G.R. No.
107624 January 28, 1997 356040 was issued in the name of defendants Pili (sic) also on March 6, 1987.
GAMALIEL C. VILLANUEVA and IRENE C.
VILLANUEVA, petitioners,
vs.
COURT OF APPEALS, SPOUSES JOSE and LEONILA DELA CRUZ,
and SPOUSES GUIDO and FELICITAS PILE, respondents.
PANGANIBAN, J.:
The main issue here is whether a contract of sale has been perfected under the
attendant facts and circumstances.
The petition filed on December 18, 1992 assails the Decision1 of respondent
Court of Appeals promulgated on October 23, 1992 in CA-G.R. CV No. 30741
rendered by the Eleventh Division2 dismissing the appeal of petitioners and
affirming the decision in Civil Case No. Q-50844 dated December 28, 1990 of
the Regional Trial Court, Branch 83 of Quezon City, presided by Judge Estrella
T. Estrada. The dispositive portion of the affirmed decision of the RTC reads:3
WHEREFORE, judgment is hereby rendered dismissing plaintiff's instant
action for specific performance. However, defendant Jose de la Cruz is hereby
ordered to refund or re imburse the amount of Ten Thousand Pesos
(P10,000.00) to plaintiff Irene Villanueva.
The parties' other claims for damages and attorney's fees are also hereby
dismissed for being necessary consequences of litigation.
No pronouncement as to costs.
The Facts
The factual antecedents of this case as found by the trial court were reproduced
in the assailed Decision,4 as follows:5
. . .plaintiff (and now petitioner) Gamaliel Villanueva has been a tenant-
occupant of a unit in the 3-door apartment building erected on a parcel of land
owned by defendants-spouses (now private respondents) Jose Dela Cruz and
Leonila dela Cruz, with an area of 403 square meters, more or less, located at
Short Horn, Project 8, Quezon City (Exhibit "L"), having succeeded in the
occupancy of said unit from the previous tenant Lolita Santos sometime in
1985. About February of 1986, defendant Jose dela Cruz offered said parcel of
land with the 3-door apartment building for sale and plaintiffs, son and mother,
showed interest in the property. As an initial step, defendant Jose dela Cruz
gave plaintiff Irene Villanueva a letter of authority dated February 12, 1986
(Exhibit "A") for her to inspect the subject property. Because said property was
in arrears in the payment of the realty taxes, defendant Jose dela Cruz
approached plaintiff Irene Villanueva and asked for a certain amount to pay for
the taxes so that the property would be cleared of any incumbrance (sic).
Plaintiff Irene Villanueva gave P10,000.00 on two occasions P5,000.00 on
July 15, 1986 (Exhibit "F") and another P5,000.00 on October 17, 1986 (Exhibit
"D"). It was agreed by them that said P10,000.00 would form part of the sale
price of P550,000.00. Sometime thereafter, defendant Jose dela Cruz went to
plaintiff Irene Villanueva bringing with him Mr. Ben Sabio, a tenant of one of
the units in the 3-door apartment building located on the subject property, and
requested her and her son to allow said Ben Sabio to purchase one-half (1/2) of
the property where the unit occupied by him pertained to which the plaintiffs
consented, so that they would just purchase the other half portion and would be
paying only P265,000.00, they having already given an amount of P10,000.00
used for paying the realty taxes in arrears. Accordingly the property was
subdivided and two (2) separate titles were secured by defendants Dela Cruz.
Mr. Ben Sabio immediately made payments by installments.
Sometime in March, 1987 or more specifically on March 6, 1987, defendants
Dela Cruz executed in favor of their co-defendants, the spouses Guide Pili (sic)
and Felicitas Pili (sic), a Deed of Assignment of the other one-half portion of
the parcel of land wherein plaintiff Gamaliel Villanueva's apartment unit is
situated, designated as Lot 3-A of the Subdivision Plan (LRC) Psd-337290,
Block 24, Pcs-4865, with an area of 201.50 square meters, more or less, and
covered by Transfer Certificate of Title 332445, purportedly as full payment
and satisfaction of an indebtedness (sic) obtained from defendants Pili (sic)
(Exhibit "G"; Exhibit "3"). Consequently, Transfer Certificate of Title No.
Immediately thereafter, the plaintiffs came to know of such assignment and
transfer and issuance of a new certificate of title in favor of defendants Pili (sic)
so that plaintiff Gamaliel Villanueva complained to the barangay captain of
Bahay Turo, Quezon City, on the ground that there was already an agreement
between defendants Dela Cruz and themselves that said portion of the parcel of
land owned by defendants Dela Cruz would be sold to him. As there was no
settlement arrived at, the plaintiffs elevated their complaint to this Court
through the instant action.
The trial court rendered its decision in favor of private respondents. An appeal
was duly brought to public respondent which as earlier stated affirmed the said
decision. Hence, this petition for review on certiorari under Rule 45 of the
Rules of Court.
The Issues
The following errors are alleged to have been committed by public respondent:6
I
The Court of Appeals erred in failing to find that there is a perfected contract
of sale of subject property between petitioners and respondents spouses Dela
Cruz.
II
The Court of Appeals erred in applying the Statute of Frauds in this case when
it is a contract of sale that was partly executed
III
The Court of Appeals erred in not finding that this being a case of double sale
of immovable property, although respondents spouses Pili (sic) recorded the
deed of assignment to them in the Registry of Deeds they were not in good faith
while (sic) petitioners as purchasers thereof were in prior possession in good
faith of the property
IV
The Court of Appeals erred in failing to reverse and set aside the appealed
judgment of the trial court and rendering a judgment for petitioners
In the opinion of this Court, these four issues may be summed up in a single
question: Under the factual circumstances of this case, was there a perfected
contract of sale?
Petitioners contend that the adopted findings of facts of public respondent are
contradicted by its ruling that there is no agreement as to the price of the
apartments. They argue that on the basis of the facts found by public respondent,
"the conclusion is ineluctable that there was a perfected contract of sale of the
subject property."7According to petitioners, private respondents had to secure
their consent to enable "Sabio to buy the one-half portion of the property where
the unit Sabio was renting pertains so that petitioners will pay only the balance
of P265,000.00 for the purchase of the other half after deducting the P10,000.00
petitioners advanced." 8 Public respondent's conclusion that the P10,000.00 paid
to petitioners was not intended as part of the purchase price allegedly "collides"
with its quoted findings, as follows:9
It was agreed by them that said P10,000.00 would form part of the sale price of
P550,000.00. . . . defendant Jose de la Cruz . . . requested her and her son to
allow said Ben Sabio to purchase one-half (1/2) of the property where the unit
occupied by him pertained to which plaintiffs consented, so they would
purchase the other half portion and would be paying only P265.000.00 they
having already given an amount of P10,000.00 used for paying the realty taxes
in arrears. . . . (Emphasis in the petition).
The Court's Ruling
The arguments of petitioners do not persuade us. While it is true that respondent
Court adopted the recitation of facts of the trial court, it nonetheless later
corrected the relevant portions thereof as it found that no perfected contract of
sale was agreed upon. Thus, public respondent explained: 10
1
Appellants' theory of earnest money cannot be sustained in view of the catena Q Can you recall the condition you offered to Sandiego (sic) to act as your agent
of circumstance showing that the P10,000.00 given to appellees was not in selling the same?
intended to form part of the purchase price. As the great commentator Manresa
observes that the delivery of part of the purchase price should not be understood A He will get certain commission for the same.
as constituting earnest money unless it be shown that such was the intention of
the parties (Manresa Commentaries on the Civil Code, 2d ed., Vol. 10, p. 85). Q Will you state the price and conditions set forth in selling the property?
Moreover, as can be gleaned from the records there was no concrete agreement
A P575 thousand, sir.
to the price and manner of payment:
Q That is the same offer that was given to you by plaintiff Mrs. Villanueva?
Q Will you tell us why your transaction with plaintiffs (petitioners herein) did
not materialize? A I can not recall, I think so.
A Because I have been returning to Mrs. Villanueva and in fact we have Q And you will agree with me that 1/2 of P575 thousand is how much (sic)?
executed a Deed of Sale which was in fact not signed.
ATTY. MANZO:
Q Why did you not sign the Deed of Sale you mentioned?
There (is) nothing to agree with you counsel.
A The Villanuevas told me to prepare the documents involved in this
transaction because according to her (sic) she (sic) was only waiting for the ATTY. GUPIT:
money to come but because I was then being pressed by Felicitas Pile for the
payment of my loan. I was constrained to assign the property to her. And the offer to you, the agreed price between you and Mrs. Villanueva is P275
thousand as stated in the agreement that was prepared?
Q What are your other reasons?
ATTY. MANZO:
A Aside from that we were still huggling (sic) for the purchase price then and
since I was being pressed by my creditor, I was forced to make the assignment. Counsel is again assuming that there was an agreement made already.

The most that public respondent can be faulted with is its failure to expressly (ATTY. GUPIT:)
state that although its conclusion of law was correct, the trial court erred in its
statement of the facts. He answered there is a document between Villanueva and Dela Cruz.

Was There a Perfected Contract of Sale? ATTY. (MANZO):

Petitioners contend that private respondents' counsel admitted that "P10,000 is Let the witness be confronted by the document.
partial or advance payment of the property (TSN, June 14 [should be 15], 4 (sic)
We are not unmindful of petitioner Irene Villanueva's claim that the parties
1990, pages 6 to 7)." Necessarily then, there must have been an agreement as
agreed on the sum of P550,000.00 follows: 17
to price. They cite Article 1482 of the Civil Code which provides that
"(w)henever earnest money is given in a contract of sale, it shall be considered ATTY. GUPIT
as part of the price and as proof of the perfection of the contract." 11
What was the result of the negotiations?
Private respondents contradict this claim with the argument that "(w)hat was
clearly agreed (upon) between petitioners and respondents Dela Cruz was that WITNESS (Irene Villanueva):
the P10,000.00 primarily intended as payment for realty tax was going to form
part of the consideration of the sale if and when the transaction would finally We agreed that he would sell the land to us for the sum of, the amount of
be consummated." 12Private respondents insist that there "was no clear P550,000.00
agreement as to the true amount of consideration." 13
xxx xxx xxx
Generally, the findings of fact of the lower courts are entitled to great weight
and not disturbed except for cogent reasons. 14 Indeed, they should not be WITNESS
changed on appeal in the absence of a clear showing that the trial court
After the Deed of Sale relative to the purchase of the property was prepared,
overlooked, disregarded, or misinterpreted some facts of weight and
Mr. dela Cruz (private respondent Jose) came to me and told me that he talked
significance, which if considered would have altered the result of the case. 15 In
with one of the tenants and he offered to buy the portion he was occupying if I
this case, and subject to the above clarification made by the appellate court,
will agree and I will cause the partition of the property between us.
petitioners have failed to convince us to alter such findings.
ATTY. GUPIT
In fact, a review of the evidence merely strengthens the conclusions of public
respondent. We scoured the transcripts but we found that respondent dela Cruz Did you agree with the proposal of Mr. dela Cruz that the portion of the property
never testified that he (or his spouse Leonila) had agreed to a definite price for will be sold to one of the ten-ants?
the subject property. In fact, his testimony during the cross-examination firmly
negated any price agreement with petitioners because he and his wife quoted WITNESS
the price of P575,000.00 and did not agree to reduce it to P550,000.00 as
claimed by petitioner: 16 Yes(,) sir. I agreed because we are (sic) both tenants.

Q And despite the fact that the property was mortgaged with Development Bank ATTY. GUPIT
of Rizal you still contrated (sic) Sandiego (sic) for the purpose of selling the
property? How about the price? How much are (sic) you supposed to pay in order to
complete your payments?
A Yes, sir.
WITNESS
Q And did Sandiego (sic) agree as agent in selling the property despite the fact
that it was mortgaged with the Development Bank of Rizal? We are (sic) supposed to divide the amount of P550,000.00.

A Yes, sir. To settle the above conflicting claims of the parties, petitioners could have
presented the contract of sale allegedly prepared by private respondent Jose dela
Cruz. Unfortunately, the contract was not presented in evidence. However,
petitioners aver that even if the unsigned deed of sale was not produced, private
2
respondent Jose dela Cruz "admitted preparing (said) deed in accordance with
their agreement." 18 This "judicial admission" is allegedly the "best proof of its
existence." 19 Further it was "impossible" for petitioners to produce the same
"since it was and remained in the possession" of private respondent Jose dela
Cruz. 20

We do not agree with petitioners. Assuming arguendo that such draft deed
existed, it does not necessarily follow that there was already a definite
agreement as to the price. If there was, why then did private respondent Jose de
la Cruz not sign it? If indeed the draft deed of sale was that important to
petitioners' cause, they should have shown some effort to procure it. They could
have secured it through a subpoena duces tecum or thru the use of one of the
modes of discovery. But petitioners made no such effort. And even if produced,
it would not have commanded any probative value as it was not signed.

As has been said in an old case, the price of the leased land not having been
fixed, the essential elements which give life to the contract were lacking. It
follows that the lessee cannot compel the lessor to sell the leased land to
him. 21 The price must be certain, it must be real, not fictitious. 22 It is not
necessary that the certainty of the price be actual or determined at the time of
executing the contract. The fact that the exact amount to be paid therefor is not
precisely fixed, is no bar to an action to recover such compensation, provided
the contract, by its terms, furnishes a basis or measure for ascertaining the
amount agreed upon. 23 The price could be made certain by the application of
known factors; where, in a sale of coal, a basic price was fixed, but subject to
modification "in proportion to variations in calories and ash content, and not
otherwise," the price was held certain. 24 A contract of sale is not void for
uncertainty when the price, though not directly stated in terms of pesos and
centavos, can be made certain by reference to existing invoices identified in the
agreement. In this respect, the contract of sale is perfected. 25 The price must be
certain, otherwise there is no true consent between the parties. 26 There can be
no sale without a price. 27 In the instant case, however, what is dramatically
clear from the evidence is that there was no meeting of mind as to the price,
expressly or impliedly, directly or indirectly.

Sale is a consensual contract. He who alleges it must show its existence by

competent proof. Here, the very essential element of price has not been proven.

Lastly, petitioners' claim that they are ready to pay private respondents 28 is
immaterial and irrelevant as the latter cannot be forced to accept such payment,
there being no perfected contract of sale in the first place.

Applicability of Statute of Frauds and the Law on Double Sale

Petitioners contend that the statute of frauds does not apply because such statute
applies only to executory contracts whereas in this case the contract of sale had
already been partly executed. 29 Further, petitioners, citing Article 1544 of the
Civil Code asseverate that being in possession of the property in good faith
therefore they should be deemed the lawful owners thereof. 30 On the other
hand, private respondents counter that the contract in this case is a "mere
executory contract and not a completed or executed contract." 31

Both contentions are inaccurate. True, the statute of frauds applies only to
executory contracts and not to partially or completely executed
ones. 32 However, there is no perfected contract in this case, therefore there is
no basis for the application of the statute of frauds. The application of such
statute presupposes the existence of a perfected contract and requires only that
a note or memorandum be executed in order to compel judicial enforcement
thereof. Also, the civil law rule on double sale finds no application because
there was no sale at all to begin with.

At bottom, what took place was only a prolonged negotiation to buy and to sell,
and at most, an offer and a counter-offer but no definite agreement was reached
by the parties. Hence, the rules on perfected contract of sale, statute of frauds
and double sale find no relevance nor application.

WHEREFORE, the Petition is DENIED and the assailed Decision is

AFFIRMED. Costs against petitioners.

SO ORDERED.

3
G.R. No. 159373 November 16, 2006
JOSE R. MORENO, JR., Petitioner,
vs.
Private Management Office (formerly, ASSET PRIVATIZATION
TRUST), Respondent.
DECISION
PUNO, J.:
At bar is a Petition for Review on Certiorari of the Decision and Resolution of
the Court of Appeals in CA-G.R. CV No. 49227 dated January 30, 2003 and
July 31, 2003, respectively, reversing the decision of the Regional Trial Court
of Makati, Branch 62, in Civil Case No. 93-2756 dated August 10, 1994.
The bare facts are stated in the Joint Motion and Stipulation1 dated March 11,
1994, viz.:
COME NOW the parties, through the undersigned counsel, to this Honorable
Court respectfully make the following agreed statement of facts and issues:
1. The parties hereto hereby confirm the allegations contained in paragraphs 1,
2, 3 and 4 of the Complaint, to wit:
1. Plaintiff is of legal age, with residence at No. 700 Gen. Malvar St., Malate,
Manila; while defendant is a juridical entity with powers to sue and be sued
under Proclamation No. 50 with offices at the 10th floor, BA Lepanto Building,
8747 Paseo de Roxas, Makati, Metro Manila, where it may be served with
summons, thru its Trustees.
2. The subject-matter (sic) of this complaint is the J. Moreno Building (formerly
known as the North Davao Mining Building) or more specifically, the 2nd,
3rd, 4th, 5th and 6th floors of the building.
3. Plaintiff is the owner of the Ground Floor, the 7th Floor and the Penthouse
of the J. Moreno Building and the lot on which it stands.
4. Defendant is the owner of the 2nd, 3rd, 4th, 5th and 6th floors of the building,
the subject-matter (sic) of this suit.
which were admitted in the Answer dated October 29, 1993;
2. On February 13, 1993, the defendant called for a conference for the purpose
of discussing plaintiffs right of first refusal over the floors of the building
owned by defendant. At said meeting, defendant informed plaintiff that the
proposed purchase price for said floors was TWENTY[-]ONE MILLION
PESOS (21,000,000.00);
3. On February 22, 1993, defendant, in a letter signed by its Trustee, Juan W.
Moran, informed plaintiff thru Atty. Jose Feria, Jr., that the Board of Trustees
(BOT) of APT "is in agreement that Mr. Jose Moreno, Jr. has the right of first
refusal" and requested plaintiff to deposit 10% of the "suggested indicative
price" of 21.0 million on or before February 26, 1993 which letter is attached
hereto as Annex "A" and made an integral part of this pleading;
4. Plaintiff paid the 2.1 million on February 26, 1993. A copy of the Official
Receipt issued by defendant to plaintiff is attached hereto as Annex "B" and
made an integral part of this pleading;
5. Then on March 12, 1993, defendant wrote plaintiff that its Legal Department
has questioned the basis for the computation of the indicative price for the said
floors. A copy of the letter is attached hereto as Annex "C" and made an integral
part of this pleading;
6. On April 2, 1993, defendant wrote plaintiff that the APT BOT has
"tentatively agreed on a settlement price of 42,274,702.17" for the said floors.
A copy of this communication is attached hereto as Annex "D" and made an
integral part hereof;
7. The questions to be resolved by this Honorable Court are:
7.01. Whether or not there was a perfected contract of sale over the said floors
for the amount of 21.0 million, which will give rise to a right on the part of
the plaintiff to demand that the said floors be sold to him for said amount;
7.02. Assuming that there was a perfected contract, whether or not defendant
can be bound by the price of 21.0 million;
8. Both parties hereto hereby waive their respective claims for damages,
attorneys fees and costs;
9. Rule 30 of the Revised Rules of Court provides that:
"SEC. 2. Agreed statement of facts. The parties to any action may agree, in
writing, upon the facts involved in the litigation, and require the judgment of
the court upon the facts agreed upon, without the introduction of evidence."
10. Both parties have agreed to submit this stipulation and to request that a
decision of this Honorable Court be rendered on the basis of the foregoing
stipulation of facts and issues, and after both parties have submitted their
respective memoranda.
PRAYER
WHEREFORE, it is respectfully prayed that judgment be rendered on the basis
of the agreed stipulation of facts and issues, without the introduction of
evidence in accordance with Section 2, Rule 30 of the Revised Rules of Court,
and after the submission of the parties of their respective Memoranda.
xxx
On August 10, 1994, the trial court ruled in favor of petitioner Moreno, viz.:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
defendant, ordering defendant to sell the 2nd, 3rd, 4th, 5th and 6th floors of the
J. Moreno Building to plaintiff at the price of TWENTY[-]ONE MILLION
(21,000,000.00) PESOS; and ordering defendant to endorse the transaction to
the Committee on Privatization, without costs.2
Respondent filed a Motion for Reconsideration.3 On November 16, 1994, the
trial court denied the motion for lack of merit.4
Respondent appealed with the Court of Appeals. From the time respondent filed
its Notice of Appeal with the trial court, the parties submitted numerous
motions, including petitioners Motion to Dismiss5 dated July 8, 1996.
Petitioner moved that the case be dismissed due to the failure of respondent to
file its brief within the reglementary period.
On December 18, 1997, the Eighth Division of the appellate court granted6 the
motion to dismiss and denied7respondents motion for reconsideration.
Respondent then filed a Petition for Review on Certiorari8 with this Court to
reverse the dismissal of the appeal. On July 5, 1999, this Court, through a
Resolution9 of the Third Division, reversed the resolution dismissing the appeal
on the ground that the appeal raises substantial issues justifying a review of the
case on the merits.
On January 30, 2003, the appellate court found that there was no perfected
contract of sale over the subject floors and reversed the ruling of the trial
court, viz.:
WHEREFORE, the appeal is hereby GRANTED. The assailed decision of the
Regional Trial Court of Makati, Metro Manila, Branch 62, rendered in Civil
Case No. 93-2756 is hereby REVERSED and SET ASIDE and a new one is
entered DISMISSING the instant complaint.10
Petitioner moved for reconsideration but the motion was denied by the appellate
court in its questioned Resolution11dated July 31, 2003. Hence, this Petition
contending that:
IN REVERSING THE TRIAL COURTS DECISION DATED 10 AUGUST
1994, THE COURT OF APPEALS DECIDED ISSUES NOT IN
ACCORDANCE WITH LAW AND THE APPLICABLE DECISIONS OF
THE HONORABLE COURT CONSIDERING THAT:
I
GIVEN THE UNDISPUTED FACTS OF THE INSTANT CASE, IT IS
CLEAR THAT THERE WAS A PERFECTED, VALID AND BINDING
CONTRACT OF SALE BETWEEN PETITIONER MORENO AND
RESPONDENT APT (NOW PMO) WITH RESPECT TO THE SUBJECT
PROPERTY.
4
II
THE PRINCIPLE OF ESTOPPEL SHOULD HAVE BEEN APPLIED BY
THE COURT OF APPEALS TO HOLD RESPONDENT APT (NOW PMO)
TO ITS CONTRACT OF SALE WITH PETITIONER MORENO
CONSIDERING THAT:
A. THERE IS NOTHING IRREGULAR OR UNCONSCIONABLE IN THE
ACTS OF THE AGENTS OF RESPONDENT APT (NOW PMO) IN
CONNECTION WITH THE PERFECTED AND PARTIALLY EXECUTED
CONTRACT OF SALE.
B. RESPONDENT APT (NOW PMO) HAS DESCENDED TO THE LEVEL
OF A PRIVATE INDIVIDUAL OR ENTITY BOUND BY VALID
CONTRACTUAL OBLIGATIONS WHEN IT ENGAGED IN
PROPRIETARY AND/OR COMMERCIAL FUNCTIONS.
III
THE COURT OF APPEALS ERRED WHEN IT RULED THAT
RESPONDENT APT (NOW PMO) TIMELY RAISED THE ISSUES ON THE
ALLEGED REQUIREMENT OF APPROVAL FOR THE "INDICATED
PRICE" AND THE ALLEGED UNCONSCIONABLY LOW PRICE FOR
THE SALE OF THE SUBJECT PROPERTY, CONSIDERING THAT SAID
ISSUES WERE NEVER RAISED IN THE PROCEEDINGS BEFORE THE
TRIAL COURT AND DO NOT BEAR RELEVANCE OR CLOSE
RELATION TO THE ISSUES RAISED IN THE PROCEEDINGS BEFORE
THE COURT OF APPEALS.
IV
THE COURT OF APPEALS ERRED IN RULING THAT THE BRIEF FILED
BY RESPONDENT APT (NOW PMO) DID NOT VIOLATE SECTION 1(F)
OF THE RULES OF COURT WHICH SHOULD HAVE WARRANTED A
DISMISSAL OF RESPONDENT APTS (NOW PMO) APPEAL.12
The hinge issue is whether there was a perfected contract of sale over the subject
floors at the price of 21,000,000.00.
A contract of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price.13 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.14
To reach that moment of perfection, the parties must agree on the same thing in
the same sense,15 so that their minds meet as to all the terms.16 They must have
a distinct intention common to both and without doubt or difference; until all
understand alike, there can be no assent, and therefore no contract.17 The minds
of parties must meet at every point; nothing can be left open for further
arrangement.18 So long as there is any uncertainty or indefiniteness, or future
negotiations or considerations to be had between the parties, there is not a
completed contract, and in fact, there is no contract at all.19
Contract formation undergoes three distinct stages preparation or negotiation,
perfection or birth, and consummation. Negotiation begins from the time the
prospective contracting parties manifest their interest in the contract and ends
at the moment of agreement of the parties. The perfection or birth of the contract
takes place when the parties agree upon all the essential elements thereof. The
last stage is the consummation of the contract wherein the parties fulfill or
perform the terms agreed upon, culminating in its extinguishment.20 Once there
is concurrence of the offer and acceptance of the object and cause, the stage of
negotiation is finished. This situation does not obtain in the case at bar. The
letter of February 22, 1993 and the surrounding circumstances clearly show that
the parties are not past the stage of negotiation, hence there could not have been
a perfected contract of sale.
21
The letter is clear evidence that respondent did not intend to sell the subject
floors at the price certain of 21,000,000.00, viz.:
22 February 1993
ATTY. JOSE FERIA, JR.
FERIA, FERIA, LUGTU & LAO
Ferlaw Building, 336 Cabildo Street
Intramuros, Manila
Dear Atty. Feria:
During its meeting on February 19, 1993, our Board reviewed your letter of
February 18, 1993.
We are pleased to inform you that the Board is in agreement that Mr. Jose
Moreno, Jr. has the right of first refusal. This will be confirmed by our Board
during the next board meeting on February 26, 1993. In the meantime, please
advise Mr. Moreno that the suggested indicative price for APTs five (5) floors
of the building in question is 21 Million.
If Mr. Moreno is in agreement, he should deposit with APT the amount of 2.1
Million equivalent to 10% of the price on or before February 26, 1993. The
balance will be due within fifteen (15) days after Mr. Moreno receives the
formal notice of approval of the indicative price.
If you or Mr. Moreno have (sic) any question, please let me know.
Very truly yours,
(Signed)
JUAN W. MORAN
Associate Executive Trustee
The letter clearly states that 21,000,000.00 is merely a "suggested indicative
price" of the subject floors as it was yet to be approved by the Board of Trustees.
Before the Board could confirm the suggested indicative price, the Committee
on Privatization must first approve the terms of the sale or disposition. The
imposition of this suspensive condition finds basis under Proclamation No.
5022 which vests in the Committee the power to approve the sale of government
assets, including the price of the asset to be sold, viz.:
ARTICLE II. COMMITTEE ON PRIVATIZATION
xxx
SECTION 5. POWERS AND FUNCTIONS. The Committee shall have the
following powers and functions:
(1) x x x x Provided, further, that any such independent disposition shall be
undertaken with the prior approval of the Committee and in accordance with
the general disposition guidelines as the Committee may provide; Provided,
finally, that in every case the sale or disposition shall be approved by the
Committee with respect to the buyer and price only;
xxx
(4) To approve or disapprove, on behalf of the National Government and
without need of any further approval or other action from any other government
institution or agency, the sale or disposition of such assets, in each case on terms
and to purchasers recommended by the Trust or the government institution, as
the case may be, to whom the disposition of such assets may have been
delegated; Provided that, the Committee shall not itself undertake the marketing
of any such assets, or participate in the negotiation of their sale;
xxx
ARTICLE III. ASSET PRIVATIZATION TRUST
xxx
SECTION 12. POWERS. The Trust shall, in the discharge of its
responsibilities, have the following powers:
xxx
(2) Subject to its having received the prior written approval of the Committee
to sell such asset at a price and on terms of payment and to a party disclosed to
the Committee, to sell each asset referred to it by the Committee to such party
and on such terms as in its discretion are in the best interest of the National
Government, and for such purpose to execute and deliver, on behalf and in the
name of the National Government. Such deeds of sale, contracts and other
instruments as may be necessary or appropriate to convey title to such assets;
5
Petitioner construes Section 12, Article III of the Proclamation differently. He
argues that what the law says is that even before respondent sells or offers for
sale a government asset, the terms thereof have already been previously
approved by the Committee,23 i.e., "[s]ubject to its having received
the prior written approval of the Committee to sell such an asset at a price and
on terms of payment and to a party disclosed to the Committee, to sell each
asset referred to it by the Committee to such party and on such terms as in its
discretion are in the best interest of the National Government."24 Thus, the
Committees approval of the suggested indicative price of 21,000,000.00 is
not necessary.
We are not persuaded.
If we adopt the argument of petitioner, Section 12, Article III would nullify the
power granted to the Committee under Section 5 (4), Article II of the same
Proclamation. Under Section 5 (4), the Committee has the power "to approve
or disapprove, on behalf of the National Government and without need of any
further approval or other action from any other government institution or
agency, the sale or disposition of such assets, in each case on terms and to
purchasers recommended by the Trust or the government institution, as the
case may be, to whom the disposition of such assets may have been delegated;
Provided that, the Committee shall not itself undertake the marketing of any
such assets, or participate in the negotiation of their sale."25 The law is clear that
the Trust shall recommend the terms for the Committees approval or
disapproval, and not the other way around.
It is a basic canon of statutory construction that in interpreting a statute, care
should be taken that every part thereof be given effect, on the theory that it was
enacted as an integrated measure and not as a hodge-podge of conflicting
provisions. The rule is that a construction that would render a provision
inoperative should be avoided; instead, apparently inconsistent provisions
should be reconciled whenever possible as parts of a coordinated and
harmonious whole.26
To bolster the argument that the Committees approval may be dispensed with,
petitioner also cites Opinion No. 27, Series of 1989, of the Secretary of Justice
which recognizes a case where the Committee may delegate to respondent the
power to approve the sale or disposition of assets with a transfer price not
exceeding 60,000,000.00.27
The argument fails to impress. The Opinion involves a case where "no material
discretion is involved in the disposition of assets pursuant to the subject
proposal" and the act which could be delegated, as opined, is ministerial. The
Opinion further notes that "the criteria and guidelines stated therein are concrete
and definite enough that once these criteria and guidelines are present in a
particular case, the APT is practically left with no choice in the disposition of
the assets involved and that all that the APT shall do in disposing off an asset
thereunder is ascertain whether a prospective buyer and the price he offers
satisfy such conditions." Petitioner failed to show that the case at bar is of the
same nature that is, that the disposition of the subject floors "partakes of the
nature of a ministerial act which has been defined as one performed under a
given state of facts, in a prescribed manner, in obedience to the mandate of legal
authority, without regard to the exercise of judgment upon the propriety or
impropriety of the act done."
Petitioner further argues that the "suggested indicative price" of 21,000,000.00
is not a proposed price, but the selling price indicative of the value at which
respondent was willing to sell.28 Petitioner posits that under Section 14, Rule
130 of the Revised Rules of Court, the term should be taken in its ordinary and
usual acceptation and should be taken to mean as a price which is "indicated"
or "specified" which, if accepted, gives rise to a meeting of minds.29This was
the same construction adopted by the trial court, viz.:
Going to defendants main defense that 21 Million was a "suggested indicative
price" we have to find out exactly what "indicative" means. Webster
Comprehensive Dictionary, International Edition, gives us a graphic meaning
that everybody can understand, when it says that "to indicate" is [t]o point out;
direct attention[;] to indicate the correct page[.] "Indicative" is merely the
adjective of the verb to indicate. x x x when the price of 21 [M]illion was
indicated then it becomes the "indicative" price the correct price, no ifs[,]
no buts.30 (emphases in the original)
We do not agree.
Under the same section and rule invoked by petitioner, the terms of a writing
are presumed to have been used in their primary and general acceptation, but
evidence is admissible to show that they have a local, technical, or otherwise
peculiar signification, and were so used and understood in the particular
instance, in which case the agreement must be construed accordingly.31
The reliance of the trial court in the Webster definition of the term "indicative,"
as also adopted by petitioner, is misplaced. The transaction at bar involves the
sale of an asset under a privatization scheme which attaches a peculiar meaning
or signification to the term "indicative price." Under No. 6.1 of the General
Bidding Procedures and Rules32 of respondent, "an indicative price is a ball-
park figure and [respondent] supplies such a figure purely to define the ball-
park."33 The plain contention of petitioner that the transaction involves an
"ordinary armslength sale of property" is unsubstantiated and leaves much to
be desired. This case sprung from a case of specific performance initiated by
petitioner who has the burden to prove that the case should be spared from the
application of the technical terms in the sale and disposition of assets under
privatization. Petitioner failed to discharge the burden.1wphi1
It appears in the case at bar that petitioners construction of the letter of
February 22, 1993 that his assent to the "suggested indicative price" of
21,000,000.00 converted it as the price certain, thus giving rise to a perfected
contract of sale34 is petitioners own subjective understanding. As such, it is
not shared by respondent. Under American jurisprudence, mutual assent is
judged by an objective standard, looking to the express words the parties used
in the contract.35 Under the objective theory of contract, understandings and
beliefs are effective only if shared.36 Based on the objective manifestations of
the parties in the case at bar, there was no meeting of the minds. That the letter
constituted a definite, complete and certain offer is the subjective belief of
petitioner alone. The letter in question is a mere evidence of a memorialization
of inconclusive negotiations, or a mere agreement to agree, in which material
term is left for future negotiations.37 It is a mere evidence of the parties
preliminary transactions which did not crystallize into a perfected contract.
Preliminary negotiations or an agreement still involving future negotiations is
not the functional equivalent of a valid, subsisting agreement.38 For a valid
contract to have been created, the parties must have progressed beyond this
stage of imperfect negotiation. But as the records would show, the parties are
yet undergoing the preliminary steps towards the formation of a valid contract.
Having thus established that there is no perfected contract of sale in the case at
bar, the issue on estoppel is now moot and academic.
Finally, petitioner contends that the appellate court should have dismissed the
appeal of respondent on the procedural technicality that the Appellants Brief
does not have page references to the record in its Statement of Facts, Statement
of the Case and Arguments in the Appellants Brief.39
We find no reason to reverse the ruling of the appellate court which has
judiciously explained why the appeal should not be dismissed on this
ground, viz.:
x x x x Procedural rules are required to be followed as a general rule, but they
may be relaxed to relieve a litigant of an injustice not commensurate with the
degree of his noncompliance with the procedure required. In this case,
[respondents] brief does not substantially violate our procedural rules. Besides,
the merits of its arguments will show that the trial court seriously erred in
issuing its assailed decision.40
IN VIEW WHEREOF, the assailed Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 49227 dated January 30, 2003 and July 31, 2003,
respectively, are AFFIRMED.
SO ORDERED.
6
G.R. No. 172674 July 12, 2007
SPS. JORGE NAVARRA and CARMELITA BERNARDO NAVARRA
and RRRC DEVELOPMENT CORPORATION, Petitioners,
vs.
PLANTERS DEVELOPMENT BANK and ROBERTO GATCHALIAN
REALTY, INC., Respondents.
DECISION
GARCIA, J.:
Assailed and sought to be set aside in this petition for review under Rule 45 of
the Rules of Court is the decision1dated September 27, 2004 of the Court of
Appeals (CA) in CA-G.R. CV No. 50002, as reiterated in its resolution2dated
May 8, 2006, denying reconsideration thereof. The challenged decision
reversed that of the Regional Trial Court (RTC) of Makati City, Branch 66, in
its Civil Case No. 16917, an action for Specific Performance and Injunction
thereat commenced by the herein petitioners against the respondents. The
Makati RTC ruled that a perfected contract of sale existed in favor of Jorge
Navarra and Carmelita Bernardo Navarra (Navarras) over the properties
involved in the suit and accordingly ordered Planters Development Bank
(Planters Bank) to execute the necessary deed of sale therefor. The CA reversed
that ruling. Hence, this recourse by the petitioners.
The facts:
The Navarras are the owners of five (5) parcels of land located at B.F. Homes,
Paraaque and covered by Transfer Certificates of Title (TCT) Nos. S-58017,
S-58011, S-51732, S-51733 and A-14574. All these five (5) parcels of land are
the subject of this controversy.
On July 5, 1982, the Navarras obtained a loan of 1,200,000.00 from Planters
Bank and, by way of security therefor, executed a deed of mortgage over their
aforementioned five (5) parcels of land. Unfortunately, the couple failed to pay
their loan obligation. Hence, Planters Bank foreclosed on the mortgage and the
mortgaged assets were sold to it for 1,341,850.00, it being the highest bidder
in the auction sale conducted on May 16, 1984. The one-year redemption period
expired without the Navarras having redeemed the foreclosed properties.
On the other hand, co-petitioner RRRC Development Corporation (RRRC) is a
real estate company owned by the parents of Carmelita Bernardo Navarra.
RRRC itself obtained a loan from Planters Bank secured by a mortgage over
another set of properties owned by RRRC. The loan having been likewise
unpaid, Planters Bank similarly foreclosed the mortgaged assets of RRRC.
Unlike the Navarras, however, RRRC was able to negotiate with the Bank for
the redemption of its foreclosed properties by way of a concession whereby the
Bank allowed RRRC to refer to it would-be buyers of the foreclosed RRRC
properties who would remit their payments directly to the Bank, which
payments would then be considered as redemption price for RRRC. Eventually,
the foreclosed properties of RRRC were sold to third persons whose payments
therefor, directly made to the Bank, were in excess by 300,000.00 for the
redemption price.
In the meantime, Jorge Navarra sent a letter to Planters Bank, proposing to
repurchase the five (5) lots earlier auctioned to the Bank, with a request that he
be given until August 31, 1985 to pay the down payment of 300,000.00. Dated
July 18, 1985 and addressed to then Planters Bank President Jesus Tambunting,
the letter reads in full:
This will formalize my request for your kind consideration in allowing my
brother and me to buy back my house and lot and my restaurant building and
lot together with the adjacent road lot.
Since my brother, who is working in Saudi Arabia, has accepted this
arrangement only recently as a result of my urgent offer to him, perhaps it will
be safe for us to set August 31, 1985 as the last day for the payment of a
300,000.00 downpayment. I hope you will grant us the opportunity to raise
the funds within this period, which includes an allowance for delays.
The purchase price, I understand, will be based on the redemption value plus
accrued interest at the prevailing rate up to the date of our sales contract. Maybe
you can give us a long term payment scheme on the basis of my brothers annual
savings of roughly US$30,000.00 everytime he comes home for his home leave.
I realize that this is not a regular transaction but I am seeking your favor to give
me a chance to reserve whatever values I can still recover from the properties
and to avoid any legal complications that may arise as a consequence of the
total loss of the Balangay lot. I hope that you will extend to me your favorable
action on this grave matter.
In response, Planters Bank, thru its Vice-President Ma. Flordeliza Aguenza,
wrote back Navarra via a letter dated August 16, 1985, thus:
Regarding your letter dated July 18, 1985, requesting that we give up to August
31, 1985 to buy back your house and lot and restaurant and building subject to
a 300,000.00 downpayment on the purchase price, please be advised that the
Collection Committee has agreed to your request.
Please see Mr. Rene Castillo, Head, Acquired Assets Unit, as soon as possible
for the details of the transaction so that they may work on the necessary
documentation.
Accordingly, Jorge Navarra went to the Office of Mr. Rene Castillo on August
20, 1985, bringing with him a letter requesting that the excess payment of
300,000.00 in connection with the redemption made by the RRRC be applied
as down payment for the Navarras repurchase of their foreclosed properties.
Because the amount of 300,000.00 was sourced from a different transaction
between RRRC and Planters Bank and involved different debtors, the Bank
required Navarra to submit a board resolution from RRRC authorizing him to
negotiate for and its behalf and empowering him to apply the excess amount of
300,000.00 in RRRCs redemption payment as down payment for the
repurchase of the Navarras foreclosed properties.
Meanwhile, titles to said properties were consolidated in the name of Planters
Bank, and on August 27, 1985, new certificates of title were issued in its name,
to wit: TCT Nos. 97073, 97074, 97075, 97076 and 97077.
Then, on January 21, 1987, Planters Bank sent a letter to Jorge Navarra
informing him that it could not proceed with the documentation of the proposed
repurchase of the foreclosed properties on account of his non- compliance with
the Banks request for the submission of the needed board resolution of RRRC.
In his reply-letter of January 28, 1987, Navarra claimed having already
delivered copies of the required board resolution to the Bank. The Bank,
however, did not receive said copies. Thus, on February 19, 1987, the Bank sent
a notice to the Navarrras demanding that they surrender and vacate the
properties in question for their failure to exercise their right of redemption.
Such was the state of things when, on June 31, 1987, in the RTC of Makati City,
the Navarras filed their complaint for Specific Performance with Injunction
against Planters Bank. In their complaint docketed in said court as Civil Case
No. 16917 and raffled to Branch 66 thereof, the Navarras, as plaintiffs, alleged
that a perfected contract of sale was made between them and Planters Bank
whereby they would repurchase the subject properties for 1,800,000.00 with a
down payment of 300,000.00.
In its Answer, Planters Bank asserted that there was no perfected contract of
sale because the terms and conditions for the repurchase have not yet been
agreed upon.
On September 9, 1988, a portion of the lot covered by TCT No. 97077 (formerly
TCT No. A-14574) was sold by Planters Bank to herein co-respondent Roberto
Gatchalian Realty, Inc. (Gatchalian Realty). Consequently, TCT No. 97077 was
cancelled and TCT No. 12692 was issued in the name of Gatchalian Realty.
This prompted the Navarras to amend their complaint by impleading Gatchalian
Realty as additional defendant.
In a decision dated July 10, 1995, the trial court ruled that there was a perfected
contract of sale between the Navarras and Planters Bank, and accordingly
rendered judgment as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering:
a) the cancellation of the Deed of Absolute Sale (Exh. "2") over lot 4137-C
between defendant Planters Development Bank and defendant Roberto
Gatchalian Realty Corporation (RGRI) with the vendor bank refunding all the
payments made by the vendee RGRI "without interest less the five percent (5%)
brokers commission":
7
b) the defendant Planters Development Bank to execute the Deed of Absolute
Sale over the lots covered by TCT Nos. 97073, 97074, 97075, 97076, and 97077
in favor of all the plaintiffs for a consideration of ONE MILLION EIGHT
HUNDRED THOUSAND (P1,800,000.00) less the downpayment of
P300,000.00 plus interest at the rate of twenty five percent (25%) per year for
five (5) years to be paid in full upon the execution of the contract;
c) the defendant Planters Development Bank the amount of TEN THOUSAND
PESOS (P10,000.00) by way of attorneys fees.
d) No costs.
SO ORDERED.
Therefrom, Planters Bank and Gatchalian Realty separately went on appeal to
the CA whereat their appellate recourse were consolidated and docketed as CA-
G.R. CV No. 50002.
As stated at the threshold hereof, the appellate court, in its decision of
September 27, 2004, reversed that of the trial court and ruled that there was no
perfected contract of sale between the parties. Partly says the CA in its decision:
The Court cannot go along with the deduction of the trial court that the response
of Planters Bank was favorable to Jorge Navarras proposal and that the
P300,000.00 in its possession is a down payment and as such sufficient bases
to conclude that there was a valid and perfected contract of sale. Based on the
turn of events and the tenor of the communications between the offerors and the
creditor bank, it appears that there was not even a perfected contract to sell,
much less a perfected contract of sale.
Article 1319 cited by the trial court provides that the acceptance to an offer must
be absolute. Simply put, there must be unqualified acceptance and no condition
must tag along. But Jorge Navarra in trying to convince the bank to agree, had
himself laid out terms in offering (1) a downpayment of P300,000.00 and
setting (2) as deadline August 31, 1985 for the payment thereof. Under these
terms and conditions the bank indeed accepted his offer, and these are
essentially the contents of Exhibits "J" and "K."
But was there compliance? According to the evidence on file the P300,000.00,
if at all, was given beyond the agreed period. The court a quo missed the fact
that the said amount came from the excess of the proceeds of the sale to the
Pea spouses which Jorge Navarra made to appear was made before the
deadline he set of August 31, 1985. But this is athwart Exhibits "M-1" and "N",
the Contract to Sell and the Deed of Sale between RRRC and the Peas, for
these were executed only on September 13, 1985 and October 7, 1985
respectively.
xxx xxx xxx
There were two separate and independent loans secured by distinct mortgages
on different lots and their only commonality is the relationship of the Navarras
and Bernardo families. It is thus difficult to conceive and to conclude that such
Byzantine arrangement was acquiesced to and provided for in that single and
simple letter of the bank.
With their motion for reconsideration having been denied by the CA in its
resolution of May 8, 2006, petitioners are now with this Court via this recourse
on their submission that the CA erred -
I for the details of the transaction so that they may work on the necessary
XXX IN CONCLUDING THAT THERE WAS NO PERFECTED
CONTRACT TO REPURCHASE THE FORECLOSED PROPERTIES
BETWEEN THE PETITIONERS AND THE PRIVATE RESPONDENT
PLANTERS DEVELOPMENT BANK, AS CORRECTLY FOUND BY THE
TRIAL COURT.
II
XXX IN HOLDING THAT THE PARTIES NEVER GOT PAST THE
NEGOTIATION STAGE.
While the question raised is essentially one of fact, of which the Court normally
eschews from, yet, given the conflicting factual findings of the trial and
appellate courts, the Court shall go by the exception3 to the general rule and
proceed to make its own assessment of the evidence.
We DENY.
Petitioners contend that a perfected contract of sale came into being when
respondent Bank, thru a letter dated August 16, 1985, formally accepted the
offer of the Navarras to repurchase the subject properties.
In general, contracts undergo three distinct stages, to wit: negotiation,
perfection or birth, and consummation. Negotiation begins from the time the
prospective contracting parties manifest their interest in the contract and ends
at the moment of their agreement. Perfection or birth of the contract takes place
when the parties agree upon the essential elements of the contract, i.e., consent,
object and price. Consummation occurs when the parties fulfill or perform the
terms agreed upon in the contract, culminating in the extinguishment thereof.4
A negotiation is formally initiated by an offer which should be certain with
respect to both the object and the cause or consideration of the envisioned
contract. In order to produce a contract, there must be acceptance, which may
be express or implied, but it must not qualify the terms of the offer. The
acceptance of an offer must be unqualified and absolute to perfect the contract.
In other words, it must be identical in all respects with that of the offer so as to
produce consent or meeting of the minds.5
Here, the Navarras assert that the following exchange of correspondence
between them and Planters Bank constitutes the offer and acceptance, thus:
Letter dated July 18, 1985 of Jorge Navarra:
This will formalize my request for your kind consideration in allowing my
brother and me to buy back my house and lot and my restaurant building and
lot together with the adjacent road lot.
Since my brother, who is working in Saudi Arabia, has accepted this
arrangement only recently as a result of my urgent offer to him, perhaps it will
be safe for us to set August 31, 1985 as the last day for the payment of a
300,000.00 downpayment. I hope you will grant us the opportunity to raise
the funds within this period, which includes an allowance for delays.
The purchase price, I understand, will be based on the redemption value plus
accrued interest at the prevailing rate up to the date of our sales contract. Maybe
you can give us a long term payment scheme on the basis of my brothers annual
savings of roughly US$30,000.00 everytime he comes home for his home leave.
I realize that this is not a regular transaction but I am seeking your favor to give
me a chance to reserve whatever values I can still recover from the properties
and to avoid any legal complications that may arise as a consequence of the
total loss of the Balangay lot. I hope that you will extend to me your favorable
action on this grave matter.
Letter dated August 16, 1985 of Planters Bank
Regarding your letter dated July 18, 1985, requesting that we give up to August
31, 1985 to buy back your house and lot and restaurant and building subject to
a 300,000.00 downpayment on the purchase price, please be advised that the
Collection Committee has agreed to your request.
Please see Mr. Rene Castillo, Head, Acquired Assets Unit, as soon as possible
documentation. (Emphasis ours)
Given the above, the basic question that comes to mind is: Was the offer certain
and the acceptance absolute enough so as to engender a meeting of the minds
between the parties? Definitely not.
While the foregoing letters indicate the amount of 300,000.00 as down
payment, they are, however, completely silent as to how the succeeding
installment payments shall be made. At most, the letters merely acknowledge
that the down payment of 300,000.00 was agreed upon by the parties.
However, this fact cannot lead to the conclusion that a contract of sale had been
perfected. Quite recently, this Court held that before a valid and binding
contract of sale can exist, the manner of payment of the purchase price must
first be established since the agreement on the manner of payment goes into the
8
price such that a disagreement on the manner of payment is tantamount to a transaction between the Planters Bank and a third-party, like the one involving
failure to agree on the price.6 the Gatchalian Realty, cannot be affected.

