Quijada v. CA [G.R. No. 126444. December 4, 1998.

]
Second Division, Martinez (J): 3 concur
Facts: Petitioners (Alfonso, Cresente, Reynalda, Demetrio, Eliuteria, Eulalio, and
Warlito) are the children of the late Trinidad Corvera Vda. de Quijada. Trinidad
was one of the heirs of the late Pedro Corvera and inherited from the latter the 2hectare parcel of land subject of the case, situated in the barrio of San Agustin,
Talacogon, Agusan del Sur. On 5 April 1956, Trinidad Quijada together with her
sisters Leonila Corvera Vda. de Sequea and Paz Corvera Cabiltes and brother
Epapiadito Corvera executed a conditional deed of donation of the 2-hectare
parcel of land in favor of the Municipality of Talacogon, the condition being that
the parcel of land shall be used solely and exclusively as part of the campus of the
proposed provincial high school in Talacogon. Apparently, Trinidad remained in
possession of the parcel of land despite the donation. On 29 July 1962, Trinidad
sold 1 hectare of the subject parcel of land to Regalado Mondejar. Subsequently,
Trinidad verbally sold the remaining 1 hectare to Mondejar without the benefit of
a written deed of sale and evidenced solely by receipts of payment. In 1980, the
heirs of Trinidad, who at that time was already dead, filed a complaint for forcible
entry against Mondejar, which complaint was, however, dismissed for failure to
prosecute. In 1987, the proposed provincial high school having failed to
materialize, the Sangguniang Bayan of the municipality of Talacogon enacted a
resolution reverting the 2 hectares of land donated back to the donors. In the
meantime, Mondejar sold portions of the land to Fernando Bautista, Rodolfo
Goloran, Efren Guden, and Ernesto Goloran.
On 5 July 1988, the petitioners filed a complaint against private respondents
(Mondejar, Rodulfo and Ernesto Goloran, Asis, Ras, Abiso, Bautista, Macasero
and Maguisay) for quieting of title, recovery of possession and ownership of
parcels of land with claim for attorneys fees and damages. The trial court
rendered judgment in favor of the petitioners, holding that Trinidad Quijada did
not have legal title or right to sell the land to Mondejar as it belongs to the
Municipality of Talacogon at that time, and that the deed of sale in favor of
Mondejar did not carry the conformity and acquiescence of her children
considering that Trinidad was already 63 years old and a widow. The trial court
ordered the defendants (private respondents), and any person acting in
defendants behalf to return and vacate the 2 hectares of land to the plaintiff, and
to remove their improvements constructed on the lot; ordered the cancellation of
the deed of sale executed by Trinidad to Mondejar, as well as the deeds of

sale/relinquishments executed by Mondejar to the other defendants; and ordered

the defendants to pay the plaintiffs, in solidum, the amount of P10,000, P8,000,
and P30,000 as attorneys fees, expenses of litigation and moral damages,
respectively. On appeal, the Court of Appeals reversed and set aside the judgment
a quo ruling that the sale made by Trinidad Quijada to respondent Mondejar was
valid as the former retained an inchoate interest on the lots by virtue of the
automatic reversion clause in the deed of donation. Thereafter, petitioners filed a
motion for reconsideration. When the CA denied their motion, petitioners
instituted a petition for review to the Supreme Court. The Supreme Court affirmed
the assailed decision of the Court of Appeals.
1. Condition valid in donation if not contrary to law, morals, good customs,
public order or public policy
The donation made on April 5, 1956 by Trinidad Quijada and her brother and
sisters was subject to the condition that the donated property shall be used
solely and exclusively as a part of the campus of the proposed Provincial High
School in Talacogon. The donation further provides that should the proposed
Provincial High School be discontinued or if the same shall be opened but for
some reason or another, the same may in the future be closed the donated
property shall automatically revert to the donor. Such condition, not being
contrary to law, morals, good customs, public order or public policy was validly
imposed in the donation.
2. Donation as mode of acquiring ownership
When the Municipalitys acceptance of the donation was made known to the
donor, the former became the new owner of the donated property, donation being
a mode of acquiring and transmitting ownership, notwithstanding the condition
imposed by the donee. The donation is perfected once the acceptance by the donee
is made known to the donor. Accordingly, ownership is immediately transferred to
the latter and that ownership will only revert to the donor if the resolutory
condition is not fulfilled.
3. Condition to construct school is a resolutory condition
The resolutory condition, in the present case, is the construction of the school. It
has been ruled that when a person donates land to another on the condition that
the latter would build upon the land a school, the condition imposed is not a

condition precedent or a suspensive condition but a resolutory one. So long as the

resolutory condition subsists and is capable of fulfillment, the donation remains
effective and the donee continues to be the owner subject only to the rights of the
donor or his successors-in-interest under the deed of donation. Since no period
was imposed by the donor on when must the donee comply with the condition, the
latter remains the owner so long as he has tried to comply with the condition
within a reasonable period. Such period, however, became irrelevant herein when
the donee manifested that it cannot comply with the condition and the same was
made known to the donor. Only then, when the non-fulfillment of the resolutory
condition was brought to the donors knowledge, that ownership of the donated
property reverted to the donor as provided in the automatic reversion clause of the
deed of donation.
4. Inchoate interest may be subject of contract including a contract of sale;
Interest over property under conditional deed of donation, not the land itself
The donor may have an inchoate interest in the donated property during the time
that ownership of the land has not reverted to her. Such inchoate interest may be
the subject of contracts including a contract of sale. In the present case, however,
what the donor sold was the land itself which she no longer owns. It would have
been different if the donor-seller sold her interests over the property under the
deed of donation which is subject to the possibility of reversion of ownership
arising from the non-fulfillment of the resolutory condition.
5. Laches, elements
Laches presupposes failure or neglect for an unreasonable and unexplained
length of time, to do that which, by exercising due diligence, could or should have
been done earlier; it is negligence or omission to assert a right within a
reasonable time, thus, giving rise to a presumption that the party entitled to
assert it either has abandoned or declined to assert it. Its essential elements of
(a) Conduct on the part of the defendant, or of one under whom he claims, giving
rise to the situation complained of; (b) Delay in asserting complainants right after
he had knowledge of the defendants conduct and after he has an opportunity to
sue; (c) Lack of knowledge or notice on the part of the defendant that the
complainant would assert the right on which he bases his suit; and, (d) Injury or
prejudice to the defendant in the event relief is accorded to the complainant are
absent in this case. In the present case, petitioners cause of action to quiet title

commenced only when the property reverted to the donor and/or his successorsin-interest in 1987, not in the 1960s when they had no interest over the property
at that time except under the deed of donation to which private respondents were
not privy. Moreover, petitioners had previously filed an ejectment suit against
private respondents only that it did not prosper on a technicality.
6. Sale, being a consensual contract, is perfected by mere consent; Seller
need not own property when sold but when delivered
Sale, being a consensual contract, is perfected by mere consent, which is
manifested the moment there is a meeting of the minds as to the offer and
acceptance thereof on three (3) elements: subject matter, price and terms of
payment of the price. Ownership by the seller on the thing sold at the time of the
perfection of the contract of sale is not an element for its perfection. What the law
requires is that the seller has the right to transfer ownership at the time the thing
sold is delivered. Perfection per se does not transfer ownership which occurs upon
the actual or constructive delivery of the thing sold. A perfected contract of sale
cannot be challenged on the ground of non-ownership on the part of the seller at
the time of its perfection; hence, the sale is still valid.

7. Sellers title passes by operation of law to the buyer

The consummation of the perfected contract is another matter. It occurs upon the
constructive or actual delivery of the subject matter to the buyer when the seller
or her successors-in-interest subsequently acquires ownership thereof. In the
present case, such circumstance happened in this case when petitioners
(Trinidads heirs) became the owners of the subject property upon the reversion of
the ownership of the land to them. Consequently, ownership is transferred to
Mondejar and those who claim their right from him.
Article 1434 of the New Civil Code supports the ruling that the sellers title
passes by operation of law to the buyer. This rule applies not only when the
subject matter of the contract of sale is goods, but also to other kinds of property,
including real property.
8. Article 1409 (4) does not provide that the properties of a municipality are
outside the commerce of man; Objects outside of the commerce of man are

those which cannot be appropriated

Nowhere in Article 1409 (4) is it provided that the properties of a municipality,
whether it be those for public use or its patrimonial property, are outside the
commerce of men; so as to render the contract involving the same inexistent and
void from the beginning when sold. In the present case, the lots were conditionally
owned by the municipality. To rule that the donated properties are outside the
commerce of men would render nugatory the unchallenged reasonableness and
justness of the condition which the donor has the right to impose as owner
thereof. Moreover, the objects referred to as outside the commerce of man are
those which cannot be appropriated, such as the open seas and the heavenly
bodies.
9. No factual or legal basis for the award of fees and damages
There is neither factual nor legal basis for the trial courts award of attorneys fees,
litigation expenses and moral damages. Attorneys fees and expenses of litigation
cannot, following the general rule in Article 2208 of the New Civil Code, be
recovered in the present case, there being no stipulation to that effect and the
case does not fall under any of the exceptions. It cannot be said that private
respondents had compelled petitioners to litigate with third persons. Neither can it
be ruled that the former acted in gross and evident bad faith in refusing to
satisfy the latters claims considering that private respondents were under an
honest belief that they have a legal right over the property by virtue of the deed of
sale. Moral damages cannot likewise be justified as none of the circumstances
enumerated under Articles 2219 27 and 2220 28 of the New Civil Code concur in
this case.

Fule v. CA [G.R. No. 112212. March 2, 1998.]

Third division, Romero (J): 3 concur
Facts: Fr. Antonio Jacobe initially mortgage a 10-hectare property in Tanay, Rizal
(covered by TCT 320725) to the Rural Bank of Alaminos, Laguna to secure a loan
in the amount of P10,000. Said mortgage was later foreclosed and the property
offered for public auction upon his default.
In June 1984, Gregorio Fule, as corporate secretary of the bank, asked Remelia
Dichoso and Olivia Mendoza to look for a buyer who might be interested in the
Tanay property. The two found one in the person of Ninevetch Cruz.
It so happened that in January of said year, Gregorio Fule, also a jeweler, has
shown interest in buying a pair of emerald-cut diamond earrings owned by Dr.
Cruz. Dr. Cruz has declined Fules offer to buy said jewelry for P100,000; and a
subsequent bid by Fule to buy them for US$6,000 at $1 to P25 while making a
sketch of said jewelry during an inspection at the lobby of Prudential Bank (the
latter instance was declined, since the exchange rate appreciated to P19 per
dollar).
Subsequently, however, negotiations for the barter of the jewelry and the Tanay
property ensued. Atty. Belarmino was requested by Dr. Cruz to check the property
and found out that no sale or barter was feasible as the 1-year period of
redemption has not expired. In an effort to cut through any legal impediment,
Fule executed on 19 October 1984, a deed of redemption on behalf of Fr. Jacobe
purportedly in the amount of P15,987.78, and on even date, Fr. Jacobe sold the
property to Fule for P75,000.00. The haste with which the two deeds were
executed is shown by the fact that the deed of sale was notarized ahead of the
deed of redemption. As Dr. Cruz had already agreed to the proposed barter, Fule
went to Prudential Bank to take a look at the jewelry.
On 23 October 1984, Fule met Atty. Belarmino at the latters residence to prepare
the documents of sale. Atty. Belarmino accordingly caused the preparation of a
deed of absolute sale while Fule and Dr. Cruz attended to the safekeeping of the
jewelry. The following day, Fule, together with Dichoso and Mendoza, arrived at
the residence of Atty. Belarmino to finally execute a deed of absolute sale. Fule
signed the deed and gave Atty. Belarmino the amount of P13,700.00 for necessary
expenses in the transfer of title over the Tanay property; and issued a certification

