Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 118114 December 7, 1995
TEODORO ACAP, petitioner,
vs.
COURT OF APPEALS and EDY DE LOS REYES, respondents.
PADILLA, J.:
This is a petition for review on certiorari of the decision 1 of the Court of Appeals, 2nd Division, in CAG.R. No. 36177, which affirmed the decision 2 of the Regional Trial Court of Himamaylan, Negros
Occidental holding that private respondent Edy de los Reyes had acquired ownership of Lot No. 1130
of the Cadastral Survey of Hinigaran, Negros Occidental based on a document entitled "Declaration of
Heirship and Waiver of Rights", and ordering the dispossession of petitioner as leasehold tenant of the
land for failure to pay rentals.
The facts of the case are as follows:
The title to Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental was evidenced by
OCT No. R-12179. The lot has an area of 13,720 sq. meters. The title was issued and is registered in
the name of spouses Santiago Vasquez and Lorenza Oruma. After both spouses died, their only son
Felixberto inherited the lot. In 1975, Felixberto executed a duly notarized document entitled
"Declaration of Heirship and Deed of Absolute Sale" in favor of Cosme Pido.
The evidence before the court a quo established that since 1960, petitioner Teodoro Acap had been
the tenant of a portion of the said land, covering an area of nine thousand five hundred (9,500)
meters. When ownership was transferred in 1975 by Felixberto to Cosme Pido, Acap continued to be
the registered tenant thereof and religiously paid his leasehold rentals to Pido and thereafter, upon
Pido's death, to his widow Laurenciana.

It will be noted that at the time of Cosme Pido's death, title to the property continued to be registered
in the name of the Vasquez spouses. Upon obtaining the Declaration of Heirship with Waiver of Rights
in his favor, private respondent Edy de los Reyes filed the same with the Registry of Deeds as part of
a notice of an adverse claim against the original certificate of title.
Thereafter, private respondent sought for petitioner (Acap) to personally inform him that he (Edy) had
become the new owner of the land and that the lease rentals thereon should be paid to him. Private
respondent further alleged that he and petitioner entered into an oral lease agreement wherein
petitioner agreed to pay ten (10) cavans of palay per annum as lease rental. In 1982, petitioner
allegedly complied with said obligation. In 1983, however, petitioner refused to pay any further lease
rentals on the land, prompting private respondent to seek the assistance of the then Ministry of
Agrarian Reform (MAR) in Hinigaran, Negros Occidental. The MAR invited petitioner to a conference
scheduled on 13 October 1983. Petitioner did not attend the conference but sent his wife instead to
the conference. During the meeting, an officer of the Ministry informed Acap's wife about private
respondent's ownership of the said land but she stated that she and her husband (Teodoro) did not
recognize private respondent's claim of ownership over the land.
On 28 April 1988, after the lapse of four (4) years, private respondent filed a complaint for recovery
of possession and damages against petitioner, alleging in the main that as his leasehold tenant,
petitioner refused and failed to pay the agreed annual rental of ten (10) cavans of palay despite
repeated demands.
During the trial before the court a quo, petitioner reiterated his refusal to recognize private
respondent's ownership over the subject land. He averred that he continues to recognize Cosme Pido
as the owner of the said land, and having been a registered tenant therein since 1960, he never
reneged on his rental obligations. When Pido died, he continued to pay rentals to Pido's widow. When
the latter left for abroad, she instructed him to stay in the landholding and to pay the accumulated
rentals upon her demand or return from abroad.

The controversy began when Pido died intestate and on 27 November 1981, his surviving heirs
executed a notarized document denominated as "Declaration of Heirship and Waiver of Rights of Lot
No. 1130 Hinigaran Cadastre," wherein they declared; to quote its pertinent portions, that:

Petitioner further claimed before the trial court that he had no knowledge about any transfer or sale
of the lot to private respondent in 1981 and even the following year after Laurenciana's departure for
abroad. He denied having entered into a verbal lease tenancy contract with private respondent and
that assuming that the said lot was indeed sold to private respondent without his knowledge, R.A.
3844, as amended, grants him the right to redeem the same at a reasonable price. Petitioner also
bewailed private respondent's ejectment action as a violation of his right to security of tenure under
P.D. 27.

. . . Cosme Pido died in the Municipality of Hinigaran, Negros Occidental, he died intestate and without
any known debts and obligations which the said parcel of land is (sic) held liable.

On 20 August 1991, the lower court rendered a decision in favor of private respondent, the dispositive
part of which reads:

That Cosme Pido was survived by his/her legitimate heirs, namely: LAURENCIANA PIDO, wife, ELY,
ERVIN, ELMER, and ELECHOR all surnamed PIDO; children;

WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, Edy de los
Reyes, and against the defendant, Teodoro Acap, ordering the following, to wit:

That invoking the provision of Section 1, Rule 74 of the Rules of Court, the above-mentioned heirs do
hereby declare unto [sic] ourselves the only heirs of the late Cosme Pido and that we hereby
adjudicate unto ourselves the above-mentioned parcel of land in equal shares.

1.
Declaring forfeiture of defendant's preferred right to issuance of a Certificate of Land Transfer
under Presidential Decree No. 27 and his farmholdings;

Now, therefore, We LAURENCIANA 3, ELY, ELMER, ERVIN and ELECHOR all surnamed PIDO, do hereby
waive, quitclaim all our rights, interests and participation over the said parcel of land in favor of EDY
DE LOS REYES, of legal age, (f)ilipino, married to VIRGINIA DE LOS REYES, and resident of Hinigaran,
Negros Occidental, Philippines. . . . 4 (Emphasis supplied)
The document was signed by all of Pido's heirs. Private respondent Edy de los Reyes did not sign said
document.

2.

Ordering the defendant Teodoro Acap to deliver possession of said farm to plaintiff, and;

3.
Ordering the defendant to pay P5,000.00 as attorney's fees, the sum of P1,000.00 as
expenses of litigation and the amount of P10,000.00 as actual damages. 5
In arriving at the above-mentioned judgment, the trial court stated that the evidence had established
that the subject land was "sold" by the heirs of Cosme Pido to private respondent. This is clear from
the following disquisitions contained in the trial court's six (6) page decision:

There is no doubt that defendant is a registered tenant of Cosme Pido. However, when the latter died
their tenancy relations changed since ownership of said land was passed on to his heirs who, by
executing a Deed of Sale, which defendant admitted in his affidavit, likewise passed on their
ownership of Lot 1130 to herein plaintiff (private respondent). As owner hereof, plaintiff has the right
to demand payment of rental and the tenant is obligated to pay rentals due from the time demand is
made. . . . 6
xxx

xxx

xxx

Certainly, the sale of the Pido family of Lot 1130 to herein plaintiff does not of itself extinguish the
relationship. There was only a change of the personality of the lessor in the person of herein plaintiff
Edy de los Reyes who being the purchaser or transferee, assumes the rights and obligations of the
former landowner to the tenant Teodoro Acap, herein defendant. 7
Aggrieved, petitioner appealed to the Court of Appeals, imputing error to the lower court when it ruled
that private respondent acquired ownership of Lot No. 1130 and that he, as tenant, should pay rentals
to private respondent and that failing to pay the same from 1983 to 1987, his right to a certificate of
land transfer under P.D. 27 was deemed forfeited.
The Court of Appeals brushed aside petitioner's argument that the Declaration of Heirship and Waiver
of Rights (Exhibit "D"), the document relied upon by private respondent to prove his ownership to the
lot, was excluded by the lower court in its order dated 27 August 1990. The order indeed noted that
the document was not identified by Cosme Pido's heirs and was not registered with the Registry of
Deeds of Negros Occidental. According to respondent court, however, since the Declaration of Heirship
and Waiver of Rights appears to have been duly notarized, no further proof of its due execution was
necessary. Like the trial court, respondent court was also convinced that the said document stands as
prima facie proof of appellee's (private respondent's) ownership of the land in dispute.
With respect to its non-registration, respondent court noted that petitioner had actual knowledge of
the subject sale of the land in dispute to private respondent because as early as 1983, he (petitioner)
already knew of private respondent's claim over the said land but which he thereafter denied, and
that in 1982, he (petitioner) actually paid rent to private respondent. Otherwise stated, respondent
court considered this fact of rental payment in 1982 as estoppel on petitioner's part to thereafter
refute private respondent's claim of ownership over the said land. Under these circumstances,
respondent court ruled that indeed there was deliberate refusal by petitioner to pay rent for a
continued period of five years that merited forfeiture of his otherwise preferred right to the issuance
of a certificate of land transfer.
In the present petition, petitioner impugns the decision of the Court of Appeals as not in accord with
the law and evidence when it rules that private respondent acquired ownership of Lot No. 1130
through the aforementioned Declaration of Heirship and Waiver of Rights.
Hence, the issues to be resolved presently are the following:
1.
WHETHER OR NOT THE SUBJECT DECLARATION OF HEIRSHIP AND WAIVER OF RIGHTS IS A
RECOGNIZED MODE OF ACQUIRING OWNERSHIP BY PRIVATE RESPONDENT OVER THE LOT IN
QUESTION.
2.
WHETHER OR NOT THE SAID DOCUMENT CAN BE CONSIDERED A DEED OF SALE IN FAVOR
OF PRIVATE RESPONDENT OF THE LOT IN QUESTION.
Petitioner argues that the Regional Trial Court, in its order dated 7 August 1990, explicitly excluded
the document marked as Exhibit "D" (Declaration of Heirship, etc.) as private respondent's evidence
because it was not registered with the Registry of Deeds and was not identified by anyone of the heirs

