ESTELITA VILLAMAR, G.R. No.

188661
Petitioner,
Present:

CARPIO, J.,
- versus - Chairperson,
BRION,
PEREZ,
SERENO, and
BALBINO MANGAOIL, REYES, JJ.
Respondent.
Promulgated:
April 11, 2012
x--------------------------------------------------------------------------------------------x

DECISION

REYES, J.:

The Case

Before us is a petition for review on certiorari[1] under Rule 45 of the Rules of Court filed by Estelita
Villamar (Villamar) to assail the Decision[2] rendered by the Court of Appeals (CA) on February 20, 2009
in CA-G.R. CV No. 86286, the dispositive portion of which reads:

WHEREFORE, the instant appeal is DISMISSED. The assailed decision

is AFFIRMED in toto.
SO ORDERED.[3]

The resolution[4] issued by the CA on July 8, 2009 denied the petitioner's motion for
reconsideration to the foregoing.

The ruling[5] of Branch 23, Regional Trial Court (RTC) of Roxas, Isabela, which was affirmed by
the CA in the herein assailed decision and resolution, ordered the (1) rescission of the contract of sale of
real property entered into by Villamar and Balbino Mangaoil (Mangaoil); and (2) return of the down
payment made relative to the said contract.

Antecedents Facts
The CA aptly summarized as follows the facts of the case prior to the filing by Mangaoil of the
complaint[6] for rescission of contract before the RTC:

Villamar is the registered owner of a 3.6080 hectares parcel of land [hereinafter referred
as the subject property] in San Francisco, Manuel, Isabela covered by Transfer Certificate
of Title (TCT) No. T-92958-A. On March 30, 1998, she entered into an Agreement with
Mangaoil for the purchase and sale of said parcel of land, under the following terms and
conditions:

1. The price of the land is ONE HUNDRED AND EIGHTY

THOUSAND (180,000.00) PESOS per hectare but only the 3.5000 hec.
shall be paid and the rest shall be given free, so that the total purchase
or selling price shall be [P]630,000.00 only;

2. ONE HUNDRED EIGHTY FIVE THOUSAND (185,000.00)

PESOS of the total price was already received on March 27, 1998 for
payment of the loan secured by the certificate of title covering the
land in favor of the Rural Bank of Cauayan, San Manuel Branch,
San Manuel, Isabela [Rural Bank of Cauayan], in order that the
certificate of title thereof be withdrawn and released from the said
bank, and the rest shall be for thepayment of the mortgag[e]s in
favor of Romeo Lacaden and Florante Parangan;
3. After the release of the certificate of title covering the land subject-
matter of this agreement, the necessary deed of absolute sale in favor
of the PARTY OF THE SECOND PART shall be executed and the
transfer be immediately effected so that the latter can apply for a loan
from any lending institution using the corresponding certificate of title
as collateral therefor, and the proceeds of the loan, whatever be the
amount, be given to the PARTY OF THE FIRST PART;

4. Whatever balance left from the agreed purchase price of the land
subject matter hereof after deducting the proceed of the loan and the
[P]185,000.00 already received as above-mentioned, the PARTY OF
THE SECOND PART shall pay unto the PARTY OF THE FIRST
PART not later than June 30, 1998 and thereafter the parties shall be
released of any obligations for and against each other; xxx

On April 1, 1998, the parties executed a Deed of Absolute Sale whereby Villamar (then
Estelita Bernabe) transferred the subject parcel of land to Mangaoil for and in
consideration of [P]150,000.00.

In a letter dated September 18, 1998, Mangaoil informed Villamar that he was backing
out from the sale agreed upon giving as one of the reasons therefor:

3. That the area is not yet fully cleared by incumbrances as there are
tenants who are not willing to vacate the land without giving them back
the amount that they mortgaged the land.

Mangaoil demanded refund of his [P]185,000.00 down payment. Reiterating said

demand in another letter dated April 29, 1999, the same, however, was unheeded. [7] x x x
(Citations omitted)
On January 28, 2002, the respondent filed before the RTC a complaint [8] for rescission of contract
against the petitioner. In the said complaint, the respondent sought the return of P185,000.00 which he paid
to the petitioner, payment of interests thereon to be computed from March 27, 1998 until the suit's
termination, and the award of damages, costs and P20,000.00 attorney's fees. The respondent's factual
allegations were as follows:

5. That as could be gleaned the Agreement (Annex A), the plaintiff [Mangaoil]
handed to the defendant [Villamar] the sum of [P]185,000.00 to be applied as
follows; [P]80,000 was for the redemption of the land which was mortgaged to the Rural
Bank of Cauayan, San Manuel Branch, San Manuel, Isabela, to enable the plaintiff to get
hold of the title and register the sale x x x and [P]105,000.00 was for the redemption of
the said land from private mortgages to enable plaintiff to posses[s] and cultivate the
same;
6. That although the defendant had already long redeemed the said land from the
said bank and withdrawn TCT No. T-92958-A, she has failed and refused, despite
repeated demands, to hand over the said title to the plaintiff and still refuses and fails to
do so;

7. That, also, the plaintiff could not physically, actually and materially posses[s]
and cultivate the said land because the private mortgage[e]s and/or present possessors
refuse to vacate the same;

xxxx

11. That on September 18, 1998, the plaintiff sent a letter to the defendant
demanding a return of the amount so advanced by him, but the latter ignored the same, x
x x;
12. That, again, on April 29, 1999, the plaintiff sent to the defendant another
demand letter but the latter likewise ignored the same, x x x;

13. That, finally, the plaintiff notified the defendant by a notarial act of his
desire and intention to rescind the said contract of sale, xxx;

x x x x.[9] (Citations omitted)

In the respondents answer to the complaint, she averred that she had complied with her obligations to the
respondent. Specifically, she claimed having caused the release of TCT No. T-92958-A by the Rural Bank
of Cauayan and its delivery to a certain Atty. Pedro C. Antonio (Atty. Antonio). The petitioner alleged that
Atty. Antonio was commissioned to facilitate the transfer of the said title in the respondent's name. The
petitioner likewise insisted that it was the respondent who unceremoniously withdrew from their agreement
for reasons only the latter knew.

The Ruling of the RTC

On September 9, 2005, the 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. The RTC ratiocinated that:

There is no dispute that the defendant sold the LAND to the plaintiff for [P]630,000.00
with down payment of [P]185,000.00. There is no evidence presented if there were any
other partial payments made after the perfection of the contract of sale.

Article 1458 of the Civil Code provides:

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 therefore a price certain in
money or its equivalent.

As such, in a contract of sale, the obligation of the vendee to pay the price is correlative
of the obligation of the vendor to deliver the thing sold. It created or established at the
same time, out of the same course, and which result in mutual relations of creditor and
debtor between the parties.

