G.R. No.
103577 October 7, 1996 It is essential to distinguish between a contract to sell and a conditional contract of sale specially
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL,
ANNABELLE C. GONZALES (for herself and on behalf of Florida C. Tupper, as attorney-
in-fact), CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS
MABANAG vs. THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and
RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-fact
FACTS:
 In 1985, Romulo Coronel, et al. executed a document (Receipt of Down Payment) in
favor of Ramona Alcaraz acknowledging the down payment of purchase price of an
inherited house and lot in QC. The property was later transferred in their names;
 Not long after, Coronels sold the subject property to Catalina Mabanag for P1.58M after
Mabanag deposited P300k. For this reason, Coronels cancelled and rescinded the
contract with Ramona by depositing the P50K downpayment to the trust bank account of
Alcaraz prompting Alcaraz’s to file a complaint for specific performance against the
Coronels;
 Unheeded, Coronels executed a Deed of Absolute Sale over the subject property in favor
of Catalina. Hence, a new title over the subject property was issued in the name of
Catalina.
 After trial, RTC Quezon City rendered judgment for specific performance and ordered
Colonels to execute in favor of Alcaraz’s a deed of absolute sale covering the subject
property. CA affirmed.
Alcaraz’s: a perfected contract of sale, which perforce, they seek to enforce by means of an action
for specific performance
Colonels: the document signified was a mere executory contract to sell, subject to certain
suspensive conditions, and because of the absence of Ramona P. Alcaraz, who left for the United
States of America, said contract could not possibly ripen into a contract absolute sale
ISSUE: W/N the Receipt of Down Payment constitutes a perfected Contract of Sale
RULING: YES. The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The
essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the
price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
A Contract to Sell may not be considered as a Contract of Sale because the first essential element
is lacking. In a contract to sell, the prospective seller explicity reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer
ownership of the property subject of the contract to sell until the happening of an event, which for
present purposes we shall take as the full payment of the purchase price. What the seller agrees or
obliges himself to do is to fulfill is promise to sell the subject property when the entire amount of
the purchase price is delivered to him. In other words the full payment of the purchase price
partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from
arising and thus, ownership is retained by the prospective seller without further remedies by the
prospective buyer.
in cases where the subject property is sold by the owner not to the party the seller contracted with,
but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of
the property, a third person buying such property despite the fulfillment of the suspensive condition
such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith
and the prospective buyer cannot seek the relief of reconveyance of the property. There is no
double sale in such case. Title to the property will transfer to the buyer after registration because
there is no defect in the owner-seller's title per se, but the latter, of course, may be used for
damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale
becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been
previous delivery of the subject property, the seller's ownership or title to the property is
automatically transferred to the buyer such that, the seller will no longer have any title to transfer
to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property
who may have had actual or constructive knowledge of such defect in the seller's title, or at least
was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such
second buyer cannot defeat the first buyer's title. In case a title is issued to the second buyer, the
first buyer may seek reconveyance of the property subject of the sale.
When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest that
there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer
certificate of title was still in the name of petitioner's father, they could not fully effect such
transfer although the buyer was then willing and able to immediately pay the purchase price.
Therefore, petitioners-sellers undertook upon receipt of the down payment from private respondent
Ramona P. Alcaraz, to cause the issuance of a new certificate of title in their names from that of
their father, after which, they promised to present said title, now in their names, to the latter and to
execute the deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the
purchase price.
The agreement could not have been a contract to sell because the sellers herein made no express
reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which
prevented the parties from entering into an absolute contract of sale pertained to the sellers
themselves (the certificate of title was not in their names) and not the full payment of the purchase
price. Under the established facts and circumstances of the case, the Court may safely presume
that, had the certificate of title been in the names of petitioners-sellers at that time, there would
have been no reason why an absolute contract of sale could not have been executed and
consummated right there and then.
Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by
the buyer with certain terms and conditions, promised to sell the property to the latter. What may
be perceived from the respective undertakings of the parties to the contract is that petitioners had
already agreed to sell the house and lot they inherited from their father, completely willing to
transfer full ownership of the subject house and lot to the buyer if the documents were then in
order. It just happened, however, that the transfer certificate of title was then still in the name of
their father. It was more expedient to first effect the change in the certificate of title so as to bear
their names. That is why they undertook to cause the issuance of a new transfer of the certificate of
title in their names upon receipt of the down payment in the amount of P50,000.00. As soon as the
new certificate of title is issued in their names, petitioners were committed to immediately execute
the deed of absolute sale. Only then will the obligation of the buyer to pay the remainder of the
purchase price arise.
G.R. No. 188661
ESTELITA VILLAMAR vs. BALBINO MANGAOIL
FACTS:
 Villamar, a registered owner of 3h parcel of land entered into an Agreement with
Mangaoil for the purchase and sale of said land. The land was being sold for 180k per
hectare but the rest shall be given free considering that the total purchase price shall be
P630k only. A total of P185k was already received, (P80k) for the redemption of the
land which was mortgaged to the Rural Bank of Cauayan to enable the plaintiff to get
hold of the title and register the sale and (P105k) was for the redemption of the said land
from private mortgages to enable Mangaoil to possess and cultivate the same;
 Subsequently, the parties executed a Deed of Absolute Sale whereby Villamar
transferred the said land to Mangoili for and in consideration of P150k. However,
Mangaoili backed out from the sale agreed upon because the area is not yet fully cleared
by encumbrances, as there are tenants who are not willing to vacate the land without
giving them back the amount that they mortgaged the land. Mangaoil repeatedly
demanded refund of his down payment but was unheeded.
 Mangaoil then filed a complaint for rescission of contract against Villamar. RTC ordered
the rescission of the agreement and the deed of absolute sale executed between the
respondent and the petitioner. The petitioner was, thus directed to return to the
respondent the sum of P185,000.00 which the latter tendered as initial payment for the
purchase of the subject property.
ISSUE:
G.R. No. 179965 February 20, 2013
NICOLAS P. DIEGO vs. RODOLFO P. DIEGO and EDUARDO P. DIEGO
Facts:
 Nicolas Diego and his brother Rodolfo entered into an oral contract to sell where they
agreed that the deed of sale shall only be executed upon completion of payment,
covering Nicolas’ share of the family Diego’s Building in Dagupan City at P500,000.00.
Rodolfo made a down payment of P250,000.00, however, he failed to pay the remaining
balance.
 Meanwhile, the building was leased out to third parties. However, Eduardo, another
brother of Nicolas and the administrator of the building, instead of giving the monthly
share in the rents to the latter, gave it to Rodolfo.
 Nicolas then prayed that Eduardo be ordered to an accounting of all transactions over the
building, deliver to Nicolas his share in the rents and that Eduardo and Rodolfo be
solidarily liable for the attorney’s fees and litigation expenses.
 On the other hand, Eduardo and Rodolfo contended that Nicolas had no more claim in
the rents in the building since he has already sold his share to Rodolfo, who asserted that
he would only pay the balance of the purchase price only after the Nicolas shall have
executed a deed of absolute sale.
 RTC ordered the execution of deed of sale in favor of Rodolfo since when Nicolas
received the downpayment, a contract of sale was perfected and that the balance from
Rodolfo will only be due and demandable when Nicolas executed an absolute deed of
sale. CA sustained RTC’s decision.
Issue: W/N the contract entered into was a contract of sale
Ruling: NO. The contract entered into by Nicolas and Rodolfo was a contract to sell. First, the
stipulation to execute a deed of sale upon full payment of the purchase price is a unique and
distinguishing characteristic of a contract to sell. Where the vendor promises to execute a deed
of absolute sale upon the completion by the vendee of the payment of the price indicates that
the parties entered into a contract to sell. It also shows that the vendor reserved title to the
property until full payment. There is no dispute that in 1993, Rodolfo agreed to buy Nicolas’s share
in the Diego Building for the price of ₱500,000.00. There is also no dispute that of the total
purchase price, Rodolfo paid, and Nicolas received, ₱250,000.00. Significantly, it is also not
disputed that the parties agreed that the remaining amount of ₱250,000.00 would be paid after
Nicolas shall have executed a deed of sale.
Second, the acknowledgement receipt signed by Nicolas as well as the contemporaneous acts of the
parties show that they agreed on a contract to sell, not of sale. The absence of a formal deed of
conveyance is indicative of a contract to sell. In the instant case, records show that Nicolas signed a
mere receipt acknowledging partial payment of ₱250,000.00 from Rodolfo.
Third, Nicolas did not surrender or deliver title or possession to Rodolfo. This was made clear by
the nature of the agreement, by Nicolas’s repeated demands for the return of all rents unlawfully
and unjustly remitted to Rodolfo by Eduardo, and by Rodolfo and Eduardo’s repeated demands for
Nicolas to execute a deed of sale which, as we said before, is a recognition on their part that
ownership over the subject property still remains with Nicolas.
G.R. No. 188064 June 1, 2011 Unless the parties stipulated it, rescission is allowed only when the breach of the contract is
MILA A. REYES vs. VICTORIA T. TUPARAN substantial and fundamental to the fulfillment of the obligation. Whether the breach is slight or
substantial is largely determined by the attendant circumstances.
Facts:
 Mila Reyes filed a complaint for Rescission of Contract with Damages against Victoria
Tuparan alleging that she was the registered owner of a residential and commercial
house and lot where she put up a residential apartment building (RBJ Building) with
commercial spaces on its ground floor.
 Tuparan leased from Reyes a space for her pawnshop business. Thereafter, Reyes
invested thousands of pesos in Tuparan’s financing/lending business. To secure a loan of
P2,000,000, Reyes mortgaged the subject property to FSL Bank. When Reyes’
outstanding account on mortgaged property reached P2.2M, she decided to sell her real
properties to Tuparan for P6.5M so the former could liquidate her bank loan and finance
her businesses.
 Reyes and Tuparan agreed to a conditional sale to obtain FSL Banks approval for
Tuparan to assume Reyes’ outstanding bank account.

Issue: W/N the Deed of Conditional Sale with Assumption of Mortgage entered into by and among
the two parties and FSL Bank is a contract to sell

Ruling: YES. As correctly pointed out by the lower courts, the transaction is a contract to sell
because the title and ownership of the subject real properties shall remain with Reyes until the full
payment of the Tuparan of the balance of the purchase price and liquidation of the mortgage
obligation of ₱2,000,000.00. Pending payment of the balance of the purchase price and liquidation
of the mortgage obligation that was assumed by the Tuparan, she shall not sell, transfer and convey
and otherwise encumber the subject real properties without the written consent of the Reyes and
FSL Bank. And that upon full payment by the Tuparan of the full balance of the purchase price and
the assumed mortgage obligation herein mentioned FSL Bank shall issue the corresponding Deed
of Cancellation of Mortgage and the Reyes shall execute the corresponding Deed of Absolute Sale
in favor of Tuparan.

Accordingly, the petitioners obligation to sell the subject properties becomes demandable only
upon the happening of the positive suspensive condition, which is the respondents full payment of
the purchase price. Without respondents full payment, there can be no breach of contract to speak
of because petitioner has no obligation yet to turn over the title. Respondents failure to pay in full
the purchase price is not the breach of contract contemplated under Article 1191 of the New Civil
Code but rather just an event that prevents the petitioner from being bound to convey title to the
respondent.

Considering that the Deed of Conditional Sale was not cancelled by Vendor Reyes (petitioner) and
that out of the total purchase price of the subject property in the amount of ₱4,200,000.00, the
remaining unpaid balance of Tuparan (respondent) is only ₱805,000.00, a substantial amount of the
purchase price has already been paid. It is only right and just to allow Tuparan to pay the said
unpaid balance of the purchase price to Reyes.[10]

Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for
the reason that, considering the circumstances, there was only a slight or casual breach in the
fulfillment of the obligation.
G.R. No. 170405 February 2, 2010 The totality of petitioner’s acts clearly indicates that he had unqualifiedly delivered and transferred
RAYMUNDO S. DE LEON vs. BENITA T. ONG ownership of the properties to respondent. Clearly, it was a contract of sale the parties entered into.

Facts: Furthermore, even assuming arguendo that the agreement of the parties was subject to the
 Raymundo De Leon sold three parcels of land with improvements to Benita Ong. As condition that RSLAI had to approve the assumption of mortgage, the said condition was
these properties were mortgaged to Real Savings and Loan Association, Inc, De Leon considered fulfilled as petitioner prevented its fulfillment by paying his outstanding obligation and
and Ong executed a notarized deed of absolute sale with assumption of mortgage. taking back the certificates of title without even notifying respondent.
Pursuant to the deed, Ong gave P415,500 as partial payment. De Leon handed the keys
to the properties and wrote a letter to RDLAI informing it of the sale and authorizing it
to accept payment from respondent and release the certificates of title. RCLAI required
Ong to undergo credit investigation. Notes: Void Sale Or Double Sale? This case involves a double sale as the disputed properties
 Subsequently, Ong learned that De Leon again sold the same properties to one Leona were sold validly on two separate occasions by the same seller to the two different buyers in good
Viloria and changed the locks, rendering the keys he gave her useless. When Ong faith.
inquire about the credit investigation, she was informed that De Leon already paid the
amount due and had taken back the certificates of title.
 Ong then filed a complaint for specific performance, declaration of nullity of the second
sale and damages against De Leon and Viloria.
 RTC ruled in favor of De Leon and concluded that since Ong was a licensed real estate
broker, she knew that the validity of the sale was subject to a condition, the approval
RCLAI on the assumption of sale. Since RSLAI did not allow respondent to assume
petitioner’s obligation, the RTC held that the sale was never perfected.
 CA, on the other hand, found that the contract executed by the parties did not impose
any condition on the sale, held the parties entered a contract of sale and declared the
second sale void.

Issue: W/N the contract was a contract of sale

Ruling: NO. In a contract of sale, the seller conveys ownership of the property to the buyer upon
the perfection of the contract. Should the buyer default in the payment of the purchase price, the
seller may either sue for the collection thereof or have the contract judicially resolved and set aside.
The non-payment of the price is therefore a negative resolutory condition. On the other hand, a
contract to sell is subject to a positive suspensive condition. The buyer does not acquire ownership
of the property until he fully pays the purchase price. For this reason, if the buyer defaults in the
payment thereof, the seller can only sue for damages.

The deed executed by the parties (as previously quoted) stated that petitioner sold the properties to
respondent "in a manner absolute and irrevocable" for a sum of ₱1.1 million. With regard to the
manner of payment, it required respondent to pay ₱415,500 in cash to petitioner upon the execution
of the deed, with the balance payable directly to RSLAI (on behalf of petitioner) within a
reasonable time. Nothing in said instrument implied that petitioner reserved ownership of the
properties until the full payment of the purchase price. On the contrary, the terms and conditions of
the deed only affected the manner of payment, not the immediate transfer of ownership (upon the
execution of the notarized contract) from petitioner as seller to respondent as buyer. Otherwise
stated, the said terms and conditions pertained to the performance of the contract, not the perfection
thereof nor the transfer of ownership.

Settled is the rule that the seller is obliged to transfer title over the properties and deliver the same
to the buyer. In this regard, Article 1498 of the Civil Code provides that, as a rule, the execution of
a notarized deed of sale is equivalent to the delivery of a thing sold.

In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent.
Moreover, not only did petitioner turn over the keys to the properties to respondent, he also
authorized RSLAI to receive payment from respondent and release his certificates of title to her.
G.R. No. 173856 November 20, 2008
DAO HENG BANK, INC., now BANCO DE ORO UNIVERSAL BANK vs. SPS. LILIA and
REYNALDO LAIGO
Facts:
Spouses Lilia and Reynaldo Laigo obtained loans from Dao Heng Bank, Inc. in the total amount of
P11M, to secure the payment of which they forged on October 28 and November 18 1996 and
April 18 1997 three Real Estate Mortgages covering two (569 sq; 537 sq) parcels of land owned
by the former and were duly registered in the Registry of Deeds of QC. Said loans are payable
within 12 months from the execution of the promissory notes covering the loans.
Spouses Laigo failed to settle their outstanding obligaton, drawing them to verbally offer to cede to
Dao Heng one of the two mortgaged lots by way of dacion en pago. Said lands were appraised
whose fees were shouldered by both parties. No further action after the appraisal.
Thereafter, Dao Heng demanded the settlement of the obligation indicating that the Spouses had an
outstanding obligation of P10.385M inclusive of interests and other charges, however, unheeded.
Later, the real estate mortgages were foreclosed and sold for P10.776M at a public auction to the
highest bidder, Banco de Oro Universal Bank.
Being likened to that of a contract of sale, dacion en pago is governed by the law on sales.[15]The
partial execution of a contract of sale takes the transaction out of the provisions of the Statute of
Frauds so long as the essential requisites of consent of the contracting parties, object and cause of
the obligation concur and are clearly established to be present.[16]
Respondents claim that petitioners commissioning of an appraiser to appraise the value of the
mortgaged properties, his services for which they and petitioner paid, and their delivery to
petitioner of the titles to the properties constitute partial performance of their agreement to take the
case out of the provisions on the Statute of Frauds.
There is no concrete showing, however, that after the appraisal of the properties, petitioner
approved respondents proposal to settle their obligation via dacion en pago. The delivery to
petitioner of the titles to the properties is a usual condition sine qua non to the execution of the
mortgage, both for security and registration purposes. For if the title to a property is not delivered
to the mortgagee, what will prevent the mortgagor from again encumbering it also by mortgage or
even by sale to a third party.
Finally, that respondents did not deny proposing to redeem the mortgages,[17] as reflected in
petitioners June 29, 2001 letter to them, dooms their claim of the existence of a perfected dacion en
pago.