of Cosme Pido. The Court of Appeals, however, held the same to be admissible, it being a notarized
document, hence, a prima facie proof of private respondents' ownership of the lot to which it refers.
Petitioner points out that the Declaration of Heirship and Waiver of Rights is not one of the recognized
modes of acquiring ownership under Article 712 of the Civil Code. Neither can the same be considered
a deed of sale so as to transfer ownership of the land to private respondent because no consideration
is stated in the contract (assuming it is a contract or deed of sale).
Private respondent defends the decision of respondent Court of Appeals as in accord with the
evidence and the law. He posits that while it may indeed be true that the trial court excluded his
Exhibit "D" which is the Declaration of Heirship and Waiver of Rights as part of his evidence, the trial
court declared him nonetheless owner of the subject lot based on other evidence adduced during the
trial, namely, the notice of adverse claim (Exhibit "E") duly registered by him with the Registry of
Deeds, which contains the questioned Declaration of Heirship and Waiver of Rights as an integral part
thereof.
We find the petition impressed with merit.
In the first place, an asserted right or claim to ownership or a real right over a thing arising from a
juridical act, however justified, is not per se sufficient to give rise to ownership over the res. That
right or title must be completed by fulfilling certain conditions imposed by law. Hence, ownership and
real rights are acquired only pursuant to a legal mode or process. While title is the juridical
justification, mode is the actual process of acquisition or transfer of ownership over a thing in
question. 8
Under Article 712 of the Civil Code, the modes of acquiring ownership are generally classified into two
(2) classes, namely, the original mode (i.e., through occupation, acquisitive prescription, law or
intellectual creation) and the derivative mode (i.e., through succession mortis causa or tradition as a
result of certain contracts, such as sale, barter, donation, assignment or mutuum).
In the case at bench, the trial court was obviously confused as to the nature and effect of the
Declaration of Heirship and Waiver of Rights, equating the same with a contract (deed) of sale. They
are not the same.
In a Contract of Sale, one of the contracting parties obligates himself to transfer the ownership of and
to deliver a determinate thing, and the other party to pay a price certain in money or its equivalent. 9
Upon the other hand, a declaration of heirship and waiver of rights operates as a public instrument
when filed with the Registry of Deeds whereby the intestate heirs adjudicate and divide the estate left
by the decedent among themselves as they see fit. It is in effect an extrajudicial settlement between
the heirs under Rule 74 of the Rules of Court. 10
Hence, there is a marked difference between a sale of hereditary rights and a waiver of hereditary
rights. The first presumes the existence of a contract or deed of sale between the parties. 11 The
second is, technically speaking, a mode of extinction of ownership where there is an abdication or
intentional relinquishment of a known right with knowledge of its existence and intention to relinquish
it, in favor of other persons who are co-heirs in the succession. 12 Private respondent, being then a
stranger to the succession of Cosme Pido, cannot conclusively claim ownership over the subject lot on
the sole basis of the waiver document which neither recites the elements of either a sale, 13 or a
donation, 14 or any other derivative mode of acquiring ownership.
Quite surprisingly, both the trial court and public respondent Court of Appeals concluded that a "sale"
transpired between Cosme Pido's heirs and private respondent and that petitioner acquired actual
knowledge of said sale when he was summoned by the Ministry of Agrarian Reform to discuss private
respondent's claim over the lot in question. This conclusion has no basis both in fact and in law.

On record, Exhibit "D", which is the "Declaration of Heirship and Waiver of Rights" was excluded by
the trial court in its order dated 27 August 1990 because the document was neither registered with
the Registry of Deeds nor identified by the heirs of Cosme Pido. There is no showing that private
respondent had the same document attached to or made part of the record. What the trial court
admitted was Annex "E", a notice of adverse claim filed with the Registry of Deeds which contained
the Declaration of Heirship with Waiver of rights and was annotated at the back of the Original
Certificate of Title to the land in question.
A notice of adverse claim, by its nature, does not however prove private respondent's ownership over
the tenanted lot. "A notice of adverse claim is nothing but a notice of a claim adverse to the
registered owner, the validity of which is yet to be established in court at some future date, and is no
better than a notice of lis pendens which is a notice of a case already pending in court." 15
It is to be noted that while the existence of said adverse claim was duly proven, there is no evidence
whatsoever that a deed of sale was executed between Cosme Pido's heirs and private respondent
transferring the rights of Pido's heirs to the land in favor of private respondent. Private respondent's
right or interest therefore in the tenanted lot remains an adverse claim which cannot by itself be
sufficient to cancel the OCT to the land and title the same in private respondent's name.
Consequently, while the transaction between Pido's heirs and private respondent may be binding on
both parties, the right of petitioner as a registered tenant to the land cannot be perfunctorily forfeited
on a mere allegation of private respondent's ownership without the corresponding proof thereof.
Petitioner had been a registered tenant in the subject land since 1960 and religiously paid lease
rentals thereon. In his mind, he continued to be the registered tenant of Cosme Pido and his family
(after Pido's death), even if in 1982, private respondent allegedly informed petitioner that he had
become the new owner of the land.
Under the circumstances, petitioner may have, in good faith, assumed such statement of private
respondent to be true and may have in fact delivered 10 cavans of palay as annual rental for 1982 to
private respondent. But in 1983, it is clear that petitioner had misgivings over private respondent's
claim of ownership over the said land because in the October 1983 MAR conference, his wife
Laurenciana categorically denied all of private respondent's allegations. In fact, petitioner even
secured a certificate from the MAR dated 9 May 1988 to the effect that he continued to be the
registered tenant of Cosme Pido and not of private respondent. The reason is that private respondent
never registered the Declaration of Heirship with Waiver of Rights with the Registry of Deeds or with
the MAR. Instead, he (private respondent) sought to do indirectly what could not be done directly,
i.e., file a notice of adverse claim on the said lot to establish ownership thereover.
It stands to reason, therefore, to hold that there was no unjustified or deliberate refusal by petitioner
to pay the lease rentals or amortizations to the landowner/agricultural lessor which, in this case,
private respondent failed to establish in his favor by clear and convincing evidence. 16
Consequently, the sanction of forfeiture of his preferred right to be issued a Certificate of Land
Transfer under P.D. 27 and to the possession of his farmholdings should not be applied against
petitioners, since private respondent has not established a cause of action for recovery of possession
against petitioner.
WHEREFORE, premises considered, the Court hereby GRANTS the petition and the decision of the
Court of Appeals dated 1 May 1994 which affirmed the decision of the RTC of Himamaylan, Negros
Occidental dated 20 August 1991 is hereby SET ASIDE. The private respondent's complaint for
recovery of possession and damages against petitioner Acap is hereby DISMISSED for failure to
properly state a cause of action, without prejudice to private respondent taking the proper legal steps
to establish the legal mode by which he claims to have acquired ownership of the land in question.

SO ORDERED.
Davide, Jr., Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-116650

May 23, 1995

TOYOTA SHAW, INC., petitioner,

vs.
COURT OF APPEALS and LUNA L. SOSA, respondents.

DAVIDE, JR., J.:

At the heart of the present controversy is the document marked Exhibit "A" 1 for the private
respondent, which was signed by a sales representative of Toyota Shaw, Inc. named Popong
Bernardo. The document reads as follows:
4 June 1989
AGREEMENTS BETWEEN MR. SOSA
& POPONG BERNARDO OF TOYOTA
SHAW, INC.
1.
all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a
week after, upon arrival of Mr. Sosa from the Province (Marinduque) where the unit will be used on
the 19th of June.
2.

the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989.

3.
the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA
SHAW, INC. on the 17th of June at 10 a.m.
Very truly yours,
(Sgd.) POPONG BERNARDO.
Was this document, executed and signed by the petitioner's sales representative, a perfected contract
of sale, binding upon the petitioner, breach of which would entitle the private respondent to damages
and attorney's fees? The trial court and the Court of Appeals took the affirmative view. The petitioner
disagrees. Hence, this petition for review on certiorari.
The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well
as in the pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa

(hereinafter Sosa) are as follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a
Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding a dealer with an available
unit for sale. But upon contacting Toyota Shaw, Inc., he was told that there was an available unit. So
on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig, Metro
Manila. There they met Popong Bernardo, a sales representative of Toyota.

Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by
B.A. Finance of the credit financing application of Sosa. It further alleged that a particular unit had
already been reserved and earmarked for Sosa but could not be released due to the uncertainty of
payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the unit
by paying the full purchase price in cash but Sosa refused.

Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he,
his family, and a balikbayan guest would use it on 18 June 1989 to go to Marinduque, his home
province, where he would celebrate his birthday on the 19th of June. He added that if he does not
arrive in his hometown with the new car, he would become a "laughing stock." Bernardo assured Sosa
that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed the
aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also
agreed upon by the parties that the balance of the purchase price would be paid by credit financing
through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and
B.A. Finance pertaining to the application for financing.

After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his
downpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank check for
the full amount of P100,000.00, 4 the receipt of which was shown by a check voucher of Toyota, 5
which Sosa signed with the reservation, "without prejudice to our future claims for damages."

The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of
P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No.
928, 2 on which Gilbert signed under the subheading CONFORME. This document shows that the
customer's name is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street, United Paraaque
II; that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus"; that payment
is by "installment," to be financed by "B.A.," 3 with the initial cash outlay of P100,000.00 broken
down as follows:
a)downpaymentP 53,148.00
b)insuranceP 13,970.00
c)BLT registration feeP 1,067.00
CHMO feeP 2,715.00
service feeP 500.00
accessoriesP 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery Terms"
were not filled-up. It also contains the following pertinent provisions:
CONDITIONS OF SALES
1.

This sale is subject to availability of unit.

2.
Stated Price is subject to change without prior notice, Price prevailing and in effect at time of
selling will apply. . . .
Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP.
On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would
not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At
2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office. According to Sosa, Bernardo informed
them that the Lite Ace was being readied for delivery. After waiting for about an hour, Bernardo told
them that the car could not be delivered because "nasulot ang unit ng ibang malakas."

Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by him,
he demanded the refund, within five days from receipt, of the downpayment of P100,000.00 plus
interest from the time he paid it and the payment of damages with a warning that in case of Toyota's
failure to do so he would be constrained to take legal action. 6 The second, dated 4 November 1989
and signed by M. O. Caballes, Sosa's counsel, demanded one million pesos representing interest and
damages, again, with a warning that legal action would be taken if payment was not made within
three days. 7 Toyota's counsel answered through a letter dated 27 November 1989 8 refusing to
accede to the demands of Sosa. But even before this answer was made and received by Sosa, the
latter filed on 20 November 1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a
complaint against Toyota for damages under Articles 19 and 21 of the Civil Code in the total amount
of P1,230,000.00. 9 He alleges, inter alia, that:
9.
As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff
suffered embarrassment, humiliation, ridicule, mental anguish and sleepless nights because: (i) he
and his family were constrained to take the public transportation from Manila to Lucena City on their
way to Marinduque; (ii) his balikbayan-guest canceled his scheduled first visit to Marinduque in order
to avoid the inconvenience of taking public transportation; and (iii) his relatives, friends, neighbors
and other provincemates, continuously irked him about "his Brand-New Toyota Lite Ace that never
was." Under the circumstances, defendant should be made liable to the plaintiff for moral damages in
the amount of One Million Pesos (P1,000,000.00). 10
In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that
Bernardo had no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit
"A" in his personal capacity. As special and affirmative defenses, it alleged that: the VSP did not state
date of delivery; Sosa had not completed the documents required by the financing company, and as a
matter of policy, the vehicle could not and would not be released prior to full compliance with
financing requirements, submission of all documents, and execution of the sales agreement/invoice;
the P100,000.00 was returned to and received by Sosa; the venue was improperly laid; and Sosa did
not have a sufficient cause of action against it. It also interposed compulsory counterclaims.
After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered on 18
February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN
MR. SOSA AND POPONG BERNARDO," was a valid perfected contract of sale between Sosa and Toyota
which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in
bad faith in selling to another the unit already reserved for him.
As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court
held that the extent of Bernardo's authority "was not made known to plaintiff," for as testified to by
Quirante, "they do not volunteer any information as to the company's sales policy and guidelines
because they are internal matters." 13 Moreover, "[f]rom the beginning of the transaction up to its
consummation when the downpayment was made by the plaintiff, the defendants had made known to
the plaintiff the impression that Popong Bernardo is an authorized sales executive as it permitted the
latter to do acts within the scope of an apparent authority holding him out to the public as possessing

power to do these acts." 14 Bernardo then "was an agent of the defendant Toyota Shaw, Inc. and
hence bound the defendants." 15

From that moment, the parties may reciprocally demand performance, subject to the provisions of the
law governing the form of contracts.

The court further declared that "Luna Sosa proved his social standing in the community and suffered
besmirched reputation, wounded feelings and sleepless nights for which he ought to be
compensated." 16 Accordingly, it disposed as follows:

What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is
not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing
to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears
therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale of a
vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment basis, as
the VSP executed the following day confirmed. But nothing was mentioned about the full purchase
price and the manner the installments were to be paid.

WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the plaintiff
and against the defendant:
1.

ordering the defendant to pay to the plaintiff the sum of P75,000.00 for moral damages;

2.

ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary damages;

3.
ordering the defendant to pay the sum of P30,000.00 attorney's fees plus P2,000.00 lawyer's
transportation fare per trip in attending to the hearing of this case;
4.
ordering the defendant to pay the plaintiff the sum of P2,000.00 transportation fare per trip
of the plaintiff in attending the hearing of this case; and
5.

ordering the defendant to pay the cost of suit.

SO ORDERED.
Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The case was
docketed as CA-G.R. CV No. 40043. In its decision promulgated on 29 July 1994, 17 the Court of
Appeals affirmed in toto the appealed decision.
Toyota now comes before this Court via this petition and raises the core issue stated at the beginning
of the ponencia and also the following related issues: (a) whether or not the standard VSP was the
true and documented understanding of the parties which would have led to the ultimate contract of
sale, (b) whether or not Sosa has any legal and demandable right to the delivery of the vehicle
despite the non-payment of the consideration and the non-approval of his credit application by B.A.
Finance, (c) whether or not Toyota acted in good faith when it did not release the vehicle to Sosa, and
(d) whether or not Toyota may be held liable for damages.
We find merit in the petition.
Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a
perfected contract of sale.
Article 1458 of the Civil Code defines a contract of sale as follows:
Art. 1458.
By the contract of sale one of the contracting parties obligates himself to transfer
the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
and Article 1475 specifically provides when it is deemed perfected:
Art. 1475.
The contract of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price.

This Court had already ruled that a definite agreement on the manner of payment of the price is an
essential element in the formation of a binding and enforceable contract of sale. 18 This is so because
the agreement as to the manner of payment goes into the price such that a disagreement on the
manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an
essential element of a binding agreement to sell personal property. 19
Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one
thing, Sosa did not even sign it. For another, Sosa was well aware from its title, written in bold letters,
viz.,
AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC.
that he was not dealing with Toyota but with Popong Bernardo and that the latter did not
misrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo was only a
sales representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to
act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as an
agent 20 in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the agent. 21
At the most, Exhibit "A" may be considered as part of the initial phase of the generation or
negotiation stage of a contract of sale. There are three stages in the contract of sale, namely:
(a)
preparation, conception, or generation, which is the period of negotiation and bargaining,
ending at the moment of agreement of the parties;
(b)
perfection or birth of the contract, which is the moment when the parties come to agree on
the terms of the contract; and
(c)
consummation or death, which is the fulfillment or performance of the terms agreed upon in
the contract. 22
The second phase of the generation or negotiation stage in this case was the execution of the VSP. It
must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while
the balance to be paid on installment should be financed by B.A. Finance Corporation. It is, of course,
to be assumed that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not have
mentioned B.A. Finance in the VSP.
Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and
P.D. No. 1793, as "corporations or partnerships, except those regulated by the Central Bank of the
Philippines, the Insurance Commission and the Cooperatives Administration Office, which are primarily
organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or
agricultural enterprises, either by discounting or factoring commercial papers or accounts receivables,
or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or

by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines
and equipment, appliances and other movable property." 23

No pronouncement as to costs.

Accordingly, in a sale on installment basis which is financed by a financing company, three parties are
thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing
purchased on installment, the seller who assigns the notes or discounts them with a financing
company, and the financing company which is subrogated in the place of the seller, as the creditor of
the installment buyer. 24 Since B.A. Finance did not approve Sosa's application, there was then no
meeting of minds on the sale on installment basis.

SO ORDERED.

We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which
reason it suggested to Sosa that he pay the full purchase price. When the latter refused, Toyota
cancelled the VSP and returned to him his P100,000.00. Sosa's version that the VSP was cancelled
because, according to Bernardo, the vehicle was delivered to another who was "mas malakas" does
not inspire belief and was obviously a delayed afterthought. It is claimed that Bernardo said,
"Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas had already been waiting for an
hour for the delivery of the vehicle in the afternoon of 17 June 1989. However, in paragraph 7 of his
complaint, Sosa solemnly states:

SECOND DIVISION

On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative, Mr. Popong
Bernardo, called plaintiff's house and informed the plaintiff's son that the vehicle will not be ready for
pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and his son
went to defendant's office on June 17 1989 at 2:00 p.m. in order to pick-up the vehicle but the
defendant for reasons known only to its representatives, refused and/or failed to release the vehicle
to the plaintiff. Plaintiff demanded for an explanation, but nothing was given; . . . (Emphasis
supplied). 25

NATIONAL DEVELOPMENT CORPORATION, petitioner, vs. FIRESTONE CERAMICS, INC., respondents.

The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP
created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its nondelivery did not cause any legally indemnifiable injury.
The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal
basis. Besides, the only ground upon which Sosa claimed moral damages is that since it was known to
his friends, townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see
on his birthday, he suffered humiliation, shame, and sleepless nights when the van was not delivered.
The van became the subject matter of talks during his celebration that he may not have paid for it,
and this created an impression against his business standing and reputation. At the bottom of this
claim is nothing but misplaced pride and ego. He should not have announced his plan to buy a Toyota
Lite Ace knowing that he might not be able to pay the full purchase price. It was he who brought
embarrassment upon himself by bragging about a thing which he did not own yet.
Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or
compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the
Civil Code, exemplary or corrective damages are imposed by way of example or correction for the
public good, in addition to moral, temperate, liquidated, or compensatory damages.
Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the body of
the decision, and not only in the dispositive portion thereof, the legal reason for the award of
attorney's fees. 26 No such explicit determination thereon was made in the body of the decision of the
trial court. No reason thus exists for such an award.
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CAG.R. CV NO. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case
No. 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED.
The counterclaim therein is likewise DISMISSED.

Padilla, Bellosillo and Kapunan, JJ., concur.

Quiason, J., is on leave.

[G.R. No. 143513. November 14, 2001]

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and FIRESTONE
CERAMICS, INC., respondents.
[G.R. No. 143590. November 14, 2001]

DECISION
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]
On 31 July 1974 the parties signed a similar contract concerning a six (6)-unit pre-fabricated 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 tenyear 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-hectare[8] 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 29,000[10] square meters, whose contract with NDC was set to expire on 31
December 1989[11] 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] (underscoring 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]

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.

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.

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.

