G.R. No.

116635 July 24, 1997

CONCHITA NOOL and GAUDENCIO ALMOJERA, petitioner,
vs.
COURT OF APPEALS, ANACLETO NOOL and EMILIA NEBRE, respondents.
PANGANIBAN, J.:
A contract of repurchase arising out of a contract of sale where the seller did not have any title
to the property "sold" is not valid. Since nothing was sold, then there is also nothing to
repurchase.
Statement of the Case
This postulate is explained by this Court as it resolves this petition for review
on certiorari assailing the January 20, 1993 Decision 1 of Respondent Court of Appeals 2 in CAG.R. CV No. 36473, affirming the decision 3 of the trial court4 which disposed as follows: 5
WHEREFORE, judgment is hereby rendered dismissing the complaint for
no cause of action, and hereby:
1. Declaring the private writing, Exhibit "C", to be an
option to sell, not binding and considered validly
withdrawn by the defendants for want of consideration;
2. Ordering the plaintiffs to return to the defendants the
sum of P30,000.00 plus interest thereon at the legal
rate, from the time of filing of defendants' counterclaim
until the same is fully paid;
3. Ordering the plaintiffs to deliver peaceful possession
of the two hectares mentioned in paragraph 7 of the
complaint and in paragraph 31 of defendants' answer
(counterclaim);
4. Ordering the plaintiffs to pay reasonable rents on
said two hectares at P5,000.00 per annum or at
P2,500.00 per cropping from the time of judicial
demand mentioned in paragraph 2 of the dispositive
portion of this decision, until the said two hectares shall
have been delivered to the defendants; and
5. To pay the costs.
SO ORDERED.
The Antecedent Facts

The facts, which appear undisputed by the parties, are narrated by the Court of Appeals as
follows:
Two (2) parcels of land are in dispute and litigated upon here. The first has
an area of 1 hectare. It was formerly owned by Victorino Nool and covered
by Transfer Certificate of Title No. T-74950. With an area of 3.0880
hectares, the other parcel was previously owned by Francisco Nool under
Transfer Certificate of Title No. T-100945. Both parcel's are situated in San
Manuel, Isabela. The plaintiff spouses, Conchita Nool and Gaudencio
Almojera, now the appellants, seek recovery of the aforementioned parcels
of land from the defendants, Anacleto Nool, a younger brother of Conchita,
and Emilia Nebre, now the appellees.
In their complaint, plaintiff-appellants alleged inter alia that they are the
owners of subject parcels of land, and they bought the same from
Conchita's other brothers, Victorino Nool and Francisco Nool; that as
plaintiffs were in dire need of money, they obtained a loan from the Ilagan
Branch of the Development Bank of the Philippines, in Ilagan, Isabela,
secured by a real estate mortgage on said parcels of land, which were still
registered in the names of Victorino Nool and Francisco Nool, at the time,
and for the failure of plaintiffs to pay the said loan, including interest and
surcharges, totaling P56,000.00, the mortgage was foreclosed; that within
the period of redemption, plaintiffs contacted defendant Anacleto Nool for
the latter to redeem the foreclosed properties from DBP, which the latter
did; and as a result, the titles of the two (2) parcels of land in question were
transferred to Anacleto Nool; that as part of their arrangement or
understanding, Anacleto Nool agreed to buy from plaintiff Conchita Nool the
two (2) parcels of land under controversy, for a total price of P100,000.00,
P30,000.00 of which price was paid to Conchita, and upon payment of the
balance of P14,000.00, plaintiffs were to regain possession of the two (2)
hectares of land, which amounts defendants failed to pay, and the same
day the said arrangement 6 was made; another covenant 7 was entered into
by the parties, whereby defendants agreed to return to plaintiffs the lands in
question, at anytime the latter have the necessary amount; that plaintiffs
asked the defendants to return the same but despite the intervention of the
Barangay Captain of their place, defendants refused to return the said
parcels of land to plaintiffs; thereby impelling them (plaintiffs) to come to
court for relief.
In their Answer, defendants-appellees theorized that they acquired the
lands in question from the Development Bank of the Philippines, through
negotiated sale, and were misled by plaintiffs when defendant Anacleto
Nool signed the private writing, agreeing to return subject lands when
plaintiffs have the money to redeem the same; defendant Anacleto having
been made to believe, then, that his sister, Conchita, still had the right to
redeem the said properties.
The pivot of inquiry here, as aptly observed below, is the nature and
significance of the private document, marked Exhibit "D" for plaintiffs, which
document has not been denied by the defendants, as defendants even
averred in their Answer that they gave an advance payment of P30,000.00
therefor, and acknowledged that they had a balance of P14,000.00 to

complete their payment. On this crucial issue, the lower court adjudged the
said private writing (Exhibit "D") as an option to sell not binding upon and
considered the same validly withdrawn by defendants for want of
consideration; and decided the case in the manner above-mentioned.
There is no quibble over the fact that the two (2) parcels of land in dispute
were mortgaged to the Development Bank of the Philippines, to secure a
loan obtained by plaintiffs from DBP (Ilagan Branch), Ilagan, Isabela. For
the non-payment of said loan, the mortgage was foreclosed and in the
process, ownership of the mortgaged lands was consolidated in DBP
(Exhibits 3 and 4 for defendants). After DBP became the absolute owner of
the two parcels of land, defendants negotiated with DBP and succeeded in
buying the same. By virtue of such sale by DBP in favor of defendants, the
titles of DBP were cancelled and the corresponding Transfer Certificates of
Title (Annexes "C" and "D" to the Complaint) issued to the defendants. 8
It should be stressed that Manuel S. Mallorca, authorized officer of DBP, certified that the oneyear redemption period was from March 16, 1982 up to March 15, 1983 and that the
mortgagors' right of redemption was not exercised within this period. 9 Hence, DBP became the
absolute owner of said parcels of land for which it was issued new certificates of title, both
entered on May 23, 1983 by the Registry of Deeds for the Province of Isabela. 10 About two
years thereafter, on April 1, 1985, DBP entered into a Deed of Conditional Sale 11 involving the
same parcels of land with Private Respondent Anacleto Nool as vendee. Subsequently, the
latter was issued new certificates of title on February 8, 1988. 12

appellants to re-acquire the four (4) hectares, more or less upon payment
of one hundred thousand pesos (P100,000.00) as shown in Exhibit "D". 14
The Court's Ruling
The petition is bereft of merit.
First Issue: Are Exhibits "C" and "D" Valid and Enforceable?
The petitioner-spouses plead for the enforcement of their agreement with private respondents
as contained in Exhibits "C" and "D," and seek damages for the latter's alleged breach thereof.
In Exhibit C, which was a private handwritten document labeled by the parties as Resibo ti
Katulagan or Receipt of Agreement, the petitioners appear to have "sold" to private respondents
the parcels of land in controversy covered by TCT No. T-74950 and TCT No. T-100945. On the
other hand, Exhibit D, which was also a private handwritten document in Ilocano and labeled
as Kasuratan, private respondents agreed that Conchita Nool "can acquire back or repurchase
later on said land when she has the money." 15
In seeking to enforce her alleged right to repurchase the parcels of land, Conchita (joined by her
co-petitioner-husband) invokes Article 1370 of the Civil Code which mandates that "(i)f the
terms of a contract are clear and leave no doubt upon the intention of the contracting parties,
the literal meaning of its stipulations shall control." Hence, petitioners contend that the Court of
Appeals erred in affirming the trial court's finding and conclusion that said Exhibits C and D
were "not merely voidable but utterly void and inexistent."

The Court of Appeals ruled: 13

WHEREFORE, finding no reversible error infirming it, the appealed
Judgment is hereby AFFIRMEDin toto. No pronouncement as to costs.
The Issues
Petitioners impute to Respondent Court the following alleged "errors":
1. The Honorable Court of Appeals, Second Division has misapplied the
legal import or meaning of Exhibit "C" in a way contrary to law and existing
jurisprudence in stating that it has no binding effect between the parties
and considered validly withdrawn by defendants-appellees for want of
consideration.
2. The Honorable Court of Appeals, Second Division has miserably failed to
give legal significance to the actual possession and cultivation and
appropriating exclusively the palay harvest of the two (2) hectares land
pending the payment of the remaining balance of fourteen thousand pesos
(P14,000.00) by defendants-appellees as indicated in Exhibit "C".
3. The Honorable Court of Appeals has seriously erred in affirming the
decision of the lower court by awarding the payment of rents per
annum and the return of P30,000.00 and not allowing the plaintiffs-

We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only to valid and
enforceable contracts. The Regional Trial Court and the Court of Appeals ruled that the principal
contract of sale contained in Exhibit C and the auxiliary contract of repurchase in Exhibit D are
both void. This conclusion of the two lower courts appears to find support in Dignos vs. Court of
Appeals, 16 where the Court held:
Be that as it may, it is evident that when petitioners sold said land to the
Cabigas spouses, they were no longer owners of the same and the sale is
null and void.
In the present case, it is clear that the sellers no longer had any title to the parcels of land at the
time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validity
of Exhibit C, it is itself void. A void contract cannot give rise to a valid one. 17 Verily, Article 1422
of the Civil Code provides that "(a) contract which is the direct result of a previous illegal
contract, is also void and inexistent."
We should however add that Dignos did not cite its basis for ruling that a "sale is null and void"
where the sellers "were no longer the owners" of the property. Such a situation (where the
sellers were no longer owners) does not appear to be one of the void contracts enumerated in
Article 1409 of the Civil Code. 18 Moreover, the Civil Code 19itself recognizes a sale where the
goods are to be "acquired . . . by the seller after the perfection of the contract of sale," clearly
implying that a sale is possible even if the seller was not the owner at the time of sale, provided
he acquires title to the property later on.

In the present case however, it is likewise clear that the sellers can no longer deliver the object
of the sale to the buyers, as the buyers themselves have already acquired title and delivery
thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be
inoperative 20 and may thus fall, by analogy, under item no. 5 of Article 1409 of the Civil Code:
"Those which contemplate an impossible service." Article 1459 of the Civil Code provides that
"the vendor must have a right to transfer the ownership thereof [object of the sale] at the time it
is delivered." Here, delivery of ownership is no longer possible. It has become impossible.
Furthermore, Article 1505 of the Civil Code provides that "where goods are sold by a person
who is not the owner thereof, and who does not sell them under authority or with consent of the
owner, the buyer acquires no better title to the goods than the seller had, unless the owner of
the goods is by his conduct precluded from denying the seller's authority to sell." Here, there is
no allegation at all that petitioners were authorized by DBP to sell the property to the private
respondents. Jurisprudence, on the other hand, teaches us that "a person can sell only what he
owns or is authorized to sell; the buyer can as a consequence acquire no more than what the
seller can legally transfer." 21 No one can give what he does not have nono dat quod non
habet. On the other hand, Exhibit D presupposes that petitioners could repurchase the property
that they "sold" to private respondents. As petitioners "sold" nothing, it follows that they can also
"repurchase" nothing. Nothing sold, nothing to repurchase. In this light, the contract of
repurchase is also inoperative and by the same analogy, void.
Contract of Repurchase
Dependent on Validity of Sale
As borne out by the evidence on record, the private respondents bought the two parcels of land
directly from DBP on April 1, 1985 after discovering that petitioners did not own said property,
the subject of Exhibits C and D executed on November 30, 1984. Petitioners, however, claim
that they can exercise their alleged right to "repurchase" the property, after private respondents
had acquired the same from DBP. 22 We cannot accede to this, for it clearly contravenes the
intention of the parties and the nature of their agreement. Exhibit D reads:
WRITING
That I, Anacleto Nool have bought from my sister Conchita Nool a land an area of four hectares
(4 has.) in the value of One Hundred Thousand (100,000.00) Pesos. It is our agreement as
brother and sister that she can acquire back or repurchase later on said land when she has the
money. [Emphasis supplied].

consideration distinct from the price." In the present case, the alleged written contract of
repurchase contained in Exhibit D is bereft of any consideration distinct from the price.
Accordingly, as an independent contract, it cannot bind private respondents. The ruling
in Diamante vs. CA 24 supports this. In that case, the Court through Mr. Justice Hilario G.
Davide, Jr. explained:
Article 1601 of the Civil Code provides:
Conventional redemption shall take place when the vendor reserves the
right to repurchase the thing sold, with the obligation to comply with the
provisions of article 1616 and other stipulations which may have been
agreed upon.
In Villarica, et al. Vs. Court of Appeals, et al., decided on 29 November
1968, or barely seven (7) days before the respondent Court promulgated its
decisions in this case, this Court, interpreting the above Article, held:
The right of repurchase is not a right granted the vendor by the vendee in a
subsequent instrument, but is a right reserved by the vendor in the same
instrument of sale as one of the stipulations of the contract. Once the
instrument of absolute sale is executed, the vendor can not longer reserve
the right to repurchase, and any right thereafter granted the vendor by the
vendee in a separate instrument cannot be a right of repurchase but some
other right like the option to buy in the instant case. . . .
In the earlier case of Ramos, et al. vs. Icasiano, et al., decided in 1927, this
Court had already ruled that "an agreement to repurchase becomes a
promise to sell when made after the sale, because when the sale is made
without such an agreement, the purchaser acquires the thing sold
absolutely, and if he afterwards grants the vendor the right to purchase, it is
a new contract entered into by the purchaser, as absolute owner already of
the object. In that case the vendor has nor reserved to himself the right to
repurchase.
In Vda. De Cruzo, et al. vs. Carriaga, et al. this Court found another
occasion to apply the foregoing principle.

As proof of this agreement we sign as brother and sister this written

document this day of Nov. 30, 1984, at District 4, San Manuel, Isabela.

Hence, the Option to Repurchase executed by private respondent in the

present case, was merely a promise to sell, which must be governed by
Article 1479 of the Civil Code which reads as follows:

One "repurchases" only what one has previously sold. In other words, the right to repurchase
presupposes a valid contract of sale between the same parties. Undisputedly, private
respondents acquired title to the property from DBP, and not from petitioners.

Art. 1479. A promise to buy and sell a determinate thing for a price certain
is reciprocally demandable.

Assuming arguendo that Exhibit D is separate and distinct from Exhibit C and is not affected by
the nullity of the latter, still petitioners do not thereby acquire a right to repurchase the property.
In that scenario, Exhibit D ceases to be a "right to repurchase" ancillary and incidental to the
contract of sale; rather, it becomes an accepted unilateral promise to sell. Article 1479 of the
Civil Code, however, provides that "an accepted unilateral promise to buy or sell a determinate
thing for a price certain is binding upon the promissor if the promise is supported by a

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.
Right to Repurchase Based on
Homestead or Trust Non-Existent

Petitioners also base their alleged right to repurchase on (1) Sec. 119 of the Public Land
Act 25 and (2) an implied trust relation as "brother and sister." 26
The Court notes that Victorino Nool and Francisco Nool mortgaged the land to DBP. The
brothers, together with Conchita Nool and Anacleto Nool, were all siblings and heirs qualified to
repurchase the two parcels of land under Sec. 119 of the Public Land Act which provides that
"(e)very conveyance of land acquired under the free patent or homestead provisions, when
proper, shall be subject to repurchase by the applicant, his widow or legal heirs, within a period
of five years from the date of conveyance." Assuming the applicability of this statutory provision
to the case at bar, it is indisputable that Private Respondent Anacleto Nool already repurchased
from DBP the contested properties. Hence, there was no more right of repurchase that his sister
Conchita or brothers Victorino and Francisco could exercise. The properties were already
owned by an heir of the homestead grantee and the rationale of the provision to keep
homestead lands within the family of the grantee was thus fulfilled. 27
The claim of a trust relation is likewise without merit. The records show that private respondents
did not purchase the contested properties from DBP in trust for petitioners. The former, as
previously mentioned, in fact bought the land from DBP upon realization that the latter could not
validly sell the same. Obviously, petitioners bought it for themselves. There is no evidence at all
in the records that they bought the land in trust for private respondents. The fact that Anacleto
Nool was the younger brother of Conchita Nool and that they signed a contract of repurchase,
which as discussed earlier was void, does not prove the existence of an implied trust in favor of
petitioners.

We are not persuaded. Based on the previous discussion, the balance of P14,000.00 under the
void contract of sale may not be enforced. Petitioners are the ones who have an obligation to
return what they unduly and improperly received by reason of the invalid contract of sale. Since
they cannot legally give title to what they "sold," they cannot keep the money paid for the object
of the sale. It is basic that "(e)very person who through an act of performance by another, or
any other means, acquires or comes into possession of something at the expense of the latter
without just or legal ground, shall return the same." 32 Thus, if a void contract has already "been
performed, the restoration of what has been given is in order." 33 Corollarily and as aptly ordered
by respondent appellate court, interest thereon will run only from the time of private
respondents' demand for the return of this amount in their counterclaim. 34 In the same vein,
petitioners' possession and cultivation of the two hectares are anchored on private respondents'
tolerance. Clearly, the latter's tolerance ceased upon their counterclaim and demand on the
former to vacate. Hence, their right to possess and cultivate the land ipso facto ceased.
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals
affirming that of the trial court is hereby AFFIRMED.
SO ORDERED.

Second Issue: No Estoppel in Impugning the

Validity of Void Contracts
Petitioners argue that "when Anacleto Nool took the possession of the two hectares, more or
less, and let the other two hectares to be occupied and cultivated by plaintiffs-appellant,
Anacleto Nool cannot later on disclaim the terms or contions (sic) agreed upon and his
actuation is within the ambit of estoppel . . . 28 We disagree. The private respondents cannot be
estopped from raising the defense of nullity of contract, specially in this case where they acted
in good faith, believing that indeed petitioners could sell the two parcels of land in question.
Article 1410 of the Civil Code mandates that "(t)he action or defense for the declaration of the
inexistence of a contract does not prescribe." It is a well-settled doctrine that "as between
parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or it is
against public policy (19 Am. Jur. 802). It is not within the competence of any citizen to barter
away what public policy by law seeks to preserve." 29 Thus, it is immaterial that private
respondents initially acted to implement the contract of sale, believing in good faith that the
same was valid. We stress that a contract void at inception cannot be validated by ratification or
prescription and certainly cannot be binding on or enforceable against private respondents. 30
Third Issue: Return of P30,000.00 with Interest
and Payment of Rent
Petitioners further argue that it would be a "miscarriage of justice" to order them (1) to return the
sum of P30,000.00 to private respondents when allegedly it was Private Respondent Anacleto
Nool who owed the former a balance of P14,000.00 and (2) to order petitioners to pay rent
when they "were allowed to cultivate the said two hectares." 31

CONCHITA NOOL and GAUDENCIO ALMOJERA vs.CA

GR No. 116635
July 24, 1997
Facts:
One lot formerly owned by Victorio Nool has an area of 1 hectare. Another lot previously owned
by Francisco Nool has an area of 3.0880 hectares. Spouses (plaintiffs) Conchita Nool and
Gaudencio Almojera alleged that they are the owners of the subject lands. They are in dire need
of money, they obtained a loan DBP , secured by a real estate mortgage on said parcels of
land, which were still registered in the names of Victorino and Francisco Nool, at the time, Since
the plaintiffs failed to pay the said loan, the mortgage was foreclosed; that within the period of
redemption, the plaintiffs contacted Anacleto Nool for the latter to redeem the foreclosed
properties from DBP, which the latter did; and as a result, the titles of the 2 parcels of land in
question were transferred to Anacleto; that as part of their arrangement or understanding,
Anacleto agreed to buy from Conchita the 2 parcels of land , for a total price of P100,000.00,
P30,000.00 of which price was paid to Conchita, and upon payment of the balance of
P14,000.00, the plaintiffs were to regain possession of the 2 hectares of land, which amounts
spouses Anacleto Nool and Emilia Nebre failed to pay. Anacleto Nool signed the private writing,
agreeing to return subject lands when plaintiffs have the money to redeem the same; defendant
Anacleto having been made to believe, then, that his sister, Conchita, still had the right to
redeem the said properties.
Issue: Is the purchase of the subject lands to Anacleto valid?
Held:

Nono dat quod non habet, No one can give what he does not have; Contract of
repurchase inoperative thus void.
Article 1505 of the Civil Code provides that where goods are sold by a person who is not the
owner thereof, and who does not sell them under authority or with consent of the owner, the
buyer acquires no better title to the goods than the seller had, unless the owner of the goods is
by his conduct precluded from denying the sellers authority to sell. Jurisprudence, on the
other hand, teaches us that a person can sell only what he owns or is authorized to sell; the
buyer can as a consequence acquire no more than what the seller can legally transfer. No one
can give what he does not have nono dat quod non habet. In the present case, there is no
allegation at all that petitioners were authorized by DBP to sell the property to the private
respondents. Further, the contract of repurchase that the parties entered into presupposes that
petitioners could repurchase the property that they sold to private respondents. As petitioners
sold nothing, it follows that they can also repurchase nothing. In this light, the contract of
repurchase is also inoperative and by the same analogy, void.

Civil

Code.

2. CIVIL LAW; SPECIAL CONTRACTS; CONTRACT OF SALE; ABSENCE OF

CONSIDERATION; EFFECT THEREOF. There was a perfected unconditional contract of
sale between private respondent and the original vendee. The former voluntarily caused the
transfer of the certificate of registration of the vehicle in the name of the first vendee even if
the said vendee was represented by someone who used a fictitious name and likewise
voluntarily delivered the cars and the certificate of registration to the vendees alleged
representative Title thereto was forthwith transferred to the vendee. The subsequent dishonor of
the check because of the alteration merely amounted to a failure of consideration which does
not render the contract of sale void, but merely allows the prejudiced party to sue for specific
performance or rescission of the contract, and to prosecute the impostor for estafa under Article
315 of the Revised Penal Code.

DECISION

DAVIDE, JR., J.:

Petitioner impugns the Decision of 22 September 1988 of respondent Court of Appeals 1 in

C.A.-G.R. CV No. 05955 2 reversing the decision of then Branch XVIII-B (Quezon City) of the
then Court of First Instance (now Regional Trial Court) of Rizal in a replevin case, Civil Case
No. Q-24200, the dispositive portion of which reads:

[G.R. No. 86051. September 1, 1992.]

JAIME LEDESMA, Petitioner, v. THE HONORABLE COURT OF APPEALS and CITIWIDE
MOTORS, INC., Respondents.
Ledesma, Saludo & Associates for Petitioner.
Magtanggol C. Gunigundo for Private Respondent.