Spouses Laigo negotiated for the redemption of the mortgages. The redemption price was P11.5M
(TCT No. 92257 – P7.500MM; TCT No. N-146289 – P4.000MM) plus 12% interest payable in
staggered payments, covered by the post dated checks and TCT 92257 shall be the first property to
be released upon payment of its price plus interest.

Six days before the expiration of the redemption period, Spouses Laigo filed a complaint for
Annulment, Injunction with Prayer for TRO, praying for the annulment of the foreclosure of the
properties subject of the real estate mortgages and for them to be allowed to deliver by way of
dacion en pago one of the mortgaged properties as full payment of mortgaged obligation. Dao
Heng verbally agreed to enter into a dacion en pago. However, in its opposition, Dao Heng denied
the meeting of the minds on the settlement via dacion en pago.

Issue:

Ruling:
Dacion en pago as a mode of extinguishing an existing obligation partakes of the nature of sale
whereby property is alienated to the creditor in satisfaction of a debt in money. It is an objective
novation of the obligation, hence, common consent of the parties is required in order to extinguish
the obligation.
. . . In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor
who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in
one sense of the nature of sale, that is, the creditor is really buying the thing or property of the
debtor, payment for which is to be charged against the debtors debt. As such the elements of a
contract of sale, namely, consent, object certain, and cause or consideration must be present. In its
modern concept, what actually takes place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted equivalent of the performance of an obligation is
considered as the object of the contract of sale, while the debt is considered the purchase price. In
any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of
totally extinguishing the debt or obligation. (Emphasis, italics and underscoring supplied; citation
omitted)
MILA A. REYES , G.R. No. 188064
Petitioner,
Present:
CARPIO, J., Chairperson,
NACHURA,
- versus - PERALTA,
ABAD, and
MENDOZA, JJ.
Promulgated:
VICTORIA T. TUPARAN, June 1, 2011
Respondent.
X -----------------------------------------------------------------------------------------------------X
DECISION
MENDOZA, J.:
Subject of this petition for review is the February 13, 2009 Decision[1] of the Court of
Appeals (CA) which affirmed with modification the February 22, 2006 Decision[2] of the Regional
Trial Court, Branch 172, Valenzuela City (RTC), in Civil Case No. 3945-V-92, an action for
Rescission of Contract with Damages.
On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission of Contract
with Damages against Victoria T. Tuparan (respondent) before the RTC. In her Complaint,
petitioner alleged, among others, that she was the registered owner of a 1,274 square meter
residential and commercial lot located in Karuhatan, Valenzuela City, and covered by TCT No. V-
4130; that on that property, she put up a three-storey commercial building known as RBJ Building
and a residential apartment building; that since 1990, she had been operating a drugstore and
cosmetics store on the ground floor of RBJ Building where she also had been residing while the
other areas of the buildings including the sidewalks were being leased and occupied by tenants and
street vendors.
In December 1989, respondent leased from petitioner a space on the ground floor of
the RBJ Building for her pawnshop business for a monthly rental of ₱4,000.00. A close friendship
developed between the two which led to the respondent investing thousands of pesos in petitioners
financing/lending business from February 7, 1990 to May 27, 1990, with interest at the rate of 6% a
month.
On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings Bank
and Loan Bank, Inc. (FSL Bank) to secure a loan of ₱2,000,000.00 payable in installments.
On November 15, 1990, petitioners outstanding account on the mortgage reached ₱2,278,078.13.
Petitioner then decided to sell her real properties for at least ₱6,500,000.00 so she could liquidate
her bank loan and finance her businesses. As a gesture of friendship, respondent verbally offered to
conditionally buy petitioners real properties for ₱4,200,000.00 payable on installment basis without
interest and to assume the bank loan. To induce the petitioner to accept her offer, respondent
offered the following conditions/concessions:
1. That the conditional sale will be cancelled if the plaintiff (petitioner) can find a buyer of said
properties for the amount of ₱6,500,000.00 within the next three (3) months provided all amounts
received by the plaintiff from the defendant (respondent) including payments actually made by
defendant to Farmers Savings and Loan Bank would be refunded to the defendant with additional
interest of six (6%) monthly;
2. That the plaintiff would continue using the space occupied by her and drugstore and cosmetics
store without any rentals for the duration of the installment payments;
3. That there will be a lease for fifteen (15) years in favor of the plaintiff over the space for
drugstore and cosmetics store at a monthly rental of only ₱8,000.00 after full payment of the
stipulated installment payments are made by the defendant;
4. That the defendant will undertake the renewal and payment of the fire insurance policies on the
two (2) subject buildings following the expiration of the then existing fire insurance policy of the
plaintiff up to the time that plaintiff is fully paid of the total purchase price of ₱4,200,000.00. [3]
After petitioners verbal acceptance of all the conditions/concessions, both parties worked together
to obtain FSL Banks approval for respondent to assume her (petitioners) outstanding bank
account. The assumption would be part of respondents purchase price for petitioners mortgaged
real properties. FSL Bank approved their proposal on the condition that petitioner would sign or
remain as co-maker for the mortgage obligation assumed by respondent.
On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of Conditional
Sale of Real Properties with Assumption of Mortgage. Due to their close personal friendship and
business relationship, both parties chose not to reduce into writing the other terms of their
agreement mentioned in paragraph 11 of the complaint. Besides, FSL Bank did not want to
incorporate in the Deed of Conditional Sale of Real Properties with Assumption of Mortgage any
other side agreement between petitioner and respondent.
Under the Deed of Conditional Sale of Real Properties with Assumption of Mortgage, respondent
was bound to pay the petitioner a lump sum of ₱1.2 million pesos without interest as part of the
purchase price in three (3) fixed installments as follows:
a) ₱200,000.00 due January 31, 1991
b) ₱200,000.00 due June 30, 1991
c) ₱800,000.00 due December 31, 1991
Respondent, however, defaulted in the payment of her obligations on their due dates. Instead of
paying the amounts due in lump sum on their respective maturity dates, respondent paid petitioner
in small amounts from time to time. To compensate for her delayed payments, respondent agreed
to pay petitioner an interest of 6% a month. As of August 31, 1992, respondent had only paid
₱395,000.00, leaving a balance of ₱805,000.00 as principal on the unpaid installments and
₱466,893.25 as unpaid accumulated interest.
Petitioner further averred that despite her success in finding a prospective buyer for the subject real
properties within the 3-month period agreed upon, respondent reneged on her promise to allow the
cancellation of their deed of conditional sale. Instead, respondent became interested in owning the
subject real properties and even wanted to convert the entire property into a modern commercial
complex. Nonetheless, she consented because respondent repeatedly professed friendship and
assured her that all their verbal side agreement would be honored as shown by the fact that since
December 1990, she (respondent) had not collected any rentals from the petitioner for the space
occupied by her drugstore and cosmetics store.

On March 19, 1992, the residential building was gutted by fire which caused the petitioner to lose
rental income in the amount of ₱8,000.00 a month since April 1992. Respondent neglected to
renew the fire insurance policy on the subject buildings.
Since December 1990, respondent had taken possession of the subject real properties and had been
continuously collecting and receiving monthly rental income from the tenants of the buildings and
vendors of the sidewalk fronting the RBJ building without sharing it with petitioner.
On September 2, 1992, respondent offered the amount of ₱751,000.00 only payable on September
7, 1992, as full payment of the purchase price of the subject real properties and demanded the
simultaneous execution of the corresponding deed of absolute sale.
Respondents Answer
Respondent countered, among others, that the tripartite agreement erroneously designated by the
petitioner as a Deed of Conditional Sale of Real Property with Assumption of Mortgage was
actually a pure and absolute contract of sale with a term period. It could not be considered a
conditional sale because the acquisition of contractual rights and the performance of the obligation
therein did not depend upon a future and uncertain event. Moreover, the capital gains and
documentary stamps and other miscellaneous expenses and real estate taxes up to 1990 were
supposed to be paid by petitioner but she failed to do so.
Respondent further averred that she successfully rescued the properties from a definite foreclosure
by paying the assumed mortgage in the amount of ₱2,278,078.13 plus interest and other finance
charges. Because of her payment, she was able to obtain a deed of cancellation of mortgage and
secure a release of mortgage on the subject real properties including petitioners ancestral
residential property in Sta. Maria, Bulacan.
Petitioners claim for the balance of the purchase price of the subject real properties was baseless
and unwarranted because the full amount of the purchase price had already been paid, as she did
pay more than ₱4,200,000.00, the agreed purchase price of the subject real properties, and she had
even introduced improvements thereon worth more than ₱4,800,000.00. As the parties could no
longer be restored to their original positions, rescission could not be resorted to.
Respondent added that as a result of their business relationship, petitioner was able to obtain from
her a loan in the amount of ₱400,000.00 with interest and took several pieces of jewelry worth
₱120,000.00. Petitioner also failed and refused to pay the monthly rental of ₱20,000.00
since November 16, 1990 up to the present for the use and occupancy of the ground floor of the
building on the subject real property, thus, accumulating arrearages in the amount of ₱470,000.00
as of October 1992.
Ruling of the RTC
On February 22, 2006, the RTC handed down its decision finding that respondent failed to pay in
full the ₱4.2 million total purchase price of the subject real properties leaving a balance of
₱805,000.00. It stated that the checks and receipts presented by respondent refer to her payments of
the mortgage obligation with FSL Bank and not the payment of the balance of ₱1,200,000.00. The
RTC also considered the Deed of Conditional Sale of Real Property with Assumption of Mortgage
executed by and among the two parties and FSL Bank a contract to sell, and not a contract of
sale. It was of the opinion that although the petitioner was entitled to a rescission of the contract, it
could not be permitted because her non-payment in full of the purchase price may not be
considered as substantial and fundamental breach of the contract as to defeat the object of the
parties in entering into the contract.[4] The RTC believed that the respondents offer stated in her
counsels letter dated September 2, 1992 to settle what she thought was her unpaid balance of
₱751,000.00 showed her sincerity and willingness to settle her obligation. Hence, it would be more
equitable to give respondent a chance to pay the balance plus interest within a given period of time.
Finally, the RTC stated that there was no factual or legal basis to award damages and attorneys fees
because there was no proof that either party acted fraudulently or in bad faith.
Thus, the dispositive portion of the RTC Decision reads:
WHEREFORE, judgment is hereby rendered as follows:
1. Allowing the defendant to pay the plaintiff within thirty (30) days from the finality hereof the
amount of ₱805,000.00, representing the unpaid purchase price of the subject property, with
interest thereon at 2% a month from January 1, 1992 until fully paid. Failure of the defendant to
pay said amount within the said period shall cause the automatic rescission of the contract (Deed of
Conditional Sale of Real Property with Assumption of Mortgage) and the plaintiff and the
defendant shall be restored to their former positions relative to the subject property with each
returning to the other whatever benefits each derived from the transaction;
2. Directing the defendant to allow the plaintiff to continue using the space occupied by her for
drugstore and cosmetic store without any rental pending payment of the aforesaid balance of the
purchase price.
3. Ordering the defendant, upon her full payment of the purchase price together with interest, to
execute a contract of lease for fifteen (15) years in favor of the plaintiff over the space for the
drugstore and cosmetic store at a fixed monthly rental of ₱8,000.00; and
4. Directing the plaintiff, upon full payment to her by the defendant of the purchase price together
with interest, to execute the necessary deed of sale, as well as to pay the Capital Gains Tax,
documentary stamps and other miscellaneous expenses necessary for securing the BIR Clearance,
and to pay the real estate taxes due on the subject property up to 1990, all necessary to transfer
ownership of the subject property to the defendant.
No pronouncement as to damages, attorneys fees and costs.
SO ORDERED.[5]
Ruling of the CA
On February 13, 2009, the CA rendered its decision affirming with modification the RTC
Decision. The CA agreed with the RTC that the contract entered into by the parties is a contract to
sell but ruled that the remedy of rescission could not apply because the respondents failure to pay
the petitioner the balance of the purchase price in the total amount of ₱805,000.00 was not a breach
of contract, but merely an event that prevented the seller (petitioner) from conveying title to the
purchaser (respondent). It reasoned that out of the total purchase price of the subject property in the
amount of ₱4,200,000.00, respondents remaining unpaid balance was only ₱805,000.00. Since
respondent had already paid a substantial amount of the purchase price, it was but right and just to
allow her to pay the unpaid balance of the purchase price plus interest. Thus, the decretal portion of
the CA Decision reads:
WHEREFORE, premises considered, the Decision dated 22 February 2006 and Order dated 22
December 2006 of the Regional Trial Court of Valenzuela City, Branch 172 in Civil Case No.
3945-V-92 are AFFIRMED with MODIFICATION in that defendant-appellant Victoria T.
Tuparan is hereby ORDERED to pay plaintiff-appellee/appellant Mila A. Reyes, within 30 days
from finality of this Decision, the amount of ₱805,000.00 representing the unpaid balance of the
purchase price of the subject property, plus interest thereon at the rate of 6% per annum from 11
September 1992 up to finality of this Decision and, thereafter, at the rate of 12% per annum until
full payment. The ruling of the trial court on the automatic rescission of the Deed of Conditional
Sale with Assumption of Mortgage is hereby DELETED. Subject to the foregoing, the dispositive
portion of the trial courts decision is AFFIRMED in all other respects.
SO ORDERED.[6]
After the denial of petitioners motion for reconsideration and respondents motion for partial
reconsideration, petitioner filed the subject petition for review praying for the reversal and setting
aside of the CA Decision anchored on the following
ASSIGNMENT OF ERRORS
A. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION
IN DISALLOWING THE OUTRIGHT RESCISSION OF THE SUBJECT DEED OF
CONDITIONAL SALE OF REAL PROPERTIES WITH ASSUMPTION OF MORTGAGE
ON THE GROUND THAT RESPONDENT TUPARANS FAILURE TO PAY PETITIONER
REYES THE BALANCE OF THE PURCHASE PRICE OF ₱805,000.00 IS NOT A
BREACH OF CONTRACT DESPITE ITS OWN FINDINGS THAT PETITIONER STILL
RETAINS OWNERSHIP AND TITLE OVER THE SUBJECT REAL PROPERTIES DUE
TO RESPONDENTS REFUSAL TO PAY THE BALANCE OF THE TOTAL PURCHASE
PRICE OF ₱805,000.00 WHICH IS EQUAL TO 20% OF THE TOTAL PURCHASE PRICE
OF ₱4,200,000.00 OR 66% OF THE STIPULATED LAST INSTALLMENT OF
₱1,200,000.00 PLUS THE INTEREST THEREON. IN EFFECT, THE COURT OF
APPEALS AFFIRMED AND ADOPTED THE TRIAL COURTS CONCLUSION THAT
THE RESPONDENTS NON-PAYMENT OF THE ₱805,000.00 IS ONLY A SLIGHT OR
CASUAL BREACH OF CONTRACT.
B. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION
IN DISREGARDING AS GROUND FOR THE RESCISSION OF THE SUBJECT
CONTRACT THE OTHER FRAUDULENT AND MALICIOUS ACTS COMMITTED BY
THE RESPONDENT AGAINST THE PETITIONER WHICH BY THEMSELVES
SUFFICIENTLY JUSTIFY A DENIAL OF A GRACE PERIOD OF THIRTY (30) DAYS
TO THE RESPONDENT WITHIN WHICH TO PAY TO THE PETITIONER THE
₱805,000.00 PLUS INTEREST THEREON.
C. EVEN ASSUMING ARGUENDO THAT PETITIONER IS NOT ENTITLED TO THE
RESCISSION OF THE SUBJECT CONTRACT, THE COURT OF APPEALS STILL
SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN REDUCING THE INTEREST
ON THE ₱805,000.00 TO ONLY 6% PER ANNUM STARTING FROM THE DATE OF
FILING OF THE COMPLAINT ON SEPTEMBER 11, 1992 DESPITE THE PERSONAL
COMMITMENT OF THE RESPONDENT AND AGREEMENT BETWEEN THE
PARTIES THAT RESPONDENT WILL PAY INTEREST ON THE ₱805,000.00 AT THE
RATE OF 6% MONTHLY STARTING THE DATE OF DELINQUENCY ON DECEMBER
31, 1991.
D. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION
IN THE APPRECIATION AND/OR MISAPPRECIATION OF FACTS RESULTING INTO
THE DENIAL OF THE CLAIM OF PETITIONER REYES FOR ACTUAL DAMAGES
WHICH CORRESPOND TO THE MILLIONS OF PESOS OF RENTALS/FRUITS OF
THE SUBJECT REAL PROPERTIES WHICH RESPONDENT TUPARAN COLLECTED
CONTINUOUSLY SINCE DECEMBER 1990, EVEN WITH THE UNPAID BALANCE OF
₱805,000.00 AND DESPITE THE FACT THAT RESPONDENT DID NOT CONTROVERT
SUCH CLAIM OF THE PETITIONER AS CONTAINED IN HER AMENDED
COMPLAINT DATED APRIL 22, 2006.
E. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION
IN THE APPRECIATION OF FACTS RESULTING INTO THE DENIAL OF THE CLAIM
OF PETITIONER REYES FOR THE ₱29,609.00 BACK RENTALS THAT WERE
COLLECTED BY RESPONDENT TUPARAN FROM THE OLD TENANTS OF THE
PETITIONER.
F. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN
DENYING THE PETITIONERS EARLIER URGENT MOTION FOR ISSUANCE OF A
PRELIMINARY MANDATORY AND PROHIBITORY INJUNCTION DATED JULY 7,
2008 AND THE SUPPLEMENT THERETO DATED AUGUST 4, 2008 THEREBY
CONDONING THE UNJUSTIFIABLE FAILURE/REFUSAL OF JUDGE FLORO ALEJO
TO RESOLVE WITHIN ELEVEN (11) YEARS THE PETITIONERS THREE (3)
SEPARATE MOTIONS FOR PRELIMINARY INJUNCTION/ TEMPORARY
RESTRAINING ORDER, ACCOUNTING AND DEPOSIT OF RENTAL INCOME DATED
MARCH 17, 1995, AUGUST 19, 1996 AND JANUARY 7, 2006 THEREBY PERMITTING
THE RESPONDENT TO UNJUSTLY ENRICH HERSELF BY CONTINUOUSLY
COLLECTING ALL THE RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES
WITHOUT ANY ACCOUNTING AND COURT DEPOSIT OF THE COLLECTED
RENTALS/FRUITS AND THE PETITIONERS URGENT MOTION TO DIRECT
DEFENDANT VICTORIA TUPARAN TO PAY THE ACCUMULATED UNPAID REAL
ESTATE TAXES AND SEF TAXES ON THE SUBJECT REAL PROPERTIES
DATED JANUARY 13, 2007 THEREBY EXPOSING THE SUBJECT REAL PROPERTIES
TO IMMINENT AUCTION SALE BY THE CITY TREASURER
OF VALENZUELA CITY.
G. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION
IN DENYING THE PETITIONERS CLAIM FOR MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES AGAINST THE RESPONDENT.
In sum, the crucial issue that needs to be resolved is whether or not the CA was correct in ruling
that there was no legal basis for the rescission of the Deed of Conditional Sale with Assumption of
Mortgage.
Position of the Petitioner
The petitioner basically argues that the CA should have granted the rescission of the subject Deed
of Conditional Sale of Real Properties with Assumption of Mortgage for the following reasons:
1. The subject deed of conditional sale is a reciprocal obligation whose outstanding characteristic is
reciprocity arising from identity of cause by virtue of which one obligation is correlative of the
other.
2. The petitioner was rescinding not enforcing the subject Deed of Conditional Sale pursuant to
Article 1191 of the Civil Code because of the respondents failure/refusal to pay the ₱805,000.00
balance of the total purchase price of the petitioners properties within the stipulated period ending
December 31, 1991.
3. There was no slight or casual breach on the part of the respondent because she (respondent)
deliberately failed to comply with her contractual obligations with the petitioner by violating the
terms or manner of payment of the ₱1,200,000.00 balance and unjustly enriched herself at the
expense of the petitioner by collecting all rental payments for her personal benefit and enjoyment.
Furthermore, the petitioner claims that the respondent is liable to pay interest at the rate of 6% per
month on her unpaid installment of ₱805,000.00 from the date of the delinquency, December 31,
1991, because she obligated herself to do so.
Finally, the petitioner asserts that her claim for damages or lost income as well as for the back
rentals in the amount of ₱29,609.00 has been fully substantiated and, therefore, should have been
granted by the CA. Her claim for moral and exemplary damages and attorneys fees has been
likewise substantiated.
Position of the Respondent
The respondent counters that the subject Deed of Conditional Sale with Assumption of Mortgage
entered into between the parties is a contract to sell and not a contract of sale because the title of
the subject properties still remains with the petitioner as she failed to pay the installment payments
in accordance with their agreement.
Respondent echoes the RTC position that her inability to pay the full balance on the purchase price
may not be considered as a substantial and fundamental breach of the subject contract and it would
be more equitable if she would be allowed to pay the balance including interest within a certain
period of time. She claims that as early as 1992, she has shown her sincerity by offering to pay a
certain amount which was, however, rejected by the petitioner.
Finally, respondent states that the subject deed of conditional sale explicitly provides that the
installment payments shall not bear any interest. Moreover, petitioner failed to prove that she was
entitled to back rentals.
The Courts Ruling
The petition lacks merit.
The Court agrees with the ruling of the courts below that the subject Deed of Conditional Sale with
Assumption of Mortgage entered into by and among the two parties and FSL Bank on November
26, 1990 is a contract to sell and not a contract of sale. The subject contract was correctly classified
as a contract to sell based on the following pertinent stipulations:
8. That the title and ownership of the subject real properties shall remain with the First Party until
the full payment of the Second Party of the balance of the purchase price and liquidation of the
mortgage obligation of ₱2,000,000.00. Pending payment of the balance of the purchase price and
liquidation of the mortgage obligation that was assumed by the Second Party, the Second Party
shall not sell, transfer and convey and otherwise encumber the subject real properties without the
written consent of the First and Third Party.
9. That upon full payment by the Second Party of the full balance of the purchase price and the
assumed mortgage obligation herein mentioned the Third Party shall issue the corresponding Deed
of Cancellation of Mortgage and the First Party shall execute the corresponding Deed of Absolute
Sale in favor of the Second Party.[7]
Based on the above provisions, the title and ownership of the subject properties remains with the
petitioner until the respondent fully pays the balance of the purchase price and the assumed
mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of cancellation
of mortgage and the petitioner shall execute the corresponding deed of absolute sale in favor of the
respondent.
Accordingly, the petitioners obligation to sell the subject properties becomes demandable only
upon the happening of the positive suspensive condition, which is the respondents full payment of
the purchase price. Without respondents full payment, there can be no breach of contract to speak
of because petitioner has no obligation yet to turn over the title. Respondents failure to pay in full
the purchase price is not the breach of contract contemplated under Article 1191 of the New Civil
Code but rather just an event that prevents the petitioner from being bound to convey title to the
respondent. The 2009 case of Nabus v. Joaquin & Julia Pacson[8] is enlightening:
The Court holds that the contract entered into by the Spouses Nabus and respondents was a
contract to sell, not a contract of sale.
A contract of sale is defined in Article 1458 of the Civil Code, thus:
Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
xxx
Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The
essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the
first essential element is lacking. In a contract to sell, the prospective seller explicitly reserves the
transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the contract to sell until the happening of
an event, which for present purposes we shall take as the full payment of the purchase price. What
the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when
the entire amount of the purchase price is delivered to him. In other words, the full payment of the
purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the
obligation to sell from arising and, thus, ownership is retained by the prospective seller without
further remedies by the prospective buyer.
xxx xxx xxx
Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, the prospective sellers obligation to sell the subject property by entering into a
contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the
Civil Code which states:

