaintiff, at any event, was not amenable to increasing
its price at over ₱5,000.00, per square meter.
Dissatisfied with the decision of the trial court, both parties appealed to the Court of Appeals.29
However, the appellate court, through its Special Seventh Division, rendered a Decision dated
June 6, 1994 which affirmed the decision of the trial court in its entirety.30 In sustaining the
decision of the trial court, the Court of Appeals adopted the above-quoted ratiocination of the
trial court and further added:
To put things in its proper perspective in accordance with the peculiar attendant circumstances
herein, particular stress should be given to RIVIERA’s uncompromising counter offer of only
₱5,000.00 per square meter on all the occasions when REYES offered the subject property to
it. RIVIERA, in its letter to REYES dated December 2, 1988 (Exhibit "D", p. 68, Rollo) justified
its rigid offer by saying that "the above offer is what we feel should be the market price of your
property." If that be the case, We are convinced, the same manner that REYES was, that
RIVIERA was unwilling to increase its counter offer at any present or future time. RIVIERA’s
unilateral valuation of the subject property thus binds him, it cannot now be heard to claim that
it could have upped its offer had it been informed of CYPRESS’ and CORNHILL’S offer of
₱5,000.00 (sic) per square meter. Defendants CYPRESS and CORNHILL were therefore right
in saying that:
On the basic assumption that RIVIERA really meant what it said in its letter, DR. REYES could
not be faulted for believing that RIVIERA was definitely NOT WILLING TO PAY MORE THAN
P5,000.00 PER SQUARE METER ON HIS PROPERTY. The fault lies with the deceptive and
insincere words of RIVIERA. Injustice (sic) and equity, RIVIERA must be deemed in estoppel
in now belatedly asserting that it would have been willing to pay a price higher than ₱5,000.00
x x x." (Defendants-Appellees Cypress’ and Cornhill’s Brief, p. 8)
For this reason, no adverse inference can be drawn from REYES’ failure to disclose to RIVIERA
the intervening counter-offer of CYPRESS and CORNHILL.
It would have been far different had REYES’ non-disclosure of CYPRESS’ and CORNHILL’s
counter-offer to RIVIERA resulted in the sale of the subject property at equal or less than
RIVIERA’s offer; in which case, REYES would have been rightly accused of cunningly
circumventing RIVIERA’s right of first refusal. But the incontrovertible antecedents obtaining
here clearly reveal REYES’ earnest efforts in respecting RIVIERA’s contractual right to initially
purchase the subject property. Not only once – but twice – did REYES approach RIVIERA, the
last one being the most telling indication of REYES’ sincerest intention in RIVIERA eventually
purchasing the subject property if only the latter would increase a little its offer of ₱5,000.00
per square meter. And to this REYES was desperately willing to accede to despite the financial
quandary he was then in as the expiration of the redemption period drew closer and closer,
and despite the better offer of CYPRESS and CORNHILL. REYES unquestionably had
displayed good faith. Can the same be said of RIVIERA? We do not think so. It appears that
RIVIERA all along was trying to push REYES’ back against the wall, for RIVIERA was well-
aware of REYES’ precarious financial needs at that time, and by clinging to its offer, REYES
might eventually succumb to its offer out of sheer desperation. RIVIERA was, to be frank,
whimsically exercising its contractual right to the prejudice of REYES who had commendably
given RIVIERA extra leeway in exercising it. And to this We say that no amount of jurisprudence
RIVIERA might avail of for the purpose of construing the right of first refusal, however
enlightening and persuasive they may be, will cover-up for its arrogant exercise of its right as
can be gleaned from the factual premises. Equity in this case tilts in favor of defendants
REYES, CYPRESS and CORNHILL that the consummated sale between them concerning the
subject property be given this Court’s imprimatur, for if RIVIERA lost its opportunity to acquire
it, it has only itself to blame. For after all, REYES’ fundamental and intrinsic right of ownership
which necessarily carries with it the exclusive right to dispose of it to whoever he pleases, must
ultimately prevail over RIVIERA’s right of first refusal which it unscrupulously tried to exercise.
From this decision, Riviera filed a motion for reconsideration,31 but the appellate court denied
the same in a Resolution dated September 22, 1994.32
Hence, Riviera interposed the instant petition anchored on the following errors:33
I In the petition at bar, Riviera posits the view that its right of first refusal was totally disregarded
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN RULING THAT
PETITIONER RIVIERA FILIPINA, INC. ALREADY LOST ITS RIGHT OF FIRST REFUSAL.
II
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN NOT FINDING THAT IT
WAS THE PETITIONER, NOT RESPONDENT JUAN L. REYES, WHICH HAD BEEN
THOROUGHLY DECEIVED BY THE LATTER OUT OF ITS RIGHTS TO ITS CONTINUING
PREJUDICE.
III
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN DENYING
RECONSIDERATION.
IV
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN DECIDING PETITIONER’S
APPEAL AT A TIME WHEN THE PRINCIPAL APPELLEE IS ALLEGEDLY DEAD AND NO
PROPER SUBSTITUTION OF THE ALLEGED DECEASED PARTY HAS BEEN MADE;
HENCE, THE DECISION OF THE COURT OF APPEALS AND ITS RESOLUTION DENYING
RECONSIDERATION, IS NULL AND VOID.
At the outset, we note that, while Riviera alleges that the Court of Appeals committed grave
abuse of discretion amounting to lack or excess of jurisdiction, the instant petition is, as it should
be, treated as a petition for review under Rule 45 and not as a special civil action for certiorari
under Rule 65 of the Revised Rules of Court, now the 1997 Rules of Civil Procedure.
The distinctions between Rule 45 and 65 are far and wide, the most notable of which is that
errors of jurisdiction are best reviewed in a special civil action for certiorari under Rule 65, while
errors of judgment are correctible only by appeal in a petition for review under Rule 45.34 The
rationale for the distinction is simple. When a court exercises its jurisdiction an error committed
while so engaged does not deprive it of the jurisdiction being exercised when the error is
committed. If it did, every error committed by a court would deprive it of its jurisdiction and
every erroneous judgment would be a void judgment. This cannot be allowed. The
administration of justice would not countenance such a rule. Thus, an error of judgment that
the court may commit in the exercise of its jurisdiction is not correctible through the original
special civil action of certiorari.35 Appeal from a final disposition of the Court of Appeals, as in
the case at bar, is by way of a petition for review under Rule 45.36
or violated by Reyes by the latter’s sale of the subject property to Cypress and Cornhill. It
contends that the right of first refusal principally amounts to a right to match in the sense that
it needs another offer for the right to be exercised.
The concept and interpretation of the right of first refusal and the consequences of a breach
thereof evolved in Philippine juristic sphere only within the last decade. It all started in 1992
with Guzman, Bocaling & Co. v. Bonnevie37 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,38 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.,39 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 Parañaque Kings Enterprises, Inc. v. Court of Appeals,40 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.
Thus, the prevailing doctrine 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.
However, we must remember that general propositions do not decide specific cases. Rather,
laws are interpreted in the context of the peculiar factual situation of each proceeding. Each
case has its own flesh and blood and cannot be ruled upon on the basis of isolated clinical
classroom principles.41 Analysis and construction should not be limited to the words used in
the contract, as they may not accurately reflect the parties’ true intent.42 The court must read
a contract as the average person would read it and should not give it a strained or forced
construction.43
In the case at bar, the Court finds relevant and significant the cardinal rule in the interpretation
of contracts that the intention of the parties shall be accorded primordial consideration and in
case of doubt, their contemporaneous and subsequent acts shall be principally considered.44
Where the parties to a contract have given it a practical construction by their conduct as by
acts in partial performance, such construction may be considered by the court in construing the
contract, determining its meaning and ascertaining the mutual intention of the parties at the
time for contracting. The parties’ practical construction of their contract has been characterized
as a clue or index to, or as evidence of, their intention or meaning and as an important,
significant, convincing, persuasive, or influential factor in determining the proper construction
of the contract.45
An examination of the attendant particulars of the case do not persuade us to uphold Riviera’s
view. As clearly shown by the records and transcripts of the case, the actions of the parties to
the contract of lease, Reyes and Riviera, shaped their understanding and interpretation of the
lease provision "right of first refusal" to mean simply that should the lessor Reyes decide to sell
the leased property during the term of the lease, such sale should first be offered to the lessee
Riviera. And that is what exactly ensued between Reyes and Riviera, a series of negotiations
on the price per square meter of the subject property with neither party, especially Riviera,
unwilling to budge from his offer, as evidenced by the exchange of letters between the two
contenders.
It can clearly be discerned from Riviera’s letters dated December 2, 1988 and February 4, 1989
that Riviera was so intractable in its position and took obvious advantage of the knowledge of
the time element in its negotiations with Reyes as the redemption period of the subject
foreclosed property drew near. Riviera strongly exhibited a "take-it or leave-it" attitude in its
negotiations with Reyes. It quoted its "fixed and final" price as Five Thousand Pesos
(P5,000.00) and not any peso more. It voiced out that it had other properties to consider so
Reyes should decide and make known its decision "within fifteen days." Riviera, in its letter
dated February 4, 1989, admittedly, even downgraded its offer when Reyes offered anew the
property to it, such that whatever amount Reyes initially receives from Riviera would absolutely
be insufficient to pay off the redemption price of the subject property. Naturally, Reyes had to
disagree with Riviera’s highly disadvantageous offer.
Nary a howl of protest or shout of defiance spewed forth from Riviera’s lips, as it were, but a
seemingly whimper of acceptance when the counsel of Reyes strongly expressed in a letter
dated December 5, 1989 that Riviera had lost its right of first refusal. Riviera cannot now be
heard that had it been informed of the offer of Five Thousand Three Hundred Pesos
(P5,300.00) of Cypress and Cornhill it would have matched said price. Its stubborn approach
in its negotiations with Reyes showed crystal-clear that there was never any need to disclose
such information and doing so would be just a futile effort on the part of Reyes. Reyes was
under no obligation to disclose the same. Pursuant to Article 133946 of the New Civil Code,
silence or concealment, by itself, does not constitute fraud, unless there is a special duty to
disclose certain facts, or unless according to good faith and the usages of commerce the
communication should be made.47 We apply the general rule in the case at bar since Riviera
failed to convincingly show that either of the exceptions are relevant to the case at bar.
In sum, the Court finds that in the interpretation of the right of first refusal as understood by the
parties herein, the question as to what is to be included therein or what is meant by the same,
as in all other provisions of the contract, is for the parties and not for the court to determine,
and this question may not be resolved by what the parties might have provided had they
thought about it, which is evident from Riviera claims, or by what the court might conclude
regarding abstract fairness.48
The Court would be rewriting the contract of Reyes and Riviera under the guise of construction
were we to interpret the right of first refusal as Riviera propounds it, despite a contrary
construction as exhibited by its actions. A court, even the Supreme Court, has no right to make
new contracts for the parties or ignore those already made by them, simply to avoid seeming
hardships. Neither abstract justice nor the rule of liberal construction justifies the creation of a
contract for the parties which they did not make themselves or the imposition upon one party
to a contract of an obligation not assumed.49
On the last error attributed to the Court of Appeals which is the effect on the jurisdiction of the
appellate court of the non-substitution of Reyes, who died during the pendency of the appeal,
the Court notes that when Riviera filed its petition with this Court and assigned this error, it later
filed on October 27, 1994 a Manifestation50 with the Court of Appeals stating that it has
discovered that Reyes is already dead, in view of which the appellate court issued a Resolution
dated December 16, 1994 which noted the manifestation of Riviera and directed the counsel
of Reyes to submit a copy of the latter’s death certificate and to file the proper motion for
substitution of party.51 Complying therewith, the necessary motion for substitution of deceased
Reyes, who died on January 7, 1994, was filed by the heirs, namely, Estefania B. Reyes,
Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel B. Reyes.52 Acting on the motion for
substitution, the Court of Appeals granted the same.53
Notwithstanding the foregoing, Section 1654 and 1755 of Rule 3 of the Revised Rules of Court,
upon which Riviera anchors its argument, has already been amended by the 1997 Rules of
Civil Procedure.56 Even applying the old Rules, the failure of a counsel to comply with his duty
under Section 16 of Rule 3 of the Revised Rules of Court, to inform the court of the death of
his client and no substitution of such is effected, will not invalidate the proceedings and the
judgment thereon if the action survives the death of such party,57 as this case does, since the
death of Reyes did not extinguish his civil personality. The appellate court was well within its
jurisdiction to proceed as it did with the case since the death of a party is not subject to its
judicial notice. Needless to stress, the purpose behind the rule on substitution of parties is the
protection of the right of every party to due process. This purpose has been adequately met in
this case since both parties argued their respective positions through their pleadings in the trial
court and the appellate court. Besides, the Court has already acquired jurisdiction over the
heirs of Reyes by voluntarily submitting themselves to our jurisdiction.58