The claim of the plaintiff that the LAND has not been delivered to him was not refuted
by the defendant. Considering that defendant failed to deliver to him the certificate of
title and of the possession over the LAND to the plaintiff, the contract must be rescinded
pursuant to Article 1191 of the Civil Code which, in part, provides:

Art. 1191. The power of rescind obligations is implied in reciprocal

ones in case one of the obligors should not comply with what is
incumbent upon him.[10]

The petitioner filed before the CA an appeal to challenge the foregoing. She ascribed error on the part of
the RTC when the latter ruled that the agreement and deed of sale executed by and between the parties can
be rescinded as she failed to deliver to the respondent both the subject property and the certificate of title
covering the same.

The Ruling of the CA

On February 20, 2009, the CA rendered the now assailed decision dismissing the petitioners appeal based
on the following grounds:

Burden of proof is the duty of a party to prove the truth of his claim or defense, or any
fact in issue necessary to establish his claim or defense by the amount of evidence
required by law. In civil cases, the burden of proof is on the defendant if he alleges, in
his answer, an affirmative defense, which is not a denial of an essential ingredient in
the plaintiff's cause of action, but is one which, if established, will be a good defense i.e.,
an avoidance of the claim, which prima facie, the plaintiff already has because of the
defendant's own admissions in the pleadings.

Defendant-appellant Villamar's defense in this case was an affirmative defense. She did
not deny plaintiff-appellees allegation that she had an agreement with plaintiff-appellee
for the sale of the subject parcel of land. Neither did she deny that she was obliged under
the contract to deliver the certificate of title to plaintiff-appellee immediately after said
title/property was redeemed from the bank. What she rather claims is that she already
complied with her obligation to deliver the title to plaintiff-appellee when she
delivered the same to Atty. Antonio as it was plaintiff-appellee himself who engaged
the services of said lawyer to precisely work for the immediate transfer of said title in his
name. Since, however, this affirmative defense as alleged in defendant-appellant's answer
was not admitted by plaintiff-appellee, it then follows that it behooved the defendant-
appellant to prove her averments by preponderance of evidence.

Yet, a careful perusal of the record shows that the defendant-appellant failed to
sufficiently prove said affirmative defense. She failed to prove that in the first
place, Atty. Antonio existed to receive the title for and in behalf of plaintiff-appellee.
Worse, the defendant-appellant failed to prove that Atty. Antonio received said
title as allegedly agreed upon.

We likewise sustain the RTC's finding that defendant-appellant V[i]llamar failed to

deliver possession of the subject property to plaintiff-appellee Mangaoil. As correctly
observed by the RTC - [t]he claim of the plaintiff that the land has not been delivered to
him was not refuted by the defendant. Not only that. On cross-examination, the
defendant-appellant gave Us insight on why no such delivery could be made, viz.:

xxxx

Q: So, you were not able to deliver this property to Mr.

Mangaoil just after you redeem the property because of the
presence of these two (2) persons, is it not?

xxx

A: Yes, sir.

Q: Forcing you to file the case against them and which according to
you, you have won, is it not?

A: Yes, sir.

Q: And now at present[,] you are in actual possession of the land?

A: Yes, sir. x x x

With the foregoing judicial admission, the RTC could not have erred in finding that
defendant-[appellant] failed to deliver the possession of the property sold, to plaintiff-
appellee.

Neither can We agree with defendant-appellant in her argument that the execution of the
Deed of Absolute Sale by the parties is already equivalent to a valid and constructive
delivery of the property to plaintiff-appellee. Not only is it doctrinally settled that in a
contract of sale, the vendor is bound to transfer the ownership of, and to deliver the
thing that is the object of the sale, the way Article 1547 of the Civil Code is
worded, viz.:

Art. 1547. In a contract of sale, unless a contrary intention appears,

there is:
 (1) An implied warranty on the part of the seller that he has a right
to sell the thing at the time when the ownership is to pass, and that the
buyer shall from that time have and enjoy the legal and peaceful
possession of the thing;

(2) An implied warranty that the thing shall be free from any hidden
defaults or defects, or any change or encumbrance not declared or
known to the buyer.

x x x.

shows that actual, and not mere constructive delivery is warrantied by the seller to the
buyer. (P)eaceful possession of the thing sold can hardly be enjoyed in a mere
constructive delivery.

The obligation of defendant-appellant Villamar to transfer ownership and deliver

possession of the subject parcel of land was her correlative obligation to plaintiff-
appellee in exchange for the latter's purchase price thereof. Thus, if she fails to comply
with what is incumbent upon her, a correlative right to rescind such contract from
plaintiff-appellee arises, pursuant to Article 1191 of the Civil Code.[11] x x x (Citations
omitted)

The Issues

Aggrieved, the petitioner filed before us the instant petition and submits the following issues for resolution:

I.
WHETHER THE FAILURE OF PETITIONER-SELLER TO DELIVER THE
CERTIFICATE OF TITLE OVER THE PROPERTY TO RESPONDENT-BUYER IS A
BREACH OF OBLIGATION IN A CONTRACT OF SALE OF REAL PROPERTY
THAT WOULD WARRANT RESCISSION OF THE CONTRACT;

II.

WHETHER PETITIONER IS LIABLE FOR BREACH OF OBLIGATION IN A

CONTRACT OF SALEFOR FAILURE OF RESPONDENT[-]BUYER TO
IMMEDIATELY TAKE ACTUAL POSSESSION OF THE PROPERTY
NOTWITHSTANDING THE ABSENCE OF ANY STIPULATION IN THE
CONTRACT PROVIDING FOR THE SAME;

III.

WHETHER THE EXECUTION OF A DEED OF SALE OF REAL PROPERTY IN THE

PRESENT CASE IS ALREADY EQUIVALENT TO A VALID AND
CONSTRUCTIVE DELIVERY OF THE PROPERTY TO THE BUYER;

IV.

WHETHER OR NOT THE CONTRACT OF SALE SUBJECT MATTER OF THIS

CASE SHOULD BE RESCINDED ON SLIGHT OR CASUAL BREACH;

V.
 WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING THE
DECISION OF THE RTC ORDERING THE RESCISSION OF THE CONTRACT
OF SALE[.][12]

The Petitioner's Arguments

The petitioner avers that the CA, in ordering the rescission of the agreement and deed of sale, which she
entered into with the respondent, on the basis of her alleged failure to deliver the certificate of title,
effectively imposed upon her an extra duty which was neither stipulated in the contract nor required by law.
She argues that under Articles 1495[13] and 1496[14] of the New Civil Code (NCC), the obligation to deliver
the thing sold is complied with by a seller who executes in favor of a buyer an instrument of sale in a public
document. Citing Chua v. Court of Appeals,[15] she claims that there is a distinction between transferring a
certificate of title in the buyer's name, on one hand, and transferring ownership over the property sold, on
the other. The latter can be accomplished by the seller's execution of an instrument of sale in a public
document. The recording of the sale with the Registry of Deeds and the transfer of the certificate of title in
the buyer's name are necessary only to bind third parties to the transfer of ownership. [16]

The petitioner contends that in her case, she had already complied with her obligations under the agreement
and the law when she had caused the release of TCT No. T-92958-A from the Rural Bank of Cauayan, paid
individual mortgagees Romeo Lacaden (Lacaden) and Florante Parangan (Paranga), and executed an
absolute deed of sale in the respondent's favor. She adds that before T-92958-A can be cancelled and a new
one be issued in the respondent's favor, the latter decided to withdraw from their agreement. She also points
out that in the letters seeking for an outright rescission of their agreement sent to her by the respondent, not
once did he demand for the delivery of TCT.