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 contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a conditional contract of
sale where the seller may likewise reserve title to the property subject of the sale until the
fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of
consent is present, although it is conditioned upon the happening of a contingent event which may
or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is
completely abated. However, if the suspensive condition is fulfilled, the contract of saleis thereby
perfected, such that if there had already been previous delivery of the property subject of the sale to
the buyer, ownership thereto automatically transfers to the buyer by operation of law without any
further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of
the purchase price, ownership will not automatically transfer to the buyer although the property
may have been previously delivered to him. The prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute sale.
Further, Chua v. Court of Appeals, cited this distinction between a contract of sale and a contract to
sell:
In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing
sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to
the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the
vendor loses ownership over the property and cannot recover it until and unless the contract is
resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full
payment of the price. In the latter contract, payment of the price is a positive suspensive condition,
failure of which is not a breach but an event that prevents the obligation of the vendor to convey
title from becoming effective.
It is not the title of the contract, but its express terms or stipulations that determine the kind of
contract entered into by the parties. In this case, the contract entitled Deed of Conditional Sale is
actually a contract to sell. The contract stipulated that as soon as the full consideration of the sale
has been paid by the vendee, the corresponding transfer documents shall be executed by the vendor
to the vendee for the portion sold. Where the vendor promises to execute a deed of absolute sale
upon the completion by the vendee of the payment of the price, the contract is only a contract to
sell. The aforecited stipulation shows that the vendors reserved title to the subject property until
full payment of the purchase price.
xxx
Unfortunately for the Spouses Pacson, since the Deed of Conditional Sale executed in their favor
was merely a contract to sell, the obligation of the seller to sell becomes demandable only upon the
happening of the suspensive condition. The full payment of the purchase price is the positive
suspensive condition, the failure of which is not a breach of contract, but simply an event that
prevented the obligation of the vendor to convey title from acquiring binding force. Thus, for
its non-fulfilment, there is no contract to speak of, the obligor having failed to perform the
suspensive condition which enforces a juridical relation. With this circumstance, there can be no
rescission or fulfillment of an obligation that is still non-existent, the suspensive condition not
having occurred as yet. Emphasis should be made that the breach contemplated in Article 1191
of the New Civil Code is the obligors failure to comply with an obligation already extant, not
a failure of a condition to render binding that obligation. [Emphases and underscoring
supplied]
Consistently, the Court handed down a similar ruling in the 2010 case of Heirs of Atienza v.
Espidol, [9] where it was written:
Regarding the right to cancel the contract for non-payment of an installment, there is need to
initially determine if what the parties had was a contract of sale or a contract to sell. In a
contract of sale, the title to the property passes to the buyer upon the delivery of the thing sold. In a
contract to sell, on the other hand, the ownership is, by agreement, retained by the seller and is not
to pass to the vendee until full payment of the purchase price. In the contract of sale, the buyers
non-payment of the price is a negative resolutory condition; in the contract to sell, the buyers full
payment of the price is a positive suspensive condition to the coming into effect of the
agreement. In the first case, the seller has lost and cannot recover the ownership of the property
unless he takes action to set aside the contract of sale. In the second case, the title simply remains
in the seller if the buyer does not comply with the condition precedent of making payment at the
time specified in the contract. Here, it is quite evident that the contract involved was one of a
contract to sell since the Atienzas, as sellers, were to retain title of ownership to the land until
respondent Espidol, the buyer, has paid the agreed price. Indeed, there seems no question that the
parties understood this to be the case.
Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in
December 2002. That payment, said both the RTC and the CA, was a positive suspensive condition
failure of which was not regarded a breach in the sense that there can be no rescission of an
obligation (to turn over title) that did not yet exist since the suspensive condition had not
taken place. x x x. [Emphases and underscoring supplied]
Thus, the Court fully agrees with the CA when it resolved: Considering, however, that the Deed of
Conditional Sale was not cancelled by Vendor Reyes (petitioner) and that out of the total purchase
price of the subject property in the amount of ₱4,200,000.00, the remaining unpaid balance of
Tuparan (respondent) is only ₱805,000.00, a substantial amount of the purchase price has already
been paid. It is only right and just to allow Tuparan to pay the said unpaid balance of the purchase
price to Reyes.[10]
Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for
the reason that, considering the circumstances, there was only a slight or casual breach in the
fulfillment of the obligation.
Unless the parties stipulated it, rescission is allowed only when the breach of the contract is
substantial and fundamental to the fulfillment of the obligation. Whether the breach is slight or
substantial is largely determined by the attendant circumstances. [11] In the case at bench, the subject
contract stipulated the following important provisions:
2. That the purchase price of ₱4,200,000.00 shall be paid as follows:
a) ₱278,078.13 received in cash by the First Party but directly paid to the Third Party as partial Finally, the Court upholds the ruling of the courts below regarding the non-imposition of damages
payment of the mortgage obligation of the First Party in order to reduce the amount to and attorneys fees. Aside from petitioners self-serving statements, there is not enough evidence on
₱2,000,000.00 only as of November 15, 1990; record to prove that respondent acted fraudulently and maliciously against the petitioner. In the
case of Heirs of Atienza v. Espidol,[13] it was stated:
b) ₱721,921.87 received in cash by the First Party as additional payment of the Second Party;
Respondents are not entitled to moral damages because contracts are not referred to in Article 2219
c) ₱1,200,000.00 to be paid in installments as follows: of the Civil Code, which enumerates the cases when moral damages may be recovered. Article
2220 of the Civil Code allows the recovery of moral damages in breaches of contract where the
1. ₱200,000.00 payable on or before January 31, 1991; defendant acted fraudulently or in bad faith. However, this case involves a contract to sell,
2. ₱200,000.00 payable on or before June 30, 1991; wherein full payment of the purchase price is a positive suspensive condition, the non-fulfillment
3. ₱800,000.00 payable on or before December 31, 1991; of which is not a breach of contract, but merely an event that prevents the seller from conveying
title to the purchaser. Since there is no breach of contract in this case, respondents are not entitled
Note: All the installments shall not bear any interest. to moral damages.

d) ₱2,000,000.00 outstanding balance of the mortgage obligation as of November 15,

1990 which is hereby assumed by the Second Party. In the absence of moral, temperate, liquidated or compensatory damages, exemplary damages
cannot be granted for they are allowed only in addition to any of the four kinds of damages
xxx mentioned.
3. That the Third Party hereby acknowledges receipts from the Second Party P278,078.13 as
partial payment of the loan obligation of First Party in order to reduce the account to only
₱2,000,000.00 as of November 15, 1990 to be assumed by the Second Party effective November WHEREFORE, the petition is DENIED.
15, 1990.[12]
SO ORDERED.
From the records, it cannot be denied that respondent paid to FSL Bank petitioners mortgage
obligation in the amount of ₱2,278,078.13, which formed part of the purchase price of the subject
property. Likewise, it is not disputed that respondent paid directly to petitioner the amount of
₱721,921.87 representing the additional payment for the purchase of the subject property. Clearly,
out of the total price of ₱4,200,000.00, respondent was able to pay the total amount of
₱3,000,000.00, leaving a balance of ₱1,200,000.00 payable in three (3) installments.

Out of the ₱1,200,000.00 remaining balance, respondent paid on several dates the first and second
installments of ₱200,000.00 each. She, however, failed to pay the third and last installment of
₱800,000.00 due on December 31, 1991. Nevertheless, on August 31, 1992, respondent, through
counsel, offered to pay the amount of ₱751,000.00, which was rejected by petitioner for the reason
that the actual balance was ₱805,000.00 excluding the interest charges.

Considering that out of the total purchase price of ₱4,200,000.00, respondent has already paid the
substantial amount of ₱3,400,000.00, more or less, leaving an unpaid balance of only ₱805,000.00,
it is right and just to allow her to settle, within a reasonable period of time, the balance of the
unpaid purchase price. The Court agrees with the courts below that the respondent showed her
sincerity and willingness to comply with her obligation when she offered to pay the petitioner the
amount of ₱751,000.00.