SYLLABUS

1. CIVIL LAW; POSSESSION; REQUISITES TO MAKE POSSESSION OF MOVABLE

PROPERTY EQUIVALENT TO TITLE. It is quite clear that a party who (a) has lost any
movable or (b) has been unlawfully deprived thereof can recover the same from the present
possessor even if the latter acquired it in good faith and has, therefore, title thereto for under the
first sentence of Article 559, such manner of acquisition is equivalent to a title. There are three
(3) requisites to make possession of movable property equivalent to title, namely: (a) the
possession should be in good faith; (b) the owner voluntarily parted with the possession of the
thing; and (c) the possession is in the concept of owner. (TOLENTINO, A.M., Civil Code of the
Philippines, Vol. II, 1983 ed., 275-276, citing 2-II Colin and Capitant 942; De Buen: Ibid., 1009, 2
Salvat 165; 4 Manresa 339). Undoubtedly, one who has lost a movable or who has been
unlawfully deprived of it cannot be said to have voluntarily parted with the possession thereof.
This is the justification for the exceptions found under the second sentence of Article 559 of the

"Accordingly, the Court orders the plaintiff to return the repossessed Isuzu Gemini, 1977 Model
vehicle, subject of this case to the defendant Ledesma. The incidental claim (sic) for damages
professed by the plaintiff are dismissed for lack of merit. On defendants counterclaim, Court
(sic) makes no pronouncement as to any form of damages, particularly, moral, exemplary and
nominal in view of the fact that Citiwide has a perfect right to litigate its claim, albeit by this
pronouncement, it did not succeed." 3
which was supplemented by a Final Order dated 26 June 1980, the dispositive portion of which
reads:
"IN VIEW OF THE FOREGOING, the Court grants defendant Ledesma the sum of P35,000.00
by way of actual damages recoverable upon plaintiffs replevin bond. Plaintiff and its surety, the
Rizal Surety and Insurance Co., are hereby ordered jointly and severally to pay defendant
Jaime Ledesma the sum of P10,000.00 as damages for the wrongful issue of the writ of seizure,
in line with Rule 57, Sec. 20, incorporated in Rule 60, Sec. 10.
In conformity with the rules adverted to, this final order shall form part of the judgment of this
Court on September 5, 1979.
The motion for reconsideration of the judgment filed by the plaintiff is hereby DENIED for lack of
merit. No costs at this instance." 4
The decision of the trial court is anchored on its findings that (a) the proof on record is not
persuasive enough to show that defendant, petitioner herein, knew that the vehicle in question
was the object of a fraud and a swindle 5 and (b) that plaintiff, private respondent herein, did not
rebut or contradict Ledesmas evidence that valuable consideration was paid for it.

The antecedent facts as summarized by the respondent Court of Appeals are as follows:
"On September 27, 1977, a person representing himself to be Jojo Consunji, purchased
purportedly for his father, a certain Rustico T. Consunji, two (2) brand new motor vehicles from
plaintiff-appellant Citiwide Motors, Inc., more particularly described as follows:
a) One (1) 1977 Isuzu Gemini, 2-door Model PF 50ZIK, with Engine No. 751214 valued at
P42,200.00; and
b) One (1) 1977 Holden Premier Model 8V41X with Engine No. 198-1251493, valued at
P58,800.00.
Said purchases are evidenced by Invoices Nos. 3054 and 3055, respectively. (See Annexes A
and B).
On September 28, 1977, plaintiff-appellant delivered the two-above described motor vehicles to
the person who represented himself as Jojo Consunji, allegedly the son of the purported buyers
Rustico T. Consunji, and said person in turn issued to plaintiff-appellant Managers Check No.
066-110-0638 of the Philippine Commercial and Industrial Bank dated September 28, 1977 for
the amount of P101,000.00 as full payment of the value of the two (2) motor vehicles.
However, when plaintiff-appellant deposited the said check, it was dishonored by the bank on
the ground that it was tampered with, the correct amount of P101.00 having been raised to
P101,000.00 per the banks notice of dishonor (Annexes F and G).
On September 30, 1977, plaintiff-appellant reported to the Philippine Constabulary the criminal
act perpetrated by the person who misrepresented himself as Jojo Consunji and in the course
of the investigation, plaintiff-appellant learned that the real identity of the wrongdoer/impostor is
Armando Suarez who has a long line of criminal cases against him for estafa using this similar
modus operandi.
On October 17, 1977, plaintiff-appellant was able to recover the Holden Premier vehicle which
was found abandoned somewhere in Quezon City.
On the other hand, plaintiff-appellant learned that the 1977 Isuzu Gemini was transferred by
Armando Suarez to third persona and was in the possession of one Jaime Ledesma at the time
plaintiff-appellant instituted this action for replevin on November 16, 1977.
In his defense, Jaime Ledesma claims that he purchases (sic) and paid for the subject vehicle
in good faith from its registered owner, one Pedro Neyra, as evidenced by the Land
Transportation Commission Registration Certificate No. RCO1427249.
After posting the necessary bond in the amount double the value of the subject motor vehicle,
plaintiff-appellant was able to recover possession of the 1977 Isuzu Gemini as evidenced by the
Sheriffs Return dated January 23, 1978." 6
After trial on the merits, the lower court rendered the decision and subsequently issued the
Final Order both earlier adverted to, which plaintiff (private respondent herein) appealed to the
respondent Court of Appeals; it submitted the following assignment of errors:
"The trial court erred.
I

IN HOLDING THAT THE DEFENDANT IS ENTITLED TO THE POSSESSION OF THE CAR;

II
IN HOLDING THAT THE DEFENDANT IS AN INNOCENT PURCHASER IN GOOD FAITH AND
FOR VALUE;
III
IN RULING THAT THE PLAINTIFF SHOULD RETURN THE CAR TO DEFENDANT,
DISMISSING ITS CLAIM FOR DAMAGES, AND GRANTING DEFENDANT P35,000.00
DAMAGES RECOVERABLE AGAINST THE REPLEVIN BOND AND P101,000.00 DAMAGES
FOR ALLEGED WRONGFUL SEIZURE;
IV
IN RENDERING THE DECISION DATED SEPTEMBER 3, 1979 AND THE FINAL ORDER
DATED JUNE 26, 1980." 7
In support of its first and second assigned errors, private respondent cites Article 559 of the Civil
Code which provides:
"ARTICLE 559. The possession of movable property acquired in good faith is equivalent to a
title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may
recover it from the person in possession of the same.
If the possessor of a movable lost or of which the owner has been unlawfully deprived, has
acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing
the price paid therefor."
Without in any way reversing the findings of the trial court that herein petitioner was a buyer in
good faith and for valuable consideration, the respondent Court ruled that:
"Under Article 559, Civil Code, the rule is to the effect that if the owner has lost a thing, or if he
has been unlawfully deprived of it, he has a right to recover it not only from the finder, thief or
robber, but also from third persons who may have acquired it in good faith from such finder, thief
or robber. The said article establishes two (2) exceptions to the general rule of irrevendicability
(sic), to wit: when the owner (1) has lost the thing, or (2) has been unlawfully deprived thereof.
In these cases, the possessor cannot retain the thing as against the owner who may recover it
without paying any indemnity, except when the possessor acquired it in a public sale. (Aznar v.
Yapdiangco, 13 SCRA 486).
Put differently, where the owner has lost the thing or has been unlawfully deprived thereof, the
good faith of the possessor is not a bar to recovery of the movable unless the possessor
acquired it in a public sale of which there is no pretense in this case. Contrary to the court a
assumption, the issue is not primarily the good faith of Ledesma for even if this were true, this
may not be invoked as a valid defense, if it be shown that Citiwide was unlawfully deprived of
the vehicle.

In the case of Dizon v. Suntay, 47 SCRA 160, the Supreme Court had occasion to define the
phrase unlawfully deprived, to wit:
. . . it extends to all cases where there has been no valid transmission of ownership including
depositary or lessee who has sold the same. It is believed that the owner in such a case is
undoubtedly unlawfully deprived of his property and may recover the same from a possessor in
good faith.
x

In the case at bar, the person who misrepresented himself to be the son of the purported buyer,
Rustico T. Consunji, paid for the two (2) vehicles using a check whose amount has been altered
from P101.00 to P101,000.00. There is here a case of estafa. Plaintiff was unlawfully deprived
of the vehicle by false pretenses executed simultaneously with the commission of fraud (Art.
315 2(a) R.P.C.). Clearly, Citiwide would not have parted with the two (2) vehicles were it not for
the false representation that the check issued in payment thereupon (sic) is in the amount of
P101,000.00, the actual value of the two (2) vehicles." 8
In short, said buyer never acquired title to the property; hence, the Court rejected the claim of
herein petitioner that at least, Armando Suarez had a voidable title to the property.
His motion for reconsideration having been denied in the resolution of the respondent Court of
12 December 1988, 9 petitioner filed this petition alleging therein that:chanrobles
virtualawlibrary chanrobles.com:chanrobles.com.ph
"A
THE HONORABLE COURT OF APPEALS ERRED IN APPLYING ARTICLE 559 OF THE NEW
CIVIL CODE TO THE INSTANT CASE DESPITE THE FACT THAT PRIVATE RESPONDENT
CITIWIDE MOTORS, INC. WAS NOT UNLAWFULLY DEPRIVED OF THE SUBJECT CAR, AS
IN FACT CITIWIDE VOLUNTARILY PARTED WITH THE TITLE AND POSSESSION OR (sic)
THE SAME IN FAVOR OF ITS IMMEDIATE TRANSFEREE.
B
THE FACTUAL MILIEU OF THE INSTANT CASE FALLS WITHIN THE OPERATIVE EFFECTS
OF ARTICLES 1505 AND 1506 OF THE NEW CIVIL CODE CONSIDERING THAT THE
IMMEDIATE TRANSFEREE OF THE PRIVATE RESPONDENT CITIWIDE MOTORS, INC.,
ACQUIRED A VOIDABLE TITLE OVER THE CAR IN QUESTION WHICH TITLE WAS NOT
DECLARED VOID BY A COMPETENT COURT PRIOR TO THE ACQUISITION BY THE
PETITIONER OF THE SUBJECT CAR AND ALSO BECAUSE PRIVATE RESPONDENT, BY
ITS OWN CONDUCT, IS NOW PRECLUDED FROM ASSAILING THE TITLE AND
POSSESSION BY THE PETITIONER OF THE SAID CAR." 10
There is merit in the petition. The assailed decision must be reversed.
The petitioner successfully proved that he acquired the car in question from his vendor in good
faith and for valuable consideration. According to the trial court, the private respondents
evidence was not persuasive enough to establish that petitioner had knowledge that the car
was the object of a fraud and a swindle and that it did not rebut or contradict petitioners
evidence of acquisition for valuable consideration. The respondent Court concedes to such
findings but postulates that the issue here is not whether petitioner acquired the vehicle in that
concept but rather, whether private respondent was unlawfully deprived of it so as to make
Article 559 of the Civil Code apply.

It is quite clear that a party who (a) has lost any movable or (b) has been unlawfully deprived
thereof can recover the same from the present possessor even if the latter acquired it in good
faith and has, therefore, title thereto for under the first sentence of Article 559, such manner of
acquisition is equivalent to a title. There are three (3) requisites to make possession of movable
property equivalent to title, namely: (a) the possession should be in good faith; (b) the owner
voluntarily parted with the possession of the thing; and (c) the possession is in the concept of
owner. 11
Undoubtedly, one who has lost a movable or who has been unlawfully deprived of it cannot be
said to have voluntarily parted with the possession thereof. This is the justification for the
exceptions found under the second sentence of Article 559 of the Civil Code.
The basic issue then in this case is whether private respondent was unlawfully deprived of the
cars when it sold the same to Rustico Consunji, through a person who claimed to be Jojo
Consunji, allegedly the latters son, but who nevertheless turned out to be Armando Suarez, on
the faith of a Managers Check with a face value of P101,000.00, dishonored for being altered,
the correct amount being only P101.00.chanrobles virtual lawlibrary
Under this factual milieu, the respondent Court was of the opinion, and thus held, that private
respondent was unlawfully deprived of the car by false pretenses.
We disagree. There was a perfected unconditional contract of sale between private respondent
and the original vendee. The former voluntarily caused the transfer of the certificate of
registration of the vehicle in the name of the first vendee even if the said vendee was
represented by someone who used a fictitious name and likewise voluntarily delivered the
cars and the certificate of registration to the vendees alleged representative Title thereto was
forthwith transferred to the vendee. The subsequent dishonor of the check because of the
alteration merely amounted to a failure of consideration which does not render the contract of
sale void, but merely allows the prejudiced party to sue for specific performance or rescission of
the contract, and to prosecute the impostor for estafa under Article 315 of the Revised Penal
Code. This is the rule enunciated in EDCA Publishing and Distributing Corp. v. Santos, 12 the
facts of which do not materially and substantially differ from those obtaining in the instant case.
In said case, a person identifying himself as Professor Jose Cruz, dean of the De la Salle
College, placed an order by telephone with petitioner for 406 books, payable upon delivery.
Petitioner agreed, prepared the corresponding invoice and delivered the books as ordered, for
which Cruz issued a personal check covering the purchase price. Two (2) days later, Cruz sold
120 books to private respondent Leonor Santos who, after verifying the sellers ownership from
the invoice the former had shown her, paid the purchase price of P1,700.00. Petitioner became
suspicious over a second order placed by Cruz even before his first check had cleared, hence,
it made inquiries with the De la Salle College. The latter informed the petitioner that Cruz was
not in its employ. Further verification revealed that Cruz had no more account or deposit with
the bank against which he drew the check. Petitioner sought the assistance of the police which
then set a trap and arrested Cruz. Investigation disclosed his real name, Tomas de la Pea, and
his sale of 120 of the books to Leonor Santos. On the night of the arrest; the policemen whose
assistance the petitioner sought, forced their way into the store of Leonor and her husband,
threatened her with prosecution for the buying of stolen property, seized the 120 books without
a warrant and thereafter turned said books over to the petitioner. The Santoses then sued for
recovery of the books in the Municipal Trial Court which decided in their favor; this decision was
subsequently affirmed by the Regional Trial Court and sustained by the Court of Appeals.
Hence, the petitioner came to this Court by way of a petition for review wherein it insists that it
was unlawfully deprived of the books because as the check bounced for lack of funds, there
was failure of consideration that nullified the contract of sale between it and the impostor who
then acquired no title over the books. We rejected said claim in this wise:jgc:chanrobles.com.ph
"The contract of sale is consensual and is perfected once agreement is reached between the
parties on the subject matter and the consideration. According to the Civil Code:cha

ART. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price.

(1) Those where one of the parties is incapable of giving consent to a contract;

From that moment, the parties may reciprocally demand performance, subject to the provisions
of the law governing the form of contracts.chanrobles.com : virtual law library

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are
susceptible of ratification.

ART. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual
or constructive delivery thereof.

Agreeably to this provision, Article

ART. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser
until he has fully paid the price.

ARTICLE 1506. Where the seller of goods has a voidable title thereto, but his title has not been
avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys
them in good faith, for value, and without notice of the sellers defect of title. (C.C.)

It is clear from the above provisions, particularly the last one quoted, that ownership in the thing
sold shall not pass to the buyer until full payment of the purchase price only if there is a
stipulation to that effect. Otherwise, the rule is that such ownership shall pass from the vendor
to the vendee upon the actual or constructive delivery of the thing sold even if the purchase
price has not yet been paid.
Non-payment only creates a right to demand payment or to rescind the contract, or to criminal
prosecution in the case of bouncing checks. But absent the stipulation above noted, delivery of
the thing sold will effectively transfer ownership to the buyer who can in turn transfer it to
another." 13
In the early case of Chua Hai v. Hon. Kapunan, 14 one Roberto Soto purchased from the
Youngstown Hardware, owned by private respondent, corrugated galvanized iron sheets and
round iron bars for P6,137.70, in payment thereof, he issued a check drawn against the
Security Bank and Trust Co. without informing Ong Shu that he (Soto) had no sufficient funds in
said bank to answer for the same. In the meantime, however, Soto sold the sheets to, among
others, petitioner Chua Hai. In the criminal case filed against Soto, upon motion of the offended
party, the respondent Judge ordered petitioner to return the sheets which were purchased from
Soto. Petitioners motion for reconsideration having been denied, he came to this Court alleging
grave abuse of discretion and excess of jurisdiction. In answer to the petition, it is claimed that
inter alia, even if the property was acquired in good faith, the owner who has been unlawfully
deprived thereof may recover it from the person in possession of the same unless the property
was acquired in good faith at a public sale. 15 Resolving this specific issue, this Court ruled that
Ong Shu was not illegally deprived of the possession of the property:jgc:chanrobles.com.ph
". . . It is not denied that Ong Shu delivered the sheets to Soto upon a perfected contract of
sale, and such delivery transferred title or ownership to the purchaser. Says Art.
1496:chanrob1es
virtual
1aw
library

And, assuming that the consent of Ong Shu to the sale in favor of Soto was obtained by the
latter through fraud or deceit, the contract was not thereby rendered void ab initio, but only
voidable by reason of the fraud, and Article 1390 expressly provides that:chanr
es
virtual
1aw
library
ART. 1390. The following contracts are voidable or annullable, even though there may have
been no damage to the contracting parties:chanrob1es virtual 1aw library

1aw library

Hence, until the contract of Ong Shu with Soto is set aside by a competent court (assuming that
the fraud is established to its satisfaction), the validity of appellants claim to the property in
question can not be disputed, and his right to the possession thereof should be respected." 16
It was therefore erroneous for the respondent Court to declare that the private respondent was
illegally deprived of the car simply because the check in payment therefor was subsequently
dishonored; said Court also erred when it divested the petitioner, a buyer in good faith who paid
valuable consideration therefor, of his possession thereof.chanrobles virtualawlibrary
.ph
WHEREFORE, the challenged decision of the respondent Court of Appeals of 22 September
1988 and its Resolution of 12 December 1988 in C.A.-G.R. CV No. 05955 are hereby SET
ASIDE and the Decision of the trial court of 3 September 1979 and its Final Order of 26 June
1980 in Civil Case No. Q-24200 are hereby REINSTATED, with costs against private
respondent Citiwide Motors, Inc.
SO ORDERED.

LEDESMA V. CA

Art. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the vendor to the vendee.
(C.C.)
The failure of the buyer to make good the price does not, in law, cause the ownership to revest
in the seller until and unless the bilateral contract of sale is first rescinded or resolved pursuant
to Article 1191 of the new Civil Code.chanrobles lawlibrary : rednad

1506 prescribes:chanrob1es virtual

213 SCRA 195

FACTS:
Two motor vehiclesHonda Gemini and Holden Premiere Modelwere purchased from
Citiwide Motors by a person who identified himself as Jojo Consunji. He bought the vehicles
purportedly for his father. Upon delivery to him of the vehicles, he paid a managers check
drawn against PCIB. The check though was dishonored by the bank on the ground that the
checks value has been materially altered. This was reported to the police authorities and it was
found out that the person misrepresenting himself was actually Suarez who had a long line of
criminal cases against him for his modus operandi. The Holden car was recovered after being
abandoned somewhere in Quezon City. The Honda on the other hand, was discovered to be
sold to Ledesma. Ledesma averred he purchased the vehicle in good faith from one Neyra, as
evidenced by his certificate of registration. Citiwide Motors was able to recover.

HELD:
There was a perfected unconditional contract of sale between Citiwide Motors and Suarez. The
subsequent dishonor of the check merely amounted to failure of consideration which doesn't
render a contract of sale void, but merely allows the prejudiced party to sue for specific
performance or rescission of the sale. This being the case, Citiwide motors wasn't unlawfully
deprived of the property. It is thus not entitled to the return of the vehicle from Ledesma who
bought the property in good faith and for consideration.

relevant Decision show that delivery was not actually effected; in fact, it was prevented by a
legally effective impediment. Not having been the owner, petitioner cannot be entitled to the civil
fruits of ownership like rentals of the thing sold. Furthermore, petitioner's bad faith, as again
demonstrated by the specific factual milieu of said Decision, bars the grant of such benefits.
Otherwise, bad faith would be rewarded instead of punished.
The Case
Filed before this Court is a Petition for Review1 under Rule 45 of the Rules of Court, challenging
the March 11, 1998 Order2 of the Regional Trial Court of Manila (RTC), Branch 8, in Civil Case
No. 97-85141. The dispositive portion of the assailed Order reads as follows:
"WHEREFORE, the motion to dismiss filed by defendant Mayfair is hereby
GRANTED, and the complaint filed by plaintiff Equatorial is hereby DISMISSED."3
Also questioned is the May 29, 1998 RTC Order 4 denying petitioner's Motion for
Reconsideration.
The Facts
The main factual antecedents of the present Petition are matters of record, because it arose out
of an earlier case decided by this Court on November 21, 1996, entitled Equatorial Realty
Development, Inc. v. Mayfair Theater, Inc.5 (henceforth referred to as the "mother case"),
docketed as G.R No. 106063.
Carmelo & Bauermann, Inc. ("Camelo" ) used to own a parcel of land, together with two 2storey 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 Theater Inc.
("Mayfair") for a period of 20 years. The lease covered a portion of the second floor and
mezzanine of a two-storey building with about 1,610 square meters of floor area, which
respondent used as a movie house known as Maxim Theater.

G.R. No. 133879

November 21, 2001

EQUATORIAL REALTY DEVELOPMENT, INC., petitioner,

vs.
MAYFAIR THEATER, INC., respondent.
PANGANIBAN, J.:
General propositions do not decide specific cases. Rather, laws are interpreted in the context of
the peculiar factual situation of each proceeding. Each case has its own flesh and blood and
cannot be ruled upon on the basis of isolated clinical classroom principles.
While we agree with the general proposition that a contract of sale is valid until rescinded, it is
equally true that ownership of the thing sold is not acquired by mere agreement, but by tradition
or delivery. The peculiar facts of the present controversy as found by this Court in an earlier

Two years later, on March 31, 1969, Mayfair entered into a second Contract of Lease with
Carmelo for the lease of another portion of the latter's property namely, a part of the second
floor of the two-storey building, with a floor area of about 1,064 square meters; and two store
spaces on the ground floor and the mezzanine, with a combined floor area of about 300 square
meters. In that space, Mayfair put up another movie house known as Miramar Theater. The
Contract of Lease was likewise for a period of 20 years.
Both leases contained a provision granting Mayfair a right of first refusal to purchase the subject
properties. However, on July 30, 1978 within the 20-year-lease term the subject properties
were sold by Carmelo to Equatorial Realty Development, Inc. ("Equatorial") for the total sum of
P11,300,000, without their first being offered to Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before
the Regional Trial Court of Manila (Branch 7) for (a) the annulment of the Deed of Absolute Sale
between Carmelo and Equatorial, (b) specific performance, and (c) damages. After trial on the
merits, the lower court rendered a Decision in favor of Carmelo and Equatorial. This case,
entitled "Mayfair" Theater, Inc. v. Carmelo and Bauermann, Inc., et al.," was docketed as Civil
Case No. 118019.