The petitioner insists that the respondent's change of heart was due to (1) the latter's realization of the
difficulty in determining the subject property's perimeter boundary; (2) his doubt that the property he
purchased would yield harvests in the amount he expected; and (3) the presence of mortgagees who were
not willing to give up possession without first being paid the amounts due to them. The petitioner contends
that the actual reasons for the respondent's intent to rescind their agreement did not at all constitute a
substantial breach of her obligations.

The petitioner stresses that under Article 1498 of the NCC, when a sale is made through a public
instrument, its execution is equivalent to the delivery of the thing which is the contract's object, unless in
the deed, the contrary appears or can be inferred. Further, in Power Commercial and Industrial
Corporation v. CA,[17] it was ruled that the failure of a seller to eject lessees from the property he sold and
to deliver actual and physical possession, cannot be considered a substantial breach, when such failure was
not stipulated as a resolutory or suspensive condition in the contract and when the effects and consequences
of the said failure were not specified as well. The execution of a deed of sale operates as a formal or
symbolic delivery of the property sold and it already authorizes the buyer to use the instrument as proof of
ownership.[18]

The petitioner argues that in the case at bar, the agreement and the absolute deed of sale contains no
stipulation that she was obliged to actually and physically deliver the subject property to the respondent.
The respondent fully knew Lacaden's and Parangan's possession of the subject property. When they agreed
on the sale of the property, the respondent consciously assumed the risk of not being able to take immediate
physical possession on account of Lacaden's and Parangan's presence therein.
The petitioner likewise laments that the CA allegedly misappreciated the evidence offered before it when it
declared that she failed to prove the existence of Atty. Antonio. For the record, she emphasizes that the said
lawyer prepared and notarized the agreement and deed of absolute sale which were executed between the
parties. He was also the petitioners counsel in the proceedings before the RTC. Atty. Antonio was also the
one asked by the respondent to cease the transfer of the title over the subject property in the latter's name
and to return the money he paid in advance.
The Respondent's Contentions

In the respondent's comment,[19] he seeks the dismissal of the instant petition. He invokes Articles 1191 and
1458 to argue that when a seller fails to transfer the ownership and possession of a property sold, the buyer
is entitled to rescind the contract of sale. Further, he contends that the execution of a deed of absolute sale
does not necessarily amount to a valid and constructive delivery. In Masallo v. Cesar,[20] it was ruled that a
person who does not have actual possession of real property cannot transfer constructive possession by the
execution and delivery of a public document by which the title to the land is transferred. In Addison v. Felix
and Tioco,[21] the Court was emphatic that symbolic delivery by the execution of a public instrument is
equivalent to actual delivery only when the thing sold is subject to the control of the vendor.

Our Ruling

The instant petition is bereft of merit.

There is only a single issue for resolution in the instant petition, to wit, whether or not the failure of the
petitioner to deliver to the respondent both the physical possession of the subject property and the
certificate of title covering the same amount to a substantial breach of the former's obligations to the latter
constituting a valid cause to rescind the agreement and deed of sale entered into by the parties.
We rule in the affirmative.

The RTC and the CA both found that the petitioner failed to comply with her obligations to deliver to the
respondent both the possession of the subject property and the certificate of title covering the same.

Although Articles 1458, 1495 and 1498 of the NCC

and case law do not generally require the seller to
deliver to the buyer the physical possession of the
property subject of a contract of sale and the
certificate of title covering the same, the
agreement entered into by the petitioner and the
respondent provides otherwise. However, the
terms of the agreement cannot be considered as
violative of law, morals, good customs, public
order, or public policy, hence, valid.

Article 1458 of the NCC obliges the seller to transfer the ownership of and to deliver a determinate thing to
the buyer, who shall in turn pay therefor a price certain in money or its equivalent. In addition thereto,
Article 1495 of the NCC binds the seller to warrant the thing which is the object of the sale. On the other
hand, Article 1498 of the same code provides that when the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from
the deed, the contrary does not appear or cannot clearly be inferred.

In the case of Chua v. Court of Appeals,[22] which was cited by the petitioner, it was ruled that when the
deed of absolute sale is signed by the parties and notarized, then delivery of the real property is deemed
made by the seller to the buyer.[23] The transfer of the certificate of title in the name of the buyer is not
necessary to confer ownership upon him.

In the case now under our consideration, item nos. 2 and 3 of the agreement entered into by the petitioner
and the respondent explicitly provide:

2. ONE HUNDRED EIGHTY FIVE THOUSAND (P185,000.00) PESOS of the total

price was already received on March 27, 1998 for payment of the loan secured by the
certificate of title covering the land in favor of the Rural Bank of Cauayan, San Manuel
Branch, San Manuel, Isabela, in order that the certificate of title thereof be withdrawn
and released from the said bank, and the rest shall be for the payment of the mortgages in
favor of Romeo Lacaden and Florante Parangan;

3. After the release of the certificate of title covering the land subject-matter of this
agreement, the necessary deed of absolute sale in favor of the PARTY OF THE
SECOND PART shall be executed and the transfer be immediately effected so that the
latter can apply for a loan from any lending institution using the corresponding certificate
 of title as collateral therefor, and the proceeds of the loan, whatever be the amount, be
given to the PARTY OF THE FIRST PART;[24] (underlining supplied)

As can be gleaned from the agreement of the contending parties, the respondent initially paid the
petitioner P185,000.00 for the latter to pay the loan obtained from the Rural Bank of Cauayan and to cause
the release from the said bank of the certificate of title covering the subject property. The rest of the amount
shall be used to pay the mortgages over the subject property which was executed in favor of Lacaden and
Parangan. After the release of the TCT, a deed of sale shall be executed and transfer shall be immediately
effected so that the title covering the subject property can be used as a collateral for a loan the respondent
will apply for, the proceeds of which shall be given to the petitioner.

Under Article 1306 of the NCC, the contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order or public policy.