On the issue of interest, petitioner failed to substantiate her claim that respondent made a personal
commitment to pay a 6% monthly interest on the ₱805,000.00 from the date of
delinquency, December 31, 1991. As can be gleaned from the contract, there was a stipulation
stating that: All the installments shall not bear interest. The CA was, however, correct in imposing
interest at the rate of 6% per annum starting from the filing of the complaint on September 11,
1992.
DAO HENG BANK, INC., now G.R. No. 173856
BANCO DE ORO UNIVERSAL It appears that respondents negotiated for the redemption of the mortgages for by a June 29,
BANK, Present: 2001 letter[2] to them, petitioner, to which Dao Heng had been merged, through its Vice President
Petitioner, on Property Management & Credit Services Department, advised respondent Lilia Laigo as
QUISUMBING, J., Chairperson, follows:
CARPIO MORALES,
TINGA,
- versus - VELASCO, JR., and This is to formally advise you of the banks response to your proposal pertaining to the
BRION, JJ. redemption of the two (2) foreclosed lots located in Fairview, Quezon City as has been relayed to
you last June 13, 2001 as follows:

SPS. LILIA and REYNALDO LAIGO, Promulgated:

Respondents. 1. Redemption price shall be P11.5MM plus 12% interest based on diminishing balance payable
November 20, 2008 in staggered payments up to January 2, 2002 as follows:

a. P3MM immediately upon receipt of this approval

b. Balance payable in staggered payments (plus interest) up to January 2, 2002
SECOND DIVISION
2. Release Values for Partial Redemption:
x--------------------------------------------x
a. TCT No. 92257 (along Commonwealth) P7.500 MM*
b. TCT No. N-146289 (along Regalado) P4.000 MM*

DECISION * excluding 12% interest

3. Other Conditions:

CARPIO MORALES, J. a. Payments shall be covered by post dated checks

b. TCT No. 92257 shall be the first property to be released upon payment of the first P7.5MM
plus interest
The Spouses Lilia and Reynaldo Laigo (respondents) obtained loans from Dao Heng Bank, Inc. c. Arrangement to be covered by an Agreement
(Dao Heng) in the total amount of P11 Million, to secure the payment of which they forged on
October 28, 1996, November 18, 1996 and April 18, 1997 three Real Estate Mortgages covering If you are agreeable to the foregoing terms and conditions, please affix your signature showing
two parcels of land registered in the name of respondent Lilia D. Laigo, . . . married to Reynaldo your conformity thereto at the space provided below. (Emphasis and underscoring in the original;
Laigo, one containing 569 square meters and the other containing 537 square meters. italics supplied)
The mortgages were duly registered in the Registry of Deeds of Quezon City.

The loans were payable within 12 months from the execution of the promissory notes covering the
loans. As of 2000, respondents failed to settle their outstanding obligation, drawing them to
verbally offer to cede to Dao Heng one of the two mortgaged lots by way of dacion en pago. To
appraise the value of the mortgaged lands, Dao Heng in fact commissioned an appraiser whose fees
were shouldered by it and respondents.
There appears to have been no further action taken by the parties after the appraisal of the
properties.
Dao Heng was later to demand the settlement of respondents obligation by letter of August 18,
2000[1] wherein it indicated that they had an outstanding obligation of P10,385,109.92 inclusive of
interests and other charges. Respondents failed to heed the demand, however.
Dao Heng thereupon filed in September 2000 an application to foreclose the real estate mortgages
executed by respondents. The properties subject of the mortgage were sold for P10,776,242 at a
public auction conducted on December 20, 2000 to Banco de Oro Universal Bank (hereafter
petitioner) which was the highest bidder.
Nothing was heard from respondents, hence, petitioner by its Manager, Property Management &
Credit Services Department, advised her by letter of December 26, 2001 [3]that in view of their
failure to conform to the conditions set by it for the redemption of the properties, it would proceed
to consolidate the titles immediately after the expiration of the redemption period on January 2,
2002.
Six days before the expiration of the redemption period or on December 27, 2001, respondents
filed a complaint before the Regional Trial Court (RTC) of Quezon City, for Annulment,
Injunction with Prayer for Temporary Restraining Order (TRO), praying for the annulment of the
foreclosure of the properties subject of the real estate mortgages and for them to be allowed to
deliver by way of dacion en pago one of the mortgaged properties as full payment of [their]
mortgaged obligation and to, in the meantime, issue a TRO directing the defendant-herein
petitioner to desist from consolidating ownership over their properties.
By respondents claim, Dao Heng verbally agreed to enter into a dacion en pago.
In its Opposition to respondents Application for a TRO,[4] petitioner claimed that there was no
meeting of the minds between the parties on the settlement of respondents loan via dacion en pago.
A hearing on the application for a TRO was conducted by Branch 215 of the RTC of Quezon City
following which it denied the same.
Petitioner thereupon filed a Motion to Dismiss the complaint on the ground that the claim on which
respondents action is founded is unenforceable under the Statute of Frauds and the complaint states
no cause of action. Respondents opposed the motion, contending that their delivery of the titles to
the mortgaged properties constituted partial performance of their obligation under the dacion en
pago to take it out from the coverage of the Statute of Frauds.
The trial court granted petitioners Motion to Dismiss in this wise:
[P]laintiffs claim must be based on a document or writing evidencing the alleged dacion en pago,
otherwise, the same cannot be enforced in an action in court. The Court is not persuaded by
plaintiffs contention that their case is an exception to the operation of the rule on statute of frauds
because of their partial performance of the obligation in the dacion en pago consisting of the
delivery of the titles of the properties to the defendants. As correctly pointed out by the
defendants, the titles were not delivered to them pursuant to the dacion en pago but by reason
of the execution of the mortgage loan agreement. If indeed a dacion en pago agreement was
entered into between the parties, it is inconceivable that a written document would not be drafted
considering the magnitude of the amount involved.[5] (Emphasis and underscoring supplied)
Respondents assailed the dismissal of their complaint via Petition for Review before this Court
which referred it to the Court of Appeals for disposition.
Reversing the trial courts dismissal of the complaint, the appellate court, by Decision of January
26, 2006,[6] reinstated respondents complaint.[7]
In ordering the reinstatement of respondents complaint, the appellate court held that the complaint
states a cause of action, respondents having alleged that there was partial performance of the
agreement to settle their obligation via dacion en pago when they agreed to have the properties
appraised to thus place their agreement within the exceptions provided under Article 1403 [8] of the
Civil Code on Statute of Frauds. Thus the appellate court ratiocinated:
Particularly, in seeking exception to the application of the Statute of Frauds, petitioners[-herein
respondents] averred partial performance of the supposed verbal dacion en pago. In paragraph 5 of
their complaint, they stated: As part of the agreement, defendant Dao Heng Bank had the
mortgaged property appraised to determine which of the two shall be delivered as full payment of
the mortgage obligation; Also as part of the deal, plaintiffs for their part paid P5,000.00 for the
appraisal expense. As reported by the appraiser commissioned by Defendant Dao Heng, the
appraised value of the mortgaged properties were as follows: x x x Having done so, petitioners are
at least entitled to a reasonable opportunity to prove their case in the course of a full trial, to which
the respondents may equally present their evidence in refutation of the formers case.(Underscoring
supplied)
Petitioners Motion for Reconsideration having been denied by the appellate court by Resolution
of July 19, 2006, the present petition was filed faulting the appellate court in ruling:
I.
. . . THAT THE COMPLAINT ALLEGED A SUFFICIENT CAUSE OF ACTION DESPITE THE
ALLEGATIONS, AS WELL AS ADMISSIONS FROM THE RESPONDENTS, THAT THERE
WAS NO PERFECTED DACION EN PAGO CONTRACT;
II.
. . . THAT THE ALLEGED DACION EN PAGO IS NOT UNENFORCEABLE UNDER THE
STATUTE OF FRAUDS, DESPITE THE ABSENCE OF A WRITTEN & BINDING
CONTRACT;
III.
. . . THAT THE COMPLAINT SUFFICIENTLY STATED A CAUSE OF ACTION.[9]
Generally, the presence of a cause of action is determined from the facts alleged in the complaint.
In their complaint, respondents alleged:
xxxx
4. Sometime in the middle of the year 2000, defendant Dao Heng Bank as the creditor bank agreed
to the full settlement of plaintiffs mortgage obligation of P9 Million through the assignment of one
of the two (2) mortgaged properties;
[5] As part of the agreement, defendant Dao Heng Bank had the mortgaged properties appraised to
determine which of the two (2) mortgaged properties shall be delivered as full payment of the
mortgage obligation; Also as part of the deal, plaintiffs for their part paid P5,000.00 for the
appraisal expense; As reported by the appraiser commissioned by defendant Dao Heng, the
appraised value of the mortgaged properties were as follows:
(a) Property No. 1 T.C.T. No. 92257: P12,518,000.00
L2A Blk 12 Don Mariano Marcos
Ave., Fairview, QC
(b) Property No. 2 T.C.T. No. 146289: P8,055,000.00 L36 Blk 87 Regalado Ave. Cor. Ipil
St., Neopolitan, QC
[6] Sometime in December, year 2000, the protest of plaintiffs notwithstanding and in
blatant breach of the agreed Dacion en Pago as the mode of full payment of plaintiffs mortgage
obligation, defendant Dao Heng Bank proceeded to foreclose the mortgaged properties above-
described and sold said properties which were aggregately valued at more than P20 Million for
only P10,776,242.00, an unconscionably very low price; (Underscoring supplied)
Even if a complaint states a cause of action, however, a motion to dismiss for insufficiency of
cause of action may be granted if the evidence discloses facts sufficient to defeat the claim and
enables the court to go beyond the disclosures in the complaint. In such instances, the court can
dismiss a complaint on this ground, even without a hearing, by taking into account the discussions
in said motion to dismiss and the disposition thereto.[10]
In its Opposition to respondents application for the issuance of a TRO, [11] petitioner, responding to There is no concrete showing, however, that after the appraisal of the properties, petitioner
respondents allegation that it agreed to the settlement of their obligation via the assignment of one approved respondents proposal to settle their obligation via dacion en pago. The delivery to
of the two mortgaged properties, alleged that there was no meeting of the minds thereon: petitioner of the titles to the properties is a usual condition sine qua non to the execution of the
mortgage, both for security and registration purposes. For if the title to a property is not delivered
4. Plaintiffs claim that defendant Dao Heng Bank[s] foreclosure sale of the mortgaged properties to the mortgagee, what will prevent the mortgagor from again encumbering it also by mortgage or
was improper because there was an agreement to dacion one of the two (2) mortgaged properties as even by sale to a third party.
full settlement of the loan obligation and that defendant Dao Heng Bank and Banco de Oro were
already negotiating and colluding for the latters acquisition of the mortgaged [properties] for the Finally, that respondents did not deny proposing to redeem the mortgages, [17] as reflected in
unsconscionably low price of P10,776.242.00 are clearly WITHOUT BASIS. Quite to the petitioners June 29, 2001 letter to them, dooms their claim of the existence of a perfected dacion en
contrary, there was no meeting of the minds between defendant Dao Heng Bank and the plaintiffs pago.
to dacion any of the mortgaged properties as full settlement of the loan. Although there was a
PROPOSAL and NEGOTIATIONS to settle the loan by way of dacion, nothing came out of said WHEREFORE, the Court of Appeals Decision of January 26, 2006 is REVERSED and SET
proposal, much less did the negotiations mature into the execution of a dacion en pago ASIDE. The Resolution of July 2, 2002 of the Regional Trial Court of Quezon City, Branch 215
instrument. Defendant Dao Heng Bank found the offer to settle by way of dacion not acceptable dismissing respondents complaint is REINSTATED.
and thus, it opted to foreclose on the mortgage.
SO ORDERED.
The law clearly provides that the debtor of a thing cannot compel the creditor to receive a different
one, although the latter may be of the same value, or more valuable than that which is due (Article
1244, New Civil Code). The oblige is entitled to demand fulfillment of the obligation or
performance as stipulated (Palmares v. Court of Appeals, 288 SCRA 422 at p. 444 [1998]). The
power to decide whether or not to foreclose on the mortgage is the sole prerogative of the
mortgagee (Rural Bank of San Mateo, Inc. vs. Intermediate Appellate Court, 146 SCRA 205, at
213 [1986]) Defendant Dao Heng Bank merely opted to exercise such prerogative.[12] (Emphasis in
the original; capitalization and underscoring supplied)

Dacion en pago as a mode of extinguishing an existing obligation partakes of the nature of sale
whereby property is alienated to the creditor in satisfaction of a debt in money. [13] It is an objective
novation of the obligation, hence, common consent of the parties is required in order to extinguish
the obligation.
. . . In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor
who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in
one sense of the nature of sale, that is, the creditor is really buying the thing or property of the
debtor, payment for which is to be charged against the debtors debt. As such the elements of a
contract of sale, namely, consent, object certain, and cause or consideration must be present. In its
modern concept, what actually takes place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted equivalent of the performance of an obligation is
considered as the object of the contract of sale, while the debt is considered the purchase price. In
any case, common
consent is an essential prerequisite, be it sale or novation, to have the effect of totally
extinguishing the debt or obligation.[14] (Emphasis, italics and underscoring supplied; citation
omitted)

Being likened to that of a contract of sale, dacion en pago is governed by the law on sales.[15]The
partial execution of a contract of sale takes the transaction out of the provisions of the Statute of
Frauds so long as the essential requisites of consent of the contracting parties, object and cause of
the obligation concur and are clearly established to be present.[16]

