You are on page 1of 17

Inciong, Jr. vs.

Court of Appeals
Co-maker (D) vs. Creditor (P)
GR 96405

[T]

Summary: A co-maker to a loan is facing collection demands from a creditor bank. One of his
co-defendant is outside the Philippine jurisdiction while the creditor chose to dismiss their claim
against the other.
Rule of Law: In solidary obligations, any one, some or all of the debtors may be proceeded
against for the entire obligation. The choice is left to the solidary creditor to determine against
whom he will enforce collection.
Facts: Baldomero Inciong, Jr. (D) cosigned a P50,000-promissory note with Rene Naybe and
Gregorio Pantanosas holding themselves jointly and severally liable to creditor Philippine Bank
of Communications (P)PBCOM, Cagayan de Oro City branch.
The due date expired without the promissors paying their obligation. Consequently, creditor
PBCOM (P) demanded payment from the obligors who did not respond. So, creditor PBCOM
(P) filed for collection of the sum of P50,000.00 against the three obligors.
The complaint was dismissed for failure of the plaintiff to prosecute the case, but the lower court
reconsidered and the summonses were eventually served. As prayed for by PBCOM (P), the
lower court dismissed the case against defendant Pantanosas. With co-defendant Naybe in Saudi
Arabia, only the summons to co-maker Inciong (D) was duly served.
Inciong (D) contended that he only agreed to limit his liability to P5,000 and that his consent was
vitiated by fraud. On appeal, he annexed to his petition an affidavit supporting his claim of fraud.
Issues: Can the creditor file a claim for the entire obligation against a co-maker to a loan?
Ruling: Yes. Because the promissory note involved in this case expressly states that the three
signatories therein are jointly and severally liable, any one, some or all of them may be
proceeded against for the entire obligation. The choice is left to the solidary creditor to determine
against whom he will enforce collection.
Consequently, the dismissal of the case against co-defendant Pantanosas may not be deemed as
having discharged petitioner from liability. As regards co-defendant Naybe, suffice it to say that
the court never acquired jurisdiction over him. Therefore, PBCOM (P) only have recourse
against his co-makers, as provided by law.
Inciong (D) signed the promissory note as a solidary co-maker and not as a guarantor.

A solidary or joint and several obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation.
Tolention, Civil Code of the Philippines, Vol. IV, 1991, p. 217.
On the other hand, Article 2047 of the Civil Code states:
By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation
of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter
3, Title I of this Book shall be observed. In such a case the contract is called a suretyship.
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several
obligations.
When there are two or more debtors in one and the same obligation, the presumption is that the
obligation is joint so that each of the debtors is liable only for a proportionate part of the debt.
There is a solidary liability only when the obligation expressly so states, when the law so
provides or when the nature of the obligation so requires.
Article 1207 of the New Civil Code
Petitioner: Telengtan Bros. and Sons., Inc. Respondent: United States Lines, and the
CA GR 132284 Feb. 28, 2006 Justice Garcia Nature of the Case This is an appeal
to the SC from the CA, which appealed the RTC decision The CA and RTC both
ruled in favor of US Lines (USL) This case is about demurrage fees, and a lot of it
is centered on factual circumstances. The Courts relied on these facts to determine
whether or not Telengtan was liable to US Lines. This case is assigned under Art.
1250, so Ill be focusing on the issues under that article. Facts Telengtan is a
domestic corporation doing business under the name and Style La Suerte Cigar and
Cigarette Factory. US Lines is a foreign corporation engaged in the business of
overseas shipping. Important to note in this case (for purposes of the liability
issue) is the effectivity of Far East Conference Tariff No. 12 This rule makes
consignees who fail to take delivery of their containerized cargo within 10 days
liable to pay demurrage charges USL is suing Telengtan for collection of these
charges, plus interest and damages. They allege that between 1979 and 1980,
Telengtan loaded goods onto USLs vessels, which arrived in Manila from US Ports
Thus, these goods are subject to the requirements of the Tariff mentioned above
Take note of the dates! 1979 and 1980, but this case was decided in 2006. This
will become important because of the discussion on inflation, and I think Atty.
Balane will ask it. USL alleges that Telengtan was unable to withdraw its goods
from the containers, making it liable in the amount of P94,000. Telengtan
answers that it never entered into a contract nor signed an agreement to be bound
by any rules of demurrage. They also say that there was no proper or legal
demand, so they are justified in refusing to pay. In any case, the RTC ruled for