In view of all the foregoing, the Court is convinced that the appellate court committed no
reversible error in its challenged Decision.1âwphi1.nêt
WHEREFORE, the instant petition is hereby DENIED, and the Decision of the Court of Appeals
dated June 6, 1994 in CA-G.R. CV No. 26513 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Bellosillo, Mendoza, and Quisumbing, JJ., concur.
G.R. No. 106837 August 4, 1993
HENRY MACION and ANGELES MACION, petitioners,
vs.
HON. JAPAL M. GUIANI, in his capacity as Presiding Judge of the Regional Trial Court
Branch 14, Cotabato City and DELA VIDA INSTITUTE represented by MS. JOSEPHINE
LANZADERAS, respondents.
Leonardo J. Rendon for petitioners.
Mama Dalandag for private respondent Dela Vida Institute.
ROMERO, J.:
The subject of this litigation revolves around two (2) parcels of adjoining lots owned by
petitioners which are the proposed extension sites of De La Vida Institute, an educational
institution located in Cotabato City.
On April 26, 1991, the petitioners and private respondent entered into a contract to sell under
which terms, private respondent, as president of De la Vida Institute, assured petitioners that
they would buy the said properties on or before July 31, 1991 in the amount of P1,750,000.00.
In the meantime, petitioners surrendered the physical possession of the two lots to private
respondent who promptly built an edifice worth P800,000.00.1
But on July 31, 1991, the sale did not materialize. Consequently, petitioners filed a complaint
for unlawful detainer against private respondent (MTCC Civil Case No. 2739). In retaliation,
private respondent filed a complaint for reformation of the contract to sell executed on April 26,
1991 (Civil Case 592).2 Afterwards, the parties met to settle their differences.
On February 6, 1992, the parties entered into a compromise agreement which stipulated
among others that petitioners would give private respondent five (5) months to raise the amount
of P2,060,000.00;3 that in the event of failure to raise the said amount within the designated
period, private respondent would vacate the premises immediately. The compromise
agreement, inter alia, provided:
6. that upon the execution of this agreement, the defendant will furnish the plaintiff with
xerox copy of the land title for each lot which the latter may use for the purpose of providing
information in securing a loan from any financing or banking institution of their choice.
7. that if within the period of five (5) months from and after February 6, 1992, the plaintiff
succeeds in obtaining funds for the purpose of settling their obligations with defendants in the
total sum of P2,060,000.00 the latter shall oblige themselves to execute, sign and deliver to the
former the corresponding Deed of Sale for the two (2) lots which is the subject of this case and
turn-over to said plaintiff the owner's duplicate copy of TCT Nos. T-22004 and T-22005 of the
Registry of Deeds for the City of Cotabato.
In affirmation of the compromise agreement, the Board of Trustees of De La Vida College
passed thereafter a resolution expressing full support to the said agreement entered into
between the parties.4
On March 10, 1992, private respondent wrote petitioners that "the compromise agreement we
have had in the presence of Judge Guiani is not the same as per attached xerox copy you gave
us." In that letter, which essentially was a counter proposal, private respondent said that the
price of P2,060,000.00 was higher than they were willing to pay in the amount of P2,000,000.00
only.5 Other matters taken up in the letter were: De la Vida Institute would admit students and
hold classes until July 6, 1992 but in case they (private respondent) fail to deliver the said
amount, they would voluntarily vacate the premises and that "in the event that the bank and
other lending institutions give its nod and approval to our loan and require the submission of
other documents, you will give to us the Deed of Sale and Owner's copies of the Titles of the
two (2) to t expedite release of the amount concerned."6
On March 25, 1992, the trial court approved the compromise agreement dated February 6,
1992.
Two (2) months after, private respondents, alleging that they had negotiated a loan from the
Bank of the Philippine Islands, wrote letters dated May 19, 20 and 26 requesting petitioners to
execute with them a contract to sell in their favor. On May 28, 1992, private respondent filed
with the trial court an urgent motion for an order directing petitioners to execute a contract to
sell in private respondent's favor in accordance with paragraph 7 of the compromise
agreement.7
On July 8, 1992, petitioners filed a motion for execution of judgement alleging that after a lapse
of five (5) months from February 6, 1992, private respondent have failed to settle their
obligations with petitioners.8
In its order dated August 6, 1992, respondent judge denied the motion for execution and
directed petitioners to execute the required contract to sell in favor of private respondent.
Respondent judge opined that the proximate cause of private respondent's failure to comply
with the compromise agreement was the refusal of petitioners to execute a contract to sell as
required under the agreement. Respondent judge added that petitioners should have executed
the contract to sell because anyway they would not be prejudiced since there was no transfer
of ownership involved in a contract to sell.9
Hence this instant petition for certiorari, with prayer for a temporary restraining order enjoining
respondent judge from enforcing its August 6, 1992 order.
On October 7, 1992, petitioners filed an Omnibus Urgent Motion praying that private
respondent be ordered to consign with the court below P135,000.00 representing rentals from
May 1991 to January 1992. In our resolution dated November 18, 1992, we granted said prayer.
On March 9, 1992, private respondent consigned with the Office of the Clerk of Court the sum
of P135,000.00. On March 29, 1993, petitioners filed with the lower court a motion to withdraw
the consigned amount and on April 5, 1993, the trial court released the consigned amount to
petitioners. 10
The issue in the case at bar is whether or not respondent judge committed grave abuse of
discretion in ordering petitioner to execute a contract to sell in favor of private respondent.
We dismiss the petition.
The resolution of this case hinges on whether the compromise agreement gives private
respondent-buyer the right to demand from petitioner-sellers the execution of a contract to sell
in favor of the former.
Apparently, paragraph 7 of the compromise agreement does not give such right to private
respondent-buyer. To wit:
7. that if within the period of five (5) months from and after February 6, 1992, the plaintiff
succeeds in obtaining funds for the purpose of settling their obligations with defendants in the
total sum of P2,060,000.00 the latter shall oblige themselves to execute, sign and deliver to the
former the corresponding Deed of Sale for the two (2) lots which is the subject of this case and
turn-over to said plaintiff the owner's duplicate copy of TCT Nos. T-22004 and T-22005 of the
Registry of Deeds for the City of Cotabato. (Italics provided).
From the aforecited paragraph, it is clear that the seller is obliged to execute a Deed of Sale
and not a Contract to Sell upon payment of the full price of P2.06 million. Thereafter, the sellers
would turn over to the buyers, respondents herein, the owner's duplicate copy of Transfer
Certificate of Title Nos. T-22004 and T-22005.
However, in the interpretation of the compromise agreement, we must delve in the
contemporaneous and subsequent acts of the parties to fathom the real intention of the parties.
11 A review of the facts reveal that even prior to the signing of the compromise agreement and
the filing of Civil Case No. 592 before the trial court, the parties had already entered into a
contract to sell. Thereafter, when the transaction failed to materialize, the parties filed suits
against each other; petitioners, their unlawful detainer case, and private respondent a
complaint for reformation of contract, alleging that petitioners in fact had caused the preparation
of the contract to sell dated April 26, 1991 with the understanding that the land would be used
as a collateral in obtaining a loan with DBP.
Said contract to sell was superseded by the compromise agreement entered into on February
6, 1992 containing the abovequoted paragraph. It must be recalled that private respondent was
given five (5) months from February 6, 1992, i. e., on or before July 6, 1992 to secure the
purchase price of the two (2) lots. We note that within the time frame agreed upon by the
parties, private respondents wrote three (3) letters dated may 19, 20 and 26 requesting
petitioners to execute a contract to sell in its favor.
Under these factual circumstances, we opine that the compromise agreement must be
interpreted as bestowing upon private respondent-buyer the power to demand a contract to
sell from petitioner-sellers. Where the seller promised to execute a deed of absolute sale upon
completing payment of the price, it is a contract to sell. 12 In the case at bar, the sale is still in
the executory stage since the passing of title is subject to a suspensive condition, namely, that
if private respondent is able to secure the needed funds to be used in the purchased of the two
(2) lots owned by petitioners. A mere executory sale, one where the sellers merely promise to
transfer the property at some future date, or where some conditions have to be fulfilled before
the contract is converted from an executory to an executed one, does not pass ownership over
the real estate being sold. 13
In our jurisdiction, it has been that an accepted bilateral promise to buy and sell is in a sense
similar to, but not exactly the same, as a perfected contract of sale because there is already a
meeting of minds upon the thing which is the object of the contract and upon the price. 14 But
a contract of sale is consummated only upon the delivery and payment. It cannot be denied
that the compromise agreement, having been signed by both parties, is tantamount to a
bilateral promise to buy and sell a certain thing for a price certain. Hence, this gives the
contracting parties rights in personam, such that each has the right to demand from the other
the fulfillment of their respective undertakings. 15 Demandability may be exercised at any time
after the execution of the Deed. 16
The order of respondent judge directing petitioners to issue a contract to sell does not place
petitioners in any danger of losing their property without consideration, for, to repeat, in a
contract to sell there is no immediate transfer of ownership. In contracts to sell, payment is a
positive suspensive condition, failure of which does not constitute a breach but an event that
prevents the obligation of the vendor to convey title from materializing, in accordance with
Article 1184 of the Civil Code. 17 Petitioners as promisors were never obliged to convey title
before the happening of the suspensive condition. In fact, nothing stood in the way of their
selling the property to another after a unsuccessful demand for said price upon the expiration
of the time agreed upon.
Since the period given by the petitioners under the compromise agreement has already lapsed,
we order the trial court to fix anew a period within which private respondents could secure the
needed funds for the purchase of the
land. 18 Moreover, considering that private respondents have only consigned rentals from May
1991 to January 1992 and have since accepted students for the present school year, it is only
proper that they be ordered to deposit the monthly rentals collected thereafter with the trial
court.
WHEREFORE, the instant petition is DISMISSED. Petitioners are hereby ordered to EXECUTE
a contract to sell in favor of private respondents. On the other hand, private respondent is
ordered to DEPOSIT with the trial court current rentals pending consummation of the
transaction between the parties. The trial court is ordered to FIX anew the period within which
private respondents may be given the opportunity to raise funds for the purchase of the two (2)
adjoining lots owned by petitioners.
SO ORDERED.
Feliciano, Bidin, Melo and Vitug, JJ., concur.
G.R. No. 166862 December 20, 2006
MANILA METAL CONTAINER CORPORATION, petitioner,
REYNALDO C. TOLENTINO, intervenor,
vs.
PHILIPPINE NATIONAL BANK, respondent,
DMCI-PROJECT DEVELOPERS, INC., intervenor.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in
CA-G.R. No. 46153 which affirmed the decision2 of the Regional Trial Court (RTC), Branch 71,
Pasig City, in Civil Case No. 58551, and its Resolution3 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 Amendment4 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,
petitioner's outstanding obligation to respondent PNB as of June 30, 1982,6 plus interests and
attorney's 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 Sale7 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 letter10 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 Petitioner's 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 petitioner's 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 PNB's proposal. Instead, it wrote another letter
dated December 12, 1984 requesting for a reconsideration. Respondent PNB replied in a letter
dated December 28, 1984, wherein it reiterated its proposal that petitioner purchase the
property for P2,660,000.00. PNB again informed petitioner that it would return the deposit
should petitioner desire to withdraw its offer to purchase the property.17 On February 25, 1985,
petitioner, through counsel, requested that PNB reconsider its letter dated December 28, 1984.
Petitioner declared that it had already agreed to the SAMD's 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 petitioner's 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 petitioner's 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 respondent's 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 petitioner's 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 defendant's acts of extra-judicially foreclosing the mortgage over plaintiff's
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 Metal's 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
attorney's 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:
1. Whether or not the June 4, 1985 letter of the defendant approving/accepting plaintiff's 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 PNB's counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit
petitioner had made.32 The trial court ruled that there was no perfected contract of sale
between the parties; hence, petitioner had no cause of action for specific performance against
respondent. The trial court declared that respondent had rejected petitioner's 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 Meanwhile, on June 17, 1993, petitioner's Board of Directors approved Resolution No. 3-004,
THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S LETTER
DATED 4 JUNE 1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANT'S 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
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, ATTOTRNEY'S FEES AND LITIGATION
EXPENSES.33
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 petitioner's 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.
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 PNB's
letter dated June 30, 1988 cannot revive the failed negotiations between the parties.
Respondent PNB merely asked petitioner to submit an amended offer to repurchase. While
petitioner reiterated its request for a lower selling price and that the balance of the repurchase
be reduced, however, respondent rejected the proposal in a letter dated August 1, 1989.
Petitioner filed a motion for reconsideration, which the CA likewise denied.
Thus, petitioner filed the instant petition for review on certiorari, alleging that:
I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT
THERE IS NO PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND
RESPONDENT.
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 PNB'S 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 respondent's 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 SAMD's 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 petitioner's 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 respondent's 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. Bormaheco39 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 respondent's breach of its obligation to petitioner. It did not amount
to a rejection of respondent's 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.
Petitioner's 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 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 respondent's 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 bank's 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 bank's claim to be P1,931,389.53 less deposit of P725,000.00, or
P1,206,389.00. Furthermore, while respondent's Board of Directors accepted petitioner's 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 petitioner's 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 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 respondent's 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 respondent's President reiterating its offer to purchase the property.59 There was no
response to petitioner's 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
petitioner's 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 respondent's Board of Directors to
accept petitioner's offer and sell the property for P1,574,560.47. Any acceptance by the SAMD
of petitioner's 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 petitioner's
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,
respondent's acceptance of petitioner's 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 petitioner's 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 MMCC's 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 petitioner's offer to purchase the property for P1,574,560.47. Unless and
until the respondent accepted the offer on these terms, no perfected contract of sale would
arise. Absent proof of the concurrence of all the essential elements of a contract of sale, the
giving of earnest money cannot establish the existence of a perfected contract of sale.63
It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to
accept the offer to purchase the property for P1,931,389.53. However, this amounted to an
amendment of respondent's 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 Bank's 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. Petitioner's request was ultimately rejected and respondent offered to refund its
P725,000.00 deposit.
In sum, then, there was no perfected contract of sale between petitioner and respondent over
the subject property.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.
The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container
Corporation.
SO ORDERED.
Ynares-Santiago, J., Working Chairperson, Austria-Martinez, and Chico-Nazario, JJ., concur.
Panganiban, C.J., retired as of December 7, 2006.
G.R. No. L-26872 July 25, 1975
VILLONCO REALTY COMPANY, plaintiff-appellee and EDITH PEREZ DE TAGLE,
intervenor-appellee,
vs.
BORMAHECO, INC., FRANCISCO N. CERVANTES and ROSARIO N. CERVANTES,
defendants-appellants. Meer, Meer & Meer for plaintiff-appellee.
J. Villareal, Navarro and Associates for defendants-appellants.
P. P. Gallardo and Associates for intervenor-appellee.
AQUINO, J.:
This action was instituted by Villonco Realty Company against Bormaheco, Inc. and the
spouses Francisco N. Cervantes and Rosario N. Cervantes for the specific performance of a
supposed contract for the sale of land and the improvements thereon for one million four
hundred thousand pesos. Edith Perez de Tagle, as agent, intervened in order to recover her
commission. The lower court enforced the sale. Bormaheco, Inc. and the Cervantes spouses,
as supposed vendors, appealed.
This Court took cognizance of the appeal because the amount involved is more than P200,000
and the appeal was perfected before Republic Act No. 5440 took effect on September 9, 1968.
The facts are as follows:
Francisco N. Cervantes and his wife, Rosario P. Navarra-Cervantes, are the owners of lots 3,
15 and 16 located at 245 Buendia Avenue, Makati, Rizal with a total area of three thousand
five hundred square meters (TCT Nos. 43530, 43531 and 43532, Exh. A, A-1 and A-2). The
lots were mortgaged to the Development Bank of the Phil (DBP) on April 21, 1959 as security
for a loan of P441,000. The mortgage debt was fully paid on July 10, 1969.
Cervantes is the president of Bormaheco, Inc., a dealer and importer of industrial and
agricultural machinery. The entire lots are occupied by the building, machinery and equipment
of Bormaheco, Inc. and are adjacent to the property of Villonco Realty Company situated at
219 Buendia Avenue.
In the early part of February, 1964 there were negotiations for the sale of the said lots and the
improvements thereon between Romeo Villonco of Villonco Realty Company "and Bormaheco,
Inc., represented by its president, Francisco N. Cervantes, through the intervention of Edith
Perez de Tagle, a real estate broker".
In the course of the negotiations, the brothers Romeo Villonco and Teofilo Villonco conferred
with Cervantes in his office to discuss the price and terms of the sale. Later, Cervantes "went
to see Villonco for the same reason until some agreement" was arrived at. On a subsequent
occasion, Cervantes, accompanied by Edith Perez de Tagle, discussed again the terms of the
sale with Villonco.
During the negotiations, Villonco Realty Company assumed that the lots belonged to
Bormaheco, Inc. and that Cervantes was duly authorized to sell the same. Cervantes did not
disclose to the broker and to Villonco Realty Company that the lots were conjugal properties of
himself and his wife and that they were mortgaged to the DBP.
Bormaheco, Inc., through Cervantes, made a written offer dated February 12, 1964, to Romeo
Villonco for the sale of the property. The offer reads (Exh. B):
BORMAHECO, INC.
February 12,1964
Mr. Romeo
Villonco Villonco Building
Buendia Avenue
Makati, Rizal.
Dear Mr. Villonco:
This is with reference to our telephone conversation this noon on the matter of the sale of our
property located at Buendia Avenue, with a total area of 3,500 sq. m., under the following
conditions:
(1) That we are offering to sell to you the above property at the price of P400.00 per square
meter;
(2) That a deposit of P100,000.00 must be placed as earnest money on the purchase of
the above property which will become part payment of the property in the event that the sale is
consummated;
(3) That this sale is to be consummated only after I shall have also consummated my
purchase of another property located at Sta. Ana, Manila;
(4) That if my negotiations with said property will not be consummated by reason beyond
my control, I will return to you your deposit of P100,000 and the sale of my property to you will
not also be consummated; and
(5) That final negotiations on both properties can be definitely known after 45 days.
If the above terms is (are) acceptable to your Board, please issue out the said earnest money
in favor of Bormaheco, Inc., and deliver the same thru the bearer, Miss Edith Perez de Tagle.
Very truly yours,
SGD. FRANCISCO N. CERVANTES
President
The property mentioned in Bormaheco's letter was the land of the National Shipyards & Steel
Corporation (Nassco), with an area of twenty thousand square meters, located at Punta, Sta.
Ana, Manila. At the bidding held on January 17, 1964 that land was awarded to Bormaheco,
Inc., the highest bidder, for the price of P552,000. The Nassco Board of Directors in its
resolution of February 18, 1964 authorized the General Manager to sign the necessary contract
(Exh. H).
On February 28, 1964, the Nassco Acting General Manager wrote a letter to the Economic
Coordinator, requesting approval of that resolution. The Acting Economic Coordinator
approved the resolution on March 24, 1964 (Exh. 1).
In the meanwhile, Bormaheco, Inc. and Villonco Realty Company continued their negotiations
for the sale of the Buendia Avenue property. Cervantes and Teofilo Villonco had a final
conference on February 27, 1964. As a result of that conference Villonco Realty Company,
through Teofilo Villonco, in its letter of March 4, 1964 made a revised counter- offer (Romeo
Villonco's first counter-offer was dated February 24, 1964, Exh. C) for the purchase of the
property. The counter-offer was accepted by Cervantes as shown in Exhibit D, which is quoted
below:
VILLONCO REALTY COMPANY
V. R. C. Building
219 Buendia Avenue, Makati,
Rizal, Philippines
March 4, 1964
Mr. Francisco Cervantes.
Bormaheco, Inc.
245 Buendia Avenue
Makati, Rizal
Dear Mr. Cervantes:
In reference to the letter of Miss E. Perez de Tagle dated February 12th and 26, 1964 in respect
to the terms and conditions on the purchase of your property located at Buendia Ave., Makati,
Rizal, with a total area of 3,500 sq. meters., we hereby revise our offer, as follows:
 The check for P100,000 (Exh. E) mentioned in the foregoing letter-contract was delivered by
1. That the price of the property shall be P400.00 per sq. m., including the improvements Edith Perez de Tagle to Bormaheco, Inc. on March 4, 1964 and was received by Cervantes. In
thereon; the voucher-receipt evidencing the delivery the broker indicated in her handwriting that the
earnest money was "subject to the terms and conditions embodied in Bormaheco's letter" of
2. That a deposit of P100,000.00 shall be given to you as earnest money which will February 12 and Villonco Realty Company's letter of March 4, 1964 (Exh. E-1; 14 tsn).
become as part payment in the event the sale is consummated;
Then, unexpectedly, in a letter dated March 30, 1964, or twenty-six days after the signing of
3. This sale shall be cancelled, only if your deal with another property in Sta. Ana shall the contract of sale, Exhibit D, Cervantes returned the earnest money, with interest amounting
not be consummated and in such case, the P100,000-00 earnest money will be returned to us to P694.24 (at ten percent per annum). Cervantes cited as an excuse the circumstance that
with a 10% interest p.a. However, if our deal with you is finalized, said P100,000.00 will become "despite the lapse of 45 days from February 12, 1964 there is no certainty yet" for the
as part payment for the purchase of your property without interest: acquisition of the Punta property (Exh. F; F-I and F-2). Villonco Realty Company refused to
accept the letter and the checks of Bormaheco, Inc. Cervantes sent them by registered mail.
4. The manner of payment shall be as follows: When he rescinded the contract, he was already aware that the Punta lot had been awarded
to Bormaheco, Inc. (25-26 tsn).
a. P100,000.00 earnest money and
650,000.00 as part of the down payment, or Edith Perez de Tagle, the broker, in a letter to Cervantes dated March 31, 1964 articulated her
P750,000.00 as total down payment shock and surprise at Bormaheco's turnabout. She reviewed the history of the deal and
explained why Romeo Villonco could not agree to the rescission of the sale (Exh. G).**
b. The balance is payable as follows:
P100,000.00 after 3 months Cervantes in his letter of April 6, 1964, a reply to Miss Tagle's letter, alleged that the forty-five
125,000.00 -do- day period had already expired and the sale to Bormaheco, Inc. of the Punta property had not
212,500.00 -do- been consummated. Cervantes said that his letter was a "manifestation that we are no longer
P650,000.00 Total interested to sell" the Buendia Avenue property to Villonco Realty Company (Annex I of
Stipulation of Facts). The latter was furnished with a copy of that letter.
As regards to the other conditions which we have discussed during our last conference on
February 27, 1964, the same shall be finalized upon preparation of the contract to sell.* In a letter dated April 7, 1964 Villonco Realty Company returned the two checks to Bormaheco,
Inc., stating that the condition for the cancellation of the contract had not arisen and at the
If the above terms and conditions are acceptable to you, kindly sign your conformity hereunder. same time announcing that an action for breach of contract would be filed against Bormaheco,
Enclosed is our check for ONE HUNDRED THOUSAND (P100,000.00) PESOS, MBTC Check Inc. (Annex G of Stipulation of Facts).1äwphï1.ñët
No. 448314, as earnest money.
On that same date, April 7, 1964 Villonco Realty Company filed the complaint (dated April 6)
Very truly yours, for specific performance against Bormaheco, Inc. Also on that same date, April 7, at eight-forty-
five in the morning, a notice of lis pendens was annotated on the titles of the said lots.
VILLONCO REALTY COMPANY
(Sgd.) TEOFILO VILLONCO Bormaheco, Inc. in its answers dated May 5 and 25, 1964 pleaded the defense that the
perfection of the contract of sale was subject to the conditions (a) "that final acceptance or not
CONFORME: shall be made after 45 days" (sic) and (b) that Bormaheco, Inc. "acquires the Sta. Ana
property".
BORMAHECO, INC.
(Sgd.) FRANCISCO CERVANTES On June 2, 1964 or during the pendency of this case, the Nassco Acting General Manager
wrote to Bormaheco, Inc., advising it that the Board of Directors and the Economic Coordinator
That this sale shall be subject to favorable consummation of a property in Sta. Ana we are had approved the sale of the Punta lot to Bormaheco, Inc. and requesting the latter to send its
negotiating. duly authorized representative to the Nassco for the signing of the deed of sale (Exh. 1).