Respondents claim that petitioners commissioning of an appraiser to appraise the value of the
mortgaged properties, his services for which they and petitioner paid, and their delivery to
petitioner of the titles to the properties constitute partial performance of their agreement to take the
case out of the provisions on the Statute of Frauds.
ANTONIO R. CORTES (in his G.R. No. 126083
capacity as Administrator of the
estate of Claro S. Cortes),
Petitioner,
- versus -
HON. COURT OF APPEALS
and VILLA ESPERANZA Promulgated:
DEVELOPMENT CORPORATION,
Respondents. July 12, 2006
x ---------------------------------------------------------------------------------------- x
DECISION
YNARES-SANTIAGO, J.:
The instant petition for review seeks the reversal of the June 13, 1996 Decision[1] of the Court of
Appeals in CA-G.R. CV No. 47856, setting aside the June 24, 1993 Decision[2] of the Regional
Trial Court of Makati, Branch 138, which rescinded the contract of sale entered into by petitioner
Antonio Cortes (Cortes) and private respondent Villa Esperanza Development Corporation
(Corporation).
The antecedents show that for the purchase price of P3,700,000.00, the Corporation as buyer, and
Cortes as seller, entered into a contract of sale over the lots covered by Transfer Certificate of Title
(TCT) No. 31113-A, TCT No. 31913-A and TCT No. 32013-A, located at Baclaran, Paraaque,
Metro Manila. On various dates in 1983, the Corporation advanced to Cortes the total sum of
P1,213,000.00. Sometime in September 1983, the parties executed a deed of absolute sale
containing the following terms:[3]
1. Upon execution of this instrument, the Vendee shall pay unto the Vendor sum of TWO
MILLION AND TWO HUNDRED THOUSAND (P2,200,000.00) PESOS, Philippine Currency,
less all advances paid by the Vendee to the Vendor in connection with the sale;
2. The balance of ONE MILLION AND FIVE HUNDRED THOUSAND [P1,500,000.00] PESOS,
Phil. Currency shall be payable within ONE (1) YEAR from date of execution of this instrument,
payment of which shall be secured by an IRREVOCABLE STANDBY LETTER OF CREDIT to
be issued by any reputable local banking institution acceptable to the Vendor.
xxxx
4. All expense for the registration of this document with the Register of Deeds concerned,
including the transfer tax, shall be divided equally between the Vendor and the Vendee. Payment
of the capital gains shall be exclusively for the account of the Vendor; 5% commission of Marcosa
Sanchez to be deducted upon signing of sale.[4]
Said Deed was retained by Cortes for notarization.
On January 14, 1985, the Corporation filed the instant case[5] for specific performance seeking to
compel Cortes to deliver the TCTs and the original copy of the Deed of Absolute Sale. According
to the Corporation, despite its readiness and ability to pay the purchase price, Cortes refused
delivery of the sought documents. It thus prayed for the award of damages, attorneys fees and
litigation expenses arising from Cortes refusal to deliver the same documents.
In his Answer with counterclaim,[6] Cortes claimed that the owners duplicate copy of the three
TCTs were surrendered to the Corporation and it is the latter which refused to pay in full the agreed
down payment. He added that portion of the subject property is occupied by his lessee who agreed
to vacate the premises upon payment of disturbance fee. However, due to the Corporations failure
to pay in full the sum of P2,200,000.00, he in turn failed to fully pay the disturbance fee of the
lessee who now refused to pay monthly rentals. He thus prayed that the Corporation be ordered to
pay the outstanding balance plus interest and in the alternative, to cancel the sale and forfeit the
P1,213,000.00 partial down payment, with damages in either case.
On June 24, 1993, the trial court rendered a decision rescinding the sale and directed Cortes to
return to the Corporation the amount of P1,213,000.00, plus interest. It ruled that pursuant to the
contract of the parties, the Corporation should have fully paid the amount of P2,200,000.00 upon
the execution of the contract. It stressed that such is the law between the parties because the
Corporation failed to present evidence that there was another agreement that modified the terms of
payment as stated in the contract. And, having failed to pay in full the amount of P2,200,000.00
despite Cortes delivery of the Deed of Absolute Sale and the TCTs, rescission of the contract is
proper.
In its motion for reconsideration, the Corporation contended that the trial court failed to consider
their agreement that it would pay the balance of the down payment when Cortes delivers the
TCTs. The motion was, however, denied by the trial court holding that the rescission should stand
because the Corporation did not act on the offer of Cortes counsel to deliver the TCTs upon
payment of the balance of the down payment. Thus:
The Court finds no merit in the [Corporations] Motion for Reconsideration. As stated in the
decision sought to be reconsidered, [Cortes] counsel at the pre-trial of this case, proposed that if
[the Corporation] completes the down payment agreed upon and make arrangement for the
payment of the balances of the purchase price, [Cortes] would sign the Deed of Sale and turn over
the certificate of title to the [Corporation]. [The Corporation] did nothing to comply with its
undertaking under the agreement between the parties.
WHEREFORE, in view of the foregoing considerations, the Motion for Reconsideration is hereby
DENIED.
SO ORDERED.[7]
On appeal, the Court of Appeals reversed the decision of the trial court and directed Cortes to
execute a Deed of Absolute Sale conveying the properties and to deliver the same to the
Corporation together with the TCTs, simultaneous with the Corporations payment of the balance of
the purchase price of P2,487,000.00. It found that the parties agreed that the Corporation will fully
pay the balance of the down payment upon Cortes delivery of the three TCTs to the
Corporation. The records show that no such delivery was made, hence, the Corporation was not
remiss in the performance of its obligation and therefore justified in not paying the balance. The
decretal portion thereof, provides:
WHEREFORE, premises considered, [the Corporations] appeal is GRANTED. The decision
appealed from is hereby REVERSED and SET ASIDE and a new judgment rendered ordering
[Cortes] to execute a deed of absolute sale conveying to [the Corporation] the parcels of land
subject of and described in the deed of absolute sale, Exhibit D. Simultaneously with the execution
of the deed of absolute sale and the delivery of the corresponding owners duplicate copies of TCT
Nos. 31113-A, 31931-A and 32013-A of the Registry of Deeds for the Province of Rizal, Metro
Manila, District IV, [the Corporation] shall pay [Cortes] the balance of the purchase price of
P2,487,000.00. As agreed upon in paragraph 4 of the Deed of Absolute Sale, Exhibit D, under
terms and conditions, All expenses for the registration of this document (the deed of sale) with the
Register of Deeds concerned, including the transfer tax, shall be divided equally between [Cortes
and the Corporation]. Payment of the capital gains shall be exclusively for the account of the
Vendor; 5% commission of Marcosa Sanchez to be deducted upon signing of sale. There is no
pronouncement as to costs.
SO ORDERED.[8]
Cortes filed the instant petition praying that the decision of the trial court rescinding the sale be
reinstated.
There is no doubt that the contract of sale in question gave rise to a reciprocal obligation of the
parties. Reciprocal obligations are those which arise from the same cause, and which each party is
a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation
of the other. They are to be performed simultaneously, so that the performance of one is
conditioned upon the simultaneous fulfillment of the other.[9]
Article 1191 of the Civil Code, states:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
xxxx
As to when said failure or delay in performance arise, Article 1169 of the same Code provides that
ART. 1169
xxxx
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins. (Emphasis supplied)
The issue therefore is whether there is delay in the performance of the parties obligation that would
justify the rescission of the contract of sale. To resolve this issue, we must first determine the true
agreement of the parties.
The settled rule is that the decisive factor in evaluating an agreement is the intention of the parties,
as shown not necessarily by the terminology used in the contract but by their conduct, words,
actions and deeds prior to, during and immediately after executing the agreement. As such,
therefore, documentary and parol evidence may be submitted and admitted to prove such
intention.[10]
In the case at bar, the stipulation in the Deed of Absolute Sale was that the Corporation shall pay in
full the P2,200,000.00 down payment upon execution of the contract. However, as correctly noted
by the Court of Appeals, the transcript of stenographic notes reveal Cortes admission that he agreed
that the Corporations full payment of the sum of P2,200,000.00 would depend upon his delivery of
the TCTs of the three lots. In fact, his main defense in the Answer is that, he performed what is
incumbent upon him by delivering to the Corporation the TCTs and the carbon duplicate of the
Deed of Absolute Sale, but the latter refused to pay in full the down payment. [11] Pertinent portion
of the transcript, reads:
[Q] Now, why did you deliver these three titles to the plaintiff despite the fact that it has not been
paid in full the agreed down payment?
A Well, the broker told me that the down payment will be given if I surrender the titles.
Q Do you mean to say that the plaintiff agreed to pay in full the down payment of P2,200,000.00
provided you surrender or entrust to the plaintiff the titles?
A Yes, sir.[12]
What further confirmed the agreement to deliver the TCTs is the testimony of Cortes that the title
of the lots will be transferred in the name of the Corporation upon full payment of the
P2,200,000.00 down payment. Thus
ATTY. ANTARAN
Q Of course, you have it transferred in the name of the plaintiff, the title?
A Upon full payment.
xxxx
ATTY. SARTE
Q When you said upon full payment, are you referring to the agreed down payment of
P2,200,000.00?
A Yes, sir.[13]
By agreeing to transfer title upon full payment of P2,200,000.00, Cortes impliedly agreed to deliver
the TCTs to the Corporation in order to effect said transfer. Hence, the phrase execution of this
instrument [14] as appearing in the Deed of Absolute Sale, and which event would give rise to the
Corporations obligation to pay in full the amount of P2,200,000.00, can not be construed as
referring solely to the signing of the deed. The meaning of execution in the instant case is not
limited to the signing of a contract but includes as well the performance or implementation or
accomplishment of the parties agreement.[15] With the transfer of titles as the corresponding
reciprocal obligation of payment, Cortes obligation is not only to affix his signature in the Deed,
but to set into motion the process that would facilitate the transfer of title of the lots, i.e., to have
the Deed notarized and to surrender the original copy thereof to the Corporation together with the
TCTs.
Having established the true agreement of the parties, the Court must now determine whether Cortes
delivered the TCTs and the original Deed to the Corporation. The Court of Appeals found that
Cortes never surrendered said documents to the Corporation. Cortes testified that he delivered the
same to Manny Sanchez, the son of the broker, and that Manny told him that her mother, Marcosa
Sanchez, delivered the same to the Corporation.
Q Do you have any proof to show that you have indeed surrendered these titles to the plaintiff?
A Yes, sir.
Q I am showing to you a receipt dated October 29, 1983, what relation has this receipt with that
receipt that you have mentioned?
A That is the receipt of the real estate broker when she received the titles.
Q On top of the printed name is Manny Sanchez, there is a signature, do you know who is that
Manny Sanchez?
A That is the son of the broker.
xxxx
Q May we know the full name of the real estate broker?
A Marcosa Sanchez
xxxx
 We find no merit in Cortes contention that the failure of the Corporation to act on the proposed
Q Do you know if the broker or Marcosa Sanchez indeed delivered the titles to the plaintiff? settlement at the pre-trial must be construed against the latter. Cortes argued that with his counsels
A That is what [s]he told me. She gave them to the plaintiff. offer to surrender the original Deed and the TCTs, the Corporation should have consigned the
balance of the down payment. This argument would have been correct if Cortes actually
x x x x.[16] surrendered the Deed and the TCTs to the Corporation. With such delivery, the Corporation would
have been placed in default if it chose not to pay in full the required down payment. Under Article
ATTY. ANTARAN 1169 of the Civil Code, from the moment one of the parties fulfills his obligation, delay by the
Q Are you really sure that the title is in the hands of the plaintiff? other begins. Since Cortes did not perform his part, the provision of the contract requiring the
Corporation to pay in full the down payment never acquired obligatory force. Moreover, the
xxxx Corporation could not be faulted for not automatically heeding to the offer of Cortes. For one, its
complaint has a prayer for damages which it may not want to waive by agreeing to the offer of
Q It is in the hands of the broker but there is no showing that it is in the hands of the plaintiff? Cortes counsel. For another, the previous representation of Cortes that the TCTs were already
A Yes, sir. delivered to the Corporation when no such delivery was in fact made, is enough reason for the
Corporation to be more cautious in dealing with him.
COURT
Q How do you know that it was delivered to the plaintiff by the son of the broker? The Court of Appeals therefore correctly ordered the parties to perform their respective obligation
A The broker told me that she delivered the title to the plaintiff. in the contract of sale, i.e., for Cortes to, among others, deliver the necessary documents to the
Corporation and for the latter to pay in full, not only the down payment, but the entire purchase
ATTY. ANTARAN price. And since the Corporation did not question the Court of Appeals decision and even prayed
Q Did she not show you any receipt that she delivered to [Mr.] Dragon[17] the title without any for its affirmance, its payment should rightfully consist not only of the amount of P987,000.00,
receipt? representing the balance of the P2,200,000.00 down payment, but the total amount of
A I have not seen any receipt. P2,487,000.00, the remaining balance in the P3,700,000.00 purchase price.

Q So, therefore, you are not sure whether the title has been delivered to the plaintiff or not. It is WHEREFORE, the petition is DENIED and the June 13, 1996 Decision of the Court of Appeals
only upon the allegation of the broker? in CA-G.R. CV No. 47856, is AFFIRMED.
A Yes, sir.[18]
SO ORDERED.
However, Marcosa Sanchezs unrebutted testimony is that, she did not receive the TCTs.She also
denied knowledge of delivery thereof to her son, Manny, thus:

Q The defendant, Antonio Cortes testified during the hearing on March 11, 1986 that he allegedly
gave you the title to the property in question, is it true?
A I did not receive the title.

Q He likewise said that the title was delivered to your son, do you know about that?
A I do not know anything about that.[19]

What further strengthened the findings of the Court of Appeals that Cortes did not surrender the
subject documents was the offer of Cortes counsel at the pre-trial to deliver the TCTs and the Deed
of Absolute Sale if the Corporation will pay the balance of the down payment.Indeed, if the said
documents were already in the hands of the Corporation, there was no need for Cortes counsel to
make such offer.

Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same
together with the TCTs, the trial court erred in concluding that he performed his part in the contract
of sale and that it is the Corporation alone that was remiss in the performance of its
obligation. Actually, both parties were in delay. Considering that their obligation was reciprocal,
performance thereof must be simultaneous. The mutual inaction of Cortes and the Corporation
therefore gave rise to a compensation morae or default on the part of both parties because neither
has completed their part in their reciprocal obligation.[20] Cortes is yet to deliver the original copy
of the notarized Deed and the TCTs, while the Corporation is yet to pay in full the agreed down
payment of P2,200,000.00. This mutual delay of the parties cancels out the effects of
default,[21] such that it is as if no one is guilty of delay.[22]
G.R. No. 199648 January 28, 2015 Gentlemen:

FIRST OPTIMA REALTY CORPORATION, Petitioner, As agreed upon, we are making a deposit of ONE HUNDRED THOUSAND PESOS (Php
vs. 100,000.00) as earnest money for your property at the corner of Layug St., & Lim-An St., Pasay
SECURITRON SECURITY SERVICES, INC., Respondent. City as per TCT No. 125318 with an area of 256 sq. m. at 6,000.00/ sq. m. for a total of ONE
MILLION FIVE HUNDRED THIRTY SIX THOUSAND PESOS (Php 1,536,000.00).
DECISION
Full payment upon clearing of the tenants at said property and signing of the Deed of Sale.
DEL CASTILLO, J.:
(signed)
In a potential sale transaction, the prior payment of earnest money even before the property owner ANTONIO S. ELEAZAR13
can agree to sell his property is irregular, and cannot be used to bind the owner to the obligations of
a seller under an otherwise perfected contract of sale; to cite a well-worn cliche, the carriage cannot Despite the delicate nature of the matter and large amount involved, respondent did not deliver the
be placed before the horse. The property owner-prospective seller may not be legally obliged to letter and check directly to Young or her office; instead, they were coursed through an ordinary
enter into a sale with a prospective buyer through the latter's employment of questionable practices receiving clerk/receptionist of the petitioner, who thus received the same and therefor issued and
which prevent the owner from freely giving his consent to the transaction; this constitutes a signed Provisional Receipt No. 33430.14 The said receipt reads:
palpable transgression of the prospective seller's rights of ownership over his property, an anomaly
which the Court will certainly not condone. Received from x x x Antonio Eleazar x x x the sum of Pesos One Hundred Thousand x x x

This Petition for Review on Certiorari1 seeks to set aside: 1) the September 30, 2011 Decision2 of IN PAYMENT OF THE FOLLOWING x x x
the Court of Appeals (CA) in CA-G.R. CV No. 93715 affirming the February 16, 2009 Decision' of
the Regional Trial Court (RTC) of Pasay City, Branch 115 in Civil Case No. 06-0492 CFM; and 2)
the CA’s December 9, 2011 Resolution4 denying the herein petitioner’s Motion for Earnest money or Partial payment of
Reconsideration5 of the assailed judgment.
Pasay Property Layug & Lim-an St. x x x.
Factual Antecedents
Note: This is issued to transactions not
Petitioner First Optima Realty Corporation is a domestic corporation engaged in the real estate yet cleared but subsequently an OfficialReceipt will be issued. x x x15
business. It is the registered owner of a 256-square meter parcel of land with improvements located
in Pasay City, covered by Transfer Certificate of Title No. 125318 (the subject The check was eventually deposited with and credited to petitioner’s bank account.
property).6 Respondent Securitron Security Services, Inc., on the other hand, is a domestic
corporation with offices located beside the subject property.
Thereafter, respondent through counsel demanded in writing that petitioner proceed with the sale of
the property.16In a March 3, 2006 Letter17 addressed to respondent’s counsel, petitioner wrote back:
Looking to expand its business and add toits existing offices, respondent – through its General
Manager, Antonio Eleazar (Eleazar) – sent a December 9, 2004 Letter7 addressed to petitioner –
through its Executive Vice-President, Carolina T. Young (Young) – offering to purchase the Dear Atty. De Jesus:
subject property at ₱6,000.00 per square meter. A series of telephone calls ensued, but only
between Eleazar and Young’s secretary;8 Eleazar likewise personally negotiated with a certain Anent your letter dated January 16, 2006 received on February 20, 2006, please be informed of the
Maria Remoso (Remoso), who was an employee of petitioner.9 At this point, Eleazar was unable to following:
personally negotiate with Young or the petitioner’s board of directors.
1. It was your client SECURITRON SECURITY SERVICES, INC.
Sometime thereafter, Eleazar personally went to petitioner’s office offering to pay for the subject represented by Mr. Antonio Eleazar who offered to buy our property located
property in cash, which he already brought with him. However, Young declined to accept payment, at corner Layug and Lim-An St., Pasay City;
saying that she still needed to secure her sister’s advice on the matter. 10 She likewise informed
Eleazar that prior approval of petitioner’s Board of Directors was required for the transaction, to
which remark Eleazar replied that respondent shall instead await such approval. 11 2. It tendered an earnest money despite the fact that we are still undecided to
sell the said property;