While Articles 1458 and 1495 of the NCC and the doctrine enunciated in the case of Chua do not impose
upon the petitioner the obligation to physically deliver to the respondent the certificate of title covering the
subject property or cause the transfer in the latter's name of the said title, a stipulation requiring otherwise is
not prohibited by law and cannot be regarded as violative of morals, good customs, public order or public
policy. Item no. 3 of the agreement executed by the parties expressly states that transfer [shall] be
immediately effected so that the latter can apply for a loan from any lending institution using the
corresponding certificate of title as collateral therefore. Item no. 3 is literal enough to mean that there
should be physical delivery of the TCT for how else can the respondent use it as a collateral to obtain a loan
if the title remains in the petitioners possession. We agree with the RTC and the CA that the petitioner
failed to prove that she delivered the TCT covering the subject property to the respondent. What the
petitioner attempted to establish was that she gave the TCT to Atty. Antonio whom she alleged was
commissioned to effect the transfer of the title in the respondent's name. Although Atty. Antonio's
existence is certain as he was the petitioners counsel in the proceedings before the RTC, there was no proof
that the former indeed received the TCT or that he was commissioned to process the transfer of the title in
the respondent's name.

It is likewise the petitioners contention that pursuant to Article 1498 of the NCC, she had already complied
with her obligation to deliver the subject property upon her execution of an absolute deed of sale in the
respondents favor. The petitioner avers that she did not undertake to eject the mortgagors Parangan and
Lacaden, whose presence in the premises of the subject property was known to the respondent.
We are not persuaded.

In the case of Power Commercial and Industrial Corporation [25] cited by the petitioner, the Court ruled that
the failure of the seller to eject the squatters from the property sold cannot be made a ground for rescission
if the said ejectment was not stipulated as a condition in the contract of sale, and when in the negotiation
stage, the buyer's counsel himself undertook to eject the illegal settlers.

The circumstances surrounding the case now under our consideration are different. In item no. 2 of the
agreement, it is stated that part of the P185,000.00 initially paid to the petitioner shall be used to pay the
mortgagors, Parangan and Lacaden. While the provision does not expressly impose upon the petitioner the
obligation to eject the said mortgagors, the undertaking is necessarily implied. Cessation of occupancy of
the subject property is logically expected from the mortgagors upon payment by the petitioner of the
amounts due to them.

We note that in the demand letter[26] dated September 18, 1998, which was sent by the respondent to the
petitioner, the former lamented that the area is not yet fully cleared of incumbrances as there are tenants
who are not willing to vacate the land without giving them back the amount that they mortgaged the land.
Further, in the proceedings before the RTC conducted after the complaint for rescission was filed, the
petitioner herself testified that she won the ejectment suit against the mortgagors only last year. [27] The
complaint was filed on September 8, 2002 or more than four years from the execution of the parties'
agreement. This means that after the lapse of a considerable period of time from the agreement's execution,
the mortgagors remained in possession of the subject property.

Notwithstanding the absence of stipulations in the

agreement and absolute deed of sale entered into
by Villamar and Mangaoil expressly indicating
the consequences of the former's failure to deliver
the physical possession of the subject property and
the certificate of title covering the same, the latter
is entitled to demand for the rescission of their
contract pursuant to Article 1191 of the NCC.

We note that the agreement entered into by the petitioner and the respondent only contains three items
specifying the parties' undertakings. In item no. 5, the parties consented to abide with all the terms and
conditions set forth in this agreement and never violate the same. [28]

Article 1191 of the NCC is clear that 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. The respondent cannot be
deprived of his right to demand for rescission in view of the petitioners failure to abide with item nos. 2 and
3 of the agreement. This remains true notwithstanding the absence of express stipulations in the agreement
indicating the consequences of breaches which the parties may commit. To hold otherwise would render
Article 1191 of the NCC as useless.

Article 1498 of the NCC generally considers the

execution of a public instrument as constructive
delivery by the seller to the buyer of the property
subject of a contract of sale. The case at bar,
however, falls among the exceptions to the
foregoing rule since a mere presumptive and not
conclusive delivery is created as the respondent
failed to take material possession of the subject
property.

Further, even if we were to assume for argument's sake that the agreement entered into by the contending
parties does not require the delivery of the physical possession of the subject property from the mortgagors
to the respondent, still, the petitioner's claim that her execution of an absolute deed of sale was already
sufficient as it already amounted to a constructive delivery of the thing sold which Article 1498 of the NCC
allows, cannot stand.

In Philippine Suburban Development Corporation v. The Auditor General,[29] we held:

When the sale of real property is made in a public instrument, the execution thereof is
equivalent to the delivery of the thing object of the contract, if from the deed the contrary
does not appear or cannot clearly be inferred.

In other words, there is symbolic delivery of the property subject of the sale by the
execution of the public instrument, unless from the express terms of the instrument, or by
clear inference therefrom, this was not the intention of the parties. Such would be the
case, for instance, x x x where the vendor has no control over the thing sold at the
moment of the sale, and, therefore, its material delivery could not have been
made.[30] (Underlining supplied and citations omitted)

Stated differently, as a general rule, the execution of a public instrument amounts to a constructive delivery
of the thing subject of a contract of sale. However, exceptions exist, among which is when mere
presumptive and not conclusive delivery is created in cases where the buyer fails to take material
possession of the subject of sale. A person who does not have actual possession of the thing sold cannot
transfer constructive possession by the execution and delivery of a public instrument.

In the case at bar, the RTC and the CA found that the petitioner failed to deliver to the respondent the
possession of the subject property due to the continued presence and occupation of Parangan and Lacaden.
We find no ample reason to reverse the said findings. Considered in the light of either the agreement
entered into by the parties or the pertinent provisions of law, the petitioner failed in her undertaking to
deliver the subject property to the respondent.

IN VIEW OF THE FOREGOING, the instant petition is DENIED. The February 20, 2009 Decision and
July 8, 2009 Resolution of the Court of Appeals, directing the rescission of the agreement and absolute
deed of sale entered into by Estelita Villamar and Balbino Mangaoil and the return of the down payment
made for the purchase of the subject property, are AFFIRMED. However, pursuant to our ruling
in Eastern Shipping Lines, Inc. v. CA,[31] an interest of 12% per annum is imposed on the sum
of P185,000.00 to be returned to Mangaoil to be computed from the date of finality of thisDecision until
full satisfaction thereof.

SO ORDERED.
BOSTON BANK OF THE G. R. No. 158149
PHILIPPINES, (formerly BANK
OF COMMERCE),
Petitioner, Present:
PANGANIBAN, J., Chairperson,
YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR., and
CHICO-NAZARIO, JJ.

PERLA P. MANALO and CARLOS

MANALO, JR.,
Promulgated:

Respondents. February 9, 2006

x--------------------------------------------------x

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R.
CV No. 47458 affirming, on appeal, the Decision[2] of the Regional Trial Court (RTC) of Quezon City,
Branch 98, in Civil Case No. Q-89-3905.