to the effect that the actual consideration of the sale was P200,000.00 and not
P80,000.00 as indicated in the deed of absolute sale (the disparity purportedly
aimed at minimizing the amount of the capital gains tax that Fule would have to
shoulder). Since the jewelry was appraised only at P160,000.00, the parties
agreed that the balance of P40,000.00 would just be paid later in cash. Thereafter,
at the bank, as pre-arranged, Dr. Cruz and the cashier opened the safety deposit
box, and delivered the contents thereof to Fule. Fule inspected the jewelry, near
the electric light at the banks lobby, for 10-15 minutes. Fule expressed his
satisfaction by nodding his head when asked by Dr. Cruz if the jewelry was okay.
For services rendered, Fule paid the agents, Dichoso and Mendoza, the amount of
US$300.00 and some pieces of jewelry. He did not, however, give them half of the
pair of earrings in question, which he had earlier promised. Later in the evening,
Fule arrived at the residence of Atty. Belarmino complaining that the jewelry given
him was fake. Dichoso, who borrowed the car of Dr. Cruz, called up Atty.
Belarmino. Informed that Fule was at the lawyers house, went there posthaste
thinking that Fule had finally agreed to give them half of the pair of earrings, only
to find Fule demonstrating with a tester that the earrings were fake. Fule then
accused Dichoso and Mendoza of deceiving him which they, however, denied. They
countered that Fule could not have been fooled because he had vast experience
regarding jewelry. Fule nonetheless took back the US$300.00 and jewelry he had
given them. Thereafter, the group decided to go to the house of a certain Macario
Dimayuga, a jeweler, to have the earrings tested. Dimayuga, after taking one look
at the earrings, immediately declared them counterfeit. At around 9:30 p.m., Fule
went to one Atty. Reynaldo Alcantara residing at Lakeside Subdivision in San
Pablo City, complaining about the fake jewelry. Upon being advised by the latter,
Fule reported the matter to the police station where Dichoso and Mendoza
likewise executed sworn statements.
On 26 October 1984, Fule filed a complaint before the RTC San Pablo City against
private respondents praying, among other things, that the contract of sale over
the Tanay property be declared null and void on the ground of fraud and deceit.
On 30 October 1984, the lower court issued a temporary restraining order
directing the Register of Deeds of Rizal to refrain from acting on the pertinent
documents involved in the transaction. On 20 November 1984, however, the same
court lifted its previous order and denied the prayer for a writ of preliminary
injunction. After trial, the lower court rendered its decision on 7 March 1989;

holding that the genuine pair of earrings used as consideration for the sale was
delivered by Dr. Cruz to Fule, that the contract was valid even if the agreement
between the parties was principally a barter contract, that the agreement has
been consummated at the time the principal parties parted ways at the bank, and
that damages are due to the defendants.
From the trial courts adverse decision, petitioner elevated the matter to the Court
of Appeals. On 20 October 1992, the Court of Appeals, however, rendered a
decision affirming in toto the lower courts decision. His motion for
reconsideration having been denied on 19 October 1993. Hence, the petition for
review on certiorari.
The Supreme Court affirmed in toto the decision of the Court of Appeals, but
ordered Dr. Cruz to pay Fule the balance of the purchase price of P40,000 within
10 days from the finality of the decision; with costs against petitioner.
1. New factual issues cannot be examined as it unduly transcends the limits
of the Supreme Courts review power
The Supreme Court cannot entertain a factual issue, and thus examine and weigh
anew the facts regarding the genuineness of the earrings bartered in exchange for
the Tanay property, as this would unduly transcend the limits of the Courts
review power in petitions of this nature which are confined merely to pure
questions of law. As a general rule, the Supreme Court accords conclusiveness to
a lower courts findings of fact unless it is shown, inter alia, that: (1) the
conclusion is a finding grounded on speculations, surmises or conjectures; (2) the
inference is manifestly mistaken, absurd and impossible; (3) when there is a grave
abuse of discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of fact are conflicting; and (6) when the Court of
Appeals, in making its findings, went beyond the issues of the case and the same
is contrary to the admission of both parties. To reiterate, the Supreme Courts
jurisdiction is only limited to reviewing errors of law in the absence of any showing
that the findings complained of are totally devoid of support in the record or that
they are glaringly erroneous as to constitute serious abuse of discretion.
2. Immediate rendition of decision not anomalous
No proof has been adduced that Judge Jaramillo was motivated by a malicious or

sinister intent in disposing of the case with dispatch. Neither is there proof that
someone else wrote the decision for him. The immediate rendition of the decision
was no more than Judge Jaramillos compliance with his duty as a judge to
dispose of the courts business promptly and decide cases within the required
periods. The two-year period within which Judge Jaramillo handled the case
provided him with all the time to study it and even write down its facts as soon as
these were presented to court. In fact, the Supreme Court does not see anything
wrong in the practice of writing a decision days before the scheduled promulgation
of judgment and leaving the dispositive portion for typing at a time close to the
date of promulgation, provided that no malice or any wrongful conduct attends its
adoption. The practice serves the dual purposes of safeguarding the
confidentiality of draft decisions and rendering decisions with promptness.
Neither can Judge Jaramillo be made administratively answerable for the
immediate rendition of the decision. The acts of a judge which pertain to his
judicial functions are not subject to disciplinary power unless they are committed
with fraud, dishonesty, corruption or bad faith. Hence, in the absence of sufficient
proof to the contrary, Judge Jaramillo is presumed to have performed his job in
accordance with law and should instead be commended for his close attention to
duty.
3. Contract perfected by mere consent, binds parties to stipulation and all
the consequences; Contract of sale perfected upon meeting of minds upon
the thing object of the contract and upon price; Embodiment of contract in
public instrument only for convenience, and registration only to affect third
parties; Lack of formal requirements does not invalidate the contract
The Civil Code provides that contracts are perfected by mere consent. From this
moment, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law. A contract of sale is
perfected at the moment there is a meeting of the minds upon the thing which is
the object of the contract and upon the price. Being consensual, a contract of sale
has the force of law between the contracting parties and they are expected to
abide in good faith by their respective contractual commitments. Article 1358 of
the Civil Code which requires the embodiment of certain contracts in a public
instrument, is only for convenience, and registration of the instrument only
adversely affects third parties. Formal requirements are, therefore, for the benefit

of third parties. Non-compliance therewith does not adversely affect the validity of
the contract nor the contractual rights and obligations of the parties thereunder.
4. Voidable or annullable contracts
Contracts that are voidable or annullable, even though there may have been no
damage to the contracting parties are: (1) those where one of the parties is
incapable of giving consent to a contract; and (2) those where the consent is
vitiated by mistake, violence, intimidation, undue influence or fraud. The contract
can be voided in accordance with law so as to compel the parties to restore to each
other the things that have been the subject of the contract with their fruits, and
the price with interest.
5. Fraud; No inducement made by the private respondents
There is fraud when, through the insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without
them, he would not have agreed to. In the present case, the records, are bare of
any evidence manifesting that private respondents employed such insidious words
or machinations to entice petitioner into entering the contract of barter. Neither is
there any evidence showing that Dr. Cruz induced petitioner to sell his Tanay
property or that she cajoled him to take the earrings in exchange for said
property. On the contrary, Dr. Cruz did not initially accede to petitioners proposal
to buy the said jewelry. Rather, it appears that it was petitioner, through his
agents, who led Dr. Cruz to believe that the Tanay property was worth exchanging
for her jewelry as he represented that its value was P400,000.00 or more than
double that of the jewelry which was valued only at P160,000.00. If indeed
petitioners property was truly worth that much, it was certainly contrary to the
nature of a businessman-banker like him to have parted with his real estate for
half its price. In short, it was in fact petitioner who resorted to machinations to
convince Dr. Cruz to exchange her jewelry for the Tanay property.
6. Mistake; Mistake caused by manifest negligence cannot invalidate a
judicial act
To invalidate a contract, mistake must refer to the substance of the thing that is
the object of the contract, or to those conditions which have principally moved one
or both parties to enter into the contract. An example of mistake as to the object
of the contract is the substitution of a specific thing contemplated by the parties

with another. In the present case, the petitioner failed to prove the fact that prior
to the delivery of the jewelry to him, private respondents endeavored to make such
substitution of an inferior one or one with Russian diamonds for the jewelry he
wanted to exchange with his 10-hectare land. Further, on account of his work as a
banker-jeweler, it can be rightfully assumed that he was an expert on matters
regarding gems. He had the intellectual capacity and the business acumen as a
banker to take precautionary measures to avert such a mistake, considering the
value of both the jewelry and his land. A mistake caused by manifest negligence
cannot invalidate a juridical act. As the Civil Code provides, (t)here is no mistake
if the party alleging it knew the doubt, contingency or risk affecting the object of
the contract.
7. Contract of sale absolute if no stipulation that title to property is reserved
to seller until full payment; Ownership transferred upon actual or
constructive delivery
A contract of sale being absolute in nature, title passed to the vendee upon
delivery of the thing sold since there was no stipulation in the contract that title
to the property sold has been reserved in the seller until full payment of the price
or that the vendor has the right to unilaterally resolve the contract the moment
the buyer fails to pay within a fixed period. Such stipulations are not manifest in
the contract of sale. In the present case, both the trial and appellate courts,
therefore, correctly ruled that there were no legal bases for the nullification of the
contract of sale. Ownership over the parcel of land and the pair of emerald-cut
diamond earrings had been transferred to Dr. Cruz and Fule, respectively, upon
the actual and constructive delivery thereof.
8. Contract silent when balance is due and demandable; non-payment does
not invalidate the contract
While it is true that the amount of P40,000.00 forming part of the consideration
was still payable to Fule, its nonpayment by Dr. Cruz is not a sufficient cause to
invalidate the contract or bar the transfer of ownership and possession of the
things exchanged considering the fact that their contract is silent as to when it
becomes due and demandable.
9. No interest due if it is not stipulated
Failure to pay the balance of the purchase price does not result in the payment of

interest thereon. Article 1589 of the Civil Code prescribes the payment of interest
by the vendee for the period between the delivery of the thing and the payment of
the price in cases (1) Should it have been so stipulated; (2) Should the thing sold
and delivered produce fruits or income; (3) Should he be in default, from the time
of judicial or extrajudicial demand for the payment of the price.
10. Case distinguished from de la Cruz v Legaspi
The present case should be distinguished from De la Cruz v. Legaspi, where the
court held that failure to pay the consideration after the notarization of the
contract as previously promised resulted in the vendees liability for payment of
interest. In the present, there is no stipulation for the payment of interest in the
contract of sale nor proof that the Tanay property produced fruits or income.
Neither did petitioner demand payment of the price as in fact he filed an action to
nullify the contract of sale.
11. Award of moral and exemplary damages
Moral and exemplary damages may be awarded without proof of pecuniary loss. In
awarding such damages, the court shall take into account the circumstances
obtaining in the case and assess damages according to its discretion. To warrant
the award of damages, it must be shown that the person to whom these are
awarded has sustained injury. He must likewise establish sufficient data upon
which the court can properly base its estimate of the amount of damages.
Statements of facts should establish such data rather than mere conclusions or
opinions of witnesses. Thus, for moral damages to be awarded, it is essential that
the claimant must have satisfactorily proved during the trial the existence of the
factual basis of the damages and its causal connection with the adverse partys
acts. If the court has no proof or evidence upon which the claim for moral
damages could be based, such indemnity could not be outrightly awarded. The
same holds true with respect to the award of exemplary damages where it must be
shown that the party acted in a wanton, oppressive or malevolent manner.
12. Rule that moral damages cannot be recovered from person who filed a
complaint does not apply in present case
While, as a rule, moral damages cannot be recovered from a person who has filed
a complaint against another in good faith because it is not sound policy to place a
penalty on the right to litigate, the same, however, cannot apply in the present

case. This is not a situation where petitioners complaint was simply found later to
be based on an erroneous ground which, under settled jurisprudence, would not
have been a reason for awarding moral and exemplary damages. Instead, the
cause of action of the instant case appears to have been contrived by petitioner
himself. The factual findings of the courts a quo to the effect that petitioner filed
this case because he was the victim of fraud; that he could not have been such a
victim because he should have examined the jewelry in question before accepting
delivery thereof, considering his exposure to the banking and jewelry businesses;
and that he filed the action for the nullification of the contract of sale with
unclean hands, all deserve full faith and credit to support the conclusion that
petitioner was motivated more by ill will than a sincere attempt to protect his
rights in commencing suit against respondents. It must be noted that before
petitioner was able to convince Dr. Cruz to exchange her jewelry for the Tanay
property, petitioner took pains to thoroughly examine said jewelry, even going to
the extent of sketching their appearance. Why at the precise moment when he was
about to take physical possession thereof he failed to exert extra efforts to check
their genuineness despite the large consideration involved has never been
explained at all by petitioner. His acts thus failed to accord with what an ordinary
prudent man would have done in the same situation.