USL. In the dispositive portion, they found Telengtan liable for P 99,408.00, bearing
interest, plus attorneys fees. The RTC further held that all of this would be
recomputed as of the date of payment in accordance with the provisions of Article
1250 of the Civil Code. In deciding for USL, the RTC held that Telengtan had
actually been paying demurrage to USL, many times in the past. It was thus
estopped from claiming that it did not know or did not agree to any payment of
demurrage to USL. This is the basic and essential reason why Telengtan was
liable. Well now move on to the discussion on Article 1250. There is a
discussion on Bills of Lading and factual circumstances regarding why Telengtan was
liable. I really think this isnt important for our purposes, but Ill past narin the
discussion at the end of the digest to soothe everyones mind. ISSUE The main
issue relevant to our Oblicon discussion is whether or not the CA erred In affirming
the RTCs order for the recomputation of the judgment award in accordance with
Article 1250 of the Civil Code. HELD + RATIO On this issue, the SC found the RTC
and CA to be in error when they ordered the recomputation as of the date of
payment. In asking for the application of 1250, USL urged that judicial notice be
taken of the devaluations of the peso against the dollar since the proceedings
begain in 1981. According to USL, the computation of the amount should factor in
the devaluation so theyre asking for more money, since the peso is a lot
weaker than it was 20 years before (remember, they re a foreign corporation)
Article 1250 provides that -- In case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is an
agreement to the contrary. Extraordinary inflation or deflation exists when there
is an unusual increase or decrease in the purchasing power of the Philippine
Peso which is beyond the common fluctuation in value of the said currency, and
such increase or decrease could not have been reasonably foreseen or was
manifestly beyond the contemplation of the parties at the time of the establishment
of the obligation. Extraordinary inflation must be PROVEN, and is never assumed.
In this case, the SC ruled that there had been no extraordinary inflation within the
meaning of Article 1250. Thus, there is no plausible reason for ordering the
payment of an obligation in an amout different from what has been agreed upon
because of the purported supervention of extraordinary inflation. In other words,
USL is entitled to the same peso amount it was in 1981, even if that amount means
a lot less by 2006. USL is unable to prove the occurrence of extraordinary
inflation since 1981. The record has no evidence to prove inflation, much less
extraordinary inflation. Even if the price of goods and services may have
increased, this alone may not be considered as extraordinary inflation. The
erosion of value of the Php in the past 3 to 4 decades is characteristic of most
currencies. While the Court may take judicial notice of the decline of the
purchasing power of the Philippine Currency, such downward trend cannot be
considered as the extraordinary inflation contemplated by Art. 1250. Further,
absent an official pronouncement or declaration by competent authorities of the
existence of extraordinary inflation during a given period, the effects of such will not

be applied (labo, so kailangan muna ng declaration? So why did the court look for
evidence on the record on the part of USL? Kung walang declaration, hindi ba dapat
madali nalang un? Why ask for proof pa and say all that stuff about inflation being
proven? Weird) Lest it be overlooked, Article 1250 of the Code, as couched,
clearly provides that the value of the peso at the time of the establishment of the
obligation shall control and be the basis of payment of the contractual obligation,
unless there is "agreement to the contrary." It is only when there is a contrary
agreement that extraordinary inflation will make the value of the currency at the
time of payment, not at the time of the establishment of obligation, the basis for
payment. Take a look at the provision again even if there is extraordinary
inflation, General Rule is still value at establishment. It is only when there is
inflation AND AN AGREEMENT where it becomes value at payment. In
other words, an agreement is needed for the effects of an extraordinary inflation to
be taken into account to alter the value of the currency at the time of the
establishment of the obligation which, as a rule, is always the determinative
element. So aside from the factual circumstances of extraordinary inflation, you
also need an agreement saying that in such cases, the value of the currency would
be at paytment, and not at establishment. There was no such agreement in this
case. Discussion on Liability of Telengtan It is undisputed that the goods subject of
petitioners counterclaim and covered by seven (7) B/Ls with Shipper s
Reference Nos. S-16844, S-16846, S-16848, S-17748, S-17750, S-17749 and S177517 were loaded for shipment to Manila on respondent s vessels in
container vans on a "House/House Containers-Shippers Load, Stowage and Count"
basis. This shipping arrangement means that the shipping company s container
vans are to be brought to the shipper for loading of its goods; that from the
shippers warehouse, the goods in container vans are brought to the shipping
company for shipment; that the shipping company, upon arrival of its ship at the
port of destination, is to deliver the container vans to the consignee s compound
or warehouse; and that the shipper (consignee) is supposed to load, stow and count
the goods from the container van.8 Likewise undisputed is the fact that the
container vans containing the goods covered by three (3) of the aforesaid B/Ls,
particularly those with Shippers Reference Nos. S-17748, S-17750 and S17751,9 were delivered to a warehouse, stripped of their contents and the
contents deposited thereat.10 On the argument that the respondent, upon the
foregoing undisputed facts, violated its contractual obligation to deliver when,
instead of delivering the goods to the petitioner as consignee thereof, it deposited
the same in bonded warehouse/s, petitioner would now score the CA for finding it at
fault for non-withdrawal of its cargo from the container vans within the 10-day free
demurrage period. Pressing the point, petitioner argues that, since the CA drew an
erroneous conclusion from an undisputed set of facts, petitioner now asserts that
the matter of who is at fault - its first assigned error - could be treated as a legal
issue and not a question of fact. After careful consideration, the Court sustain the
CAs stance faulting the petitioner for not taking delivery of its cargo from the
container vans within the 10-day free period, an inaction which led respondent to