The Antecedents

The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in Quezon City, known as the
Xavierville Estate Subdivision, with an area of 42 hectares. XEI caused the subdivision of the property into
residential lots, which was then offered for sale to individual lot buyers. [3]

On September 8, 1967, XEI, through its General Manager, Antonio Ramos, as vendor, and The
Overseas Bank of Manila (OBM), as vendee, executed a Deed of Sale of Real Estate over some residential
lots in the subdivision, including Lot 1, Block 2, with an area of 907.5 square meters, and Lot 2, Block 2,
with an area of 832.80 square meters. The transaction was subject to the approval of the Board of Directors
of OBM, and was covered by real estate mortgages in favor of the Philippine National Bank as security for
its account amounting to P5,187,000.00, and the Central Bank of the Philippines as security for advances
amounting to P22,185,193.74.[4] Nevertheless, XEI continued selling the residential lots in the subdivision
as agent of OBM.[5]

Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted the services of Engr. Carlos
Manalo, Jr. who was in business of drilling deep water wells and installing pumps under the business name
Hurricane Commercial, Inc. For P34,887.66, Manalo, Jr. installed a water pump at Ramos residence at the
corner of Aurora Boulevard and Katipunan Avenue, Quezon City. Manalo, Jr. then proposed to XEI,
through Ramos, to purchase a lot in the Xavierville subdivision, and offered as part of the downpayment
the P34,887.66 Ramos owed him. XEI, through Ramos, agreed. In a letter dated February 8, 1972, Ramos
requested Manalo, Jr. to choose which lots he wanted to buy so that the price of the lots and the terms of
payment could be fixed and incorporated in the conditional sale. [6] Manalo, Jr. met with Ramos and
informed him that he and his wife Perla had chosen Lots 1 and 2 of Block 2 with a total area of 1,740.3
square meters.

In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed the reservation of the lots. He
also pegged the price of the lots at P200.00 per square meter, or a total of P348,060.00, with a 20% down
payment of the purchase price amounting to P69,612.00 less the P34,887.66 owing from Ramos, payable
on or before December 31, 1972; the corresponding Contract of Conditional Sale would then be signed on
or before the same date, but if the selling operations of XEI resumed after December 31, 1972, the balance
of the downpayment would fall due then, and the spouses would sign the aforesaid contract within five (5)
days from receipt of the notice of resumption of such selling operations. It was also stated in the letter that,
in the meantime, the spouses may introduce improvements thereon subject to the rules and regulations
imposed by XEI in the subdivision. Perla Manalo conformed to the letter agreement.[7]

The spouses Manalo took possession of the property on September 2, 1972, constructed a house
thereon, and installed a fence around the perimeter of the lots.

In the meantime, many of the lot buyers refused to pay their monthly installments until they were
assured that they would be issued Torrens titles over the lots they had purchased.[8] The spouses Manalo
were notified of the resumption of the selling operations of XEI. [9] However, they did not pay the balance
of the downpayment on the lots because Ramos failed to prepare a contract of conditional sale and transmit
the same to Manalo for their signature. On August 14, 1973, Perla Manalo went to the XEI office and
requested that the payment of the amount representing the balance of the downpayment be deferred, which,
however, XEI rejected. On August 10,
1973, XEI furnished her with a statement of their account as of July 31, 1973, showing that they had a
balance of P34,724.34 on the downpayment of the two lots after deducting the account of Ramos,
plus P3,819.68[10] interest thereon from September 1, 1972 to July 31, 1973, and that the interests on the
unpaid balance of the purchase price of P278,448.00 from September 1, 1972 to July 31, 1973 amounted
to P30,629.28.[11] The spouses were informed that they were being billed for said unpaid interests. [12]

On January 25, 1974, the spouses Manalo received another statement of account from XEI,
inclusive of interests on the purchase price of the lots. [13] In a letter dated April 6, 1974 to XEI, Manalo, Jr.
stated they had not yet received the notice of resumption of Leis selling operations, and that there had been
no arrangement on the payment of interests; hence, they should not be charged with interest on the balance
of the downpayment on the property.[14] Further, they demanded that a deed of conditional sale over the two
lots be transmitted to them for their signatures. However, XEI ignored the demands. Consequently, the
spouses refused to pay the balance of the downpayment of the purchase price. [15]

Sometime in June 1976, Manalo, Jr. constructed a business sign in the sidewalk near his house. In
a letter dated June 17, 1976, XEI informed Manalo, Jr. that business signs were not allowed along the
sidewalk. It demanded that he remove the same, on the ground, among others, that the sidewalk was not
part of the land which he had purchased on installment basis from XEI. [16] Manalo, Jr. did not respond. XEI
reiterated its demand on September 15, 1977.[17]

Subsequently, XEI turned over its selling operations to OBM, including the receivables for lots
already contracted and those yet to be sold.[18] On December 8, 1977, OBM warned Manalo, Jr., that
putting up of a business sign is specifically prohibited by their contract of conditional sale and that his
failure to comply with its demand would impel it to avail of the remedies as provided in their contract of
conditional sale.[19]

Meanwhile, on December 5, 1979, the Register of Deeds issued Transfer Certificate of Title
(TCT) No. T-265822 over Lot 1, Block 2, and TCT No. T-265823 over Lot 2, Block 2, in favor of the
OBM.[20] The lien in favor of the Central Bank of the Philippines was annotated at the dorsal portion of said
title, which was later cancelled on August 4, 1980.[21]

Subsequently, the Commercial Bank of Manila (CBM) acquired the Xavierville Estate from OBM.
CBM wrote Edilberto Ng, the president of Xavierville Homeowners Association that, as of January 31,
1983, Manalo, Jr. was one of the lot buyers in the subdivision. [22] CBM reiterated in its letter to Ng that, as
of January 24, 1984, Manalo was a homeowner in the subdivision. [23]

In a letter dated August 5, 1986, the CBM requested Perla Manalo to stop any on-going
construction on the property since it (CBM) was the owner of the lot and she had no permission for such
construction.[24] She agreed to have a conference meeting with CBM officers where she informed them that
her husband had a contract with OBM, through XEI, to purchase the property. When asked to prove her
claim, she promised to send the documents to CBM. However, she failed to do so. [25] On September 5,
1986, CBM reiterated its demand that it be furnished with the documents promised, [26] but Perla Manalo did
not respond.
 On July 27, 1987, CBM filed a complaint[27] for unlawful detainer against the spouses with the
Metropolitan Trial Court of Quezon City. The case was docketed as Civil Case No. 51618. CBM claimed
that the spouses had been unlawfully occupying the property without its consent and that despite its
demands, they refused to vacate the property. The latter alleged that they, as vendors, and XEI, as vendee,
had a contract of sale over the lots which had not yet been rescinded. [28]

While the case was pending, the spouses Manalo wrote CBM to offer an amicable settlement,
promising to abide by the purchase price of the property (P313,172.34), per agreement with XEI, through
Ramos. However, on July 28, 1988, CBM wrote the spouses, through counsel, proposing that the price
of P1,500.00 per square meter of the property was a reasonable starting point for negotiation of the
settlement.[29] The spouses rejected the counter proposal,[30] emphasizing that they would abide by their
original agreement with XEI. CBM moved to withdraw its complaint[31] because of the issues raised.[32]

In the meantime, the CBM was renamed the Boston Bank of the Philippines. After CBM filed its
complaint against the spouses Manalo, the latter filed a complaint for specific performance and damages
against the bank before the Regional Trial Court (RTC) of Quezon City on October 31, 1989.

