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Case List for Sales

Atty. Arcamo
Table of Contents
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Fule v. CA, G.R. No. 112212 ------------------------------------------------------------------- Page 2

Gaite v. Fonacier, G.R. No. L-11827--------------------------------------------------------- Page 13
Polytechnic University v. CA, G.R. No. 143513-------------------------------------------- Page 20
Carrascos, Jr. v. CA, G.R. No. 123672------------------------------------------------------ Page 28
Vda. De Ape v. CA, G.R. No. 133638---------------------------------------------------------Page 50
Clarin v. Rulona, G.R. No. L-30786----------------------------------------------------------- Page 62
Province of Cebu v. Heirs of Rufina Morales, G.R. No. 170---------------------------- Page 67
Hyatt Elevators and Escalators Corp. v. Cathedral Heights Building Complex
Association, G.R. No. 173881 ----------------------------------------------------------------- Page 73
9. Doles vs. Angeles, G.R. No. 149353--------------------------------------------------------- Page 83
10. Montecillo vs. Reynes, G.R. No.138018---------------------------------------------------- Page 94
11. San Miguel Properties Philippines Inc. vs. Huang, G.R. No.137290--------------- Page 102
12. Navarro vs. Sugar Producers Cooperative Marketing Association, G.R. No. L12888------------------------------------------------------------------------------------------------------------Page 107
13. Dizon vs. CA, G.R. No. 122544-------------------------------------------------------------- Page 113
14. Alcantara-Daus vs. De Leon, G.R. No. 149750------------------------------------------ Page 120
15. Equatorial Realty Development Inc. vs. Mayfair Theater, G.R. No. 106063------ Page 125
16. Swedish Match et al vs. CA, G.R. No. 128120------------------------------------------- Page 144
17. Bugatti vs. CA, G.R. No.138113------------------------------------------------------------- Page 154
18. Spouses Serrano vs. Cagulat, G.R. No. 139173---------------------------------------- Page 169
19. Ang Yu vs. Asuncion, G.R. No. 109125---------------------------------------------------- Page 174
20. Lim vs. San and Lo, G.R. No.159723------------------------------------------------------- Page 182
21. Zamora Realty and Development Corp. vs. Office of the President, G.R. No.
165724------------------------------------------------------------------------------------------------------------- Page 187

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Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 112212 March 2, 1998

GREGORIO FULE, petitioner,
vs.
COURT OF APPEALS, NINEVETCH CRUZ and JUAN BELARMINO, respondents.

ROMERO, J.:
This petition for review on certiorari questions the affirmance by the Court of Appeals of the
decision 1 of the Regional Trial Court of San Pablo City, Branch 30, dismissing the complaint
that prayed for the nullification of a contract of sale of a 10-hectare property in Tanay, Rizal in
consideration of the amount of P40,000.00 and a 2.5 carat emerald-cut diamond (Civil Case No.
SP-2455). The lower court's decision disposed of the case as follows:
WHEREFORE, premises considered, the Court hereby renders judgment
dismissing the complaint for lack of merit and ordering plaintiff to pay:
1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as and for moral
damages and the sum of P100,000.00 as and for exemplary damages;
2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as and for moral
damages and the sum of P150,000.00 as and for exemplary damages;
3. Defendant Dra. Cruz and Atty. Belarmino the sum of P25,000.00 each as and
for attorney's fees and litigation expenses; and
4. The costs of suit.
SO ORDERED.
As found by the Court of Appeals and the lower court, the antecedent facts of this case are as
follows:
Petitioner Gregorio Fule, a banker by profession and a jeweler at the same time, acquired a 10hectare property in Tanay, Rizal (hereinafter "Tanay property"), covered by Transfer Certificate
of Title No. 320725 which used to be under the name of Fr. Antonio Jacobe. The latter had
mortgaged it earlier to the Rural Bank of Alaminos (the Bank), Laguna, Inc. to secure a loan in
the amount of P10,000.00, but the mortgage was later foreclosed and the property offered for
public auction upon his default.

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In July 1984, petitioner, as corporate secretary of the bank, asked Remelia Dichoso and Oliva
Mendoza to look for a buyer who might be interested in the Tanay property. The two found one
in the person of herein private respondent Dr. Ninevetch Cruz. It so happened that at the time,
petitioner had shown interest in buying a pair of emerald-cut diamond earrings owned by Dr.
Cruz which he had seen in January of the same year when his mother examined and appraised
them as genuine. Dr. Cruz, however, declined petitioner's offer to buy the jewelry for
P100,000.00. Petitioner then made another bid to buy them for US$6,000.00 at the exchange
rate of $1.00 to P25.00. At this point, petitioner inspected said jewelry at the lobby of the
Prudential Bank branch in San Pablo City and then made a sketch thereof. Having sketched the
jewelry for twenty to thirty minutes, petitioner gave them back to Dr. Cruz who again refused to
sell them since the exchange rate of the peso at the time appreciated to P19.00 to a dollar.
Subsequently, however, negotiations for the barter of the jewelry and the Tanay property
ensued. Dr. Cruz requested herein private respondent Atty. Juan Belarmino to check the
property who, in turn, found out that no sale or barter was feasible because the one-year period
for redemption of the said property had not yet expired at the time.
In an effort to cut through any legal impediment, petitioner executed on October 19, 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 petitioner 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, petitioner went to
Prudential Bank once again to take a look at the jewelry.
In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at the latter's residence to
prepare the documents of sale.2 Dr. Cruz herself was not around but Atty. Belarmino was aware
that she and petitioner had previously agreed to exchange a pair of emerald-cut diamond
earrings for the Tanay property. Atty. Belarmino accordingly caused the preparation of a deed of
absolute sale while petitioner and Dr. Cruz attended to the safekeeping of the jewelry.
The following day, petitioner, together with Dichoso and Mendoza, arrived at the residence of
Atty. Belarmino to finally execute a deed of absolute sale. Petitioner 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. Petitioner also 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 between the actual contract price and the one indicated on the deed
of absolute sale was purportedly aimed at minimizing the amount of the capital gains tax that
petitioner 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.
As pre-arranged, petitioner left Atty. Belarmino's residence with Dichoso and Mendoza and
headed for the bank, arriving there at past 5:00 p.m. Dr. Cruz also arrived shortly thereafter, but
the cashier who kept the other key to the deposit box had already left the bank. Dr. Cruz and
Dichoso, therefore, looked for said cashier and found him having a haircut. As soon as his
haircut was finished, the cashier returned to the bank and arrived there at 5:48 p.m., ahead of
Dr. Cruz and Dichoso who arrived at 5:55 p.m. Dr. Cruz and the cashier then opened the safety
deposit box, the former retrieving a transparent plastic or cellophane bag with the jewelry inside
and handing over the same to petitioner. The latter took the jewelry from the bag, went near the
electric light at the bank's lobby, held the jewelry against the light and examined it for ten to

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fifteen minutes. After a while, Dr. Cruz asked, "Okay na ba iyan?" Petitioner expressed his
satisfaction by nodding his head.
For services rendered, petitioner 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, at about 8:00 o'clock in the evening of the same day, petitioner arrived at the residence of
Atty. Belarmino complaining that the jewelry given to him was fake. He then used a tester to
prove the alleged fakery. Meanwhile, at 8:30 p.m., Dichoso and Mendoza went to the residence
of Dr. Cruz to borrow her car so that, with Atty. Belarmino, they could register the Tanay
property. After Dr. Cruz had agreed to lend her car, Dichoso called up Atty. Belarmino. The latter,
however, instructed Dichoso to proceed immediately to his residence because petitioner was
there. Believing that petitioner had finally agreed to give them half of the pair of earrings,
Dichoso went posthaste to the residence of Atty. Belarmino only to find petitioner already
demonstrating with a tester that the earrings were fake. Petitioner then accused Dichoso and
Mendoza of deceiving him which they, however, denied. They countered that petitioner could not
have been fooled because he had vast experience regarding jewelry. Petitioner 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., petitioner 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, petitioner reported the matter to the police station where Dichoso and
Mendoza likewise executed sworn statements.
On October 26, 1984, petitioner filed a complaint before the Regional Trial Court of 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 October 30, 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 November 20, 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 March 7, 1989. Confronting the issue of
whether or not the genuine pair of earrings used as consideration for the sale was delivered by
Dr. Cruz to petitioner, the lower court said:
The Court finds that the answer is definitely in the affirmative. Indeed, Dra. Cruz
delivered (the) subject jewelries (sic) into the hands of plaintiff who even raised
the same nearer to the lights of the lobby of the bank near the door. When asked
by Dra. Cruz if everything was in order, plaintiff even nodded his satisfaction
(Hearing of Feb. 24, 1988). At that instance, plaintiff did not protest, complain or
beg for additional time to examine further the jewelries (sic). Being a professional
banker and engaged in the jewelry business plaintiff is conversant and
competent to detect a fake diamond from the real thing. Plaintiff was accorded
the reasonable time and opportunity to ascertain and inspect the jewelries (sic) in
accordance with Article 1584 of the Civil Code. Plaintiff took delivery of the

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subject jewelries (sic) before 6:00 p.m. of October 24, 1984. When he went at
8:00 p.m. that same day to the residence of Atty. Belarmino already with a tester
complaining about some fake jewelries (sic), there was already undue delay
because of the lapse of a considerable length of time since he got hold of subject
jewelries (sic). The lapse of two (2) hours more or less before plaintiff complained
is considered by the Court as unreasonable delay.3
The lower court further ruled that all the elements of a valid contract under Article 1458 of the
Civil Code were present, namely: (a) consent or meeting of the minds; (b) determinate subject
matter, and (c) price certain in money or its equivalent. The same elements, according to the
lower court, were present despite the fact that the agreement between petitioner and Dr. Cruz
was principally a barter contract. The lower court explained thus:
. . . . Plaintiff's ownership over the Tanay property passed unto Dra. Cruz upon
the constructive delivery thereof by virtue of the Deed of Absolute Sale (Exh. D).
On the other hand, the ownership of Dra. Cruz over the subject jewelries (sic)
transferred to the plaintiff upon her actual personal delivery to him at the lobby of
the Prudential Bank. It is expressly provided by law that the thing sold shall be
understood as delivered, when it is placed in the control and possession of the
vendee (Art. 1497, Civil Code; Kuenzle & Straff vs. Watson & Co. 13 Phil. 26).
The ownership and/or title over the jewelries (sic) was transmitted immediately
before 6:00 p.m. of October 24, 1984. Plaintiff signified his approval by nodding
his head. Delivery or tradition, is one of the modes of acquiring ownership (Art.
712, Civil Code).
Similarly, when Exhibit D was executed, it was equivalent to the delivery of the
Tanay property in favor of Dra. Cruz. The execution of the public instrument (Exh.
D) operates as a formal or symbolic delivery of the Tanay property and
authorizes the buyer, Dra. Cruz to use the document as proof of ownership
(Florendo v. Foz, 20 Phil. 399). More so, since Exhibit D does not contain any
proviso or stipulation to the effect that title to the property is reserved with the
vendor until full payment of the purchase price, nor is there a stipulation giving
the vendor the right to unilaterally rescind the contract the moment the vendee
fails to pay within a fixed period (Taguba v. Vda. De Leon, 132 SCRA 722; Luzon
Brokerage Co. Inc. vs. Maritime Building Co. Inc. 86 SCRA 305; Froilan v. Pan
Oriental Shipping Co. et al. 12 SCRA 276). 4
Aside from concluding that the contract of barter or sale had in fact been consummated when
petitioner and Dr. Cruz parted ways at the bank, the trial court likewise dwelt on the unexplained
delay with which petitioner complained about the alleged fakery. Thus:
. . . . Verily, plaintiff is already estopped to come back after the lapse of
considerable length of time to claim that what he got was fake. He is a Business
Management graduate of La Salle University, Class 1978-79, a professional
banker as well as a jeweler in his own right. Two hours is more than enough time
to make a switch of a Russian diamond with the real diamond. It must be
remembered that in July 1984 plaintiff made a sketch of the subject jewelries
(sic) at the Prudential Bank. Plaintiff had a tester at 8:00 p.m. at the residence of
Atty. Belarmino. Why then did he not bring it out when he was examining the
subject jewelries (sic) at about 6:00 p.m. in the bank's lobby? Obviously, he had

6
no need for it after being satisfied of the genuineness of the subject jewelries
(sic). When Dra. Cruz and plaintiff left the bank both of them had fully performed
their respective prestations. Once a contract is shown to have been
consummated or fully performed by the parties thereto, its existence and binding
effect can no longer be disputed. It is irrelevant and immaterial to dispute the due
execution of a contract if both of them have in fact performed their obligations
thereunder and their respective signatures and those of their witnesses appear
upon the face of the document (Weldon Construction v. CA G.R. No. L-35721,
Oct. 12, 1987).5
Finally, in awarding damages to the defendants, the lower court remarked:
The Court finds that plaintiff acted in wanton bad faith. Exhibit 2-Belarmino
purports to show that the Tanay property is worth P25,000.00. However, also on
that same day it was executed, the property's worth was magnified at P75,000.00
(Exh. 3-Belarmino). How could in less than a day (Oct. 19, 1984) the value would
(sic) triple under normal circumstances? Plaintiff, with the assistance of his
agents, was able to exchange the Tanay property which his bank valued only at
P25,000.00 in exchange for a genuine pair of emerald cut diamond worth
P200,000.00 belonging to Dra. Cruz. He also retrieved the US$300.00 and
jewelries (sic) from his agents. But he was not satisfied in being able to get
subject jewelries for a song. He had to file a malicious and unfounded case
against Dra. Cruz and Atty. Belarmino who are well known, respected and held in
high esteem in San Pablo City where everybody practically knows everybody.
Plaintiff came to Court with unclean hands dragging the defendants and soiling
their clean and good name in the process. Both of them are near the twilight of
their lives after maintaining and nurturing their good reputation in the community
only to be stunned with a court case. Since the filing of this case on October 26,
1984 up to the present they were living under a pall of doubt. Surely, this affected
not only their earning capacity in their practice of their respective professions, but
also they suffered besmirched reputations. Dra. Cruz runs her own hospital and
defendant Belarmino is a well respected legal practitioner. The length of time this
case dragged on during which period their reputation were (sic) tarnished and
their names maligned by the pendency of the case, the Court is of the belief that
some of the damages they prayed for in their answers to the complaint are
reasonably proportionate to the sufferings they underwent (Art. 2219, New Civil
Code). Moreover, because of the falsity, malice and baseless nature of the
complaint defendants were compelled to litigate. Hence, the award of attorney's
fees is warranted under the circumstances (Art. 2208, New Civil Code).6
From the trial court's adverse decision, petitioner elevated the matter to the Court of Appeals.
On October 20, 1992, the Court of Appeals, however, rendered a decision 7 affirming in toto the
lower court's decision. His motion for reconsideration having been denied on October 19, 1993,
petitioner now files the instant petition alleging that:
I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFF'S COMPLAINT AND
IN HOLDING THAT THE PLAINTIFF ACTUALLY RECEIVED A GENUINE PAIR
OF EMERALD CUT DIAMOND EARRING(S) FROM DEFENDANT CRUZ . . . ;

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II. THE TRIAL COURT ERRED IN AWARDING MORAL AND EXEMPLARY
DAMAGES AND ATTORNEY'S FEES IN FAVOR OF DEFENDANTS AND
AGAINST THE PLAINTIFF IN THIS CASE; and
III. THE TRIAL, COURT ERRED IN NOT DECLARING THE DEED OF SALE OF
THE TANAY PROPERTY (EXH. "D") AS NULL AND VOID OR IN NOT
ANNULLING THE SAME, AND IN FAILING TO GRANT REASONABLE
DAMAGES IN FAVOR OF THE PLAINTIFF.8
As to the first allegation, the Court observes that petitioner is essentially raising a factual issue
as it invites us to examine and weigh anew the facts regarding the genuineness of the earrings
bartered in exchange for the Tanay property. This, of course, we cannot do without unduly
transcending the limits of our review power in petitions of this nature which are confined merely
to pure questions of law. We accord, as a general rule, conclusiveness to a lower court's
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. 9 We find nothing, however, that warrants the application of any of
these exceptions.
Consequently, this Court upholds the appellate court's findings of fact especially because these
concur with those of the trial court which, upon a thorough scrutiny of the records, are firmly
grounded on evidence presented at the trial. 10 To reiterate, this Court's 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. 11
Nonetheless, this Court has to closely delve into petitioner's allegation that the lower court's
decision of March 7, 1989 is a "ready-made" one because it was handed down a day after the
last date of the trial of the case. 12Petitioner, in this regard, finds it incredible that Judge J.
Ausberto Jaramillo was able to write a 12-page single-spaced decision, type it and release it on
March 7, 1989, less than a day after the last hearing on March 6, 1989. He stressed that Judge
Jaramillo replaced Judge Salvador de Guzman and heard only his rebuttal testimony.
This allegation is obviously no more than a desperate effort on the part of petitioner to disparage
the lower court's findings of fact in order to convince this Court to review the same. It is
noteworthy that Atty. Belarmino clarified that Judge Jaramillo had issued the first order in the
case as early as March 9, 1987 or two years before the rendition of the decision. In fact, Atty.
Belarmino terminated presentation of evidence on October 13, 1987, while Dr. Cruz finished
hers on February 4, 1989, or more than a month prior to the rendition of the judgment. The
March 6, 1989 hearing was conducted solely for the presentation of petitioner's rebuttal
testimony. 13 In other words, Judge Jaramillo had ample time to study the case and write the
decision because the rebuttal evidence would only serve to confirm or verify the facts already
presented by the parties.
The Court finds nothing anomalous in the said situation. 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

8
the decision was no more than Judge Jaramillo's compliance with his duty as a judge to
"dispose of the court's business promptly and decide cases within the required periods." 14 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, this
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. 15 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. 16 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.
Having disposed of petitioner's first contention, we now come to the core issue of this petition
which is whether the Court of Appeals erred in upholding the validity of the contract of barter or
sale under the circumstances of this case.
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. 17 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. 18 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, 19 and registration of the instrument only adversely affects third parties. 20 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.
It is evident from the facts of the case that there was a meeting of the minds between petitioner
and Dr. Cruz. As such, they are bound by the contract unless there are reasons or
circumstances that warrant its nullification. Hence, the problem that should be addressed in this
case is whether or not under the facts duly established herein, 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.21
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. 22 Accordingly, petitioner now stresses before this Court that he entered into
the contract in the belief that the pair of emerald-cut diamond earrings was genuine. On the
pretext that those pieces of jewelry turned out to be counterfeit, however, petitioner
subsequently sought the nullification of said contract on the ground that it was, in fact, "tainted
with fraud" 23 such that his consent was vitiated.
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

9
agreed to. 24 The records, however, 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 petitioner's 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 petitioner's 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.
Moreover, petitioner did not clearly allege mistake as a ground for nullification of the contract of
sale. Even assuming that he did, petitioner cannot successfully invoke the same. 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." 25 An example of mistake as to the object of the contract is the substitution of a
specific thing contemplated by the parties with another. 26 In his allegations in the complaint,
petitioner insinuated that an inferior one or one that had only Russian diamonds was substituted
for the jewelry he wanted to exchange with his 10-hectare land. He, however, failed to prove the
fact that prior to the delivery of the jewelry to him, private respondents endeavored to make
such substitution.
Likewise, the facts as proven do not support the allegation that petitioner himself could be
excused for the "mistake." 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. The fact that he had seen the jewelry
before October 24, 1984 should not have precluded him from having its genuineness tested in
the presence of Dr. Cruz. Had he done so, he could have avoided the present situation that he
himself brought about. Indeed, the finger of suspicion of switching the genuine jewelry for a fake
inevitably points to him. Such a mistake caused by manifest negligence cannot invalidate a
juridical act. 27 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."28
Furthermore, petitioner was afforded the reasonable opportunity required in Article 1584 of the
Civil Code within which to examine the jewelry as he in fact accepted them when asked by Dr.
Cruz if he was satisfied with the same. 29 By taking the jewelry outside the bank, petitioner
executed an act which was more consistent with his exercise of ownership over it. This gains
credence when it is borne in mind that he himself had earlier delivered the Tanay property to Dr.
Cruz by affixing his signature to the contract of sale. That after two hours he later claimed that
the jewelry was not the one he intended in exchange for his Tanay property, could not sever the
juridical tie that now bound him and Dr. Cruz. The nature and value of the thing he had taken
preclude its return after that supervening period within which anything could have happened, not
excluding the alteration of the jewelry or its being switched with an inferior kind.
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 petitioner, respectively,

10
upon the actual and constructive delivery thereof. 30 Said 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. 31 Such stipulations are not manifest in the contract of
sale.
While it is true that the amount of P40,000.00 forming part of the consideration was still payable
to petitioner, 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. 32
Neither may such failure to pay the balance of the purchase price 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 the following
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.
Not one of these cases obtains here. This case should, of course, be distinguished
from De la Cruz v.Legaspi, 33 where the court held that failure to pay the consideration
after the notarization of the contract as previously promised resulted in the vendee's
liability for payment of interest. In the case at bar, 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.
All told, petitioner appears to have elevated this case to this Court for the principal reason of
mitigating the amount of damages awarded to both private respondents which petitioner
considers as "exorbitant." He contends that private respondents do not deserve at all the award
of damages. In fact, he pleads for the total deletion of the award as regards private respondent
Belarmino whom he considers a mere "nominal party" because "no specific claim for damages
against him" was alleged in the complaint. When he filed the case, all that petitioner wanted was
that Atty. Belarmino should return to him the owner's duplicate copy of TCT No. 320725, the
deed of sale executed by Fr. Antonio Jacobe, the deed of redemption and the check alloted for
expenses. Petitioner alleges further that Atty. Belarmino should not have delivered all those
documents to Dr. Cruz because as the "lawyer for both the seller and the buyer in the sale
contract, he should have protected the rights of both parties." Moreover, petitioner asserts that
there was no firm basis for damages except for Atty. Belarmino's uncorroborated testimony.34
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 said
assess damages according to its discretion.35 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

11
damages.36 Statements of facts should establish such data rather than mere conclusions or
opinions of witnesses. 37 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 party's 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. 38
In this regard, the lower court appeared to have awarded damages on a ground analogous to
malicious prosecution under Article 2219 (8) of the Civil Code 39 as shown by (1) petitioner's
"wanton bad faith" in bloating the value of the Tanay property which he exchanged for "a
genuine pair of emerald-cut diamond worth P200,00.00;" and (2) his filing of a "malicious and
unfounded case" against private respondents who were "well known, respected and held in high
esteem in San Pablo City where everybody practically knows everybody" and whose good
names in the "twilight of their lives" were soiled by petitioner's coming to court with "unclean
hands," thereby affecting their earning capacity in the exercise of their respective professions
and besmirching their reputation.
For its part, the Court of Appeals affirmed the award of damages to private respondents for
these reasons:
The malice with which Fule filed this case is apparent. Having taken possession
of the genuine jewelry of Dra. Cruz, Fule now wishes to return a fake jewelry to
Dra. Cruz and, more than that, get back the real property, which his bank owns.
Fule has obtained a genuine jewelry which he could sell anytime, anywhere and
to anybody, without the same being traced to the original owner for practically
nothing. This is plain and simple, unjust enrichment.40
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, 41 the same, however, cannot apply in the case at bar. 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.
As pointed out earlier, a closer scrutiny of the chain of events immediately prior to and on
October 24, 1984 itself would amply demonstrate that petitioner was not simply negligent in
failing to exercise due diligence to assure himself that what he was taking in exchange for his
property were genuine diamonds. He had rather placed himself in a situation from which it
preponderantly appears that his seeming ignorance was actually just a ruse. Indeed, he had
unnecessarily dragged respondents to face the travails of litigation in speculating at the possible
favorable outcome of his complaint when he should have realized that his supposed
predicament was his own making. We, therefore, see here no semblance of an honest and

12
sincere belief on his part that he was swindled by respondents which would entitle him to
redress in court. 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. Being an experienced banker and a businessman himself who deliberately
skirted a legal impediment in the sale of the Tanay property and to minimize the capital gains tax
for its exchange, it was actually gross recklessness for him to have merely conducted a cursory
examination of the jewelry when every opportunity for doing so was not denied him. Apparently,
he carried on his person a tester which he later used to prove the alleged fakery but which he
did not use at the time when it was most needed. Furthermore, it took him two more hours of
unexplained delay before he complained that the jewelry he received were counterfeit. Hence,
we stated earlier that anything could have happened during all the time that petitioner was in
complete possession and control of the jewelry, including the possibility of substituting them with
fake ones, against which respondents would have a great deal of difficulty defending
themselves. The truth is that petitioner even failed to successfully prove during trial that the
jewelry he received from Dr. Cruz were not genuine. Add to that the fact that he had been
shrewd enough to bloat the Tanay property's price only a few days after he purchased it at a
much lower value. Thus, it is our considered view that if this slew of circumstances were
connected, like pieces of fabric sewn into a quilt, they would sufficiently demonstrate that his
acts were not merely negligent but rather studied and deliberate.
We do not have here, therefore, a situation where petitioner's 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. 42 Instead, the cause of action of the
instant case appears to have been contrived by petitioner himself. In other words, he was
placed in a situation where he could not honestly evaluate whether his cause of action has a
semblance of merit, such that it would require the expertise of the courts to put it to a test. His
insistent pursuit of such case then coupled with circumstances showing that he himself was
guilty in bringing about the supposed wrongdoing on which he anchored his cause of action
would render him answerable for all damages the defendant may suffer because of it. This is
precisely what took place in the petition at bar and we find no cogent reason to disturb the
findings of the courts below that respondents in this case suffered considerable damages due to
petitioner's unwarranted action.
WHEREFORE, the decision of the Court of Appeals dated October 20, 1992 is hereby
AFFIRMED in toto. Dr. Cruz, however, is ordered to pay petitioner the balance of the purchase
price of P40,000.00 within ten (10) days from the finality of this decision. Costs against
petitioner.
SO ORDERED.
Narvasa, C.J., Kapunan and Purisima, JJ., concu

13
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11827

July 31, 1961

FERNANDO A. GAITE, plaintiff-appellee,

vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC.,
SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO
TY, defendants-appellants.
Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.
REYES, J.B.L., J.:
This appeal comes to us directly from the Court of First Instance because the claims involved
aggregate more than P200,000.00.
Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a
representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated
in the municipality of Jose Panganiban, province of Camarines Norte.
By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and
appointed plaintiff-appellee 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 aforementioned on a royalty basis of not less than P0.50 per ton of ore that might
be extracted therefrom. On March 19, 1954, Gaite in turn executed a general assignment
(Record on Appeal, pp. 17-19) conveying the development and exploitation of said mining
claims into the Larap Iron Mines, a single proprietorship owned solely by and belonging to him,
on the same royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked upon the
development and exploitation of the mining claims in question, 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 claim and estimated
to be approximately 24,000 metric tons of iron ore.
For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to
Gaite to exploit and develop the mining claims in question, and Gaite assented thereto subject
to certain conditions. As a result, a document entitled "Revocation of Power of Attorney and
Contract" was executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred to
Fonacier, for the consideration of P20,000.00, 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 P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and

14
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and
out of the first letter of credit covering the first shipment of iron ores and of the first
amount derived from the local sale of iron ore made by the Larap Mines & Smelting Co.
Inc., its assigns, administrators, or successors in interests.
To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in
favor of Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety
bond dated December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and
Smelting Co. and its stockholders George Krakower, Segundina Vivas, Pacifico Escandor,
Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1"). Gaite testified, however, that
when this bond was presented to him by Fonacier together with the "Revocation of Power of
Attorney and Contract", Exhibit "A", on December 8, 1954, he refused to sign said Exhibit "A"
unless another bond under written by a bonding company was put up by defendants to secure
the payment of the P65,000.00 balance of their price of the iron ore in the stockpiles in the
mining claims. Hence, a second bond, also dated December 8, 1954 (Exhibit "B"),was executed
by the same parties to the first bond Exhibit "A-1", with the Far Eastern Surety and Insurance
Co. as additional surety, but it provided that the liability of the surety 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 then P65,000.00, and that, furthermore, the liability of said surety company
would automatically expire on December 8, 1955. Both bonds were attached to the "Revocation
of Power of Attorney and Contract", Exhibit "A", and made integral parts thereof.
On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two
executed and signed the "Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier
entered into a "Contract of Mining Operation", ceding, transferring, and conveying unto the
Larap Mines and Smelting Co., Inc. the right to develop, exploit, and explore the mining claims
in question, together with the improvements therein and the use of the name "Larap Iron Mines"
and its good will, 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 & Smelting Co., in consideration for the signing by the company and its
stockholders of the surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).
Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern
Surety and Insurance Company, no sale of the approximately 24,000 tons of iron ore had been
made by the Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of the price of
said ore been paid to Gaite by Fonacier and his sureties payment of said amount, on the theory
that they had lost right to make use of the period given them when their bond, Exhibit "B"
automatically expired (Exhibits "C" to "C-24"). And when Fonacier and his sureties failed to pay
as demanded by Gaite, the latter filed the present complaint against them in the Court of First
Instance of Manila (Civil Case No. 29310) for the payment of the P65,000.00 balance of the
price of the ore, consequential damages, and attorney's fees.
All the defendants except Francisco Dante set up the uniform defense that the obligation sued
upon by Gaite was subject to a condition that the amount of P65,000.00 would be payable out of
the first letter of credit covering the first shipment of iron ore and/or the first amount derived from
the local sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the
filing of the complaint, no sale of the iron ore had been made, hence the condition had not yet
been fulfilled; and that consequently, the obligation was not yet due and demandable.
Defendant Fonacier also contended that only 7,573 tons of the estimated 24,000 tons of iron ore

15
sold to him by Gaite was actually delivered, and counterclaimed for more than P200,000.00
damages.
At the trial of the case, the parties agreed to limit the presentation of evidence to two issues:
(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become
due and demandable when the defendants failed to renew the surety bond underwritten by the
Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955;
and
(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier
were actually in existence in the mining claims when these parties executed the "Revocation of
Power of Attorney and Contract", Exhibit "A."
On the first question, the lower court held that the obligation of the defendants to pay plaintiff the
P65,000.00 balance of the price of the approximately 24,000 tons of iron ore was one with a
term: i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be
effected within one year or before December 8, 1955; that the giving of security was a condition
precedent to Gait's giving of credit to defendants; and that as the latter failed to put up a good
and sufficient security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on
December 8, 1955, the obligation became due and demandable under Article 1198 of the New
Civil Code.
As to the second question, the lower court found that plaintiff Gaite did have approximately
24,000 tons of iron ore at the mining claims in question at the time of the execution of the
contract Exhibit "A."
Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him,
jointly and severally, P65,000.00 with interest at 6% per annum from December 9, 1955 until
payment, plus costs. From this judgment, defendants jointly appealed to this Court.
During the pendency of this appeal, several incidental motions were presented for resolution: a
motion to declare the appellants Larap Mines & Smelting Co., Inc. and George Krakower in
contempt, filed by appellant Fonacier, and two motions to dismiss the appeal as having become
academic and a motion for new trial and/or to take judicial notice of certain documents, filed by
appellee Gaite. The motion for contempt is unmeritorious because the main allegation therein
that the appellants Larap Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in
question, which allegedly is "property in litigation", has not been substantiated; and even if true,
does not make these appellants guilty of contempt, because what is under litigation in this
appeal is appellee Gaite's right to the payment of the balance of the price of the ore, and not the
iron ore itself. As for the several motions presented by appellee Gaite, it is unnecessary to
resolve these motions in view of the results that we have reached in this case, which we shall
hereafter discuss.
The main issues presented by appellants in this appeal are:
(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee
Gaite the P65,000.00 (balance of the price of the iron ore in question)is one with a period or
term and not one with a suspensive condition, and that the term expired on December 8, 1955;
and

16
(2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles
of iron ore sold by appellee Gaite to appellant Fonacier.
The first issue involves an interpretation of the following provision in the contract Exhibit "A":
7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all
his rights and interests over the 24,000 tons of iron ore, more or less, above-referred to
together with all his rights and interests to operate the mine in consideration of the sum
of SEVENTY-FIVE THOUSAND PESOS (P75,000.00) which the latter binds to pay as
follows:
a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this
agreement.
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and
out of the first letter of credit covering the first shipment of iron ore made by the Larap
Mines & Smelting Co., Inc., its assigns, administrators, or successors in interest.
We find the court below to be legally correct in holding that the shipment or local sale of the iron
ore is not a condition precedent (or suspensive) to the payment of the balance of P65,000.00,
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. That the parties
to the contract Exhibit "A" did not intend any such state of things to prevail is supported by
several circumstances:
1) The words of the contract express no contingency in the buyer's obligation to pay: "The
balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first letter of credit
covering the first shipment of iron ores . . ." 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.
2) 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. Nothing is found in the record to evidence that Gaite desired or assumed to run the risk
of losing his right over the ore without getting paid for it, or that Fonacier understood that Gaite
assumed any such risk. This is proved by the fact that Gaite insisted on a bond a to guarantee
payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap Mines & Smelting
Co., and the company's stockholders, but also on one by a surety company; and the fact that
appellants did put up such bonds indicates that they admitted the definite existence of their
obligation to pay the balance of P65,000.00.

17
3) To subordinate the obligation to pay the remaining P65,000.00 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. The desireability of
avoiding such a construction of the contract Exhibit "A" needs no stressing.
4) Assuming that there could be doubt whether by the wording of the contract the parties
indented a suspensive condition or a suspensive period (dies ad quem) for the payment of the
P65,000.00, the rules of interpretation would incline the scales in favor of "the greater 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 buyer' obligation is deemed
to be actually existing, with only its maturity (due date) postponed or deferred, that if such
obligation were viewed as non-existent or not binding until the ore was sold.
The only rational view that can be taken is that 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.
This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still
have the right to insist that Gaite should wait for the sale or shipment of the ore before receiving
payment; or, in other words, whether or not they are entitled to take full advantage of the period
granted them for making the payment.
We agree with the court below that the appellant have forfeited the right court below that the
appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving
payment of the balance of P65,000.00, 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 company's undertaking on December 8, 1955 substantially reduced the security of the
vendor's rights as creditor for the unpaid P65,000.00, a security that Gaite considered essential
and upon which he had insisted when he executed the deed of sale of the ore to Fonacier
(Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil
Code of the Philippines:
"ART. 1198. The debtor shall lose every right to make use of the period:
(1) . . .
(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.

18
Appellants' failure to renew or extend the surety company's bond upon its expiration plainly
impaired the securities given to the creditor (appellee Gaite), unless immediately renewed or
replaced.
There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond
with full knowledge that on its face it would automatically expire within one year was 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 barely; 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 company's bond
expired on December 8, 1955. But in the latter case the defendants-appellants' obligation to pay
became absolute after one year from the transfer of the ore to Fonacier by virtue of the deed
Exhibit "A.".
All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in
demanding payment and instituting this action one year from and after the contract (Exhibit "A")
was executed, either because the appellant debtors had impaired the securities originally given
and thereby forfeited any further time within which to pay; or because the term of payment was
originally of no more than one year, and the balance of P65,000.00 became due and payable
thereafter.
Coming now to the second issue in this appeal, which is whether there were really 24,000 tons
of iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier, and whether, if there
had been a short-delivery as claimed by appellants, they are entitled to the payment of
damages, we must, at the outset, stress two things:first, that 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 Exhibit "A," 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 of 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 or 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 P75,000,00 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 Louisiana Civil Code). There is no charge in this
case that Gaite did not deliver to appellants all the ore found in the stockpiles in the mining
claims in questions; Gaite had, therefore, complied with his promise to deliver, and appellants in
turn are bound to pay the lump price.
But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite
mass, but approximately 24,000 tons of ore, so that any substantial difference in this quantity
delivered would entitle the buyers to recover damages for the short-delivery, was there really a
short-delivery in this case?

19
We think not. As already stated, neither of the parties had actually measured or weighed the
whole mass of ore cubic meter by cubic meter, or ton by ton. Both parties predicate their
respective claims only upon an estimated number of cubic meters of ore multiplied by the
average tonnage factor per cubic meter.
Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore
that he sold to Fonacier, while appellants contend that by actual measurement, their witness
Cirpriano Manlagit found the total volume of ore in the stockpiles to be only 6.609 cubic
meters. As to the average weight in tons per cubic meter, the parties are again in disagreement,
with appellants claiming the correct tonnage factor to be 2.18 tons to a cubic meter, while
appellee Gaite claims that the correct tonnage factor is about 3.7.
In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage
factor of iron ore in this case to be that made by Leopoldo F. Abad, chief of the Mines and
Metallurgical Division of the Bureau of Mines, a government pensionado to the States and a
mining engineering graduate of the Universities of Nevada and California, with almost 22 years
of experience in the Bureau of Mines. This witness placed the tonnage factor of every cubic
meter of iron ore at between 3 metric tons as minimum to 5 metric tons as maximum. This
estimate, in turn, closely corresponds to the average tonnage factor of 3.3 adopted in his
corrected report (Exhibits "FF" and FF-1") by engineer Nemesio Gamatero, who was sent by the
Bureau of Mines to the mining claims involved at the request of appellant Krakower, precisely to
make an official estimate of the amount of iron ore in Gaite's stockpiles after the dispute arose.
Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by
appellant's witness Cipriano Manlagit is correct, if we multiply it by the average tonnage factor
of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which is not very far from the estimate
of 24,000 tons made by appellee Gaite, considering that actual weighing of each unit of the
mass was practically impossible, so that a reasonable percentage of error should be allowed
anyone making an estimate of the exact quantity in tons found in the mass. It must not be
forgotten that the contract Exhibit "A" expressly stated the amount to be 24,000 tons, more or
less. (ch. Pine River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).
There was, consequently, no short-delivery in this case 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, as charged by appellants, since Gaite's estimate appears to be substantially
correct.
WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with
costs against appellants.

20
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 143513

November 14, 2001

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS and FIRESTONE CERAMICS, INC., respondents.
x---------------------------------------------------------x
G.R. No. 143590

November 14, 2001

NATIONAL DEVELOPMENT CORPORATION, petitioner,

vs.
FIRESTONE CERAMICS, INC., respondents.
BELLOSILLO, J.:
A litigation is not simply a contest of litigants before the bar of public opinion; more than that, it is
a pursuit of justice through legal and equitable means. To prevent the search for justice from
evolving into a competition for public approval, society invests the judiciary with complete
independence thereby insulating it from demands expressed through any medium, the press not
excluded. Thus, if the court would merely reflect, and worse, succumb to the great pressures of
the day, the end result, it is feared, would be a travesty of justice.
In the early sixties, petitioner National Development Corporation (NDC), a government owned
and controlled corporation created under CA 182 as amended by CA 311 and PD No. 668, had
in its disposal a ten (10)-hectare property located along Pureza St., Sta. Mesa, Manila. The
estate was popularly known as the NDC compound and covered by Transfer Certificates of Title
Nos. 92885, 110301 and 145470.
Sometime in May 1965 private respondent Firestone Ceramics Inc. (FIRESTONE) manifested
its desire to lease a portion of the property for its ceramic manufacturing business. On 24
August 1965 NDC and FIRESTONE entered into a contract of lease denominated as Contract
No. C-30-65 covering a portion of the property measured at 2.90118 hectares for use as a
manufacturing plant for a term of ten (10) years, renewable for another ten (10) years under the
same terms and conditions.1 In consequence of the agreement, FIRESTONE constructed on the
leased premises several warehouses and other improvements needed for the fabrication of
ceramic products.
Three and a half (3-1/2) years later, or on 8 January 1969, FIRESTONE entered into a second
contract of lease with NDC over the latter's four (4)-unit pre-fabricated reparation steel
warehouse stored in Daliao, Davao. FIRESTONE agreed to ship the warehouse to Manila for
eventual assembly within the NDC compound. The second contract, denominated as Contract
No. C-26-68, was for similar use as a ceramic manufacturing plant and was agreed expressly to
be "co-extensive with the lease of LESSEE with LESSOR on the 2.60 hectare-lot."2

21
On 31 July 1974 the parties signed a similar contract concerning a six (6)-unit pre-fabricated
steel warehouse which, as agreed upon by the parties, would expire on 2 December
1978.3 Prior to the expiration of the aforementioned contract, FIRESTONE wrote NDC
requesting for an extension of their lease agreement. Consequently on 29 November 1978 the
Board of Directors of NDC adopted Resolution No. 11-78-117 extending the term of the lease,
subject to several conditions among which was that in the event NDC "with the approval of
higher authorities, decide to dispose and sell these properties including the lot, priority should
be given to the LESSEE"4 (underscoring supplied). On 22 December 1978, in pursuance of the
resolution, the parties entered into a new agreement for a ten-year lease of the property,
renewable for another ten (10) years, expressly granting FIRESTONE the first option to
purchase the leased premises in the event that it decided "to dispose and sell these properties
including the lot . . . . "5
The contracts of lease conspicuously contain an identically worded provision requiring
FIRESTONE to construct buildings and other improvements within the leased premises worth
several hundred thousands of pesos.6
The parties' lessor-lessee relationship went smoothly until early 1988 when FIRESTONE,
cognizant of the impending expiration of their lease agreement with NDC, informed the latter
through several letters and telephone calls that it was renewing its lease over the property.
While its letter of 17 March 1988 was answered by Antonio A. Henson, General Manager of
NDC, who promised immediate action on the matter, the rest of its communications remained
unacknowledged.7 FIRESTONE's predicament worsened when rumors of NDC's supposed
plans to dispose of the subject property in favor of petitioner Polytechnic University of the
Philippines (PUP) came to its knowledge. Forthwith, FIRESTONE served notice on NDC
conveying its desire to purchase the property in the exercise of its contractual right of first
refusal.
Apprehensive that its interest in the property would be disregarded, FIRESTONE instituted an
action for specific performance to compel NDC to sell the leased property in its favor.
FIRESTONE averred that it was pre-empting the impending sale of the NDC compound to
petitioner PUP in violation of its leasehold rights over the 2.60-hectare8 property and the
warehouses thereon which would expire in 1999. FIRESTONE likewise prayed for the issuance
of a writ of preliminary injunction to enjoin NDC from disposing of the property pending the
settlement of the controversy.9
In support of its complaint, FIRESTONE adduced in evidence a letter of Antonio A. Henson
dated 15 July 1988 addressed to Mr. Jake C. Lagonera, Director and Special Assistant to
Executive Secretary Catalino Macaraeg, reviewing a proposed memorandum order submitted to
then President Corazon C. Aquino transferring the whole NDC compound, including the leased
property, in favor of petitioner PUP. Attached to the letter was a draft of the proposed
memorandum order as well as a summary of existing leases on the subject property. The survey
listed FIRESTONE as lessee of a portion of the property, placed at 29,00010 square meters,
whose contract with NDC was set to expire on 31 December 198911 renewable for another ten
(10) years at the option of the lessee. The report expressly recognized FIRESTONE's right of
first refusal to purchase the leased property "should the lessor decide to sell the same."12
Meanwhile, on 21 February 1989 PUP moved to intervene and asserted its interest in the
subject property, arguing that a "purchaser pendente lite of property which is subject of a
litigation is entitled to intervene in the proceedings."13 PUP referred to Memorandum Order No.

22
214 issued by then President Aquino ordering the transfer of the whole NDC compound to the
National Government, which in turn would convey the aforementioned property in favor of PUP
at acquisition cost. The issuance was supposedly made in recognition of PUP's status as the
"Poor Man's University" as well as its serious need to extend its campus in order to
accommodate the growing student population. The order of conveyance of the 10.31-hectare
property would automatically result in the cancellation of NDC's total obligation in favor of the
National Government in the amount of P57,193,201.64.
Convinced that PUP was a necessary party to the controversy that ought to be joined as party
defendant in order to avoid multiplicity of suits, the trial court granted PUP's motion to intervene.
FIRESTONE moved for reconsideration but was denied. On certiorari, the Court of Appeals
affirmed the order of the trial court. FIRESTONE came to us on review but in a Resolution dated
11 July 1990 we upheld PUP's inclusion as party-defendant in the present controversy.
Following the denial of its petition, FIRESTONE amended its complaint to include PUP and
Executive Secretary Catalino Macaraeg, Jr., as party-defendants, and sought the annulment
of Memorandum Order No. 214. FIRESTONE alleged that although Memorandum Order No.
214 was issued "subject to such liens/leases existing [on the subject property]," PUP
disregarded and violated its existing lease by increasing the rental rate atP200,000.00 a month
while demanding that it vacated the premises immediately.14 FIRESTONE prayed that in the
event Memorandum Order No. 214 was not declared unconstitutional, the property should be
sold in its favor at the price for which it was sold to PUP - P554.74 per square meter or for a
total purchase price ofP14,423,240.00.15
Petitioner PUP, in its answer to the amended complaint, argued in essence that the lease
contract covering the property had expired long before the institution of the complaint, and that
further, the right of first refusal invoked by FIRESTONE applied solely to the six-unit prefabricated warehouse and not the lot upon which it stood.
After trial on the merits, judgment was rendered declaring the contracts of lease executed
between FIRESTONE and NDC covering the 2.60-hectare property and the warehouses
constructed thereon valid and existing until 2 June 1999. PUP was ordered and directed to sell
to FIRESTONE the "2.6 hectare leased premises or as may be determined by actual verification
and survey of the actual size of the leased properties where plaintiff's fire brick factory is
located" at P1,500.00 per square meter considering that, as admitted by FIRESTONE, such was
the prevailing market price thereof.
The trial court ruled that the contracts of lease executed between FIRESTONE and NDC were
interrelated and inseparable because "each of them forms part of the integral system of
plaintiff's brick manufacturing plant x x x if one of the leased premises will be taken apart or
otherwise detached from the two others, the purpose of the lease as well as plaintiff's business
operations would be rendered useless and inoperative."16 It thus decreed that FIRESTONE
could exercise its option to purchase the property until 2 June 1999 inasmuch as the 22
December 1978 contract embodied a covenant to renew the lease for another ten (10) years at
the option of the lessee as well as an agreement giving the lessee the right of first refusal.
The trial court also sustained the constitutionality of Memorandum Order No. 214 which was
not per se hostile to FIRESTONE's property rights, but deplored as prejudicial thereto the "very
manner with which defendants NDC and PUP interpreted and applied the same, ignoring in the
process that plaintiff has existing contracts of lease protectable by express provisions in the

23
Memorandum No. 214 itself."17 It further explained that the questioned memorandum was
issued "subject to such liens/leases existing thereon"18 and petitioner PUP was under express
instructions "to enter, occupy and take possession of the transferred property subject to such
leases or liens and encumbrances that may be existing thereon"19 (italics supplied).
Petitioners PUP, NDC and the Executive Secretary separately filed their Notice of Appeal, but a
few days thereafter, or on 3 September 1996, perhaps realizing the groundlessness and the
futility of it all, the Executive Secretary withdrew his appeal.20
Subsequently, the Court of Appeals affirmed the decision of the trial court ordering the sale of
the property in favor of FIRESTONE but deleted the award of attorney's fees in the amount of
Three Hundred Thousand Pesos (P300,000.00). Accordingly, FIRESTONE was given a grace
period of six (6) months from finality of the court's judgment within which to purchase the
property in questioned in the exercise of its right of first refusal. The Court of Appeals observed
that as there was a sale of the subject property, NDC could not excuse itself from its obligation
TO OFFER THE PROPERTY FOR SALE FIRST TO FIRESTONE BEFORE IT COULD TO
OTHER PARTIES. The Court of Appeals held: "NDC cannot look to Memorandum Order No.
214 to excuse or shield it from its contractual obligations to FIRESTONE. There is nothing
therein that allows NDC to disavow or repudiate the solemn engagement that it freely and
voluntarily undertook, or agreed to undertake."21
PUP moved for reconsideration asserting that in ordering the sale of the property in favor of
FIRESTONE the courts a quo unfairly created a contract to sell between the parties. It argued
that the "court cannot substitute or decree its mind or consent for that of the parties in
determining whether or not a contract (has been) perfected between PUP and NDC."22 PUP
further contended that since "a real property located in Sta. Mesa can readily command a sum
of P10,000.00 per square (meter)," the lower court gravely erred in ordering the sale of the
property at only P1,500.00 per square meter. PUP also advanced the theory that the enactment
of Memorandum Order No. 214 amounted to a withdrawal of the option to purchase the property
granted to FIRESTONE. NDC, for its part, vigorously contended that the contracts of lease
executed between the parties had expired without being renewed by FIRESTONE;
consequently, FIRESTONE was no longer entitled to any preferential right in the sale or
disposition of the leased property.
We do not see it the way PUP and NDC did. It is elementary that a party to a contract cannot
unilaterally withdraw a right of first refusal that stands upon valuable consideration. That
principle was clearly upheld by the Court of Appeals when it denied on 6 June 2000 the twin
motions for reconsideration filed by PUP and NDC on the ground that the appellants failed to
advance new arguments substantial enough to warrant a reversal of the Decision sought to be
reconsidered.23 On 28 June 2000 PUP filed an urgent motion for an additional period of fifteen
(15) days from 29 June 2000 or until 14 July 2000 within which to file a Petition for Review on
Certiorari of the Decisionof the Court of Appeals.
On the last day of the extended period PUP filed its Petition for Review on Certiorari assailing
the Decision of the Court of Appeals of 6 December 1999 as well as the Resolution of 6 June
2000 denying reconsideration thereof. PUP raised two issues: (a) whether the courts a
quo erred when they "conjectured" that the transfer of the leased property from NDC to PUP
amounted to a sale; and, (b) whether FIRESTONE can rightfully invoke its right of first refusal.
Petitioner posited that if we were to place our imprimatur on the decisions of the courts a quo,

24
"public welfare or specifically the constitutional priority accorded to education" would greatly be
prejudiced.24
Paradoxically, our paramount interest in education does not license us, or any party for that
matter, to destroy the sanctity of binding obligations. Education may be prioritized for legislative
or budgetary purposes, but we doubt if such importance can be used to confiscate private
property such as FIRESTONE's right of first refusal.
On 17 July 2000 we denied PUP's motion for extension of fifteen (15) days within which to
appeal inasmuch as the aforesaid pleading lacked an affidavit of service of copies thereof on
the Court of Appeals and the adverse party, as well as written explanation for not filing and
serving the pleading personally.25
Accordingly, on 26 July 2000 we issued a Resolution dismissing PUP's Petition for Review for
having been filed out of time. PUP moved for reconsideration imploring a resolution or decision
on the merits of its petition. Strangely, about the same time, several articles came out in the
newspapers assailing the denial of the petition. The daily papers reported that we unreasonably
dismissed PUP's petition on technical grounds, affirming in the process the decision of the trial
court to sell the disputed property to the prejudice of the government in the amount
of P1,000,000,000.00.26 Counsel for petitioner PUP, alleged that the trial court and the Court of
Appeals "have decided a question of substance in a way definitely not in accord with law or
jurisprudence."27
At the outset, let it be noted that the amount of P1,000,000,000.00 as reported in the papers
was way too exaggerated, if not fantastic. We stress that NDC itself sold the whole 10.31hectare property to PUP at onlyP57,193,201.64 which represents NDC's obligation to the
national government that was, in exchange, written off. The price offered per square meter of
the property was pegged at P554.74. FIRESTONE's leased premises would therefore be worth
only P14,423,240.00. From any angle, this amount is certainly far below the ballyhooed price
of P1,000,000,000.00.
On 4 October 2000 we granted PUP's Motion for Reconsideration to give it a chance to ventilate
its right, if any it still had in the leased premises, thereby paving the way for a reinstatement of
its Petition for Review.28 In its appeal, PUP took to task the courts a quo for supposedly
"substituting or decreeing its mind or consent for that of the parties (referring to NDC and PUP)
in determining whether or not a contract of sale was perfected." PUP also argued that inasmuch
as "it is the parties alone whose minds must meet in reference to the subject matter and cause,"
it concluded that it was error for the lower courts to have decreed the existence of a sale of the
NDC compound thus allowing FIRESTONE to exercise its right of first refusal.
On the other hand, NDC separately filed its own Petition for Review and advanced arguments
which, in fine, centered on whether or not the transaction between petitioners NDC and PUP
amounted to a sale considering that "ownership of the property remained with the
government."29 Petitioner NDC introduced the novel proposition that if the parties involved are
both government entities the transaction cannot be legally called a sale.
In due course both petitions were consolidated.30
We believe that the courts a quo did not hypothesize, much less conjure, the sale of the
disputed property by NDC in favor of petitioner PUP. Aside from the fact that the intention of