deposit the same in warehouse/s. It may be that, when the relevant facts are
undisputed, the question of whether or not the conclusion deduced therefrom by
the CA is correct is a question of law properly cognizable by this Court.11 However,
it has also been held that all doubts as to the correctness of such conclusions will be
resolved in favor of the disposing court.12 So it must be in this case. At any rate,
the Court finds that petitioners first contention raises a question of fact rather
than of law. And settled is the rule that factual findings of the CA, particularly those
confirmatory of that of the trial court, as here, are binding on this Court,13 save for
the most compelling of reasons, like when they are reached arbitrarily.14 As it were,
however, the conclusion of the CA on who contextually is the erring party was not
exactly drawn from a vacuum, supported as such conclusion is by the records of the
case. What the CA wrote with some measure of logic commends itself for
concurrence: However, ... We find that [petitioner] was the one at fault in not
withdrawing its cargo from the containers wherein the goods were shipped within
the ten (10)-day free period. Had it done so, then there would not have been any
need of depositing the cargo in a warehouse. It is incumbent upon the carrier to
immediately advise the consignee of the arrival of the goods for if it does not, it
continues to be liable for the same until the consignee has had reasonable
opportunity to remove them. Sound business practice dictates that the consignee,
upon notification of the arrival of the goods, should immediately get the cargo from
the carrier especially since it has need of it. xxx. Appellant tries to shift the blame
on the [respondent] by stating that it was not informed beforehand of the latter s
intention to deliver the goods to a warehouse. It likewise alleges that it does not
know where to contact [respondent] for it argues that the person manning the
latters office would only hold office for a few hours, if not always out. But had it
taken the necessary steps of inquiring for the address of [respondent] from the
proper government offices, then it would have succeeded in finding the latter s
address. Judging from the [petitioners] way of conducting business in the past,
We come to the conclusion that it is used to paying demurrage charges. Exhibits "H"
and "I" are certainly proofs of appellant s practice of not getting its cargo from
the carrier immediately upon notification of the goods arrival. 15 (Words in
bracket added.) It cannot be over-emphasized that the container vans were stripped
of their cargo with the prior authorization of the Bureau of Customs. The trial court
said as much, thus: It is not disputed that [respondent] company did not [sic] in fact
remove these goods belonging to [petitioner] from its vans and deposited them in
warehouses. However, this was done by authority of the Bureau of Customs and for
that purpose, [respondent] addressed a letter-request to the Collector of Customs,
for permission to remove the goods of [petitioner] from its vans (Exhibit "L"). The
corresponding authority was granted by the Bureau of Customs to do so as
evidenced by a van permit (Exhibit "M"). In other words, while [respondent]
admits that it removed the goods of [petitioner] from its vans and deposited them in
various warehouses, there is no question that this was done by authority of the
Bureau of Customs which is the proper agency of the government charged with the
supervision and regulation of maritime commerce. Verily, the authority secured