Too, the Navarras letter/offer failed to specify a definite amount of the WHEREFORE, the petition is DENIED and the assailed decision and
purchase price for the sale/repurchase of the subject properties. It merely stated resolution of the Court of Appeals are AFFIRMED.
that the "purchase price will be based on the redemption value plus accrued
interest at the prevailing rate up to the date of the sales contract." The ambiguity No pronouncement as to costs.
of this statement only bolsters the uncertainty of the Navarras so-called "offer"
for it leaves much rooms for such questions, as: what is the redemption value? SO ORDERED.
what prevailing rate of interest shall be followed: is it the rate stipulated in the
loan agreement or the legal rate? when will the date of the contract of sale be
based, shall it be upon the time of the execution of the deed of sale or upon the
time when the last installment payment shall have been made? To our mind,
these questions need first to be addressed, discussed and negotiated upon by the
parties before a definite purchase price can be arrived at.

Significantly, the Navarras wrote in the same letter the following:

Maybe you can give us a long-term payment scheme on the basis of my

brothers annual savings of roughly US$30,000.00 every time he comes home
for his home leave.

Again, the offer was not clear insofar as concerned the exact number of years
that will comprise the long-term payment scheme. As we see it, the absence of
a stipulated period within which the repurchase price shall be paid all the more
adds to the indefiniteness of the Navarras offer.

Clearly, then, the lack of a definite offer on the part of the spouses could not
possibly serve as the basis of their claim that the sale/repurchase of their
foreclosed properties was perfected. The reason is obvious: one essential
element of a contract of sale is wanting: the price certain. There can be no
contract of sale unless the following elements concur: (a) consent or meeting of
the minds; (b) determinate subject matter; and (c) price certain in money or its
equivalent. Such contract is born or perfected from the moment there is a
meeting of minds upon the thing which is the object of the contract and upon
the price.7 Here, what is dramatically clear is that there was no meeting of minds
vis-a-vis the price, expressly or impliedly, directly or indirectly.

Further, the tenor of Planters Banks letter-reply negates the contention of the
Navarras that the Bank fully accepted their offer. The letter specifically stated
that there is a need to negotiate on the other details of the transaction8before the
sale may be formalized. Such statement in the Banks letter clearly manifests
lack of agreement between the parties as to the terms of the purported contract
of sale/repurchase, particularly the mode of payment of the purchase price and
the period for its payment. The law requires acceptance to be absolute and
unqualified. As it is, the Banks letter is not the kind which would constitute
acceptance as contemplated by law for it does not evince any categorical and
unequivocal undertaking on the part of the Bank to sell the subject properties to
the Navarras.

The Navarras attempt to prove the existence of a perfected contract of sale all
the more becomes futile in the light of the evidence that there was in the first
place no acceptance of their offer. It should be noted that aside from their first
letter dated July 18, 1985, the Navarras wrote another letter dated August 20,
1985, this time requesting the Bank that the down payment of 300,000.00 be
instead taken from the excess payment made by the RRRC in redeeming its own
foreclosed properties. The very circumstance that the Navarras had to make this
new request is a clear indication that no definite agreement has yet been reached
at that point. As we see it, this request constitutes a new offer on the part of the
Navarras, which offer was again conditionally accepted by the Bank as in fact
it even required the Navarras to submit a board resolution of RRRC before it
could proceed with the proposed sale/repurchase. The eventual failure of the
spouses to submit the required board resolution precludes the perfection of a
contract of sale/repurchase between the parties. As earlier mentioned, contracts
are perfected when there is concurrence of the parties wills, manifested by the
acceptance by one of the offer made by the other.9Here, there was no
concurrence of the offer and acceptance as would result in a perfected contract
of sale.1avvphi1

Evidently, what transpired between the parties was only a prolonged

negotiation to buy and to sell, and, at the most, an offer and a counter-offer with
no definite agreement having been reached by them. With the hard reality that
no perfected contract of sale/repurchase exists in this case, any independent

9
G.R. No. 171401 December 13, 2007
ADELAIDA AMADO AND THE HEIRS AND/OR ESTATE OF THE
LATE JUDGE NOE AMADO, Petitioners,
vs.
RENATO SALVADOR, Respondent.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
assailing the Decision dated 25 August 2005 rendered by the Court of Appeals
in CA-G.R. CV No. 71816.1 In reversing the Decision,2 dated 28 November
2000, of the Regional Trial Court (RTC), Branch 76, of San Mateo, Rizal, the
Court of Appeals declared that the late Judge Noe Amado (Judge Amado), the
petitioners predecessor-in-interest, already sold the subject property to
respondent, Renato Salvador (Salvador).
Petitioners are the heirs of the late Judge Amado, who was the owner of a parcel
of land situated at Barangay Burgos, Rodriguez, Rizal, with an area of 5,928
square meters.3 The property subject of the present controversy is a portion
thereof, consisting of 1,106 square meters and registered under Original
Certificate of Title (OCT) No. N-191954-A with the Registry of Deeds of
Rizal4 in the name of Judge Amado.
Salvador alleges that in or around September 1979, Judge Amado agreed to sell
to him the subject property for 60.00 per square meter, or in the total sum of
66,360.00, payable in cash or construction materials which would be delivered
to Judge Amado, or to whomsoever the latter wished during his
lifetime.5 Salvador though failed to state the terms of payment, such as the
period within which the payment was supposed to be completed, or how much
of the payment should be made in cash. In view of the sale in his favor, Salvador
undertook the transfer and relocation of about five squatter families residing on
the subject property. Thereafter, Judge Amado allowed Salvador to take
possession of the subject property and to build thereon a residential structure,
office, warehouse, perimeter fence and a deep well pump.6 Salvador claims that
by October 1980, he had already given Judge Amado total cash advances of
30,310.93 and delivered construction materials amounting to 36,904.45, the
total of which exceeded the agreed price for the subject property.7
According to the petitioners, on the other hand, Judge Amado let Salvador use
the subject property, upon the request of the latters father and grandfather, who
were Judge Amados friends. Salvador used the subject property for his
business of manufacturing hollow blocks.8
The petitioners maintain that the cash advances and the various construction
materials were received by Judge Amado from Salvador in connection with a
loan agreement, and not as payment for the sale of the subject property.
Petitioners offered in evidence a loan agreement executed on 15 August 1980
wherein Salvador and Judge Amado and their respective spouses appeared as
co-borrowers with Capitol City Development Bank as lender. The property
belonging to Judge Amado was used as collateral, while Salvador undertook
the obligation to construct a perimeter fence over Judge Amados land covered
by OCT No. N-191954-A and to deliver hollow blocks to Judge Amados son,
Valeriano Amado. Petitioners aver that Salvador and Judge Amado agreed to
divide the proceeds of the loan among themselves. Since the bank delivered the
proceeds of the loan to Salvador, Judge Amados share in the proceeds were
paid to him in several installments, some of which Salvador alleged were
payments for the sale of the subject property.9
Petitioners assert that when Salvadors business folded up, he failed to pay his
share of the monthly amortization of the loan with the bank. Judge Amado paid
the loan to prevent the foreclosure of his mortgaged property. Salvador also
allowed his brother Lamberto Salvador to occupy the premises without the
consent of Judge Amado.10
On 4 November 1983, Judge Amado sent a demand letter to Salvador directing
the latter to vacate the subject property,11 which Salvador merely ignored.12
Judge Amado filed an ejectment suit against Salvador before the Municipal
Trial Court (MTC) of Rodriguez, Rizal, docketed as Civil Case No. 700. During
the hearing before the MTC, Salvador and his brother, Lamberto Salvador,
defendants therein, stated in their Answer with Counterclaim that a balance of
4,040.62 from the purchase price of the subject property was left unpaid due
to the failure of Judge Amado to execute and deliver a deed of sale.13 In a
Decision dated 16 July 1990, the MTC dismissed the ejectment suit on the
ground of lack of jurisdiction because of Salvadors claim of ownership over
the subject property.14 The case was appealed to the RTC and docketed as Civil
Case No. 704. The RTC affirmed the dismissal of Judge Amados ejectment
suit by the MTC based on lack of jurisdiction.15
On 22 August 1996, Salvador filed before the RTC Civil Case No. 1252, an
action for specific performance with damages against the petitioners.16 As
evidence that the sale of the subject property was perfected between Judge
Amado and himself, Salvador presented a note written by Judge Amado, which
reads17 :
San Mateo
October 1, 1980
Dear Reny,
Meron naniningil sa akin ng P500.00 kayat ako ay bigyan ng ganoong halaga
ngayon.
Hindi ko nilagdaan iyong papel na dala ni Kapitan Maeng at ito ay nasa akin
pa.
Saka ko na ibabalik iyon pa gang aking plano ay napaayos ko na. Ang lupa ay
gagawin kong dalawang lote.
Ako,
Noe Amado
Salvador also offered in evidence the testimony of Ismael Angeles to prove that
Judge Amado agreed to sell the subject property to him.
To prove that he paid the purchase price, Salvador submitted the following
documents showing he paid cash and delivered construction materials to Judge
Amado: (1) a statement of account of cash advances made from 1 September
1979 to 23 September 1980 in the total amount of 30,310.9318 ; (2) statements
of account of construction materials delivered from 23 August 1979 to 20
October 1979 with a total cost of 17,656.85, from 26 December 1979 to 25
August 1980 with a total cost of 1,711.20, and from 26 August 1980 to 24
September 1980 with a total cost of 10,447.4019 ; (3) Invoice No. 50 dated 8
December 1980 for construction materials worth 924.0020 ; and (4) delivery
receipts of construction materials from 21 November 1979 to 6 January 1981
with a total cost of 1,665.00.21
The RTC dismissed Salvadors complaint in Civil Case No. 1252. The trial
court observed that it was not indicated in the documentary evidence presented
by Salvador that the money and construction materials were intended as
payment for the subject property. It gave little probative value to tax
declarations in the name of Salvador since they referred to the improvements
on the land and not the land itself. The testimonial evidence given by Ismael
Angeles was considered insufficient to prove the fact of sale because the
witness failed to categorically state that a sale transaction had taken place
between Salvador and Judge Amado. Moreover, the RTC held that Salvador
was disqualified under the Dead Mans Statute22 from testifying on any matter
of fact involving a transaction between him and Judge Amado which occurred
before the death of the latter.23
Salvador appealed the Decision of the RTC in Civil Case No. 1252 before the
Court of Appeals.
In reversing the decision of the RTC of San Mateo, the Court of Appeals found
that Salvador paid for the subject land with cash advances and construction
materials, since petitioners failed to present any evidence showing that the
construction materials Salvador delivered to Judge Amado had been paid for. It
construed as adequate proof of the sale the handwritten note of Judge Amado
wherein the latter promised to sign an unidentified deed after the subdivision of
an unnamed property, in light of Ismael Angeles testimony that Judge Amado
had promised to sign a deed of sale over the subject property in favor of
Salvador. According to the appellate court, the testimony of Salvador was not
barred by Section 23, Rule 130 of the Rules of Court, also known as the Dead
Mans Statute, and was, therefore, admissible because the petitioners filed a
10
counterclaim against Salvador. It also gave great weight to the tax declarations
presented by Salvador and his efforts to relocate the five squatter families which
previously resided on the subject property as proof of ownership. Lastly, the
Court of Appeals awarded Salvador 100,000.00 as moral damages and
100,000.00 as exemplary damages. The dispositive part of the said Decision
reads:
1. Ordering [herein petitioners] to execute a Deed of Sale in favor of [herein
respondent Salvador] covering the parcel of land with an area of 1,106 square
meters located at 18 Amado-Liamzon Street, Brgy. Burgos, Rodriguez, Rizal
which is a portion of the 5,928 square meter parcel of land in the name of Judge
Noe Amado, married to Adelaida A. Amado in the Registration Book as
Original Certificate of Title No. ON-191954-A of the Register of Deeds of
Rizal, Marikina Branch;
2. Ordering the [petitioners] to deliver to [Salvador] the Original Certificate of
Title No. ON-191954-A of the Register of Deeds of Rizal, Marikina Branch,
bearing page number 54-A, Book A-6, and execute receipts and other
documents which may be necessary for the registration and titling of the parcel
of land in [Salvador]s name; and
3. Ordering the [petitioners] to pay [Salvador] 100,000.00 as moral damages,
100,000.00 as exemplary damages, and costs of suits.24
Hence, the present petition. Petitioners rely on the following grounds:25
I
THE COURT A QUO ERRED ON A QUESTION OF LAW IN REVERSING
THE TRIAL COURTS DECISION AND HOLDING THAT RESPONDENT
HAS SUCCESSFULLY DISCHARGED THE BURDEN OF EVIDENCE
THAT THERE WAS A SALE OF LOT, THE CONSIDERATION OF WHICH
WAS TO BE PAID IN CASH AND CONSTRUCTION MATERIALS
II
THE COURT A QUO ERRED ON A QUESTION OF LAW IN HOLDING
THAT RESPONDENT WAS NOT DISQUALIFIED TO TESTIFY UNDER
THE DEAD MANS STATUTE AS PROVIDED IN SECTION 23, RULE 130
OF THE RULES OF COURT
III
THE COURT A QUO ERRED ON A QUESTION OF LAW IN RULING
THAT PETITIONERS ARE LIABLE FOR MORAL OR EXEMPLARY
DAMAGES IN THE TOTAL AMOUNT OF 200,000.0026
The petition at bar is meritorious.
The main controversy in the petition is whether or not there was a perfected
contract of sale of the subject property. In resolving this issue, this Court would
necessarily re-examine the factual findings of the Court of Appeals, as well as
the contrary findings of the trial court. It is a recognized principle that while
this Court is not a trier of facts and does not normally embark on the evaluation
of evidence adduced during trial, this rule allows exceptions,27 such as when the
findings of the trial court and the Court of Appeals are conflicting or
contradictory.28
A contract of sale is perfected by mere consent, upon a meeting of the minds in
the offer and the acceptance thereof based on subject matter, price and terms of
payment.29 Until the contract of sale is perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation between the parties.30
Consent is essential for the existence of a contract, and where it is absent, the
contract is non-existent. Consent in contracts presupposes the following
requisites: (1) it should be intelligent or with an exact notion of the matter to
which it refers; (2) it should be free; and (3) it should be
spontaneous.31 Moreover, a definite agreement on the manner of payment of the
price is an essential element in the formation of a binding and enforceable
contract of sale.32 This is so because the agreement as to the manner of payment
goes into the price such that a disagreement on the manner of payment is
tantamount to a failure to agree on the price or consideration.33
In the present case, Salvador fails to allege the manner of payment of the
purchase price on which the parties should have agreed. No period was set
within which the payment must be made. Of the purchase price of 66,360.00,
which the parties purportedly agreed upon, the amount which should be paid in
cash and the amount for construction materials was not determined. This means
that the parties had no exact notion of the consideration for the contract to which
they supposedly gave their consent. Thus, such failure is fatal to Salvadors
claim that a sale had been agreed upon by the parties.
Furthermore, after carefully examining the records, serious doubts became
apparent as to whether cash advances and deliveries of construction materials
evidenced by numerous statements of accounts and delivery receipts were
actually intended as payment for the land.
First of all, the statements of accounts and the delivery receipts do not indicate
that the construction materials or the cash advances were made in connection
with the sale of the subject property. Any doubt as to the real meaning of the
contract must be resolved against the person who drafted the instrument and is
responsible for the ambiguity thereof.34 Since Salvador prepared these
statements of accounts and therefore caused the ambiguity, he cannot benefit
from the resulting ambiguity. Salvador is hardly an ignorant and illiterate
person; rather, he is a businessman engaged in manufacturing and distributing
construction materials and operates no less than two branches. It should have
been noted in the statement of accounts, or even in another document, that the
cash advances and deliveries of construction materials were made in connection
with a transaction as important as a sale of land. As they are, the statements of
accounts and especially the straightforward delivery receipts are insufficient
proof that Judge Amado sold his property to Salvador.
Secondly, one of the delivery receipts presented by Salvador as Annex "I" of
his Complaint in RTC Civil Case No. 1252 was partially paid.35 If Judge Amado
had already agreed that the construction materials delivered to him and his
family constituted the payment for the subject property, the act of partially
paying for construction materials would be incongruous to such intention.
Thirdly, Salvador himself gave conflicting statements on whether he has
completed payment. Among the findings of fact made by the MTC in its
Decision dated 16 July 1990 in Civil Case No. 700, based on the very statements
made by the Salvador brothers in their Answer with Counterclaim, was that
Salvador paid Judge Amado 62,319.38 in cash and construction materials for
the subject property, and a balance of 4,040.62 was left unpaid due to the
failure of Judge Amado to execute and deliver the deed of sale.36 However, in
the proceedings before the RTC in Civil Case No. 1252, Salvador claimed that
he paid Judge Amado P67,215.38 in cash and construction materials, which was
more than the purchase price of 66,360.00 upon which they agreed.37
Lastly, Salvador again contradicts himself as to the date he supposedly
completed the payments for the subject property. In his Complaint in Civil Case
No. 1252, he alleges that by October 1980, he had already fully paid Judge
Amado 67,215.38 in cash and construction materials.38 Yet in the same
pleading, he included 11 separate deliveries of construction materials made
from 8 December 1980 to 6 January 1981 as evidence of payment.39
This Court cannot presume the existence of a sale of land, absent any direct
proof of it. The construction of the terms of a contract, which would amount to
impairment or loss of rights, is not favored. Conservation and preservation, not
waiver or abandonment or forfeiture of a right, is the rule.40 While it is apparent
that Salvador paid cash advances and delivered construction materials to Judge
Amado, this fact alone does not attest to the existence of a sale of land. In truth,
the inconsistent statements made by Salvador regarding the amount paid to
Judge Amado, the date when he was supposed to have completed the payment,
and the dissimilarity between the price allegedly agreed upon and the amount
supposedly paid show the absence of a uniform intention to apply these cash
advances and construction materials as payment for the purchase of the subject
property. Absent any tangible connection with the sale of land, these
transactions stand by themselves as loans and purchases of construction
materials.
Other than the statements of accounts and delivery receipts scrutinized above,
the other pieces of evidence that Salvador offered are similarly inadequate to
establish his allegation of a perfected sale.
Salvador presented as evidence of a perfected sale a handwritten note dated 1
October 1980 as Annex "GG" of the Complaint dated 16 August 1996, written
by Judge Amado, wherein the latter asked Salvador for 500.00. In the same
note, Judge Amado informed Salvador that he had not yet signed an unidentified
11
document, which he promised to sign after his plan to divide a certain parcel of
land was completed.41 This note is not conclusive proof of the existence of a
perfected sale. What this note proves is that Judge Amado was hesitant to sign
the unidentified document and was still waiting for the completion of his plan
to divide the land referred to in the note. To say that the document is the deed
of sale and the land is the subject property claimed by Salvador would be based
on pure surmise and conjecture without a more specific reference to them in the
note. Moreover, the 500.00 which Judge Amado was demanding from
Salvador could not have been payment pursuant to the purported sale of the
subject property. The list of cash advances, which were supposedly part of the
payment for the subject property, made by Salvador to Judge Amado from 1
September 1979 to 23 September 1980 and attached as Annex "D" of his
Complaint in Civil Case No. 1252, did not include the 500.00 which Judge
Amado demanded from Salvador on 1 October 1980.
The testimony of Ismael Angeles is likewise insufficient to support the
allegation that Judge Amado agreed to sell the subject property to Salvador. The
factual findings of the trial court, especially as regards the credibility of
witnesses, are conclusive upon this court.42 The findings of fact and assessment
of credibility of witnesses is a matter best left to the trial court because of its
unique position of having observed that elusive and incommunicable evidence
of the witnesses deportment on the stand while testifying, which opportunity
is denied to the appellate courts. Only the trial judge can observe the furtive
glance, blush of conscious shame, hesitation, flippant or sneering tone,
calmness, sigh or the scant or full realization of an oath--all of which are useful
for an accurate determination of a witness honesty and sincerity.43 Thus, the
assessment by the RTC of Angeles testimony, which it deemed insufficient, is
entitled to great respect:
Moreover, [herein respondent Salvador]s corroborative testimonial evidence,
that is, the testimony of one Ismael Angeles, is likewise deemed insufficient as
even that witness failed to categorically state any sale transaction of the lot
between [respondent] Salvador and the late Judge Amado, as in fact, Mr.
Angeles manifested uncertainty when he said "siguro nagkaroon sila ng
bilihan."
The findings of the trial court are well supported by the records of this case. At
the time that Judge Amado and Salvador allegedly entered into the sale
agreement, Ismael Angeles testified that "I was inside the house, but I did not
hear their conversation because I was far from them."44
Even if Ismael Angeles testimony was given full credence, it would still be
insufficient to establish that a sale agreement was perfected between Salvador
and Judge Amado. His testimony that Judge Amado ordered the preparation of
the deed of sale only proves that Judge Amado and Salvador were in the process
of negotiating the sale of the subject property, not that they had already set and
agreed to the terms and conditions of the sale.45 In fact, Ismael Angeles
testimony that Judge Amado refused to sign the contract reinforces the fact that
the latter had not consented to the sale of the subject property.46
In addition, Salvadors act of relocating the squatter families formerly residing
on the subject property47 is not substantial proof of ownership. Such act is only
consistent with the petitioners allegations that Salvador was allowed to use the
subject property for his business, and it would redound to his benefit to relocate
the squatters previously occupying it.
From the evidence presented, an agreement of sale of the subject property
between him and Judge Amado had not yet reached the stage of perfection. The
stages of a contract are, thus, explained:
A contract undergoes various stages that include its negotiation or preparation,
its perfection and, finally, its consummation. Negotiation covers the period
from the time the prospective contracting parties indicate interest in the contract
to the time the contract is concluded (perfected). The perfection of the contract
takes place upon the concurrence of the essential elements thereof. A contract
which is consensual as to perfection is so established upon a mere meeting of
the minds, i.e. the concurrence of offer and acceptance, on the object and on the
cause thereof. x x x. The stage of consummation begins when the parties
perform their respective undertakings under the contract culminating in the
extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation. In sales, particularly, to which the topic for
discussion about the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the buyer, over which
the latter agrees.48
In the present case, the terms of payment have not even been alleged. No
positive proof was adduced that Judge Amado had fully accepted Salvadors
sketchy proposal. Even if the handwritten note actually referred to the subject
property, it merely points to the fact that the parties were, at best, negotiating a
contract of sale. At the time it was written, on 1 October 1980, Judge Amado
had not expressed his unconditional acceptance of Salvadors offer. He merely
expressed that he was considering the sale of the subject property, but it was
nevertheless clear that he still was unprepared to sign the contract. Salvador
himself admitted before the MTC in Civil Case No. 700 that the sale agreement
did not push through as he testified that "I considered that dead investment
because our sale did not materialize because he always made
promises."491wphi1
Absent the valid sale agreement between Salvador and Judge Amado, the
formers possession of the subject property hinges on the permission and
goodwill of Judge Amado and the petitioners, as his successors-in-interest. In
the demand letter dated 4 November 1983, Judge Amado had already directed
Salvador to vacate the subject property. Thus, there is no more basis for
Salvador and his brother, Lamberto Salvador, to retain possession over it, and
such possession must now be fully surrendered to the petitioners.
The Court of Appeals imposed moral damages and exemplary damages in view
of the petitioners refusal to execute a Deed of Sale and the social humiliation
suffered by Salvador due to his ouster from the property.50 Since petitioners had
no demandable obligation to deliver the subject property, the award of moral
and exemplary damages, as well as cost of suit, in favor of Salvador is without
legal basis.
Moral damages may be recovered if they were the proximate result of
defendants wrongful acts or omissions.51Two elements are required. First, the
act or omission must be the proximate result of the physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation and similar injury. Second, the act must be
wrongful.52 In this case, petitioners were not under any obligation to execute a
Deed of Sale or guarantee Salvadors possession of the property. Absent any
wrongful act which may be attributed to petitioners, an award of moral damages
is inappropriate.
The award of exemplary damages is also improper. Exemplary damages are
awarded only when a wrongful act is accompanied by bad faith or when the
guilty party acted in a wanton, fraudulent, reckless or malevolent
manner.53Moreover, where a party is not entitled to actual or moral damages,
an award of exemplary damages is likewise baseless.54 As this Court has found,
petitioners refusal to turn over the subject property to Salvador is justified and
cannot be the basis for the award of exemplary damages.
IN VIEW OF THE FOREGOING, the instant Petition is GRANTED and the
assailed Decision of the Court of Appeals in CA-G.R. No. 71816, promulgated
on 25 August 2005, is REVERSED AND SET ASIDE. The Order dated 28
November 2000 of the Rizal RTC is REINSTATED. Renato Salvador and
Lamberto Salvador are ordered to vacate the subject property.
SO ORDERED.
12
G. R. No. 158149 February 9, 2006
BOSTON BANK OF THE PHILIPPINES, (formerly BANK OF
COMMERCE), Petitioner,
vs.
PERLA P. MANALO and CARLOS MANALO, JR., Respondents.
DECISION
CALLEJO, SR., J.:
1 from XEI, inclusive of interests on the purchase price of the lots.13 In a letter
Before us is a Petition for Review on Certiorari of the Decision of the Court of
Appeals (CA) in CA-G.R. CV No. 47458 affirming, on appeal, the Decision2 of
the Regional Trial Court (RTC) of Quezon City, Branch 98, in Civil Case No.
Q-89-3905.
The Antecedents
The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in Quezon
City, known as the Xavierville Estate Subdivision, with an area of 42 hectares.
XEI caused the subdivision of the property into residential lots, which was then
offered for sale to individual lot buyers.3
On September 8, 1967, XEI, through its General Manager, Antonio Ramos, as
vendor, and The Overseas Bank of Manila (OBM), as vendee, executed a "Deed
of Sale of Real Estate" over some residential lots in the subdivision, including
Lot 1, Block 2, with an area of 907.5 square meters, and Lot 2, Block 2, with
an area of 832.80 square meters. The transaction was subject to the approval of
the Board of Directors of OBM, and was covered by real estate mortgages in
favor of the Philippine National Bank as security for its account amounting to
5,187,000.00, and the Central Bank of the Philippines as security for advances
amounting to 22,185,193.74.4 Nevertheless, XEI continued selling the
residential lots in the subdivision as agent of OBM.5
Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted the
services of Engr. Carlos Manalo, Jr. who was in business of drilling deep water
wells and installing pumps under the business name Hurricane Commercial,
Inc. For 34,887.66, Manalo, Jr. installed a water pump at Ramos residence at
the corner of Aurora Boulevard and Katipunan Avenue, Quezon City. Manalo,
Jr. then proposed to XEI, through Ramos, to purchase a lot in the Xavierville
subdivision, and offered as part of the downpayment the 34,887.66 Ramos
owed him. XEI, through Ramos, agreed. In a letter dated February 8, 1972,
Ramos requested Manalo, Jr. to choose which lots he wanted to buy so that the
price of the lots and the terms of payment could be fixed and incorporated in
the conditional sale.6Manalo, Jr. met with Ramos and informed him that he and
his wife Perla had chosen Lots 1 and 2 of Block 2 with a total area of 1,740.3
square meters.
In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed the
reservation of the lots. He also pegged the price of the lots at 200.00 per square
meter, or a total of 348,060.00, with a 20% down payment of the purchase
price amounting to 69,612.00 less the 34,887.66 owing from Ramos, payable
on or before December 31, 1972; the corresponding Contract of Conditional
Sale would then be signed on or before the same date, but if the selling
operations of XEI resumed after December 31, 1972, the balance of the
downpayment would fall due then, and the spouses would sign the aforesaid
contract within five (5) days from receipt of the notice of resumption of such
selling operations. It was also stated in the letter that, in the meantime, the
spouses may introduce improvements thereon subject to the rules and
regulations imposed by XEI in the subdivision. Perla Manalo conformed to the
letter agreement.7
The spouses Manalo took possession of the property on September 2, 1972,
constructed a house thereon, and installed a fence around the perimeter of the
lots.
In the meantime, many of the lot buyers refused to pay their monthly
installments until they were assured that they would be issued Torrens titles
over the lots they had purchased.8 The spouses Manalo were notified of the
resumption of the selling operations of XEI.9 However, they did not pay the
balance of the downpayment on the lots because Ramos failed to prepare a
contract of conditional sale and transmit the same to Manalo for their signature.
On August 14, 1973, Perla Manalo went to the XEI office and requested that
the payment of the amount representing the balance of the downpayment be
deferred, which, however, XEI rejected. On August 10, 1973, XEI furnished
her with a statement of their account as of July 31, 1973, showing that they had
a balance of 34,724.34 on the downpayment of the two lots after deducting
the account of Ramos, plus 3,819.6810 interest thereon from September 1,
1972 to July 31, 1973, and that the interests on the unpaid balance of the
purchase price of 278,448.00 from September 1, 1972 to July 31, 1973
amounted to 30,629.28.11 The spouses were informed that they were being
billed for said unpaid interests.12
On January 25, 1974, the spouses Manalo received another statement of account
dated April 6, 1974 to XEI, Manalo, Jr. stated they had not yet received the
notice of resumption of Leis selling operations, and that there had been no
arrangement on the payment of interests; hence, they should not be charged
with interest on the balance of the downpayment on the property.14Further, they
demanded that a deed of conditional sale over the two lots be transmitted to
them for their signatures. However, XEI ignored the demands. Consequently,
the spouses refused to pay the balance of the downpayment of the purchase
price.15
Sometime in June 1976, Manalo, Jr. constructed a business sign in the sidewalk
near his house. In a letter dated June 17, 1976, XEI informed Manalo, Jr. that
business signs were not allowed along the sidewalk. It demanded that he remove
the same, on the ground, among others, that the sidewalk was not part of the
land which he had purchased on installment basis from XEI.16 Manalo, Jr. did
not respond. XEI reiterated its demand on September 15, 1977.17
Subsequently, XEI turned over its selling operations to OBM, including the
receivables for lots already contracted and those yet to be sold.18 On December
8, 1977, OBM warned Manalo, Jr., that "putting up of a business sign is
specifically prohibited by their contract of conditional sale" and that his failure
to comply with its demand would impel it to avail of the remedies as provided
in their contract of conditional sale.19
Meanwhile, on December 5, 1979, the Register of Deeds issued Transfer
Certificate of Title (TCT) No. T-265822 over Lot 1, Block 2, and TCT No. T-
265823 over Lot 2, Block 2, in favor of the OBM.20 The lien in favor of the
Central Bank of the Philippines was annotated at the dorsal portion of said title,
which was later cancelled on August 4, 1980.21
Subsequently, the Commercial Bank of Manila (CBM) acquired the Xavierville
Estate from OBM. CBM wrote Edilberto Ng, the president of Xavierville
Homeowners Association that, as of January 31, 1983, Manalo, Jr. was one of
the lot buyers in the subdivision.22 CBM reiterated in its letter to Ng that, as of
January 24, 1984, Manalo was a homeowner in the subdivision.23
In a letter dated August 5, 1986, the CBM requested Perla Manalo to stop any
on-going construction on the property since it (CBM) was the owner of the lot
and she had no permission for such construction.24 She agreed to have a
conference meeting with CBM officers where she informed them that her
husband had a contract with OBM, through XEI, to purchase the property.
When asked to prove her claim, she promised to send the documents to CBM.
However, she failed to do so.25 On September 5, 1986, CBM reiterated its
demand that it be furnished with the documents promised,26 but Perla Manalo
did not respond.
On July 27, 1987, CBM filed a complaint27 for unlawful detainer against the
spouses with the Metropolitan Trial Court of Quezon City. The case was
docketed as Civil Case No. 51618. CBM claimed that the spouses had been
unlawfully occupying the property without its consent and that despite its
demands, they refused to vacate the property. The latter alleged that they, as
vendors, and XEI, as vendee, had a contract of sale over the lots which had not
yet been rescinded.28
While the case was pending, the spouses Manalo wrote CBM to offer an
amicable settlement, promising to abide by the purchase price of the property
(313,172.34), per agreement with XEI, through Ramos. However, on July 28,
1988, CBM wrote the spouses, through counsel, proposing that the price of
1,500.00 per square meter of the property was a reasonable starting point for
negotiation of the settlement.29 The spouses rejected the counter
proposal,30 emphasizing that they would abide by their original agreement with
XEI. CBM moved to withdraw its complaint31 because of the issues raised.32
13
In the meantime, the CBM was renamed the Boston Bank of the Philippines.
After CBM filed its complaint against the spouses Manalo, the latter filed a
complaint for specific performance and damages against the bank before the
Regional Trial Court (RTC) of Quezon City on October 31, 1989.
The plaintiffs alleged therein that they had always been ready, able and willing
to pay the installments on the lots sold to them by the defendants remote
predecessor-in-interest, as might be or stipulated in the contract of sale, but no
contract was forthcoming; they constructed their house worth 2,000,000.00 on
the property in good faith; Manalo, Jr., informed the defendant, through its
counsel, on October 15, 1988 that he would abide by the terms and conditions
of his original agreement with the defendants predecessor-in-interest; during
the hearing of the ejectment case on October 16, 1988, they offered to pay
313,172.34 representing the balance on the purchase price of said lots; such
tender of payment was rejected, so that the subject lots could be sold at
considerably higher prices to third parties.
Plaintiffs further alleged that upon payment of the 313,172.34, they were
entitled to the execution and delivery of a Deed of Absolute Sale covering the
subject lots, sufficient in form and substance to transfer title thereto free and
clear of any and all liens and encumbrances of whatever kind and nature.33 The
plaintiffs prayed that, after due hearing, judgment be rendered in their favor, to
wit:
WHEREFORE, it is respectfully prayed that after due hearing:
(a) The defendant should be ordered to execute and deliver a Deed of Absolute
Sale over subject lots in favor of the plaintiffs after payment of the sum of
313,172.34, sufficient in form and substance to transfer to them titles thereto
free and clear of any and all liens and encumbrances of whatever kind or nature;
(b) The defendant should be held liable for moral and exemplary damages in
the amounts of 300,000.00 and 30,000.00, respectively, for not promptly
executing and delivering to plaintiff the necessary Contract of Sale,
notwithstanding repeated demands therefor and for having been constrained to
engage the services of undersigned counsel for which they agreed to pay
attorneys fees in the sum of 50,000.00 to enforce their rights in the premises
and appearance fee of 500.00;
(c) And for such other and further relief as may be just and equitable in the
premises.34
In its Answer to the complaint, the defendant interposed the following
affirmative defenses: (a) plaintiffs had no cause of action against it because the
August 22, 1972 letter agreement between XEI and the plaintiffs was not
binding on it; and (b) "it had no record of any contract to sell executed by it or
its predecessor, or of any statement of accounts from its predecessors, or records
of payments of the plaintiffs or of any documents which entitled them to the
possession of the lots."35 The defendant, likewise, interposed counterclaims for
damages and attorneys fees and prayed for the eviction of the plaintiffs from
the property.36
Meanwhile, in a letter dated January 25, 1993, plaintiffs, through counsel,
proposed an amicable settlement of the case by paying 942,648.70,
representing the balance of the purchase price of the two lots based on the
current market value.37 However, the defendant rejected the same and insisted
that for the smaller lot, they pay 4,500,000.00, the current market value of the
property.38 The defendant insisted that it owned the property since there was no
contract or agreement between it and the plaintiffs relative thereto.
During the trial, the plaintiffs adduced in evidence the separate Contracts of
Conditional Sale executed between XEI and Alberto Soller;39 Alfredo
Aguila,40 and Dra. Elena Santos-Roque41 to prove that XEI continued selling
residential lots in the subdivision as agent of OBM after the latter had acquired
the said lots.
For its part, defendant presented in evidence the letter dated August 22, 1972,
where XEI proposed to sell the two lots subject to two suspensive conditions:
the payment of the balance of the downpayment of the property, and the
execution of the corresponding contract of conditional sale. Since plaintiffs
failed to pay, OBM consequently refused to execute the corresponding contract
of conditional sale and forfeited the 34,877.66 downpayment for the two lots,
but did not notify them of said forfeiture.42 It alleged that OBM considered the
lots unsold because the titles thereto bore no annotation that they had been sold
under a contract of conditional sale, and the plaintiffs were not notified of XEIs
resumption of its selling operations.
On May 2, 1994, the RTC rendered judgment in favor of the plaintiffs and
against the defendant. The fallo of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
against the defendant
(a) Ordering the latter to execute and deliver a Deed of Absolute Sale over Lot
1 and 2, Block 2 of the Xavierville Estate Subdivision after payment of the sum
of 942,978.70 sufficient in form and substance to transfer to them titles thereto
free from any and all liens and encumbrances of whatever kind and nature.
(b) Ordering the defendant to pay moral and exemplary damages in the amount
of 150,000.00; and
(c) To pay attorneys fees in the sum of 50,000.00 and to pay the costs.
SO ORDERED.43
The trial court ruled that under the August 22, 1972 letter agreement of XEI and
the plaintiffs, the parties had a "complete contract to sell" over the lots, and that
they had already partially consummated the same. It declared that the failure of
the defendant to notify the plaintiffs of the resumption of its selling operations
and to execute a deed of conditional sale did not prevent the defendants
obligation to convey titles to the lots from acquiring binding effect.
Consequently, the plaintiffs had a cause of action to compel the defendant to
execute a deed of sale over the lots in their favor.
Boston Bank appealed the decision to the CA, alleging that the lower court erred
in (a) not concluding that the letter of XEI to the spouses Manalo, was at most
a mere contract to sell subject to suspensive conditions, i.e., the payment of the
balance of the downpayment on the property and the execution of a deed of
conditional sale (which were not complied with); and (b) in awarding moral and
exemplary damages to the spouses Manalo despite the absence of testimony
providing facts to justify such awards.44
On September 30, 2002, the CA rendered a decision affirming that of the RTC
with modification. The fallo reads:
WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS
that (a) the figure "942,978.70" appearing [in] par. (a) of the dispositive
portion thereof is changed to "313,172.34 plus interest thereon at the rate of
12% per annum from September 1, 1972 until fully paid" and (b) the award of
moral and exemplary damages and attorneys fees in favor of plaintiffs-
appellees is DELETED.
SO ORDERED.45
The appellate court sustained the ruling of the RTC that the appellant and the
appellees had executed a Contract to Sell over the two lots but declared that the
balance of the purchase price of the property amounting to 278,448.00 was
payable in fixed amounts, inclusive of pre-computed interests, from delivery of
the possession of the property to the appellees on a monthly basis for 120
months, based on the deeds of conditional sale executed by XEI in favor of
other lot buyers.46 The CA also declared that, while XEI must have resumed its
selling operations before the end of 1972 and the downpayment on the property
remained unpaid as of December 31, 1972, absent a written notice of
cancellation of the contract to sell from the bank or notarial demand therefor as
required by Republic Act No. 6552, the spouses had, at the very least, a 60-day
grace period from January 1, 1973 within which to pay the same.
Boston Bank filed a motion for the reconsideration of the decision alleging that
there was no perfected contract to sell the two lots, as there was no agreement
between XEI and the respondents on the manner of payment as well as the other
terms and conditions of the sale. It further averred that its claim for recovery of
possession of the aforesaid lots in its Memorandum dated February 28, 1994
filed before the trial court constituted a judicial demand for rescission that
satisfied the requirements of the New Civil Code. However, the appellate court
denied the motion.
Boston Bank, now petitioner, filed the instant petition for review on certiorari
assailing the CA rulings. It maintains that, as held by the CA, the records do not
reflect any schedule of payment of the 80% balance of the purchase price, or
14
278,448.00. Petitioner insists that unless the parties had agreed on the manner
of payment of the principal amount, including the other terms and conditions of
the contract, there would be no existing contract of sale or contract to
sell.47 Petitioner avers that the letter agreement to respondent spouses dated
August 22, 1972 merely confirmed their reservation for the purchase of Lot
Nos. 1 and 2, consisting of 1,740.3 square meters, more or less, at the price of
200.00 per square meter (or 348,060.00), the amount of the downpayment
thereon and the application of the 34,887.00 due from Ramos as part of such
downpayment.
Petitioner asserts that there is no factual basis for the CA ruling that the terms
and conditions relating to the payment of the balance of the purchase price of
the property (as agreed upon by XEI and other lot buyers in the same
subdivision) were also applicable to the contract entered into between the
petitioner and the Respondents. It insists that such a ruling is contrary to law,
as it is tantamount to compelling the parties to agree to something that was not
even discussed, thus, violating their freedom to contract. Besides, the situation
of the respondents cannot be equated with those of the other lot buyers, as, for
one thing, the respondents made a partial payment on the downpayment for the
two lots even before the execution of any contract of conditional sale.
Petitioner posits that, even on the assumption that there was a perfected contract
to sell between the parties, nevertheless, it cannot be compelled to convey the
property to the respondents because the latter failed to pay the balance of the
downpayment of the property, as well as the balance of 80% of the purchase
price, thus resulting in the extinction of its obligation to convey title to the lots
to the Respondents.
Another egregious error of the CA, petitioner avers, is the application of
Republic Act No. 6552. It insists that such law applies only to a perfected
agreement or perfected contract to sell, not in this case where the downpayment
on the purchase price of the property was not completely paid, and no
installment payments were made by the buyers.
Petitioner also faults the CA for declaring that petitioner failed to serve a notice
on the respondents of cancellation or rescission of the contract to sell, or notarial
demand therefor. Petitioner insists that its August 5, 1986 letter requiring
respondents to vacate the property and its complaint for ejectment in Civil Case
No. 51618 filed in the Metropolitan Trial Court amounted to the requisite
demand for a rescission of the contract to sell. Moreover, the action of the
respondents below was barred by laches because despite demands, they failed
to pay the balance of the purchase price of the lots (let alone the downpayment)
for a considerable number of years.
For their part, respondents assert that as long as there is a meeting of the minds
of the parties to a contract of sale as to the price, the contract is valid despite
the parties failure to agree on the manner of payment. In such a situation, the
balance of the purchase price would be payable on demand, conformably to
Article 1169 of the New Civil Code. They insist that the law does not require a
party to agree on the manner of payment of the purchase price as a prerequisite
to a valid contract to sell. The respondents cite the ruling of this Court in
Buenaventura v. Court of Appeals48 to support their submission.
They argue that even if the manner and timeline for the payment of the balance
of the purchase price of the property is an essential requisite of a contract to
sell, nevertheless, as shown by their letter agreement of August 22, 1972 with
the OBM, through XEI and the other letters to them, an agreement was reached
as to the manner of payment of the balance of the purchase price. They point
out that such letters referred to the terms of the terms of the deeds of conditional
sale executed by XEI in favor of the other lot buyers in the subdivision, which
contained uniform terms of 120 equal monthly installments (excluding the
downpayment, but inclusive of pre-computed interests). The respondents assert
that XEI was a real estate broker and knew that the contracts involving
residential lots in the subdivision contained uniform terms as to the manner and
timeline of the payment of the purchase price of said lots.
Respondents further posit that the terms and conditions to be incorporated in
the "corresponding contract of conditional sale" to be executed by the parties
would be the same as those contained in the contracts of conditional sale
executed by lot buyers in the subdivision. After all, they maintain, the contents
of the corresponding contract of conditional sale referred to in the August 22,
1972 letter agreement envisaged those contained in the contracts of conditional
sale that XEI and other lot buyers executed. Respondents cite the ruling of this
Court in Mitsui Bussan Kaisha v. Manila E.R.R. & L. Co.49
The respondents aver that the issues raised by the petitioner are factual,
inappropriate in a petition for review on certiorari under Rule 45 of the Rules
of Court. They assert that petitioner adopted a theory in litigating the case in
the trial court, but changed the same on appeal before the CA, and again in this
Court. They argue that the petitioner is estopped from adopting a new theory
contrary to those it had adopted in the trial and appellate courts. Moreover, the
existence of a contract of conditional sale was admitted in the letters of XEI and
OBM. They aver that they became owners of the lots upon delivery to them by
XEI.
The issues for resolution are the following: (1) whether the factual issues raised
by the petitioner are proper; (2) whether petitioner or its predecessors-in-
interest, the XEI or the OBM, as seller, and the respondents, as buyers, forged
a perfect contract to sell over the property; (3) whether petitioner is estopped
from contending that no such contract was forged by the parties; and (4)
whether respondents has a cause of action against the petitioner for specific
performance.
The rule is that before this Court, only legal issues may be raised in a petition
for review on certiorari. The reason is that this Court is not a trier of facts, and
is not to review and calibrate the evidence on record. Moreover, the findings of
facts of the trial court, as affirmed on appeal by the Court of Appeals, are
conclusive on this Court unless the case falls under any of the following
exceptions:
(1) when the conclusion is a finding grounded entirely on speculations, surmises
and conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) where there is a grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of fact
are conflicting; (6) when the Court of Appeals, in making its findings went
beyond the issues of the case and the same is contrary to the admissions of both
appellant and appellee; (7) when the findings are contrary to those of the trial
court; (8) when the findings of fact are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the petition as
well as in the petitioners main and reply briefs are not disputed by the
respondents; and (10) when the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and contradicted by the evidence
on record.50
We have reviewed the records and we find that, indeed, the ruling of the
appellate court dismissing petitioners appeal is contrary to law and is not
supported by evidence. A careful examination of the factual backdrop of the
case, as well as the antecedental proceedings constrains us to hold that petitioner
is not barred from asserting that XEI or OBM, on one hand, and the respondents,
on the other, failed to forge a perfected contract to sell the subject lots.
It must be stressed that the Court may consider an issue not raised during the
trial when there is plain error.51Although a factual issue was not raised in the
trial court, such issue may still be considered and resolved by the Court in the
interest of substantial justice, if it finds that to do so is necessary to arrive at a
just decision,52 or when an issue is closely related to an issue raised in the trial
court and the Court of Appeals and is necessary for a just and complete
resolution of the case.53 When the trial court decides a case in favor of a party
on certain grounds, the Court may base its decision upon some other points,
which the trial court or appellate court ignored or erroneously decided in favor
of a party.54
In this case, the issue of whether XEI had agreed to allow the respondents to
pay the purchase price of the property was raised by the parties. The trial court
ruled that the parties had perfected a contract to sell, as against petitioners
claim that no such contract existed. However, in resolving the issue of whether
the petitioner was obliged to sell the property to the respondents, while the CA
declared that XEI or OBM and the respondents failed to agree on the schedule
of payment of the balance of the purchase price of the property, it ruled that
XEI and the respondents had forged a contract to sell; hence, petitioner is
entitled to ventilate the issue before this Court.
We agree with petitioners contention that, for a perfected contract of sale or
contract to sell to exist in law, there must be an agreement of the parties, not
only on the price of the property sold, but also on the manner the price is to be
paid by the vendee.
15
Under Article 1458 of the New Civil Code, in a contract of sale, whether We agree with your verbal offer to exchange the proceeds of your contract with
absolute or conditional, one of the contracting parties obliges himself to transfer us to form as a down payment for a lot in our Xavierville Estate Subdivision.
the ownership of and deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent. A contract of sale is perfected at the Please let us know your choice lot so that we can fix the price and terms of
moment there is a meeting of the minds upon the thing which is the object of payment in our conditional sale.
the contract and the price. From the averment of perfection, the parties are
bound, not only to the fulfillment of what has been expressly stipulated, but also Sincerely yours,
to all the consequences which, according to their nature, may be in keeping with
XAVIERVILLE ESTATE, INC.
good faith, usage and law.55 On the other hand, when the contract of sale or to
sell is not perfected, it cannot, as an independent source of obligation, serve as (Signed)
a binding juridical relation between the parties.56 EMERITO B. RAMOS, JR.
President
A definite agreement as to the price is an essential element of a binding
agreement to sell personal or real property because it seriously affects the rights CONFORME:
and obligations of the parties. Price is an essential element in the formation of
a binding and enforceable contract of sale. The fixing of the price can never be (Signed)
left to the decision of one of the contracting parties. But a price fixed by one of CARLOS T. MANALO, JR.
the contracting parties, if accepted by the other, gives rise to a perfected sale.57 Hurricane Rotary Well Drilling62