25
NDC and PUP to enter into a contract of sale was clearly expressed in the Memorandum Order
No. 214,31 a close perusal of the circumstances of this case strengthens the theory that the
conveyance of the property from NDC to PUP was one of absolute sale, for a valuable
consideration, and not a mere paper transfer as argued by petitioners.
A contract of sale, as defined in the Civil Code, is a contract where one of the parties obligates
himself to transfer the ownership of and to deliver a determinate thing to the other or others who
shall pay therefore a sum certain in money or its equivalent.32 It is therefore a general requisite
for the existence of a valid and enforceable contract of sale that it be mutually obligatory, i.e.,
there should be a concurrence of the promise of the vendor to sell a determinate thing and the
promise of the vendee to receive and pay for the property so delivered and transferred. The
Civil Code provision is, in effect, a "catch-all" provision which effectively brings within its grasp a
whole gamut of transfers whereby ownership of a thing is ceded for a consideration.
Contrary to what petitioners PUP and NDC propose, there is not just one party involved in the
questioned transaction. Petitioners NDC and PUP have their respective charters and therefore
each possesses a separate and distinct individual personality.33 The inherent weakness of
NDC's proposition that there was no sale as it was only the government which was involved in
the transaction thus reveals itself. Tersely put, it is not necessary to write an extended
dissertation on government owned and controlled corporations and their legal personalities.
Beyond cavil, a government owned and controlled corporation has a personality of its own,
distinct and separate from that of the government.34 The intervention in the transaction of the
Office of the President through the Executive Secretary did not change the independent
existence of these entities. The involvement of the Office of the President was limited to
brokering the consequent relationship between NDC and PUP. But the withdrawal of the appeal
by the Executive Secretary is considered significant as he knew, after a review of the records,
that the transaction was subject to existing liens and encumbrances, particularly the priority to
purchase the leased premises in favor of FIRESTONE.
True that there may be instances when a particular deed does not disclose the real intentions of
the parties, but their action may nevertheless indicate that a binding obligation has been
undertaken. Since the conduct of the parties to a contract may be sufficient to establish the
existence of an agreement and the terms thereof, it becomes necessary for the courts to
examine the contemporaneous behavior of the parties in establishing the existence of their
contract.
The preponderance of evidence shows that NDC sold to PUP the whole NDC compound,
including the leased premises, without the knowledge much less consent of private respondent
FIRESTONE which had a valid and existing right of first refusal.
All three (3) essential elements of a valid sale, without which there can be no sale, were
attendant in the "disposition" and "transfer" of the property from NDC to PUP - consent of the
parties, determinate subject matter,and consideration therefor.
Consent to the sale is obvious from the prefatory clauses of Memorandum Order No. 214 which
explicitly states the acquiescence of the parties to the sale of the property WHEREAS, PUP has expressed its willingness to acquire said NDC properties and NDC
has expressed its willingness to sell the properties to PUP (underscoring supplied).35

26
Furthermore, the cancellation of NDC's liabilities in favor of the National Government in the
amount ofP57,193,201.64 constituted the "consideration" for the sale. As correctly observed by
the Court of AppealsThe defendants-appellants' interpretation that there was a mere transfer, and not a sale,
apart from being specious sophistry and a mere play of words, is too strained and
hairsplitting. For it is axiomatic that every sale imposes upon the vendor the obligation to
transfer ownership as an essential element of the contract. Transfer of title or an
agreement to transfer title for a price paid, or promised to be paid, is the very essence of
sale (Kerr & Co. v. Lingad, 38 SCRA 524; Schmid & Oberly, Inc., v. RJL Martinez Fishing
Corp., 166 SCRA 493). At whatever legal angle we view it, therefore, the inescapable
fact remains that all the requisites of a valid sale were attendant in the transaction
between co-defendants-appellants NDC and PUP concerning the realities subject of the
present suit.36
What is more, the conduct of petitioner PUP immediately after the transaction is in itself an
admission that there was a sale of the NDC compound in its favor. Thus, after the issuance
of Memorandum Order No. 214 petitioner PUP asserted its ownership over the property by
posting notices within the compound advising residents and occupants to vacate the
premises.37 In its Motion for Intervention petitioner PUP also admitted that its interest as a
"purchaser pendente lite" would be better protected if it was joined as party-defendant in the
controversy thereby confessing that it indeed purchased the property.
In light of the foregoing disquisition, we now proceed to determine whether FIRESTONE should
be allowed to exercise its right of first refusal over the property. Such right was expressly stated
by NDC and FIRESTONE in par. XV of their third contract denominated as A-10-78 executed on
22 December 1978 which, as found by the courts a quo, was interrelated to and inseparable
from their first contract denominated as C-30-65 executed on 24 August 1965 and their second
contract denominated as C-26-68 executed on 8 January 1969. Thus Should the LESSOR desire to sell the leased premises during the term of this Agreement, or
any extension thereof, the LESSOR shall first give to the LESSEE, which shall have the right of
first option to purchase the leased premises subject to mutual agreement of both parties.38
In the instant case, the right of first refusal is an integral and indivisible part of the contract of
lease and is inseparable from the whole contract. The consideration for the right is built into the
reciprocal obligations of the parties. Thus, it is not correct for petitioners to insist that there was
no consideration paid by FIRESTONE to entitle it to the exercise of the right, inasmuch as the
stipulation is part and parcel of the contract of lease making the consideration for the lease the
same as that for the option.
It is a settled principle in civil law that when a lease contract contains a right of first refusal, the
lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has
made an offer to sell to the latter at a certain price and the lessee has failed to accept it.39 The
lessee has a right that the lessor's first offer shall be in his favor.
The option in this case was incorporated in the contracts of lease by NDC for the benefit of
FIRESTONE which, in view of the total amount of its investments in the property, wanted to be
assured that it would be given the first opportunity to buy the property at a price for which it
would be offered. Consistent with their agreement, it was then implicit for NDC to have first

27
offered the leased premises of 2.60 hectares to FIRESTONE prior to the sale in favor of PUP.
Only if FIRESTONE failed to exercise its right of first priority could NDC lawfully sell the property
to petitioner PUP.
It now becomes apropos to ask whether the courts a quo were correct in fixing the proper
consideration of the sale at P1,500.00 per square meter. In contracts of sale, the basis of the
right of first refusal must be the current offer of the seller to sell or the offer to purchase of the
prospective buyer. Only after the lessee-grantee fails to exercise its right under the same terms
and within the period contemplated can the owner validly offer to sell the property to a third
person, again, under the same terms as offered to the grantee.40 It appearing that the whole
NDC compound was sold to PUP for P554.74 per square meter, it would have been more
proper for the courts below to have ordered the sale of the property also at the same price.
However, since FIRESTONE never raised this as an issue, while on the other hand it admitted
that the value of the property stood at P1,500.00 per square meter, then we see no compelling
reason to modify the holdings of the courts a quo that the leased premises be sold at that price.
Our attention is invited by petitioners to Ang Yu Asuncion v. CA41 in concluding that if our holding
in Ang Yu would be applied to the facts of this case then FIRESTONE's "option, if still
subsisting, is not enforceable," the option being merely a preparatory contract which cannot be
enforced.
The contention has no merit. At the heels of Ang Yu came Equatorial Realty Development, Inc.,
v. Mayfair Theater, Inc.,42 where after much deliberation we declared, and so we hold, that a
right of first refusal is neither "amorphous nor merely preparatory" and can be enforced and
executed according to its terms. Thus, inEquatorial we ordered the rescission of the sale which
was made in violation of the lessee's right of first refusal and further ordered the sale of the
leased property in favor of Mayfair Theater, as grantee of the right. Emphatically, we held that
"(a right of first priority) should be enforced according to the law on contracts instead of the
panoramic and indefinite rule on human relations." We then concluded that the execution of the
right of first refusal consists in directing the grantor to comply with his obligation according to the
terms at which he should have offered the property in favor of the grantee and at that price
when the offer should have been made.
One final word. Petitioner PUP should be cautioned against bidding for public sympathy by
bewailing the dismissal of its petition before the press. Such advocacy is not likely to elicit the
compassion of this Court or of any court for that matter. An entreaty for a favorable disposition of
a case not made directly through pleadings and oral arguments before the courts do not
persuade us, for as judges, we are ruled only by our forsworn duty to give justice where justice
is due.
WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are DENIED. Inasmuch
as the first contract of lease fixed the area of the leased premises at 2.90118 hectares while the
second contract placed it at 2.60 hectares, let a ground survey of the leased premises be
immediately conducted by a duly licensed, registered surveyor at the expense of private
respondent FIRESTONE CERAMICS, INC., within two (2) months from finality of the judgment
in this case. Thereafter, private respondent FIRESTONE CERAMICS, INC., shall have six (6)
months from receipt of the approved survey within which to exercise its right to purchase the
leased property atP1,500.00 per square meter, and petitioner Polytechnic University of the
Philippines is ordered to reconvey the property to FIRESTONE CERAMICS, INC., in the
exercise of its right of first refusal upon payment of the purchase price thereof. SO ORDERED.

28
Republic of the Philippines
SUPREME COURT
THIRD DIVISION
G.R. No. 123672 December 14, 2005
FERNANDO CARRASCOSO, JR., Petitioner,
vs.
THE HONORABLE COURT OF APPEALS, LAURO LEVISTE, as Director and Minority
Stockholder and On Behalf of Other Stockholders of El Dorado Plantation, Inc. and EL
DORADO PLANTATION, INC., represented by one of its minority stockholders, Lauro P.
Leviste, Respondents
x---------------------------------------x
G.R. No. 164489
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Petitioner,
vs.
LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other
Stockholders of El Dorado Plantation, Inc., EL DORADO PLANTATION, INC., represented
by Minority Stockholder, Lauro P. Leviste, and FERNANDO CARRASCOSO,
JR., Respondents.
DECISION
CARPIO MORALES, J.:
El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of land (the
property) with an area of approximately 1,825 hectares covered by Transfer Certificate of Title
(TCT) No. T-931 situated in Sablayan, Occidental Mindoro.
On February 15, 1972, at a special meeting of El Dorados Board of Directors, a
Resolution2 was passed authorizing Feliciano Leviste, then President of El Dorado, to negotiate
the sale of the property and sign all documents and contracts bearing thereon.
On March 23, 1972, by a Deed of Sale of Real Property,3 El Dorado, through Feliciano Leviste,
sold the property to Fernando O. Carrascoso, Jr. (Carrascoso).
The pertinent provisions of the Deed of Sale read:
NOW, THEREFORE, for and in consideration of the sum of ONE MILLION EIGHT HUNDRED
THOUSAND (1,800,000.00) PESOS, Philippine Currency, the Vendor hereby sells, cedes, and
transfer (sic) unto the herein VENDEE, his heirs, successors and assigns, the above-described
property subject to the following terms and consitions (sic):
1. Of the said sum of P1,800,000.00 which constitutes the full consideration of this
sale, P290,000.00 shall be paid, as it is hereby paid, to the Philippines (sic) National Bank,

29
thereby effecting the release and cancellation fo (sic) the present mortgage over the abovedescribed property.
2. That the sum of P210,000.00 shall be paid, as it is hereby paid by the VENDEE to the
VENDOR, receipt of which amount is hereby acknowledged by the VENDOR.
3. The remaining balance of P1,300,000.00 plus interest thereon at the rate of 10% per annum
shall be paid by the VENDEE to the VENDOR within a period of three (3) years, as follows:
(a) One (1) year from the date of the signing of this agreement, the VENDEE shall pay to the
VENDOR the sum of FIVE HUNDRED NINETEEN THOUSAND EIGHT HUNDRED THIRTY
THREE & 33/100 (P519,833.33) PESOS.
(b) Two (2) years from the date of signing of this agreement, the VENDEE shall pay to the
VENDOR the sum of FIVE HUNDRED NINETTEN (sic) THOUSAND EIGHT HUNDRED AND
THIRTY-THREE & 33/100 (P519,833.33) PESOS.
(c) Three (3) years from the date of signing of this agreement, the VENDEE shall pay to the
VENDOR the sum of FIVE Hundred NINETEEN THOUSAND EIGHT HUNDRED AND THIRTYTHREE & 33/100 (P519,833.33) PESOS.
4. The title of the property, subject of this agreement, shall pass and be transferred to the
VENDEE who shall have full authority to register the same and obtain the corresponding
transfer certificate of title in his name.
xxx
6. THE VENDOR certifies and warrants that the property above-described is not being
cultivated by any tenant and is therefore not covered by the provisions of the Land Reform
Code. If, therefore, the VENDEE becomes liable under the said law, the VENDOR shall
reimburse the VENDEE for all expenses and damages he may incur thereon.4 (Underscoring
supplied)
From the above-quoted provisions of the Deed of Sale, Carrascoso was to pay the full amount
of the purchase price on March 23, 1975.
On even date, the Board of Directors of El Dorado passed a Resolution reading:
"RESOLVED that by reason of the sale of that parcel of land covered by TCT No. T-93 to Dr.
FERNANDO O. CARRASCOSO, JR., the corporation interposes no objection to the
property being mortgage (sic) by Dr. FERNANDO O. CARRASCOSO, JR. to any bank of
his choice as long as the balance on the Deed of Sale shall be recognized by Dr.
FERNANDO O. CARRASCOSO, JR.;
"RESOLVED, FURTHER, that the corporation authorizes the prefered (sic) claim on the
property to be subordinated to any mortgage that may be constituted by Dr. FERNANDO O.
CARRASCOSO, JR.;

30
"RESOLVED, FINALLY, that in case of any mortgage on the property, the corporation waives the
preference of any vendors lien on the property."5 (Emphasis and underscoring supplied)
Feliciano Leviste also executed the following affidavit on the same day:
1. That by reason of the sale of that parcel of land covered by Transfer Certificate of Title T-93
as evidenced by the Deed of Sale attached hereto as Annex "A" and made an integral part
hereof, the El Dorado Plantation, Inc. has no objection to the aforementioned property
being mortgaged by Dr. Fernando O. Carrascoso, Jr. to any bank of his choice, as long as
the payment of the balance due the El Dorado Plantation, Inc. under the Deed of Sale,
Annex "A" hereof, shall be recognized by the vendee therein, Dr. Fernando O.
Carrascoso, Jr. though subordinated to the preferred claim of the mortgagee bank.
2. That in case of any mortgage on the property, the vendor hereby waives the preference of
any vendors lien on the property, subject matter of the deed of sale.
3. That this affidavit is being executed to avoid any question on the authority of Dr. Fernando O.
Carrascoso, Jr. to mortgage the property subject of the Deed of Sale, Annex "A" hereof, where
the purchase price provided therein has not been fully paid.
4. That this affidavit has been executed pursuant to a board resolution of El Dorado Plantation,
Inc.6 (Emphasis and underscoring supplied)
On the following day, March 24, 1972, Carrascoso and his wife Marlene executed a Real Estate
Mortgage7 over the property in favor of Home Savings Bank (HSB) to secure a loan in the
amount of P1,000,000.00. Of this amount, P290,000.00 was paid to Philippine National Bank to
release the mortgage priorly constituted on the property and P210,000.00 was paid to El Dorado
pursuant to above-quoted paragraph Nos. 1 and 2 of the terms and conditions of the Deed of
Sale.8
The March 23, 1972 Deed of Sale of Real Property was registered and annotated on El
Dorados TCT No. T-93 as Entry No. 152409 on April 5, 1972. On even date, TCT No. T-93
covering the property was cancelled and TCT No. T-605510 was in its stead issued by the
Registry of Deeds of Occidental Mindoro in the name of Carrascoso on which the real estate
mortgage in favor of HSB was annotated as Entry No. 15242.11
On May 18, 1972, the real estate mortgage in favor of HSB was amended to include an
additional three year loan of P70,000.00 as requested by the spouses Carrascoso.12 The
Amendment of Real Estate Mortgage was also annotated on TCT No. T-6055 as Entry No.
15486 on May 24, 1972.13
The 3-year period for Carrascoso to fully pay for the property on March 23, 1975 passed without
him having complied therewith.
In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance Telephone
Company (PLDT), through its President Ramon Cojuangco, executed an Agreement to Buy and
Sell14 whereby the former agreed to sell 1,000 hectares of the property to the latter at a
consideration of P3,000.00 per hectare or a total ofP3,000,000.00.

31
The July 11, 1975 Agreement to Buy and Sell was not registered and annotated on
Carrascosos TCT No. T-6055.
Lauro Leviste (Lauro), a stockholder and member of the Board of Directors of El Dorado,
through his counsel, Atty. Benjamin Aquino, by letter15 dated December 27, 1976, called the
attention of the Board to Carrascosos failure to pay the balance of the purchase price of the
property amounting to P1,300,000.00. And Lauros lawyer manifested that:
Because of the default for a long time of Mr. Carrascoso to pay the balance of the consideration
of the sale, Don Lauro Leviste, in his behalf and in behalf of the other shareholders similarly
situated like him, want a rescission of the sale made by the El Dorado Plantation, Inc. to Mr.
Carrascoso. He desires that the Board of Directors take the corresponding action for
rescission.16
Lauros desire to rescind the sale was reiterated in two other letters17 addressed to the Board
dated January 20, 1977 and March 3, 1977.
Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, 197718 to
Carrascoso informing him that in view of his failure to pay the balance of the purchase price of
the property, El Dorado was seeking the rescission of the March 23, 1972 Deed of Sale of Real
Property.
The pertinent portions of the letter read:
xxx
I regret to inform you that the balance of P1,300,000.00 and the interest thereon have long been
due and payable, although you have mortgaged said property with the Home Savings Bank for
P1,000,000.00 on March 24, 1972, which was subsequently increased to P1,070,000.00 on May
18, 1972.
You very well know that the El Dorado Plantation, Inc., is a close family corporation, owned
exclusively by the members of the Leviste family and I am one of the co-owners of the land. As
nothing appears to have been done on your part after our numerous requests for payment of the
said amount of P1,300,000.00 and the interest of 10% per annum due thereon, please be
advised that we would like to rescind the contract of sale of the land.19(Underscoring supplied)
Jose Leviste, by letter20 dated March 10, 1977, informed Lauros counsel Atty. Aquino of his
(Joses) February 21, 1977 letter to Carrascoso, he lamenting that "Carrascoso has not deemed
it fit to give [his] letter the courtesy of a reply" and advis[ing] that some of the Directors of [El
Dorado] could not see their way clear in complying with the demands of your client [Lauro] and
have failed to reach a consensus to bring the corresponding action for rescission of the contract
against . . . Carrascoso."21
Lauro and El Dorado finally filed on March 15, 1977 a complaint22 for rescission of the March 23,
1972 Deed of Sale of Real Property between El Dorado and Carrascoso with damages before
the Court of First Instance (CFI) of Occidental Mindoro, docketed as Civil Case No. R-226.
Lauro and El Dorado also sought the cancellation of TCT No. T-6055 in the name of Carrascoso
and the revival of TCT No. T-93 in the name of El Dorado, free from any liens and

32
encumbrances. Furthermore, the two prayed for the issuance of an order for Carrascoso to: (1)
reconvey the property to El Dorado upon return to him ofP500,000.00, (2) secure a discharge of
the real estate mortgage constituted on the property from HSB, (3) submit an accounting of the
fruits of the property from March 23, 1972 up to the return of possession of the land to El
Dorado, (4) turn over said fruits or the equivalent value thereof to El Dorado and (5) pay the
amount ofP100,000.00 for attorneys fees and other damages.23
Also on March 15, 1977, Lauro and El Dorado caused to be annotated on TCT No. T-6055 a
Notice of Lis Pendens, inscribed as Entry No. 39737.24
In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6, 1977 a Deed
of Absolute Sale25over the 1,000 hectare portion of the property subject of their July 11, 1975
Agreement to Buy and Sell. The pertinent portions of the Deed are as follows:
WHEREAS, the VENDOR and the VENDEE entered into an agreement To Buy and Sell on July
11, 1975, which is made a part hereof by reference;
WHEREAS, the VENDOR and the VENDEE are now decided to execute the Deed of Absolute
Sale referred to in the aforementioned agreement to Buy and Sell;
WHEREFORE, for and in consideration of the foregoing premises and the terms hereunder
stated, the VENDOR and the VENDEE have agreed as follows:
1. For and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00), Philippine
currency, of which ONE HUNDRED TWENTY THOUSAND PESOS P120,000.00 have (sic)
already been received by the VENDOR, the VENDOR hereby sells, transfers and conveys unto
the VENDEE one thousand hectares (1,000 has.) of his parcel of land covered by T.C.T. No. T6055 of the Registry of Deeds of Mindoro, delineated as Lot No. 3-B-1 in the subdivision survey
plan xxx
2. The VENDEE shall pay to the VENDOR upon the signing of this agreement, the sum of TWO
MILLION FIVE HUNDRED THOUSAND PESOS (P2,500,000.00) in the following manner:
a) The sum of TWO MILLION THREE HUNDRED THOUSAND PESOS (P2,300,000.00) to
Home Savings Bank in full payment of the VENDORs mortgaged obligation therewith;
b) The sum of TWO HUNDRED THOUSAND PESOS (P200,000.00) to VENDOR;
The remaining balance of the purchase price in the sum of THREE HUNDRED EIGHTY
THOUSAND PESOS (P380,000.00), less such expenses which may be advanced by the
VENDEE but which are for the account of the VENDOR under Paragraph 6 of the Agreement to
Buy and Sell, shall be paid by the VENDEE to the VENDORupon issuance of title to the
VENDEE.26 (Underscoring supplied)
In turn, PLDT, by Deed of Absolute Sale27 dated May 30, 1977, conveyed the aforesaid 1,000
hectare portion of the property to its subsidiary, PLDT Agricultural Corporation (PLDTAC), for a
consideration of P3,000,000.00, the amount of P2,620,000.00 of which was payable to PLDT
upon signing of said Deed, and P380,000.00 to Carrascoso upon issuance of title to PLDTAC.

33
In the meantime, on October 19, 1977, the El Dorado Board of Directors, by a special
meeting,28 adopted and approved a Resolution ratifying and conferring "the prosecution of Civil
Case No. R-226 of the Court of First Instance of Occidental Mindoro, entitled Lauro P. Leviste
vs. Fernando Carascoso (sic), etc. initiated by stockholder Mr. Lauro P. Leviste."29
In his Answer with Compulsory Counterclaim,30 Carrascoso alleged that: (1) he had not paid his
remainingP1,300,000.00 obligation under the March 23, 1972 Deed of Sale of Real Property in
view of the extensions of time to comply therewith granted him by El Dorado; (2) the complaint
suffered from fatal defects, there being no showing of compliance with the condition precedent
of exhaustion of intra-corporate remedies and the requirement that a derivative suit instituted by
a complaining stockholder be verified under oath; (3) El Dorado committed a gross
misrepresentation when it warranted that the property was not being cultivated by any tenant to
take it out of the coverage of the Land Reform Code; and (4) he suffered damages due to the
premature filing of the complaint for which Lauro and El Dorado must be held liable.
On February 21, 1978, the April 6, 1977 and May 30, 1977 Deeds of Absolute Sale and the
respective Articles of Incorporation of PLDT and PLDTAC were annotated on TCT No. T-6055
as Entry Nos. 24770,31 42774,324276933 and 24772,34 respectively. On even date, Carrascosos
TCT No. T-6055 was cancelled and TCT No. T-1248035 covering the 1,000 hectare portion of the
property was issued in the name of PLDTAC. The March 15, 1977 Notice of Lis Pendens was
carried over to TCT No. T-12480.
On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for Intervention36 which was
granted by the trial court by Order37 of September 7, 1978.
PLDT and PLDTAC thereupon filed their Answer In Intervention with Compulsory Counterclaim
and Crossclaim38against Carrascoso on November 13, 1978, alleging that: (1) when Carrascoso
executed the April 6, 1977 Deed of Absolute Sale in favor of PLDT, PLDT was not aware of any
litigation involving the 1,000 hectare portion of the property or of any flaw in his title, (2) PLDT is
a purchaser in good faith and for value; (3) when PLDT executed the May 30, 1977 Deed of
Absolute Sale in favor of PLDTAC, they had no knowledge of any pending litigation over the
property and neither were they aware that a notice of lis pendens had been annotated on
Carrascosos title; and (4) Lauro and El Dorado knew of the sale by Carrascoso to PLDT and
PLDTs actual possession of the 1,000 hectare portion of the property since June 30, 1975 and
of its exercise of exclusive rights of ownership thereon through agricultural development.39
By Decision40 of January 28, 1991, Branch 45 of the San Jose Occidental Mindoro Regional
Trial Court to which the CFI has been renamed, dismissed the complaint on the ground of
prematurity, disposing as follows, quotedverbatim:
WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered:
1. Dismissing the plaintiffs complaint against the defendant on the ground of prematurity;
2. Ordering the plaintiffs to pay to the defendant the sum of P2,980,000.00 as actual and
compensatory damages, as well as the sum of P100,000.00 as and for attorneys fees; provided,
however, that the aforesaid amounts must first be set off from the latters unpaid balance to the
former;
3. Dismissing the defendants-intervenors counterclaim and cross-claim; and

34
4. Ordering the plaintiffs to pay to (sic) the costs of suit.
SO ORDERED.41 (Underscoring supplied)
Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of Appeals.
By Decision42 of January 31, 1996, the appellate court reversed the decision of the trial court,
disposing as follows, quoted verbatim:
WHEREFORE, not being meritorious, PLDTs/PLDTACs appeal is hereby DISMISSED and
finding El Dorados appeal to be impressed with merit, We REVERSE the appealed Decision
and render the following judgment:
1. The Deed of Sale of Real Property (Exhibit C) is hereby rescinded and TCT No. T-12480
(Exhibit Q) is cancelled while TCT No. T-93 (Exhibit A), is reactivated.
2. Fernando Carrascoso, Jr. is commanded to:
2.1. return the possession of the 825 [hectare-] remaining portion of the land to El Dorado
Plantation, Inc. without prejudice to the landholdings of legitimate tenants thereon;
2.2. return the net fruits of the land to El Dorado Plantation, Inc. from March 23, 1972 to July 11,
1975, and of the 825-hectare-remaining portion minus the tenants landholdings, from July 11,
1975 up to its delivery to El Dorado Plantation, Inc. including whatever he may have received
from the tenants if any by way of compensation under the Operation Land Transfer or under any
other pertinent agrarian law;
2.3 Pay El Dorado Plantation, Inc. an attorneys fee of P20,000.00 and litigation expenses of
P30,000.00;
2.4 Return to Philippine Long Distance Telephone Company/PLDT Agricultural Corporation
P3,000,000.00 plus legal interest from April 6, 1977 until fully paid;
3. PLDT Agricultural Corporation is ordered to surrender the possession of the 1000-hectare
Farm to El Dorado Plantation, Inc.;
4. El Dorado Plantation, Inc. is directed to return the P500,000.00 to Fernando Carrascoso, Jr.
plus legal interest from March 23, 1972 until fully paid. The performance of this obligation will
however await the full compliance by Fernando Carrascoso, Jr. of his obligation to account for
and deliver the net fruits of the land mentioned above to El Dorado Plantation, Inc.
5. To comply with paragraph 2.2 herein, Carrascoso is directed to submit in (sic) the court a quo
a full accounting of the fruits of the land during the period mentioned above for the latters
approval, after which the net fruits shall be delivered to El Dorado, Plantation, Inc.
6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT
Agricultural Corporation in writing within ten (10) days after finality of this decision regarding the
exercise of its option under Art. 448 of the Civil Code.

35
SO ORDERED.43 (Underscoring supplied)
PLDT and PLDTAC filed on February 22, 1996, a Motion for Reconsideration44 of the January
31, 1996 CA Decision, while Carrascoso went up this Court by filing on March 25, 1996 a
petition for review,45 docketed as G.R. No. 123672, assailing the January 31, 1996 CA Decision
and seeking the reinstatement of the January 28, 1991 Decision of the trial court except with
respect to its finding that the acquisition of PLDT and PLDTAC of the 1,000 hectare portion of
the property was subject to the notice of lis pendens.
Lauro, in the meantime, died, hence, on April 16, 1996, a Motion for Substitution of Party46 was
filed praying that his heirs, represented by Conrad C. Leviste, be substituted as respondents.
The Motion was granted by Resolution47 of July 10, 1996.
PLDT and PLDTAC filed their Comment48 to Carrascosos petition and prayed that judgment be
rendered finding them to be purchasers in good faith to thus entitle them to possession and
ownership of the 1,000 hectare portion of the property, together with all the improvements they
built thereon. Reiterating that they were not purchaserspendente lite, they averred that El
Dorado and Lauro had actual knowledge of their interests in the said portion of the property
prior to the annotation of the notice of lis pendens to thereby render said notice ineffective.
El Dorado and the heirs of Lauro, both represented by Conrad C. Leviste, also filed their
Comment49 to Carrascosos petition, praying that it be dismissed for lack of merit and that
paragraph 6 of the dispositive portion of the January 31, 1996 CA Decision be modified to read
as follows:
6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT
Agricultural Corporation in writing within ten (10) days after finality of this decision regarding
the exercise of its option under Arts. 449 and 450 of the Civil Code, without right to indemnity on
the part of the latter should the former decide to keep the improvements under Article
449.50 (Underscoring supplied)
Carrascoso filed on November 13, 1996 his Reply51 to the Comment of El Dorado and the heirs
of Lauro.
In the meantime, as the February 22, 1996 Motion for Reconsideration filed by PLDT and
PLDTAC of the CA decision had remained unresolved, this Court, by Resolution52 of June 30,
2003, directed the appellate court to resolve the same.
By Resolution53 of July 8, 2004, the CA denied PLDT and PLDTACs Motion for Reconsideration
for lack of merit.
PLDT54 thereupon filed on September 2, 2004 a petition for review55 before this Court, docketed
as G.R. No. 164489, seeking to reverse and set aside the January 31, 1996 Decision and the
July 8, 2004 Resolution of the appellate court. It prayed that judgment be rendered upholding its
right, interest and title to the 1,000 hectare portion of the property and that it and its successorsin-interest be declared owners and legal possessors thereof, together with all improvements
built, sown and planted thereon.
By Resolution56 of August 25, 2004, G.R. No. 164489 was consolidated with G.R. No. 123672.

36
In his petition, Carrascoso faults the CA as follows:
I
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND
COMMITTED A MISTAKE OF LAW IN NOT DECLARING THAT THE ACTION FOR
RESCISSION WAS PREMATURELY FILED.
II
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND
COMMITTED A MISTAKE OF LAW IN DISREGARDING THE CRUCIAL SIGNIFICANCE OF
THE WARRANTY OF NON-TENANCY EXPRESSLY STIPULATED IN THE CONTRACT OF
SALE.
III
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN REVERSING
THE DECISION OF THE TRIAL COURT.57 (Underscoring supplied)
PLDT, on the other hand, faults the CA as follows:
I
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT
PETITIONER AND PLTAC (sic) TOOK THEIR RIGHT, INTEREST AND TITLE TO THE FARM
SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF THE
PROTECTION ACCORDED THEM UNDER ARTICLES 1181 AND 1187 OF THE NEW CIVIL
CODE.
II
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT
PETITIONER AND PLDTAC TOOK THEIR RIGHT, INTEREST AND TITLE TO THE FARM
SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF THE LEGAL
PRINCIPLE THAT RESPONDENTS EL DORADO ET AL.s PRIOR, ACTUAL KNOWLEDGE OF
PETITIONER PLDTS AGREEMENT TO BUY AND SELL WITH RESPONDENT
CARRASCOSO RESULTING IN THE DELIVERY TO, AND POSSESSION, OCCUPATION AND
DEVELOPMENT BY, SAID PETITIONER OF THE FARM, IS EQUIVALENT TO REGISTRATION
OF SUCH RIGHT, INTEREST AND TITLE AND, THEREFORE, A PRIOR REGISTRATION NOT
AFFECTED BY THE LATER NOTICE OF LIS PENDENS.58 (Underscoring supplied)
Carrascoso posits that in the El Dorado Board Resolution and the Affidavit of Feliciano Leviste,
both dated March 23, 1972, no objection was interposed to his mortgaging of the property to
any bank provided that the balance of the purchase price of the property under the March 23,
1972 Deed of Sale of Real Property is recognized, hence, El Dorado could collect the unpaid
balance of P1,300,000.00 only after the mortgage in favor of HSB is paid in full; and the filing of
the complaint for rescission with damages on March 15, 1977 was premature as he fully paid

37
his obligation to HSB only on April 5, 1977 as evidenced by the Cancellation of
Mortgage59 signed by HSB President Gregorio B. Licaros.
Carrascoso further posits that extensions of the period to pay El Dorado were verbally accorded
him by El Dorados directors and officers, particularly Jose and Angel Leviste.
Article 1191 of the Civil Code provides:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
Reciprocal obligations are those which arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of one is dependent upon the
obligation of the other.60 They are to be performed simultaneously such that the performance of
one is conditioned upon the simultaneous fulfillment of the other.61
The right of rescission of a party to an obligation under Article 1191 is predicated on a breach of
faith by the other party who violates the reciprocity between them.62
A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership
of and deliver a determinate thing, and the buyer obligates itself to pay therefor a price certain in
money or its equivalent.63 The non-payment of the price by the buyer is a resolutory condition
which extinguishes the transaction that for a time existed, and discharges the obligations
created thereunder.64 Such failure to pay the price in the manner prescribed by the contract of
sale entitles the unpaid seller to sue for collection or to rescind the contract.65
In the case at bar, El Dorado already performed its obligation through the execution of the
March 23, 1972 Deed of Sale of Real Property which effectively transferred ownership of the
property to Carrascoso. The latter, on the other hand, failed to perform his correlative obligation
of paying in full the contract price in the manner and within the period agreed upon.
The terms of the Deed are clear and unequivocal: Carrascoso was to pay the balance of the
purchase price of the property amounting to P1,300,000.00 plus interest thereon at the rate of
10% per annum within a period of three (3) years from the signing of the contract on March 23,
1972. When Jose Leviste informed him that El Dorado was seeking rescission of the contract by
letter of February 21, 1977, the period given to him within which to fully satisfy his obligation had
long lapsed.

38
The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no objection to
Carrascosos mortgaging of the property to any bank did not have the effect of suspending the
period to fully pay the purchase price, as expressly stipulated in the Deed, pending full payment
of any mortgage obligation of Carrascoso.
As the CA correctly found:
The adverted resolution (Exhibit 2) does not say that the obligation of Carrascoso to pay the
balance was extended. Neither can We see in it anything that can logically infer said
accommodation.
A partially unpaid seller can agree to the buyers mortgaging the subject of the sale without
changing the time fixed for the payment of the balance of the price. The two agreements are not
incompatible with each other such that when one is to be implemented, the other has to be
suspended. In the case at bench, there was no impediment for Carrascoso to pay the balance
of the price after mortgaging the land.
Also, El Dorados subordinating its "preferred claim" or waiving its superior "vendors lien" over
the land in favor of the mortgagee of said property only means that in a situation where the
unpaid price of the Land and loan secured by the mortgage over the Land both become due and
demandable, the mortgagee shall have precedence in going after the Land for the satisfaction of
the loan. Such accommodations do not necessarily imply the modification of the period fixed in
the contract of sale for the payment by Carrascoso of the balance.
The palpable purpose of El Dorado in not raising any objection to Carrascosos mortgaging the
land was to eliminate any legal impediment to such a contract. That was so succinctly
expressed in the Affidavit (Exhibit 2-A) of President Feleciano (sic) Leviste. El Dorados yielding
its "superior lien" over the land in favor of the mortgagee was plainly intended to overcome the
natural reluctance of lending institutions to accept a land whose price has not yet been fully paid
as collateral of a loan.66 (Underscoring supplied)
Respecting Carrascosos insistence that he was granted verbal extensions within which to pay
the balance of the purchase price of the property by El Dorados directors and officers Jose and
Angel Leviste, this Court finds the same unsubstantiated by the evidence on record.
It bears recalling that Jose Leviste wrote Carrascoso, by letter of February 21, 1977, calling his
attention to his failure to comply, despite "numerous" requests, with his obligation to pay the
amount of P1,300,000.00 and 10% annual interest thereon, and advising him that "we would
like to rescind the contract of sale." This letter reiterated the term of payment agreed upon in the
March 23, 1972 Deed of Sale of Real Property and Carrascososs non-compliance therewith.
Carrascoso, harping on Jose Levistes March 10, 1977 letter to Lauros counsel wherein he
(Jose Leviste) stated that "some of the Directors of the corporation could not see their way clear
in complying with the demands of [Lauro] and have failed to reach a consensus to bring the
corresponding action for rescission of the contract against Dr. Fernando Carrascoso," argues
that the extensions priorly given to him "no doubt lead to the logical conclusion on some of the
directors inability to file suit against him."67
The argument is specious. As the CA found, even if some officers of El Dorado were initially
reluctant to file suit against him, the same should not be interpreted to mean that this was

39
brought about by a prior extension of the period to pay the balance of the purchase price of the
property as such reluctance could have been due to a myriad of reasons totally unrelated to the
period of payment of the balance.
The bottomline however is, if El Dorado really intended to extend the period of payment of the
balance there was absolutely no reason why it did not do it in writing in clear and unmistakable
terms. That there is no such writing negates all the speculations of the court a quo and
pretensions of Carrascoso.
xxx
The unalterable fact here remains that on March 23, 1973, with or without demand, the
obligation of Carrascoso to pay P519,933.33 became due. The same was true on March 23,
1974 and on March 23, 1975 for equal amounts. Since he did not perform his obligation under
the contract of sale, he, therefore, breached it. Having breached the contract, El Dorados cause
of action for rescission of that contract arose.68 (Underscoring supplied)
Carrascoso goes on to argue that the appellate court erred in ignoring the import of the warranty
of non-tenancy expressly stipulated in the March 23, 1972 Deed of Sale of Real Property. He
alleges that on March 8, 1972 or two weeks prior to the execution of the Deed of Sale, he
discovered, while inspecting the property on board a helicopter, that there were people and
cattle in the area; when he confronted El Dorado about it, he was told that the occupants were
caretakers of cattle who would soon leave;69 four months after the execution of the Deed of
Sale, upon inquiry with the Bureau of Lands and the Bureau of Soils, he was informed that there
were people claiming to be tenants in certain portions of the property;70 and he thus brought the
matter again to El Dorado which informed him that the occupants were not tenants but
squatters.71
Carrascoso now alleges that as a result of what he concludes to be a breach of the warranty of
non-tenancy committed by El Dorado, he incurred expenses in the amount of P2,890,000.00 for
which he should be reimbursed, his unpaid obligation to El Dorado amounting to P1,300,000.00
to be deducted therefrom.72
The breach of an express warranty makes the seller liable for damages.73 The following
requisites must be established in order that there be an express warranty in a contract of sale:
(1) the express warranty must be an affirmation of fact or any promise by the seller relating to
the subject matter of the sale; (2) the natural tendency of such affirmation or promise is to
induce the buyer to purchase the thing; and (3) the buyer purchases the thing relying on such
affirmation or promise thereon.74
Under the March 23, 1972 Deed of Sale of Real Property, El Dorado warranted that the property
was not being cultivated by any tenant and was, and therefore, not covered by the provisions of
the Land Reform Code. If Carrascoso would become liable under the said law, he would be
reimbursed for all expenses and damages incurred thereon.
Carrascoso claims to have incurred expenses in relocating persons found on the property four
months after the execution of the Deed of Sale. Apart from such bare claim, the records are
bereft of any proof that those persons were indeed tenants.75 The fact of tenancy76 not having
been priorly established,77 El Dorado may not be held liable for actual damages.

40
Carrascoso further argues that both the trial and appellate courts erred in holding that the sale
of the 1,000 hectare portion of the property to PLDT, as well as its subsequent sale to PLDTAC,
is subject to the March 15, 1977 Notice of Lis Pendens.
PLDT additionally argues that the CA incorrectly ignored the Agreement to Buy and Sell which it
entered into with Carrascoso on July 11, 1975, positing that the efficacy of its purchase from
Carrascoso, upon his fulfillment of the condition it imposed resulting in its decision to formalize
their transaction and execute the April 6, 1977 Deed of Sale, retroacted to July 11, 1975 or
before the annotation of the Notice of Lis Pendens.78
The pertinent portions of the July 11, 1975 Agreement to Buy and Sell between PLDT and
Carrascoso read:
2. That the VENDOR hereby agrees to sell to the VENDEE and the latter hereby agrees to
purchase from the former, 1,000 hectares of the above-described parcel of land as shown in the
map hereto attached as Annex "A" and made an integral part hereof and as hereafter to be
more particularly determined by the survey to be conducted by Certeza & Co., at the purchase
price of P3,000.00 per hectare or for a total consideration of Three Million Pesos
(P3,000,000.00) payable in cash.
3. That this contract shall be considered rescinded and cancelled and of no further force and
effect, upon failure of the VENDOR to clear the aforementioned 1,000 hectares of land of all the
occupants therein located, within a period of one (1) year from the date of execution of this
Agreement. However, the VENDEE shall have the option to extend the life of this Agreement by
another six months, during which period the VENDEE shall definitely inform the VENDOR of its
decision on whether or not to finalize the deed of absolute sale for the aforementioned 1,000
hectares of land.
The VENDOR agrees that the amount of P500.00 per family within the aforementioned 1,000
hectares of land shall be spent by him for relocation purposes, which amount however shall be
advanced by the VENDEE and which shall not exceed the total amount of P120,000.00, the
same to be thereafter deducted by the VENDEE from the aforementioned purchase price of
P3,000,000.00.
The aforementioned advance of P120,000.00 shall be remitted by the VENDEE to the VENDOR
upon the signing of this Agreement.
xxx
It is likewise further agreed that the VENDEE shall have the right to enter into any part of the
aforementioned 1,000 hectares at any time within the period of this Agreement for purposes of
commencing the development of the same.
xxx
5. Title to the aforementioned land shall also be cleared of all liens or encumbrances and if there
are any unpaid taxes, existing mortgages, liens and encumbrances on the land, the payments to
be made by the VENDEE to the VENDOR of the purchase price shall first be applied to liquidate
said mortgages, liens and/or encumbrances, such that said payments shall be made directly to

41
the corresponding creditors. Thus, the balance of the purchase price will be paid to the
VENDOR after the title to the land is cleared of all such liens and encumbrances.
xxx
7. The VENDOR agrees that, during the existence of this Agreement and without the previous
written permission from the VENDEE, he shall not sell, cede, assign and/or transfer the parcel
of land subject of this Agreement.79
A notice of lis pendens is an announcement to the whole world that a particular real property is
in litigation, and serves as a warning that one who acquires an interest over said property does
so at his own risk, or that he gambles on the result of the litigation over said property.80
Once a notice of lis pendens has been duly registered, any cancellation or issuance of title over
the land involved as well as any subsequent transaction affecting the same would have to be
subject to the outcome of the suit. In other words, a purchaser who buys registered land with full
notice of the fact that it is in litigation between the vendor and a third party stands in the shoes
of his vendor and his title is subject to the incidents and result of the pending litigation.81
x x x Notice of lis pendens has been conceived and, more often than not, availed of, to protect
the real rights of the registrant while the case involving such rights is pending resolution or
decision. With the notice of lis pendensduly recorded, and while it remains uncancelled, the
registrant could rest secure that he would not lose the property or any part of it during the
litigation.
The filing of a notice of lis pendens in effect (1) keeps the subject matter of litigation within the
power of the courtuntil the entry of the final judgment so as to prevent the defeat of the latter by
successive alienations; and (2) binds a purchaser of the land subject of the litigation to the
judgment or decree that will be promulgated thereon whether such a purchaser is a bona
fide purchaser or not; but (3) does not create a non-existent right or lien.
The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose
of which is to keep the subject matter of the litigation within the power of the court until the
judgment or decree shall have been entered; otherwise by successive alienations pending the
litigation, its judgment or decree shall be rendered abortive and impossible of execution. The
doctrine of lis pendens is based on considerations of public policy and convenience, which
forbid a litigant to give rights to others, pending the litigation, so as to affect the proceedings of
the court then progressing to enforce those rights, the rule being necessary to the administration
of justice in order that decisions in pending suits may be binding and may be given full effect, by
keeping the subject matter in controversy within the power of the court until final adjudication,
that there may be an end to litigation, and to preserve the property that the purpose of the
pending suit may not be defeated by successive alienations and transfers of title.82 (Italics in the
original)
In ruling against PLDT and PLDTAC, the appellate court held:
PLDT and PLDTAC argue that in reality the Farm was bought by the former on July 11, 1975
when Carrascoso and it entered into the Agreement to Buy and Sell (Exhibit 15). How can an
agreement to buy and sell which is a preparatory contract be the same as a contract of sale
which is a principal contract? If PLDTs contention is correct that it bought the Farm on July 11,

42
1975, why did it buy the same property again on April 6, 1977? There is simply no way PLDT
and PLDTAC can extricate themselves from the effects of said Notice of Lis Pendens. It is
admitted that PLDT took possession of the Farm on July 11, 1975 after the execution of the
Agreement to Buy and Sell but it did so not as owner but as prospective buyer of the property.
As prospective buyer which had actual on (sic) constructive notice of the lis pendens, why did it
pursue and go through with the sale if it had not been willing to gamble with the result of this
case?83 (Underscoring supplied)
Further, in its July 8, 2004 Resolution, the CA held:
PLDT cannot shield itself from the notice of lis pendens because all that it had at the time of its
inscription was an Agreement to Buy and Sell with CARRASCOSO, which in effect is a mere
contract to sell that did not pass to it the ownership of the property.
xxx
Ownership was retained by CARRASCOSO which EL DORADO may very well recover through
its action for rescission.
xxx
PLDTs possession at the time the notice of lis pendens was registered not being a legal
possession based on ownership but a mere possession in fact and the Agreement to Buy and
Sell under which it supposedly took possession not being registered, it is not protected from an
adverse judgment that may be rendered in the case subject of the notice of lis
pendens.84 (Underscoring supplied)
In a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas
in a contract to sell, ownership is not transferred upon delivery of the property but upon full
payment of the purchase price.85 In the former, the vendor has lost and cannot recover
ownership until and unless the contract is resolved or rescinded; whereas in the latter, title is
retained by the vendor until the full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective.86
PLDT argues that the July 11, 1975 Agreement to Buy and Sell is a conditional contract of sale,
thus calling for the application of Articles 118187 and 118788 of the Civil Code as held in Coronel
v. Court of Appeals.89
The Court is not persuaded.
For in a conditional contract of sale, 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.90 Whereas in a contract to sell,
upon fulfillment of the suspensive condition, 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.91

43
A perusal of the contract92 adverted to in Coronel reveals marked differences from the
Agreement to Buy and Sell in the case at bar. In the Coronel contract, there was a clear intent
on the part of the therein petitioners-sellers to transfer title to the therein respondent-buyer. In
the July 11, 1975 Agreement to Buy and Sell, PLDT still had to "definitely inform Carrascoso of
its decision on whether or not to finalize the deed of absolute sale for the 1,000 hectare portion
of the property," such that in the April 6, 1977 Deed of Absolute Sale subsequently executed, the
parties declared that they "are now decided to execute" such deed, indicating that the
Agreement to Buy and Sell was, as the appellate court held, merely a preparatory contract in
the nature of a contract to sell. In fact, the parties even had to stipulate in the said Agreement to
Buy and Sell that Carrascoso, "during the existence of the Agreement, shall not sell, cede,
assign and/or transfer the parcel of land," which provision this Court has held to be a typical
characteristic of a contract to sell.93
Being a contract to sell, what was vested by the July 11, 1975 Agreement to Buy and Sell to
PLDT was merely the beneficial title to the 1,000 hectare portion of the property.
The right of Daniel Jovellanos to the property under the contract [to sell] with Philamlife was
merely an inchoate and expectant right which would ripen into a vested right only upon his
acquisition of ownership which, as aforestated, was contingent upon his full payment of the
rentals and compliance with all his contractual obligations thereunder. A vested right is an
immediate fixed right of present and future enjoyment. It is to be distinguished from a right that
is expectant or contingent. It is a right which is fixed, unalterable, absolute, complete and
unconditional to the exercise of which no obstacle exists, and which is perfect in itself and not
dependent upon a contingency. Thus, for a property right to be vested, there must be a
transition from the potential or contingent to the actual, and the proprietary interest must have
attached to a thing; it must have become fixed or established and is no longer open to doubt or
controversy.94 (Underscoring supplied)
In the case at bar, the July 11, 1975 Agreement to Buy and Sell was not registered, which act of
registration is the operative act to convey and affect the land.
An agreement to sell is a voluntary instrument as it is a willful act of the registered owner. As
such voluntary instrument, Section 50 of Act No. 496 [now Section 51 of PD 1529] expressly
provides that the act of registration shall be the operative act to convey and affect the land. And
Section 55 of the same Act [now Section 53 of PD 1529] requires the presentation of the
owners duplicate certificate of title for the registration of any deed or voluntary instrument. As
the agreement to sell involves an interest less than an estate in fee simple, the same should
have been registered by filing it with the Register of Deeds who, in turn, makes a brief
memorandum thereof upon the original and owners duplicate certificate of title. The reason for
requiring the production of the owners duplicate certificate in the registration of a voluntary
instrument is that, being a willful act of the registered owner, it is to be presumed that he is
interested in registering the instrument and would willingly surrender, present or produce his
duplicate certificate of title to the Register of Deeds in order to accomplish such registration.
However, where the owner refuses to surrender the duplicate certificate for the annotation of the
voluntary instrument, the grantee may file with the Register of Deeds a statement setting forth
his adverse claim, as provided for in Section 110 of Act No. 496. xxx95 (Underscoring supplied)
In Valley Golf Club, Inc. v. Salas,96 where a Deed of Absolute Sale covering a parcel of land was
executed prior to the annotation of a notice of lis pendens by the original owner thereof but
which Deed was registered after such annotation, this Court held:

44
The advance payment of P15,000.00 by the CLUB on October 18, 1960 to ROMERO, and the
additional payment by the CLUB of P54,887.50 as full payment of the purchase price on
October 26, 1960, also to ROMERO, cannot be held to be the dates of sale such as to precede
the annotation of the adverse claim by the SISTERS on October 25, 1960 and the lis
pendens on October 27, 1960. It is basic that it is the act of registration of the sale that is the
operative act to convey and affect the land. That registration was not effected by the CLUB until
December 4, 1963, or three (3) years after it had made full payment to ROMERO. xxx
xxx
As matters stand, therefore, in view of the prior annotations of the adverse claim and lis
pendens, the CLUB must be legally held to have been aware of the flaws in the title. By virtue of
the lis pendens, its acquisition of the property was subject to whatever judgment was to be
rendered in Civil Case No. 6365. xxx The CLUBs cause of action lies, not against the
SISTERS, to whom the property had been adjudged by final judgment in Civil Case No. 6365,
but against ROMERO who was found to have had no right to dispose of the
land.97 (Underscoring supplied)
PLDT further argues that El Dorados prior, actual knowledge of the July 11, 1975 Agreement to
Buy and Sell is equivalent to prior registration not affected by the Notice of Lis Pendens. As
such, it concludes that it was not a purchaser pendente lite nor a purchaser in bad faith.
PLDT anchors its argument on the testimony of Lauro and El Dorados counsel Atty. Aquino
from which it infers that Atty. Aquino filed the complaint for rescission and caused the notice
of lis pendens to be annotated on Carrascosos title only after reading newspaper reports on the
sale to PLDT of the 1,000 hectare portion of the property.
The pertinent portions of Atty. Aquinos testimony are reproduced hereunder:
Q: Do you know, Atty. Aquino, what you did after the filing of the complaint in the instant case of
Dr. Carrascoso?
A: Yes, I asked my associates to go to Mamburao and had the notice of Lis Pendens covering
the property as a result of the filing of the instant complaint.
Q: Do you know the notice of Lis Pendens?
A: Yes, it is evidenced by a [Transfer] Certificate Copy of Title of Dr. Carrascoso entitled "Notice
of Lis Pendens".
Q: As a consequence of the filing of the complaint which was annotated, you have known that?
A: Yes.
xxx
Q: After the annotation of the notice of Lis Pendens, do you know, if any further transaction was
held on the property?