from the Bureau of Customs is indicative of the bona fides of respondents


intention. And as held below, the authority thus acquired relieved respondent of its
obligations under the B/Ls when it caused the containers to be stripped and the
goods stored in bonded warehouses. Not lost on this Court is the fact that the B/Ls
under which petitioner anchors its counterclaim allow the goods carried to be
delivered to bonded warehouses for the shipper s and/or consignees
account if it does not take possession or delivery thereof as soon as they are at its
disposal for removal. Section 17 of the Regular Long Form Inward B/L of the
respondent16 which is incorporated by reference to the Short Form of
B/L17 provides: 17. The carrier shall not be required to give any notification
whatsoever of arrival, discharge or any disposition of or action taken with respect to
the goods, even though the goods are consigned to order with provision for
notice to a named person. The carrier or master may appoint a stevedore or any
other persons to unload and take delivery of the goods and such delivery from
ship's tackle shall be considered complete and all responsibility of the carrier shall
then terminate. It is agreed that when possession of the goods is received or taken
by the customs or other authorities or by any operator of any lighter, craft, or
other facilities whether selected by the carrier or master, shipper of consignee,
whether public or private, such authority or person shall be considered as having
received possession and delivery of the goods solely as agent of and on behalf of
the shipper and consignee, . Also if the consignee does not take possession or
delivery of the goods as soon as the goods are at the disposal of the consignee for
removal, the goods shall be at their own risk and expense, delivery shall be
considered complete and the carrier may, subject to carrier's liens, send the goods
to store, warehouse, put them on lighters or other craft, put them in possession of
authorities, dump, permit to lie where landed or otherwise dispose of them, always
at the risk and expense of the goods, and the shipper and consignee shall pay and
indemnify the carrier for any loss, damage, fine, charge or expense whatsoever
suffered or incurred in so dealing with or disposing of the goods, or by reason of the
consignee's failure or delay in taking possession and delivery as provided herein.
(Emphasis Ours)

De luna

inShare2

FACTS:
De Luna donated a portion of a 75 sq. m. lot to the Luzonian University Foundation. The
donation was embodied in a Deed of Donation Intervivos and was subject to certain terms and
conditions. In case of violation or non-compliance, the property would automatically revert to

the donor. When the Foundation failed to comply with the conditions, de Luna revived the said
donation by executing a Revival of Donation Intervivos with the following terms and conditions:
1) The Donee shall construct on the land and at its expense a Chapel, Nursery, and Kindergarten
School to be named after St. Veronica
2) Construction shall start immediately and must be at least 70% completed three years from the
date of the Deed unless the Donor grants extensions
3) Automatic reversion in case of violation
The Foundation accepted and the donation was registered and annotated in the TCT. By a Deed
of Segregation, the foundation was issued a TCT for area the lot donated while the remaining
area was retained by the De Luna.
The children and only heirs of the late De Luna (died after the donation) filed a complaint with
the RTC for the cancellation of the donation on the ground that the terms were violated. The
Foundation defended itself by saying that it had partially and substantially complied with the
conditions and that the donor granted it an indefinite extension of time to complete construction.
The RTC dismissed the petition on the ground of prescription (for being filed after 4 years). The
heirs did not file an MR and went straight to the SC.

ISSUE:
Whether the action prescribes in 4 years (based on art. 764 NCC-judicial decree of revocation of
the donation) or in 10 years (based on art. 1144 enforcement of a written contract)

RULING: 10 years
The donation subject of this case is one with an onerous cause.
Under the old Civil Code, it is a settled rule that donations with an onerous cause are governed
not by the law on donations but by the rules on contract. On the matter of prescription of actions
for the revocation of onerous donation, it was held that the general rules on prescription apply.
The same rules apply under the New Civil Code as provided in Article 733 thereof which
provides:

Donations with an onerous cause shall be governed by the rules on contracts, and remuneratory
donations by the provisions of the present Title as regards that portion which exceeds the value
of the burden imposed.
It is true that under Article 764 of the New Civil Code, actions for the revocation of a donation
must be brought within four (4) years from the non-compliance of the conditions of the donation.
However, said article does not apply to onerous donations in view of the specific provision of
Article 733 providing that onerous donations are governed by the rules on contracts. The rules on
prescription and not the rules on donation applies in the case at bar.

ADELFA PROPERTIES, INC vs. CA et al


November 11, 2010 ~ vbdiaz

ADELFA PROPERTIES, INC vs. CA et al


G.R. No. 111238
January 25, 1995
FACTS: Private respondents and their brothers Jose and Dominador were the registered COOWNERS of a parcel of land in Las Pinas, covered by a TCT.
Jose and Dominador sold their share (eastern portion of the land) to Adelfa. Thereafter, Adelfa
expressed interest in buying the western portion of the property from private respondents herein.
Accordingly, an exclusive Option to Purchase was executed between Adelfa and Private
respondents and an option money of 50,000 was given to the latter.
A new owners copy of the certificate of title was issued (as the copy with respondent Salud was
lost) was issued but was kept by Adelfas counsel, Atty. Bernardo.
Before Adelfa could make payments, it received summons as a case was filed (RTC Makati)
against Jose and Dominador and Adelfa, because of a complaint in a civil case by the nephews
and nieces of private respondents herein. As a consequence, Adelfa, through a letter, informed
the private respondents that it would hold payment of the full purchase price and suggested that
they settle the case with their said nephews and nieces. Salud did not heed the suggestion;
respondents informed Atty. Bernardo that they are canceling the transaction. Atty Bernardo
made offers but they were all rejected.