It is not enough for the parties to agree on the price of the property. The parties The August 22, 1972 letter agreement of XEI and the respondents reads:
must also agree on the manner of payment of the price of the property to give
rise to a binding and enforceable contract of sale or contract to sell. This is so Mrs. Perla P. Manalo
because the agreement as to the manner of payment goes into the price, such 1548 Rizal Avenue Extensionbr>Caloocan City
that a disagreement on the manner of payment is tantamount to a failure to agree
on the price.58 Dear Mrs. Manalo:

In a contract to sell property by installments, it is not enough that the parties
agree on the price as well as the amount of downpayment. The parties must,
likewise, agree on the manner of payment of the balance of the purchase price
and on the other terms and conditions relative to the sale. Even if the buyer
makes a downpayment or portion thereof, such payment cannot be considered
as sufficient proof of the perfection of any purchase and sale between the
parties. Indeed, this Court ruled in Velasco v. Court of Appeals59 that:
It is not difficult to glean from the aforequoted averments that the petitioners
themselves admit that they and the respondent still had to meet and agree on
how and when the down-payment and the installment payments were to be paid.
Such being the situation, it cannot, therefore, be said that a definite and firm
sales agreement between the parties had been perfected over the lot in question.
Indeed, this Court has already ruled before that a definite agreement on the
manner of payment of the purchase price is an essential element in the formation
of a binding and enforceable contract of sale. The fact, therefore, that the
petitioners delivered to the respondent the sum of 10,000.00 as part of the
downpayment that they had to pay cannot be considered as sufficient proof of
the perfection of any purchase and sale agreement between the parties herein
under article 1482 of the New Civil Code, as the petitioners themselves admit
that some essential matter the terms of payment still had to be mutually
covenanted.60
We agree with the contention of the petitioner that, as held by the CA, there is
no showing, in the records, of the schedule of payment of the balance of the
purchase price on the property amounting to 278,448.00. We have
meticulously reviewed the records, including Ramos February 8, 1972 and
August 22, 1972 letters to respondents,61 and find that said parties confined
themselves to agreeing on the price of the property (348,060.00), the 20%
downpayment of the purchase price (69,612.00), and credited respondents for
the 34,887.00 owing from Ramos as part of the 20% downpayment. The
timeline for the payment of the balance of the downpayment (34,724.34) was
also agreed upon, that is, on or before XEI resumed its selling operations, on or
before December 31, 1972, or within five (5) days from written notice of such
resumption of selling operations. The parties had also agreed to incorporate all
the terms and conditions relating to the sale, inclusive of the terms of payment
of the balance of the purchase price and the other substantial terms and
conditions in the "corresponding contract of conditional sale," to be later signed
by the parties, simultaneously with respondents settlement of the balance of
the downpayment.
The February 8, 1972 letter of XEI reads:
Mr. Carlos T. Manalo, Jr.
Hurricane Rotary Well Drilling
Rizal Avenue Ext.,Caloocan City
This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of our
consolidation-subdivision plan as amended, consisting of 1,740.3 square meters
more or less, at the price of 200.00 per square meter or a total price of
348,060.00.
It is agreed that as soon as we resume selling operations, you must pay a down
payment of 20% of the purchase price of the said lots and sign the
corresponding Contract of Conditional Sale, on or before December 31, 1972,
provided, however, that if we resume selling after December 31, 1972, then you
must pay the aforementioned down payment and sign the aforesaid
contract within five (5) days from your receipt of our notice of resumption of
selling operations.
In the meanwhile, you may introduce such improvements on the said lots as you
may desire, subject to the rules and regulations of the subdivision.
If the above terms and conditions are acceptable to you, please signify your
conformity by signing on the space herein below provided.
Thank you.
Very truly yours,
XAVIERVILLE ESTATE, INC. CONFORME:
By:
(Signed) (Signed)
EMERITO B. RAMOS, JR. PERLA P. MANALO
President Buyer63
Based on these two letters, the determination of the terms of payment of the
278,448.00 had yet to be agreed upon on or before December 31, 1972, or
even afterwards, when the parties sign the corresponding contract of conditional
sale.
Jurisprudence is that if a material element of a contemplated contract is left for
future negotiations, the same is too indefinite to be enforceable.64 And when an
essential element of a contract is reserved for future agreement of the parties,
no legal obligation arises until such future agreement is concluded.65
So long as an essential element entering into the proposed obligation of either
of the parties remains to be determined by an agreement which they are to make,
the contract is incomplete and unenforceable.66 The reason is that such a
contract is lacking in the necessary qualities of definiteness, certainty and
mutuality.67

Dear Mr. Manalo:

16
There is no evidence on record to prove that XEI or OBM and the respondents
had agreed, after December 31, 1972, on the terms of payment of the balance
of the purchase price of the property and the other substantial terms and
conditions relative to the sale. Indeed, the parties are in agreement that there
had been no contract of conditional sale ever executed by XEI, OBM or
petitioner, as vendor, and the respondents, as vendees.68
The ruling of this Court in Buenaventura v. Court of Appeals has no bearing in
this case because the issue of the manner of payment of the purchase price of
the property was not raised therein.
We reject the submission of respondents that they and Ramos had intended to
incorporate the terms of payment contained in the three contracts of conditional
sale executed by XEI and other lot buyers in the "corresponding contract of
conditional sale," which would later be signed by them.69 We have meticulously
reviewed the respondents complaint and find no such allegation
therein.70 Indeed, respondents merely alleged in their complaint that they were
bound to pay the balance of the purchase price of the property "in installments."
When respondent Manalo, Jr. testified, he was never asked, on direct
examination or even on cross-examination, whether the terms of payment of the
balance of the purchase price of the lots under the contracts of conditional sale
executed by XEI and other lot buyers would form part of the "corresponding
contract of conditional sale" to be signed by them simultaneously with the
payment of the balance of the downpayment on the purchase price.
We note that, in its letter to the respondents dated June 17, 1976, or almost three
years from the execution by the parties of their August 22, 1972 letter
agreement, XEI stated, in part, that respondents had purchased the property "on
installment basis."71 However, in the said letter, XEI failed to state a specific
amount for each installment, and whether such payments were to be made
monthly, semi-annually, or annually. Also, respondents, as plaintiffs below,
failed to adduce a shred of evidence to prove that they were obliged to pay the
278,448.00 monthly, semi-annually or annually. The allegation that the
payment of the 278,448.00 was to be paid in installments is, thus, vague and
indefinite. Case law is that, for a contract to be enforceable, its terms must be
certain and explicit, not vague or indefinite.72
There is no factual and legal basis for the CA ruling that, based on the terms of
payment of the balance of the purchase price of the lots under the contracts of
conditional sale executed by XEI and the other lot buyers, respondents were
obliged to pay the 278,448.00 with pre-computed interest of 12% per annum
in 120-month installments. As gleaned from the ruling of the appellate court, it
failed to justify its use of the terms of payment under the three "contracts of
conditional sale" as basis for such ruling, to wit:
On the other hand, the records do not disclose the schedule of payment of the
purchase price, net of the downpayment. Considering, however, the Contracts
of Conditional Sale (Exhs. "N," "O" and "P") entered into by XEI with other lot
buyers, it would appear that the subdivision lots sold by XEI, under contracts
to sell, were payable in 120 equal monthly installments (exclusive of the
downpayment but including pre-computed interests) commencing on delivery
of the lot to the buyer.73
By its ruling, the CA unilaterally supplied an essential element to the letter
agreement of XEI and the Respondents. Courts should not undertake to make a
contract for the parties, nor can it enforce one, the terms of which are in
doubt.74 Indeed, the Court emphasized in Chua v. Court of Appeals75 that it is
not the province of a court to alter a contract by construction or to make a new
contract for the parties; its duty is confined to the interpretation of the one which
they have made for themselves, without regard to its wisdom or folly, as the
court cannot supply material stipulations or read into contract words which it
does not contain.
Respondents, as plaintiffs below, failed to allege in their complaint that the
terms of payment of the 278,448.00 to be incorporated in the "corresponding
contract of conditional sale" were those contained in the contracts of conditional
sale executed by XEI and Soller, Aguila and Roque.76 They likewise failed to
prove such allegation in this Court.
The bare fact that other lot buyers were allowed to pay the balance of the
purchase price of lots purchased by them in 120 or 180 monthly installments
does not constitute evidence that XEI also agreed to give the respondents the
same mode and timeline of payment of the 278,448.00.
Under Section 34, Rule 130 of the Revised Rules of Court, evidence that one
did a certain thing at one time is not admissible to prove that he did the same or
similar thing at another time, although such evidence may be received to prove
habit, usage, pattern of conduct or the intent of the parties.
Similar acts as evidence. Evidence that one did or did not do a certain thing
at one time is not admissible to prove that he did or did not do the same or a
similar thing at another time; but it may be received to prove a specific intent
or knowledge, identity, plan, system, scheme, habit, custom or usage, and the
like.
However, respondents failed to allege and prove, in the trial court, that, as a
matter of business usage, habit or pattern of conduct, XEI granted all lot buyers
the right to pay the balance of the purchase price in installments of 120 months
of fixed amounts with pre-computed interests, and that XEI and the respondents
had intended to adopt such terms of payment relative to the sale of the two lots
in question. Indeed, respondents adduced in evidence the three contracts of
conditional sale executed by XEI and other lot buyers merely to prove that XEI
continued to sell lots in the subdivision as sales agent of OBM after it acquired
said lots, not to prove usage, habit or pattern of conduct on the part of XEI to
require all lot buyers in the subdivision to pay the balance of the purchase price
of said lots in 120 months. It further failed to prive that the trial court admitted
the said deeds77 as part of the testimony of respondent Manalo, Jr.78
Habit, custom, usage or pattern of conduct must be proved like any other facts.
Courts must contend with the caveat that, before they admit evidence of usage,
of habit or pattern of conduct, the offering party must establish the degree of
specificity and frequency of uniform response that ensures more than a mere
tendency to act in a given manner but rather, conduct that is semi-automatic in
nature. The offering party must allege and prove specific, repetitive conduct
that might constitute evidence of habit. The examples offered in evidence to
prove habit, or pattern of evidence must be numerous enough to base on
inference of systematic conduct. Mere similarity of contracts does not present
the kind of sufficiently similar circumstances to outweigh the danger of
prejudice and confusion.
In determining whether the examples are numerous enough, and sufficiently
regular, the key criteria are adequacy of sampling and uniformity of response.
After all, habit means a course of behavior of a person regularly represented in
like circumstances.79 It is only when examples offered to establish pattern of
conduct or habit are numerous enough to lose an inference of systematic
conduct that examples are admissible. The key criteria are adequacy of
sampling and uniformity of response or ratio of reaction to situations.80
There are cases where the course of dealings to be followed is defined by the
usage of a particular trade or market or profession. As expostulated by Justice
Benjamin Cardozo of the United States Supreme Court: "Life casts the moulds
of conduct, which will someday become fixed as law. Law preserves the moulds
which have taken form and shape from life."81 Usage furnishes a standard for
the measurement of many of the rights and acts of men.82 It is also well-settled
that parties who contract on a subject matter concerning which known usage
prevail, incorporate such usage by implication into their agreement, if nothing
is said to be contrary.83
However, the respondents inexplicably failed to adduce sufficient competent
evidence to prove usage, habit or pattern of conduct of XEI to justify the use of
the terms of payment in the contracts of the other lot buyers, and thus grant
respondents the right to pay the 278,448.00 in 120 months, presumably
because of respondents belief that the manner of payment of the said amount
is not an essential element of a contract to sell. There is no evidence that XEI
or OBM and all the lot buyers in the subdivision, including lot buyers who pay
part of the downpayment of the property purchased by them in the form of
service, had executed contracts of conditional sale containing uniform terms
and conditions. Moreover, under the terms of the contracts of conditional sale
executed by XEI and three lot buyers in the subdivision, XEI agreed to grant
120 months within which to pay the balance of the purchase price to two of
them, but granted one 180 months to do so.84 There is no evidence on record
that XEI granted the same right to buyers of two or more lots.
Irrefragably, under Article 1469 of the New Civil Code, the price of the property
sold may be considered certain if it be so with reference to another thing certain.
It is sufficient if it can be determined by the stipulations of the contract made
by the parties thereto85 or by reference to an agreement incorporated in the
17
contract of sale or contract to sell or if it is capable of being ascertained with
certainty in said contract;86 or if the contract contains express or implied
provisions by which it may be rendered certain;87 or if it provides some method
or criterion by which it can be definitely ascertained.88 As this Court held in
Villaraza v. Court of Appeals,89 the price is considered certain if, by its terms,
the contract furnishes a basis or measure for ascertaining the amount agreed
upon.

We have carefully reviewed the August 22, 1972 letter agreement of the parties
and find no direct or implied reference to the manner and schedule of payment
of the balance of the purchase price of the lots covered by the deeds of
conditional sale executed by XEI and that of the other lot buyers90 as basis for
or mode of determination of the schedule of the payment by the respondents of
the 278,448.00.

The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric Railroad
and Light Company91 is not applicable in this case because the basic price fixed
in the contract was 9.45 per long ton, but it was stipulated that the price was
subject to modification "in proportion to variations in calories and ash content,
and not otherwise." In this case, the parties did not fix in their letters-agreement,
any method or mode of determining the terms of payment of the balance of the
purchase price of the property amounting to 278,448.00.

It bears stressing that the respondents failed and refused to pay the balance of
the downpayment and of the purchase price of the property amounting to
278,448.00 despite notice to them of the resumption by XEI of its selling
operations. The respondents enjoyed possession of the property without paying
a centavo. On the other hand, XEI and OBM failed and refused to transmit a
contract of conditional sale to the Respondents. The respondents could have at
least consigned the balance of the downpayment after notice of the resumption
of the selling operations of XEI and filed an action to compel XEI or OBM to
transmit to them the said contract; however, they failed to do so.

As a consequence, respondents and XEI (or OBM for that matter) failed to forge
a perfected contract to sell the two lots; hence, respondents have no cause of
action for specific performance against petitioner. Republic Act No. 6552
applies only to a perfected contract to sell and not to a contract with no binding
and enforceable effect.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The

Decision of the Court of Appeals in CA-G.R. CV No. 47458 is REVERSED
and SET ASIDE. The Regional Trial Court of Quezon City, Branch 98 is
ordered to dismiss the complaint. Costs against the Respondents.

SO ORDERED.