45
A: As we have read in the newspaper, that Dr. Carrascoso had sold the property in favor of the
PLDT, Co.
Q: And what did you do?
A: We verified the portion of the property having recorded under entry No. 24770 xxx and we
also discovered that the articles incorporated (sic) and other corporate matters had been
organized and established of the PLDT, Co., and had been annotated.
xxx
Q: Do you know what happened to the property?
A: It was sold by the PLDT to its sub-PLDT Agitating (sic) Co. when at that time there was
already notice of Lis Pendens.
xxx
Q: In your testimony, you mentioned that you had come cross- (sic) reading the sale of the
subject litigation (sic) between Dr. Fernando Carrascoso, the defendant herein and the PLDT,
one of defendants-intervenor, may I say when?
A: I cannot remember now, but it was in the newspaper where it was informed or mentioned of
the sold property to PLDT.
xxx
Q: Will you tell to the Honorable Court what newspaper was that?
A: Well, I cannot remember what is that newspaper. That is only a means of [confirming] the
transaction. What was [confirmed] to us is whether there was really transaction (sic) and we
found out that there was in the Register of Deeds and that was the reason why we obtained the
case.
Q: Well, may I say, is there any reason, the answer is immaterial. The question is as regard the
matter of time when counsel is being able (sic) to read the newspaper allegedly (interrupted)
xxx
Q: The idea of the question, your Honor, is to establish and ask further the notice of [lis
pendens] with regards (sic) to the transfer of property to PLDT, would have been accorded prior
to the pendency of the case.
xxx
A: I cannot remember.98
PLDT also relies on the following testimony of Carrascoso:

46
Q: You mentioned Doctor a while ago that you mentioned to the late Governor Feliciano Leviste
regarding your transaction with the PLDT in relation to the subject property you allegedly
mention (sic) your intention to sell with the PLDT?
A: It was Dr. Jose Leviste and Dr. Angel Leviste that was constantly in touched (sic) with me
with respect to my transaction with the PLDT, sir.
Q: Any other officer of the corporation who knows with instruction aside from Dr. Angel Leviste
and Dr. Jose Leviste?
A: Yes, sir. It was Trinidad Andaya Leviste and Assemblyman Expedito Leviste.
xxx
Q: What is the position of Mrs. Trinidad Andaya Leviste with the plaintiff-corporation?
A: One of the stockholders and director of the plaintiff-corporation, sir.
Q: Will you please tell us the other officers?
A: Expedito Leviste, sir.
A: Will you tell the position of Expedito Leviste?
A: He was the corporate secretary, sir.
Q: If you know, was Dr. Jose Leviste also a director at that time?
A: Yes, sir.99
On the other hand, El Dorado asserts that it had no knowledge of the July 11, 1975 Agreement
to Buy and Sell prior to the filing of the complaint for rescission against Carrascoso and the
annotation of the notice of lis pendenson his title. It further asserts that it always acted in good
faith:
xxx The contract to sell between the Petitioner [Carrascoso] and PLDT was executed in July 11,
1975. There is no evidence that El Dorado was notified of this contract. The property is located
in Mindoro, El Dorado is based in Manila. The land was planted to rice. This was not an unusual
activity on the land, thus it could have been the Petitioner who was using the land. Not having
been notified of this sale, El Dorado could not have stopped PLDT from developing the land.
The absolute sale of the land to PLDT took place on April 6, 1977, or AFTER the filing of this
case on March 15, 1977 and the annotation of a notice of lis pendens on March 16, 1977.
Inspite of the notice of lis pendens, PLDT then PLDTAC persisted not only in buying the land but
also in putting up improvements on the property such as buildings, roads, irrigation systems and
drainage. This was done during the pendency of this case, where PLDT and PLDTAC actively
participated as intervenors. They were not innocent bystanders. xxx100

47
This Court finds the above-quoted testimony of Atty. Aquino to be susceptible of conflicting
interpretations. As such, it cannot be the basis for inferring that El Dorado knew of the July 11,
1975 Agreement to Buy and Sell prior to the annotation of the notice of lis pendens on
Carrascosos title.
Respecting Carrascosos allegation that some of the directors and officers of El Dorado had
knowledge of his dealings with PLDT, it is true that knowledge of facts acquired or possessed by
an officer or agent of a corporation in the course of his employment, and in relation to matters
within the scope of his authority, is notice to the corporation, whether he communicates such
knowledge or not.101 In the case at bar, however, apart from Carrascosos claim that he in fact
notified several of the directors about his intention to sell the 1,000 hectare portion of the
property to PLDT, no evidence was presented to substantiate his claim. Such self-serving,
uncorroborated assertion is indubitably inadequate to prove that El Dorado had notice of the
July 11, 1975 Agreement to Buy and Sell before the annotation of the notice of lis pendens on
his title.
PLDT is, of course, not without recourse. As held by the CA:
Between Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the latter acted in
good faith. This is so because it was Carrascosos refusal to pay his just debt to El Dorado that
caused PLDT/PLDTAC to suffer pecuniary losses. Therefore, Carrascoso should return to
PLDT/PLDTAC the P3,000,000.00 price of the farm plus legal interest from receipt thereof until
paid.102 (Underscoring supplied)
The appellate courts decision ordering the rescission of the March 23, 1972 Deed of Sale of
Real Property between El Dorado and Carrascoso being in order, mutual restitution follows to
put back the parties to their original situation prior to the consummation of the contract.
The exercise of the power to rescind extinguishes the obligatory relation as if it had never been
created, the extinction having a retroactive effect. The rescission is equivalent to invalidating
and unmaking the juridical tie, leaving things in their status before the celebration of the
contract.
Where a contract is rescinded, it is the duty of the court to require both parties to surrender that
which they have respectively received and to place each other as far as practicable in his
original situation, the rescission has the effect of abrogating the contract in all
parts.103 (Underscoring supplied)
The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the notice of lis
pendens, and as the Court affirms the declaration by the appellate court of the rescission of the
Deed of Sale executed by El Dorado in favor of Carrascoso, possession of the 1,000 hectare
portion of the property should be turned over by PLDT to El Dorado.
As regards the improvements introduced by PLDT on the 1,000 hectare portion of the property,
a distinction should be made between those which it built prior to the annotation of the notice
of lis pendens and those which it introduced subsequent thereto.
When a person builds in good faith on the land of another, Article 448 of the Civil Code governs:

48
Art. 448. The owner of the land on which anything has been built, sown or planted in good faith,
shall have the right to appropriate as his own the works, sowing or planting, after payment of the
indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay
the price of the land, and the one who sowed, the proper rent. However, the builder or planter
cannot be obliged to buy the land if its value is considerably more than that of the building or
trees. In such a case, he shall pay reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after the proper indemnity. The parties shall agree upon the
terms of the lease and in case of disagreement, the court shall fix the terms thereof.
The above provision covers cases in which the builders, sowers or planters believe themselves
to be owners of the land or, at least, to have a claim of title thereto.104 Good faith is thus
identified by the belief that the land is owned; or that by some title one has the right to build,
plant, or sow thereon.105
The owner of the land on which anything has been built, sown or planted in good faith shall
have the right to appropriate as his own the building, planting or sowing, after payment to the
builder, planter or sower of the necessary and useful expenses,106 and in the proper case,
expenses for pure luxury or mere pleasure.107
The owner of the land may also oblige the builder, planter or sower to purchase and pay the
price of the land.
If the owner chooses to sell his land, the builder, planter or sower must purchase the land,
otherwise the owner may remove the improvements thereon. The builder, planter or sower,
however, is not obliged to purchase the land if its value is considerably more than the building,
planting or sowing. In such case, the builder, planter or sower must pay rent to the owner of the
land.
If the parties cannot come to terms over the conditions of the lease, the court must fix the terms
thereof.
The right to choose between appropriating the improvement or selling the land on which the
improvement of the builder, planter or sower stands, is given to the owner of the land.108
On the other hand, when a person builds in bad faith on the land of another, Articles 449 and
450 govern:
Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built,
planted or sown without right to indemnity.
Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith
may demand the demolition of the work, or that the planting or sowing be removed, in order to
replace things in their former condition at the expense of the person who built, planted or
sowed; or he may compel the builder or planter to pay the price of the land, and the sower the
proper rent.
In the case at bar, it is undisputed that PLDT commenced construction of improvements on the
1,000 hectare portion of the property immediately after the execution of the July 11, 1975
Agreement to Buy and Sell with the full consent of Carrascoso.109 Thus, until March 15, 1977
when the Notice of Lis Pendens was annotated on Carrascosos TCT No. T-6055, PLDT is

49
deemed to have been in good faith in introducing improvements on the 1,000 hectare portion of
the property.
After March 15, 1977, however, PLDT could no longer invoke the rights of a builder in good
faith.
Should El Dorado then opt to appropriate the improvements made by PLDT on the 1,000
hectare portion of the property, it should only be made to pay for those improvements at the
time good faith existed on the part of PLDT or until March 15, 1977,110 to be pegged at its
current fair market value.111
The commencement of PLDTs payment of reasonable rent should start on March 15, 1977 as
well, to be paid until such time that the possession of the 1,000 hectare portion is delivered to El
Dorado, subject to the reimbursement of expenses as aforestated, that is, if El Dorado opts to
appropriate the improvements.112
If El Dorado opts for compulsory sale, however, the payment of rent should continue up to the
actual transfer of ownership.113
WHEREFORE, the petitions are DENIED. The Decision dated January 13, 1996 and Resolution
dated July 8, 2004 of the Court of Appeals are AFFIRMED with MODIFICATION in that
1) the Regional Trial Court of San Jose, Occidental Mindoro, Branch 45 is further directed to:
a. determine the present fair price of the 1,000 hectare portion of the property and the amount of
the expenses actually spent by PLDT for the improvements thereon as of March 15, 1977;
b. include for determination the increase in value ("plus value") which the 1,000 hectare portion
may have acquired by reason of the existence of the improvements built by PLDT before March
15, 1977 and the current fair market value of said improvements;
2. El Dorado is ordered to exercise its option under the law, whether to appropriate the
improvements, or to oblige PLDT to pay the price of the land, and
3) PLDT shall pay El Dorado the amount of Two Thousand Pesos (P2,000.00) per month as
reasonable compensation for its occupancy of the 1,000 hectare portion of the property from the
time that its good faith ceased to exist until such time that possession of the same is delivered
to El Dorado, subject to the reimbursement of the aforesaid expenses in favor of PLDT or until
such time that the payment of the purchase price of the 1,000 hectare portion is made by PLDT
in favor of El Dorado in case the latter opts for its compulsory sale.
Costs against petitioners.
SO ORDERED.

50
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 133638

April 15, 2005

PERPETUA VDA. DE APE, Petitioner,

vs.
THE HONORABLE COURT OF APPEALS and GENOROSA CAWIT VDA. DE
LUMAYNO, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals in CAG.R. CV No. 45886 entitled, "Generosa Cawit de Lumayno, accompanied by her husband
Braulio Lumayno v. Fortunato Ape, including his wife Perpetua de Ape."
The pertinent facts are as follows:
Cleopas Ape was the registered owner of a parcel of land particularly known as Lot No. 2319 of
the Escalante Cadastre of Negros Occidental and covered by Original Certificate of Title (OCT)
No. RP 1379 (RP-154 [300]).2Upon Cleopas Ape's death sometime in 1950, the property passed
on to his wife, Maria Ondoy, and their eleven (11) children, namely: Fortunato, Cornelio,
Bernalda, Bienvenido, Encarnacion, Loreta, Lourdes, Felicidad, Adela, Dominador, and
Angelina, all surnamed Ape.
On 15 March 1973, Generosa Cawit de Lumayno (private respondent herein), joined by her
husband, Braulio,3instituted a case for "Specific Performance of a Deed of Sale with Damages"
against Fortunato and his wife Perpetua (petitioner herein) before the then Court of First
Instance of Negros Occidental. It was alleged in the complaint that on 11 April 1971, private
respondent and Fortunato entered into a contract of sale of land under which for a consideration
of P5,000.00, Fortunato agreed to sell his share in Lot No. 2319 to private respondent. The
agreement was contained in a receipt prepared by private respondent's son-in-law, Andres
Flores, at her behest. Said receipt was attached to the complaint as Annex "A" thereof and later
marked as Exhibit "G" for private respondent. The receipt states:

April 11, 1971

TO WHOM IT MAY CONCERN:

51
This date received from Mrs. Generosa Cawit de Lumayno the sum of THIRTY PESOS
ONLY as Advance Payment of my share in Land Purchased, for FIVE THOUSAND
PESOS LOT #2319.

(Signed)
FORTUNATO APE

P30.00 WITNESS:
(Illegible)4
As private respondent wanted to register the claimed sale transaction, she supposedly
demanded that Fortunato execute the corresponding deed of sale and to receive the balance of
the consideration. However, Fortunato unjustifiably refused to heed her demands. Private
respondent, therefore, prayed that Fortunato be ordered to execute and deliver to her "a
sufficient and registrable deed of sale involving his one-eleventh (1/11) share or participation in
Lot No. 2319 of the Escalante Cadastre; to pay P5,000.00 in damages; P500.00 reimbursement
for litigation expenses as well as additional P500.00 for every appeal made; P2,000.00 for
attorney's fees; and to pay the costs.5
Fortunato and petitioner denied the material allegations of the complaint and claimed that
Fortunato never sold his share in Lot No. 2319 to private respondent and that his signature
appearing on the purported receipt was forged. By way of counterclaim, the defendants below
maintained having entered into a contract of lease with respondent involving Fortunato's portion
of Lot No. 2319. This purported lease contract commenced in 1960 and was supposed to last
until 1965 with an option for another five (5) years. The annual lease rental was P100.00 which
private respondent and her husband allegedly paid on installment basis. Fortunato and
petitioner also assailed private respondent and her husband's continued possession of the rest
of Lot No. 2319 alleging that in the event they had acquired the shares of Fortunato's co-owners
by way of sale, he was invoking his right to redeem the same. Finally, Fortunato and petitioner
prayed that the lease contract between them and respondent be ordered annulled; and that
respondent be ordered to pay them attorney's fees; moral damages; and exemplary damages.6
In their reply,7 the private respondent and her husband alleged that they had purchased from
Fortunato's co-owners, as evidenced by various written instruments,8 their respective portions of
Lot No. 2319. By virtue of these sales, they insisted that Fortunato was no longer a co-owner of
Lot No. 2319 thus, his right of redemption no longer existed.
Prior to the resolution of this case at the trial court level, Fortunato died and was substituted in
this action by his children named Salodada, Clarita, Narciso, Romeo, Rodrigo, Marieta,
Fortunato, Jr., and Salvador, all surnamed Ape.9
During the trial, private respondent testified that she and her husband acquired the various
portions of Lot No. 2319 belonging to Fortunato's co-owners. Thereafter, her husband caused
the annotation of an adverse claim on the certificate of title of Lot No. 2319.10 The annotation
states:

52
Entry No. 123539 Adverse claim filed by Braulio Lumayno. Notice of adverse claim filed by
Braulio Lumayno affecting the lot described in this title to the extent of 77511.93 square meters,
more or less, the aggregate area of shares sold to him on the basis of (alleged) sales in his
possession. Doc. No. 157, Page No. 33, Book No. XI, Series of 1967 of Alexander Cawit of
Escalante, Neg. Occ. Date of instrument. June 22, 1967 at 8:30 a.m. (SGD)
FEDENCIORRAZ, Actg. Register of Deeds.11
In addition, private respondent claimed that after the acquisition of those shares, she and her
husband had the whole Lot No. 2319 surveyed by a certain Oscar Mascada who came up with a
technical description of said piece of land.12 Significantly, private respondent alleged that
Fortunato was present when the survey was conducted.13
Also presented as evidence for private respondent were pictures taken of some parts of Lot No.
2319 purportedly showing the land belonging to Fortunato being bounded by a row of banana
plants thereby separating it from the rest of Lot No. 2319.14
As regards the circumstances surrounding the sale of Fortunato's portion of the land, private
respondent testified that Fortunato went to her store at the time when their lease contract was
about to expire. He allegedly demanded the rental payment for his land but as she was no
longer interested in renewing their lease agreement, they agreed instead to enter into a contract
of sale which Fortunato acceded to provided private respondent bought his portion of Lot No.
2319 for P5,000.00. Thereafter, she asked her son-in-law Flores to prepare the aforementioned
receipt. Flores read the document to Fortunato and asked the latter whether he had any
objection thereto. Fortunato then went on to affix his signature on the receipt.
For her part, petitioner insisted that the entire Lot No. 2319 had not yet been formally
subdivided;15 that on 11 April 1971 she and her husband went to private respondent's house to
collect past rentals for their land then leased by the former, however, they managed to collect
only thirty pesos;16 that private respondent made her (petitioner's) husband sign a receipt
acknowledging the receipt of said amount of money;17 and that the contents of said receipt were
never explained to them.18 She also stated in her testimony that her husband was an illiterate
and only learned how to write his name in order to be employed in a sugar central.19 As for
private respondent's purchase of the shares owned by Fortunato's co-owners, petitioner
maintained that neither she nor her husband received any notice regarding those sales
transactions.20 The testimony of petitioner was later on corroborated by her daughter-in-law,
Marietta Ape Dino.21
After due trial, the court a quo rendered a decision22 dismissing both the complaint and the
counterclaim. The trial court likewise ordered that deeds or documents representing the sales
of the shares previously owned by Fortunato's co-owners be registered and annotated on the
existing certificate of title of Lot No. 2319. According to the trial court, private respondent failed
to prove that she had actually paid the purchase price of P5,000.00 to Fortunato and petitioner.
Applying, therefore, the provision of Article 1350 of the Civil Code,23 the trial court concluded
that private respondent did not have the right to demand the delivery to her of the registrable
deed of sale over Fortunato's portion of the Lot No. 2319.
The trial court also rejected Fortunato and petitioner's claim that they had the right of
redemption over the shares previously sold to private respondent and the latter's husband,
reasoning as follows:

53
Defendants in their counterclaim invoke their right of legal redemption under Article 1623 of the
New Civil Code in view of the alleged sale of the undivided portions of the lot in question by their
co-heirs and co-owners as claimed by the plaintiffs in their complaint. They have been informed
by the plaintiff about said sales upon the filing of the complaint in the instant case as far back as
March 14, 1973. Defendant themselves presented as their very own exhibits copies of the
respective deeds of sale or conveyance by their said co-heirs and co-owners in favor of the
plaintiffs or their predecessors-in-interest way back on January 2, 1992 when they formally
offered their exhibits in the instant case; meaning, they themselves acquired possession of said
documentary exhibits even before they formally offered them in evidence. Under Art. 1623 of
the New Civil Code, defendants have only THIRTY (30) DAYS counted from their actual
knowledge of the exact terms and conditions of the deeds of sale or conveyance of their coheirs' and co-owners' share within which to exercise their right of legal redemption.24
Within the reglementary period, both parties filed their respective notices of appeal before the
trial court with petitioner and her children taking exception to the finding of the trial court that the
period within which they could invoke their right of redemption had already lapsed.25 For her
part, private respondent raised as errors the trial court's ruling that there was no contract of sale
between herself and Fortunato and the dismissal of their complaint for specific performance.26
The Court of Appeals, in the decision now assailed before us, reversed and set aside the trial
court's dismissal of the private respondent's complaint but upheld the portion of the court a
quo's decision ordering the dismissal of petitioner and her children's counterclaim. The
dispositive portion of the appellate court's decision reads:
WHEREFORE, the decision dated March 11, 1994, is hereby REVERSED and SET
ASIDE insofar as the dismissal of plaintiffs-appellants' complaint is concerned, and
another one is entered ordering the defendant-appellant Fortunato Ape and/or his wife
Perpetua de Ape and successors-in-interest to execute in favor of plaintiff-appellant
Generosa Cawit de Lumayno a Deed of Absolute Sale involving the one-eleventh (1/11)
share or participation of Fortunato Ape in Lot No. 2319, Escalante Cadastre, containing
an area of 12,527.19 square meters, more or less, within (30) days from finality of this
decision, and in case of non-compliance with this Order, that the Clerk of Court of said
court is ordered to execute the deed on behalf of the vendor. The decision is
AFFIRMED insofar as the dismissal of defendants-appellants' counterclaim is
concerned.
Without pronouncement as to costs.27
The Court of Appeals upheld private respondent's position that Exhibit "G" had all the earmarks
of a valid contract of sale, thus:
Exhibit G is the best proof that the P5,000.00 representing the purchase price of the 1/11th share
of Fortunato Ape was not paid by the vendee on April 11, 1971, and/or up to the present, but
that does not affect the binding force and effect of the document. The vendee having paid the
vendor an advance payment of the agreed purchase price of the property, what the vendor can
exact from the vendee is full payment upon his execution of the final deed of sale. As is shown,
the vendee precisely instituted this action to compel the vendor Fortunato Ape to execute the
final document, after she was informed that he would execute the same upon arrival of his
daughter "Bala" from Mindanao, but afterwards failed to live up to his contractual obligation
(TSN, pp. 11-13, June 10, 1992).

54
It is not right for the trial court to expect plaintiff-appellant to pay the balance of the purchase
price before the final deed is executed, or for her to deposit the equivalent amount in court in the
form of consignation. Consignation comes into fore in the case of a creditor to
whom tender of payment has been made and refuses without just cause to accept it (Arts. 1256
and 1252, N.C.C.; Querino vs. Pelarca, 29 SCRA 1). As vendee, plaintiff-appellant Generosa
Cawit de Lumayno does not fall within the purview of a debtor.
We, therefore, find and so hold that the trial court should have found that exhibit G bears all the
earmarks of a private deed of sale which is valid, binding and enforceable between the parties,
and that as a consequence of the failure and refusal on the part of the vendor Fortunato Ape to
live up to his contractual obligation, he and/or his heirs and successors-in-interest can be
compelled to execute in favor of, and to deliver to the vendee, plaintiff-appellant Generosa
Cawit de Lumayno a registerable deed of absolute sale involving his one-eleventh (1/11th) share
or participation in Lot No. 2319, Escalante Cadastre, containing an area of 12,527.19 square
meters, more or less, within 30 days from finality of this decision, and, in case of noncompliance within said period, this Court appoints the Clerk of Court of the trial court to execute
on behalf of the vendor the said document.28
The Court of Appeals, however, affirmed the trial court's ruling on the issue of petitioner and her
children's right of redemption. It ruled that Fortunato's receipt of the Second Owner's Duplicate
of OCT (RP) 1379 (RP-154 ([300]), containing the adverse claim of private respondent and her
husband, constituted a sufficient compliance with the written notice requirement of Article 1623
of the Civil Code and the period of redemption under this provision had long lapsed.
Aggrieved by the decision of the appellate court, petitioner is now before us raising, essentially,
the following issues: whether Fortunato was furnished with a written notice of sale of the shares
of his co-owners as required by Article 1623 of the Civil Code; and whether the receipt signed
by Fortunato proves the existence of a contract of sale between him and private respondent.
In her memorandum, petitioner claimed that the Court of Appeals erred in sustaining the court a
quo's pronouncement that she could no longer redeem the portion of Lot No. 2319 already
acquired by private respondent for no written notice of said sales was furnished them.
According to her, the Court of Appeals unduly expanded the scope of the law by equating
Fortunato's receipt of Second Owner's Duplicate of OCT (RP) 1379 (RP-154 ([300]) with the
written notice requirement of Article 1623. In addition, she argued that Exhibit "G" could not
possibly be a contract of sale of Fortunato's share in Lot No. 2319 as said document does not
contain "(a) definite agreement on the manner of payment of the price."29 Even assuming that
Exhibit "G" is, indeed, a contract of sale between private respondent and Fortunato, the latter
did not have the obligation to deliver to private respondent a registrable deed of sale in view of
private respondent's own failure to pay the full purchase price of Fortunato's portion of Lot No.
2319. Petitioner is also of the view that, at most, Exhibit "G" merely contained a unilateral
promise to sell which private respondent could not enforce in the absence of a consideration
distinct from the purchase price of the land. Further, petitioner reiterated her claim that due to
the illiteracy of her husband, it was incumbent upon private respondent to show that the
contents of Exhibit "G" were fully explained to him. Finally, petitioner pointed out that the Court
of Appeals erred when it took into consideration the same exhibit despite the fact that only its
photocopy was presented before the court.
On the other hand, private respondent argued that the annotation on the second owner's
certificate over Lot No. 2319 constituted constructive notice to the whole world of private

55
respondent's claim over the majority of said parcel of land. Relying on our decision in the case
of Cabrera v. Villanueva,30 private respondent insisted that when Fortunato received a copy of
the second owner's certificate, he became fully aware of the contracts of sale entered into
between his co-owners on one hand and private respondent and her deceased husband on the
other.
Private respondent also averred that "although (Lot No. 2319) was not actually partitioned in a
survey after the death of Cleopas Ape, the land was partitioned in a 'hantal-hantal' manner by
the heirs. Each took and possessed specific portion or premises as his/her share in land,
farmed their respective portion or premises, and improved them, each heir limiting his/her
improvement within the portion or premises which were his/her respective share."31 Thus, when
private respondent and her husband purchased the other parts of Lot No. 2319, it was no longer
undivided as petitioner claims.
The petition is partly meritorious.
Article 1623 of the Civil Code provides:
The right of legal pre-emption or redemption shall not be exercised except within thirty days
from the notice in writing by the prospective vendor, or by the vendor, as the case may be. The
deed of sale shall not be recorded in the Registry of Property, unless accompanied by an
affidavit of the vendor that he has given written notice thereof to all possible redemptioners.
Despite the plain language of the law, this Court has, over the years, been tasked to interpret
the "written notice requirement" of the above-quoted provision. In the case Butte v. Manuel Uy
& Sons, Inc.,32 we declared that
In considering whether or not the offer to redeem was timely, we think that the notice given by
the vendee (buyer) should not be taken into account. The text of Article 1623 clearly and
expressly prescribes that the thirty days for making the redemption are to be counted from
notice in writing by the vendor. Under the old law (Civ. Code of 1889, Art. 1524), it was
immaterial who gave the notice; so long as the redeeming co-owner learned of the alienation in
favor of the stranger, the redemption period began to run. It is thus apparent that the Philippine
legislature in Article 1623 deliberately selected a particular method of giving notice, and that
method must be deemed exclusive. (39 Am. Jur., 237; Payne vs. State, 12 S.W. 2(d) 528). As
ruled in Wampler vs. Lecompte, 150 Atl. 458 (affd. in 75 Law Ed. [U.S.] 275)
why these provisions were inserted in the statute we are not informed, but we may
assume until the contrary is shown, that a state of facts in respect thereto existed, which
warranted the legislature in so legislating.
The reasons for requiring that the notice should be given by the seller, and not by the buyer, are
easily divined. The seller of an undivided interest is in the best position to know who are his coowners that under the law must be notified of the sale. Also, the notice by the seller removes all
doubts as to fact of the sale, its perfection; and its validity, the notice being a reaffirmation
thereof, so that the party notified need not entertain doubt that the seller may still contest the
alienation. This assurance would not exist if the notice should be given by the buyer.33
The interpretation was somehow modified in the case of De Conejero, et al. v. Court of Appeals,
et al.34 wherein it was pointed out that Article 1623 "does not prescribe a particular form of

56
notice, nor any distinctive method for notifying the redemptioner" thus, as long as the
redemptioner was notified in writing of the sale and the particulars thereof, the redemption
period starts to run. This view was reiterated in Etcuban v. The Honorable Court of Appeals, et
al.,35 Cabrera v. Villanueva,36 Garcia, et al. v. Calaliman, et al.,37 Distrito, et al. v. The Honorable
Court of Appeals, et al.,38 and Mariano, et al. v. Hon. Court of Appeals, et al.39
However, in the case of Salatandol v. Retes,40 wherein the plaintiffs were not furnished any
written notice of sale or a copy thereof by the vendor, this Court again referred to the principle
enunciated in the case of Butte. As observed by Justice Vicente Mendoza, such reversion is
only sound, thus:
Art. 1623 of the Civil Code is clear in requiring that the written notification should come from
the vendor or prospective vendor, not from any other person. There is, therefore, no room for
construction. Indeed, the principal difference between Art. 1524 of the former Civil Code and
Art. 1623 of the present one is that the former did not specify who must give the notice, whereas
the present one expressly says the notice must be given by the vendor. Effect must be given to
this change in statutory language.41
In this case, the records are bereft of any indication that Fortunato was given any written notice
of prospective or consummated sale of the portions of Lot No. 2319 by the vendors or would-be
vendors. The thirty (30)-day redemption period under the law, therefore, has not commenced to
run.
Despite this, however, we still rule that petitioner could no longer invoke her right to redeem
from private respondent for the exercise of this right "presupposes the existence of a coownership at the time the conveyance is made by a co-owner and when it is demanded by the
other co-owner or co-owners."42 The regime of co-ownership exists when ownership of an
undivided thing or right belongs to different persons.43 By the nature of a co-ownership, a coowner cannot point to specific portion of the property owned in common as his own because his
share therein remains intangible.44 As legal redemption is intended to minimize coownership,45 once the property is subdivided and distributed among the co-owners, the
community ceases to exist and there is no more reason to sustain any right of legal
redemption.46
In this case, records reveal that although Lot No. 2319 has not yet been formally subdivided,
still, the particular portions belonging to the heirs of Cleopas Ape had already been ascertained
and they in fact took possession of their respective parts. This can be deduced from the
testimony of petitioner herself, thus:
Q
When the plaintiffs leased the share of your husband, were there any metes and
bounds?
A

It was not formally subdivided. We have only a definite portion. (hantal-hantal)

Q
This hantal-hantal of your husband, was it also separate and distinct from
the hantal-hantal or the share of the brothers and sisters of your husband?
A

Well, this property in question is a common property.

57
Q
To the north, whose share was that which is adjacent to your husband's assumed
partition?
A

I do not know what [does] this "north" [mean].

COURT
(To Witness)
Q

To the place from where the sun rises, whose share was that?

The shares of Cornelia, Loreta, Encarnacion and Adela.

How could you determine their own shares?

They were residing in their respective assumed portions.

How about determining their respective boundaries?

A
It could be determined by stakes and partly a row of banana plantations planted
by my son-in-law.
Q

Who is this son-in-law you mentioned?

Narciso Ape.

ATTY. CAWIT
(Continuing)
Q
You said that there were stakes to determine the hantal-hantal of your husband
and the hantal-hantal of the other heirs, did I get you right?
ATTY. TAN
Admitted, Your Honor.

ATTY. CAWIT
Q

Mrs. Ape, in 1960, Cleopas Ape was already dead, is that correct?

Certainly, since he died in 1950.

Q
By the manifestation of your counsel that the entire land (13 hectares) of your
father-in-law, Cleopas Ape, was leased to Generosa Lumayno, is this correct?

58
A
No, it is only the assumed portion of my husband [which] was leased to Generosa
Lumayno.
Q
For clarification, it was only the share of your husband [which] was leased to
Generosa Cawit Lumayno?
A

Yes.47

ATTY. CAWIT
Q
My question: is that portion which you said was leased by your husband to the
Lumayno[s] and which was included to the lease by your mother-in-law to the
Lumayno[s], when the Lumayno[s] returned your husband['s] share, was that the same
premises that your husband leased to the Lumayno[s]?
A

The same.

Q
In re-possessing this portion of the land corresponding to the share of your
husband, did your husband demand that they should re-possess the land from the
Lumayno[s] or did the Lumayno[s] return them to your husband voluntarily?
A

They just returned to us without paying the rentals.

COURT
Q
Was the return the result of your husband's request or just voluntarily they
returned it to your husband?
A
No, sir, it was just returned voluntarily, and they abandoned the area but my
husband continued farming.48
Similarly telling of the partition is the stipulation of the parties during the pre-trial wherein it was
admitted that Lot No. 2319 had not been subdivided nevertheless, "Fortunato Ape had
possessed a specific portion of the land ostensibly corresponding to his share."49
From the foregoing, it is evident that the partition of Lot No. 2319 had already been effected by
the heirs of Cleopas Ape. Although the partition might have been informal is of no moment for
even an oral agreement of partition is valid and binding upon the parties.50 Likewise, the fact
that the respective shares of Cleopas Ape's heirs are still embraced in one and the same
certificate of title and have not been technically apportioned does not make said portions less
determinable and identifiable from one another nor does it, in any way, diminish the dominion of
their respective owners.51
Turning now to the second issue of the existence of a contract of sale, we rule that the records
of this case betray the stance of private respondent that Fortunato Ape entered into such an
agreement with her.
A contract of sale is a consensual contract, thus, it is perfected by mere consent of the parties.
It is born from the moment there is a meeting of minds upon the thing which is the object of the

59
sale and upon the price.52 Upon its perfection, the parties may reciprocally demand
performance, that is, the vendee may compel the transfer of the ownership and to deliver the
object of the sale while the vendor may demand the vendee to pay the thing sold.53For there to
be a perfected contract of sale, however, the following elements must be present: consent,
object, and price in money or its equivalent. In the case of Leonardo v. Court of Appeals, et
al.,54 we explained the element of consent, to wit:
The essence of consent is the agreement of the parties on the terms of the contract, the
acceptance by one of the offer made by the other. It is the concurrence of the minds of the
parties on the object and the cause which constitutes the contract. The area of agreement must
extend to all points that the parties deem material or there is no consent at all.
To be valid, consent must meet the following requisites: (a) it should be intelligent, or with an
exact notion of the matter to which it refers; (b) it should be free and (c) it should be
spontaneous. Intelligence in consent is vitiated by error; freedom by violence, intimidation or
undue influence; spontaneity by fraud.55
In this jurisdiction, the general rule is that he who alleges fraud or mistake in a transaction must
substantiate his allegation as the presumption is that a person takes ordinary care for his
concerns and that private dealings have been entered into fairly and regularly.56 The exception
to this rule is provided for under Article 1332 of the Civil Code which provides that "[w]hen one
of the parties is unable to read, or if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof
have been fully explained to the former."
In this case, as private respondent is the one seeking to enforce the claimed contract of sale,
she bears the burden of proving that the terms of the agreement were fully explained to
Fortunato Ape who was an illiterate. This she failed to do. While she claimed in her testimony
that the contents of the receipt were made clear to Fortunato, such allegation was debunked by
Andres Flores himself when the latter took the witness stand. According to Flores:
ATTY. TAN
Q

Mr. Witness, that receipt is in English, is it not?

Yes, sir.

Q
When you prepared that receipt, were you aware that Fortunato Ape doesn't
know how to read and write English?
A

Yes, sir, I know.

Q
Mr. Witness, you said you were present at the time of the signing of that alleged
receipt of P30.00, correct?
A

Yes, sir.

Where, in what place was this receipt signed?

60
A

At the store.

Q
At the time of the signing of this receipt, were there other person[s] present aside
from you, your mother-in-law and Fortunato Ape?
A

In the store, yes, sir.

Q
When you signed that document of course you acted as witness upon request of
your mother-in-law?
A

No, this portion, I was the one who prepared that document.

Q
Without asking of (sic) your mother-in-law, you prepared that document or it was
your mother-in-law who requested you to prepare that document and acted as witness?
A
She requested me to prepare but does not instructed (sic) me to act as witness.
It was our opinion that whenever I prepared the document, I signed it as a witness.
Q
Did it not occur to you to ask other witness to act on the side of Fortunato Ape
who did not know how to read and write English?
A

It occurred to me.

Q
But you did not bother to request a person who is not related to your mother-inlaw, considering that Fortunato Ape did not know how to read and write English?
A
The one who represented Fortunato Ape doesn't know also how to read and write
English. One a maid.
Q
You mentioned that there [was another] person inside the store, under your
previous statement, when the document was signed, there [was another] person in the
store aside from you, your mother-in-law and Fortunato Ape, is not true?
A

That is true, there is one person, but that person doesn't know how to read also.

Q
Of course, Mr. Witness, since it occurred to you that there was need for other
witness to sign that document for Fortunato Ape, is it not a fact that the Municipal
Building is very near your house?
A

Quite (near).

Q
But you could readily proceed to the Municipal Building and request one who is
knowledgeable in English to act as witness?
A

I think there is no need for that small receipt. So I don't bother myself to go.

61
Q
You did not consider that receipt very important because you said that small
receipt?
A

Yes, I know.57

As can be gleaned from Flores's testimony, while he was very much aware of Fortunato's
inability to read and write in the English language, he did not bother to fully explain to the latter
the substance of the receipt (Exhibit "G"). He even dismissed the idea of asking somebody else
to assist Fortunato considering that a measly sum of thirty pesos was involved. Evidently, it did
not occur to Flores that the document he himself prepared pertains to the transfer altogether of
Fortunato's property to his mother-in-law. It is precisely in situations such as this when the
wisdom of Article 1332 of the Civil Code readily becomes apparent which is "to protect a party to
a contract disadvantaged by illiteracy, ignorance, mental weakness or some other handicap."58
In sum, we hold that petitioner is no longer entitled to the right of redemption under Article 1632
of the Civil Code as Lot No. 2319 had long been partitioned among its co-owners. This Court
likewise annuls the contract of sale between Fortunato and private respondent on the ground of
vitiated consent.
WHEREFORE, premises considered, the decision dated 25 March 1998 of the Court of Appeals
is hereby REVERSED and SET ASIDE and the decision dated 11 March 1994 of the Regional
Trial Court, Branch 58, San Carlos City, Negros Occidental, dismissing both the complaint and
the counterclaim, is hereby REINSTATED. No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

62

Republic of the Philippines

SUPREME COURT
FIRST DIVISION
[G.R. No. L-30786. February 20, 1984.]
OLEGARIO B. CLARIN, Petitioner, v. ALBERTO L. RULONA and THE HONORABLE
COURT OF APPEALS, Respondents.
Bengzon, Villegas & Zarraga Law Office for Petitioner.
Tirol, Tirol and Bernaldez & Tirol for Respondents.
SYLLABUS
1. CIVIL LAW; CONTRACTS; SALES; PERFECTION THEREOF, CASE AT BAR. A contract
of sale is perfected at the moment there is a meeting of minds upon the thing which is the object
of the contract and upon the price. Such contract is binding in whatever form it may have been
entered into. Construing Exhibits A and B together, it can be seen that the petitioner agreed to
sell and the respondent agreed to buy a definite object, that is, ten hectares of land which is part
and parcel of Lot 20 PLD No. 4, owned in common by the petitioner and his sisters although the
boundaries of the ten hectares would be delineated at a later date. The parties also agreed on a
definite price which is P2,500.00. Exhibit B further shows that the petitioner has received from
the respondent as initial payment, the amount of P800.00. Hence, it cannot be denied that there
was a perfected contract of sale between the parties and that such contract was already
partially executed when the petitioner received the initial payment of P800.00. The latters
acceptance of the payment clearly showed his consent to the contract thereby precluding him
from rejecting its binding effect.
2. ID.; ID.; ID.; ID.; PARTIAL EXECUTION; EFFECTS. With the contract being partially
executed, the same is no longer covered by the requirements of the Statute of Frauds in order
to be enforceable. Therefore, with the contract being valid and enforceable, the petitioner
cannot avoid his obligation by interposing that Exhibit A is not a public document. On the
contrary, under Article 1357 of the Civil Code, the petitioner can even be compelled by the
respondent to execute a public document to embody their valid and enforceable contract.
3. ID.; PROPERTY; CO-OWNERSHIP; CO-OWNER CANNOT BIND PROPERTY OWNED IN
COMMON. Although as a co-owner, the petitioner cannot dispose of a specific portion of the
land, his share shall be bound by the effect of the sale. This is anchored in Article 493 of the
Civil Code.

63

DECISION
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed
the finding of the trial court that there was a perfected contract of sale between the petitioner
and the respondent with regard to the ten (10) hectares of land constituting the petitioners
share of Lot 20 PLD No. 4, Carmen Cadastre in Carmen, Bohol.chanrobles virtual lawlibrary
On May 31, 1959 the petitioner executed two documents, namely, Exhibits "A" and "B" which
respectively provide:jgc:chanrobles.com.ph
"TO WHOM THIS MAY CONCERN:jgc:chanrobles.com.ph
"This is to authorize Mr. Gustavo Decasa, surveyor from Batuan, Bohol to survey on behalf of
Mr. & Mrs. Alberto L. Rulona of Suba, Katipunan, Carmen, Bohol, a portion of the share of the
undersigned of Lot 20 PLD No. 4 (Carmen Cadastre) from the CLARIN HERMANOS of which
the undersigned is one of the heirs in a decision rendered in Cad. Case No. 20, Reg. Rec. No.
200 promulgated by Judge Hipolito Alo of the Court of First Instance of this province dated
January 6, 1956; of the ten hectares (10) awarded to Mr. & Mrs. Alberto L. Rulona which the
couple purchased from the undersigned for TWO THOUSAND FIVE HUNDRED PESOS
(P2,500.00). The portion of land to be surveyed is situated where the house and vicinity of Mr. &
Mrs. A. Rulona are located in said lot.
(SGD.) OLEGARIO B. CLARIN
(SGD.) ZOILA L. CLARIN
"Received from Mr. Alberto Rulona of Carmen, Bohol, the sum of Eight Hundred (P800.00)
Pesos as an initial payment for the ten hectares of land in Carmen, Bohol which he is going to
purchase from the undersigned. The value of the land in question is P2,500.00."cralaw
virtua1aw library
Respondent Rulona filed a complaint for specific performance and recovery of improvements on
the ground that the petitioner and his wife violated the terms of the agreement of sale "by
returning by their own volition and without the consent of plaintiff, the amount of P1,100.00 in six
postal money orders, covering the downpayment of P1,000.00 and first installment of
P100.00."cralaw virtua1aw library
In his complaint, the respondent alleged that the petitioner sold ten hectares of his share of the
disputed lot to him for P2,500.00. The conditions of the sale were that a downpayment of
P1,000.00 was to be made and then the balance of P1,500.00 was to be paid in monthly
installment of P100.00. As shown by Exhibit B, the respondent delivered to the petitioner a
downpayment of P800.00 and on the first week of June the amount of P200.00 was also
delivered thereby completing the downpayment of P1,000.00. On the first week of August,
another delivery was made by the respondent in the amount of P100.00 as payment for the first
installment. Respondent further alleged that despite repeated demands to let the sale continue

64
and for the petitioner to take back the six postal money orders, the latter refused to
comply.cralawnad
In his answer, the petitioner alleged that while it is true that he had a projected contract of sale
of a portion of land with the respondent, such was subject to the following conditions: (1) that
the contract would be realized only if his co-heirs would give their consent to the sale of a
specific portion of their common inheritance from the late Aniceto Clarin before partition of the
said common property and (2) that should his co-heirs refuse to give their consent, the projected
contract would be discontinued or would not be realized. Petitioner further contended that the
respondent knew fully well the above terms and accepted them as conditions precedent to the
perfection or consummation of the contract; that respondent delivered the amount of P1,000.00
as earnest money, subject to the above conditions and that the amount was returned by the
petitioner upon his learning definitely that his co-heirs and co-owners refused to give their
consent to the projected sale.
The trial court rendered judgment in favor of the respondent on the ground that the contract of
sale, Exhibit A, is a pure sale of a portion of Lot No. 20, containing an area of ten hectares for
the sum of P2,500.00, and that the sale is not subject to any condition nor is it vitiated by any
flaw. Therefore, it declared the same binding upon the parties under Articles 1356 and 1458 of
the Civil Code. The trial court also ruled that the fact that petitioner returned the sum of
P1,100.00 paid by the respondent indicated an intention to rescind the contract. The court
stated, however, that rescission under Article 1191 of the Civil Code can be authorized by the
court only if either party violates his obligation. Since there had been no violation, the court ruled
that the petitioner could not rescind the contract. Lastly, the court held that although as coowner the petitioner could not dispose of a specific portion of the land, nevertheless, his share
was bound by the effect of the sale.chanrobles lawlibrary : rednad
On appeal, the Court of Appeals sustained the findings of the trial court, stating that:chanrob1es
virtual 1aw library
x

". . . We believe that the trial court did not incur any error when it arrived at the conclusion that
there was a perfected contract of sale between the plaintiff and the defendant, for indeed the
terms of the agreement (Exh. A) were clearly drafted in an equivocal manner that leaves no
room for interpretation other than those terms contained therein, the real substance of which
satisfied all the elements and requisites of a contract. Appellant, however, argues that Exhibit A
was a mere authority to survey. It is not addressed to any definite party, it does not contain the
proper heading, there is no statement of the manner of paying the purchase price, no personal
circumstances of the parties, and it is not notarized. All these grounds relied upon to suit the
theory of appellant, anchored as it were on a weak foundation, deserve scant consideration.
Suffice it to state that a contract to be binding upon the contracting parties need not be
notarized. Neither should it specify the manner of payment of the consideration nor should it
specify the manner of payment of the consideration nor should it contain the proper heading."
(sic)
It is maintained in this petition that the appellate court erred in holding there was a perfected
contract of sale between the petitioner and the respondent, principally relying on Exhibit A and
that even assuming that the latter were a perfected contract of sale, such was subject to a
condition precedent with which there was no compliance. The petitioner alleges that the two

65
documents introduced in evidence could not effectively convey title to the land because they
were not public documents. Lastly, the petitioner contends that he could not have validly
disposed of a definite portion of the community property and therefore, there arose a legal
impossibility for him and the respondent to agree on a definite object.chanrobles.com.ph : virtual
law library
The petitioners contentions are without merit.
While it is true that Exhibits A and B are, in themselves, not contracts of sale, they are, however,
clear evidence that a contract of sale was perfected between the petitioner and the respondent
and that such contract had already been partially fulfilled and executed. A contract of sale is
perfected at the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price. (Article 1475, Civil Code; Phil. Virginia Tobacco Administration v.
De los Angeles, 87 SCRA 210). Such contract is binding in whatever form it may have been
entered into. (Lopez v. Auditor General, 20 SCRA 655).
Construing Exhibits A and B together, it can be seen that the petitioner agreed to sell and the
respondent agreed to buy a definite object, that is, ten hectares of land which is part and parcel
of Lot 20 PLD No. 4, owned in common by the petitioner and his sisters although the boundaries
of the ten hectares would be delineated at a later date. The parties also agreed on a definite
price which is P2,500.00. Exhibit B further shows that the petitioner has received from the
respondent as initial payment, the amount of P800.00. Hence, it cannot be denied that there
was a perfected contract of sale between the parties and that such contract was already
partially executed when the petitioner received the initial payment of P800.00. The latters
acceptance of the payment clearly showed his consent to the contract thereby precluding him
from rejecting its binding effect. (See Federation of United Namarco Distributors, Inc. v. National
Marketing Corporation, 4 SCRA 884). With the contract being partially executed, the same is no
longer covered by the requirements of the Statute of Frauds in order to be enforceable. (See
Khan v. Asuncion, 19 SCRA 996). Therefore, with the contract being valid and enforceable, the
petitioner cannot avoid his obligation by interposing that Exhibit A is not a public document. On
the contrary, under Article 1357 of the Civil Code, the petitioner can even be compelled by the
respondent to execute a public document to embody their valid and enforceable contract.
The petitioners contention that he was only forced to receive money from the respondent due to
the insistence of the latter merits little consideration. It is highly improbable that the respondent
would give different sums on separate dates to the petitioner with no apparent reason, without a
binding assurance from the latter that the disputed lot would be sold to him. We agree with the
trial court and the appellate court that the payments were made in fulfillment of the conditions of
the sale, namely, a downpayment of P1,000.00 and the balance of P1,500.00, to be paid in
monthly installments of P100.00 each.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
We, therefore, find no error in the lower courts holding that a contract of sale was perfected
between the petitioner and the respondent and that the sale did not depend on a condition that
the petitioners co-owners would have to agree to the sale. The latter finding is strengthened by
the fact that although the petitioner has been stressing that he made it clear to the respondent
that the consent of his sisters as co-owners was necessary in order for the sale to push through,
his letter to respondent marked Exhibit C stated another reason, to wit:jgc:chanrobles.com.ph
"My dear Mr. Rulona:chanrob1es virtual 1aw library

66
Replying to your letter of recent date, I deeply regret to inform you that my daughter, Alice, who
is now in Manila, could not be convinced by me to sell the land in question, that is, the ten (10)
hectares of land referred to in our tentative agreement. It is for this reason that I hereby
authorize the bearer, Mr. Paciano Parmisano, to return to you in person the sum of One
Thousand and One Hundred (P1,100.00) Pesos which you have paid in advance for the
proposed sale of the land in question."cralaw virtua1aw library
x

The reasons given by the petitioner cannot operate against the validity of the contract in
question. A contract is valid even though one of the parties entered into it against his better
judgment. (See Lagunzad v. Vda. de Gonzales, 92 SCRA 476; citing Martinez v. Hongkong and
Shanghai Bank, 15 Phil. 252).
Finally, we agree with the lower courts holding that although as a co-owner, the petitioner
cannot dispose of a specific portion of the land, his share shall be bound by the effect of the
sale. This is anchored in Article 493 of the Civil Code which provides:chanrob1es virtual 1aw
library
Art. 493. Each co-owner shall have the full ownership of his part and the fruits and benefits
pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute
another person in its enjoyment, except when personal rights are involved. But the effect of the
alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which
may be alloted to him in the division upon the termination of the co-ownership.
WHEREFORE, the petition is hereby DISMISSED for lack of merit. Costs against the petitioner.
SO ORDERED.
Melencio-Herrera Plana and Relova, JJ., concur.
Teehankee, J., concurs in the result.