(Sgd.) FRANCISCO CERVANTES

The deed of sale for the Punta land was executed on June 26, 1964. Bormaheco, Inc. was
represented by Cervantes (Exh. J. See Bormaheco, Inc. vs. Abanes, L-28087, July 31, 1973,
52 SCRA 73).
In view of the disclosure in Bormaheco's amended answer that the three lots were registered
in the names of the Cervantes spouses and not in the name of Bormaheco, Inc., Villonco Realty
Company on July 21, 1964 filed an amended complaint impleading the said spouses as
defendants. Bormaheco, Inc. and the Cervantes spouses filed separate answers.
As of January 15, 1965 Villonco Realty Company had paid to the Manufacturers' Bank & Trust
Company the sum of P8,712.25 as interests on the overdraft line of P100,000 and the sum of
P27.39 as interests daily on the same loan since January 16, 1965. (That overdraft line was
later settled by Villonco Realty Company on a date not mentioned in its manifestation of
February 19, 1975).
Villonco Realty Company had obligated itself to pay the sum of P20,000 as attorney's fees to
its lawyers. It claimed that it was damaged in the sum of P10,000 a month from March 24, 1964
when the award of the Punta lot to Bormaheco, Inc. was approved. On the other hand,
Bormaheco, Inc. claimed that it had sustained damages of P200,000 annually due to the notice
of lis pendens which had prevented it from constructing a multi-story building on the three lots.
(Pars. 18 and 19, Stipulation of Facts).1äwphï1.ñët
Miss Tagle testified that for her services Bormaheco, Inc., through Cervantes, obligated itself
to pay her a three percent commission on the price of P1,400,000 or the amount of forty-two
thousand pesos (14 tsn).
After trial, the lower court rendered a decision ordering the Cervantes spouses to execute in
favor of Bormaheco, Inc. a deed of conveyance for the three lots in question and directing
Bormaheco, Inc. (a) to convey the same lots to Villonco Realty Company, (b) to pay the latter,
as consequential damages, the sum of P10,000 monthly from March 24, 1964 up to the
consummation of the sale, (c) to pay Edith Perez de Tagle the sum of P42,000 as broker's
commission and (d) pay P20,000 as to attorney's fees (Civil Case No. 8109).
Bormaheco, Inc. and the Cervantes spouses appealed. Their principal contentions are (a) that
no contract of sale was perfected because Cervantes made a supposedly qualified acceptance
of the revised offer contained in Exhibit D, which acceptance amounted to a counter-offer, and
because the condition that Bormaheco, inc. would acquire the Punta land within the forty-five-
day period was not fulfilled; (2) that Bormaheco, Inc. cannot be compelled to sell the land which
belongs to the Cervantes spouses and (3) that Francisco N. Cervantes did not bind the conjugal
partnership and his wife when, as president of Bormaheco, Inc., he entered into negotiations
with Villonco Realty Company regarding the said land.
We hold that the appeal, except as to the issue of damages, is devoid of merit.
"By the contract of sale one of the contracting parties obligates himself to transfer the ownership
of and to deliver a determining thing, and the other to pay therefor a price certain in money or
its equivalent. A contract of sale may be absolute or conditional" (Art. 1458, Civil Code).
"The contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. From that moment, the parties may
reciprocally demand performance, subject to the provisions of the law governing the form of
contracts" (Art. 1475, Ibid.).
"Contracts are perfected by mere consent, and from that moment the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage and law" (Art. 1315,
Civil Code).
"Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer" (Art. 1319, Civil Code). "An
acceptance may be express or implied" (Art. 1320, Civil Code).
Bormaheco's acceptance of Villonco Realty Company's offer to purchase the Buendia Avenue
property, as shown in Teofilo Villonco's letter dated March 4, 1964 (Exh. D), indubitably proves
that there was a meeting of minds upon the subject matter and consideration of the sale.
Therefore, on that date the sale was perfected. (Compare with McCullough vs. Aenlle & Co., 3
Phil. 285; Goyena vs. Tambunting, 1 Phil. 490). Not only that Bormaheco's acceptance of the
part payment of one hundred ,thousand pesos shows that the sale was conditionally
consummated or partly executed subject to the purchase by Bormaheco, Inc. of the Punta
property. The nonconsummation of that purchase would be a negative resolutory condition
(Taylor vs. Uy Tieng Piao, 43 Phil. 873).
On February 18, 1964 Bormaheco's bid for the Punta property was already accepted by the
Nassco which had authorized its General Manager to sign the corresponding deed of sale.
What was necessary only was the approval of the sale by the Economic Coordinator and a
request for that approval was already pending in the office of that functionary on March 4, 1964.
Bormaheco, Inc. and the Cervantes spouses contend that the sale was not perfected because
Cervantes allegedly qualified his acceptance of Villonco's revised offer and, therefore, his
acceptance amounted to a counter-offer which Villonco Realty Company should accept but no
such acceptance was ever transmitted to Bormaheco, Inc. which, therefore, could withdraw its
offer.
That contention is not well-taken. It should be stressed that there is no evidence as to what
changes were made by Cervantes in Villonco's revised offer. And there is no evidence that
Villonco Realty Company did not assent to the supposed changes and that such assent was
never made known to Cervantes.
What the record reveals is that the broker, Miss Tagle, acted as intermediary between the
parties. It is safe to assume that the alleged changes or qualifications made by Cervantes were
approved by Villonco Realty Company and that such approval was duly communicated to
Cervantes or Bormaheco, Inc. by the broker as shown by the fact that Villonco Realty Company
paid, and Bormaheco, Inc. accepted, the sum of P100,000 as earnest money or down payment.
That crucial fact implies that Cervantes was aware that Villonco Realty Company had accepted
the modifications which he had made in Villonco's counter-offer. Had Villonco Realty Company
not assented to those insertions and annotations, then it would have stopped payment on its
check for P100,000. The fact that Villonco Realty Company allowed its check to be cashed by
Bormaheco, Inc. signifies that the company was in conformity with the changes made by
Cervantes and that Bormaheco, Inc. was aware of that conformity. Had those insertions not
been binding, then Bormaheco, Inc. would not have paid interest at the rate of ten percent per
annum, on the earnest money of P100,000.
The truth is that the alleged changes or qualifications in the revised counter — offer (Exh. D)
are not material or are mere clarifications of what the parties had previously agreed upon.
Thus, Cervantes' alleged insertion in his handwriting of the figure and the words "12th and" in
Villonco's counter-offer is the same as the statement found in the voucher-receipt for the
earnest money, which reads: "subject to the terms and conditions embodied in Bormaheco's
letter of Feb. 12, 1964 and your letter of March 4, 1964" (Exh. E-1).
Cervantes allegedly crossed out the word "Nassco" in paragraph 3 of Villonco's revised
counter-offer and substituted for it the word "another" so that the original phrase, "Nassco's
property in Sta. Ana", was made to read as "another property in Sta. Ana". That change is
trivial. What Cervantes did was merely to adhere to the wording of paragraph 3 of Bormaheco's
original offer (Exh. B) which mentions "another property located at Sta. Ana." His obvious
purpose was to avoid jeopardizing his negotiation with the Nassco for the purchase of its Sta.
Ana property by unduly publicizing it.
It is noteworthy that Cervantes, in his letter to the broker dated April 6, 1964 (Annex 1) or after
the Nassco property had been awarded to Bormaheco, Inc., alluded to the "Nassco property".
At that time, there was no more need of concealing from the public that Bormaheco, Inc. was
interested in the Nassco property.
Similarly, Cervantes' alleged insertion of the letters "PA" ( per annum) after the word "interest"
in that same paragraph 3 of the revised counter-offer (Exh. D) could not be categorized as a
major alteration of that counter-offer that prevented a meeting of the minds of the parties. It
was understood that the parties had contemplated a rate of ten percent per annum since ten
percent a month or semi-annually would be usurious.
Appellants Bormaheco, Inc. and Cervantes further contend that Cervantes, in clarifying in the
voucher for the earnest money of P100,000 that Bormaheco's acceptance thereof was subject
to the terms and conditions embodied in Bormaheco's letter of February 12, 1964 and your
(Villonco's) letter of March 4, 1964" made Bormaheco's acceptance "qualified and conditional".
That contention is not correct. There is no incompatibility between Bormaheco's offer of
February 12, 1964 (Exh. B) and Villonco's counter-offer of March 4, 1964 (Exh. D). The revised
counter-offer merely amplified Bormaheco's original offer.
The controlling fact is that there was agreement between the parties on the subject matter, the
price and the mode of payment and that part of the price was paid. "Whenever earnest money
is given in a contract of sale, it shall be considered as part of the price and as proof of the
perfection of the contract" (Art. 1482, Civil Code).
"It is true that an acceptance may contain a request for certain changes in the terms of the offer
and yet be a binding acceptance. 'So long as it is clear that the meaning of the acceptance is
positively and unequivocally to accept the offer, whether such request is granted or not, a
contract is formed.' " (Stuart vs. Franklin Life Ins. Co., 165 Fed. 2nd 965, citing Sec. 79, Williston
on Contracts).
Thus, it was held that the vendor's change in a phrase of the offer to purchase, which change
does not essentially change the terms of the offer, does not amount to a rejection of the offer
and the tender of a counter-offer (Stuart vs. Franklin Life Ins. Co., supra).
The instant case is not governed by the rulings laid down in Beaumont vs. Prieto, 41 Phil. 670,
985, 63 L. Ed. 770, and Zayco vs. Serra, 44 Phil. 326. In those two cases the acceptance
radically altered the offer and, consequently, there was no meeting of the minds of the parties.
Thus, in the Zayco case, Salvador Serra offered to sell to Lorenzo Zayco his sugar central for
P1,000,000 on condition that the price be paid in cash, or, if not paid in cash, the price would
be payable within three years provided security is given for the payment of the balance within
three years with interest. Zayco, instead of unconditionally accepting those terms, countered
that he was going to make a down payment of P100,000, that Serra's mortgage obligation to
the Philippine National Bank of P600,000 could be transferred to Zayco's account and that he
(plaintiff) would give a bond to secure the payment of the balance of the price. It was held that
the acceptance was conditional or was a counter-offer which had to be accepted by Serra.
There was no such acceptance. Serra revoked his offer. Hence, there was no perfected
contract.
In the Beaumont case, Benito Valdes offered to sell to W Borck the Nagtahan Hacienda owned
by Benito Legarda, who had empowered Valdes to sell it. Borck was given three months from
December 4, 1911 to buy the hacienda for P307,000. On January 17, 1912 Borck wrote to
Valdes, offering to purchase the hacienda for P307,000 payable on May 1, 1912. No reply was
made to that letter. Borck wrote other letters modifying his proposal. Legarda refused to convey
the property.
It was held that Borck's January 17th letter plainly departed from the terms of the offer as to
the time of payment and was a counter-offer which amounted to a rejection of Valdes' original
offer. A subsequent unconditional acceptance could not revive that offer.
The instant case is different from Laudico and Harden vs. Arias Rodriguez, 43 Phil. 270 where
the written offer to sell was revoked by the offer or before the offeree's acceptance came to the
offeror's knowledge.
Appellants' next contention is that the contract was not perfected because the condition that
Bormaheco, Inc. would acquire the Nassco land within forty-five days from February 12, 1964
or on or before March 28, 1964 was not fulfilled. This contention is tied up with the following
letter of Bormaheco, Inc. (Exh. F):
BORMAHECO, INC.
March 30, 1964
Villonco Realty Company
V.R.C. Building
219 Buendia Ave.,
Makati, Rizal
Gentlemen:
We are returning herewith your earnest money together with interest thereon at 10% per
annum. Please be informed that despite the lapse of the 45 days from February 12, 1964 there
is no certainty yet for us to acquire a substitute property, hence the return of the earnest money
as agreed upon.
Very truly yours,
SGD. FRANCISCO N. CERVANTES
President
Encl.: P.N.B. Check No. 112994 J
P.N.B. Check No. 112996J
That contention is predicated on the erroneous assumption that Bormaheco, Inc. was to acquire
the Nassco land within forty-five days or on or before March 28, 1964.
The trial court ruled that the forty-five-day period was merely an estimate or a forecast of how
long it would take Bormaheco, Inc. to acquire the Nassco property and it was not "a condition
or a deadline set for the defendant corporation to decide whether or not to go through with the
sale of its Buendia property".
The record does not support the theory of Bormaheco, Inc. and the Cervantes spouses that
the forty-five-day period was the time within which (a) the Nassco property and two Pasong
Tamo lots should be acquired, (b) when Cervantes would secure his wife's consent to the sale
of the three lots and (c) when Bormaheco, Inc. had to decide what to do with the DBP
encumbrance.
Cervantes in paragraph 3 of his offer of February 12, 1964 stated that the sale of the Buendia
lots would be consummated after he had consummated the purchase of the Nassco property.
Then, in paragraph 5 of the same offer he stated "that final negotiations on both properties can
be definitely known after forty-five days" (See Exh. B).
It is deducible from the tenor of those statements that the consummation of the sale of the
Buendia lots to Villonco Realty Company was conditioned on Bormaheco's acquisition of the
Nassco land. But it was not spelled out that such acquisition should be effected within forty-five
days from February 12, 1964. Had it been Cervantes' intention that the forty-five days would
be the period within which the Nassco land should be acquired by Bormaheco, then he would
have specified that period in paragraph 3 of his offer so that paragraph would read in this wise:
"That this sale is to be consummated only after I shall have consummated my purchase of
another property located at Sta. Ana, Manila within forty-five days from the date hereof ." He
could have also specified that period in his "conforme" to Villonco's counter-offer of March 4,
1964 (Exh. D) so that instead of merely stating "that this sale shall be subject to favorable
consummation of a property in Sta. Ana we are negotiating" he could have said: "That this sale
shall be subject to favorable consummation within forty-five days from February 12, 1964 of a
property in Sta. Ana we are negotiating".
No such specification was made. The term of forty-five days was not a part of the condition that
the Nassco property should be acquired. It is clear that the statement "that final negotiations
on both property can be definitely known after 45 days" does not and cannot mean that
Bormaheco, Inc. should acquire the Nassco property within forty-five days from February 12,
1964 as pretended by Cervantes. It is simply a surmise that after forty-five days (in fact when
the forty-five day period should be computed is not clear) it would be known whether
Bormaheco, Inc. would be able to acquire the Nassco property and whether it would be able to
sell the Buendia property. That aforementioned paragraph 5 does not even specify how long
after the forty-five days the outcome of the final negotiations would be known.
It is interesting to note that in paragraph 6 of Bormaheco's answer to the amended complaint,
which answer was verified by Cervantes, it was alleged that Cervantes accepted Villonco's
revised counter-offer of March 4, 1964 subject to the condition that "the final negotiations
(acceptance) will have to be made by defendant within 45 days from said acceptance" (31
Record on Appeal). If that were so, then the consummation of Bormaheco's purchase of the
Nassco property would be made within forty-five days from March 4, 1964.
What makes Bormaheco's stand more confusing and untenable is that in its three answers it
invariably articulated the incoherent and vague affirmative defense that its acceptance of
Villonco's revised counter-offer was conditioned on the circumstance "that final acceptance or
not shall be made after 45 days" whatever that means. That affirmative defense is inconsistent
with the other aforequoted incoherent statement in its third answer that "the final negotiations
(acceptance) will have to be made by defendant within 45 days from said acceptance" (31
Record on Appeal).1äwphï1.ñët
Thus, Bormaheco's three answers and paragraph 5 of his offer of February 12, 1964 do not
sustain at all its theory that the Nassco property should be acquired on or before March 28,
1964. Its rescission or revocation of its acceptance cannot be anchored on that theory which,
as articulated in its pleadings, is quite equivocal and unclear.
It should be underscored that the condition that Bormaheco, Inc. should acquire the Nassco
property was fulfilled. As admitted by the appellants, the Nassco property was conveyed to
Bormaheco, Inc. on June 26, 1964. As early as January 17, 1964 the property was awarded to
Bormaheco, Inc. as the highest bidder. On February 18, 1964 the Nassco Board authorized its
General Manager to sell the property to Bormaheco, Inc. (Exh. H). The Economic Coordinator
approved the award on March 24, 1964. It is reasonable to assume that had Cervantes been
more assiduous in following up the transaction, the Nassco property could have been
transferred to Bormaheco, Inc. on or before March 28, 1964, the supposed last day of the forty-
five-day period.
The appellants, in their fifth assignment of error, argue that Bormaheco, Inc. cannot be required
to sell the three lots in question because they are conjugal properties of the Cervantes spouses.
They aver that Cervantes in dealing with the Villonco brothers acted as president of
Bormaheco, Inc. and not in his individual capacity and, therefore, he did not bind the conjugal
partnership nor Mrs. Cervantes who was allegedly opposed to the sale.
Those arguments are not sustainable. It should be remembered that Cervantes, in rescinding
the contract of sale and in returning the earnest money, cited as an excuse the circumstance
that there was no certainty in Bormaheco's acquisition of the Nassco property (Exh. F and
Annex 1). He did not say that Mrs. Cervantes was opposed to the sale of the three lots. He did
not tell Villonco Realty Company that he could not bind the conjugal partnership. In truth, he
concealed the fact that the three lots were registered "in the name of FRANCISCO
CERVANTES, Filipino, of legal age, married to Rosario P. Navarro, as owner thereof in fee
simple". He certainly led the Villonco brothers to believe that as president of Bormaheco, Inc.
he could dispose of the said lots. He inveigled the Villoncos into believing that he had
untrammelled control of Bormaheco, Inc., that Bormaheco, Inc. owned the lots and that he was
invested with adequate authority to sell the same.
Thus, in Bormaheco's offer of February 12, 1964, Cervantes first identified the three lots as
"our property" which "we are offering to sell ..." (Opening paragraph and par. 1 of Exh. B).
Whether the prounoun "we" refers to himself and his wife or to Bormaheco, Inc. is not clear.
Then, in paragraphs 3 and 4 of the offer, he used the first person and said: "I shall have
consummated my purchase" of the Nassco property; "... my negotiations with said property"
and "I will return to you your deposit". Those expressions conveyed the impression and
generated the belief that the Villoncos did not have to deal with Mrs. Cervantes nor with any
other official of Bormaheco, Inc.
The pleadings disclose that Bormaheco, Inc. and Cervantes deliberately and studiously
avoided making the allegation that Cervantes was not authorized by his wife to sell the three
lots or that he acted merely as president of Bormaheco, Inc. That defense was not interposed
so as not to place Cervantes in the ridiculous position of having acted under false pretenses
when he negotiated with the Villoncos for the sale of the three lots.
Villonco Realty Company, in paragraph 2 of its original complaint, alleged that "on February
12, 1964, after some prior negotiations, the defendant (Bormaheco, Inc.) made a formal offer
to sell to the plaintiff the property of the said defendant situated at the abovenamed address
along Buendia Avenue, Makati, Rizal, under the terms of the letter-offer, a copy of which is
hereto attached as Annex A hereof", now Exhibit B (2 Record on Appeal).
That paragraph 2 was not, repeat, was not denied by Bormaheco, Inc. in its answer dated May
5, 1964. It did not traverse that paragraph 2. Hence, it was deemed admitted. However, it filed
an amended answer dated May 25, 1964 wherein it denied that it was the owner of the three
lots. It revealed that the three lots "belong and are registered in the names of the spouses
Francisco N. Cervantes and Rosario N. Cervantes."
The three answers of Bormaheco, Inc. contain the following affirmative defense:
13. That defendant's insistence to finally decide on the proposed sale of the land in
question after 45 days had not only for its purpose the determination of its acquisition of the
said Sta. Ana (Nassco) property during the said period, but also to negotiate with the actual
and registered owner of the parcels of land covered by T.C.T. Nos. 43530, 43531 and 43532
in question which plaintiff was fully aware that the same were not in the name of the defendant
(sic; Par. 18 of Answer to Amended Complaint, 10, 18 and 34, Record on Appeal).
In that affirmative defense, Bormaheco, Inc. pretended that it needed forty- five days within
which to acquire the Nassco property and "to negotiate" with the registered owner of the three
lots. The absurdity of that pretension stands out in bold relief when it is borne in mind that the
answers of Bormaheco, Inc. were verified by Cervantes and that the registered owner of the
three lots is Cervantes himself. That affirmative defense means that Cervantes as president of
Bormaheco, Inc. needed forty-five days in order to "negotiate" with himself (Cervantes).
The incongruous stance of the Cervantes spouses is also patent in their answer to the
amended complaint. In that answer they disclaimed knowledge or information of certain
allegations which were well-known to Cervantes as president of Bormaheco, Inc. and which
were admitted in Bormaheco's three answers that were verified by Cervantes.
It is significant to note that Bormaheco, Inc. in its three answers, which were verified by
Cervantes, never pleaded as an affirmative defense that Mrs. Cervantes opposed the sale of
the three lots or that she did not authorize her husband to sell those lots. Likewise, it should be
noted that in their separate answer the Cervantes spouses never pleaded as a defense that
Mrs. Cervantes was opposed to the sale of three lots or that Cervantes could not bind the
conjugal partnership. The appellants were at first hesitant to make it appear that Cervantes had
committed the skullduggery of trying to sell property which he had no authority to alienate.
It was only during the trial on May 17, 1965 that Cervantes declared on the witness stand that
his wife was opposed to the sale of the three lots, a defense which, as already stated, was
never interposed in the three answers of Bormaheco, Inc. and in the separate answer of the
Cervantes spouses. That same viewpoint was adopted in defendants' motion for
reconsideration dated November 20, 1965.
But that defense must have been an afterthought or was evolved post litem motam since it was
never disclosed in Cervantes' letter of rescission and in his letter to Miss Tagle (Exh. F and
Annex 1). Moreover, Mrs. Cervantes did not testify at the trial to fortify that defense which had
already been waived for not having been pleaded (See sec. 2, Rule 9, Rules of Court).
Taking into account the situation of Cervantes vis-a-vis Bormaheco, Inc. and his wife and the
fact that the three lots were entirely occupied by Bormaheco's building, machinery and
equipment and were mortgaged to the DBP as security for its obligation, and considering that
appellants' vague affirmative defenses do not include Mrs. Cervantes' alleged opposition to the
sale, the plea that Cervantes had no authority to sell the lots strains the rivets of credibility (Cf.
Papa and Delgado vs. Montenegro, 54 Phil. 331; Riobo vs. Hontiveros, 21 Phil. 31).
"Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith" (Art. 1159, Civil Code). Inasmuch as the sale was
perfected and even partly executed, Bormaheco, Inc., and the Cervantes spouses, as a matter
of justice and good faith, are bound to comply with their contractual commitments.
Parenthetically, it may be observed that much misunderstanding could have been avoided had
the broker and the buyer taken the trouble of making some research in the Registry of Deeds
and availing themselves of the services of a competent lawyer in drafting the contract to sell.
Bormaheco, Inc. and the Cervantes spouses in their sixth assignment of error assail the trial
court's award to Villonco Realty Company of consequential damage amounting to ten thousand
pesos monthly from March 24, 1964 (when the Economic Coordinator approved the award of
the Nassco property to Bormaheco, Inc.) up to the consummation of the sale. The award was
based on paragraph 18 of the stipulation of facts wherein Villonco Realty Company "submits
that the delay in the consummation of the sale" has caused it to suffer the aforementioned
damages.
The appellants contend that statement in the stipulation of facts simply means that Villonco
Realty Company speculates that it has suffered damages but it does not mean that the parties
have agreed that Villonco Realty Company is entitled to those damages.
Appellants' contention is correct. As rightly observed by their counsel, the damages in question
were not specifically pleaded and proven and were "clearly conjectural and speculative".
However, appellants' view in their seventh assignment of error that the trial court erred in
ordering Bormaheco, Inc. to pay Villonco Realty Company the sum of twenty thousand pesos
as attorney's fees is not tenable. Under the facts of the case, it is evident that Bormaheco, Inc.
acted in gross and evident bad faith in refusing to satisfy the valid and just demand of Villonco
Realty Company for specific performance. It compelled Villonco Realty Company to incure
expenses to protect its interest. Moreover, this is a case where it is just and equitable that the
plaintiff should recover attorney's fees (Art. 2208, Civil Code).
The appellants in their eighth assignment of error impugn the trial court's adjudication of forty-
two thousand pesos as three percent broker's commission to Miss Tagle. They allege that there
is no evidence that Bormaheco, Inc. engaged her services as a broker in the projected sale of
the three lots and the improvements thereon. That allegation is refuted by paragraph 3 of the
stipulation of facts and by the documentary evidence. It was stipulated that Miss Tagle
intervened in the negotiations for the sale of the three lots. Cervantes in his original offer of
February 12, 1964 apprised Villonco Realty Company that the earnest money should be
delivered to Miss Tagle, the bearer of the letter-offer. See also Exhibit G and Annex I of the
stipulation of facts.
We hold that the trial court did not err in adjudging that Bormaheco, Inc. should pay Miss Tagle
her three percent commission.
WHEREFORE, the trial court's decision is modified as follows:
1. Within ten (10) days from the date the defendants-appellants receive notice from the
clerk of the lower court that the records of this case have been received from this Court, the
spouses Francisco N. Cervantes and Rosario P. Navarra-Cervantes should execute a deed
conveying to Bormaheco, Inc. their three lots covered by Transfer Certificate of Title Nos.
43530, 43531 and 43532 of the Registry of Deeds of Rizal.
2. Within five (5) days from the execution of such deed of conveyance, Bormaheco, Inc.
should execute in favor of Villonco Realty Company, V. R. C. Building, 219 Buendia Avenue,
Makati, Rizal a registerable deed of sale for the said three lots and all the improvements
thereon, free from all lien and encumbrances, at the price of four hundred pesos per square
meter, deducting from the total purchase price the sum of P100,000 previously paid by Villonco
Realty Company to Bormaheco, Inc.
3. Upon the execution of such deed of sale, Villonco Realty Company is obligated to pay
Bormaheco, Inc. the balance of the price in the sum of one million three hundred thousand
pesos (P1,300,000).
4. Bormaheco, Inc. is ordered (a) to pay Villonco Realty Company twenty thousand pesos
(P20,000) as attorney's fees and (b) to pay Edith Perez de Tagle the sum of forty-two thousand
pesos (P42,000) as commission. Costs against the defendants-appellants.
SO ORDERED.
Makalintal, C.J, Castro. Fernando, Makasiar, Antonio, Esguerra, Muñoz Palma, Concepcion
Jr. and Martin, JJ., concur.
Teehankee, J., is on leave.