18
G.R. No. L-38581 March 31, 1976
LORENZO JOSE, petitioner,
vs.
THE COURT OF APPEALS and THE PEOPLE OF THE
PHILIPPINES, respondents.
Francisco Carreon & Zosimo D. de Mesa for petitioner.
Solicitor General Estelito P. Mendoza, Assistant Solicitor General Eulogio
Raquel-Santos and Solicitor Teodoro G. Bonifacio for respondents.
MUOZ PALMA, J.:
Petitioner Lorenzo Jose who was convicted of illegal possession of explosives
(handgrenade) and sentenced to suffer imprisonment of five years, seeks a new
trial which was denied him by the Court of First Instance of Pampanga, Branch
III, and by respondent Court of Appeals.
Petitioner thus poses one legal issue for the Court to resolve, viz: did respondent
appellate court commit an error of law and gravely abuse its discretion when it
denied petitioner's motion for new trial "for the reception of (1) the written
permit of petitioner to possess and use handgrenade, and (2) the written
appointment of petitioner as PC agent with Code No. P-36-68 and code Name
'Safari' (both documents are dated 31 January 1968)"? 1
The following incidents are not in dispute:
On February 8, 1968, at the poblacion of Floridablanca, Pampanga, petitioner
Jose was arrested by the local police leading to the filing with the Court of First
Instance of Pampanga, Branch III of several criminal cases against him to wit:
illegal discharge of firearm (Crim. Case 6235), robbery (Crim. Case 6236) and
illegal possession of explosives (Crim. Case 6237). These three cases were
jointly tried after which the trial judge, Hon. Honorio Romero, in a decision
dated December 15, 1969, and promulgated on January 15, 1970 2 acquitted
accused Lorenzo Jose of illegal discharge of firearm and robbery, but convicted
him for illegal possession of the handgrenade that was found on his person at
the time of his arrest.
After promulgation of the judgment, petitioner on that same day filed his notice
of appeal. Nine days thereafter or more particularly on January 24, 1970,
petitioner filed a motion praying that the case be reopened to permit him to
present, pursuant to a reservation he had made in the course of the trial, a permit
to possess the handgrenade in question. The trial court in its order of January
30, 1970 denied the motion mainly on the ground that it had lost jurisdiction
over the case in view of the perfection of the appeal by the accused on the very
date the decision was promulgated. 3
The records of Criminal Case 6237 were then elevated to the Court of Appeals
where petitioner as accused-appellant raised the issues of (1) an erroneous
conviction for illegal possession of explosives when there was no proof of an
essential element of the crime, and (2) erroneous denial of his motion to reopen
the case for the reception of his permit to possess the handgrenade. 4 In his brief,
Lorenzo Jose prayed for his acquittal or in the alternative for the remand of the
case back to the trial court for a new trial.
Resolving the appeal, respondent Appellate Court, 5 rendered its decision of
March 8, 1972, affirming the findings of fact and the judgment of conviction of
the court a quo, and declaring that no reversible error was committed by the
latter when it denied the reopening of the case as the court had lost its "power
to change, modify, or alter its decision." 6
A motion for reconsideration and/or new trial was filed with a plea that
"assuming arguendo that the court a quo lacked jurisdiction to act upon
appellant's motion for new trial because of the perfection of the appeal, this
Honorable Court before which said motion was reiterated and which has
competence to act thereon should have granted the same if for no other
reason than to prevent a miscarriage of justice which is the inevitable result of
its denial." 7 This motion for reconsideration was denied in respondent court's
resolution of April 3, 1974. 8
A second motion for reconsideration and/or new trial was filed by Lorenzo
Jose 9 but this was also denied by the appellate court in a Resolution
promulgated on July 24, 1974. 10
Forthwith, appellant Lorenzo Jose assisted by counsel, Atty. Francisco Carreon,
filed with Us this petition for review which We denied outright on September
6, 1974, "the question raised being factual and for insufficient showing that the
finding of facts by respondent court are unsupported by substantial evidence,
and for lack of merit."
A motion for reconsideration was filed by petitioner stressing that the following
grounds should justify this Court to review the ruling of respondent appellate
court to wit:
1. petitioners's plight is of compelling human and legal interest, and his being
imprisoned for five (5) years when there is indubitable exculpatory evidence on
hand is a result so harsh that the Honorable Court may well undertake a review
of the case just to satisfy itself of the justice and inevitability of such a result;
2. a question of substance not heretofore determined by the Honorable Court is
involved, as the evidence sought to be introduced at the new trial is, technically,
not newly discovered: and
3. the denial of a new trial in the circumstances mentioned in his above-quoted
statement of the main legal issue, is contrary to the decisions of this Honorable
Court because under these decisions, the new trial should have been granted
since there is a 'strong, compelling reason' in this case for granting the relief
prayed for, such strong compelling reason being the very strong probability of
petitioner's acquittal if a new trial were granted. (Workmen's Insurance Co. vs.
Augusto, 40 SCRA 123; Sison vs. Gatchalian, 51 SCRA 262; Rubio vs.
Mariano 52 SCRA 338; Montecines vs. Court of Appeals, 53 SCRA 14;
Posadas vs. Court of Appeals, L-38071, April 25, 1974; please see Annotation:
52 SCRA 346 ... (pp. 157-158, rollo)
The Solicitor General opposed the granting of the foregoing motion for
reconsideration claiming that there was neither a denial of "substantial justice
nor error of any sort on the part of respondent Court of Appeals, affirming the
judgment of convinction," and that it being admitted by petitioner that the
evidence sought to be introduced by him at the new trial is not newly discovered
evidence, the denial of the new trial "visibly papers as correct". This Opposition
drew a lengthy reply from petitioner's counsel.
On February 13, 1975, a Manifestation was submitted by the Solicitor General
informing the Court that in view of the " Persistence of accused petitioner
Lorenzo Jose both before this Honorable Court and respondent Court of
Appeals as to his alleged existing appointment as PC Agent and/or authority to
handgrenade," in the interest of justice, he was constrained to make pertinent
inquiries from the PC Chief, Gen. Fidel V. Ramos who in reply sent his letter
dated December 27, 1974 with enclosures, xerox copies of which are being
attached to the manifestation as Annexes A, B, C, C-1 and D. 11
Annex A of the above-mentioned Manifestation of the Solicitor General reads:
Solicitor General Estelito P. Mendoza
Padre Faura, Manila
Dear Solicitor General Mendoza:
With reference to your letter of December 5, 1974, please be informed that
Colonel Pedrito C. de Guzman who is now Provincial of Sorsogon
Constabulary Command, confirmed that he executed an affidavit on May 4,
1974 at Sorsogon, Sorsogon stating that he appointed Mr. Lorenzo Jose of Betis,
Guagua, Pampanga as PC Agent on January 31, 1968.
The incumbent Provincial Commander of Pampanga Constabulary Command
also confirmed the appointment of Lorenzo Jose as PC agent during the year
1968.
Attached herewith pertinent papers related to the said appointment.
Sincerely yours,
(Sgd.) FIDEL V. RAMOS
19
FIDEL V. RAMOS
Major General, AFP
Chief of Constabulary (p. 191, rollo)
Inclosure:
Appointmenmt paper
of subject person dtd
Jan. 31, 1968 with
Personal History
Statement
Annex B is the appointment dated January 31, 1968 of petitioner Lorenzo Jose
as a PC Agent of the Pampanga Constabulary Command with Code Number P-
36-68 and Code Nanie "Safari" with expiration on December 31, 1968, the
pertinent portion of which We quote:
This Headquarters will, from time to time, provide our firearms and such other
equipment which it may deem necessary for your personal protection on the
need basis which will be covered by separate written authority. (p. 192, rollo)
In a Resolution of February 21, 1975, the Court resolved to set aside the denial
of this petition for review, to give due course and consider the Petition as a
special civil action. In another Resolution of April 4, 1975, the parties were
given time to submit their respective memorandum.
This is a situation where a rigid application of rules of procedure must bow to
the overriding goal of courts of justice to render justice where justice is due-to
secure to every individual all possible legal means to prove his innocence of a
crime of which he is charged. The failure of the Court of Appeals to appreciate
the merits of the situation, involving as it does the liberty of an individual,
thereby closing its ear to a plea that a miscarriage of justice be averted,
constitutes a grave abuse of discretion which calls for relief from this Court.
At the outset, We give due credit to the Solicitor General and his staff for
upholding the time-honored principle set forth in perspicuous terms by this
Court in Suarez vs. Platon, et al that a prosecuting officer, as the representative
of a sovereignty whose obligation and interest in a criminal prosecution is not
that it shall win a case but that justice shall be done, has the solemn
responsibility to assure the public that while guilt shall not escape, innocene
shall not suffer. (69 Phil. 556, 564-565, qouting Justice Sutherland of the U.S.
Supreme Court in 69 U.S. Law Review, June, 1935, No. 6, p. 309) The Solicitor
General now concedes that the interests of justice will best be served by
remanding this case to the court of origin for a new trial.
We do not question the correctness of the findings of the Court of Appeals that
the evidence sought to be presented by the petitioner do not fall under the
category of newly-discovered evidence because the same his alleged
appointment as an agent of the Philippine Constabulary and a permit to possess
a handgrenade were supposed to be known to petitioner and existing at the
time of trial and not discovered only thereafter.
It is indeed an established rule that for a new trial to be granted on the ground
of newly discovered evidence, it must be shown that (a) the evidence was
discovered after trial; (b) such evidence could not have been discovered and
produced at the trial even with the exercise of reasonable diligence; (c) the
evidence is material, not merely cumulative, corroborative, or impeaching; and
(d) it must go to the merits as ought to produce a different result if admitted. 12
However, petitioner herein does not justify his motion for a new trial on newly
discovered evidence, but rather on broader grounds of substantial justice under
Sec. 11, Rule 124 of the Rules of Court which provides:
Power of appellate court on appeal. Upon appeal from a judgement of the
Court of First Instance, the appellate court may affirm or modify the judgment
and increase or reduce the penalty imposed by the trial court, remand the case
ito the Court of First Instance for new trial or retrial, or dismiss the case.
Petitioner asserts, and correctly so, that the authority of respondent appellate
court over an appealed case is broad and ample enough to embrace situations
as the instant case where the court may grant a new trial or a retrial for reasons
other than that provided in Section 13 of the same Rule, or Section 2, Rule 121
of the Rules of Court. 13While Section 13, Rule 124, and Section 2, Rule 121,
provide for specific grounds for a new trial, i.e. newly discovered evidence, and
errors of law or irregularities committed during the trial. Section 11, Rule 124
quoted above does not so specify, thereby leaving to the sound discretion of the
court the determination, on a case to case basis, of what would constitute
meritorious circumstances warranting a new trial or re-trial.
Surely, the Rules of Court were conceived and promulgate to aid and not to
obstruct the proper administration of justice, to set forth guidelines in the
dispensation of justice but not to bind and chain the hand that dispense justice,
for otherwise, courts will be mere slaves to or robots of technical rules, shorn
of judicial discretion.
Thus, admittedly, courts may suspend its own rules or except a case from them
for the purposes of justice 14 or, in a proper case, disregard them. 15 In this
jurisdiction, in not a. few instances, 15* this Court ordered a new trial in criminal
cases on grounds not mentioned in the statute, vis retraction of
witness, 16 negligence or incompetency of counsel. 17 improvident plea of
guilty, 18 disqualification of an attorney de oficio to represent the accused in the
trial court, 19 and where a judgment was rendered on a stipulation of facts
entered into by both the prosecution and the defense. 20
Characteristically, a new trial has been described as a new invention to temper
the severity of a judgment or prevent the failure of justice. 21
Petitioner cites certain peculiar circumstances obtaining in the case now before
Us which may be classified as exceptional enough to warrant a new trial if only
to afford him an opportunity to establish his innocence of the crime charged.
Thus petitioner was facing a criminal prosecution for illegal possession of a
handgrenade in the court below. He claimed to be an agent of the Philippine
Constabulary with a permit to possess explosives such as the handgrenade in
question. However, he found himself in a situation where he had to make a
choice reveal his Identity as an undercover agent of the Philippine
Constabulary assigned to perform intelligence work on subversive activities
and face possible reprisals or even liquidation at the hands of the dissidents
considering that Floridablanca the site of the incident, was in the heart of
"Huklandia", or ride on the hope of a possible exoneration or acquittal based on
insufficiency of the evidence of the prosecution. Without revealing his Identity
as an agent of the Philippine Constabulary, he claimed before the trial judge
that he had a permit to possess the handgrenade and prayed for time to present
the same. The permit however could not be produced because it would reveal
his intelligence work activities. Came the judgment of conviction and with it
the staggering impact of a five-year imprisonment. The competent authorities
then realized that it was unjust for this man to go to jail for a crime he had not
committed, hence, came the desired evidence concerning petitioner's
appointment as a Philippine Constabulary agent and his authority to possess a
handgrenade for the protection of his person, but, it was too late according to
the trial court because in the meantime the accused had perfected his appeal.
We find and hold that the above circumstances justify a reopening of petitioner's
cas to afford him the opportunity of producing exculpating exculpating
evidence. An outright acquittal from this Court which petitioner seeks as an
alternative relief is not As correctly stressed by the Solicitor General, the People
is to be given the chance of examining the documentary sought to be produced,
and of cross-examining the persons who executed the same, as well as the
accused himself, now petitioner, on his explanation for the non-production of
the of the evidence during the trial.
PREMISES CONSIDERED, We hereby set aside the judgment of conviction
of the herein petitioner, Lorenzo Jose, and remand the case to the court a quo
for a new trial only for purpose of allowing said accused to present additional
evidence in his defense. The trial court shall inform this Court of the final
outcome of the case within a reasonable time. Without pronouncement as to
costs.
SO ORDERED.
20
G.R. No. 152658. July 29, 2005
LILY ELIZABETH BRAVO-GUERRERO, BEN MAURICIO P.
BRAVO,1 ROLAND P. BRAVO, JR., OFELIA BRAVO-QUIESTAS,
HEIRS OF CORPUSINIA BRAVO-NIOR namely: GERSON U. NIOR,
MARK GERRY B. NIOR, CLIFF RICHARD B. NIOR, BRYAN B. NIOR,
WIDMARK B. NIOR, SHERRY ANNE B. NIOR, represented by LILY
ELIZABETH BRAVO-GUERRERO as their attorney-in-fact, and
HONORABLE FLORENTINO A. TUASON, JR., Presiding Judge,
Regional Trial Court, Branch 139, Makati City, Petitioners,
vs.
EDWARD P. BRAVO, represented by his attorney-in-fact FATIMA C.
BRAVO, respondent, and DAVID B. DIAZ, JR., intervenor-respondent.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review2 assailing the Decision3 of 21
December 2001 of the Court of Appeals in CA-G.R. CV No. 67794. The Court
of Appeals reversed the Decision4 of 11 May 2000 of the Regional Trial Court
of Makati, Branch No. 139, in Civil Case No. 97-1379 denying respondents
prayer to partition the subject properties.
Antecedent Facts
Spouses Mauricio Bravo ("Mauricio") and Simona5 Andaya Bravo ("Simona")
owned two parcels of land ("Properties") measuring 287 and 291 square meters
and located along Evangelista Street, Makati City, Metro Manila. The
Properties are registered under TCT Nos. 58999 and 59000 issued by the
Register of Deeds of Rizal on 23 May 1958. The Properties contain a large
residential dwelling, a smaller house and other improvements.
Mauricio and Simona had three children - Roland, Cesar and Lily, all surnamed
Bravo. Cesar died without issue. Lily Bravo married David Diaz, and had a son,
David B. Diaz, Jr. ("David Jr."). Roland had six children, namely, Lily
Elizabeth Bravo-Guerrero ("Elizabeth"), Edward Bravo ("Edward"), Roland
Bravo, Jr. ("Roland Jr."), Senia Bravo, Benjamin Mauricio Bravo, and their
half-sister, Ofelia Bravo ("Ofelia").
Simona executed a General Power of Attorney ("GPA") on 17 June 1966
appointing Mauricio as her attorney-in-fact. In the GPA, Simona authorized
Mauricio to "mortgage or otherwise hypothecate, sell, assign and dispose of any
and all of my property, real, personal or mixed, of any kind whatsoever and
wheresoever situated, or any interest therein xxx."6 Mauricio subsequently
mortgaged the Properties to the Philippine National Bank (PNB) and
Development Bank of the Philippines (DBP) for 10,000 and 5,000,
respectively.7
On 25 October 1970, Mauricio executed a Deed of Sale with Assumption of
Real Estate Mortgage ("Deed of Sale") conveying the Properties to "Roland A.
Bravo, Ofelia A. Bravo and Elizabeth Bravo"8 ("vendees"). The sale was
conditioned on the payment of 1,000 and on the assumption by the vendees of
the PNB and DBP mortgages over the Properties.
As certified by the Clerk of Court of the Regional Trial Court of Manila, the
Deed of Sale was notarized by Atty. Victorio Q. Guzman on 28 October 1970
and entered in his Notarial Register.9 However, the Deed of Sale was not
annotated on TCT Nos. 58999 and 59000. Neither was it presented to PNB and
DBP. The mortage loans and the receipts for loan payments issued by PNB and
DBP continued to be in Mauricios name even after his death on 20 November
1973. Simona died in 1977.
On 23 June 1997, Edward, represented by his wife, Fatima Bravo, filed an
action for the judicial partition of the Properties. Edward claimed that he and
the other grandchildren of Mauricio and Simona are co-owners of the Properties
by succession. Despite this, petitioners refused to share with him the possession
and rental income of the Properties. Edward later amended his complaint to
include a prayer to annul the Deed of Sale, which he claimed was merely
simulated to prejudice the other heirs.
In 1999, David Jr., whose parents died in 1944 and who was subsequently raised
by Simona, moved to intervene in the case. David Jr. filed a complaint-in-
intervention impugning the validity of the Deed of Sale and praying for the
partition of the Properties among the surviving heirs of Mauricio and Simona.
The trial court allowed the intervention in its Order dated 5 May 1999.10
The Ruling of the Trial Court
The trial court upheld Mauricios sale of the Properties to the vendees. The trial
court ruled that the sale did not prejudice the compulsory heirs, as the Properties
were conveyed for valuable consideration. The trial court also noted that the
Deed of Sale was duly notarized and was in existence for many years without
question about its validity.
The dispositive portion of the trial courts Decision of 11 May 2000 reads:
WHEREFORE, premises considered, the Court hereby DENIES the JUDICIAL
PARTITION of the properties covered by TCT Nos. 58999 and 59000
registered with the Office of the Register of Deeds of Rizal.
SO ORDERED.11
Dissatisfied, Edward and David Jr. ("respondents") filed a joint appeal to the
Court of Appeals.
The Ruling of the Court of Appeals
Citing Article 166 of the Civil Code ("Article 166"), the Court of Appeals
declared the Deed of Sale void for lack of Simonas consent. The appellate court
held that the GPA executed by Simona in 1966 was not sufficient to authorize
Mauricio to sell the Properties because Article 1878 of the Civil Code ("Article
1878") requires a special power of attorney for such transactions. The appellate
court reasoned that the GPA was executed merely to enable Mauricio to
mortgage the Properties, not to sell them.
The Court of Appeals also found that there was insufficient proof that the
vendees made the mortgage payments on the Properties, since the PNB and
DBP receipts were issued in Mauricios name. The appellate court opined that
the rental income of the Properties, which the vendees never shared with
respondents, was sufficient to cover the mortgage payments to PNB and DBP.
The Court of Appeals declared the Deed of Sale void and ordered the partition
of the Properties in its Decision of 21 December 2001 ("CA Decision"), as
follows:
WHEREFORE, the decision of the Regional Trial Court of Makati City, Metro-
Manila, Branch 13[9] dated 11 May 2000[,] review of which is sought in these
proceedings[,] is REVERSED.
1. The Deed of Sale with Assumption of Real Estate Mortgage (Exh. 4) dated
28 October 1970 is hereby declared null and void;
2. Judicial Partition on the questioned properties is hereby GRANTED in the
following manner:
A. In representation of his deceased mother, LILY BRAVO-DIAZ, intervenor
DAVID DIAZ, JR., is entitled to one-half (1/2) interest of the subject properties;
B. Plaintiff-appellant EDWARD BRAVO and the rest of the five siblings,
namely: LILY ELIZABETH, EDWARD, ROLAND, JR., SENIA, BENJAMIN
and OFELIA are entitled to one-sixth (1/6) representing the other half portion
of the subject properties;
C. Plaintiff-appellant Edward Bravo, intervenor DAVID DIAZ, JR., SENIA
and BENJAMIN shall reimburse the defendant-appellees LILY ELIZABETH,
OFELIA and ROLAND the sum of One Thousand (P1,000.00) PESOS
representing the consideration paid on the questioned deed of sale with
assumption of mortgage with interest of six (6) percent per annum effective 28
October 1970 until fully paid.
SO ORDERED.12
The Issues
Petitioners seek a reversal of the Decision of the Court of Appeals, raising these
issues:
21
1. WHETHER THE COURT OF APPEALS ERRED IN NOT UPHOLDING
THE VALIDITY AND ENFORCEMENT OF THE DEED OF SALE WITH
ASSUMPTION OF MORTGAGE.
2. WHETHER THE COURT OF APPEALS ERRED IN ORDERING THE
PARTITION OF THE PROPERTY IN QUESTION.13
At the least, petitioners argue that the subject sale is valid as to Mauricios share
in the Properties.
On the other hand, respondents maintain that they are co-owners of the
Properties by succession. Respondents argue that the sale of the conjugal
Properties is void because: (1) Mauricio executed the Deed of Sale without
Simonas consent; and (2) the sale was merely simulated, as shown by the
grossly inadequate consideration Mauricio received for the Properties.
While this case was pending, Leonida Andaya Lolong ("Leonida"), David Jr.s
aunt, and Atty. Cendaa, respondents counsel, informed the Court that David
Jr. died on 14 September 2004. Afterwards, Leonida and Elizabeth wrote
separate letters asking for the resolution of this case. Atty. Cendaa later filed
an urgent motion to annotate attorneys lien on TCT Nos. 58999 and 59000. In
its Resolution dated 10 November 2004,14 the Court noted the notice of David
Jr.s death, the letters written by Leonida and Elizabeth, and granted the motion
to annotate attorneys lien on TCT Nos. 58999 and 59000.
The Ruling of the Court
The petition is partly meritorious.
The questions of whether Simona consented to the Deed of Sale and whether
the subject sale was simulated are factual in nature. The rule is factual findings
of the Court of Appeals are binding on this Court. However, there are
exceptions, such as when the factual findings of the Court of Appeals and the
trial court are contradictory, or when the evidence on record does not support
the factual findings.15 Because these exceptions obtain in the present case, the
Court will consider these issues.
On the Requirement of the Wifes Consent
We hold that the Court of Appeals erred when it declared the Deed of Sale void
based on Article 166, which states:
Art. 166. Unless the wife has been declared a non compos mentis or a
spendthrift, or is under civil interdiction or is confined in a leprosarium, the
husband cannot alienate or encumber any real property of the conjugal
partnership without the wifes consent. If she refuses unreasonably to give her
consent, the court may compel her to grant the same.
This article shall not apply to property acquired by the conjugal partnerships
before the effective date of this Code.
Article 166 expressly applies only to properties acquired by the conjugal
partnership after the effectivity of the Civil Code of the Philippines ("Civil
Code"). The Civil Code came into force on 30 August 1950.16 Although there
is no dispute that the Properties were conjugal properties of Mauricio and
Simona, the records do not show, and the parties did not stipulate, when the
Properties were acquired.17 Under Article 1413 of the old Spanish Civil Code,
the husband could alienate conjugal partnership property for valuable
consideration without the wifes consent.18
Even under the present Civil Code, however, the Deed of Sale is not void. It is
well-settled that contracts alienating conjugal real property without the wifes
consent are merely voidable under the Civil Code that is, binding on the
parties unless annulled by a competent court and not void ab initio.19
Article 166 must be read in conjunction with Article 173 of the Civil Code
("Article 173"). The latter prescribes certain conditions before a sale of conjugal
property can be annulled for lack of the wifes consent, as follows:
Art. 173. The wife may, during the marriage and within ten years from the
transaction questioned, ask the courts for the annulment of any contract of the
husband entered into without her consent, when such consent is required, or any
act or contract of the husband which tends to defraud her or impair her interest
in the conjugal partnership property. Should the wife fail to exercise this right,
she or her heirs after the dissolution of the marriage, may demand the
value of property fraudulently alienated by the husband. (Emphasis
supplied)
Under the Civil Code, only the wife can ask to annul a contract that disposes of
conjugal real property without her consent. The wife must file the action for
annulment during the marriage and within ten years from the questioned
transaction. Article 173 is explicit on the remedies available if the wife fails to
exercise this right within the specified period. In such case, the wife or her heirs
can only demand the value of the property provided they prove that the husband
fraudulently alienated the property. Fraud is never presumed, but must be
established by clear and convincing evidence.20
Respondents action to annul the Deed of Sale based on Article 166 must fail
for having been filed out of time. The marriage of Mauricio and Simona was
dissolved when Mauricio died in 1973. More than ten years have passed since
the execution of the Deed of Sale.
Further, respondents, who are Simonas heirs, are not the parties who can
invoke Article 166. Article 173 reserves that remedy to the wife alone. Only
Simona had the right to have the sale of the Properties annulled on the ground
that Mauricio sold the Properties without her consent.
Simona, however, did not assail the Deed of Sale during her marriage or even
after Mauricios death. The records are bereft of any indication that Simona
questioned the sale of the Properties at any time. Simona did not even attempt
to take possession of or reside on the Properties after Mauricios death. David
Jr., who was raised by Simona, testified that he and Simona continued to live in
Pasay City after Mauricios death, while her children and other grandchildren
resided on the Properties.21
We also agree with the trial court that Simona authorized Mauricio to dispose
of the Properties when she executed the GPA. True, Article 1878 requires a
special power of attorney for an agent to execute a contract that transfers the
ownership of an immovable. However, the Court has clarified that Article 1878
refers to the nature of the authorization, not to its form.22 Even if a document is
titled as a general power of attorney, the requirement of a special power of
attorney is met if there is a clear mandate from the principal specifically
authorizing the performance of the act.23
In Veloso v. Court of Appeals,24 the Court explained that a general power of
attorney could contain a special power to sell that satisfies the requirement of
Article 1878, thus:
An examination of the records showed that the assailed power of attorney was
valid and regular on its face. It was notarized and as such, it carries the
evidentiary weight conferred upon it with respect to its due execution. While it
is true that it was denominated as a general power of attorney, a perusal thereof
revealed that it stated an authority to sell, to wit:
"2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands,
tenements and hereditaments or other forms of real property, more specifically
TCT No. 49138, upon such terms and conditions and under such covenants as
my said attorney shall deem fit and proper."
Thus, there was no need to execute a separate and special power of attorney
since the general power of attorney had expressly authorized the agent or
attorney in fact the power to sell the subject property. The special power of
attorney can be included in the general power when it is specified therein
the act or transaction for which the special power is required. (Emphasis
supplied)
In this case, Simona expressly authorized Mauricio in the GPA to "sell, assign
and dispose of any and all of my property, real, personal or mixed, of any
kind whatsoever and wheresoever situated, or any interest therein xxx" as well
as to "act as my general representative and agent, with full authority to buy, sell,
negotiate and contract for me and in my behalf."25 Taken together, these
provisions constitute a clear and specific mandate to Mauricio to sell the
Properties. Even if it is called a "general power of attorney," the specific
provisions in the GPA are sufficient for the purposes of Article 1878. These
provisions in the GPA likewise indicate that Simona consented to the sale of
the Properties.
Whether the Sale of the Properties was Simulated
22
or is Void for Gross Inadequacy of Price
We point out that the law on legitime does not bar the disposition of property
for valuable consideration to descendants or compulsory heirs. In a sale, cash
of equivalent value replaces the property taken from the estate.26There is no
diminution of the estate but merely a substitution in values. Donations and other
dispositions by gratuitous title, on the other hand, must be included in the
computation of legitimes.27
Respondents, however, contend that the sale of the Properties was merely
simulated. As proof, respondents point to the consideration of 1,000 in the
Deed of Sale, which respondents claim is grossly inadequate compared to the
actual value of the Properties.
Simulation of contract and gross inadequacy of price are distinct legal concepts,
with different effects. When the parties to an alleged contract do not really
intend to be bound by it, the contract is simulated and void.28 A simulated or
fictitious contract has no legal effect whatsoever29 because there is no real
agreement between the parties.
In contrast, a contract with inadequate consideration may nevertheless embody
a true agreement between the parties. A contract of sale is a consensual contract,
which becomes valid and binding upon the meeting of minds of the parties on
the price and the object of the sale.30 The concept of a simulated sale is thus
incompatible with inadequacy of price. When the parties agree on a price as the
actual consideration, the sale is not simulated despite the inadequacy of the
price.31
Gross inadequacy of price by itself will not result in a void contract. Gross
inadequacy of price does not even affect the validity of a contract of sale, unless
it signifies a defect in the consent or that the parties actually intended a donation
or some other contract.32 Inadequacy of cause will not invalidate a contract
unless there has been fraud, mistake or undue influence.33 In this case,
respondents have not proved any of the instances that would invalidate the Deed
of Sale.
Respondents even failed to establish that the consideration paid by the vendees
for the Properties was grossly inadequate. As the trial court pointed out, the
Deed of Sale stipulates that, in addition to the payment of 1,000, the vendees
should assume the mortgage loans from PNB and DBP. The consideration for
the sale of the Properties was thus 1,000 in cash and the assumption of the
15,000 mortgage.
Respondents argue that 16,000 is still far below the actual value of the
Properties. To bolster their claim, respondents presented the following: (1) Tax
Declarations No. A-001-0090534 and A-001-0090635 for the year 1979, which
placed the assessed value of the Properties at 70,020 and their approximate
market value at 244,290; and (2) a certified copy of the Department of
Finances Department Order No. 62-9736 dated 6 June 1997 and attached
guidelines37 which established the zonal value of the properties along
Evangelista Street at 15,000 per square meter.
The subject Deed of Sale, however, was executed in 1970. The valuation of the
Properties in 1979 or 1997 is of little relevance to the issue of whether 16,000
was a grossly inadequate price to pay for the Properties in 1970. Certainly, there
is nothing surprising in the sharp increase in the value of the Properties nine or
twenty-seven years after the sale, particularly when we consider that the
Properties are located in the City of Makati.
More pertinent are Tax Declarations No. 1581238 and No. 15813,39 both issued
in 1967, presented by petitioners. These tax declarations placed the assessed
value of both Properties at 16,160. Compared to this, the price of 16,000
cannot be considered grossly inadequate, much less so shocking to the
conscience40 as to justify the setting aside of the Deed of Sale.
Respondents next contend that the vendees did not make the mortgage
payments on the Properties. Respondents allege that the rents paid by the
tenants leasing portions of the Properties were sufficient to cover the mortgage
payments to DBP and PNB.
Again, this argument does not help respondents cause. Assuming that the
vendees failed to pay the full price stated in the Deed of Sale, such partial failure
would not render the sale void. In Buenaventura v. Court of Appeals,41 the
Court held:
xxx If there is a meeting of the minds of the parties as to the price, the contract
of sale is valid, despite the manner of payment, or even the breach of that
manner of payment. xxx
It is not the act of payment of price that determines the validity of a contract of
sale. Payment of the price has nothing to do with the perfection of the contract.
Payment of the price goes into the performance of the contract. Failure to pay
the consideration is different from lack of consideration. The former results in
a right to demand the fulfillment or cancellation of the obligation under an
existing valid contract while the latter prevents the existence of a valid contract.
(Emphasis supplied.)
Neither was it shown that the rentals from tenants were sufficient to cover the
mortgage payments. The parties to this case stipulated to only one tenant, a
certain Federico M. Puno, who supposedly leased a room on the Properties for
300 per month from 1992 to 1994.42 This is hardly significant, when we
consider that the mortgage was fully paid by 1974. Indeed, the fact that the
Properties were mortgaged to DBP and PNB indicates that the conjugal
partnership, or at least Mauricio, was short of funds.
Petitioners point out that they were duly employed and had the financial
capacity to buy the Properties in 1970. Respondents did not refute this.
Petitioners presented 72 receipts43 showing the mortgage payments made to
PNB and DBP, and the Release of the Real Estate Mortgage44 ("Mortgage
Release") dated 5 April 1974. True, these documents all bear Mauricios name.
However, this tends to support, rather than detract from, petitioner-vendees
explanation that they initially gave the mortgage payments directly to Mauricio,
and then later directly to the banks, without formally advising the bank of the
sale. The last 3 mortgage receipts and the Mortgage Release were all issued in
Mauricios name even after his death in 1970. Obviously, Mauricio could not
have secured the Mortgage Release and made these last payments.
Presumption of Regularity and Burden of Proof
The Deed of Sale was notarized and, as certified by the Regional Trial Court of
Manila, entered in the notarial books submitted to that court. As a document
acknowledged before a notary public, the Deed of Sale enjoys the presumption
of regularity45 and due execution.46 Absent evidence that is clear, convincing
and more than merely preponderant, the presumption must be upheld.47
Respondents evidence in this case is not even preponderant. Respondents
allegations, testimony and bare denials cannot prevail over the documentary
evidence presented by petitioners. These documents the Deed of Sale and the
GPA which are both notarized, the receipts, the Mortgage Release and the 1967
tax declarations over the Properties support petitioners account of the sale.
As the parties challenging the regularity of the Deed of Sale and alleging its
simulation, respondents had the burden of proving these charges.48 Respondents
failed to discharge this burden. Consequentially, the Deed of Sale stands.
On the Partition of the Property
Nevertheless, this Court finds it proper to grant the partition of the Properties,
subject to modification.
Petitioners have consistently claimed that their father is one of the vendees who
bought the Properties. Vendees Elizabeth and Ofelia both testified that the
"Roland A. Bravo" in the Deed of Sale is their father,49 although their brother,
Roland Bravo, Jr., made some of the mortgage payments. Petitioners counsel,
Atty. Paggao, made the same clarification before the trial court.50
As Roland Bravo, Sr. is also the father of respondent Edward Bravo, Edward is
thus a compulsory heir of Roland Bravo, and entitled to a share, along with his
brothers and sisters, in his fathers portion of the Properties. In short, Edward
and petitioners are co-owners of the Properties.
As such, Edward can rightfully ask for the partition of the Properties. Any co-
owner may demand at any time the partition of the common property unless a
co-owner has repudiated the co-ownership.51 This action for partition does not
prescribe and is not subject to laches.52
WHEREFORE, we REVERSE the Decision of 21 December 2001 of the
Court of Appeals in CA-G.R. CV No. 67794. We REINSTATE the Decision of
11 May 2000 of the Regional Trial Court of Makati, Branch No. 139, in Civil
23
Case No. 97-137, declaring VALID the Deed of Sale with Assumption of
Mortgage dated 28 October 1970, with the following MODIFICATIONS:

1. We GRANT judicial partition of the subject Properties in the following

manner:

a. Petitioner LILY ELIZABETH BRAVO-GUERRERO is entitled to one-third

(1/3) of the Properties;

b. Petitioner OFELIA BRAVO-QUIESTAS is entitled to one-third (1/3) of the

Properties; and

c. The remaining one-third (1/3) portion of the Properties should be divided

equally between the children of ROLAND BRAVO.

2. The other heirs of ROLAND BRAVO must reimburse ROLAND BRAVO,

JR. for whatever expenses the latter incurred in paying for and securing the
release of the mortgage on the Properties.

SO ORDERED.

24
G.R. No. 134971 March 25, 2004 preliminary injunction against the defendants and the respondents therein.10 The
case was docketed as Civil Case No. 10910.
HERMINIO TAYAG, petitioner,
vs. In his complaint, the petitioner alleged, inter alia, the following:
AMANCIA LACSON, ROSENDO LACSON, ANTONIO LACSON,
JUAN LACSON, TEODISIA LACSON-ESPINOSA and THE COURT 4. That defendants Julio Tiamson, Renato Gozun, Rosita Hernandez,
OF APPEALS, respondents. Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose
Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton
DECISION Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos are
original farmers or direct tillers of landholdings over parcels of lands covered
CALLEJO, SR., J.: by Transfer Certificate of Title Nos. 35922-R, 35923-R and 35925-R which are
registered in the names of defendants LACSONS; while defendants Felino G.
Before us is a petition for review on certiorari of the Decision1 and the Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao,
Resolution2 of respondent Court of Appeals in CA-G.R. SP No. 44883. Roman Laxamana, Eddie San Luis, Alfredo Gozun, Jose Tiamson, Augusto
Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de
The Case for the Petitioner
Leon, Alberto Hernandez, and Aurelio Flores are sub-tenants over the same
Respondents Angelica Tiotuyco Vda. de Lacson,3 and her children Amancia, parcel of land.
Antonio, Juan, and Teodosia, all surnamed Lacson, were the registered owners
5. That on March 17, 1996 the defendants TIAMSON, et al., entered into Deeds
of three parcels of land located in Mabalacat, Pampanga, covered by Transfer
of Assignment with the plaintiff by which the defendants assigned all their
Certificates of Title (TCT) Nos. 35922-R, 35923-R, and 35925-R, registered in
rights and interests on their landholdings to the plaintiff and that on the same
the Register of Deeds of San Fernando, Pampanga. The properties, which were
date (March 17, 1996), the defendants received from the plaintiff partial
tenanted agricultural lands,4 were administered by Renato Espinosa for the
payments in the amounts corresponding to their names. Subsequent payments
owner.
were also received:
On March 17, 1996, a group of original farmers/tillers, namely, Julio Tiamson,
Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma 1st 2nd
Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano CHEC
PAYMEN PAYMEN TOTAL
Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia K NO.
T T
de Leon, Emiliano Ramos, and another group, namely, Felino G. Tolentino,
Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman
Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana Miranda, Jose 1.Julio
P P
Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Tiamson - P 20,000 231281
10,621.54 30,621.54
Quiambao, Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando -----
Flores, and Aurelio Flores,5 individually executed in favor of the petitioner
separate Deeds of Assignment6 in which the assignees assigned to the petitioner
2. Renato P 10,000 96,000 106,000.0
their respective rights as tenants/tillers of the landholdings possessed and tilled
Gozun - - - 0
by them for and in consideration of P50.00 per square meter. The said amount
- - -
was made payable "when the legal impediments to the sale of the property to
[son of
the petitioner no longer existed." The petitioner was also granted the exclusive
Felix
right to buy the property if and when the respondents, with the concurrence of
Gozun
the defendants-tenants, agreed to sell the property. In the interim, the petitioner
(deceased)
gave varied sums of money to the tenants as partial payments, and the latter
]
issued receipts for the said amounts.

On July 24, 1996, the petitioner called a meeting of the defendants-tenants to

3. Rosita
work out the implementation of the terms of their separate P
Hernande P 5,000 14,374.24 231274
agreements.7 However, on August 8, 1996, the defendants-tenants, through 19,374.24
z----
Joven Mariano, wrote the petitioner stating that they were not attending the
meeting and instead gave notice of their collective decision to sell all their rights
and interests, as tenants/lessees, over the landholding to the 4. P 10,000 14,465.90 231285 24,465.90
respondents.8 Explaining their reasons for their collective decision, they wrote Bienvenid
as follows: o Tongol -
- -
Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng ating [Son of
napagkasunduan, hindi tumanggap ng ibang buyer o ahente, pero sinira ninyo Abundio
ang aming pagtitiwala sa pamamagitan ng demanda ninyo at pagbibigay ng Tongol
problema sa amin na hindi naman nagbenta ng lupa. (deceased)
]
Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming karapatan o
ang aming lupang sinasaka sa landowner o sa mga pamilyang Lacson, dahil
ayaw naming magkaroon ng problema. 5. Alfonso
Flores - - - P 30,000 26,648.40 231271 56,648.40
Kaya kung ang sasabihin ninyong itoy katangahan, lalo sigurong magiging
---
katangahan kung ibebenta pa namin sa inyo ang aming lupang sinasaka, kaya
pasensya na lang Mister Tayag. Dahil sinira ninyo ang aming pagtitiwala at
katapatan.9 6. Norma
Quiambao P 10,000 41,501.10 231279 51,501.10
On August 19, 1996, the petitioner filed a complaint with the Regional Trial ----
Court of San Fernando, Pampanga, Branch 44, against the defendants-tenants,
as well as the respondents, for the court to fix a period within which to pay the
agreed purchase price of P50.00 per square meter to the defendants, as provided
for in the Deeds of Assignment. The petitioner also prayed for a writ of

25
7. Rosita 21.
Tolentino P 10,000 22,126.08 231284 32,126.08 Roman 10,000 ------ ------ ------
----- Laxamana

8. Jose 22. Eddie

10,000 ------ ------ ------
Sosa - - - - P 10,000 14,861.31 231291 24,861.31 San Luis
-----

23.
9. Ricardo
10,000 ------ ------ ------
Francisco Hernande
P 10,000 24,237.62 231283 34,237.62
Tolentino, z
Sr.

24.
10. Nicencian 10,000 ------ ------ ------
Emiliano a Miranda
P 10,000 ------ ------ ------
Laxamana
--
25. Jose
10,000 ------ ------ ------
Gozun
11. Ruben
Torres - - -
- - - 26.
[Son of P P Alfredo 5,000 ------ ------ ------
P 10,000 ------ Sosa
Mariano 33,587.31 43,587.31
Torres
(deceased)
27. Jose
] 10,000 ------ ------ ------
Tiamson

12.
P 28.
Meliton P 10,000 12,944.77 231269
22,944.77 Augusto 5,000 ------ ------ ------
Allanigue
Tolentino

13.
29. Sixto
Dominga P 5,000 22,269.02 231275 27,269.02
Hernande 10,000 ------ ------ ------
Laxamana
z

14.
30. Alex
Felicencia 10,000 ------ ------ ------ 10,000 ------ ------ ------
Quiambao
de Leon

31. Isidro
15. 10,000 ------ ------ ------
Tolentino
Emiliano 5,000 18,869.60 231280 23,869.60
Ramos
32.
Ceferino ------ 11,378.70 231270 ------
16. Felino
de Leon
G. 10,000 ------ ------ ------
Tolentino
33.
Alberto
17. Rica 10,000 ------ ------ ------
5,000 ------ ------ ------ Hernande
Gozun
z

18. Perla
10,000 ------ ------ ------ 34.
Gozun
Orlando 10,000 ------ ------ ------
Florez
19.
Benigno 10,000 ------ ------ ------
35.
Tolentino
Aurelio 10,000 ------ ------ ------
Flores
20.
Rodolfo 10,000 ------ ------ ------ 6. That on July 24, 1996, the plaintiff wrote the defendants TIAMSON, et al.,
Quiambao inviting them for a meeting regarding the negotiations/implementations of the
terms of their Deeds of Assignment;