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

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 NDCs
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
AppealsThe 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 codefendants-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 C26-68 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. CA[41] 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.

respondent PNB informed petitioner that the request had been referred to its Pasay City Branch for
appropriate action and recommendation.9

SO ORDERED.
Mendoza, Buena, and De Leon, Jr., JJ., concur.
Quisumbing, J., no part due to prior close relations.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
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,

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
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

Thus, petitioner filed the instant petition for review on certiorari, alleging that:

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.

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.

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.

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.

VIII

V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF PETITIONERAPPELLANT 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 LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL AND
EXEMPLARY DAMAGES, ATTOTRNEY'S FEES AND LITIGATION EXPENSES.33

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.

Meanwhile, on June 17, 1993, petitioner's Board of Directors approved Resolution No. 3-004, where it
waived, assigned and transferred its rights over the property covered by TCT No. 33099 and TCT No.
37025 in favor of Bayani Gabriel, one of its Directors.34 Thereafter, Bayani Gabriel executed a Deed of
Assignment over 51% of the ownership and management of the property in favor of Reynaldo
Tolentino, who later moved for leave to intervene as plaintiff-appellant. On July 14, 1993, the CA
issued a resolution granting the motion,35 and likewise granted the motion of Reynaldo Tolentino
substituting petitioner MMCC, as plaintiff-appellant, and his motion to withdraw as intervenor.36

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.

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.

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.

merely sought to have the counter-offer reconsidered. This request for reconsideration would later be
rejected by respondent.

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:

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:

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

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.
SECOND DIVISION

SPS. LUIS V. CRUZ and G.R. NO. 145470

AIDA CRUZ,
Petitioners, Present:
PUNO, Chairman,
AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
SPS. ALEJANDRO FERNANDO,
SR., and RITA FERNANDO, Promulgated:
Respondents. December 9, 2005
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
AUSTRIA-MARTINEZ, J.:

For resolution is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the
Decision[1] dated October 3, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61247, dismissing
petitioners appeal and affirming the decision of the Regional Trial Court (RTC) of Malolos, Bulacan,
Branch 79, in Civil Case No. 877-M-94.
The antecedent facts are as follows:
Luis V. Cruz and Aida Cruz (petitioners) are occupants of the front portion of a 710-square meter
property located in Sto. Cristo, Baliuag, Bulacan. On October 21, 1994, spouses Alejandro Fernando,
Sr. and Rita Fernando (respondents) filed before the RTC a complaint for accion publiciana against
petitioners, demanding the latter to vacate the premises and to pay the amount of P500.00 a month
as reasonable rental for the use thereof. Respondents alleged in their complaint that: (1) they are
owners of the property, having bought the same from the spouses Clodualdo and Teresita Glorioso
(Gloriosos) per Deed of Sale dated March 9, 1987; (2) prior to their acquisition of the property, the

Gloriosos offered to sell to petitioners the rear portion of the property but the transaction did not
materialize due to petitioners failure to exercise their option; (3) the offer to sell is embodied in a
Kasunduan dated August 6, 1983 executed before the Barangay Captain; (4) due to petitioners failure
to buy the allotted portion, respondents bought the whole property from the Gloriosos; and (5)
despite repeated demands, petitioners refused to vacate the property.[2]
Petitioners filed a Motion to Dismiss but the RTC dismissed it for lack of merit in its Order dated March
6, 1995.[3] Petitioners then filed their Answer setting forth the affirmative defenses that: (1) the
Kasunduan is a perfected contract of sale; (2) the agreement has already been partially consummated
as they already relocated their house from the rear portion of the lot to the front portion that was sold
to them; (3) Mrs. Glorioso prevented the complete consummation of the sale when she refused to
have the exact boundaries of the lot bought by petitioners surveyed, and the existing survey was
made without their knowledge and participation; and (4) respondents are buyers in bad faith having
bought that portion of the lot occupied by them (petitioners) with full knowledge of the prior sale to
them by the Gloriosos.[4]
After due proceedings, the RTC rendered a Decision on April 3, 1998 in favor of respondents. The
decretal portion of the decision provides:
PREMISES CONSIDERED, the herein plaintiffs was able to prove by preponderance of evidence the
case of accion publiciana, against the defendants and judgment is hereby rendered as follows:
1. Ordering defendants and all persons claiming under them to vacate placefully (sic) the premises in
question and to remove their house therefore (sic);
2. Ordering defendants to pay plaintiff the sum of P500.00 as reasonable rental per month beginning
October 21, 1994 when the case was filed before this Court and every month thereafter until they
vacate the subject premises and to pay the costs of suit.
The counter claim is hereby DISMISSED for lack of merit.
SO ORDERED.[5]
Petitioners appealed the RTC decision but it was affirmed by the CA per its Decision dated October 3,
2000.
Hence, the present petition raising the following issues:
1. Whether the Honorable Court of Appeals committed an error of law in holding that the Agreement
(Kasunduan) between the parties was a mere offer to sell, and not a perfected Contract of Purchase
and Sale?
2. Whether the Honorable Court of Appeals committed an error of law in not holding that where the
parties clearly gave the petitioners a period of time within which to pay the price, but did not fix said
period, the remedy of the vendors is to ask the Court to fix the period for the payment of the price,
and not an accion publiciana?

3. Whether the Honorable Court of Appeals committed an error of law in not ordering respondents to
at least deliver the back portion of the lot in question upon payment of the agreed price thereof by

petitioners, assuming that the Regional Trial Court was correct in finding that the subject matter of
the sale was said back portion, and not the front portion of the property?
4. Whether the Honorable Court of Appeals committed an error of law in affirming the decision of the
trial court ordering the petitioners, who are possessors in good faith, to pay rentals for the portion of
the lot possessed by them?[6]
The RTC dwelt on the issue of which portion was being sold by the Gloriosos to petitioners, finding
that it was the rear portion and not the front portion that was being sold; while the CA construed the
Kasunduan as a mere contract to sell and due to petitioners failure to pay the purchase price, the
Gloriosos were not obliged to deliver to them (petitioners) the portion being sold.
Petitioners, however, insist that the agreement was a perfected contract of sale, and their failure to
pay the purchase price is immaterial. They also contend that respondents have no cause of action
against them, as the obligation set in the Kasunduan did not set a period, consequently, there is no
breach of any obligation by petitioners.
The resolution of the issues in this case principally is dependent on the interpretation of the
Kasunduan dated August 6, 1983 executed by petitioners and the Gloriosos. The Kasunduan provided
the following pertinent stipulations:
a. Na pumayag ang mga maysumbong (referring to the Gloriosos) na pagbilhan ang mga
ipinagsumbong (referring to petitioners) na bahagi ng lupa at ang ipagbibili ay may sukat na 213
metrong parisukat humigit kumulang sa halagang P40.00 bawat metrong parisukat;
b. Na sa titulong papapanaugin ang magiging kabuuang sukat na mauukol sa mga ipinagsusumbong
ay 223 metrong parisukat at ang 10 metro nito ay bilang kaloob ng mga maysumbong sa mga
Ipinagsusumbong na bahagi ng right of way;
c. Na ang right of way ay may luwang na 1.75 meters magmula sa daang Lopez Jaena patungo sa
likuran ng lote na pagtatayuan ng bahay ng mga Ipinagsusumbong na kanyang bibilhin;
d. Na ang gugol sa pagpapasukat at pagpapanaog ng titulo ay paghahatian ng magkabilang panig na
ang panig ay magbibigay ng halagang hindi kukulanging sa halagang tig-AAPAT NA DAANG PISO
(P400.00);
e. Na ang ipinagsusumbong ay tiyakang ililipat ang bahay sa bahaging kanilang nabili o mabibili sa
buwan ng Enero 31, 1984;[7] (Emphasis supplied)
Under Article 1458 of the Civil Code, a contract of sale is a contract by which one of the contracting
parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other
to pay therefor a price certain in money or its equivalent. Article 1475 of the Code further provides
that the contract of sale is perfected at the moment there is meeting of the 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.
In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing
sold, as distinguished from a contract to sell where ownership is, by agreement, reserved in the
vendor and is not to pass to the vendee until full payment of the purchase price.[8] Otherwise stated,
in a contract of sale, the vendor loses ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the

vendor until full payment of the price. In the latter contract, payment of the price is a positive
suspensive condition, failure of which is not a breach but an event that prevents the obligation of the
vendor to convey title from becoming effective.
The Kasunduan provides for the following terms and conditions: (a) that the Gloriosos agreed to sell
to petitioners a portion of the property with an area of 213 meters at the price of P40.00 per square
meter; (b) that in the title that will be caused to be issued, the aggregate area is 223 square meters
with 10 meters thereof serving as right of way; (c) that the right of way shall have a width of 1.75
meters from Lopez Jaena road going towards the back of the lot where petitioners will build their
house on the portion of the lot that they will buy; (d) that the expenses for the survey and for the
issuance of the title will be divided between the parties with each party giving an amount of no less
than P400.00; and (e) that petitioners will definitely relocate their house to the portion they bought or
will buy by January 31, 1984.
The foregoing terms and conditions show that it is a contract to sell and not a contract of sale. For
one, the conspicuous absence of a definite manner of payment of the purchase price in the agreement
confirms the conclusion that it is a contract to sell. This is because the manner of payment of the
purchase price is an essential element before a valid and binding contract of sale can exist.[9]
Although the Civil Code does not expressly state that the minds of the parties must also meet on the
terms or manner of payment of the price, the same is needed, otherwise there is no sale.[10] As held
in Toyota Shaw, Inc. vs. Court of Appeals,[11] a definite agreement on the manner of payment of the
price is an essential element in the formation of a binding and enforceable contract of sale.
The Kasunduan does not establish any definite agreement between the parties concerning the terms
of payment. What it merely provides is the purchase price for the 213-square meter property at
P40.00 per square meter.
For another, the telltale provision in the Kasunduan that: Na pumayag ang mga maysumbong na
pagbilhan ang mga ipinagsumbong na bahagi ng lupa at ang ipagbibili ay may sukat na 213 metrong
parisukat humigit kumulang sa halagang P40.00 bawat metrong parisukat, simply means that the
Gloriosos only agreed to sell a portion of the property and that the portion to be sold measures 213
square meters.
Another significant provision is that which reads: Na ang ipinagsusumbong ay tiyakang ililipat ang
bahay sa bahaging kanilang nabili o mabibili sa buwan ng Enero 31, 1984. The foregoing indicates
that a contract of sale is yet to be consummated and ownership of the property remained in the
Gloriosos. Otherwise, why would the alternative term mabibili be used if indeed the property had
already been sold to petitioners.
In addition, the absence of any formal deed of conveyance is a strong indication that the parties did
not intend immediate transfer of ownership.[12]
Normally, in a contract to sell, the payment of the purchase price is the positive suspensive condition
upon which the transfer of ownership depends.[13] The parties, however, are not prohibited from
stipulating other lawful conditions that must be fulfilled in order for the contract to be converted from
a contract to sell or at the most an executory sale into an executed one.[14]
In the present case, aside from the payment of the purchase price, there existed another suspensive
condition, i.e.: that petitioners will relocate their house to the portion they bought or will buy by
January 31, 1984.
Petitioners failed to abide by the express condition that they should relocate to the rear portion of the
property being bought by January 31, 1984. Indeed, the Kasunduan discloses that it is the rear