Separate Opinions
BARREDO, J., concurring:
The comprehensive and well prepared opinion of Mr. Justice Aquino deserves concurrence
and I do not hesitate to accord my assent to it. The only purpose of the following lines is to
express my personal view regarding two basic points which I feel should be thoroughly
emphasized.
1. I am not for giving the letter proposal of appellant Francisco Cervantes to Romeo
Villonco of February 12, 1964, Exhibit B, any decisive importance. To my mind, it has no more
legal significance than what is appears to be — a mere unaccepted proposal. Accordingly, to
my mind, paragraph (5) thereof to the effect that "final negotiations on both properties can be
definitely known after 45 days" has no relevance in the disposition of this case, there being
nothing in the record to show that the same was accepted by appellee.
What to me is the actual contract between appellee and appellant Francisco Cervantes is the
counter-offer signed by Teofilo Villonco and addressed to the latter of March 4, 1964, Exhibit
D, which does not even make any reference to the above-mentioned proposal of Cervantes of
February 12, 1964, even as it mentions specifically the letters of the agent, Miss E. Perez de
Tagle, of February 12 and 26, 1964. The last paragraph of said Exhibit D reads thus: "If the
above terms and conditions are acceptable to you, kindly sign your conformity hereunder.
Enclosed is our check for One Hundred Thousand (P100,000) Pesos, M.B.T.C. Cheek No.
448314, as earnest money." And it is undisputed that Francisco Cervantes did affix his
signature in the place indicated for his conformity, albeit under the typewritten words,
Bormaheco, Inc. It is also a fact that on the same date, the stipulated P100,000 earnest money
was received by Cervantes.
It is true that in the voucher-receipt evidencing the delivery of the earnest money, the agent,
Miss Tagle, indicated in her own handwriting that the same was "subject to the terms and
conditions embodied in Bormaheco's letter of February 12, 1974 and Villonco Realty
Company's letter of March 4, 1974," but it is my considered opinion that such reservation
cannot be understood as comprehending reference to the above-quoted paragraph (5) of the
proposal of February 12, for the simple reason that since the parties had in fact continued
negotiating after February 12 until the final conference of February 27, Cervantes must be
deemed as having intended his signing of his conformity to the letter of March 4 to be the
formalization of the "final negotiations" referred to in said paragraph (5), thereby rendering said
provision of no further consequence. It should be noted that, to be sure, as said paragraph (5)
was worded, the idea it conveyed was that Cervantes was just making a mere tentative offer
which he would finalize only after 45 days, and so, when he signed Villonco's counter-offer of
March 4 and accepted the P100,000 earnest money tendered therein, no other significance
could be given to such acts than that they were meant to finalize and perfect the transaction in
advance of the 45-day waiting period originally proposed by him. Indeed, in the addendum
written and signed by Cervantes himself (not by the agent) to the March 4 letter, all that he
stated was that "this sale shall be subject to favorable consummation of a property in Sta. Ana
we are negotiating", and this was none other than the Nassco property which the Nassco Board
authorized its manager on February 18, 1964 to sell to appellants who had won the award the
day before. In other words, when Cervantes signed the space for his conformity to the terms
of that letter of March 4, he already knew or must have known that the acquisition of the Nassco
property was already an impending certainty and must have cared less about what had become
an unnecessary waiting period, hence the omission of any mention thereof by him in his
addendum.
My conclusion, therefore, is that said acts of Cervantes of signing his conformity to Villonco's
counter-offer of March 4 and accepting the P100,000 earnest money therein offered resulted
in a completely perfected contract of sale between the parties per Article 1482 of the Civil Code,
needing only the execution of the corresponding deed of sale for its consummation and subject
solely to the negative resolutory condition that the "sale shall be cancelled, only if your
(Cervantes') deal with another property in Sta. Ana (indisputably the Nassco transaction) shall
not be consummated", without stipulating anymore a period for such consummation, since
evidently, with the sale thereof having been authorized already by the Nassco Board on
February 18, 1964, the Villoncos must have been made to understand or they did understand
that such consummation was inexorably forthcoming. In fact, the Nassco Board already
approved on March 3, 1964 not only the award but the actual sale of the property to appellants,
and the Economic Coordinator gave his sanction thereto on March 24 following. Thus, as of
March 3, one day before Cervantes accepted Villonco's counter-offer, nothing more was left to
formalize the transaction with Nassco except that approval of the Economic Coordinator.
I cannot believe that Cervantes did not have up-to-date information of the progress of his
transactions with Nassco. Actually, from the legal standpoint, he was under obligation, if only
in consequence of his offer of February 12 and his continuous conversations and negotiations
with the Villoncos up to the signing of their agreement on March 4, to keep constant and close
tract thereof in order that he might be able to inform the parties he was dealing with of the real
status thereof, the finalization of the same being a material factor in the accomplishment of
their common purpose. Withal, equity would assume that he did what ought to have been done
by him in taking ordinary care of his concerns, which he is presumed to have taken, according
to Section 5 (d) of rule 131. Under these circumstances, I am amply persuaded that he must
have been aware of the favorable actuations of the Nassco authorities all the while that he was
dealing with appellee up to March 4, the day after the Nassco Board approved the sale.
Accordingly, I hold that when he gave his conformity to the counter-offer of the Villoncos of
March 4, he was already fully confident his transaction with Nassco would eventually
materialize.
What is worse is that assuming that the 45-day period invoked by him could be considered in
this discussion, it would be inequitable to allow him to take advantage thereof in the light of the
circumstances extant in the record. It cannot be denied that, as already stated, the Economic
Coordinator approved the Nassco transaction on March 24, 1964. Anyone would know, and
much more so Cervantes who was directly interested therein and must have been anxiously
and even excitedly waiting for it, that that was the last requisite for the inevitable execution of
the deed of sale in his favor. One has to be very naive and it would be contrary to the ordinary
course of human experience and business practices for anyone to concede to appellants that
when Cervantes wrote his letter to Villonco Realty Company of March 30, 1964 stating that
"despite the lapse of 45 days from February 12, 1964, there is no certainty yet for us to acquire
a substitute property", he did not even have the slightest inkling of the favorable action of the
Economic Coordinator of March 24. The same or more may be said relative to his letter to Miss
Tagle of as late as April 6, 1964 wherein he alleged that the forty-five day period had already
expired and the sale to Bormaheco, Inc. of the Punta (Nassco) property had not been
consummated as of then and that, therefore, his letter was a "manifestation that we are no
longer interested to sell" the Buendia property to the Villoncos.
I have no doubt whatsoever that the whole trouble here is that after Cervantes had already
signed his conformity and received earnest money on March 4, he had a change of heart,
perhaps dictated by reasons of better economic advantage, and banking on the idea, albeit
erroneous, that he could utilize paragraph (5) of his letter of February 12 as a escape door
through which he could squeeze out of the perfected contract with the Villoncos, he opted to
actually back out and break with them thru his letters of March 30 to them and of April 6 to the
agent, Miss Tagle. The Court would certainly be sanctioning a deliberate mala fide breach of a
contract already definitely perfected were it to buy the theory of non-perfection appellants are
lamely pressing on Us. No amount of rationalization can convince me that the Villoncos had
agreed to any 45-day suspensive condition for the perfection of the agreement, but even on
the remote assumption that they did, I would hold as I do hold that the purchase of the Nassco
property by appellants was virtually consummated, from the viewpoint of the spirit and intent of
the contract here in question, on March 24, 1964, when the Economic Coordinator approved
the same and nothing else remained to be done to formalize it except the actual execution of
the deed of sale which in fact took place on June 26, 1964, hence, Cervantes had no more
excuse for further delaying compliance with his agreement with the Villoncos. In other words,
for all legal purposes, assuming hypothetically the plausibility of the theory of appellants about
a 45-day waiting period, the negative resolutory condition arising from said theory became
inoperative four days before said 45 days expired. After the approval of the sale by the
Economic Coordinator, there was nothing anymore that could impede the formal conveyance
of the Nassco property to appellants, other than their own desistance, and even that might have
been legally controversial if Nassco insisted otherwise. Reading all the communications
exchanged between the parties, the conclusion therefrom is inevitable that the 45-day period
stipulation was inextricably tied up with appellants' being able to acquire the Nassco property.
In other words, Cervantes merely wanted to be sure that they would get the Nassco property
before proceeding with the sale of the Buendia property. To construe the 45-day stipulation as
giving Cervantes the absolute right to disregard the Villoncos entirely until after the 45 days
had expired is to render the whole of Cervantes' letter of February 12 as totally meaningless,
legally non-existent and as deceitfully farcical. Consequently, the acquisition of the Nassco
property having actually eventualized, it cannot lie in the lips of Cervantes to claim that he may
not be compelled to proceed with the transaction. To view the situation otherwise is to condone
resort to ambiguity as a means of deception and informality in contractual obligations, which in
my opinion is contrary to the elementary requirements of candidness and honest dealing
between responsible contracting parties, and in that sense offensive to public policy.
2. The contention of appellants that inasmuch as in actual fact the Buendia property
contemplated in the contract is the conjugal property of Cervantes spouses and that since in
dealing with the Villoncos, Cervantes acted as President of Bormaheco, Inc., the appellee
cannot have any right to compel the conveyance to them thereof is in my view definitely puerile.
It is predicated on duplicity and smacks of utter bad faith.
I do not find in the evidence before Us adequate basis for accepting the suggestion that
Francisco Cervantes acted for and in behalf of Bormaheco, Inc. in his dealing with the Villoncos.
The mere fact that he signed his letter of February 12, 1964 over the title of President, there
being no showing that he was duly authorized to make the offer therein contained in the name
of the corporation, did not convert it into a corporate act. The language of the letter which is
conspicuously sprinkled with the pronoun I used by Cervantes to refer to himself rather than
exclusively the pronoun we does not so indicate. Besides, Cervantes is undisputably the
registered owner with his wife of the property therein mentioned, and being evidently conscious,
as he ought to have been of this fact, he knew his act would be ultra vires and void, if he were
to act for the corporation. He was the manager of the conjugal partnership and he knew it was
only in that capacity that he could in good faith give validity to his representation, assuming the
conformity of his wife. Unless Cervantes wants Us to hold that he deliberately negotiated with
the Villoncos clothed in dubious garments of authority precisely to afford him the opportunity to
repudiate at his convenience any agreement they may enter into with him. I am for holding as
I do hold that Bormaheco, Inc. had nothing to do with the transaction here in controversy. In
any event, if Cervantes may held to have acted for Bormaheco, Inc., in spite of the absence of
evidence of any authority for him to do so, it must be because Bormaheco, Inc. is Cervantes
himself, and there being no proof to the contrary, the corporate shield of Bormaheco, Inc. may
be deemed pierced in order to prevent any further fraudulent implications in his actuations.
Moreover, it may be observed that the March 4 letter of Teofilo Villonco was not addressed to
Bormaheco, Inc. but to Francisco Cervantes and it does not even mention his being President
of that corporation.
Anent the requirement of consent of Mrs. Cervantes under Article 166 of the Civil Code, I
consider any defense along this line as unavailing to the appellants in this case. As very ably
discussed in the main opinion of Mr. Justice Aquino, the answer of the defendants, make no
reference at all to any lack of such consent. And considering that the subsequent testimony of
Cervantes to the effect that his wife opposed the transaction cannot cure such omission, if only
because any husband in the circumstances revealed in the record is estopped from setting up
such a defense (cf Riobo vs. Hontiveros, 21 Phil. 31; Papi vs. Montenegro, 54 Phil. 531; see
Civil Law by Reyes & Puno, 1964 ed. p. 192), and that from her silence in her answer in this
respect Mrs. Cervantes may either be presumed to have given her consent thereto or to have
ratified the same (Montederamos vs. Ynonoy, 56 Phil. 457; Castañeda vs. Samson, 43 Phil.
751), it is obvious that the belated invocation of this defense now should be deemed in fact and
in law as an unacceptable and ineffective afterthought. Besides, it appearing that the sale of
the Buendia property was purposely to enable the spouses to acquire the Nassco property, I
have grave doubts as to the application of Article 166 to the sale here in dispute. I believe that
the disposition by a husband prohibited by the Code unless consented to by the wife refers to
a transaction outrightly prejudicial to the partnership and cannot comprehend a sale made
precisely for its benefit and causing no loss thereto beyond the ordinary risks of misjudgment
of a manager acting in good faith.
IN VIEW OF THE FOREGOING, I would not even require the formality of the serial execution
of instruments by the Cervantes spouses and Bormaheco, Inc. In the view I have taken above,
it would be legally feasible for the sale to the Villonco Realty Property to be made directly by
the spouses. But I would not insist in the modification of the dispositive portion of the judgment,
since the result would be the same anyway.
Separate Opinions
BARREDO, J., concurring:
The comprehensive and well prepared opinion of Mr. Justice Aquino deserves concurrence
and I do not hesitate to accord my assent to it. The only purpose of the following lines is to
express my personal view regarding two basic points which I feel should be thoroughly
emphasized.
1. I am not for giving the letter proposal of appellant Francisco Cervantes to Romeo
Villonco of February 12, 1964, Exhibit B, any decisive importance. To my mind, it has no more
legal significance than what is appears to be — a mere unaccepted proposal. Accordingly, to
my mind, paragraph (5) thereof to the effect that "final negotiations on both properties can be
definitely known after 45 days" has no relevance in the disposition of this case, there being
nothing in the record to show that the same was accepted by appellee.
What to me is the actual contract between appellee and appellant Francisco Cervantes is the
counter-offer signed by Teofilo Villonco and addressed to the latter of March 4, 1964, Exhibit
D, which does not even make any reference to the above-mentioned proposal of Cervantes of
February 12, 1964, even as it mentions specifically the letters of the agent, Miss E. Perez de
Tagle, of February 12 and 26, 1964. The last paragraph of said Exhibit D reads thus: "If the
above terms and conditions are acceptable to you, kindly sign your conformity hereunder.
Enclosed is our check for One Hundred Thousand (P100,000) Pesos, M.B.T.C. Cheek No.
448314, as earnest money." And it is undisputed that Francisco Cervantes did affix his
signature in the place indicated for his conformity, albeit under the typewritten words,
Bormaheco, Inc. It is also a fact that on the same date, the stipulated P100,000 earnest money
was received by Cervantes.
It is true that in the voucher-receipt evidencing the delivery of the earnest money, the agent,
Miss Tagle, indicated in her own handwriting that the same was "subject to the terms and
conditions embodied in Bormaheco's letter of February 12, 1974 and Villonco Realty
Company's letter of March 4, 1974," but it is my considered opinion that such reservation
cannot be understood as comprehending reference to the above-quoted paragraph (5) of the
proposal of February 12, for the simple reason that since the parties had in fact continued
negotiating after February 12 until the final conference of February 27, Cervantes must be
deemed as having intended his signing of his conformity to the letter of March 4 to be the
formalization of the "final negotiations" referred to in said paragraph (5), thereby rendering said
provision of no further consequence. It should be noted that, to be sure, as said paragraph (5)
was worded, the idea it conveyed was that Cervantes was just making a mere tentative offer
which he would finalize only after 45 days, and so, when he signed Villonco's counter-offer of
March 4 and accepted the P100,000 earnest money tendered therein, no other significance
could be given to such acts than that they were meant to finalize and perfect the transaction in
advance of the 45-day waiting period originally proposed by him. Indeed, in the addendum
written and signed by Cervantes himself (not by the agent) to the March 4 letter, all that he
stated was that "this sale shall be subject to favorable consummation of a property in Sta. Ana
we are negotiating", and this was none other than the Nassco property which the Nassco Board
authorized its manager on February 18, 1964 to sell to appellants who had won the award the
day before. In other words, when Cervantes signed the space for his conformity to the terms
of that letter of March 4, he already knew or must have known that the acquisition of the Nassco
property was already an impending certainty and must have cared less about what had become
an unnecessary waiting period, hence the omission of any mention thereof by him in his
addendum.
My conclusion, therefore, is that said acts of Cervantes of signing his conformity to Villonco's
counter-offer of March 4 and accepting the P100,000 earnest money therein offered resulted
in a completely perfected contract of sale between the parties per Article 1482 of the Civil Code,
needing only the execution of the corresponding deed of sale for its consummation and subject
solely to the negative resolutory condition that the "sale shall be cancelled, only if your
(Cervantes') deal with another property in Sta. Ana (indisputably the Nassco transaction) shall
not be consummated", without stipulating anymore a period for such consummation, since
evidently, with the sale thereof having been authorized already by the Nassco Board on
February 18, 1964, the Villoncos must have been made to understand or they did understand
that such consummation was inexorably forthcoming. In fact, the Nassco Board already
approved on March 3, 1964 not only the award but the actual sale of the property to appellants,
and the Economic Coordinator gave his sanction thereto on March 24 following. Thus, as of
March 3, one day before Cervantes accepted Villonco's counter-offer, nothing more was left to
formalize the transaction with Nassco except that approval of the Economic Coordinator.
I cannot believe that Cervantes did not have up-to-date information of the progress of his
transactions with Nassco. Actually, from the legal standpoint, he was under obligation, if only
in consequence of his offer of February 12 and his continuous conversations and negotiations
with the Villoncos up to the signing of their agreement on March 4, to keep constant and close
tract thereof in order that he might be able to inform the parties he was dealing with of the real
status thereof, the finalization of the same being a material factor in the accomplishment of
their common purpose. Withal, equity would assume that he did what ought to have been done
by him in taking ordinary care of his concerns, which he is presumed to have taken, according
to Section 5 (d) of rule 131. Under these circumstances, I am amply persuaded that he must
have been aware of the favorable actuations of the Nassco authorities all the while that he was
dealing with appellee up to March 4, the day after the Nassco Board approved the sale.
Accordingly, I hold that when he gave his conformity to the counter-offer of the Villoncos of
March 4, he was already fully confident his transaction with Nassco would eventually
materialize.
What is worse is that assuming that the 45-day period invoked by him could be considered in
this discussion, it would be inequitable to allow him to take advantage thereof in the light of the
circumstances extant in the record. It cannot be denied that, as already stated, the Economic
Coordinator approved the Nassco transaction on March 24, 1964. Anyone would know, and
much more so Cervantes who was directly interested therein and must have been anxiously
and even excitedly waiting for it, that that was the last requisite for the inevitable execution of
the deed of sale in his favor. One has to be very naive and it would be contrary to the ordinary
course of human experience and business practices for anyone to concede to appellants that
when Cervantes wrote his letter to Villonco Realty Company of March 30, 1964 stating that
"despite the lapse of 45 days from February 12, 1964, there is no certainty yet for us to acquire
a substitute property", he did not even have the slightest inkling of the favorable action of the
Economic Coordinator of March 24. The same or more may be said relative to his letter to Miss
Tagle of as late as April 6, 1964 wherein he alleged that the forty-five day period had already
expired and the sale to Bormaheco, Inc. of the Punta (Nassco) property had not been
consummated as of then and that, therefore, his letter was a "manifestation that we are no
longer interested to sell" the Buendia property to the Villoncos.
I have no doubt whatsoever that the whole trouble here is that after Cervantes had already
signed his conformity and received earnest money on March 4, he had a change of heart,
perhaps dictated by reasons of better economic advantage, and banking on the idea, albeit
erroneous, that he could utilize paragraph (5) of his letter of February 12 as a escape door
through which he could squeeze out of the perfected contract with the Villoncos, he opted to
actually back out and break with them thru his letters of March 30 to them and of April 6 to the
agent, Miss Tagle. The Court would certainly be sanctioning a deliberate mala fide breach of a
contract already definitely perfected were it to buy the theory of non-perfection appellants are
lamely pressing on Us. No amount of rationalization can convince me that the Villoncos had
agreed to any 45-day suspensive condition for the perfection of the agreement, but even on
the remote assumption that they did, I would hold as I do hold that the purchase of the Nassco
property by appellants was virtually consummated, from the viewpoint of the spirit and intent of
the contract here in question, on March 24, 1964, when the Economic Coordinator approved
the same and nothing else remained to be done to formalize it except the actual execution of
the deed of sale which in fact took place on June 26, 1964, hence, Cervantes had no more
excuse for further delaying compliance with his agreement with the Villoncos. In other words,
for all legal purposes, assuming hypothetically the plausibility of the theory of appellants about
a 45-day waiting period, the negative resolutory condition arising from said theory became
inoperative four days before said 45 days expired. After the approval of the sale by the
Economic Coordinator, there was nothing anymore that could impede the formal conveyance
of the Nassco property to appellants, other than their own desistance, and even that might have
been legally controversial if Nassco insisted otherwise. Reading all the communications
exchanged between the parties, the conclusion therefrom is inevitable that the 45-day period
stipulation was inextricably tied up with appellants' being able to acquire the Nassco property.
In other words, Cervantes merely wanted to be sure that they would get the Nassco property
before proceeding with the sale of the Buendia property. To construe the 45-day stipulation as
giving Cervantes the absolute right to disregard the Villoncos entirely until after the 45 days
had expired is to render the whole of Cervantes' letter of February 12 as totally meaningless,
legally non-existent and as deceitfully farcical. Consequently, the acquisition of the Nassco
property having actually eventualized, it cannot lie in the lips of Cervantes to claim that he may
not be compelled to proceed with the transaction. To view the situation otherwise is to condone
resort to ambiguity as a means of deception and informality in contractual obligations, which in
my opinion is contrary to the elementary requirements of candidness and honest dealing
between responsible contracting parties, and in that sense offensive to public policy.
2. The contention of appellants that inasmuch as in actual fact the Buendia property
contemplated in the contract is the conjugal property of Cervantes spouses and that since in
dealing with the Villoncos, Cervantes acted as President of Bormaheco, Inc., the appellee
cannot have any right to compel the conveyance to them thereof is in my view definitely puerile.
It is predicated on duplicity and smacks of utter bad faith.
I do not find in the evidence before Us adequate basis for accepting the suggestion that
Francisco Cervantes acted for and in behalf of Bormaheco, Inc. in his dealing with the Villoncos.
The mere fact that he signed his letter of February 12, 1964 over the title of President, there
being no showing that he was duly authorized to make the offer therein contained in the name
of the corporation, did not convert it into a corporate act. The language of the letter which is
conspicuously sprinkled with the pronoun I used by Cervantes to refer to himself rather than
exclusively the pronoun we does not so indicate. Besides, Cervantes is undisputably the
registered owner with his wife of the property therein mentioned, and being evidently conscious,
as he ought to have been of this fact, he knew his act would be ultra vires and void, if he were
to act for the corporation. He was the manager of the conjugal partnership and he knew it was
only in that capacity that he could in good faith give validity to his representation, assuming the
conformity of his wife. Unless Cervantes wants Us to hold that he deliberately negotiated with
the Villoncos clothed in dubious garments of authority precisely to afford him the opportunity to
repudiate at his convenience any agreement they may enter into with him. I am for holding as
I do hold that Bormaheco, Inc. had nothing to do with the transaction here in controversy. In
any event, if Cervantes may held to have acted for Bormaheco, Inc., in spite of the absence of
evidence of any authority for him to do so, it must be because Bormaheco, Inc. is Cervantes
himself, and there being no proof to the contrary, the corporate shield of Bormaheco, Inc. may
be deemed pierced in order to prevent any further fraudulent implications in his actuations.
Moreover, it may be observed that the March 4 letter of Teofilo Villonco was not addressed to
Bormaheco, Inc. but to Francisco Cervantes and it does not even mention his being President
of that corporation.
Anent the requirement of consent of Mrs. Cervantes under Article 166 of the Civil Code, I
consider any defense along this line as unavailing to the appellants in this case. As very ably
discussed in the main opinion of Mr. Justice Aquino, the answer of the defendants, make no
reference at all to any lack of such consent. And considering that the subsequent testimony of
Cervantes to the effect that his wife opposed the transaction cannot cure such omission, if only