RTC Makati dismissed the civil case. A few days after, private respondents executed a Deed of
Conditional Sale in favor of Chua, over the same parcel of land.
Atty Bernardo wrote private respondents informing them that in view of the dismissal of the
case, Adelfa is willing to pay the purchase price, and requested that the corresponding deed of
Absolute Sale be executed. This was ignored by private respondents.
Private respondents sent a letter to Adelfa enclosing therein a check representing the refund of
half the option money paid under the exclusive option to purchase, and requested Adelfa to
return the owners duplicate copy of Salud. Adelfa failed to surrender the certificate of title,
hence the private respondents filed a civil case before the RTC Pasay, for annulment of contract
with damages. The trial court directed the cancellation of the exclusive option to purchase. On
appeal, respondent CA affirmed in toto the decision of the RTC hence this petition.
ISSUE:
1. WON the agreement between Adelfa and Private respondents was strictly an
option contract
2. WON Article 1590 applies in this case, thereby justifiying the refusal by Adelfa
to pay the balance of the purchase price
3. WON Private respondents could unilaterraly and prematurely terminate the
option period, if indeed it is a option contract, as the option period has not
lapsed yet.

HELD: The judgement of the CA is AFFIRMED


1. NO. The agreement between the parties is a contract to sell, and not an option contract or a
contract of sale.
ADELFA PROPERTIES, INC vs. CA et al
G.R. No. 111238
January 25, 1995
FACTS: Private respondents and their brothers Jose and Dominador were the registered COOWNERS of a parcel of land in Las Pinas, covered by a TCT.
Jose and Dominador sold their share (eastern portion of the land) to Adelfa. Thereafter, Adelfa
expressed interest in buying the western portion of the property from private respondents herein.

Accordingly, an exclusive Option to Purchase was executed between Adelfa and Private
respondents and an option money of 50,000 was given to the latter.
A new owners copy of the certificate of title was issued (as the copy with respondent Salud was
lost) was issued but was kept by Adelfas counsel, Atty. Bernardo.
Before Adelfa could make payments, it received summons as a case was filed (RTC Makati)
against Jose and Dominador and Adelfa, because of a complaint in a civil case by the nephews
and nieces of private respondents herein. As a consequence, Adelfa, through a letter, informed
the private respondents that it would hold payment of the full purchase price and suggested that
they settle the case with their said nephews and nieces. Salud did not heed the suggestion;
respondents informed Atty. Bernardo that they are canceling the transaction. Atty Bernardo
made offers but they were all rejected.
RTC Makati dismissed the civil case. A few days after, private respondents executed a Deed of
Conditional Sale in favor of Chua, over the same parcel of land.
Atty Bernardo wrote private respondents informing them that in view of the dismissal of the
case, Adelfa is willing to pay the purchase price, and requested that the corresponding deed of
Absolute Sale be executed. This was ignored by private respondents.
Private respondents sent a letter to Adelfa enclosing therein a check representing the refund of
half the option money paid under the exclusive option to purchase, and requested Adelfa to
return the owners duplicate copy of Salud. Adelfa failed to surrender the certificate of title,
hence the private respondents filed a civil case before the RTC Pasay, for annulment of contract
with damages. The trial court directed the cancellation of the exclusive option to purchase. On
appeal, respondent CA affirmed in toto the decision of the RTC hence this petition.
ISSUE:
1. WON the agreement between Adelfa and Private respondents was strictly an
option contract
2. WON Article 1590 applies in this case, thereby justifiying the refusal by Adelfa
to pay the balance of the purchase price
3. WON Private respondents could unilaterraly and prematurely terminate the
option period, if indeed it is a option contract, as the option period has not
lapsed yet.