portion that was being sold by the Gloriosos, and not the front portion as petitioners stubbornly claim.
This is evident from the provisions establishing a right of way from Lopez Jaena road going towards
the back of the lot, and requiring them to relocate their house to the portion being sold by January
31, 1984. Petitioners are presently occupying the front portion of the property. Why the need for a
right of way and for petitioners to relocate if the front portion on which their house stands is the
portion being sold?
This condition is a suspensive condition noncompliance of which prevented the Gloriosos from
proceeding with the sale and ultimately transferring title to petitioners; and the Kasunduan from
having obligatory force.[15] It is established by evidence that the petitioners did not transfer their
house located in the front portion of the subject property to the rear portion which, under the
Kasunduan, they intended to buy. Thus, no obligation arose on the part of the Gloriosos to consider
the subject property as having been sold to petitioners because the latters non-fulfillment of the
suspensive condition rendered the contract to sell ineffective and unperfected.
Petitioners admit that they have not paid a single centavo to the Gloriosos. However, petitioners argue
that their nonpayment of the purchase price was due to the fact that there is yet to be a survey made
of the property. But evidence shows, and petitioners do not dispute, that as early as August 12, 1983,
or six days after the execution of the Kasunduan, a survey has already been made and the property
was subdivided into Lot Nos. 565-B-1 (front portion) and 565-B-2 (rear portion), with Lot No. 565-B-2
measuring 223 square meters as the portion to be bought by petitioners.
Petitioners question the survey made, asserting that it is a table survey made without their knowledge
and participation. It should be pointed out that the Kasunduan merely provides that the expenses for
the survey will be divided between them and that each party should give an amount of no less than
P400.00. Nowhere is it stated that the survey is a condition precedent for the payment of the
purchase price.
Petitioners further claim that respondents have no cause of action against them because their
obligation to pay the purchase price did not yet arise, as the agreement did not provide for a period
within which to pay the purchase price. They argue that respondents should have filed an action for
specific performance or judicial rescission before they can avail of accion publiciana.
Notably, petitioners never raised these arguments during the proceedings before the RTC. Suffice it to
say that issues raised for the first time on appeal and not raised timely in the proceedings in the lower
court are barred by estoppel.[16] Matters, theories or arguments not brought out in the original
proceedings cannot be considered on review or appeal where they are raised for the first time. To
consider the alleged facts and arguments raised belatedly would amount to trampling on the basic
principles of fair play, justice and due process.[17]
Moreover, it would be inutile for respondents to first petition the court to fix a period for the
performance of the contract. In the first place, respondents are not parties to the Kasunduan between
petitioners and the Gloriosos, and they have no standing whatsoever to seek such recourse. In the
second place, such recourse properly pertains to petitioners. It was they who should have sought the
courts intercession. If petitioners believed that they have an actionable contract for the sale of the
property, prudence and common sense dictate that they should have sought its enforcement
forthwith. Instead, petitioners whiled away their time.
Furthermore, there is no need for a judicial rescission of the Kasunduan for the simple reason that the
obligation of the Gloriosos to transfer the property to petitioners has not yet arisen. There can be no
rescission of an obligation that is nonexistent, considering that the suspensive conditions therefor
have not yet happened.[18]

Hence, petitioners have no superior right of ownership or possession to speak of. Their occupation of
the property was merely through the tolerance of the owners. Evidence on record shows that
petitioners and their predecessors were able to live and build their house on the property through the
permission and kindness of the previous owner, Pedro Hipolito, who was their relative,[19] and
subsequently, Teresita Glorioso, who is also their relative. They have no title or, at the very least, a
contract of lease over the property. Based as it was on mere tolerance, petitioners possession could
neither ripen into ownership nor operate to bar any action by respondents to recover absolute
possession thereof.[20]
There is also no merit to petitioners contention that respondents are buyers in bad faith. As explained
in Coronel vs. Court of Appeals:
In a contract to sell, there being no previous sale of the property, a third person buying such property
despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for
instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of
reconveyance of the property. There is no double sale in such case. Title to the property will transfer
to the buyer after registration because there is no defect in the owner-sellers title per se, but the
latter, of course, may be sued for damages by the intending buyer.[21] (Emphasis supplied)
A person who occupies the land of another at the latter's forbearance or permission without any
contract between them is necessarily bound by an implied promise that he will vacate upon demand.
[22]
Considering that petitioners continued possession of the property has already been rendered unlawful,
they are bound to pay reasonable rental for the use and occupation thereof, which in this case was
appropriately pegged by the RTC at P500.00 per month beginning October 21, 1994 when
respondents filed the case against them until they vacate the premises.
Finally, petitioners seek compensation for the value of the improvements introduced on the property.
Again, this is the first time that they are raising this point. As such, petitioners are now barred from
seeking such relief.[23]

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated October 3, 2000 in
CA-G.R. CV No. 61247 is AFFIRMED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 108346

July 11, 2001

Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners,

vs.
COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO, respondents.

PANGANIBAN, J.:
A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed
by the contract, entitled the injured party to rescind the obligation. Rescission abrogates the contract
from its inception and requires a mutual restitution of benefits received.
The Case
Before us is a Petition for Review on Certiorari1 questioning the Decision2 of the Court of Appeals
(CA) in CA-GR CV No. 32991 dated October 9, 1992, as well as its Resolution3 dated December 29,
1992 denying petitioner's motion for reconsideration.4
The dispositive portion of the assailed Decision reads:
"WHEREFORES the Order dated May 15, 1991 is hereby ANNULLED and SET ASIDE and the Decision
dated November 14, 1990 dismissing the [C]omplaint is RESINSTATED. The bonds posted by
plaintiffs-appellees and defendants-appellants are hereby RELEASED."5
The Facts
The factual antecedents of the case, as found by the CA, are as follows:
"x x x. David Raymundo [herein private respondent] is the absolute and registered owner of a parcel
of land, together with the house and other improvements thereon, located at 1918 Kamias St.,
Dasmarias Village, Makati and covered by TCT No. 142177. Defendant George Raymundo [herein
private petitioners] is David's father who negotiated with plaintiffs Avelina and Mariano Velarde
[herein petitioners] for the sale of said property, which was, however, under lease (Exh. '6', p. 232,
Record of Civil Case No. 15952).
"On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh. 'A'; Exh. '1', pp. 11-12,
Record) was executed by defendant David Raymundo, as vendor, in favor of plaintiff Avelina Velarde,
as vendee, with the following terms and conditions:
'x x x

xxx

xxx

'That for and in consideration of the amount of EIGHT HUNDRED THOUSAND PESOS (P800,000.00),
Philippine currency, receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE,
to his entire and complete satisfaction, by these presents the VENDOR hereby SELLS, CEDES,
TRANSFERS, CONVEYS AND DELIVERS, freely and voluntarily, with full warranty of a legal and valid
title as provided by law, unto the VENDEE, her heirs, successors and assigns, the parcel of land
mentioned and described above, together with the house and other improvements thereon.

appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI, including
interests and other charges for late payment levied by the Bank, as if the same were originally signed
and executed by the VENDEE.
'It is further agreed and understood by the parties herein that the capital gains tax and documentary
stamps on the sale shall be for the account of the VENDOR; whereas, the registration fees and
transfer tax thereon shall be the account of the VENDEE.' (Exh. 'A', pp. 11-12, Record).'
"On the same date, and as part of the above-document, plaintiff Avelina Velarde, with the consent of
her husband, Mariano, executed an Undertaking (Exh. 'C', pp. 13-14, Record).'
'x x x

xxx

xxx

'Whereas, as per deed of Sale with Assumption of Mortgage, I paid Mr. David A. Raymundo the sum of
EIGHT HUNDRED THOUSAND PESOS (P800,000.00), Philippine currency, and assume the mortgage
obligations on the property with the Bank of the Philippine Islands in the amount of ONE MILLION
EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in accordance with the
terms and conditions of the Deed of Real Estate Mortgage dated _____, signed and executed by Mr.
David A. Raymundo with the said Bank, acknowledged before Notary Public for Makati, _____, as Doc.
No. _____, Page No. _____, Book No. _____, Series of 1986 of his Notarial Register.
'WHEREAS, while my application for the assumption of the mortgage obligations on the property is
not yet approved by the mortgagee Bank, I have agreed to pay the mortgage obligations on the
property with the Bank in the name of Mr. David A. Raymundo, in accordance with the terms and
conditions of the said Deed of Real Estate Mortgage, including all interests and other charges for late
payment.
'WHEREAS, this undertaking is being executed in favor of Mr. David A. Raymundo, for purposes of
attesting and confirming our private understanding concerning the said mortgage obligations to be
assumed.
'NOW, THEREFORE, for and in consideration of the foregoing premises, and the assumption of the
mortgage obligations of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, with the bank of the Philippine Islands, I, Mrs, Avelina D, Velarde with the consent
of my husband, Mariano Z. Velardo, do hereby bind and obligate myself, my heirs, successors and
assigns, to strictly and faithfully comply with the following terms and conditions:
'1. That until such time as my assumption of the mortgage obligations on the property purchased is
approved by the mortgagee bank, the Bank of the Philippine Islands, I shall continue to pay the said
loan in accordance with the terms and conditions of the Deed of Real Estate Mortgage in the name of
Mr. David A. Raymundo, the original Mortgagor.