26
7. That on August 8, 1996, the defendants TIAMSON, et al., through Joven
Mariano, replied that they are no longer willing to pursue with the negotiations,
and instead they gave notice to the plaintiff that they will sell all their rights and
interests to the registered owners (defendants LACSONS).
A copy of the letter is hereto attached as Annex "A" etc.;
8. That the defendants TIAMSON, et. al., have no right to deal with the
defendants LACSON or with any third persons while their contracts with the
plaintiff are subsisting; defendants LACSONS are inducing or have induced the
defendants TIAMSON, et. al., to violate their contracts with the plaintiff;
9. That by reason of the malicious acts of all the defendants, plaintiff suffered
moral damages in the forms of mental anguish, mental torture and serious
anxiety which in the sum of P500,000.00 for which defendants should be held
liable jointly and severally.11
In support of his plea for injunctive relief, the petitioner, as plaintiff, also
alleged the following in his complaint:
11. That to maintain the status quo, the defendants TIAMSON, et al., should be
restrained from rescinding their contracts with the plaintiff, and the defendants
LACSONS should also be restrained from accepting any offer of sale or
alienation with the defendants TIAMSON, et al., in whatever form, the latters
rights and interests in the properties mentioned in paragraph 4 hereof; further,
the LACSONS should be restrained from encumbering/alienating the subject
properties covered by TCT No. 35922-R, 35923-R and TCT No. 35925-R,
Registry of Deeds of San Fernando, Pampanga;
12. That the defendants TIAMSON, et al., threaten to rescind their contracts
with the plaintiff and are also bent on selling/alienating their rights and interests
over the subject properties to their co-defendants (LACSONS) or any other
persons to the damage and prejudice of the plaintiff who already invested much
money, efforts and time in the said transactions;
13. That the plaintiff is entitled to the reliefs being demanded in the complaint;
14. That to prevent irreparable damages and prejudice to the plaintiff, as the
latter has no speedy and adequate remedy under the ordinary course of law, it
is essential that a Writ of Preliminary Injunction be issued enjoining and
restraining the defendants TIAMSON, et al., from rescinding their contracts
with the plaintiff and from selling/alienating their properties to the LACSONS
or other persons;
15. That the plaintiff is willing and able to put up a reasonable bond to answer
for the damages which the defendants would suffer should the injunction prayed
for and granted be found without basis.12
The petitioner prayed, that after the proceedings, judgment be rendered as
follows:
1. Pending the hearing, a Writ of Preliminary Injunction be issued prohibiting,
enjoining and restraining defendants Julio Tiamson, Renato Gozun, Rosita
Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita
Tolentino, Jose Sosa, Francisco Tolentino Sr., Emiliano Laxamana, Ruben
Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano
Ramos, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino,
Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez,
Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto
Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores, and Aurelio
Flores from rescinding their contracts with the plaintiff and from alienating their
rights and interest over the aforementioned properties in favor of defendants
LACSONS or any other third persons; and prohibiting the defendants
LACSONS from encumbering/alienating TCT Nos. 35922-R, 35923-R and
35925-R of the Registry of Deeds of San Fernando, Pampanga.
2. And pending the hearing of the Prayer for a Writ of Preliminary Injunction,
it is prayed that a restraining order be issued restraining the aforementioned
defendants (TIAMSON, et al.) from rescinding their contracts with the plaintiff
and from alienating the subject properties to the defendants LACSONS or any
third persons; further, restraining and enjoining the defendants LACSONS from
encumbering/selling the properties covered by TCT Nos. 35922-R, 35923-R,
and 35925-R of the Registry of Deeds of San Fernando, Pampanga.
3. Fixing the period within which plaintiff shall pay the balance of the purchase
price to the defendants TIAMSON, et al., after the lapse of legal impediment,
if any.
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants to pay the plaintiff the sum of P500,000.00 as moral
damages;
6. Ordering the defendants to pay the plaintiff attorneys fees in the sum of
P100,000.00 plus litigation expenses of P50,000.00;
Plaintiff prays for such other relief as may be just and equitable under the
premises.13
In their answer to the complaint, the respondents as defendants asserted that (a)
the defendant Angelica Vda. de Lacson had died on April 24, 1993; (b) twelve
of the defendants were tenants/lessees of respondents, but the tenancy status of
the rest of the defendants was uncertain; (c) they never induced the defendants
Tiamson to violate their contracts with the petitioner; and, (d) being merely
tenants-tillers, the defendants-tenants had no right to enter into any transactions
involving their properties without their knowledge and consent. They also
averred that the transfers or assignments of leasehold rights made by the
defendants-tenants to the petitioner is contrary to Presidential Decree (P.D.) No.
27 and Republic Act No. 6657, the Comprehensive Agrarian Reform Program
(CARP).14 The respondents interposed counterclaims for damages against the
petitioner as plaintiff.
The defendants-tenants Tiamson, et al., alleged in their answer with
counterclaim for damages, that the money each of them received from the
petitioner were in the form of loans, and that they were deceived into signing
the deeds of assignment:
a) That all the foregoing allegations in the Answer are hereby repleaded and
incorporated in so far as they are material and relevant herein;
b) That the defendants Tiamson, et al., in so far as the Deeds of Assignment are
concern[ed] never knew that what they did sign is a Deed of Assignment. What
they knew was that they were made to sign a document that will serve as a
receipt for the loan granted [to] them by the plaintiff;
c) That the Deeds of Assignment were signed through the employment of fraud,
deceit and false pretenses of plaintiff and made the defendants believe that what
they sign[ed] was a mere receipt for amounts received by way of loans;
d) That the documents signed in blank were filled up and completed after the
defendants Tiamson, et al., signed the documents and their completion and
accomplishment was done in the absence of said defendants and, worst of all,
defendants were not provided a copy thereof;
e) That as completed, the Deeds of Assignment reflected that the defendants
Tiamson, et al., did assign all their rights and interests in the properties or
landholdings they were tilling in favor of the plaintiff. That if this is so,
assuming arguendo that the documents were voluntarily executed, the
defendants Tiamson, et al., do not have any right to transfer their interest in the
landholdings they are tilling as they have no right whatsoever in the
landholdings, the landholdings belong to their co-defendants, Lacson, et al., and
therefore, the contract is null and void;
f) That while it is admitted that the defendants Tiamson, et al., received sums
of money from plaintiffs, the same were received as approved loans granted by
plaintiff to the defendants Tiamson, et al., and not as part consideration of the
alleged Deeds of Assignment; and by way of:15
At the hearing of the petitioners plea for a writ of preliminary injunction, the
respondents counsel failed to appear. In support of his plea for a writ of
preliminary injunction, the petitioner adduced in evidence the Deeds of
Assignment,16 the receipts17 issued by the defendants-tenants for the amounts
they received from him; and the letter18 the petitioner received from the
defendants-tenants. The petitioner then rested his case.
The respondents, thereafter, filed a Comment/Motion to dismiss/deny the
petitioners plea for injunctive relief on the following grounds: (a) the Deeds of
Assignment executed by the defendants-tenants were contrary to public policy
and P.D. No. 27 and Rep. Act No. 6657; (b) the petitioner failed to prove that
27
the respondents induced the defendants-tenants to renege on their obligations
under the "Deeds of Assignment;" (c) not being privy to the said deeds, the
respondents are not bound by the said deeds; and, (d) the respondents had the
absolute right to sell and dispose of their property and to encumber the same
and cannot be enjoined from doing so by the trial court.
The petitioner opposed the motion, contending that it was premature for the trial
court to resolve his plea for injunctive relief, before the respondents and the
defendants-tenants adduced evidence in opposition thereto, to afford the
petitioner a chance to adduce rebuttal evidence and prove his entitlement to a
writ of preliminary injunction. The respondents replied that it was the burden
of the petitioner to establish the requisites of a writ of preliminary injunction
without any evidence on their part, and that they were not bound to adduce any
evidence in opposition to the petitioners plea for a writ of preliminary
injunction.
On February 13, 1997, the court issued an Order19 denying the motion of the
respondents for being premature. It directed the hearing to proceed for the
respondents to adduce their evidence. The court ruled that the petitioner, on the
basis of the material allegations of the complaint, was entitled to injunctive
relief. It also held that before the court could resolve the petitioners plea for
injunctive relief, there was need for a hearing to enable the respondents and the
defendants-tenants to adduce evidence to controvert that of the petitioner. The
respondents filed a motion for reconsideration, which the court denied in its
Order dated April 16, 1997. The trial court ruled that on the face of the
averments of the complaint, the pleadings of the parties and the evidence
adduced by the petitioner, the latter was entitled to injunctive relief unless the
respondents and the defendants-tenants adduced controverting evidence.
The respondents, the petitioners therein, filed a petition for certiorari in the
Court of Appeals for the nullification of the February 13, 1997 and April 16,
1997 Orders of the trial court. The case was docketed as CA-G.R. SP No.
44883. The petitioners therein prayed in their petition that:
1. An order be issued declaring the orders of respondent court dated February
13, 1997 and April 16, 1997 as null and void;
2. An order be issued directing the respondent court to issue an order denying
the application of respondent Herminio Tayag for the issuance of a Writ of
Preliminary Injunction and/or restraining order.
3. In the meantime, a Writ of Preliminary Injunction be issued against the
respondent court, prohibiting it from issuing its own writ of injunction against
Petitioners, and thereafter making said injunction to be issued by this Court
permanent.
Such other orders as may be deemed just & equitable under the premises also
prayed for.20
The respondents asserted that the Deeds of Assignment executed by the
assignees in favor of the petitioner were contrary to paragraph 13 of P.D. No.
27 and the second paragraph of Section 70 of Rep. Act No. 6657, and, as such,
could not be enforced by the petitioner for being null and void. The respondents
also claimed that the enforcement of the deeds of assignment was subject to a
supervening condition:
3. That this exclusive and absolute right given to the assignee shall be exercised
only when no legal impediments exist to the lot to effect the smooth transfer of
lawful ownership of the lot/property in the name of the ASSIGNEE.21
The respondents argued that until such condition took place, the petitioner
would not acquire any right to enforce the deeds by injunctive relief.
Furthermore, the petitioners plea in his complaint before the trial court, to fix
a period within which to pay the balance of the amounts due to the tenants under
said deeds after the "lapse" of any legal impediment, assumed that the deeds
were valid, when, in fact and in law, they were not. According to the
respondents, they were not parties to the deeds of assignment; hence, they were
not bound by the said deeds. The issuance of a writ of preliminary injunction
would restrict and impede the exercise of their right to dispose of their property,
as provided for in Article 428 of the New Civil Code. They asserted that the
petitioner had no cause of action against them and the defendants-tenants.
On April 17, 1998, the Court of Appeals rendered its decision against the
petitioner, annulling and setting aside the assailed orders of the trial court; and
permanently enjoining the said trial court from proceeding with Civil Case No.
10901. The decretal portion of the decision reads as follows:
However, even if private respondent is denied of the injunctive relief he
demands in the lower court still he could avail of other course of action in order
to protect his interest such as the institution of a simple civil case of collection
of money against TIAMSON, et al.
For all the foregoing considerations, the orders dated 13 February 1997 and 16
April 1997 are hereby NULLIFIED and ordered SET ASIDE for having been
issued with grave abuse of discretion amounting to lack or excess of
jurisdiction. Accordingly, public respondent is permanently enjoined from
proceeding with the case designated as Civil Case No. 10901.22
The CA ruled that the respondents could not be enjoined from alienating or even
encumbering their property, especially so since they were not privies to the
deeds of assignment executed by the defendants-tenants. The defendants-
tenants were not yet owners of the portions of the landholdings respectively
tilled by them; as such, they had nothing to assign to the petitioner. Finally, the
CA ruled that the deeds of assignment executed by the defendants-tenants were
contrary to P.D. No. 27 and Rep. Act No. 6657.
On August 4, 1998, the CA issued a Resolution denying the petitioners motion
for reconsideration.23
Hence, the petitioner filed his petition for review on certiorari before this Court,
contending as follows:
I
A MERE ALLEGATION IN THE ANSWER OF THE TENANTS COULD
NOT BE USED AS EVIDENCE OR BASIS FOR ANY CONCLUSION, AS
THIS ALLEGATION, IS STILL THE SUBJECT OF TRIAL IN THE LOWER
COURT (RTC).24
II
THE COURT OF APPEALS CANNOT ENJOIN THE HEARING OF A
PETITION FOR PRELIMINARY INJUNCTION AT A TIME WHEN THE
LOWER COURT (RTC) IS STILL RECEIVING EVIDENCE PRECISELY
TO DETERMINE WHETHER OR NOT THE WRIT OF PRELIMINARY
INJUNCTION BEING PRAYED FOR BY TAYAG SHOULD BE GRANTED
OR NOT.25
III
THE COURT OF APPEALS CANNOT USE "FACTS" NOT IN EVIDENCE,
TO SUPPORT ITS CONCLUSION THAT THE TENANTS ARE NOT YET
"AWARDEES OF THE LAND REFORM.26
IV
THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT
STOPPAGE OF THE ENTIRE PROCEEDINGS BELOW INCLUDING THE
TRIAL ON THE MERITS OF THE CASE CONSIDERING THAT THE
ISSUE INVOLVED ONLY THE PROPRIETY OF MAINTAINING THE
STATUS QUO.27
V
THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION THE
CASE OF THE OTHER 35 TENANTS WHO DO NOT QUESTION THE
JURISDICTION OF THE LOWER COURT (RTC) OVER THE CASE AND
WHO ARE IN FACT STILL PRESENTING THEIR EVIDENCE TO
OPPOSE THE INJUNCTION PRAYED FOR, AND TO PROVE AT THE
SAME TIME THE COUNTER-CLAIMS THEY FILED AGAINST THE
PETITIONER.28
VI
THE LOWER COURT (RTC) HAS JURISDICTION OVER THE CASE
FILED BY TAYAG FOR "FIXING OF PERIOD" UNDER ART. 1197 OF
THE NEW CIVIL CODE AND FOR "DAMAGES" AGAINST THE
LACSONS UNDER ART. 1314 OF THE SAME CODE. THIS CASE
28
CANNOT BE SUPPRESSED OR RENDERED NUGATORY
UNCEREMONIOUSLY.29
The petitioner faults the Court of Appeals for permanently enjoining the trial
court from proceeding with Civil Case No. 10910. He opines that the same was
too drastic, tantamount to a dismissal of the case. He argues that at that stage, it
was premature for the appellate court to determine the merits of the case since
no evidentiary hearing thereon was conducted by the trial court. This, the Court
of Appeals cannot do, since neither party moved for the dismissal of Civil Case
No. 10910. The petitioner points out that the Court of Appeals, in making its
findings, went beyond the issue raised by the private respondents, namely,
whether or not the trial court committed a grave abuse of discretion amounting
to excess or lack of jurisdiction when it denied the respondents motion for the
denial/dismissal of the petitioners plea for a writ of preliminary injunction. He,
likewise, points out that the appellate court erroneously presumed that the
leaseholders were not DAR awardees and that the deeds of assignment were
contrary to law. He contends that leasehold tenants are not prohibited from
conveying or waiving their leasehold rights in his favor. He insists that there is
nothing illegal with his contracts with the leaseholders, since the same shall be
effected only when there are no more "legal impediments."
At bottom, the petitioner contends that, at that stage, it was premature for the
appellate court to determine the merits of his case since no evidentiary hearing
on the merits of his complaint had yet been conducted by the trial court.
The Comment/Motion of the
Respondents to Dismiss/Deny
Petitioners Plea for a Writ
of Preliminary Injunction
Was Not Premature.
Contrary to the ruling of the trial court, the motion of the respondents to
dismiss/deny the petitioners plea for a writ of preliminary injunction after the
petitioner had adduced his evidence, testimonial and documentary, and had
rested his case on the incident, was proper and timely. It bears stressing that the
petitioner had the burden to prove his right to a writ of preliminary injunction.
He may rely solely on the material allegations of his complaint or adduce
evidence in support thereof. The petitioner adduced his evidence to support his
plea for a writ of preliminary injunction against the respondents and the
defendants-tenants and rested his case on the said incident. The respondents
then had three options: (a) file a motion to deny/dismiss the motion on the
ground that the petitioner failed to discharge his burden to prove the factual and
legal basis for his plea for a writ of preliminary injunction and, if the trial court
denies his motion, for them to adduce evidence in opposition to the petitioners
plea; (b) forgo their motion and adduce testimonial and/or documentary
evidence in opposition to the petitioners plea for a writ of preliminary
injunction; or, (c) waive their right to adduce evidence and submit the incident
for consideration on the basis of the pleadings of the parties and the evidence
of the petitioner. The respondents opted not to adduce any evidence, and instead
filed a motion to deny or dismiss the petitioners plea for a writ of preliminary
injunction against them, on their claim that the petitioner failed to prove his
entitlement thereto. The trial court cannot compel the respondents to adduce
evidence in opposition to the petitioners plea if the respondents opt to waive
their right to adduce such evidence. Thus, the trial court should have resolved
the respondents motion even without the latters opposition and the
presentation of evidence thereon.
The RTC Committed a Grave
Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders
In its February 13, 1997 Order, the trial court ruled that the petitioner was
entitled to a writ of preliminary injunction against the respondents on the basis
of the material averments of the complaint. In its April 16, 1997 Order, the trial
court denied the respondents motion for reconsideration of the previous order,
on its finding that the petitioner was entitled to a writ of preliminary injunction
based on the material allegations of his complaint, the evidence on record, the
pleadings of the parties, as well as the applicable laws:
For the record, the Court denied the LACSONS COMMENT/MOTION on
the basis of the facts culled from the evidence presented, the pleadings and the
law applicable unswayed by the partisan or personal interests, public opinion or
fear of criticism (Canon 3, Rule 3.02, Code of Judicial Ethics).30
Section 3, Rule 58 of the Rules of Court, as amended, enumerates the grounds
for the issuance of a writ of preliminary injunction, thus:
(a) That the applicant is entitled to the relief demanded, and the whole or part
of such relief consists in restraining the commission or continuance of the act
or acts complained of, or in requiring the performance of an act or acts, either
for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts
complained of during the litigation would probably work injustice to the
applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting
to do, or is procuring or suffering to be done, some act or acts probably in
violation of the rights of the applicant respecting the subject of the action or
proceeding, and tending to render the judgment ineffectual.
A preliminary injunction is an extraordinary event calculated to preserve or
maintain the status quo of things ante litem and is generally availed of to prevent
actual or threatened acts, until the merits of the case can be heard. Injunction is
accepted as the strong arm of equity or a transcendent remedy.31 While
generally the grant of a writ of preliminary injunction rests on the sound
discretion of the trial court taking cognizance of the case, extreme caution must
be observed in the exercise of such discretion.32 Indeed, in Olalia v. Hizon,33 we
held:
It has been consistently held that there is no power the exercise of which is more
delicate, which requires greater caution, deliberation and sound discretion, or
more dangerous in a doubtful case, than the issuance of an injunction. It is the
strong arm of equity that should never be extended unless to cases of great
injury, where courts of law cannot afford an adequate or commensurate remedy
in damages.
Every court should remember that an injunction is a limitation upon the freedom
of action of the defendant and should not be granted lightly or precipitately. It
should be granted only when the court is fully satisfied that the law permits it
and the emergency demands it.34
The very foundation of the jurisdiction to issue writ of injunction rests in the
existence of a cause of action and in the probability of irreparable injury,
inadequacy of pecuniary compensation and the prevention of the multiplicity of
suits. Where facts are not shown to bring the case within these conditions, the
relief of injunction should be refused.35
For the court to issue a writ of preliminary injunction, the petitioner was
burdened to establish the following: (1) a right in esse or a clear and
unmistakable right to be protected; (2) a violation of that right; (3) that there is
an urgent and permanent act and urgent necessity for the writ to prevent serious
damage.36 Thus, in the absence of a clear legal right, the issuance of the
injunctive writ constitutes a grave abuse of discretion. Where the complainants
right is doubtful or disputed, injunction is not proper. Injunction is a
preservative remedy aimed at protecting substantial rights and interests. It is not
designed to protect contingent or future rights. The possibility of irreparable
damage without proof of adequate existing rights is not a ground for
injunction.37
We have reviewed the pleadings of the parties and found that, as contended by
the respondents, the petitioner failed to establish the essential requisites for the
issuance of a writ of preliminary injunction. Hence, the trial court committed a
grave abuse of its discretion amounting to excess or lack of jurisdiction in
denying the respondents comment/motion as well as their motion for
reconsideration.
First. The trial court cannot enjoin the respondents, at the instance of the
petitioner, from selling, disposing of and encumbering their property. As the
registered owners of the property, the respondents have the right to enjoy and
dispose of their property without any other limitations than those established by
law, in accordance with Article 428 of the Civil Code. The right to dispose of
the property is the power of the owner to sell, encumber, transfer, and even
destroy the property. Ownership also includes the right to recover the
possession of the property from any other person to whom the owner has not
29
transmitted such property, by the appropriate action for restitution, with the
fruits, and for indemnification for damages.38 The right of ownership of the
respondents is not, of course, absolute. It is limited by those set forth by law,
such as the agrarian reform laws. Under Article 1306 of the New Civil Code,
the respondents may enter into contracts covering their property with another
under such terms and conditions as they may deem beneficial provided they are
not contrary to law, morals, good conduct, public order or public policy.
The respondents cannot be enjoined from selling or encumbering their property
simply and merely because they had executed Deeds of Assignment in favor of
the petitioner, obliging themselves to assign and transfer their rights or interests
as agricultural farmers/laborers/sub-tenants over the landholding, and granting
the petitioner the exclusive right to buy the property subject to the occurrence
of certain conditions. The respondents were not parties to the said deeds. There
is no evidence that the respondents agreed, expressly or impliedly, to the said
deeds or to the terms and conditions set forth therein. Indeed, they assailed the
validity of the said deeds on their claim that the same were contrary to the letter
and spirit of P.D. No. 27 and Rep. Act No. 6657. The petitioner even admitted
when he testified that he did not know any of the respondents, and that he had
not met any of them before he filed his complaint in the RTC. He did not even
know that one of those whom he had impleaded as defendant, Angelica Vda. de
Lacson, was already dead.
Q: But you have not met any of these Lacsons?
A: Not yet, sir.
Q: Do you know that two (2) of the defendants are residents of the United
States?
A: I do not know, sir.
Q: You do not know also that Angela Tiotuvie (sic) Vda. de Lacson had already
been dead?
A: I am aware of that, sir.39
We are one with the Court of Appeals in its ruling that:
We cannot see our way clear on how or why injunction should lie against
petitioners. As owners of the lands being tilled by TIAMSON, et al., petitioners,
under the law, have the right to enjoy and dispose of the same. Thus, they have
the right to possess the lands, as well as the right to encumber or alienate them.
This principle of law notwithstanding, private respondent in the lower court
sought to restrain the petitioners from encumbering and/or alienating the
properties covered by TCT No. 35922-R, 35923-R and TCT No. 35925-R of
the Registry of Deeds of San Fernando, Pampanga. This cannot be allowed to
prosper since it would constitute a limitation or restriction, not otherwise
established by law on their right of ownership, more so considering that
petitioners were not even privy to the alleged transaction between private
respondent and TIAMSON, et al.40
Second. A reading the averments of the complaint will show that the petitioner
clearly has no cause of action against the respondents for the principal relief
prayed for therein, for the trial court to fix a period within which to pay to each
of the defendants-tenants the balance of the P50.00 per square meter, the
consideration under the Deeds of Assignment executed by the defendants-
tenants. The respondents are not parties or privies to the deeds of assignment.
The matter of the period for the petitioner to pay the balance of the said amount
to each of the defendants-tenants is an issue between them, the parties to the
deed.
Third. On the face of the complaint, the action of the petitioner against the
respondents and the defendants-tenants has no legal basis. Under the Deeds of
Assignment, the obligation of the petitioner to pay to each of the defendants-
tenants the balance of the purchase price was conditioned on the occurrence of
the following events: (a) the respondents agree to sell their property to the
petitioner; (b) the legal impediments to the sale of the landholding to the
petitioner no longer exist; and, (c) the petitioner decides to buy the property.
When he testified, the petitioner admitted that the legal impediments referred
to in the deeds were (a) the respondents refusal to sell their property; and, (b)
the lack of approval of the Department of Agrarian Reform:
Q : There is no specific agreement prior to the execution of those documents as
when they will pay?
A : We agreed to that, that I will pay them when there are no legal impediment,
sir.
Q : Many of the documents are unlattered (sic) and you want to convey to this
Honorable Court that prior to the execution of these documents you have those
tentative agreement for instance that the amount or the cost of the price is to be
paid when there are no legal impediment, you are using the word "legal
impediment," do you know the meaning of that?
A : When there are (sic) no more legal impediment exist, sir.
Q : Did you make how (sic) to the effect that the meaning of that phrase that
you used the unlettered defendants?
A : We have agreed to that, sir.
ATTY. OCAMPO:
May I ask, Your Honor, that the witness please answer my question not to
answer in the way he wanted it.
COURT:
Just answer the question, Mr. Tayag.
WITNESS:
Yes, Your Honor.
ATTY. OCAMPO:
Q : Did you explain to them?
A : Yes, sir.
Q : What did you tell them?
A : I explain[ed] to them, sir, that the legal impediment then especially if the
Lacsons will not agree to sell their shares to me or to us it would be hard to (sic)
me to pay them in full. And those covered by DAR. I explain[ed] to them and
it was clearly stated in the title that there is [a] prohibited period of time before
you can sell the property. I explained every detail to them.41
It is only upon the occurrence of the foregoing conditions that the petitioner
would be obliged to pay to the defendants-tenants the balance of the P50.00 per
square meter under the deeds of assignment. Thus:
2. That in case the ASSIGNOR and LANDOWNER will mutually agree to sell
the said lot to the ASSIGNEE, who is given an exclusive and absolute right to
buy the lot, the ASSIGNOR shall receive the sum of FIFTY PESOS (P50.00)
per square meter as consideration of the total area actually tilled and possessed
by the ASSIGNOR, less whatever amount received by the ASSIGNOR
including commissions, taxes and all allowable deductions relative to the sale
of the subject properties.
3. That this exclusive and absolute right given to the ASSIGNEE shall be
exercised only when no legal impediments exist to the lot to effect the smooth
transfer of lawful ownership of the lot/property in the name of the ASSIGNEE;
4. That the ASSIGNOR will remain in peaceful possession over the said
property and shall enjoy the fruits/earnings and/or harvest of the said lot until
such time that full payment of the agreed purchase price had been made by the
ASSIGNEE.42
There is no showing in the petitioners complaint that the respondents had
agreed to sell their property, and that the legal impediments to the agreement
no longer existed. The petitioner and the defendants-tenants had yet to submit
the Deeds of Assignment to the Department of Agrarian Reform which, in turn,
had to act on and approve or disapprove the same. In fact, as alleged by the
petitioner in his complaint, he was yet to meet with the defendants-tenants to
discuss the implementation of the deeds of assignment. Unless and until the
Department of Agrarian Reform approved the said deeds, if at all, the petitioner
had no right to enforce the same in a court of law by asking the trial court to fix
30
a period within which to pay the balance of the purchase price and praying for
injunctive relief.
We do not agree with the contention of the petitioner that the deeds of
assignment executed by the defendants-tenants are perfected option
contracts.43 An option is 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. 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. It imposes no binding obligation on the person
holding the option, aside from the consideration for the offer. Until accepted, it
is not, properly speaking, treated as a contract.44 The second party gets in
praesenti, not lands, not an agreement that he shall have the lands, but the right
to call for and receive lands if he elects.45 An option contract is a separate and
distinct contract from which the parties may enter into upon the conjunction of
the option.46
In this case, the defendants-tenants-subtenants, under the deeds of assignment,
granted to the petitioner not only an option but the exclusive right to buy the
landholding. But the grantors were merely the defendants-tenants, and not the
respondents, the registered owners of the property. Not being the registered
owners of the property, the defendants-tenants could not legally grant to the
petitioner the option, much less the "exclusive right" to buy the property. As the
Latin saying goes, "NEMO DAT QUOD NON HABET."
Fourth. The petitioner impleaded the respondents as parties-defendants solely
on his allegation that the latter induced or are inducing the defendants-tenants
to violate the deeds of assignment, contrary to the provisions of Article 1314 of
the New Civil Code which reads:
Art. 1314. Any third person who induces another to violate his contract shall be
liable for damages to the other contracting party.
In So Ping Bun v. Court of Appeals,47 we held that for the said law to apply, the
pleader is burdened to prove the following: (1) the existence of a valid contract;
(2) knowledge by the third person of the existence of the contract; and (3)
interference by the third person in the contractual relation without legal
justification.
Where there was no malice in the interference of a contract, and the impulse
behind ones conduct lies in a proper business interest rather than in wrongful
motives, a party cannot be a malicious interferer. Where the alleged interferer
is financially interested, and such interest motivates his conduct, it cannot be
said that he is an officious or malicious intermeddler.48
In fine, one who is not a party to a contract and who interferes thereon is not
necessarily an officious or malicious intermeddler. The only evidence adduced
by the petitioner to prove his claim is the letter from the defendants-tenants
informing him that they had decided to sell their rights and interests over the
landholding to the respondents, instead of honoring their obligation under the
deeds of assignment because, according to them, the petitioner harassed those
tenants who did not want to execute deeds of assignment in his favor, and
because the said defendants-tenants did not want to have any problem with the
respondents who could cause their eviction for executing with the petitioner the
deeds of assignment as the said deeds are in violation of P.D. No. 27 and Rep.
Act No. 6657.49 The defendants-tenants did not allege therein that the
respondents induced them to breach their contracts with the petitioner. The
petitioner himself admitted when he testified that his claim that the respondents
induced the defendants-assignees to violate contracts with him was based
merely on what "he heard," thus:
Q: Going to your last statement that the Lacsons induces (sic) the defendants,
did you see that the Lacsons were inducing the defendants?
A: I heard and sometime in [the] first week of August, sir, they went in the
barrio (sic). As a matter of fact, that is the reason why they sent me letter that
they will sell it to the Lacsons.
Q: Incidentally, do you knew (sic) these Lacsons individually?
A: No, sir, it was only Mr. Espinosa who I knew (sic) personally, the alleged
negotiator and has the authority to sell the property.50
Even if the respondents received an offer from the defendants-tenants to assign
and transfer their rights and interests on the landholding, the respondents cannot
be enjoined from entertaining the said offer, or even negotiating with the
defendants-tenants. The respondents could not even be expected to warn the
defendants-tenants for executing the said deeds in violation of P.D. No. 27 and
Rep. Act No. 6657. Under Section 22 of the latter law, beneficiaries under P.D.
No. 27 who have culpably sold, disposed of, or abandoned their land, are
disqualified from becoming beneficiaries.
From the pleadings of the petitioner, it is quite evident that his purpose in having
the defendants-tenants execute the Deeds of Assignment in his favor was to
acquire the landholding without any tenants thereon, in the event that the
respondents agreed to sell the property to him. The petitioner knew that under
Section 11 of Rep. Act No. 3844, if the respondents agreed to sell the property,
the defendants-tenants shall have preferential right to buy the same under
reasonable terms and conditions:
SECTION 11. Lessees Right of Pre-emption. In case the agricultural lessor
desires to sell the landholding, the agricultural lessee shall have the preferential
right to buy the same under reasonable terms and conditions: Provided, That
the entire landholding offered for sale must be pre-empted by the Land
Authority if the landowner so desires, unless the majority of the lessees object
to such acquisition: Provided, further, That where there are two or more
agricultural lessees, each shall be entitled to said preferential right only to the
extent of the area actually cultivated by him. 51
Under Section 12 of the law, if the property was sold to a third person without
the knowledge of the tenants thereon, the latter shall have the right to redeem
the same at a reasonable price and consideration. By assigning their rights and
interests on the landholding under the deeds of assignment in favor of the
petitioner, the defendants-tenants thereby waived, in favor of the petitioner,
who is not a beneficiary under Section 22 of Rep. Act No. 6657, their rights of
preemption or redemption under Rep. Act No. 3844. The defendants-tenants
would then have to vacate the property in favor of the petitioner upon full
payment of the purchase price. Instead of acquiring ownership of the portions
of the landholding respectively tilled by them, the defendants-tenants would
again become landless for a measly sum of P50.00 per square meter. The
petitioners scheme is subversive, not only of public policy, but also of the letter
and spirit of the agrarian laws. That the scheme of the petitioner had yet to take
effect in the future or ten years hence is not a justification. The respondents may
well argue that the agrarian laws had been violated by the defendants-tenants
and the petitioner by the mere execution of the deeds of assignment. In fact, the
petitioner has implemented the deeds by paying the defendants-tenants amounts
of money and even sought their immediate implementation by setting a meeting
with the defendants-tenants. In fine, the petitioner would not wait for ten years
to evict the defendants-tenants. For him, time is of the essence.
The Appellate Court Erred
In Permanently Enjoining
The Regional Trial Court
From Continuing with the
Proceedings in Civil Case No. 10910.
We agree with the petitioners contention that the appellate court erred when it
permanently enjoined the RTC from continuing with the proceedings in Civil
Case No. 10910. The only issue before the appellate court was whether or not
the trial court committed a grave abuse of discretion amounting to excess or
lack of jurisdiction in denying the respondents motion to deny or dismiss the
petitioners plea for a writ of preliminary injunction. Not one of the parties
prayed to permanently enjoin the trial court from further proceeding with Civil
Case No. 10910 or to dismiss the complaint. It bears stressing that the petitioner
may still amend his complaint, and the respondents and the defendants-tenants
may file motions to dismiss the complaint. By permanently enjoining the trial
court from proceeding with Civil Case No. 10910, the appellate court acted
arbitrarily and effectively dismissed the complaint motu proprio, including the
counterclaims of the respondents and that of the defendants-tenants. The
defendants-tenants were even deprived of their right to prove their special and
affirmative defenses.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The Decision of the Court of Appeals nullifying the February 13,
1996 and April 16, 1997 Orders of the RTC is AFFIRMED. The writ of
injunction issued by the Court of Appeals permanently enjoining the RTC from
31
further proceeding with Civil Case No. 10910 is hereby LIFTED and SET
ASIDE. The Regional Trial Court of Mabalacat, Pampanga, Branch 44, is
ORDERED to continue with the proceedings in Civil Case No. 10910 as
provided for by the Rules of Court, as amended.

SO ORDERED.

32
G.R. No. 111238 January 25, 1995
ADELFA PROPERTIES, INC., petitioner,
vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAEDA and
SALUD JIMENEZ, respondents.
REGALADO, J.:
The main issues presented for resolution in this petition for review
on certiorari of the judgment of respondent Court of appeals, dated April 6,
1993, in CA-G.R. CV No. 347671 are (1) whether of not the "Exclusive Option
to Purchase" executed between petitioner Adelfa Properties, Inc. and private
respondents Rosario Jimenez-Castaeda and Salud Jimenez is an option
contract; and (2) whether or not there was a valid suspension of payment of the
purchase price by said petitioner, and the legal effects thereof on the contractual
relations of the parties.
The records disclose the following antecedent facts which culminated in the
present appellate review, to wit:
1. Herein private respondents and their brothers, Jose and Dominador Jimenez,
were the registered co-owners of a parcel of land consisting of 17,710 square
meters, covered by Transfer Certificate of Title (TCT) No. 309773,2situated in
Barrio Culasi, Las Pias, Metro Manila.
2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting
of one-half of said parcel of land, specifically the eastern portion thereof, to
herein petitioner pursuant to a "Kasulatan sa Bilihan ng Lupa."3Subsequently,
a "Confirmatory Extrajudicial Partition Agreement"4 was executed by the
Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855
square meters was adjudicated to Jose and Dominador Jimenez, while the
western portion was allocated to herein private respondents.
3. Thereafter, herein petitioner expressed interest in buying the western portion
of the property from private respondents. Accordingly, on November 25, 1989,
an "Exclusive Option to Purchase"5 was executed between petitioner and
private respondents, under the following terms and conditions:
1. The selling price of said 8,655 square meters of the subject property is TWO
MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED
FIFTY PESOS ONLY (P2,856,150.00)
2. The sum of P50,000.00 which we received from ADELFA PROPERTIES,
INC. as an option money shall be credited as partial payment upon the
consummation of the sale and the balance in the sum of TWO MILLION
EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS
(P2,806,150.00) to be paid on or before November 30, 1989;
3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said
balance in accordance with paragraph 2 hereof, this option shall be cancelled
and 50% of the option money to be forfeited in our favor and we will refund the
remaining 50% of said money upon the sale of said property to a third party;
4. All expenses including the corresponding capital gains tax, cost of
documentary stamps are for the account of the VENDORS, and expenses for
the registration of the deed of sale in the Registry of Deeds are for the account
of ADELFA PROPERTIES, INC.
Considering, however, that the owner's copy of the certificate of title issued to
respondent Salud Jimenez had been lost, a petition for the re-issuance of a new
owner's copy of said certificate of title was filed in court through Atty. Bayani
L. Bernardo, who acted as private respondents' counsel. Eventually, a new
owner's copy of the certificate of title was issued but it remained in the
possession of Atty. Bernardo until he turned it over to petitioner Adelfa
Properties, Inc.
4. Before petitioner could make payment, it received summons6 on November
29, 1989, together with a copy of a complaint filed by the nephews and nieces
of private respondents against the latter, Jose and Dominador Jimenez, and
herein petitioner in the Regional Trial Court of Makati, docketed as Civil Case
No. 89-5541, for annulment of the deed of sale in favor of Household
Corporation and recovery of ownership of the property covered by TCT No.
309773.7
5. As a consequence, in a letter dated November 29, 1989, petitioner informed
private respondents that it would hold payment of the full purchase price and
suggested that private respondents settle the case with their nephews and nieces,
adding that ". . . if possible, although November 30, 1989 is a holiday, we will
be waiting for you and said plaintiffs at our office up to 7:00 p.m."8 Another
letter of the same tenor and of even date was sent by petitioner to Jose and
Dominador Jimenez.9 Respondent Salud Jimenez refused to heed the suggestion
of petitioner and attributed the suspension of payment of the purchase price to
"lack of word of honor."
6. On December 7, 1989, petitioner caused to be annotated on the title of the lot
its option contract with private respondents, and its contract of sale with Jose
and Dominador Jimenez, as Entry No. 1437-4 and entry No. 1438-4,
respectively.
7. On December 14, 1989, private respondents sent Francisca Jimenez to see
Atty. Bernardo, in his capacity as petitioner's counsel, and to inform the latter
that they were cancelling the transaction. In turn, Atty. Bernardo offered to pay
the purchase price provided that P500,000.00 be deducted therefrom for the
settlement of the civil case. This was rejected by private respondents. On
December 22, 1989, Atty. Bernardo wrote private respondents on the same
matter but this time reducing the amount from P500,000.00 to P300,000.00, and
this was also rejected by the latter.
8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil
Case No. 89-5541. Thus, on February 28, 1990, petitioner caused to be
annotated anew on TCT No. 309773 the exclusive option to purchase as Entry
No. 4442-4.
9. On the same day, February 28, 1990, private respondents executed a Deed of
Conditional Sale 10 in favor of Emylene Chua over the same parcel of land for
P3,029,250, of which P1,500,000.00 was paid to private respondents on said
date, with the balance to be paid upon the transfer of title to the specified one-
half portion.
10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the
latter that in view of the dismissal of the case against them, petitioner was
willing to pay the purchase price, and he requested that the corresponding deed
of absolute sale be executed. 11 This was ignored by private respondents.
11. On July 27, 1990, private respondents' counsel sent a letter to petitioner
enclosing therein a check for P25,000.00 representing the refund of fifty percent
of the option money paid under the exclusive option to purchase. Private
respondents then requested petitioner to return the owner's duplicate copy of
the certificate of title of respondent Salud Jimenez. 12 Petitioner failed to
surrender the certificate of title, hence private respondents filed Civil Case No.
7532 in the Regional Trial Court of Pasay City, Branch 113, for annulment of
contract with damages, praying, among others, that the exclusive option to
purchase be declared null and void; that defendant, herein petitioner, be ordered
to return the owner's duplicate certificate of title; and that the annotation of the
option contract on TCT No. 309773 be cancelled. Emylene Chua, the
subsequent purchaser of the lot, filed a complaint in intervention.
12. The trial court rendered judgment 13 therein on September 5, 1991 holding
that the agreement entered into by the parties was merely an option contract,
and declaring that the suspension of payment by herein petitioner constituted a
counter-offer which, therefore, was tantamount to a rejection of the option. It
likewise ruled that herein petitioner could not validly suspend payment in favor
of private respondents on the ground that the vindicatory action filed by the
latter's kin did not involve the western portion of the land covered by the
contract between petitioner and private respondents, but the eastern portion
thereof which was the subject of the sale between petitioner and the brothers
Jose and Dominador Jimenez. The trial court then directed the cancellation of
the exclusive option to purchase, declared the sale to intervenor Emylene Chua
as valid and binding, and ordered petitioner to pay damages and attorney's fees
to private respondents, with costs.
13. On appeal, respondent Court of appeals affirmed in toto the decision of the
court a quo and held that the failure of petitioner to pay the purchase price
within the period agreed upon was tantamount to an election by petitioner not
to buy the property; that the suspension of payment constituted an imposition
33
of a condition which was actually a counter-offer amounting to a rejection of
the option; and that Article 1590 of the Civil Code on suspension of payments
applies only to a contract of sale or a contract to sell, but not to an option
contract which it opined was the nature of the document subject of the case at
bar. Said appellate court similarly upheld the validity of the deed of conditional
sale executed by private respondents in favor of intervenor Emylene Chua.
In the present petition, the following assignment of errors are raised:
1. Respondent court of appeals acted with grave abuse of discretion in making
its finding that the agreement entered into by petitioner and private respondents
was strictly an option contract;
2. Granting arguendo that the agreement was an option contract, respondent
court of Appeals acted with grave abuse of discretion in grievously failing to
consider that while the option period had not lapsed, private respondents could
not unilaterally and prematurely terminate the option period;
3. Respondent Court of Appeals acted with grave abuse of discretion in failing
to appreciate fully the attendant facts and circumstances when it made the
conclusion of law that Article 1590 does not apply; and
4. Respondent Court of Appeals acted with grave abuse of discretion in
conforming with the sale in favor of appellee Ma. Emylene Chua and the award
of damages and attorney's fees which are not only excessive, but also without
in fact and in law. 14
An analysis of the facts obtaining in this case, as well as the evidence presented
by the parties, irresistibly leads to the conclusion that the agreement between
the parties is a contract to sell, and not an option contract or a contract of sale.
I standing alone. 19 Moreover, judging from the subsequent acts of the parties
1. In view of the extended disquisition thereon by respondent court, it would be
worthwhile at this juncture to briefly discourse on the rationale behind our
treatment of the alleged option contract as a contract to sell, rather than a
contract of sale. The distinction between the two is important for in contract of
sale, the title passes to the vendee upon the delivery of the thing sold; whereas
in a contract to sell, by agreement the ownership is reserved in the vendor and
is not to pass until the full payment of the price. In a contract of sale, the vendor
has lost and cannot recover ownership until and unless the contract is resolved
or rescinded; whereas in a contract to sell, title is retained by the vendor until
the full payment of the price, such payment being a positive suspensive
condition and failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective. Thus, a deed
of sale is considered absolute in nature where there is neither a stipulation in
the deed that title to the property sold is reserved in the seller until the full
payment of the price, nor one giving the vendor the right to unilaterally resolve
the contract the moment the buyer fails to pay within a fixed period. 15
There are two features which convince us that the parties never intended to
transfer ownership to petitioner except upon the full payment of the purchase
price. Firstly, the exclusive option to purchase, although it provided for
automatic rescission of the contract and partial forfeiture of the amount already
paid in case of default, does not mention that petitioner is obliged to return
possession or ownership of the property as a consequence of non-payment.
There is no stipulation anent reversion or reconveyance of the property to herein
private respondents in the event that petitioner does not comply with its
obligation. With the absence of such a stipulation, although there is a provision
on the remedies available to the parties in case of breach, it may legally be
inferred that the parties never intended to transfer ownership to the petitioner to
completion of payment of the purchase price.
In effect, there was an implied agreement that ownership shall not pass to the
purchaser until he had fully paid the price. Article 1478 of the civil code does
not require that such a stipulation be expressly made. Consequently, an implied
stipulation to that effect is considered valid and, therefore, binding and
enforceable between the parties. It should be noted that under the law and
jurisprudence, a contract which contains this kind of stipulation is considered
a contract to sell.
Moreover, that the parties really intended to execute a contract to sell, and not
a contract of sale, is bolstered by the fact that the deed of absolute sale would
have been issued only upon the payment of the balance of the purchase price,
as may be gleaned from petitioner's letter dated April 16, 1990 16 wherein it
informed private respondents that it "is now ready and willing to pay you
simultaneously with the execution of the corresponding deed of absolute sale."
Secondly, it has not been shown there was delivery of the property, actual or
constructive, made to herein petitioner. The exclusive option to purchase is not
contained in a public instrument the execution of which would have been
considered equivalent to delivery. 17 Neither did petitioner take actual, physical
possession of the property at any given time. It is true that after the
reconstitution of private respondents' certificate of title, it remained in the
possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter
delivered the same to herein petitioner. Normally, under the law, such
possession by the vendee is to be understood as a delivery.18 However, private
respondents explained that there was really no intention on their part to deliver
the title to herein petitioner with the purpose of transferring ownership to it.
They claim that Atty. Bernardo had possession of the title only because he was
their counsel in the petition for reconstitution. We have no reason not to believe
this explanation of private respondents, aside from the fact that such contention
was never refuted or contradicted by petitioner.
2. Irrefragably, the controverted document should legally be considered as a
perfected contract to sell. On this particular point, therefore, we reject the
position and ratiocination of respondent Court of Appeals which, while
awarding the correct relief to private respondents, categorized the instrument as
"strictly an option contract."
The important task in contract interpretation is always the ascertainment of the
intention of the contracting parties and that task is, of course, to be discharged
by looking to the words they used to project that intention in their contract, all
the words not just a particular word or two, and words in context not words
which will hereinafter be discussed, it is undeniable that the intention of the
parties was to enter into a contract to sell. 20 In addition, the title of a contract
does not necessarily determine its true nature. 21 Hence, the fact that the
document under discussion is entitled "Exclusive Option to Purchase" is not
controlling where the text thereof shows that it is a contract to sell.
An option, as used in the law on sales, is a continuing offer or contract by which
the owner stipulates with another that the latter shall have the right to buy the
property at a fixed price within a certain time, or under, or in compliance with,
certain terms and conditions, or which gives to the owner of the property the
right to sell or demand a sale. It is also sometimes called an "unaccepted offer."
An option is not of itself a purchase, but merely secures the privilege to buy. 22 It
is not a sale of property but a sale of property but a sale of the right to
purchase. 23 It is simply a contract by which the owner of property agrees with
another person that he shall have the right to buy his property at a fixed price
within a certain time. He does not sell his land; he does not then agree to sell it;
but he does sell something, that it is, the right or privilege to buy at the election
or option of the other party. 24 Its distinguishing characteristic is that it imposes
no binding obligation on the person holding the option, aside from the
consideration for the offer. Until acceptance, it is not, properly speaking, a
contract, and does not vest, transfer, or agree to transfer, any title to, or any
interest or right in the subject matter, but is merely a contract by which the
owner of property gives the optionee the right or privilege of accepting the offer
and buying the property on certain terms. 25
On the other hand, a contract, like a contract to sell, involves a meeting of minds
two persons whereby one binds himself, with respect to the other, to give
something or to render some service. 26 Contracts, in general, are perfected by
mere consent, 27 which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract.
The offer must be certain and the acceptance absolute. 28
The distinction between an "option" and a contract of sale is that an option is
an unaccepted offer. It states the terms and conditions on which the owner is
willing to sell the land, if the holder elects to accept them within the time
limited. If the holder does so elect, he must give notice to the other party, and
the accepted offer thereupon becomes a valid and binding contract. If an
acceptance is not made within the time fixed, the owner is no longer bound by
his offer, and the option is at an end. A contract of sale, on the other hand, fixes
definitely the relative rights and obligations of both parties at the time of its
execution. The offer and the acceptance are concurrent, since the minds of the
contracting parties meet in the terms of the agreement. 29
34
A perusal of the contract in this case, as well as the oral and documentary
evidence presented by the parties, readily shows that there is indeed a
concurrence of petitioner's offer to buy and private respondents' acceptance
thereof. The rule is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly made and must be
evidenced by some acts or conduct communicated to the offeror, it may be made
either in a formal or an informal manner, and may be shown by acts, conduct,
or words of the accepting party that clearly manifest a present intention or
determination to accept the offer to buy or sell. Thus, acceptance may be shown
by the acts, conduct, or words of a party recognizing the existence of the
contract of sale. 30
The records also show that private respondents accepted the offer of petitioner
to buy their property under the terms of their contract. At the time petitioner
made its offer, private respondents suggested that their transfer certificate of
title be first reconstituted, to which petitioner agreed. As a matter of fact, it was
petitioner's counsel, Atty. Bayani L. Bernardo, who assisted private respondents
in filing a petition for reconstitution. After the title was reconstituted, the parties
agreed that petitioner would pay either in cash or manager's check the amount
of P2,856,150.00 for the lot. Petitioner was supposed to pay the same on
November 25, 1989, but it later offered to make a down payment of P50,000.00,
with the balance of P2,806,150.00 to be paid on or before November 30, 1989.
Private respondents agreed to the counter-offer made by petitioner. 31 As a
result, the so-called exclusive option to purchase was prepared by petitioner and
was subsequently signed by private respondents, thereby creating a perfected
contract to sell between them.
It cannot be gainsaid that the offer to buy a specific piece of land was definite
and certain, while the acceptance thereof was absolute and without any
condition or qualification. The agreement as to the object, the price of the
property, and the terms of payment was clear and well-defined. No other
significance could be given to such acts that than they were meant to finalize
and perfect the transaction. The parties even went beyond the basic
requirements of the law by stipulating that "all expenses including the
corresponding capital gains tax, cost of documentary stamps are for the account
of the vendors, and expenses for the registration of the deed of sale in the
Registry of Deeds are for the account of Adelfa properties, Inc." Hence, there
was nothing left to be done except the performance of the respective obligations
of the parties.
We do not subscribe to private respondents' submission, which was upheld by
both the trial court and respondent court of appeals, that the offer of petitioner
to deduct P500,000.00, (later reduced to P300,000.00) from the purchase price
for the settlement of the civil case was tantamount to a counter-offer. It must be
stressed that there already existed a perfected contract between the parties at the
time the alleged counter-offer was made. Thus, any new offer by a party
becomes binding only when it is accepted by the other. In the case of private
respondents, they actually refused to concur in said offer of petitioner, by reason
of which the original terms of the contract continued to be enforceable.
At any rate, the same cannot be considered a counter-offer for the simple reason
that petitioner's sole purpose was to settle the civil case in order that it could
already comply with its obligation. In fact, it was even indicative of a desire by
petitioner to immediately comply therewith, except that it was being prevented
from doing so because of the filing of the civil case which, it believed in good
faith, rendered compliance improbable at that time. In addition, no inference
can be drawn from that suggestion given by petitioner that it was totally
abandoning the original contract.
More importantly, it will be noted that the failure of petitioner to pay the balance
of the purchase price within the agreed period was attributed by private
respondents to "lack of word of honor" on the part of the former. The reason of
"lack of word of honor" is to us a clear indication that private respondents
considered petitioner already bound by its obligation to pay the balance of the
consideration. In effect, private respondents were demanding or exacting
fulfillment of the obligation from herein petitioner. with the arrival of the period
agreed upon by the parties, petitioner was supposed to comply with the
obligation incumbent upon it to perform, not merely to exercise an option or a
right to buy the property.
The obligation of petitioner on November 30, 1993 consisted of an obligation
to give something, that is, the payment of the purchase price. The contract did
not simply give petitioner the discretion to pay for the property. 32 It will be
noted that there is nothing in the said contract to show that petitioner was merely
given a certain period within which to exercise its privilege to buy. The agreed
period was intended to give time to herein petitioner within which to fulfill and
comply with its obligation, that is, to pay the balance of the purchase price. No
evidence was presented by private respondents to prove otherwise.
The test in determining whether a contract is a "contract of sale or purchase" or
a mere "option" is whether or not the agreement could be specifically
enforced. 33 There is no doubt that the obligation of petitioner to pay the
purchase price is specific, definite and certain, and consequently binding and
enforceable. Had private respondents chosen to enforce the contract, they could
have specifically compelled petitioner to pay the balance of P2,806,150.00.
This is distinctly made manifest in the contract itself as an integral stipulation,
compliance with which could legally and definitely be demanded from
petitioner as a consequence.
This is not a case where no right is as yet created nor an obligation declared, as
where something further remains to be done before the buyer and seller obligate
themselves. 34 An agreement is only an "option" when no obligation rests on the
party to make any payment except such as may be agreed on between the parties
as consideration to support the option until he has made up his mind within the
time specified. 35 An option, and not a contract to purchase, is effected by an
agreement to sell real estate for payments to be made within specified time and
providing forfeiture of money paid upon failure to make payment, where the
purchaser does not agree to purchase, to make payment, or to bind himself in
any way other than the forfeiture of the payments made. 36 As hereinbefore
discussed, this is not the situation obtaining in the case at bar.
While there is jurisprudence to the effect that a contract which provides that the
initial payment shall be totally forfeited in case of default in payment is to be
considered as an option contract, 37 still we are not inclined to conform with the
findings of respondent court and the court a quo that the contract executed
between the parties is an option contract, for the reason that the parties were
already contemplating the payment of the balance of the purchase price, and
were not merely quoting an agreed value for the property. The term "balance,"
connotes a remainder or something remaining from the original total sum
already agreed upon.
In other words, the alleged option money of P50,000.00 was actually earnest
money which was intended to form part of the purchase price. The amount of
P50,000.00 was not distinct from the cause or consideration for the sale of the
property, but was itself a part thereof. It is a statutory rule that whenever earnest
money is given in a contract of sale, it shall be considered as part of the price
and as proof of the perfection of the contract. 38 It constitutes an advance
payment and must, therefore, be deducted from the total price. Also, earnest
money is given by the buyer to the seller to bind the bargain.
There are clear distinctions between earnest money and option money, viz.: (a)
earnest money is part of the purchase price, while option money ids the money
given as a distinct consideration for an option contract; (b) earnest money is
given only where there is already a sale, while option money applies to a sale
not yet perfected; and (c) when earnest money is given, the buyer is bound to
pay the balance, while when the would-be buyer gives option money, he is not
required to buy. 39
The aforequoted characteristics of earnest money are apparent in the so-called
option contract under review, even though it was called "option money" by the
parties. In addition, private respondents failed to show that the payment of the
balance of the purchase price was only a condition precedent to the acceptance
of the offer or to the exercise of the right to buy. On the contrary, it has been
sufficiently established that such payment was but an element of the
performance of petitioner's obligation under the contract to sell. 40
II
1. This brings us to the second issue as to whether or not there was valid
suspension of payment of the purchase price by petitioner and the legal
consequences thereof. To justify its failure to pay the purchase price within the
agreed period, petitioner invokes Article 1590 of the civil Code which provides:
Art. 1590. Should the vendee be disturbed in the possession or ownership of the
thing acquired, or should he have reasonable grounds to fear such disturbance,
by a vindicatory action or a foreclosure of mortgage, he may suspend the
payment of the price until the vendor has caused the disturbance or danger to
35
cease, unless the latter gives security for the return of the price in a proper case,
or it has been stipulated that, notwithstanding any such contingency, the vendee
shall be bound to make the payment. A mere act of trespass shall not authorize
the suspension of the payment of the price.
Respondent court refused to apply the aforequoted provision of law on the
erroneous assumption that the true agreement between the parties was a contract
of option. As we have hereinbefore discussed, it was not an option contract but
a perfected contract to sell. Verily, therefore, Article 1590 would properly
apply.
Both lower courts, however, are in accord that since Civil Case No. 89-5541
filed against the parties herein involved only the eastern half of the land subject
of the deed of sale between petitioner and the Jimenez brothers, it did not,
therefore, have any adverse effect on private respondents' title and ownership
over the western half of the land which is covered by the contract subject of the
present case. We have gone over the complaint for recovery of ownership filed
in said case 41 and we are not persuaded by the factual findings made by said
courts. At a glance, it is easily discernible that, although the complaint prayed
for the annulment only of the contract of sale executed between petitioner and
the Jimenez brothers, the same likewise prayed for the recovery of therein
plaintiffs' share in that parcel of land specifically covered by TCT No. 309773.
In other words, the plaintiffs therein were claiming to be co-owners of the entire
parcel of land described in TCT No. 309773, and not only of a portion thereof
nor, as incorrectly interpreted by the lower courts, did their claim pertain
exclusively to the eastern half adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of the
balance of the purchase price by reason of the aforesaid vindicatory action filed
against it. The assurance made by private respondents that petitioner did not
have to worry about the case because it was pure and simple harassment 42 is
not the kind of guaranty contemplated under the exceptive clause in Article
1590 wherein the vendor is bound to make payment even with the existence of
a vindicatory action if the vendee should give a security for the return of the
price.
2. Be that as it may, and the validity of the suspension of payment
notwithstanding, we find and hold that private respondents may no longer be
compelled to sell and deliver the subject property to petitioner for two reasons,
that is, petitioner's failure to duly effect the consignation of the purchase price
after the disturbance had ceased; and, secondarily, the fact that the contract to
sell had been validly rescinded by private respondents.
The records of this case reveal that as early as February 28, 1990 when
petitioner caused its exclusive option to be annotated anew on the certificate of
title, it already knew of the dismissal of civil Case No. 89-5541. However, it
was only on April 16, 1990 that petitioner, through its counsel, wrote private
respondents expressing its willingness to pay the balance of the purchase price
upon the execution of the corresponding deed of absolute sale. At most, that
was merely a notice to pay. There was no proper tender of payment nor
consignation in this case as required by law.
seasonably make payment, as in fact it has deposit the money with the trial court
when this case was originally filed therein.
By reason of petitioner's failure to comply with its obligation, private
respondents elected to resort to and did announce the rescission of the contract
through its letter to petitioner dated July 27, 1990. That written notice of
rescission is deemed sufficient under the circumstances. Article 1592 of the
Civil Code which requires rescission either by judicial action or notarial act is
not applicable to a contract to sell. 48 Furthermore, judicial action for rescission
of a contract is not necessary where the contract provides for automatic
rescission in case of breach,49 as in the contract involved in the present
controversy.
We are not unaware of the ruling in University of the Philippines vs. De los
Angeles, etc. 50 that the right to rescind is not absolute, being ever subject to
scrutiny and review by the proper court. It is our considered view, however, that
this rule applies to a situation where the extrajudicial rescission is contested by
the defaulting party. In other words, resolution of reciprocal contracts may be
made extrajudicially unless successfully impugned in court. If the debtor
impugns the declaration, it shall be subject to judicial
determination51 otherwise, if said party does not oppose it, the extrajudicial
rescission shall have legal effect. 52
In the case at bar, it has been shown that although petitioner was duly furnished
and did receive a written notice of rescission which specified the grounds
therefore, it failed to reply thereto or protest against it. Its silence thereon
suggests an admission of the veracity and validity of private respondents'
claim. 53 Furthermore, the initiative of instituting suit was transferred from the
rescinder to the defaulter by virtue of the automatic rescission clause in the
contract. 54 But then, the records bear out the fact that aside from the
lackadaisical manner with which petitioner treated private respondents' latter of
cancellation, it utterly failed to seriously seek redress from the court for the
enforcement of its alleged rights under the contract. If private respondents had
not taken the initiative of filing Civil Case No. 7532, evidently petitioner had
no intention to take any legal action to compel specific performance from the
former. By such cavalier disregard, it has been effectively estopped from
seeking the affirmative relief it now desires but which it had theretofore
disdained.
WHEREFORE, on the foregoing modificatory premises, and considering that
the same result has been reached by respondent Court of Appeals with respect
to the relief awarded to private respondents by the court a quo which we find to
be correct, its assailed judgment in CA-G.R. CV No. 34767 is hereby
AFFIRMED.
SO ORDERED.