On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals (CA) completely reversed
and set aside the judgment of the lower court.
The controversy reached this Court via G.R No. 106063. In this mother case, it denied the
Petition for Review in this wise:
"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; 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 & Bauermann of the disputed lots. Carmelo & Bauermann is ordered to
allow Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00."6
The foregoing Decision of this Court became final and executory on March 17, 1997. On April
25, 1997, Mayfair filed a Motion for Execution, which the trial court granted.

Ruling of the RTC Manila, Branch 8

As earlier stated, the trial court dismissed the Complaint via the herein assailed Order and
denied the Motion for Reconsideration filed by Equatorial.11
The lower court debunked the claim of petitioner for unpaid back rentals, holding that the
rescission of the Deed of Absolute Sale in the mother case did not confer on Equatorial any
vested or residual proprietary rights, even in expectancy.
In granting the Motion to Dismiss, the court a quo held that the critical issue was whether
Equatorial was the owner of the subject property and could thus enjoy the fruits or rentals
therefrom. It declared the rescinded Deed of Absolute Sale as avoid at its inception as though it
did not happen."
The trial court ratiocinated as follows:
"The meaning of rescind in the aforequoted decision is to set aside. In the case of
Ocampo v. Court of Appeals, G.R. No. 97442, June 30, 1994, the Supreme Court
held that, 'to rescind is to declare a contract void in its inception and to put an end as
though it never were. It is not merely to terminate it and release parties from further
obligations to each other but to abrogate it from the beginning and restore parties to
relative positions which they would have occupied had no contract ever been made.'

However, Carmelo could no longer be located. Thus, following the order of execution of the trial
court, Mayfair deposited with the clerk of court a quo its payment to Carmelo in the sum of
P11,300,000 less; P847,000 as withholding tax. The lower court issued a Deed of
Reconveyance in favor of Carmelo and a Deed of Sale in favor of Mayfair. On the basis of these
documents, the Registry of Deeds of Manila canceled Equatorial's titles and issued new
Certificates of Title7 in the name of Mayfair.

"Relative to the foregoing definition, the Deed of Absolute Sale between Equatorial
and Carmelo dated July 31, 1978 is void at its inception as though it did not happen.

Ruling on Equatorial's Petition for Certiorari and Petition contesting the foregoing manner of
execution, the CA in its Resolution of November 20, 1998, explained that Mayfair had no right to
deduct the P847,000 as withholding tax. Since Carmelo could no longer be located, the
appellate court ordered Mayfair to deposit the said sum with the Office of the Clerk of Court,
Manila, to complete the full amount of P11,300,000 to be turned over to Equatorial.

"The argument of Equatorial that this complaint for back rentals as 'reasonable
compensation for use of the subject property after expiration of the lease
contracts presumes that the Deed of Absolute Sale dated July 30, 1978 from whence
the fountain of Equatorial's all rights flows is still valid and existing.

Equatorial questioned the legality of the above CA ruling before this Court in G.R No. 136221
entitled "Equatorial Realty Development, Inc. v. Mayfair Theater, Inc." In a Decision
promulgated on May 12, 2000,8 this Court directed the trial court to follow strictly the Decision in
GR. No. 106063, the mother case. It explained its ruling in these words:
"We agree that Carmelo and Bauermann is obliged to return the entire amount of
eleven million three hundred thousand pesos (P11,300,000.00) to Equatorial. On the
other hand, Mayfair may not deduct from the purchase price the amount of eight
hundred forty-seven thousand pesos (P847,000.00) as withholding tax. The duty to
withhold taxes due, if any, is imposed on the seller Carmelo and Bauermann, Inc."9
Meanwhile, on September 18, 1997 barely five months after Mayfair had submitted its Motion
for Execution before the RTC of Manila, Branch 7 Equatorial filed with the Regional Trial
Court of Manila, Branch 8, an action for the collection of a sum of money against Mayfair,
claiming payment of rentals or reasonable compensation for the defendant's use of the subject
premises after its lease contracts had expired. This action was the progenitor of the present
case.
In its Complaint, Equatorial alleged among other things that the Lease Contract covering the
premises occupied by Maxim Theater expired on May 31, 1987, while the Lease Contract
covering the premises occupied by Miramar Theater lapsed on March 31, 1989. 10 Representing
itself as the owner of the subject premises by reason of the Contract of Sale on July 30, 1978, it
claimed rentals arising from Mayfair's occupation thereof.

xxx

xxx

xxx

"The subject Deed of Absolute Sale having been rescinded by the Supreme Court,
Equatorial is not the owner and does not have any right to demand backrentals from
the subject property. . .12
The trial court added: "The Supreme Court in the Equatorial case, G.R No. 106063, has
categorically stated that the Deed of Absolute Sale dated July 31, 1978 has been rescinded
subjecting the present complaint to res judicata."13
Hence, the present recourse.14
Issues
Petitioner submits, for the consideration of this Court, the following issues: 15
"A

The basis of the dismissal of the Complaint by the Regional Trial Court not only
disregards basic concepts and principles in the law on contracts and in civil law,
especially those on rescission and its corresponding legal effects, but also ignores
the dispositive portion of the Decision of the Supreme Court in G.R. No. 106063
entitled 'Equatorial Realty Development, Inc. & Carmelo & Bauermann, Inc. vs.
Mayfair Theater, Inc.'
"B.
The Regional Trial Court erred in holding that the Deed of Absolute Sale in favor of
petitioner by Carmelo & Bauermann, Inc., dated July 31, 1978, over the premises
used and occupied by respondent, having been 'deemed rescinded' by the Supreme
Court in G.R. No. 106063, is 'void at its inception as though it did not happen.'
"C.
The Regional Trial Court likewise erred in holding that the aforesaid Deed of Absolute
Sale, dated July 31, 1978, having been 'deemed rescinded' by the Supreme Court in
G.R. No. 106063, petitioner 'is not the owner and does not have any right to demand
backrentals from the subject property,' and that the rescission of the Deed of Absolute
Sale by the Supreme Court does not confer to petitioner 'any vested right nor any
residual proprietary rights even in expectancy.'
"D.
The issue upon which the Regional Trial Court dismissed the civil case, as stated in
its Order of March 11, 1998, was not raised by respondent in its Motion to Dismiss.
"E.
The sole ground upon which the Regional Trial Court dismissed Civil Case No. 9785141 is not one of the grounds of a Motion to Dismiss under Sec. 1 of Rule 16 of the
1997 Rules of Civil Procedure."
Basically, the issues can be summarized into two: (1) the substantive issue of whether
Equatorial is entitled to back rentals; and (2) the procedural issue of whether the court a
quo's dismissal of Civil Case No. 97-85141 was based on one of the grounds raised by
respondent in its Motion to Dismiss and covered by Rule 16 of the Rules of Court.
This Court's Ruling
The Petition is not meritorious.
First Issue:
Ownership of Subject Properties
We hold that under the peculiar facts and circumstances of the case at bar, as found by this
Court en banc in its Decision promulgated in 1996 in the mother case, no right of ownership
was transferred from Carmelo to Equatorial in view of a patent failure to deliver the property to
the buyer.

Rental a Civil
Fruit of Ownership
To better understand the peculiarity of the instant case, let us begin with some basic
parameters. Rent is a civil fruit 16 that belongs to the owner of the property producing it 17 by right
of accession.18 Consequently and ordinarily, the rentals that fell due from the time of the
perfection of the sale to petitioner until its rescission by final judgment should belong to the
owner of the property during that period.
By a contract of sale, "one of the contracting parties obligates himself to transfer ownership of
and to deliver a determinate thing and the other to pay therefor a price certain in money or its
equivalent."19
Ownership of the thing sold is a real right, 20 which the buyer acquires only upon delivery of the
thing to him "in any of the ways specified in articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the vendor to the
vendee."21 This right is transferred, not merely by contract, but also by tradition or
delivery.22 Non nudis pactis sed traditione dominia rerum transferantur. And there is said to be
delivery if and when the thing sold "is placed in the control and possession of the
vendee."23 Thus, it has been held that while the execution of a public instrument of sale is
recognized by law as equivalent to the delivery of the thing sold, 24 such constructive or symbolic
delivery, being merely presumptive, is deemed negated by the failure of the vendee to take
actual possession of the land sold.25
Delivery has been described as a composite act, a thing in which both parties must join and the
minds of both parties concur. It is an act by which one party parts with the title to and the
possession of the property, and the other acquires the right to and the possession of the same.
In its natural sense, delivery means something in addition to the delivery of property or title; it
means transfer of possession.26 In the Law on Sales, delivery may be either actual or
constructive, but both forms of delivery contemplate "the absolute giving up of the control and
custody of the property on the part of the vendor, and the assumption of the same by the
vendee."27
Possession Never
Acquired by Petitioner
Let us now apply the foregoing discussion to the present issue. From the peculiar facts of this
case, it is clear that petitioner never took actual control and possession of the property sold, in
view of respondent's timely objection to the sale and the continued actual possession of the
property. The objection took the form of a court action impugning the sale which, as we know,
was rescinded by a judgment rendered by this Court in the mother case. It has been held that
the execution of a contract of sale as a form of constructive delivery is a legal fiction. It holds
true only when there is no impediment that may prevent the passing of the property from the
hands of the vendor into those of the vendee. 28 When there is such impediment, "fiction yields
to reality the delivery has not been effected."29
Hence, respondent's opposition to the transfer of the property by way of sale to Equatorial was
a legally sufficient impediment that effectively prevented the passing of the property into the
latter's hands.
This was the same impediment contemplated in Vda. de Sarmiento v. Lesaca,30 in which the
Court held as follows:

"The question that now arises is: Is there any stipulation in the sale in question from
which we can infer that the vendor did not intend to deliver outright the possession of
the lands to the vendee? We find none. On the contrary, it can be clearly seen therein
that the vendor intended to place the vendee in actual possession of the lands
immediately as can be inferred from the stipulation that the vendee 'takes actual
possession thereof . . . with full rights to dispose, enjoy and make use thereof in such
manner and form as would be most advantageous to herself.' The possession
referred to in the contract evidently refers to actual possession and not merely
symbolical inferable from the mere execution of the document.
"Has the vendor complied with this express commitment? she did not. As provided in
Article 1462, the thing sold shall be deemed delivered when the vendee is placed in
the control and possession thereof, which situation does not here obtain because
from the execution of the sale up to the present the vendee was never able to take
possession of the lands due to the insistent refusal of Martin Deloso to surrender
them claiming ownership thereof. And although it is postulated in the same article that
the execution of a public document is equivalent to delivery, this legal fiction only
holds true when there is no impediment that may prevent the passing of the property
from the hands of the vendor into those of the vendee. x x x."31
The execution of a public instrument gives rise, therefore, only to a prima facie presumption of
delivery. Such presumption is destroyed when the instrument itself expresses or implies that
delivery was not intended; or when by other means it is shown that such delivery was not
effected, because a third person was actually in possession of the thing. In the latter case, the
sale cannot be considered consummated.
However, the point may be raised that under Article 1164 of the Civil Code, Equatorial as buyer
acquired a right to the fruits of the thing sold from the time the obligation to deliver the property
to petitioner arose.32 That time arose upon the perfection of the Contract of Sale on July 30,
1978, from which moment the laws provide that the parties to a sale may reciprocally demand
performance.33 Does this mean that despite the judgment rescinding the sale, the right to the
fruits34 belonged to, and remained enforceable by, Equatorial?
Article 1385 of the Civil Code answers this question in the negative, because "[r]escission
creates the obligation to return the things which were the object of the contract, together with
their fruits, and the price with its interest; x x x" Not only the land and building sold, but also the
rental payments paid, if any, had to be returned by the buyer.
Another point. The Decision in the mother case stated that "Equatorial x x x has received rents"
from Mayfair "during all the years that this controversy has been litigated." The Separate
Opinion of Justice Teodoro Padilla in the mother case also said that Equatorial was "deriving
rental income" from the disputed property. Even hereinponente's Separate Concurring Opinion
in the mother case recognized these rentals. The question now is: Do all these statements
concede actual delivery?
The answer is "No." The fact that Mayfair paid rentals to Equatorial during the litigation should
not be interpreted to mean either actual delivery or ipso facto recognition of Equatorial's title.
The CA Records of the mother case 35 show that Equatorial as alleged buyer of the disputed
properties and as alleged successor-in-interest of Carmelo's rights as lessor submitted two
ejectment suits against Mayfair. Filed in the Metropolitan Trial Court of Manila, the first was
docketed as Civil Case No. 121570 on July 9, 1987; and thesecond, as Civil Case No. 131944
on May 28, 1990. Mayfair eventually won them both. However, to be able to maintain physical
possession of the premises while awaiting the outcome of the mother case, it had no choice but
to pay the rentals.

The rental payments made by Mayfair should not be construed as a recognition of Equatorial as
the new owner. They were made merely to avoid imminent eviction. It is in this context that one
should understand the aforequoted factual statements in the ponencia in the mother case, as
well as the Separate Opinion of Mr. Justice Padilla and the Separate Concurring Opinion of the
herein ponente.
At bottom, it may be conceded that, theoretically, a rescissible contract is valid until rescinded.
However, thisgeneral principle is not decisive to the issue of whether Equatorial ever acquired
the right to collect rentals. What is decisive is the civil law rule that ownership is acquired, not by
mere agreement, but by tradition or delivery. Under the factual environment of this controversy
as found by this Court in the mother case, Equatorial was never put in actual and effective
control or possession of the property because of Mayfair's timely objection.
As pointed out by Justice Holmes, general propositions do not decide specific cases. Rather,
"laws are interpreted in the context of the peculiar factual situation of each case. Each case has
its own flesh and blood and cannot be decided on the basis of isolated clinical classroom
principles."36
In short, the sale to Equatorial may have been valid from inception, but it was judicially
rescinded before it could be consummated. Petitioner never acquired ownership, not because
the sale was void, as erroneously claimed by the trial court, but because the sale was not
consummated by a legally effective delivery of the property sold.
Benefits Precluded by
Petitioner's Bad Faith
Furthermore, assuming for the sake of argument that there was valid delivery, petitioner is not
entitled to any benefits from the "rescinded" Deed of Absolute Sale because of its bad faith.
This being the law of the mother case decided in 1996, it may no longer be changed because it
has long become final and executory. Petitioner's bad faith is set forth in the following pertinent
portions of the mother case:
"First and foremost is that the petitioners acted in bad faith to render Paragraph 8
'inutile.'
xxx

xxx

xxx

"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.
xxx

xxx

xxx

"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.

xxx

xxx

xxx

"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."37 (Italics supplied)
Thus, petitioner was and still is entitled solely to he return of the purchase price it paid to
Carmelo; no more, no less. This Court has firmly ruled in the mother case that neither of them is
entitled to any consideration of equity, as both "took unconscientious advantage of Mayfair."38
In the mother case, this Court categorically denied the payment of interest, a fruit of ownership.
By the same token, rentals, another fruit of ownership, cannot be granted without mocking this
Court's en banc Decision, which has long become final.
Petitioner's claim of reasonable compensation for respondent's use and occupation of the
subject property from the time the lease expired cannot be countenanced. If it suffered any loss,
petitioner must bear it in silence, since it had wrought that loss upon itself. Otherwise, bad faith
would be rewarded instead of punished.@lawphil.net
We uphold the trial court's disposition, not for the reason it gave, but for (a) the patent failure to
deliver the property and (b) petitioner's bad faith, as above discussed.
Second Issue:itc-alf
Ground in Motion to Dismiss
Procedurally, petitioner claims that the trial court deviated from the accepted and usual course
of judicial proceedings when it dismissed Civil Case No. 97-85141 on a ground not raised in
respondent's Motion to Dismiss. Worse, it allegedly based its dismissal on a ground not
provided for in a motion to dismiss as enunciated in the Rules of Court.@lawphil.net
We are not convinced A review of respondent's Motion to Dismiss Civil Case No. 97-85141
shows that there were two grounds invoked, as follows:
"(A)
Plaintiff is guilty of forum-shopping.itc-alf

was a valid delivery, petitioner's bad faith negates its entitlement to the civil fruits of ownership,
like interest and rentals.
Under the doctrine of res judicata or bar by prior judgment, a matter that has been adjudicated
by a court of competent jurisdiction must be deemed to have been finally and conclusively
settled if it arises in any subsequent litigation between the same parties and for the same
cause.40 Thus, "[a] final judgment on the merits rendered by a court of competent jurisdiction is
conclusive as to the rights of the parties and their privies and constitutes an absolute bar to
subsequent actions involving the same claim, demand, or cause of action." 41 Res judicata is
based on the ground that the "party to be affected, or some other with whom he is in privity, has
litigated the same matter in a former action in a court of competent jurisdiction, and should not
be permitted to litigate it again.42
It frees the parties from undergoing all over again the rigors of unnecessary suits and repetitive
trials. At the same time, it prevents the clogging of court dockets. Equally important, it stabilizes
rights and promotes the rule of law.@lawphil.net
We find no need to repeat the foregoing disquisitions on the first issue to show satisfaction of
the elements of res judicata. Suffice it to say that, clearly, our ruling in the mother case bars
petitioner from claiming back rentals from respondent. Although the court a quo erred when it
declared "void from inception" the Deed of Absolute Sale between Carmelo and petitioner, our
foregoing discussion supports the grant of the Motion to Dismiss on the ground that our prior
judgment in G.R No. 106063 has already resolved the issue of back rentals.
On the basis of the evidence presented during the hearing of Mayfair's Motion to Dismiss, the
trial court found that the issue of ownership of the subject property has been decided by this
Court in favor of Mayfair. We quote the RTC:
"The Supreme Court in the Equatorial case, G.R. No. 106063 has categorically stated
that the Deed of Absolute Sale dated July 31, 1978 has been rescinded subjecting
the present complaint to res judicata."43(Emphasis in the original)
Hence, the trial court decided the Motion to Dismiss on the basis of res judicata, even if it erred
in interpreting the meaning of "rescinded" as equivalent to "void" In short, it ruled on the ground
raised; namely, bar by prior judgment. By granting the Motion, it disposed correctly, even if its
legal reason for nullifying the sale was wrong. The correct reasons are given in this Decision.
WHEREFORE, the Petition is hereby DENIED. Costs against petitioner.itc-alf
SO ORDERED.

"(B)
Plaintiff's cause of action, if any, is barred by prior judgment."39
The court a quo ruled, inter alia, that the cause of action of petitioner plaintiff in the case below)
had been barred by a prior judgment of this Court in G.R No. 106063, the mother case.
Although it erred in its interpretation of the said Decision when it argued that the rescinded
Deed of Absolute Sale was avoid," we hold, nonetheless, that petitioner's cause of action is
indeed barred by a prior judgment of this Court. As already discussed, our Decision in G.R No.
106063 shows that petitioner is not entitled to back rentals, because it never became the owner
of the disputed properties due to a failure of delivery. And even assuming arguendo that there

Davide Jr., C.J., Quisumbing, Pardo, Buena, Ynares-Santiago and Carpio, JJ., concur.
Bellosillo,
J., I
join
the
dissent
of
J.
Gutierrez.
Melo,
J., concurring
opinion.
Puno,
J., concur
and
also
join
the
concurring
opinion
of
J.
Melo.
Vitug,
J., see
dissenting
opinion.
Kapunan, J., join the dissenting opinions of Justices Vitug and Sandoval-Gutierrez.
Mendoza,
J., concur
in
this
and
Melo,
J.'s
concurring
opinion.
De Leon, Jr., J., join the dissenting opinion of Justice J.C. Vitug.

Concurring Opinion

On June 23, 1992, the Court of Appeals reversed the RTC decision, thus leading to the first
petition, G.R. No. 106063, filed against Mayfair by both Equatorial and Carmelo.

MELO, J., concurring:

While I express my conformity to the ponencia of our distinguished colleague, Mr. Justice
Artemio V. Panganiban, I would just like to make the following observations:
1. The issue in this case was squarely resolved in our 1996 En Banc decision in the
main case. What petitioner is asking us to do now is to reverse or modify a judgment
which is accurate in every respect, conformable to law and jurisprudence, and faithful
to principles of fairness and justice.
2. Petitioner's submissions are deceiving. It is trying to collect unjustified and
unbelievably increased rentals by provoking a purely academic discussion, as far as
respondent is concerned, of a non-applicable provision of the Civil Code on contracts.
3. To grant the petition is to reward bad faith, for petitioner has deprived respondent
of the latter's property rights for twenty-three (23) years and has forced it to defend its
interests in case after case during that lengthy period. Petitioner now tries to inflict
further injury in the fantastic and groundless amount of P115,947,867.00. To remand
this case to the lower court in order to determine the back rentals allegedly due to
petitioner Equatorial Realty Development Corporation, Inc. is to encourage
continuation of crafty tactics and to allow the further dissipation of scarce judicial time
and resources.
The instant petition arose from a complaint for back rentals, increased rentals and interests filed
by petitioner Equatorial Realty Development, Inc. (Equatorial) against respondent Mayfair
Theater, Inc. (Mayfair). It has to be adjudicated in the context of three earlier petitions decided
by this Court.
A dispute between the two parties over the ownership of a commercial lot and building along
Claro M. Recto Avenue in Manila has led to 23 years of protracted litigation, including the filing
of 4 petitions with the Court, namely, G.R. No. L-106063, decided on November 21, 1996 (264
SCRA 483); G.R. No. 103311 decided on March 4, 1992; G.R. No. 136221, decided on May 12,
2000; and the present petition, G.R. No. 133879.
The case at bar is a classic illustration of how a dubious interpretation of the dispositive portion
of the 1996 decision for petitioner could lead to 5 more years of bitter litigation after the initial 18
years of legal proceedings over the first case.
Lease contracts over the subject property were executed on June 1, 1967 and March 31, 1969
by original owner Carmelo and Bauermann, Inc. (Carmelo) in favor of herein respondent
Mayfair. The leases expired on May 31, 1987 and March 31, 1989, respectively. The lease
contracts embodied provisions giving Mayfair a right-of-first-refusal should Carmelo sell the
property.
In an act characterized as bad faith by this Court, the property, in violation of the right of first
refusal, was sold by Carmelo to herein petitioner Equatorial, on July 31, 1978 for
P11,300,000.00. On September 13, 1978, Mayfair filed the first case for annulment of the
contract of sale, specific performance of the right-of-first-refusal provision, and damages. The
Regional Trial Court (RTC) of Manila decided the case in favor of Equatorial on February 7,
1991. Counterclaims for compensation arising from the use of the premises were awarded to
Equatorial by the 1991 RTC decision.