HELD: The judgement of the CA is AFFIRMED

1. NO. The agreement between the parties is a contract to sell, and not an option contract or a
contract of sale.
ADELFA PROPERTIES, INC vs. CA et al
G.R. No. 111238
January 25, 1995
FACTS: Private respondents and their brothers Jose and Dominador were the registered COOWNERS of a parcel of land in Las Pinas, covered by a TCT.
Jose and Dominador sold their share (eastern portion of the land) to Adelfa. Thereafter, Adelfa
expressed interest in buying the western portion of the property from private respondents herein.
Accordingly, an exclusive Option to Purchase was executed between Adelfa and Private
respondents and an option money of 50,000 was given to the latter.
A new owners copy of the certificate of title was issued (as the copy with respondent Salud was
lost) was issued but was kept by Adelfas counsel, Atty. Bernardo.
Before Adelfa could make payments, it received summons as a case was filed (RTC Makati)
against Jose and Dominador and Adelfa, because of a complaint in a civil case by the nephews
and nieces of private respondents herein. As a consequence, Adelfa, through a letter, informed
the private respondents that it would hold payment of the full purchase price and suggested that
they settle the case with their said nephews and nieces. Salud did not heed the suggestion;
respondents informed Atty. Bernardo that they are canceling the transaction. Atty Bernardo
made offers but they were all rejected.
RTC Makati dismissed the civil case. A few days after, private respondents executed a Deed of
Conditional Sale in favor of Chua, over the same parcel of land.
Atty Bernardo wrote private respondents informing them that in view of the dismissal of the
case, Adelfa is willing to pay the purchase price, and requested that the corresponding deed of
Absolute Sale be executed. This was ignored by private respondents.
Private respondents sent a letter to Adelfa enclosing therein a check representing the refund of
half the option money paid under the exclusive option to purchase, and requested Adelfa to
return the owners duplicate copy of Salud. Adelfa failed to surrender the certificate of title,
hence the private respondents filed a civil case before the RTC Pasay, for annulment of contract
with damages. The trial court directed the cancellation of the exclusive option to purchase. On
appeal, respondent CA affirmed in toto the decision of the RTC hence this petition.

ISSUE:
1. WON the agreement between Adelfa and Private respondents was strictly an
option contract
2. WON Article 1590 applies in this case, thereby justifiying the refusal by Adelfa
to pay the balance of the purchase price
3. WON Private respondents could unilaterraly and prematurely terminate the
option period, if indeed it is a option contract, as the option period has not
lapsed yet.

HELD: The judgement of the CA is AFFIRMED


1. NO. The agreement between the parties is a contract to sell, and not an option contract or a
contract of sale.
Contract to SELL
by agreement the ownership is reserved in the vendor and is not to pass until the full
payment of the price
title is retained by the vendor until the full payment of the price, such payment being a
positive

Contract of SALE

the title passes to the vendee upon the delivery of the thing sold

the vendor has lost and cannot recover ownership until and unless the contract is resolved or
rescinded

There are two features which convince us that the parties never intended to transfer ownership to
petitioner except upon the full payment of the purchase price.
(1)
the exclusive option to purchase, although it provided for automatic rescission of the
contract and partial forfeiture of the amount already paid in case of default, does not mention that
petitioner is obliged to return possession or ownership of the property as a consequence of nonpayment. There is no stipulation anent reversion or reconveyance of the property to herein
private respondents in the event that petitioner does not comply with its obligation. With the

absence of such a stipulation, although there is a provision on the remedies available to the
parties in case of breach, it may legally be inferred that the parties never intended to transfer
ownership to the petitioner to completion of payment of the purchase price.
(2)
Secondly, it has not been shown there was delivery of the property, actual or constructive,
made to herein petitioner. The exclusive option to purchase is not contained in a public
instrument the execution of which would have been considered equivalent to delivery. Neither
did petitioner take actual, physical possession of the property at any given time. It is true that
after the reconstitution of private respondents certificate of title, it remained in the possession of
petitioners counsel, Atty. Bayani L. Bernardo, who thereafter delivered the same to herein
petitioner. Normally, under the law, such possession by the vendee is to be understood as a
delivery. 18 However, private respondents explained that there was really no intention on their
part to deliver the title to herein petitioner with the purpose of transferring ownership to it. They
claim that Atty. Bernardo had possession of the title only because he was their counsel in the
petition for reconstitution.
In effect, there was an implied agreement that ownership shall not pass to the purchaser until he
had fully paid the price in this case. Article 1478 of the civil code does not require that such a
stipulation be expressly made. Consequently, an implied stipulation to that effect is considered
valid and, therefore, binding and enforceable between the parties. It should be noted that under
the law and jurisprudence, a contract which contains this kind of stipulation is considered a
contract to sell.
The important task in contract interpretation is always the ascertainment of the intention (parties
never intended to transfer ownership to petitioner except upon the full payment of the
purchase price) of the contracting parties and that task is, of course, to be discharged by looking
to the words they used to project that intention in their contract. The title of a contract does not
necessarily determine its true nature. Hence, the fact that the document under discussion is
entitled Exclusive Option to Purchase is not controlling where the text thereof shows that it is a
contract to sell.
The obligation of petitioner consisted of an obligation to give something, that is, the payment of
the purchase price. The contract did not simply give petitioner the discretion to pay for the
property. It will be noted that there is nothing in the said contract to show that petitioner was
merely given a certain period within which to exercise its privilege to buy. The agreed period
was intended to give time to herein petitioner within which to fulfill and comply with its
obligation, that is, to pay the balance of the purchase price. No evidence was presented by
private respondents to prove otherwise.
The test in determining whether a contract is a contract of sale or purchase or a mere option
is whether or not the agreement could be specifically enforced. There is no doubt that the