The plaintiffs alleged therein that they had always been ready, able and willing to pay the
installments on the lots sold to them by the defendants remote predecessor-in-interest, as might be or
stipulated in the contract of sale, but no contract was forthcoming; they constructed their house
worth P2,000,000.00 on the property in good faith; Manalo, Jr., informed the defendant, through its
counsel, on October 15, 1988 that he would abide by the terms and conditions of his original agreement
with the defendants predecessor-in-interest; during the hearing of the ejectment case on October 16, 1988,
they offered to pay P313,172.34 representing the balance on the purchase price of said lots; such tender of
payment was rejected, so that the subject lots could be sold at considerably higher prices to third parties.

Plaintiffs further alleged that upon payment of the P313,172.34, they were entitled to the
execution and delivery of a Deed of Absolute Sale covering the subject lots, sufficient in form and
substance to transfer title thereto free and clear of any and all liens and encumbrances of whatever kind and
nature.[33] The plaintiffs prayed that, after due hearing, judgment be rendered in their favor, to wit:

WHEREFORE, it is respectfully prayed that after due hearing:

(a) The defendant should be ordered to execute and deliver a Deed of Absolute
Sale over subject lots in favor of the plaintiffs after payment of the sum of P313,172.34,
sufficient in form and substance to transfer to them titles thereto free and clear of any and
all liens and encumbrances of whatever kind or nature;

(b) The defendant should be held liable for moral and exemplary damages in the
amounts of P300,000.00 and P30,000.00, respectively, for not promptly executing and
delivering to plaintiff the necessary Contract of Sale, notwithstanding repeated demands
 therefor and for having been constrained to engage the services of undersigned counsel
for which they agreed to pay attorneys fees in the sum of P50,000.00 to enforce their
rights in the premises and appearance fee of P500.00;

(c) And for such other and further relief as may be just and equitable in the
premises.[34]

In its Answer to the complaint, the defendant interposed the following affirmative defenses: (a)
plaintiffs had no cause of action against it because the August 22, 1972 letter agreement between XEI and
the plaintiffs was not binding on it; and (b) it had no record of any contract to sell executed by it or its
predecessor, or of any statement of accounts from its predecessors, or records of payments of the plaintiffs
or of any documents which entitled them to the possession of the lots.[35] The defendant, likewise,
interposed counterclaims for damages and attorneys fees and prayed for the eviction of the plaintiffs from
the property.[36]

Meanwhile, in a letter dated January 25, 1993, plaintiffs, through counsel, proposed an amicable
settlement of the case by paying P942,648.70, representing the balance of the purchase price of the two lots
based on the current market value.[37] However, the defendant rejected the same and insisted that for the
smaller lot, they pay P4,500,000.00, the current market value of the property.[38]The defendant insisted that
it owned the property since there was no contract or agreement between it and the plaintiffs relative thereto.

During the trial, the plaintiffs adduced in evidence the separate Contracts of Conditional Sale
executed between XEI and Alberto Soller;[39] Alfredo Aguila,[40] and Dra. Elena Santos-Roque[41]to prove
that XEI continued selling residential lots in the subdivision as agent of OBM after the latter had acquired
the said lots.

For its part, defendant presented in evidence the letter dated August 22, 1972, where XEI proposed
to sell the two lots subject to two suspensive conditions: the payment of the balance of the downpayment of
the property, and the execution of the corresponding contract of conditional sale. Since plaintiffs failed to
pay, OBM consequently refused to execute the corresponding contract of conditional sale and forfeited
the P34,877.66 downpayment for the two lots, but did not notify them of said forfeiture.[42] It alleged that
OBM considered the lots unsold because the titles thereto bore no annotation that they had been sold under
a contract of conditional sale, and the plaintiffs were not notified of XEIs resumption of its selling
operations.

On May 2, 1994, the RTC rendered judgment in favor of the plaintiffs and against the
defendant. The fallo of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and

against the defendant
 (a) Ordering the latter to execute and deliver a Deed of Absolute Sale over Lot 1
and 2, Block 2 of the Xavierville Estate Subdivision after payment of the sum
of P942,978.70 sufficient in form and substance to transfer to them titles thereto free
from any and all liens and encumbrances of whatever kind and nature.

(b) Ordering the defendant to pay moral and exemplary damages in the amount
of P150,000.00; and

(c) To pay attorneys fees in the sum of P50,000.00 and to pay the costs.

SO ORDERED.[43]

The trial court ruled that under the August 22, 1972 letter agreement of XEI and the plaintiffs, the
parties had a complete contract to sell over the lots, and that they had already partially consummated the
same. It declared that the failure of the defendant to notify the plaintiffs of the resumption of its selling
operations and to execute a deed of conditional sale did not prevent the defendants obligation to convey
titles to the lots from acquiring binding effect. Consequently, the plaintiffs had a cause of action to compel
the defendant to execute a deed of sale over the lots in their favor.

Boston Bank appealed the decision to the CA, alleging that the lower court erred in (a) not
concluding that the letter of XEI to the spouses Manalo, was at most a mere contract to sell subject to
suspensive conditions, i.e., the payment of the balance of the downpayment on the property and the
execution of a deed of conditional sale (which were not complied with); and (b) in awarding moral and
exemplary damages to the spouses Manalo despite the absence of testimony providing facts to justify such
awards.[44]

On September 30, 2002, the CA rendered a decision affirming that of the RTC with
modification. The fallo reads:

WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS

that (a) the figure P942,978.70 appearing [in] par. (a) of the dispositive portion thereof is
changed to P313,172.34 plus interest thereon at the rate of 12% per annum
from September 1, 1972 until fully paid and (b) the award of moral and exemplary
damages and attorneys fees in favor of plaintiffs-appellees is DELETED.

SO ORDERED.[45]

The appellate court sustained the ruling of the RTC that the appellant and the appellees had
executed a Contract to Sell over the two lots but declared that the balance of the purchase price of the
property amounting to P278,448.00 was payable in fixed amounts, inclusive of pre-computed interests,
from delivery of the possession of the property to the appellees on a monthly basis for 120 months, based
on the deeds of conditional sale executed by XEI in favor of other lot buyers.[46] The CA also declared that,
while XEI must have resumed its selling operations before the end of 1972 and the downpayment on the
property remained unpaid as of December 31, 1972, absent a written notice of cancellation of the contract
to sell from the bank or notarial demand therefor as required by Republic Act No. 6552, the spouses had, at
the very least, a 60-day grace period from January 1, 1973 within which to pay the same.