On November 21, 1996, this Court En Banc rendered its decision (264 SCRA 483 [1996]),
disposing:
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 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 & Bauermann of the disputed lots. Carmelo and Bauermann is ordered to
allow Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
In the Court of Appeals decision (CA-G.R. CV No. 32918, June 23, 1992) in the main case,
raised to this Court, Mayfair was ordered to directly pay P11,300,000.00 to Equatorial
whereupon Equatorial would execute the deeds and documents necessary for the transfer of
ownership to Mayfair and the registration of the property in its name. The execution of
documents and the transfer of the property were directly between Equatorial and Mayfair. Our
decision in 1996 (G.R. No. 106063) affirmed the appellate decision. However, while the 1978
deed of sale questioned by Mayfair was rescinded, we ordered Carmelo to first return to
Equatorial the purchase price of the property, whereupon Equatorial would return ownership to
Carmelo, after which Mayfair would buy the lot for P11,300,000.00 from Carmelo.
When the case was remanded to the RTC for execution of the decision, it was ascertained that
Carmelo and Bauermann, Inc. was no longer in existence. The Sheriff could not enforce the
portions of the judgment calling for acts to be performed by Carmelo. Mayfair, therefore,
deposited the amount of P11,300,000.00 with the RTC for payment to Equatorial, hoping that
the latter would faithfully comply with this Court's decision. In this regard, it may be mentioned
that buyer Mayfair also paid P847,000.00 in taxes which the vendors should have paid. The
RTC ordered the execution of deeds of transfer, the cancellation of Equatorial's titles to the
property, and the issuance of new titles in favor of Mayfair. Accordingly, the property was
registered in the name of Mayfair and titles issued in its favor.
Equatorial, however, saw an opening for further litigation. It questioned the method employed by
the RTC to execute the Court's judgment, arguing that the directives involving Carmelo's
participation were ignored by the trial court. The litigation over the alleged incorrectness of the
execution eventually led to the second petition earlier mentioned G.R. No. 136221.
It may be mentioned at this point that on July 9, 1987, while the right-of-first-refusal and
cancellation case was pending, Equatorial filed an action for ejectment against Mayfair.
Because the issue of ownership was still pending in the case for rescission of deed of sale
including the enforcement of the right-of-first-refusal provision, the ejectment case was
dismissed. Appeals to the RTC and the Court of Appeals were denied.
On March 26, 1990, still another ejectment case was filed by Equatorial. In decisions which
reached all the way to this Court in G.R. No. 103311, the cases for ejectment did not prosper.
Mayfair won the cases on March 4, 1992.
The three cases decided by the Court in these litigations between Equatorial and Mayfair, all of
them in favor of Mayfair, are antecedents of the present and fourth petition. Equatorial has been
adjudged as having unlawfully and in bad faith acquired property that should have belonged to
Mayfair since 1978. Ownership and title have been unquestionably transferred to Mayfair.

Seemingly, Equatorial now seeks to profit from its bad faith. While the case involving the
allegedly incorrect execution of the 1996 decision on cancellation of the deed of sale in G.R.
No. 106063 was being litigated, Equatorial filed on September 18, 1997 with the RTC of Manila
two complaints for payment of back and increased rentals arising from the use by Mayfair of the
lot, building, and other fixed improvements. From the time the property was sold by Carmelo to
Equatorial, lessee Mayfair had been paying to Equatorial the rentals fixed in the 1967 and 1969
lease contracts with the original owner. This was during the pendency of the complaint for
annulment of the contract of sale, specific performance of the right-of-first-refusal provision, and
damages.
As found in our 1998 decision in G.R. No. 106063, the disputed property should have actually
belonged to Mayfair at the time. However, to avoid the ejectment cases, which Equatorial
nonetheless later filed, Mayfair was forced to pay rentals to Equatorial. It paid the rentals based
on the rates fixed by Carmelo in the lease contracts.
Equatorial, claiming the 1967 and 1969 rentals to be inadequate, claimed increased amounts as
reasonable compensation. Because the amounts fixed by the lease contract with Carmelo but
paid to Equatorial were only at the rate of P17,966.21 monthly while Equatorial wanted
P210,000.00 every month plus legal interests, the suit was for the payment of P115,947,867.68
as of June 19, 1997.
Citing the 1996 decision in G.R. No. 106063, Mayfair contended that it owned the property
under the decision. It stated that the sale by Carmelo to Equatorial had been cancelled, and, as
owner, Mayfair owed no increased rentals to Equatorial based on said decision.
The present case on back rentals could not be conclusively decided because the execution and
finality of the issue of ownership were being contested for 5 years in the petition on the proper
execution filed in G.R. No. 136221. This petition had to wait for the resolution of G.R. No.
136221.
In its decision dated May 12, 2000, in G.R. No. 136221 (First Division, per Mr. Justice Pardo;
Davide, Jr., C.J., Kapunan, and Ynares-Santiago, JJ., concurring), this Court reiterated the
judgment in G.R. No. 106063. It emphasized that the 1996 decision awarding the property to
Mayfair was clear. It stated that the decision having attained finality, there was nothing left for
the parties to do but to adhere to the mandates of the decision.
In the dispositive portion, however, the Court ordered the trial court "to carry out the execution
following strictly the terms" of the 1996 decision. However, as earlier stated, this could not be
done because Carmelo had ceased to exist. There was no longer any Carmelo which could
return the P11,300,000.00 consideration of the 1978 sale to Equatorial as ordered in the
dispositive portion of the 1996 decision. Equatorial could not and would not also execute the
deeds returning the property to Carmelo, as directed in the decision. Neither could the defunct
Carmelo sell the property to Mayfair at the sale price in 1978 when the right of first refusal was
violated.
Mayfair had to file a motion for partial reconsideration, emphasizing that it was impossible for a
corporation which has gone out of existence to obey the specific orders of this Court. A
resolution was, therefore, rendered on June 25, 2001 putting an end to the controversy over the
proper implementation of the 1996 judgment.
This June 25, 2001 Resolution in G.R. No. 136221 validated the issuance of new titles in the
name of the adjudicated owner, Mayfair. The Court ordered the direct release to Equatorial of
the P11,300,000.00 deposited in court for the account of the defunct Carmelo.

In the follow-up Resolution of the First Division in G.R. No. 136221 dated June 25, 2001, the
Court, after describing the case as a Promethean one involving the execution of a decision
which has been long final, and after calling the efforts to stave off execution as a travesty of
justice, instructed the trial court:
1. To execute the Court's Decision strictly in accordance with the ruling in G.R. No.
106063 by validating the acts of the sheriff of Manila and the titles in the name of
Mayfair Theater, Inc. issued by the Register of Deeds of Manila consistent therewith;
2. In case of failure of Carmelo and Bauermann to accept the amount of
P11,300,000.00 deposited by Mayfair Theater, Inc. with the Clerk of Court, Regional
Trial Court, Manila, to authorize the Clerk of Court to RELEASE the amount of
P11,300,000.00 deposited with the court for the account of Carmelo and Bauermann,
Inc. to petitioner;
3. To devolve upon the trial court the determination of other issues that may remain
unresolved among the parties, relating to the execution of this Court's final decision in
G.R. No. 106063.
In light of the Court's judgments in G.R. No. 106063 and G.R. No. 136221, the present petition
in G.R. No. 133879 for back rentals should now be finally resolved, applying the rulings in those
earlier decisions.
Indubitably, the 1978 deed of sale executed by Carmelo in favor of Equatorial over the disputed
property has been set aside by this Court. Equatorial was declared a buyer in bad faith. The
contract was characterized as a fraudulent sale and the entirety of the indivisible property sold
to Equatorial was the property we ordered to be conveyed to Mayfair for the same price paid by
Equatorial to Carmelo.
It is also beyond question that the method of execution of the 1996 decision by the RTC, the
direct payment by Mayfair to Equatorial, bypassing and detouring the defunct Carmelo
corporation, has been validated by this Court. There are no longer any procedural obstacles to
the full implementation of the decision.
And finally, the property sold to Equatorial in violation of Mayfair's right of first refusal is now
indisputably possessed by, and owned and titled in the name of, respondent Mayfair.
Parenthetically, the issue on the payment of back and increased rentals, plus interests, was
actually settled in the 1996 decision in G.R. No. 106063. It could not be enforced at the time
only because of the controversy unfortunately raised by Equatorial over the proper execution of
the 1996 decision.
It is now time to reiterate the 1996 decision on interests and settle the dispute between Mayfair
and Equatorial once and for all.
Thus, we reiterate that:
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 intent 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 the 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 consideration 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 (264 SCRA 483,
pp. 511-512).
Worthy quoting too is the concurring opinion in our 1996 decision of Mr. Justice Teodoro R.
Padilla as follows:
The equities of the case support the foregoing legal disposition. During the
intervening years between 1 August 1978 and this date, Equatorial (after acquiring
the C.M. Recto property for the price of P11,300,000.00) had been leasing the
property and deriving rental income therefrom. In fact, one of the lessees in the
property was Mayfair. Carmelo had, in turn, been using the proceeds of the sale,
investment-wise and/or operation wise in its own business.
It may appear, at first blush, that Mayfair is unduly favored by the solution submitted by this
opinion, because the price of P11,300,000.00 which it has to pay Carmelo in the exercise of its
right of first refusal, has been subjected to the inroads of inflation so that its purchasing power
today is less than when the same amount was paid by Equatorial to Carmelo. But then it cannot
be overlooked that it was Carmelo's breach of Mayfair's right of first refusal that prevented
Mayfair from paying the price of P11,300,000.00 to Carmelo at about the same time the amount
was paid by Equatorial to Carmelo. Moreover, it cannot be ignored that Mayfair had also
incurred consequential or "opportunity" losses by reason of its failure to acquire and use the
property under its right of first refusal. In fine, any loss in purchasing power of the price of
P11,300,000.00 is for Carmelo to incur or absorb on account of its bad faith in breaching
Mayfair's contractual right of first refusal to the subject property. (ibid., pp. 511-512).
It can be seen from the above ruling that the issue of rentals and interests was fully discussed
and passed upon in 1996. Equatorial profited from the use of the building for all the years when
it had no right or, as stated in our decision, had an inferior right over the property. Mayfair, which
had the superior right, continued to pay rent but it was the rate fixed in the lease contract with
Carmelo. We see no reason for us to now deviate from the reasoning given in our main
decision. The decision has been final and executory for five (5) years and petitioner has failed
to present any valid and reasonable ground to reconsider, modify or reverse it. Let that which
has been fairly adjudicated remain final.
My second observation relates to the clever but, to my mind, deceptive argument foisted by
Equatorial on the Court.

Equatorial relies on the Civil Code provision on rescissible contracts to bolster its claim. Its
argument is that a rescissible contract remains valid and binding upon the parties thereto until
the same is rescinded in an appropriate judicial proceeding.
Equatorial conveniently fails to state that the July 31, 1978 Deed of Absolute Sale was between
Equatorial and Carmelo only. Respondent Mayfair was not a party to the contract. The deed of
sale was surreptitiously entered into between Carmelo and Equatorial behind the back and in
violation of the rights of Mayfair. Why should the innocent and wronged party now be made to
bear the consequences of an unlawful contract to which it was not privy? Insofar as Equatorial
and Carmelo are concerned, their 1978 contract may have validly transferred ownership from
one to the other. But not as far as Mayfair is concerned.
Mayfair starts its arguments with a discussion of Article 1381 of the Civil Code that contracts
entered into in fraud of creditors are rescissible. There is merit in Mayfair's contention that the
legal effects are not restricted to the contracting parties only. On the contrary, the rescission is
for the benefit of a third party, a stranger to the contract. Mayfair correctly states that as far as
the injured third party is concerned, the fraudulent contract, once rescinded, is non-existent or
void from its inception. Hence, from Mayfair's standpoint, the deed of absolute sale which
should not have been executed in the first place by reason of Mayfair's superior right to
purchase the property and which deed was cancelled for that reason by this Court, is legally
non-existent. There must be a restoration of things to the condition prior to the celebration of the
contract (Respondent relies on Almeda vs. J. M. & Company, 43072-R, December 16, 1975, as
cited in the Philippine Law Dictionary; IV Arturo M. Tolentino, Civil Code of the Philippines, 570,
1990 Ed., citing Manresa; IV Edgardo L. Paras, Civil Code of the Philippines, 717-718, 1994
Ed.).
It is hard not to agree with the explanations of Mayfair, to wit:
4.22. As a consequence of the rescission of the Deed of Absolute Sale, it was as if
Equatorial never bought and became the lessor of the subject properties. Thus, the
court a quo did not err in ruling that Equatorial is not the owner and does not have
any right to demand back rentals from [the] subject property.
4.23. Tolentino, supra, at 577-578 further explains that the effects of rescission in an
accion pauliana retroact to the date when the credit or right being enforced was
acquired.
"While it is necessary that the credit of the plaintiff in the accion
pauliana must be prior to the fraudulent alienation, the date of the judgment
enforcing it is immaterial. Even if the judgment be subsequent to the
alienation, it is merely declaratory, with retroactive effect to the date when
the credit was constituted . . ." (emphasis supplied)
4.24. The clear rationale behind this is to prevent conniving parties, such as
Equatorial and Carmelo, from benefiting in any manner from their unlawful act of
entering into a contract in fraud of innocent parties with superior rights like Mayfair.
Thus, to allow Equatorial to further collect rentals from Mayfair is to allow the former
to profit from its own act of bad faith. Ex dolo malo non oritur actio. (Respondent's
Comment, pp. 338-339, Rollo).
This brings me to my third and final observation in this case. This Court emphasized in the main
case that the contract of sale between Equatorial and Carmelo was characterized by bad faith.
The Court described the sale as "fraudulent" in its 1996 decision. It stated that the damages
which Mayfair suffered are in terms of actual injury and lost opportunities, emphasizing that

Mayfair should not be given an empty or vacuous victory. Moreover, altogether too many suits
have been filed in this case. Four separate petitions have come before us, necessitating full
length decisions in at least 3 of them. The 1996 decision stressed that the Court has always
been against multiplicity of suits.
There was bad faith from the execution of the deed of sale because Equatorial and Carmelo
affirmatively operated with furtive design or with some motive of self-interest or ill-will or for
ulterior purposes (Air France vs. Carrascoso, 18 SCRA 166 [1966]). There was breach of a
known duty by the two parties to the unlawful contract arising from motives of interests or ill-will
calculated to cause damage to another (Lopez vs. Pan American World Airways, 123 Phil. 264
[1966]).
The presence of bad faith is clear from the records. Our resolution of this issue in 1996 (G.R.
106063) is res judicata.

the contract of lease. Under the Civil Code, Mayfair is the victim in a breach of contract where
Carmelo and Equatorial acted fraudulently and in bad faith.
Considering the judgments in our 3 earlier decisions, Mayfair is under no obligation to pay any
interests, whether based on law or equity, to Carmelo or Equatorial. Mayfair is the wronged
entity, the one which has suffered injury since 1978 or for the 23 years it was deprived of the
property.
Equatorial has received rentals and other benefits from the use of the property during these 23
years, rents and benefits which would have accrued to Mayfair if its rights had not been
violated.
There is no obligation on the part of respondent Mayfair to pay any increased, additional, back
or future rentals or interests of any kind to petitioner Equatorial under the circumstances of this
case.

We stated:
I, therefore, concur with the majority opinion in denying due course and dismissing the petition.
First and foremost is that the petitioners (referring to Equatorial and Carmelo) acted
in bad faith to render Paragraph 8 "inutile".
xxx

xxx

xxx

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.
xxx

xxx

xxx

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.
xxx

xxx

Puno and Mendoza, JJ., concur.

xxx

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 (264 SCRA 506, 507-511).
We ruled that because of bad faith, neither may Carmelo and Equatorial avail themselves of
considerations based on equity which might warrant the grant of interests and, in this case,
unconscionably increased rentals.
Verily, if Mayfair were a natural person it could very well have asked for moral damages instead
of facing a lengthy and expensive suit to pay rentals many times higher than those stipulated in

Dissenting Opinion
VITUG, J., dissenting:
Civil Law, in its usual sophistication, classifies defective contracts (unlike the seemingly generic
treatment in Common Law), into, first, the rescissible contracts,1 which are the least infirm;
followed by, second, the voidable contracts;2 then, third, the unenforceable contracts;3 and,
finally, fourth, the worst of all or the void contracts. 4 In terms of their efficaciousness, rescissible
contracts are regarded, among the four, as being the closest to perfectly executed contracts. A
rescissible contract contains all the requisites of a valid contract and are considered legally
binding, but by reason of injury or damage to either of the contracting parties or to third persons,
such as creditors, it is susceptible to rescission at the instance of the party who may be
prejudiced thereby. A rescissible contract is valid, binding and effective until it is rescinded. The
proper way by which it can be assailed is by an action for rescission based on any of the
causes expressly specified by law.5
The remedy of rescission in the case of rescissible contracts under Article 1381 is not to be
confused with the remedy of rescission, or more properly termed "resolution," of reciprocal
obligations under Article 1191 of the Civil Code. While both remedies presuppose the existence
of a juridical relation that, once rescinded, would require mutual restitution, it is basically,
however, in this aspect alone when the two concepts coincide.
Resolution under Article 1191 would totally release each of the obligors from compliance with
their respective covenants. It might be worthwhile to note that in some cases, notably Ocampo
vs. Court of Appeals,6 and Velarde vs. Court of Appeals,7 where the Court referred to rescission
as being likened to contracts which are deemed "void at inception," the focal issue is the breach
of the obligation involved that would allow resolution pursuant to Article 1191 of the Civil Code.
The obvious reason is that when parties are reciprocally bound, the refusal or failure of one of
them to comply with his part of the bargain should allow the other party to resolve their juridical

relationship rather than to leave the matter in a state of continuing uncertainty. The result of the
resolution, when decreed, renders the reciprocal obligations inoperative "at inception."
Upon the other hand, the rescission of a rescissible contract under Article 1381, taken in
conjunction with Article 1385, is a relief which the law grants for the protection of a contracting
party or a third person from injury and damage that the contract may cause, or to protect some
incompatible and preferent right created by the contract. 8 Rescissible contracts are not void ab
initio, and the principle, "quod nullum est nullum producit effectum," in void and inexistent
contracts is inapplicable. Until set aside in an appropriate action rescissible contracts are
respected as being legally valid, binding and in force. It would be wrong to say that rescissible
contracts produce no legal effects whatsoever and that no acquisition or loss of rights could
meanwhile occur and be attributed to the terminated contract. The effects of the rescission,
prospective in nature, can come about only upon its proper declaration as such.

The facts are simple.

On June 1, 1967, respondent Mayfair Theater, Inc. (Mayfair) leased portions of the ground,
mezzanine and second floors of a two storey commercial building located along C.M. Recto
Avenue Manila. The building together with the land on which it was constructed was then
owned by Carmelo & Bauermann, Inc. (Carmelo). Respondent used these premises as "Maxim
Theater." The lease was for a period of twenty (20) years.
On March 31, 1969, Mayfair leased from Carmelo another portion of the second floor, as well as
two (2) store spaces on the ground and mezzanine floors of the same building. Respondent
Mayfair used the premises as a movie theater known as "Miramar Theater."
Both leases contained the following identical provisions:

Thus when the Court9 held the contract to be "deemed rescinded" in G.R. No. 106063, the
Court did not mean a "declaration of nullity" of the questioned contract. The agreement between
petitioner and Carmelo being efficacious until rescinded, validly transferred ownership over the
property to petitioner from the time the deed of sale was executed in a public instrument on 30
July 1978 up to the time that the decision in G.R. No. 106063 became final on 17 March 1997. It
was only from the latter date that the contract had ceased to be efficacious. The fact that the
subject property was in the hands of a lessee, or for that matter of any possessor with a juridical
title derived from an owner, would not preclude a conferment of ownership upon the purchaser
nor be an impediment from the transfer of ownership from the seller to the buyer. Petitioner,
being the owner of the property (and none other) until the judicial rescission of the sale in its
favor, was entitled to all incidents of ownership inclusive of, among its other elements, the right
to the fruits of the property. Rentals or rental value over that disputed property from 30 July
1978 up to 17 March 1997 should then properly pertain to petitioner. In this respect, the much
abused terms of "good faith" or "bad faith " play no role; ownership, unlike other concepts, is
never described as being either in good faith or in bad faith.
With all due respect, I am thus unable to join in this instance my colleagues in the majority.
Kapunan and De Leon, Jr., JJ., concur.

"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.
On July 31, 1978, Carmelo entered into a Deed of Absolute Sale whereby it sold the subject
land and two-storey building to petitioner Equatorial Realty Development, Inc. (Equatorial) for
P11,300,000.00. Having acquired from Carmelo ownership of the subject property, Equatorial
received rents from Mayfair for sometime.
Subsequently, Mayfair, claiming it had been denied its right to purchase the leased property in
accordance with the provisions of its lease contracts with Carmelo, filed with the Regional Trial
Court, Branch 7, Manila, a suit for specific performance and annulment of sale with prayer to
enforce its "exclusive option to purchase" the property. The dispute between Mayfair, on the one
hand, and Carmelo and Equatorial on the other, reached this Court in G.R. No. 106063,
"Equatorial Realty Development, Inc. & Carmelo & Bauermann, Inc. vs. Mayfair Theater,
Inc."1On November 21, 1996, this Court rendered a Decision, the dispositive portion of which
reads:

"Stare decisis et non quieta movere follow past precedents and do not disturb what has been
settled. Adherence to this principle is imperative if this Court is to maintain stability in
jurisprudence.

"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; 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 & Bauermann of the disputed lots. Carmelo & Bauermann is ordered to
allow Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00.