obligation of petitioner to pay the purchase price is specific, definite and certain, and
consequently binding and enforceable. Had private respondents chosen to enforce the contract,
they could have specifically compelled petitioner to pay the balance. This is distinctly made
manifest in the contract itself as an integral stipulation, compliance with which could legally and
definitely be demanded from petitioner as a consequence.
While there is jurisprudence to the effect that a contract which provides that the initial payment
shall be totally forfeited in case of default in payment is to be considered as an option contract,
still we are not inclined to conform with the findings of respondent court and the court a quo that
the contract executed between the parties is an option contract, for the reason that the parties
were already contemplating the payment of the balance of the purchase price, and were not
merely quoting an agreed value for the property. The term balance, connotes a remainder or
something remaining from the original total sum already agreed upon.
In other words, the alleged option money was actually earnest money which was intended to
form part of the purchase price. The amount was not distinct from the cause or consideration for
the sale of the property, but was itself a part thereof. It is a statutory rule 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. It constitutes an advance payment and must, therefore, be deducted
from the total price. Also, earnest money is given by the buyer to the seller to bind the bargain.
There are clear distinctions between earnest money and option money, viz.:
(a) earnest money is part of the purchase price, while option money ids the money given as a
distinct consideration for an option contract;
(b) earnest money is given only where there is already a sale, while option money applies to a
sale not yet perfected; and
(c) when earnest money is given, the buyer is bound to pay the balance, while when the wouldbe buyer gives option money, he is not required to buy.
The aforequoted characteristics of earnest money are apparent in the so-called option contract
under review, even though it was called option money by the parties. In addition, private
respondents failed to show that the payment of the balance of the purchase price was only a
condition precedent to the acceptance of the offer or to the exercise of the right to buy. On the
contrary, it has been sufficiently established that such payment was but an element of the
performance of petitioners obligation under the contract to sell.
2. Its failure to pay the purchase price within the agreed period, petitioner invokes Article 1590
of the civil Code which provides:

Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired,
or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a
foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused
the disturbance or danger to cease, unless the latter gives security for the return of the price in a
proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee
shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of
the payment of the price.
Respondent court refused to apply the aforequoted provision of law on the erroneous assumption
that the true agreement between the parties was a contract of option. As we have hereinbefore
discussed, it was not an option contract but a perfected contract to sell. Verily, therefore, Article
1590 would properly apply.
Both lower courts, are in accord that since the Civil Case in Makati involved only the eastern
half of the land subject of the deed of sale between Adelfa and the Jimenez brothers, it did not,
therefore, have any adverse effect on private respondents title and ownership over the western
half of the land which is covered by the contract subject of the present case. But at a glance, it is
easily discernible that, although the complaint prayed for the annulment only of the contract of
sale executed between petitioner and the Jimenez brothers, the plaintiffs therein were claiming to
be co-owners of the entire parcel of land, and not only of a portion thereof nor, as incorrectly
interpreted by the lower courts, not pertaining exclusively to the eastern half adjudicated to the
Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of the balance of the
purchase price by reason of the aforesaid vindicatory action filed against it. The assurance made
by private respondents that petitioner did not have to worry about the case because it was pure
and simple harassment is not the kind of guaranty contemplated under the exceptive clause in
Article 1590 wherein the vendor is bound to make payment even with the existence of a
vindicatory action if the vendee should give a security for the return of the price.
3. YES. The private respondents may no longer be compelled to sell and deliver the subject
property to petitioner for two reasons, that is, petitioners failure to duly effect the consignation
of the purchase price after the disturbance had ceased; and, secondarily, the fact that the contract
to sell had been validly rescinded by private respondents.
The mere sending of a letter by the vendee expressing the intention to pay, without the
accompanying payment, is not considered a valid tender of payment. Besides, a mere tender of
payment is not sufficient to compel private respondents to deliver the property and execute the
deed of absolute sale. It is consignation which is essential in order to extinguish petitioners
obligation to pay the balance of the purchase price.