'That the aforesaid parcel of land, together with the house and other improvements thereon, were
mortgaged by the VENDOR to the BANK OF THE PHILIPPINE ISLANDS, Makati, Metro Manila to secure
the payment of a loan of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, as evidenced by a Real Estate Mortgage signed and executed by the VENDOR in
favor of the said Bank of the Philippine Islands, on _____ and which Real Estate Mortgage was ratified
before Notary Public for Makati, _____, as Doc. No. ______, Page No. _____, Book No. ___, Series of
1986 of his Notarial Register.

'2. That, in the event I violate any of the terms and conditions of the said Deed of Real Estate
Mortgage, I hereby agree that my downpayment of P800,000.00, plus all payments made with the
Bank of the Philippine Islands on the mortgage loan, shall be forfeited in favor of Mr. David A.
Raymundo, as and by way of liquidated damages, without necessity of notice or any judicial
declaration to that effect, and Mr. David A. Raymundo shall resume total and complete ownership and
possession of the property sold by way of Deed of Sale with Assumption of Mortgage, and the same
shall be deemed automatically cancelled and be of no further force or effect, in the same manner as it
(the) same had never been executed or entered into.

'That as part of the consideration of this sale, the VENDEE hereby assumes to pay the mortgage
obligations on the property herein sold in the amount of ONE MILLION EIGHT HUNDRED THOUSAND
PESOS (P1,800,000.00), Philippine currency, in favor of Bank of Philippine Islands, in the name of the
VENDOR, and further agrees to strictly and faithfully comply with all the terms and conditions

'3. That I am executing the Undertaking for purposes of binding myself, my heirs, successors and
assigns, to strictly and faithfully comply with the terms and conditions of the mortgage obligations
with the Bank of the Philippine Islands, and the covenants, stipulations and provisions of this
Undertaking.

'That, David A. Raymundo, the vendor of the property mentioned and identified above, [does] hereby
confirm and agree to the undertakings of the Vendee pertinent to the assumption of the mortgage
obligations by the Vendee with the Bank of the Philippine Islands. (Exh. 'C', pp. 13-14, Record).'
"This undertaking was signed by Avelina and Mariano Velarde and David Raymundo.
"It appears that the negotiated terms for the payment of the balance of P1.8 million was from the
proceeds of a loan that plaintiffs were to secure from a bank with defendant's help. Defendants had a
standing approved credit line with the Bank of the Philippine Islands (BPI). The parties agreed to avail
of this, subject to BPI's approval of an application for assumption of mortgage by plaintiffs. Pending
BPI's approval o[f] the application, plaintiffs were to continue paying the monthly interests of the loan
secured by a real estate mortgage.
"Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by the
aforementioned mortgage for three (3) months as follows: September 19, 1986 at P27,225.00;
October 20, 1986 at P23,000.00; and November 19, 1986 at P23,925.00 (Exh. 'E', 'H' & 'J', pp. 15,
17and 18, Record).
"On December 15, 1986, plaintiffs were advised that the Application for Assumption of Mortgage with
BPI, was not approved (Exh. 'J', p. 133, Record). This prompted plaintiffs not to make any further
payment.
"On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that their nonpayment to the mortgage bank constitute[d] non-performance of their obligation (Exh. '3', p. 220,
Record).
"In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows:
'This is to advise you, therefore, that our client is willing to pay the balance in cash not later than
January 21, 1987 provided: (a) you deliver actual possession of the property to her not later than
January 15, 1987 for her immediate occupancy; (b) you cause the re- lease of title and mortgage
from the Bank of P.I. and make the title available and free from any liens and encumbrances; and (c)
you execute an absolute deed of sale in her favor free from any liens or encumbrances not later than
January 21, 1987.' (Exhs. 'k', '4', p. 223, Record).
"On January 8, 1987 defendants sent plaintiffs a notarial notice of cancellation/rescission of the
intended sale of the subject property allegedly due to the latter's failure to comply with the terms and
conditions of the Deed of Sale with Assumption of Mortgage and the Undertaking (Exh. '5', pp. 225226, Record)."6
Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents for
specific performance, nullity of cancellation, writ of possession and damages. This was docketed as
Civil Case No. 15952 at the Regional Trial Court of Makati, Branch 149. The case was tried and heard
by then Judge Consuelo Ynares-Santiago (now an associate justice of this Court), who dismissed the
Complaint in a Decision dated November 14, 1990.7 Thereafter, petitioners filed a Motion for
Reconsideration.8
Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge Salvador S.
A. Abad Santos was assigned to the sala she vacated. In an Order dated May 15, 1991,9 Judge Abad
Santos granted petitioner's Motion for Reconsideration and directed the parties to proceed with the
sale. He instructed petitioners to pay the balance of P1.8 million to private respondents who, in turn,
were ordered to execute a deed of absolute sale and to surrender possession of the disputed property
to petitioners.

Private respondents appealed to the CA.

Ruling of the Court of Appeal
The CA set aside the Order of Judge Abad Santos and reinstated then Judge Ynares-Santiago's earlier
Decision dismissing petitioners' Complaint. Upholding the validity of the rescission made by private
respondents, the CA explained its ruling in this wise:
"In the Deed of Sale with Assumption of Mortgage, it was stipulated that 'as part of the consideration
of this sale, the VENDEE (Velarde)' would assume to pay the mortgage obligation on the subject
property in the amount of P 1.8 million in favor of BPI in the name of the Vendor (Raymundo). Since
the price to be paid by the Vendee Velarde includes the downpayment of P800,000.00 and the
balance of Pl.8 million, and the balance of Pl.8 million cannot be paid in cash, Vendee Velarde, as part
of the consideration of the sale, had to assume the mortgage obligation on the subject property. In
other words, the assumption of the mortgage obligation is part of the obligation of Velarde, as
vendee, under the contract. Velarde further agreed 'to strictly and faithfully comply with all the terms
and conditions appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of
BPI x x x as if the same were originally signed and executed by the Vendee. (p. 2, thereof, p. 12,
Record). This was reiterated by Velarde in the document entitled 'Undertaking' wherein the latter
agreed to continue paying said loan in accordance with the terms and conditions of the Deed of Real
Estate Mortgage in the name of Raymundo. Moreover, it was stipulated that in the event of violation
by Velarde of any terms and conditions of said deed of real estate mortgage, the downpayment of
P800,000.00 plus all payments made with BPI or the mortgage loan would be forfeited and the
[D]eed of [S]ale with [A]ssumption of [M]ortgage would thereby be Cancelled automatically and of no
force and effect (pars. 2 & 3, thereof, pp 13-14, Record).
"From these 2 documents, it is therefore clear that part of the consideration of the sale was the
assumption by Velarde of the mortgage obligation of Raymundo in the amount of Pl.8 million. This
would mean that Velarde had to make payments to BPI under the [D]eed of [R]eal [E]state
[M]ortgage the name of Raymundo. The application with BPI for the approval of the assumption of
mortgage would mean that, in case of approval, payment of the mortgage obligation will now be in
the name of Velarde. And in the event said application is disapproved, Velarde had to pay in full. This
is alleged and admitted in Paragraph 5 of the Complaint. Mariano Velarde likewise admitted this fact
during the hearing on September 15, 1997 (p. 47, t.s.n., September 15, 1987; see also pp. 16-26,
t.s.n., October 8, 1989). This being the case, the non-payment of the mortgage obligation would
result in a violation of the contract. And, upon Velarde's failure to pay the agreed price, the[n]
Raymundo may choose either of two (2) actions - (1) demand fulfillment of the contract, or (2)
demand its rescission (Article 1191, Civil Code).
"The disapproval by BPI of the application for assumption of mortgage cannot be used as an excuse
for Velarde's non-payment of the balance of the purchase price. As borne out by the evidence,
Velarde had to pay in full in case of BPI's disapproval of the application for assumption of mortgage.
What Velarde should have done was to pay the balance of P1.8 million. Instead, Velarde sent
Raymundo a letter dated January 7, 1987 (Exh. 'K', '4') which was strongly given weight by the lower
court in reversing the decision rendered by then Judge Ynares-Santiago. In said letter, Velarde
registered their willingness to pay the balance in cash but enumerated 3 new conditions which, to the
mind of this Court, would constitute a new undertaking or new agreement which is subject to the
consent or approval of Raymundo. These 3 conditions were not among those previously agreed upon
by Velarde and Raymundo. These are mere offers or, at most, an attempt to novate. But then again,
there can be no novation because there was no agreement of all the parties to the new contract
(Garcia, Jr. vs. Court of Appeals, 191 SCRA 493).
"It was likewise agreed that in case of violation of the mortgage obligation, the Deed of Sale with
Assumption of Mortgage would be deemed 'automatically cancelled and of no further force and effect,
as if the same had never been executed or entered into.' While it is true that even if the contract