SAN MIGUEL PROPERTIES PHILS., INC. v SPOUSES ALFREDO and GRACE

HUANG, G. R. No. 137290, 31 July 2000
Nature of the Case:
A petition for review for a decision of the Court of Appeals
which reversed the decision of the RTC dismissing the complaint brought by the
Huangs against San Miguel Properties for enforcement of a contract of sale.
Facts: San Miguel Properties offered two parcels of land for sale and the offer
was made to an agent of the respondents. An earnest-deposit of P1 million was
offered by the respondents and was accepted by the petitioners authorized officer
subject to certain terms.
Petitioner, through its executive officer, wrote the respondents lawyer that
because ethe parties failed to agree on the terms and conditions of the sale
despite the extension granted by the petitioner, the latter was returning the
earnest-deposit.
The respondents demanded execution of a deed of sale covering the properties and
attempted to return the earnest-deposit but petitioner refused on the ground
that the option to purchase had already expired.
A complaint for specific performance was filed against the petitioner and the latter
filed a motion to dismiss the complaint because the alleged exclusive option of
the respondents lacked a consideration separate and distinct from the purchase
price and was thus unenforceable; the complaint did not allege a cause of action
because there was no meeting of the mind between the parties and therefore the
contact of sale was not perfected.
The trial court granted the petitioners motion and dismissed the action. The
respondents filed a motion for reconsideration but were denied by the trial court.
The respondents elevated the matter to the Court of Appeals and the latter
reversed the decision of the trial court and held that a valid contract of sale had
been complied with.
Petitioner filed a motion for reconsideration but was denied.

Issue: WON there was a perfected contract of sale between the parties
Ruling:
The decision of the appellate court was reversed and the
respondents complaint was dismissed.
Ratio Decidendi:
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.
The P1 million earnest-deposit could not have been given as earnest money
because at the time when petitioner accepted the terms of respondents offer, their
contract had not yet been perfected. This is evident from the following conditions
attached by respondents to their letter.
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. 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.
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.
In the present case, the parties never got past the negotiation stage. The alleged
indubitable evidence 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.

Coronel v. CA [G.R. No. 103577. October 7, 1996.]

Third division, Melo (J): 3 concurring, 1 took no part
Facts: On 19 January 1985, Romulo Coronel, et al. executed a document entitled
Receipt of Down Payment in favor of Ramona Patricia Alcaraz for P50,000
downpayment of the total amount of P1.24M as purchase price for an inherited
house and lot (TCT 119627, Registry of Deeds of Quezon City), promising to
execute a deed of absolute sale of said property as soon as such has been
transferred in their name. The balance of P1.19M is due upon the execution of
said deed. On the same date, Concepcion D. Alcaraz, mother of Ramona, paid the
down payment of P50,000.00. On 6 February 1985, the property originally
registered in the name of the Coronels father was transferred in their names (TCT
327043). However, on 18 February 1985, the Coronels sold the property to
Catalina B. Mabanag for P1,580,000.00 after the latter has paid P300,000.00. For
this reason, Coronels canceled and rescinded the contract with Alcaraz by
depositing the down payment in the bank in trust for Alcaraz.
On 22 February 1985, Alcaraz filed a complaint for specific performance against
the Coronels and caused the annotation of a notice of lis pendens at the back of
TCT 327403. On 2 April 1985, Mabanag caused the annotation of a notice of
adverse claim covering the same property with the Registry of Deeds of Quezon
City. On 25 April 1985, the Coronels executed a Deed of Absolute Sale over the
subject property in favor of Mabanag. On 5 June 1985, a new title over the subject
property was issued in the name of Mabanag under TCT 351582.
In the course of the proceedings, the parties agreed to submit the case for
decision solely on the basis of documentary exhibits. Upon submission of their
respective memoranda and the corresponding comment or reply thereto, and on 1
March 1989, judgment was handed down in favor of the plaintiffs, ordering the
defendant to execute a deed of absolute sale of the land covered by TCT 327403
and canceling TCT 331582 and declaring the latter without force and effect.
Claims for damages by plaintiffs and counterclaims by the defendants and
intervenors were dismissed. A motion for reconsideration was thereafter filed,
which was denied. Petitioners interposed an appeal, but on 16 December 1991,
the CA rendered its decision fully agreeing with the trial court. Hence, the instant
petition.
The Supreme Court dismissed the petition and affirmed the appealed judgment.

1. Receipt of downpayment a binding contract; Meeting of the minds

The document embodied the binding contract between Ramona Patricia Alcaraz
and the heirs of Constancio P. Coronel, pertaining to a particular house and lot
covered by TCT 119627, as defined in Article 1305 of the Civil Code of the
Philippines.
2. Definition of contract of sale
The Civil Code defines a contract of sale, in Article 1458, as one of the
contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in money or its
equivalent. Sale, thus, by its very nature a consensual contract because it is
perfected by mere consent.
3. Elements of contract of sale; Contract to sell not contract of sale due to
the lack of first element; Distinction necessary when property is sold to a
third person
The essential elements of a contract of sale are (a) Consent or meeting of the
minds, that is, consent to transfer ownership in exchange for the price; (b)
Determinate subject matter; and (c) Price certain in money or its equivalent. A
Contract to Sell may not be considered as a Contract of Sale because the first
essential element is lacking. It is essential to distinguish between a contract to sell
and a conditional contract of sale specially in cases where the subject property is
sold by the owner not to the party the seller contracted with, but to a third
person.
4. Contract to sell: Seller agrees to sell property when purchase price is
delivered to him; seller reserves transfer of title until fulfillment of
suspensive condition (payment)
In a contract to sell, the prospective seller explicitly reserves the transfer of title to
the prospective buyer, meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the contract to sell until
the happening of an event, which for present purposes taken to be the full
payment of the purchase price. What the seller agrees or obliges himself to do is to
fulfill his promise to sell the subject property when the entire amount of the
purchase price is delivered to him. In other words the full payment of the

purchase price partakes of a suspensive condition, the non-fulfillment of which

prevents the obligation to sell from arising and thus, ownership is retained by the
prospective seller without further remedies by the prospective buyer.
5. Contract to sell: failure to deliver payment is not a breach but event
preventing vendor to convey title; obligation demandable upon full payment
of price; promise binding if supported by payment distinct from the price
When a contract is a contract to sell where the ownership or title is retained by
the seller and is not to pass until the full payment of the price, such payment
being a positive suspensive condition and failure of which is not a breach, casual
or serious, but simply an event that prevented the obligation of the vendor to
convey title from acquiring binding force (Roque v. Lapuz). Upon the fulfillment of
the suspensive condition which is the full payment of the purchase price, the
prospective sellers obligation to sell the subject property by entering into a
contract of sale with the prospective buyer becomes demandable as provided in
Article 1479 of the Civil Code (A promise to buy and sell a determinate thing for
a price certain is reciprocally demandable.) An accepted unilateral promise to buy
or to sell a determinate thing for a price certain is binding upon the promissor if
the promise is supported by a consideration distinct from the price.
6. Contract to sell defined
A contract to sell be defined as a bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the subject property despite delivery
thereof to the prospective buyer, binds himself to sell the said property exclusively
to the prospective buyer upon fulfillment of the condition agreed upon, that is, full
payment of the purchase price.
7. Contract to sell not a conditional contract of sale (existence of first
element)
A contract to sell may not even be considered as a conditional contract of sale
where the seller may likewise reserve title to the property subject of the sale until
the fulfillment of a suspensive condition, because in a conditional contract of sale,
the first element of consent is present, although it is conditioned upon the
happening of a contingent event which may or may not occur.
8. Conditional contract of sale: if suspensive condition not fulfilled,

pefection abated; if fulfilled, contract of sale perfected and ownership

automatically transfers to buyer
If the suspensive condition is not fulfilled, the perfection of the contract of sale is
completely abated (cf. Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA
777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is
thereby perfected, such that if there had already been previous delivery of the
property subject of the sale to the buyer, ownership thereto automatically
transfers to the buyer by operation of law without any further act having to be
performed by the seller.
9. Contract to sell: if suspensive condition fulfilled, seller has still to convey
title even if property is previously delivered
In a contract to sell, upon the fulfillment of the suspensive condition which is the
full payment of the purchase price, ownership will not automatically transfer to
the buyer although the property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer by entering into
a contract of absolute sale.
10. Contract to sell: there is no double sale; if property sold to another, the
seller may be sued for damages
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.
11. Conditional contract of sale: sale becomes absolute upon fulfillment of
condition; if property sold to another, first buyer may seek reconveyance
In a conditional contract of sale, upon the fulfillment of the suspensive condition,
the sale becomes absolute and this will definitely affect the sellers title thereto. In
fact, if there had been previous delivery of the subject property, the sellers
ownership or title to the property is automatically transferred to the buyer such
that, the seller will no longer have any title to transfer to any third person.
Applying Article 1544 of the Civil Code, such second buyer of the property who

may have had actual or constructive knowledge of such defect in the sellers title,
or at least was charged with the obligation to discover such defect, cannot be a
registrant in good faith. Such second buyer cannot defeat the first buyers title. In
case a title is issued to the second buyer, the first buyer may seek reconveyance of
the property subject of the sale.
12. Interpretation of contracts, natural and meaning of words unless
technical meaning was intended
It is a canon in the interpretation of contracts that the words used therein should
be given their natural and ordinary meaning unless a technical meaning was
intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]).
13. Document entitled Receipt of Down Payment indicates Conditional
Contract of Sale and not contract to sell
The agreement could not have been a contract to sell because the sellers made no
express reservation of ownership or title to the subject parcel of land.
Furthermore, the circumstance which prevented the parties from entering into an
absolute contract of sale pertained to the sellers themselves (the certificate of title
was not in their names) and not the full payment of the purchase price. Under the
established facts and circumstances of the case, had the certificate of title been in
the names of petitioners-sellers at that time, there would have been no reason
why an absolute contract of sale could not have been executed and consummated
right there and then. Moreover, unlike in a contract to sell, petitioners did not
merely promise to sell the property to private respondent upon the fulfillment of
the suspensive condition. On the contrary, having already agreed to sell the
subject property, they undertook to have the certificate of title changed to their
names and immediately thereafter, to execute the written deed of absolute sale.
What is clearly established by the plain language of the subject document is that
when the said Receipt of Down Payment was prepared and signed by petitioners,
the parties had agreed to a conditional contract of sale, consummation of which is
subject only to the successful transfer of the certificate of title from the name of
petitioners father to their names. The suspensive condition was fulfilled on 6
February 1985 and thus, the conditional contract of sale between the parties
became obligatory, the only act required for the consummation thereof being the
delivery of the property by means of the execution of the deed of absolute sale in a
public instrument, which petitioners unequivocally committed themselves to do as

evidenced by the Receipt of Down Payment.

14. Article 1475 and 1181 applies to present case; Perfection of a contract of
sale and Conditional obligation based on the happening of the event
Article 1475 of the New Civil Code provides that the contract of sale is perfected
at the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price. From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law governing the form of
contracts. Article 1181 of the same code provides that in conditional
obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event which
constitutes the condition. In the present case, since the condition contemplated
by the parties which is the issuance of a certificate of title in petitioners names
was fulfilled on 6 February 1985, the respective obligations of the parties under
the contract of sale became mutually demandable, i.e. the sellers were obliged to
present the TCT already in their names to he buyer, and to immediately execute
the deed of absolute sale, while the buyer on her part, was obliged to forthwith
pay the balance of the purchase price amounting to P1,190,000.00.
15. Condition deemed fulfilled when obligor voluntary prevents its
fulfillment; Condition fulfilled, such fact controlling over hypothetical
arguments
Article 1186 provides that the condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment. Thus, in the present case, the
petitioners having recognized that they entered into a contract of sale subject to a
suspensive condition, as evidenced in the first paragraph in page 9 of their
petition, cannot now contend that there could have been no perfected contract of
sale had the petitioners not complied with the condition of first transferring the
title of the property under their names. It should be stressed and emphasized that
the condition was fulfilled on 6 February 1985, when TCT 327403 was issued in
petitioners name, and such fact is more controlling than mere hypothetical
arguments.
16. Retroactivity of conditional obligation to day of constitution of
obligation
Article 1187 provides that the effects of conditional obligation to give, once the