67

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 170115

February 19, 2008

PROVINCE OF CEBU, petitioner,

vs.
HEIRS OF RUFINA MORALES, NAMELY: FELOMINA V. PANOPIO, NENITA VILLANUEVA,
ERLINDA V. ADRIANO and CATALINA V. QUESADA, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the Decision1 of the Court of Appeals dated March
29, 2005 in CA-G.R. CV No. 53632, which affirmed in toto the Decision2 of the Regional Trial
Court of Cebu City, Branch 6, in Civil Case No. CEB-11140 for specific performance and
reconveyance of property. Also assailed is the Resolution3dated August 31, 2005 denying the
motion for reconsideration.
On September 27, 1961, petitioner Province of Cebu leased4 in favor of Rufina Morales a 210square meter lot which formed part of Lot No. 646-A of the Banilad Estate. Subsequently or
sometime in 1964, petitioner donated several parcels of land to the City of Cebu. Among those
donated was Lot No. 646-A which the City of Cebu divided into sub-lots. The area occupied by
Morales was thereafter denominated as Lot No. 646-A-3, for which Transfer Certificate of Title
(TCT) No. 308835 was issued in favor of the City of Cebu.
On July 19, 1965, the city sold Lot No. 646-A-3 as well as the other donated lots at public
auction in order to raise money for infrastructure projects. The highest bidder for Lot No. 646-A3 was Hever Bascon but Morales was allowed to match the highest bid since she had a
preferential right to the lot as actual occupant thereof.6 Morales thus paid the required deposit
and partial payment for the lot.7
In the meantime, petitioner filed an action for reversion of donation against the City of Cebu
docketed as Civil Case No. 238-BC before Branch 7 of the then Court of First Instance of Cebu.
On May 7, 1974, petitioner and the City of Cebu entered into a compromise agreement which
the court approved on July 17, 1974.8 The agreement provided for the return of the donated lots
to petitioner except those that have already been utilized by the City of Cebu. Pursuant thereto,
Lot No. 646-A-3 was returned to petitioner and registered in its name under TCT No. 104310.9

68
Morales died on February 20, 1969 during the pendency of Civil Case No. 238-BC.10 Apart from
the deposit and down payment, she was not able to make any other payments on the balance of
the purchase price for the lot.
On March 11, 1983, one of the nieces of Morales, respondent Catalina V. Quesada, wrote to
then Cebu Governor Eduardo R. Gullas asking for the formal conveyance of Lot No. 646-A-3 to
Morales surviving heirs, in accordance with the award earlier made by the City of Cebu.11 This
was followed by another letter of the same tenor dated October 10, 1986 addressed to
Governor Osmundo G. Rama.12
The requests remained unheeded thus, Quesada, together with the other nieces of Morales
namely, respondents Nenita Villanueva and Erlinda V. Adriano, as well as Morales sister,
Felomina V. Panopio, filed an action for specific performance and reconveyance of property
against petitioner, which was docketed as Civil Case No. CEB-11140 before Branch 6 of the
Regional Trial Court of Cebu City.13 They also consigned with the court the amount of
P13,450.00 representing the balance of the purchase price which petitioner allegedly refused to
accept.14
Panopio died shortly after the complaint was filed.15
Respondents averred that the award at public auction of the lot to Morales was a valid and
binding contract entered into by the City of Cebu and that the lot was inadvertently returned to
petitioner under the compromise judgment in Civil Case No. 238-BC. They alleged that they
could not pay the balance of the purchase price during the pendency of said case due to
confusion as to whom and where payment should be made. They thus prayed that judgment be
rendered ordering petitioner to execute a final deed of absolute sale in their favor, and that TCT
No. 104310 in the name of petitioner be cancelled.16
Petitioner filed its answer but failed to present evidence despite several opportunities given
thus, it was deemed to have waived its right to present evidence.17
On March 6, 1996, the trial court rendered judgment, the dispositive part of which reads:
WHEREFORE, judgment is rendered in favor of the plaintiffs and against the defendant
Province of Cebu, hereby directing the latter to convey Lot 646-A-3 to the plaintiffs as
heirs of Rufina Morales, and in this connection, to execute the necessary deed in favor
of said plaintiffs.
No pronouncement as to costs.
SO ORDERED.18
In ruling for the respondents, the trial court held thus:
[T]he Court is convinced that there was already a consummated sale between the City of
Cebu and Rufina Morales. There was the offer to sell in that public auction sale. It was
accepted by Rufina Morales with her bid and was granted the award for which she paid
the agreed downpayment. It cannot be gainsaid that at that time the owner of the
property was the City of Cebu. It has the absolute right to dispose of it thru that public
auction sale. The donation by the defendant Province of Cebu to Cebu City was not

69
voided in that Civil Case No. 238-BC. The compromise agreement between the parties
therein on the basis of which judgment was rendered did not provide nullification of the
sales or disposition made by the City of Cebu. Being virtually successor-in-interest of
City of Cebu, the defendant is bound by the contract lawfully entered into by the former.
Defendant did not initiate any move to invalidate the sale for one reason or another.
Hence, it stands as a perfectly valid contract which defendant must respect. Rufina
Morales had a vested right over the property. The plaintiffs being the heirs or
successors-in-interest of Rufina Morales, have the right to ask for the conveyance of the
property to them. While it may be true that the title of the property still remained in the
name of the City of Cebu until full payment is made, and this could be the reason why
the lot in question was among those reverted to the Province, the sellers obligation
under the contract was, for all legal purposes, transferred to, and assumed by, the
defendant Province of Cebu. It is then bound by such contract.19
Petitioner appealed to the Court of Appeals which affirmed the decision of the trial court in toto.
Upon denial of its motion for reconsideration, petitioner filed the instant petition under Rule 45 of
the Rules of Court, alleging that the appellate court erred in:
FINDING THAT RUFINA MORALES AND RESPONDENTS, AS HER HEIRS, HAVE THE
RIGHT TO EQUAL THE BID OF THE HIGHEST BIDDER OF THE SUBJECT
PROPERTY AS LESSEES THEREOF;
FINDING THAT WITH THE DEPOSIT AND PARTIAL PAYMENT MADE BY RUFINA
MORALES, THE SALE WAS IN EFFECT CLOSED FOR ALL LEGAL PURPOSES, AND
THAT THE TRANSACTION WAS PERFECTED AND CONSUMMATED;
FINDING THAT LACHES AND/OR PRESCRIPTION ARE NOT APPLICABLE AGAINST
RESPONDENTS;
FINDING THAT DUE TO THE PENDENCY OF CIVIL CASE NO. 238-BC, PLAINTIFFS
WERE NOT ABLE TO PAY THE AGREED INSTALLMENTS;
AFFIRMING THE DECISION OF THE TRIAL COURT IN FAVOR OF THE
RESPONDENTS AND AGAINST THE PETITIONERS.20
The petition lacks merit.
The appellate court correctly ruled that petitioner, as successor-in-interest of the City of Cebu, is
bound to respect the contract of sale entered into by the latter pertaining to Lot No. 646-A-3.
The City of Cebu was the owner of the lot when it awarded the same to respondents
predecessor-in-interest, Morales, who later became its owner before the same was erroneously
returned to petitioner under the compromise judgment. The award is tantamount to a perfected
contract of sale between Morales and the City of Cebu, while partial payment of the purchase
price and actual occupation of the property by Morales and respondents effectively transferred
ownership of the lot to the latter. This is true notwithstanding the failure of Morales and
respondents to pay the balance of the purchase price.
Petitioner can no longer assail the award of the lot to Morales on the ground that she had no
right to match the highest bid during the public auction. Whether Morales, as actual occupant
and/or lessee of the lot, was qualified and had the right to match the highest bid is a foregone

70
matter that could have been questioned when the award was made. When the City of Cebu
awarded the lot to Morales, it is assumed that she met all qualifications to match the highest bid.
The subject lot was auctioned in 1965 or more than four decades ago and was never
questioned. Thus, it is safe to assume, as the appellate court did, that all requirements for a
valid public auction sale were complied with.
A sale by public auction is perfected "when the auctioneer announces its perfection by the fall of
the hammer or in other customary manner".21 It does not matter that Morales merely matched
the bid of the highest bidder at the said auction sale. The contract of sale was nevertheless
perfected as to Morales, since she merely stepped into the shoes of the highest bidder.
Consequently, there was a meeting of minds between the City of Cebu and Morales as to the lot
sold and its price, such that each party could reciprocally demand performance of the contract
from the other.22 A contract of sale is a consensual contract and 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. The elements of a valid contract of sale under Article
1458 of the Civil Code are: (1) consent or meeting of the minds; (2) determinate subject matter;
and (3) price certain in money or its equivalent.23 All these elements were present in the
transaction between the City of Cebu and Morales.
There is no merit in petitioners assertion that there was no perfected contract of sale because
no "Contract of Purchase and Sale" was ever executed by the parties. As previously stated, a
contract of sale is a consensual contract that is perfected upon a meeting of minds as to the
object of the contract and its price. Subject to the provisions of the Statute of Frauds, a formal
document is not necessary for the sale transaction to acquire binding effect.24 For as long as the
essential elements of a contract of sale are proved to exist in a given transaction, the contract is
deemed perfected regardless of the absence of a formal deed evidencing the same.
Similarly, petitioner erroneously contends that the failure of Morales to pay the balance of the
purchase price is evidence that there was really no contract of sale over the lot between
Morales and the City of Cebu. On the contrary, the fact that there was an agreed price for the lot
proves that a contract of sale was indeed perfected between the parties. Failure to pay the
balance of the purchase price did not render the sale inexistent or invalid, but merely gave rise
to a right in favor of the vendor to either demand specific performance or rescission of the
contract of sale.25 It did not abolish the contract of sale or result in its automatic invalidation.
As correctly found by the appellate court, the contract of sale between the City of Cebu and
Morales was also partially consummated. The latter had paid the deposit and downpayment for
the lot in accordance with the terms of the bid award. She first occupied the property as a
lessee in 1961, built a house thereon and was continuously in possession of the lot as its owner
until her death in 1969. Respondents, on the other hand, who are all surviving heirs of Morales,
likewise occupied the property during the latters lifetime and continue to reside on the property
to this day.26
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

71
undertakings under the contract of sale, culminating in the extinguishment thereof.27 In this
case, respondents predecessor had undoubtedly commenced performing her obligation by
making a down payment on the purchase price. Unfortunately, however, she was not able to
complete the payments due to legal complications between petitioner and the city.
Thus, the City of Cebu could no longer dispose of the lot in question when it was included as
among those returned to petitioner pursuant to the compromise agreement in Civil Case No.
238-BC. The City of Cebu had sold the property to Morales even though there remained a
balance on the purchase price and a formal contract of sale had yet to be executed. Incidentally,
the failure of respondents to pay the balance on the purchase price and the non-execution of a
formal agreement was sufficiently explained by the fact that the trial court, in Civil Case No. 238BC, issued a writ of preliminary injunction enjoining the city from further disposing the donated
lots. According to respondents, there was confusion as to the circumstances of payment
considering that both the city and petitioner had refused to accept payment by virtue of the
injunction.28 It appears that the parties simply mistook Lot 646-A-3 as among those not yet sold
by the city.
The City of Cebu was no longer the owner of Lot 646-A-3 when it ceded the same to petitioner
under the compromise agreement in Civil Case No. 238-BC. At that time, the city merely
retained rights as an unpaid seller but had effectively transferred ownership of the lot to
Morales. As successor-in-interest of the city, petitioner could only acquire rights that its
predecessor had over the lot. These rights include the right to seek rescission or fulfillment of
the terms of the contract and the right to damages in either case.29
In this regard, the records show that respondent Quesada wrote to then Cebu Governor
Eduardo R. Gullas on March 11, 1983, asking for the formal conveyance of Lot 646-A-3
pursuant to the award and sale earlier made by the City of Cebu. On October 10, 1986, she
again wrote to Governor Osmundo G. Rama reiterating her previous request. This means that
petitioner had known, at least as far back as 1983, that the city sold the lot to respondents
predecessor and that the latter had paid the deposit and the required down payment. Despite
this knowledge, however, petitioner did not avail of any rightful recourse to resolve the matter.
Article 1592 of the Civil Code pertinently provides:
Article 1592. In the sale of immovable property, even though it may have been stipulated
that upon failure to pay the price at the time agreed upon the rescission of the contract
shall of right take place, the vendee may pay, even after the expiration of the period, as
long as no demand for rescission of the contract has been made upon him either
judicially or by notarial act. After the demand, the court may not grant him a new term.
(Underscoring supplied)
Thus, respondents could still tender payment of the full purchase price as no demand for
rescission had been made upon them, either judicially or through notarial act. While it is true
that it took a long time for respondents to bring suit for specific performance and consign the
balance of the purchase price, it is equally true that petitioner or its predecessor did not take any
action to have the contract of sale rescinded. Article 1592 allows the vendee to pay as long as
no demand for rescission has been made.30 The consignation of the balance of the purchase
price before the trial court thus operated as full payment, which resulted in the extinguishment of
respondents obligation under the contract of sale.

72
Finally, petitioner cannot raise the issue of prescription and laches at this stage of the
proceedings. Contrary to petitioners assignment of errors, the appellate court made no findings
on the issue because petitioner never raised the matter of prescription and laches either before
the trial court or Court of Appeals. It is basic that defenses and issues not raised below cannot
be considered on appeal.31 Thus, petitioner cannot plead the matter for the first time before this
Court.
WHEREFORE, in view of the foregoing, the petition is hereby DENIED and the decision and
resolution of the Court of Appeals in CA-G.R. CV No. 53632 are AFFIRMED.
SO ORDERED.

73

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 173881

December 1, 2010

HYATT ELEVATORS and ESCALATORS CORPORATION, Petitioner,

vs.
CATHEDRAL HEIGHTS BUILDING COMPLEX ASSOCIATION, INC., Respondent.
DECISION
PERALTA, J.:
Before this Court is a petition for review on certiorari,1 under Rule 45 of the Rules of Court,
seeking to set aside the April 20, 2006 Decision2 and July 31, 2006 Resolution3 of the Court of
Appeals (CA), in CA-G.R. CV No. 80427.
The facts of the case are as follows:
On October 1, 1994, petitioner Hyatt Elevators and Escalators Corporation entered into an
"Agreement to Service Elevators" (Service Agreement)4 with respondent Cathedral Heights
Building Complex Association, Inc., where petitioner was contracted to maintain four passenger
elevators installed in respondent's building. Under the Service Agreement, the duties and
obligations of petitioner included monthly inspection, adjustment and lubrication of machinery,
motors, control parts and accessory equipments, including switches and electrical
wirings.5 Section D (2) of the Service Agreement provides that respondent shall pay for the
additional charges incurred in connection with the repair and supply of parts.
Petitioner claims that during the period of April 1997 to July 1998 it had incurred expenses
amounting to Php 1,161,933.47 in the maintenance and repair of the four elevators as itemized
in a statement of account.6Petitioner demanded from respondent the payment of the aforesaid
amount allegedly through a series of demand letters, the last one sent on July 18,
2000.7 Respondent, however, refused to pay the amount.
Petitioner filed with the Regional Trial Court (RTC), Branch 100, Quezon City, a Complaint for
sum of money against respondent. Said complaint was docketed as Civil Case No. Q-01-43055.
On March 5, 2003, the RTC rendered Judgment8 ruling in favor of petitioner, the dispositive
portion of which reads:
WHEREFORE, premises considered, JUDGMENT IS HEREBY RENDERED IN FAVOR OF
THE PLAINTIFF AND AGAINST THE DEFENDANT ordering the latter to pay Plaintiff as follows:

74
1. The sum of P1,161,933.27 representing the costs of the elevator parts used, and for
services and maintenance, with legal rate of interest from the filing of the complaint;
2. The sum of P50,000.00 as attorney's fees;
3. The costs of suit.
SO ORDERED.9
The RTC held that based on the sales invoices presented by petitioner, a contract of sale of
goods was entered into between the parties. Since petitioner was able to fulfill its obligation, the
RTC ruled that it was incumbent on respondent to pay for the services rendered. The RTC did
not give credence to respondent's claim that the elevator parts were never delivered and that
the repairs were questionable, holding that such defense was a mere afterthought and was
never raised by respondent against petitioner at an earlier time.
Respondent filed a Motion for Reconsideration.10 On August 17, 2003, the RTC issued a
Resolution11 denying respondent's motion. Respondent then filed a Notice of Appeal.12
On April 20, 2006, the CA rendered a Decision finding merit in respondent's appeal, the
dispositive portion of which reads:
WHEREFORE, premises considered, the instant appeal is GRANTED. The Judgment of the
Regional Trial Court, Branch 100, Quezon City, dated March 5, 2003, is hereby REVERSED
and SET ASIDE. The complaint below is dismissed.
SO ORDERED.13
In reversing the RTC, the CA ruled that respondent did not give its consent to the purchase of
the spare parts allegedly installed in the defective elevators. Aside from the absence of consent,
the CA also held that there was no perfected contract of sale because there was no meeting of
minds upon the price. On this note, the CA ruled that the Service Agreement did not give
petitioner the unbridled license to purchase and install any spare parts and demand, after the
lapse of a considerable length of time, payment of these prices from respondent according to its
own dictated price.
Aggrieved, petitioner filed a Motion for Reconsideration,14 which was, however, denied by the
CA in a Resolution dated July 31, 2006.
Hence, herein petition, with petitioner raising a lone issue for this Court's resolution, to wit:
WHETHER OR NOT THERE IS A PERFECTED CONTRACT OF SALE BETWEEN
PETITIONER AND RESPONDENT WITH REGARDS TO THE SPARE PARTS DELIVERED
AND INSTALLED BY PETITIONER ON THE FOUR ELEVATORS OF RESPONDENT AT ITS
HOSPITAL UNDER THE AGREEMENT TO SERVICE ELEVATORS AS TO RENDER
RESPONDENT LIABLE FOR THEIR PRICES?15
Before anything else, this Court shall address a procedural issue raised by respondent in its
Comment16 that the petition should be denied due course for raising questions of fact.

75
The determination of whether there exists a perfected contract of sale is essentially a question
of fact. It is already a well-settled rule that the jurisdiction of this Court in cases brought before it
from the CA by virtue of Rule 45 of the Revised Rules of Court is limited to reviewing errors of
law. Findings of fact of the CA are conclusive upon this Court. There are, however, recognized
exceptions to the foregoing rule, namely: (1) when the findings are grounded entirely on
speculation, surmises, or conjectures; (2) when the inference made is manifestly mistaken,
absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when, in
making its findings, the Court of Appeals went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the appellee; (7) when the findings are
contrary to those of the trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth in the petition, as well as
in the petitioners main and reply briefs, are not disputed by the respondent; and (10) when the
findings of fact are premised on the supposed absence of evidence and contradicted by the
evidence on record.17
The present case falls under the 7th exception, as the RTC and the CA arrived at conflicting
findings of fact.
Having resolved the procedural aspect, this Court shall now address the substantive issue
raised by petitioner. Petitioner contends that the CA erred when it ruled that there was no
perfected contract of sale between petitioner and respondent with regard to the spare parts
delivered and installed.
It is undisputed that a Service Agreement was entered into by petitioner and respondent where
petitioner was commissioned to maintain respondent's four elevators. Embodied in the Service
Agreement is a stipulation relating to expenses incurred on top of regular maintenance of the
elevators, to wit:
SERVICE AND INSPECTION FEE:
xxxx
(2) In addition to the service fee mentioned in the preceding paragraph under this article, the
Customer shall pay whatever additional charges in connection with the repair, supply of parts
other than those specifically mentioned in ARTICLE A.2., or servicing of the elevator/s subject of
this contract.18
Petitioner claims that during the period of April 1997 to July 1998, it had used parts in the
maintenance and repair of the four elevators in the total amount of P1,161,933.47 as itemized in
a statement of account19 and supported by sales invoices, delivery receipts, trouble call reports
and maintenance and checking reports. Respondent, however, refuses to pay the said amount
arguing that petitioner had not complied with the Standard Operating Procedure (SOP) following
a breakdown of an elevator.
As testified to by respondent's witness Celestino Aguilar, the SOP following an elevator
breakdown is as follows: (a) they (respondent) will notify petitioner's technician; (b) the
technician will evaluate the problem and if the problem is manageable the repair was done right
there and then; (c) if some parts have to be replaced, petitioner will present the defective parts
to the building administrator and a quotation is made; (d) the quotation is then indorsed to

76
respondent's Finance Department; and (e) a purchase order is then prepared and submitted to
the Board of Directors for approval.20
Based on the foregoing procedure, respondent contends that petitioner had failed to follow the
SOP since no purchase orders from respondent's Finance Manager, or Board of Directors
relating to the supposed parts used were secured prior to the repairs. Consequently, since the
repairs were not authorized, respondent claims that it has no way of verifying whether the parts
were actually delivered and installed as alleged by petitioner.
At the outset, this Court observes that the SOP is not embodied in the Service Agreement nor
was a document evidencing the same presented in the RTC. The SOP appears, however, to be
the industry practice and as such was not contested by petitioner. Nevertheless, petitioner offers
an excuse for non-compliance with the SOP on its claim that the SOP was not followed upon the
behest and request of respondent.
A perusal of petitioner's petition and evidence in the RTC shows that the main thrust of its case
is premised on the following claims: first, that the nature and operations of a hospital necessarily
dictate that the elevators are in good running condition at all times; and, second, that there was
a verbal agreement between petitioner's service manager and respondent's building engineer
that the elevators should be running in good condition at all times and breakdowns should only
last one day.
In order to prove its allegations, petitioner presented Wilson Sua, its finance manager, as its
sole witness. Sua testified to the procedure followed by petitioner in servicing respondent's
elevators, to wit:
Q: Can you tell us Mr. witness, what is the procedure actually followed whenever there is
a need for trouble call maintenance or repair?
A: The St. Lukes Cathedrals personnel, which includes the administrative officers, the
guard on duty, or the receptionist, will call us through the phone if their elevators brake
(sic) down.
Q: Then, what happened?
A: Immediately, we dispatched our technicians to check the trouble.
Q: And who were these technicians whom you normally or regularly dispatched to attend
to the trouble of the elevators of the defendant?
A: With regard to this St. Lukes, we dispatched Sunny Jones and Gilbert Cinamin.
Q: And what happened after dispatching these technicians?
A: They come back immediately to the office to request the parts needed for the
troubleshooting of the elevators.
Q: Then what happened?

77
A: A part will be brought to the project cite and they will install it and note it in the trouble
call report and have it received properly by the building guard or the receptionist or by
the building engineers, and they will test it for a couple of weeks to determine if the parts
are the correct part needed for that elevator and we will secure their approval,
thereafter we will issue our invoices and delivery receipts.
Q: This trouble call reports, are these in writing?
A: Yes, sir. These are in writing and these are being written within that day.
Q: Within the day of?
A: Of the trouble. And have it received by the duly personnel of St. Lukes Cathedral.
Q: And who prepared this trouble call reports?
A: The technician who actually checked the elevator.
Q: When do the parts being installed?
A: On the same date they brought the parts on the project cite.
Q: You mentioned sales invoice and delivery receipts. Who prepared these invoice?
A: Those were prepared by our inventory clerk under my supervision?
Q: How about the delivery receipts?
A: Just the same.
Q: When would the sales invoice be prepared?
A: After the approval of the building engineer.
Q: But at the time that the sales invoice and delivery receipts were being prepared after
the approval of the building engineer, what happened to the parts? Were they already
installed or what?
A: They were already installed.
Q: Now, why would the parts be installed before the preparation of the sales
invoice and the delivery receipts?
A: There was an agreement between the building engineer and our service
manager that the elevator should be running in good condition at all times,
breakdown should be at least one day only. It cannot stop for more than a day.21
On cross examination, Sua testified that the procedure was followed on the authority of a verbal
agreement between petitioner's service manager and respondent's engineer, thus:

78
Q: So, you mean to say that despite the fact that material are expensive you immediately
installed these equipments without the prior approval of the board?
A: There is no need for the approval of the board since there is a verbal agreement
between the building engineer and the Hyatt service manager to have the elevator run.
Q: Aside from the building engineer, there is a building administrator?
A: No, ma'am. He is already the building administrator and the building engineer. That is
engineer Tisor.
Q: And with regard to the fact that the delivery receipts were acknowledged by the
engineer, is that true?
A: Yes, ma'am.
Q: You also mentioned earlier that aside from the building engineer, the receptionist and
guards are also authorized. Are you sure that they are authorized to receive the delivery
receipts?
A: Yes, ma'am. It was an instruction given by Engineer Tisor, the building engineer and
also the building administrator to have it received.
Q: So, all these agreements are only verbally, it is not in writing?
A: Yes, ma'am.22
In its petition, petitioner claims that because of the special circumstances of the building being a
hospital, the procedure actually followed since October 1, 1994 was as follows:
1. Whenever any of the four elevators broke down, the administrative officers, security
guard or the receptionist of respondent called petitioner by telephone;
2. Petitioner dispatched immediately a technician to the St. Lukes Cathedral Heights
Building to check the trouble;
3. If the breakdown could be repaired without installation of parts, repair was done on
the spot;
4. If the repair needed replacement of damaged parts, the technician went back to
petitioners office to get the necessary replacement parts;
5. The technician then returned to the St. Lukes Cathedral Heights Building and installed
the replacement parts and finished the repair;
6. The placement parts, which were installed in the presence of the security guard,
building engineers or receptionist of respondents whoever was available, were indicated
in the trouble call report or sometimes in the delivery receipt and copy of the said trouble

79
call report or delivery receipt was then given to the blue security guard, building
engineers or receptionist, who duly acknowledged the same;
7. Based on the trouble call report or the delivery receipts, which already indicated the
replacement parts installed and the services rendered, respondent should prepare the
purchase order, but this step was never followed by respondent for whatever reason;
8. In the meantime, the elevator was tested for a couple of weeks to see if the
replacement parts were correct and the approval of the building engineers was secured;
9. After the building engineers gave their approval that the replacement parts were
correct or after the lapse of two weeks and nothing was heard or no complaint was
lodged, then the corresponding sales invoices and delivery receipts, if nothing had been
issued yet, were prepared by petitioner and given to respondent, thru its receptionists or
security guards;
10. For its purposes, respondent should compare the trouble call reports or delivery
receipts which indicated the replacement parts installed or with the sales invoices and
delivery receipts to confirm the correctness of the transaction;
11. If respondent had any complaint that the parts were not actually installed or delivered
or did not agree with the price of the parts indicated in the sales invoices, then it should
bring its complaint or disagreement to the attention of petitioner. In this regard, no
complaint or disagreement as to the prices of the spare parts has been lodged by
respondent.23
In varying language, our Rules of Court, in speaking of burden of proof in civil cases, states that
each party must prove his own affirmative allegations and that the burden of proof lies on the
party who would be defeated if no evidence were given on either side.1avvphi1 Thus, in civil
cases, the burden of proof is generally on the plaintiff, with respect to his complaint.24 In the
case at bar, it is petitioner's burden to prove that it is entitled to its claims during the period in
dispute.
After an extensive review of the records and evidence on hand, this Court rules that petitioner
has failed to discharge its burden.
This Court finds that the testimony of Sua alone is insufficient to prove the existence of the
verbal agreement, especially in view of the fact that respondent insists that the SOP should
have been followed. It is an age-old rule in civil cases that one who alleges a fact has the
burden of proving it and a mere allegation is not evidence.25
The testimony of Sua, at best, only alleges but does not prove the existence of the verbal
agreement. It may even be hearsay. It bears stressing, that the agreement was supposedly
entered into by petitioner's service manager and respondent's building engineer. It behooves
this Court as to why petitioner did not present their service manager and Engineer Tisor,
respondent's building engineer, the two individuals who were privy to the transactions and who
could ultimately lay the basis for the existence of the alleged verbal agreement. It should have
occurred to petitioner during the course of the trial that said testimonies would have proved vital
and crucial to its cause. Therefore, absent such testimonies, the existence of the verbal
agreement cannot be sustained by this Court.

80
Moreover, even assuming arguendo, that this Court were to believe the procedure outlined by
Sua, his testimony26 clearly mentions that prior to the preparation of the sales invoices and
delivery receipts, the parts delivered and installed must have been accepted by respondent's
engineer or building administrator. However, again, petitioner offered no evidence of such
acceptance by respondents engineer prior to the preparation of the sales invoices and delivery
receipts.
This Court is not unmindful of the fact that petitioner also alleges in its petition that the nonobservance of the SOP was the practice way back in 1994 when petitioner started servicing
respondent's elevators. On this note, petitioner argued in the following manner:
And most importantly, the Court of Appeals failed to appreciate that the parts being sought to be
paid by petitioner in the Complaint were delivered and installed during the period from April
1997 to July 1998, which followed the same actual procedure adopted since October 1, 1994.
Based on the same procedure adopted because of the special circumstances of St. Luke's
Cathedral Heights Building being a hospital, respondent has paid the replacement parts
installed from October 1994 to March 1997. Never did respondent question the adopted actual
procedure from October 1994 to March 1997. x x x27
Was the procedure claimed by petitioner the adopted practice since 1994? This Court rules that
other than the foregoing allegation, petitioner has failed to prove the same. A perusal of
petitioner's Formal Offer of Evidence28would show that the only documents presented by it are
sales invoices, trouble call reports and delivery receipts, all relating to the alleged transactions
between 1997 to 1998. It is unfortunate that petitioner had failed to present in the RTC the
documents from 1994 to 1996 for it may have proven that the non-observance of the SOP was
the practice since 1994. Such documents could have shown that respondent had paid petitioner
in the past without objection on similar transactions under similar billing procedures. The same
would have also validated petitioner's claim that the secretary and security guards were all
authorized to sign the documents. Unfortunately, for petitioner's cause, this Court has no basis
to validate its claim, because other than its bare allegation in the petition, petitioner offers no
proof to substantiate the same.
By the contract of sale, one of the contracting parties obligates himself to transfer the ownership
of and deliver a determinate thing, and the other to pay therefor a price certain in money or its
equivalent.29 The absence of any of the essential elements will negate the existence of a
perfected contract of sale. In the case at bar, the CA ruled that there was no perfected contract
of sale between petitioner and respondent, to wit:
Aside from the absence of consent, there was no perfected contract of sale because there was
no meeting of minds upon the price. As the law provides, the fixing of the price can never be left
to the discretion of one of the contracting parties. In this case, the absence of agreement as to
the price is evidenced by the lack of purchase orders issued by CHBCAI where the quantity,
quality and price of the spare parts needed for the repair of the elevators are stated. In these
purchase orders, it would show that the quotation of the cost of the spare parts earlier informed
by Hyatt is acceptable to CHBCAI. However, as revealed by the records, it was only Hyatt who
determined the price, without the acceptance or conformity of CHBCAI. From the moment the
determination of the price is left to the judgment of one of the contracting parties, it cannot be
said that there has been an arrangement on the price since it is not possible for the other
contracting party to agree on something of which he does not know beforehand.30

81
Based on the evidence presented in the RTC, it is clear to this Court that petitioner had failed to
secure the necessary purchase orders from respondent's Board of Directors, or Finance
Manager, to signify their assent to the price of the parts to be used in the repair of the elevators.
In Boston Bank of the Philippines v. Manalo,31 this Court explained that the fixing of the price
can never be left to the decision of one of the contracting parties, to wit:
A definite agreement as to the price is an essential element of a binding agreement to sell
personal or real property because it seriously affects the rights and obligations of the parties.
Price is an essential element in the formation of a binding and enforceable contract of sale. The
fixing of the price can never be left to the decision of one of the contracting parties. But a
price fixed by one of the contracting parties, if accepted by the other, gives rise to a
perfected sale.32
There would have been a perfected contract of sale had respondent accepted the price dictated
by petitioner even if such assent was given after the services were rendered. There is, however,
no proof of such acceptance on the part of respondent.
This Court shares the observation of the CA that the signatures of receipt by the information
clerk or the guard on duty on the sales invoices and delivery receipts merely pertain to the
physical receipt of the papers. It does not indicate that the parts stated were actually delivered
and installed. Moreover, because petitioner failed to prove the existence of the verbal
agreement which allegedly authorized the aforementioned individuals to sign in respondents
behalf, such signatures cannot be tantamount to an approval or acceptance by respondent of
the parts allegedly used and the price quoted by petitioner. Furthermore, what makes the claims
doubtful and questionable is that the date of the sales invoice and the date stated in the
corresponding delivery receipt are too far apart as aptly found by the CA, to wit:
Further, We note that the date stated in the sales invoice vis-a-vis the date stated in the
corresponding delivery receipt is too far apart. For instance, Delivery Receipt No. 3492 dated
February 13, 1998 has a corresponding Sales Invoice No. 7147 dated June 30, 1998. What puts
doubt to this transaction is the fact that the sales invoice was prepared only after four (4)
months from the delivery. The considerable length of time that has lapsed from the delivery to
the issuance of the sales invoice is questionable. Further the delivery receipts were received
months after its preparation. In the case of Delivery Receipt No. 3850 dated November 26,
1997, Gumisad received this only on July 20, 1998, or after a lapse of eight (8) months. Such
kind of procedure followed by Hyatt is certainly contrary to usual business practice, especially
since in this case, it involves considerable amount of money.33
Based on the foregoing, the CA was thus correct when it concluded that "the Service Agreement
did not give petitioner the unbridled license to purchase and install any spare parts and demand,
after the lapse of a considerable length of time, payment of these prices from respondent
according to its own dictated price."34
Withal, this Court rules that petitioner's claim must fail for the following reasons: first, petitioner
failed to prove the existence of the verbal agreement that would authorize non-observance of
the SOP; second, petitioner failed to prove that such procedure was the practice since 1994;
and, third, there was no perfected contract of sale between the parties as there was no meeting
of minds upon the price.

82
To stress, the burden of proof is on the plaintiff. He must rely on the strength of his case and not
on the weakness of respondent's defense. Based on the manner by which petitioner had
presented its claim, this Court is of the opinion that petitioner's case leaves too much to be
desired.
WHERFORE, premises considered, the petition is DENIED. The April 20, 2006 Decision and
July 31, 2006 Resolution of the Court of Appeals, in CA-G.R. CV No. 80427, are AFFIRMED.
SO ORDERED.

83
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 149353

June 26, 2006

JOCELYN B. DOLES, Petitioner,

vs.
MA. AURA TINA ANGELES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court
questioning the Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No.
66985, which reversed the Decision dated July 29, 1998 of the Regional Trial Court (RTC),
Branch 21, City of Manila; and the CA Resolution2 dated August 6, 2001 which denied
petitioners Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific
Performance with Damages against Jocelyn B. Doles (petitioner), docketed as Civil Case No.
97-82716. Respondent alleged that petitioner was indebted to the former in the concept of a
personal loan amounting to P405,430.00 representing the principal amount and interest; that on
October 5, 1996, by virtue of a "Deed of Absolute Sale",3petitioner, as seller, ceded to
respondent, as buyer, a parcel of land, as well as the improvements thereon, with an area of 42
square meters, covered by Transfer Certificate of Title No. 382532,4 and located at a subdivision
project known as Camella Townhomes Sorrente in Bacoor, Cavite, in order to satisfy her
personal loan with respondent; that this property was mortgaged to National Home Mortgage
Finance Corporation (NHMFC) to secure petitioners loan in the sum of P337,050.00 with that
entity; that as a condition for the foregoing sale, respondent shall assume the undue balance of
the mortgage and pay the monthly amortization of P4,748.11 for the remainder of the 25 years
which began on September 3, 1994; that the property was at that time being occupied by a
tenant paying a monthly rent of P3,000.00; that upon verification with the NHMFC, respondent
learned that petitioner had incurred arrearages amounting to P26,744.09, inclusive of penalties
and interest; that upon informing the petitioner of her arrears, petitioner denied that she incurred
them and refused to pay the same; that despite repeated demand, petitioner refused to
cooperate with respondent to execute the necessary documents and other formalities required
by the NHMFC to effect the transfer of the title over the property; that petitioner collected rent
over the property for the month of January 1997 and refused to remit the proceeds to
respondent; and that respondent suffered damages as a result and was forced to litigate.
Petitioner, then defendant, while admitting some allegations in the Complaint, denied that she
borrowed money from respondent, and averred that from June to September 1995, she referred
her friends to respondent whom she knew to be engaged in the business of lending money in
exchange for personal checks through her capitalist Arsenio Pua. She alleged that her friends,

84
namely, Zenaida Romulo, Theresa Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth
Tomelden, borrowed money from respondent and issued personal checks in payment of the
loan; that the checks bounced for insufficiency of funds; that despite her efforts to assist
respondent to collect from the borrowers, she could no longer locate them; that, because of this,
respondent became furious and threatened petitioner that if the accounts were not settled, a
criminal case will be filed against her; that she was forced to issue eight checks amounting
to P350,000 to answer for the bounced checks of the borrowers she referred; that prior to the
issuance of the checks she informed respondent that they were not sufficiently funded but the
latter nonetheless deposited the checks and for which reason they were subsequently
dishonored; that respondent then threatened to initiate a criminal case against her for violation
of Batas Pambansa Blg. 22; that she was forced by respondent to execute an "Absolute Deed
of Sale" over her property in Bacoor, Cavite, to avoid criminal prosecution; that the said deed
had no valid consideration; that she did not appear before a notary public; that the Community
Tax Certificate number on the deed was not hers and for which respondent may be prosecuted
for falsification and perjury; and that she suffered damages and lost rental as a result.
The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid;
second; if valid, whether petitioner is obliged to sign and execute the necessary documents to
effect the transfer of her rights over the property to the respondent; and third, whether petitioner
is liable for damages.
On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of the complaint for
insufficiency of evidence. With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or consideration:5
Plaintiff Angeles admission that the borrowers are the friends of defendant Doles and further
admission that the checks issued by these borrowers in payment of the loan obligation negates
[sic] the cause or consideration of the contract of sale executed by and between plaintiff and
defendant. Moreover, the property is not solely owned by defendant as appearing in Entry No.
9055 of Transfer Certificate of Title No. 382532 (Annex A, Complaint), thus:
"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of
Teodorico Doles on the parcel of land described in this certificate of title by virtue of the special
power of attorney to mortgage, executed before the notary public, etc."
The rule under the Civil Code is that contracts without a cause or consideration produce no
effect whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief, respondent interposed her sole
assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic]
THE DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR
INSUFFICIENCY OF EVIDENCE.6

85
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision
of the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A new one is entered
ordering defendant-appellee to execute all necessary documents to effect transfer of subject
property to plaintiff-appellant with the arrearages of the formers loan with the NHMFC, at the
latters expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount
borrowed from the respondent to her friends. Hence, the Deed of Absolute Sale was supported
by a valid consideration, which is the sum of money petitioner owed respondent amounting
to P405,430.00, representing both principal and interest.
The CA took into account the following circumstances in their entirety: the supposed friends of
petitioner never presented themselves to respondent and that all transactions were made by
and between petitioner and respondent;7 that the money borrowed was deposited with the bank
account of the petitioner, while payments made for the loan were deposited by the latter to
respondents bank account;8 that petitioner herself admitted in open court that she was "relending" the money loaned from respondent to other individuals for profit;9 and that the
documentary evidence shows that the actual borrowers, the friends of petitioner, consider her as
their creditor and not the respondent.10
Furthermore, the CA held that the alleged threat or intimidation by respondent did not vitiate
consent, since the same is considered just or legal if made to enforce ones claim through
competent authority under Article 133511of the Civil Code;12 that with respect to the arrearages of
petitioner on her monthly amortization with the NHMFC in the sum of P26,744.09, the same
shall be deemed part of the balance of petitioners loan with the NHMFC which respondent
agreed to assume; and that the amount of P3,000.00 representing the rental for January 1997
supposedly collected by petitioner, as well as the claim for damages and attorneys fees, is
denied for insufficiency of evidence.13
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that
respondent categorically admitted in open court that she acted only as agent or representative
of Arsenio Pua, the principal financier and, hence, she had no legal capacity to sue petitioner;
and that the CA failed to consider the fact that petitioners father, who co-owned the subject
property, was not impleaded as a defendant nor was he indebted to the respondent and, hence,
she cannot be made to sign the documents to effect the transfer of ownership over the entire
property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the
foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001,
petitioner filed the present Petition and raised the following issues:
I.

86
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF
THE RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL
TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM
THE DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE.14
Although, as a rule, it is not the business of this Court to review the findings of fact made by the
lower courts, jurisprudence has recognized several exceptions, at least three of which are
present in the instant case, namely: when the judgment is based on a misapprehension of facts;
when the findings of facts of the courts a quo are conflicting; and when the CA manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly considered,
could justify a different conclusion.15 To arrive at a proper judgment, therefore, the Court finds it
necessary to re-examine the evidence presented by the contending parties during the trial of the
case.
The Petition is meritorious.
The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration.
1. Petitioner argues that since she is merely the agent or representative of the alleged debtors,
then she is not a party to the loan; and that the Deed of Sale executed between her and the
respondent in their own names, which was predicated on that pre-existing debt, is void for lack
of consideration.
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a
price certain in money16 and that this sum indisputably pertains to the debt in issue. This Court
has consistently held that a contract of sale is null and void and produces no effect whatsoever
where the same is without cause or consideration.17 The question that has to be resolved for the
moment is whether this debt can be considered as a valid cause or consideration for the sale.
To restate, the CA cited four instances in the record to support its holding that petitioner "relends" the amount borrowed from respondent to her friends: first, the friends of petitioner never
presented themselves to respondent and that all transactions were made by and between
petitioner and respondent;18 second; the money passed through the bank accounts of petitioner
and respondent;19 third, petitioner herself admitted that she was "re-lending" the money loaned
to other individuals for profit;20 and fourth, the documentary evidence shows that the actual
borrowers, the friends of petitioner, consider her as their creditor and not the respondent.21
On the first, third, and fourth points, the CA cites the testimony of the petitioner, then defendant,
during her cross-examination:22
Atty. Diza:

87
q. You also mentioned that you were not the one indebted to the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin,
Maria Luisa Inocencio, Zenaida Romulo, they are your friends?
witness:
a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they were
just referred.
Atty. Diza:
q. And you have transact[ed] with the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. What is that transaction?
witness:
a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.
Atty. Diza:
q. Did the plaintiff personally see the transactions with your friends?
witness:
a. No, sir.
Atty. Diza:
q. Your friends and the plaintiff did not meet personally?
witness:
a. Yes, sir.

88
Atty. Diza:
q. You are intermediaries?
witness:
a. We are both intermediaries. As evidenced by the checks of the debtors they were
deposited to the name of Arsenio Pua because the money came from Arsenio Pua.
xxxx
Atty. Diza:
q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the
one you mentioned [a] while ago?
witness:
a. Yes, she knows the money will go to those persons.
Atty. Diza:
q. You are re-lending the money?
witness:
a. Yes, sir.
Atty. Diza:
q. What profit do you have, do you have commission?
witness:
a. Yes, sir.
Atty. Diza:
q. How much?
witness:
a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends
none, sir.
Based on the foregoing, the CA concluded that petitioner is the real borrower, while the
respondent, the real lender.

89
But as correctly noted by the RTC, respondent, then plaintiff, made the following
admission during her cross examination:23
Atty. Villacorta:
q. Who is this Arsenio Pua?
witness:
a. Principal financier, sir.
Atty. Villacorta:
q. So the money came from Arsenio Pua?
witness:
a. Yes, because I am only representing him, sir.
Other portions of the testimony of respondent must likewise be considered:24
Atty. Villacorta:
q. So it is not actually your money but the money of Arsenio Pua?
witness:
a. Yes, sir.
Court:
q. It is not your money?
witness:
a. Yes, Your Honor.
Atty. Villacorta:
q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate
somebody, are you aware of that?
witness:
a. I am aware of that.
Atty. Villacorta:

90
q. More or less she [accommodated] several friends of the defendant?
witness:
a. Yes, sir, I am aware of that.
xxxx
Atty. Villacorta:
q. And these friends of the defendant borrowed money from you with the assurance of
the defendant?
witness:
a. They go direct to Jocelyn because I dont know them.
xxxx
Atty. Villacorta:
q. And is it not also a fact Madam witness that everytime that the defendant borrowed
money from you her friends who [are] in need of money issued check[s] to you? There
were checks issued to you?
witness:
a. Yes, there were checks issued.
Atty. Villacorta:
q. By the friends of the defendant, am I correct?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And because of your assistance, the friends of the defendant who are in need of
money were able to obtain loan to [sic] Arsenio Pua through your assistance?
witness:
a. Yes, sir.
Atty. Villacorta:

91
q. So that occasion lasted for more than a year?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And some of the checks that were issued by the friends of the defendant bounced, am
I correct?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And because of that Arsenio Pua got mad with you?
witness:
a. Yes, sir.
Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her
disclosed principal. She is also estopped to deny that petitioner acted as agent for the alleged
debtors, the friends whom she (petitioner) referred.
This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is
representation.25 The question of whether an agency has been created is ordinarily a question
which may be established in the same way as any other fact, either by direct or circumstantial
evidence. The question is ultimately one of intention.26Agency may even be implied from the
words and conduct of the parties and the circumstances of the particular case.27 Though the fact
or extent of authority of the agents may not, as a general rule, be established from the
declarations of the agents alone, if one professes to act as agent for another, she may be
estopped to deny her agency both as against the asserted principal and the third persons
interested in the transaction in which he or she is engaged.28
In this case, petitioner knew that the financier of respondent is Pua; and respondent knew that
the borrowers are friends of petitioner.
The CA is incorrect when it considered the fact that the "supposed friends of [petitioner], the
actual borrowers, did not present themselves to [respondent]" as evidence that negates the
agency relationshipit is sufficient that petitioner disclosed to respondent that the former was
acting in behalf of her principals, her friends whom she referred to respondent. For an agency to
arise, it is not necessary that the principal personally encounter the third person with whom the
agent interacts. The law in fact contemplates, and to a great degree, impersonal dealings where
the principal need not personally know or meet the third person with whom her agent transacts:
precisely, the purpose of agency is to extend the personality of the principal through the facility
of the agent.29

92
In the case at bar, both petitioner and respondent have undeniably disclosed to each other that
they are representing someone else, and so both of them are estopped to deny the same. It is
evident from the record that petitioner merely refers actual borrowers and then collects and
disburses the amounts of the loan upon which she received a commission; and that respondent
transacts on behalf of her "principal financier", a certain Arsenio Pua. If their respective
principals do not actually and personally know each other, such ignorance does not affect their
juridical standing as agents, especially since the very purpose of agency is to extend the
personality of the principal through the facility of the agent.
With respect to the admission of petitioner that she is "re-lending" the money loaned from
respondent to other individuals for profit, it must be stressed that the manner in which the
parties designate the relationship is not controlling. If an act done by one person in behalf of
another is in its essential nature one of agency, the former is the agent of the latter
notwithstanding he or she is not so called.30 The question is to be determined by the fact that
one represents and is acting for another, and if relations exist which will constitute an agency, it
will be an agency whether the parties understood the exact nature of the relation or not.31
That both parties acted as mere agents is shown by the undisputed fact that the friends of
petitioner issued checks in payment of the loan in the name of Pua. If it is true that petitioner
was "re-lending", then the checks should have been drawn in her name and not directly paid to
Pua.
With respect to the second point, particularly, the finding of the CA that the disbursements and
payments for the loan were made through the bank accounts of petitioner and respondent,
suffice it to say that in the normal course of commercial dealings and for reasons of
convenience and practical utility it can be reasonably expected that the facilities of the agent,
such as a bank account, may be employed, and that a sub-agent be appointed, such as the
bank itself, to carry out the task, especially where there is no stipulation to the contrary.32
In view of the two agency relationships, petitioner and respondent are not privy to the contract of
loan between their principals. Since the sale is predicated on that loan, then the sale is void for
lack of consideration.
2. A further scrutiny of the record shows, however, that the sale might have been backed up by
another consideration that is separate and distinct from the debt: respondent averred in her
complaint and testified that the parties had agreed that as a condition for the conveyance of the
property the respondent shall assume the balance of the mortgage loan which petitioner
allegedly owed to the NHMFC.33 This Court in the recent past has declared that an assumption
of a mortgage debt may constitute a valid consideration for a sale.34
Although the record shows that petitioner admitted at the time of trial that she owned the
property described in the TCT,35 the Court must stress that the Transfer Certificate of Title No.
38253236 on its face shows that the owner of the property which admittedly forms the subject
matter of the Deed of Absolute Sale refers neither to the petitioner nor to her father, Teodorico
Doles, the alleged co-owner. Rather, it states that the property is registered in the name of
"Household Development Corporation." Although there is an entry to the effect that the
petitioner had been granted a special power of attorney "covering the shares of Teodorico Doles
on the parcel of land described in this certificate,"37 it cannot be inferred from this bare notation,
nor from any other evidence on the record, that the petitioner or her father held any direct

93
interest on the property in question so as to validly constitute a mortgage thereon38 and, with
more reason, to effect the delivery of the object of the sale at the consummation stage.39 What is
worse, there is a notation that the TCT itself has been "cancelled."40
In view of these anomalies, the Court cannot entertain the
possibility that respondent agreed to assume the balance of the mortgage loan which petitioner
allegedly owed to the NHMFC, especially since the record is bereft of any factual finding that
petitioner was, in the first place, endowed with any ownership rights to validly mortgage and
convey the property. As the complainant who initiated the case, respondent bears the burden of
proving the basis of her complaint. Having failed to discharge such burden, the Court has no
choice but to declare the sale void for lack of cause. And since the sale is void, the Court finds it
unnecessary to dwell on the issue of whether duress or intimidation had been foisted upon
petitioner upon the execution of the sale.
Moreover, even assuming the mortgage validly exists, the Court notes respondents allegation
that the mortgage with the NHMFC was for 25 years which began September 3, 1994.
Respondent filed her Complaint for Specific Performance in 1997. Since the 25 years had not
lapsed, the prayer of respondent to compel petitioner to execute necessary documents to effect
the transfer of title is premature.
WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals
are REVERSED andSET ASIDE. The complaint of respondent in Civil Case No. 97-82716
is DISMISSED.
SO ORDERED.