On February 4, 2005, respondent sent a Letter12 of even date to petitioner. It was accompanied by
Philippine National Bank Check No. 24677 (the subject check), issued for ₱100,000.00 and made 3. Our Board of Directors failed to pass a resolution to date whether it agrees
payable to petitioner. The letter states thus: to sell the property;
 4. We have no Contract for the earnest money nor Contract to Sell the said
property with your client;
Considering therefore the above as well as due to haste and demands which we feel [are forms] of
intimidation and harassment, we regret to inform you that we are now incline (sic) not to accept
your offer to buy our property. Please inform your client to coordinate with us for the refund of this
(sic) money.
Very truly yours,
(signed)
CAROLINA T. YOUNG
Executive Vice[-]President18
Ruling of the Regional Trial Court of Pasay City
On April 18, 2006, respondent filed with the Pasay RTC a civil case against petitioner for specific
performance with damages to compel the latter to consummate the supposed sale of the subject
property. Docketed as Civil Case No. 06-0492 CFM and assigned to Branch 115 of the Pasay RTC,
the Complaint19 is predicated on the claim that since a perfected contract of sale arose between the
parties after negotiations were conducted and respondent paid the ₱100,000.00 supposed earnest
money – which petitioner accepted, the latter should be compelled to sell the subject property to
the former. Thus, respondent prayed that petitioner be ordered to comply with its obligation as
seller, accept the balance of the purchase price, and execute the corresponding deed of sale in
respondent’s favor; and that petitioner be made to pay ₱200,000.00 damages for its breach and
delay in the performance of its obligations, ₱200,000.00 by way of attorney's fees, and costs of
suit.
In its Answer with Compulsory Counterclaim,20 petitioner argued that it never agreed to sell the
subject property; that its board of directors did not authorize the sale thereof to respondent, as no
corresponding board resolution to such effect was issued; that the respondent’s ₱100,000.00 check
payment cannot be considered as earnest money for the subject property, since said payment was
merely coursed through petitioner’s receiving clerk, who was forced to accept the same; and that
respondent was simply motivated by a desire to acquire the subject property at any cost. Thus,
petitioner prayed for the dismissal of the case and, by way of counterclaim, it sought the payment
of moral damages in the amount of ₱200,000.00; exemplary damages in the amount of
₱100,000.00; and attorney’s fees and costs of suit.
In a Reply,21 respondent countered that authorization by petitioner’s Board of Directors was not
necessary since it is a real estate corporation principally engaged in the buying and selling of real
property; that respondent did not force nor intimidate petitioner’s receiving clerk into accepting the
February 4, 2005 letter and check for ₱100,000.00; that petitioner’s acceptance of the check and its
failure – for more than a year – to return respondent’s payment amounts to estoppel and a
ratification of the sale; and that petitioner is not entitled to its counterclaim.
After due proceedings were taken, the Pasay RTC issued its Decision dated February 16, 2009,
decreeing as follows:
WHEREFORE, defendant First Optima Realty Corporation is directed to comply with its
obligation by accepting the remaining balance of One Million Five Hundred Thirty-Six Thousand
Pesos and Ninety-Nine Centavos (₱1,536,000.99), and executing the corresponding deed of sale in
favor of the plaintiff Securitron Security Services, Inc. over the subject parcel of land.
No costs.
SO ORDERED.22
In ruling for the respondent, the trial court held that petitioner’s acceptance of ₱100,000.00 earnest
money indicated the existence of a perfected contract of sale between the parties; that there is no
showing that when respondent gave the February 4, 2005 letter and check to petitioner’s receiving
clerk, the latter was harassed or forced to accept the same; and that for the sale of the subject
property, no resolution of petitioner’s board of directors was required since Young was "free to
represent" the corporation in negotiating with respondent for the sale thereof. Ruling of the Court
of Appeals
Petitioner filed an appeal with the CA. Docketed as CA-G.R. CV No. 93715, the appeal made out a
case that no earnest money can be considered to have been paid to petitioner as the supposed
payment was received by a mere receiving clerk, who was not authorized to accept the same; that
the required board of directors resolution authorizing the sale of corporate assets cannot be
dispensed with in the case of petitioner; that whatever negotiations were held between the parties
only concerned the possible sale, not the sale itself, of the subject property; that without the written
authority of petitioner’s board of directors, Young cannot enter into a sale of its corporate property;
and finally, that there was no meeting of the minds between the parties in the first place.
On September 30, 2011, the CA issued the assailed Decision affirming the trial court’s February
16, 2009Decision, pronouncing thus:
Article 1318 of the Civil Code declares that no contract exists unless the following requisites
concur: (1) consent of the contracting parties; (2) object certain which is the subject matter of the
contract; and (3) cause of the obligation established.
A careful perusal of the records of the case show[s] that there was indeed a negotiation between the
parties as regards the sale of the subject property, their disagreement lies on whether they have
arrived on an agreement regarding said sale. Plaintiff-appellee avers that the parties have already
agreed on the sale and the price for it and the payment of earnest money and the remaining balance
upon clearing of the property of unwanted tenants. Defendant-appellant on the other hand disputes
the same and insists that there was no concrete agreement between the parties.
Upon a careful consideration of the arguments of the parties and the records of the case, we are
more inclined to sustain the arguments of the plaintiff-appellee and affirm the findings of the trial
court that there was indeed a perfected contract of sale between the parties. The following instances
militate against the claim of the defendant-appellant: First. The letter of the plaintiff-appellee dated
February 4, 2005 reiterating their agreement as to the sale of the realty for the consideration of Php
1,536,000.00 was not disputed nor replied to by the defendant-appellant, the said letter also
provides for the payment of the earnest money of Php 100,000.00 and the full payment upon the
clearing of the property of unwanted tenants, if the defendant-appellant did not really agree on the
sale of the property it could have easily replied to the said letter informing the plaintiff-appellee
that it is not selling the property or that the matter will be decided first by the board of directors,
defendant-appellant’s silence or inaction on said letter shows its conformity or consent thereto;
Second. In addition to the aforementioned letter, defendant-appellant’s acceptance of the earnest
money and the issuance of a provisional receipt clearly shows that there was indeed an agreement
between the parties and we do not subscribe to the argument of the defendant-appellant that the
check was merely forced upon its employee and the contents of the receipt was just dictated by the
plaintiff-appellee’s employee because common sense dictates that a person would not issue a
receipt for a check with a huge amount if she does not know what that is for and similarly would
not issue [a] receipt which would bind her employer if she does not have prior instructions to do
[so] from her superiors; Third. The said check for earnest money was deposited in the bank by
defendant-appellant and not until after one year did it offer to return the same. Defendant-appellant
cannot claim lack of knowledge of the payment of the check since there was a letter for it, and it is
just incredible that a big amount of money was deposited in [its] account [without knowing] about
it [or] investigat[ing] what [it was] for. We are more inclined to believe that their inaction for more
than one year on the earnest money paid was due to the fact that after the payment of earnest
money the place should be cleared of unwanted tenants before the full amount of the purchase price
will be paid as agreed upon as shown in the letter sent by the plaintiff-appellee.
As stated above the presence of defendant-appellant’s consent and, corollarily, the existence of a
perfected contract between the parties are evidenced by the payment and receipt of Php 100,000.00
as earnest money by the contracting parties’ x x x. Under the law on sales, specifically Article 1482
of the Civil Code, it provides that whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and proof of the perfection of the contract. Although the
presumption is not conclusive, as the parties may treat the earnest money differently, there is
nothing alleged in the present case that would give rise to a contrary presumption.
We also do not find merit in the contention of the defendant-appellant that there is a need for a
board resolution for them to sell the subject property since it is a corporation, a juridical entity
which acts only thru the board of directors. While we agree that said rule is correct, we must also
point out that said rule is the general rule for all corporations [but] a corporation [whose main
business is buying and selling real estate] like herein defendant-appellant, is not required to have a
board resolution for the sale of the realty in the ordinary course of business, thus defendant-
appellant’s claim deserves scant consideration.
Furthermore, the High Court has held that "a corporate officer or agent may represent and bind the
corporation in transactions with third persons to the extent that the authority to do so has been
conferred upon him, and this includes powers which have been intentionally conferred, and also
such powers as, in the usual course of the particular business, are incidental to, or may be implied
from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining
to the particular officer or agent, and such apparent powers as the corporation has caused persons
dealing with the officer or agent to believe that it was conferred."
In the case at bench, it is not disputed and in fact was admitted by the defendant-appellant that Ms.
Young, the Executive Vice-President was authorized to negotiate for the possible sale of the
subject parcel of land. Therefore, Ms. Young can represent and bind defendant-appellant in the
transaction.
Moreover, plaintiff-appellee can assume that Ms. Young, by virtue of her position, was authorized
to sell the property of the corporation. Selling of realty is not foreign to [an] executive vice[-
]president’s function, and the real estate sale was shown to be a normal business activity of
defendant-appellant since its primary business is the buy and sell of real estate. Unmistakably, its
Executive Vice-President is cloaked with actual or apparent authority to buy or sell real property,
an activity which falls within the scope of her general authority.
Furthermore, assuming arguendo that a board resolution was indeed needed for the sale of the
subject property, the defendant-appellant is estopped from raising it now since, [it] did not inform
the plaintiff-appellee of the same, and the latter deal (sic) with them in good faith. Also it must be
stressed that the plaintiff-appellee negotiated with one of the top officer (sic) of the company thus,
any requirement on the said sale must have been known to Ms. Young and she should have
informed the plaintiff-appellee of the same.
In view of the foregoing we do not find any reason to deviate from the findings of the trial court,
the parties entered into the contract freely, thus they must perform their obligation faithfully.
Defendant-appellant’s unjustified refusal to perform its part of the agreement constitutes bad faith
and the court will not tolerate the same.
WHEREFORE, premises considered, the Decision of the Regional Trial Court of Pasay City
Branch 115, in Civil Case No. 06-0492 CFM is hereby AFFIRMED.
SO ORDERED.23
Petitioner moved for reconsideration,24 but in a December 9, 2011 Resolution, the CA held its
ground. Hence, the present Petition.
Issues
In an October 9,2013 Resolution,25 this Court resolved to give due course to the Petition, which
raises the following issues:
I
THE HONORABLE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT
RULED THAT THE MONEY RESPONDENT DELIVERED TO PETITIONER WAS EARNEST
MONEY THEREBY PROVIDING A PERFECTED CONTRACT OF SALE.
II
THE HONORABLE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT
RULED THAT THE TIME THAT LAPSED IN RETURNING THE MONEY AND IN
REPLYING TO THE LETTER IS PROOF OF ACCEPTANCE OF EARNEST MONEY.
III
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND GRAVE ERROR
WHEN IT IGNOREDTHE RESERVATION IN THE PROVISIONAL RECEIPT – "Note: This is
issued to transactions not yet cleared but subsequently an Official Receipt will be issued." 26
Petitioner’s Arguments
In its Petition and Reply27 seeking to reverse and set aside the assailed CA dispositions and in
effect to dismiss Civil Case No. 06-0492 CFM, petitioner argues that respondent failed to prove its
case that a contract of sale was perfected between the parties. It particularly notes that, contrary to
the CA’s ruling, respondent’s delivery of the February 4, 2005 letter and check; petitioner’s failure
to respond to said letter; petitioner’s supposed acceptance of the check by depositing the same in its
account; and its failure to return the same after more than one year from its tender – these
circumstances do not at all prove that a contract of sale was perfected between the parties. It claims
that there was never an agreement in the first place between them concerning the sale of the subject
property, much less the payment of earnest money therefor; that during trial, Eleazar himself
admitted that the check was merely a "deposit";28 that the February 4, 2005 letter and check were
delivered not to Young, but to a mere receiving clerk of petitioner who knew nothing about the
supposed transaction and was simply obliged to accept the same without the prerogative to reject
them; that the acceptance of respondent’s supposed payment was not cleared and was subject to
approval and issuance of the corresponding official receipt as noted in Provisional Receipt No.
33430; that respondent intentionally delivered the letter and check in the manner that it did in order
to bind petitioner to the supposed sale with or without the latter’s consent; that petitioner could not
be faulted for receiving the check and for depositing the same as a matter of operational procedure
with respect to checks received in the course of its day-to-day business.
Petitioner argues that ultimately, it cannot be said that it gave its consent to any transaction with
respondent or to the payment made by the latter. Respondent’s letter and check constitute merely
an offer which required petitioner’s acceptance in order to give rise to a perfected sale;
"[o]therwise, a buyer can easily bind any unsuspecting seller to a contract of sale by merely
devising a way that prevents the latter from acting on the communicated offer." 29
Petitioner thus theorizes that since it had no perfected agreement with the respondent, the latter’s
check should be treated not as earnest money, but as mere guarantee, deposit or option money to
prevent the prospective seller from backing out from the sale,30 since the payment of any
consideration acquires the character of earnest money only after a perfected sale between the
parties has been arrived at.31
Respondent’s Arguments
In its Comment,32 respondent counters that petitioner’s case typifies a situation where the seller has
had an undue change of mind and desires to escape the legal consequences attendant to a perfected
contract of sale. It reiterates the appellate court’s pronouncements that petitioner’s failure to reply
to respondent’s February 4, 2005 letter indicates its consent to the sale; that its acceptance of the
check as earnest money and the issuance of the provisional receipt prove that there is a prior
agreement between the parties; that the deposit of the check in petitioner’s account and failure to
timely return the money to respondent militates against petitioner’s claim of lack of knowledge and
consent. Rather they indicate petitioner’s decision to sell subject property as agreed. Respondent
adds that contrary to petitioner’s claim, negotiations were in fact held between the parties after it
sent its December 9, 2004 letter-offer, which negotiations precisely culminated in the preparation
and issuance of the February4, 2005 letter; that petitioner’s failure to reply to its February 4, 2005
letter meant that it was amenable to respondent’s terms; that the issuance of a provisional receipt
does not prevent the perfection of the agreement between the parties, since earnest money was
already paid; and that petitioner cannot pretend to be ignorant of respondent’s check payment, as it
involved a large sum of money that was deposited in the former’s bank account.
Our Ruling
The Court grants the Petition. The trial and appellate courts erred materially in deciding the case;
they overlooked important facts that should change the complexion and outcome of the case.
It cannot be denied that there were negotiations between the parties conducted after the
respondent’s December 9, 2004 letter-offer and prior to the February 4, 2005 letter. These
negotiations culminated in a meeting between Eleazar and Young whereby the latter declined to
enter into an agreement and accept cash payment then being tendered by the former. Instead,
Young informed Eleazar during said meeting that she still had to confer with her sister and
petitioner’s board of directors; in turn, Eleazar told Young that respondent shall await the
necessary approval.
Thus, the trial and appellate courts failed to appreciate that respondent’s offer to purchase the
subject property was never accepted by the petitioner at any instance, even after negotiations were
held between them. Thus, as between them, there is no sale to speak of. "When there is merely an
offer by one party without acceptance of the other, there is no contract."33 To borrow a
pronouncement in a previously decided case,
The stages of a contract of sale are: (1) negotiation, starting from the time the prospective
contracting parties indicate interest in the contract to the time the contract is perfected; (2)
perfection, which takes place upon the concurrence of the essential elements of the sale; and (3)
consummation, which commences when the parties perform their respective undertakings under the
contract of sale, culminating in the extinguishment of the contract.
In the present case, the parties never got past the negotiation stage. Nothing shows that the parties
had agreed on any final arrangement containing the essential elements of a contract of sale,
namely, (1) consent or the meeting of the minds of the parties; (2) object or subject matter of the
contract; and (3) price or consideration of the sale. 34
Respondent’s subsequent sending of the February 4, 2005 letter and check to petitioner – without
awaiting the approval of petitioner’s board of directors and Young’s decision, or without making a
new offer – constitutes a mere reiteration of its original offer which was already rejected
previously; thus, petitioner was under no obligation to reply to the February 4, 2005 letter. It would
be absurd to require a party to reject the very same offer each and every time it is made; otherwise,
a perfected contract of sale could simply arise from the failure to reject the same offer made for the
hundredth time.1âwphi1 Thus, said letter cannot be considered as evidence of a perfected sale,
which does not exist in the first place; no binding obligation on the part of the petitioner to sell its
property arose as a consequence. The letter made no new offer replacing the first which was
rejected.
Since there is no perfected sale between the parties, respondent had no obligation to make payment
through the check; nor did it possess the right to deliver earnest money to petitioner in order to bind
the latter to a sale. As contemplated under Art. 1482 of the Civil Code, "there must first be a
perfected contract of sale before we can speak of earnest money."35 "Where the parties merely
exchanged offers and counter-offers, no contract is perfected since they did not yet give their
consent to such offers. Earnest money applies to a perfected sale." 36
This Court is inclined to accept petitioner’s explanation that since the check was mixed up with all
other checks and correspondence sent to and received by the corporation during the course of its
daily operations, Young could not have timely discovered respondent’s check payment; petitioner’s
failure to return the purported earnest money cannot mean that it agreed to respondent’s offer.
Besides, respondent’s payment of supposed earnest money was made under dubious circumstances
and in disregard of sound business practice and common sense. Indeed, respondent must be faulted
for taking such a course of action that is irregular and extraordinary: common sense and logic
dictate that if any payment is made under the supposed sale transaction, it should have been made Petitioner First Optima Realty Corporation is ordered to REFUND the amount of ₱100,000.00 to
directly to Young or coursed directly through her office, since she is the officer directly responsible respondent Securitron Security Services, Inc. without interest, unless petitioner has done so during
for negotiating the sale, as far as respondent is concerned and considering the amount of money the course of the proceedings.
involved; no other ranking officer of petitioner can be expected to know of the ongoing talks
covering the subject property. Respondent already knew, from Eleazar’s previous meeting with SO ORDERED.
Young, that it could only effectively deal with her; more than that, it should know that corporations
work only through the proper channels. By acting the way it did – coursing the February 4, 2005
letter and check through petitioner’s mere receiving clerk or receptionist instead of directly with
Young’s office, respondent placed itself under grave suspicion of putting into effect a premeditated
plan to unduly bind petitioner to its rejected offer, in a manner which it could not achieve through
negotiation and employing normal business practices. It impresses the Court that respondent
attempted to secure the consent needed for the sale by depositing part of the purchase price and
under the false pretense that an agreement was already arrived at, even though there was none.
Respondent achieved the desired effect up to this point, but the Court will not be fooled.