The mere sending of a letter by the vendee expressing the intention to

pay, without the accompanying payment, is not considered a valid tender of
payment. 43 Besides, a mere tender of payment is not sufficient to compel
private respondents to deliver the property and execute the deed of absolute
sale. It is consignation which is essential in order to extinguish petitioner's
obligation to pay the balance of the purchase price. 44 The rule is different in
case of an option contract 45 or in legal redemption or in a sale with right to
repurchase, 46 wherein consignation is not necessary because these cases
involve an exercise of a right or privilege (to buy, redeem or repurchase) rather
than the discharge of an obligation, hence tender of payment would be sufficient
to preserve the right or privilege. This is because the provisions on consignation
are not applicable when there is no obligation to pay. 47 A contract to sell, as in
the case before us, involves the performance of an obligation, not merely the
exercise of a privilege of a right. consequently, performance or payment may
be effected not by tender of payment alone but by both tender and consignation.

Furthermore, petitioner no longer had the right to suspend payment after the
disturbance ceased with the dismissal of the civil case filed against it.
Necessarily, therefore, its obligation to pay the balance again arose and resumed
after it received notice of such dismissal. Unfortunately, petitioner failed to

36
G.R. No. 97332 October 10, 1991 That I am willing to have this contract to sell inscribed on my aforesaid title as
an encumbrance upon the property covered thereby, upon payment of the
SPOUSES JULIO D. VILLAMOR AND MARINA corresponding fees; and
VILLAMOR, petitioners,
vs. That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept,
THE HON. COURT OF APPEALS AND SPOUSES MACARIA the above provisions of this Deed of Option.
LABINGISA REYES AND ROBERTO REYES,respondents.
IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila,
Tranquilino F. Meris for petitioners. Philippines, by all the persons concerned, this 11th day of November, 1971.
Agripino G. Morga for private respondents.
JULIO VILLAMOR MACARIA LABINGISA

With My Conformity:

MEDIALDEA, J.: MARINA VILLAMOR ROBERTO REYES

This is a petition for review on certiorari of the decision of the Court of Appeals Signed in the Presence Of:
in CA-G.R. No. 24176 entitled, "Spouses Julio Villamor and Marina Villamor,
Plaintiffs-Appellees, versus Spouses Macaria Labing-isa Reyes and Roberto MARIANO Z. SUNIGA
Reyes, Defendants-Appellants," which reversed the decision of the Regional ROSALINDA S. EUGENIO
Trial Court (Branch 121) at Caloocan City in Civil Case No. C-12942.
ACKNOWLEDGMENT
The facts of the case are as follows:
REPUBLIC OF THE PHILIPPINES)
Macaria Labingisa Reyes was the owner of a 600-square meter lot located at CITY OF MANILA ) S.S.
Baesa, Caloocan City, as evidenced by Transfer Certificate of Title No. (18431)
At the City of Manila, on the 11th day of November, 1971, personally appeared
18938, of the Register of Deeds of Rizal.
before me Roberto Reyes, Macaria Labingisa, Julio Villamor and Marina
In July 1971, Macaria sold a portion of 300 square meters of the lot to the Ventura-Villamor, known to me as the same persons who executed the
Spouses Julio and Marina and Villamor for the total amount of P21,000.00. foregoing Deed of Option, which consists of two (2) pages including the page
Earlier, Macaria borrowed P2,000.00 from the spouses which amount was whereon this acknowledgement is written, and signed at the left margin of the
deducted from the total purchase price of the 300 square meter lot sold. The first page and at the bottom of the instrument by the parties and their witnesses,
portion sold to the Villamor spouses is now covered by TCT No. 39935 while and sealed with my notarial seal, and said parties acknowledged to me that the
the remaining portion which is still in the name of Macaria Labing-isa is same is their free act and deed. The Residence Certificates of the parties were
covered by TCT No. 39934 (pars. 5 and 7, Complaint). On November 11, 1971, exhibited to me as follows: Roberto Reyes, A-22494, issued at Manila on Jan.
Macaria executed a "Deed of Option" in favor of Villamor in which the 27, 1971, and B-502025, issued at Makati, Rizal on Feb. 18, 1971; Macaria
remaining 300 square meter portion (TCT No. 39934) of the lot would be sold Labingisa, A-3339130 and B-1266104, both issued at Caloocan City on April
to Villamor under the conditions stated therein. The document reads: 15, 1971, their joint Tax Acct. Number being 3028-767-6; Julio Villamor, A-
804, issued at Manila on Jan. 14, 1971, and B-138, issued at Manila on March
DEED OF OPTION 1, 1971; and Marina Ventura-Villamor, A-803, issued at Manila on Jan. 14,
1971, their joint Tax Acct. Number being 608-202-6.
This Deed of Option, entered into in the City of Manila, Philippines, this 11th
day of November, 1971, by and between Macaria Labing-isa, of age, married ARTEMIO M. MALUBAY
to Roberto Reyes, likewise of age, and both resideing on Reparo St., Baesa, Notary Public
Caloocan City, on the one hand, and on the other hand the spouses Julio Until December 31, 1972
Villamor and Marina V. Villamor, also of age and residing at No. 552 Reparo PTR No. 338203, Manila
St., corner Baesa Road, Baesa, Caloocan City. January 15, 1971

WITNESSETH Doc. No. 1526;

That, I Macaria Labingisa, am the owner in fee simple of a parcel of land with
an area of 600 square meters, more or less, more particularly described in TCT
No. (18431) 18938 of the Office of the Register of Deeds for the province of
Rizal, issued in may name, I having inherited the same from my deceased
parents, for which reason it is my paraphernal property;
That I, with the conformity of my husband, Roberto Reyes, have sold one-half
thereof to the aforesaid spouses Julio Villamor and Marina V. Villamor at the
price of P70.00 per sq. meter, which was greatly higher than the actual
reasonable prevailing value of lands in that place at the time, which portion,
after segregation, is now covered by TCT No. 39935 of the Register of Deeds
for the City of Caloocan, issued on August 17, 1971 in the name of the
aforementioned spouses vendees;
Page No. 24;
Book No. 38;
Series of 1971. (pp. 25-29, Rollo)
According to Macaria, when her husband, Roberto Reyes, retired in 1984, they
offered to repurchase the lot sold by them to the Villamor spouses but Marina
Villamor refused and reminded them instead that the Deed of Option in fact
gave them the option to purchase the remaining portion of the lot.
The Villamors, on the other hand, claimed that they had expressed their desire
to purchase the remaining 300 square meter portion of the lot but the Reyeses
had been ignoring them. Thus, on July 13, 1987, after conciliation proceedings
in the barangay level failed, they filed a complaint for specific performance
against the Reyeses.

That the only reason why the Spouses-vendees Julio Villamor and Marina V.
Villamor, agreed to buy the said one-half portion at the above-stated price of
about P70.00 per square meter, is because I, and my husband Roberto Reyes,
have agreed to sell and convey to them the remaining one-half portion still
owned by me and now covered by TCT No. 39935 of the Register of Deeds for
the City of Caloocan, whenever the need of such sale arises, either on our part
or on the part of the spouses (Julio) Villamor and Marina V. Villamor, at the
same price of P70.00 per square meter, excluding whatever improvement may
be found the thereon;
On July 26, 1989, judgment was rendered by the trial court in favor of the
Villamor spouses, the dispositive portion of which states:
WHEREFORE, and (sic) in view of the foregoing, judgment is hereby rendered
in favor of the plaintiffs and against the defendants ordering the defendant
MACARIA LABING-ISA REYES and ROBERTO REYES, to sell unto the
plaintiffs the land covered by T.C.T No. 39934 of the Register of Deeds of
Caloocan City, to pay the plaintiffs the sum of P3,000.00 as and for attorney's
fees and to pay the cost of suit.

The counterclaim is hereby DISMISSED, for LACK OF MERIT.

37
SO ORDERED. (pp. 24-25, Rollo)
Not satisfied with the decision of the trial court, the Reyes spouses appealed to
the Court of Appeals on the following assignment of errors:
1. HOLDING THAT THE DEED OF OPTION EXECUTED ON
NOVEMBER 11, 1971 BETWEEN THE PLAINTIFF-APPELLEES AND
DEFENDANT-APPELLANTS IS STILL VALID AND BINDING DESPITE
THE LAPSE OF MORE THAN THIRTEEN (13) YEARS FROM THE
EXECUTION OF THE CONTRACT;
2. FAILING TO CONSIDER THAT THE DEED OF OPTION CONTAINS
OBSCURE WORDS AND STIPULATIONS WHICH SHOULD BE
RESOLVED AGAINST THE PLAINTIFF-APPELLEES WHO
UNILATERALLY DRAFTED AND PREPARED THE SAME;
3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE
INTENTION AND PURPOSE OF THE PARTIES DESPITE ADVERSE,
CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE PLAINTIFF-
APPELLEES;
4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON
ACCOUNT OF THEIR IGNORANCE PLACING THEM AT A
DISADVANTAGE IN THE DEED OF OPTION;
5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION TILT
IN FAVOR OF THE DEFENDANT-APPELLANTS; and
6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY PLAINTIFF-
APPELLEES THE AMOUNT OF P3,000.00 FOR AND BY WAY OF
ATTORNEY'S FEES. (pp. 31-32, Rollo)
On February 12, 1991, the Court of Appeals rendered a decision reversing the
decision of the trial court and dismissing the complaint. The reversal of the trial
court's decision was premised on the finding of respondent court that the Deed
of Option is void for lack of consideration.
The Villamor spouses brought the instant petition for review on certiorari on
the following grounds:
I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE
PHRASE WHENEVER THE NEED FOR SUCH SALE ARISES ON OUR
(PRIVATE RESPONDENT) PART OR ON THE PART OF THE SPOUSES
JULIO D. VILLAMOR AND MARINA V. VILLAMOR' CONTAINED IN
THE DEED OF OPTION DENOTES A SUSPENSIVE CONDITION;
II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE
QUESTIONED PHRASE IS INDEED A CONDITION, THE COURT OF
APPEALS ERRED IN NOT FINDING, THAT THE SAID CONDITION HAD
ALREADY BEEN FULFILLED;
III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE
QUESTIONED PHRASE IS INDEED A CONDITION, THE COURT OF
APPEALS ERRED IN HOLDING THAT THE IMPOSITION OF SAID
CONDITION PREVENTED THE PERFECTION OF THE CONTRACT OF
SALE DESPITE THE EXPRESS OFFER AND ACCEPTANCE
CONTAINED IN THE DEED OF OPTION;
IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE DEED OF
OPTION IS VOID FOR LACK OF CONSIDERATION;
V. THE COURT OF APPEALS ERRED IN HOLDING THAT A DISTINCT
CONSIDERATION IS NECESSARY TO SUPPORT THE DEED OF
OPTION DESPITE THE EXPRESS OFFER AND ACCEPTANCE
CONTAINED THEREIN. (p. 12, Rollo)
The pivotal issue to be resolved in this case is the validity of the Deed of Option
whereby the private respondents agreed to sell their lot to petitioners "whenever
the need of such sale arises, either on our part (private respondents) or on the
part of Julio Villamor and Marina Villamor (petitioners)." The court a quo, rule
that the Deed of Option was a valid written agreement between the parties and
made the following conclusions:
xxx xxx xxx
It is interesting to state that the agreement between the parties are evidence by
a writing, hence, the controverting oral testimonies of the herein defendants
cannot be any better than the documentary evidence, which, in this case, is the
Deed of Option (Exh. "A" and "A-a")
The law provides that when the terms of an agreement have been reduced to
writing it is to be considered as containing all such terms, and therefore, there
can be, between the parties and their successors in interest no evidence of their
terms of the agreement, other than the contents of the writing. ... (Section 7 Rule
130 Revised Rules of Court) Likewise, it is a general and most inflexible rule
that wherever written instruments are appointed either by the requirements of
law, or by the contract of the parties, to be the repositories and memorials of
truth, any other evidence is excluded from being used, either as a substitute for
such instruments, or to contradict or alter them. This is a matter both of principle
and of policy; of principle because such instruments are in their nature and
origin entitled to a much higher degree of credit than evidence of policy,
because it would be attended with great mischief if those instruments upon
which man's rights depended were liable to be impeached by loose collateral
evidence. Where the terms of an agreement are reduced to writing, the
document itself, being constituted by the parties as the expositor of their
intentions, it is the only instrument of evidence in respect of that
agreement which the law will recognize so long as it exists for the purpose of
evidence. (Starkie, EV, pp. 648, 655 cited in Kasheenath vs. Chundy, W.R. 68,
cited in Francisco's Rules of Court, Vol. VII Part I p. 153) (Emphasis supplied,
pp. 126-127, Records).
The respondent appellate court, however, ruled that the said deed of option is
void for lack of consideration. The appellate court made the following
disquisitions:
Plaintiff-appellees say they agreed to pay P70.00 per square meter for the
portion purchased by them although the prevailing price at that time was only
P25.00 in consideration of the option to buy the remainder of the land. This
does not seem to be the case. In the first place, the deed of sale was never
produced by them to prove their claim. Defendant-appellants testified that no
copy of the deed of sale had ever been given to them by the plaintiff-appellees.
In the second place, if this was really the condition of the prior sale, we see no
reason why it should be reiterated in the Deed of Option. On the contrary, the
alleged overprice paid by the plaintiff-appellees is given in the Deed as reason
for the desire of the Villamors to acquire the land rather than as a consideration
for the option given to them, although one might wonder why they took nearly
13 years to invoke their right if they really were in due need of the lot.
At all events, the consideration needed to support a unilateral promise to sell is
a dinstinct one, not something that is as uncertain as P70.00 per square meter
which is allegedly 'greatly higher than the actual prevailing value of lands.' A
sale must be for a price certain (Art. 1458). For how much the portion conveyed
to the plaintiff-appellees was sold so that the balance could be considered the
consideration for the promise to sell has not been shown, beyond a mere
allegation that it was very much below P70.00 per square meter.
The fact that plaintiff-appellees might have paid P18.00 per square meter for
another land at the time of the sale to them of a portion of defendant-appellant's
lot does not necessarily prove that the prevailing market price at the time of the
sale was P18.00 per square meter. (In fact they claim it was P25.00). It is
improbable that plaintiff-appellees should pay P52.00 per square meter for the
privilege of buying when the value of the land itself was allegedly P18.00 per
square meter. (pp. 34-35, Rollo)
As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why
of the contracts, the essential reason which moves the contracting parties to
enter into the contract." The cause or the impelling reason on the part of private
respondent executing the deed of option as appearing in the deed itself is the
petitioner's having agreed to buy the 300 square meter portion of private
respondents' land at P70.00 per square meter "which was greatly higher than
the actual reasonable prevailing price." This cause or consideration is clear from
the deed which stated:
That the only reason why the spouses-vendees Julio Villamor and Marina V.
Villamor agreed to buy the said one-half portion at the above stated price of
about P70.00 per square meter, is because I, and my husband Roberto Reyes,
have agreed to sell and convey to them the remaining one-half portion still
owned by me ... (p. 26, Rollo)
38
The respondent appellate court failed to give due consideration to petitioners'
evidence which shows that in 1969 the Villamor spouses bough an adjacent lot
from the brother of Macaria Labing-isa for only P18.00 per square meter which
the private respondents did not rebut. Thus, expressed in terms of money, the
consideration for the deed of option is the difference between the purchase price
of the 300 square meter portion of the lot in 1971 (P70.00 per sq.m.) and the
prevailing reasonable price of the same lot in 1971. Whatever it is, (P25.00 or
P18.00) though not specifically stated in the deed of option, was ascertainable.
Petitioner's allegedly paying P52.00 per square meter for the option may, as
opined by the appellate court, be improbable but improbabilities does not
invalidate a contract freely entered into by the parties.
The "deed of option" entered into by the parties in this case had unique features.
Ordinarily, an optional contract is a privilege existing in one person, for which
he had paid a consideration and which gives him the right to buy, for example,
certain merchandise or certain specified property, from another person, if he
chooses, at any time within the agreed period at a fixed price (Enriquez de la
Cavada v. Diaz, 37 Phil. 982). If We look closely at the "deed of option" signed
by the parties, We will notice that the first part covered the statement on the
sale of the 300 square meter portion of the lot to Spouses Villamor at the price
of P70.00 per square meter "which was higher than the actual reasonable
prevailing value of the lands in that place at that time (of sale)." The second part
stated that the only reason why the Villamor spouses agreed to buy the said lot
at a much higher price is because the vendor (Reyeses) also agreed to sell to the
Villamors the other half-portion of 300 square meters of the land. Had the deed
stopped there, there would be no dispute that the deed is really an ordinary deed
of option granting the Villamors the option to buy the remaining 300 square
meter-half portion of the lot in consideration for their having agreed to buy the
other half of the land for a much higher price. But, the "deed of option" went
on and stated that the sale of the other half would be made "whenever the need
of such sale arises, either on our (Reyeses) part or on the part of the Spouses
Julio Villamor and Marina V. Villamor. It appears that while the option to buy
was granted to the Villamors, the Reyeses were likewise granted an option to
sell. In other words, it was not only the Villamors who were granted an option
to buy for which they paid a consideration. The Reyeses as well were granted
an option to sell should the need for such sale on their part arise.
instrument. The complaint in this case was filed by the petitioners on July 13,
1987, seventeen (17) years from the time of the execution of the contract.
Hence, the right of action had prescribed. There were allegations by the
petitioners that they demanded from the private respondents as early as 1984
the enforcement of their rights under the contract. Still, it was beyond the ten
(10) years period prescribed by the Civil Code. In the case of Santos v. Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and
subscribing to the observations of the court a quo held, thus:
... Assuming that Rosa Ganayo, the oppositor herein, had the right based on the
Agreement to Convey and Transfer as contained in Exhibits '1' and '1-A', her
failure or the abandonment of her right to file an action against Pulmano
Molintas when he was still a co-owner of the on-half (1/2) portion of the 10,000
square meters is now barred by laches and/or prescribed by law because she
failed to bring such action within ten (10) years from the date of the written
agreement in 1941, pursuant to Art. 1144 of the New Civil Code, so that when
she filed the adverse claim through her counsel in 1959 she had absolutely no
more right whatsoever on the same, having been barred by laches.
It is of judicial notice that the price of real estate in Metro Manila is
continuously on the rise. To allow the petitioner to demand the delivery of the
property subject of this case thirteen (13) years or seventeen (17) years after the
execution of the deed at the price of only P70.00 per square meter is inequitous.
For reasons also of equity and in consideration of the fact that the private
respondents have no other decent place to live, this Court, in the exercise of its
equity jurisdiction is not inclined to grant petitioners' prayer.
ACCORDINGLY, the petition is DENIED. The decision of respondent
appellate court is AFFIRMED for reasons cited in this decision. Judgement is
rendered dismissing the complaint in Civil Case No. C-12942 on the ground of
prescription and laches.
SO ORDERED.

In the instant case, the option offered by private respondents had been accepted
by the petitioner, the promise, in the same document. The acceptance of an offer
to sell for a price certain created a bilateral contract to sell and buy and upon
acceptance, the offer, ipso facto assumes obligations of a vendee (See Atkins,
Kroll & Co. v. Cua Mian Tek, 102 Phil. 948). Demandabilitiy may be exercised
at any time after the execution of the deed. In Sanchez v. Rigos, No. L-25494,
June 14, 1972, 45 SCRA 368, 376, We held:

In other words, since there may be no valid contract without a cause of

consideration, the promisory 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.

A contract of sale is, under Article 1475 of the Civil Code, "perfected at the
moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price. From that moment, the parties may reciprocally
demand perform of contracts." Since there was, between the parties, a meeting
of minds upon the object and the price, there was already a perfected contract
of sale. What was, however, left to be done was for either party to demand from
the other their respective undertakings under the contract. It may be demanded
at any time either by the private respondents, who may compel the petitioners
to pay for the property or the petitioners, who may compel the private
respondents to deliver the property.

However, the Deed of Option did not provide for the period within which the
parties may demand the performance of their respective undertakings in the
instrument. The parties could not have contemplated that the delivery of the
property and the payment thereof could be made indefinitely and render
uncertain the status of the land. The failure of either parties to demand
performance of the obligation of the other for an unreasonable length of time
renders the contract ineffective.

Under Article 1144 (1) of the Civil Code, actions upon written contract must be
brought within ten (10) years. The Deed of Option was executed on November
11, 1971. The acceptance, as already mentioned, was also accepted in the same

39
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for 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 Rosa4 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.
40
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:
"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
the Southwestern Sugar & Molasses Co. case should be deemed abandoned or
modified.
WHEREFORE, the decision appealed from is hereby affirmed, with costs
against defendant-appellant Severina Rigos. It is so ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ.,
concur.
Castro, J., took no part.
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,2 holding 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,510.00 before 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.
41
G.R. No. L-51824 February 7, 1992
PERCELINO DIAMANTE, petitioner,
vs.
HON. COURT OF APPEALS and GERARDO
DEYPALUBUS, respondents.
Hernandez, Velicaria, Vibar & Santiago for petitioner.
Amancio B. Sorongon for private respondent.
DAVIDE, JR., J.:
Assailed in this petition for review is the Resolution of the respondent Court of
Appeals dated 21 March 1979 in C.A.-G.R. No. SP-04866 setting aside its
earlier decision therein, promulgated on 6 December 1978, which reversed the
decision of the then Court of First Instance (now Regional Trial Court) of Iloilo
City. The latter nullified the Orders of the Secretary of the Department of
Agriculture and Natural Resources (DANR) dated 29 August 1969, 20
November 1969 and 21 April 1970, declared binding the Fishpond Lease
Agreement (FLA) issued to private respondent and disallowed petitioner from
repurchasing from private respondent a portion of the fishery lot located at
Dumangas, Iloilo, covered by the FLA.
The pleadings of the parties and the decision of the respondent Court disclose
the factual antecedents of this case.
A fishery lot, encompassing an area of 9.4 hectares and designated as Lot No.
518-A of the Cadastral Survey of Dumangas, Iloilo, was previously covered by
Fishpond Permit No. F-2021 issued in the name of Anecita Dionio. Upon
Anecita's death, her heirs, petitioner Diamante and Primitivo Dafeliz, inherited
the property which they later divided between themselves; petitioner got 4.4.
hectares while Dafeliz got 5 hectares. It is the petitioner's share that is the
subject of the present controversy. Primitivo Dafeliz later sold his share to
private respondent.
On 21 May 1959, petitioner sold to private respondent his leasehold rights over
the property in question for P8,000.00 with the right to repurchase the same
within three (3) years from said date.
On 16 August 1960, private respondent filed an application with the Bureau of
Fisheries, dated 12 July 1960, for a fishpond permit and a fishpond lease
agreement over the entire lot, submitting therewith the deeds of sale executed
by Dafeliz and the petitioner.
Pressed by urgent financial needs, petitioner, on 17 October 1960, sold all his
remaining rights over the property in question to the private respondent for
P4,000.00.
On 25 October 1960, private respondent, with his wife's consent, executed in
favor of the petitioner an Option to Repurchase the property in question within
ten (10) years from said date, with a ten-year grace period.
Private respondent submitted to the Bureau of Fisheries the definite deed of
sale; he did not, however, submit the Option to Repurchase.
Thereafter, on 2 August 1961, the Bureau of Fisheries issued to private
respondent Fishpond Permit No. 4953-Q; on 17 December 1962, it approved
FLA No. 1372 in the latter's favor.
On 11 December 1963, petitioner, contending that he has a valid twenty-year
option to repurchase the subject property, requested the Bureau of Fisheries to
nullify FLA No. 1372 insofar as the said property is concerned. On 18
December 1964, his letter-complaint was dismissed. Petitioner then sought a
reconsideration of the dismissal; the same was denied on 29 April 1965. His
appeal to the Secretary of the DANR was likewise dismissed on 30 October
1968. Again, on 20 November 1968, petitioner sought for a reconsideration;
this time, however, he was successful. On 29 August 1969, the DANR Secretary
granted his motion in an Order cancelling FLA No. 1372 and stating, inter alia,
that:
Evidently, the application as originally filed, could not be favorably acted upon
by reason of the existing right of a third party over a portion thereof. It was only
the submission of the deed of absolute sale which could eliminate the stumbling
block to the approval of the transfer and the issuance of a permit or lease
agreement. It was on the basis of this deed of sale, in fact, the one entitled
"option to repurchase" executed barely a week from the execution of the deed
of absolute sale, (which) reverted, in effect, the status of the land in question to
what it was after the execution of the deed of sale with right to repurchase; that
is, the land was again placed under an encumbrance in favor of a third party.
Circumstantially, there is a ground (sic) to believe that the deed of absolute sale
was executed merely with the end in view of circumventing the requirements
for the approval of the transfer of leasehold rights of Diamante in favor of
Deypalubos; and the subsequent execution of the "Option to Repurchase" was
made to assure the maintenance of a vendor a retro's rights in favor of
Diamante. There was, therefore, a misrepresentation of an essential or material
fact committed by the lessee-appellee (Deypalubos) in his application for the
permit and the lease agreement, without which the same could not have been
issued. 1
The Secretary based his action on Section 20 of Fisheries Administrative Order
No. 60, the second paragraph of which reads:
Any and all of the statements made in the corresponding application shall be
considered as essential conditions and parts of the permit or lease granted. Any
false statements in the application of facts or any alteration, change or
modification of any or all terms and conditions made therein shall ipso
facto cause the cancellation of the permit or lease.
Private respondent moved for a reconsideration of this last Order arguing that
the DANR Secretary's previous Order of 30 October 1968 dismissing
petitioner's letter-complaint had already become final on the ground that he
(private respondent) was not served a copy of petitioner's 20 November 1968
motion for reconsideration. On 20 November 1969, private respondent's motion
for reconsideration was denied; a second motion for reconsideration was
likewise denied on 20 April 1970.
On 5 May 1970, private respondent filed with the Court of First Instance of
Iloilo City a special civil action for certiorari with preliminary injunction
(docketed as Civil Case No. 8209), seeking to annul the Secretary's Orders of
20 April 1970, 20 November 1969 and 29 August 1969 on the ground that the
Secretary: (1) gravely abused his discretion in not giving him the opportunity
to be heard on the question of whether or not the Option to Repurchase was
forged; and (2) has no jurisdiction to set aside FLA No. 1372 as the Order of
the Bureau of Fisheries dismissing petitioner's 11 December 1963 letter-
complaint had already become final.
After issuing a temporary restraining order and a writ of preliminary injunction,
the lower court tried the case jointly with Criminal Case No. 520 wherein both
the petitioner and a certain Atty. Agustin Dioquino, the Notary Public who
notarized the 25 October 1960 Option to Repurchase, were charged with
falsification of a public document.
After due trial, the lower court acquitted the accused in the criminal case and
decided in favor of the private respondent in Civil Case No. 8209; the court
ruled that: (1) the DANR Secretary abused his discretion in issuing the
questioned Orders, (2) petitioner cannot repurchase the property in question as
the Option to Repurchase is of doubtful validity, and (3) FLA No. 1372 in the
name of private respondent is valid and binding.
Petitioner appealed to the respondent Court which, on 6 December 1978,
reversed the decision of the trial court 2 on the ground that no grave abuse of
discretion was committed by respondent Secretary inasmuch as private
respondent was given the opportunity to be heard on his claim that the Option
to Repurchase is spurious, and that the trial court merely indulged in conjectures
in not upholding its validity. Said the respondent Court:
With all the foregoing arguments appellee had exhaustively adduced to show
the spuriousness of the deed of "Option to Repurchase", appellee can hardly
complain of not having been given an opportunity to be heard, which is all that
is necessary in relation to the requirement of notice and hearing in
administrative proceedings. Moreover, appellee never asked for a formal
hearing at the first opportunity that he had to do so, as when he filed his first
motion for reconsideration. He asked for a formal hearing only in his second
motion for reconsideration evidently as a mere afterthought, upon realizing that
his arguments were futile without proofs to support them.
42
The only remaining question, therefore, is whether the Secretary acted with
grave abuse of discretion in giving weight to the alleged execution by appellee
of the deed of Option to Repurchase, on the basis of the xerox copy of said deed
as certified by the Notary Public, Agustin Dioquino.
With such documentary evidence duly certified by the Notary Public, which is
in effect an affirmation of the existence of the deed of "Option of Repurchase"
(sic) and its due execution, the Secretary may not be said to have gravely abused
his discretion in giving the document enough evidentiary weight to justify his
action in applying the aforequoted provisions of Fisheries Adm. Order No. 60.
This piece of evidence may be considered substantial enough to support the
conclusion reached by the respondent Secretary, which is all that is necessary
to sustain an administrative finding of fact (Ortua vs. Encarnacion, 59 Phil. 635;
Ang Tibay vs. CIR, 69 Phil. 635; Ramos vs. The Sec. of Agriculture and Natural
Resources, et al. L-29097, Jan. 28, 1974, 55 SCRA 330). Reviewing courts do
not re-examine the sufficiency of the evidence in an administrative case, if
originally instituted as such, nor are they authorized to receive additional
evidence that was not submitted to the administrative agency concerned. For
common sense dictates that the question of whether the administrative agency
abused its discretion in weighing evidence should be resolved solely on the
basis of the proof that the administrative authorities had before them and no
other (Timbancaya vs. Vicente, L-19100, Dec. 27, 1963, 9 SCRA 852). In the
instant case the evidence presented for the first time before the court a quo could
be considered only for the criminal case heard jointly with this case.
The lower court's action of acquitting the notary public, Agustin Dioquino, and
appellant Diamante in Criminal Case No. 520 for falsification of public
document is in itself a finding that the alleged forgery has not been conclusively
established. This finding is quite correct considering the admission of the NBI
handwriting expert that admission of the NBI handwriting expert that he cannot
make any finding on the question of whether appellee's signature on the deed
of "Option to Repurchase" is forged or not, because of the lack of (sic) specimen
signature of appellee for comparative examination. The Secretary may have
such signature in the application papers of appellee on file with the former's
office upon which to satisfy himself of (sic) the genuineness of appellee's
signature. It would be strange, indeed, that appellee had not provided the NBI
expert with a specimen of his signature when his purpose was to have an expert
opinion that his signature on the questioned document is forged.
On the other hand, as to the signature of his wife, the latter herself admitted the
same to be her own. Thus
Q There is a signature below the typewritten words "with my marital consent"
and above the name Edelina Duyo, whose signature is this?
A That is my signature. (T.s.n., Crim. Case No. 520, April 5, 1971, p. 14).
In not finding in favor of the perfect validity of the "Option to Repurchase," the
court a quo merely indulged in conjectures. Thus, believing the testimony of
appellee that the later (sic) could not have executed the deed of option to
repurchase after spending allegedly P12,000.00, and that if there was really a
verbal agreement upon the execution of the deed of absolute sale, as alleged by
appellant, that appellant's right to repurchase, as was stipulated in the earlier
deed of sale, shall be preserved, such agreement should have been embodied in
the deed of sale of October 17, 1960 (Exh. D), the court doubted the
genuineness of the deed of Option to Repurchase (sic).
It is highly doubtful if appellee had spent P12,000.00 during the period from
October 17, 1960 to October 25, 1960 when the deed of option was executed.
Likewise, the right to repurchase could not have been embodied in the deed of
absolute sale since, as the Secretary of DANR found, the purpose of the deed
of absolute sale is to circumvent the law and insure the approval of appellee's
application, as with his right to 4.4 hectares appearing to be subject to an
encumbrance, his application would not have been given favorable action.
Above all, the speculation and conjectures as indulged in by the court a
quo cannot outweigh the probative effect of the document itself, a certified
xerox copy thereof as issued by the Notary Public, the non-presentation of the
original having been explained by its loss, as was the testimony of the same
Notary Public, who justly won acquittal when charged with falsification of
public document at the instance of appellee. The fact that the spaces for the
document number, page and book numbers were not filled up in the photostatic
copy presented by the representative of the Bureau of Records Management
does not militate against the genuineness of the document. It simply means that
the copy sent to the said Bureau happens to have those spaces unfilled up (sic).
But the sending of a copy of the document to the Bureau of Records
Management attests strongly to the existence of such document, the original of
which was duly executed, complete with the aforesaid data duly indicated
thereon, as shown by the xerox copy certified true by the Notary Public.
Indeed, in the absence of positive and convincing proof of forgery, a public
instrument executed with the intervention of a Notary Public must be held in
high respect and accorded full integrity, if only upon the presumption of the
regularity of official functions as in the nature of those upon the presumption
of the regularity of official functions as in the nature of those of a notary public
(Bautista vs. Dy Bun Chin, 49 OG 179; El Hogar Filipino vs. Olviga, 60 Phil.
17).
Subsequently, the respondent Court, acting on private respondent's motion for
reconsideration, promulgated on 21 March 1979 the challenged
Resolution 3 setting aside the earlier decision and affirmed, in toto, the ruling
of the trial court, thus:
. . . the respondent (DANR) Secretary had gone beyond his statutory authority
and had clearly acted in abuse of discretion in giving due weight to the alleged
option to repurchase whose (sic) genuiness (sic) and due execution had been
impugned and denied by petitioner-appellee (Deypalubos). While the certified
true copy of the option to repurchase may have been the basis of the respondent
Secretary in resolving the motion for reconsideration, the Court believes that he
should have first ordered the presentation of evidence to resolve this factual
issue considering the conflicting claims of the parties. As earlier pointed out,
all that was submitted to the Bureau of Fisheries and consequently to the
respondent Secretary, was a xerox copy of the questioned document which was
certified to by a notary public to be a copy of a deed found in his notarial file
which did not bear any specimen of the signatures of the contracting parties.
And assuming that a certification made by a notary public as to the existence of
a document should be deemed an affirmation that such document actually
exists. Nevertheless, (sic) when such claim is impugned, the one who assails
the existence of a document should be afforded the opportunity to prove such
claim, because, at most, the presumption of regularity in the performance of
official duties is merely disputable and can be rebutted by convincing and
positive evidence to the contrary.
His motion for reconsideration having been denied, the petitioner filed the
instant petition for review.
Petitioner contends that the Rules of Court should not be strictly applied to
administrative proceedings and that the findings of fact of administrative
bodies, absent a showing of arbitrariness, should be accorded respect.
While the petition has merit, petitioner's victory is hollow and illusory for, as
shall hereafter be shown, even as We reverse the assailed resolution of the
respondent Court of Appeals, the questioned decision of the Secretary must,
nevertheless, be set aside on the basis of an erroneous conclusion of law with
respect to the Option to Repurchase.
The respondent Court correctly held in its decision of 6 December 1978 that the
respondent Secretary provided the private respondent sufficient opportunity to
question the authenticity of the Option to Repurchase and committed no grave
abuse of discretion in holding that the same was in fact executed by private
respondent. We thus find no sufficient legal and factual moorings for
respondent Court's sudden turnabout in its resolution of 21 March 1979. That
private respondent and his wife executed the Option to Repurchase in favor of
petitioner on 25 October 1960 is beyond dispute. As determined by the
respondent Court in its decision of 6 December 1978, private respondent's wife,
Edelina Duyo, admitted having affixed her signature to the said document.
Besides, the trial court itself in Criminal Case No. 520 which was jointly tried
with the civil case, acquitted both the petitioners and the notary public, before
whom the Option to Repurchase was acknowledged, of the crime of
falsification of said document.
We hold, however, that the respondent Secretary gravely erred in holding that
private respondent's non-disclosure and suppression of the fact that 4.4 hectares
of the area subject of the application is burdened with or encumbered by the
Option to Repurchase constituted a falsehood or a misrepresentation of an
essential or material fact which, under the second paragraph of Section 29 of
Fisheries Administrative Order No. 60 earlier quoted, "shall ipso facto cause
the cancellation of the permit or lease." In short, the Secretary was of the
43
opinion that the Option to Repurchase was an encumbrance on the property
which affected the absolute and exclusive character of private respondent's
ownership over the 4.4 hectares sold to him by petitioner. This is a clear case
of a misapplication of the law on conventional redemption and a
misunderstanding of the effects of a right to repurchase granted subsequently in
an instrument different from the original document of sale.
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., 4 decided on 29 November 1968,
or barely seven (7) days before the respondent Court promulgated its decision
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 no 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., 5 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 repurchase, it is a new contract entered into by the
purchaser, as absolute owner already of the object. In that case the vendor has
not reserved to himself the right to repurchase."
In Vda. de Cruzo, et al. vs. Carriaga, et al., 6 this Court found another occasion
to apply the foregoing principle.
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:
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.
A copy of the so-called Option to Repurchase is neither attached to the records
nor quoted in any of the pleadings of the parties. This Court cannot, therefore,
properly rule on whether the promise was accepted and a consideration distinct
from the price, supports the option. Undoubtedly, in the absence of either or
both acceptance and separate consideration, the promise to sell is not binding
upon the promissor (private respondent).
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.
xxx xxx xxx
. . . The contract of option is a separate and distinct contract from the contract
which the parties may enter into upon the consummation of the option, and a
consideration for an optional contract is just as important as the consideration
for any other kind of contract. Thus, a distinction should be drawn between the
consideration for the option to repurchase, and the consideration for the contract
of repurchase itself.7
Even if the promise was accepted, private respondent was not bound thereby in
the absence of a distinct consideration. 8
It may be true that the foregoing issues were not squarely raised by the parties.
Being, however, intertwined with the issue of the correctness of the decision of
the respondent Secretary and, considering further that the determination of said
issues is essential and indispensable for the rendition of a just decision in this
case, this Court does not hesitate to rule on them.
In Hernandez vs. Andal, 9 this Court held:
If the appellants' assignment of error be not considered a direct challenge to the
decision of the court below, we still believe that the objection takes a narrow
view of practice and procedure contrary to the liberal spirit which pervades the
Rules of Court. The first injunction of the new Rules (Rule 1, section 2) is that
they "shall be liberally construed in order to promote their object and to assist
the parties in obtaining just, speedy, and inexpensive determination of every
action and proceeding." In line with the modern trends of procedure, we are told
that, "while an assignment of error which is required by law or rule of court has
been held essential to appellate review, and only those assigned will be
considered, there are a number of cases which appear to accord to the appellate
court a broad discretionary power to waive the lack of proper assignment of
errors and consider errors not assigned. And an unassigned error closely related
to an error properly assigned, or upon which the determination of the question
raised by the error properly assigned is dependent, will be considered by the
appellate court notwithstanding the failure to assign it as error." (4 C.J.S., 1734;
3 C.J., 1341, footnote 77). At the least, the assignment of error, viewed in this
light, authorizes us to examine and pass upon the decision of the court below.
In Insular Life Assurance Co., Ltd. Employees Association-NATU vs. Insular
Life Assurance Co., Ltd., 10 this Court ruled:
. . . (t)he Supreme Court has ample authority to review and resolve matter not
assigned and specified as errors by either of the parties in the appeal if it finds
the consideration and determination of the same essential and indispensable in
order to arrive at a just decision in the case. 11 This Court, thus, has the authority
to waive the lack of proper assignment of errors if the unassigned errors closely
relate to errors properly pinpointed out or if the unassigned errors refer to
matters upon which the determination of the questions raised by the errors
properly assigned depend. 12
The same also applies to issues not specifically raised by the parties. The
Supreme Court, likewise, has broad discretionary power, in the resolution of a
controversy, to take into consideration matters on record which the parties fail
to submit to the Court as specific questions for determination. 13 Where the
issues already raised also rest on other issues not specifically presented, as long
as the latter issues bear relevance and close relation to the former and as long
as they arise from matters on record, the Court has the authority to include them
in its discussion of the controversy as well as to pass upon them. In brief, in
those cases wherein questions not particularly raised by the parties surface as
necessary for the complete adjudication of the rights and obligations of the
parties and such questions fall within the issues already framed by the parties,
the interests of justice dictate that the Court consider and resolve them.
WHEREFORE, the instant petition is GRANTED. The Resolution of
respondent Court of Appeals of 21 March 1979 in C.A.-G.R. No. SP-04866 and
the Decision of the trial court in Civil Case No. 8209, insofar as they declare,
for the reasons therein given, Fishpond Lease Agreement No. 1372, valid and
binding, are hereby REVERSED and SET ASIDE. The challenged Orders of
the respondent Secretary of Agriculture and Natural Resources of 29 August
1969, 20 November 1969 and 21 April 1970 are likewise REVERSED and SET
ASIDE and Fishpond Lease Agreement No. 1372 is ordered REINSTATED.
No pronouncement as to costs.
IT IS SO ORDERED.
44
G.R. No. 126454 November 26, 2004
BIBLE BAPTIST CHURCH and PASTOR REUBEN
BELMONTE, petitioners,
vs.
COURT OF APPEALS and MR. & MRS. ELMER TITO MEDINA
VILLANUEVA, respondents.
DECISION
AZCUNA, J.:
This petition for review on certiorari seeks to annul the Decision1 dated August
7, 1996, of the Court of Appeals in CA-G.R. CV No. 45956, and its
Resolution2 dated September 12, 1996, denying reconsideration of the decision.
In the questioned issuances, the Court of Appeals affirmed the Decision3 dated
June 8, 1993, of the Regional Trial Court of Manila, Branch 3, in Civil Case
No. 90-55437.
The antecedents are:
On June 7, 1985, the Bible Baptist Church (petitioner Baptist Church) entered
into a contract of lease4 with Mr. & Mrs. Elmer Tito Medina Villanueva
(respondent spouses Villanueva). The latter are the registered owners of a
property located at No. 2436 (formerly 2424) Leon Guinto St., Malate, Manila.
The pertinent stipulations in the lease contract were:
1. That the LESSOR lets and leases to the LESSEE a store space known as 2424
Leon Guinto Sr. St., Malate, Manila, of which property the LESSOR is the
registered owner in accordance with the Land Registration Act.
2. That the lease shall take effect on June 7, 1985 and shall be for the period of
Fifteen (15) years.
3. That LESSEE shall pay the LESSOR within five (5) days of each calendar
month, beginning Twelve (12) months from the date of this agreement, a
monthly rental of Ten Thousand Pesos (P10,000.00) Philippine Currency, plus
10% escalation clause per year starting on June 7, 1988.
4. That upon signing of the LEASE AGREEMENT, the LESSEE shall pay the
sum of Eighty Four Thousand Pesos (P84,000.00) Philippine Currency. Said
sum is to be paid directly to the Rural Bank, Valenzuela, Bulacan for the
purpose of redemption of said property which is mortgaged by the LESSOR.
5. That the title will remain in the safe keeping of the Bible Baptist Church,
Malate, Metro Manila until the expiration of the lease agreement or the leased
premises be purchased by the LESSEE, whichever comes first. In the event that
the said title will be lost or destroyed while in the possession of the LESSEE,
the LESSEE agrees to pay all costs involved for the re-issuance of the title.
6. That the leased premises may be renovated by the LESSEE, to the satisfaction
of the LESSEE to be fit and usable as a Church.
7. That the LESSOR will remove all other tenants from the leased premises no
later than March 15, 1986. It is further agreed that if those tenants are not
vacated by June 1, 1986, the rental will be lowered by the sum of Three
Thousand Pesos (P3,000.00) per month until said tenants have left the leased
premises.
8. That the LESSEE has the option to buy the leased premises during the Fifteen
(15) years of the lease. If the LESSEE decides to purchase the premises the
terms will be: A) A selling Price of One Million Eight Hundred Thousand Pesos
(P1.8 million), Philippine Currency. B) A down payment agreed upon by both
parties. C) The balance of the selling price may be paid at the rate of One
Hundred Twenty Thousand Pesos (P120,000.00), Philippine Currency, per
year.
x x x.5
The foregoing stipulations of the lease contract are the subject of the present
controversy.
Although the same lease contract resulted in several cases6 filed between the
same parties herein, petitioner submits, for this Court's review, only the
following errors allegedly committed by the Court of Appeals:
a) Respondent Court of Appeals erred in finding that the option to buy granted
the petitioner Baptist Church under its contract of lease with the Villanuevas
did not have a consideration and, therefore, did not bind the latter;
b) [R]espondent court again also erred in finding that the option to buy did not
have a fixed price agreed upon by the parties for the purchase of the property;
and
c) [F]inally, respondent court erred in not awarding petitioners Baptist Church
and its pastor attorney's fees.7
In sum, this Court has three issues to resolve: 1) Whether or not the option to
buy given to the Baptist Church is founded upon a consideration; 2) Whether
or not by the terms of the lease agreement, a price certain for the purchase of
the land had been fixed; and 3) Whether or not the Baptist Church is entitled to
an award for attorney's fees.
The stipulation in the lease contract which purportedly gives the lessee an
option to buy the leased premises at any time within the duration of the lease,
is found in paragraph 8 of the lease contract, viz:
8. That the LESSEE has the option to buy the leased premises during the Fifteen
(15) years of the lease. If the LESSEE decides to purchase the premises the
terms will be: A) A selling Price of One Million Eight Hundred Thousand Pesos
(P1.8 million), Philippine Currency. B) A down payment agreed upon by both
parties. C) The balance of the selling price may be paid at the rate of One
Hundred Twenty Thousand Pesos (P120,000.00), Philippine Currency, per
year.
Under Article 1479 of the Civil Code, it is provided:
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.
In this case, petitioner Baptist Church seeks to buy the leased premises from the
spouses Villanueva, under the option given to them. Petitioners claim that the
Baptist Church "agreed to advance the large amount needed for the rescue of
the property but, in exchange, it asked the Villanuevas to grant it a long term
lease and an option to buy the property for P1.8 million."8 They argue that the
consideration supporting the option was their agreement to pay off the
Villanueva's P84,000 loan with the bank, thereby freeing the subject property
from the mortgage encumbrance. They state further that the Baptist Church
would not have agreed to advance such a large amount as it did to rescue the
property from bank foreclosure had it not been given an enforceable option to
buy that went with the lease agreement.
In the petition, the Baptist Church states that "[t]rue, the Baptist Church did not
pay a separate and specific sum of money to cover the option alone. But the
P84,000 it paid the Villanuevas in advance should be deemed consideration for
the one contract they entered into the lease with option to buy."9 They rely on
the case of Teodoro v. Court of Appeals10 to support their stand.
This Court finds no merit in these contentions.
First, petitioners cannot insist that the P84,000 they paid in order to release the
Villanuevas' property from the mortgage should be deemed the separate
consideration to support the contract of option. It must be pointed out that said
amount was in fact apportioned into monthly rentals spread over a period of one
year, at P7,000 per month. Thus, for the entire period of June 1985 to May 1986,
45
petitioner Baptist Church's monthly rent had already been paid for, such that it
only again commenced paying the rentals in June 1986. This is shown by the
testimony of petitioner Pastor Belmonte where he states that the P84,000 was
advance rental equivalent to monthly rent of P7,000 for one year, such that for
the entire year from 1985 to 1986 the Baptist Church did not pay monthly rent.11
This Court agrees with respondents that the amount of P84,000 has been fully
exhausted and utilized by their occupation of the premises and there is no
separate consideration to speak of which could support the option.12
Second, petitioners' reliance on the case of Teodoro v. Court of Appeals13 is
misplaced. The facts of the Teodoro case reveal that therein respondent Ariola
was the registered lessee of a property owned by the Manila Railroad Co. She
entered into an agreement whereby she allowed Teodoro to occupy a portion of
the rented property and gave Teodoro an option to buy the same, should Manila
Railroad Co. decide to sell the property to Ariola. In addition, Teodoro, who
was occupying only a portion of the subject rented property, also undertook to
pay the Manila Railroad Co., the full amount of the rent supposed to be paid by
the registered lessor Ariola. Consequently, unlike this case, Teodoro paid over
and above the amount due for her own occupation of a portion of the property.
That amount, which should have been paid by Ariola as lessor, and for her own
occupation of the property, was deemed by the Court as sufficient consideration
for the option to buy which Ariola gave to Teodoro upon Ariola's acquiring the
property.
Hence, in Teodoro, this Court was able to find that a separate consideration
supported the option contract and thus, its enforcement may be demanded.
Petitioners, therefore, cannot rely on Teodoro, for the case even supports the
respondents' stand that a consideration that is separate and distinct from the
purchase price is required to support an option contract.
Petitioners further insist that a consideration need not be a separate sum of
money. They posit that their act of advancing the money to "rescue" the
property from mortgage and impending foreclosure, should be enough
consideration to support the option.
In Villamor v. Court of Appeals,14 this Court defined consideration as "the why
of the contracts, the essential reason which moves the contracting parties to
enter into the contract."15 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.
Specifically, in Villamor v. Court of Appeals,16 half of a parcel of land was sold
to the spouses Villamor for P70 per square meter, an amount much higher than
the reasonable prevailing price. Thereafter, a deed of option was executed
whereby the sellers undertook to sell the other half to the same spouses. It was
stated in the deed that the only reason the spouses bought the first half of the
parcel of land at a much higher price, was the undertaking of the sellers to sell
the second half of the land, also at the same price. This Court held that the cause
or consideration for the option, on the part of the spouses-buyers, was the
undertaking of the sellers to sell the other half of the property. On the part of
the sellers, the consideration supporting the option was the much higher amount
at which the buyers agreed to buy the property. It was explicit from the deed
therein that for the parties, this was the consideration for their entering into the
contract.
It can be seen that the Court found that the buyer/optionee had parted with
something of value, which was the amount he paid over and above the actual
prevailing price of the land. Such amount, different from the price of the land
subject of the option, was deemed sufficient and distinct consideration
supporting the option contract. Moreover, the parties stated the same in their
contract.
Villamor is distinct from the present case because, First, this Court cannot find
that petitioner Baptist Church parted with anything of value, aside from the
amount of P84,000 which was in fact eventually utilized as rental payments.
Second, there is no document that contains an agreement between the parties
that petitioner Baptist Church's supposed rescue of the mortgaged property was
the consideration which the parties contemplated in support of the option clause
in the contract. As previously stated, the amount advanced had been fully
utilized as rental payments over a period of one year. While the Villanuevas
may have them to thank for extending the payment at a time of need, this is not
the separate consideration contemplated by law.
Noting that the option clause was part of a lease contract, this Court looked into
its previous ruling in the early case of Vda. De Quirino v. Palarca,17 where the
Court did say that "in reciprocal contracts, like the one in question,18 the
obligation or promise of each party is the consideration for that of the
other."19 However, it must be noted that in that case, it was also expressly stated
in the deed that should there be failure to exercise the option to buy the property,
the optionee undertakes to sell the building and/or improvements he has made
on the premises. In addition, the optionee had also been paying an amount of
rent that was quite high and in fact turned out to be too burdensome that there
was a subsequent agreement to reduce said rentals. The Court found that "the
amount of rentals agreed upon x x x which amount turned out to be so
burdensome upon the lessee, that the lessor agreed, five years later, to reduce it
as well as the building and/or improvements contemplated to be constructed
and/or introduced by the lessee, were, undoubtedly, part of the consideration
for his option to purchase the leased premises."20
Again, this Court notes that the parties therein clearly stipulated in their contract
that there was an undertaking on the part of the optionee to sell the
improvements made on the property if the option was not exercised. Such is a
valuable consideration that could support the option contract. Moreover, there
was the excessive rental payments that the optionee paid for five years, which
the Court also took into account in deciding that there was a separate
consideration supporting the option.
To summarize the rules, 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 contract of option. 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.
This Court also notes that in the present case both the Regional Trial Court and
the Court of Appeals agree that the option was not founded upon a separate and
distinct consideration and that, hence, respondents Villanuevas cannot be
compelled to sell their property to petitioner Baptist Church.
The Regional Trial Court found that "[a]ll payments made under the contract of
lease were for rentals. No money [was] ever exchanged for and in consideration
of the option." Hence, the Regional Trial Court found the action of the Baptist
Church to be "premature and without basis to compel the defendant to sell the
leased premises." The Regional Trial Court consequently ruled:
WHEREFORE, judgment is rendered:
1) Denying plaintiffs' application for writ of injunction;
2) That defendant cannot be compelled to sell to plaintiffs the leased premises
in accordance with par. 8 of the contract of lease;
3) Defendant is hereby ordered to reimburse plaintiffs the sum of P15, 919.75
plus 12% interest representing real estate taxes, plaintiffs paid the City
Treasurer's Office of Manila;
4) Declaring that plaintiff made a valid and legal consignation to the Court of
the initial amount of P18,634.00 for the month of November and December
1990 and every month thereafter.
All other claims of the plaintiffs are hereby dismissed for lack of merit.
No pronouncement as to costs.
SO ORDERED. 21
On appeal, the Court of Appeals agreed with the Regional Trial Court and found
that the option to buy the leased premises was not binding upon the Villanuevas
for non-compliance with Article 1479. It found that said option was not
supported by a consideration as "no money was ever really exchanged for and
in consideration of the option." In addition, the appellate court determined that
in the instant case, "the price for the object is not yet certain." Thus, the Court
of Appeals affirmed the Regional Trial Court decision and dismissed the appeal
for lack of merit.22
46
Having found that the option to buy granted to the petitioner Baptist Church
was not founded upon a separate consideration, and hence, not enforceable
against respondents, this Court finds no need to discuss whether a price certain
had been fixed as the purchase price.