because any husband in the circumstances revealed in the record is estopped from setting up
such a defense (cf Riobo vs. Hontiveros, 21 Phil. 31; Papi vs. Montenegro, 54 Phil. 531; see
Civil Law by Reyes & Puno, 1964 ed. p. 192), and that from her silence in her answer in this
respect Mrs. Cervantes may either be presumed to have given her consent thereto or to have
ratified the same (Montederamos vs. Ynonoy, 56 Phil. 457; Castañeda vs. Samson, 43 Phil.
751), it is obvious that the belated invocation of this defense now should be deemed in fact and
in law as an unacceptable and ineffective afterthought. Besides, it appearing that the sale of
the Buendia property was purposely to enable the spouses to acquire the Nassco property, I
have grave doubts as to the application of Article 166 to the sale here in dispute. I believe that
the disposition by a husband prohibited by the Code unless consented to by the wife refers to
a transaction outrightly prejudicial to the partnership and cannot comprehend a sale made
precisely for its benefit and causing no loss thereto beyond the ordinary risks of misjudgment
of a manager acting in good faith.
IN VIEW OF THE FOREGOING, I would not even require the formality of the serial execution
of instruments by the Cervantes spouses and Bormaheco, Inc. In the view I have taken above,
it would be legally feasible for the sale to the Villonco Realty Property to be made directly by
the spouses. But I would not insist in the modification of the dispositive portion of the judgment,
since the result would be the same anyway.
G.R. No. 157493 February 5, 2007
RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and FERNANDO, ERNESTO,
LEONORA, BIBIANO, JR., LIBRADO and ENRIQUETA, all surnamed OESMER,
Petitioners,
vs.
PARAISO DEVELOPMENT CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules
of Civil Procedure seeking to reverse and set aside the Court of Appeals Decision1 dated 26
April 2002 in CA-G.R. CV No. 53130 entitled, Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado,
Enriqueta, Adolfo, and Jesus, all surnamed Oesmer vs. Paraiso Development Corporation, as
modified by its Resolution2 dated 4 March 2003, declaring the Contract to Sell valid and binding
with respect to the undivided proportionate shares of the six signatories of the said document,
herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer); and ordering them to execute the Deed of Absolute Sale concerning their
6/8 share over the subject parcels of land in favor of herein respondent Paraiso Development
Corporation, and to pay the latter the attorney’s fees plus costs of the suit. The assailed
Decision, as modified, likewise ordered the respondent to tender payment to the petitioners in
the amount of ₱3,216,560.00 representing the balance of the purchase price of the subject
parcels of land.
The facts of the case are as follows:
Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and Enriqueta, all surnamed
Oesmer, together with Adolfo Oesmer (Adolfo) and Jesus Oesmer (Jesus), are brothers and
sisters, and the co-owners of undivided shares of two parcels of agricultural and tenanted land
situated in Barangay Ulong Tubig, Carmona, Cavite, identified as Lot 720 with an area of
40,507 square meters (sq. m.) and Lot 834 containing an area of 14,769 sq. m., or a total land
area of 55,276 sq. m. Both lots are unregistered and originally owned by their parents, Bibiano
Oesmer and Encarnacion Durumpili, who declared the lots for taxation purposes under Tax
Declaration No. 34383 (cancelled by I.D. No. 6064-A) for Lot 720 and Tax Declaration No.
34374 (cancelled by I.D. No. 5629) for Lot 834. When the spouses Oesmer died, petitioners,
together with Adolfo and Jesus, acquired the lots as heirs of the former by right of succession.
Respondent Paraiso Development Corporation is known to be engaged in the real estate
business.
Sometime in March 1989, Rogelio Paular, a resident and former Municipal Secretary of
Carmona, Cavite, brought along petitioner Ernesto to meet with a certain Sotero Lee, President
of respondent Paraiso Development Corporation, at Otani Hotel in Manila. The said meeting
was for the purpose of brokering the sale of petitioners’ properties to respondent corporation.
Pursuant to the said meeting, a Contract to Sell5 was drafted by the Executive Assistant of
Sotero Lee, Inocencia Almo. On 1 April 1989, petitioners Ernesto and Enriqueta signed the
aforesaid Contract to Sell. A check in the amount of ₱100,000.00, payable to Ernesto, was
given as option money. Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and Librado also
signed the said Contract to Sell. However, two of the brothers, Adolfo and Jesus, did not sign
the document.
On 5 April 1989, a duplicate copy of the instrument was returned to respondent corporation.
On 21 April 1989, respondent brought the same to a notary public for notarization.
In a letter6 dated 1 November 1989, addressed to respondent corporation, petitioners informed
the former of their intention to rescind the Contract to Sell and to return the amount of
₱100,000.00 given by respondent as option money.
Respondent did not respond to the aforesaid letter. On 30 May 1991, herein petitioners,
together with Adolfo and Jesus, filed a Complaint7 for Declaration of Nullity or for Annulment
of Option Agreement or Contract to Sell with Damages before the Regional Trial Court (RTC)
of Bacoor, Cavite. The said case was docketed as Civil Case No. BCV-91-49.
During trial, petitioner Rizalino died. Upon motion of petitioners, the trial court issued an Order,8
dated 16 September 1992, to the effect that the deceased petitioner be substituted by his
surviving spouse, Josefina O. Oesmer, and his children, Rolando O. Oesmer and Fernando O.
Oesmer. However, the name of Rizalino was retained in the title of the case both in the RTC
and the Court of Appeals.
After trial on the merits, the lower court rendered a Decision9 dated 27 March 1996 in favor of
the respondent, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of herein
[respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and
binding only to the undivided proportionate share of the signatory of this document and recipient
of the check, [herein petitioner] co-owner Ernesto Durumpili Oesmer. The latter is hereby
ordered to execute the Contract of Absolute Sale concerning his 1/8 share over the subject two
parcels of land in favor of herein [respondent] corporation, and to pay the latter the attorney’s
fees in the sum of Ten Thousand (₱10,000.00) Pesos plus costs of suit.
The counterclaim of [respondent] corporation is hereby Dismissed for lack of merit.10
Unsatisfied, respondent appealed the said Decision before the Court of Appeals. On 26 April
2002, the appellate court rendered a Decision modifying the Decision of the court a quo by
declaring that the Contract to Sell is valid and binding with respect to the undivided
proportionate shares of the six signatories of the said document, herein petitioners, namely:
Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The
decretal portion of the said Decision states that:
WHEREFORE, premises considered, the Decision of the court a quo is hereby MODIFIED.
Judgment is hereby rendered in favor of herein [respondent] Paraiso Development
Corporation. The assailed Contract to Sell is valid and binding with respect to the undivided
proportionate share of the six (6) signatories of this document, [herein petitioners], namely,
Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The
said [petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8
share over the subject two parcels of land and in favor of herein [respondent] corporation, and
to pay the latter the attorney’s fees in the sum of Ten Thousand Pesos (₱10,000.00) plus costs
of suit.11
Aggrieved by the above-mentioned Decision, petitioners filed a Motion for Reconsideration of
the same on 2 July 2002. Acting on petitioners’ Motion for Reconsideration, the Court of
Appeals issued a Resolution dated 4 March 2003, maintaining its Decision dated 26 April 2002,
with the modification that respondent tender payment to petitioners in the amount of
₱3,216,560.00, representing the balance of the purchase price of the subject parcels of land.
The dispositive portion of the said Resolution reads:
WHEREFORE, premises considered, the assailed Decision is hereby modified.1awphi1.net
Judgment is hereby rendered in favor of herein [respondent] Paraiso Development
Corporation. The assailed Contract to Sell is valid and binding with respect to the undivided
proportionate shares of the six (6) signatories of this document, [herein petitioners], namely,
Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The
said [petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8
share over the subject two parcels of land in favor of herein [respondent] corporation, and to
pay the latter attorney’s fees in the sum of Ten Thousand Pesos (₱10,000.00) plus costs of
suit. Respondent is likewise ordered to tender payment to the above-named [petitioners] in the
amount of Three Million Two Hundred Sixteen Thousand Five Hundred Sixty Pesos
(₱3,216,560.00) representing the balance of the purchase price of the subject two parcels of
land. 12
Hence, this Petition for Review on Certiorari.
Petitioners come before this Court arguing that the Court of Appeals erred:
I. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is not
binding upon petitioner Ernesto Oesmer’s co-owners (herein petitioners Enriqueta, Librado,
Rizalino, Bibiano, Jr., and Leonora).
II. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is void
altogether considering that respondent itself did not sign it as to indicate its consent to be bound
by its terms. Moreover, Exhibit D is really a unilateral promise to sell without consideration
distinct from the price, and hence, void.
Petitioners assert that the signatures of five of them namely: Enriqueta, Librado, Rizalino,
Bibiano, Jr., and Leonora, on the margins of the supposed Contract to Sell did not confer
authority on petitioner Ernesto as agent to sell their respective shares in the questioned
properties, and hence, for lack of written authority from the above-named petitioners to sell
their respective shares in the subject parcels of land, the supposed Contract to Sell is void as
to them. Neither do their signatures signify their consent to directly sell their shares in the
questioned properties. Assuming that the signatures indicate consent, such consent was
merely conditional. The effectivity of the alleged Contract to Sell was subject to a suspensive
condition, which is the approval of the sale by all the co-owners.
Petitioners also assert that the supposed Contract to Sell (Exhibit D), contrary to the findings
of the Court of Appeals, is not couched in simple language.
They further claim that the supposed Contract to Sell does not bind the respondent because
the latter did not sign the said contract as to indicate its consent to be bound by its terms.
Furthermore, they maintain that the supposed Contract to Sell is really a unilateral promise to
sell and the option money does not bind petitioners for lack of cause or consideration distinct
from the purchase price.
The Petition is bereft of merit.
It is true that the signatures of the five petitioners, namely: Enriqueta, Librado, Rizalino, Bibiano,
Jr., and Leonora, on the Contract to Sell did not confer authority on petitioner Ernesto as agent
authorized to sell their respective shares in the questioned properties because of Article 1874
of the Civil Code, which expressly provides that:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void.
The law itself explicitly requires a written authority before an agent can sell an immovable. The
conferment of such an authority should be in writing, in as clear and precise terms as possible.
It is worth noting that petitioners’ signatures are found in the Contract to Sell. The Contract is
absolutely silent on the establishment of any principal-agent relationship between the five
petitioners and their brother and co-petitioner Ernesto as to the sale of the subject parcels of
land. Thus, the Contract to Sell, although signed on the margin by the five petitioners, is not
sufficient to confer authority on petitioner Ernesto to act as their agent in selling their shares in
the properties in question.
However, despite petitioner Ernesto’s lack of written authority from the five petitioners to sell
their shares in the subject parcels of land, the supposed Contract to Sell remains valid and
binding upon the latter.
As can be clearly gleaned from the contract itself, it is not only petitioner Ernesto who signed
the said Contract to Sell; the other five petitioners also personally affixed their signatures
thereon. Therefore, a written authority is no longer necessary in order to sell their shares in the
subject parcels of land because, by affixing their signatures on the Contract to Sell, they were
not selling their shares through an agent but, rather, they were selling the same directly and in
their own right.
The Court also finds untenable the following arguments raised by petitioners to the effect that
the Contract to Sell is not binding upon them, except to Ernesto, because: (1) the signatures
of five of the petitioners do not signify their consent to sell their shares in the questioned
properties since petitioner Enriqueta merely signed as a witness to the said Contract to Sell,
and that the other petitioners, namely: Librado, Rizalino, Leonora, and Bibiano, Jr., did not
understand the importance and consequences of their action because of their low degree of
education and the contents of the aforesaid contract were not read nor explained to them; and
(2) assuming that the signatures indicate consent, such consent was merely conditional, thus,
the effectivity of the alleged Contract to Sell was subject to a suspensive condition, which is
the approval by all the co-owners of the sale.
It is well-settled that contracts are perfected by mere consent, upon the acceptance by the
offeree of the offer made by the offeror. From that moment, the parties are bound not only to
the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law. To produce a
contract, the acceptance must not qualify the terms of the offer. However, the acceptance may
be express or implied. For a contract to arise, the acceptance must be made known to the
offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to
the offeror.13
In the case at bar, the Contract to Sell was perfected when the petitioners consented to the
sale to the respondent of their shares in the subject parcels of land by affixing their signatures
on the said contract. Such signatures show their acceptance of what has been stipulated in the
Contract to Sell and such acceptance was made known to respondent corporation when the
duplicate copy of the Contract to Sell was returned to the latter bearing petitioners’ signatures.
As to petitioner Enriqueta’s claim that she merely signed as a witness to the said contract, the
contract itself does not say so. There was no single indication in the said contract that she
signed the same merely as a witness. The fact that her signature appears on the right-hand
margin of the Contract to Sell is insignificant. The contract indisputably referred to the "Heirs of
Bibiano and Encarnacion Oesmer," and since there is no showing that Enriqueta signed the
document in some other capacity, it can be safely assumed that she did so as one of the parties
to the sale.
Emphasis should also be given to the fact that petitioners Ernesto and Enriqueta concurrently
signed the Contract to Sell. As the Court of Appeals mentioned in its Decision,14 the records
of the case speak of the fact that petitioner Ernesto, together with petitioner Enriqueta, met with
the representatives of the respondent in order to finalize the terms and conditions of the
Contract to Sell. Enriqueta affixed her signature on the said contract when the same was
drafted. She even admitted that she understood the undertaking that she and petitioner Ernesto
made in connection with the contract. She likewise disclosed that pursuant to the terms
embodied in the Contract to Sell, she updated the payment of the real property taxes and
transferred the Tax Declarations of the questioned properties in her name.15 Hence, it cannot
be gainsaid that she merely signed the Contract to Sell as a witness because she did not only
actively participate in the negotiation and execution of the same, but her subsequent actions
also reveal an attempt to comply with the conditions in the said contract.
With respect to the other petitioners’ assertion that they did not understand the importance and
consequences of their action because of their low degree of education and because the
contents of the aforesaid contract were not read nor explained to them, the same cannot be
sustained.
We only have to quote the pertinent portions of the Court of Appeals Decision, clear and
concise, to dispose of this issue. Thus,
First, the Contract to Sell is couched in such a simple language which is undoubtedly easy to
read and understand. The terms of the Contract, specifically the amount of ₱100,000.00
representing the option money paid by [respondent] corporation, the purchase price of ₱60.00
per square meter or the total amount of ₱3,316,560.00 and a brief description of the subject
properties are well-indicated thereon that any prudent and mature man would have known the
nature and extent of the transaction encapsulated in the document that he was signing.
Second, the following circumstances, as testified by the witnesses and as can be gleaned from
the records of the case clearly indicate the [petitioners’] intention to be bound by the stipulations
chronicled in the said Contract to Sell.
As to [petitioner] Ernesto, there is no dispute as to his intention to effect the alienation of the
subject property as he in fact was the one who initiated the negotiation process and culminated
the same by affixing his signature on the Contract to Sell and by taking receipt of the amount
of ₱100,000.00 which formed part of the purchase price.
xxxx
As to [petitioner] Librado, the [appellate court] finds it preposterous that he willingly affixed his
signature on a document written in a language (English) that he purportedly does not
understand. He testified that the document was just brought to him by an 18 year old niece
named Baby and he was told that the document was for a check to be paid to him. He readily
signed the Contract to Sell without consulting his other siblings. Thereafter, he exerted no effort
in communicating with his brothers and sisters regarding the document which he had signed,
did not inquire what the check was for and did not thereafter ask for the check which is
purportedly due to him as a result of his signing the said Contract to Sell. (TSN, 28 September
1993, pp. 22-23)
The [appellate court] notes that Librado is a 43 year old family man (TSN, 28 September 1993,
p. 19). As such, he is expected to act with that ordinary degree of care and prudence expected
of a good father of a family. His unwitting testimony is just divinely disbelieving.
The other [petitioners] (Rizalino, Leonora and Bibiano Jr.) are likewise bound by the said
Contract to Sell. The theory adopted by the [petitioners] that because of their low degree of
education, they did not understand the contents of the said Contract to Sell is devoid of merit.
The [appellate court] also notes that Adolfo (one of the co-heirs who did not sign) also possess
the same degree of education as that of the signing co-heirs (TSN, 15 October 1991, p. 19).
He, however, is employed at the Provincial Treasury Office at Trece Martirez, Cavite and has
even accompanied Rogelio Paular to the Assessor’s Office to locate certain missing documents
which were needed to transfer the titles of the subject properties. (TSN, 28 January 1994, pp.
26 & 35) Similarly, the other co-heirs [petitioners], like Adolfo, are far from ignorant, more so,
illiterate that they can be extricated from their obligations under the Contract to Sell which they
voluntarily and knowingly entered into with the [respondent] corporation.
The Supreme Court in the case of Cecilia Mata v. Court of Appeals (207 SCRA 753 [1992]),
citing the case of Tan Sua Sia v. Yu Baio Sontua (56 Phil. 711), instructively ruled as follows:
"The Court does not accept the petitioner’s claim that she did not understand the terms and
conditions of the transactions because she only reached Grade Three and was already 63
years of age when she signed the documents. She was literate, to begin with, and her age did
not make her senile or incompetent. x x x.
At any rate, Metrobank had no obligation to explain the documents to the petitioner as nowhere
has it been proven that she is unable to read or that the contracts were written in a language
not known to her. It was her responsibility to inform herself of the meaning and consequence
of the contracts she was signing and, if she found them difficult to comprehend, to consult other
persons, preferably lawyers, to explain them to her. After all, the transactions involved not only
a few hundred or thousand pesos but, indeed, hundreds of thousands of pesos.
As the Court has held:
x x x The rule that one who signs a contract is presumed to know its contents has been applied
even to contracts of illiterate persons on the ground that if such persons are unable to read,
they are negligent if they fail to have the contract read to them. If a person cannot read the
instrument, it is as much his duty to procure some reliable persons to read and explain it to
him, before he signs it, as it would be to read it before he signed it if he were able to do and his
failure to obtain a reading and explanation of it is such gross negligence as will estop from
avoiding it on the ground that he was ignorant of its contents."16
That the petitioners really had the intention to dispose of their shares in the subject parcels of
land, irrespective of whether or not all of the heirs consented to the said Contract to Sell, was
unveiled by Adolfo’s testimony as follows:
ATTY. GAMO: This alleged agreement between you and your other brothers and sisters that
unless everybody will agree, the properties would not be sold, was that agreement in writing?
WITNESS: No sir.
ATTY. GAMO: What you are saying is that when your brothers and sisters except Jesus and
you did not sign that agreement which had been marked as [Exhibit] "D", your brothers and
sisters were grossly violating your agreement.
WITNESS: Yes, sir, they violated what we have agreed upon.17
We also cannot sustain the allegation of the petitioners that assuming the signatures indicate
consent, such consent was merely conditional, and that, the effectivity of the alleged Contract
to Sell was subject to the suspensive condition that the sale be approved by all the co-owners.
The Contract to Sell is clear enough. It is a cardinal rule in the interpretation of contracts that if
the terms of a contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulation shall control.18 The terms of the Contract to Sell
made no mention of the condition that before it can become valid and binding, a unanimous
consent of all the heirs is necessary. Thus, when the language of the contract is explicit, as in
the present case, leaving no doubt as to the intention of the parties thereto, the literal meaning
of its stipulation is controlling.
In addition, the petitioners, being owners of their respective undivided shares in the subject
properties, can dispose of their shares even without the consent of all the co-heirs. Article 493
of the Civil Code expressly provides:
Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits
pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute
another person in its enjoyment, except when personal rights are involved. But the effect of the
alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which
may be allotted to him in the division upon the termination of the co-ownership. [Emphases
supplied.]
Consequently, even without the consent of the two co-heirs, Adolfo and Jesus, the Contract to
Sell is still valid and binding with respect to the 6/8 proportionate shares of the petitioners, as
properly held by the appellate court.
Therefore, this Court finds no error in the findings of the Court of Appeals that all the petitioners
who were signatories in the Contract to Sell are bound thereby.
The final arguments of petitioners state that the Contract to Sell is void altogether considering
that respondent itself did not sign it as to indicate its consent to be bound by its terms; and
moreover, the Contract to Sell is really a unilateral promise to sell without consideration distinct
from the price, and hence, again, void. Said arguments must necessarily fail.
The Contract to Sell is not void merely because it does not bear the signature of the respondent
corporation. Respondent corporation’s consent to be bound by the terms of the contract is
shown in the uncontroverted facts which established that there was partial performance by
respondent of its obligation in the said Contract to Sell when it tendered the amount of
₱100,000.00 to form part of the purchase price, which was accepted and acknowledged
expressly by petitioners. Therefore, by force of law, respondent is required to complete the
payment to enforce the terms of the contract. Accordingly, despite the absence of respondent’s
signature in the Contract to Sell, the former cannot evade its obligation to pay the balance of
the purchase price.
As a final point, the Contract to Sell entered into by the parties is not a unilateral promise to
sell merely because it used the word option money when it referred to the amount of
₱100,000.00, which also form part of the purchase price.
Settled is the rule that in the interpretation of contracts, the ascertainment of the intention of
the contracting parties is to be discharged by looking to the words they used to project that
intention in their contract, all the words, not just a particular word or two, and words in context,
not words standing alone.19
In the instant case, the consideration of ₱100,000.00 paid by respondent to petitioners was
referred to as "option money." However, a careful examination of the words used in the contract
indicates that the money is not option money but earnest money. "Earnest money" and "option
money" are not the same but distinguished thus: (a) earnest money is part of the purchase
price, while option money is the money given as a distinct consideration for an option contract;
(b) earnest money is given only where there is already a sale, while option money applies to a
sale not yet perfected; and, (c) when earnest money is given, the buyer is bound to pay the
balance, while when the would-be buyer gives option money, he is not required to buy, but may
even forfeit it depending on the terms of the option.20
The sum of ₱100,000.00 was part of the purchase price. Although the same was denominated
as "option money," it is actually in the nature of earnest money or down payment when
considered with the other terms of the contract. Doubtless, the agreement is not a mere
unilateral promise to sell, but, indeed, it is a Contract to Sell as both the trial court and the
appellate court declared in their Decisions.
WHEREFORE, premises considered, the Petition is DENIED, and the Decision and Resolution
of the Court of Appeals dated 26 April 2002 and 4 March 2003, respectively, are AFFIRMED,
thus, (a) the Contract to Sell is DECLARED valid and binding with respect to the undivided
proportionate shares in the subject parcels of land of the six signatories of the said document,
herein petitioners Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer); (b) respondent is ORDERED to tender payment to petitioners in the
amount of ₱3,216,560.00 representing the balance of the purchase price for the latter’s shares
in the subject parcels of land; and (c) petitioners are further ORDERED to execute in favor of
respondent the Deed of Absolute Sale covering their shares in the subject parcels of land after
receipt of the balance of the purchase price, and to pay respondent attorney’s fees plus costs
of the suit. Costs against petitioners.
SO ORDERED.
G.R. No. 78903 February 28, 1990
SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-DALION, petitioners,
vs.
THE HONORABLE COURT OF APPEALS AND RUPERTO SABESAJE, JR., respondents.
Francisco A. Puray, Sr. for petitioners.
Gabriel N. Duazo for private respondent.
MEDIALDEA, J.:
This is a petition to annul and set aside the decision of the Court of Appeals rendered on May
26, 1987, upholding the validity of the sale of a parcel of land by petitioner Segundo Dalion
(hereafter, "Dalion") in favor of private respondent Ruperto Sabesaje, Jr. (hereafter,
"Sabesaje"), described thus:
A parcel of land located at Panyawan, Sogod, Southern Leyte, declared in the name of
Segundo Dalion, under Tax Declaration No. 11148, with an area of 8947 hectares, assessed
at P 180.00, and bounded on the North, by Sergio Destriza and Titon Veloso, East, by Feliciano
Destriza, by Barbara Bonesa (sic); and West, by Catalino Espina. (pp. 36-37, Rollo)
The decision affirms in toto the ruling of the trial court 1 issued on January 17, 1984, the
dispositive portion of which provides as follows:

WHEREFORE, IN VIEW OF THE FOREGOING, the Court hereby renders judgment.
(a) Ordering the defendants to deliver to the plaintiff the parcel of land subject of this case,
declared in the name of Segundo Dalion previously under Tax Declaration No. 11148 and lately
under Tax Declaration No. 2297 (1974) and to execute the corresponding formal deed of
conveyance in a public document in favor of the plaintiff of the said property subject of this
case, otherwise, should defendants for any reason fail to do so, the deed shall be executed in
their behalf by the Provincial Sheriff or his Deputy;
(b) Ordering the defendants to pay plaintiff the amount of P2,000.00 as attorney's fees
and P 500.00 as litigation expenses, and to pay the costs; and
(c) Dismissing the counter-claim. (p. 38, Rollo)
The facts of the case are as follows:
On May 28, 1973, Sabesaje sued to recover ownership of a parcel of land, based on a private
document of absolute sale, dated July 1, 1965 (Exhibit "A"), allegedly executed by Dalion, who,
however denied the fact of sale, contending that the document sued upon is fictitious, his
signature thereon, a forgery, and that subject land is conjugal property, which he and his wife
acquired in 1960 from Saturnina Sabesaje as evidenced by the "Escritura de Venta Absoluta"
(Exhibit "B"). The spouses denied claims of Sabesaje that after executing a deed of sale over
the parcel of land, they had pleaded with Sabesaje, their relative, to be allowed to administer
the land because Dalion did not have any means of livelihood. They admitted, however,
administering since 1958, five (5) parcels of land in Sogod, Southern Leyte, which belonged to
Leonardo Sabesaje, grandfather of Sabesaje, who died in 1956. They never received their
agreed 10% and 15% commission on the sales of copra and abaca, respectively. Sabesaje's
suit, they countered, was intended merely to harass, preempt and forestall Dalion's threat to
sue for these unpaid commissions.
From the adverse decision of the trial court, Dalion appealed, assigning errors some of which,
however, were disregarded by the appellate court, not having been raised in the court below.
While the Court of Appeals duly recognizes Our authority to review matters even if not assigned
as errors in the appeal, We are not inclined to do so since a review of the case at bar reveals
that the lower court has judicially decided the case on its merits.
As to the controversy regarding the identity of the land, We have no reason to dispute the Court
of Appeals' findings as follows:
To be sure, the parcel of land described in Exhibit "A" is the same property deeded out in
Exhibit "B". The boundaries delineating it from adjacent lots are identical. Both documents
detail out the following boundaries, to wit:
On the North-property of Sergio Destriza and Titon Veloso;
On the East-property of Feliciano Destriza;
On the South-property of Barbara Boniza and
On the West-Catalino Espina.
(pp. 41-42, Rollo)
The issues in this case may thus be limited to: a) the validity of the contract of sale of a parcel
of land and b) the necessity of a public document for transfer of ownership thereto.
The appellate court upheld the validity of the sale on the basis of Secs. 21 and 23 of Rule 132
of the Revised Rules of Court.
SEC. 21. Private writing, its execution and authenticity, how proved.-Before any private
writing may be received in evidence, its due execution and authenticity must be proved either:
(a) By anyone who saw the writing executed;
(b) By evidence of the genuineness of the handwriting of the maker; or
(c) By a subscribing witness
xxx xxx xxx
SEC. 23. Handwriting, how proved. — The handwriting of a person may be proved by
any witness who believes it to be the handwriting of such person, and has seen the person
write, or has seen writing purporting to be his upon which the witness has acted or been
charged, and has thus acquired knowledge of the handwriting of such person. Evidence
respecting the handwriting may also be given by a comparison, made by the witness or the
court, with writings admitted or treated as genuine by the party against whom the evidence is
offered, or proved to be genuine to the satisfaction of the judge. (Rule 132, Revised Rules of
Court)
And on the basis of the findings of fact of the trial court as follows:
Here, people who witnessed the execution of subject deed positively testified on the
authenticity thereof. They categorically stated that it had been executed and signed by the
signatories thereto. In fact, one of such witnesses, Gerardo M. Ogsoc, declared on the witness
stand that he was the one who prepared said deed of sale and had copied parts thereof from
the "Escritura De Venta Absoluta" (Exhibit B) by which one Saturnina Sabesaje sold the same
parcel of land to appellant Segundo Dalion. Ogsoc copied the bounderies thereof and the name
of appellant Segundo Dalion's wife, erroneously written as "Esmenia" in Exhibit "A" and
"Esmenia" in Exhibit "B". (p. 41, Rollo)
xxx xxx xxx
Against defendant's mere denial that he signed the document, the positive testimonies of the
instrumental Witnesses Ogsoc and Espina, aside from the testimony of the plaintiff, must
prevail. Defendant has affirmatively alleged forgery, but he never presented any witness or
evidence to prove his claim of forgery. Each party must prove his own affirmative allegations
(Section 1, Rule 131, Rules of Court). Furthermore, it is presumed that a person is innocent of
a crime or wrong (Section 5 (a), Idem), and defense should have come forward with clear and
convincing evidence to show that plaintiff committed forgery or caused said forgery to be
committed, to overcome the presumption of innocence. Mere denial of having signed, does not
suffice to show forgery.
In addition, a comparison of the questioned signatories or specimens (Exhs. A-2 and A-3) with
the admitted signatures or specimens (Exhs. X and Y or 3-C) convinces the court that Exhs.
A-2 or Z and A-3 were written by defendant Segundo Dalion who admitted that Exhs. X and Y
or 3-C are his signatures. The questioned signatures and the specimens are very similar to
each other and appear to be written by one person.
Further comparison of the questioned signatures and the specimens with the signatures
Segundo D. Dalion appeared at the back of the summons (p. 9, Record); on the return card (p.
25, Ibid.); back of the Court Orders dated December 17, 1973 and July 30, 1974 and for
October 7, 1974 (p. 54 & p. 56, respectively, Ibid.), and on the open court notice of April 13,
1983 (p. 235, Ibid.) readily reveal that the questioned signatures are the signatures of
defendant Segundo Dalion.
It may be noted that two signatures of Segundo D. Dalion appear on the face of the questioned
document (Exh. A), one at the right corner bottom of the document (Exh. A-2) and the other at
the left hand margin thereof (Exh. A-3). The second signature is already a surplusage. A forger
would not attempt to forge another signature, an unnecessary one, for fear he may commit a
revealing error or an erroneous stroke. (Decision, p. 10) (pp. 42-43, Rollo)
We see no reason for deviating from the appellate court's ruling (p. 44, Rollo) as we reiterate
that
Appellate courts have consistently subscribed to the principle that conclusions and findings of
fact by the trial courts are entitled to great weight on appeal and should not be disturbed unless
for strong and cogent reasons, since it is undeniable that the trial court is in a more
advantageous position to examine real evidence, as well as to observe the demeanor of the
witnesses while testifying in the case (Chase v. Buencamino, Sr., G.R. No. L-20395, May 13,
1985, 136 SCRA 365; Pring v. Court of Appeals, G.R. No. L-41605, August 19, 1985, 138
SCRA 185)
Assuming authenticity of his signature and the genuineness of the document, Dalion
nonetheless still impugns the validity of the sale on the ground that the same is embodied in a
private document, and did not thus convey title or right to the lot in question since "acts and
contracts which have for their object the creation, transmission, modification or extinction of
real rights over immovable property must appear in a public instrument" (Art. 1358, par 1, NCC).
This argument is misplaced. The provision of Art. 1358 on the necessity of a public document
is only for convenience, not for validity or enforceability. It is not a requirement for the validity
of a contract of sale of a parcel of land that this be embodied in a public instrument.
A contract of sale is a consensual contract, which means that the sale is perfected by mere
consent. No particular form is required for its validity. Upon perfection of the contract, the
parties may reciprocally demand performance (Art. 1475, NCC), i.e., the vendee may compel
transfer of ownership of the object of the sale, and the vendor may require the vendee to pay
the thing sold (Art. 1458, NCC).
The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje the parcel of land
and to execute corresponding formal deed of conveyance in a public document. Under Art.
1498, NCC, when the sale is made through a public instrument, the execution thereof is
equivalent to the delivery of the thing. Delivery may either be actual (real) or constructive. Thus
delivery of a parcel of land may be done by placing the vendee in control and possession of
the land (real) or by embodying the sale in a public instrument (constructive).
As regards petitioners' contention that the proper action should have been one for specific
performance, We believe that the suit for recovery of ownership is proper. As earlier stated,
Art. 1475 of the Civil Code gives the parties to a perfected contract of sale the right to
reciprocally demand performance, and to observe a particular form, if warranted, (Art. 1357).
The trial court, aptly observed that Sabesaje's complaint sufficiently alleged a cause of action
to compel Dalion to execute a formal deed of sale, and the suit for recovery of ownership, which
is premised on the binding effect and validity inter partes of the contract of sale, merely seeks
consummation of said contract.
... . A sale of a real property may be in a private instrument but that contract is valid and binding
between the parties upon its perfection. And a party may compel the other party to execute a
public instrument embodying their contract affecting real rights once the contract appearing in
a private instrument hag been perfected (See Art. 1357).
... . (p. 12, Decision, p. 272, Records)
ACCORDINGLY, the petition is DENIED and the decision of the Court of Appeals upholding
the ruling of the trial court is hereby AFFIRMED. No costs.
SO ORDERED.
Narvasa, Cruz, Gancayco and Grino-Aquino, JJ., concur.
G.R. No. L-55048 May 27, 1981
SUGA SOTTO YUVIENCO, BRITANIA SOTTO, and MARCELINO SOTTO, petitioners,
vs.
HON. AUXENCIO C. DACUYCUY, Judge of the CFI of Leyte, DELY RODRIGUEZ, FELIPE
ANG CRUZ, CONSTANCIA NOGAR, MANUEL GO, INOCENTES DIME, WILLY JULIO,
JAIME YU, OSCAR DY, DY CHIU SENG, BENITO YOUNG, FERNANDO YU, SEBASTIAN
YU, CARLOS UY, HOC CHUAN and MANUEL DY, respondents.
This refers to the Sotto property (land and building) situated at Tacloban City. My clients are
willing to sell them at a total price of P6,500,000.00.
While there are other parties who are interested to buy the property, I am giving you and the
other occupants the preference, but such priority has to be exercised within a given number of
days as I do not want to lose the opportunity if you are not interested. I am therefore gluing you
and the rest of the occupants until July 31, 1978 within it which to decide whether you want to
buy the property. If I do not hear from you by July 31, I will offer or close the deal with the other
interested buyer.

