SUBJECT:

TOPIC:

Date Made:

Digest Maker:

SALES

Formation and
Perfection of
Contract

August 29 2016

Joni

CASE NAME: Province of Cebu v. Heirs of Rufina Morales

PONENTE: Ynares-Santiago, J.

Case Date: February 19 2008

Case Summary:
Rufina Morales bought a lot from the City of Cebu at public auction. Pursuant to a
compromise agreement between the Province of Cebu and City of Cebu, the subject lot
was among those transferred to the former. Heirs of Morales filed an action for specific
performance and reconveyance against the Province of Cebu. TC and CA found that the
award at public auction of the lot was a valid and binding contract. SC affirmed.
Rule of Law:
Art. 1476. In the case of a sale by auction:
(1) Where goods are put up for sale by auction in lots, each lot is the subject of a
separate contract of sale.
(2) A sale by auction is perfected when the auctioneer announces its perfection by the
fall of the hammer, or in other customary manner. Until such announcement is made, any
bidder may retract his bid; and the auctioneer may withdraw the goods from the sale
unless the auction has been announced to be without reserve.
(3) A right to bid may be reserved expressly by or on behalf of the seller, unless
otherwise provided by law or by stipulation.
(4) Where notice has not been given that a sale by auction is subject to a right to bid on
behalf of the seller, it shall not be lawful for the seller to bid himself or to employ or
induce any person to bid at such sale on his behalf or for the auctioneer, to employ or
induce any person to bid at such sale on behalf of the seller or knowingly to take any bid
from the seller or any person employed by him. Any sale contravening this rule may be
treated as fraudulent by the buyer. (n

Detailed Facts:

Province of Cebu leased in favor of Rufina Morales a 210-sqm lot. Subsequently,

said lot was among those donated by Province of Cebu to the City of Cebu.
The city sold the lot and other donated lots at public auction to raise money for
infrastructure projects. The highest bidder of the subject lot was one Hever Bascon
but Morales was allowed to match the highest bid since she had a preferential right
to the lot as actual occupant thereof. Morales paid the required deposit and partial
payment for the lot.
In the meantime, Province of Cebu filed an action for reversion of donation against
the City of Cebu. The two entered into a compromise agreement, which provided
for the return of the donated lots to the Province of Cebu except those that have
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already been utilized by the city of Cebu. The subject lot was thus returned to the
Province of Cebu and registered in its name.
Morales died in 1969 during the pendency of the reversion case. She was not able
to make any other payments on the balance of the purchase price for the lot.
In 1983, The Heirs of Morales filed an action for specific performance and
reconveyance of property against the Province of Cebu. TC and CA both ruled in
favor of the heirs. Hence, this petition.

Issue:
WON appellate court erred in finding that:
a. Morales and her heirs have the right to equal the bid of the highest bidder of the
subject property as lessees thereof
b. With the deposit and partial payment made by Rufina Morales, the sale was in
effect closed for all legal purposes and that the transaction was perfected and
consummated
c. Laches and/or prescription are not applicable against respondent/s
d. Due to the pendency of the reversion case, plaintiffs were not able to pay the
agreed installments
NO, trial court did not err.
Holding:
a. Province of Cebu can no longer assail the award of the lot on the ground that she
had no right to match the highest bid. Whether or not Morales was qualified is a
foregone that could have been questioned when the award was made. The subject
lot was auctioned in 1965 or more than 4 decades ago and was never questioned.
b. [Topic in the syllabus] A sale by public auction is perfected when the auctioneer
announces its perfection by the fall of the hammer of in other customary manner.
It does not matter that Morales merely matched the bid of the highest bidder at the
said auction sale. Contract of sale was nevertheless perfected as to Morales, since
she merely stepped into the shoes of the highest bidder.
Consequently, there was a meeting of minds between the City of Cebu and Morales
as to the lot sold and its price, such that each party could reciprocally demand
performance of the contract from the other. All the elements of a valid contract
(consent, determinate subject matter, price certain) were present in the transaction
between the city and Morales.
That there was no Contract of Purchase and Sale ever executed by the parties is
immaterial. Subject to the Statute of Frauds, a formal document is not necessary
for the sale or transaction to acquire binding effect.
The fact that there was an agreed price for the lot proves that a contract of sale
was indeed perfected between the parties. Failure to pay merely gave rise to a right
in favor of the vendor to either demand specific performance or rescission of the
contract of sale.
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c. Province of Cebu never raised the matter of prescription and laches before the TC
or CA. Defenses and issues not raised below cannot be considered on appeal. Thus,
the province cannot plead the matter for the first time before this court.
d. The contract of sale between the city and Morales was partially consummated. The
City of Cebu was no longer the owner of the subject lot when it ceded the same to
the Province of Cebu under the compromise agreement. At that time, the city
merely retained rights as an unpaid seller but had effectively transferred ownership
of the lot to Morales. As successor-in-interest, the province can only acquire rights
that the predecessor (Cebu) had over the lot. These include the right to seek
rescission.
However, Province of Cebu did not avail of any rightful recourse to resolve the
matter. By virtue of Art. 1592 of the Civil Code, respondents could still tender
payment of the fukll purchase price as no demand for rescission had been made
upon them, either judiciallyor through notarial act. The consignation of the balance
of the purchase price before the TC thus operated as full payment, which resulted
in the extinguishment of the Heirs of Morales obligation.
Ruling: Petition denied. CA ruling affirmed.

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