Boston Bank filed a motion for the reconsideration of the decision alleging that there was no
perfected contract to sell the two lots, as there was no agreement between XEI and the respondents on the
manner of payment as well as the other terms and conditions of the sale. It further averred that its claim for
recovery of possession of the aforesaid lots in its Memorandum dated February 28, 1994filed before the
trial court constituted a judicial demand for rescission that satisfied the requirements of the New Civil
Code. However, the appellate court denied the motion.

Boston Bank, now petitioner, filed the instant petition for review on certiorari assailing the CA
rulings. It maintains that, as held by the CA, the records do not reflect any schedule of payment of the 80%
balance of the purchase price, or P278,448.00. Petitioner insists that unless the parties had agreed on the
manner of payment of the principal amount, including the other terms and conditions of the contract, there
would be no existing contract of sale or contract to sell.[47] Petitioner avers that the letter agreement to
respondent spouses dated August 22, 1972 merely confirmed their reservation for the purchase of Lot Nos.
1 and 2, consisting of 1,740.3 square meters, more or less, at the price of P200.00 per square meter
(or P348,060.00), the amount of the downpayment thereon and the application of the P34,887.00 due from
Ramos as part of such downpayment.

Petitioner asserts that there is no factual basis for the CA ruling that the terms and conditions
relating to the payment of the balance of the purchase price of the property (as agreed upon by XEI and
other lot buyers in the same subdivision) were also applicable to the contract entered into between the
petitioner and the respondents. It insists that such a ruling is contrary to law, as it is tantamount to
compelling the parties to agree to something that was not even discussed, thus, violating their freedom to
contract. Besides, the situation of the respondents cannot be equated with those of the other lot buyers, as,
for one thing, the respondents made a partial payment on the downpayment for the two lots even before the
execution of any contract of conditional sale.

Petitioner posits that, even on the assumption that there was a perfected contract to sell between
the parties, nevertheless, it cannot be compelled to convey the property to the respondents because the latter
failed to pay the balance of the downpayment of the property, as well as the balance of 80% of the purchase
price, thus resulting in the extinction of its obligation to convey title to the lots to the respondents.
 Another egregious error of the CA, petitioner avers, is the application of Republic Act No. 6552. It
insists that such law applies only to a perfected agreement or perfected contract to sell, not in this case
where the downpayment on the purchase price of the property was not completely paid, and no installment
payments were made by the buyers.

Petitioner also faults the CA for declaring that petitioner failed to serve a notice on the respondents
of cancellation or rescission of the contract to sell, or notarial demand therefor. Petitioner insists that
its August 5, 1986 letter requiring respondents to vacate the property and its complaint for ejectment in
Civil Case No. 51618 filed in the Metropolitan Trial Court amounted to the requisite demand for a
rescission of the contract to sell. Moreover, the action of the respondents below was barred by laches
because despite demands, they failed to pay the balance of the purchase price of the lots (let alone the
downpayment) for a considerable number of years.

For their part, respondents assert that as long as there is a meeting of the minds of the parties to a
contract of sale as to the price, the contract is valid despite the parties failure to agree on the manner of
payment. In such a situation, the balance of the purchase price would be payable on demand, conformably
to Article 1169 of the New Civil Code. They insist that the law does not require a party to agree on the
manner of payment of the purchase price as a prerequisite to a valid contract to sell. The respondents cite
the ruling of this Court in Buenaventura v. Court of Appeals[48] to support their submission.

They argue that even if the manner and timeline for the payment of the balance of the purchase
price of the property is an essential requisite of a contract to sell, nevertheless, as shown by their letter
agreement of August 22, 1972 with the OBM, through XEI and the other letters to them, an agreement was
reached as to the manner of payment of the balance of the purchase price. They point out that such letters
referred to the terms of the
terms of the deeds of conditional sale executed by XEI in favor of the other lot buyers in the subdivision,
which contained uniform terms of 120 equal monthly installments (excluding the downpayment, but
inclusive of pre-computed interests). The respondents assert that XEI was a real estate broker and knew that
the contracts involving residential lots in the subdivision contained uniform terms as to the manner and
timeline of the payment of the purchase price of said lots.

Respondents further posit that the terms and conditions to be incorporated in the corresponding
contract of conditional sale to be executed by the parties would be the same as those contained in the
contracts of conditional sale executed by lot buyers in the subdivision. After all, they maintain, the contents
of the corresponding contract of conditional sale referred to in the August 22, 1972 letter agreement
envisaged those contained in the contracts of conditional sale that XEI and other lot buyers executed.
Respondents cite the ruling of this Court in Mitsui Bussan Kaisha v. Manila E.R.R. & L. Co. [49]
 The respondents aver that the issues raised by the petitioner are factual, inappropriate in a petition
for review on certiorari under Rule 45 of the Rules of Court. They assert that petitioner adopted a theory in
litigating the case in the trial court, but changed the same on appeal before the CA, and again in this
Court. They argue that the petitioner is estopped from adopting a new theory contrary to those it had
adopted in the trial and appellate courts. Moreover, the existence of a contract of conditional sale was
admitted in the letters of XEI and OBM. They aver that they became owners of the lots upon delivery to
them by XEI.

The issues for resolution are the following: (1) whether the factual issues raised by the petitioner
are proper; (2) whether petitioner or its predecessors-in-interest, the XEI or the OBM, as seller, and the
respondents, as buyers, forged a perfect contract to sell over the property; (3) whether
petitioner is estopped from contending that no such contract was forged by the parties; and (4) whether
respondents has a cause of action against the petitioner for specific performance.

The rule is that before this Court, only legal issues may be raised in a petition for review
on certiorari. The reason is that this Court is not a trier of facts, and is not to review and calibrate the
evidence on record. Moreover, the findings of facts of the trial court, as affirmed on appeal by the Court of
Appeals, are conclusive on this Court unless the case falls under any of the following exceptions:

(1) when the conclusion is a finding grounded entirely on speculations, surmises

and conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is based
on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings went beyond the issues of the case and the same
is contrary to the admissions of both appellant and appellee; (7) when the findings are
contrary to those of the trial court; (8) when the findings of fact are conclusions without
citation of specific evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioners main and reply briefs are not disputed by the
respondents; and (10) when the findings of fact of the Court of Appeals are premised on
the supposed absence of evidence and contradicted by the evidence on record.[50]

We have reviewed the records and we find that, indeed, the ruling of the appellate court dismissing
petitioners appeal is contrary to law and is not supported by evidence. A careful examination of the factual
backdrop of the case, as well as the antecedental proceedings constrains us to hold that petitioner is not
barred from asserting that XEI or OBM, on one hand, and the respondents, on the other, failed to forge a
perfected contract to sell the subject lots.