Thus, as between respondent’s irregular and improper actions and petitioner’s failure to timely
return the ₱100,000.00 purported earnest money, this Court sides with petitioner. In a manner of
speaking, respondent cannot fault petitioner for not making a refund since it is equally to blame for
making such payment under false pretenses and irregular circumstances, and with improper
motives. Parties must come to court with clean hands, as it were.

In a potential sale transaction, the prior payment of earnest money even before the property owner
can agree to sell his property is irregular, and cannot be used to bind the owner to the obligations of
a seller under an otherwise perfected contract of sale; to cite a well-worn cliché, the carriage cannot
be placed before the horse. The property owner-prospective seller may not be legally obliged to
enter into a sale with a prospective buyer through the latter’s employment of questionable practices
which prevent the owner from freely giving his consent to the transaction; this constitutes a
palpable transgression of the prospective seller’s rights of ownership over his property, an anomaly
which the Court will certainly not condone. An agreement where the prior free consent of one party
thereto is withheld or suppressed will be struck down, and the Court shall always endeavor to
protect a property owner’s rights against devious practices that put his property in danger of being
lost or unduly disposed without his prior knowledge or consent. As this ponente has held before,
"[t]his Court cannot presume the existence of a sale of land, absent any direct proof of it."37

Nor will respondent's supposed payment be 'treated as a deposit or guarantee; its actions will not be
dignified and must be called for what they are: they were done irregularly and with a view to
acquiring the subject property against petitioner's consent.

Finally, since there is nothing in legal contemplation which petitioner must perform particularly for
the respondent, it should follow that Civil Case No. 06-0492 CFM for specific performance with
damages is left with no leg. to stand on; it must be dismissed.

With the foregoing view, there is no need to resolve the other specific issues and arguments raised
by the petitioner, as they do not materially affect the rights and obligations of the parties - the
Court having declared that no agreement exists between them; nor do they have the effect of
altering the outcome of the case.

WHEREFORE, the Petition is GRANTED. The September 30, 2011 Decision and December 9,
2011 Resolution of the Court of Appeals in CA-G.R. CV No. 93715, as well as the February 16,
2009 Decision of the Regional Trial Court of Pasay City, Branch 115 in Civil Case No. 06-0492
CFM are REVERSED and SET ASIDE. Civil Case No. 06-0492 CFM is ordered DISMISSED. ,
STARBRIGHT SALES G.R. No. 177936
ENTERPRISES, INC.,
Petitioner,
- versus -
PHILIPPINE REALTY CORPORATION,
MSGR. DOMINGO A. CIRILOS,
TROPICANA PROPERTIES AND
DEVELOPMENT CORPORATION
and STANDARD REALTY Promulgated:
CORPORATION,
Respondents. January 18, 2012
DECISION
ABAD, J.:
The present case involves a determination of the perfection of contract of sale.
The Facts and the Case
On April 17, 1988 Ramon Licup wrote Msgr. Domingo A. Cirilos, offering to buy three contiguous
parcels of land in Paraaque that The Holy See and Philippine Realty Corporation (PRC) owned
for P1,240.00 per square meter. Licup accepted the responsibility for removing the illegal settlers
on the land and enclosed a check for P100,000.00 to close the transaction.[1]He undertook to pay
the balance of the purchase price upon presentation of the title for transfer and once the property
has been cleared of its occupants.
Msgr. Cirilos, representing The Holy See and PRC, signed his name on the conformeportion of the
letter and accepted the check. But the check could not be encashed due to Licups stop-order
payment. Licup wrote Msgr. Cirilos on April 26, 1988, requesting that the titles to the land be
instead transferred to petitioner Starbright Sales Enterprises, Inc. (SSE). He enclosed a new check
for the same amount. SSEs representatives, Mr. and Mrs. Cu, did not sign the letter.
On November 29, 1988 Msgr. Cirilos wrote SSE, requesting it to remove the occupants on the
property and, should it decide not to do this, Msgr. Cirilos would return to it the P100,000.00 that
he received. On January 24, 1989 SSE replied with an updated proposal. [2]It would be willing to
comply with Msgr. Cirilos condition provided the purchase price is lowered to P1,150.00 per
square meter.
On January 26, 1989 Msgr. Cirilos wrote back, rejecting the updated proposal. He said that other
buyers were willing to acquire the property on an as is, where is basis at P1,400.00 per square
meter. He gave SSE seven days within which to buy the property at P1,400.00 per square meter,
otherwise, Msgr. Cirilos would take it that SSE has lost interest in the same. He enclosed a check
for P100,000.00 in his letter as refund of what he earlier received.
On February 4, 1989 SSE wrote Msgr. Cirilos that they already had a perfected contract of sale in
the April 17, 1988 letter which he signed and that, consequently, he could no longer impose
amendments such as the removal of the informal settlers at the buyers expense and the increase in
the purchase price.
SSE claimed that it got no reply from Msgr. Cirilos and that the next thing they knew, the land had
been sold to Tropicana Properties on March 30, 1989. On May 15, 1989 SSE demanded rescission
of that sale. Meanwhile, on August 4, 1989 Tropicana Properties sold the three parcels of land to
Standard Realty.
Its demand for rescission unheeded, SSE filed a complaint for annulment of sale and reconveyance
with damages before the Regional Trial Court (RTC) of Makati, Branch 61, against The Holy See,
PRC, Msgr. Cirilos, and Tropicana Properties in Civil Case 90-183. SSE amended its complaint on
February 24, 1992, impleading Standard Realty as additional defendant.
The Holy See sought dismissal of the case against it, claiming that as a foreign government, it
cannot be sued without its consent. The RTC held otherwise but, on December 1, 1994,[3] the Court
reversed the ruling of the RTC and ordered the case against The Holy See dismissed. By Order of
January 26, 1996 the case was transferred to the Paraaque RTC, Branch 258.
SSE alleged that Licups original letter of April 17, 1988 to Msgr. Cirilos constituted a perfected
contract. Licup even gave an earnest money of P100,000.00 to close the transaction. His offer to rid
the land of its occupants was a mere gesture of accommodation if only to expedite the transfer of
its title.[4] Further, SSE claimed that, in representing The Holy See and PRC, Msgr. Cirilos acted in
bad faith when he set the price of the property at P1,400.00 per square meter when in truth, the
property was sold to Tropicana Properties for only P760.68 per square meter.
Msgr. Cirilos maintained, on the other hand, that based on their exchange of letters, no contract of
sale was perfected between SSE and the parties he represented. And, only after the negotiations
between them fell through did he sell the land to Tropicana Properties.
In its Decision of February 14, 2000, the Paraaque RTC treated the April 17, 1988 letter between
Licum and Msgr. Cirilos as a perfected contract of sale between the parties. Msgr. Cirilos
attempted to change the terms of contract and return SSEs initial deposit but the parties reached no
agreement regarding such change. Since such agreement was wanting, the original terms provided
in the April 17, 1988 letter continued to bind the parties.
On appeal to the Court of Appeals (CA), the latter rendered judgment on November 10,
2006,[5] reversing the Paraaque RTC decision. The CA held that no perfected contract can be
gleaned from the April 17, 1988 letter that SSE had relied on. Indeed, the subsequent exchange of
letters between SSE and Msgr. Cirilos show that the parties were grappling with the terms of the
sale. Msgr. Cirilos made no unconditional acceptance that would give rise to a perfected contract.
As to the P100,000.00 given to Msgr. Cirilos, the CA considered it an option money that secured
for SSE only the privilege to buy the property even if Licup called it a deposit. The CA denied
SSEs motion for reconsideration on May 2, 2007.
The Issue Presented
The only issue in this case is whether or not the CA erred in holding that no perfected contract of
sale existed between SSE and the land owners, represented by Msgr. Cirilos.
The Courts Ruling
Three elements are needed to create a perfected contract: 1) the consent of the contracting parties;
(2) an object certain which is the subject matter of the contract; and (3) the cause of the obligation
which is established.[6] Under the law on sales, a contract of sale is perfected when the seller,
obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to the
buyer, over which the latter agrees.[7] From that moment, the parties may demand reciprocal
performance.
The Court believes that the April 17, 1988 letter between Licup and Msgr. Cirilos, the
representative of the propertys owners, constituted a perfected contract. When Msgr. Cirilos
affixed his signature on that letter, he expressed his conformity to the terms of Licups offer
appearing on it. There was meeting of the minds as to the object and consideration of the contract.

But when Licup ordered a stop-payment on his deposit and proposed in his April 26, 1988 letter to
Msgr. Cirilos that the property be instead transferred to SSE, a subjective novation took place.

A subjective novation results through substitution of the person of the debtor or through
subrogation of a third person to the rights of the creditor. To accomplish a subjective novation
through change in the person of the debtor, the old debtor needs to be expressly released from the
obligation and the third person or new debtor needs to assume his place in the relation. [8]

Novation serves two functions one is to extinguish an existing obligation, the other to substitute a
new one in its place requiring concurrence of four requisites: 1) a previous valid obligation; 2) an
agreement of all parties concerned to a new contract; 3) the extinguishment of the old obligation;
and 4) the birth of a valid new obligation.[9]

Notably, Licup and Msgr. Cirilos affixed their signatures on the original agreement embodied in
Licups letter of April 26, 1988. No similar letter agreement can be found between SSE and Msgr.
Cirilos.

The proposed substitution of Licup by SSE opened the negotiation stage for a new contract of sale
as between SSE and the owners. The succeeding exchange of letters between Mr. Stephen Cu,
SSEs representative, and Msgr. Cirilos attests to an unfinished negotiation. Msgr. Cirilos referred
to his discussion with SSE regarding the purchase as a pending transaction. [10]

Cu, on the other hand, regarded SSEs first letter to Msgr. Cirilos as an updated proposal. [11] This
proposal took up two issues: which party would undertake to evict the occupants on the property
and how much must the consideration be for the property. These are clear indications that there
was no meeting of the minds between the parties. As it turned out, the parties reached no consensus
regarding these issues, thus producing no perfected sale between them.

Parenthetically, Msgr. Cirilos did not act in bad faith when he sold the property to Tropicana even
if it was for a lesser consideration. More than a month had passed since the last communication
between the parties on February 4, 1989. It is not improbable for prospective buyers to offer to buy
the property during that time.

The P100,000.00 that was given to Msgr. Cirilos as deposit cannot be considered as earnest
money. Where the parties merely exchanged offers and counter-offers, no contract is perfected
since they did not yet give their consent to such offers.[12] Earnest money applies to a perfected
sale.

SSE cannot revert to the original terms stated in Licups letter to Msgr. Cirilos dated April 17, 1988
since it was not privy to such contract. The parties to it were Licup and Msgr. Cirilos. Under the
principle of relativity of contracts, contracts can only bind the parties who entered into it. It cannot
favor or prejudice a third person.[13] Petitioner SSE cannot, therefore, impose the terms Licup stated
in his April 17, 1988 letter upon the owners.

WHEREFORE, the Court DISMISSES the petition and AFFIRMS the Court of Appeals
Decision dated November 10, 2006 in CA-G.R. CV 67366.

SO ORDERED.
SPOUSES ONNIE SERRANO AND G.R. No. 139173 canceling the transaction. Petitioners also informed respondent that he can recover the earnest
AMPARO HERRERA, money of P100,000.00 anytime.
Petitioners,
Present: Again, on April 6, 1990,[5] petitioners wrote respondent stating that they delivered to his counsel
Philippine National Bank Managers Check No. 790537 dated April 6, 1990in the amount
PUNO, C.J., Chairperson, of P100,000.00 payable to him.
SANDOVAL-GUTIERREZ,
CORONA, In view of the cancellation of the contract by petitioners, respondent filed with the Regional Trial
*
- versus - AZCUNA, and Court, Branch 63, Makati City a complaint against them for specific performance and damages,
GARCIA, JJ. docketed as Civil Case No. 90-1067.[6]

GODOFREDO CAGUIAT, Promulgated:
Respondent.
February 28, 2007
x------------------------------------------------------------------------------------------------------x
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure,
as amended, assailing the Decision[1] of the Court of Appeals dated January 29, 1999 and its
Resolution dated July 14, 1999 in CA-G.R. CV No. 48824.
Spouses Onnie and Amparo Herrera, petitioners, are the registered owners of a lot located in Las
Pias, Metro Manila covered by Transfer Certificate of Title No. T-9905.
Sometime in March 1990, Godofredo Caguiat, respondent, offered to buy the lot.Petitioners
agreed to sell it at P1,500.00 per square meter. Respondent then gave petitioners P100,000.00 as
partial payment. In turn, petitioners gave respondent the corresponding receipt stating that
respondent promised to pay the balance of the purchase price on or before March 23, 1990, thus:
Las Pias, Metro Manila
March 19, 1990
RECEIPT FOR PARTIAL PAYMENT OF LOT NO. 23 COVERED BY TCT NO. T-9905, LAS
PIAS, METRO MANILA
RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED
THOUSAND PESOS (P100,000.00) AS PARTIAL PAYMENT OF OUR LOTSITUATED IN
LAS PIAS, M.M. COVERED BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE
METERS.
MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR
BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED
OF SALE ON THIS DATE.
SIGNED THIS 19TH DAY OF MARCH, 1990 AT LAS PIAS, M.M.
(SGD) AMPARO HERRERA (SGD) ONNIE SERRANO[2]
On June 27, 1994, after hearing, the trial court rendered its Decision[7] finding there was a perfected
contract of sale between the parties and ordering petitioners to execute a final deed of sale in favor
of respondent. The trial court held:
xxx
In the evaluation of the evidence presented by the parties as to the issue as to who was ready to
comply with his obligation on the verbal agreement to sell on March 23, 1990, shows that plaintiffs
position deserves more weight and credibility. First, the P100,000.00 that plaintiff paid whether as
downpayment or earnest money showed that there was already a perfected contract. Art. 1482 of
the Civil Code of the Philippines, reads as follows, to wit:
Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of
the price and as proof of the perfection of the contract.
Second, plaintiff was the first to react to show his eagerness to push through with the sale by
sending defendants the letter dated March 25, 1990. (Exh. D) and reiterated the same intent to
pursue the sale in a letter dated April 6, 1990. Third, plaintiff had the balance of the purchase price
ready for payment (Exh. C). Defendants mere allegation that it was plaintiff who did not
appear on March 23, 1990 is unavailing. Defendants letters (Exhs. 2 and 5) appear to be mere
afterthought.
On appeal, the Court of Appeals, in its assailed Decision of January 29, 1999, affirmed the trial
courts judgment.
Forthwith, petitioners filed their motion for reconsideration but it was denied by the appellate court
in its Resolution[8] dated July 14, 1999.
Hence, the present recourse.
The basic issue to be resolved is whether the document entitled Receipt for Partial Payment signed
by both parties earlier mentioned is a contract to sell or a contract of sale.
Petitioners contend that the Receipt is not a perfected contract of sale as provided for in Article
1458[9] in relation to Article 1475[10] of the Civil Code. The delivery to them of P100,000.00 as
down payment cannot be considered as proof of the perfection of a contract of sale under Article
1482[11] of the same Code since there was no clear agreement between the parties as to the
amount of consideration.