I regret that I am unable to agree with the majority opinion.

SO ORDERED."

Dissenting Opinion
SANDOVAL-GUTIERREZ, J., dissenting:

The principal issue in this case is whether a rescissible contract is void and ineffective from its
inception. This issue is not a novel one. Neither is it difficult to resolve as it involves the
application of elementary principles in the law on contracts, specifically on rescissible contracts,
as distinguished from void or inexistent contracts.

The Decision of this Court in G.R. No. 106063 became final and executory on March 17, 1997.
On April 25, 1997, Mayfair filed with the trial court a motion for execution which was granted.

However, Carmelo could no longer be located. Thus, Mayfair deposited with the trial court its
payment to Carmelo in the sum of P11,300,000.00 less P847,000.00 as withholding tax.
The Clerk of Court of the Manila Regional Trial Court, as sheriff, executed a deed of reconveyance in favor of Carmelo and a deed of sale in favor of Mayfair. On the basis of these
documents, the Registry of Deeds of Manila cancelled Equatorial's titles and issued new
Certificates of Title2 in the name of Mayfair.
3

In G.R. No. 136221, "Equatorial Realty Development, Inc. vs. Mayfair Theater, Inc.," this Court
instructed the trial court to execute strictly this Court's Decision in G.R. No. 106063.
On September 18, 1997, or after the execution of this Court's Decision in G.R. No. 106063,
Equatorial filed with the Regional Trial Court of Manila, Branch 8, an action for collection of a
sum of money against Mayfair, docketed as Civil Case No. 97-85141. Equatorial prayed that the
trial court render judgment ordering Mayfair to pay:
(1) the sum of P11,548,941.76 plus legal interest, representing the total amount of
unpaid monthly rentals/reasonable compensation from June 1, 1987 (Maxim Theater)
and March 31,1989 (Miramar Theater) to July 31, 1997;

Hence, the present petition.

At this stage, I beg to disagree with the ruling of the majority that (1) Equatorial did not acquire
ownership of the disputed property from Carmelo because of lack of delivery; and that (2)
Equatorial is not entitled to the payment of rentals because of its bad faith.
Firmly incorporated in our Law on Sales is the principle that ownership is transferred to the
vendee by means of delivery, actual or constructive. 7 There is actual delivery when the thing
sold is placed in the control and possession of the vendee. 8 Upon the other hand, there is
constructive delivery when the delivery of the thing sold is represented by other signs or acts
indicative thereof. Article 1498 of the Civil Code is in point. It provides that "When the sale is
made through a public instrument, the execution thereof shall be equivalent to the delivery of
the thing which is the object of the contract, if from the deed the contrary does not appear or
cannot clearly be inferred."9
Contrary to the majority opinion, the facts and circumstances of the instant case clearly indicate
that there was indeed actual and constructive delivery of the disputed property from Carmelo to
Equatorial.
Let me substantiate my claim.

(2) the sums of P849,567.12 and P458,853.44 a month, plus legal interest, as
rental/reasonable compensation for the use and occupation of the subject property
from August 1, 1997 to May 31, 1998 (Maxim Theater) and March 31, 1998 (Miramar
Theater);
(3) the sum of P500,000.00 as and for attorney's fees, plus other expenses of
litigation; and
(4) the costs of the suit.4
On October 14, 1997, before filing its answer, Mayfair filed a "Motion to Dismiss" Civil Case No.
97-85141 on the following grounds:

First, I must take exception to the majority's statement that this Court found in G.R. No.
10606310 that, "no right of ownership was transferred from Carmelo to Equatorial in view of a
patent failure to deliver the property to the buyer."11
A perusal of the Decision dated November 21, 1996 would reveal otherwise.
To say that this Court found no transfer of ownership between Equatorial and Carmelo is very
inaccurate. For one, this Court, in disposing of G.R. No. 106063, explicitly ordered Equatorial to
"execute the deeds and documents necessary to return ownership to Carmelo & Bauermann of
the disputed lots."12 I suppose this Court would not have made such an order if it did not
recognize the transfer of ownership from Carmelo to Equatorial under the contract of sale. For
why would the Court order Equatorial to execute the deeds and documents necessary to return
ownership to Carmelo if, all along, it believed that ownership remained with Carmelo?

"(A)
PLAINTIFF IS GUILTY OF FORUM SHOPPING.
(B)
PLAINTIFF'S CAUSE OF ACTION, IF ANY, IS BARRED BY PRIOR JUDGMENT." 5
On March 11, 1998, the court a quo issued an order dismissing Civil Case No. 97-85141 on the
ground that since this Court, in G.R. No. 106063, rescinded the Deed of Absolute Sale between
Carmelo and Equatorial, the contract is void at its inception. 6 Correspondingly, Equatorial is not
the owner of the subject property and, therefore, does not have any right to demand from
Mayfair payment of rentals or reasonable compensation for its use and occupation of the
premises.
Equatorial filed a motion for reconsideration but was denied.

Furthermore, is Court explicitly stated in the Decision that Equatorial received rentals from
Mayfair during the pendency of the case. Let me quote the pertinent portion of the Decision,
thus:
". . . 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, Mayfairpaid rentals regularly to the buyer (Equatorial)
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."13
Justice Teodoro R. Padilla, in his Separate Opinion, made the following similar observations:
"The equities of the case support the foregoing legal disposition. During the
intervening years between 1 August 1978 and this date, Equatorial (after acquiring
the C.M. Recto property for the price of P11,300,000.00) had been leasing the
property and deriving rental income therefrom. In fact, one of the lessees in the

property was Mayfair. Carmelo had, in turn, been using the proceeds of the sale,
investment-wise and/or operation-wise in its own business."14

any right of ownership. How then, at that early stage, could Mayfair's action be an impediment
in the consummation of the contract between Carmelo and Equatorial?

Obviously, this Court acknowledged the delivery of the property from Carmelo to Equatorial. As
aptly described by Justice Panganiban himself, the sale between Carmelo and Equatorial had
not only been "perfected" but also "consummated".15

Pertinently, it does not always follow that, because a transaction is prohibited or illegal, title, as
between the parties to the transaction, does not pass from the seller, donor, or transferor to the
vendee, donee or transferee.21

That actual possession of the property was turned over by Carmelo to Equatorial is clear from
the fact that the latter received rents from Mayfair. Significantly, receiving rentals is an exercise
of actual possession. Possession, as defined in the Civil Code, is the holding of a thing or the
enjoyment of a right.16 It may either be by material occupation or by merely subjecting the thing
or right to the action of our will. 17 Possession may therefore be exercised through one's self or
through another.18 It is not necessary that the person in possession should himself be the
occupant of the property, the occupancy can be held by another in the name of the one who
claims possession. In the case at bench, Equatorial exercised possession over the disputed
property through Mayfair. When Mayfair paid its monthly rentals to Equatorial, the said lessee
recognized the superior right of Equatorial to the possession of the property. And even if
Mayfair did not recognize Equatorial's superior right over the disputed property, the fact remains
that Equatorial was then enjoying the fruits of its possession.

And third, conformably to the foregoing disquisition, I maintain that Equatorial has the right to be
paid whatever monthly rentals during the period that the contract of sale was in existence minus
the rents already paid. InGuzman v. Court of Appeals,22 this Court decreed that upon the
purchase of the leased property and proper notice by the vendee, the lessee must pay the
agreed monthly rentals to the new owner since, by virtue of the sale the vendee steps into the
shoes of the original lessor to whom the lessee bound himself to pay. His belief that the subject
property should have been sold to him does not justify the unilateral withholding of rental
payments due to the new owner of the property.23 It must be stressed that under Article 1658 of
the Civil Code, there are only two instances wherein the lessee may suspend payment of rent,
namely: in case the lessor fails to make the necessary repairs or to maintain the lessee in
peaceful and adequate enjoyment of the property leased. 24 In this case, the fact remains that
Mayfair occupied the leased property. It derived benefit from such occupation, thus, it should
pay the corresponding rentals due. Nemo cum alterius detrimento locupletari potest. No one
shall enrich himself at the expense of another.25

At this juncture, it will be of aid to lay down the degrees of possession. The first degree is the
mere holding, or possession without title whatsoever, and in violation of the right of the owner.
Here, both the possessor and the public know that the possession is wrongful. An example of
this is the possession of a thief or a usurper of land. The second is possession with juridical
title, but not that of ownership. This is possession peaceably acquired, such that of a tenant,
depositary, or pledge. The third is possession with a just title, or a title sufficient to transfer
ownership, but not from the true owner. An example is the possession of a vendee of a piece of
land from one who pretends to be the owner but is in fact not the owner thereof. And the fourth
is possession with a just title from the true owner. This is possession that springs from
ownership.19 Undoubtedly, Mayfair's possession is by virtue of juridical title under the contract of
lease, while that of Equatorial is by virtue of its right of ownership under the contract of sale.
Second, granting arguendo that there was indeed no actual delivery, would Mayfair's
alleged "timely objection to the sale and continued actual possession of the property" constitute
an "impediment" that may prevent the passing of the property from Carmelo to Equatorial?20
I believe the answer is no.
The fact that Mayfair has remained in "actual possession of the property," after the perfection of
the contract of sale between Carmelo and Equatorial up to the finality of this Court's Decision in
G.R. No. 106063 (and even up to the present), could not prevent the consummation of such
contract. As I have previously intimated, Mayfair's possession is not under a claim of ownership.
It cannot in any way clash with the ownership accruing to Equatorial by virtue of the sale. The
principle has always been that the one who possesses as a mere holder acknowledges in
another a superior right or right of ownership. A tenant possesses the thing leased as a mere
holder, so does the usufructuary of the thing in usufruct; and the borrower of the thing loaned in
commodatum. None of these holders asserts a claim of ownership in himself over the thing.
Similarly, Mayfair does not claim ownership, but only possession as a lessee with the prior right
to purchase the property.
In G.R. No. 106063, Mayfair's main concern in its action for specific performance was the
recognition of its right of first refusal. Hence, the most that Mayfair could secure from the
institution of its suit was to be allowed to exercise its right to buy the property upon rescission of
the contract of sale. Not until Mayfair actually exercised what it was allowed to do by this Court
in G.R. No. 106063, specifically to buy the disputed property for P11,300,000.00, would it have

Neither should the presence of bad faith prevent the award of rent to Equatorial. While
Equatorial committed bad faith in entering into the contract with Camelo, it has been equitably
punished when this Court rendered the contract rescissible. That such bad faith was the very
reason why the contract was declared rescissible is evident from the Decision itself. 26 To utilize
it again, this time, to deprive Equatorial of its entitlement to the rent corresponding to the period
during which the contract was supposed to validly exist, would not only be unjust, it would also
disturb the very nature of a rescissible contract.
Let me elucidate on the matter.
Articles 1380 through 1389 of the Civil Code deal with rescissible contracts. A rescissible
contract is one that is validly entered into, but is subsequently terminated or rescinded for
causes provided for by law.
This is the clear implication of Article 1380 of the same Code which provides:
"Art. 1380. Contracts validly agreed upon may be rescinded in the cases established
by law."
Rescission has been defined as follows:
"Rescission is a remedy granted by law to the contracting parties and even to third
persons, to secure the reparation of 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 for the protection of one
of the contracting parties and third persons from all injury and damage the contract
may cause, or to protect some incompatible and preferential right created by the
contract. It implies a contract which, even if initially valid, produces a lesion or
pecuniary damage to someone. It sets aside the act or contract for justifiable reasons
of equity."27

Necessarily, therefore, a rescissible contract remains valid and binding upon the parties thereto
until the same is rescinded in an appropriate judicial proceeding.
On the other hand, a void contract, which is treated in Articles 1409 through 1422 of the Civil
Code, is inexistent and produces no legal effect whatsoever. The contracting parties are not
bound thereby and such contract is not subject to ratification.
In dismissing petitioner Equatorial's complaint in Civil Case No. 97-85141, the trial court was
apparently of the impression that a rescissible contract has the same effect as a void contract,
thus:

contracting parties until March 17, 1997 when the Decision in G.R. No. 106063 became
final. Consequently, being the owner, Equatorial has the right to demand from Mayfair payment
of rentals corresponding to the period from July 31, 1978 up to March 17, 1997.
Records show that the rentals and reasonable compensation which Equatorial demands from
Mayfair are those which accrued from the year 1987 to 1998. As earlier stated, prior thereto,
Mayfair had been paying the rents to Equatorial.
In line with this Court's finding that Equatorial was the owner of the disputed property from July
31, 1978 to March 17, 1997, it is, therefore, entitled to the payment of rentals accruing to such
period.

"However, the words in the dispositive portion of the Supreme Court "is hereby
deemed rescinded" does not allow any other meaning. The said Deed of Absolute
Sale is void at its inception.

Consequently, whether or not Mayfair paid Equatorial the rentals specified in the lease contracts
from June 1, 1987 to March 17, 1997 is for the trial court to resolve.

xxx

One last word. In effect, the majority have enunciated that:

xxx

xxx

The subject Deed of Absolute Sale having been rescinded by the Supreme
Court, Equatorial is not the owner and does not have any right to demand back
rentals from subject property. The law states that only an owner can enjoy the fruits of
a certain property or jus utendi which includes the right to receive from subject
property what it produces, . . ."
The trial court erred. In G.R. No. 106063 (involving Mayfair's suit for specific performance), this
Court clearly characterized the Deed of Absolute Sale between Carmelo and petitioner
Equatorial as a rescissible contract. We stated therein that:

1. A lessor, in a contract of sale, cannot transfer ownership of his property, occupied

by the lessee, to the buyer because there can be no delivery of such property to the
latter; and
2. Not only a possessor, but also an owner, can be in bad faith.
I cannot subscribe to such doctrines.
WHEREFORE, I vote to GRANT the petition.

"Since Equatorial is a buys 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."
This Court did not declare the Deed of Absolute Sale between Carmelo and Equatorial void but
merely rescissible. Consequently, the contract was, at inception, valid and naturally, it validly
transferred ownership of the subject property to Equatorial. It bears emphasis that Equatorial
was not automatically divested of its ownership. Rather, as clearly directed in the dispositive
portion of our Decision, Carmelo should return the purchase price to Equatorial which, in
turn, must execute such deeds and documents necessary to enable Carmelo to reacquire its
ownership of the property.
As mentioned earlier, Mayfair deposited with the Regional Trial Court, Branch 7, Manila, the
purchase price of P10,452,000.00 (P11,300,000.00 less P847,000.00 as withholding tax). In
turn, the Clerk of Court executed the deed of sale of the subject property in favor of Mayfair.
In the meantime, Mayfair has continued to occupy and use the premises, the reason why
Equatorial filed against it Civil Case No. 97-85141 for sum of money representing rentals and
reasonable compensation.
At this point, I must reiterate that Equatorial purchased the subject property from Carmelo and
became its owner on July 31, 1978. While the contract of sale was "deemed rescinded" by this
Court in G.R. No. 106063, nevertheless the sale had remained valid and binding between the

Bellosillo and Kapunan, JJ., concur.

HELD: NO.
CIVIL LAW; PROPERTY; CIVIL FRUIT OF OWNERSHIP; RENTALS. Rent is a civil fruit that
EQUATORIAL REALTY DEVELOPMENT, INC., vs. MAYFAIR THEATER, INC.

belongs to the owner of the property producing it by right of accession. Consequently and
ordinarily, the rentals that fell due from the time of the perfection of the sale to petitioner until its

[G.R. No. 133879. November 21, 2001.]

rescission by final judgment should belong to the owner of the property during that period.

FACTS:

SALES; OWNERSHIP OF THE THING SOLD IS TRANSFERRED, NOT BY CONTRACT

ALONE, BUT BY TRADITION OR DELIVERY. By a contract of sale, one of the contracting

Mayfair Theater, Inc. was a lessee of portions of a building owned by Carmelo &

parties obligates himself to transfer ownership of and to deliver a determinate thing and the

Bauermann, Inc. Their lease contracts of 20 years (1. which covered a portion of the

other to pay therefor a price certain in money or its equivalent. Ownership of the thing sold is a

second floor and mezzanine of a two-storey building with about 1,610 square meters of

real right, which the buyer acquires only upon delivery of the thing to him in any of the ways

floor area, which respondent used as a movie house known as Maxim Theater 2. two

specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the

store spaces on the ground floor and the mezzanine, with a combined floor area of

possession is transferred from the vendor to the vendee. This right is transferred, not by

about 300 square meters also used as a movie house Miramar Theater)

contract alone, but by tradition or delivery. Non nudis pactis sed traditione dominia rerum

Lease contracts contained a provision granting Mayfair a right of first refusal to

transferantur.

purchase the subject properties.

However, before the contracts ended, the subject properties were sold for P11,300 by
Carmelo to Equatorial Realty Development, Inc.

This prompted Mayfair to file a case for the annulment of the Deed of Absolute Sale
between Carmelo and Equatorial, specific performance and damages.

THERE IS DELIVERY WHEN THE THING SOLD IS PLACED UNDER THE CONTROL AND
POSSESSION OF THE VENDEE. [T]here is said to be delivery if and when the thing sold is
placed in the control and possession of the vendee. Thus, it has been held that while the
execution of a public instrument of sale is recognized by law as equivalent to the delivery of the

In 1996, the Court ruled in favor of Mayfair.

thing sold, such constructive or symbolic delivery, being merely presumptive, is deemed

Barely five months after Mayfair had submitted its Motion for Execution, Equatorial

negated by the failure of the vendee to take actual possession of the land sold. Delivery has

filed an action for collection of sum of money against Mayfair claiming payment of

been described as a composite act, a thing in which both parties must join and the minds of

rentals or reasonable compensation for the defendants use of the subject premises

both parties concur. It is an act by which one party parts with the title to and the possession of

after its lease contracts had expired.

the property, and the other acquires the right to and the possession of the same. In its natural

Maxim Theater contract expired on May 31, 1987, while the Lease Contract covering
the premises occupied by Miramar Theater lapsed on March 31, 1989.

The lower court debunked the claim of Equatorial for unpaid back rentals, holding that
the rescission of the Deed of Absolute Sale in the mother case did not confer on

sense, delivery means something in addition to the delivery of property or title; it means transfer
of possession. In the Law on Sales, delivery may be either actual or constructive, but both
forms of delivery contemplate the absolute giving up of the control and custody of the property
on the part of the vendor, and the assumption of the same by the vendee.

Equatorial any vested or residual propriety rights, even in expectancy.

It further ruled that the Court categorically stated that the Deed of Absolute Sale had
been rescinded subjecting the present complaint to res judicata.

Hence, Equatorial filed the present petition.

ID.; NOT PRESENT IN CASE AT BAR. [T]heoretically, a rescissible contract is valid until
rescinded. However, this general principle is not decisive to the issue of whether Equatorial ever
acquired the right to collect rentals. What is decisive is the civil law rule that ownership is
acquired, not by mere agreement, but by tradition or delivery. Under the factual environment of
this controversy as found by this Court in the mother case, Equatorial was never put in actual
and effective control or possession of the property because of Mayfairs timely objection.

ISSUE: whether Equatorial was the owner of the subject property and could thus enjoy the fruits
or rentals therefrom

ID.; EXECUTION OF CONTRACT OF SALE AS FORM OF CONSTRUCTIVE DELIVERY

as alleged buyer of the disputed properties and as alleged successor-in-interest of Carmelos

HOLDS TRUE ONLY WHEN THERE IS NO IMPEDIMENT THAT MAY PREVENT THE

rights as lessor submitted two ejectment suits against Mayfair. Filed in the Metropolitan Trial

PASSING OF THE PROPERTY FROM THE VENDOR TO THE VENDEE. From the peculiar

Court of Manila, the first was docketed as Civil Case No. 121570 on July 9, 1987; and the

facts of this case, it is clear that petitioner never took actual control and possession of the

second, as Civil Case No. 131944 on May 28, 1990. Mayfair eventually won them both.

property sold, in view of respondents timely objection to the sale and the continued actual

However, to be able to maintain physical possession of the premises while awaiting the

possession of the property. The objection took the form of a court action impugning the sale

outcome of the mother case, it had no choice but to pay the rentals. The rental payments made

which, as we know, was rescinded by a judgment rendered by this Court in the mother case. It

by Mayfair should not be construed as a recognition of Equatorial as the new owner. They were

has been held that the execution of a contract of sale as a form of constructive delivery is a

made merely to avoid imminent eviction.

legal fiction. It holds true only when there is no impediment that may prevent the passing of the
property from the hands of the vendor into those of the vendee. When there is such

STATUTORY CONSTRUCTION; GENERAL PROPOSITIONS DO NOT DECIDE SPECIFIC

impediment, fiction yields to reality the delivery has not been effected. Hence, respondents

CASES. As pointed out by Justice Holmes, general propositions do not decide specific

opposition to the transfer of the property by way of sale to Equatorial was a legally sufficient

cases. Rather, laws are interpreted in the context of the peculiar factual situation of each case.

impediment that effectively prevented the passing of the property into the latters hands.

Each case has its own flesh and blood and cannot be decided on the basis of isolated clinical
classroom principles.

ID.; EXECUTION OF PUBLIC INSTRUMENT GIVES RISE ONLY TO A PRIMA FACIE

PRESUMPTION OF DELIVERY. The execution of a public instrument gives rise, . . . only to

CIVIL LAW; SALES; VALID FROM INCEPTION BUT JUDICIALLY RESCINDED BEFORE IT

a prima facie presumption of delivery. Such presumption is destroyed when the instrument itself

COULD BE CONSUMMATED; CASE AT BAR. [T]he sale to Equatorial may have been valid

expresses or implies that delivery was not intended; or when by other means it is shown that

from inception, but it was judicially rescinded before it could be consummated. Petitioner never

such delivery was not effected, because a third person was actually in possession of the thing.

acquired ownership, not because the sale was void, as erroneously claimed by the trial court,

In the latter case, the sale cannot be considered consummated.

but because the sale was not consummated by a legally effective delivery of the property sold.