condition has been fulfilled, shall retroact to the day of the constitution of the
obligation. In obligations to do or not to do, the courts shall determine, in each
case, the retroactive effect of the condition that has been complied with. In the
present case, the rights and obligations of the parties with respect to the perfected
contract of sale became mutually due and demandable as of the time of fulfillment
or occurrence of the suspensive condition on 6 February 1985. As of that point in
time, reciprocal obligations of both seller and buyer arose.
17. Succession as a mode of transferring ownership
Article 774 of the Civil Code defines Succession as a mode of transferring
ownership, providing succession is a mode of acquisition by virtue of which the
property, rights and obligations to the extent and value of the inheritance of a
person are transmitted through his death to another or others by his will or by
operation of law. In the present case, petitioners-sellers being the sons and
daughters of the decedent Constancio P. Coronel are compulsory heirs who were
called to succession by operation of law. Thus, at the instance of their fathers
death, petitioners stepped into his shoes insofar as the subject property is
concerned, such that any rights or obligations pertaining thereto became binding
and enforceable upon them. It is expressly provided that rights to the succession
are transmitted from the moment of death of the decedent (Article 777, Civil Code;
Cuison vs. Villanueva, 90 Phil. 850 [1952]).
18. Estoppel, as to lack of capacity
Article 1431 provides that through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon. In the present case, the
petitioners, having represented themselves as the true owners of the subject
property at the time of sale, cannot claim now that they were not yet the absolute
owners thereof at the time they entered into agreement.
19. Mere allegation is not evidence
The supposed grounds for petitioners rescission, are mere allegations found only
in their responsive pleadings, which by express provision of the rules, are deemed
controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised
Rules of Court). The records are absolutely bereft of any supporting evidence to
substantiate petitioners allegations. We have stressed time and again that

allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110
Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere allegation is not an
evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
20. No stipulation to authorize extrajudicial rescission of contract of sale
Even assuming arguendo that Ramona P. Alcaraz was in the United States of
America on 6 February 1985, petitioners-sellers act of unilaterally and
extrajudicially rescinding the contract of sale cannot be justified as there was no
express stipulation authorizing the sellers to extrajudicially rescind the contract of
sale. (cf Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA
722 [1984])
21. Estoppel, acceptance of check from buyers mother; buyers absence not
a ground for rescission
Petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz
because although the evidence on record shows that the sale was in the name of
Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D.
Alcaraz, Ramonas mother, who had acted for and in behalf of her daughter, if not
also in her own behalf. Indeed, the down payment was made by Concepcion D.
Alcaraz with her own personal check (Exh. B; Exh. 2) for and in behalf of
Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned
Concepcions authority to represent Ramona P. Alcaraz when they accepted her
personal check. Neither did they raise any objection as regards payment being
effected by a third person. Accordingly, as far as petitioners are concerned, the
physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of
sale.
22. Buyer not in default as there is no proof that seller presented the TCT
and signify their readiness to execute the deed of absolute sale
Article 1169 of the Civil Code defines when a party in a contract involving
reciprocal obligations may be considered in default. Said article provides that
those obliged to deliver or to do something, incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their
obligation. xxx In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfill his obligation,

delay by the other begins. In the present case, there is no proof offered whatsoever
to show that the seller actually presented the new transfer certificate of title in
their names and signified their willingness and readiness to execute the deed of
absolute sale in accordance with their agreement. Ramonas corresponding
obligation to pay the balance of the purchase price in the amount of
P1,190,000.00 (as buyer) never became due and demandable and, therefore, she
cannot be deemed to have been in default.
23. Double sale; Article 1544, paragraph 2 applies in the present case
Article 1544 of the Civil Code provides that If the same thing should have been
sold to different vendees, the ownership shall be transferred to the person who
may have first taken possession thereof in good faith, if it should be movable
property. Should if be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in the possession; and, in the absence thereof to the person
who presents the oldest title, provided there is good faith. In the present case, the
record of the case shows that the Deed of Absolute Sale dated 25 April 1985 as
proof of the second contract of sale was registered with the Registry of Deeds of
Quezon City giving rise to the issuance of a new certificate of title in the name of
Catalina B. Mabanag on 5 June 1985. Thus, the second paragraph of Article 1544
shall apply.

buyers rights except when the second buyer first registers in good faith the
second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by
the second buyer of the first sale defeats his rights even if he is first to register,
since knowledge taints his registration with bad faith (see also Astorga vs. Court of
Appeals, G.R. No. 58530, 26 December 1984). It was further held that it is
essential, to merit the protection of Article 1544, second paragraph, that the
second realty buyer must act in good faith in registering his deed of sale (Cruz v.
Cabana, 129 SCRA 656, citing Carbonell vs. Court of Appeals, 69 SCRA 99,
Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).
26. Double sale; good faith in recording of second sale, not in buying
In a case of double sale, what finds relevance and materiality is not whether or not
the second buyer was a buyer in good faith but whether or not said second buyer
registers such second sale in good faith, that is, without knowledge of any defect
in the title of the property sold. In the present case, Mabanag could not have in
good faith registered the sale entered into on 18 February 1985 because as early
as 22 February 1985, a notice of lis pendens had been annotated on the TCT in
the names of petitioners, whereas Mabanag registered the said sale sometime in
April 1985. At the time of registration, therefore, petitioner knew that the same
property had already been previously sold to Coronel, or, at least, she was charged
with knowledge that a previous buyer is claiming title to the same property.
Mabanag thus cannot close her eyes to the defect in petitioners title to the
property at the time of the registration of the property.

24. Double sale presumes title to pass to first buyer, exceptions

Article 1544, the provision on double sale, presumes title or ownership to pass to
the first buyer, the exceptions being: (a) when the second buyer, in good faith,
registers the sale ahead of the first buyer, and (b) should there be no inscription
by either of the two buyers, when the second buyer, in good faith, acquires
possession of the property ahead of the first buyer. Unless, the second buyer
satisfies these requirements, title or ownership will not transfer to him to the
prejudice of the first buyer.

27. Double sale; Bad faith in registration does not confer registrant any right
If a vendee in a double sale registers the sale after he has acquired knowledge that
there was a previous sale of the same property to a third party or that another
person claims said property in a previous sale, the registration will constitute a
registration in bad faith and will not confer upon him any right. (Salvoro vs.
Tanega, 87 SCRA 349 [1981];citing Palarca vs. Director of Land, 43 Phil. 146;
Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)

25. Prius tempore, potior jure (first in time, stronger in right); First to
register in good faith
The governing principle is prius tempore, potior jure (first in time, stronger in
right). Knowledge by the first buyer of the second sale cannot defeat the first

28. Agency; The issue whether Concepcion, mother of Ramona, is an agent

or a co-buyer is undisturbed
Although there may be ample indications that there was in fact an agency between
Ramona as principal and Concepcion, her mother, as agent insofar as the subject

contract of sale is concerned, the issue of whether or not Concepcion was also
acting in her own behalf as a co-buyer is not squarely raised in theinstant
petition, nor in such assumption disputed between mother and daughter. The
Court did not touch this issue and did not disturb the lower courts ruling on this
point.

Gaite v. Fonacier [G.R. No. L-11827. July 31, 1961.]

En Banc, Reyes JBL (J): 9 concur
Facts: Isabelo Fonacier was the owner and/or holder of 11 iron lode mineral
claims (Dawahan Group), situated in Jose Panganiban, Camarines Norte. By a
Deed of Assignment dated 29 September 1952, Fonacier constituted and
appointed Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a
contract with any individual or juridical person for the exploration and
development of the mining claims on a royalty basis of not less than P0.50 per ton
of ore that might be extracted therefrom. On 19 March 1954, Gaite in turn
executed a general assignment conveying the development and exploitation of said
mining claims unto the Larap Iron Mines, owned solely by him. Thereafter Gaite
embarked upon the development and exploitation of the mining claims, opening
and paving roads within and outside their boundaries, making other
improvements and installing facilities therein for use in the development of the
mines, and in time extracted therefrom what he claimed and estimated to be
approximately 24,000 metric tons of iron ore.

company would attach only when there had been an actual sale of iron ore by the
Larap Mines & Smelting Co. for an amount of not less than P65,000. Both bond
were attached and made integral parts of the Revocation of Power of Attorney and
Contract. On the same day that Fonacier revoked the power of attorney, Fonacier
entered into a Contract of Mining Operation with Larap Mines and Smelting Co.,
Inc. to grant it the right to develop, exploit, and explore the mining claims,
together with the improvements therein and the use of the name Larap Iron
Mines and its goodwill, in consideration of certain royalties. Fonacier likewise
transferred, in the same document, the complete title to the approximately 24,000
tons of iron ore which he acquired from Gaite, to the Larap Mines & Smelting Co.,
in consideration for the signing by the company and its stockholders of the surety
bonds delivered by Fonacier to Gaite. On 8 December 1955, the bond with respect
to the Far Eastern Surety and Insurance Company expired with no sale of the
approximately 24,000 tons of iron ore, nor had the 65,000 balance of the price of
said ore been paid to Gaite by Fonacier and his sureties. Whereupon, Gaite
demanded from Fonacier and his sureties payment of said amount.

For some reason or another, Isabelo Fonacier decided to revoke the authority
granted by him to Gaite, and Gaite assented thereto subject to certain conditions.
As a result, a document entitled Revocation of Power of Attorney and Contract
was executed on 8 December 1954, wherein Gaite transferred to Fonacier, for the
consideration of P20,000, plus 10% of the royalties that Fonacier would receive
from the mining claims, all his rights and interests on all the roads,
improvements, and facilities in or outside said claims, the right to use the
business name Larap Iron Mines and its goodwill, and all the records and
documents relative to the mines. In the same document, Gaite transferred to
Fonacier all his rights and interests over the 24,000 tons of iron ore, more or
less that the former had already extracted from the mineral claims, in
consideration of the sum of P75,000, P10,000, of which was paid upon the signing
of the agreement, and the balance to be paid out of the first letter of credit
covering the first shipment of iron ores or the first amount derived from the local
sale of iron ore made by the Larap Mines & Smelting Co. To secure the payment of
the balance, Fonacier promised to execute in favor of Gaite a surety bond;
delivered on 8 December 1954 with Fonacier as principal and the Larap Mines
and Smelting Co. and its stockholders as sureties. A second bond was executed by
the parties to the first bond, on the same day, with the Far Eastern Surety and
Insurance Co. as additional surety, but it provided that the liability of the surety

When Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed
a complaint against them in the CFI Manila (Civil Case 29310) for the payment of
the P65,000 balance of the price of the ore, consequential damages, and
attorneys fees. Judgment was, accordingly, rendered in favor of plaintiff Gaite
ordering defendants to pay him, jointly and severally, P65,000 with interest at 6%
per annum from 9 December 1955 until full payment, plus costs. From this
judgment, defendants jointly appealed to the Supreme Court as the claims
involved aggregate to more than P200,000.
The Supreme Court affirmed the decision appealed from, with costs against
appellants.
1. Shipment or local sale of ore not a condition precedent but a suspensive
period or term
The shipment or local sale of the iron ore is not a condition precedent (or
suspensive) to the payment of the balance of P65,000, but was only a suspensive
period or term. What characterizes a conditional obligation is the fact that its
efficacy or obligatory force (as distinguished from its demandability) is
subordinated to the happening of a future and uncertain event; so that if the
suspensive condition does not take place, the parties would stand as if the

conditional obligation had never existed.

2. The words of the contract express no contingency in the buyers
obligation to pay.
The contract stipulates that the balance of Sixty-Five Thousand Pesos (P65,000)
will be paid out of the first letter of credit covering the first shipment of iron
ore . . . etc. There is no uncertainty that the payment will have to be made sooner
or later; what is undetermined is merely the exact date at which it will be made.
By the very terms of the contract, therefore, the existence of the obligation to pay
is recognized; only its maturity or demandability is deferred.
3. Contract of sale commutative and onerous; Each party assume correlative
obligation and anticipate performance from the other
A contract of sale is normally commutative and onerous: not only does each one of
the parties assume a correlative obligation (the seller to deliver and transfer
ownership of the thing sold and the buyer to pay the price), but each party
anticipates performance by the other from the very start. While in a sale the
obligation of one party can be lawfully subordinated to an uncertain event, so that
the other understands that he assumes the risk of receiving nothing for what he
gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the
usual course of business to do so; hence, the contingent character of the
obligation must clearly appear. In the present case, nothing is found in the record
to evidence that Gaite desired or assumed to run the risk of losing his rights over
the ore without getting paid for it, or that Fonacier understood that Gaite assumed
any such risk. The fact that appellants did put up such bonds indicates that they
admitted the definite existence of their obligation to pay the balance of P65,000.
4. To consider sale as a condition precedent leaves the payment at the
discretion o fthe debtor
To subordinate the obligation to pay the remaining P65,000 to the sale or
shipment of the ore as a condition precedent, would be tantamount to leaving the
payment at the discretion of the debtor, for the sale or shipment could not be
made unless the appellants took steps to sell the ore. Appellants would thus be
able to postpone payment indefinitely. Such construction of the contract should be
avoided.