On March 28, 1990, respondent, through his counsel Atty. Ponciano Espiritu, wrote petitioners
informing them of his readiness to pay the balance of the contract price and requesting them to
prepare the final deed of sale.[3]
On April 4, 1990, petitioners, through Atty. Ruben V. Lopez, sent a letter [4] to respondent stating
that petitioner Amparo Herrera is leaving for abroad on or before April 15, 1990 and that they are
Generally, the findings of fact of the lower courts are entitled to great weight and should not be
disturbed except for cogent reasons.14 Indeed, they should not be changed on appeal in the absence
of a clear showing that the trial court overlooked, disregarded, or misinterpreted some facts
of weight and significance, which if considered would have altered the result of the case. [12] In
the present case, we find that both the trial court and the Court of Appeals interpreted some
significant facts resulting in an erroneous resolution of the issue involved.
In holding that there is a perfected contract of sale, both courts mainly relied on the earnest money
given by respondent to petitioners. They invoked Article 1482 of the Civil Code which provides
that "Whenever earnest money is given in a contract of sale, it shall be considered as part of the
price and as proof of the perfection of the contract."
We are not convinced.
In San Miguel Properties Philippines, Inc. v. Spouses Huang,[13] we held that the stages of a
contract of sale are: (1) negotiation, covering the period from the time the prospective contracting
parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which
takes place upon the concurrence of the essential elements of the sale, which is the meeting of the
minds of the parties as to the object of the contract and upon the price; and (3) consummation,
which begins when the parties perform their respective undertakings under the contract of sale,
culminating in the extinguishment thereof.
With the above postulates as guidelines, we now proceed to determine the real nature of the
contract entered into by the parties.
It is a canon in the interpretation of contracts that the words used therein should be given their
natural and ordinary meaning unless a technical meaning was intended. [14]Thus, when petitioners
declared in the said Receipt for Partial Payment that they
RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED
THOUSAND PESOS (P100,000.00) AS PARTIAL PAYMENT OF OUR LOTSITUATED IN
LAS PIAS, M.M. COVERED BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE
METERS.
MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR
BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED
OF SALE ON THIS DATE.
In this case, the Receipt for Partial Payment shows that the true agreement between the parties is
a contract to sell.
First, ownership over the property was retained by petitioners and was not to pass to respondent
until full payment of the purchase price. Thus, petitioners need not push through with the sale
should respondent fail to remit the balance of the purchase price before the deadline on March 23,
1990. In effect, petitioners have the right to rescind unilaterally the contract the moment respondent
fails to pay within the fixed period.[18]
Second, the agreement between the parties was not embodied in a deed of sale. The absence of a
formal deed of conveyance is a strong indication that the parties did not intend immediate transfer
of ownership, but only a transfer after full payment of the purchase price. [19]
Third, petitioners retained possession of the certificate of title of the lot. This is an additional
indication that the agreement did not transfer to respondent, either by actual or constructive
delivery, ownership of the property.[20]
It is true that Article 1482 of the Civil Code provides that Whenever earnest money is given in a
contract of sale, it shall be considered as part of the price and proof of the perfection of the
contract. However, this article speaks of earnest money given in a contract of sale. In this case,
the earnest money was given in a contract to sell. The earnest money forms part of the
consideration only if the sale is consummated upon full payment of the purchase price. [21] Now,
since the earnest money was given in a contract to sell, Article 1482, which speaks of a contract of
sale, does not apply.
As previously discussed, the suspensive condition (payment of the balance by respondent) did not
take place. Clearly, respondent cannot compel petitioners to transfer ownership of the property to
him.

there can be no other interpretation than that they agreed to a conditional contract of sale, WHEREFORE, we GRANT the instant Petition for Review. The challenged Decision of the
consummation of which is subject only to the full payment of the purchase price. Court of Appeals is REVERSED and respondents complaint is DISMISSED.

A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's
obligation to transfer title is subordinated to the happening of a future and uncertain event, so that
if the suspensive condition does not take place, the parties would stand as if the conditional
obligation had never existed. The suspensive condition is commonly full payment of the
purchase price.[15]

The differences between a contract to sell and a contract of sale are well-settled in
jurisprudence. As early as 1951, in Sing Yee v. Santos,[16] we held that:

x x x [a] distinction must be made between a contract of sale in which title passes to the buyer upon
delivery of the thing sold and a contract to sell x x x where by agreement the ownership is reserved
in the seller and is not to pass until the full payment, of the purchase price is made. In the first case,
non-payment of the price is a negative resolutory condition; in the second case, full payment is a
positive suspensive condition. Being contraries, their effect in law cannot be identical. In the first
case, the vendor has lost and cannot recover the ownership of the land sold until and unless the
contract of sale is itself resolved and set aside. In the second case, however, the title remains in the
vendor if the vendee does not comply with the condition precedent of making payment at the time
specified in the contract.

In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the
buyer until full payment of the price.[17]
 [G.R. No. 104482. January 22, 1996]
BELINDA TAREDO, for herself and in representation of her brothers and sisters, and
TEOFILA CORPUZ TANEDO, representing her minor daughter VERNA
TANEDO, petitioners, vs. THE COURT OF APPEALS, SPOUSES RICARDO M.
TAREDO AND TERESITA BARERA TAREDO, respondents.
DECISION
PANGANIBAN, J.:
Is a sale of future inheritance valid? In multiple sales of the same real property, who has
preference in ownership? What is the probative value of the lower courts finding of good faith in
registration of such sales in the registry of property? These are the main questions raised in this
Petition for review on certiorari under Rule 45 of the Rules of Court to set aside and reverse the
Decision1 of the Court of Appeals2 in CA-G.R. CV NO. 24987 promulgated on September 26,
1991 affirming the decision of the Regional Trial Court, Branch 63, Third Judicial Region, Tarlac,
Tarlac in Civil Case No. 6328, and its Resolution denying reconsideration thereof, promulgated
on May 27, 1992.
By the Courts Resolution on October 25, 1995, this case (along with several others) was
transferred from the First to the Third Division and after due deliberation, the Court assigned it to
the undersigned ponenle for the writing of this Decision.
The Facts
On October 20, 1962, Lazardo Taedo executed a notarized deed of absolute sale in favor of
his eldest brother, Ricardo Taedo, and the latters wife, Teresita Barera, private respondents herein,
whereby he conveyed to the latter in consideration of P1,500.00, one hectare of whatever share I
shall have over Lot No. 191 of the cadastral survey of Gerona, Province of Tarlac and covered by
Title T-l3829 of the Register of Deeds of Tarlac, the said property being his future inheritance from
his parents (Exh. 1). Upon the death of his father Matias, Lazaro executed an Affidavit of
Conformity dated February 28, 1980 (Exh. 3) to re-affirm, respect. acknowledge and validate the
sale I made in 1962. On January 13, 1981, Lazaro executed another notarized deed of sale in favor
of private respondents covering his undivided ONE TWELVE (1/12) of a parcel of land known
as Lot 191 x x (Exh. 4). He acknowledged therein his receipt of P 10,000.00 as consideration
therefor. In February 1981, Ricardo learned that Lazaro sold the same property to his children,
petitioners herein, through a deed of sale dated December 29, 1980 (Exh. E). On June 7, 1982,
private respondents recorded the Deed of Sale (Exh. 4) in their favor in the Registry of Deeds and
the corresponding entry was made in Transfer Certificate of Title No. 166451 (Exh. 5).
Petitioners on July 16, 1982 filed a complaint for rescission (plus damages) of the deeds of
sale executed by Lazaro in favor of private respondents covering the property inherited by Lazaro
from his father.
Petitioners claimed that their father, Lazaro, executed an Absolute Deed of Sale
dated December 29, 1980 (Exit. E), conveying to his ten children his allotted portion under the
extrajudicial partition executed by the heirs of Matias, which deed included the land in litigation
(Lot 191).
Petitioners also presented in evidence: (1) a private writing purportedly prepared and signed
by Matias dated December 28, 1978, stating that it was his desire that whatever inheritance Lazaro
would receive from him should be given to his (Lazaros) children (Exh. A); (2) a typewritten
document dated March 10, 1979 signed by Lazaro in the presence of two witnesses, wherein he
confirmed that he would voluntarily abide by the wishes of his father, Matias, to give to his
(Lazaros) children all the property he would inherit from the latter (Exh. B); and (3) a letter dated
January 1, 1980 of Lazaro to his daughter, Carmela, stating that his share in the extrajudicial
settlement of the estate of his father was intended for his children, petitioners herein (Exh. C).
Private respondents, however presented in evidence a Deed of Revocation of a Deed of Sale
dated March 12, 1981 (Exh. 6), wherein Lazaro revoked the sale in favor of petitioners for the
reason that it was simulated or fictitious - without any consideration whatsoever.
Shortly after the case a quo was filed, Lazaro executed a sworn statement (Exh. G) which
virtually repudiated the contents of the Deed of Revocation of a Deed of Sale (Exh. 6) and the
Deed of Sale (Exh. 4) in favor of private respondents. However, Lazaro testified that he sold the
property to Ricardo, and that it was a lawyer who induced him to execute a deed of sale in favor of
his children after giving him five pesos (P5.00) to buy a drink (TSN September 18, 1985, pp. 204-
205).
The trial court decided in favor of private respondents, holding that petitioners failed to
adduce a preponderance of evidence to support (their) claim. On appeal, the Court of Appeals
affirmed the decision of the trial court, ruling that the Deed of Sale dated January 13, 1981 (Exh. 9)
was valid and that its registration in good faith vested title in said respondents.
The Issues
Petitioners raised the following errors in the respondent Court, which they also now allege in
the instant Petition:
I. The trial court erred in concluding that the Contract of Sale of October 20, 1962 (Exhibit 7,
Answer) is merely voidable or annulable and not void ab initio pursuant to paragraph 2 of Article
1347 of the New Civil Code involving as it does a future inheritance.
II. The trial court erred in holding that defendants-appellees acted in good faith in registering the
deed of sale of January 13, 1981 (Exhibit 9) with the Register of Deeds of Tarlac and therefore
ownership of the land in question passed on to defendants-appellees.
III. The trial court erred in ignoring and failing to consider the testimonial and documentary
evidence of plaintiffs-appellants which clearly established by preponderance of evidence that they
are indeed the legitimate and lawful owners of the property in question.
IV. The decision is contrary to law and the facts of the case and the conclusions drawn from the
established facts are illogical and off-tangent.
From the foregoing, the issues may be restated as follows:
1. Is the sale of a future inheritance valid?
2. Was the subsequent execution on January 13, 1981 (and registration with the
Registry of Property) of a deed of sale covering the same property to the same
buyers valid?
 3. May this Court review the findings of the respondent Court (a) holding that the
buyers acted in good faith in registering the said subsequent deed of sale and (b)
in failing to consider petitioners evidence? Are the conclusions of the respondent
Court illogical and off-tangent?
The Courts Ruling
At the outset, let it be clear that the errors which are reviewable by this Court in this petition
for review on certiorari are only those allegedly committed by the respondent Court of Appeals and
not directly those of the trial court, which is not a party here. The assignment of errors in the
petition quoted above are therefore totally misplaced, and for that reason, the petition should be
dismissed. But in order to give the parties substantial justice we have decided to delve into the
issues as above re-stated. The errors attributed by petitioners to the latter (trial) court will be
discussed only insofar as they are relevant to the appellate courts assailed Decision and Resolution.
The sale made in 1962 involving future inheritance is not really at issue here. In context, the
assailed Decision conceded it may be legally correct that a contract of sale of anticipated future
inheritance is null and void.3
But to remove all doubts, we hereby categorically rule that, pursuant to Article 1347 of the
Civil Code, (n)o contract may be entered into upon a future inheritance except in cases expressly
authorized by law.
Consequently, said contract made in 1962 is not valid and cannot be the source of any right
nor the creator of any obligation between the parties.
Hence, the affidavit of conformity dated February 28, 1980, insofar as it sought to validate or
ratify the 1962 sale, is also useless and, in the words of the respondent Court, suffers from the same
infirmity. Even private respondents in their memorandum4 concede this.
However, the documents that are critical to the resolution of this case are: (a) the deed of sale
of January 13, 1981 in favor of private respondents covering Lazaros undivided inheritance of one-
twelfth (1/12) share in Lot No. 191, which was subsequently registered on June 7, 1982; and (b) the
deed of sale dated December 29, 1980 in favor of petitioners covering the same property. These
two documents were executed after the death of Matias (and his spouse) and after a deed of
extrajudicial settlement of his (Matias) estate was executed, thus vesting in Lazaro actual title over
said property. In other words, these dispositions, though conflicting, were no longer infected with
the infirmities of the 1962 sale.
Petitioners contend that what was sold on January 13, 1981 was only one-half hectare out of
Lot No. 191, citing as authority the trial courts decision. As earlier pointed out, what is on review
in these proceedings by this Court is the Court of Appeals decision - which correctly identified the
subject matter of the January 13, 1981 sale to be the entire undivided 1/12 share of Lazaro in Lot
No. 191 and which is the same property disposed of on December 29, 1980 in favor of petitioners.
Critical in determining which of these two deeds should be given effect is the registration of
the sale in favor of private respondents with the register of deeds on June 7, 1982.
Article 1544 of the Civil Code governs the preferential rights of vendees in cases of multiple
sales, as follows:
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first
in the possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith.
The property in question is land, an immovable, and following the above-quoted law,
ownership shall belong to the buyer who in good faith registers it first in the registry of property.
Thus, although the deed of sale in favor of private respondents was later than the one in favor of
petitioners, ownership would vest in the former because of the undisputed fact of registration. On
the other hand, petitioners have not registered the sale to them at all.
Petitioners contend that they were in possession of the property and that private respondents
never took possession thereof. As between two purchasers, the one who registered the sale in his
favor has a preferred right over the other who has not registered his title, even if the latter is in
actual possession of the immovable property.5
As to third issue, while petitioners conceded the fact of registration, they nevertheless
contended that it was done in bad faith. On this issue, the respondent Court ruled:
Under the second assignment of error, plaintiffs-appellants contend that defendants-appellees acted
in bad faith when they registered the Deed of Sale in their favor as appellee Ricardo already knew
of the execution of the deed of sale in favor of the plaintiffs; appellants cite the testimony of
plaintiff Belinda Tafledo to the effect that defendant Ricardo Taedo called her up on January 4
or 5, 1981 to tell her that he was already the owner of the land in question but the contract of sale
between our father and us were (sic) already consumated (pp. 9-10, tsn, January 6, 1984). This
testimony is obviously self-serving, and because it was a telephone conversation, the deed of sale
dated December 29, 1980 was not shown; Belinda merely told her uncle that there was already a
document showing that plaintiffs are the owners (p. 80). Ricardo Taedo controverted this and
testified that he learned for the first time of the deed of sale executed by Lazaro in favor of his
children about a month or sometime in February 1981 (p. 111, tsn, Nov. 28, 1984). x x x 6
The respondent Court, reviewing the trial courts findings, refused to overturn the latters assessment
of the testimonial evidence, as follows:
We are not prepared to set aside the finding of the lower court upholding Ricardo Tanedos
testimony, as it involves a matter of credibility of witnesses which the trial judge, who presided at
the hearing, was in a better position to resolve. (Court of Appeals Decision, p. 6.)
In this connection, we note the tenacious allegations made by petitioners, both in their basic
petition and in their memorandum, as follows:
1. The respondent Court allegedly ignored the claimed fact that respondent Ricardo by
fraud and deceit and with foreknowledge that the property in question had already
been sold to petitioners, made Lazaro execute the deed of January 13, 1981;
 2. There is allegedly adequate evidence to show that only 1/2 of the purchase price of WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals
P10,000.00 was paid at the time of the execution of the deed of sale, contrary to is AFFIRMED. No Costs.
the written acknowledgment, thus showing bad faith;
SO ORDERED.
3. There is allegedly sufficient evidence showing that the deed of revocation of the
sale in favor of petitioners was tainted with fraud or deceit.
4. There is allegedly enough evidence to show that private respondents took undue
advantage over the weakness and unschooled and pitiful situation of Lazaro
Tafledo . . . and that respondent Ricardo Taedo exercised moral ascendancy over
his younger brother he being the eldest brother and who reached fourth year
college of law and at one time a former Vice-Governor of Tarlac, while his
younger brother only attained first year high school x x x ;
5. The respondent Court erred in not giving credence to petitioners evidence,
especially Lazaro Taedos Sinumpaang Salaysay dated July 27, 1982 stating that
Ricardo Taedo deceived the former in executing the deed of sale in favor of
private respondents.

To be sure, there are indeed many conflicting documents and testimonies as well as
arguments over their probative value and significance. Suffice it to say, however, that all the above
contentions involve questions of fact, appreciation of evidence and credibility of witnesses, which
are not proper in this review. It is well-settled that the Supreme Court is not a trier of facts. In
petitions for review under Rule 45 of the Revised Rules of Court, only questions of law may be
raised and passed upon. Absent any whimsical or capricious exercise of judgment, and unless the
lack of any basis for the conclusions made by the lower courts be amply demonstrated, the
Supreme Court will not disturb their findings. At most, it appears that petitioners have shown that
their evidence was not believed by both the trial and the appellate courts, and that the said courts
tended to give more credence to the evidence presented by private respondents. But this in itself is
not a reason for setting aside such findings. We are far from convinced that both courts gravely
abused their respective authorities and judicial prerogatives.
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goidrock
Construction and Development Corp.:7

The Court has consistently held that the factual findings of the trial court, as well as the Court of
Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional
circumstances where a reassessment of facts found by the lower courts is allowed are when the
conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the
inference made is manifestly absurd, mistaken or Impossible; when there is grave abuse of
discretion in the appreciation of facts; when the judgment is premised on a misapprehension of
facts; when the findings went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee. After a careful study of the case at bench, we find none
of the above grounds present to justify the re-evaluation of the findings of fact made by the courts
below.

In the same vein, the ruling in the recent case of South Sea Surety and Insurance Company,
Inc. vs. Hon. Court of Appeals, et al.[8] is equally applicable to the present case:

We see no valid reason to discard the factual conclusions of the appellate court. x x x (I)t is not the
function of this Court to assess and evaluate all over again the evidence, testimonial and
documentary, adduced by the parties, particularly where, such as here, the findings of both the trial
court and the appellate court on the matter coincide. (italics supplied)