ID.; OBLIGATIONS AND CONTRACTS; RESCISSIBLE CONTRACTS; NOT ONLY THE LAND

ID.; ID.; BUYER IN BAD FAITH; NOT ENTITLED TO ANY BENEFIT; ENTITLED SOLELY TO

AND BUILDING SOLD SHALL BE RETURNED TO THE SELLER BUT ALSO THE RENTAL

THE RETURN OF THE PURCHASE PRICE; MUST BEAR ANY LOSS. [A]ssuming for the

PAYMENTS PAID, IF ANY. [T]he point may be raised that under Article 1164 of the Civil

sake of argument that there was valid delivery, petitioner is not entitled to any benefits from the

Code, Equatorial as buyer acquired a right to the fruits of the thing sold from the time the

rescinded Deed of Absolute Sale because of its bad faith. This being the law of the mother

obligation to deliver the property to petitioner arose. That time arose upon the perfection of the

case decided in 1996, it may no longer be changed because it has long become final and

Contract of Sale on July 30, 1978, from which moment the laws provide that the parties to a

executory. . . . Thus, petitioner was and still is entitled solely to the return of the purchase price

sale may reciprocally demand performance. Does this mean that despite the judgment

it paid to Carmelo; no more, no less. This Court has firmly ruled in the mother case that neither

rescinding the sale, the right to the fruits belonged to, and remained enforceable by, Equatorial?

of them is entitled to any consideration of equity, as both took unconscientious advantage of

Article 1385 of the Civil Code answers this question in the negative, because [r]escission

Mayfair. In the mother case, this Court categorically denied the payment of interest, a fruit of

creates the obligation to return the things which were the object of the contract, together with

ownership. By the same token, rentals, another fruit of ownership, cannot be granted without

their fruits, and the price with its interest; . . . . Not only the land and building sold, but also the

mocking this Courts en banc Decision, which has long become final. Petitioners claim of

rental payments paid, if any, had to be returned by the buyer.

reasonable compensation for respondents use and occupation of the subject property from the
time the lease expired cannot be countenanced. If it suffered any loss, petitioner must bear it in

ID.; SALES; CONTRACT OF SALE; RENTAL PAYMENTS MADE SHOULD NOT BE

silence, since it had wrought that loss upon itself. Otherwise, bad faith would be rewarded

CONSTRUED AS A RECOGNITION OF THE BUYER AS NEW ORDER BUT MERELY TO

instead of punished.

AVOID IMMINENT EVICTION; CASE AT BAR. The fact that Mayfair paid rentals to
Equatorial during the litigation should not be interpreted to mean either actual delivery or ipso

ID.; ID.; ID.; ID.; APPLICABLE IN CASE AT BAR. Suffice it to say that, clearly, our ruling in

facto recognition of Equatorials title. The CA Records of the mother case show that Equatorial

the mother case bars petitioner from claiming back rentals from respondent. Although the court

a quo erred when it declared void from inception the Deed of Absolute Sale between Carmelo
and petitioner, our foregoing discussion supports the grant of the Motion to Dismiss on the
ground that our prior judgment in GR No. 106063 has already resolved the issue of back
rentals. On the basis of the evidence presented during the hearing of Mayfairs Motion to
Dismiss, the trial court found that the issue of ownership of the subject property has been
decided by this Court in favor of Mayfair. . . . Hence, the trial court decided the Motion to
Dismiss on the basis of res judicata, even if it erred in interpreting the meaning of rescinded as
equivalent to void. In short, it ruled on the ground raised; namely, bar by prior judgment. By
granting the Motion, it disposed correctly, even if its legal reason for nullifying the sale was
wrong.

EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC. vs.
MAYFAIR THEATER, INC.
G.R. No. 106063 November 21, 1996
FACTS:
Carmelo entered into a contract with respondent for the latter to lease 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 and 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.
The contract is set for the next 20 years.
2 years later, the parties entered into yet another contract involving; 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 and 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.
Stipulated in the contract was; 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 1974, Carmelo through Mr. Pascal by a telephone call told the respondent that it is
contemplating to sell the said property and that a certain Jose Araneta is willing to buy the same
for US$1,200,000. It also asked the respondent if its willing to the property for six to seven
million pesos. Respondent through Mr. Yang told the petitioner that it would respond once a
decision was made.
Respondent in its reply mentioned a stipulated part of the contract as to when Carmelo would
decide to sell the property. Carmelo did not reply.
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.
Mayfair instituted the action a quo for specific performance and annulment of the sale of the
leased premises to Equatorial.
Carmelos defense; 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.
Equitorials allegation; 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.
Trial Court rendered decision in favor of Carmelo and Equitorial.
ISSUE:
Whether or not the OPTION CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A
RIGHT OF FIRST REFUSAL PROVISO
HELD:
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.
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.
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

G.R. No. 168325

December 8, 2010

ROBERTO D. TUAZON, Petitioner,

vs.
LOURDES Q. DEL ROSARIO-SUAREZ, CATALINA R. SUAREZ-DE LEON, WILFREDO DE
LEON, MIGUEL LUIS S. DE LEON, ROMMEL LEE S. DE LEON, and GUILLERMA L.
SANDICO-SILVA, as attorney-in-fact of the defendants, except Lourdes Q. Del RosarioSuarez, Respondents.
DECISION
DEL CASTILLO, J.:
In a situation where the lessor makes an offer to sell to the lessee a certain property at a fixed
price within a certain period, and the lessee fails to accept the offer or to purchase on time, then
the lessee loses his right to buy the property and the owner can validly offer it to another.
This Petition for Review on Certiorari 1 assails the Decision2 dated May 30, 2005 of the Court of
Appeals (CA) in CA-G.R. CV No. 78870, which affirmed the Decision 3 dated November 18,
2002 of the Regional Trial Court (RTC), Branch 101, Quezon City in Civil Case No. Q-00-42338.
Factual Antecedents

Respondent Lourdes Q. Del Rosario-Suarez (Lourdes) was the owner of a parcel of land,
containing more or less an area of 1,211 square meters located along Tandang Sora Street,
Barangay Old Balara, Quezon City and previously covered by Transfer Certificate of Title (TCT)
No. RT-561184 issued by the Registry of Deeds of Quezon City.

WHEREFORE, premises considered, judgment is hereby rendered dismissing the aboveentitled Complaint for lack of merit, and ordering the Plaintiff to pay the Defendants, the
following:
1. the amount of P30,000.00 as moral damages;

On June 24, 1994, petitioner Roberto D. Tuazon (Roberto) and Lourdes executed a Contract of
Lease5 over the abovementioned parcel of land for a period of three years. The lease
commenced in March 1994 and ended in February 1997. During the effectivity of the lease,
Lourdes sent a letter6 dated January 2, 1995 to Roberto where she offered to sell to the latter
subject parcel of land. She pegged the price at P37,541,000.00 and gave him two years from
January 2, 1995 to decide on the said offer.

2. the amount of P30,000.00 as exemplary damages;

3. the amount of P30,000.00 as attorneys fees; and
4. cost of the litigation.

On June 19, 1997, or more than four months after the expiration of the Contract of Lease,
Lourdes sold subject parcel of land to her only child, Catalina Suarez-De Leon, her son-in-law
Wilfredo De Leon, and her two grandsons, Miguel Luis S. De Leon and Rommel S. De Leon
(the De Leons), for a total consideration of onlyP2,750,000.00 as evidenced by a Deed of
Absolute Sale7 executed by the parties. TCT No. 177986 8 was then issued by the Registry of
Deeds of Quezon City in the name of the De Leons.
The new owners through their attorney-in-fact, Guillerma S. Silva, notified Roberto to vacate the
premises. Roberto refused hence, the De Leons filed a complaint for Unlawful Detainer before
the Metropolitan Trial Court (MeTC) of Quezon City against him. On August 30, 2000, the MeTC
rendered a Decision9 ordering Roberto to vacate the property for non-payment of rentals and
expiration of the contract.

SO ORDERED.16
Ruling of the Court of Appeals
On May 30, 2005, the CA issued its Decision dismissing Robertos appeal and affirming the
Decision of the RTC.
Hence, this Petition for Review on Certiorari filed by Roberto advancing the following
arguments:
I.

Ruling of the Regional Trial Court

On November 8, 2000, while the ejectment case was on appeal, Roberto filed with the RTC of
Quezon City a Complaint10 for Annulment of Deed of Absolute Sale, Reconveyance, Damages
and Application for Preliminary Injunction against Lourdes and the De Leons. On November 13,
2000, Roberto filed a Notice of Lis Pendens11with the Registry of Deeds of Quezon City.
On January 8, 2001, respondents filed An Answer with Counterclaim 12 praying that the
Complaint be dismissed for lack of cause of action. They claimed that the filing of such case
was a mere leverage of Roberto against them because of the favorable Decision issued by the
MeTC in the ejectment case.

The Trial Court and the Court of Appeals had decided that the "Right of First Refusal" exists
only within the parameters of an "Option to Buy", and did not exist when the property was sold
later to a third person, under favorable terms and conditions which the former buyer can meet.
II.
What is the status or sanctions of an appellee in the Court of Appeals who has not filed or failed
to file an appellees brief?17
Petitioners Arguments

13

On September 17, 2001, the RTC issued an Order declaring Lourdes and the De Leons in
default for their failure to appear before the court for the second time despite notice. Upon a
Motion for Reconsideration,14 the trial court in an Order15 dated October 19, 2001 set aside its
Order of default.
After trial, the court a quo rendered a Decision declaring the Deed of Absolute Sale made by
Lourdes in favor of the De Leons as valid and binding. The offer made by Lourdes to Roberto
did not ripen into a contract to sell because the price offered by the former was not acceptable
to the latter. The offer made by Lourdes is no longer binding and effective at the time she
decided to sell the subject lot to the De Leons because the same was not accepted by Roberto.
Thus, in a Decision dated November 18, 2002, the trial court dismissed the complaint. Its
dispositive portion reads:

Roberto claims that Lourdes violated his right to buy subject property under
the principle of "right of first refusal" by not giving him "notice" and the opportunity to buy the
property under the same terms and conditions or specifically based on the much lower price
paid by the De Leons.
Roberto further contends that he is enforcing his "right of first refusal" based on Equatorial
Realty Development, Inc. v. Mayfair Theater, Inc.18 which is the leading case on the "right of first
refusal."
Respondents Arguments

On the other hand, respondents posit that this case is not covered by the principle of "right of
first refusal" but an unaccepted unilateral promise to sell or, at best, a contract of option which
was not perfected. The letter of Lourdes to Roberto clearly embodies an option contract as it
grants the latter only two years to exercise the option to buy the subject property at a price
certain of P37,541,000.00. As an option contract, the said letter would have been binding upon
Lourdes without need of any consideration, had Roberto accepted the offer. But in this case
there was no acceptance made neither was there a distinct consideration for the option
contract.

would require, among other things, a clear certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the object might be
made determinate, the exercise of the right, however, would be dependent not only on
the grantor's eventual intention to enter into a binding juridical relation with another but
also on terms, including the price, that obviously are yet to be later firmed up. Prior
thereto, it can at best be so described as merely belonging to a class of preparatory juridical
relations governed not by contracts (since the essential elements to establish the vinculum
juris would still be indefinite and inconclusive) but by, among other laws of general application,
the pertinent scattered provisions of the Civil Code on human conduct.

Our Ruling
The petition is without merit.
This case involves an option contract and not a contract of a right of first refusal
In Beaumont v. Prieto,19 the nature of an option contract is explained thus:
In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following
language:
A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires
the privilege of buying from, or selling to, B certain securities or properties within a limited time
at a specified price. (Story vs. Salamon, 71 N. Y., 420.)
From Vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24
Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken:
An agreement in writing to give a person the option to purchase lands within a given time at a
named price is neither a sale nor an agreement to sell. It is simply a contract by which the
owner of property agrees with another person that he shall have the right to buy his
property at a fixed price within a certain time. He does not sell his land; he does not then
agree to sell it; but he does sell something; that is, the right or privilege to buy at the election or
option of the other party. The second party gets in praesenti, not lands, nor an agreement that
he shall have lands, but he does get something of value; that is, the right to call for and receive
lands if he elects. The owner parts with his right to sell his lands, except to the second party, for
a limited period. The second party receives this right, or rather, from his point of view, he
receives the right to elect to buy.
But the two definitions above cited refer to the contract of option, or, what amounts to the same
thing, to the case where there was cause or consideration for the obligation x x x. (Emphasis
supplied.)
On the other hand, in Ang Yu Asuncion v. Court of Appeals, 20 an elucidation on the "right of first
refusal" was made thus:
In the law on sales, the so-called right of first refusal is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of
the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be
brought within the purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 1319 of the same Code. An option or an offer

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. 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 of the Civil Code, can warrant a recovery
for damages. (Emphasis supplied.)
From the foregoing, it is thus clear that an option contract is entirely different and distinct from a
right of first refusal in that in the former, the option granted to the offeree is for a fixed
period and at a determined price. Lacking these two essential requisites, what is involved is
only a right of first refusal.
In this case, the controversy is whether the letter of Lourdes to Roberto dated January 2, 1995
involved an option contract or a contract of a right of first refusal. In its entirety, the said letteroffer reads:
206 Valdes Street
Josefa Subd. Balibago
Angeles City 2009
January 2, 1995
Tuazon Const. Co.
986 Tandang Sora Quezon City
Dear Mr. Tuazon,
I received with great joy and happiness the big box of sweet grapes and ham, fit for a kings
party. Thanks very much.
I am getting very old (79 going 80 yrs. old) and wish to live in the U.S.A. with my only family. I
need money to buy a house and lot and a farm with a little cash to start.
I am offering you to buy my 1211 square meter at P37,541,000.00 you can pay me in dollars in
the name of my daughter. I never offered it to anyone. Please shoulder the expenses for the
transfer. I wish the Lord God will help you buy my lot easily and you will be very lucky forever in
this place. You have all the time to decide when you can, but not for 2 years or more.

I wish you long life, happiness, health, wealth and great fortune always!
I hope the Lord God will help you be the recipient of multi-billion projects aid from other
countries.
Thank you,
Lourdes Q. del Rosario vda de Suarez
It is clear that the above letter embodies an option contract as it grants Roberto a fixed period of
only two years to buy the subject property at a price certain of P37,541,000.00. It being an
option contract, the rules applicable are found in Articles 1324 and 1479 of the Civil Code which
provide:
Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, as something paid or promised.
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.
It is clear from the provision of Article 1324 that there is a great difference between the effect of
an option which is without a consideration from one which is founded upon a consideration. If
the option is without any consideration, the offeror may withdraw his offer by communicating
such withdrawal to the offeree at anytime before acceptance; if it is founded upon a
consideration, the offeror cannot withdraw his offer before the lapse of the period agreed upon.
The second paragraph of Article 1479 declares that "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." Sanchez v. Rigos21 provided an
interpretation of the said second paragraph of Article 1479 in relation to Article 1324. Thus:
There is no question that under Article 1479 of the new Civil Code "an option to sell," or "a
promise to buy or to sell," as used in said article, to be valid must be "supported by a
consideration distinct from the price." This is clearly inferred from the context of said article that
a unilateral promise to buy or to sell, even if accepted, is only binding if supported by
consideration. In other words, "an accepted unilateral promise can only have a binding effect if
supported by a consideration, which means that the option can still be withdrawn, even if
accepted, if the same is not supported by any consideration. Hence, 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 offerer gives to the offeree a certain period to accept, "the offer
may be withdrawn at any time before acceptance" except when the option is founded upon
consideration, but this general rule must be interpreted asmodified by the provision of Article
1479 above referred to, which applies to "a promise to buy and sell"specifically. As already

stated, this rule requires that a promise to sell to be valid must be supported by a consideration
distinct from the price.
In Diamante v. Court of Appeals,22 this Court further declared that:
A unilateral promise to buy or sell is a mere offer, which is not converted into a contract except
at the moment it is accepted. Acceptance is the act that gives life to a juridical obligation,
because, before the promise is accepted, the promissor may withdraw it at any time.
Upon acceptance, however, a bilateral contract to sell and to buy is created, and the
offeree ipso facto assumes the obligations of a purchaser; the offeror, on the other hand, would
be liable for damages if he fails to deliver the thing he had offered for sale.
xxxx
Even if the promise was accepted, private respondent was not bound thereby in the
absence of a distinct consideration. (Emphasis ours.)
In this case, it is undisputed that Roberto did not accept the terms stated in the letter of Lourdes
as he negotiated for a much lower price. Robertos act of negotiating for a much lower price was
a counter-offer and is therefore not an acceptance of the offer of Lourdes. Article 1319 of the
Civil Code provides:
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. A qualified acceptanceconstitutes a counter-offer. (Emphasis supplied.)
The counter-offer of Roberto for a much lower price was not accepted by Lourdes. There is
therefore no contract that was perfected between them with regard to the sale of subject
property. Roberto, thus, does not have any right to demand that the property be sold to him at
the price for which it was sold to the De Leons neither does he have the right to demand that
said sale to the De Leons be annulled.
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. is not applicable here
It is the position of Roberto that the facts of this case and that of Equatorial are similar in nearly
all aspects. Roberto is a lessee of the property like Mayfair Theater in Equatorial. There was an
offer made to Roberto by Lourdes during the effectivity of the contract of lease which was also
the case in Equatorial. There were negotiations as to the price which did not bear fruit because
Lourdes sold the property to the De Leons which was also the case in Equatorial wherein
Carmelo and Bauermann sold the property to Equatorial. The existence of the lease of the
property is known to the De Leons as they are related to Lourdes while in Equatorial, the
lawyers of Equatorial studied the lease contract of Mayfair over the property. The property in
this case was sold by Lourdes to the De Leons at a much lower price which is also the case
in Equatorial where Carmelo and Bauerman sold to Equatorial at a lesser price. It is Robertos
conclusion that as in the case of Equatorial, there was a violation of his right of first refusal and
hence annulment or rescission of the Deed of Absolute Sale is the proper remedy.
Robertos reliance in Equatorial is misplaced. Despite his claims, the facts in Equatorial radically
differ from the facts of this case. Roberto overlooked the fact that in Equatorial, there was an
express provision in the Contract of Lease that

(i)f the LESSOR should desire to sell the leased properties, the LESSEE shall be given 30-days
exclusive option to purchase the same.
There is no such similar provision in the Contract of Lease between Roberto and Lourdes. What
is involved here is a separate and distinct offer made by Lourdes through a letter dated January
2, 1995 wherein she is selling the leased property to Roberto for a definite price and which gave
the latter a definite period for acceptance. Roberto was not given a right of first refusal. The
letter-offer of Lourdes did not form part of the Lease Contract because it was made more than
six months after the commencement of the lease.
It is also very clear that in Equatorial, the property was sold within the lease period. In this case,
the subject property was sold not only after the expiration of the period provided in the letteroffer of Lourdes but also after the effectivity of the Contract of Lease.
Moreover, even if the offer of Lourdes was accepted by Roberto, still the former is not bound
thereby because of the absence of a consideration distinct and separate from the price. The
argument of Roberto that the separate consideration was the liberality on the part of Lourdes
cannot stand. A perusal of the letter-offer of Lourdes would show that what drove her to offer the
property to Roberto was her immediate need for funds as she was already very old. Offering the
property to Roberto was not an act of liberality on the part of Lourdes but was a simple matter of
convenience and practicality as he was the one most likely to buy the property at that time as
he was then leasing the same.
All told, the facts of the case, as found by the RTC and the CA, do not support Robertos claims
that the letter of Lourdes gave him a right of first refusal which is similar to the one given to
Mayfair Theater in the case ofEquatorial. Therefore, there is no justification to annul the deed of
sale validly entered into by Lourdes with the De Leons.
What is the effect of the failure of Lourdes to file her appellees brief at the CA?
Lastly, Roberto argues that Lourdes should be sanctioned for her failure to file her appellees
brief before the CA.
Certainly, the appellees failure to file her brief would not mean that the case would be
automatically decided against her. Under the circumstances, the prudent action on the part of
the CA would be to deem Lourdes to have waived her right to file her appellees brief. De Leon
v. Court of Appeals,23 is instructive when this Court decreed:
On the second issue, we hold that the Court of Appeals did not commit grave abuse of
discretion in considering the appeal submitted for decision. The proper remedy in case of denial
of the motion to dismiss is to file the appellees brief and proceed with the appeal. Instead,
petitioner opted to file a motion for reconsideration which, unfortunately, was pro forma. All the
grounds raised therein have been discussed in the first resolution of the respondent Court of
Appeals. There is no new ground raised that might warrant reversal of the resolution. A cursory
perusal of the motion would readily show that it was a near verbatim repetition of the grounds
stated in the motion to dismiss; hence, the filing of the motion for reconsideration did not
suspend the period for filing the appellees brief. Petitioner was therefore properly deemed
to have waived his right to file appellees brief.(Emphasis supplied.)lawphi1

In the above cited case, De Leon was the plaintiff in a Complaint for a sum of money in the
RTC. He obtained a favorable judgment and so defendant went to the CA. The appeal of
defendant-appellant was taken cognizance of by the CA but De Leon filed a Motion to Dismiss
the Appeal with Motion to Suspend Period to file Appellees Brief. The CA denied the Motion to
Dismiss. De Leon filed a Motion for Reconsideration which actually did not suspend the period
to file the appellees brief. De Leon therefore failed to file his brief within the period specified by
the rules and hence he was deemed by the CA to have waived his right to file appellees brief.
The failure of the appellee to file his brief would not result to the rendition of a decision
favorable to the appellant. The former is considered only to have waived his right to file the
Appellees Brief. The CA has the jurisdiction to resolve the case based on the Appellants Brief
and the records of the case forwarded by the RTC. The appeal is therefore considered
submitted for decision and the CA properly acted on it.
WHEREFORE, the instant petition for review on certiorari is DENIED. The assailed Decision of
the Court of Appeals in CA-G.R. CV No. 78870, which affirmed the Decision dated November
18, 2002 of the Regional Trial Court, Branch 101, Quezon City in Civil Case No. Q-00-42338
is AFFIRMED.
SO ORDERED.