5. Interpretation incline in favor of the greatest reciprocity of interests

Assuming that there could be doubt whether by the wording of the contract the
parties intended a suspensive condition or a suspensive period (dies ad quem) for
the payment of the P65,000, the rules of interpretation would incline the scales in
favor of the greatest reciprocity of interests, since sale is essentially onerous. The
Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides if the
contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of
interests and there can be no question that greater reciprocity obtains if the
buyers obligation is deemed to be actually existing, with only its maturity (due
date) postponed or deferred, than if such obligation were viewed as non-existent or
not binding until the ore was sold.
6. Sale of ore to Fonacier was a sale on credit, not an aleatory contract
The sale of the ore to Fonacier was a sale on credit, and not an aleatory contract
where the transferor, Gaite, would assume the risk of not being paid at all; and
that the previous sale or shipment of the ore was not a suspensive condition for
the payment of the balance of the agreed price, but was intended merely to fix the
future date of the payment.
7. Non-renewal of bond impaired the securities given to the creditor
Appellants have forfeited the right to compel Gaite to wait for the sale of the ore
before receiving payment of the balance of P65,000, because of their failure to
renew the bond of the Far Eastern Surety Company or else replace it with an
equivalent guarantee. The expiration of the bonding companys undertaking on 8
December 1955 substantially reduced the security of the vendors rights as
creditor for the unpaid P65,000, a security that Gaite considered essential and
upon which he had insisted when he executed the deed of sale of the ore to
Fonacier. The case squarely comes under paragraphs 2 and 3 of Article 1198 of
the Civil Code of the Philippines which provides (2) When he does not furnish to
the creditor the guaranties or securities which he has promised. (3) When by his
own acts he has impaired said guaranties or securities after their establishment,
and when through fortuitous event they disappear, unless he immediately gives
new ones equally satisfactory. Appellants failure to renew or extend the surety
companys bond upon its expiration plainly impaired the securities given to the
creditor (appellee Gaite), unless immediately renewed or replaced.

8. No waiver intended by creditor

Gaites acceptance of the surety companys bond with full knowledge that on its
face it would automatically expire within one year was not a waiver of its renewal
after the expiration date. No such waiver could have been intended, for Gaite stood
to lose and had nothing to gain thereby; and if there was any, it could be
rationally explained only if the appellants had agreed to sell the ore and pay Gaite
before the surety companys bond expired on 8 December 1955. But in the latter
case the defendants- appellants obligation to pay became absolute after 1 year
from the transfer of the ore to Fonacier by virtue of the deed.
9. No short-delivery made by Gaite
This is a case of a sale of a specific mass of fungible goods for a single price or a
lump sum, the quantity of 24,000 tons of iron ore, more or less, stated in the
contract, being a mere estimate by the parties of the total tonnage weight of the
mass; and second, that the evidence shows that neither of the parties had
actually measured or weighed the mass, so that they both tried to arrive at the
total quantity by making an estimate of the volume thereof in cubic meters and
then multiplying it by the estimated weight per ton of each cubic meter. The sale
between the parties is a sale of a specific mass of iron ore because no provision
was made in their contract for the measuring or weighing of the ore sold in order
to complete or perfect the sale, nor was the price of P75,000 agreed upon by the
parties based upon any such measurement (see Art. 1480, second par., New Civil
Code). The subject-matter of the sale is, therefore, a determinate object, the mass,
and not the actual number of units or tons contained therein, so that all that was
required of the seller Gaite was to deliver in good faith to his buyer all of the ore
found in the mass, notwithstanding that the quantity delivered is less than the
amount estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield
Salvage Co., Inc. 171 So. 872, applying art. 2459 of the Luisiana Civil Code). The
contract expressly stated the amount to be 24,000 tons, more or less. Applying
the tonnage factor provided by the chief of Mines and Metallurgical Division of the
Bureau of Mines which was between 3 metric tons minimum to 5 metric tons
maximum, which was near the 3.3 metric ton tonnage factor adopted by Engr.
Gamatero (at the request of Krakower, a stockholder of Larap), and if appellants
witness is correct in his estimate of 6,609 cubic meters of ore, the product is
21,809.7 tons which is not far from the 24,000 tons estimate. (cf. Pine River
Logging & Improvement Co. vs. U. S., 186 U.S. 279, 46, L. Ed. 1164). Thus, there

was no short-delivery as would entitle appellants to the payment of damages, nor

could Gaite have been guilty of any fraud in making any misrepresentation to
appellants as to the total quantity of ore in the stockpiles of the mining claims in
question since Gaites estimate appears to be substantially correct.

VICENTE GOMEZ, as successor-in-interest of awardee LUISA GOMEZ,

petitioner,
vs.
COURT OF APPEALS, City of MANILA acting thru the City Tenants Security
Committee now the Urban Settlement Office, Register of Deeds of Manila,
respondents.
BUENA, J.:
Sought to be reversed in this petition for review on certiorari under Rule 45 of the
Rules of Court is the decision1 of the Court of Appeals in C.A. G.R. Sp. No. 32101
promulgated on 22 February 1995 which annulled and set aside the decision of
the Regional Trial Court of Manila, Branch 12 in Civil Case No. 51930.
Impugned similarly is the resolution2 of the Court of Appeals dated 29 June 1995
denying petitioner's motion for reconsideration.
From the records, we find the following antecedents:
Pursuant to the Land for the Landless Program of the City of Manila and in
accordance with City Ordinance No. 6880, the Office of City Mayor issued
Resolution No. 16-A,3 Series of 1978, dated 17 May 1978, which effectively set
guidelines and criteria for the award of city home lots to qualified and deserving
applicants. Attached to said resolution and made as integral part thereof was a
Contract to Sell4 that further laid down terms and conditions which the lot
awardee must comply with.
On 30 June 1978, the City of Manila, through the City Tenants Security
Committee (CTSC) presently known as the Urban Settlement Office (URBAN),
passed Resolution 17-785 which in effect awarded to 46 applicants, 37 homelots
in the former Ampil-Gorospe estate located in Tondo, Manila. Luisa Gomez,
predecessor-in-interest of herein petitioner Vicente Gomez, was awarded Lot 4,
Block 1, subject to the provisions of Resolution No. 3-78 of the CTSC and
building, subdivision and zoning rules and regulations.
Consequently, a certificate of award6 dated 02 July 1978 was granted by the

CTSC in favor of Luisa Gomez, who paid the purchase price of the lot in the
amount of P3,556.00 on installment basis,7 said payments being duly covered by
official receipts.
In 1979, Luisa Gomez traveled to the Unites States of America but returned to the
Philippines in the same year.
On 18 January 1980, Luisa Gomez finally paid in full the P3,556.00 purchase
price of the lot. Despite the full payment, Luisa still paid in installment an amount
of P8,244.00, in excess of the purchase price, which the City of Manila, through
the CTSC, accepted. Additionally, the lot was declared for taxation purposes and
the corresponding real estate taxes thereon paid from 1980-1988. In 1982, Luisa,
together with her spouse Daniel, left again for the United States of America where
she died8 on 09 January 1983. She is survived by her husband and four children,
namely, Ramona G. Takorda, Edgardo Gomez, Erlinda G. Pena, and Rebecca G.
Dizon.9
Subsequently, in a memorandum dated 07 February 1984, the Urban Settlements
Officer and Member-Executive Secretary of the CTSC directed the Western Police
District, City Hall Detachment, to conduct an investigation regarding reported
violations of the terms and conditions of the award committed by the lot awardees.
Thus, on 23 November 1984, a team headed by Pfc. Reynaldo Cristobal of the
Western Police District, proceeded to the former Ampil-Gorospe estate where the
subject lots are located, and conducted an investigation of alleged violations
thereat.
On 19 December 1984, team leader Pfc. Reynaldo Cristobal rendered an
investigation report10 addressed to the City Mayor of Manila, as Chairman of the
CTSC, stating, among others, the following findings:
". . . After the said operation, it was found out that of all the lot awardees in the
said estate, the following were confirmed to have violated the terms and conditions
of their respective awards as indicated opposite their names, to wit:
". . . 2. Name of awardee: Daniel Gomez

Address: No. 2557-C Juan Luna St. Tondo, Manila

Violation: The place was found actually occupied by Mrs. Erlinda Perez and her
family together with Mr. Mignony Lorghas and family, who are paying monthly
rentals of P210.00 each to Vicente Gomez, brother of awardee. Daniel Gomez is
now presently residing in the United States of America and only returns for
vacation once in a while as a 'Balikbayan' . . ."
Thus, on 01 July 1986, the CTSC, headed by then City Mayor Gemiliano Lopez,
Jr. as Chairman, issued Resolution No. 015-86,11 adopting the findings of the
investigation report submitted by Pfc. Cristobal, and ordering the cancellation of
the lot awards of Daniel Gomez and other awardees who were found to have
committed violations, and further declaring the forfeiture of payments made by
said awardees as reasonable compensation for the use of the homelots.
In a letter12 dated 04 August 1986, herein petitioner Vicente Gomez, acting as
attorney-in-fact13 of his brother Daniel Gomez (spouse of Luisa Gomez) asked for
reconsideration of the CTSC resolution revoking the award of the lot.
On 28 June 1988, Daniel Gomez, spouse of awardee Luisa Gomez, died in the
United States of America. Eventually, on 01 February 1989, the surviving children
of the deceased spouses, who were American citizens and residents of the United
States of America, executed an affidavit of adjudication with deed of donation14
disposing gratuitously Lot No. 1, Block 4, in-Favor of their uncle Vicente Gomez.

interest of Awardee, Luisa Gomez, petitioner, versus City Tenant's Security

Committee (now Urban Settlement Office) and Register of Deeds of Manila,
respondents."
In an order18 dated 24 April 1990, the lower court directed the petitioner to
amend its petition so as to implead the proper government agency.
Hence, petitioner filed an amended petition19 impleading the City of Manila as
respondent, to which the latter submitted an answer.20
Accordingly, after the presentation of evidence, the lower court promulgated its
decision21 dated 20 January 1993, the decretal portion of which reads:
Wherefore, the petition is hereby granted:
"1. Ordering the City of Manila through its agency the City Tenants Security
Committee (now Urban Settlement Office) to set aside the order of cancellation of
the award for Lot No. 4, Block 1 (formerly of the Ampil-Gorospe estate) in favor of
Luisa Gomez, her heirs and successor-in-interest, the herein petitioner;
"2. Prohibiting the City of Manila through its agency including the Register of
Deeds of Manila from awarding the same lot and issuing the corresponding
certificate of title therefor to any other person;

On 20 February 1989, petitioner Vicente Gomez filed a memorandum15 before the

CTSC praying that Resolution 15-86 be set aside and that the award of the lot be
restored to Luisa Gomez, or her heirs or successor-in-interest, preferably Vicente
Gomez.

"3. Ordering the City of Manila through its agency the City Tenant's Security
Committee (now Urban Settlement Office) to execute a Deed of Absolute Sale over
the aforementioned lot in favor of the petitioner as successor-in-interest of the
awardee and further ordering them to stop and/or refrain from disturbing the
peaceful physical possession thereof of (sic) the petitioner; and

Thereafter, two supplemental memoranda, dated 26 July 198916 and 10 January

1990,17 were submitted by petitioner before the CTSC reiterating the prayer in
the initial memorandum.

"4. Ordering the City of Manila through its agency the City Tenant's Security
Committee (now Urban Settlement Office) to refund to the petitioner his
overpayments amounting to P8,244.00 and to pay the costs of suit."