94
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 138018

July 26, 2002

RIDO MONTECILLO, petitioner,

vs.
IGNACIA REYNES and SPOUSES REDEMPTOR and ELISA ABUCAY, respondents.
CARPIO, J.:
The Case
On March 24, 1993, the Regional Trial Court of Cebu City, Branch 18, rendered a
Decision1 declaring the deed of sale of a parcel of land in favor of petitioner null and void ab
initio. The Court of Appeals,2 in its July 16, 1998 Decision3 as well as its February 11, 1999
Order4 denying petitioners Motion for Reconsideration, affirmed the trial courts decision in toto.
Before this Court now is a Petition for Review on Certiorari5 assailing the Court of Appeals
decision and order.
The Facts
Respondents Ignacia Reynes ("Reynes" for brevity) and Spouses Abucay ("Abucay Spouses"
for brevity) filed on June 20, 1984 a complaint for Declaration of Nullity and Quieting of Title
against petitioner Rido Montecillo ("Montecillo" for brevity). Reynes asserted that she is the
owner of a lot situated in Mabolo, Cebu City, covered by Transfer Certificate of Title No. 74196
and containing an area of 448 square meters ("Mabolo Lot" for brevity). In 1981, Reynes sold
185 square meters of the Mabolo Lot to the Abucay Spouses who built a residential house on
the lot they bought.
Reynes alleged further that on March 1, 1984 she signed a Deed of Sale of the Mabolo Lot in
favor of Montecillo ("Montecillos Deed of Sale" for brevity). Reynes, being illiterate,6 signed by
affixing her thumb-mark7 on the document. Montecillo promised to pay the agreed P47,000.00
purchase price within one month from the signing of the Deed of Sale. Montecillos Deed of Sale
states as follows:
"That I, IGNACIA T. REYNES, of legal age, Filipino, widow, with residence and postal
address at Mabolo, Cebu City, Philippines, for and in consideration of FORTY SEVEN
THOUSAND (P47,000.00) PESOS, Philippine Currency, to me in hand paid by RIDO
MONTECILLO, of legal age, Filipino, married, with residence and postal address at
Mabolo, Cebu City, Philippines, the receipt hereof is hereby acknowledged, have
sold, transferred, and conveyed, unto RIDO MONTECILLO, his heirs, executors,
administrators, and assigns, forever, a parcel of land together with the improvements
thereon, situated at Mabolo, Cebu City, Philippines, free from all liens and
encumbrances, and more particularly described as follows:

95
A parcel of land (Lot 203-B-2-B of the subdivision plan Psd-07-01-00 2370, being
a portion of Lot 203-B-2, described on plan (LRC) Psd-76821, L.R.C. (GLRO)
Record No. 5988), situated in the Barrio of Mabolo, City of Cebu. Bounded on the
SE., along line 1-2 by Lot 206; on the SW., along line 2-3, by Lot 202, both of
Banilad Estate; on the NW., along line 4-5, by Lot 203-B-2-A of the subdivision of
Four Hundred Forty Eight (448) square meters, more or less.
of which I am the absolute owner in accordance with the provisions of the Land
Registration Act, my title being evidenced by Transfer Certificate of Title No. 74196 of the
Registry of Deeds of the City of Cebu, Philippines. That This Land Is Not Tenanted and
Does Not Fall Under the Purview of P.D. 27."8 (Emphasis supplied)
Reynes further alleged that Montecillo failed to pay the purchase price after the lapse of the
one-month period, prompting Reynes to demand from Montecillo the return of the Deed of Sale.
Since Montecillo refused to return the Deed of Sale,9 Reynes executed a document unilaterally
revoking the sale and gave a copy of the document to Montecillo.
Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring to the Abucay
Spouses the entire Mabolo Lot, at the same time confirming the previous sale in 1981 of a 185square meter portion of the lot. This Deed of Sale states:
"I, IGNACIA T. REYNES, of legal age, Filipino, widow and resident of Mabolo, Cebu City,
do hereby confirm the sale of a portion of Lot No. 74196 to an extent of 185 square
meters to Spouses Redemptor Abucay and Elisa Abucay covered by Deed per Doc. No.
47, Page No. 9, Book No. V, Series of 1981 of notarial register of Benedicto Alo, of which
spouses is now in occupation;
That for and in consideration of the total sum of FIFTY THOUSAND (P50,000) PESOS,
Philippine Currency, received in full and receipt whereof is herein acknowledged from
SPOUSES REDEMPTOR ABUCAY and ELISA ABUCAY, do hereby in these presents,
SELL, TRANSFER and CONVEY absolutely unto said Spouses Redemptor Abucay and
Elisa Abucay, their heirs, assigns and successors-in-interest the whole parcel of land
together with improvements thereon and more particularly described as follows:
TCT No. 74196
A parcel of land (Lot 203-B-2-B of the subdivision plan psd-07-01-002370, being
a portion of Lot 203-B-2, described on plan (LRC) Psd 76821, LRC (GLRO)
Record No. 5988) situated in Mabolo, Cebu City, along Arcilla Street, containing
an area of total FOUR HUNDRED FORTY EIGHT (448) Square meters.
of which I am the absolute owner thereof free from all liens and encumbrances and
warrant the same against claim of third persons and other deeds affecting said parcel of
land other than that to the said spouses and inconsistent hereto is declared without any
effect.
In witness whereof, I hereunto signed this 23rd day of May, 1984 in Cebu City,
Philippines."10

96
Reynes and the Abucay Spouses alleged that on June 18, 1984 they received information that
the Register of Deeds of Cebu City issued Certificate of Title No. 90805 in the name of
Montecillo for the Mabolo Lot.
Reynes and the Abucay Spouses argued that "for lack of consideration there (was) no meeting
of the minds"11between Reynes and Montecillo. Thus, the trial court should declare null and
void ab initio Montecillos Deed of Sale, and order the cancellation of Certificate of Title No.
90805 in the name of Montecillo.
In his Answer, Montecillo, a bank executive with a B.S. Commerce degree,12 claimed he was a
buyer in good faith and had actually paid the P47,000.00 consideration stated in his Deed of
Sale. Montecillo, however, admitted he still owed Reynes a balance of P10,000.00. He also
alleged that he paid P50,000.00 for the release of the chattel mortgage which he argued
constituted a lien on the Mabolo Lot. He further alleged that he paid for the real property tax as
well as the capital gains tax on the sale of the Mabolo Lot.
In their Reply, Reynes and the Abucay Spouses contended that Montecillo did not have
authority to discharge the chattel mortgage, especially after Reynes revoked Montecillos Deed
of Sale and gave the mortgagee a copy of the document of revocation. Reynes and the Abucay
Spouses claimed that Montecillo secured the release of the chattel mortgage through
machination. They further asserted that Montecillo took advantage of the real property taxes
paid by the Abucay Spouses and surreptitiously caused the transfer of the title to the Mabolo Lot
in his name.
During pre-trial, Montecillo claimed that the consideration for the sale of the Mabolo Lot was the
amount he paid to Cebu Ice and Cold Storage Corporation ("Cebu Ice Storage" for brevity) for
the mortgage debt of Bienvenido Jayag ("Jayag" for brevity). Montecillo argued that the release
of the mortgage was necessary since the mortgage constituted a lien on the Mabolo Lot.
Reynes, however, stated that she had nothing to do with Jayags mortgage debt except that the
house mortgaged by Jayag stood on a portion of the Mabolo Lot. Reynes further stated that the
payment by Montecillo to release the mortgage on Jayags house is a matter between
Montecillo and Jayag. The mortgage on the house, being a chattel mortgage, could not be
interpreted in any way as an encumbrance on the Mabolo Lot. Reynes further claimed that the
mortgage debt had long prescribed since the P47,000.00 mortgage debt was due for payment
on January 30, 1967.
The trial court rendered a decision on March 24, 1993 declaring the Deed of Sale to Montecillo
null and void. The trial court ordered the cancellation of Montecillos Transfer Certificate of Title
No. 90805 and the issuance of a new certificate of title in favor of the Abucay Spouses. The trial
court found that Montecillos Deed of Sale had no cause or consideration because Montecillo
never paid Reynes the P47,000.00 purchase price, contrary to what is stated in the Deed of
Sale that Reynes received the purchase price. The trial court ruled that Montecillos Deed of
Sale produced no effect whatsoever for want of consideration. The dispositive portion of the trial
courts decision reads as follows:
"WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered
declaring the deed of sale in favor of defendant null and void and of no force and effect
thereby ordering the cancellation of Transfer Certificate of Title No. 90805 of the Register
of Deeds of Cebu City and to declare plaintiff Spouses Redemptor and Elisa Abucay as

97
rightful vendees and Transfer Certificate of Title to the property subject matter of the suit
issued in their names. The defendants are further directed to pay moral damages in the
sum of P20,000.00 and attorneys fees in the sum of P2,000.00 plus cost of the suit.
xxx"
Not satisfied with the trial courts Decision, Montecillo appealed the same to the Court of
Appeals.
Ruling of the Court of Appeals
The appellate court affirmed the Decision of the trial court in toto and dismissed the appeal13 on
the ground that Montecillos Deed of Sale is void for lack of consideration. The appellate court
also denied Montecillos Motion for Reconsideration14 on the ground that it raised no new
arguments.
Still dissatisfied, Montecillo filed the present petition for review on certiorari.
The Issues
Montecillo raises the following issues:
1. "Was there an agreement between Reynes and Montecillo that the stated
consideration of P47,000.00 in the Deed of Sale be paid to Cebu Ice and Cold Storage
to secure the release of the Transfer Certificate of Title?"
2. "If there was none, is the Deed of Sale void from the beginning or simply
rescissible?"15
The Ruling of the Court
The petition is devoid of merit.
First issue: manner of payment of the P47,000.00 purchase price.
Montecillos Deed of Sale does not state that the P47,000.00 purchase price should be paid by
Montecillo to Cebu Ice Storage. Montecillo failed to adduce any evidence before the trial court
showing that Reynes had agreed, verbally or in writing, that the P47,000.00 purchase price
should be paid to Cebu Ice Storage. Absent any evidence showing that Reynes had agreed to
the payment of the purchase price to any other party, the payment to be effective must be made
to Reynes, the vendor in the sale. Article 1240 of the Civil Code provides as follows:
"Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it."
Thus, Montecillos payment to Cebu Ice Storage is not the payment that would
extinguish16 Montecillos obligation to Reynes under the Deed of Sale.

98
It militates against common sense for Reynes to sell her Mabolo Lot for P47,000.00 if this entire
amount would only go to Cebu Ice Storage, leaving not a single centavo to her for giving up
ownership of a valuable property. This incredible allegation of Montecillo becomes even more
absurd when one considers that Reynes did not benefit, directly or indirectly, from the payment
of the P47,000.00 to Cebu Ice Storage.
The trial court found that Reynes had nothing to do with Jayags mortgage debt with Cebu Ice
Storage. The trial court made the following findings of fact:
"x x x. Plaintiff Ignacia Reynes was not a party to nor privy of the obligation in favor of
the Cebu Ice and Cold Storage Corporation, the obligation being exclusively of
Bienvenido Jayag and wife who mortgaged their residential house constructed on the
land subject matter of the complaint. The payment by the defendant to release the
residential house from the mortgage is a matter between him and Jayag and cannot by
implication or deception be made to appear as an encumbrance upon the land."17
Thus, Montecillos payment to Jayags creditor could not possibly redound to the benefit18 of
Reynes. We find no reason to disturb the factual findings of the trial court. In petitions for review
on certiorari as a mode of appeal under Rule 45, as in the instant case, a petitioner can raise
only questions of law.19 This Court is not the proper venue to consider a factual issue as it is not
a trier of facts.
Second issue: whether the Deed of Sale is void ab initio or only rescissible.
Under Article 1318 of the Civil Code, "[T]here is no contract unless the following requisites
concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of
the contract; (3) Cause of the obligation which is established." Article 1352 of the Civil Code also
provides that "[C]ontracts without cause x x x produce no effect whatsoever."
Montecillo argues that his Deed of Sale has all the requisites of a valid contract. Montecillo
points out that he agreed to purchase, and Reynes agreed to sell, the Mabolo Lot at the price
of P47,000.00. Thus, the three requisites for a valid contract concur: consent, object certain and
consideration. Montecillo asserts there is no lack of consideration that would prevent the
existence of a valid contract. Rather, there is only non-payment of the consideration within the
period agreed upon for payment.
Montecillo argues there is only a breach of his obligation to pay the full purchase price on time.
Such breach merely gives Reynes a right to ask for specific performance, or for annulment of
the obligation to sell the Mabolo Lot. Montecillo maintains that in reciprocal obligations, the
injured party can choose between fulfillment and rescission,20 or more properly cancellation, of
the obligation under Article 119121 of the Civil Code. This Article also provides that the "court
shall decree the rescission claimed, unless there be just cause authorizing the fixing of the
period." Montecillo claims that because Reynes failed to make a demand for payment, and
instead unilaterally revoked Montecillos Deed of Sale, the court has a just cause to fix the
period for payment of the balance of the purchase price.
These arguments are not persuasive.

99
Montecillos Deed of Sale states that Montecillo paid, and Reynes received, the P47,000.00
purchase price on March 1, 1984, the date of signing of the Deed of Sale. This is clear from the
following provision of the Deed of Sale:
"That I, IGNACIA T. REYNES, x x x for and in consideration of FORTY SEVEN
THOUSAND (P47,000.00) PESOS, Philippine Currency, to me in hand paid by RIDO
MONTECILLO xxx, receipt of which is hereby acknowledged, have sold, transferred,
and conveyed, unto RIDO MONTECILLO, x x x a parcel of land x x x."
On its face, Montecillos Deed of Absolute Sale22 appears supported by a valuable
consideration. However, based on the evidence presented by both Reynes and Montecillo, the
trial court found that Montecillo never paid to Reynes, and Reynes never received from
Montecillo, the P47,000.00 purchase price. There was indisputably a total absence of
consideration contrary to what is stated in Montecillos Deed of Sale. As pointed out by the trial
court
"From the allegations in the pleadings of both parties and the oral and documentary
evidence adduced during the trial, the court is convinced that the Deed of Sale (Exhibits
"1" and "1-A") executed by plaintiff Ignacia Reynes acknowledged before Notary Public
Ponciano Alvinio is devoid of any consideration. Plaintiff Ignacia Reynes through the
representation of Baudillo Baladjay had executed a Deed of Sale in favor of defendant
on the promise that the consideration should be paid within one (1) month from the
execution of the Deed of Sale. However, after the lapse of said period, defendant failed
to pay even a single centavo of the consideration. The answer of the defendant did not
allege clearly why no consideration was paid by him except for the allegation that he had
a balance of only P10,000.00. It turned out during the pre-trial that what the defendant
considered as the consideration was the amount which he paid for the obligation of
Bienvenido Jayag with the Cebu Ice and Cold Storage Corporation over which plaintiff
Ignacia Reynes did not have a part except that the subject of the mortgage was
constructed on the parcel of land in question. Plaintiff Ignacia Reynes was not a party to
nor privy of the obligation in favor of the Cebu Ice and Cold Storage Corporation, the
obligation being exclusively of Bienvenido Jayag and wife who mortgaged their
residential house constructed on the land subject matter of the complaint. The payment
by the defendant to release the residential house from the mortgage is a matter between
him and Jayag and cannot by implication or deception be made to appear as an
encumbrance upon the land. "23
Factual findings of the trial court are binding on us, especially if the Court of Appeals affirms
such findings.24 We do not disturb such findings unless the evidence on record clearly does not
support such findings or such findings are based on a patent misunderstanding of facts,25 which
is not the case here. Thus, we find no reason to deviate from the findings of both the trial and
appellate courts that no valid consideration supported Montecillos Deed of Sale.
This is not merely a case of failure to pay the purchase price, as Montecillo claims, which can
only amount to a breach of obligation with rescission as the proper remedy. What we have here
is a purported contract that lacks a cause - one of the three essential requisites of a valid
contract. Failure to pay the consideration is different from lack of consideration. The former
results in a right to demand the fulfillment or cancellation of the obligation under an existing valid
contract26 while the latter prevents the existence of a valid contract

100
Where the deed of sale states that the purchase price has been paid but in fact has never been
paid, the deed of sale is null and void ab initio for lack of consideration. This has been the wellsettled rule as early as Ocejo Perez & Co. v. Flores,27 a 1920 case. As subsequently explained
in Mapalo v. Mapalo28
"In our view, therefore, the ruling of this Court in Ocejo Perez & Co. vs. Flores, 40 Phil.
921, is squarely applicable herein. In that case we ruled that a contract of purchase and
sale is null and void and produces no effect whatsoever where the same is without
cause or consideration in that the purchase price which appears thereon as paid has in
fact never been paid by the purchaser to the vendor."
The Court reiterated this rule in Vda. De Catindig v. Heirs of Catalina Roque,29 to wit
"The Appellate Courts finding that the price was not paid or that the statement in the
supposed contracts of sale (Exh. 6 to 26) as to the payment of the price was simulated
fortifies the view that the alleged sales were void. "If the price is simulated, the sale is
void . . ." (Art. 1471, Civil Code)
A contract of sale is void and produces no effect whatsoever where the price, which
appears thereon as paid, has in fact never been paid by the purchaser to the vendor
(Ocejo, Perez & Co. vs. Flores and Bas, 40 Phil. 921; Mapalo vs. Mapalo, L-21489, May
19, 1966, 64 O.G. 331, 17 SCRA 114, 122). Such a sale is non-existent (Borromeo vs.
Borromeo, 98 Phil. 432) or cannot be considered consummated (Cruzado vs. Bustos
and Escaler, 34 Phil. 17; Garanciang vs. Garanciang, L-22351, May 21, 1969, 28 SCRA
229)."
Applying this well-entrenched doctrine to the instant case, we rule that Montecillos Deed of Sale
is null and voidab initio for lack of consideration.
Montecillo asserts that the only issue in controversy is "the mode and/or manner of payment
and/or whether or not payment has been made."30 Montecillo implies that the mode or manner
of payment is separate from the consideration and does not affect the validity of the contract. In
the recent case of San Miguel Properties Philippines, Inc. v. Huang,31 we ruled that
"In Navarro v. Sugar Producers Cooperative Marketing Association, Inc. (1 SCRA 1181
[1961]), we laid down the rule that the manner of payment of the purchase price is an
essential element before a valid and binding contract of sale can exist. Although
the Civil Code does not expressly state that the minds of the parties must also meet on
the terms or manner of payment of the price, the same is needed, otherwise there is no
sale. As held in Toyota Shaw, Inc. v. Court of Appeals (244 SCRA 320 [1995]),
agreement on the manner of payment goes into the price such that a disagreement on
the manner of payment is tantamount to a failure to agree on the price." (Emphasis
supplied)
One of the three essential requisites of a valid contract is consent of the parties on the object
and cause of the contract. In a contract of sale, the parties must agree not only on the price, but
also on the manner of payment of the price. An agreement on the price but a disagreement on
the manner of its payment will not result in consent, thus preventing the existence of a valid
contract for lack of consent. This lack of consent is separate and distinct from lack of

101
consideration where the contract states that the price has been paid when in fact it has never
been paid.
Reynes expected Montecillo to pay him directly the P47,000.00 purchase price within one
month after the signing of the Deed of Sale. On the other hand, Montecillo thought that his
agreement with Reynes required him to pay the P47,000.00 purchase price to Cebu Ice Storage
to settle Jayags mortgage debt. Montecillo also acknowledged a balance of P10,000.00 in favor
of Reynes although this amount is not stated in Montecillos Deed of Sale. Thus, there was no
consent, or meeting of the minds, between Reynes and Montecillo on the manner of payment.
This prevented the existence of a valid contract because of lack of consent.
In summary, Montecillos Deed of Sale is null and void ab initio not only for lack of
consideration, but also for lack of consent. The cancellation of TCT No. 90805 in the name of
Montecillo is in order as there was no valid contract transferring ownership of the Mabolo Lot
from Reynes to Montecillo.
WHEREFORE, the petition is DENIED and the assailed Decision dated July 16, 1998 of the
Court of Appeals in CA-G.R. CV No. 41349 is AFFIRMED. Costs against petitioner.
SO ORDERED.
Puno, Panganiban, and Sandoval-Gutierrez, JJ., concur.

102
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 137290

July 31, 2000

SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner,

vs.
SPOUSES ALFREDO HUANG and GRACE HUANG, respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision,1 dated April 8, 1997, of the Court of Appeals which
reversed the decision of the Regional Trial Court, Branch 153, Pasig City dismissing the
complaint brought by respondents against petitioner for enforcement of a contract of sale.
The facts are not in dispute.
Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the
purchase and sale of real properties. Part of its inventory are two parcels of land totalling 1, 738
square meters at the corner of Meralco Avenue and General Capinpin Street, Barrio Oranbo,
Pasig City, which are covered by TCT Nos. PT-82395 and PT-82396 of the Register of Deeds of
Pasig City.
On February 21, 1994, the properties were offered for sale for P52,140,000.00 in cash. The
offer was made to Atty. Helena M. Dauz who was acting for respondent spouses as undisclosed
principals. In a letter2 dated March 24, 1994, Atty. Dauz signified her clients interest in
purchasing the properties for the amount for which they were offered by petitioner, under the
following terms: the sum of P500,000.00 would be given as earnest money and the balance
would be paid in eight equal monthly installments from May to December, 1994. However,
petitioner refused the counter-offer.
On March 29, 1994, Atty. Dauz wrote another letter3 proposing the following terms for the
purchase of the properties, viz:
This is to express our interest to buy your-above-mentioned property with an area of 1, 738 sq.
meters. For this purpose, we are enclosing herewith the sum of P1,000,000.00 representing
earnest-deposit money, subject to the following conditions.
1. We will be given the exclusive option to purchase the property within the 30 days from
date of your acceptance of this offer.
2. During said period, we will negotiate on the terms and conditions of the purchase;
SMPPI will secure the necessary Management and Board approvals; and we initiate the
documentation if there is mutual agreement between us.

103
3. In the event that we do not come to an agreement on this transaction, the said amount
of P1,000,000.00 shall be refundable to us in full upon demand. . . .
Isidro A. Sobrecarey, petitioners vice-president and operations manager for corporate real
estate, indicated his conformity to the offer by affixing his signature to the letter and accepted
the "earnest-deposit" of P1 million. Upon request of respondent spouses, Sobrecarey ordered
the removal of the "FOR SALE" sign from the properties.
Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April 8,
1994, Sobrecarey informed Atty. Dauz that petitioner was willing to sell the subject properties on
a 90-day term. Atty. Dauz countered with an offer of six months within which to pay.
On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz that
petitioner had not yet acted on her counter-offer. This prompted Atty. Dauz to propose a fourmonth period of amortization.
On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to June 13,
1994 within which to exercise her option to purchase the property, adding that within that period,
"[we] hope to finalize [our] agreement on the matter."4 Her request was granted.
On July 7, 1994, petitioner, through its president and chief executive officer, Federico Gonzales,
wrote Atty. Dauz informing her that because the parties failed to agree on the terms and
conditions of the sale despite the extension granted by petitioner, the latter was returning the
amount of P1 million given as "earnest-deposit."5
On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the
execution within five days of a deed of sale covering the properties. Respondents attempted to
return the "earnest-deposit" but petitioner refused on the ground that respondents option to
purchase had already expired.
On August 16, 1994, respondent spouses filed a complaint for specific performance against
petitioner before the Regional Trial Court, Branch 133, Pasig City where it was docketed as Civil
Case No. 64660.
Within the period for filing a responsive pleading, petitioner filed a motion to dismiss the
complaint alleging that (1) the alleged "exclusive option" of respondent spouses lacked a
consideration separate and distinct from the purchase price and was thus unenforceable and (2)
the complaint did not allege a cause of action because there was no "meeting of the minds"
between the parties and, therefore, no perfected contract of sale. The motion was opposed by
respondents.
On December 12, 1994, the trial court granted petitioners motion and dismissed the action.
Respondents filed a motion for reconsideration, but it was denied by the trial court. They then
appealed to the Court of Appeals which, on April 8, 1997, rendered a decision6 reversing the
judgment of the trial court. The appellate court held that all the requisites of a perfected contract
of sale had been complied with as the offer made on March 29, 1994, in connection with which
the earnest money in the amount of P1 million was tendered by respondents, had already been
accepted by petitioner. The court cited Art. 1482 of the Civil Code which provides that
"[w]henever earnest money is given in a contract of sale, it shall be considered as part of the
price and as proof of the perfection of the contract." The fact the parties had not agreed on the

104
mode of payment did not affect the contract as such is not an essential element for its validity. In
addition, the court found that Sobrecarey had authority to act in behalf of petitioner for the sale
of the properties.7
Petitioner moved for reconsideration of the trial courts decision, but its motion was denied.
Hence, this petition.
Petitioner contends that the Court of Appeals erred in finding that there was a perfected contract
of sale between the parties because the March 29, 1994 letter of respondents, which petitioner
accepted, merely resulted in an option contract, albeit it was unenforceable for lack of a distinct
consideration. Petitioner argues that the absence of agreement as to the mode of payment was
fatal to the perfection of the contract of sale. Petitioner also disputes the appellate courts ruling
that Isidro A. Sobrecarey had authority to sell the subject real properties.8
Respondents were required to comment within ten (10) days from notice. However, despite 13
extensions totalling 142 days which the Court had given to them, respondents failed to file their
comment. They were thus considered to have waived the filing of a comment.
The petition is meritorious.
In holding that there is a perfected contract of sale, the Court of Appeals relied on the following
findings: (1) earnest money was allegedly given by respondents and accepted by petitioner
through its vice-president and operations manager, Isidro A. Sobrecarey; and (2) the
documentary evidence in the records show that there was a perfected contract of sale.
With regard to the alleged payment and acceptance of earnest money, the Court holds that
respondents did not give the P1 million as "earnest money" as provided by Art. 1482 of the Civil
Code. They presented the amount merely as a deposit of what would eventually become the
earnest money or downpayment should a contract of sale be made by them. The amount was
thus given not as a part of the purchase price and as proof of the perfection of the contract of
sale but only as a guarantee that respondents would not back out of the sale. Respondents in
fact described the amount as an "earnest-deposit." In Spouses Doromal, Sr. v. Court of
Appeals,9it was held:
. . . While the P5,000 might have indeed been paid to Carlos in October, 1967, there is nothing
to show that the same was in the concept of the earnest money contemplated in Art. 1482 of the
Civil Code, invoked by petitioner, as signifying perfection of the sale. Viewed in the backdrop of
the factual milieu thereof extant in the record, We are more inclined to believe that the
said P5,000.00 were paid in the concept of earnest money as the term was understood under
the Old Civil Code, that is, as a guarantee that the buyer would not back out, considering that it
is not clear that there was already a definite agreement as to the price then and that petitioners
were decided to buy 6/7 only of the property should respondent Javellana refuse to agree to
part with her 1/7 share.10
In the present case, the P1 million "earnest-deposit" could not have been given as earnest
money as contemplated in Art. 1482 because, at the time when petitioner accepted the terms of
respondents offer of March 29, 1994, their contract had not yet been perfected. This is evident
from the following conditions attached by respondents to their letter, to wit: (1) that they be given
the exclusive option to purchase the property within 30 days from acceptance of the offer; (2)
that during the option period, the parties would negotiate the terms and conditions of the

105
purchase; and (3) petitioner would secure the necessary approvals while respondents would
handle the documentation.
The first condition for an option period of 30 days sufficiently shows that a sale was never
perfected.1wphi1 As petitioner correctly points out, acceptance of this condition did not give
rise to a perfected sale but merely to an option or an accepted unilateral promise on the part of
respondents to buy the subject properties within 30 days from the date of acceptance of the
offer. Such option giving respondents the exclusive right to buy the properties within the period
agreed upon is separate and distinct from the contract of sale which the parties may enter.11 All
that respondents had was just the option to buy the properties which privilege was not, however,
exercised by them because there was a failure to agree on the terms of payment. No contract of
sale may thus be enforced by respondents.
Furthermore, even the option secured by respondents from petitioner was fatally defective.
Under the second paragraph of Art. 1479, an accepted unilateral promise to buy or sell a
determinate thing for a price certain is binding upon the promisor only if the promise is
supported by a distinct consideration. Consideration in an option contract may be anything of
value, unlike in sale where it must be the price certain in money or its equivalent. There is no
showing here of any consideration for the option. Lacking any proof of such consideration, the
option is unenforceable.
Equally compelling as proof of the absence of a perfected sale is the second condition that,
during the option period, the parties would negotiate the terms and conditions of the purchase.
The stages of a contract of sale are as follows: (1) negotiation, covering the period from the time
the prospective contracting parties indicate interest in the contract to the time the contract is
perfected; (2) perfection, which takes place upon the concurrence of the essential elements of
the sale which are the meeting of the minds of the parties as to the object of the contract and
upon the price; and (3) consummation, which begins when the parties perform their respective
undertakings under the contract of sale, culminating in the extinguishment thereof.12 In the
present case, the parties never got past the negotiation stage. The alleged "indubitable
evidence"13 of a perfected sale cited by the appellate court was nothing more than offers and
counter-offers which did not amount to any final arrangement containing the essential elements
of a contract of sale. While the parties already agreed on the real properties which were the
objects of the sale and on the purchase price, the fact remains that they failed to arrive at
mutually acceptable terms of payment, despite the 45-day extension given by petitioner.
The appellate court opined that the failure to agree on the terms of payment was no bar to the
perfection of the sale because Art. 1475 only requires agreement by the parties as to the price
of the object. This is error. InNavarro v. Sugar Producers Cooperative Marketing Association,
Inc.,14 we laid down the rule that the manner of payment of the purchase price is an essential
element before a valid and binding contract of sale can exist. Although the Civil Code does not
expressly state that the minds of the parties must also meet on the terms or manner of payment
of the price, the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v.
Court of Appeals,15 agreement on the manner of payment goes into the price such that a
disagreement on the manner of payment is tantamount to a failure to agree on the
price.16 In Velasco v. Court of Appeals,17 the parties to a proposed sale had already agreed on
the object of sale and on the purchase price. By the buyers own admission, however, the
parties still had to agree on how and when the downpayment and the installments were to be
paid. It was held:

106
. . . Such being the situation, it can not, therefore, be said that a definite and firm sales
agreement between the parties had been perfected over the lot in question. Indeed, this Court
has already ruled before that a definite agreement on the manner of payment of the purchase
price is an essential element in the formation of a binding and enforceable contract of sale. The
fact, therefore, that the petitioners delivered to the respondent the sum of P10,000 as part of the
down-payment that they had to pay cannot be considered as sufficient proof of the perfection of
any purchase and sale agreement between the parties herein under Art. 1482 of the new Civil
Code, as the petitioners themselves admit that some essential matter - the terms of the
payment - still had to be mutually covenanted.18
Thus, it is not the giving of earnest money, but the proof of the concurrence of all the essential
elements of the contract of sale which establishes the existence of a perfected sale.
In the absence of a perfected contract of sale, it is immaterial whether Isidro A. Sobrecarey had
the authority to enter into a contract of sale in behalf of petitioner. This issue, therefore, needs
no further discussion.
WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents complaint
is DISMISSED.
SO ORDERED.
Quisumbing, Buena, and De Leon, Jr., JJ., concur.
Bellosillo, (Chairman), J., on leave.

107
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-12888

April 29, 1961

R. F. NAVARRO, doing business under the firm name of R.F. NAVARRO &
COMPANY, plaintiff-appellant,
vs.
SUGAR PRODUCERS COOPERATIVE MARKETING ASSOCIATION INC., defendantappellee.
Marquez, Quirino and Associates for plaintiff-appellant.
San Juan, Africa and Benedicto for defendant-appellee.
BARRERA, J.:
Plaintiff-appellant R. F. Navarro (doing business under the firm name R.F. Navarro & Company)
appeals directly to us from the order of the Court of First Instance of Rizal (in Civil Case No.
1733-P) dismissing his complaint for lack of cause of action, on the assertion that only questions
of law are involved herein.
The material and pertinent allegations of plaintiff's complaint are:
2. On September 19th, 1956, defendant formally offered to plaintiff the sale from 15,000
to 20,000 metric tons of molasses, 1st-degrees gravity, 60% sugar by invert, at P50.00
per metric ton, ex-warehouse San Carlos and Bais, Negros Occidental, giving him up to
noon of September 24th, 1956 within which to accept the offer, with the admonition that
upon its failure to hear from him by then, the defendant shall feel free to negotiate the
sale with other possible buyers;
3. On September 21st, 1956, answering an inquiry made by the plaintiff, the defendant
advised the latter that the cost of pumping the molasses offered by it for sale is P1.20
per metric ton in San Carlos district and P3.00 per metric ton in Bais district and that the
date of delivery thereof shall start from February on to March, April and May, 1957, as
milling in the districts indicated (San Carlos and Bais) starts during the month of
January;
4. Promptly at five minutes before noon of September 24th, 1956, plaintiff formally
accepted the offer of sale tendered by the defendant by informing the latter in writing that
he binds himself to purchase from the preferred 20,000 metric tons of molasses in
question for P50.00 per metric ton, and the day after September 21st, 1956, plaintiff
upon the request of defendant, made the following clarifications of his agreement to
purchase the said molasses, (1) 20,000 metric tons of Philippine molasses, 185degrees specific gravity, 60% sugar by invert; (2) Price P50.00 Philippine currency,
per metric ton ex-warehouse; (3) shipments to be in quantities of 3,000 or more metric
tons every each shipment during the month of February, March, April and May until the
whole amount has been completely shipped; and (4)payment shall be by irrevocable,

108
divisible and assignable domestic letter of credit to be opened in a local bank in
defendant's favor;
5. On the same day plaintiff made the foregoing clariffications of his acceptance of the
sale, the defendant hurried advised plaintiff that it committed a typographical error
indicating the specific gravity of the molasses at 185-degrees which should be only 85degrees, the latter being the high for molasses at 60% sugar by invert, and requesting
plain that the "specific gravity" be amended accordingly, which correction and
amendment plaintiff readily agreed to and accepted:
6. That neither on September 24th, 1956 when plaintiff exercised his option nor on
September 25th when he request plaintiff to clarify his acceptance to indicate the
manner payment, nor upon the submittal of the clarification which presented by plaintiff
himself and received by the defendant thru its President, Amado Garcia, and for three
days the after, there was no single word, effort or hint that the defendant's offer,
accepted by the plaintiff, was qualified in any way whatsoever;
7. That on September 24th, 1956, relying upon the consummation and perfection of the
purchase and sale of 20,000 metric tons of molasses in question as indicated above,
plaintiff through his business associate here in Manila (J.D. QUIRINO) continued
negotiations for the resale of said molasses to foreign buyers of said conunodity by
immediately communicating the availability of said commodity through letters,
cablegrams a long-distance calls to the latter's business contacts in U.S.A., a Japan, and
ultimately disposing and reselling the said molasses for forward deliveries in accordance
with plaintiff's agreement with the defendant;
8. On September 28th, 1956, three days after an agreement had been consummated on
the price, quantity and quality of said molasses and the manner of payment thereof, the
defendant, belatedly and abruptly advised plaintiff of its desire add certain additional
conditions to be incorporated in the formal contract of purchase and sale then under
preparation by it for signature, which were never even mentioned nor hinted at in its
original offer or proposal, on the untenable pretext that they were 'standard conditions'
on all contracts for the sale said commodity, the most onerous of which were,
"(a) That upon the signing of the contract of purchased and sale; plaintiff shall pay
defendant in cash an amount equivalent to 50% of the purchase value Of the molasses;
"(b) that to cover the remaining and unpaid balance of the purchase price, plaintiff shall
open with the Philippine National Bank an irrevocable domestic letter of credit in favor of
defendant, which shall be assignable and divisible; and
"(c) that in negotiating the said letter of credit, plaintiff shall allow defendant immediately
to withdraw from the same the corresponding amount representing 50% of the value of
the molasses withdrawn from the central, upon presentation of the requisite certificate
thereof (certainly a condition which, taken with (a) above, is most one-sided in favor only
of the seller);
9. On October 2nd, 1956, plaintiff personally conferred with the defendant's manager,
Amado G. Garcia, with a view of threshing out the difficulties necessarily evoked by the
foregoing conditions belatedly demanded by the defendant, but the latter remained

109
adamant in the defendant, and the day after (October 3rd, 1956), it peremptorily gave
plaintiff up to noon again of October 26th, 1956, within which to decide upon his
acceptance of said additional conditions with the warning that if he failed to do so, it
would feel free to advise its planters concerned that they could negotiate their molasses
with other parties;
10. On October 5th, 1956, plaintiff, in a spirit of cooperation and in his desire to insure
the success of his purchase of the molasses in question, reiterated to the defendant his
readiness and willingness, already imparted to it during their conference on October
2nd , to assist defendant in working out certain financing transactions with the bank
whereby it may be possible to provide in the letter of credit to be opened in favor of the
defendant authority to draw cash advances up to 50% of the contract value of the
molasses, under certain conditions, and alternatively, plaintiff expressed his willingness
to satisfy defendant's desire to be paid in advance an amount equivalent to 50% of the
purchase value of the molasses, but provided, that their original agreement of P50.00 for
metric ton were to be converted into what is known as "equal standard condition", under
which the purchase value would be only P32.00 per metric ton;
11. On the very same day and evidently without even any attempt to consider the matter
further, defendant simply and rudely turned down the foregoing friendly gesture of the
plaintiff caused by the additional conditions demanded by the defendant in its letter of
September 28, 1956 (indicated in par. 7 above), and bluntly informed plaintiff that in view
of his non-acceptance of said conditions it would not continue with the sale of the
molasses in question to plaintiff and that it felt free to offer the same to any other
interested buyer.
Claiming breach of contract, plaintiff prayed that judgment be rendered ordering defendant to
comply with and perform its contractual obligations, pursuant to its agreement with plaintiff of
September 19 and 24, 1956 and in case of failure to do so, to pay plaintiff any and all damages
he may suffer by reason of such non-compliance, plus moral damages and to pay plaintiff
reasonable attorney's fees and actual costs of the litigation.
As heretofore stated, upon defendant's motion to dismiss on the ground that it (complaint)
states no cause of action for the reason that "there is no binding contract between" plaintiff and
defendant, under Article 1479 of the New Civil Code, the trial court dismissed the action in an
order which in part reads:
ORDER
xxx

xxx

xxx

The defendant contends that the complaint states no cause of action because
defendant's promise to sell, although accepted by the plaintiff, is not supported by any
consideration distinct from the price and, under Article 1479 of the New Civil Code, is not
binding. Article 1479 provides:
"A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.

110
"An accepted unilateral promise to buy or sell a determinable thing for a price
certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price."
Although the existence of a lawful consideration or cause of support a contract is
presumed, yet from the allegations of the herein complaint, it is apparent that the
defendant's promise to sell is not supported by any consideration. In fact, the absence of
any consideration of the option given to the plaintiff was admitted by plaintiff's counsel in
his oral argument opposing the defendant's motion to dismiss. Plaintiff, however,
contends that the option became binding on the defendant when plaintiff gave notice of
its acceptance and that having been accepted within the period of the option, the offer
can no longer be withdrawn and, in any event, such withdrawal is ineffective because
there had already arisen an existing bilateral contract which can be enforced.
The case of Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co. (51 O.G.
3447) is practically on all fours with the case at bar. In said case, on March 24, 1953,
defendant Atlantic Gulf & Pacific Co. granted an option to plaintiff Southwestern Sugar &
Molasses Co. to buy its barge for P30,000.00 to be exercised within ninety days. On
May 11, 1953, Atlantic Gulf wrote Southwestern Sugar that it was exercising its option
and that it be notified as soon as the barge was available. On May 12, 1953, Atlantic
Gulf replied that their understanding was that the "offer of option" is to be cash
transaction and to be effected at the time the barge was available. On June 25, 1953,
Atlantic Gulf informed Southwestern Sugar that the damage action could not be turned
over to the latter. On June 27, 1953, Southwestern Sugar instituted an action for specific
performance in line with the accepted option, depositing with the Court the purchase
price of 30,000.00. Atlantic Gulf, relying upon Article 1479 of the New Civil Code,
contended that the option was not valid because it was not supported by any
consideration apart from the price. Southwestern Sugar contended that the option
became binding on Atlantic Gulf when plaintiff gave notice of its acceptance during the
option period citing as its authority Article 1324 of the New Civil Code which provides
that 'when the offer or has allowed the offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by communicating such withdrawal except
"when the option is founded upon a consideration, as something paid or promised."
Upholding the contention of Atlantic Gulf and holding that the promise to sell was not
valid because it was not supported by a consideration distinct from the price, the
(Supreme) Court stated:
"There is no question that under Article 1479 of the New Civil Code "an option to
sell" or a "promise to buy or to sell", as used in said article, to be valid must be
"supported by a consideration distinct from the price". This is clearly inferred from
the context of said article that a unilateral promise to buy or to sell, even if
accepted, is only binding if supported by a consideration. In other words, "an
accepted unilateral promise" can only have a binding effect if supported by a
consideration. Here, it is not disputed that the option is without consideration. It
can, therefore, be withdrawn notwithstanding the acceptance made of it by
appellee."
"It is true that under Article 1324 of the New Civil Code, the general rule
regarding offer and acceptance is that, when the offer or gives to the offeree a
certain period to accept, "the offer may be withdrawn at any time before

111
acceptance" except when the option is founded upon consideration, but this
general provision must be interpreted as modified by the provision of Article 1479
above referred to, which applies to "a promise to buy and sell" specifically. As
already stated, this rule requires that a premise to sell to be valid must be
supported by a consideration distinct from the price."
On the strength of the above ruling laid down in the above cited case of Southwestern
Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., supra, the facts of which are
identical with those alleged in the present complaint, this Court rules that since the
herein defendant's promise to sell is not supported by any consideration distinct from the
price, said promise si invalid and enforceable. Plaintiff's complaint does not, hence state
a cause of action.
While under the allegations of the present complaint, here in defendant may have
assumed a clear obligation to sell it molasses to plaintiff at P50.00 per metric ton and,
under the complaint, said defendant may have no justifiable reason not to proceed with
the sale, yet, this Court cannot do otherwise that declare the option not binding and
unenforceable in view of the clear provisions of the law on the matter. Thus, said the
Supreme Court in the above-mentioned case of Southwestern Sugar v. Atlantic Gulf:
"While under the "offer of option" in question, appellant has assumed a clear
obligation to sell its barge to appellee and the option has been exercised in
accordance with its terms, and there appears to be no valid or justifiable reason
for the appellant to withdraw its offer, this Court cannot adopt a different attitude
because the la on the matter is clear. Our imperative duty is to apply it unless
modified by Congress."
WHEREFORE, the Court sustains, as it hereby sustain the defendant's motion to
dismiss and hereby declares plaintiff's complaint dismissed, without costs.
SO ORDERED.
His motion for reconsideration having been denied, plain plaintiff interposed this appeal.
It is the contention of plaintiff-appellant that "the lower court erred in characterizing the
transaction had between plaintiff and the defendant as an accepted unilateral promise to buy or
to sell, and in deciding that as there was no consideration therefor, Article 1479, paragraph 2 of
the Civil Code, and the ruling in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
Co., 51 Off. Gaz. 3447, are applicable thereto."
In support of his claim, appellant seeks in his brief to differentiate his case from that of
Southwestern Sugar & Molasses Company v. Atlantic Gulf & Pacific Company relied upon by
the trial court by arguing that what was involved in the Atlantic Gulf case was a mere option,
while here the transaction is a bilateral promise to sell and buy which requires no consideration
distinct from the selling price.
This contention is not borne out by the facts alleged in the complaint. In the first place, as noted
by the trial court in its order denying plaintiff's motion for reconsideration, plaintiff himself, in
paragraph 6 of his complaint, referred to the transaction as an "option" which he exercised on
September 24, 1956. Then again, in his memorandum in lieu of oral argument, he expressly

112
agreed that the offer made by defendant and described in paragraph 2 of plaintiff's complaint is,
In option, a unilateral promise to sell. (See page 4 of the memorandum.) And, undoubtedly, this
is the offer, the option, the unilateral promise to sell that was accepted by plaintiff five minutes
before the deadline noon of September 24, 1956.(See first part of paragraph 4 of the
complaint.) This acceptance, without consideration, did not create an enforceable obligation on
the part of the defendant. The offer as well as the acceptance, did not contemplate nor produce
an immediately binding and enforceable contract of sale. Both lack a most essential element
the manner of payment of the purchase price. In fact, it was only after the exercise of the option
or acceptance of the unilateral promise to sell that the terms of payment were first discussed.
This was in connection with the clarification of plaintiff's acceptance which was transmitted to
defendant on September 25, 1956. (See last part of paragraph 6 of the complaint.) Plaintiff's
offer of a domestic letter of credit was not accepted by defendant who insisted on a cash
payment of 50% of the purchase value, upon signing of a contract. (See paragraphs 8 and 9 of
the complaint.) Plaintiff, on the other hand, agreed to accede to this provided the price is
reduced from P50.00 per metric ton to 7132.00 Defendant rejected defendant's alternative
counter-offer. In the circumstance, there was no complete meeting of the minds of the parties
necessary for the perfection of a contract of sale. Consequently, appellee was justified in
withdrawing its offer to sell the molasses in question.(See Zayco vs. Serra, 44 Phil. 326;
Montinola v. Victorias Milling Co., et al., 54 Phil. 782; and Batangan v. Cojuangco 78 Phil. 481.)
In view of the conclusion we have reached, it would not be necessary to pass upon appellee's
motion to dismiss the appeal.
WHEREFORE, finding no reversible error in the order appealed from, the same is hereby
affirmed, with cost against the plaintiff-appellant. So ordered.
Bengzon, C.J., Bautista Angelo, Labrador, Paredes and Dizon, JJ., concur.
Padilla, J., took no part.
Concepcion and Reyes, J.B.L., JJ., concur in the result.

113
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 122544 January 28, 1999

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BLAZA, ESTER ABAD DIZON
and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A.
DIZON, JR., petitioners,
vs.
COURT OF APPEALS and OVERLAND EXPRESS LINES, INC., respondents.
G.R. No. 124741 January 28, 1999
REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON
and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and Jose A.
DIZON, JR., petitioners,
vs.
COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND EXPRESS
LINES, INC.,respondents.

MARTINEZ, J.:
Two consolidated petitions were filed before us seeking to set aside and annul the decisions
and resolutions of respondent Court of Appeals. What seemed to be a simple ejectment suit
was juxtaposed with procedural intricacies which finally found its way to this Court.
G.R. No. 122544:
On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) entered into a
Contract of Lease with Option to Buy with petitioners 1 (lessors) involving a 1,755.80 square
meter parcel of land situated at corner MacArthur Highway and South "H" Street, Diliman,
Quezon City. The term of the lease was for one (1) year commencing from May 16, 1974 up to
May 15, 1975. During this period, private respondent was granted an option to purchase for the
amount of P3,000.00 per square meter. Thereafter, the lease shall be on a per month basis with
a monthly rental of P3,000.00.
For failure of private respondent to pay the increased rental of P8,000.00 per month effective
June 1976, petitioners filed an action for ejectment (Civil Case No. VIII-29155) on November 10,
1976 before the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII. On
November 22, 1982, the City Court rendered judgment 2 ordering private respondent to vacate
the leased premises and to pay the sum of P624,000.00 representing rentals in arrears and/or
as damages in the form of reasonable compensation for the use and occupation of the premises

114
during the period of illegal detainer from June 1976 to November 1982 at the monthly rental of
P8,000.00, less payments made, plus 12% interest per annum from November 18, 1976, the
date of filing of the complaint, until fully paid, the sum of P8,000.00 a month starting December
1982, until private respondent fully vacates the premises, and to pay P20,000.00 as and by way
of attorney's fees.
Private respondent filed a certiorari petition praying for the issuance of a restraining order
enjoining the enforcement of said judgment and dismissal of the case for lack of jurisdiction of
the City Court.
On September 26, 1984, the then Intermidiate Appellate Court 3 (now Court of Appeals)
rendered a decision 4 stating that:
. . ., the alleged question of whether petitioner was granted an extension of the
option to buy the property; whether such option, if any, extended the lease or
whether petitioner actually paid the alleged P300,000.00 to Fidela Dizon, as
representative of private respondents in consideration of the option and, whether
petitioner thereafter offered to pay the balance of the supposed purchase price,
are all merely incidental and do not remove the unlawful detainer case from the
jurisdiction or respondent court. In consonance with the ruling in the case
of Teodoro, Jr. vs. Mirasol (supra), the above matters may be raised and decided
in the unlawful detainer suit as, to rule otherwise, would be a violation of the
principle prohibiting multiplicity of suits. (Original Records, pp. 38-39).
The motion for reconsideration was denied. On review, this Court dismissed the petition in a
resolution dated June 19, 1985 and likewise denied private respondent's subsequent motion for
reconsideration in a resolution dated September 9, 1985. 5
On October 7, 1985, private respondent filed before the Regional Trial Court (RTC) of Quezon
City (Civil Case No. Q-45541) an action for Specific Performance and Fixing of Period for
Obligation with prayer for the issuance of a restraining order pending hearing on the prayer for a
writ of preliminary injunction. It sought to compel the execution of a deed of sale pursuant to the
option to purchase and the receipt of the partial payment, and to fix the period to pay the
balance. In an Order dated October 25, 1985, the trial court denied the issuance of a writ of
preliminary injunction on the ground that the decision of the then City Court for the ejectment of
the private respondent, having been affirmed by the then Intermediate Appellate Court and the
Supreme Court, has become final and executory.
Unable to secure an injunction, private respondent also filed before the RTC of Quezon City,
Branch 102 (Civil Case No. Q-46487) on November 15, 1985 a complaint for Annulment of and
Relief from Judgment with injunction and damages. In its decision 6 dated May 12, 1986, the
trial court dismissed the complaint for annulment on the ground of res judicata, and the writ of
preliminary injunction previously issued was dissolved. It also ordered private respondent to pay
P3,000.00 as attorney's fees. As a consequence of private respondent's motion for
reconsideration, the preliminary injunction was reinstated, thereby restraining the execution of
the City Court's judgment on the ejectment case.
The two cases were the after consolidated before the RTC of Quezon City, Branch 77. On April
28, 1989, a decision 7 was rendered dismissing private respondent's complaint in Civil Case No.
Q-45541 (specific performance case) and denying its motion for reconsideration in Civil Case

115
No. 46487 (annulment of the ejectment case). The motion for reconsideration of said decision
was likewise denied.
On appeal, 8 respondent Court of Appeals rendered a decision 9 upholding the jurisdiction of the
City Court of Quezon City in the ejectment case. It also concluded that there was a perfected
contract of sale between the parties on the leased premises and that pursuant to the option to
buy agreement, private respondent had acquired the rights of a vendee in a contract of sale. It
opined that the payment by private respondent of P300,000.00 on June 20, 1975 as partial
payment for the leased property, which petitioners accepted (through Alice A. Dizon) and for
which an official receipt was issued, was the operative act that gave rise to a perfected contract
of sale, and that for failure of petitioners to deny receipt thereof, private respondent can
therefore assume that Alice A. Dizon, acting as agent of petitioners, was authorized by them to
receive the money in their behalf. The Court of Appeals went further by stating that in fact, what
was entered into was a "conditional contract of sale" wherein ownership over the leased
property shall not pass to the private respondent until it has fully paid the purchase price. Since
private respondent did not consign to the court the balance of the purchase price and continued
to occupy the subject premises, it had the obligation to pay the amount of P1,700.00 in monthly
rentals until full payment of the purchase price. The dispositive portion of said decision reads:
WHEREFORE, the appealed decision in Case No. 46387 is AFFIRMED. The
appealed decision in Case No. 45541 is, on the other hand, ANNULLED and
SET ASIDE. The defendants-appellees are ordered to execute the deed of
absolute sale of the property in question, free from any lien or encumbrance
whatsoever, in favor of the plaintiff-appellant, and to deliver to the latter the said
deed of sale, as well as the owner's duplicate of the certificate of title to said
property upon payment of the balance of the purchase price by the plaintiffappellant. The plaintiff-appellant is ordered to pay P1,700.00 per month from
June 1976, plus 6% interest per annum, until payment of the balance of the
purchase price, as previously agreed upon by the parties.
SO ORDERED.
Upon denial of the motion for partil reconsideration (Civil Case No. Q-45541) by respondent
Court of Appeals, 10petitioners elevated the case via petition for certiorari questioning the
authority of Alice A. Dizon as agent of petitioners in receiving private respondent's partial
payment amounting to P300,000.00 pursuant to the Contract of Lease with Option to Buy.
Petitioner also assail the propriety of private respondent's exercise of the option when it
tendered the said amount on June 20, 1975 which purportedly resulted in a perfected contract
of sale.
G.R. No. 124741:
Petitioners filed with respondent Court of Appeals a motion to remand the records of Civil Case
No. 38-29155 (ejectment case) to the Metropolitan Trial Court (MTC), then City Court of Quezon
City, Branch 38, for execution of the judgment 11 dated November 22, 1982 which was granted
in a resolution dated June 29, 1992. Private respondent filed a motion to reconsider said
resolution which was denied.
Aggrieved, private respondent filed a petition for certiorari, prohibition with preliminary injunction
and/or restraining order with this Court (G.R. Nos. 106750-51) which was dismissed in a

116
resolution dated September 16, 1992 on the ground that the same was a refiled case previously
dismissed for lack of merit. On November 26, 1992, entry of judgment was issued by this Court.
On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of the decision in Civil
Case No. 38-29155 with the MTC of Quezon City, Branch 38. On September 13, 1993, the trial
court ordered the issuance of a third alias writ of execution. In denying private respondent's
motion for reconsideration, it ordered the immediate implementation of the third writ of execution
without delay.
On December 22, 1993, private respondent filed with the Regional Trial Court (RTC) of Quezon
City, Branch 104 a petition for certiorari and prohibition with preliminary injunction/restraining
order (SP. PROC. No. 93-18722) challenging the enforceability and validity of the MTC
judgment as well as the order for its execution.
On January 11, 1994, RTC of Quezon City, Branch 104 issued an
order 12 granting the issuance of a writ of preliminary injunction upon private respondent's'
posting of an injunction bond of P50,000.00.
Assailing the aforequoted order after denial of their motion for partial reconsideration, petitioners
filed a petition 13for certiorari and prohibition with a prayer for a temporary restraining order
and/or preliminary injunction with the Court of Appeals. In its decision, 14 the Court of Appeals
dismissed the petition and ruled that:
The avowed purpose of this petition is to enjoin the public respondent from
restraining the ejectment of the private respondent. To grant the petition would be
to allow the ejectment of the private respondent. We cannot do that now in view
of the decision of this Court in CA-G.R. CV Nos. 25153-54. Petitioners' alleged
right to eject private respondent has been demonstrated to be without basis in
the said civil case. The petitioners have been shown, after all, to have no right to
eject private respondents.
WHEREFORE, the petition is DENIED due course and is accordingly
DISMISSED.
SO ORDERED. 15
Petitioners' motion for reconsideration was denied in a resolution 16 by the Court of Appeals
stating that:
This court in its decision in CA-G.R. CV Nos. 25153-54 declared that the plaintiffappellant (private respondent herein) acquired the rights of a vendee in a
contract of sale, in effect, recognizing the right of the private respondent to
possess the subject premises. Considering said decision, we should not allow
ejectment; to do so would disturb the status quo of the parties since the
petitioners are not in possession of the subject property. It would be unfair and
unjust to deprive the private respondent of its possession of the subject property
after its rights have been established in a subsequent ruling.
WHEREFORE, the motion for reconsideration is DENIED for lack of merit.