G.R. No. 168325 : December 8, 2010

ROBERTO D. TUAZON, Petitioner, v. LOURDES Q. DEL ROSARIO-SUAREZ, CATALINA R.
SUAREZ-DE LEON, WILFREDO DE LEON, MIGUEL LUIS S. DE LEON, ROMMEL LEE S.
DE LEON, and GUILLERMA L. SANDICO-SILVA, as attorney-in-fact of the defendants,
except Lourdes Q. Del Rosario-Suarez, Respondents.
DELCASTILLO,J.:
FACTS:
Respondent Lourdes Q. Del Rosario-Suarez was the owner of a parcel of land. Petitioner
Roberto D. Tuazon and Lourdes executed a Contract of Lease over the parcel of land for a
period of three years.During the effectivity of the lease,Lourdes sent a letterto Roberto where
she offered to sell to the latter subject parcel of land.She gave him two years from January 2,
1995 to decide on the said offer. On June 19, 1997, or more than four months after the
expiration of the Contract of Lease, Lourdes sold subject parcel of land to her only child,
Catalina Suarez-De Leon, her son-in-law Wilfredo De Leon, and her two grandsons, Miguel Luis
S. De Leon and Rommel S. De Leon as evidenced by a Deed of Absolute Saleexecuted by the
parties.The new owners through their attorney-in-fact, Guillerma S. Silva, notified Roberto to
vacate the premises.Roberto refused hence, the De Leons filed a complaint for Unlawful
Detainer before the MeTCagainsthim.TheMeTC rendered a Decision ordering Roberto to
vacate the property for non-payment of rentals and expiration of the contract. While the
ejectment case was on appeal, Roberto filed with the RTC a Complaintfor Annulment of Deed of
Absolute Sale, Reconveyance, Damages and Application for Preliminary Injunction
againstLourdesand the De Leons.On November 13, 2000, Roberto filed a Notice
ofLisPendenswith the Registry of Deeds of Quezon City. The RTC rendered a Decision
declaring the Deed of Absolute Sale made byLourdesin favor of the De Leons as valid and
binding.On appeal, the CA affirmed the Decision of the RTC.
ISSUE: Whether or not Lourdes violated Robertos right to buy the subject property under the
principle of right of first refusal by not giving him notice and the opportunity to buy the property
under the same terms and conditions.
HELD: Court of Appeals decision is affirmed.
CIVIL LAW: contract of a right of first refusal v. option contract
An option contract is entirely different and distinct from a right of first refusal in that in the
former, the option granted to the offeree is for a fixed period and at a determined price.Lacking
these two essential requisites, what is involved is only a right of first refusal.
It is clear from the provision of Article 1324 that there is a great difference between the effect of
an option which is without a consideration from one which is founded upon a consideration. If
the option is without any consideration, the offeror may withdraw his offer by communicating
such withdrawal to the offeree at anytime before acceptance; if it is founded upon a
consideration, the offeror cannot withdraw his offer before the lapse of the period agreed upon.
The second paragraph of Article 1479 declares that an accepted unilateral promise to buy or to
sell a determinate thing for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.

In this case, it is undisputed that Roberto did not accept the terms stated in the letter
ofLourdesas he negotiated for a much lower price. Robertos act of negotiating for a much lower
price was a counter-offer and is therefore not an acceptance of the offer ofLourdes.Article 1319
of the Civil Code provides:Consentis 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
theacceptance absolute. A Qualified Acceptance Constitutes A counter-offer.
The counter-offer of Roberto for a much lower price was not accepted byLourdes. There is
therefore no contract that was perfected between them with regard to the sale of subject
property.Roberto, thus, does not have any right to demand that the property be sold to him at
the price for which it was sold to the De Leons neither does he have the right to demand that
said sale to the De Leons be annulled.
Moreover, even if the offer ofLourdeswas accepted by Roberto, still the former is not bound
thereby because of the absence of a consideration distinct and separate from the price.The
argument of Roberto that the separate consideration was the liberality on the part of Lourdes
Cannot Stand.A perusal of the letter-offer of Lourdes would show that what drove her to offer
the property to Roberto was her immediate need for funds as she was already very old.Offering
the property to Roberto was not an act of liberality on the part of Lourdes but was a simple
matter of convenience and practicality as he was the one most likely to buy the property at that
time as he was then leasing the same.
The petition for review on certiorari is DENIED.

G.R. No. 167884

January 20, 2009

ENRICO S. EULOGIO, Petitioner,

vs.
SPOUSES CLEMENTE APELES1 and LUZ APELES, Respondents.
DECISION
CHICO-NAZARIO, J.:
Petitioner Enrico S. Eulogio (Enrico) filed this instant Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court assailing the Decision 2 dated 20 December 2004 of the
Court of Appeals in CA-G.R. CV No. 76933 which reversed the Decision 3 dated 8 October 2002
of the Regional Trial Court (RTC) of Quezon City, Branch 215, in Civil Case No. Q-99-36834.
The RTC directed respondents, spouses Clemente and Luz Apeles (spouses Apeles) to
execute a Deed of Sale over a piece of real property in favor of Enrico after the latters payment
of full consideration therefor.
The factual and procedural antecedents of the present case are as follows:
The real property in question consists of a house and lot situated at No. 87 Timog Avenue,
Quezon City (subject property). The lot has an area of 360.60 square meters, covered by
Transfer Certificate of Title No. 253990 issued by the Registry of Deeds of Quezon City in the
names of the spouses Apeles.4
In 1979, the spouses Apeles leased the subject property to Arturo Eulogio (Arturo), Enricos
father. Upon Arturos death, his son Enrico succeeded as lessor of the subject property. Enrico
used the subject property as his residence and place of business. Enrico was engaged in the
business of buying and selling imported cars.5
On 6 January 1987, the spouses Apeles and Enrico allegedly entered into a Contract of
Lease6 with Option to Purchase involving the subject property. According to the said lease
contract, Luz Apeles was authorized to enter into the same as the attorney-in-fact of her
husband, Clemente, pursuant to a Special Power of Attorney executed by the latter in favor of
the former on 24 January 1979. The contract purportedly afforded Enrico, before the expiration
of the three-year lease period, the option to purchase the subject property for a price not
exceedingP1.5 Million. The pertinent provisions of the Contract of Lease are reproduced below:
3. That this Contract shall be effective commencing from January 26, 1987 and shall
remain valid and binding for THREE (3) YEARS from the said date. The LESSOR
hereby gives the LESSEE under this Contract of Lease the right and option to buy the
subject house and lot within the said 3-year lease period.
4. That the purchase price or total consideration of the house and lot subject of this
Contract of Lease shall, should the LESSEE exercise his option to buy it on or before

the expiration of the 3-year lease period, be fixed or agreed upon by the LESSOR
and the LESSEE, Provided, that the said purchase price, as it is hereby agreed, shall
not be more than ONE MILLION FIVE HUNDRED THOUSAND PESOS
(P1,500,000.00) and, provided further, that the monthly rentals paid by the LESSEE
to the LESSOR during the 3-year lease period shall form part of or be deducted from
the purchase price or total consideration as may hereafter be mutually fixed or agreed
upon by the LESSOR and the LESSEE.
5. That if the LESSEE shall give oral or written notice to the LESSOR on or before the
expiry date of the 3-year lease period stipulated herein of his desire to exercise his
option to buy or purchase the house and lot herein leased, the LESSOR upon receipt
of the purchase price/total consideration as fixed or agreed upon less the total
amount of monthly rentals paid the LESSEE during the 3-year lease period shall
execute the appropriate Deed to SELL, TRANSFER and CONVEY the house and lot
subject of this Contract in favor of the LESSEE, his heirs, successors and assigns,
together with all the fixtures and accessories therein, free from all liens and
encumbrances.
Before the expiration of the three-year lease period provided in the lease contract, Enrico
exercised his option to purchase the subject property by communicating verbally and in writing
to Luz his willingness to pay the agreed purchase price, but the spouses Apeles supposedly
ignored Enricos manifestation. This prompted Enrico to seek recourse from the barangay for
the enforcement of his right to purchase the subject property, but despite several notices, the
spouses Apeles failed to appear before the barangay for settlement proceedings. Hence,
thebarangay issued to Enrico a Certificate to File Action.7
In a letter dated 26 January 1997 to Enrico, the spouses Apeles demanded that he pay his
rental arrears from January 1991 to December 1996 and he vacate the subject property since it
would be needed by the spouses Apeles themselves.
Without heeding the demand of the spouses Apeles, Enrico instituted on 23 February 1999 a
Complaint for Specific Performance with Damages against the spouses Apeles before the RTC,
docketed as Civil Case No. Q-99-36834. Enricos cause of action is founded on paragraph 5 of
the Contract of Lease with Option to Purchase vesting him with the right to acquire ownership of
the subject property after paying the agreed amount of consideration.
Following the pre-trial conference, trial on the merits ensued before the RTC.
Enrico himself testified as the sole witness for his side. He narrated that he and Luz entered into
the Contract of Lease with Option to Purchase on 26 January 1987, with Luz signing the said
Contract at Enricos office in Timog Avenue, Quezon City. The Contract was notarized on the
same day as evidenced by the Certification on the Notary Publics Report issued by the Clerk of
Court of the RTC of Manila.8
On the other hand, the spouses Apeles denied that Luz signed the Contract of Lease with
Option to Purchase, and posited that Luzs signature thereon was a forgery. To buttress their
contention, the spouses Apeles offered as evidence Luzs Philippine Passport which showed
that on 26 January 1987, the date when Luz allegedly signed the said Contract, she was in the
United States of America. The spouses Apeles likewise presented several official documents
bearing her genuine signatures to reveal their remarkable discrepancy from the signature

appearing in the disputed lease contract. The spouses Apeles maintained that they did not
intend to sell the subject property.9
After the spouses Apeles established by documentary evidence that Luz was not in the country
at the time the Contract of Lease with Option to Purchase was executed, Enrico, in rebuttal,
retracted his prior declaration that the said Contract was signed by Luz on 26 January 1996.
Instead, Enrico averred that Luz signed the Contract after she arrived in the Philippines on 30
May 1987. Enrico further related that after Luz signed the lease contract, she took it with her for
notarization, and by the time the document was returned to him, it was already notarized.10
On 8 October 2002, the RTC rendered a Decision in Civil Case No. Q-99-36834 in favor of
Enrico. Since none of the parties presented a handwriting expert, the RTC relied on its own
examination of the specimen signatures submitted to resolve the issue of forgery. The RTC
found striking similarity between Luzs genuine signatures in the documents presented by the
spouses Apeles themselves and her purportedly forged signature in the Contract of Lease with
Option to Purchase. Absent any finding of forgery, the RTC bound the parties to the clear and
unequivocal stipulations they made in the lease contract. Accordingly, the RTC ordered the
spouses Apeles to execute a Deed of Sale in favor of Enrico upon the latters payment of the
agreed amount of consideration. Thefallo of the RTC Decision reads:

WHEREFORE, the foregoing premises considered, the appealed decision dated October 8,
2002 of the Regional Trial Court of Quezon City, Branch 215 in Civil Case No. Q-99-36834 for
specific performance with damages is hereby REVERSED and a new is one entered dismissing
[Enricos] complaint.12
Enricos Motion for Reconsideration was denied by the Court of Appeals in a Resolution 13 dated
25 April 2005.
Enrico is presently before this Court seeking the reversal of the unfavorable judgment of the
Court of Appeals, assigning the following errors thereto:
I.
THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR WHEN IT BRUSHED
ASIDE THE RULING OF THE COURT A QUO UPHOLDING THE VALIDITY OF THE
CONTRACT OF LEASE WITH OPTION TO PURCHASE AND IN LIEU THEREOF RULED
THAT THE SAID CONTRACT OF LEASE WAS A FORGERY AND THUS, NULL AND VOID.
II.

WHEREFORE, this Court finds [Enricos] complaint to be substantiated by preponderance of

evidence and accordingly orders
(1) [The spouses Apeles] to comply with the provisions of the Contract of Lease with
Option to Purchase; and upon payment of total consideration as stipulated in the said
CONTRACT for [the spouses Apeles] to execute a Deed of Absolute Sale in favor of
[Enrico], over the parcel of land and the improvements existing thereon located at No.
87 Timog Avenue, Quezon City.
(2) [The spouses Apeles] to pay [Enrico] moral and exemplary damages in the
respective amounts ofP100,000.00 and P50,000.00.
(3) [The spouses Apeles] to pay attorneys fees of P50,000.00 and costs of the suit.11
The spouses Apeles challenged the adverse RTC Decision before the Court of Appeals and
urged the appellate court to nullify the assailed Contract of Lease with Option to Purchase since
Luzs signature thereon was clearly a forgery. The spouses Apeles argued that it was physically
impossible for Luz to sign the said Contract on 26 January 1987 since she was not in the
Philippines on that date and returned five months thereafter. The spouses Apeles called
attention to Enricos inconsistent declarations as to material details involving the execution of
the lease contract, thereby casting doubt on Enricos credibility, as well as on the presumed
regularity of the contract as a notarized document.
On 20 December 2004, the Court of Appeals rendered a Decision in CA-G.R. CV No. 76933
granting the appeal of the spouses Apeles and overturning the judgment of the RTC. In arriving
at its assailed decision, the appellate court noted that the Notary Public did not observe utmost
care in certifying the due execution of the Contract of Lease with Option to Purchase. The Court
of Appeals chose not to accord the disputed Contract full faith and credence. The Court of
Appeals held, thus:

THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR WHEN CONTRARY TO

THE FINDINGS OF THE COURT A QUO IT RULED THAT THE DEFENSE OF FORGERY WAS
SUBSTANTIALLY AND CONVINCINGLY PROVEN BY COMPETENT EVIDENCE.
Simply, Enrico faults the Court of Appeals for disturbing the factual findings of the RTC in
disregard of the legal aphorism that the factual findings of the trial court should be accorded
great weight and respect on appeal.
We do not agree.
Enricos insistence on the infallibility of the findings of the RTC seriously impairs the discretion
of the appellate tribunal to make independent determination of the merits of the case appealed
before it. Certainly, the Court of Appeals cannot swallow hook, line, and sinker the factual
conclusions of the trial court without crippling the very office of review. Although we have indeed
held that the factual findings of the trial courts are to be accorded great weight and respect, they
are not absolutely conclusive upon the appellate court.14
The reliance of appellate tribunals on the factual findings of the trial court is based on the
postulate that the latter had firsthand opportunity to hear the witnesses and to observe their
conduct and demeanor during the proceedings. However, when such findings are not anchored
on their credibility and their testimonies, but on the assessment of documents that are available
to appellate magistrates and subject to their scrutiny, reliance on the trial court finds no
application.15
Moreover, appeal by writ of error to the Court of Appeals under Rule 41 of the Revised Rules of
Court, the parties may raise both questions of fact and/or of law. In fact, it is imperative for the
Court of Appeals to review the findings of fact made by the trial court. The Court of Appeals
even has the power to try cases and conduct hearings, receive evidence and perform any and
all acts necessary to resolve factual issues raised in cases falling within its original and
appellate jurisdiction.16

Enrico assiduously prays before this Court to sustain the validity of the Contract of Lease with
Option to Purchase. Enrico asserts that the said Contract was voluntarily entered into and
signed by Luz who had it notarized herself. The spouses Apeles should be obliged to respect
the terms of the agreement, and not be allowed to renege on their commitment thereunder and
frustrate the sanctity of contracts.
Again, we are not persuaded. We agree with the Court of Appeals that in ruling out forgery, the
RTC heavily relied on the testimony proffered by Enrico during the trial, ignoring blatant
contradictions that destroy his credibility and the veracity of his claims. On direct examination,
Enrico testified that Luz signed the Contract of Lease with Option to Purchase on 26 January
1987 in his presence,17 but he recanted his testimony on the matter after the spouses Apeles
established by clear and convincing evidence that Luz was not in the Philippines on that
date.18 In rebuttal, Enrico made a complete turnabout and claimed that Luz signed the Contract
in question on 30 May 1987 after her arrival in the country. 19 The inconsistencies in Enricos
version of events have seriously impaired the probative value of his testimony and cast serious
doubt on his credibility. His contradictory statements on important details simply eroded the
integrity of his testimony.
While it is true that a notarized document carries the evidentiary weight conferred upon it with
respect to its due execution, and has in its favor the presumption of regularity, this presumption,
however, is not absolute. It may be rebutted by clear and convincing evidence to the
contrary.20 Enrico himself admitted that Luz took the document and had it notarized without his
presence. Such fact alone overcomes the presumption of regularity since a notary public is
enjoined not to notarize a document unless the persons who signed the same are the very
same persons who executed and personally appeared before the said notary public to attest to
the contents and truth of what are stated therein.
Although there is no direct evidence to prove forgery, preponderance of evidence inarguably
favors the spouses Apeles. In civil cases, the party having the burden of proof must establish
his case by a preponderance of evidence. Preponderance of evidence is the weight, credit, and
value of the aggregate evidence on either side and is usually considered to be synonymous
with the term "greater weight of the evidence" or "greater weight of the credible evidence."
Preponderance of evidence is a phrase which, in the last analysis, means probability of the
truth. It is evidence which is more convincing to the court as worthier of belief than that which is
offered in opposition thereto. 21 In the case at bar, the spouses Apeles were able to overcome
the burden of proof and prove by preponderant evidence in disputing the authenticity and due
execution of the Contract of Lease with Option to Purchase. In contrast, Enrico seemed to rely
only on his own self-serving declarations, without asserting any proof of corroborating testimony
or circumstantial evidence to buttress his claim.
Even assuming for the sake of argument that we agree with Enrico that Luz voluntarily entered
into the Contract of Lease with Option to Purchase and personally affixed her signature to the
said document, the provision on the option to purchase the subject property incorporated in said
Contract still remains unenforceable.
There is no dispute that what Enrico sought to enforce in Civil Case No. Q-99-36834 was his
purported right to acquire ownership of the subject property in the exercise of his option to
purchase the same under the Contract of Lease with Option to Purchase. He ultimately wants to
compel the spouses Apeles to already execute the Deed of Sale over the subject property in his
favor.

An option is a contract by which the owner of the property agrees with another person that the
latter shall have the right to buy the formers property at a fixed price within a certain time. It is a
condition offered or contract by which the owner stipulates with another that the latter shall have
the right to buy the property at a fixed price within a certain time, or under, or in compliance with
certain terms and conditions; or which gives to the owner of the property the right to sell or
demand a sale.22 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 the right to purchase. It is simply a contract by which the
owner of the property agrees with another person that he shall have the right to buy his property
at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it;
but he does sell something, i.e., 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.23
It is also sometimes called an "unaccepted offer" and is sanctioned by Article 1479 of the Civil
Code:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.
The second paragraph of Article 1479 provides for the definition and consequent rights and
obligations under an option contract. For an option contract to be valid and enforceable against
the promissor, there must be a separate and distinct consideration that supports it.24
In the landmark case of Southwestern Sugar and Molasses Company v. Atlantic Gulf and
Pacific Co.,25 we declared that for an option contract to bind the promissor, it must be supported
by consideration:
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, which means that the option can still be
withdrawn, even if accepted, if the same is not supported by any 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. (Emphasis supplied.)
The doctrine requiring the payment of consideration in an option contract enunciated in
Southwestern Sugar is resonated in subsequent cases and remains controlling to this day.
Without consideration that is separate and distinct from the purchase price, an option contract
cannot be enforced; that holds true even if the unilateral promise is already accepted by the
optionee.
The consideration is "the why of the contracts, the essential reason which moves the
contracting parties to enter into the contract." This definition illustrates that the consideration
contemplated to support an option contract need not be monetary. Actual cash need not be
exchanged for the option. However, by the very nature of an option contract, as defined in

Article 1479, the same is an onerous contract for which the consideration must be something of
value, although its kind may vary.26
We have painstakingly examined the Contract of Lease with Option to Purchase, as well as the
pleadings submitted by the parties, and their testimonies in open court, for any direct evidence
or evidence aliunde to prove the existence of consideration for the option contract, but we have
found none. The only consideration agreed upon by the parties in the said Contract is the
supposed purchase price for the subject property in the amount not exceeding P1.5 Million,
which could not be deemed to be the same consideration for the option contract since the law
and jurisprudence explicitly dictate that for the option contract to be valid, it must be supported
by a consideration separate and distinct from the price.
In Bible Baptist Church v. Court of Appeals, 27 we stressed that an option contract needs to be
supported by a separate consideration. The consideration need not be monetary but could
consist of other things or undertakings. However, if the consideration is not monetary, these
must be things or undertakings of value, in view of the onerous nature of the option contract.
Furthermore, when a consideration for an option contract is not monetary, said consideration
must be clearly specified as such in the option contract or clause.
In the present case, it is indubitable that no consideration was given by Enrico to the spouses
Apeles for the option contract. The absence of monetary or any material consideration keeps
this Court from enforcing the rights of the parties under said option contract.
WHEREFORE, in view of the foregoing, the instant Petition is DENIED. The Decision dated 20
December 2004 and Resolution dated 25 April 2005 of the Court of Appeals in CA-G.R. CV No.
76933 are hereby AFFIRMED. No costs.
SO ORDERED.
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals,
which certified the case to Us, upon the ground that it involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina
Rigos executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed,
promised and committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land situated
in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more
particularly described in Transfer Certificate of Title No. NT-12528 of said province, within two
(2) years from said date with the understanding that said option shall be deemed "terminated
and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated
period. Inasmuch as several tenders of payment of the sum of Pl,510.00, made by Sanchez
within said period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said
amount with the Court of First Instance of Nueva Ecija and commenced against the latter the
present action, for specific performance and damages.