On 05 February 1990, herein petitioner filed before the Regional Trial Court (RTC)
of Manila, Branch 12, a petition for certiorari, prohibition and mandamus
docketed as Civil Case No. 90-51930, entitled "Vicente Gomez, as successor-in-

On appeal, the Court of Appeals reversed the lower court's decision prompting
petitioner to file a motion for reconsideration which the appellate court denied via
its assailed resolution dated 29 June 1995.

species of contracts, to wit:

Hence, the instant appeal where the core of controversy revolves around the
propriety of CTSC's act of canceling the lot award, through Resolution No. 015-86,
and further declaring the forfeiture of amounts paid by the awardee, as
reasonable compensation for the use of the home lot.
The petition is unmeritorious.
A thorough scrutiny of the records and an even more exhaustive perusal of the
evidence, both documentary and testimonial, would lead to the inevitable
conclusion that the fact of cancellation of the award covering Lot 4, Block 1, by
the City of Manila, acting through the CTSC, was properly exercised within the
bounds of law and contractual stipulation between the parties.
Viewed broadly, petitioner anchors his case on the premise, albeit erroneous, that
upon full payment of the purchase price of the lot in January 1980, Luisa Gomez,
actual awardee, already acquired a vested right over the real property subject of
the present controversy. Thus, according to petitioner, upon the death of Luisa
Gomez on 09 January 1983, the alleged vested right was transmitted by operation
of law to her lawful heirs, pursuant to Article 777 of the Civil Code. Additionally,
petitioner submits that by virtue of the affidavit of adjudication with Deed of
Donation executed on 01 February 1989 in his favor by the surviving children of
Luisa, he, in effect, became the successor-in-interest of Luisa and thus entitled to
whatever rights enjoyed by the latter over the property.
In the light of existing law and jurisprudence and based on the evidence adduced,
this Court finds difficulty giving credence and weight to petitioner's submissions.
We therefore rule that the cancellation of the award of Lot 4, Block 1, through the
expediency of Resolution No. 015-86, was proper.
Primarily, it must be stressed that the contract entered into between the City of
Manila and awardee Luisa Gomez was not one of sale but a contract to sell, which,
under both statutory and case law, has its own attributes, peculiarities and
effects.
Speaking through Mr. Justice Florenz Regalado, this Court in Adelfa Properties,
Inc. vs. Court of Appeals,22 mapped out the bold distinctions between these

"In a contract of sale, the title passes to the vendee upon the delivery of the thing
sold; whereas in a contract to sell, by agreement, the ownership is reserved in the
vendor and is not to pass until the full payment of the price. In a contract of sale,
the vendor has lost and cannot recover ownership until and unless the contract is
resolved or rescinded; whereas in a contract to sell, title is retained by the vendor
until the full payment of the purchase price, such payment being a positive
suspensive condition and failure of which is not a breach but an event that
prevents the obligation of the vendor to convey title from being effective. Thus, a
deed of sale is considered absolute in nature where there is neither a stipulation
in the deed that title to the property sold is reserved in the seller until the full
payment of the price, nor one giving the vendor the right to unilaterally resolve the
contract the moment the buyer fails to pay within a fixed period."
To our mind, however, this pronouncement should not curtail the right of the
parties in a contract to sell to provide additional stipulations, nor bar them from
imposing conditions relative to the transfer of ownership.
To be sure, a contract of sale may either be absolute or conditional. One form of
conditional sales is what is now popularly termed as a "Contract to Sell", where
ownership or title is retained until the fulfillment of a positive suspensive
condition normally the payment of the purchase price in the manner agreed
upon.23 (Emphasis ours)
From the above disquisition in Galang and applying Article 1306 of the Civil Code,
the contracting parties are accorded the liberality and freedom to establish such
stipulations, clauses, terms and conditions as they may deem convenient,
provided the same are not contrary to law, morals, good custom, public order or
public policy. In the law on contracts, such fundamental principle is known as the
autonomy of contracts.
Under the present circumstances, we see no hindrance that prohibits the parties
from stipulating other lawful conditions, aside from full payment of the purchase
price, which they pledge to bind themselves and upon which transfer of ownership
depends.

In the instant case, we uphold the Contract to Sell, duly annexed and attached to
Resolution 16-A, which explicitly provides for additional terms and conditions
upon which the lot awardees are bound. Although unsigned, the Contract to Sell,
in addition to the provisions of Resolution 16-A, constitutes the law between the
contracting parties. After all, under the law there exists a binding contract
between the parties whose minds have met on a certain matter notwithstanding
that they did not affix their signatures to its written form.24
For a contract, like a contract to sell, involves a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or
to render some service. Contracts, in general, 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. The offer must be certain and
the acceptance absolute.25
As to the matter of acceptance, the same may be evidenced by some acts, or
conduct, communicated to the offeror, either in a formal or an informal manner,
that clearly manifest the intention or determination to accept the offer to buy or
sell.26
In the case at bar, acceptance on the part of the vendee was manifested through a
plethora of acts, such as payment of the purchase price, declaration of the
property for taxation purposes, and payment of real estate taxes thereon, and
similar acts showing vendee's assent to the contract.
Verily, Resolution 16-A and the Contract to Sell which was annexed, attached and
made to form part of said resolution, clearly laid down the terms and conditions
which the awardee-vendee must comply with. Accordingly, as an awardee, Luisa
Gomez, her heirs and successors-in-interest alike, are duty-bound to perform the
correlative obligations embodied in Resolution 16-A and the Contract to-Sell.
Resolution 16-A, Series of 1978, explicitly provides that aside from the
requirement of Filipino citizenship and legal age, the basic criteria for award of the
lot pursuant to the Land for the Landless Program of the City of Manila shall be
the following:
"a) Occupancy The applicant must be the legal and actual or physical occupant

of the lot in question at the time of its acquisition by the City. He must be the
owner of the house and lot, must be using the same for his residential purposes,
and must have had a lessee-lessor relationship with the previous owner of the
land or landed estate of which the subject lot is a part.
"b) Non-ownership of land The applicant and/or his spouse, if he is married,
must not be an owner of any parcel of land in Manila, Metropolitan Manila or
elsewhere in the Philippines. Neither must he and/or his spouse be a prospective
owner or a buyer on installment basis of any lot other than that which he is
occupying and for which he is applying for award from the City.
"c) Capacity to pay The applicant must have such financial means and/or
support as will enable him to make regular payments of amortizations or
installments for the lot if the same is awarded to him."
Of equal importance are the essential terms and conditions embraced in the
Contract to Sell, which awardee Luisa Gomez, her heirs and successors-ininterest, violated, to wit:
". . . Par.(3). The vendee shall occupy and use the lot exclusively for his/her
residential purpose . . .
". . . Par. (5). The vendee hereby warrants and declares under oath that he/she is
a bona fide and actual occupant and tenant of the lot; . . . and that he/she fully
understands that any false statement or misrepresentation hereof (sic) shall be
sufficient cause for the automatic cancellation of his/her rights under this
agreement as well as ground for criminal prosecution.
"Par. (6). Until complete payment of the purchase price and compliance with all
the vendee's obligations herein, title to the lot remains in the name of the owner.
During the effectivity of this agreement, however, the owner may transfer its title
or assign its rights and interest under this agreement to any person, corporation,
bank or financial institution.
"Title shall pass to the vendee upon execution of a final deed of sale in his/her
favor. . . .

"Par. (8). In order not to defeat the purpose of this social land reform program of
the City of Manila. and to prevent real estate speculations within twenty years
from complete payment of the purchase price and execution of the final deed of
sale, the lot and residential house or improvement thereon shall not be sold,
transferred, mortgaged, leased or otherwise alienated or encumbered without the
written consent of the City Mayor.

Mrs. Lorghas, how long have you been renting the property?

"Par. (9). During the effectivity of this agreement, the residential house or
improvement thereon shall not be leased, sold, transferred or otherwise alienated
by the vendee without the written consent of the owner. . .

Atty. Bernardo:

"Par. (14). In the event that the vendee dies before full payment of the purchase
price of the lot, his/her surviving spouse, children heirs and/or successors-ininterest shall succeed in all his/her rights and interest, as well as assume
all/his/her obligations under this agreement.

Mrs. Lorghas:

Mrs. Lorghas:
I was living there since 1960 until today. I was renting a small room downfloor
(sic). When the family of Mr. Gomez died, kami na ang tumira sa itaas until now.

Magkano ang upa mo?

P300 a month.
Atty. Bernardo:

"Par. (15). This agreement shall be binding upon the heirs. executors and
administrators of the vendee." (emphasis ours)
Petitioner urges that awardee Luisa Gomez did not commit any violation of the lot
award. On the contrary, the records would indubitably show that Luisa Gomez,
including her heirs and successors-in-interest, have performed acts that
constitute gross, if not brazen, violation of the aforementioned terms and
conditions of the award, as evidenced by the investigation report submitted by Pfc.
Cristobal, dated 19 December 1984.

Kanino?
Mrs. Lorghas:
Kay Vicente Gomez.
Atty. Bernardo:
Meron bang resibo?

Results of the investigation conducted on 23 November 1984, reveal that the lot
was actually occupied and leased by a certain Erlinda Perez and Mignony
Lorghas, together with their respective families, who were paying rentals to
petitioner Vicente Gomez for the lease of the subject premises.

Mrs. Lorghas:
Wala po.

Moreover, in a conference held on 13 January 1989 at the Office of the Acting

Urban Settlement Officer, Lorghas admitted that she has been leasing the
property and paying rent to petitioner Vicente Gomez, thus:27

Atty. Bernardo:

"Atty. Bernardo:

Mrs. Lorghas:

Noong 1973, kayo na rin ang nakatira sa lugar ni Gomez.

Opo."
Certainly, said acts constitute a brazen transgression of Resolution 16-A and clear
contravention of the Contract to Sell, specifically par. (3), (8) and (9) thereof.
The contract provides in no uncertain terms, that the abovementioned terms and
conditions shall bind the heirs, executors and administrators of the vendee. The
contract further states that breach thereof would result to the automatic
cancellation of the vendee's rights thereunder.
Thus, par.(10) (b) (a) of the Contract to Sell, which reads:
". . . any violation of the terms and conditions of this agreement shall
automatically cause the cancellation of the vendee's rights under this agreement
without necessity of prior notice or judicial declaration . . ."
Such kind of stipulation was upheld by this Court in the Adelfa case where we
categorically declared that Article 1592 of the Civil Code, which requires
rescission either by judicial action, or notarial act, does not apply to a contract to
sell.28
Moreover, judicial action for rescission of a contract is not necessary where the
contract provides for automatic rescission in case of breach,29 as in the contract
involved in the present controversy.
Likewise, this Court sustains the forfeiture of the payments made by awardee as
reasonable compensation for the use of the lot. At this juncture, par. (1) of the
Contract to Sell furnishes support to this conclusion:
". . . In case of the cancellation of the vendee's rights under this agreement as
hereinafter stipulated, all payments made by him/her shall be forfeited and
considered as rentals for the use of the lot . . . "
Further, Article 1486 of the Civil Code provides that a stipulation that the
installments or rents paid shall not be returned to the vendee or lessee shall be
valid insofar as the same may not be unconscionable under the circumstances.30

Applying the foregoing, we are of the considered view that the payment of the
purchase price of P3,556.00, constitutes fair and reasonable rental for the period
in which said property was under the control of awardee Luisa Gomez, her heirs
and successors-in-interest. Undeniably, the awardee together with her heirs and
successors-in-interest, have gained benefits, financial or otherwise, for a period of
eight years from the time of actual award of the lot to the time of cancellation
thereof (1978-1986).
Nonetheless, we ought to stress that in the present case, forfeiture of the
installments paid as rentals, only applies to the purchase price of P3,556.00 and
not to the overpayment of the amount of P8,244.00.
Under these circumstances, the vendor should refund the amount of P8,244.00
representing the overpayment made, plus interest, to be computed in accordance
with the "rule of thumb" enunciated in the landmark case of Eastern Shipping
Lines, Inc. vs. Court of Appeals 31 and reiterated in the case of Philippine
National Bank vs. Court of Appeals.32
For us to uphold the forfeiture of the amount representing the overpayment would
be to revolt against the dictates of justice and fairness. A contrary ruling would
unjustly enrich the vendor to the prejudice of the vendee.
In the same vein, the provisions of Article 777 of the Civil Code notwithstanding,
we hold that the surviving children of awardee Luisa Gomez are not qualified
transferees of Lot 4, Block 1 for failure to conform with the prerequisites set by
Resolution 16-A, to wit, Filipino citizenship and actual occupancy, which in the
present case, are basic criteria for the award of the lot, pursuant to the "Land for
the Landless Program" of the City of Manila.
The records reveal that the children of Luisa Gomez are American citizens and
permanent residents of the United States of America. Notably, Resolution 16-A
specifically enumerates Filipino citizenship and actual occupancy of the lot for
residential purposes, as qualifications for entitlement to the lot award. For this
court to consider said surviving children as qualified awardee-transferees would
render illusory the purposes for which Resolution 16-A and the "Land for the
Landless Program" of the City of Manila were adopted.

Even assuming arguendo that the surviving children of Luisa Gomez are entitled
to the lot by virtue of Article 777 of the Civil Code, said heirs nevertheless
abandoned their right when they violated the terms and conditions of the award
by donating the subject property to petitioner Vicente Gomez.
As paragraph (15) of the agreement provides that the heirs of the vendee shall be
bound thereby, it is then incumbent upon said heirs to render strict compliance
with the provisions thereof.
In particular, paragraph (8) of the Contract proscribes the sale, transfer,
mortgage, lease, alienation or encumbrance of the lot, residential house, or
improvement thereon, without the written consent of the City Mayor, within a
period of twenty (20) years from complete payment of the purchase price and
execution of the final deed of sale. The execution of the Deed of Donation by the
surviving children of Luisa Gomez on February 1, 1989, in favor of Vicente Gomez,
was clearly within the prohibited period of 20 years from the full payment of the
purchase price on January 18, 1980.
Without doubt, the prohibition applies to them.
Furthermore, the subject lot and residential house were occupied by, and leased
to, third persons, in crystalline and evident derogation of the terms of the award.
WHEREFORE, premises considered, the instant petition is DISMISSED for lack of
merit, and the assailed decision of the Court of Appeals with respect to the
cancellation of the award of Lot 4, Block 1, is AFFIRMED SUBJECT TO
MODIFICATION as to the forfeiture of amounts paid by the vendee.
As modified, the City of Manila, is hereby ordered to refund with dispatch the
amount of P8,244.00 representing the overpayment made by petitioner plus
interest.
SO ORDERED.
Bellosillo, Mendoza, Quisumbing and De Leon, Jr., JJ ., concur.