BARREDO, J.:1äwphï1.ñët Thank you so much for the hospitality extended to me during my last trip to Tacloban, and I
hope to hear from you very soon. 1äwphï1.ñët
Petition for certiorari and prohibition to declare void for being in grave abuse of discretion the
orders of respondent judge dated November 2, 1978 and August 29, 1980, in Civil Case No. Very truly yours,
5759 of the Court of First Instance of Leyte, which denied the motion filed by petitioners to
dismiss the complaint of private respondents for specific performance of an alleged agreement Pedro C. Gamboa 1
of sale of real property, the said motion being based on the grounds that the respondents'
complaint states no cause of action and/or that the claim alleged therein is unenforceable under (Page 9, Record.)
the Statute of Frauds.
Reacting to the foregoing letter, the following telegram was sent by "Yao King Ong & tenants"
Finding initially prima facie merit in the petition, We required respondents to answer and We to Atty. Pedro Gamboa in Cebu City:
issued a temporary restraining order on October 7, 1980 enjoining the execution of the
questioned orders. Atty. Pedro Gamboa

In essence, the theory of petitioners is that while it is true that they did express willingness to Room 314, Maria Cristina Bldg.
sell to private respondents the subject property for P6,500,000 provided the latter made known
their own decision to buy it not later than July 31, 1978, the respondents' reply that they were Osmeña Boulevard, Cebu City
agreeable was not absolute, so much so that when ultimately petitioners' representative went
to Cebu City with a prepared and duly signed contract for the purpose of perfecting and Reurlet dated July 12 inform Dra. Yuvienco we agree to buy property proceed Tacloban to
consummating the transaction, respondents and said representative found variance between negotiate details 1äwphï1.ñët
the terms of payment stipulated in the prepared document and what respondents had in mind,
hence the bankdraft which respondents were delivering to petit loners' representative was Yao King Ong & tenants
returned and the document remained unsigned by respondents. Hence the action below for
specific performance. (Page 10, Record.)