After the filing of defendant's answer admitting some allegations of the complaint, denying
other allegations thereof, and alleging, as special defense, that the contract between the parties
"is a unilateral promise to sell, and the same being unsupported by any valuable consideration,
by force of the New Civil Code, is null and void" on February 11, 1964, both parties, assisted
by their respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on
February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to
accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of
conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney's fees, and other
costs. Hence, this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which
provides:
ART. 1479. A promise to buy and sell a determinate thing for a price certain
is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant
agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land
described in the option, copy of which was annexed to said pleading as Annex A thereof and is
quoted on the margin. 1 Hence, plaintiff maintains that the promise contained in the contract is
"reciprocally demandable," pursuant to the first paragraph of said Article 1479. Although
defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff, it
is not true that the latter had, in turn, "agreed and committed himself " to buy said property. Said
Annex A does not bear out plaintiff's allegation to this effect. What is more, since Annex A has
been made "an integral part" of his complaint, the provisions of said instrument form part "and
parcel" 2 of said pleading.
The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex
A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both
parties so understood it, as indicated by the caption, "Option to Purchase," given by them to
said instrument. Under the provisions thereof, the defendant "agreed, promised and committed"
herself to sell the land therein described to the plaintiff for P1,510.00, but there is nothing in the
contract to indicate that her aforementioned agreement, promise and undertaking is supported
by a consideration "distinct from the price" stipulated for the sale of the land.
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said
consideration, and this would seem to be the main factor that influenced its decision in plaintiff's
favor. It should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479
refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or
to sell." In other words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479
requires the concurrence of a condition, namely, that the promise be "supported by a
consideration distinct from the price." Accordingly, the promisee can not compel the promisor to
comply with the promise, unless the former establishes the existence of said distinct

consideration. In other words, the promisee has the burden of proving such consideration.
Plaintiff herein has not even alleged the existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special
defense, the absence of said consideration for her promise to sell and, by joining in the petition
for a judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in
defendant's answer. Indeed as early as March 14, 1908, it had been held, in Bauermann v.
Casas, 3 that:
One who prays for judgment on the pleadings without offering proof as to
the truth of his own allegations, and without giving the opposing party an
opportunity to introduce evidence, must be understood to admit the truth of
all the material and relevant allegations of the opposing party, and to rest
his motion for judgment on those allegations taken together with such of
his own as are admitted in the pleadings. (La Yebana Company vs. Sevilla,
9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa 4 and Mercy's Incorporated v. Herminia
Verde. 5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6 from
which We quote:
The main contention of appellant is that the option granted to appellee to
sell to it barge No. 10 for the sum of P30,000 under the terms stated above
has no legal effect because it is not supported by any consideration and in
support thereof it invokes article 1479 of the new Civil Code. The article
provides:
"ART. 1479. A promise to buy and sell a determinate
thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or sell a
determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration
distinct from the price."
On the other hand, Appellee contends that, even granting that the "offer of
option" is not supported by any consideration, that option became binding
on appellant when the appellee gave notice to it of its acceptance, and that
having accepted it within the period of option, the offer can no longer be
withdrawn and in any event such withdrawal is ineffective. In support this
contention, appellee invokes article 1324 of the Civil Code which provides:
"ART. 1324. When the offerer has allowed the offeree a
certain period to accept, the offer may be withdrawn
any time before acceptance by communicating such
withdrawal, except when the option is founded upon
consideration as something paid or promised."

There is no question that under article 1479 of the new Civil Code "an
option to sell," or "a promise to buy or to sell," as used in said article, to be
valid must be "supported by a consideration distinct from the price." This is
clearly inferred from the context of said article that a unilateral promise to
buy or to sell, even if accepted, is only binding if supported by
consideration. In other words, "an accepted unilateral promise can only
have a binding effect if supported by a consideration which means that the
option can still be withdrawn, even if accepted, if the same is not supported
by any consideration. It is not disputed that the option is without
consideration. It can therefore be withdrawn notwithstanding the
acceptance of it by appellee.
It is true that under article 1324 of the new Civil Code, the general rule
regarding offer and acceptance is that, when the offerer gives to the offeree
a certain period to accept, "the offer may be withdrawn at any time before
acceptance" except when the option is founded upon consideration, but
this general rule must be interpreted as modified by the provision of article
1479 above referred to, which applies to "a promise to buy and
sell" specifically. As already stated, this rule requires that a promise to sell
to be valid must be supported by a consideration distinct from the price.
We are not oblivious of the existence of American authorities which hold
that an offer, once accepted, cannot be withdrawn, regardless of whether it
is supported or not by a consideration (12 Am. Jur. 528). These authorities,
we note, uphold the general rule applicable to offer and acceptance as
contained in our new Civil Code. But we are prevented from applying them
in view of the specific provision embodied in article 1479. While under the
"offer of option" in question appellant has assumed a clear obligation to sell
its barge to appellee and the option has been exercised in accordance with
its terms, and there appears to be no valid or justifiable reason for appellant
to withdraw its offer, this Court cannot adopt a different attitude because
the law on the matter is clear. Our imperative duty is to apply it unless
modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 8 decided
later that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction
between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral
promise to sell similar to the one sued upon here was involved, treating such promise as an
option which, although not binding as a contract in itself for lack of a separate consideration,
nevertheless generated a bilateral contract of purchase and sale upon acceptance. Speaking
through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed
whenever the offeree should decide to exercise his option within the
specified time. After accepting the promise and before he exercises his
option, the holder of the option is not bound to buy. He is free either to buy
or not to buy later. In this case, however, upon accepting herein petitioner's
offer a bilateral promise to sell and to buy ensued, and the respondent ipso
facto assumed the obligation of a purchaser. He did not just get the right
subsequently to buy or not to buy. It was not a mere option then; it was a
bilateral contract of sale.

Lastly, even supposing that Exh. A granted an option which is not binding
for lack of consideration, the authorities hold that:

Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur.
Castro, J., took no part.

"If the option is given without a consideration, it is a

mere offer of a contract of sale, which is not binding
until accepted. If, however, acceptance is made before
a withdrawal, it constitutes a binding contract of sale,
even though the option was not supported by a
sufficient consideration. ... . (77 Corpus Juris
Secundum, p. 652. See also 27 Ruling Case Law 339
and cases cited.)
"It can be taken for granted, as contended by the
defendant, that the option contract was not valid for
lack of consideration. But it was, at least, an offer to
sell, which was accepted by letter, and of the
acceptance the offerer had knowledge before said offer
was withdrawn. The concurrence of both acts the
offer and the acceptance could at all events have
generated a contract, if none there was before (arts.
1254 and 1262 of the Civil Code)." (Zayco vs. Serra,
44 Phil. 331.)
In other words, since there may be no valid contract without a cause or consideration, the
promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its
withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale.
This view has the advantage of avoiding a conflict between Articles 1324 on the general
principles on contracts and 1479 on sales of the Civil Code, in line with the cardinal
rule of statutory construction that, in construing different provisions of one and the same law or
code, such interpretation should be favored as will reconcile or harmonize said provisions and
avoid a conflict between the same. Indeed, the presumption is that, in the process of drafting
the Code, its author has maintained a consistent philosophy or position. Moreover, the decision
in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324
is modified by Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the
former, and exceptions are not favored, unless the intention to the contrary is clear, and it is not
so, insofar as said two (2) articles are concerned. What is more, the reference, in both the
second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or founded
upon a consideration, strongly suggests that the two (2) provisions intended to enforce or
implement the same principle.
Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby
reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent
therewith, the view adhered to in theSouthwestern Sugar & Molasses Co. case should be
deemed abandoned or modified.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendantappellant Severina Rigos. It is so ordered.

Separate Opinions

ANTONIO, J., concurring:

I concur in the opinion of the Chief Justice.
I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar &
Molasses Co. vs. Atlantic Gulf and Pacific Co., 1 which holds that an option to sell can still be
withdrawn, even if accepted, if the same is not supported by any consideration, and the
reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek, 2holding that "an option
implies ... the legal obligation to keep the offer (to sell) open for the time specified;" that
it could be withdrawn before acceptance, if there was no consideration for the option, but once
the "offer to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree ipso
facto assumes the obligations of a purchaser. In other words, if the option is given without a
consideration, it is a mere offer to sell, which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a binding contract of sale. The
concurrence of both acts the offer and the acceptance could in such event generate a
contract.
While the law permits the offeror to withdraw the offer at any time before acceptance even
before the period has expired, some writers hold the view, that the offeror can not exercise this
right in an arbitrary or capricious manner. This is upon the principle that an offer implies an
obligation on the part of the offeror to maintain in such length of time as to permit the offeree to
decide whether to accept or not, and therefore cannot arbitrarily revoke the offer without being
liable for damages which the offeree may suffer. A contrary view would remove the stability and
security of business transactions. 3
In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum
of Pl,510.00before any withdrawal from the contract has been made by the Defendant
(Severina Rigos)." Since Rigos' offer sell was accepted by Sanchez, before she could withdraw
her offer, a bilateral reciprocal contract to sell and to buy was generated.

Separate Opinions
ANTONIO, J., concurring:

I concur in the opinion of the Chief Justice.

I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar &
Molasses Co. vs. Atlantic Gulf and Pacific Co., 1 which holds that an option to sell can still be
withdrawn, even if accepted, if the same is not supported by any consideration, and the
reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek, 2holding that "an option
implies ... the legal obligation to keep the offer (to sell) open for the time specified;" that
it could be withdrawn before acceptance, if there was no consideration for the option, but once
the "offer to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree ipso
facto assumes the obligations of a purchaser. In other words, if the option is given without a
consideration, it is a mere offer to sell, which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a binding contract of sale. The
concurrence of both acts the offer and the acceptance could in such event generate a
contract.
While the law permits the offeror to withdraw the offer at any time before acceptance even
before the period has expired, some writers hold the view, that the offeror can not exercise this
right in an arbitrary or capricious manner. This is upon the principle that an offer implies an
obligation on the part of the offeror to maintain in such length of time as to permit the offeree to
decide whether to accept or not, and therefore cannot arbitrarily revoke the offer without being
liable for damages which the offeree may suffer. A contrary view would remove the stability and
security of business transactions. 3
In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum
of Pl,510.00before any withdrawal from the contract has been made by the Defendant
(Severina Rigos)." Since Rigos' offer sell was accepted by Sanchez, before she could withdraw
her offer, a bilateral reciprocal contract to sell and to buy was generated.

SOUTHWESTERN SUGAR AND MOLASSES COMPANY, plaintiff-appellee,

vs.
ATLANTIC GULF & PACIFIC COMPANY, defendant-appellant.
Arturo A. Alafriz and A. B. Alcera for appellant.
Mariano Agoncillo for appellee.
BAUTISTA ANGELO, J.:
This is an action for specific performance.
On March 24, 19 53, the Atlantic Gulf & Pacific Company of Manila, hereafter called Atlantic
Gulf for short, granted an option to Southwestern Sugar & Molasses Co. (Far East) Inc.,
hereafter called Southwestern Company, to buy its barge No. 10 for the sum of P30,000 to be
exercised within a period of ninety days.
On May 11, 1953, the Southwestern Company wrote to Atlantic Gulf advising the latter that it
wanted "to exercise our option at your earliest convenience" and requested that it be notified as
soon as the barge was available.
On May 12, 1953, the Atlantic Gulf replied stating that their understanding was that the "offer of
option" is to be a cash transaction and to be effected "at the time the lighter is available", and,
on June 25, 1953, reiterating the unavailability of the barge, it further advised the Southwestern
Company that since there is still further work for it, and as this situation still applies" the barge
could not be turned over to the latter company.
On June 27, 1953, in view if such vacillating attitude, the Southwestern Company instituted the
present action to compel the Atlantic Gulf to sell the barge in line with the option, depositing with
the court a check covering the sum of P30,000. This check however was later withdrawn with
the approval of the court.
On June 29, 1953, the Atlantic Gulf withdraw its "offer of option" with due notices to the
Southwestern Company stating as reason therefor that the option was granted merely as a
favor. The Atlantic Gulf set up as a defense the option to sell made by it to the Southwestern
Company is null and void because it is not supported by any consideration.
After due trial, the lower court rendered judgment granting plaintiff's prayer for specific
performance. It further ordered the defendant to pay damages in an amount equivalent to 6 per
centum per annum on the sum of P30,000 from the date of the filing of the complaint, and to
pay the sum of P600 as attorney's fees, plus the costs of action.
The case before us on the assertion that the only issue involved is one of law.
The option granted by appellant to appellee is contained in a letter dated March 24, 1953 which
reads as follows:

G.R. No. L-7382

June 29, 1955

March 24, 1953

Southwestern Sugar & Molasses Co. Far East, Inc.

145 Muelle de Binondo
Manila, Philippines
Gentlemen:
This is to confirm our conversion of today whereby we offer you our Barge No. 10,
which is 120' 00" long by 44"-0 wide and 9'-0" deep, for the sum of of P30,000. Barge
to cleaned of creosote and fuel oil.
This option is to be good for ninety (90) days, or until June 30, 1953.

Yours very truly,

ATLANTIC, GULF & PACIFIC CO. OF MANILA
(Sgd.) W. H. SCHOENING

The main contention of appellant is that the option granted to appellee to sell to it barge No. 10
for the sum of P30,000 under the terms stated above has no legal effect because it is not
supported by any consideration and in support thereof it invokes article 1479 of the new Civil
Code. This article provides:
ART. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or sell a determinate thing for a price certain is
binding upon the promisor if the promise is supported by a consideration distinct from
the price.
On the other hand, appellee contends that, even granting that the "offer of option" is not
supported by any consideration, that option became binding on appellant when the appellee
gave notice to its acceptance, and that having accepted it within the period of option, the offer
can no longer be withdrawn and in any event such withdrawal is ineffective. In support of this
contention, appellee invokes article 1324 of the Civil Code which provides:
ART. 1324. When the offerer has allowed the offeree a certain period to accept, the
offer may be withdrawn at any time before acceptance by communicating such
withdrawal, except when the option is founded upon consideration, as something paid
or promised.
There is no question that under article 1479 of the new Civil Code "an option to sell", or a
"promise to buy or to sell", as used in said article, to be valid must be "supported by a
consideration distinct from the price." This is clearly inferred from the context of said article that
a unilateral promise to buy or sell, even if accepted, is only binding if supported by a
consideration. In other words, "an accepted unilateral promise" can only have a binding effect if
supported by a consideration, which means that the option can still be withdrawn, even if
accepted, if the same is not supported by any consideration. 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 offerer gives to the offeree a certain period to accept, "the offer
may be withdrawn at any time before acceptance" except when the option is founded upon
consideration, but this general rule must be interpreted as modified by the provision of article
1479 above referred to, which applies to "a promise to buy and sell" specifically. As already
stated, this rule requires that a promise to sell to be valid must be supported by a consideration
distinct from the price.
We are not oblivious of the existence of American authorities which hold that an offer, once
accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration
(12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and
acceptance as contained in our new Civil Code. But we are prevented from applying them in
view of the specific provision embodied in article 1479. While under the "offer of option" in
question appellant has assumed a clear obligation to sell its barge to appellee and the option
has been exercised in accordance with its terms, and there appears to be no valid or justifiable
reason for appellant to withdraw its offer, this Court cannot adopt a different attitude because
the law on the matter is clear. Our imperative duty is to apply it unless modified by Congress.
Wherefore, the decision appealed from is reversed, without pronouncement as to costs.
Bengzon, Acting C.J., Padilla, Montemayor, Reyes, A., Jugo, Labrador, Concepcion, and
Reyes, J.B.L., JJ.,concur.

G.R. No. L-16849

November 29, 1961

JOSE S. FRANCISCO, ET AL., plaintiffs-appellees,

vs.
TIMOTEO CERTEZA, SR. and CONCHITA V. CERTEZA, defendants-appellants.
BARRERA, J.:
This is an appeal from the decision of the Court First Instance of Rizal (in Civil Case No. 5396)
ordering therein defendants Timoteo Certeza and Conchita V. Certeza to resell to plaintiffs
Francisco, et al. the two parcels of land subject of the litigation, upon the latter's payment of the
sum of P6,515.60.
In a complaint dated January 26, 1959, filed in the Court of First Instance of Rizal (Pasig
branch), plaintiffs sought to repurchase from defendants the two parcels of land covered by
Transfer Certificate of Title Nos. 37136 and 37135 in the names of said plaintiffs, as heirs of the
deceased Gabriel Francisco and Maria Sumulong, based on Section 119 of Commonwealth Act
141, as amended. It was alleged that one of the aforementioned lots was acquired by Gabriel
Francisco by free patent, for which he was issued Original Certificate of Title No. 16, and the
other lot was obtained by Maria Sumulong under free patent No. 28984, for which Original
Certificate of Title No. 1338 was issued in her name; that upon their demise, plaintiffs, as
intestate heirs, adjudicated the properties unto themselves, as a consequence of which OCT
Nos. 16 and 1338 were cancelled and substituted by TCT Nos. 37136 and 37135 issued in the
name of the Heirs of the spouses Gabriel Francisco and Maria Sumulong; that on November
26, 1954, plaintiffs sold their shares and participation in the aforesaid parcel of land to
defendants Timoteo and Conchita V. Certeza, for the sum of P6,515.60; that the 5-year period
within which the lots may be subject to repurchase would expire on November 26, 1959. It was
prayed that defendants be ordered to resell the properties upon their (plaintiffs) payment of the
sum of P6,515.60.
Defendants, in their answer, set up the defense of waiver, claiming that plaintiffs' warranty in the
contract that the lost shall be "free from liens and encumbrances of whatever nature" amounted
to a renunciation of their right to repurchase the same.
Thereafter, plaintiffs moved for a summary judgment, while defendants filed a motion to dismiss
the complaint for lack of cause of action insofar as the lot covered by TCT 37136 (OCT No. 16)
was concerned, on the ground that the same, having been acquired under Act 926, is not
subject to the right of repurchase allowed under Section 119 of Commonwealth Act 141, as
amended. Both motions were denied.
After due hearing, judgment was rendered for the plaintiffs on the basis of the ruling laid down
in the case ofIsaac, et al. vs. Tan Chuan Leong 1, that conveyances made after the effectivity of
Act 2874 shall be subject to the right of repurchase granted under said Act. Defendants were,
therefore, required to resell the properties to plaintiffs upon their payment of the purchase price
of P6,515.60. From this decision, defendants appealed to this Court on pure questions of law.
Section 117 of Act 2874, incorporated in Commonwealth Act 141 as Section 119 thereof,
provides:

Every conveyance of land acquired under the free patent or homestead provisions,
when proper, shall be subject to repurchase by the applicant, his widow, or legal
heirs, within a period of five years from the date of conveyance.
Appellants now contend that the lot covered by TCT 37136 (OCT No. 16) having been acquired
by Gabriel Francisco under Act 926 2 on November 1, 1913 or before the effectivity of Act 2874 3,
plaintiffs can not invoke the right granted under the latter Act. In other words, the issue
presented by this appeals is whether the provision on repurchase under Section 117 of Act
2874 applies to la acquired under Act 926 or those awarded to applicants before its effectivity.
The question poised herein is not new; the same has been squarely raised and resolved in the
case of Isaac v. Tan Chuan Leong, supra. In said case, plaintiffs' predecessors-in-interest
acquired the lot by homestead on September 13, 1917. The corresponding original certificate
title (No. 174) was issued on October 1, 1917. On September 6, 1944, plaintiffs sold the land to
therein defendant. Thereafter and before 5 years had elapsed, plaintiffs sought to repurchase
the property under Section 119 of Commonwealth Act 141. The lower court dismissed the
complaint on the ground that Section 119 of Commonwealth Act taken from Section 117 of Act
2874 has no retroactive effect and that the application of said provision to case the at bar would
impair the obligations of contract. Reversing such ruling of the lower court, we held:
In the present case, the provisions of section 117 of Article 2874 approved on
November 29, 1919, which grants the widow and legal heirs of a grantee of
homestead the right to repurchase every conveyance of land acquired under a free
patent homestead provisions within a period of five years from the date of the
conveyance is applicable to the sale made on September 6, 1944, by the heirs of the
late Benito Isaac to the defendant Tan Chuan Leong. To apply such provision to the
sale in question does not amount to give to it a retrospective effect, because the sale
was effected on September 6, 1944, and said Section 117 of Article (Act) 2874 was
approved on November 29, 1919. The fact that the homestead sold was granted to
the sellers' predecessor in interest on September 13, 1917, before Section 117 of
Article (Act) 2874 was approved, is immaterial, for said Section 117 far from impairing
or divesting any vested right of the grantee or his successors in interest, the
appellants, is beneficial to them.
Besides, taking into consideration that homestead laws are designed to distribute
disposable agricultural lands of the State to destitute citizens for their home and
cultivation, and to see to it that they are not deprived of their means of livelihood and
reduced to misery (Jocson v. Soriano, 45 Phil. 375, it is evident that it was the
intention of the Philippine Legislature to make said Section 117 of Article (Act) No.
2874 applicable not only to homestead to be granted in the future but also to those
already granted insofar as it would not impair the obligations of contract. Because the
constitution does not in term prohibit the enactment of retrospective laws which do
not impair the obligations of contract or deprive a person of property without due
process of law, that is, do not divest rights of property or vested rights. The appellees
will not be divested of any vested right by the application of the provisions of Section
117 of Article (Act) 2874 or Section 119 of Commonwealth Act No. 141 to the sale of
the homestead lot to them in the year 1944, because at time of purchasing the land in
question they ought to know the existence of that legal provision, already in force
since the year 1919.
There is no cogent reason for us to deviate from this rule. The law, without qualification,
subjects "every conveyanceof land acquired under the free patent or homestead provisions" to

the applicant's, his widow or heirs' right to repurchase the same within five years. The provision
comprehends, clearly, not only those acquired under said Act or any law thereafter, but all lands
acquired by virtue of homestead or free patents. It is also noteworthy that the law did not refer
to the acquisition but to the conveyance of land. In other words, Act 2874 applies to all
alienations or conveyances of land grants (by homestead or free patent) irrespective of whether
the same had been acquired under said Act or any other law.
As to appellants claim that Act No. 2874 is not applicable to the lot involved herein, the same
being allegedly a private property, we find the same to be without merit.
Appellants' contention is predicated on the pronouncement of this Court in the case of Central
Capiz v. Ramirez4that "Act No. 2874 was and is to limit its application to lands of the public
domain, and that lands held in private ownership are not included therein and are not affected in
any manner whatsoever thereby". It may be pointed out, however, that the property involved in
this Central Capiz case was not a "land acquired under the free patent or homestead
provisions." It is true that it has been said "a valid appropriation of public lands operates as a
withdrawal thereof from the body of public domain and is deemed private property", 5 and that
"once a patent is registered and the corresponding certificate of title is issued, the land ceased
to be part of the public domain and becomes private property" 6, such property can not be
considered as the "land held in private ownership" treated in the Central Capiz case, for the
latter refers to lands which never came under the operation of our public land laws because
they were already of private ownership at the time of their effectivity. The quoted
pronouncements are mere declarations of the legal effect of the administrative disposals of
public lands as far as the rights and responsibilities of patentees or applicants over portions of
the disposable land of the public domain are concerned. In reality, and notwithstanding the
aforementioned pronouncements that lands so acquired become private property, the same still
remain subject to the limitations and restrictions imposed by law.7 Even the case ofRamos v. De
la Costa8 also cited by appellants is not material, because the issue there is the right of a
patentee under Act 926 to alienate the land within 2 years, and does not involve the right of the
patentee to repurchase the land provided not under Act 926 but pursuant to Act 2874.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against appellant. So
ordered.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon and De
Leon, JJ., concur.

Separate Opinions
PADILLA, J., dissenting:
I dissent for the same reasons set forth in my opinion in Isaac v. Tan Chuan Leong, G.R. No. L3324, 23 May 1951.