[G.R. No. 115307. July 8, 1997]

MANUEL LAO, petitioner, vs. COURT OF APPEALS and BETTER HOMES
REALTY & HOUSING CORPORATION, respondents.
DECISION
PANGANIBAN, J.:
As a general rule, the main issue in an ejectment suit is possession de facto, not
possession de jure. In the event the issue of ownership is raised in the pleadings,
such issue shall be taken up only for the limited purpose of determining who
between the contending parties has the better right to possession. However, where
neither of the parties objects to the allegation of the question of ownership -which may be initially improvident or improper -- in an ejectment suit and,
instead, both present evidence thereon, argue the question in their various
submissions and participate in all aspects of the trial without objecting to the
Metropolitan (or Municipal) Trial Courts jurisdiction to decide the question of
ownership, the Regional Trial Court -- in the exercise of its original jurisdiction as
authorized by Section 11, Rule 40 of the Rules of Court -- may rule on the issue
and the corollary question of whether the subject deed is one of sale or of
equitable mortgage.
These postulates are discussed by the Court as it resolves this petition under Rule
45 seeking a reversal of the December 21, 1993 Decision[1] and April 28, 1994
Resolution[2] of the Court of Appeals in CA-G.R. SP No. 92-14293.
The Antecedent Facts
The facts of this case are narrated by Respondent Court of Appeals as follows:[3]
On June 24, 1992, (herein Private Respondent Better Homes Realty and Housing
Corporation) filed with the Metropolitan Trial Court of Quezon City, a complaint
for unlawful detainer, on the ground that (said private respondent) is the owner of
the premises situated at Unit I, No. 21 N. Domingo Street, Quezon City, evidenced
by Transfer Certificate of Title No. 22184 of the Registry of Deeds of Quezon City;
that (herein Petitioner Manuel Lao) occupied the property without rent, but on
(private respondents) pure liberality with the understanding that he would vacate

the property upon demand, but despite demand to vacate made by letter received
by (herein petitioner) on February 5, 1992, the (herein petitioner) refused to vacate
the premises.
In his answer to the complaint, (herein petitioner) claimed that he is the true
owner of the house and lot located at Unit I, No. 21 N. Domingo Street, Quezon
City; that the (herein private respondent) purchased the same from N. Domingo
Realty and Development Corporation but the agreement was actually a loan
secured by mortgage; and that plaintiffs cause of action is for accion publiciana,
outside the jurisdiction of an inferior court.
On October 9, 1992, the Metropolitan Trial Court of Quezon City rendered
judgment ordering the (petitioner) to vacate the premises located at Unit I, No. 21
N. Domingo Street, Quezon City; to pay (private respondent) the sum of P300.00 a
day starting on January 31, 1992, as reasonable rent for the use and occupation
of the premises; to pay plaintiff P5,000.00, as attorneys fees, and costs.
On appeal to the Regional Trial Court of Quezon City,[4] on March 30, 1993, the
latter court rendered a decision reversing that of the Metropolitan Trial Court, and
ordering the dismissal of the (private respondents) complaint for lack of merit,
with costs taxed against (private respondent).
In its decision, the Regional Trial Court held that the subject property was
acquired by (private respondent) from N. Domingo Realty and Development
Corporation, by a deed of sale, and (private respondent) is now the registered
owner under Transfer Certificate of Title No. 316634 of the Registry of Deeds of
Quezon City, but in truth the (petitioner) is the beneficial owner of the property
because the real transaction over the subject property was not a sale but a loan
secured by a mortgage thereon.
The dispositive portion of the Regional Trial Courts decision is quoted below:[5]
WHEREFORE, judgment is hereby rendered reversing the appealed decision and
ordering the dismissal of plaintiffs complaint for lack of merit, with the costs
taxed against it.
IT IS SO ORDERED.

On April 28, 1993, private respondent filed an appeal with the Court of Appeals
which reversed the decision of the Regional Trial Court. The Respondent Court
ruled:
The Metropolitan Trial Court has no jurisdiction to resolve the issue of ownership
in an action for unlawful detainer (B.P. 129, Sec. 33 [2]; Cf. Alvir vs. Vera, 130
SCRA 357). The jurisdiction of a court is determined by the nature of the action
alleged in the complaint (Ching vs. Malaya, 153 SCRA 412). In its complaint in the
inferior court, the plaintiff alleged that it is the owner of the premises located at
Unit I, No. 21 N. Domingo Street, Quezon City, and that defendants occupation is
rent free and based on plaintiffs pure liberality coupled with defendants
undertaking to vacate the premises upon demand, but despite demands,
defendant has refused to vacate. The foregoing allegations suffice to constitute a
cause of action for ejectment (Banco de Oro vs. Court of Appeals, 182 SCRA 464).
The Metropolitan Trial Court is not ousted of jurisdiction simply because the
defendant raised the question of ownership (Bolus vs. Court of Appeals, 218 SCRA
798). The inferior court shall resolve the issue of ownership only to determine who
is entitled to the possession of the premises (B.P. 129, Sec. 33[2]; Bolus vs. Court
of Appeals, supra).
Here, the Metropolitan Trial Court ruled that as owner, plaintiff (herein private
respondent Better Homes Realty and Housing Corporation) is entitled to the
possession of the premises because the defendants stay is by mere tolerance of
the plaintiff (herein private respondent).
On the other hand, the Regional Trial Court ruled that the subject property is
owned by the defendant, (herein petitioner Manuel Lao) and, consequently,
dismissed the complaint for unlawful detainer. Thus, the Regional Trial Court
resolved the issue of ownership, as if the case were originally before it as an action
for recovery of possession, or accion publiciana, within its original jurisdiction. In
an appeal from a decision of the Municipal Trial Court, or Metropolitan Trial
Court, in an unlawful detainer case, the Regional Trial Court is simply to
determine whether the inferior court correctly resolved the issue of possession; it
shall not delve into the issue of ownership (Manuel vs. Court of Appeals, 199
SCRA 603). What the Regional Trial Court did was to rule that the real agreement

between the plaintiff and the previous owner of the property was not a sale, but
an equitable mortgage. Defendant was only a director of the seller corporation,
and his claim of ownership could not be true. This question could not be
determined summarily. It was not properly in issue before the inferior court
because, as aforesaid, the only issue was possession de facto (Manlapaz vs. Court
of Appeals, 191 SCRA 795), or who has a better right to physical possession
(Dalida vs. Court of Appeals, 117 SCRA 480). Consequently, the Regional Trial
Court erred in reversing the decision of the Metropolitan Trial Court.
WHEREFORE, the Court hereby REVERSES the decision of the Regional Trial
Court. In lieu thereof, We affirm the decision of the Metropolitan Trial Court of
Quezon City sentencing the defendant and all persons claiming right under him to
vacate the premises situated at Unit I, No. 21 N. Domingo Street, Quezon City, and
to surrender possession to the plaintiff; to pay plaintiff the sum of P300.00, a day
starting on January 31, 1992, until defendant shall have vacated the premises; to
pay plaintiff P5,000.00 as attorneys fees, and costs.
SO ORDERED.[6]
Manuel Laos motion for reconsideration dated January 24, 1994 was denied by
the Court of Appeals in its Resolution promulgated on April 28, 1994. Hence, this
petition for review before this Court.[7]
The Issues
Petitioner Manuel Lao raises three issues:
3.1 Whether or not the lower court can decide on the issue of ownership in the
present ejectment case
3.2 Whether or not private respondent had acquired ownership over the property
in question
3.3 Whether or not petitioner should be ejected from the premises in question[8]
The Courts Ruling

The petition for review is meritorious.

First Issue: Jurisdiction to Decide the Issue of Ownership
The Court of Appeals held that as a general rule, the issue in an ejectment suit is
possession de facto, not possession de jure, and that in the event the issue of
ownership is raised as a defense, the issue is taken up for the limited purpose of
determining who between the contending parties has the better right to
possession. Beyond this, the MTC acts in excess of its jurisdiction. However, we
hold that this is not a hard and fast rule that can be applied automatically to all
unlawful detainer cases.
Section 11, Rule 40 of the Rules of Court provides that [a] case tried by an inferior
court without jurisdiction over the subject matter shall be dismissed on appeal by
the Court of First Instance. But instead of dismissing the case, the Court of First
Instance, in the exercise of its original jurisdiction, may try the case on the merits
if the parties therein file their pleadings and go to the trial without any objection
to such jurisdiction. After a thorough review of the records of this case, the Court
finds that the respondent appellate court failed to apply this Rule and erroneously
reversed the RTC Decision.
Respondent Court cites Alvir vs. Vera to support its Decision. On the contrary, we
believe such case buttresses instead the Regional Trial Courts decision. The cited
case involves an unlawful detainer suit where the issue of possession was
inseparable from the issue of transfer of ownership, and the latter was
determinable only after an examination of a contract of sale involving the property
in question. The Court ruled that where a case was tried and heard by the lower
court in the exercise of its original jurisdiction by common assent of the parties by
virtue of the issues raised x x x and the proofs presented by them, any dismissal
on the ground of lack of jurisdiction would only lead to needless delays and
multiplicity of suits. The Court held:
In actions of forcible entry and detainer, the main issue is possession de facto,
independently of any claim of ownership or possession de jure that either party
may set forth in his pleading. x x x Defendants claim of ownership of the property
from which plaintiff seeks to eject him is not sufficient to divest the inferior court
of its jurisdiction over the action of forcible entry and detainer. However, if it

appears during the trial that the principal issue relates to the ownership of the
property in dispute and any question of possession which may be involved
necessarily depends upon the result of the inquiry into the title, previous rulings
of this Court are that the jurisdiction of the municipal or city court is lost and the
action should be dismissed.
We have at bar a case where, in effect, the question of physical possession could
not properly be determined without settling that of lawful or de jure possession
and of ownership and hence, following early doctrine, the jurisdiction of the
municipal court over the ejectment case was lost and the action should have been
dismissed. As a consequence, respondent court would have no jurisdiction over
the case on appeal and it should have dismissed the case on appeal from the
municipal trial court. However, in line with Section 11, Rule 40 of the Revised
Rules of Court, which reads -SEC. 11. Lack of Jurisdiction. -- A case tried by an inferior court without
jurisdiction over the subject matter shall be dismissed on appeal by the Court of
First Instance. But instead of dismissing the case, the Court of First Instance in
the exercise of its original jurisdiction, may try the case on the merits if the
parties therein file their pleadings and go to trial without objection to such
jurisdiction.
this Court held in Saliwan vs. Amores, 51 SCRA 329, 337, that dismissal on the
said ground of lack of appellate jurisdiction on the part of the lower court flowing
from the municipal courts loss of jurisdiction would lead only to needless delay
and multiplicity of suits in the attainment of the same result and ignores, as
above stated, that the case was tried and heard by the lower court in the exercise
of its original jurisdiction by common assent of the parties by virtue of the issues
raised by the parties and the proof presented by them thereon. [9]
This pronouncement was reiterated by this Court through Mr. Justice Teodoro R.
Padilla in Consignado vs. Court of Appeals[10] as follows:
As the MTC of Laguna had no jurisdiction over the unlawful detainer case in view
of the raised question of title or ownership over the property in dispute, the RTC
of Laguna also had no appellate jurisdiction to decide the case on the merits. It
should have dismissed the appeal. However, it had original jurisdiction to pass

upon the controversy. It is to be noted, in this connection, that in their respective