The rule is different in case of an option contract or in legal redemption or in a sale with right to
repurchase, wherein consignation is not necessary because these cases involve an exercise of a
right or privilege (to buy, redeem or repurchase) rather than the discharge of an obligation, hence
tender of payment would be sufficient to preserve the right or privilege. This is because the
provisions on consignation are not applicable when there is no obligation to pay. A contract to
sell, as in the case before us, involves the performance of an obligation, not merely the exercise
of a privilege of a right. Consequently, performance or payment may be effected not by tender of
payment alone but by both tender and consignation.
Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased
with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the
balance again arose and resumed after it received notice of such dismissal. Unfortunately,
petitioner failed to seasonably make payment. By reason of petitioners failure to comply with its
obligation, private respondents elected to resort to and did announce the rescission of the
contract through its letter to petitioner. That written notice of rescission is deemed sufficient
under the circumstances. Article 1592 of the Civil Code which requires rescission either by
judicial action or notarial act is not applicable to a contract to sell. Furthermore, judicial action
for rescission of a contract is not necessary where the contract provides for automatic rescission
in case of breach, as in the contract involved in the present controversy.
In the case at bar, it has been shown that although petitioner was duly furnished and did receive a
written notice of rescission which specified the grounds therefore, it failed to reply thereto or
protest against it. By such cavalier disregard, it has been effectively estopped from seeking the
affirmative relief it now desires but which it had theretofore disdained.
NOTES:
1. a deed of sale is considered absolute in nature where there is neither
(a) a stipulation in the deed that title to the property sold is reserved in the seller until the full
payment of the price, nor
(b) one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails
to pay within a fixed period.
2. We are not unaware of the ruling in University of the Philippines vs. De los Angeles, etc. 50 that
the right to rescind is not absolute, being ever subject to scrutiny and review by the proper court.
It is our considered view, however, that this rule applies to a situation where the extrajudicial
rescission is contested by the defaulting party. In other words, resolution of reciprocal contracts
may be made extrajudicially unless successfully impugned in court. If the debtor impugns the

declaration, it shall be subject to judicial determination 51 otherwise, if said party does not oppose
it, the extrajudicial rescission shall have legal effect. 52
3. Option vs. contract
An option, as used in the law on sales, is a continuing offer or contract by which the owner
stipulates with another that the latter shall have the right to buy the property at a fixed price
within a certain time, or under, or in compliance with, certain terms and conditions, or which
gives to the owner of the property the right to sell or demand a sale. It is also sometimes called
an unaccepted offer. An option is not of itself a purchase, but merely secures the privilege to
buy. It is not a sale of property but a sale of property but a sale of the right to purchase. It is
simply a contract by which the owner of property agrees with another person that he shall have
the right to buy his property at a fixed price within a certain time. He does not sell his land; he
does not then agree to sell it; but he does sell something, that it is, the right or privilege to
buy at the election or option of the other party.
Its distinguishing characteristic is that it imposes no binding obligation on the person holding
the option, aside from the consideration for the offer. Until acceptance, it is not, properly
speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest
or right in the subject matter, but is merely a contract by which the owner of property gives the
optionee the right or privilege of accepting the offer and buying the property on certain terms.
On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons
whereby one binds himself, with respect to the other, to give something or to render some
service. Contracts, in general, are perfected by mere consent, which is manifested by the meeting
of the offer and the acceptance upon the thing and the cause which are to constitute the contract.
The offer must be certain and the acceptance absolute.
The distinction between an option and a contract of sale is that an option is an unaccepted
offer. It states the terms and conditions on which the owner is willing to sell the land, if the
holder elects to accept them within the time limited. If the holder does so elect, he must give
notice to the other party, and the accepted offer thereupon becomes a valid and binding contract.
If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and
the option is at an end.
A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both
parties at the time of its execution. The offer and the acceptance are concurrent, since the minds
of the contracting parties meet in the terms of the agreement.