To be more specific, the parties do not dispute that on July 12, 1978, petitioners, thru a certain Likewise uncontroverted is the fact that under date of July 27, 1978, Atty. Gamboa wired Yao
Pedro C. Gamboa, sent to respondents the following letter: King Ong in Tacloban City as follows:

Mr. Yao King Ong NLT

Life Bakery YAO KING ONG

Tacloban City LIFE BAKERY

Dear Mr. Yao: 1äwphï1.ñët TACLOBAN CITY

PROPOSAL ACCEPTED ARRIVING TUESDAY MORNING WITH CONTRACT PREPARE
PAYMENT BANK DRAFT 1äwphï1.ñët
ATTY. GAMBOA
(Page 10, Id.)
Now, Paragraph 10 of the complaint below of respondents alleges: 1äwphï1.ñët
10. That on August 1, 1978, defendant Pedro Gamboa arrived Tacloban City bringing with
him the prepared contract to purchase and to sell referred to in his telegram dated July 27,
1978 (Annex 'D' hereof) for the purpose of closing the transactions referred to in paragraphs 8
and 9 hereof, however, to the complete surprise of plaintiffs, the defendant (except def.
Tacloban City Ice Plant, Inc.) without giving notice to plaintiffs, changed the mode of payment
with respect to the balance of P4,500,000.00 by imposing upon plaintiffs to pay same amount
within thirty (30) days from execution of the contract instead of the former term of ninety (90)
days as stated in paragraph 8 hereof. (Pp. 10-11, Record.)
Additionally and to reenforce their position, respondents alleged further in their complaint:
1äwphï1.ñët
8. That on July 12, 1978, defendants (except defendant Tacloban City Ice Plant, Inc.)
finally sent a telegram letter to plaintiffs- tenants, through same Mr. Yao King Ong, notifying
them that defendants are willing to sell the properties (lands and building) at a total price of
P6,500,000.00, which herein plaintiffs-tenants have agreed to buy the said properties for said
price; a copy of which letter is hereto attached as integral part hereof and marked as Annex
'C', and plaintiffs accepted the offer through a telegram dated July 25, 1978, sent to defendants
(through defendant Pedro C. Gamboa), a copy of which telegram is hereto attached as integral
part hereof and marked as Annex C-1 and as a consequence hereof. plaintiffs except plaintiff
Tacloban - merchants' Realty Development Corporation) and defendants (except defendant
Tacloban City Ice Plant. Inc.) agreed to the following terms and conditions respecting the
payment of said purchase price, to wit: 1äwphï1.ñët
P2,000,000.00 to be paid in full on the date of the execution of the contract; and the balance
of P4,500,000.00 shall be fully paid within ninety (90) days thereafter;
9. That on July 27, 1978, defendants sent a telegram to plaintiff- tenants, through the
latter's representative Mr. Yao King Ong, reiterating their acceptance to the agreement referred
to in the next preceding paragraph hereof and notifying plaintiffs-tenants to prepare payment
by bank drafts; which the latter readily complied with; a copy of which telegram is hereto
attached as integral part hereof and marked as Annex "D"; (Pp 49-50, Record.)
It was on the basis of the foregoing facts and allegations that herein petitioners filed their motion
to dismiss alleging as main grounds: 1äwphï1.ñët
I. That plaintiff, TACLOBAN MERCHANTS' REALTY DEVELOPMENT CORPORATION,
amended complaint, does not state a cause of action and the claim on which the action is
founded is likewise unenforceable under the provisions of the Statute of Frauds.
II. That as to the rest of the plaintiffs, their amended complaint does not state a cause of
action and the claim on which the action is founded is likewise unenforceable under the
provisions of the Statute of Frauds. (Page 81, Record.)
With commendable knowledgeability and industry, respondent judge ruled negatively on the
motion to dismiss, discoursing at length on the personality as real party-in-interest of
respondent corporation, while passing lightly, however, on what to Us are the more substantial
and decisive issues of whether or not the complaint sufficiently states a cause of action and
whether or not the claim alleged therein is unenforceable under the Statute of Frauds, by
holding thus: 1äwphï1.ñët
The second ground of the motion to dismiss is that plaintiffs' claim is unenforceable under the
Statute of Frauds. The defendants argued against this motion and asked the court to reject the
objection for the simple reason that the contract of sale sued upon in this case is supported by
letters and telegrams annexed to the complaint and other papers which will be presented during
the trial. This contention of the defendants is not well taken. The plaintiffs having alleged that
the contract is backed up by letters and telegrams, and the same being a sufficient
memorandum, the complaint states a cause of action and they should be given a day in court
and allowed to substantiate their allegations (Paredes vs. Espino, 22 SCRA 1000).
To take a contract for the sale of land out of the Statute of Frauds a mere note or memorandum
in writing subscribed by the vendor or his agent containing the name of the parties and a
summary statement of the terms of the sale either expressly or by reference to something else
is all that is required. The statute does not require a formal contract drawn up with technical
exactness for the language of Par. 2 of Art. 1403 of the Philippine Civil Code is' ... an agreement
... or some note or memorandum thereof,' thus recognizing a difference between the contract
itself and the written evidence which the statute requires (Berg vs. Magdalena Estate, Inc., 92
Phil. 110; Ill Moran, Comments on the Rules of Court, 1952 ed. p. 187). See also Bautista's
Monograph on the Statute of Frauds in 21 SCRA p. 250. (Pp. 110-111, Record)
Our first task then is to dwell on the issue of whether or not in the light of the foregoing
circumstances, the complaint in controversy states sufficiently a cause of action. This issue
necessarily entails the determination of whether or not the plaintiffs have alleged facts
adequately showing the existence of a perfected contract of sale between herein petitioners
and the occupant represented by respondent Yao King Ong.
In this respect, the governing legal provision is, of course, Article 1319 of the Civil Code which
provides:1äwphï1.ñët
ART. 1319. Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are constitute the contract. The offer must be certain the
acceptance absolute. A qualified acceptance constitute a counter-offer.
Acceptance made by letter or telegram does not bind offerer except from the time it came to
his knowledge. The contract, in a case, is presumed to have been entered into in the place
where the offer was made.
In the instant case, We can lay aside, for the moment, petitioners' contention that the letter of
July 12, 1978 of Atty. Pedro C. Gamboa to respondents Yao King Ong and his companions
constitute an offer that is "certain", although the petitioners claim that it was a mere expression
of willingness to sell the subject property and not a direct offer of sale to said respondents.
What We consider as more important and truly decisive is what is the correct juridical
significance of the telegram of respondents instructing Atty. Gamboa to "proceed to Tacloban
to negotiate details." We underline the word "negotiate" advisedly because to Our mind it is the
key word that negates and makes it legally impossible for Us to hold that respondents'
acceptance of petitioners' offer, assuming that it was a "certain" offer indeed, was the "absolute"
one that Article 1319 above-quoted requires.
Dictionally, the implication of "to negotiate" is practically the opposite of the Idea that an
agreement has been reached. Webster's Third International Dictionary, Vol. II (G. & C. Merriam
Co., 1971 Philippine copyright) gives the meaning of negotiate as "to communicate or confer
with another so as to arrive at the settlement of some matter; meet with another so as to arrive
through discussion at some kind of agreement or compromise about something; — to arrange
for or bring about through conference or discussion; work at or arrive at or settle upon by
meetings and agreements or compromises — ". Importantly, it must be borne in mind that Yao
King Ong's telegram simply says "we agree to buy property". It does not necessarily connote
acceptance of the price but instead suggests that the details were to be subject of negotiation.
Respondents now maintain that what the telegram refers to as "details" to be "negotiated" are
mere "accidental elements", not the essential elements of the contract. They even invite
attention to the fact that they have alleged in their complaint (Par. 6) that it was as early as "in
the month of October, 1977 (that) negotiations between plaintiffs and defendants for the
purchase and sale (in question) — were made, thus resulting to offers of same defendants and
counter-offer of plaintiffs". But to Our mind such alleged facts precisely indicate the failure of
any meeting of the minds of the parties, and it is only from the letter and telegrams above-
quoted that one can determine whether or not such meeting of the minds did materialize. As
We see it, what such allegations bring out in bold relief is that it was precisely because of their
past failure to arrive at an agreement that petitioners had to put an end to the uncertainty by
writing the letter of July 12, 1978. On the other hand, that respondents were all the time
agreeable to buy the property may be conceded, but what impresses Us is that instead of
"absolutely" accepting the "certain" offer — if there was one — of the petitioners, they still
insisted on further negotiation of details. For anyone to read in the telegram of Yao that they
accepted the price of P6,500,000.00 would be an inference not necessarily warranted by the
words "we agree to buy" and "proceed Tacloban to negotiate details". If indeed the details being
left by them for further negotiations were merely accidental or formal ones, what need was
there to say in the telegram that they had still "to negotiate (such) details", when, being
unessential per their contention, they could have been just easily clarified and agreed upon
when Atty. Gamboa would reach Tacloban?
Anent the telegram of Atty. Gamboa of July 27, 1978, also quoted earlier above, We gather
that it was in answer to the telegram of Yao. Considering that Yao was in Tacloban then while
Atty. Gamboa was in Cebu, it is difficult to surmise that there was any communication of any
kind between them during the intervening period, and none such is alleged anyway by
respondents. Accordingly, the claim of respondents in paragraph 8 of their complaint below
that there was an agreement of a down payment of P2 M, with the balance of P4.5M to be paid
within 90 days afterwards is rather improbable to imagine to have actually happened.
Respondents maintain that under existing jurisprudence relative to a motion to dismiss on the
ground of failure of the complaint to state a cause of action, the movant-defendant is deemed
to admit the factual allegations of the complaint, hence, petitioners cannot deny, for purposes
of their motion, that such terms of payment had indeed been agreed upon.
While such is the rule, those allegations do not detract from the fact that under Article 1319 of
the Civil Code above-quoted, and judged in the light of the telegram-reply of Yao to Atty.
Gamboa's letter of July 12, 1978, there was not an absolute acceptance, hence from that point
of view, petitioners' contention that the complaint of respondents state no cause of action is
correct.
Nonetheless, the alleged subsequent agreement about the P2 M down and P4.5 M in 90 days
may at best be deemed as a distinct cause of action. And placed against the insistence of
petitioners, as demonstrated in the two deeds of sale taken by Atty. Gamboa to Tacloban,
Annexes 9 and 10 of the answer of herein respondents, that there was no agreement about 90
days, an issue of fact arose, which could warrant a trial in order for the trial court to determine
whether or not there was such an agreement about the balance being payable in 90 days
instead of the 30 days stipulated in Annexes 9 and 10 above-referred to. Our conclusion,
therefore, is that although there was no perfected contract of sale in the light of the letter of
Atty. Gamboa of July 12, 1978 and the letter-reply thereto of Yao; it being doubtful whether or
not, under Article 1319 of the Civil Code, the said letter may be deemed as an offer to sell that
is "certain", and more, the Yao telegram is far from being an "absolute" acceptance under said
article, still there appears to be a cause of action alleged in Paragraphs 8 to 12 of the
respondents' complaint, considering it is alleged therein that subsequent to the telegram of
Yao, it was agreed that the petitioners would sell the property to respondents for P6.5 M, by
paving P2 M down and the balance in 90 days and which agreement was allegedly violated
when in the deeds prepared by Atty. Gamboa and taken to Tacloban, only 30 days were given
to respondents.
But the foregoing conclusion is not enough to carry the day for respondents. It only brings Us
to the question of whether or not the claim for specific performance of respondents is
enforceable under the Statute of Frauds. In this respect, We man, view the situation at hand
from two angles, namely, (1) that the allegations contained in paragraphs 8 to 12 of
respondents' complaint should be taken together with the documents already aforementioned
and (2) that the said allegations constitute a separate and distinct cause of action. We hold that
either way We view the situation, the conclusion is inescapable e that the claim of respondents
that petitioners have unjustifiably refused to proceed with the sale to them of the property v in
question is unenforceable under the Statute of Frauds.
It is nowhere alleged in said paragraphs 8 to 12 of the complaint that there is any writing or
memorandum, much less a duly signed agreement to the effect that the price of P6,500,000
fixed by petitioners for the real property herein involved was agreed to be paid not in cash but
in installments as alleged by respondents. The only documented indication of the non-wholly-
cash payment extant in the record is that stipulated in Annexes 9 and 10 above-referred to, the
deeds already signed by the petitioners and taken to Tacloban by Atty. Gamboa for the
signatures of the respondents. In other words, the 90-day term for the balance of P4.5 M
insisted upon by respondents choices not appear in any note, writing or memorandum signed
by either the petitioners or any of them, not even by Atty. Gamboa. Hence, looking at the pose
of respondents that there was a perfected agreement of purchase and sale between them and
petitioners under which they would pay in installments of P2 M down and P4.5 M within ninety
90) days afterwards it is evident that such oral contract involving the "sale of real property"
comes squarely under the Statute of Frauds (Article 1403, No. 2(e), Civil Code.)
On the other score of considering the supposed agreement of paying installments as partly
supported by the letter and t telegram earlier quoted herein, His Honor declared with well
studied ratiocination, albeit legally inaccurate, that: 1äwphï1.ñët
The next issue relate to the State of Frauds. It is contended that plaintiffs' action for specific
performance to compel the defendants to execute a good and sufficient conveyance of the
property in question (Sotto land and building) is unenforceable because there is no other note
memorandum or writing except annexes "C", "C-l" and "D", which by themselves did not give
birth to a contract to sell. The argument is not well founded. The rules of pleading limit the
statement of the cause of action only to such operative facts as give rise to the right of action
of the plaintiff to obtain relief against the wrongdoer. The details of probative matter or
particulars of evidence, statements of law, inferences and arguments need not be stated. Thus,
Sec. 1 of Rule 8 provides that 'every pleading shall contain in a methodical and logical form, a
plain concise and direct statement of the ultimate facts on which the party pleading relies for
his claim or defense, as the case may be, omitting the statement of mere evidentiary facts.'
Exhibits need not be attached. The contract of sale sued upon in this case is supported by
letters and telegrams annexed to the complaint and plaintiffs have announced that they will
present additional evidences during the trial to prove their cause of action. The plaintiffs having
alleged that the contract is backed up by letters and telegrams, and the same being sufficient
memorandum, the complaint states a cause of action and they should be given their day in
court and allowed to substantiate their allegations (Parades vs. Espino, 22 SCRA 1000). (Pp
165-166, Record.)
The foregoing disquisition of respondent judge misses at least two (2) juridical substantive
aspects of the Statute of Frauds insofar as sale of real property is concerned. First, His Honor
assumed that the requirement of perfection of such kind of contract under Article 1475 of the
Civil Code which provides that "(t)he contract of sale is perfected at the moment there is a
meeting of the minds upon the thing which is the object of the contract and upon the price", the
Statute would no longer apply as long as the total price or consideration is mentioned in some
note or memorandum and there is no need of any indication of the manner in which such total
price is to be paid.
We cannot agree. In the reality of the economic world and the exacting demands of business
interests monetary in character, payment on installments or staggered payment of the total
price is entirely a different matter from cash payment, considering the unpredictable trends in
the sudden fluctuation of the rate of interest. In other words, it is indisputable that the value of
money - varies from day to day, hence the indispensability of providing in any sale of the terms
of payment when not expressly or impliedly intended to be in cash.
Thus, We hold that in any sale of real property on installments, the Statute of Frauds read
together with the perfection requirements of Article 1475 of the Civil Code must be understood
and applied in the sense that the idea of payment on installments must be in the requisite of a
note or memorandum therein contemplated. Stated otherwise, the inessential elements"
mentioned in the case of Parades vs. Espino, 22 SCRA 1000, relied upon by respondent judge
must be deemed to include the requirement just discussed when it comes to installment sales.
There is nothing in the monograph re — the Statute of Frauds appearing in 21 SCRA 250 also
cited by His Honor indicative of any contrary view to this ruling of Ours, for the essence and
thrust of the said monograph refers only to the form of the note or memorandum which would
comply with the Statute, and no doubt, while such note or memorandum need not be in one
single document or writing and it can be in just sufficiently implicit tenor, imperatively the
separate notes must, when put together', contain all the requisites of a perfected contract of
sale. To put it the other way, under the Statute of Frauds, the contents of the note or
memorandum, whether in one writing or in separate ones merely indicative for an adequate
understanding of all the essential elements of the entire agreement, may be said to be the
contract itself, except as to the form.
Secondly, We are of the considered opinion that under the rules on proper pleading, the ruling
of the trial court that, even if the allegation of the existence of a sale of real property in a
complaint is challenged as barred from enforceability by the Statute of Frauds, the plaintiff may
simply say there are documents, notes or memoranda without either quoting them in or
annexing them to the complaint, as if holding an ace in the sleeves is not correct. To go directly
to the point, for Us to sanction such a procedure is to tolerate and even encourage undue delay
in litigation, for the simple reason that to await the stage of trial for the showing or presentation
of the requisite documentary proof when it already exists and is asked to be produced by the
adverse party would amount to unnecessarily postponing, with the concomitant waste of time
and the prolongation of the proceedings, something that can immediately be evidenced and
thereby determinable with decisiveness and precision by the court without further delay.
In this connection, Moran observes that unlike when the ground of dismissal alleged is failure
of the complaint to state a cause of action, a motion to dismiss invoking the Statute of Frauds
may be filed even if the absence of compliance does not appear an the face of the complaint.
Such absence may be the subject of proof in the motion stage of the proceedings. (Moran,
Comment on the Rules of Court, Vol. 1, p. 494, 1979 ed.) It follows then that when such a
motion is filed and all the documents available to movant are before the court, and they are
insufficient to comply with the Statute, it becomes incumbent upon the plaintiff, for the reasons
of policy We have just' indicated regarding speedy administration of justice, to bring out what
note or memorandum still exists in his possession in order to enable the court to expeditiously
determine then and there the need for further proceedings. In other words, it would be inimical
to the public interests in speedy justice for plaintiff to play hide and seek at his own
convenience, particularly, when, as is quite apparent as in the instant case that chances are
that there are no more writings, notes or memoranda of the installment agreement alleged by
respondents. We cannot divine any reason why any such document would be withheld if they
existed, except the unpermissible desire of the respondents to force the petitioners to undergo
the ordeals, time, effort and expenses of a futile trial.
In the foregoing premises, We find no alternative than to render judgment in favor of petitioners
in this certiorari and prohibition case. If at all, appeal could be available if the petitioners
subjected themselves to the trial ruled to be held by the trial court. We foresee even at this
point, on the basis of what is both extant and implicit in the records, that no different result can
be probable. We consider it as sufficiently a grave abuse of discretion warranting the special
civil actions herein the failure of respondent judge to properly apply the laws on perfection of
contracts in relation to the Statute of Frauds and the pertinent rules of pleading and practice,
as We have discussed above.
ACCORDINGLY, the impugned orders of respondent judge of November 2, 1978 and August
29, 1980 are hereby set aside and private respondents' amended complaint, Annex A of the
petition, is hereby ordered dismissed and the restraining order heretofore issued by this Court
on October 7, 1980 is declared permanent. Costs against respondents.
Guerrero,* Abad Santos and De Castro, JJ., concur.1äwphï1.ñët
Mr. Justice Hermogenes Concepcion, Jr. is on leave.
G.R. No. L-11311 May 28, 1958
MARTA C. ORTEGA, plaintiff-appellant,
vs.
DANIEL LEONARDO, defendant-appellee.
Jose Ma. Reyes for appellant.
Tomas A. Leonardo for appellee.
BENGZON, J.:
Well known is the general rule in the Statute of Frauds precluding enforcement of oral contracts
for the sale of land. Not so well known is exception concerning the partially executed contracts1
— least our jurisprudence offers few, if any, apposite illustrations. This appeal exemplifies such
exception.
Alleging partial performance, plaintiff sought to compel defendant to comply with their oral
contract of sale of a parcel of land. Upon a motion to dismiss, the Manila court of first instance
ordered dismissal following the above general rule.
Hence this appeal. It should be sustained if the allegations of the complaint — which the motion
to dismiss admitted — set out an instance of partial performance.
Stripped of non-essentials, the complaint averred that long before and until her house had been
completely destroyed during the liberation of the City of Manila, plaintiff occupied a parcel of
land, designated as Lot 1, Block 3 etc. (hereinafter called Lot I) located at San Andres Street,
Malate, Manila; that after liberation she re-occupied it; that when the administration and
disposition of the said Lot I (together with other lots in the Ana Sarmiento Estate) were assigned
by the Government to the Rural Progress Administration2 plaintiff asserted her right thereto (as
occupant) for purposes of purchase; that defendant also asserted a similar right, alleging
occupancy of a portion of the land subsequent to plaintiff's; that during the investigation of such
conflicting interests, defendant asked plaintiff to desist from pressing her claim and definitely
promised that if and when he succeeded in getting title to Lot I3 , he would sell to her a portion
thereof with an area of 55.60 square meters (particularly described) at the rate of P25.00 per
square meter, provided she paid for the surveying and subdivision of the Lot and provided
further that after he acquired title, she could continue holding the lot as tenant by paying a
monthly rental of P10.00 until said portion shall have been segregated and the purchase price
fully paid; that plaintiff accepted defendant's offer, and desisted from further claiming Lot I; that
defendant finally acquired title thereto; that relying upon their agreement, plaintiff caused the
survey and segregation of the portion which defendant had promised to sell incurring expenses
therefor, said portion being now designated as Lot I-B in a duly prepared and approved
subdivision plan; that in remodelling her son's house constructed on a lot adjoining Lot I she
extended it over said Lot I-B; that after defendant had acquired Lot I plaintiff regularly paid him
the monthly rental of P10.00; that in July 1954, after the plans of subdivision and segregation
of the lot had been approved by the Bureau of Lands, plaintiff tendered to defendant the
purchase price which the latter refused to accept, without cause or reason.
The court below explained in its order of dismissal:
It is admitted by both parties that an oral agreement to sell a piece of land is not enforceable.
(Art. 1403, Civil Code, Section 21, Rule 123, Rules of Court.) Plaintiff, however, argues that
the contract in question, although verbal, was partially performed because plaintiff desisted
from claiming the portion of lot I in question due to the promise of defendant to transfer said
portion to her after the issuance of title to defendant. The court thinks that even granting that
plaintiff really desisted to claim not on oral promise to sell made by defendant, the oral promise
to sell cannot be enforced. The desistance to claim is not a part of the contract of sale of the
land. Only in essential part of the executory contract will, if it has already been performed, make
the verbal contract enforceable, payment of price being an essential part of the contract of sale.
If the above means that partial performance of a sale contract occurs only when part of the
purchase price is paid, it surely constitutes a defective statement of the law. American
Jurisprudence in its title "Statute of Frauds" lists other acts of partial performance, such as
possession, the making of improvements, rendition of services, payment of taxes,
relinquishment of rights, etc.
Thus, it is stated that "The continuance in possession may, in a proper case, be sufficiently
referable to the parol contract of sale to constitute a part performance thereof. There may be
additional acts or peculiar circumstances which sufficiently refer the possession to the contract.
. . . Continued possession under an oral contract of sale, by one already in possession as a
tenant, has been held a sufficient part performance, where accompanied by other acts which
characterize the continued possession and refer it to the contract of purchase. Especially is
this true where the circumstances of the case include the making of substantial, permanent,
and valuable improvements." (49 American Jurisprudence — 44)
It is also stated that "The making of valuable permanent improvements on the land by the
purchaser, in pursuance of the agreement and with the knowledge of the vendor, has been
said to be the strongest and the most unequivocal act of part performance by which a verbal
contract to sell land is taken out of the statute of frauds, and is ordinarily an important element
in such part performance. . . . Possession by the purchaser under a parol contract for the
purchase of real property, together with his making valuable and permanent improvements on
the property which are referable exclusively to the contract, in reliance on the contract, in the
honest belief that he has a right to make them, and with the knowledge and consent or
acquiescence of the vendor, is deemed a part performance of the contract. The entry into
possession and the making of the improvements are held on amount to such an alteration in
the purchaser's position as will warrant the court's entering a degree of specific performance."
(49 American Jurisprudence p.755, 756.)
Again, it is stated that "A tender or offer of payment, declined by the vendor, has been said to
be equivalent to actual payment, for the purposes of determining whether or not there has been
a part performance of the contract. This is apparently true where the tender is by a purchaser
who has made improvements. But the doctrine now generally accepted, that not even the
payment of the purchase price, without something more, . . . is a sufficient part performance.
(49 American Jurisprudence p. 772.)
And the relinquishment of rights or the compromise thereof has likewise been held to constitute
part performance. (See same title secs. 473, 474, 475.)
In the light of the above four paragraphs, it would appear that the complaint in this case
described several circumstance indicating partial performance: relinquishment of rights4
continued possession, building of improvements, tender of payment plus the surveying of the
lot at plaintiff's expense and the payment of rentals.
We shall not take, time to discuss whether one or the other or any two or three of them
constituted sufficient performance to take the matter away from the operation of the Statute of
Frauds. Enough to hold that the combination of all of them amounted to partial performance;
and we do so line with the accepted basis of the doctrine, that it would be a fraud upon the
plaintiff if the defendant were permitted to oppose performance of his part after he has allowed
or induced the former to perform in reliance upon the agreement. (See 49 American
Jurisprudence p. 725.)
The paragraph immediately preceding will serve as our comment on the appellee's quotations
from American Jurisprudence itself to the effect that "relinquishment" is not part performance,
and that neither "surveying the land"5 nor tender of payment is sufficient. The precedents
hereinabove transcribed oppose or explain away or qualify the appellee's citations. And at the
risk of being repetitious we say: granting that none of the three circumstances indicated by him,
(relinquishment, survey, tender) would separately suffice, still the combination of the three with
the others already mentioned, amounts to more than enough.
Hence, as there was partial performance, the principle excluding parol contracts for the sale of
realty, does not apply.
The judgment will accordingly be reversed and the record remanded for further proceedings.
With costs against appellee.
Paras, C.J., Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,
Endencia and Felix, JJ., concur.
G.R. No. 85240 July 12, 1991
HEIRS OF CECILIO (also known as BASILIO) CLAUDEL, namely, MODESTA CLAUDEL,
LORETA HERRERA, JOSE CLAUDEL, BENJAMIN CLAUDEL, PACITA CLAUDEL,
CARMELITA CLAUDEL, MARIO CLAUDEL, ROBERTO CLAUDEL, LEONARDO
CLAUDEL, ARSENIA VILLALON, PERPETUA CLAUDEL and FELISA CLAUDEL,
petitioners,
vs.
HON. COURT OF APPEALS, HEIRS OF MACARIO, ESPERIDIONA, RAYMUNDA and
CELESTINA, all surnamed CLAUDEL, respondents.
Ricardo L. Moldez for petitioners.
Juan T. Aquino for private respondents
SARMIENTO, J.:
This petition for review on certiorari seeks the reversal of the decision rendered by the Court
of Appeals in CA-G.R. CV No. 044291 and the reinstatement of the decision of the then Court
of First Instance (CFI) of Rizal, Branch CXI, in Civil Case No. M-5276-P, entitled. "Heirs of
Macario Claudel, et al. v. Heirs of Cecilio Claudel, et al.," which dismissed the complaint of the
private respondents against the petitioners for cancellation of titles and reconveyance with
damages.2
As early as December 28, 1922, Basilio also known as "Cecilio" Claudel, acquired from the
Bureau of Lands, Lot No. 1230 of the Muntinlupa Estate Subdivision, located in the poblacion
of Muntinlupa, Rizal, with an area of 10,107 square meters; he secured Transfer Certificate of
Title (TCT) No. 7471 issued by the Registry of Deeds for the Province of Rizal in 1923; he also
declared the lot in his name, the latest Tax Declaration being No. 5795. He dutifully paid the
real estate taxes thereon until his death in 1937.3 Thereafter, his widow "Basilia" and later, her
son Jose, one of the herein petitioners, paid the taxes.
The same piece of land purchased by Cecilio would, however, become the subject of protracted
litigation thirty-nine years after his death.
Two branches of Cecilio's family contested the ownership over the land-on one hand the
children of Cecilio, namely, Modesto, Loreta, Jose, Benjamin, Pacita, Carmelita, Roberto,
Mario, Leonardo, Nenita, Arsenia Villalon, and Felisa Claudel, and their children and
descendants, now the herein petitioners (hereinafter referred to as HEIRS OF CECILIO), and
on the other, the brother and sisters of Cecilio, namely, Macario, Esperidiona, Raymunda, and
Celestina and their children and descendants, now the herein private respondents (hereinafter
referred to as SIBLINGS OF CECILIO). In 1972, the HEIRS OF CECILIO partitioned this lot
among themselves and obtained the corresponding Transfer Certificates of Title on their
shares, as follows:
TCT No. 395391 1,997 sq. m. –– Jose Claudel
TCT No. 395392 1,997 sq. m. –– Modesta Claudel and children
TCT No. 395393 1,997 sq. m. –– Armenia C. Villalon
TCT No. 395394 1,997 sq. m. –– Felisa Claudel4
Four years later, on December 7, 1976, private respondents SIBLINGS OF CECILIO, filed Civil
Case No. 5276-P as already adverted to at the outset, with the then Court of First Instance of
Rizal, a "Complaint for Cancellation of Titles and Reconveyance with Damages," alleging that
46 years earlier, or sometime in 1930, their parents had purchased from the late Cecilio Claudel
several portions of Lot No. 1230 for the sum of P30.00. They admitted that the transaction was
verbal. However, as proof of the sale, the SIBLINGS OF CECILIO presented a subdivision plan
of the said land, dated March 25, 1930, indicating the portions allegedly sold to the SIBLINGS
OF CECILIO.
As already mentioned, the then Court of First Instance of Rizal, Branch CXI, dismissed the
complaint, disregarding the above sole evidence (subdivision plan) presented by the SIBLINGS
OF CECILIO, thus:
Examining the pleadings as well as the evidence presented in this case by the parties, the
Court can not but notice that the present complaint was filed in the name of the Heirs of
Macario, Espiridiona, Raymunda and Celestina, all surnamed Claudel, without naming the
different heirs particularly involved, and who wish to recover the lots from the defendants. The
Court tried to find this out from the evidence presented by the plaintiffs but to no avail. On this
point alone, the Court would not be able to apportion the property to the real party in interest if
ever they are entitled to it as the persons indicated therein is in generic term (Section 2, Rule
3). The Court has noticed also that with the exception of plaintiff Lampitoc and (sic) the heirs
of Raymunda Claudel are no longer residing in the property as they have (sic) left the same in
1967. But most important of all the plaintiffs failed to present any document evidencing the
alleged sale of the property to their predecessors in interest by the father of the defendants.
Considering that the subject matter of the supposed sale is a real property the absence of any
document evidencing the sale would preclude the admission of oral testimony (Statute of
Frauds). Moreover, considering also that the alleged sale took place in 1930, the action filed
by the plaintiffs herein for the recovery of the same more than thirty years after the cause of
action has accrued has already prescribed.
WHEREFORE, the Court renders judgment dismissing the complaint, without pronouncement
as to costs.
SO ORDERED.5
On appeal, the following errors6 were assigned by the SIBLINGS OF CECILIO:
1. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS' COMPLAINT DESPITE
CONCLUSIVE EVIDENCE SHOWING THE PORTION SOLD TO EACH OF PLAINTIFFS'
PREDECESSORS.
2. THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFFS FAILED TO PROVE
ANY DOCUMENT EVIDENCING THE ALLEGED SALE.
3. THE TRIAL COURT ERRED IN NOT GIVING CREDIT TO THE PLAN, EXHIBIT A,
SHOWING THE PORTIONS SOLD TO EACH OF THE PLAINTIFFS' PREDECESSORS-IN-
INTEREST.
4. THE TRIAL COURT ERRED IN NOT DECLARING PLAINTIFFS AS OWNERS OF
THE PORTION COVERED BY THE PLAN, EXHIBIT A.
5. THE TRIAL COURT ERRED IN NOT DECLARING TRANSFER CERTIFICATES OF
TITLE NOS. 395391, 395392, 395393 AND 395394 OF THE REGISTER OF DEEDS OF
RIZAL AS NULL AND VOID.
The Court of Appeals reversed the decision of the trial court on the following grounds:
1. The failure to bring and prosecute the action in the name of the real party in interest,
namely the parties themselves, was not a fatal omission since the court a quo could have
adjudicated the lots to the SIBLINGS OF CECILIO, the parents of the herein respondents,
leaving it to them to adjudicate the property among themselves.
2. The fact of residence in the disputed properties by the herein respondents had been
made possible by the toleration of the deceased Cecilio.
3. The Statute of Frauds applies only to executory contracts and not to consummated
sales as in the case at bar where oral evidence may be admitted as cited in Iñigo v. Estate of
Magtoto7 and Diana, et al. v. Macalibo.8
In addition,
. . . Given the nature of their relationship with one another it is not unusual that no document
to evidence the sale was executed, . . ., in their blind faith in friends and relatives, in their lack
of experience and foresight, and in their ignorance, men, in spite of laws, will make and
continue to make verbal contracts. . . .9
4. The defense of prescription cannot be set up against the herein petitioners despite the
lapse of over forty years from the time of the alleged sale in 1930 up to the filing of the
"Complaint for Cancellation of Titles and Reconveyance . . ." in 1976.
According to the Court of Appeals, the action was not for the recovery of possession of real
property but for the cancellation of titles issued to the HEIRS OF CECILIO in 1973. Since the
SIBLINGS OF CECILIO commenced their complaint for cancellation of titles and reconveyance
with damages on December 7, 1976, only four years after the HEIRS OF CECILIO partitioned
this lot among themselves and obtained the corresponding Transfer Certificates of Titles, then
there is no prescription of action yet.
Thus the respondent court ordered the cancellation of the Transfer Certificates of Title Nos.
395391, 395392, 395393, and 395394 of the Register of Deeds of Rizal issued in the names
of the HEIRS OF CECILIO and corollarily ordered the execution of the following deeds of
reconveyance:
To Celestina Claudel, Lot 1230-A with an area of 705 sq. m.
To Raymunda Claudel, Lot 1230-B with an area of 599 sq. m.
To Esperidiona Claudel, Lot 1230-C with an area of 597 sq. m.
To Macario Claudel, Lot 1230-D, with an area of 596 sq. m.10
The respondent court also enjoined that this disposition is without prejudice to the private
respondents, as heirs of their deceased parents, the SIBLINGS OF CECILIO, partitioning
among themselves in accordance with law the respective portions sold to and herein
adjudicated to their parents.
The rest of the land, lots 1230-E and 1230-F, with an area of 598 and 6,927 square meters,
respectively would go to Cecilio or his heirs, the herein petitioners. Beyond these
apportionments, the HEIRS OF CECILIO would not receive anything else.
The crux of the entire litigation is whether or not the Court of Appeals committed a reversible
error in disposing the question of the true ownership of the lots.
And the real issues are:
1. Whether or not a contract of sale of land may be proven orally:
2. Whether or not the prescriptive period for filing an action for cancellation of titles and
reconveyance with damages (the action filed by the SIBLINGS OF CECILIO) should be
counted from the alleged sale upon which they claim their ownership (1930) or from the date
of the issuance of the titles sought to be cancelled in favor of the HEIRS OF CECILIO (1976).
The rule of thumb is that a sale of land, once consummated, is valid regardless of the form it
may have been entered into.11 For nowhere does law or jurisprudence prescribe that the
contract of sale be put in writing before such contract can validly cede or transmit rights over a
certain real property between the parties themselves.
However, in the event that a third party, as in this case, disputes the ownership of the property,
the person against whom that claim is brought can not present any proof of such sale and
hence has no means to enforce the contract. Thus the Statute of Frauds was precisely devised
to protect the parties in a contract of sale of real property so that no such contract is enforceable
unless certain requisites, for purposes of proof, are met.
The provisions of the Statute of Frauds pertinent to the present controversy, state:
Art. 1403 (Civil Code). The following contracts are unenforceable, unless they are ratified:
xxx xxx xxx
2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases, an agreement hereafter made shall be unenforceable by action unless the
same, or some note or memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
xxx xxx xxx
e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
xxx xxx xxx
(Emphasis supplied.)
The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence upon the unassisted memory of witnesses by requiring
certain enumerated contracts and transactions to be evidenced in Writing.12
The provisions of the Statute of Frauds originally appeared under the old Rules of Evidence.
However when the Civil Code was re-written in 1949 (to take effect in 1950), the provisions of
the Statute of Frauds were taken out of the Rules of Evidence in order to be included under the
title on Unenforceable Contracts in the Civil Code. The transfer was not only a matter of style
but to show that the Statute of Frauds is also a substantive law.
Therefore, except under the conditions provided by the Statute of Frauds, the existence of the
contract of sale made by Cecilio with his siblings13 can not be proved.
On the second issue, the belated claim of the SIBLINGS OF CECILIO who filed a complaint in
court only in 1976 to enforce a light acquired allegedly as early as 1930, is difficult to
comprehend.
The Civil Code states:
Art. 1145. The following actions must be commenced within six years:
(1) Upon an oral contract . . . (Emphasis supplied).
If the parties SIBLINGS OF CECILIO had allegedly derived their right of action from the oral
purchase made by their parents in 1930, then the action filed in 1976 would have clearly
prescribed. More than six years had lapsed.
We do not agree with the parties SIBLINGS OF CECILIO when they reason that an implied
trust in favor of the SIBLINGS OF CECILIO was established in 1972, when the HEIRS OF
CECILIO executed a contract of partition over the said properties.
But as we had pointed out, the law recognizes the superiority of the torrens title.
Above all, the torrens title in the possession of the HEIRS OF CECILIO carries more weight as
proof of ownership than the survey or subdivision plan of a parcel of land in the name of
SIBLINGS OF CECILIO.
The Court has invariably upheld the indefeasibility of the torrens title. No possession by any
person of any portion of the land could defeat the title of the registered owners thereof.14
A torrens title, once registered, cannot be defeated, even by adverse, open and notorious
possession. A registered title under the torrens system cannot be defeated by
prescription.1âwphi1 The title, once registered, is notice to the world. All persons must take
notice. No one can plead ignorance of the registration.15
xxx xxx xxx
Furthermore, a private individual may not bring an action for reversion or any action which
would have the effect of cancelling a free patent and the corresponding certificate of title issued
on the basis thereof, with the result that the land covered thereby will again form part of the
public domain, as only the Solicitor General or the officer acting in his stead may do so.16
It is true that in some instances, the Court did away with the irrevocability of the torrens title,
but the circumstances in the case at bar varied significantly from these cases.
In Bornales v. IAC, 17 the defense of indefeasibility of a certificate of title was disregarded
when the transferee who took it had notice of the flaws in the transferor's title. No right passed
to a transferee from a vendor who did not have any in the first place. The transferees bought
the land registered under the torrens system from vendors who procured title thereto by means
of fraud. With this knowledge, they can not invoke the indefeasibility of a certificate of title
against the private respondent to the extent of her interest. This is because the torrens system
of land registration, though indefeasible, should not be used as a means to perpetrate fraud
against the rightful owner of real property.
Mere registration of the sale is not good enough, good faith must concur with registration.
Otherwise registration becomes an exercise in futility.18
In Amerol v. Bagumbaran,19 we reversed the decision of the trial court. In this case, the title
was wrongfully registered in another person's name. An implied trust was therefore created.
This trustee was compelled by law to reconvey property fraudulently acquired notwithstanding
the irrevocability of the torrens title.20
In the present case, however, the facts belie the claim of ownership.
For several years, when the SIBLINGS OF CECILIO, namely, Macario, Esperidiona
Raymunda, and Celestina were living on the contested premises, they regularly paid a sum of
money, designated as "taxes" at first, to the widow of Cecilio, and later, to his heirs.21 Why
their payments were never directly made to the Municipal Government of Muntinlupa when
they were intended as payments for "taxes" is difficult to square with their claim of ownership.
We are rather inclined to consider this fact as an admission of non-ownership. And when we
consider also that the petitioners HEIRS OF CECILIO had individually paid to the municipal
treasury the taxes corresponding to the particular portions they were occupying,22 we can
readily see the superiority of the petitioners' position.
Renato Solema and Decimina Calvez, two of the respondents who derive their right from the
SIBLINGS OF CLAUDEL, bought a portion of the lot from Felisa Claudel, one of the HEIRS OF
CLAUDEL.23 The Calvezes should not be paying for a lot that they already owned and if they
did not acknowledge Felisa as its owner.
In addition, before any of the SIBLINGS OF CECILIO could stay on any of the portions of the
property, they had to ask first the permission of Jose Claudel again, one of the HEIRS OF
CECILIO.24 In fact the only reason why any of the heirs of SIBLINGS OF CECILIO could stay
on the lot was because they were allowed to do so by the HEIRS OF CECILIO.25

In view of the foregoing, we find that the appellate court committed a reversible error in
denigrating the transfer certificates of title of the petitioners to the survey or subdivision plan
proffered by the private respondents. The Court generally recognizes the profundity of
conclusions and findings of facts reached by the trial court and hence sustains them on appeal
except for strong and cogent reasons inasmuch as the trial court is in a better position to
examine real evidence and observe the demeanor of witnesses in a case.

No clear specific contrary evidence was cited by the respondent appellate court to justify the
reversal of the lower court's findings. Thus, in this case, between the factual findings of the trial
court and the appellate court, those of the trial court must prevail over that of the latter.26

WHEREFORE, the petition is GRANTED We REVERSE and SET ASIDE the decision
rendered in CA-G.R. CV No. 04429, and we hereby REINSTATE the decision of the then Court
of First Instance of Rizal (Branch 28, Pasay City) in Civil Case No. M-5276-P which ruled for
the dismissal of the Complaint for Cancellation of Titles and Reconveyance with Damages filed
by the Heirs of Macario, Esperidiona Raymunda, and Celestina, all surnamed CLAUDEL. Costs
against the private respondents.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Regalado, JJ., concur.