117
SO ORDERED. 17
Hence, this instant petition.
We find both petitions impressed with merit.
First. Petitioners have established a right to evict private respondent from the subject premises
for non-payment of rentals. The term of the Contract of Lease with Option to Buy was for a
period of one (1) year (May 16, 1974 to May 15, 1975) during which the private respondent was
given an option to purchase said property at P3,000.00 square meter. After the expiration
thereof, the lease was for P3,000.00 per month.
Admittedly, no definite period beyond the one-year term of lease was agreed upon by petitioners
and private respondent. However, since the rent was paid on a monthly basis, the period of
lease is considered to be from month to month in accordance with Article 1687 of the New Civil
Code. 18 Where the rentals are paid monthly, the lease, even if verbal may be deemed to be on a
monthly basis, expiring at the end of every month pursuant to Article 1687, in relation to Article
1673 of the Civil Code. 19 In such case, a demand to vacate is not even necessary for judicial
action after the expiration of every month. 20
When private respondent failed to pay the increased rental of P8,000.00 per month in June
1976, the petitioners had a cause of action to institute an ejectment suit against the former with
the then City Court. In this regard, the City Court (now MTC) had exclusive jurisdiction over the
ejectment suit. The filing by private respondent of a suit with the Regional Trial Court for specific
performance to enforce the option to purchase did not divest the then City Court of its
jurisdiction to take cognizance over the ejectment case. Of note is the fact that the decision of
the City Court was affirmed by both the Intermediate Appellate Court and this Court.
Second. Having failed to exercise the option within the stipulated one-year period, private
respondent cannot enforce its option to purchase anymore. Moreover, even
assuming arguendo that the right to exercise the option still subsists at the time private
respondent tendered the amount on June 20, 1975, the suit for specific performance to enforce
the option to purchase was filed only on October 7, 1985 or more than ten (10) years after
accrual of the cause of action as provided under Article 1144 of the New Civil Code. 21
In this case, there was a contract of lease for one (1) year with option to purchase. The contract
of lease expired without the private respondent, as lessee, purchasing the property but
remained in possession thereof. Hence, there was an implicit renewal of the contract of lease on
a monthly basis. The other terms of the original contract of lease which are revived in the
implied new lease under Article 1670 of the New Civil Code 22 are only those terms which are
germane to the lessee's right of continued enjoyment of the property leased. 23 Therefore, an
implied new lease does not ipso facto carry with it any implied revival of private respondent's
option to purchase (as lessee thereof) the leased premises. The provision entitling the lessee
the option to purchase the leased premises is not deemed incorporated in the impliedly renewed
contract because it is alien to the possession of the lessee. Private respondent's right to
exercise the option to purchase expired with the termination of the original contract of lease for
one year. The rationale of this Court is that:
This is a reasonable construction of the provision, which is based on the
presumption that when the lessor allows the lessee to continue enjoying

118
possession of the property for fifteen days after the expiration of the contract he
is willing that such enjoyment shall be for the entire period corresponding to the
rent which is customarily paid in this case up to the end of the month because
the rent was paid monthly. Necessarily, if the presumed will of the parties refers
to the enjoyment of possession the presumption covers the other terms of the
contract related to such possession, such as the amount of rental, the date when
it must be paid, the care of the property, the responsibility for repairs, etc. But no
such presumption may be indulged in with respect to special agreements which
by nature are foreign to the right of occupancy or enjoyment inherent in a
contract of lease. 24
Third. There was no perfected contract of sale between petitioners and private respondent.
Private respondent argued that it delivered the check of P300,000.00 to Alice A. Dizon who
acted as agent of petitioners pursuant to the supposed authority given by petitioner Fidela
Dizon, the payee thereof. Private respondent further contended that petitioners' filing of the
ejectment case against it based on the contract of lease with option to buy holds petitioners in
estoppel to question the authority of petitioner Fidela Dizon. It insisted that the payment of
P300,000.00 as partial payment of the purchase price constituted a valid exercise of the option
to buy.
Under Article 1475 of the New Civil Code, "the contract of sale is perfected at the moment there
is a meeting of minds upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the provisions
of the law governing the form of contracts." Thus, the elements of a contract of sale are consent,
object, and price in money or its equivalent. It bears stressing that the absence of any of these
essential elements negates the existence of a perfected contract of sale. Sale is a consensual
contract and he who alleges it must show its existence by competent proof. 25
In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to petitioners
(thru Alice A. Dizon) on the erroneous presumption that the said amount tendered would
constitute a perfected contract of sale pursuant to the contract of lease with option to buy. There
was no valid consent by the petitioners (as co-owners of the leased premises) on the supposed
sale entered into by Alice A. Dizon, as petitioners' alleged agent, and private respondent. The
basis for agency is representation and a person dealing with an agent is put upon inquiry and
must discover upon his peril the authority of the agent. 26 As provided in Article 1868 of the New
Civil Code, 27there was no showing that petitioners consented to the act of Alice A. Dizon nor
authorized her to act on their behalf with regard to her transaction with private respondent. The
most prudent thing private respondent should have done was to ascertain the extent of the
authority of Alice A. Dizon. Being negligent in this regard, private respondent cannot seek relief
on the basis of a supposed agency.
In Bacaltos Coal Mines vs. Court of Appeals, 28 we explained the rule in dealing with an agent:
Every person dealing with an agent is put upon inquiry and must discover upon
his peril the authority of the agent. If he does not make such inquiry, he is
chargeable with knowledge of the agent's authority, and his ignorance of that
authority will not be any excuse. Persons dealing with an assumed agency,
whether the assumed agency be a general or special one, are bound at their
peril, if they would hold the principal, to ascertain not only the fact of the agency

119
but also the nature and extent of the authority, and in case either is controverted,
the burden of proof is upon them to establish it.
For the long years that private respondent was able to thwart the execution of the ejectment suit
rendered in favor of petitioners, we now write finis to this controversy and shun further delay so
as to ensure that this case would really attain finality.
WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision dated
March 29, 1994 and the resolution dated October 19, 1995 in CA-G.R. CV No. 25153-54, as
well as the decision dated December 11, 1995 and the resolution dated April 23, 1997 in CAG.R. SP No. 33113 of the Court of Appeals are hereby REVERSED and SET ASIDE.
Let the records of this case be remanded to the trial court for immediate execution of the
judgment dated November 22, 1982 in Civil Case No. VIII-29155 of the then City Court (now
Metropolitan Trial Court) of Quezon City, Branch VIII as affirmed in the decision dated
September 26, 1984 of the then Intermediate Appellate Court (now Court of Appeals) and in the
resolution dated June 19, 1985 of this Court.
However, petitioners are ordered to REFUND to private respondent the amount of P300,000.00
which they received through Alice A. Dizon on June 20, 1975.1wphi1.nt
SO ORDERED.
Davide, Jr., C.J., Melo, Kapunan and Pardo, JJ., concur.

120
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 149750

June 16, 2003

AURORA ALCANTARA-DAUS, Petitioner,

vs.
Spouses HERMOSO and SOCORRO DE LEON, Respondents.
DECISION
PANGANIBAN, J.:
While a contract of sale is perfected by mere consent, ownership of the thing sold is acquired
only upon its delivery to the buyer. Upon the perfection of the sale, the seller assumes the
obligation to transfer ownership and to deliver the thing sold, but the real right of ownership is
transferred only "by tradition" or delivery thereof to the buyer.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the
February 9, 2001 Decision and the August 31, 2001 Resolution of the Court of Appeals2(CA) in
CA-GR CV No. 47587. The dispositive portion of the assailed Decision reads as follows:
"WHEREFORE, premises considered, the decision of the trial court is hereby REVERSED, and
judgment rendered:
1. Declaring null and void and of no effect, the [D]eed of [A]bsolute [S]ale dated December 6,
1975, the [D]eed of [E]xtra-judicial [P]artition and [Q]uitclaim dated July 1, 1985, and T.C.T. No.
T-31262;
2. Declaring T.C.T. No. 42238 as valid and binding;
3. Eliminating the award of P5,000.00 each to be paid to defendants-appellees."3
The assailed Resolution4 denied petitioners Motion for Reconsideration.
The Facts
The antecedents of the case were summarized by the Regional Trial Court (RTC) and adopted
by the CA as follows:
"This is a [C]omplaint for annulment of documents and title, ownership, possession, injunction,
preliminary injunction, restraining order and damages.

121
"[Respondents] alleged in their [C]omplaint that they are the owners of a parcel of land
hereunder described as follows, to wit:
A parcel of land (Lot No. 4786 of the Cadastral Survey of San Manuel) situated in the
Municipality of San Manuel, Bounded on the NW., by Lot No. 4785; and on the SE., by Lot Nos.
11094 & 11096; containing an area of Four Thousand Two Hundred Twelve (4,212) sq. m., more
or less. Covered by Original Certificate of Title No. 22134 of the Land Records of Pangasinan.
which [Respondent] Hermoso de Leon inherited from his father Marcelino de Leon by virtue of a
[D]eed of [E]xtra-judicial [P]artition. Sometime in the early 1960s, [respondents] engaged the
services of the late Atty. Florencio Juan to take care of the documents of the properties of his
parents. Atty. Juan let them sign voluminous documents. After the death of Atty. Juan, some
documents surfaced and most revealed that their properties had been conveyed by sale or
quitclaim to [Respondent] Hermosos brothers and sisters, to Atty. Juan and his sisters, when in
truth and in fact, no such conveyances were ever intended by them. His signature in the [D]eed
of [E]xtra-judicial [P]artition with [Q]uitclaim made in favor of x x x Rodolfo de Leon was forged.
They discovered that the land in question was sold by x x x Rodolfo de Leon to [Petitioner]
Aurora Alcantara. They demanded annulment of the document and reconveyance but
defendants refused x x x.
xxx

xxx

xxx

"[Petitioner] Aurora Alcantara-Daus [averred] that she bought the land in question in good faith
and for value on December 6, 1975. [She] has been in continuous, public, peaceful, open
possession over the same and has been appropriating the produce thereof without objection
from anyone."5
On August 23, 1994, the RTC (Branch 48) of Urdaneta, Pangasinan6 rendered its Decision7 in
favor of herein petitioner. It ruled that respondents claim was barred by laches, because more
than 18 years had passed since the land was sold. It further ruled that since it was a notarial
document, the Deed of Extrajudicial Partition in favor of Rodolfo de Leon was presumptively
authentic.
Ruling of the Court of Appeals
In reversing the RTC, the CA held that laches did not bar respondents from pursuing their
claim.1wphi1 Notwithstanding the delay, laches is a doctrine in equity and may not be invoked
to resist the enforcement of a legal right.
The appellate court also held that since Rodolfo de Leon was not the owner of the land at the
time of the sale, he could not transfer any land rights to petitioner. It further declared that the
signature of Hermoso de Leon on the Deed of Extrajudicial Partition and Quitclaim -- upon
which petitioner bases her claim -- was a forgery. It added that under the above circumstances,
petitioner could not be said to be a buyer in good faith.1wphi1
Hence, this Petition.8
The Issues
Petitioner raises the following issues for our consideration:

122
"1. Whether or not the Deed of Absolute Sale dated December 6, 1975 executed by
Rodolfo de Leon (deceased) over the land in question in favor of petitioner was
perfected and binding upon the parties therein?
"2. Whether or not the evidentiary weight of the Deed of Extrajudicial Partition with
Quitclaim, executed by [R]espondent Hermoso de Leon, Perlita de Leon and Carlota de
Leon in favor of Rodolfo de Leon was overcome by more than [a] preponderance of
evidence of respondents?
"3. Whether or not the possession of petitioner including her predecessor-in-interest
Rodolfo de Leon over the land in question was in good faith?
"4. And whether or not the instant case initiated and filed by respondents on February
24, 1993 before the trial court has prescribed and respondents are guilty of laches?"9
The Courts Ruling
The Petition has no merit.
First Issue:
Validity of the Deed of Absolute Sale
Petitioner argues that, having been perfected, the Contract of Sale executed on December 6,
1975 was thus binding upon the parties thereto.
A contract of sale is consensual. It is perfected by mere consent,10 upon a meeting of the
minds11 on the offer and the acceptance thereof based on subject matter, price and terms of
payment.12 At this stage, the sellers ownership of the thing sold is not an element in the
perfection of the contract of sale.
The contract, however, creates an obligation on the part of the seller to transfer ownership and
to deliver the subject matter of the contract.13 It is during the delivery that the law requires the
seller to have the right to transfer ownership of the thing sold.14 In general, a perfected contract
of sale cannot be challenged on the ground of the sellers non-ownership of the thing sold at the
time of the perfection of the contract.15
Further, even after the contract of sale has been perfected between the parties, its
consummation by delivery is yet another matter. It is through tradition or delivery that the buyer
acquires the real right of ownership over the thing sold.16
Undisputed is the fact that at the time of the sale, Rodolfo de Leon was not the owner of the
land he delivered to petitioner. Thus, the consummation of the contract and the consequent
transfer of ownership would depend on whether he subsequently acquired ownership of the land
in accordance with Article 1434 of the Civil Code.17Therefore, we need to resolve the issue of
the authenticity and the due execution of the Extrajudicial Partition and Quitclaim in his favor.
Second Issue:

123
Authenticity of the Extrajudicial Partition
Petitioner contends that the Extrajudicial Partition and Quitclaim is authentic, because it was
notarized and executed in accordance with law. She claims that there is no clear and convincing
evidence to set aside the presumption of regularity in the issuance of such public document. We
disagree.
As a general rule, the due execution and authenticity of a document must be reasonably
established before it may be admitted in evidence.18 Notarial documents, however, may be
presented in evidence without further proof of their authenticity, since the certificate of
acknowledgment is prima facie evidence of the execution of the instrument or document
involved.19 To contradict facts in a notarial document and the presumption of regularity in its
favor, the evidence must be clear, convincing and more than merely preponderant.20
The CA ruled that the signature of Hermoso de Leon on the Extrajudicial Partition and Quitclaim
was forged. However, this factual finding is in conflict with that of the RTC. While normally this
Court does not review factual issues,21 this rule does not apply when there is a conflict between
the holdings of the CA and those of the trial court,22 as in the present case.
After poring over the records, we find no reason to reverse the factual finding of the appellate
court. A comparison of the genuine signatures of Hermoso de Leon23 with his purported
signature on the Deed of Extrajudicial Partition with Quitclaim24 will readily reveal that the latter
is a forgery. As aptly held by the CA, such variance cannot be attributed to the age or the
mechanical acts of the person signing.25
Without the corroborative testimony of the attesting witnesses, the lone account of the notary
regarding the due execution of the Deed is insufficient to sustain the authenticity of this
document. He can hardly be expected to dispute the authenticity of the very Deed he
notarized.26 For this reason, his testimony was -- as it should be --minutely scrutinized by the
appellate court, and was found wanting.
Third Issue:
Possession in Good Faith
Petitioner claims that her possession of the land is in good faith and that, consequently, she has
acquired ownership thereof by virtue of prescription. We are not persuaded.
It is well-settled that no title to registered land in derogation of that of the registered owner shall
be acquired by prescription or adverse possession.27 Neither can prescription be allowed
against the hereditary successors of the registered owner, because they merely step into the
shoes of the decedent and are merely the continuation of the personality of their predecessor in
interest.28 Consequently, since a certificate of registration29 covers it, the disputed land cannot
be acquired by prescription regardless of petitioners good faith.
Fourth Issue:
Prescription of Action and Laches

124
Petitioner also argues that the right to recover ownership has prescribed, and that respondents
are guilty of laches. Again, we disagree.
Article 1141 of the New Civil Code provides that real actions over immovable properties
prescribe after thirty years. This period for filing an action is interrupted when a complaint is filed
in court.30 Rodolfo de Leon alleged that the land had been allocated to him by his brother
Hermoso de Leon in March 1963,31 but that the Deed of Extrajudicial Partition assigning the
contested land to the latter was executed only on September 16, 1963.32 In any case, the
Complaint to recover the land from petitioner was filed on February 24, 1993,33 which was within
the 30-year prescriptive period.
On the claim of laches, we find no reason to reverse the ruling of the CA. Laches is based upon
equity and the public policy of discouraging stale claims.34 Since laches is an equitable doctrine,
its application is controlled by equitable considerations.35 It cannot be used to defeat justice or to
perpetuate fraud and injustice.36 Thus, the assertion of laches to thwart the claim of respondents
is foreclosed, because the Deed upon which petitioner bases her claim is a forgery.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.
Puno, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

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G.R. No. 106063 November 21, 1996

EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN,
INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.

HERMOSISIMA, JR., J.:

Before us is a petition for review of the decision 1 of the Court of
Appeals 2 involving questions in the resolution of which the respondent appellate court
analyzed and interpreted particular provisions of our laws on contracts and sales. In its
assailed decision, the respondent court reversed the trial court 3 which, in dismissing the
complaint for specific performance with damages and annulment of contract, 4found the
option clause in the lease contracts entered into by private respondent Mayfair Theater,
Inc. (hereafter, Mayfair) and petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo)
to be impossible of performance and unsupported by a consideration and the
subsequent sale of the subject property to petitioner Equatorial Realty Development, Inc.
(hereafter, Equatorial) to have been made without any breach of or prejudice to, the said
lease contracts. 5
We reproduce below the facts as narrated by the respondent court, which narration, we
note, is almost verbatim the basis of the statement of facts as rendered by the
petitioners in their pleadings:
Carmelo owned a parcel of land, together with two 2-storey buildings constructed
thereon located at Claro M Recto Avenue, Manila, and covered by TCT No.
18529 issued in its name by the Register of Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the
latter's lease of a portion of Carmelo's property particularly described, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 1,610
square meters.
THE SECOND FLOOR AND MEZZANINE of the two-storey
building, situated at C.M. Recto Avenue, Manila, with a floor area
of 150 square meters.
for use by Mayfair as a motion picture theater and for a term of twenty (20) years.
Mayfair thereafter constructed on the leased property a movie house known as
"Maxim Theatre."

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Two years later, on March 31, 1969, Mayfair entered into a second contract of
lease with Carmelo for the lease of another portion of Carmelo's property, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 1,064
square meters.
THE TWO (2) STORE SPACES AT THE GROUND FLOOR and
MEZZANINE of the two-storey building situated at C.M. Recto
Avenue, Manila, with a floor area of 300 square meters and
bearing street numbers 1871 and 1875,
for similar use as a movie theater and for a similar term of twenty (20) years.
Mayfair put up another movie house known as "Miramar Theatre" on this leased
property.
Both contracts of lease provides (sic) identically worded paragraph 8, which
reads:
That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the
same.
In the event, however, that the leased premises is sold to
someone other than the LESSEE, the LESSOR is bound and
obligated, as it hereby binds and obligates itself, to stipulate in the
Deed of Sale hereof that the purchaser shall recognize this lease
and be bound by all the terms and conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry
Yang, President of Mayfair, through a telephone conversation that Carmelo was
desirous of selling the entire Claro M. Recto property. Mr. Pascal told Mr. Yang
that a certain Jose Araneta was offering to buy the whole property for US Dollars
1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy the
property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23,
1974, Mayfair replied through a letter stating as follows:
It appears that on August 19, 1974 your Mr. Henry Pascal
informed our client's Mr. Henry Yang through the telephone that
your company desires to sell your above-mentioned C.M. Recto
Avenue property.
Under your company's two lease contracts with our client, it is
uniformly provided:
8. That if the LESSOR should desire to sell the leased premises
the LESSEE shall be given 30-days exclusive option to purchase
the same. In the event, however, that the leased premises is sold

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to someone other than the LESSEE, the LESSOR is bound and
obligated, as it is (sic) herebinds (sic) and obligates itself, to
stipulate in the Deed of Sale thereof that the purchaser shall
recognize this lease and be bound by all the terms and conditions
hereof (sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another letter to Carmelo purporting to
express interest in acquiring not only the leased premises but "the entire building
and other improvements if the price is reasonable. However, both Carmelo and
Equatorial questioned the authenticity of the second letter.
Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue
land and building, which included the leased premises housing the "Maxim" and
"Miramar" theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the
total sum of P11,300,000.00.
In September 1978, Mayfair instituted the action a quo for specific performance
and annulment of the sale of the leased premises to Equatorial. In its Answer,
Carmelo alleged as special and affirmative defense (a) that it had informed
Mayfair of its desire to sell the entire C.M. Recto Avenue property and offered the
same to Mayfair, but the latter answered that it was interested only in buying the
areas under lease, which was impossible since the property was not a
condominium; and (b) that the option to purchase invoked by Mayfair is null and
void for lack of consideration. Equatorial, in its Answer, pleaded as special and
affirmative defense that the option is void for lack of consideration (sic) and is
unenforceable by reason of its impossibility of performance because the leased
premises could not be sold separately from the other portions of the land and
building. It counterclaimed for cancellation of the contracts of lease, and for
increase of rentals in view of alleged supervening extraordinary devaluation of
the currency. Equatorial likewise cross-claimed against co-defendant Carmelo for
indemnification in respect of Mayfair's claims.
During the pre-trial conference held on January 23, 1979, the parties stipulated
on the following:
1. That there was a deed of sale of the contested premises by the
defendant Carmelo . . . in favor of defendant Equatorial . . .;
2. That in both contracts of lease there appear (sic) the stipulation
granting the plaintiff exclusive option to purchase the leased
premises should the lessor desire to sell the same (admitted
subject to the contention that the stipulation is null and void);
3. That the two buildings erected on this land are not of the
condominium plan;
4. That the amounts stipulated and mentioned in paragraphs 3 (a)
and (b) of the contracts of lease constitute the consideration for

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the plaintiff's occupancy of the leased premises, subject of the
same contracts of lease, Exhibits A and B;
xxx xxx xxx
6. That there was no consideration specified in the option to buy
embodied in the contract;
7. That Carmelo & Bauermann owned the land and the two
buildings erected thereon;
8. That the leased premises constitute only the portions actually
occupied by the theaters; and
9. That what was sold by Carmelo & Bauermann to defendant
Equatorial Realty is the land and the two buildings erected
thereon.
xxx xxx xxx
After assessing the evidence, the court a quo rendered the appealed decision,
the decretal portion of which reads as follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs against the plaintiff;
(2) Ordering plaintiff to pay defendant Carmelo & Bauermann
P40,000.00 by way of attorney's fees on its counterclaim;
(3) Ordering plaintiff to pay defendant Equatorial Realty
P35,000.00 per month as reasonable compensation for the use of
areas not covered by the contract (sic) of lease from July 31, 1979
until plaintiff vacates said area (sic) plus legal interest from July
31, 1978; P70,000 00 per month as reasonable compensation for
the use of the premises covered by the contracts (sic) of lease
dated (June 1, 1967 from June 1, 1987 until plaintiff vacates the
premises plus legal interest from June 1, 1987; P55,000.00 per
month as reasonable compensation for the use of the premises
covered by the contract of lease dated March 31, 1969 from
March 30, 1989 until plaintiff vacates the premises plus legal
interest from March 30, 1989; and P40,000.00 as attorney's fees;
(4) Dismissing defendant Equatorial's crossclaim against
defendant Carmelo & Bauermann.
The contracts of lease dated June 1, 1967 and March 31, 1969
are declared expired and all persons claiming rights under these
contracts are directed to vacate the premises. 6

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The trial court adjudged the identically worded paragraph 8 found in both aforecited
lease contracts to be an option clause which however cannot be deemed to be binding
on Carmelo because of lack of distinct consideration therefor.
The court a quo ratiocinated:
Significantly, during the pre-trial, it was admitted by the parties that the option in
the contract of lease is not supported by a separate consideration. Without a
consideration, the option is therefore not binding on defendant Carmelo &
Bauermann to sell the C.M. Recto property to the former. The option invoked by
the plaintiff appears in the contracts of lease . . . in effect there is no option, on
the ground that there is no consideration. Article 1352 of the Civil Code, provides:
Contracts without cause or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals,
good custom, public order or public policy.
Contracts therefore without consideration produce no effect whatsoever. Article
1324 provides:
When the offeror has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance
by communicating such withdrawal, except when the option is
founded upon consideration, as something paid or promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a determine thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determine thing
for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.
The plaintiff cannot compel defendant Carmelo to comply with the promise
unless the former establishes the existence of a distinct consideration. In other
words, the promisee has the burden of proving the consideration. The
consideration cannot be presumed as in Article 1354:
Although the cause is not stated in the contract, it is presumed
that it exists and is lawful unless the debtor proves the contrary.
where consideration is legally presumed to exists. Article 1354 applies to
contracts in general, whereas when it comes to an option it is governed
particularly and more specifically by Article 1479 whereby the promisee has the
burden of proving the existence of consideration distinct from the price. Thus, in
the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court said:

130
(1) Article 1354 applies to contracts in general, whereas the
second paragraph of Article 1479 refers to sales in particular, and,
more specifically, to an accepted unilateral promise to buy or to
sell. In other words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be binding upon the
promissor, Article 1479 requires the concurrence of a condition,
namely, that the promise be supported by a consideration distinct
from the price.
Accordingly, the promisee cannot compel the promissor to comply
with the promise, unless the former establishes the existence of
said distinct consideration. In other words, the promisee has the
burden of proving such consideration. Plaintiff herein has not even
alleged the existence thereof in his complaint. 7
It follows that plaintiff cannot compel defendant Carmelo & Bauermann to sell the
C.M. Recto property to the former.
Mayfair taking exception to the decision of the trial court, the battleground shifted to the
respondent Court of Appeals. Respondent appellate court reversed the court a quo and
rendered judgment:
1. Reversing and setting aside the appealed Decision;
2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and return to
Equatorial the amount of P11,300,000.00 within fifteen (15) days from notice of
this Decision, and ordering Equatorial Realty Development, Inc. to accept such
payment;
3. Upon payment of the sum of P11,300,000, directing Equatorial Realty
Development, Inc. to execute the deeds and documents necessary for the
issuance and transfer of ownership to Mayfair of the lot registered under TCT
Nos. 17350, 118612, 60936, and 52571; and
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the amount as
adjudged, declaring the Deed of Absolute Sale between the defendantsappellants Carmelo & Bauermann, Inc. and Equatorial Realty Development, Inc.
as valid and binding upon all the parties. 8
Rereading the law on the matter of sales and option contracts, respondent Court of
Appeals differentiated between Article 1324 and Article 1479 of the Civil Code, analyzed
their application to the facts of this case, and concluded that since paragraph 8 of the
two lease contracts does not state a fixed price for the purchase of the leased premises,
which is an essential element for a contract of sale to be perfected, what paragraph 8 is,
must be a right of first refusal and not an option contract. It explicated:
Firstly, the court a quo misapplied the provisions of Articles 1324 and 1479,
second paragraph, of the Civil Code.

131
Article 1324 speaks of an "offer" made by an offeror which the offeree may or
may not accept within a certain period. Under this article, the offer may be
withdrawn by the offeror before the expiration of the period and while the offeree
has not yet accepted the offer. However, the offer cannot be withdrawn by the
offeror within the period if a consideration has been promised or given by the
offeree in exchange for the privilege of being given that period within which to
accept the offer. The consideration is distinct from the price which is part of the
offer. The contract that arises is known as option. In the case of Beaumont
vs. Prieto, 41 Phil. 670, the Supreme court, citing Bouvier, defined an option as
follows: "A contract by virtue of which A, in consideration of the payment of a
certain sum to B, acquires the privilege of buying from or selling to B, certain
securities or properties within a limited time at a specified price," (pp. 686-7).
Article 1479, second paragraph, on the other hand, contemplates of an "accepted
unilateral promise to buy or to sell a determinate thing for a price within (which) is
binding upon the promisee if the promise is supported by a consideration distinct
from the price." That "unilateral promise to buy or to sell a determinate thing for a
price certain" is called an offer. An "offer", in laws, is a proposal to enter into a
contract (Rosenstock vs. Burke, 46 Phil. 217). To constitute a legal offer, the
proposal must be certain as to the object, the price and other essential terms of
the contract (Art. 1319, Civil Code).
Based on the foregoing discussion, it is evident that the provision granting
Mayfair "30-days exclusive option to purchase" the leased premises is NOT AN
OPTION in the context of Arts. 1324 and 1479, second paragraph, of the Civil
Code. Although the provision is certain as to the object (the sale of the leased
premises) the price for which the object is to be sold is not stated in the provision
Otherwise stated, the questioned stipulation is not by itself, an "option" or the
"offer to sell" because the clause does not specify the price for the subject
property.
Although the provision giving Mayfair "30-days exclusive option to purchase"
cannot be legally categorized as an option, it is, nevertheless, a valid and binding
stipulation. What the trial court failed to appreciate was the intention of the
parties behind the questioned proviso.
xxx xxx xxx
The provision in question is not of the pro-forma type customarily found in a
contract of lease. Even appellees have recognized that the stipulation was
incorporated in the two Contracts of Lease at the initiative and behest of Mayfair.
Evidently, the stipulation was intended to benefit and protect Mayfair in its rights
as lessee in case Carmelo should decide, during the term of the lease, to sell the
leased property. This intention of the parties is achieved in two ways in
accordance with the stipulation. The first is by giving Mayfair "30-days exclusive
option to purchase" the leased property. The second is, in case Mayfair would opt
not to purchase the leased property, "that the purchaser (the new owner of the
leased property) shall recognize the lease and be bound by all the terms and
conditions thereof."

132
In other words, paragraph 8 of the two Contracts of lease, particularly the
stipulation giving Mayfair "30-days exclusive option to purchase the (leased
premises)," was meant to provide Mayfair the opportunity to purchase and
acquire the leased property in the event that Carmelo should decide to dispose of
the property. In order to realize this intention, the implicit obligation of Carmelo
once it had decided to sell the leased property, was not only to notify Mayfair of
such decision to sell the property, but, more importantly, to make an offer to sell
the leased premises to Mayfair, giving the latter a fair and reasonable opportunity
to accept or reject the offer, before offering to sell or selling the leased property to
third parties. The right vested in Mayfair is analogous to the right of first refusal,
which means that Carmelo should have offered the sale of the leased premises
to Mayfair before offering it to other parties, or, if Carmelo should receive any
offer from third parties to purchase the leased premises, then Carmelo must first
give Mayfair the opportunity to match that offer.
In fact, Mr. Pascal understood the provision as giving Mayfair a right of first
refusal when he made the telephone call to Mr. Yang in 1974. Mr. Pascal thus
testified:
Q Can you tell this Honorable Court how you made
the offer to Mr. Henry Yang by telephone?
A I have an offer from another party to buy the
property and having the offer we decided to make
an offer to Henry Yang on a first-refusal basis. (TSN
November 8, 1983, p. 12.).
and on cross-examination:
Q When you called Mr. Yang on August 1974 can
you remember exactly what you have told him in
connection with that matter, Mr. Pascal?
A More or less, I told him that I received an offer
from another party to buy the property and I was
offering him first choice of the enter property. (TSN,
November 29, 1983, p. 18).
We rule, therefore, that the foregoing interpretation best renders effectual the
intention of the parties.9
Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to which
the requirement of distinct consideration indispensable in an option contract, has no
application, respondent appellate court also addressed the claim of Carmelo and
Equatorial that assuming arguendo that the option is valid and effective, it is impossible
of performance because it covered only the leased premises and not the entire Claro M.
Recto property, while Carmelo's offer to sell pertained to the entire property in question.
The Court of Appeals ruled as to this issue in this wise:

133
We are not persuaded by the contentions of the defendants-appellees. It is to be
noted that the Deed of Absolute Sale between Carmelo and Equatorial covering
the whole Claro M. Recto property, made reference to four titles: TCT Nos.
17350, 118612, 60936 and 52571. Based on the information submitted by
Mayfair in its appellant's Brief (pp. 5 and 46) which has not been controverted by
the appellees, and which We, therefore, take judicial notice of the two theaters
stand on the parcels of land covered by TCT No. 17350 with an area of 622.10
sq. m and TCT No. 118612 with an area of 2,100.10 sq. m. The existence of four
separate parcels of land covering the whole Recto property demonstrates the
legal and physical possibility that each parcel of land, together with the buildings
and improvements thereof, could have been sold independently of the other
parcels.
At the time both parties executed the contracts, they were aware of the physical
and structural conditions of the buildings on which the theaters were to be
constructed in relation to the remainder of the whole Recto property. The peculiar
language of the stipulation would tend to limit Mayfair's right under paragraph 8
of the Contract of Lease to the acquisition of the leased areas only. Indeed, what
is being contemplated by the questioned stipulation is a departure from the
customary situation wherein the buildings and improvements are included in and
form part of the sale of the subjacent land. Although this situation is not common,
especially considering the non-condominium nature of the buildings, the sale
would be valid and capable of being performed. A sale limited to the leased
premises only, if hypothetically assumed, would have brought into operation the
provisions of co-ownership under which Mayfair would have become the
exclusive owner of the leased premises and at the same time a co-owner with
Carmelo of the subjacent land in proportion to Mayfair's interest over the
premises sold to it. 10
Carmelo and Equatorial now comes before us questioning the correctness and legal
basis for the decision of respondent Court of Appeals on the basis of the following
assigned errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE
OPTION CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF
FIRST REFUSAL PROVISO. IN DOING SO THE COURT OF APPEALS
DISREGARDED THE CONTRACTS OF LEASE WHICH CLEARLY AND
UNEQUIVOCALLY PROVIDE FOR AN OPTION, AND THE ADMISSION OF THE
PARTIES OF SUCH OPTION IN THEIR STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF
APPEALS ERRED IN DIRECTING EQUATORIAL TO EXECUTE A DEED OF
SALE EIGHTEEN (18) YEARS AFTER MAYFAIR FAILED TO EXERCISE ITS
OPTION (OR, EVEN ITS RIGHT OF FIRST REFUSAL ASSUMING IT WAS
ONE) WHEN THE CONTRACTS LIMITED THE EXERCISE OF SUCH OPTION
TO 30 DAYS FROM NOTICE.

134
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED
IMPLEMENTATION OF ITS DECISION EVEN BEFORE ITS FINALITY, AND
WHEN IT GRANTED MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED FOR
IN THE COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE
ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED THE SAME
DIVISION XII, PARTICULARLY JUSTICE MANUEL HERRERA, TO RESOLVE
ALL THE MOTIONS IN THE "COMPLETION PROCESS" AND TO STILL
RESOLVE THE MERITS OF THE CASE IN THE "DECISION STAGE". 11

We shall first dispose of the fourth assigned error respecting alleged irregularities in the
raffle of this case in the Court of Appeals. Suffice it to say that in our Resolution, 12 dated
December 9, 1992, we already took note of this matter and set out the proper applicable
procedure to be the following:
On September 20, 1992, counsel for petitioner Equatorial Realty Development,
Inc. wrote a letter-complaint to this Court alleging certain irregularities and
infractions committed by certain lawyers, and Justices of the Court of Appeals
and of this Court in connection with case CA-G.R. CV No. 32918 (now G.R. No.
106063). This partakes of the nature of an administrative complaint for
misconduct against members of the judiciary. While the letter-complaint arose as
an incident in case CA-G.R. CV No. 32918 (now G.R. No. 106063), the
disposition thereof should be separate and independent from Case G.R. No.
106063. However, for purposes of receiving the requisite pleadings necessary in
disposing of the administrative complaint, this Division shall continue to have
control of the case. Upon completion thereof, the same shall be referred to the
Court En Banc for proper disposition. 13
This court having ruled the procedural irregularities raised in the fourth assigned error of
Carmelo and Equatorial, to be an independent and separate subject for an
administrative complaint based on misconduct by the lawyers and justices implicated
therein, it is the correct, prudent and consistent course of action not to pre-empt the
administrative proceedings to be undertaken respecting the said irregularities. Certainly,
a discussion thereupon by us in this case would entail a finding on the merits as to the
real nature of the questioned procedures and the true intentions and motives of the
players therein.
In essence, our task is two-fold: (1) to define the true nature, scope and efficacy of
paragraph 8 stipulated in the two contracts of lease between Carmelo and Mayfair in the
face of conflicting findings by the trial court and the Court of Appeals; and (2) to
determine the rights and obligations of Carmelo and Mayfair, as well as Equatorial, in the
aftermath of the sale by Carmelo of the entire Claro M. Recto property to Equatorial.

135
Both contracts of lease in question provide the identically worded paragraph 8, which
reads:
That if the LESSOR should desire to sell the leased premises, the LESSEE shall
be given 30-days exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone other than
the LESSEE, the LESSOR is bound and obligated, as it hereby binds and
obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall
recognize this lease and be bound by all the terms and conditions thereof. 14
We agree with the respondent Court of Appeals that the aforecited contractual stipulation
provides for a right of first refusal in favor of Mayfair. It is not an option clause or an
option contract. It is a contract of a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto, 15 unequivocal was our
characterization of an option contract as one necessarily involving the choice granted to
another for a distinct and separate consideration as to whether or not to purchase a
determinate thing at a predetermined fixed price.
It is unquestionable that, by means of the document Exhibit E, to wit, the letter of
December 4, 1911, quoted at the beginning of this decision, the defendant Valdes
granted to the plaintiff Borck the right to purchase the Nagtajan Hacienda
belonging to Benito Legarda, during the period of three months and for its
assessed valuation, a grant which necessarily implied the offer or obligation on
the part of the defendant Valdes to sell to Borck the said hacienda during the
period and for the price mentioned . . . There was, therefore, a meeting of minds
on the part of the one and the other, with regard to the stipulations made in the
said document. But it is not shown that there was any cause or consideration for
that agreement, and this omission is a bar which precludes our holding that the
stipulations contained in Exhibit E is a contract of option, for, . . . there can be no
contract without the requisite, among others, of the cause for the obligation to be
established.
In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in
the following language:
A contract by virtue of which A, in consideration of the payment of
a certain sum to B, acquires the privilege of buying from, or selling
to B, certain securities or properties within a limited time at a
specified price. (Story vs. Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide
vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation
has been taken:
An agreement in writing to give a person the option to purchase
lands within a given time at a named price is neither a sale nor an
agreement to sell. It is simply a contract by which the owner of
property agrees with another person that he shall have the right to

136
buy his property at a fixed price within a certain time. He does not
sell his land; he does not then agree to sell it; but he does sell
something; that is, the right or privilege to buy at the election or
option of the other party. The second party gets in praesenti, not
lands, nor an agreement that he shall have lands, but he does get
something of value; that is, the right to call for and receive lands if
he elects. The owner parts with his right to sell his lands, except to
the second party, for a limited period. The second party receives
this right, or, rather, from his point of view, he receives the right to
elect to buy.
But the two definitions above cited refer to the contract of option, or, what
amounts to the same thing, to the case where there was cause or consideration
for the obligation, the subject of the agreement made by the parties; while in the
case at bar there was no such cause or consideration. 16 (Emphasis ours.)
The rule so early established in this jurisdiction is that the deed of option or the option
clause in a contract, in order to be valid and enforceable, must, among other things,
indicate the definite price at which the person granting the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy the leased property for a
named price per square meter upon failure to make the purchase within the time specified; 17 in
one other case we freed the landowner from her promise to sell her land if the prospective buyer
could raise P4,500.00 in three weeks because such option was not supported by a distinct
consideration; 18 in the same vein in yet one other case, we also invalidated an instrument
entitled, "Option to Purchase" a parcel of land for the sum of P1,510.00 because of lack of
consideration; 19 and as an exception to the doctrine enumerated in the two preceding cases, in
another case, we ruled that the option to buy the leased premises for P12,000.00 as stipulated
in the lease contract, is not without consideration for in reciprocal contracts, like lease, the
obligation or promise of each party is the consideration for that of the other. 20 In all these cases,
the selling price of the object thereof is always predetermined and specified in the option clause
in the contract or in the separate deed of option. We elucidated, thus, in the very recent case
of Ang Yu Asuncion vs. Court of Appeals 21 that:
. . . In sales, particularly, to which the topic for discussion about the case at
bench belongs, the contract is perfected when a person, called the seller,
obligates himself, for a price certain, to deliver and to transfer ownership of a
thing or right to another, called the buyer, over which the latter agrees. Article
1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell"
where invariably the ownership of the thing sold in retained until the fulfillment of
a positive suspensive condition (normally, the full payment of the purchase price),

137
the breach of the condition will prevent the obligation to convey title from
acquiring an obligatory force. . . .
An unconditional mutual promise to buy and sell, as long as the object is made
determinate and the price is fixed, can be obligatory on the parties, and
compliance therewith may accordingly be exacted.
An accepted unilateral promise which specifies the thing to be sold and the price
to be paid, when coupled with a valuable consideration distinct and separate
from the price, is what may properly be termed a perfected contract of option.
This contract is legally binding, and in sales, it conforms with the second
paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promisor if the promise
is supported by a consideration distinct from the price. (1451a).
Observe, however, that the option is not the contract of sale itself. The optionee
has the right, but not the obligation, to buy. Once the option is exercised
timely, i.e., the offer is accepted before a breach of the option, a bilateral promise
to sell and to buy ensues and both parties are then reciprocally bound to comply
with their respective undertakings.
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect
promise (policitacion) is merely an offer. Public advertisements or solicitations
and the like are ordinarily construed as mere invitations to make offers or only as
proposals. These relations, until a contract is perfected, are not considered
binding commitments. Thus, at any time prior to the perfection of the contract,
either negotiating party may stop the negotiation. The offer, at this stage, may be
withdrawn; the withdrawal is effective immediately after its manifestation, such as
by its mailing and not necessarily when the offeree learns of the withdrawal
(Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within
which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the
offeror is still free and has the right to withdraw the offer before its acceptance, or
if an acceptance has been made, before the offeror's coming to know of such
fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code;
see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is
applicable to a unilateral promise to sell under Art. 1479, modifying the previous
decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art.
1319, Civil Code; Rural Bank of Paraaque, Inc. vs. Remolado, 135 SCRA 409;
Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be
exercised whimsically or arbitrarily; otherwise, it could give rise to a damage
claim under Article 19 of the Civil Code which ordains that "every person must, in
the exercise of his rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith."

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(2) If the period has a separate consideration, a contract of "option" deemed
perfected, and it would be a breach of that contract to withdraw the offer during
the agreed period. The option, however, is an independent contract by itself; and
it is to be distinguished from the projected main agreement (subject matter of the
option) which is obviously yet to be concluded. If, in fact, the optioner-offeror
withdraws the offer before its acceptance (exercise of the option) by the
optionee-offeree, the latter may not sue for specific performance on the proposed
contract ("object" of the option) since it has failed to reach its own stage of
perfection. The optioner-offeror, however, renders himself liable for damages for
breach of the opinion. . .
In the light of the foregoing disquisition and in view of the wording of the questioned
provision in the two lease contracts involved in the instant case, we so hold that no
option to purchase in contemplation of the second paragraph of Article 1479 of the Civil
Code, has been granted to Mayfair under the said lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the right of
first refusal to Mayfair and is not an option contract. It also correctly reasoned that as
such, the requirement of a separate consideration for the option, has no applicability in
the instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March 31, 1969
contracts which would bring them into the ambit of the usual offer or option requiring an
independent consideration.
An option is a contract granting a privilege to buy or sell within an agreed time and at a
determined price. It is a separate and distinct contract from that which the parties may
enter into upon the consummation of the option. It must be supported by
consideration. 22 In the instant case, the right of first refusal is an integral part of the
contracts of lease. The consideration is built into the reciprocal obligations of the parties.
To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is
governed by Article 1324 on withdrawal of the offer or Article 1479 on promise to buy
and sell would render in effectual or "inutile" the provisions on right of first refusal so
commonly inserted in leases of real estate nowadays. The Court of Appeals is correct in
stating that Paragraph 8 was incorporated into the contracts of lease for the benefit of
Mayfair which wanted to be assured that it shall be given the first crack or the first option
to buy the property at the price which Carmelo is willing to accept. It is not also correct to
say that there is no consideration in an agreement of right of first refusal. The stipulation
is part and parcel of the entire contract of lease. The consideration for the lease includes
the consideration for the right of first refusal. Thus, Mayfair is in effect stating that it
consents to lease the premises and to pay the price agreed upon provided the lessor
also consents that, should it sell the leased property, then, Mayfair shall be given the
right to match the offered purchase price and to buy the property at that price. As stated
in Vda. De Quirino vs. Palarca, 23 in reciprocal contract, the obligation or promise of each
party is the consideration for that of the other.
The respondent Court of Appeals was correct in ascertaining the true nature of the
aforecited paragraph 8 to be that of a contractual grant of the right of first refusal to
Mayfair.

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We shall now determine the consequential rights, obligations and liabilities of Carmelo,
Mayfair and Equatorial.
The different facts and circumstances in this case call for an amplification of the
precedent in Ang Yu Asuncion vs. Court of Appeals. 24
First and foremost is that the petitioners acted in bad faith to render Paragraph 8
"inutile".
What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that
Mayfair will have the right of first refusal in the event Carmelo sells the leased premises.
It is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter
of its intention to sell the said property in 1974. There was an exchange of letters
evidencing the offer and counter-offers made by both parties. Carmelo, however, did not
pursue the exercise to its logical end. While it initially recognized Mayfair's right of first
refusal, Carmelo violated such right when without affording its negotiations with Mayfair
the full process to ripen to at least an interface of a definite offer and a possible
corresponding acceptance within the "30-day exclusive option" time granted Mayfair,
Carmelo abandoned negotiations, kept a low profile for some time, and then sold,
without prior notice to Mayfair, the entire Claro M Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property
in question rescissible. We agree with respondent Appellate Court that the records bear
out the fact that Equatorial was aware of the lease contracts because its lawyers had,
prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to
be a purchaser in good faith, and, therefore, rescission lies.
. . . Contract of Sale was not voidable but rescissible. Under Article 1380 to
1381(3) of the Civil Code, a contract otherwise valid may nonetheless be
subsequently rescinded by reason of injury to third persons, like creditors. The
status of creditors could be validly accorded the Bonnevies for they had
substantial interests that were prejudiced by the sale of the subject property to
the petitioner without recognizing their right of first priority under the Contract of
Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting
parties and even to third persons, to secure reparation for damages caused to
them by a contract, even if this should be valid, by means of the restoration of
things to their condition at the moment prior to the celebration of said contract. It
is a relief allowed for the protection of one of the contracting parties and even
third persons from all injury and damage the contract may cause, or to protect
some incompatible and preferent right created by the contract. Rescission
implies a contract which, even if initially valid, produces a lesion or pecuniary
damage to someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property subject of the
contract is an obstacle to the action for its rescission where it is shown that such
third person is in lawful possession of the subject of the contract and that he did
not act in bad faith. However, this rule is not applicable in the case before us
because the petitioner is not considered a third party in relation to the Contract of

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Sale nor may its possession of the subject property be regarded as acquired
lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale.
Moreover, the petitioner cannot be deemed a purchaser in good faith for the
record shows that it categorically admitted it was aware of the lease in favor of
the Bonnevies, who were actually occupying the subject property at the time it
was sold to it. Although the Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the
petitioner cannot deny actual knowledge of such lease which was equivalent to
and indeed more binding than presumed notice by registration.
A purchaser in good faith and for value is one who buys the property of another
without notice that some other person has a right to or interest in such property
and pays a full and fair price for the same at the time of such purchase or before
he has notice of the claim or interest of some other person in the property. Good
faith connotes an honest intention to abstain from taking unconscientious
advantage of another. Tested by these principles, the petitioner cannot tenably
claim to be a buyer in good faith as it had notice of the lease of the property by
the Bonnevies and such knowledge should have cautioned it to look deeper into
the agreement to determine if it involved stipulations that would prejudice its own
interests.
The petitioner insists that it was not aware of the right of first priority granted by
the Contract of Lease. Assuming this to be true, we nevertheless agree with the
observation of the respondent court that:
If Guzman-Bocaling failed to inquire about the terms of the Lease
Contract, which includes Par. 20 on priority right given to the
Bonnevies, it had only itself to blame. Having known that the
property it was buying was under lease, it behooved it as a
prudent person to have required Reynoso or the broker to show to
it the Contract of Lease in which Par. 20 is contained. 25
Petitioners assert the alleged impossibility of performance because the entire property is
indivisible property. It was petitioner Carmelo which fixed the limits of the property it was
leasing out. Common sense and fairness dictate that instead of nullifying the agreement
on that basis, the stipulation should be given effect by including the indivisible
appurtenances in the sale of the dominant portion under the right of first refusal. A valid
and legal contract where the ascendant or the more important of the two parties is the
landowner should be given effect, if possible, instead of being nullified on a selfish
pretext posited by the owner. Following the arguments of petitioners and the participation
of the owner in the attempt to strip Mayfair of its rights, the right of first refusal should
include not only the property specified in the contracts of lease but also the appurtenant
portions sold to Equatorial which are claimed by petitioners to be indivisible. Carmelo
acted in bad faith when it sold the entire property to Equatorial without informing Mayfair,
a clear violation of Mayfair's rights. While there was a series of exchanges of letters
evidencing the offer and counter-offers between the parties, Carmelo abandoned the
negotiations without giving Mayfair full opportunity to negotiate within the 30-day period.