memoranda filed with the RTC of Laguna, the petitioners and private respondents
did not object to the said court exercising its original jurisdiction pursuant to the
aforequoted provisions of Section 11, Rule 40 of the Rules of Court.
xxxxxxxxx
Petitioners now contend, among others, that the Court of Appeals erred in
resolving the question of ownership as if actual title, not mere possession of
subject premises, is involved in the instant case.
The petitioners contention is untenable. Since the MTC and RTC of Laguna
decided the question of ownership over the property in dispute, on appeal the
Court of Appeals had to review and resolve also the issue of ownership. x x x
It is clear, therefore, that although an action for unlawful detainer is inadequate
for the ventilation of issues involving title or ownership of controverted real
property, [i]t is more in keeping with procedural due process that where issues of
title or ownership are raised in the summary proceedings for unlawful detainer,
said proceeding should be dismissed for lack of jurisdiction, unless, in the case of
an appeal from the inferior court to the Court of First Instance, the parties agree
to the latter Court hearing the case in its original jurisdiction in accordance with
Section 11, Rule 40 x x x.[11]
In the case at bar, a determination of the issue of ownership is indispensable to
resolving the rights of both parties over the property in controversy, and is
inseparable from a determination of who between them has the right to possess
the same. Indeed, the very complaint for unlawful detainer filed in the
Metropolitan Trial Court of Quezon City is anchored on the alleged ownership of
private respondent over the subject premises.[12] The parties did not object to the
incongruity of a question of ownership being brought in an ejectment suit. Instead
they both submitted evidence on such question, and the Metropolitan Trial Court
decided on the issue. These facts are evident in the Metropolitan Trial Courts
decision:
From the records of the case, the evidence presented and the various arguments
advanced by the parties, the Court finds that the property subject matter of this

case is in the name of (herein private respondent) Better Homes and Realty
Housing Corporation; that the Deed of Absolute Sale which was the basis for the
issuance of said TCT No. 22184 is between N. Domingo Realty and Development
Corporation and Better Homes Realty and Housing Corporation which was signed
by Artemio S. Lao representing the seller N. Domingo and Realty Development
Corporation; that a Board Resolution of N. Domingo and Realty and Development
Corporation (Exhibit D position paper) shows that the Directors of the Board of
the N. Domingo Realty and Development Corporation passed a resolution selling
apartment units I and F located at No. 21 N. Domingo St., Quezon City and
designating the (herein petitioner) with his brother Artemio S. Lao as signatories
to the Deed of Sale. The claim therefore of the (herein petitioner) that he owns the
property is not true. x x x[13]
When the MTC decision was appealed to the Regional Trial Court, not one of the
parties questioned the Metropolitan Trial Courts jurisdiction to decide the issue of
ownership. In fact, the records show that both petitioner and private respondent
discussed the issue in their respective pleadings before the Regional Trial Court.
[14] They participated in all aspects of the trial without objection to its
jurisdiction to decide the issue of ownership. Consequently, the Regional Trial
Court aptly decided the issue based on the exercise of its original jurisdiction as
authorized by Section 11, Rule 40 of the Rules of Court.
This Court further notes that in both of the contending parties pleadings filed on
appeal before the Court of Appeals, the issue of ownership was likewise amply
discussed.[15] The totality of evidence presented was sufficient to decide
categorically the issue of ownership.
These considerations, taken together with the fact that both the Metropolitan Trial
Court and the Regional Trial Court decided the issue of ownership, justify the
review of the lower courts findings of fact and decision on the issue of ownership.
This we now do, as we dispose of the second issue and decide the case with
finality to spare the parties the time, trouble and expense of undergoing the rigors
of another suit where they will have to present the same evidence all over again
and where, in all probability, the same ultimate issue of ownership will be brought
up on appeal.
Second Issue: Absolute Sale or Equitable Mortgage?

informal conveyance that could be devised.[17]

Private Respondent Better Homes Realty and Housing Corporation anchored its
right in the ejectment suit on a contract of sale in which petitioner (through their
family corporation) transferred the title of the property in question. Petitioner
contends, however, that their transaction was not an absolute sale, but an
equitable mortgage.
In determining the nature of a contract, the Court looks at the intent of the
parties and not at the nomenclature used to describe it. Pivotal to deciding this
issue is the true aim and purpose of the contracting parties as shown by the
terminology used in the covenant, as well as by their conduct, words, actions and
deeds prior to, during and immediately after executing the agreement.[16] In this
regard, parol evidence becomes admissible to prove the true intent and agreement
of the parties which the Court will enforce even if the title of the property in
question has already been registered and a new transfer certificate of title issued
in the name of the transferee. In Macapinlac vs. Gutierrez Repide, which involved
an identical question, the Court succintly stated:
x x x This conclusion is fully supported by the decision in Cuyugan vs. Santos (34
Phil., 100), where this court held that a conveyance in the form of a contract of
sale with pacto de retro will be treated as a mere mortgage, if really executed as
security for a debt, and that this fact can be shown by oral evidence apart from
the instrument of conveyance, a doctrine which has been followed in the later
cases of Villa vs. Santiago (38 Phil., 157), and Cuyugan vs. Santos (39 Phil., 970).

The law enumerates when a contract may be presumed to be an equitable

mortgage:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
x x x x x x x x x[18]
The foregoing presumption applies also to a contract purporting to be an absolute
sale.[19]

xxxxxxxxx
In the first place, it must be borne in mind that the equitable doctrine which has
been so fully stated above, to the effect that any conveyance intended as security
for a debt will be held in effect to be a mortgage, whether so actually expressed in
the instrument or not, operates regardless of the form of the agreement chosen by
the contracting parties as the repository of their will. Equity looks through the
form and considers the substance; and no kind of engagement can be adopted
which will enable the parties to escape from the equitable doctrine to which
reference is made. In other words, a conveyance of land, accompanied by
registration in the name of the transferee and the issuance of a new certificate, is
no more secured from the operation of this equitable doctrine than the most

Applying the preceding principles to the factual milieu of this case, we find the
agreement between the private respondent and N. Domingo Realty & Housing
Corporation, as represented by petitioner, manifestly one of equitable mortgage.
First, possession of the property in the controversy remained with Petitioner
Manuel Lao who was the beneficial owner of the property, before, during and after
the alleged sale.[20] It is settled that a pacto de retro sale should be treated as a
mortgage where the (property) sold never left the possession of the vendors.[21]
Second, the option given to Manuel Lao to purchase the property in controversy
had been extended twice[22] through documents executed by Mr. Tan Bun Uy,
President and Chairman of the Board of Better Homes Realty & Housing
Corporation. The wording of the first extension is a refreshing revelation that

indeed the parties really intended to be bound by a loan with mortgage, not by a
pacto de retro. It reads, On June 10, 88, this option is extended for another sixty
days to expired (sic) on Aug. 11, 1988. The purchase price is increased to
P137,000.00. Since Mr. Lao borrow (sic) P20,000.00 from me.[23] These
extensions clearly represent the extension of time to pay the loan given to Manuel
Lao upon his failure to pay said loan on its maturity. Mr. Lao was even granted an
additional loan of P20,000.00 as evidenced by the above-quoted document. Third,
unquestionably, Manuel Lao and his brother were in such dire need of money that
they mortgaged their townhouse units registered under the name of N. Domingo
Realty Corporation, the family corporation put up by their parents, to Private
Respondent Better Homes Realty & Housing Corporation. In retrospect, it is easy
to blame Petitioner Manuel Lao for not demanding a reformation of the contract to
reflect the true intent of the parties. But this seeming inaction is sufficiently
explained by the Lao brothers desperate need for money, compelling them to sign
the document purporting to be a sale after they were told that the same was just
for formality.[24] In fact, this Court, in various cases involving the same situation,
had occasion to state:
x x x In Jayme, et al. v. Salvador, et al., this Court upheld a judgment of the Court
of First Instance of Iloilo which found the transaction between the parties to be a
loan instead of a sale of real property notwithstanding the terminology used in the
document, after taking into account the surrounding circumstances of the
transaction. The Court through Justice Norberto Romualdez stated that while it
was true that plaintiffs were aware of the contents of the contracts, the
preponderance of the evidence showed however that they signed knowing that
said contracts did not express their real intention, and if they did so
notwithstanding this, it was due to the urgent necessity of obtaining funds.
Necessitous men are not, truly speaking, free men; but to answer a present
emergency, will submit to any terms that the crafty may impose upon them.[25]
Moreover, since the borrowers urgent need for money places the latter at a
disadvantage vis-a-vis the lender who can thus dictate the terms of their contract,
the Court, in case of an ambiguity, deems the contract to be one which involves
the lesser transmission of rights and interest over the property in controversy.[26]

The evidence of record indicates that while as of April 4, 1988 (the date of
execution of the Deed of Absolute Sale whereby the N. Domingo and Realty &
Development Corporation purportedly sold the townhouse and lot subject of this
suit to [herein private respondent Better Homes Realty & Housing Corporation] for
P100,000.00) said N. Domingo Realty & Development Corporation (NDRDC, for
short) was the registered owner of the subject property under Transfer Certificate
of Title (TCT) No. 316634 of the Registry of Deeds for Quezon City, (herein
petitioner Manuel Lao) in fact was and has been since 1975 the beneficial owner
of the subject property and, thus, the same was assigned to him by the NDRDC,
the family corporation set up by his parents and of which (herein petitioner) and
his siblings are directors. That the parties real transaction or contract over the
subject property was not one of sale but, rather, one of loan secured by a
mortgage thereon is unavoidably inferrable from the following facts of record, to
(herein petitioners) possession of the subject property, which started in 1975 yet,
continued and remained even after the alleged sale of April 4, 1988; (herein
private respondent) executed an option to purchase in favor (herein petitioner) as
early as April 2, 1988 or two days before (herein private respondent) supposedly
acquired ownership of the property; the said option was renewed several times
and the price was increased with each renewal (thus, the original period for the
exercise of the option was up to June 11, 1988 and the price was P109,000.00;
then, on June 10, 1988, the option was extended for 60 days or until August 11,
1988 and the price was increased to P137,000.00; and then on August 11, 1988,
the option was again extended until November 11, 1988 and the price was
increased to P158, 840.00); and, the Deed of Absolute Sale of April 4, 1988 was
registered and the property transferred in the name of (private respondent) only
on May 10, 1989, per TCT No. 22184 of the Registry of Deeds for Quezon City
(Arts. 1602, nos. 2, 3, & 6, & 1604, Civil Code). Indeed, if it were true, as it would
have the Court believe, that (private respondent) was so appreciative of
(petitioners) alleged facilitation of the subject propertys sale to it, it is quite
strange why (private respondent) some two days before such supposed sale would
have been minded and inclined to execute an option to purchase allowing
(petitioner) to acquire the property -- the very same property it was still hoping to
acquire at the time. Certainly, what is more likely and thus credible is that, if
(private respondent) was indeed thankful that it was able to purchase the
property, it would not given (petitioner) any option to purchase at all x x x.[27]

As aptly found and concluded by the regional trial court:

Based on the conduct of the petitioner and private respondent and even the

terminology of the second option to purchase, we rule that the intent and
agreement between them was undoubtedly one of equitable mortgage and not of
sale.
Third Issue: Should Petitioner Be Ejected?
We answer in the negative. An action for unlawful detainer is grounded on Section
1, Rule 70 of the Rules of Court which provides that:
x x x a landlord, vendor, vendee, or other person against whom the possession of
any land or building is unlawfully withheld after the expiration or termination of
the right to hold possession, by virtue of any contract, express or implied, or the
legal representatives or assigns of any such landlord, vendor, vendee, or other
person, may, at any time within one (1) year after such unlawful deprivation or
withholding of possession, bring an action in the proper inferior court against the
person or persons unlawfully withholding or depriving of possession, or any
person or persons claiming under them, for the restitution of such possession,
together with damages and costs. x x x.
Based on the previous discussion, there was no sale of the disputed property.
Hence, it still belongs to petitioners family corporation, N. Domingo Realty &
Development Corporation. Private respondent, being a mere mortgagee, has no
right to eject petitioner. Private respondent, as a creditor and mortgagee, x x x
cannot appropriate the things given by way of pledge or mortgage, or dispose of
them. Any stipulation to the contrary is null and void.[28]
Other Matters
Private respondent in his memorandum also contends that (1) petitioner is not the
real party in interest and (2) the petition should be dismissed for raising/stating
facts not so found by the Court of Appeals. These deserve scant consideration.
Petitioner was impleaded as party defendant in the ejectment suit by private
respondent itself. Thus, private respondent cannot question his standing as a
party. As such party, petitioner should be allowed to raise defenses which negate
private respondents right to the property in question. The second point is really
academic. This ponencia relies on the factual narration of the Court of Appeals
and not on the facts supplied by petitioner.

WHEREFORE, the petition is hereby GRANTED. The challenged Decision of the

Court of Appeals is REVERSED and SET ASIDE. The decision of the Regional Trial
Court of Quezon City ordering the dismissal of the complaint for ejectment is
REINSTATED and AFFIRMED. No pronouncement as to costs.
SO ORDERED