Anent the claim for attorney's fees, it is stipulated in paragraph 13 of the lease
agreement that in the event of failure of either of the parties to comply with any
of the conditions of the agreement, the aggrieved party can collect reasonable
attorney's fees.23

In view of this Court's finding that the option contract is not enforceable for
being without consideration, the respondents Villanueva spouses' refusal to
comply with it cannot be the basis of a claim for attorney's fees.

Hence, this Court agrees with as the Court of Appeals, which affirmed the
findings of the Regional Trial Court, that such claim is to be dismissed for lack
of factual and legal basis.

WHEREFORE, the Decision and Resolution of the Court of Appeals subject of

the petition are hereby AFFIRMED.

No costs.

SO ORDERED.

47
G.R. No. 159212 September 12, 2005
NAVOTAS INDUSTRIAL CORPORATION, represented herein by its
acting president DANIEL L. BAUTISTA,Petitioners,
vs.
GERMAN D. CRUZ, MARCELO D. CRUZ, ROSALINA CRUZ-LAIZ,
MARIANO A. CRUZ, JR., THE HEIRS OF ROGELIO D. CRUZ, namely,
SYLVIA, ROSYL, ROGELIO, JR., SERGIO and ESTRELLA, all
surnamed CRUZ, the HEIRS OF SERAFIN D. CRUZ, namely,
ADELAIDA, MERCEDITAS and GABRIEL, all surnamed CRUZ,
MARIA CRISTINA CRUZ-YCASIANO, MONICA CRUZ-DADIVAS
and CARMEN VDA. DE CRUZ, Respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision1 of the Court of
Appeals (CA) in CA-G.R. CV No. 69818, reversing the Decision of the
Regional Trial Court (RTC) in Civil Case No. 2427-MN.
The Antecedents
Carmen Vda. De Cruz was the owner of a parcel of land located in Navotas,
Rizal, with an area of 13,999 square meters, covered by Transfer Certificate of
Title (TCT) No. 81574.2
On October 5, 1966, Carmen Cruz, as lessor, and the Navotas Industrial
Corporation (NIC), through its president, Cipriano C. Bautista, as lessee,
executed a contract of lease over one-half portion of the said property, shown
in the sketch appended thereto as Annex "A." The lease was for the period of
October 1, 1966 to midnight of October 1, 1990. The property was to be used
for shipyard slipways and the lessees other allied businesses. The NIC obliged
itself to construct two slipways, with all its accessories, within the first 10 years
of the lease with a total value of not less than 450,000.00.3
On March 14, 1973, the property was mortgaged to the China Banking
Corporation (CBC) as security for a loan by two of Carmen Cruzs children,
Mariano and Gabriel.4 The owners duplicate of the title was delivered to and
kept by the CBC as mortgagee.
On December 31, 1974, Carmen Cruz executed a Deed of Absolute Sale of
Realty with Assumption of Mortgage in which she, as vendor, sold and
conveyed the property to her children, namely, Serafin D. Cruz (married
to Adelaida Cruz), Mariano Cruz, Rogelio Cruz, Sr. Carmencita Cruz and Sr.
Mary Carmela Cruz, for the purchase price of 350,000.00 which the vendor
acknowledged to have received from the vendees.5
In a Letter6 dated November 22, 1976, Mariano Cruz, in his behalf and in behalf
of the other vendees, requested CBC to conform to the sale of the property, a
copy of which was attached to the said letter. The CBC refused.
In the meantime, relations between Carmen Cruz and her children became
strained. She believed that her children had ignored her and failed to take care
of her.
On June 27, 1977, Mariano Cruz, for himself and in behalf of the other vendees,
presented the said deed of sale to the Register of Deeds for registration
purposes.7 In the same letter, they requested the Register of Deeds to request
the CBC for the transmittal of the owners TCT No. 81574 for the annotation
of the Deed of Sale with Assumption of Mortgage. However, on June 28, 1977,
the CBC, through counsel, wrote Mariano Cruz, informing him that Carmen
Cruz had instructed it not to conform to the Deed of Sale with Assumption of
Mortgage, and not to surrender the owners duplicate of the said title.
In the meantime, the balance of the loan account secured by the mortgage was
paid to the CBC. Thus, on June 29, 1977, the CBC executed a Cancellation of
Real Estate Mortgage over the property.8 However, the deed was not presented
to the Register of Deeds for registration.
On the same day, Mariano Cruz executed an Affidavit of Adverse
Claim9 stating, inter alia, that he and the others named therein were the vendees
of the property as evidenced by a Deed of Sale with Assumption of Mortgage
appended thereto, and that, to protect their rights and interests, the said affidavit
of adverse claim was being executed as a cautionary notice to third persons and
the world that the property had been sold to them. It was, likewise, stated that
Carmen Cruz had ordered the CBC not to surrender the owners duplicate of
TCT No. 81574. The aforesaid affidavit of adverse claim was inscripted at the
dorsal portion of the title10 on June 30, 1977 as Entry No. 22178.
In a Letter11 dated July 1, 1977, the Register of Deeds requested CBC to
surrender the owners duplicate of TCT No. 81574, pursuant to Section 72 of
Act 496, in order that proper memorandum be made thereon. The Register of
Deeds was obviously unaware that the CBC had already executed the
cancellation of real estate mortgage on June 29, 1977.
On July 30, 1977, Carmen Cruz, as lessor, and the NIC, as lessee, executed a
Supplementary Lease Agreement;12the October 5, 1966 Contract of Lease
earlier executed by the parties was modified, in that the terms of the
lease was extended for another 15 years to expire on October 1, 2005. The
lessee was, likewise, given up to October 1, 1982 within which to construct the
two slipways at a cost of not less than 600,000.00 and increasing the lease
rental for the property. The lessee was granted the option to buy the property
for the price of 1,600,000.00. On the same day, the parties executed a Contract
of Lease13 over an additional portion of the property, with an area of 590.58
square meters, as shown in the sketch appended thereto. However, the said
contracts were not presented for registration to the Register of Deeds.
On September 14, 1977, the aforesaid Cancellation of Real Estate Mortgage the
CBC had earlier executed (on June 29, 1977) was presented to the Register of
Deeds and annotated at the dorsal portion of TCT No. 81574 as Entry No.
27796. The following were, likewise, presented to the Register of Deeds for
registration, and, thereafter, annotated at the dorsal portion of the said title: the
Contract of Lease dated October 5, 1966 (Entry No. 27797), the July 30, 1977
Contract of Lease (Entry No. 27798), and the Supplementary Lease Agreement
(Entry No. 27799).14
In the meantime, Mariano Cruz and the other vendees presented the Deed of
Sale with Assumption of Mortgage to the Register of Deeds for registration. On
December 19, 1977, the Register of Deeds cancelled the said title and issued
TCT No. 11272 in the names of the new owners. TCT No. 11272 was later
cancelled by TCT No. R-11830.
In a Letter15 dated October 20, 1978, Mariano Cruz, et al. informed the NIC
that the property had been sold to them, and gave it 30 days from receipt of the
letter to vacate the property and return possession to them. The vendees,
likewise, informed the NIC that since the October 5, 1966 Contracts of Lease
and the July 30, 1977 Supplementary Lease Agreement were annotated at the
back of TCT No. 81574 only on September 14, 1977, after the affidavit of
adverse claim of Mariano Cruz, et al. was annotated on June 29, 1977, such
contracts were null and void. However, the NIC refused to vacate the property.
In the meantime, the property was subdivided into three lots: Lots 1-A, 1-B and
1-C. Lot 1-A had an area of 6,307 square meters, covered by TCT No.
8509916 issued on July 5, 1982.
Carmen Cruz filed a complaint with the RTC of Navotas against Cipriano
Bautista, in his capacity as president of the NIC, for the declaration of nullity
of the July 30, 1977 Supplementary Lease Agreement and Contract of Lease,
and for the cancellation of the annotation at the back of TCT No. 81574
referring to the said contracts. The complaint was amended to implead the NIC
as party-defendant. Carmen Cruz alleged therein that she was the owner-lessor
of the property subject of the said contract; the NIC failed to construct the two
slipways within the period stated in the lease contract; it took advantage of the
animosity between her and her children, and caused the preparation of the July
30, 1977 Supplementary Lease Agreement and Contract of Lease; the NIC was
able to insert therein blatantly erroneous, one-sided and highly unfair
provisions; and that the said contracts were even extended for a period long
beyond her life expectancy (the plaintiff was then almost 80 years old). She
further alleged that the provisions in the Contract of Lease and Supplementary
Lease Agreement which granted NIC the exclusive option to buy the property,
was a sham. She prayed that, after due proceedings, judgment be rendered in
her favor:
WHEREFORE, it is respectfully prayed that judgment be rendered declaring
the Supplementary Contract of Lease dated July 30, 1977 as null and void ab
initio; ordering the defendant and all persons claiming possession of the
premises under it to vacate and turn over the premises to the plaintiffs; ordering
the defendant to pay the reasonable monthly rental of 10,000.00 for the
48
occupancy of the premises, beginning October 1, 1990, until it vacates the
premises; ordering the defendant to pay the plaintiffs the sum of 30,000.00 as
moral damages; the sum of 50,000.00 as attorneys fees, and the sum of
1,000.00 as appearance fee of the undersigned counsel; to pay the sum of
5,000.00 as litigation expenses; plus costs of suit.
Plaintiffs further pray for such other relief and remedies they are entitled to in
the premises.17
Mariano Cruz and his siblings filed a complaint-in-intervention in the said case,
alleging that they were the co-owners of the property, and praying that judgment
be rendered in their favor, as follows:
WHEREFORE, it is respectfully prayed that judgment be rendered rescinding
the Contract of Lease dated October 5, 1966, (Annex "B"), declaring as null and
void the Supplementary Lease Agreement (Annex "C"), and the Contract of
Lease (Annex "D"), both dated July 30, 1977, for having been entered into by
the plaintiff who had long ceased to be the owner of the property in question,
awarding the sum of 450,000.00, actual damages, representing the value of the
improvements which the defendants bound themselves to introduce in the
premises; awarding the plaintiffs-intervenors the sum of 100,000.00 as
exemplary damages; the sum of 150,000.00 as moral damages; 50,000.00 as
attorneys fees and 10,000.00 as litigation expenses.
Plaintiffs-intervenors further pray for such other relief and remedies they are
entitled to in the premises.18
However, Carmen Cruz filed a motion to dismiss the amended complaint. On
February 6, 1984, the trial court issued an Order19 granting the motion and
dismissing the amended complaint and the complaint-in-intervention. The order
became final and executory.
On June 23, 1990, Mariano Cruz, et al. wrote the NIC that they would no longer
renew the October 5, 1966 contract of lease which was to expire on October 1,
1990; as far as they were concerned, the July 30, 1977 Supplementary Lease
Agreement and Contract of Lease were null and void, the same having been
executed and annotated on September 14, 1977 at the back of TCT No. 81574
long after the annotation of the affidavit of the adverse claim of Mariano
Cruz, et al. on June 30, 1977.20
In a Letter21 dated January 11, 1991, Mariano Cruz, et al. wrote the NIC,
demanding that it vacate the property within 30 days from notice thereof,
otherwise, a complaint for unlawful detainer would be filed against it. However,
the NIC refused to vacate the property.
On April 18, 1991, Mariano Cruz and his siblings filed a Complaint22 against
the NIC with the Municipal Trial Court (MTC) of Navotas for ejectment.
However, on June 11, 1992, the trial court issued an Order23
dismissing the complaint, on the ground that it had no jurisdiction over the case,
it appearing that the validity of the July 30, 1977 Supplementary Lease
Agreement and the Contract of Lease, in relation to the deed of absolute sale
with assumption of mortgage executed by Carmen Cruz, were intertwined with
the issue of NICs right of possession. The plaintiffs sought a motion for
reconsideration of the decision, which the MTC denied on September 15, 1992.
The plaintiffs appealed to the RTC, which rendered a decision granting the
appealed decision.24 The plaintiffs-appellants filed a petition for review with
the CA. On July 13, 1993, the CA affirmed the decision of the RTC and
dismissed the petition.25 The decision became final and executory.
In the meantime, Mariano Cruz died intestate and was survived by his son
Mariano Cruz, Jr.; Rogelio Cruz, likewise, died and was survived by his
children Sylvia, Rosyl, Rogelio, Jr., Sergio and Estrella, all surnamed Cruz;
Serafin Cruz also died and was survived by his wife Adelaida, and his children
Merceditas and Gabriel. TCT No. 81574 was reconstituted and TCT No. R-
85099 was issued.
On January 24, 1995, German and Marcelo Cruz, Rosalina Cruz-Laiz, Mariano
Cruz, Jr. and the said heirs filed a Complaint against Carmen Cruz, as unwilling
plaintiff, and the NIC with the RTC of Malabon for the nullification of the July
30, 1977 Supplementary Lease Agreement and Contract of Lease. The
complaint was amended to allege that they were the co-owners of the property
covered by TCT No. 85099 based on the Deed of Sale with Assumption of
Mortgage executed by Carmen Cruz on December 31, 1974; an affidavit of
adverse claim was annotated at the dorsal portion of TCT No. 81574 on June
30, 1977, despite which NIC caused Carmen Cruz to execute, on July 30, 1977,
a Supplementary Lease Agreement and Contract of Lease by taking advantage
of her age, mental weakness and lack of will; and that NIC failed to pay rentals
for the property. The plaintiffs prayed that:
WHEREFORE, it is respectfully prayed that, after trial on the merits, judgment
be rendered in favor of the plaintiffs as follows:
1. Under the First Alternative Cause of Action, declaring the Contract of Lease
dated 30 July 1977 and the Supplementary Lease Contract dated 30 July 1977,
Annex "D" hereof, as null and void ab initio; or, alternatively,
Under the Second Alternative Cause of Action, annulling the said Contract of
Lease and Supplementary Lease Contract.
Under the Third Alternative Cause of Action, rescinding and canceling the
Contract of Lease and Supplementary Lease Agreement, ordering the
defendants to vacate the leased premises and to pay plaintiffs all unpaid rentals
from 1 October 1991 until defendants vacate the premises.
2. Under the Second Cause of Action, ordering defendants NAVOTAS and
Bautista to vacate and surrender the possession of the subject property and all
improvements thereon to the plaintiffs;
3. Under the Third Cause of Action, ordering defendants NAVOTAS and
Bautista, jointly and severally, to pay plaintiffs the reasonable compensation for
the use of the premises in the amount of at least 10,000.00 a month from
October 1990 up to the filing of this Complaint, totalling 500,000.00, as well
as 10,000.00 every month thereafter until defendants shall have vacated and
surrendered the premises to the plaintiffs.
4. Under the Fourth Cause of Action, ordering defendants NAVOTAS and
Bautista, jointly and severally, to pay the plaintiffs exemplary damages of at
least 50,000.00 or such amount as the Honorable Court may deem just and
equitable in the premises; and
5. Under the Fifth Cause of Action, ordering defendants NAVOTAS and
Bautista to pay plaintiff attorneys fees and expenses of litigation in such
amount as may be established during the trial, but not less than 35,000.00.
Plaintiffs pray for such other reliefs just and equitable in the premises.26
In her answer with cross-claim, Carmen Cruz alleged, inter alia, that she was
willing to be made a party-plaintiff, although she was initially reluctant to
become one because of the burden of a court hearing; she admitted that the
plaintiffs were the co-owners of the property; Bautista was granted an
"exclusive option to buy" the leased property at the ridiculously low fixed price
of 1,600,000.00, which, according to Carmen Cruz, was an option
unsupported by any consideration; hence, null and void.27
Carmen Cruz prayed that, after due proceedings, judgment be rendered in her
favor:
WHEREFORE, it is most respectfully prayed that the complaint as against
answering defendant be dismissed, and that:
AS TO THE CROSS-CLAIM
a) The Contract of Lease and the Supplemental Lease Contract be declared null
and void due to vitiated consent;
b) In the event that monetary judgment be rendered by this Honorable Court
against answering defendant in favor of the plaintiffs, her co-defendants,
Navotas Industrial Corporation and Bautista, be made to reimburse her for all
or part of the said judgment;
c) Co-defendants be ordered to pay her moral as well as exemplary damages in
the amount which this Honorable Court may deem just and proper;
d) Co-defendants, instead of answering defendants, be, likewise, ordered to pay
the plaintiffs, the rentals in arrears over the premises which now amounts to
147,000.00.
BOTH AS TO COUNTERCLAIM AND CROSS-CLAIM
49
a) Plaintiffs and co-defendants be ordered, jointly and severally, to reimburse
answering defendant the sum of 30,000.00 which the latter paid her counsel
as and for attorneys fees for unnecessarily dragging her into this suit including
the amount of 1,000.00 which she will pay her lawyer for every appearance;
b) Likewise, the costs of suit and other litigation expenses.
Other reliefs and remedies reasonable under the premises are similarly prayed
for.28
In its amended answer, NIC alleged that its July 30, 1977 Supplementary Lease
Agreement and Contract of Lease were valid, whereas the deed of absolute sale
with assumption of mortgage executed by Carmen Cruz in favor of the plaintiffs
was null and void for being simulated and fraudulent. NIC and Bautista further
alleged that it was exercising its option to buy the subject property now covered
by TCT No. 85099;29 it, likewise, offered 1,600,000.00 as consideration for
the sale to be paid upon the execution of a deed of transfer.30
NIC and Bautista prayed that, after due proceeding, judgment be rendered in
their favor, thus:
WHEREFORE, premises considered, herein answering defendants respectfully
prayed that the complaint be dismissed for lack of merit.
On the Counterclaim: (a) that the "Contract of Lease" and the "Supplementary
Lease Agreement" be declared valid, legal and binding between Carmen Vda.
de Cruz and defendants Navotas and Bautista, as well as their respective heirs,
successors or assigns, while the "Deed of Absolute Sale with Assumption of
Mortgage" be declared null and void so far as it prejudiced and adversely
affected the rights of defendants Navotas and Bautista on the portion of the
property leased to it; (b) that the plaintiffs and Carmen Vda. de Cruz be ordered
to accept the sum of 1,600,000.00 representing the option money for the
purchase of the property subject of the lease contract specifically that which is
now covered by TRANSFER CERTIFICATE OF TITLE NO. R-85099 and to
execute and sign the necessary deed of conveyance therefore in favor of
defendant Navotas and/or Bautista; and (c) that plaintiffs and Carmen Vda. de
Cruz be ordered and condemned, jointly and severally, to pay defendants
Navotas and Bautista moral and exemplary damages of not less than
80,000.00, attorneys fees and litigation expenses of not less than 50,000.00,
and the costs of suit.
Herein answering defendants further pray for such other reliefs and remedies
available in the premises.31
In the meantime, Carmen Cruz died intestate on November 20, 1995 at the age
of 97. She was survived by the plaintiffs as her heirs.32
On March 7, 2000, the trial court rendered judgment in favor of the NIC and
Bautista. The fallo of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered:
a) Affirming the validity of the Contract of Lease and the Supplementary Lease
Agreement, both dated 30 July 1977, including the provision granting
defendants exclusive option to buy the subject property.
b) Affirming the full rental payments made by defendants Navotas and Bautista
for the lease of the subject property until the expiration thereof.
c) Denying the claims for actual and compensatory, moral and exemplary
damages as well as attorneys fees interposed by plaintiffs against defendants.
d) Denying the claims for moral and exemplary damages interposed by
defendants Navotas and Bautista against plaintiffs.
e) The Deed of Absolute Sale with Assumption of Mortgage is hereby declared
null and void as far as it prejudiced and is adversely affecting the rights of
defendants Navotas and Bautista on the portion thereof leased to them. The
plaintiffs, as heirs of defendant Cruz, are hereby ordered to accept the sum of
1,600,000.00 representing the option money for the purchase of the subject
property subject of the lease contract specifically that which is now covered by
Transfer Certificate of Title No. R-85099 and to execute and sign the necessary
deed of conveyance therefor in favor of defendants Navotas and/or Bautista.
f) Ordering plaintiffs to pay defendants Navotas and Bautista 20,000.00 by
way of reasonable attorneys fees.
Costs against the plaintiffs.33
The trial court declared that when defendant Carmen Cruz executed the July 30,
1977 Supplementary Lease Agreement and Contract of Lease, she was still the
owner of the property; as such, NIC was not bound by the deed of sale with
assumption of mortgage executed by Carmen Cruz because it was not a party
thereto; and that such deed was not registered with the Office of the Register of
Deeds. The trial court ruled that the plaintiffs failed to prove fraud and undue
influence on Carmen Cruz and/or that NIC took advantage of her mental
weakness. The RTC ruled that only Carmen Cruz had the right to rescind the
contracts of lease and supplementary lease agreement. The option to buy the
property granted to NIC was supported by a consideration, more specifically
the 42,000.00 rental payment it made upon the execution of the said contracts.
The plaintiffs appealed the decision to the CA wherein they alleged that:
I
THE TRIAL COURT ERRED IN HOLDING THAT APPELLEES WERE
NOT BOUND BY THE DEED OF ABSOLUTE SALE OF REALTY WITH
ASSUMPTION OF MORTGAGE WHICH APPELLANTS ANNOTATED
AS AN ADVERSE CLAIM ON THE CERTIFICATE OF TITLE OF THE
PROPERTY AS EARLY AS 30 JUNE 1977 BEFORE APPELLEES
REGISTERED THE QUESTIONED LEASE CONTRACTS ON 14
SEPTEMBER 1977.
II
THE TRIAL COURT ERRED IN COMPLETELY IGNORING THE
OVERWHELMING EVIDENCE ON RECORD SHOWING THAT
APPELLEES HAD ACTUAL AND CONSTRUCTIVE NOTICE OF THE
SALE OF THE SUBJECT PROPERTY TO THE CRUZ CHILDREN IN 1974,
AND THUS KNEW OR OUGHT TO HAVE KNOWN THAT IN
EXECUTING THE QUESTIONED LEASE CONTRACTS WITH MRS.
CRUZ IN 1977, THEY WERE DEALING WITH ONE WHO WAS NO
LONGER THE OWNER OF THE PROPERTY WHO CAN BIND THE
SAME UNDER THE QUESTIONED LEASE CONTRACTS.
III
THE TRIAL COURT ERRED IN HOLDING THAT THE CONSENT OF
MRS. CRUZ TO THE SUBJECT LEASE CONTRACTS HAD NOT BEEN
VITIATED BY UNDUE AND IMPROPER PRESSURE AND INFLUENCE
ON THE PART OF APPELLEES CONSIDERING THAT:
A. THE UNDISPUTED EVIDENCE ON RECORD READILY BEARS OUT
THE UNDUE AND IMPROPER PRESSURE AND INFLUENCE EXERTED
BY APPELLEES ON MRS. CRUZ TO OBTAIN HER CONSENT TO THE
SUBJECT LEASE CONTRACTS;
B. THE VERY TERMS AND CONDITIONS OF THE LEASE CONTRACTS,
WHICH ARE GROSSLY DISADVANTAGEOUS TO MRS. CRUZ, POINT
TO APPELLEES USE OF UNDUE PRESSURE AND INFLUENCE ON
HER TO OBTAIN HER CONSENT TO THE SUBJECT LEASE
CONTRACTS.
IV
THE TRIAL COURT ERRED IN NOT HOLDING, IN THE ALTERNATIVE,
THAT THE SUBJECT LEASE CONTRACTS WERE RENDERED
RESCINDED BY REASON OF APPELLEES MATERIAL BREACHES OF
THE TERMS AND CONDITIONS CONSIDERING THAT:
A. APPELLEES HAD ADMITTEDLY FAILED TO CONSTRUCT THE
SLIPWAYS AS REQUIRED UNDER THE LEASE CONTRACT;
B. THE EVIDENCE FULLY ESTABLISHES THAT APPELLEES HAVE
NOT PAID THE RENTALS DUE ON THE PROPERTY SINCE 1991.
V
50
THE TRIAL COURT ERRED IN DECLARING THE DEED OF ABSOLUTE
SALE WITH ASSUMPTION OF MORTGAGE AS NULL AND VOID AS
AGAINST APPELLEES CONSIDERING THAT THE SAME HAS BEEN
CONFIRMED AND RECOGNIZED IN SUBJECT TRANSFERS
AFFECTING THE SAME PROPERTY.
VI
THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION
CONTRACT FOR APPELLEES PURCHASE OF THE SUBJECT
PROPERTY WAS SUPPORTED BY A SEPARATE CONSIDERATION
AND THUS VALID AND BINDING ON APPELLANTS.
VII
THE TRIAL COURT ERRED IN NOT HOLDING APPELLEES LIABLE TO
APPELLANTS FOR ACTUAL AND COMPENSATORY DAMAGES
CONSISTING OF THE REASONABLE RENTALS ON THE PROPERTY
FROM 2 OCTOBER 1990 UNTIL THE RETURN THEREOF TO
APPELLANTS.
VIII
THE TRIAL COURT ERRED IN ABSOLVING APPELLEES OF
LIABILITY TO APPELLANTS FOR MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES.34
On July 18, 2003, the CA rendered judgment granting the appeal, and reversing
the decision of the RTC. The CA ruled that the appellees had constructive notice
of the Deed of Sale with Assumption of Mortgage, which Carmen Cruz
executed in favor of the appellants, based on the affidavit of adverse claim
annotated on June 29, 1977 at the dorsal portion of TCT No. 81574. The CA
declared that the adverse claim annotated at the dorsal portion of the said title
continued to be effective and remained a lien until cancelled. The CA held that
the option granted to the appellee NIC to purchase the property was not
effective because there was no consideration therefor, apart from NICs rental
payments. Besides, the CA emphasized, when Carmen Cruz executed the July
30, 1977 Supplementary Lease Agreement and Contract of Lease, she was no
longer the owner of the property.
The CA denied NICs motion for reconsideration of the said decision; hence, it
filed the instant petition for review on certiorari, alleging that:
A.
THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE
ERROR WHEN IT DECLARED THAT THE QUESTIONED LEASE
CONTRACTS WERE NULL AND VOID, IT APPEARING IN AN
ADVERSE CLAIM ANNOTATED ON THE CERTIFICATE OF TITLE OF
CARMEN VDA. DE CRUZ THAT SHE WAS NO LONGER THE OWNER
OF THE PROPERTY SUBJECT MATTER THEREOF WHEN THE LEASE
WAS EXECUTED ON JULY 30, 1977.
B.
THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE
ERROR WHEN IT RULED THAT THE OPTION TO BUY THE LEASED
PROPERTY CONTAINED IN THE SUPPLEMENTARY LEASE
CONTRACT IS NOT VALID AND BINDING FOR LACK OF
CONSIDERATION AND CAPACITY OF CARMEN VDA. DE CRUZ TO
CONVEY THE SAME.
C.
THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE
ERROR WHEN IT FAILED TO RECOGNIZE A PRIOR JUDGMENT
BASED ON A COMPROMISE AS A BAR TO THE PROCEEDINGS IN
THIS INSTANT CASE.35
On the first issue, the petitioner avers that the adverse claim annotated at the
dorsal portion of TCT No. 81574 was ineffective because the respondents failed
to submit to the Register of Deeds the owners duplicate of TCT No. 81574, as
mandated by Section 110 of Act No. 496. The annotation of the adverse claim
in the Office of the Register of Deeds on June 29, 1977 on TCT No. 81574
despite such failure to present the owners duplicate of the said title rendered
such inscription ineffectual, not binding on it and Carmen Cruz. Hence, the
petitioner posits, Carmen Cruz remained the lawful owner of the property. Even
Carmen Cruz maintained that she was the owner of the property in her
complaint in Civil Case No. C-7040 filed after the execution of the deed of
absolute sale with assumption of real estate mortgage; she even executed the
July 30, 1977 Supplementary Lease Agreement and Contract of Lease in its
favor. According to the petitioner, the said deed of sale was fictitious as, in fact,
it was rejected by Carmen Cruz.
For their part, the respondents aver that the petitioner had constructive notice
of the said sale, based on the inscription of the affidavit of adverse claim on
June 29, 1977 at the dorsal portion of TCT No. 81574. Besides, the respondents
posit, Cipriano Bautista even admitted having known of the said adverse claim
before the July 30, 1977 Contract of Lease and Supplementary Lease
Agreement were registered in the Office of the Register of Deeds. The
respondents cited the ruling of this Court in Sajonas v. Court of Appeals36 to
support their claim.
On the second issue, the petitioner avers that the exclusive option granted to it
by Carmen Cruz under the Supplementary Lease Agreement was essentially a
mutual promise to buy and sell, equivalent to a reciprocal contract under the
first paragraph of Article 1479 of the New Civil Code. But in the same breath,
the petitioner argues that its exclusive option to buy the property for
1,600,000.00 was supported by a consideration apart from the said amount.
The petitioner insists that the 42,000.00 which it paid to Carmen Cruz as rental
upon the execution of the Supplementary Lease Agreement was "advance
money," which motivated Carmen Cruz to grant the option to the petitioner.
On the third issue, the petitioner argues that the respondents action was barred
by the order of the RTC in Civil Case No. C-7040 dismissing the complaint and
complaint-in-intervention therein, based on a compromise agreement of
Carmen Cruz and petitioner NIC.
The Ruling of the Court
The annotation of an adverse claim is a measure designed to protect the interest
of a person over a part of real property, and serves as a notice and warning to
third parties dealing with the said property that someone is claiming an interest
over it or has a better right than the registered owner thereof.37
On the first issue, we agree with the ruling of the CA that the petitioner had
constructive notice of the Deed of Sale with Assumption of Mortgage executed
by Carmen Cruz in favor of the respondents. The affidavit of adverse claim the
respondents executed on June 29, 1977 was annotated at the dorsal portion of
TCT No. 81574 on June 30, 1977, to wit:
A review of the facts and circumstances in the case at bar reveals that at the
time the Supplementary Lease Agreement and Contract of Lease both dated
July 30, 1977 were executed by and between CARMEN and herein appellees,
CARMEN was apparently no longer the owner of the land covered by TCT No.
81574 subject of this controversy. Obviously, appellees cannot turn a blind eye
on the inscription found on CARMENs certificate of title at the time the
Supplementary Lease Agreement and Contract of Lease were signed on July
30, 1977. Basic is the rule that the annotation of an adverse claim is a measure
designed to protect the interest of a person over a piece of real property and
serves as a notice and warning to third parties dealing with said property that
someone is claiming an interest on the same or a better right than the registered
owner thereof. A subsequent transaction involving the property cannot prevail
over the adverse claim which was previously annotated in the certificate of title
of the property. Here, the records are obvious, the notice of adverse claim
executed on June 29, 1977 was annotated on the title on June 30, 1977, that is,
one month prior to the signing of the disputed lease contracts on July 30, 1977.
Said contracts of lease were belatedly annotated two months after its execution
or on September 14, 1977 only, after appellees were allegedly warned by
CARMEN that her children are desirous of the property leased in their favor.
To say the least, this warning from CARMEN should have aroused appellees
suspicion regarding the status of the prime property they intend to lease for
another fifteen (15) years. 38
Section 110 of Act No. 496 was the law in force when Carmen Cruz executed
the Deed of Sale with Assumption of Mortgage, and when the respondents
executed the affidavit of adverse claim and presented it to the Register of Deeds
on June 30, 1977. The petitioners reliance on the said provision is misplaced.
Indeed, the Register of Deeds acted in accord with Section 110 of Act No. 496
51
when he inscribed the affidavit of adverse claim at the dorsal portion of TCT
No. 81574, despite the non-production of the owners duplicate of TCT No.
81574 simultaneously with the presentation of the affidavit of adverse claim.
The law reads:
SEC. 110. Whoever claims any part or interest in registered land adverse to the
registered owner, arising subsequent to the date of the original registration,
may, if no other provision is made in this Act for registering the same, make a
statement in writing setting forth fully his alleged right or interest, and how or
under whom acquired, and a reference to the volume and page of the certificate
of title of the registered owner, and a description of the land in which the right
or interest is claimed.
The statement shall be signed and sworn to, and shall state the adverse
claimants residence, and designate a place at which all notices may be served
upon him. This statement shall be entitled to registration as an adverse claim,
and the court, upon a petition of any party-in-interest, shall grant a speedy
hearing upon the question of the validity of such adverse claim and shall enter
such decree therein as justice and equity may require. If the claim is adjudged
to be invalid, the registration shall be cancelled. If in any case the court, after
notice and hearing, shall find that a claim thus registered was frivolous or
vexatious, it may tax the adverse claimant double or treble costs in its discretion.
Irrefragably, the Deed of Sale with Assumption of Mortgage which Carmen
Cruz executed on December 31, 1974 was a voluntary act; and under Section
50 of the law, the act of registration shall be the operative act to convey and
affect the land. Indeed, Section 55 of Act No. 496 provides that the presentation
of the owners duplicate certificate of title for the registration of any voluntary
instrument is required:
SEC. 55. No new certificate of title shall be entered, no memorandum shall be
made upon any certificate of title by the register of deeds, in pursuance of any
deed or other voluntary instrument, unless the owners duplicate certificate is
presented for such indorsement, except in cases expressly provided for in this
Act, or upon the order of the court for cause shown; and whenever such order
is made, a memorandum thereof shall be entered upon the new certificate of
title and upon the owners duplicate: Provided, however, That in case the
mortgagee refuses or fails to deliver within a reasonable time to the register of
deeds the duplicate or copy of the certificate of title surrendered by the owner,
after advice by said officer, in order to enable him to register or annotate thereon
another real right acquired by said owner, the record or annotation made on the
certificate in the register book shall be valid for all legal purposes.
The production of the owners duplicate certificate whenever any voluntary
instrument is presented for registration shall be conclusive authority from the
registered owner to the register of deeds to enter a new certificate or to make a
memorandum of registration in accordance with such instrument, and the new
certificate or memorandum shall be binding upon the registered owner and upon
all persons claiming under him, in favor of every purchaser for value and in
good faith: Provided, however, That in all cases of registration procured by
fraud the owner may pursue all his legal and equitable remedies against the
parties to such fraud, without prejudice, however, to the rights of any innocent
holder for value of a certificate of title: And provided, further, That after the
transcription of the decree of registration under this Act procured by the
presentation of a forged duplicate certificate, or of a forged deed or other
instrument, shall be null and void. In case of the loss or theft of an owners
duplicate certificate, notice shall be sent by the owner or by someone in his
behalf to the register of deeds of the province in which the land lies as soon as
the loss or theft is discovered.
This Court explained the rationale of the requirement in L.P. Leviste &
Company, Inc. v. Noblejas:39
The basis of respondent Villanuevas adverse claim was an agreement to sell
executed in her favor by Garcia Realty. An agreement to sell is a voluntary
instrument as it is a willful act of the registered owner. As such voluntary
instrument, Section 50 of Act No. 496 expressly provides that the act of
registration shall be the operative act to convey and affect the land. And Section
55 of the same Act requires the presentation of the owners duplicate certificate
of title for the registration of any deed or voluntary instrument. As the
agreement to sell involves an interest less than an estate in fee simple, the same
should have been registered by filing it with the Register of Deeds who, in turn,
makes a brief memorandum thereof upon the original and owners duplicate
certificate of title. The reason for requiring the production of the owners
duplicate certificate in the registration of a voluntary instrument is that, being a
willful act of the registered owner, it is to be presumed that he is
interested in registering the instrument and would willingly surrender, present
or produce his duplicate certificate of title to the Register of Deeds in order to
accomplish such registration. 40
However, in this case, Carmen Cruz had ordered the CBC, the mortgagee and
custodian of the owners duplicate of TCT No. 81574, not to surrender the
owners duplicate of the said title to the Register of Deeds. The latter thus acted
in accord with law when the affidavit of adverse claim was inscribed at the
dorsal portion of TCT No. 81574 on June 30, 1977. Indeed, this Court ruled
in L.P. Leviste & Company, Inc. v. Noblejas41 that:
However, where the owner refuses to surrender the duplicate certificate for
the annotation of the voluntary instrument, the grantee may file with the
Register of Deeds a statement setting forth his adverse claim, as provided for in
Section 110 of Act No. 496. In such a case, the annotation of the instrument
upon the entry book is sufficient to affect the real estate to which it relates,
although Section 72 of Act No. 496 imposes upon the Register of Deeds the
duty to require the production by the Registered owner of his duplicate
certificate for the inscription of the adverse claim. The annotation of an adverse
claim is a measure designed to protect the interest of a person over a piece of
real property where the registration of such interest or right is not, otherwise,
provided for by the Land Registration Act, and serves as a notice and warning
to third parties dealing with said property that someone is claiming an interest
on the same or a better right than the registered owner thereof.42
Moreover, on June 29, 1977, the balance of Mariano Cruz and Gabriel Cruzs
account with the CBC had already been paid, presumably by Mariano Cruz; and
the CBC had executed a cancellation of real estate mortgage. However, the said
deed was inexplicably not presented to the Register of Deeds for registration.
The general rule is that a person dealing with registered land is not required to
go behind the register to determine the condition of the property. However, such
person is charged with notice of the burden on the property which is noted on
the face of the register or certificate of title.43 A person who deals with
registered land is bound by the liens and encumbrances including adverse claim
annotated therein.44
In the present action, the petitioner caused the annotation of the July 30, 1977
Supplementary Lease Agreement and Contract of Sale only on September 14,
1977, long after the annotation of the respondents adverse claim at the dorsal
portion of TCT No. 81574 on June 30, 1977. Thus, as of that date, the petitioner
had constructive knowledge of the Deed of Sale with Assumption of Mortgage
Carmen Cruz executed on December 31, 1974 in favor of her children. Even
before July 30, 1977, the petitioner had knowledge that Carmen Cruz was no
longer the owner of the property, and had no more right to execute the July 30,
1977 Supplementary Lease Agreement and Contract of Lease. The registration
of the said lease contracts was of no moment, since it is understood to be without
prejudice to the better rights of third parties.45
While it is true that in the complaint and amended complaint in Civil Case No.
C-7040, Carmen Cruz alleged that she was the owner-lessor of the
property, such allegation cannot detract from the fact that the property had
already been registered under the names of the respondents under TCT No.
11272, later cancelled by TCT No. R-11830. The petitioner was informed by
the respondents that they were the registered owners of the property. Moreover,
the already aging Carmen Cruz and her children had a domestic quarrel, and
animosity that caused her to go into seclusion; she thought then that her children
had abandoned her. The attendant circumstances must have influenced Carmen
Cruz to erroneously allege in her complaint that she was the owner of the
property.46
Even then, on February 23, 1988, Carmen Cruz executed an Affidavit in which
she swore that she had sold the property to her children:
3. That among the parcels of land which I have sold was that parcel located in
Barrio Almacen, Navotas, Rizal, then covered by Transfer Certificate of Title
No. 81574 of the Register of Deeds of Rizal in favor of my children Serafin D.
Cruz, Mariano D. Cruz, Rogelio D. Cruz, Sr. Carmencita Cruz and Sr. Mary
Carmellas as vendees, with the agreement that the then existing mortgage with
the China Banking Corporation shall be assumed and settled by said vendees,
as embodied in a document entitled "Deed of Absolute Sale of Realty with
52
Assumption of Mortgage," which I executed on December 31, 1974 and entered
in the notarial register of Notary Public P. Dario Guevarra, Jr. as Doc. No. 198,
Page No. 41, Book No. 198, Series of 1975.47
7. That in view of these developments and considering my advanced age and
present physical condition and now realizing that I may have been unduly taken
advantage of by some parties to promote their own selfish interests, I now
hereby execute this sworn statement and hereby affirm the validity of the sale
of said parcel of land covered by TCT No. 81574 of the Register of Deeds of
Rizal and hereby state that said sale was entered into by me of my own free will
and for valuable consideration.48
In her answer to the respondents amended complaint in the trial court, Carmen
Cruz reiterated that she had sold the property to her children:
2.5. On 31 December 1974, she sold the subject property to the plaintiffs for
valuable consideration, free from all liens and encumbrances and claim of third
parties, except that pertaining to a real estate mortgage with China Banking
Corporation as evidenced by a notarized "Deed of Absolute Sale of Realty with
Assumption of Mortgage" dated 31 December 1974, a photocopy of which is
hereto attached and made an integral part hereof as Annex "B";
2.6. After she sold the subject lot to the plaintiffs herein, the latter tried to effect
the registration and annotation of the said transfer with the Registry of Deeds
of Rizal sometime in 28 June 1977 but China Banking Corporation, the
mortgagee, through its legal counsel, Atty. Arsenio Sy Santos, refused to release
the title thus the delay in the registration of the said "Deed of Sale with
Assumption of Mortgage" which she executed in favor of the plaintiffs
involving the subject parcel of land with the Registry of Deeds;
2.7. In order to protect their rights and interests over the subject property, the
plaintiffs, through their appointed attorney-in-fact, Mariano A. Cruz, annotated
an adverse claim on the title which was then still under answering defendants
name, as a cautionary notice to third persons and the whole world that said title
has been transferred by answering defendant in favor of the plaintiffs herein
and that any voluntary dealing thereon shall be considered subject to the said
adverse claim.49
Carmen Cruz also alleged, in her amended complaint in Civil Case No. C-7040,
that the July 30, 1977 Contract of Lease and Supplementary Lease Agreement
she executed in favor of the petitioner were fraudulent.50
In her answer to the amended complaint in the court a quo, Carmen Cruz alleged
that the defendant therein (now the petitioner) was granted an "exclusive option
to buy the leased property at the ridiculously low price of 1,600,000.00,
payable over an unspecified period an option unsupported by any
consideration hence, null and void."51 She elaborated that:
15. That the above-quoted provision is not only a foolery, trickery and a product
of deception because the exercise of the "option" is not fixed the same maybe
conveniently exercised by the defendant at anytime up to the year 2005. Even
the fixing of the sum worded as "flat sum" of One Million Six Hundred
Thousand the valuation fifteen (15) years, hence, (2005) without providing
for the "inflation and deflation" of the currency is grossly prejudicial and unfair.
Moreover, the provision which states that if and when defendants finally
decides to exercise their option during the lifetime of the Lessor, the lessee will
continue paying the rentals is not only illogical, untrue and deceptive, the same
being used mainly as a ploy to win the sympathy and titillate the ego of the old
woman. It is rather unbelievable that being already the owner, defendants will
still pay the rentals. This, to our mind, is the height of hyprocracy.52
On the second issue, we reject the petitioners contention that the exclusive
option granted to it by Carmen Cruz under the Supplementary Lease Agreement
is essentially a mutual promise to buy and sell, equivalent to a reciprocal
contract under the first paragraph of Article 1479 of the New Civil Code, which
reads:
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 the first place, the petitioner insisted in its pleadings in the court a quo that
under the Supplementary Lease Agreement and Contract of Lease, it was
granted the exclusive option to purchase the property leased. The petitioner
maintained its theory of the case in the CA. The petitioner cannot change its
theory, and claim this time that it and Carmen Cruz entered into a promise to
buy and sell the property leased.53
Considering that Carmen Cruz was no longer the owner of the property when
she executed the July 30, 1977 Supplementary Lease Agreement and Contract
of Lease, and that the respondents had acquired ownership over the property as
of December 31, 1974 (which the petitioner had constructive knowledge of
since June 30, 1977), the petitioners claim that it had the option to buy the
property or to compel the respondents to sell the property to it has no legal and
factual basis.
Even after a careful study of the merits of the petition, the Court finds that the
petitioners claim is untenable. The relevant portions of the Supplementary
Lease Agreement read:
4. The LESSEE is hereby granted an exclusive option to buy the property
including all improvements already made by the LESSEE (slipways and
camarines) subject matter of this contract comprising SIX THOUSAND NINE
HUNDRED FORTY-NINE Point FIVE Square Meters (6,949.5) which is one-
half portion of the area covered by TCT No. 81574 and same property subject
matter of this contract should also be equally divided with one-half frontage
along M. Naval Street and along the Navotas River Bank shoreline during the
period of the lease. The price of the property is agreed to be fixed for the
duration of the Option to Buy at a flat sum of ONE MILLION SIX HUNDRED
THOUSAND PESOS (1,600,000.00), Philippine Currency, payable over a
period to be mutually agreed upon. Should the LESSEE exercise the option to
buy during the lifetime of the LESSOR, the LESSEE will continue to pay the
monthly rental to the LESSOR during her lifetime.
5. The LESSEE shall pay to the LESSOR the sum of FORTY-TWO
THOUSAND (42,000.00) PESOS upon signing of this contract as
consideration thereof, to be applied as against the rental for the period from
October 1, 1990 to September 30, 1991.54
It must be stressed that an option contract is a contract granting a privilege to
buy or sell within an agreed time and at a determined price. Such a contract is
a separate and distinct contract from the time the parties may enter into upon
the construction of the option.55 In Carceller v. Court of Appeals,56 the Court
held that an option contract is a preparatory contract in which one party grants
to the other, for a fixed period and under specified conditions, the power to
decide, whether or not to enter into a principal contract. The Court further stated
that:
It binds the party who has given the option, not to enter into the principal
contract with any other person during the period designated, and, within that
period, to enter into such contract with the one to whom the option was granted,
if the latter should decide to use the option. It is a separate agreement distinct
from the contract which the parties may enter into upon the consummation of
the option.57
It is only when the option is exercised may a sale be perfected.58 An option
contract needs to be supported by a separate consideration. The Court defined
consideration for an option in Bible Baptist Church v. Court of Appeals,59as
follows:
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 contract of
option. 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, there was no given period for the petitioner to exercise its
option; it had yet to be determined and fixed at a future time by the parties,
subsequent to the execution of the Supplementary Lease Agreement. There was,
likewise, no consideration for the option. The amount of 42,000.00 paid by
53
the petitioner to Carmen Cruz on July 30, 1977 was payment for rentals from
October 1, 1990 to September 30, 1991, and not as a consideration for the option
granted to the petitioner.