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Accordingly, even as it recognizes the right of first refusal, this Court should also order
that Mayfair be authorized to exercise its right of first refusal under the contract to
include the entirety of the indivisible property. The boundaries of the property sold
should be the boundaries of the offer under the right of first refusal. As to the remedy to
enforce Mayfair's right, the Court disagrees to a certain extent with the concluding part of
the dissenting opinion of Justice Vitug. The doctrine enunciated in Ang Yu Asuncion
vs.Court of Appeals should be modified, if not amplified under the peculiar facts of this
case.
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is
characterized by bad faith, since it was knowingly entered into in violation of the rights of
and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals,
Equatorial admitted that its lawyers had studied the contract of lease prior to the sale.
Equatorial's knowledge of the stipulations therein should have cautioned it to look further
into the agreement to determine if it involved stipulations that would prejudice its own
interests.
Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent
sale is first set aside or rescinded. All of these matters are now before us and so there
should be no piecemeal determination of this case and leave festering sores to
deteriorate into endless litigation. The facts of the case and considerations of justice and
equity require that we order rescission here and now. Rescission is a relief allowed for
the protection of one of the contracting parties and even third persons from all injury and
damage the contract may cause or to protect some incompatible and preferred right by
the contract. 26 The sale of the subject real property by Carmelo to Equatorial should now
be rescinded considering that Mayfair, which had substantial interest over the subject
property, was prejudiced by the sale of the subject property to Equatorial without
Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day stipulated
period. 27
This Court has always been against multiplicity of suits where all remedies according to
the facts and the law can be included. Since Carmelo sold the property for
P11,300,000.00 to Equatorial, the price at which Mayfair could have purchased the
property is, therefore, fixed. It can neither be more nor less. There is no dispute over it.
The damages which Mayfair suffered are in terms of actual injury and lost opportunities.
The fairest solution would be to allow Mayfair to exercise its right of first refusal at the
price which it was entitled to accept or reject which is P11,300,000.00. This is clear from
the records.
To follow an alternative solution that Carmelo and Mayfair may resume negotiations for
the sale to the latter of the disputed property would be unjust and unkind to Mayfair
because it is once more compelled to litigate to enforce its right. It is not proper to give it
an empty or vacuous victory in this case. From the viewpoint of Carmelo, it is like asking
a fish if it would accept the choice of being thrown back into the river. Why should
Carmelo be rewarded for and allowed to profit from, its wrongdoing? Prices of real estate
have skyrocketed. After having sold the property for P11,300,000.00, why should it be
given another chance to sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there
was nothing to execute because a contract over the right of first refusal belongs to a

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class of preparatory juridical relations governed not by the law on contracts but by the
codal provisions on human relations. This may apply here if the contract is limited to the
buying and selling of the real property. However, the obligation of Carmelo to first offer
the property to Mayfair is embodied in a contract. It is Paragraph 8 on the right of first
refusal which created the obligation. It should be enforced according to the law on
contracts instead of the panoramic and indefinite rule on human relations. The latter
remedy encourages multiplicity of suits. There is something to execute and that is for
Carmelo to comply with its obligation to the property under the right of the first refusal
according to the terms at which they should have been offered then to Mayfair, at the
price when that offer should have been made. Also, Mayfair has to accept the offer. This
juridical relation is not amorphous nor is it merely preparatory. Paragraphs 8 of the two
leases can be executed according to their terms.
On the question of interest payments on the principal amount of P11,300,000.00, it must
be borne in mind that both Carmelo and Equatorial acted in bad faith. Carmelo
knowingly and deliberately broke a contract entered into with Mayfair. It sold the property
to Equatorial with purpose and intend to withhold any notice or knowledge of the sale
coming to the attention of Mayfair. All the circumstances point to a calculated and
contrived plan of non-compliance with the agreement of first refusal.
On the part of Equatorial, it cannot be a buyer in good faith because it bought the
property with notice and full knowledge that Mayfair had a right to or interest in the
property superior to its own. Carmelo and Equatorial took unconscientious advantage of
Mayfair.
Neither may Carmelo and Equatorial avail of considerations based on equity which might
warrant the grant of interests. The vendor received as payment from the vendee what, at
the time, was a full and fair price for the property. It has used the P11,300,000.00 all
these years earning income or interest from the amount. Equatorial, on the other hand,
has received rents and otherwise profited from the use of the property turned over to it
by Carmelo. In fact, during all the years that this controversy was being litigated, Mayfair
paid rentals regularly to the buyer who had an inferior right to purchase the property.
Mayfair is under no obligation to pay any interests arising from this judgment to either
Carmelo or Equatorial.
WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June
23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale
between petitioners Equatorial Realty Development, Inc. and Carmelo & Bauermann,
Inc. is hereby deemed rescinded; petitioner Carmelo & Bauermann is ordered to return
to petitioner Equatorial Realty Development the purchase price. The latter is directed to
execute the deeds and documents necessary to return ownership to Carmelo and
Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair
Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
SO ORDERED.
Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza and Francisco, JJ., concur.
Narvasa, C.J., took no part.

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Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 128120

October 20, 2004

144
SWEDISH MATCH, AB, JUAN ENRIQUEZ, RENE DIZON, FRANCISCO RAPACON, FIEL
SANTOS, BETH FLORES, LAMBRTO DE LA EVA, GLORIA REYES, RODRIGO ORTIZ,
NICANOR ESCALANTE, PETER HODGSON, SAMUEL PARTOSA, HERMINDA ASUNCION,
JUANITO HERRERA, JACOBUS NICOLAAS, JOSEPH PEKELHARING (now Representing
himself without court sanction as "JOOST PEKELHARING)," MASSIMO ROSSI and ED
ENRIQUEZ, petitioners,
vs.
COURT OF APPEALS, ALS MANAGEMENT & DEVELOPMENT CORPORATION and
ANTONIO K. LITONJUA,respondents.
DECISION
TINGA, J.:
Petitioners seek a reversal of the twin Orders1 of the Court of Appeals dated 15 November
19962 and 31 January 1997,3 in CA-G.R. CV No. 35886, entitled "ALS Management et al., v.
Swedish Match, AB et al." The appellate court overturned the trial courts Order4 dismissing the
respondents complaint for specific performance and remanded the case to the trial court for
further proceedings.
Swedish Match AB (hereinafter SMAB) is a corporation organized under the laws of Sweden not
doing business in the Philippines. SMAB, however, had three subsidiary corporations in the
Philippines, all organized under Philippine laws, to wit: Phimco Industries, Inc. (Phimco),
Provident Tree Farms, Inc., and OTT/Louie (Phils.), Inc.
Sometime in 1988, STORA, the then parent company of SMAB, decided to sell SMAB of
Sweden and the latters worldwide match, lighter and shaving products operation to Eemland
Management Services, now known as Swedish Match NV of Netherlands, (SMNV), a
corporation organized and existing under the laws of Netherlands. STORA, however, retained
for itself the packaging business.
SMNV initiated steps to sell the worldwide match and lighter businesses while retaining for itself
the shaving business. SMNV adopted a two-pronged strategy, the first being to sell its shares in
Phimco Industries, Inc. and a match company in Brazil, which proposed sale would stave-off
defaults in the loan covenants of SMNV with its syndicate of lenders. The other move was to sell
at once or in one package all the SMNV companies worldwide which were engaged in match
and lighter operations thru a global deal (hereinafter, global deal).
Ed Enriquez (Enriquez), Vice-President of Swedish Match Sociedad Anonimas (SMSA)the
management company of the Swedish Match groupwas commissioned and granted full
powers to negotiate by SMNV, with the resulting transaction, however, made subject to final
approval by the board. Enriquez was held under strict instructions that the sale of Phimco
shares should be executed on or before 30 June 1990, in view of the tight loan covenants of
SMNV. Enriquez came to the Philippines in November 1989 and informed the Philippine
financial and business circles that the Phimco shares were for sale.
Several interested parties tendered offers to acquire the Phimco shares, among whom were the
AFP Retirement and Separation Benefits System, herein respondent ALS Management &
Development Corporation and respondent Antonio Litonjua (Litonjua), the president and general
manager of ALS.

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In his letter dated 3 November 1989, Litonjua submitted to SMAB a firm offer to buy all of the
latters shares in Phimco and all of Phimcos shares in Provident Tree Farm, Inc. and OTT/Louie
(Phils.), Inc. for the sum ofP750,000,000.00.5
Through its Chief Executive Officer, Massimo Rossi (Rossi), SMAB, in its letter dated 1
December 1989, thanked respondents for their interest in the Phimco shares. Rossi informed
respondents that their price offer was below their expectations but urged them to undertake a
comprehensive review and analysis of the value and profit potentials of the Phimco shares, with
the assurance that respondents would enjoy a certain priority although several parties had
indicated their interest to buy the shares.6
Thereafter, an exchange of correspondence ensued between petitioners and respondents
regarding the projected sale of the Phimco shares. In his letter dated 21 May 1990, Litonjua
offered to buy the disputed shares, excluding the lighter division for US$30.6 million, which per
another letter of the same date was increased to US$36 million.7 Litonjua stressed that the bid
amount could be adjusted subject to availability of additional information and audit verification of
the company finances.
Responding to Litonjuas offer, Rossi sent his letter dated 11 June 1990, informing the former
that ALS should undertake a due diligence process or pre-acquisition audit and review of the
draft contract for the Match and Forestry activities of Phimco at ALS convenience. However,
Rossi made it clear that at the completion of the due diligence process, ALS should submit its
final offer in US dollar terms not later than 30 June 1990, for the shares of SMAB corresponding
to ninety-six percent (96%) of the Match and Forestry activities of Phimco. Rossi added that in
case the "global deal" presently under negotiation for the Swedish Match Lights Group would
materialize, SMAB would reimburse up to US$20,000.00 of ALS costs related to the due
diligence process.8
Litonjua in a letter dated 18 June 1990, expressed disappointment at the apparent change in
SMABs approach to the bidding process. He pointed out that in their 4 June 1990 meeting, he
was advised that one final bidder would be selected from among the four contending groups as
of that date and that the decision would be made by 6 June 1990. He criticized SMABs decision
to accept a new bidder who was not among those who participated in the 25 May 1990 bidding.
He informed Rossi that it may not be possible for them to submit their final bid on 30 June 1990,
citing the advice to him of the auditing firm that the financial statements would not be completed
until the end of July. Litonjua added that he would indicate in their final offer more specific
details of the payment mechanics and consider the possibility of signing a conditional sale at
that time.9
Two days prior to the deadline for submission of the final bid, Litonjua again advised Rossi that
they would be unable to submit the final offer by 30 June 1990, considering that the acquisition
audit of Phimco and the review of the draft agreements had not yet been completed. He said,
however, that they would be able to finalize their bid on 17 July 1990 and that in case their bid
would turn out better than any other proponent, they would remit payment within ten (10) days
from the execution of the contracts.10
Enriquez sent notice to Litonjua that they would be constrained to entertain bids from other
parties in view of Litonjuas failure to make a firm commitment for the shares of Swedish Match
in Phimco by 30 June 1990.11

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In a letter dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they signed a
conditional contract with a local group for the disposal of Phimco. He told Litonjua that his bid
would no longer be considered unless the local group would fail to consummate the transaction
on or before 15 September1990.12
Apparently irked by SMABs decision to junk his bid, Litonjua promptly responded by letter dated
4 July 1990. Contrary to his prior manifestations, he asserted that, for all intents and purposes,
the US$36 million bid which he submitted on 21 May 1990 was their final bid based on the
financial statements for the year 1989. He pointed out that they submitted the best bid and they
were already finalizing the terms of the sale. He stressed that they were firmly committed to
their bid of US$36 million and if ever there would be adjustments in the bid amount, the
adjustments were brought about by SMABs subsequent disclosures and validated accounts,
such as the aspect that only ninety-six percent (96%) of Phimco shares was actually being sold
and not one-hundred percent (100%).13
More than two months from receipt of Litonjuas last letter, Enriquez sent a fax communication
to the former, advising him that the proposed sale of SMABs shares in Phimco with local buyers
did not materialize. Enriquez then invited Litonjua to resume negotiations with SMAB for the
sale of Phimco shares. He indicated that SMAB would be prepared to negotiate with ALS on an
exclusive basis for a period of fifteen (15) days from 26 September 1990 subject to the terms
contained in the letter. Additionally, Enriquez clarified that if the sale would not be completed at
the end of the fifteen (15)-day period, SMAB would enter into negotiations with other buyers.14
Shortly thereafter, Litonjua sent a letter expressing his objections to the totally new set of terms
and conditions for the sale of the Phimco shares. He emphasized that the new offer constituted
an attempt to reopen the already perfected contract of sale of the shares in his favor. He
intimated that he could not accept the new terms and conditions contained therein.15
On 14 December 1990, respondents, as plaintiffs, filed before the Regional Trial Court (RTC) of
Pasig a complaint for specific performance with damages, with a prayer for the issuance of a
writ of preliminary injunction, against defendants, now petitioners. The individual defendants
were sued in their respective capacities as officers of the corporations or entities involved in the
aborted transaction.
Aside from the averments related to their principal cause of action for specific performance,
respondents alleged that the Phimco management, in utter bad faith, induced SMAB to violate
its contract with respondents. They contended that the Phimco management took an interest in
acquiring for itself the Phimco shares and that petitioners conspired to thwart the closing of such
sale by interposing various obstacles to the completion of the acquisition audit.16 Respondents
claimed that the Phimco management maliciously and deliberately delayed the delivery of
documents to Laya Manabat Salgado & Co. which prevented them from completing the
acquisition audit in time for the deadline on 30 June 1990 set by petitioners.17 Respondents
added that SMABs refusal to consummate the perfected sale of the Phimco shares amounted
to an abuse of right and constituted conduct which is contrary to law, morals, good customs and
public policy.18
Respondents prayed that petitioners be enjoined from selling or transferring the Phimco shares,
or otherwise implementing the sale or transfer thereof, in favor of any person or entity other than
respondents, and that any such sale to third parties be annulled and set aside. Respondents

147
also asked that petitioners be ordered to execute all documents or instruments and perform all
acts necessary to consummate the sales agreement in their favor.
Traversing the complaint, petitioners alleged that respondents have no cause of action,
contending that no perfected contract, whether verbal or written, existed between them.
Petitioners added that respondents cause of action, if any, was barred by the Statute of Frauds
since there was no written instrument or document evidencing the alleged sale of the Phimco
shares to respondents.
Petitioners filed a motion for a preliminary hearing of their defense of bar by the Statute of
Frauds, which the trial court granted. Both parties agreed to adopt as their evidence in support
of or against the motion to dismiss, as the case may be, the evidence which they adduced in
support of their respective positions on the writ of preliminary injunction incident.
In its Order dated 17 April 1991, the RTC dismissed respondents complaint.19 It ruled that there
was no perfected contract of sale between petitioners and respondents. The court a quo said
that the letter dated 11 June 1990, relied upon by respondents, showed that petitioners did not
accept the bid offer of respondents as the letter was a mere invitation for respondents to
conduct a due diligence process or pre-acquisition audit of Phimcos match and forestry
operations to enable them to submit their final offer on 30 June 1990. Assuming that
respondents bid was favored by an oral acceptance made in private by officers of SMAB, the
trial court noted, such acceptance was merely preparatory to a formal acceptance by the SMAB
the acceptance that would eventually lead to the execution and signing of the contract of sale.
Moreover, the court noted that respondents failed to submit their final bid on the deadline set by
petitioners.
Respondents appealed to the Court of Appeals, assigning the following errors:
A. THE TRIAL COURT EXCEEDED ITS AUTHORITY AND JURISDICTION WHEN IT
ERRED PROCEDURALLY IN MOTU PROPIO (sic) DISMISSING THE COMPLAINT IN
ITS ENTIRETY FOR "LACK OF A VALID CAUSE OF ACTION" WITHOUT THE
BENEFIT OF A FULL-BLOWN TRIAL AND ON THE MERE MOTION TO DISMISS.
B. THE TRIAL COURT ERRED IN IGNORING PLAINTIFF-APPELLANTS CAUSE OF
ACTION BASED ON TORT WHICH, HAVING BEEN SUFFICIENTLY PLEADED,
INDEPENDENTLY WARRANTED A FULL-BLOWN TRIAL.
C. THE TRIAL COURT ERRED IN IGNORING PLAINTIFFS-APPELLANTS CAUSE OF
ACTION BASED ON PROMISSORY ESTOPPEL WHICH, HAVING BEEN
SUFFICIENTLY PLEADED, WARRANTED A FULL-BLOWN TRIAL, INDEPENDENTLY
FOR THE OTHER CAUSES OF ACTION.
D. THE TRIAL COURT JUDGE ERRED IN FORSWEARING JUDICIAL OBJECTIVITY
TO FAVOR DEFENDANTS-APPELLEES BY MAKING UNFOUNDED FINDINGS, ALL IN
VIOLATION OF PLAINTIFFS-APPELLANTS RIGHT TO DUE PROCESS.20
After assessing the respective arguments of the parties, the Court of Appeals reversed the trial
courts decision. It ruled that the series of written communications between petitioners and
respondents collectively constitute a sufficient memorandum of their agreement under Article
1403 of the Civil Code; thus, respondents complaint should not have been dismissed on the

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ground that it was unenforceable under the Statute of Frauds. The appellate court opined that
any document or writing, whether formal or informal, written either for the purpose of furnishing
evidence of the contract or for another purpose which satisfies all the Statutes requirements as
to contents and signature would be
sufficient; and, that two or more writings properly connected could be considered together. The
appellate court concluded that the letters exchanged by and between the parties, taken
together, were sufficient to establish that an agreement to sell the disputed shares to
respondents was reached.
The Court of Appeals clarified, however, that by reversing the appealed decision it was not
thereby declaring that respondents are entitled to the reliefs prayed for in their complaint, but
only that the case should not have been dismissed on the ground of unenforceability under the
Statute of Frauds. It ordered the remand of the case to the trial court for further proceedings.
Hence, this petition.
Petitioners argue that the Court of Appeals erred in failing to consider that the Statute of Frauds
requires not just the existence of any note or memorandum but that such note or memorandum
should evidence an agreement to sell; and, that in this case, there was no word, phrase, or
statement in the letters exchanged between the two parties to show or even imply that an
agreement had been reached for the sale of the shares to respondent.
Petitioners stress that respondent Litonjua made it clear in his letters that the quoted prices
were merely tentative and still subject to further negotiations between him and the seller. They
point out that there was no meeting of the minds on the essential terms and conditions of the
sale because SMAB did not accept respondents offer that consideration would be paid in
Philippine pesos. Moreover, Litonjua signified their inability to submit their final bid on 30 June
1990, at the same time stating that the broad terms and conditions described in their meeting
were inadequate for them to make a response at that time so much so that he would have to
await the corresponding specifics. Petitioners argue that the foregoing circumstances prove that
they failed to reach an agreement on the sale of the Phimco shares.
In their Comment, respondents maintain that the Court of Appeals correctly ruled that the
Statute of Frauds does not apply to the instant case. Respondents assert that the sale of the
subject shares to them was perfected as shown by the following circumstances, namely:
petitioners assured them that should they increase their bid, the sale would be awarded to them
and that they did in fact increase their previous bid of US$30.6 million to US$36 million;
petitioners orally accepted their revised offer and the acceptance was relayed to them by Rene
Dizon; petitioners directed them to proceed with the acquisition audit and to submit a comfort
letter from the United Coconut Planters Bank (UCPB); petitioner corporation confirmed its
previous verbal acceptance of their offer in a letter dated 11 June 1990; with the prior approval
of petitioners, respondents engaged the services of Laya, Manabat, Salgado & Co., an
independent auditing firm, to immediately proceed with the acquisition audit; and, petitioner
corporation reiterated its commitment to be bound by the result of the acquisition audit and
promised to reimburse respondents cost to the extent of US$20,000.00. All these incidents,
according to respondents, overwhelmingly prove that the contract of sale of the Phimco shares
was perfected.

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Further, respondents argued that there was partial performance of the perfected contract on
their part. They alleged that with the prior approval of petitioners, they engaged the services of
Laya, Manabat, Salgado & Co. to conduct the acquisition audit. They averred that petitioners
agreed to be bound by the results of the audit and offered to reimburse the costs thereof to the
extent of US$20,000.00. Respondents added that in compliance with their obligations under the
contract, they have submitted a comfort letter from UCPB to show petitioners that the bank was
willing to finance the acquisition of the Phimco shares.21
The basic issues to be resolved are: (1) whether the appellate court erred in reversing the trial
courts decision dismissing the complaint for being unenforceable under the Statute of Frauds;
and (2) whether there was a perfected contract of sale between petitioners and respondents
with respect to the Phimco shares.
The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil Code22 requires
certain contracts enumerated therein to be evidenced by some note or memorandum in order to
be enforceable. The term "Statute of Frauds" is descriptive of statutes which require certain
classes of contracts to be in writing. The Statute does not deprive the parties of the right to
contract with respect to the matters therein involved, but merely regulates the formalities
of the contract necessary to render it enforceable.23 Evidence of the agreement cannot be
received without the writing or a secondary evidence of its contents.
The Statute, however, simply provides the method by which the contracts enumerated therein
may be proved but does not declare them invalid because they are not reduced to writing. By
law, contracts are obligatory in whatever form they may have been entered into, provided all the
essential requisites for their validity are present. However, when the law requires that a contract
be in some form in order that it may be valid or enforceable, or that a contract be proved in a
certain way, that requirement is absolute and indispensable.24 Consequently, the effect of noncompliance with the requirement of the Statute is simply that no action can be enforced unless
the requirement is complied with.25 Clearly, the form required is for evidentiary purposes only.
Hence, if the parties permit a contract to be proved, without any objection, it is then just as
binding as if the Statute has been complied with.26
The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence on the unassisted memory of witnesses, by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the party to be
charged.27
However, for a note or memorandum to satisfy the Statute, it must be complete in itself and
cannot rest partly in writing and partly in parol. The note or memorandum must contain the
names of the parties, the terms and conditions of the contract, and a description of the property
sufficient to render it capable of identification.28 Such note or memorandum must contain the
essential elements of the contract expressed with certainty that may be ascertained from the
note or memorandum itself, or some other writing to which it refers or within which it is
connected, without resorting to parol evidence.29
Contrary to the Court of Appeals conclusion, the exchange of correspondence between the
parties hardly constitutes the note or memorandum within the context of Article 1403 of the Civil
Code. Rossis letter dated 11 June 1990, heavily relied upon by respondents, is not complete in
itself. First, it does not indicate at what price the shares were being sold. In paragraph (5) of the

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letter, respondents were supposed to submit their final offer in U.S. dollar terms, at that after the
completion of the due diligence process. The paragraph undoubtedly proves that there was as
yet no definite agreement as to the price. Second, the letter does not state the mode of payment
of the price. In fact, Litonjua was supposed to indicate in his final offer how and where payment
for the shares was planned to be made.30
Evidently, the trial courts dismissal of the complaint on the ground of unenforceability under the
Statute of Frauds is warranted.31
Even if we were to consider the letters between the parties as a sufficient memorandum for
purposes of taking the case out of the operation of the Statute the action for specific
performance would still fail.
A contract is defined as a juridical convention manifested in legal form, by virtue of which one or
more persons bind themselves in favor of another, or others, or reciprocally, to the fulfillment of
a prestation to give, to do, or not to do.32 There can be no contract unless the following
requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject
matter of the contract; (c) cause of the obligation which is established.33Contracts 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.34
Specifically, in the case of a contract of sale, required is the concurrence of three elements, to
wit: (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.35 Such
contract is born from the moment there is a meeting of minds upon the thing which is the object
of the contract and upon the price.36
In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and
consummation. Negotiation begins from the time the prospective contracting parties manifest
their interest in the contract and ends at the moment of agreement of the parties. Perfection or
birth of the contract takes place when the parties agree upon the essential elements of the
contract. Consummation occurs when the parties fulfill or perform the terms agreed upon in the
contract, culminating in the extinguishment thereof.37
A negotiation is formally initiated by an offer. A perfected promise merely tends to insure and
pave the way for the celebration of a future contract. An imperfect promise (policitacion), on the
other hand, is a mere unaccepted offer.38 Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only as proposals. At any time prior to
the perfection of the contract, either negotiating party may stop the negotiation.39 The offer, at
this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation,
such as by its mailing and not necessarily when the offeree learns of the withdrawal. 40
An offer would require, among other things, a clear certainty on both the object and the cause or
consideration of the envisioned contract. Consent in a contract of sale should be manifested by
the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.41
Quite obviously, Litonjuas letter dated 21 May 1990, proposing the acquisition of the Phimco
shares for US$36 million was merely an offer. This offer, however, in Litonjuas own words, "is

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understood to be subject to adjustment on the basis of an audit of the assets, liabilities and net
worth of Phimco and its subsidiaries and on the final negotiation between ourselves."42
Was the offer certain enough to satisfy the requirements of the Statute of Frauds? Definitely not.
Litonjua repeatedly stressed in his letters that they would not be able to submit their final bid by
30 June 1990.43With indubitable inconsistency, respondents later claimed that for all intents and
purposes, the US$36 million was their final bid. If this were so, it would be inane for Litonjua to
state, as he did, in his letter dated 28 June 1990 that they would be in a position to submit their
final bid only on 17 July 1990. The lack of a definite offer on the part of respondents could not
possibly serve as the basis of their claim that the sale of the Phimco shares in their favor was
perfected, for one essential element of a contract of sale was obviously wantingthe price
certain in money or its equivalent. The price must be certain, otherwise there is no true consent
between the parties.44 There can be no sale without a price.45 Quite recently, this Court
reiterated the long-standing doctrine that the manner of payment of the purchase price is an
essential element before a valid and binding contract of sale can exist since the agreement on
the manner of payment goes into the price such that a
disagreement on the manner of payment is tantamount to a failure to agree on the price.46
Granting arguendo, that the amount of US$36 million was a definite offer, it would remain as a
mere offer in the absence of evidence of its acceptance. To produce a contract, there must be
acceptance, which may be express or implied, but it must not qualify the terms of the offer.47 The
acceptance of an offer must be unqualified and absolute to perfect the contract.48 In other
words, it must be identical in all respects with that of the offer so as to produce consent or
meeting of the minds.49
Respondents attempt to prove the alleged verbal acceptance of their US$36 million bid
becomes futile in the face of the overwhelming evidence on record that there was in the first
place no meeting of the minds with respect to the price. It is dramatically clear that the US$36
million was not the actual price agreed upon but merely a preliminary offer which was subject to
adjustment after the conclusion of the audit of the company finances. Respondents failure to
submit their final bid on the deadline set by petitioners prevented the perfection of the contract
of sale. It was not perfected due to the absence of one essential element which was the price
certain in money or its equivalent.
At any rate, from the procedural stand point, the continuing objections raised by petitioners to
the admission of parol evidence50 on the alleged verbal acceptance of the offer rendered any
evidence of acceptance inadmissible.
Respondents plea of partial performance should likewise fail. The acquisition audit and
submission of a comfort letter, even if considered together, failed to prove the perfection of the
contract. Quite the contrary, they indicated that the sale was far from concluded. Respondents
conducted the audit as part of the due diligence process to help them arrive at and make their
final offer. On the other hand, the submission of the comfort letter was merely a guarantee that
respondents had the financial capacity to pay the price in the event that their bid was accepted
by petitioners.
The Statute of Frauds is applicable only to contracts which are executory and not to those which
have been consummated either totally or partially.51 If a contract has been totally or partially

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performed, the exclusion of parol evidence would promote fraud or bad faith, for it would enable
the defendant to keep the benefits already derived by him from the transaction in litigation, and
at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by
him thereby.52 This rule, however, is predicated on the fact of ratification of the contract within
the meaning of Article 1405 of the Civil Code either (1) by failure to object to the presentation of
oral evidence to prove the same, or (2) by the acceptance of benefits under them. In the instant
case, respondents failed to prove that there was partial performance of the contract within the
purview of the Statute.
Respondents insist that even on the assumption that the Statute of Frauds is applicable in this
case, the trial court erred in dismissing the complaint altogether. They point out that the
complaint presents several causes of action.
A close examination of the complaint reveals that it alleges two distinct causes of action, the first
is for specific performance53 premised on the existence of the contract of sale, while the other is
solely for damages, predicated on the purported dilatory maneuvers executed by the Phimco
management.54
With respect to the first cause of action for specific performance, apart from petitioners alleged
refusal to honor the contract of salewhich has never been perfected in the first place
respondents made a number of averments in their complaint all in support of said cause of
action. Respondents
claimed that petitioners were guilty of promissory estoppel,55 warranty breaches56 and tortious
conduct57 in refusing to honor the alleged contract of sale. These averments are predicated on
or at least interwoven with the existence or perfection of the contract of sale. As there was no
such perfected contract, the trial court properly rejected the averments in conjunction with the
dismissal of the complaint for specific performance.
However, respondents second cause of action due to the alleged malicious and deliberate
delay of the Phimco management in the delivery of documents necessary for the completion of
the audit on time, not being based on the existence of the contract of sale, could stand
independently of the action for specific performance and should not be deemed barred by the
dismissal of the cause of action predicated on the failed contract. If substantiated, this cause of
action would entitle respondents to the recovery of damages against the officers of the
corporation responsible for the acts complained of.
Thus, the Court cannot forthwith order dismissal of the complaint without affording respondents
an opportunity to substantiate their allegations with respect to its cause of action for damages
against the officers of Phimco based on the latters alleged self-serving dilatory maneuvers.
WHEREFORE, the petition is in part GRANTED. The appealed Decision is
hereby MODIFIED insofar as it declared the agreement between the parties enforceable under
the
Statute of Frauds. The complaint before the trial court is ordered DISMISSED insofar as the
cause of action for specific
performance is concerned. The case is ordered REMANDED to the trial court for further
proceedings with respect to the cause of action for damages as above specified.

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SO ORDERED.
Puno, Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 138113

October 17, 2000

EMILIO BUGATTI, petitioner,

vs.
COURT OF APPEALS and SPOUSES BEN BAGUILAT and MARIA BAGUILAT, respondents.

154
DECISION
GONZAGA-REYES, J.:
Before us is a petition for review on certiorari of the August 7, 1998 Decision of the Court of
Appeals in CA-G.R. CV No. 48900, reversing the July 15, 1994 Decision of the Regional Trial
Court in Civil Case No. 348.
The present case traces its origins to an action for recovery of possession and damages filed by
respondents Ben and Maria Baguilat on July 11, 1989, with the Regional Trial Court of Lagawe,
Ifugao against petitioner Emilio Bugatti.1 In their complaint, respondents alleged that they are
the owners of a parcel of land situated in Lagawa, Ifugao and that sometime in December, 1987,
petitioner offered to lease their land. According to respondents, they discussed the terms and
conditions of the lease with petitioner, particularly that petitioner will lease a portion of
respondents land for a period of nine (9) years in return for a monthly rental of P500.00; that
petitioner will construct a building on such land, the cost of which shall not exceed P40,000.00;
that respondents shall reimburse petitioner for the cost of the building by applying the rentals
thereto; that after petitioner is fully reimbursed for the costs of construction in the amount of
P40,000.00, he shall continue to pay the monthly rental of P500.00 for the duration of the lease;
that upon the termination of the lease, the building shall belong to respondents. It was agreed
by petitioner and respondents that the aforesaid terms and conditions should be included in a
written contract of lease to be prepared by petitioner and presented to respondents for their
approval. However, even before preparing the contract of lease, petitioner occupied
respondents land and began construction on January 18, 1988. Immediately objecting to the
construction, respondent Maria Baguilat demanded that the contract of lease should first be
signed. However, petitioner assured respondents that he was preparing the contract. Sometime
in March, 1988, petitioner finally presented the lease contract to respondents but it did not
contain the terms and conditions previously agreed upon. Respondents insisted that petitioner
re-draft the contract in accordance with their discussions. The revised document, presented to
respondents sometime in April, 1988, contained counter-proposals. Respondents refused to
accede to such counter-proposals. Despite the fact that no contract was signed by the parties,
petitioner continued to occupy respondents land.
In an effort to resolve their differences, respondents resorted to extrajudicial measures, such as
asking the Barangay Captain to mediate in the hopes of arriving at an amicable settlement.
However, petitioner was not receptive and he walked out of the proceedings before the
Barangay Captain. Respondents then sent petitioner a demand letter dated November 23,
1988, asking him to vacate their property. Again, petitioner did not heed respondents demands.
Subsequent efforts of respondents to resolve the conflict proved equally futile. Eventually,
respondents obtained the services of counsel - Atty. Evelyn S. Dunuan, who sent petitioner a
letter asking him to desist from introducing any further improvements upon respondents
property. Upon obtaining a certification from the Barangay Captain, respondents filed the
present case with the Regional Trial Court for recovery of the land in question and damages.2
Contrary to respondents contentions, petitioner asserts that the lease contract which he
prepared in fact embodied the terms and conditions agreed upon, except for the cost of the
building. Petitioner claimed that respondents had agreed to the following terms - to lease their
entire property to him for a period of nine (9) years at a monthly rental of P500.00; that petitioner
would construct a building of strong materials on respondents property, without any limit as to
the cost of construction; that it was later on decided by the parties to extend the period of the

155
lease since the cost of the building had exceeded the total amount of rentals for the nine year
period; that the new lease period would begin from the opening of petitioners business, and
would continue at least until the recovery by petitioner of the full amount incurred by him in the
construction of the building; that petitioner will only pay rentals when he has been fully
reimbursed for construction costs; and finally, that upon the expiration of the lease contract,
respondents would own the building.
Petitioner claims that when he first submitted a draft of the lease contract to respondent Maria
Baguilat, she did not voice out any objection thereto. About two weeks later, Maria Baguilat told
petitioner that she had lost the draft. Petitioner then submitted a second draft, but respondents
refused to accept it because it did not conform to the terms and conditions agreed upon.
Petitioner told respondents to wait until the building was completely finished before he submitted
another draft of the lease contract so that the price of the building could be incorporated therein.
Petitioner claims that respondents did not object to the fact that he had started construction
before the signing of the lease contract. On the contrary, petitioner alleges that he felt that
respondents had agreed to his proposals and that they had actually given him verbal permission
to begin erecting the building. According to petitioner, respondents did not express their
disapproval of the ongoing construction during any of their several visits to the construction site.
He claims that Ben Baguilat even assisted him in the levelling of the construction area; that
Maria Baguilat made suggestions as to the kind of materials that might be used; and that when
petitioner informed Maria Baguilat that he had already spent more than P90,000.00 for the
construction, she advised him to keep all his receipts in order to serve as a basis for the
computation of the total costs of the building. Petitioner further claims that when the building
was completed in June, 1988, respondent Ben Baguilat invited him and his wife to their house
for the drafting of the contract. However, when petitioner told respondents that his expenses had
reached P120,000.00, they pretended to be shocked and refused to sign the lease contract.3
The trial court4 held that no contract of lease was perfected between the parties since the
element of consent was missing. The drafting of the contract - a task entrusted to petitioner was deemed by respondents as a condition precedent to the perfection of the lease contract
and consequently, to any construction activity upon their land. Although petitioner submitted two
drafts , they did not contain the terms and conditions spoken of by the parties during their
negotiations and were accordingly rejected by respondents. However, despite the absence of a
perfected contract and in total disregard of respondents repeated objections, petitioner
occupied respondents land and commenced construction thereon, making him a builder in bad
faith. The decretal portion of the trial courts decision provides WHEREFORE, premises considered, the Court hereby render[s] judgment ordering the
defendant as follows, to wit:
1) To vacate the plaintiffs land including the building thereon which is forfeited to the
plaintiffs by virtue of this decision;
2) To pay plaintiffs the sum of Twenty One Thousand (P21,000.00) Pesos by way of
damages representing the estimated cost of the building, and the reasonable
compensation for the unjustified occupation and use by defendant of plaintiffs land for a
period of more than six (6) years;

156
3) To pay plaintiffs the sum of Fourteen Thousand (P14,000.00) Pesos as attorneys
fees, and
4) To pay the cost.
No pronouncement as to moral and exemplary damages as no evidence was introduced to
prove the same.
SO ORDERED.5
Reversing the trial courts decision, the Court of Appeals6 sustained the view that there was in
fact a perfected contract of lease between the parties, which was for a period of nine years,
beginning on January, 1988.7Accordingly, the appellate court held that petitioner was in good
faith when he acquired possession of the land and started construction thereon, and that he is
entitled to reimbursement for the value of the improvements introduced upon the subject
property, pursuant to article 1678 of the Civil Code and principles of equity.8However, since the
lease terminated on January, 1997, petitioner must vacate the property. The decretal portion of
the assailed decision states WHEREFORE, in view of the foregoing, the decision dated July 15, 1994 of the Regional Trial
Court in Lagawe, Ifugao (Branch 14) in Civil Case No. 348 is hereby REVERSED and SET
ASIDE. The defendant-appellant and all persons claiming rights under him are hereby ordered
to immediately vacate the subject property and surrender the possession thereof to the
plaintiffs-appellees, and to pay to them (plaintiffs-appellees) rentals in arrears in accordance
with the fair rental value or reasonable compensation for the use and occupation of the property,
which monthly sum should be computed from January, 1988 until he has completely vacated the
subject property. On the other hand, the plaintiffs-appellees are ordered to pay the value of the
improvement introduced by the defendant-appellant. Further, the awards of attorneys fees and
costs are hereby DELETED. Consequently, let this case be REMANDED to the Regional Trial
Court for the determination of the current market value of the improvements made by the
defendant-appellant on the subject property, in accordance with Article 1678 of the New Civil
Code, and the fair rental value thereof. No pronouncement as to costs.
SO ORDERED.9
Petitioner contends that the Court of Appeals varied the terms of his contract with respondents.
In his Memorandum, petitioner summarizes the errors committed by the appellate court and
asserts the terms which should have been enforced instead, as follows The appellate court correctly reversed and set aside the decision of the trial court finding for the
private respondents as contrary to facts and applicable laws, but committed the error, with due
respect, of fixing an [sic] entirely new terms and conditions and imposed the same on the
parties, such as:
a) for the petitioner to vacate the premises. But the lease, which was upheld by the appellate
court, has not yet expired or terminated;
b) to pay rental or compensation for the petitioners use of the property to be computed from
January, 1988 until petitioner vacated the property. There is no question as to payment of
rentals [,] the parties having agreed [to] the sum of P500.00 a month to be deducted from the

157
P120,000 petitioner spent in constructing the building until exhausted, not to be computed form
the year January, 1988, but to commence on the date of the completion of the building and start
of petitioners business thereat.
c) the appellate court also ordered the private respondents to pay the value of the building to the
petitioner, to to [sic] this effect, ordered the case remanded back to the trial court to determine
the value of the building or improvement. The agreement of the parties is for the building to be
owned by the private respondents after the P120,000 cost of the building is exhausted by the
deduction of P500.00 as monthly rental.
xxx

xxx

xxx

In lieu thereof, it is respectfully prayed that the petitioner and the private respondents be
ordered to comply faithfully and in good faith to the terms and conditions of their lease - the
petitioner to erect a building on the leased property and completed by him at a cost of P120,000
in March, 1988. Of this amount, the P500.00 monthly rental deducted until exhausted, also to
start March, 1988 [-] date petitioner commenced his business thereat. After exhaustion of the
P120,000 by way of monthly rentals, private respondents become owners of the building - which
are clear and not contrary to law, morals, good customs, public order, and public policy. Lease
expires in March, 2008 therefor.10
The threshold issue in the present case is whether or not a contract of lease had been
perfected. After receiving the testimonial and documentary evidence of both parties, the trial
court concluded that no contract of lease existed and ruled in favor of respondents herein. The
court explained its decision in this wise The Court after a careful evaluation of the foregoing portion of plaintiffs testimony cannot give
its imprimatur to the conclusion reached by defendant to the effect that plaintiffs allowed the
defendant to enter into a portion of the land in question and construct a building thereon, for
such a conclusion is gratuitous as it does not portray the true intention of the plaintiffs as alluded
to by the defendant. A cursory reading of the testimony under consideration indubitably show in
its clear and unmistakable terms that it is not a blanket authority or permission for defendant to
enter the premises of the land in question, but is subject to proviso or terms and conditions to be
embodied in writing in the lease contract, which terms and conditions are elsewhere stated
earlier in plaintiffs evidence. In this regard, it is worthy and interesting to note, that at the
inception of the work done by the defendant on the land in question by levelling a portion of it,
plaintiffs immediately protested and repeatedly demanded the defendant who assumed to
prepare the contract embodying the terms and conditions originally agreed upon for their
approval before defendant will start on the construction, which never happened due to the
dilatory tactics employed by the defendant, a circumstance which belied defendants contention
that plaintiffs allowed defendant to occupy the land and construct a building thereon even before
the approval of the lease contract, which to the mind of this Court, is an orchestrated scheme to
dispossess the plaintiffs of their land as evidenced by defendants maneuvers in successfully
delaying by dubious means the finalization of a contract of lease embodying the true terms and
conditions agreed upon by the parties, furthermore, defendant instead of preparing the
supposed lease contract, and after gaining entry on the land in question and had constructed a
building thereon, made counter-proposals which were rejected by plaintiffs.
xxx

xxx

xxx

158
With the foregoing as a background, the Court ... is of the considered view, that no contract of
lease was perfected and/or consumated [sic] between the parties, ... all that was actually done
was a negotiation of an intended lease contract which did not actually materialize due to gross
violation committed by the defendant of the terms and conditions set or laid down by the
plaintiffs in the course of the negotiation for which reason plaintiffs refused to sign the draft
prepared by the defendant. On the issue of perfection, and/or consummation of the alleged
contract of lease, the evidence on record speaks loud and clear that in the course of the
negotiation defendant volunteered to prepare and deliver to plaintiffs [the contract of lease] for
their approval, but instead of preparing the intended contract of lease incorporating the terms
and conditions agreed upon, the defendant started the construction of a building on plaintiffs
land in January, 1988, whereupon plaintiff Maria Baguilat immediately protested to defendant
demanding that the contract of lease over the property should first be signedby the parties
before defendant starts any construction work on the land in question, which was adamantly
ignored by the defendant. The fact that defendant deliberately failed to prepare and finalize the
supposed contract, and instead presented counter-proposals in Exhibit "B" constitute in legal
contemplation a unilateral abandonment and/or rejection by the defendant of the terms and
conditions originally agreed upon, without valid or legal ground which is indicia of his bad faith.
xxx 11
xxx

xxx

xxx

Even assuming arguendo, that the proposal or offer made by the defendant to construct a
building on the land in question where he will later on conduct his business was allowed or
permitted by the plaintiffs during the negotiation stage between the parties as the defendant
wanted to impress this Court, yet the bare fact as borne out by the evidence remains, that the
supposed permission extended to defendant is subject to the condition that the defendant
should first prepare and present to the plaintiffs the contract of lease embodying the terms and
conditions as proposed for the approval of the plaintiffs, which is clearly a condition precedent to
be complied with by the defendant. Hence, the acceptance on the part of the plaintiffs to the
offer made by the defendant to lease the property in question is not unqualified and absolute,
and a qualified acceptance by express provision of Article 1319 of the New Civil Code
constitutes a counter-offer. Incidentally, it has to be stressed that defendant instead of
complying with the qualified counter-offer of the plaintiffs, defendant made a counter-proposal
(Exhibits "B" and "B-1"), which contained the following, to wit:
1. Extension of period or
2. Buy the lot upon which it stands (referring to the building), or
3. Apply the remaining balance to the adjacent vacant lot, and emphasized in said
exhibit, the provision of Articles 445, 447, 448, 453, and 454 of the New Civil Code.12
xxx

xxx

xxx

After a thorough and careful study of the records, the Court finds that the trial court was correct
in ruling that no contract of lease was perfected and accordingly, hold that the appellate court
committed reversible error in ruling to the contrary.
At the outset, it should be stated that the factual findings of the Court of Appeals are usually
binding on the Supreme Court unless there is a showing that: (1) the conclusion is a finding

159
grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken,
absurd and impossible; (3) where 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.13 We find that the assailed ruling of the appellate court
is not borne out by the evidence presented in this case. In support of its conclusion that a
contract of lease was perfected, the appellate court offered a lengthy ratiocination based merely
on its own interpretation of the transcripts. However, it is a well established principle that the
evaluation of the testimonies of witnesses by the trial court is entitled to the highest respect
because such court has the direct opportunity to observe the witnesses - their demeanor and
manner of testifying - and thus, are in a better position to assess their credibility.14
Now, to the merits of the case. We agree with the trial court that when the parties met sometime
in the latter part of December, 1997 and in the first week of 1998 in order to discuss the terms
and conditions of the lease, they were merely negotiating. A contract undergoes three distinct
stages - preparation or negotiation, its perfection, and finally, its
consummation. Negotiation begins from the time the prospective contracting parties manifest
their interest in the contract and ends at the moment of agreement of the parties.
The perfection or birth of the contract takes place when the parties agree upon the essential
elements of the contract. The last stage is theconsummation of the contract wherein the parties
fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment
thereof.15 From the testimonies of respondent Maria Baguilat and petitioner it could clearly be
inferred that it was their intention that such terms and conditions were to be embodied in a lease
contract to be prepared by the latter and presented to respondents for their approval before
either party could be considered bound by the same. On direct examination, Maria Baguilat
testified as follows ATTY. DUNUAN: (to the witness)
You mentioned that the defendant came to ask you to permit him to lease your property located
at herein Lagawe?
A: Yes, Mam.
Q: When did he come to ask your permission?
A: Late December, 1987
Q: Where did he come to ask your permission?
A: He came to our residence.
Q: Who were present at the time he came to ask your permission?
A: My husband and myself were present.
Q: And what exactly what did the defendant ask from you?

160
A: When he came, he ask[ed] if we were the owner[s] of the lot located just beside the public
highway and we said "yes".
Q: What happened next after you informed him that you own the lot just beside the public
highway?
A: Immediately he was asking or pleading if he could construct a little hut there for them to sell;
Q: What did your husband reply to such request?
A: We did not give him a definite yes or no. We said we will see first.
Q: What happen after that?
A: After a week, he came back asking for our final decision.
Q: This time what did you say to the request[?]
A: Because we decided with my husband, because of our relationship by affinity and because
we did not like that theyll have a bad comment on us, we decided that well permit him.
Q: What did you tell him?
A: We said to him that "you can construct a small hut but we are going to set some terms and
conditions to be followed: and he said "yes".
Q: When you said that you will allow him the defendant to construct in the land but you will set
some terms and conditions, what did you do after that?
A: When we permitted him, we discussed some terms and conditions and he acted as the
secretary; he wrote down the terms and conditions we wanted to be embodied in the contruct
[sic].16
Upon cross-examination, Maria Baguilat repeatedly emphasized that she and her husband did
not give petitioner permission to occupy their property and to start construction thereon until
after the written lease contract had met with their approval. As proof of this, when petitioner
started constructing upon respondents land before presenting the written contract to the latter,
Maria Baguilat repeatedly made known her objections to petitioner. She testified thus A: We made the agreement first week of January and we advised him to type it within the first
week of that month, January, 1988.
Q: Within the second week of January, 1988, he already went to occupy a portion of your land?
A: Yes.
Q: Before he went to occupy a portion of your land, according to your testimony, he asked
permission from you to occupy that portion of your land?

161
A: That was verbal, when he came to ask permission.
Q: That permission was given after you gave him permission to prepare the lease agreement or
simultaneously?
A: At the same time.
Q: So you gave him the authority to prepare the lease agreement at the same time the
permission that he was going to occupy that portion, you gave him the permission to occupy the
land?
A: After. We are supposed to sign the contract before he start.
Q: That was your intention but earlier, you testified that simultaneously you allowed him to
occupy a portion of you land?
A: Yes. Allowed him.
COURT: (to the witness)
Q: After the first negotiation allowing him to get that paper for typing, did he come to you after
that to ask permission to occupy a portion of your land?
A: After the drafting of the lease contract, he did not come back but he started the work.
Q: You mean to impress the Court that even though there was no contract, he just went there to
occupy a portion of your property without your permission?
A: Yes.
ATTY. LUMASE:
You stated that he did not come back for permission. You mean there was a first permission?
A: At the time we made the agreement and he jot it down and he said he will type it, that was
the time that we said that you may occupy but we have to sign the lease agreement.
Q: So at the time he voluntarily offered his services to prepare the lease agreement, he asked
you that in the meantime he will occupy that portion of your land and you permitted him?
A: No, we did not but what he told us is: "Im going to type this and bring it to you for your
signature," no more.
COURT:
Q: You mean to imply to the Court that you did not give him authority yet to occupy the land in
question before the signing of the contract but what you wanted to be done is for you to sign the
contract before occupying the premises?

162
A: Yes.
ATTY. LUMASE:
Q: Now, before he brought the typewritten contract, you became aware that he occupied a
portion of your land?
A: Yes.
Q: You became aware that he occupied the land because you allowed him?
A: We did not allow. I went to tell him to stop levelling.
Q: You stated that at the time you permitted him to draft the lease agreement, you permitted him
to occupy, now which is which?
A: There was no permission that he was going to start work before the signing of the contract.
Q: So what you said a while ago that you permitted him was not correct. May we go over the
transcript. Did you permit him or not?
COURT: (to the witness)
Q: Did you allow him to occupy before the signing?
A: We did not allow him to start. We allowed him after the contract but before the contract was
signed, he started.
ATY. LUMASE:
Q: How did you come to know that he started? How?
A: I saw him already levelling the lot.
Q: And that was the first day when he started to level when you saw him?
A: No, there was a little part levelled.
Q: You and your husband went there and saw him levelling?
A: Yes.
Q: Aside from defendant, how many were helping, working with them?
A: There were two.
Q: After you saw them levelling, you returned to your house?

163
A: I told Emilio already, "Why did you start the leveling when there was no contract signed by
us?"
Q: But nevertheless, he started to occupy and made levellings?
A: Yes, he continued despite my protest.
Q: So what you did was to make a verbal protest to stop him?
A: Yes.
Q: Until after the levelling, you saw that construction materials were brought to the area?
A: Yes.
Q: After you saw the materials, you saw that a building started to rise?
A: Yes.
Q: All the while you did not make objections?
A: I was the one always going to him but he still continued the construction.
Q: So you did not come with a desistance, you did not come to Court to stop him?
A: I did not. Im always going to him telling him" please stop the construction" but I did not think
of going to Court.
Q: From the time you saw him levelling and until a building was put up, how many months
passed?
A: That was January-February and early part of March.
Q: And the building was first put up on what month?
A: Early part of March.
Q: When the building was constructed, you saw him occupy it, is it not?
A: I saw them staying there.
Q: So from January to March, the contract was not yet prepared by him and you did nothing to
have the contract be executed as construction of the building took place?
A: I always go to him.
Q: Aside from going to him, you did nothing more?