expressly provided for automatic rescission upon failure to pay the price, the vendee may still pay, he
may do so only for as long as no demand for rescission of the contract has been made upon him
either judicially or by a notarial act (Article 1592, Civil Code). In the case at bar, Raymundo sent
Velarde notarial notice dated January 8, 1987 of cancellation/rescission of the contract due to the
latter's failure to comply with their obligation. The rescission was justified in view of Velarde's failure
to pay the price (balance) which is substantial and fundamental as to defeat the object of the parties
in making the agreement. As adverted to above, the agreement of the parties involved a reciprocal
obligation wherein the obligation of one is a resolutory condition of the obligation of the other, the
non-fulfillment of which entitles the other party to rescind the contract (Songcuan vs. IAC, 191 SCRA
28). Thus, the non-payment of the mortgage obligation by appellees Velarde would create a right to
demand payment or to rescind the contract, or to criminal prosecution (Edca Publishing & Distribution
Corporation vs. Santos, 184 SCRA 614). Upon appellee's failure, therefore, to pay the balance, the
contract was properly rescinded (Ruiz vs. IAC, 184 SCRA 720). Consequently, appellees Velarde
having violated the contract, they have lost their right to its enforcement and hence, cannot avail of
the action for specific performance (Voysaw vs. Interphil Promotions, Inc., 148 SCRA 635)."10

petitioners received notice of the bank's disapproval of their application to assume respondents'
mortgage, they should have paid the balance of the P1.8 million loan.

Hence, this appeal. 11

The Issues

Petitioners, on the other hand, did not perform their correlative obligation of paying the contract price
in the manner agreed upon. Worse, they wanted private respondents to perform obligations beyond
those stipulated in the contract before fulfilling their own obligation to pay the full purchase price.

Petitioners, in their Memorandum,12 interpose the following assignment of errors:

Second Issue

"I.

Validity of the Rescission

The Court of Appeals erred in holding that the non-payment of the mortgage obligation resulted in a
breach of the contract.

Petitioners likewise claim that the rescission of the contract by private respondents was not justified,
inasmuch as the former had signified their willingness to pay the balance of the purchase price only a
little over a month from the time they were notified of the disapproval of their application for
assumption of mortgage. Petitioners also aver that the breach of the contract was not substantial as
would warrant a rescission. They cite several cases15 in which this Court declared that rescission of a
contract would not be permitted for a slight or casual breach. Finally, they argue that they have
substantially performed their obligation in good faith, considering that they have already made the
initial payment of P800,000 and three (3) monthly mortgage payments.

"II
The Court of Appeals erred in holding that the rescission (resolution) of the contract by private
respondents was justified.
"III
The Court of Appeals erred in holding that petitioners' January 7, 1987 letter gave three 'new
conditions' constituting mere offers or an attempt to novate necessitating a new agreement between
the parties."
The Court's Ruling
The Petition is partially meritorious.
First Issue:
Breach of Contract
Petitioner aver that their nonpayment of private respondents' mortgage obligation did not constitute a
breach of contract, considering that their request to assume the obligation had been disapproved by
the mortgagee bank. Accordingly, payment of the monthly amortizations ceased to be their obligation
and, instead, it devolved upon private respondents again.
However, petitioners did not merely stop paying the mortgage obligations; they also failed to pay the
balance of the purchase price. As admitted by both parties, their agreement mandated that
petitioners should pay the purchase price balance of P1.8 million to private respondents in case the
request to assume the mortgage would be disapproved. Thus, on December 15, 1986, when

Instead of doing so, petitioners sent a letter to private respondents offering to make such payment
only upon the fulfillment of certain conditions not originally agreed upon in the contract of sale. Such
conditional offer to pay cannot take the place of actual payment as would discharge the obligation of a
buyer under a contract of sale.
In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate
things, and the buyer to pay therefor a price certain in money or its equivalent.13
Private respondents had already performed their obligation through the execution of the Deed of Sale,
which effectively transferred ownership of the property to petitioner through constructive delivery.
Prior physical delivery or possession is not legally required, and the execution of the Deed of Sale is
deemed equivalent to delivery.14

As pointed out earlier, the breach committed by petitioners was not so much their nonpayment of the
mortgage obligations, as their nonperformance of their reciprocal obligation to pay the purchase price
under the contract of sale. Private respondents' right to rescind the contract finds basis in Article 1191
of the Civil Code, which explicitly provides as follows:
"Art. 1191. -- The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission even after he has chosen fulfillment,
if the latter should become impossible."
The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on
a breach of faith by the other party who violates the reciprocity between them.16 The breach
contemplated in the said provision is the obligor's failure to comply with an existing obligation.17
When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and,
in the absence of any just cause for the court to determine the period of compliance, the court shall
decree the rescission.18
In the present case, private respondents validly exercised their right to rescind the contract, because
of the failure of petitioners to comply with their obligation to pay the balance of the purchase price.

Indubitably, the latter violated the very essence of reciprocity in the contract of sale, a violation that
consequently gave rise to private respondent's right to rescind the same in accordance with law.
True, petitioners expressed their willingness to pay the balance of the purchase price one month after
it became due; however, this was not equivalent to actual payment as would constitute a faithful
compliance of their reciprocal obligation. Moreover, the offer to pay was conditioned on the
performance by private respondents of additional burdens that had not been agreed upon in the
original contract. Thus, it cannot be said that the breach committed by petitioners was merely slight
or casual as would preclude the exercise of the right to rescind.
Misplaced is petitioners' reliance on the cases19 they cited, because the factual circumstances in
those cases are not analogous to those in the present one. In Song Fo there was, on the part of the
buyer, only a delay of twenty (20) days to pay for the goods delivered. Moreover, the buyer's offer to
pay was unconditional and was accepted by the seller.

Attempt to Novate
In view of the foregoing discussion, the Court finds it no longer necessary to discuss the third issue
raised by petitioners. Suffice it to say that the three conditions appearing on the January 7, 1987
letter of petitioners to private respondents were not part of the original contract. By that time, it was
already incumbent upon the former to pay the balance of the sale price. They had no right to demand
preconditions to the fulfillment of their obligation, which had become due.
WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that private
respondents are ordered to return to petitioners the amount of P874,150, which the latter paid as a
consequence of the rescinded contract, with legal interest thereon from January 8, 1987, the date of
rescission. No pronouncement as to costs.
SO ORDERED.1wphi1.nt

In Zepeda, the breach involved a mere one-week delay in paying the balance of 1,000 which was
actually paid.

Melo, Vitug, and Sandoval-Gutierrez, JJ., concur.

In Tan, the alleged breach was private respondent's delay of only a few days, which was for the
purpose of clearing the title to the property; there was no reference whatsoever to the nonpayment of
the contract price.

SECOND DIVISION

In the instant case, the breach committed did not merely consist of a slight delay in payment or an
irregularity; such breach would not normally defeat the intention of the parties to the contract. Here,
petitioners not only failed to pay the P1.8 million balance, but they also imposed upon private
respondents new obligations as preconditions to the performance of their own obligation. In effect,
the qualified offer to pay was a repudiation of an existing obligation, which was legally due and
demandable under the contract of sale. Hence, private respondents were left with the legal option of
seeking rescission to protect their own interest.

SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner, vs. SPOUSES ALFREDO HUANG and GRACE
HUANG, respondents.

Mutual Restitution
Required in Rescission
As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal
obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the
automatic rescission and forfeiture of payment clauses stipulated in the contract does not apply.
Instead, Civil Code provisions shall govern and regulate the resolution of this controversy.
Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual
restitution is required to bring back the parties to their original situation prior to the inception of the
contract. Accordingly, the initial payment of P800,000 and the corresponding mortgage payments in
the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners should
be returned by private respondents, lest the latter unjustly enrich themselves at the expense of the
former.
Rescission creates the obligation to return the object of the contract. It can be carried out only when
the one who demands rescission can return whatever he may be obliged to restore.20 To rescind is to
declare a contract void at its inception and to put an end to it as though it never was. It is not merely
to terminate it and release the parties from further obligations to each other, but to abrogate it from
the beginning and restore the parties to their relative positions as if no contract has been made.21
Third Issue

[G.R. No. 137290. July 31, 2000]

DECISION
MENDOZA, J.:
This is a petition for review of the decision,[1] dated April 8, 1997, of the Court of Appeals which
reversed the decision of the Regional Trial Court, Branch 153, Pasig City dismissing the complaint
brought by respondents against petitioner for enforcement of a contract of sale.
The facts are not in dispute.
Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the purchase
and sale of real properties. Part of its inventory are two parcels of land totalling 1, 738 square meters
at the corner of Meralco Avenue and General Capinpin Street, Barrio Oranbo, Pasig City, which are
covered by TCT Nos. PT-82395 and PT-82396 of the Register of Deeds of Pasig City.
On February 21, 1994, the properties were offered for sale for P52,140,000.00 in cash. The offer was
made to Atty. Helena M. Dauz who was acting for respondent spouses as undisclosed principals. In a
letter[2] dated March 24, 1994, Atty. Dauz signified her clients interest in purchasing the properties
for the amount for which they were offered by petitioner, under the following terms: the sum of
P500,000.00 would be given as earnest money and the balance would be paid in eight equal monthly
installments from May to December, 1994. However, petitioner refused the counter-offer.
On March 29, 1994, Atty. Dauz wrote another letter[3] proposing the following terms for the purchase
of the properties, viz:
This is to express our interest to buy your-above-mentioned property with an area of 1, 738 sq.
meters. For this purpose, we are enclosing herewith the sum of P1,000,000.00 representing earnestdeposit money, subject to the following conditions.