On the third issue, the respondents action in the court a quo was not barred by
the order of the RTC dismissing the complaint of Carmen Cruz, and the
respondents complaint-in-intervention in Civil Case No. 5114. Contrary to the
petitioners claim, Carmen Cruz (the plaintiff therein) and the petitioner (the
defendant therein) did not enter into any compromise agreement in the said
case. Moreover, the dismissal of the complaint, and, consequently, the
respondents complaint-in-intervention was upon motion of plaintiff Carmen
Cruz and without prejudice.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack

of merit. The Decision of the Court of Appeals in CA-G.R. CV No. 69818
is AFFIRMED. Costs against the petitioner.

SO ORDERED.

54
G.R. No. 202050
PHILIPPINE NATIONAL OIL COMPANY and PNOC DOCKYARD &
ENGINEERING CORPORATION, Petitioners
vs.
KEPPEL PHILIPPINES HOLDINGS, INC., Respondent
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari filed under Rule 45 of the
Rules of Court, appealing the decision dated 19 De.cember 20111 and resolution
dated 14 May 20122 of the Court of Appeals (CA) in CA-G.R. CV No. 86830.
These assailed CA rulings affirmed in toto the decision dated 12 January
20063 of the Regional Trial Court (RTC) of Batangas City, Branch 84, in Civil
Case No. 7364.
THE FACTS
The 1976 Lease Agreement and Option to Purchase
Almost 40 years ago or on 6 August 1976, the respondent Keppel Philippines
Holdings, Inc.4 (Keppel) entered into a lease agreement5 (the agreement) with
Luzon Stevedoring Corporation (Lusteveco) covering 11 hectares of land
located in Bauan, Batangas. The lease was for a period of 25 years for a
consideration of P2.1 million.6 At the option of Lusteveco, the rental fee could
be totally or partially converted into equity shares in Keppel.7
At the end of the 25-year lease period, Keppel was given the "firm and
absolute option to purchase"8 the land for 4.09 million, provided that it
had acquired the necessary qualification to own land under Philippine laws
at the time the option is exercised.9 Apparently, when the lease agreement was
executed, less than 60% of Keppels shareholding was Filipino-owned, hence,
it was not constitutionally qualified to acquire private lands in the country.10
If, at the end of the 25-year lease period (or in 2001), Keppel remained
unqualified to own private lands, the agreement provided that the lease would
be automatically renewed for another 25 years.11 Keppel was further allowed to
exercise the option to purchase the land up to the 30th year of the lease (or in
2006), also on the condition that, by then, it would have acquired the requisite
qualification to own land in the Philippines.12
Together with Keppels lease rights and option to purchase, Lusteveco
warranted not to sell the land or assign its rights to the land for the duration of
the lease unless with the prior written consent of Keppel.13 Accordingly, when
the petitioner Philippine National Oil Corporation14 (PNOC) acquired the land
from Lusteveco and took over the rights and obligations under the agreement,
Keppel did not object to the assignment so long as the agreement was annotated
on PNOCs title.15 With PNOCs consent and cooperation, the agreement was
recorded as Entry No. 65340 on PNOCs Transfer of Certificate of Title No. T-
50724.16
The Case and the Lower Court Rulings
On 8 December 2000, Keppel wrote PNOC informing the latter that at least
60% of its shares were now owned by Filipinos.17 Consequently, Keppel
expressed its readiness to exercise its option to purchase the land. Keppel
reiterated its demand to purchase the land several times, but on every occasion,
PNOC did not favourably respond.18
To compel PNOC to comply with the Agreement, Keppel instituted
a complaint for specific performance with the RTC on 26 September 2003
against PNOC.19 PNOC countered Keppels claims by contending that the
agreement was illegal for circumventing the constitutional prohibition against
aliens holding lands in the Philippines.20 It further asserted that the option
contract was void, as it was unsupported by a separate valuable
consideration.21 It also claimed that it was not privy to the agreement.22
After due proceedings, the RTC rendered a decision23 in favour of Keppel
and ordered PNOC to execute a deed of absolute sale upon payment by
Keppel of the purchase price of 4.09 million.24
PNOC elevated the case to the CA to appeal the RTC decision.25 Affirming the
RTC decision in toto, the CA upheld Keppels right to acquire the land.26 It
found that since the option contract was embodied in the agreement a
reciprocal contract the consideration was the obligation that each of the
contracting party assumed.27 Since Keppel was already a Filipino-owned
corporation, it satisfied the condition that entitled it to purchase the land.28
Failing to secure a reconsideration of the CA decision,29 PNOC filed the present
Rule 45 petition before this Court to assail the CA rulings.
THE PARTIES ARGUMENTS and THE ISSUES
PNOC argues that the CA failed to resolve the constitutionality of the
agreement. It contends that the terms of the agreement amounted to a virtual
sale of the land to Keppel who, at the time of the agreements enactment, was a
foreign corporation and, thus, violated the 1973 Constitution.
Specifically, PNOC refers to (a) the 25-year duration of the lease that was
automatically renewable for another 25 years30; (b) the option to purchase the
land for a nominal consideration of 100.00 if the option is exercised anytime
between the 25th and the 30th year of the lease31; and (c) the prohibition
imposed on Lusteveco to sell the land or assign its rights therein during the
lifetime of the lease.32 Taken together, PNOC submits that these provisions
amounted to a virtual transfer of ownership of the land to an alien which act the
1973 Constitution prohibited.
PNOC claims that the agreement is no different from the lease contract
in Philippine Banking Corporation v. Lui She,33 which the Court struck down
as unconstitutional. In Lui She, the lease contract allowed the gradual
divestment of ownership rights by the Filipino owner-lessor in favour of the
foreigner-lessee.34 The arrangement in Lui She was declared as a scheme
designed to enable the parties to circumvent the constitutional
prohibition.35PNOC posits that a similar intent is apparent from the terms of the
agreement with Keppel and accordingly should also be nullified.36
PNOC additionally contends the illegality of the option contract for lack of a
separate consideration, as required by Article 1479 of the Civil Code.37 It claims
that the option contract is distinct from the main contract of lease and must be
supported by a consideration other than the rental fees provided in the
agreement.38
On the other hand, Keppel maintains the validity of both the agreement and the
option contract it contains. It opposes the claim that there was "virtual sale" of
the land, noting that the option is subject to the condition that Keppel becomes
qualified to own private lands in the Philippines.39 This condition ripened in
2000, when at least 60% of Keppels equity became Filipino-owned.
Keppel contends that the agreement is not a scheme designed to circumvent the
constitutional prohibition. Lusteveco was not proscribed from alienating its
ownership rights over the land but was simply required to secure Keppels prior
written consent.40 Indeed, Lusteveco was able to transfer its interest to PNOC
without any objection from Keppel.41
Keppel also posits that the requirement of a separate consideration for an option
to purchase applies only when the option is granted in a separate contract.42 In
the present case, the option is embodied in a reciprocal contract and, following
the Courts ruling in Vda. De Quirino v. Palarca,43 the option is supported by
the same consideration supporting the main contract.
From the parties arguments, the following ISSUES emerge:
First, the constitutionality of the Agreement, i.e., whether the terms of the
Agreement amounted to a virtual sale of the land to Keppel that was designed
to circumvent the constitutional prohibition on aliens owning lands in the
Philippines.
Second, the validity of the option contract, i.e., whether the option to purchase
the land given to Keppel is supported by a separate valuable consideration.
If these issues are resolved in favour of Keppel, a third issue emerges one that
was not considered by the lower courts, but is critical in terms of determining
Keppels right to own and acquire full title to the land, i.e., whether Keppels
equity ownership meets the 60% Filipino-owned capital requirement of the
Constitution, in accordance with the Courts ruling in Gamboa v. Teves.44
THE COURTS RULING
55
I. The constitutionality of the Agreement
The Court affirms the constitutionality of the Agreement.
Preserving the ownership of land, whether public or private, in Filipino hands
is the policy consistently adopted in all three of our constitutions.45 Under the
1935,46 1973,47 and 198748 Constitutions, no private land shall be transferred,
assigned, or conveyed except to individuals, corporations, or associations
qualified to acquire or hold lands of the public domain. Consequently, only
Filipino citizens, or corporations or associations whose capital is 60% owned
by Filipinos citizens, are constitutionally qualified to own private lands.
Upholding this nationalization policy, the Court has voided not only outright
conveyances of land to foreigners,49 but also arrangements where the rights of
ownership were gradually transferred to foreigners.50 In Lui Shui,51 we
considered a 99-year lease agreement, which gave the foreigner-lessee the
option to buy the land and prohibited the Filipino owner-lessor from selling or
otherwise disposing the land, amounted to
a virtual transfer of ownership whereby the owner divests himself in stages
not only of the right to enjoy the land (jus possidendi, jus utendi, jus
fruendi, and jus abutendi) but also of the right to dispose of it (jus disponendi)
rights the sum total of which make up ownership.52 [emphasis supplied]
In the present case, PNOC submits that a similar scheme is apparent from the
agreements terms, but a review of the overall circumstances leads us to reject
PNOCs claim.
The agreement was executed to enable Keppel to use the land for
its shipbuilding and ship repair business.53The industrial/commercial
purpose behind the agreement differentiates the present case from Lui
She where the leased property was primarily devoted to residential
use.54 Undoubtedly, the establishment and operation of a shipyard business
involve significant investments. Keppels uncontested testimony showed that it
incurred P60 million costs solely for preliminary activities to make the land
suitable as a shipyard, and subsequently introduced improvements worth P177
million.55 Taking these investments into account and the nature of the business
that Keppel conducts on the land, we find it reasonable that the agreements
terms provided for an extended duration of the lease and a restriction on the
rights of Lusteveco.
We observe that, unlike in Lui She,56 Lusteveco was not completely denied its
ownership rights during the course of the lease. It could dispose of the lands or
assign its rights thereto, provided it secured Keppels prior written
consent.57 That Lusteveco was able to convey the land in favour of PNOC
during the pendency of the lease58 should negate a finding that the agreements
terms amounted to a virtual transfer of ownership of the land to Keppel.
II. The validity of the option contract
II.A An option contract must be supported by a separate consideration that is
either clearly specified as such in the contract or duly proven by the
offeree/promisee.
An option contract is defined in the second paragraph of Article 1479 of the
Civil Code:
Article 1479. x x x An accepted 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.
An option contract is a contract where one person (the offeror/promissor)
grants to another person (the offeree/promisee) the right or privilege to buy (or
to sell) a determinate thing at a fixed price, if he or she chooses to do so within
an agreed period.59
As a contract, it must necessarily have the essential elements of subject matter,
consent, and consideration.60Although an option contract is deemed a
preparatory contract to the principal contract of sale,61 it is separate and distinct
therefrom,62 thus, its essential elements should be distinguished from those of a
sale.63
In an option contract, the subject matter is the right or privilege to buy (or to
sell) a determinate thing for a price certain,64 while in a sales contract, the
subject matter is the determinate thing itself.65 The consent in an option contract
is the acceptance by the offeree of the offerors promise to sell (or to buy) the
determinate thing, i.e., the offeree agrees to hold the right or privilege to buy
(or to sell) within a specified period. This acceptance is different from the
acceptance of the offer itself whereby the offeree asserts his or her right or
privilege to buy (or to sell), which constitutes as his or her consent to the sales
contract. The consideration in an option contract may be anything of value,
unlike in a sale where the purchase price must be in money or its
equivalent.66 There is sufficient consideration for a promise if there is any
benefit to the offeree or any detriment to the offeror.67
In the present case, PNOC claims the option contract is void for want of
consideration distinct from the purchase price for the land.68 The option is
incorporated as paragraph 5 of the Agreement and reads as
5. If within the period of the first [25] years [Keppel] becomes qualified to own
land under the laws of the Philippines, it has the firm and absolute option to
purchase the above property for a total price of [4,090,000.00] at the end of
the 25th year, discounted at 16% annual for every year before the end of the
25th year, which amount may be converted into equity of [Keppel] at book
value prevailing at the time of sale, or paid in cash at Lustevecos option.
However, if after the first [25] years, [Keppel] is still not qualified to own land
under the laws of the Republic of the Philippines, [Keppels] lease of the above
stated property shall be automatically renewed for another [25] years, under the
same terms and conditions save for the rental price which shall be for the sum
of 4,090,000.00... and which sum may be totally converted into equity of
[Keppel] at book value prevailing at the time of conversion, or paid in cash at
Lustevecos option.
If anytime within the second [25] years up to the [30th] year from the date of
this agreement, [Keppel] becomes qualified to own land under the laws of the
Republic of the Philippines, [Keppel] has the firm and absolute option to buy
and Lusteveco hereby undertakes to sell the above stated property for the
nominal consideration of [100.00.00]...69
Keppel counters that a separate consideration is not necessary to support its
option to buy because the option is one of the stipulations of the lease contract.
It claims that a separate consideration is required only when an option to buy is
embodied in an independent contract.70 It relies on Vda. de Quirino v.
Palarca,71 where the Court declared that the option to buy the leased property
is supported by the same consideration as that of the lease itself: "in reciprocal
contracts [such as lease], the obligation or promise of each party is the
consideration for that of the other."72
In considering Keppels submission, we note that the Courts ruling in 1969
in Vda. de Quirino v. Palarca has been taken out of context and erroneously
applied in subsequent cases. In 2004, through Bible Baptist Church v. CA,73we
revisited Vda. de Quirino v. Palarca and observed that the option to buy given
to the lessee Palarca by the lessor Quirino was in fact supported by a separate
consideration: Palarca paid a higher amount of rent and, in the event that he
does not exercise the option to buy the leased property, gave Quirino the option
to buy the improvements he introduced thereon. These additional concessions
were separate from the purchase price and deemed by the Court as sufficient
consideration to support the option contract.
Vda. de Quirino v. Palarca, therefore, should not be regarded as authority that
the mere inclusion of an option contract in a reciprocal lease contract provides
it with the requisite separate consideration for its validity. The reciprocal
contract should be closely scrutinized and assessed whether it contains
additional concessions that the parties intended to constitute as a
consideration for the option contract, separate from that of the purchase
price.
In the present case, paragraph 5 of the agreement provided that should Keppel
exercise its option to buy, Lusteveco could opt to convert the purchase price
into equity in Keppel. May Lustevecos option to convert the price for shares
be deemed as a sufficient separate consideration for Keppels option to buy?
As earlier mentioned, the consideration for an option contract does not need to
be monetary and may be anything of value.74 However, when the
consideration is not monetary, the consideration must be clearly
specified as such in the option contract or clause.75
56
In Villamor v. CA,76 the parties executed a deed expressly acknowledging that
the purchase price of 70.00 per square meter "was greatly higher than the
actual reasonable prevailing value of lands in that place at that time."77The
difference between the purchase price and the prevailing value constituted as
the consideration for the option contract. Although the actual amount of the
consideration was not stated, it was ascertainable from the contract whose terms
evinced the parties intent to constitute this amount as consideration for the
option contract.78 Thus, the Court upheld the validity of the option contract.79 In
the light of the offerees acceptance of the option, the Court further declared
that a bilateral contract to sell and buy was created and that the parties
respective obligations became reciprocally demandable.80
When the written agreement itself does not state the consideration for the
option contract, the offeree or promisee bears the burden of proving the
existence of a separate consideration for the option.81 The offeree cannot rely
on Article 1354 of the Civil Code,82 which presumes the existence of
consideration, since Article 1479 of the Civil Code is a specific provision on
option contracts that explicitly requires the existence of a consideration distinct
from the purchase price.83
In the present case, none of the above rules were observed. We find nothing in
paragraph 5 of the Agreement indicating that the grant to Lusteveco of the
option to convert the purchase price for Keppel shares was intended by the
parties as the consideration for Keppels option to buy the land; Keppel itself
as the offeree presented no evidence to support this finding. On the contrary,
the option to convert the purchase price for shares should be deemed part of the
consideration for the contract of sale itself, since the shares are merely an
alternative to the actual cash price.1wphi1
There are, however cases where, despite the absence of an express intent in the
parties agreements, the Court considered the additional concessions stipulated
in an agreement to constitute a sufficient separate consideration for the option
contract.
84
In Teodoro v. CA, the sub-lessee (Teodoro) who was given the option to buy
the land assumed the obligation to pay not only her rent as sub-lessee, but also
the rent of the sub-lessor (Ariola) to the primary lessor (Manila Railroad
Company).85 In other words, Teodoro paid an amount over and above the
amount due for her own occupation of the property, and this amount was found
by the Court as sufficient consideration for the option contract.86
In Dijamco v. CA,87 the spouses Dijamco failed to pay their loan with the bank,
allowing the latter to foreclose the mortgage.88 Since the spouses Dijamco did
not exercise their right to redeem, the bank consolidated its ownership over the
mortgaged property.89 The spouses Dijamco later proposed to purchase the
same property by paying a purchase price of 622,095.00 (equivalent to their
principal loan) and a monthly amount of 13,478.00 payable for 12 months
(equivalent to the interest on their principal loan). They further stated that
should they fail to make a monthly payment, the proposal should be
automatically revoked and all payments be treated as rentals for their continued
use of the property.90 The Court treated the spouses Dijamcos proposal to
purchase the property as an option contract, and the consideration for which
was the monthly interest payments.91 Interestingly, this ruling was made despite
the categorical stipulation that the monthly interest payments should be treated
as rent for the spouses Dijamcos continued possession and use of the
foreclosed property.
At the other end of the jurisprudential spectrum are cases where the Court
refused to consider the additional concessions stipulated in agreements as
separate consideration for the option contract.
In Bible Baptist Church v. CA,92 the lessee (Bible Baptist Church) paid in
advance 84,000.00 to the lessor in order to free the property from an
encumbrance. The lessee claimed that the advance payment constituted as the
separate consideration for its option to buy the property.93 The Court, however,
disagreed noting that the 84,000.00 paid in advance was eventually offset
against the rent due for the first year of the lease, "such that for the entire year
from 1985 to 1986 the [Bible Baptist Church] did not pay monthly
rent."94 Hence, the Court refused to recognize the existence of a valid option
contract.95
What Teodoro, Dijamco, and Bible Baptist Church show is that the
determination of whether the additional concessions in agreements are
sufficient to support an option contract, is fraught with danger; in ascertaining
the parties intent on this matter, a court may read too much or too little from
the facts before it.
For uniformity and consistency in contract interpretation, the better rule to
follow is that the consideration for the option contract should be clearly
specified as such in the option contract or clause. Otherwise, the offeree
must bear the burden of proving that a separate consideration for the
option contract exists.
Given our finding that the Agreement did not categorically refer to any
consideration to support Keppels option to buy and for Keppels failure to
present evidence in this regard, we cannot uphold the existence of an option
contract in this case.
II.B. An option, though unsupported by a separate consideration, remains an
offer that, if duly accepted, generates into a contract to sell where the parties
respective obligations become reciprocally demandable
The absence of a consideration supporting the option contract, however, does
not invalidate an offer to buy (or to sell). An option unsupported by a
separate consideration stands as an unaccepted offer to buy (or to sell)
which, when properly accepted, ripens into a contract to sell. This is the rule
established by the Court en banc as early as 1958 in Atkins v. Cua Hian
Tek,96 and upheld in 1972 in Sanchez v. Rigos.97
Sanchez v. Rigos reconciled the apparent conflict between Articles 1324 and
1479 of the Civil Code, which are quoted below:
Article 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.
Article 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. [emphases supplied]
The Court en banc declared that there is no distinction between these two
provisions because the scenario contemplated in the second paragraph of
Article 1479 is the same as that in the last clause of Article 1324.98 Instead of
finding a conflict, Sanchez v. Rigos harmonised the two provisions, consistent
with the established rules of statutory construction.99
Thus, when an offer is supported by a separate consideration, a valid
option contract exists, i.e., there is a contracted offer100 which the offeror
cannot withdraw from without incurring liability in damages.
On the other hand, when the offer is not supported by a separate consideration,
the offer stands but, in the absence of a binding contract, the offeror may
withdraw it any time.101 In either case, once the acceptance of the offer is duly
communicated before the withdrawal of the offer, a bilateral contract to buy and
sell is generated which, in accordance with the first paragraph of Article 1479
of the Civil Code, becomes reciprocally demandable.102
Sanchez v. Rigos expressly overturned the 1955 case of Southwestern Sugar v.
AGPC,103 which declared 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.104 [emphasis supplied]
The Southwestern Sugar doctrine was based on the reasoning that Article 1479
of the Civil Code is distinct from Article 1324 of the Civil Code and is a
provision that specifically governs options to buy (or to sell).105 As
mentioned, Sanchez v. Rigos found no conflict between these two provisions
and accordingly abandoned the Southwestern Sugar doctrine.
Unfortunately, without expressly overturning or abandoning the Sanchez ruling,
subsequent cases reverted back to the Southwestern Sugar doctrine.106 In
2009, Eulogio v. Apeles107 referred to Southwestern Sugar v. AGPC as the
57
controlling doctrine108 and, due to the lack of a separate consideration, refused
to recognize the option to buy as an offer that would have resulted in a sale
given its timely acceptance by the offeree. In 2010, Tuazon v. Del Rosario-
Suarez109 referred to Sanchez v. Rigos but erroneously cited as part of its ratio
decidendi that portion of the Southwestern Sugar doctrine that Sanchez had
expressly abandoned.110
Given that the issue raised in the present case involves the application of Article
1324 and 1479 of the Civil Code, it becomes imperative for the Court [en banc]
to clarify and declare here which between Sanchez and Southwestern Sugar is
the controlling doctrine.
The Constitution itself declares that "no doctrine or principle of law laid down
by the court in a decision rendered en banc or in division may be modified or
reversed except by the court sitting en banc."111 Sanchez v. Rigos was an en
banc decision which was affirmed in 1994 in Asuncion v. CA,112 also an en
banc decision, while the decisions citing the Southwestern Sugar doctrine are
all division cases.113 Based on the constitutional rule (as well as the inherent
logic in reconciling Civil Code provisions), there should be no doubt
that Sanchez v. Rigos remains as the controlling doctrine.
Accordingly, when an option to buy or to sell is not supported by a
consideration separate from the purchase price, the option constitutes as an offer
to buy or to sell, which may be withdrawn by the offeror at any time prior to
the communication of the offerees acceptance. When the offer is duly accepted,
a mutual promise to buy and to sell under the first paragraph of Article 1479 of
the Civil Code ensues and the parties respective obligations become
reciprocally demandable.
Applied to the present case, we find that the offer to buy the land was timely
accepted by Keppel.
As early as 1994, Keppel expressed its desire to exercise its option to buy the
land. Instead of rejecting outright Keppels acceptance, PNOC referred the
matter to the Office of the Government Corporate Counsel (OGCC). In its
Opinion No. 160, series of 1994, the OGCC opined that Keppel "did not yet
have the right to purchase the Bauan lands."114 On account of the OGCC
opinion, the PNOC did not agree with Keppels attempt to buy the
land;115nonetheless, the PNOC made no categorical withdrawal of the offer to
sell provided under the Agreement.
Although the ruling was made in the context of ownership and operation of
public utilities, the same should be applied to the ownership of public and
private lands, since the same proportion of Filipino ownership is required and
the same nationalist policy pervades.
The uncontested fact is that, as of November 2000, Keppel's capital is 60%
Filipino-owned.127 However, there is nothing in the records showing the nature
and composition of Keppel' s shareholdings, i.e., whether its shareholdings are
divided into different classes, and 60% of each share class is legally and
beneficially owned by Filipinos - understandably because when Keppel
exercised its option to buy the land in 2000, the Gamboa ruling had not yet been
promulgated. The Court cannot deny Keppel its option to buy the land by
retroactively applying the Gamboa ruling without violating Keppel's vested
right. Thus, Keppel's failure to prove the nature and composition of its
shareholdings in 2000 could not prevent it from validly exercising its option to
buy the land.
Nonetheless, the Court cannot completely disregard the effect of
the Gamboa ruling; the 60% Filipino equity proportion is a continuing
requirement to hold land in the Philippines. Even in Gamboa, the Court
prospectively applied its ruling, thus enabling the public utilities to meet the
nationality requirement before the Securities and Exchange Commission
commences administrative investigation and cases, and imposes sanctions for
noncompliance on erring corporations.128 In this case, Keppel must be allowed
to prove whether it meets the required Filipino equity ownership and proportion
in accordance with the Gamboa ruling before it can acquire full title to the land.
In view of the foregoing, the Court AFFIRMS the decision dated 19 December
2011 and the resolution dated 14 May 2012 of the CA in CA-G.R. CV No.
86830 insofar as these rulings uphold the respondent Keppel Philippines
Holdings, Inc.' s option to buy the land, and REMANDS the case to the
Regional Trial Court of Batangas City, Branch 84, for the determination of
whether the respondent Keppel Philippines Holdings, Inc. meets the required
Filipino equity ownership and proportion in accordance with the Court's ruling
in Gamboa v. Teves, to allow it to acquire full title to the land.
SO ORDERED.

By 2000, Keppel had met the required Filipino equity proportion and duly
communicated its acceptance of the offer to buy to PNOC.116 Keppel met with
the board of directors and officials of PNOC who interposed no objection to the
sale.117 It was only when the amount of purchase price was raised that the
conflict between the parties arose,118 with PNOC backtracking in its position
and questioning the validity of the option.119

Thus, when Keppel communicated its acceptance, the offer to purchase the
Bauan land stood, not having been withdrawn by PNOC. The offer having
been duly accepted, a contract to sell the land ensued which Keppel can
rightfully demand PNOC to comply with.

III. Keppels constitutional right to acquire full title to the land

Filipinization is the spirit that pervades the constitutional provisions on national

patrimony and economy. The Constitution has reserved the ownership of public
and private lands,120 the ownership and operation of public utilities,121 and
certain areas of investment122 to Filipino citizens, associations, and
corporations. To qualify, sixty per cent (60%) of the association or
corporations capital must be owned by Filipino citizens. Although the 60%
Filipino equity proportion has been adopted in our Constitution since 1935, it
was only in 2011 that the Court interpreted what the term capital constituted.

In Gamboa v. Teves,123 the Court declared that the "legal and beneficial
ownership of 60 percent of the outstanding capital stock must rest in the hands
of Filipino nationals."124 Clarifying the ruling, the Court decreed that the 60%
Filipino ownership requirement applies separately to each class of shares,
whether with or without voting rights,125 thus:

Applying uniformly the 60-40 ownership requirement in favour of Filipino

citizens to each class of shares, regardless of differences in voting rights,
privileges and restrictions, guarantees effective Filipino control of public
utilities, as mandated by the Constitution.126

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