164
A: There was a time I went to a policeman to ask him to stop the construction of Bugatti and he
said, "I do not have the order to stop him." I do not know there was supposed to be an order
before a policeman could go there, and kept quiet.
Q: Now, what you did was go to the site and notice the construction and return home. How
many times did that happen?
A: Many times.17
[Underscoring supplied]
Aside from their verbal objections, respondents sent petitioner two demand letters. The first one,
dated November 23, 1988 and signed and received by petitioner on December 13, 1988, asked
him to vacate the property.18 A second letter dated April 3, 1989 and received by petitioner on
the same day demanded that petitioner terminate all construction work upon respondents
property.19 Respondents vehement protests against petitioners construction activities are
irreconcilable with the appellate courts finding that the parties had entered into a lease contract.
If respondents had considered themselves bound by their discussions with petitioner, the former
would not have cause to object to the construction activities upon their land because such would
have been in accordance with the alleged terms of the lease. In this regard, neither could
petitioner unequivocally declare that respondents allowed him to commence construction prior
to the drafting of the contract of lease. He stated that Q: According to the testimony of Mrs. Maria Baguilat, she said she did not allow you to occupy
the land. What can you say to that?
A: I do not know of such disallowance.
Q: What is the truth?
A: I feel there was concurrence to my proposal. In fact and in truth the husband joined in the
earth moving.
Q: That permission to occupy or construct on their land, was it in writing?
A: Verbal.
Q: Who between the plaintiffs communicated to you and permitted you to start occupying their
land?
A: I suppose both of them.20
In a contract of lease, one of the parties binds himself to give to another the enjoyment or use of
a thing for a price certain, and for a period which may be definite or indefinite.21 Being a
consensual contract, a lease is perfected at the moment there is a meeting of the minds upon
the thing and the cause or consideration which are to constitute the contract.22 The area of
agreement must extend to all points that the parties deem material.23

165
In the case at bar, there is a great degree of divergence between the parties as to the terms of
the lease. Respondent Maria Baguilat testified that she and her husband were amenable to
leasing out only a portion of their property for a period of nine years to start in January, 1988. A
monthly rental of P500.00 was to be set off against the construction costs incurred by petitioner,
which costs the parties had agreed to limit to P40,000.00. At the end of the nine year period,
ownership and possession of the building would be transferred to respondents.24
Meanwhile, petitioner claimed that the agreement with respondents covered the lease of the
entire lot, to begin on the date petitioner opened for business thereon. According to petitioner,
the lease was initially intended to last for a period of nine years, however, the same was
subsequently extended for an indefinite period - up until he is fully reimbursed for the full
amount incurred in constructing the building (by virtue of the setting-off of the monthly rental of
P500.00 against such expenses). Petitioner insists that during his discussions with respondents
no mention was made of any limits upon his construction costs.25
The extensive degree of ambiguity, insofar as the terms of the intended contract were
concerned, particularly with regard to the area to be leased and the amount to be spent on the
building to be constructed by him, was revealed by the uncertain and evasive statements of
petitioner during direct examination Q: By the way, you are going to lease their lot. Is that the entire lot?
A: What is in my mind is the entire lot.
Q: Did you communicate your desire to lease their lot?
A: Yes.
Q: What was their response?
A: Positive.
Q: When you said positive, what do you mean?
A: Yes.
Q: Who between the plaintiffs, Ben Baguilat and Maria Baguilat, did you communicate your
desire about their lot?
A: Both of them.
Q: You said while ago, they answered yes. Did the two of them answered [sic] in the affirmative
or only one of them?
A: Not exactly saying yes but the very good things that led to the drafting since both of them
were receptive, their answers were inclined- we will enter into that.
Q: In other words, they are amenable to lease their lot to you?

166
A: Yes.
Q: For how much monthly rental?
A: 500 a month.
Q: For how many months or years?
A: Nine years but the nine years later on was amended because the cost of the building was
assessed after it was finished and it exceeded the suppose rentals paid for nine years.
Q: Because it was amended, how long as to the lease of the lot?
A: Until, subject to the actual amount of expenses is fully paid.
Q: Do you recall when the lease started to consummate?
A: On the actual start of business, that was the agreement.
xxx

xxx

xxx

Q: According to the testimony of Mrs. Maria Baguilat, she confirms nine years, rentals
of P500.00 but according to her, she said what they wanted to lease to you was only a portion of
the lot. What can you say to that?
A: I am not aware of that.
Q: What was exactly your agreement with regards to the area of the lot?
A: We have not agreed on the area. I was referring to the lot which is .5 by 20 meters.
xxx

xxx

xxx

ATTY LUMASE continuing:

Q: How about the plaintiffs, did they state to you also any particular area they are interested to
lease to you?
A: None. No drawing plan.
Q: According to Maria Baguilat, she said that the amount of the materials to be used in the
construction should not exceed P40,000.00. What can you say to that?
A: I am not aware.
Q: You want to impress the Honorable Court, the plaintiffs did not tell you that?
A: Yes, sir.

167
Q: With respect to the amount to be spent in the construction of the improvements on the lease
area, what is the particular agreement you had with the plaintiffs regarding the amount?
A: Originally, it was not touch [sic] in the oral agreement. It was only later on when the
construction was being finished. I ran out of money and I tried to borrow from them. I
understand I told her I spent that much.26
That the area of the property to be leased to petitioner and the amount of the construction costs,
which would ultimately determine the period of the lease, remained indeterminate only bolsters
the trial courts conclusion that there has been no meeting of minds between the parties insofar
as the essential conditions of the proposed contract are concerned. It is difficult to believe that
respondents would give petitioner unbridled discretion in determining such important matters.
It is worth noting that petitioner actually admitted that he made counter-proposals to
respondents. Sometime in March, 1988, the first draft of the lease contract was presented by
petitioner to respondents and promptly rejected by the latter since it did not embody the terms
and conditions as discussed by the parties. Respondents asked petitioner to revise the draft so
as to conform to their discussions; however, instead of re-writing the document, petitioner came
up with counter-proposals (Exhibit B).27 Petitioners acceptance obviously varied the terms of
respondents offer, thus giving rise to a counter-offer. This only proves that the element of
consent is wanting, there having been no concurrence of offer and acceptance with respect to
the material points of the intended lease.
In retrospect, petitioners improper intentions have become evident. During negotiations,
petitioner led respondents to believe that he was amenable to their terms, but in truth, as clearly
shown by the first draft he prepared (Exhibit A) and his counter-proposals (Exhibit B), he
harbored his own very different ideas regarding the essential terms and conditions of the
proposed lease. Although he was well aware that respondents were withholding their assent to
the lease until such time that the contract containing all the material terms and conditions
previously discussed by the parties had been drafted by petitioner and presented to them for
their approval, petitioner occupied respondents property and began construction as early as
January, 1988. By commencing construction of the building so soon after the negotiations of the
parties and before submitting the promised draft to respondents, petitioner wanted to ensure
that respondents would no longer be able to back out of the proposed contract.
Petitioner is undoubtedly a builder in bad faith for despite the absence of a perfected contract of
lease and in utter disregard of respondents numerous protests, he continued his construction
activities upon respondents land. Under articles 44928 and 45029 of the Civil Code, respondents
have the following options: (1) to appropriate what petitioner has built, without any obligation to
pay indemnity; (2) to ask petitioner to remove what he has built; or (3) to compel petitioner to
pay the value of the land.30 In addition, respondents are entitled to damages,31 which shall be
equivalent to the fair rental value of the land beginning from January, 1988 until respondents
recover possession thereof. This case shall be remanded to the trial court for the determination
of the proper amount of rentals.
WHEREFORE, the Petition is GRANTED and the Decision of the Court of Appeals promulgated
on August 7, 1998 is hereby SET ASIDE.
SO ORDERED.

168
Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 139173

February 28, 2007

SPOUSES ONNIE SERRANO AND AMPARO HERRERA, Petitioners

vs.
GODOFREDO CAGUIAT, Respondent.

169
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the Decision1 of the Court of Appeals dated January 29, 1999
and its Resolution dated July 14, 1999 in CA-G.R. CV No. 48824.
Spouses Onnie and Amparo Herrera, petitioners, are the registered owners of a lot located in
Las Pias, Metro Manila covered by Transfer Certificate of Title No. T-9905.
Sometime in March 1990, Godofredo Caguiat, respondent, offered to buy the lot. Petitioners
agreed to sell it atP1,500.00 per square meter. Respondent then gave
petitioners P100,000.00 as partial payment. In turn, petitioners gave respondent the
corresponding receipt stating that respondent promised to pay the balance of the purchase price
on or before March 23, 1990, thus:
Las Pias, Metro Manila
March 19, 1990
RECEIPT FOR PARTIAL PAYMENT OF LOT NO. 23 COVERED BY TCT NO. T-9905, LAS
PIAS, METRO MANILA
RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED
THOUSAND PESOS (P100,000.00) AS PARTIAL PAYMENT OF OUR LOT SITUATED IN LAS
PIAS, M.M. COVERED BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE
METERS.
MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR
BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF
SALE ON THIS DATE.
SIGNED THIS 19th DAY OF MARCH, 1990 AT LAS PIAS, M.M.
(SGD) AMPARO HERRERA

(SGD) ONNIE SERRANO"2

On March 28, 1990, respondent, through his counsel Atty. Ponciano Espiritu, wrote petitioners
informing them of his readiness to pay the balance of the contract price and requesting them to
prepare the final deed of sale.3
On April 4, 1990, petitioners, through Atty. Ruben V. Lopez, sent a letter4 to respondent stating
that petitioner Amparo Herrera is leaving for abroad on or before April 15, 1990 and that they
are canceling the transaction. Petitioners also informed respondent that he can recover the
earnest money of P100,000.00 anytime.
Again, on April 6, 1990,5 petitioners wrote respondent stating that they delivered to his counsel
Philippine National Bank Managers Check No. 790537 dated April 6, 1990 in the amount
of P100,000.00 payable to him.

170
In view of the cancellation of the contract by petitioners, respondent filed with the Regional Trial
Court, Branch 63, Makati City a complaint against them for specific performance and damages,
docketed as Civil Case No. 90-1067.6
On June 27, 1994, after hearing, the trial court rendered its Decision7 finding there was a
perfected contract of sale between the parties and ordering petitioners to execute a final deed of
sale in favor of respondent. The trial court held:
xxx
In the evaluation of the evidence presented by the parties as to the issue as to who was ready
to comply with his obligation on the verbal agreement to sell on March 23, 1990, shows that
plaintiffs position deserves more weight and credibility. First, the P100,000.00 that plaintiff paid
whether as downpayment or earnest money showed that there was already a perfected
contract. Art. 1482 of the Civil Code of the Philippines, reads as follows, to wit:
Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part
of the price and as proof of the perfection of the contract.
Second, plaintiff was the first to react to show his eagerness to push through with the sale by
sending defendants the letter dated March 25, 1990. (Exh. D) and reiterated the same intent to
pursue the sale in a letter dated April 6, 1990. Third, plaintiff had the balance of the purchase
price ready for payment (Exh. C). Defendants mere allegation that it was plaintiff who did not
appear on March 23, 1990 is unavailing. Defendants letters (Exhs. 2 and 5) appear to be
mere afterthought.
On appeal, the Court of Appeals, in its assailed Decision of January 29, 1999, affirmed the trial
courts judgment.
Forthwith, petitioners filed their motion for reconsideration but it was denied by the appellate
court in its Resolution8 dated July 14, 1999.
Hence, the present recourse.
The basic issue to be resolved is whether the document entitled "Receipt for Partial Payment"
signed by both parties earlier mentioned is a contract to sell or a contract of sale.
Petitioners contend that the Receipt is not a perfected contract of sale as provided for in Article
14589 in relation to Article 147510 of the Civil Code. The delivery to them of P100,000.00 as
down payment cannot be considered as proof of the perfection of a contract of sale under Article
148211 of the same Code since there was no clear agreement between the parties as to the
amount of consideration.
Generally, the findings of fact of the lower courts are entitled to great weight and should not be
disturbed except for cogent reasons.14 Indeed, they should not be changed on appeal in the
absence of a clear showing that the trial court overlooked, disregarded, or misinterpreted
some facts of weight and significance, which if considered would have altered the result
of the case.1awphi1.net12 In the present case, we find that both the trial court and the Court of
Appeals interpreted some significant facts resulting in an erroneous resolution of the issue
involved.

171
In holding that there is a perfected contract of sale, both courts mainly relied on the earnest
money given by respondent to petitioners. They invoked Article 1482 of the Civil Code which
provides that "Whenever earnest money is given in a contract of sale, it shall be considered as
part of the price and as proof of the perfection of the contract."
We are not convinced.
In San Miguel Properties Philippines, Inc. v. Spouses Huang,13 we held that the stages of a
contract of sale are: (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 is 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.
With the above postulates as guidelines, we now proceed to determine the real nature of the
contract entered into by the parties.
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.14 Thus, when
petitioners declared in the said "Receipt for Partial Payment" that they
RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED
THOUSAND PESOS (P100,000.00) AS PARTIAL PAYMENT OF OUR LOT SITUATED IN LAS
PIAS, M.M. COVERED BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE
METERS.
MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR
BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF
SALE ON THIS DATE.
there can be no other interpretation than that they agreed to a conditional contract of sale,
consummation of which is subject only to the full payment of the purchase price.
A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the
vendor's obligation to transfer title 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. The suspensive condition is commonly full
payment of the purchase price.15
The differences between a contract to sell and a contract of sale are well-settled in
jurisprudence. As early as 1951, in Sing Yee v. Santos,16 we held that:
x x x [a] distinction must be made between a contract of sale in which title passes to the buyer
upon delivery of the thing sold and a contract to sell x x x where by agreement the ownership is
reserved in the seller and is not to pass until the full payment, of the purchase price is made. In
the first case, non-payment of the price is a negative resolutory condition; in the second case,
full payment is a positive suspensive condition. Being contraries, their effect in law cannot be
identical. In the first case, the vendor has lost and cannot recover the ownership of the land sold
until and unless the contract of sale is itself resolved and set aside. In the second case,

172
however, the title remains in the vendor if the vendee does not comply with the condition
precedent of making payment at the time specified in the contract.
In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the
buyer until full payment of the price.17
In this case, the "Receipt for Partial Payment" shows that the true agreement between the
parties is a contract to sell.
First, ownership over the property was retained by petitioners and was not to pass to
respondent until full payment of the purchase price. Thus, petitioners need not push
through with the sale should respondent fail to remit the balance of the purchase price
before the deadline on March 23, 1990. In effect, petitioners have the right to rescind
unilaterally the contract the moment respondent fails to pay within the fixed period.18
Second, the agreement between the parties was not embodied in a deed of sale. The
absence of a formal deed of conveyance is a strong indication that the parties did not
intend immediate transfer of ownership, but only a transfer after full payment of the
purchase price.19
Third, petitioners retained possession of the certificate of title of the lot. This is an
additional indication that the agreement did not transfer to respondent, either by actual
or constructive delivery, ownership of the property.20
It is true that Article 1482 of the Civil Code provides that "Whenever earnest money is given in a
contract of sale, it shall be considered as part of the price and proof of the perfection of the
contract." However, this article speaks ofearnest money given in a contract of sale. In this case,
the earnest money was given in a contract to sell. The earnest money forms part of the
consideration only if the sale is consummated upon full payment of the purchase price.21 Now,
since the earnest money was given in a contract to sell, Article 1482, which speaks of a contract
of sale, does not apply.
As previously discussed, the suspensive condition (payment of the balance by respondent) did
not take place. Clearly, respondent cannot compel petitioners to transfer ownership of the
property to him.
WHEREFORE, we GRANT the instant Petition for Review. The challenged Decision of the
Court of Appeals isREVERSED and respondents complaint is DISMISSED.
SO ORDERED.

173

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.
Antonio M. Albano for petitioners.

174
Umali, Soriano & Associates for private respondent.

VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December
1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and effect the orders
of execution of the trial court, dated 30 August 1991 and 27 September 1991, in Civil Case No.
87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific Performance was
filed by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose
Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila in
Civil Case No. 87-41058, alleging, among others, that plaintiffs are tenants or
lessees of residential and commercial spaces owned by defendants described as
Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied said
spaces since 1935 and have been religiously paying the rental and complying
with all the conditions of the lease contract; that on several occasions before
October 9, 1986, defendants informed plaintiffs that they are offering to sell the
premises and are giving them priority to acquire the same; that during the
negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs made
a counter offer of P5-million; that plaintiffs thereafter asked the defendants to put
their offer in writing to which request defendants acceded; that in reply to
defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they
specify the terms and conditions of the offer to sell; that when plaintiffs did not
receive any reply, they sent another letter dated January 28, 1987 with the same
request; that since defendants failed to specify the terms and conditions of the
offer to sell and because of information received that defendants were about to
sell the property, plaintiffs were compelled to file the complaint to compel
defendants to sell the property to them.
Defendants filed their answer denying the material allegations of the complaint
and interposing a special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary judgment
which was granted by the lower court. The trial court found that defendants' offer
to sell was never accepted by the plaintiffs for the reason that the parties did not
agree upon the terms and conditions of the proposed sale, hence, there was no
contract of sale at all. Nonetheless, the lower court ruled that should the
defendants subsequently offer their property for sale at a price of P11-million or
below, plaintiffs will have the right of first refusal. Thus the dispositive portion of
the decision states:
WHEREFORE, judgment is hereby rendered in favor of the
defendants and against the plaintiffs summarily dismissing the
complaint subject to the aforementioned condition that if the
defendants subsequently decide to offer their property for sale for

175
a purchase price of Eleven Million Pesos or lower, then the
plaintiffs has the option to purchase the property or of first refusal,
otherwise, defendants need not offer the property to the plaintiffs if
the purchase price is higher than Eleven Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990
(penned by Justice Segundino G. Chua and concurred in by Justices Vicente V.
Mendoza and Fernando A. Santiago), this Court affirmed with modification the
lower court's judgment, holding:
In resume, there was no meeting of the minds between the parties
concerning the sale of the property. Absent such requirement, the
claim for specific performance will not lie. Appellants' demand for
actual, moral and exemplary damages will likewise fail as there
exists no justifiable ground for its award. Summary judgment for
defendants was properly granted. Courts may render summary
judgment when there is no genuine issue as to any material fact
and the moving party is entitled to a judgment as a matter of law
(Garcia vs. Court of Appeals, 176 SCRA 815). All requisites
obtaining, the decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment
appealed from is hereby AFFIRMED, but subject to the following
modification: The court a quo in the aforestated decision gave the
plaintiffs-appellants the right of first refusal only if the property is
sold for a purchase price of Eleven Million pesos or lower;
however, considering the mercurial and uncertain forces in our
market economy today. We find no reason not to grant the same
right of first refusal to herein appellants in the event that the
subject property is sold for a price in excess of Eleven Million
pesos. No pronouncement as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by petition for
review on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for
insufficiency in form and substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration
by this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D,
Petition) transferring the property in question to herein petitioner Buen Realty and
Development Corporation, subject to the following terms and conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION
PESOS (P15,000,000.00), receipt of which in full is hereby
acknowledged, the VENDORS hereby sells, transfers and
conveys for and in favor of the VENDEE, his heirs, executors,

176
administrators or assigns, the above-described property with all
the improvements found therein including all the rights and
interest in the said property free from all liens and encumbrances
of whatever nature, except the pending ejectment proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax,
registration fees for the transfer of title in his favor and other
expenses incidental to the sale of above-described property
including capital gains tax and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu
Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued
in the name of petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject property wrote a
letter to the lessees demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner
brought the property subject to the notice of lis pendens regarding Civil Case No.
87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in
Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No.
21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition)
quoted as follows:
Presented before the Court is a Motion for Execution filed by
plaintiff represented by Atty. Antonio Albano. Both defendants
Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty.
Vicente Sison and Atty. Anacleto Magno respectively were duly
notified in today's consideration of the motion as evidenced by the
rubber stamp and signatures upon the copy of the Motion for
Execution.
The gist of the motion is that the Decision of the Court dated
September 21, 1990 as modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated to the Supreme Court
upon the petition for review and that the same was denied by the
highest tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence,
there was an Entry of Judgment by the Supreme Court as of June
6, 1991, stating that the aforesaid modified decision had already
become final and executory.
It is the observation of the Court that this property in dispute was
the subject of theNotice of Lis Pendens and that the modified
decision of this Court promulgated by the Court of Appeals which
had become final to the effect that should the defendants decide

177
to offer the property for sale for a price of P11 Million or lower, and
considering the mercurial and uncertain forces in our market
economy today, the same right of first refusal to herein
plaintiffs/appellants in the event that the subject property is sold
for a price in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to execute the
necessary Deed of Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs' right
of first refusal and that a new Transfer Certificate of Title be issued
in favor of the buyer.
All previous transactions involving the same property
notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in bad
faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the dispositive
portion of which reads:
WHEREFORE, let there be Writ of Execution issue in the aboveentitled case directing the Deputy Sheriff Ramon Enriquez of this
Court to implement said Writ of Execution ordering the defendants
among others to comply with the aforesaid Order of this Court
within a period of one (1) week from receipt of this Order and for
defendants to execute the necessary Deed of Sale of the property
in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong
and Arthur Go for the consideration of P15,000,000.00 and
ordering the Register of Deeds of the City of Manila, to cancel and
set aside the title already issued in favor of Buen Realty
Corporation which was previously executed between the latter and
defendants and to register the new title in favor of the aforesaid
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution
(Annex C, Petition) was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and
declared without force and effect the above questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound
by the writ of execution by virtue of the notice of lis pendens, carried over on TCT No. 195816
issued in the name of Buen Realty, at the time of the latter's purchase of the property on 15
November 1991 from the Cu Unjiengs.

178
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of such arrangements
as the right of first refusal, a purchase option and a contract to sell. For ready reference, we
might point out some fundamental precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The
obligation is constituted upon the concurrence of the essential elements thereof, viz: (a)
The vinculum juris or juridical tie which is the efficient cause established by the various sources
of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is
the prestation or conduct; required to be observed (to give, to do or not to do); and (c)
the subject-persons who, viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of
minds between two persons whereby one binds himself, with respect to the other, to give
something or to render some service (Art. 1305, Civil Code). A contract undergoes various
stages that include its negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is concluded (perfected).
The perfection of the contract takes place upon the concurrence of the essential elements
thereof. A contract which is consensual as to perfection is so established upon a mere meeting
of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof.
A contract which requires, in addition to the above, the delivery of the object of the agreement,
as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract,
compliance with certain formalities prescribed by law, such as in a donation of real property, is
essential in order to make the act valid, the prescribed form being thereby an essential element
thereof. The stage ofconsummation begins when the parties perform their respective
undertakings under the contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation. In sales, particularly, to which the topic for discussion about the case at
bench belongs, the contract is perfected when a person, called the seller, obligates himself, for
a price certain, to deliver and to transfer ownership of a thing or right to another, called the
buyer, over which the latter agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably
the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition
(normally, the full payment of the purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force. 2 In Dignos vs. Court of
Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional
Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or
the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will
then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a

179
public document) of the property sold. Where the condition is imposed upon the perfection of
the contract itself, the failure of the condition would prevent such perfection. 3 If the condition is
imposed on the obligation of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object is made determinate and
the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be
exacted. 5
An accepted unilateral promise which specifies the thing to be sold and the price to
be paid, when coupled with a valuable consideration distinct and separate from the price, is
what may properly be termed a perfected contract of option. This contract is legally binding, and
in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price. (1451a) 6
Observe, however, that the option is not the contract of sale itself. 7 The optionee has the right,
but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted
before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are
then reciprocally bound to comply with their respective undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect
promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only as proposals. These relations,
until a contract is perfected, are not considered binding commitments. Thus, at any time prior to
the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this
stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as
by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias,
43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the
following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free
and has the right to withdraw the offer before its acceptance, or, if an acceptance has been
made, before the offeror's coming to know of such fact, by communicating that withdrawal to the
offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding
that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous
decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code;
Rural Bank of Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA
368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise,
it could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every
person must, in the exercise of his rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it
would be a breach of that contract to withdraw the offer during the agreed period. The option,
however, is an independent contract by itself, and it is to be distinguished from the projected

180
main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact,
the optioner-offeror withdraws the offer before its acceptance(exercise of the option) by the
optionee-offeree, the latter may not sue for specific performance on the proposed contract
("object" of the option) since it has failed to reach its own stage of perfection. The optionerofferor, however, renders himself liable for damages for breach of the option. In these cases,
care should be taken of the real nature of the consideration given, for if, in fact, it has been
intended to be part of the consideration for the main contract with a right of withdrawal on the
part of the optionee, the main contract could be deemed perfected; a similar instance would be
an "earnest money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the
Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be
brought within the purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 1319 9 of the same Code. An option or an offer
would require, among other things, 10 a clear certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the object might be
made determinate, the exercise of the right, however, would be dependent not only on the
grantor's eventual intention to enter into a binding juridical relation with another but also on
terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at
best be so described as merely belonging to a class of preparatory juridical relations governed
not by contracts (since the essential elements to establish the vinculum juris would still be
indefinite and inconclusive) but by, among other laws of general application, the pertinent
scattered provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final judgment, like
here, its breach cannot justify correspondingly an issuance of a writ of execution under a
judgment that merely recognizes its existence, nor would it sanction an action for specific
performance without thereby negating the indispensable element of consensuality in the
perfection of contracts. 11 It is not to say, however, that the right of first refusal would be
inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for
instance, the circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery
for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a
"right of first refusal" in favor of petitioners. The consequence of such a declaration entails no
more than what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners
are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy
is not a writ of execution on the judgment, since there is none to execute, but an action for
damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the alleged
purchaser of the property, has acted in good faith or bad faith and whether or not it should, in
any case, be considered bound to respect the registration of the lis pendens in Civil Case No.
87-41058 are matters that must be independently addressed in appropriate proceedings. Buen
Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held subject to the
writ of execution issued by respondent Judge, let alone ousted from the ownership and
possession of the property, without first being duly afforded its day in court.

181
We are also unable to agree with petitioners that the Court of Appeals has erred in holding that
the writ of execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed
in CA-G.R. CV-21123. The Court of Appeals, in this regard, has observed:
Finally, the questioned writ of execution is in variance with the decision of the trial
court as modified by this Court. As already stated, there was nothing in said
decision 13 that decreed the execution of a deed of sale between the Cu Unjiengs
and respondent lessees, or the fixing of the price of the sale, or the cancellation
of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng
Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA
730; Pastor vs. CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have
decreed at the time the execution of any deed of sale between the Cu Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned
Orders, dated 30 August 1991 and 27 September 1991, of the court a quo. Costs against
petitioners.
SO ORDERED.
Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno
and Mendoza, JJ., concur.
Kapunan, J., took no part.
Feliciano, J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 159723

September 9, 2004

ANTONIO S. LIM, JR., represented by his attorney-in-fact, PAZ S. LIM, petitioner,

vs.
VICTOR K. SAN and ELINDO LO, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the decision1 and the resolution2 of the Court of
Appeals in CA-G.R. CV No. 61948 promulgated on May 7, 2003 and August 13, 2003,

182
respectively, which affirmed the July 27, 2003 decision3 of the Regional Trial Court of Davao
City, Branch 12 dismissing the complaint filed by petitioner.
Petitioner Antonio S. Lim, Jr., represented by his mother, Paz S. Lim, as attorney-in-fact, filed a
complaint4 before the Regional Trial Court of Davao City seeking the annulment of a Deed of
Absolute Sale5 involving a parcel of land purportedly executed by Paz S. Lim in favor of her
brother, respondent Victor K. San.
In the second amended complaint dated May 27, 1993, petitioner alleged the following:
xxx

xxx

xxx

4. That plaintiff is an owner of a parcel of land situated at Bajada, Davao City, containing
an area of 1,763 square meters, more or less, covered by Transfer Certificate of Title No.
T-11072 of the Registry of Deeds of Davao City, x x x;
4.A. That constructed on the afore-cited parcel of land is a fourteen (14) doors
commercial building, and that defendant is paying an annual lease of ONE HUNDRED
THOUSAND (P100,000.00) PESOS to the herein plaintiff.
5. On May 29, 1991, the herein defendant taking undue advantage of the depressed
mental state of plaintiffs Attorney-in-Fact, brought about by the demise of her late
husband, Dr. Antonio A. Lim Sr., caused some papers for her to sign, which later turn
(sic) out to be an Absolute Deed of Sale, x x x;
6. That the signature of the Attorney-in-Fact in the aforecited Deed of Absolute Sale was
obtained through fraud and trickery employed by the herein defendant and that she
never appeared before the Notary Public, who notarized the said deed;
7. That no consideration was ever paid, much less received by the plaintiff or by his
Attorney-in-Fact. Simply put, the Deed of Absolute Sale was void ab initio for "lack of
consideration" and for "lack of a valid consent";
8. After the signing of the aforecited Deed of Sale with its attendant legal flaws and
infirmities, plaintiffs Title was transferred in the name of the defendant, Victor K. San, x x
x;
9. Knowing that he is holding an infirmed Title, defendant, Victor K. San is now in the
process of selling the aforecited property including the commercial building erected
thereon to any third person; and that the defendant had already caused the cancellation
of the Mother Title No. T-165010 by subdividing the same into eight (8) lots with eight (8)
different titles, as follows:
TCT NO. T-191255, T-191256, T-191257, T-191258, T-191259, T-191260, T191261, T-191262,
xxx

xxx

x x x.6

183
Respondent Victor K. San denied all the allegations of the petitioner. He alleged that the parcel
of land covered by TCT No. T-165010 of the Registry of Deeds of Davao City and registered in
his name was validly and regularly issued. He further claimed that he does not have any lease
contract with the petitioner with respect to the contested property and does not pay any monthly
rental over the same. Moreover, respondent claimed that there was full payment of the
consideration of P264,450.00 for the subject property.
Respondent Elindo Lo was impleaded as a co-defendant on account of his purchase of one lot
covered by TCT No. T-191262,7 notwithstanding the Notice of Adverse Claim and Lis Pendens
annotated on the title of the said parcel of land.
On July 27, 1998, after trial on the merits, the Regional Trial Court of Davao City rendered a
decision dismissing the complaint.8
Petitioner appealed to the Court of Appeals which affirmed the judgment of the trial court in toto.
Petitioners motion for reconsideration9 was denied in a Resolution10 dated August 13, 2003.
Hence the present petition based on the following grounds:
a) that the Court of Appeals erred in affirming the trial courts judgment declaring that the
petitioner failed to prove by clear and convincing evidence that the signature of his
attorney-in-fact was obtained through fraud and trickery and that no consideration was
ever paid.
b) that the Court of Appeals erred in declaring that the medical certificates issued by
foreign medical institutions to prove Paz S. Lim (sic) severe mental state of depression
cannot be given evidentiary weight considering that its due execution and authenticity
were not properly established.11
Petitioner contends that the deed of sale should be declared void because his consent to the
same was vitiated by intimidation and that no consideration was paid for the subject property.
Respondents, on the other hand, maintain that the parties to the deed of sale validly entered
into the same; that Paz S. Lim freely and voluntarily gave her consent to the sale; and that she
received the consideration agreed upon by the parties.
After a careful review of the records of this case, we find no cogent reason to deviate from the
rulings of the courta quo and the Court of Appeals.
A contract is a meeting of minds between two persons whereby one binds himself, with respect
to the other, to give something or to render some service.12 It has three essential elements, or
those without which there can be no contract consent, subject matter and cause.13 A
knowledge of these essential elements is material because the perfection stage or the birth of
the contract only occurs when the parties to a contract agree upon the essential elements of the
same.14
A contract of sale is consensual,15 as such it is perfected by mere consent.16 Consent is
essential for the existence of a contract, and where it is wanting, the contract is nonexistent.17 Consent in contracts presupposes the following requisites: (1) it should be intelligent
or with an exact notion of the matter to which it refers; (2) it should be free; and (3) it should be
spontaneous. Intelligence in consent is vitiated by error; freedom by violence, intimidation or

184
undue influence; and spontaneity by fraud.18 Thus, a contract where consent is given through
mistake, violence, intimidation, undue influence or fraud is voidable.19
Contrary to the allegations of the petitioner that the consent of his attorney-in-fact to the deed of
sale was vitiated, a perusal of the records of this case showed that the petitioner failed to
establish that violence, intimidation and undue influence vitiated the consent of Paz S. Lim to
the deed of sale pertaining to the subject property. In determining whether consent is vitiated by
the circumstances provided for in Article 1330 of the Civil Code of the Philippines, courts are
given a wide latitude in weighing the facts or circumstances in a given case and in deciding in
favor of what they believe to have actually occurred, considering the age, physical infirmity,
intelligence, relationship and the conduct of the parties at the time of making the contract and
subsequent thereto, irrespective of whether the contract is in a public or private writing.20
While it is true that upon the death of her husband, Dr. Antonio T. Lim, Sr., on May 18,
1990,21 Paz S. Lim returned to the Philippines and subsequently stayed at the house of the
respondent, such fact per se is not sufficient to establish that the latter employed intimidation,
violence or undue influence upon the former. Defect or lack of valid consent, in order to make
the contract voidable, must be established by full, clear and convincing evidence, and not
merely by a preponderance thereof.22 Petitioners mere allegations that respondent threatened
his mother with harm if she will not sign the contract failed to measure up to the yardstick of
evidence required, not only to prove vitiation of consent, but also to overturn the presumption
that private transactions have been fair and regular.23
Paz S. Lims behavior belies the allegation that respondent threatened to harm her. The
following testimony is enlightening:
Q You claim that your brother, the defendant Victor K. San threatened to kill you if you
will not cooperate you recall having mentioned that on direct?
A When?
Q Is it not that you mentioned on the direct that you were threatened by your brother
Victor San?
A Yes, many times he will not let me leave.
Q That was at the time you were then staying with your brother, the defendant in this
case?
A Yes, sir.
Q When did you leave your brother in his residence?
A One day when he was out I think in 1991, I sneaked out of the gate and I saw my
cousin Lucila, she said that we live near each other and that I did not know that from
then on my relatives just lived across the fence.
Q Let me be clarified, you left your brothers house in late 1991?

185
A Yes, sir.
Q After leaving your brothers house late in 1991, where did you live?
A With my nephew William.
Q What is the complete name of this William?
A William Tom.
Q Up to the present you are staying with him?
A Yes, Marlene Babao was living downstairs.
Q After leaving your brothers house, did you ever report this incident wherein you were
threatened by your brother to the police?
A No, I just told my cousin and my nephew, I am afraid to stay there longer.
Q Did you ever file a criminal case against your brother for grave threats, he having
allegedly threatened to kill you?
A I am the big sister, how can I do that to my own brother, I am a Christian.
Q In other words, you did not report this treatment by your brother to the police nor filed
any criminal case against him in Court even up to the present?
A Yes, sir.24
Well-settled is the rule that the findings of facts and assessment of credibility of witnesses is a
matter best left to the trial court because of its unique position of having observed that elusive
and incommunicable evidence of the witnesses deportment on the stand while testifying, which
opportunity is denied to the appellate courts. Only the trial judge can observe the furtive glance,
blush of conscious shame, hesitation, flippant or sneering tone, calmness, sigh or the scant or
full realization of an oath all of which are useful for an accurate determination of a witness
honesty and sincerity.25
WHEREFORE, based on the foregoing, the petition is DENIED. The Decision dated May 7,
2003 and the Resolution dated August 13, 2003 of the Court of Appeals affirming the dismissal
of Civil Case No. 21,924-93 before the Regional Trial Court of Davao City, Branch 12,
is AFFIRMED in toto.
SO ORDERED.
Davide, Jr., Quisumbing, Carpio, and Azcuna, JJ., concur.

186

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 165724

November 2, 2006

ZAMORA REALTY and DEVELOPMENT CORPORATION and/or ERNESTO

ZAMORA, Petitioners,
vs.
OFFICE OF THE PRESIDENT OF THE PHILIPPINES and EDILBERTO C.
GALLARDO, Respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R.
SP No. 78319 and its Resolution2 denying the motion for reconsideration thereof.
On October 8, 1985, respondent Edilberto C. Gallardo entered into a contract to sell with Amlac
Development Corporation (Amlac). The property

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subject of the contract is Lot 1, Block 3 of Amlac-Ville Subdivision. Under the contract, Gallardo
was to pay a downpayment of P26,058.00, upon execution, the balance to be paid in
installments of P1,987.50 until full settlement of the purchase price of P130,290.00. Gallardo
delivered the downpayment upon the signing of the contract, and several months later, on
March 11, 1987,3 the initial installment. Gallardo later informed the owner/developer of his
intention to stop further payments due to the latters non-compliance with its obligation to
complete the development of the subdivision project. The owner/developer nevertheless made
several demands for him to pay the monthly amortizations, which the latter ignored, insisting
that he would suspend payment until the completion of the subdivision project.
Thereafter, Zamora Realty and Development Corporation (Zamora Realty) sent a letter4 dated
January 22, 1990, addressed to Jaime dela Rosa, copy furnished to all Amlac-Ville Subdivision
buyers, advising them to defer payment of monthly amortization due to a pending case between
it and Amlac. On November 5, 1991, Gallardo sent a letter5 to the Amlac-Ville Subdivision
reiterating his stand to suspend the amortization payments. The realty firm still made demands
on Gallardo to pay his back arrears which, per its second notice dated January 28, 1992,
amounted to P147,075.00. A final notice of demand was also sent to Gallardo, stating that his
arrears already amounted to P153,037.50.6 Finally, on May 14, 1992, Amlac/Zamora Realty sent
Gallardo a notarial notice of cancellation of the contract.7
On June 3, 1992, Gallardo filed a complaint with the Housing and Land Use Regulatory Board
(HLURB) against Zamora Realty and Development Corporation and/or Ernesto Zamora,
assailing the notarial rescission of the contract to sell.8 In his complaint, he averred that his
suspension of the amortization payment was justified by the non-development of the subdivision
project.
For their part, defendants countered that the subject project was almost substantially complete;
the centralized water distribution system had been installed, and the concreting of sidewalks
had been concluded. They likewise argued that plaintiff failed to observe the provision of
Section 23 of Presidential Decree (P.D.) No. 957 before suspending payments.9
The HLURB Arbiter conducted an ocular inspection of the project and found that development of
the project was still ongoing.10 Thus, the HLURB Arbiter rendered a decision in favor of
Gallardo. The fallo reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Declaring the complainants suspension of payment beginning November 21, 1991, as
legal and valid;
2. As a consequence of the foregoing, holding respondents rescission of contract over
the controverted lot as illegal; and
3. Ordering the complainant to pay the whole balance of his obligations sans penalty
interest or interest of this nature except the legal interest as stipulated in their contract
conditioned upon respondents substantial compliance with his obligation as certified by
the Board.11

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Aggrieved, defendants appealed to the HLURB Board of Commissioners. On May 29, 1995, the
Board dismissed the appeal and affirmed in toto the decision of the HLURB Arbiter.12
It noted that Amlac-Ville subdivision was registered as early as 1985, and under applicable laws,
a subdivision owner/developer must complete the development of the project within one year
from the date of issuance of the license of the subdivision.13 The Board gave credence to the
ocular inspection report which stated that the development of the subject subdivision was still
ongoing as of 1992. It concluded that since there was no request for extension, the project
remained incomplete, and Gallardo was justified in withholding his payments.
Zamora Realty elevated the matter to the Office of the President (OP), which, however,
dismissed the appeal in its Resolution14 dated March 6, 2003. It then filed a motion for
reconsideration, which was likewise denied in an Order15 dated June 18, 2003.
Unsatisfied, Zamora Realty filed before the CA a petition for review16 under Rule 43 of the
Revised Rules of Court. It relied on the following grounds:
1. We firmly submit to this Honorable Court that the Public Respondent OPP had grossly
erred in not finding that the herein Private Respondent clearly violated the Contract to
Sell dated October 8, 1998 (sic);
2. The same Office likewise erred in not holding that Petitioners validly and lawfully
rescinded already the said Contract to Sell dated October 8, 1998; and
3. The said Public Respondent OPP also erred in not just requiring the herein Petitioners
to reimburse any payments already made therein by the herein Private Respondent plus
the lawful rate of interest thereof or in the alternative for the herein Petitioners to just
give the herein Private Respondent a similar lot that can still be transferred to the said
Private Respondent granting that the latter is entitled to affirmative relief from it.17
On May 31, 2004, the CA rendered a Decision18 dismissing the petition. It sustained the validity
of respondent Gallardos suspension of payments, and ruled that it was in accordance with
Sections 20 and 23 of Presidential Decree (P.D.) No. 957. The CA stated that the development
of the subdivision was still ongoing as of 1992, way beyond 1985 when it was first registered,
and that such delay justified the buyers act of suspending payment. The CA, likewise, gave
weight to Gallardos letter19 to Amlac-Ville Subdivision, dated November 5, 1991, where he
stated that after March 11, 1987, he was stopping payment of his amortization due to nondevelopment of the project.
After its motion for reconsideration was denied, petitioner sought recourse to the Court via
petition for review on certiorari, anchored on the following grounds:
I. THE HONORABLE COURT OF APPEALS CLEARLY ERRED IN NOT HOLDING
THAT RESPONDENT EDILBERTO C. GALLARDO VIOLATED HIS CONTRACT TO
SELL WITH THE HEREIN PETITIONER;
II. THE HONORABLE COURT OF APPEALS LIKEWISE ERRED IN NOT HOLDING
THAT RESPONDENT EDILBERTO C. GALLARDO ALREADY VIOLATED THE SAID
CONTRACT TO SELL WHEN HE OPTED TO SUSPEND HIS MONTHLY
AMORTIZATION THEREIN; and

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III. THE HONORABLE COURT OF APPEALS ERRED IN NOT REQUIRING INSTEAD
THE HEREIN PETITIONER TO JUST REIMBURSE [PAYMENTS OF] THE
RESPONDENT EDILBERTO C. GALLARDO OR CHANGE THE SAID LOT WITH AN
EQUIVALENT ONE.20
Petitioner avers that respondent is in bad faith; by his failure to pay the monthly amortization as
agreed upon, he flagrantly violated the contract to sell.21 It likewise claims that respondent is not
an ordinary buyer of the property as he was, in fact, a broker who could not simply feign
ignorance of the stages of the development works.22 After the contract to sell was cancelled by
notarial rescission, the subject property was already sold to another person. Consequently, it
should have instead been directed to reimburse payments made by respondent, or to sell an
equivalent lot to him.23
In his Comment24 on the petition, respondent insists that he is not in bad faith because the
suspension of payment is the direct result of petitioners failure to develop the subdivision. In
fact, it had advised all Amlac buyers to suspend amortization payments because of the issue of
non-development. He insists that there is no showing that the lot in question had already been
sold.
After petitioner submitted its Reply,25 the parties were required to submit their respective
Memoranda. Petitioner reiterated that the contract between it and respondent was a contract to
sell, and as such, ownership was reserved to it until after respondent had fully paid. In fact, even
after full payment, ownership is not automatically vested in the buyer as a Deed of Absolute
Sale is yet to be executed.26 Lastly, petitioner asserts that the belated suspension of payment by
respondent is nothing but a mere afterthought.27
The issues for determination can be summed up as follows: (a) whether respondent violated the
contract to sell by his failure to pay the monthly amortizations, and, if in the negative, whether
he was justified to suspend payment due to incomplete development of petitioners project; and
(b) whether the CA erred in not directing petitioner either to reimburse respondents payments,
together with interests, or require it to sell to respondent a different lot equivalent to the subject
property.
The petition is bereft of merit.
At the outset, the Court noted that the instant petition is erroneously captioned as one filed
against the "Office of the President and Edilberto Gallardo." However, as correctly pointed out
by the Office of the Solicitor General, the petition is an offshoot of respondents complaint
against the HLURB assailing the rescission of his contract with petitioner. As such, a purely
private interest is involved. In light of the provisions of Section 6,28 Rule 43 of the Revised Rules
of Court, the agency which issued the assailed order should not have been impleaded, whether
in the petition before the CA or in this Court.
The contract entered into between petitioner and respondent is a contract to sell a subdivision
lot. It bears stressing that a contract to sell is 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.29 In a
contract to sell, the payment of the purchase price is a positive suspensive condition, the failure
of which is not a breach, casual or serious, but a situation that prevents the obligation of the

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vendor to convey title from acquiring an obligatory force. Thus, for its non-fulfillment, there will
be no contract to speak of, the obligor having failed to perform the suspensive condition which
enforces a juridical relation.30
The subject matter of the contract being a subdivision lot, the applicable law is P.D. No. 957 or
"The Subdivision and Condominium Buyers Protective Decree." As such, the right of the seller
to consider the contract to sell ineffectual in case of failure of the prospective buyer to pay the
amortization, is limited. Sections 20 and 23 of P.D. No. 957 read as follows:
Section 20. Time of Completion. Every owner or developer shall construct and provide the
facilities, improvements, infrastructures and other forms of development, including water supply
and lighting facilities, which are offered and indicated in the approved subdivision or
condominium plans, brochures, prospectus, printed matters, letters or in any form of
advertisement, within one year from the date of the issuance of the license for the subdivision or
condominium project or such other period of time as may be fixed by the Authority.
Section 23. Non-forfeiture of Payments. No installment payment made by a buyer in a
subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in
favor of the owner or developer when the buyer, after due notice to the owner or developer,
desists from further payment due to the failure of the owner or developer to develop the
subdivision or condominium project according to the approved plans and within the time limit for
complying with the same. Such buyer may, at his option, be reimbursed the total amount paid
including amortization interests but excluding delinquency interests, with interest thereon at the
legal rate.
Thus, the only requirement under the law is to give due notice to the owner or developer of the
buyers intention to suspend payment.
It is undisputed that respondent had refused to pay the monthly amortizations on the property
after the March 11, 1987 payment. Per findings of the HLURB, as of 1992, the development of
the project was still ongoing. Since the development of the subdivision was registered as early
as 1985 and there is no showing that petitioner had been granted an extension by the HLURB,
petitioner in effect failed to complete the project within one year from the date of the issuance of
the license therefor, and as such is guilty of incomplete development of the subdivision project.
Thus, petitioner could not have validly exercised its right to cancel the contract to sell in favor of
respondent.
A careful perusal of the records also show that respondent had refused to make payment as
early as 1987, and sent a letter to Amlac-Ville Subdivision only on November 5, 1991 with the
following statement: "After paying your office last March 11, 1987, (please refer to the attached
xeroxed receipt) I said that I would suspend further payments until such time that your office
shall have complied with some of your development commitments to your lot buyers, e.g.,
centralized water system, concrete curbs and gutters, etc. because I had then planned to
construct a house on the lot I had contracted to buy from you (Lot 1 Block 3 Contract to Sell No.
017)." While the written notice of suspension of payment was belatedly given, the above-quoted
portion of the letter shows that petitioner was verbally notified of respondents intention to
suspend payment as early as 1987.
The law does not specifically provide the form of notice to be given to the owner/developer.
Considering the purpose of the law and the evil sought to be prevented, the Court holds that a

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verbal notice of the intention to suspend remittance of payment is sufficient. Such a holding is
consistent with our ruling in Francel Realty Corporation v. Sycip,31 where the requirement of an
HLURB clearance under Section 23, Rule VI of the Rules Implementing P.D. No. 957 before the
buyer of a subdivision lot or a home could lawfully withhold monthly payments was declared
void. The Court explained:
x x x [T]o require clearance from the HLURB before stopping payment would not be in keeping
with the intent of the law to protect innocent buyer of lots or homes from scheming subdivision
developers. To give full effect to such intent, it would be fitting to treat the right to stop payment
to be immediately effective upon giving due notice to the owner or developer or upon filing a
complaint before the HLURB against the erring developer.1wphi1 Such course of action would
be without prejudice to the subsequent determination of its propriety and consequences, should
the suspension of payment subsequently be found improper.32
It must be stressed that P.D. No. 957 was enacted with no other end in view than to provide a
protective mantle over helpless citizens who may fall prey to the manipulations and
machinations of unscrupulous subdivision and condominium sellers.33 It was issued in the wake
of numerous reports that many real estate subdivision owners, developers, operators and/or
sellers have reneged on their representations and obligations to provide and maintain properly
subdivision roads, drainage, sewerage, water systems, lighting systems, and other basic
requirements for the health and safety of home and lot buyers.34 Such intent of the law is
nowhere expressed more clearly than in its preamble, the pertinent portion of which reads:
WHERE
WHEREAS, it is the policy of the State to afford its inhabitants the requirements of decent
human settlement and to provide them with ample opportunities for improving their quality of life;
WHEREAS, numerous reports reveal that many real estate subdivision owners, developers,
operators, and/or sellers have reneged on their representations and obligations to provide and
maintain properly subdivision roads, drainage, sewerage, water systems, lighting systems, and
other similar basic requirements, thus endangering the health and safety of home and lot
buyers;
WHEREAS, reports of alarming magnitude also show cases of swindling and fraudulent
manipulations perpetrated by unscrupulous subdivision and condominium sellers and operators,
such as failure to deliver titles to the buyers or titles free from liens and encumbrances, and to
pay real estate taxes, and fraudulent sales of the same subdivision lots to different innocent
purchasers for value; x x x
Thus, respondent justly withheld the payment of amortization of the subject lot, and petitioners
unilateral cancellation of the contract to sell cannot be sustained. Consequently, the contract to
sell between it and respondent subsists.
We note, however, that the HLURB Arbiter declared as valid the suspension of amortization
payments by private respondent beginning November 21, 1991. This finding has been affirmed
by the HLURB Board of Commissioners, the Office of the President, and the CA. Such ruling,
however, requires re-examination. The decisions below contain statements of fact to the effect
that the last payment made by respondent was on March 11, 1987. The CA, in fact, categorically
stated that respondent did not make any more payments after March 11, 1987.35 The same was

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later reiterated in respondents November 1991 letter. Thus, respondent stopped remitting the
amortizations over the subject property after March 11, 1987. Since the subdivision was
registered in 1985 and the completion of the development
was still ongoing as of 1992, it follows that as of 1987, petitioner was already guilty of
incomplete development. In fine then, the validity of the suspension of payment should be
reckoned from 1987, specifically after the last payment made by respondent on March 11, 1987.
This is more in keeping with the law and the factual circumstances of the case.
As to whether or not the CA should have directed petitioner to reimburse the payments already
made by respondent, with payment of interest, or to require it to sell another lot equivalent to the
subject property, we rule in the negative.
In case the developer of a subdivision or condominium fails in its obligation under Section 20 of
P.D. No. 957, Section 23 of the law gives the buyer the option to demand reimbursement of the
total amount paid, or to wait for further development of the subdivision, and when the buyer opts
for the latter alternative, he may suspend payment of installments until such time that the owner
or developer had fulfilled its obligation to him.36
It is thus clear that the law provides two remedies in case of incomplete development of the
subdivision project: (1) reimbursement of the total amount paid, including amortization interests
but excluding delinquency interests, with interest thereon at the legal rate;37 or (2) for the buyer
to suspend amortization payments until the completion of the project. These remedies are
available to the prospective buyer to give effect to the laws intent to protect the buyers from
abusive owners/developers of subdivisions. In cases of incomplete development, it is the
developer who is the one at fault, as it would then have violated its promise to the prospective
buyers to provide the necessary facilities in the subdivision. The aggrieved party, therefore, is
the prospective buyer because of the non-fulfillment of the developers commitment. As such, it
is but logical that the option is given to the prospective buyer, not to the developer.
Petitioner therefore cannot insist that payments made by respondent be returned to him; neither
can respondent be compelled to accept another property in lieu of the lot subject of the contract.
To reiterate, respondent, as prospective buyer, had opted to exercise his right to suspend
payment and wait for the completion of the subdivision project. He cannot therefore be forced to
accept reimbursement of his amortization payments or to accept a lot different from the subject
of the contract.
Petitioner claims that the subject property was already sold to another person after it validly and
legally cancelled the contract to sell by notarial rescission.38 It further contends that under the
situation, to still require the latter to sell the subject property to respondent would be to expose
petitioner to inevitable prosecution for estafa arising from the double sale of the same property.
As held by the CA, in default of evidentiary support from the records and on account of the
paucity of discussion thereon by the Office of the President and the HLURB, we cannot rule on
petitioners allegation that the subject lot has already been sold.39
IN LIGHT OF ALL THE FOREGOING, the Decision of the Court of Appeals dated May 31, 2004
is AFFIRMED with MODIFICATION. Respondent Edilberto C. Gallardo is declared to have
validly exercised his right to suspend remittance of payments as of March 12, 1987, not
November 21, 1991.

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SO ORDERED.