1. We will be given the exclusive option to purchase the property within the 30 days from date of your
acceptance of this offer.

the contract as such is not an essential element for its validity. In addition, the court found that
Sobrecarey had authority to act in behalf of petitioner for the sale of the properties.[7]

2. During said period, we will negotiate on the terms and conditions of the purchase; SMPPI will
secure the necessary Management and Board approvals; and we initiate the documentation if there is
mutual agreement between us.

Petitioner moved for reconsideration of the trial courts decision, but its motion was denied. Hence,
this petition.

3. In the event that we do not come to an agreement on this transaction, the said amount of
P1,000,000.00 shall be refundable to us in full upon demand. . . .
Isidro A. Sobrecarey, petitioners vice-president and operations manager for corporate real estate,
indicated his conformity to the offer by affixing his signature to the letter and accepted the "earnestdeposit" of P1 million. Upon request of respondent spouses, Sobrecarey ordered the removal of the
"FOR SALE" sign from the properties.
Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April 8, 1994,
Sobrecarey informed Atty. Dauz that petitioner was willing to sell the subject properties on a 90-day
term. Atty. Dauz countered with an offer of six months within which to pay.
On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz that petitioner
had not yet acted on her counter-offer. This prompted Atty. Dauz to propose a four-month period of
amortization.
On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to June 13, 1994
within which to exercise her option to purchase the property, adding that within that period, "[we]
hope to finalize [our] agreement on the matter."[4] Her request was granted.
On July 7, 1994, petitioner, through its president and chief executive officer, Federico Gonzales, wrote
Atty. Dauz informing her that because the parties failed to agree on the terms and conditions of the
sale despite the extension granted by petitioner, the latter was returning the amount of P1 million
given as "earnest-deposit."[5]
On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the execution
within five days of a deed of sale covering the properties. Respondents attempted to return the
"earnest-deposit" but petitioner refused on the ground that respondents option to purchase had
already expired.
On August 16, 1994, respondent spouses filed a complaint for specific performance against petitioner
before the Regional Trial Court, Branch 133, Pasig City where it was docketed as Civil Case No. 64660.
Within the period for filing a responsive pleading, petitioner filed a motion to dismiss the complaint
alleging that (1) the alleged "exclusive option" of respondent spouses lacked a consideration separate
and distinct from the purchase price and was thus unenforceable and (2) the complaint did not allege
a cause of action because there was no "meeting of the minds" between the parties and, therefore, no
perfected contract of sale. The motion was opposed by respondents.
On December 12, 1994, the trial court granted petitioners motion and dismissed the action.
Respondents filed a motion for reconsideration, but it was denied by the trial court. They then
appealed to the Court of Appeals which, on April 8, 1997, rendered a decision[6] reversing the
judgment of the trial court. The appellate court held that all the requisites of a perfected contract of
sale had been complied with as the offer made on March 29, 1994, in connection with which the
earnest money in the amount of P1 million was tendered by respondents, had already been accepted
by petitioner. The court cited Art. 1482 of the Civil Code which provides that "[w]henever earnest
money is given in a contract of sale, it shall be considered as part of the price and as proof of the
perfection of the contract." The fact the parties had not agreed on the mode of payment did not affect

Petitioner contends that the Court of Appeals erred in finding that there was a perfected contract of
sale between the parties because the March 29, 1994 letter of respondents, which petitioner
accepted, merely resulted in an option contract, albeit it was unenforceable for lack of a distinct
consideration. Petitioner argues that the absence of agreement as to the mode of payment was fatal
to the perfection of the contract of sale. Petitioner also disputes the appellate courts ruling that Isidro
A. Sobrecarey had authority to sell the subject real properties.[8]
Respondents were required to comment within ten (10) days from notice. However, despite 13
extensions totalling 142 days which the Court had given to them, respondents failed to file their
comment. They were thus considered to have waived the filing of a comment.
The petition is meritorious.
In holding that there is a perfected contract of sale, the Court of Appeals relied on the following
findings: (1) earnest money was allegedly given by respondents and accepted by petitioner through
its vice-president and operations manager, Isidro A. Sobrecarey; and (2) the documentary evidence in
the records show that there was a perfected contract of sale.
With regard to the alleged payment and acceptance of earnest money, the Court holds that
respondents did not give the P1 million as "earnest money" as provided by Art. 1482 of the Civil
Code. They presented the amount merely as a deposit of what would eventually become the earnest
money or downpayment should a contract of sale be made by them. The amount was thus given not
as a part of the purchase price and as proof of the perfection of the contract of sale but only as a
guarantee that respondents would not back out of the sale. Respondents in fact described the amount
as an "earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals,[9] it was held:
. . . While the P5,000 might have indeed been paid to Carlos in October, 1967, there is nothing to
show that the same was in the concept of the earnest money contemplated in Art. 1482 of the Civil
Code, invoked by petitioner, as signifying perfection of the sale. Viewed in the backdrop of the factual
milieu thereof extant in the record, We are more inclined to believe that the said P5,000.00 were paid
in the concept of earnest money as the term was understood under the Old Civil Code, that is, as a
guarantee that the buyer would not back out, considering that it is not clear that there was already a
definite agreement as to the price then and that petitioners were decided to buy 6/7 only of the
property should respondent Javellana refuse to agree to part with her 1/7 share.[10]
In the present case, the P1 million "earnest-deposit" could not have been given as earnest money as
contemplated in Art. 1482 because, at the time when petitioner accepted the terms of respondents
offer of March 29, 1994, their contract had not yet been perfected. This is evident from the following
conditions attached by respondents to their letter, to wit: (1) that they be given the exclusive option
to purchase the property within 30 days from acceptance of the offer; (2) that during the option
period, the parties would negotiate the terms and conditions of the purchase; and (3) petitioner
would secure the necessary approvals while respondents would handle the documentation.
The first condition for an option period of 30 days sufficiently shows that a sale was never perfected.
As petitioner correctly points out, acceptance of this condition did not give rise to a perfected sale but
merely to an option or an accepted unilateral promise on the part of respondents to buy the subject
properties within 30 days from the date of acceptance of the offer. Such option giving respondents the
exclusive right to buy the properties within the period agreed upon is separate and distinct from the
contract of sale which the parties may enter.[11] All that respondents had was just the option to buy

the properties which privilege was not, however, exercised by them because there was a failure to
agree on the terms of payment. No contract of sale may thus be enforced by respondents.
Furthermore, even the option secured by respondents from petitioner was fatally defective. Under the
second paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for a
price certain is binding upon the promisor only if the promise is supported by a distinct consideration.
Consideration in an option contract may be anything of value, unlike in sale where it must be the price
certain in money or its equivalent. There is no showing here of any consideration for the option.
Lacking any proof of such consideration, the option is unenforceable.
Equally compelling as proof of the absence of a perfected sale is the second condition that, during the
option period, the parties would negotiate the terms and conditions of the purchase. The stages of a
contract of sale are as follows: (1) negotiation, covering the period from the time the prospective
contracting parties indicate interest in the contract to the time the contract is perfected; (2)
perfection, which takes place upon the concurrence of the essential elements of the sale which are the
meeting of the minds of the parties as to the object of the contract and upon the price; and (3)
consummation, which begins when the parties perform their respective undertakings under the
contract of sale, culminating in the extinguishment thereof.[12] In the present case, the parties never
got past the negotiation stage. The alleged "indubitable evidence"[13] of a perfected sale cited by the
appellate court was nothing more than offers and counter-offers which did not amount to any final
arrangement containing the essential elements of a contract of sale. While the parties already agreed
on the real properties which were the objects of the sale and on the purchase price, the fact remains
that they failed to arrive at mutually acceptable terms of payment, despite the 45-day extension
given by petitioner.
The appellate court opined that the failure to agree on the terms of payment was no bar to the
perfection of the sale because Art. 1475 only requires agreement by the parties as to the price of the
object. This is error. In Navarro v. Sugar Producers Cooperative Marketing Association, Inc.,[14] we
laid down the rule that the manner of payment of the purchase price is an essential element before a
valid and binding contract of sale can exist. Although the Civil Code does not expressly state that the
minds of the parties must also meet on the terms or manner of payment of the price, the same is
needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of Appeals,[15] agreement

on the manner of payment goes into the price such that a disagreement on the manner of payment is
tantamount to a failure to agree on the price.[16] In Velasco v. Court of Appeals,[17] the parties to a
proposed sale had already agreed on the object of sale and on the purchase price. By the buyers own
admission, however, the parties still had to agree on how and when the downpayment and the
installments were to be paid. It was held:
. . . Such being the situation, it can not, therefore, be said that a definite and firm sales agreement
between the parties had been perfected over the lot in question. Indeed, this Court has already ruled
before that a definite agreement on the manner of payment of the purchase price is an essential
element in the formation of a binding and enforceable contract of sale. The fact, therefore, that the
petitioners delivered to the respondent the sum of P10,000 as part of the down-payment that they
had to pay cannot be considered as sufficient proof of the perfection of any purchase and sale
agreement between the parties herein under Art. 1482 of the new Civil Code, as the petitioners
themselves admit that some essential matter - the terms of the payment - still had to be mutually
covenanted.[18]
Thus, it is not the giving of earnest money, but the proof of the concurrence of all the essential
elements of the contract of sale which establishes the existence of a perfected sale.
In the absence of a perfected contract of sale, it is immaterial whether Isidro A. Sobrecarey had the
authority to enter into a contract of sale in behalf of petitioner. This issue, therefore, needs no further
discussion.
WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents complaint is
DISMISSED.
SO ORDERED.
Quisumbing, Buena, and De Leon, Jr., JJ., concur.
Bellosillo, (Chairman), J., on leave.