It must be stressed that the Court may consider an issue not raised during the trial when there is
plain error.[51] Although a factual issue was not raised in the trial court, such issue may still be considered
and resolved by the Court in the interest of substantial justice, if it finds that to do so is necessary to arrive
at a just decision,[52] or when an issue is closely related to an issue raised in the trial court and the Court of
Appeals and is necessary for a just and complete resolution of the case. [53] When the trial court decides a
case in favor of a party on certain grounds, the Court may base its decision upon some other points, which
the trial court or appellate court ignored or erroneously decided in favor of a party. [54]

In this case, the issue of whether XEI had agreed to allow the respondents to pay the purchase
price of the property was raised by the parties. The trial court ruled that the parties had perfected a contract
to sell, as against petitioners claim that no such contract existed. However, in resolving the issue of whether
the petitioner was obliged to sell the property to the respondents, while the CA declared that XEI or OBM
and the respondents failed to agree on the schedule of payment of the balance of the purchase price of the
property, it ruled that XEI and the respondents had forged a contract to sell; hence, petitioner is entitled to
ventilate the issue before this Court.

We agree with petitioners contention that, for a perfected contract of sale or contract to sell to exist
in law, there must be an agreement of the parties, not only on the price of the property sold, but also on the
manner the price is to be paid by the vendee.

Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or conditional,
one of the contracting parties obliges himself to transfer the ownership of and deliver a determinate thing,
and the other to pay therefor a price certain in money or its equivalent. A contract of sale is perfected at the
moment there is a meeting of the minds upon the thing which is the object of the contract and the
price. From the averment of perfection, the parties are bound, not only to the fulfillment of what has been
expressly stipulated, but also to all the consequences which, according to their nature, may be in keeping
with good faith, usage and law.[55] On the other hand, when the contract of sale or to sell is not perfected, it
cannot, as an independent source of obligation, serve as a binding juridical relation between the parties. [56]

A definite agreement as to the price is an essential element of a binding agreement to sell personal
or real property because it seriously affects the rights and obligations of the parties. Price is an essential
element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be
left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if
accepted by the other, gives rise to a perfected sale.[57]

It is not enough for the parties to agree on the price of the property. The parties must also agree on
the manner of payment of the price of the property to give rise to a binding and enforceable contract of sale
or contract to sell. This is so because the agreement as to the manner of payment goes into the price, such
that a disagreement on the manner of payment is tantamount to a failure to agree on the price.[58]
In a contract to sell property by installments, it is not enough that the parties agree on the price as well as
the amount of downpayment. The parties must, likewise, agree on the manner of payment of the balance of
the purchase price and on the other terms and conditions relative to the sale. Even if the buyer makes a
downpayment or portion thereof, such payment cannot be considered as sufficient proof of the perfection of
any purchase and sale between the parties. Indeed, this Court ruled in Velasco v. Court of Appeals[59] that:

It is not difficult to glean from the aforequoted averments that the petitioners
themselves admit that they and the respondent still had to meet and agree on how and
when the down-payment and the installment payments were to be paid. Such being the
situation, it cannot, therefore, be said that a definite and firm sales agreement between the
parties had been perfected over the lot in question. Indeed, this Court has already ruled
before that a definite agreement on the manner of payment of the purchase price is an
essential element in the formation of a binding and enforceable contract of sale. The fact,
therefore, that the petitioners delivered to the respondent the sum of P10,000.00 as part of
the downpayment that they had to pay cannot be considered as sufficient proof of the
perfection of any purchase and sale agreement between the parties herein under article
1482 of the New Civil Code, as the petitioners themselves admit that some essential
matter the terms of payment still had to be mutually covenanted.[60]

We agree with the contention of the petitioner that, as held by the CA, there is no showing, in the
records, of the schedule of payment of the balance of the purchase price on the property amounting
to P278,448.00. We have meticulously reviewed the records, including Ramos February 8, 1972 and
August 22, 1972 letters to respondents,[61] and find that said parties confined themselves to agreeing on the
price of the property (P348,060.00), the 20% downpayment of the purchase price (P69,612.00), and
credited respondents for the P34,887.00 owing from Ramos as part of the 20% downpayment. The timeline
for the payment of the balance of the downpayment (P34,724.34) was also agreed upon, that is, on or
before XEI resumed its selling operations, on or before December 31, 1972, or within five (5) days from
written notice of such resumption of selling operations. The parties had also agreed to incorporate all the
terms and conditions relating to the sale, inclusive of the terms of payment of the balance of the purchase
price and the other substantial terms and conditions in the corresponding contract of conditional sale, to be
later signed by the parties, simultaneously with respondents settlement of the balance of the downpayment.

The February 8, 1972 letter of XEI reads:

Mr. Carlos T. Manalo, Jr.
Hurricane Rotary Well Drilling
Rizal Avenue Ext.,Caloocan City

Dear Mr. Manalo:

We agree with your verbal offer to exchange the proceeds of your contract with
us to form as a down payment for a lot in our Xavierville Estate Subdivision.

Please let us know your choice lot so that we can fix the price and terms of
payment in our conditional sale.
 Sincerely yours,

XAVIERVILLE ESTATE, INC.

(Signed)
EMERITO B. RAMOS, JR.
President

CONFORME:

(Signed)
CARLOS T. MANALO, JR.
Hurricane Rotary Well Drilling[62]

The August 22, 1972 letter agreement of XEI and the respondents reads:

Mrs. Perla P. Manalo

1548 Rizal Avenue Extension
Caloocan City

Dear Mrs. Manalo:

This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of our consolidation-
subdivision plan as amended, consisting of 1,740.3 square meters more or less, at the
price of P200.00 per square meter or a total price of P348,060.00.

It is agreed that as soon as we resume selling operations, you must pay a down payment
of 20% of the purchase price of the said lots and sign the corresponding Contract of
Conditional Sale, on or before December 31, 1972, provided, however, that if we resume
selling after December 31, 1972, then you must pay the aforementioned down payment
and sign the aforesaid contract within five (5) days from your receipt of our notice of
resumption of selling operations.

In the meanwhile, you may introduce such improvements on the said lots as you may
desire, subject to the rules and regulations of the subdivision.

If the above terms and conditions are acceptable to you, please signify your conformity
by signing on the space herein below provided.

Thank you.

Very truly yours,

XAVIERVILLE ESTATE, INC. CONFORME:

By:

(Signed) (Signed)
EMERITO B. RAMOS, JR. PERLA P. MANALO
President Buyer[63]
 Based on these two letters, the determination of the terms of payment of the P278,448.00 had yet
to be agreed upon on or before December 31, 1972, or even afterwards, when the parties sign the
corresponding contract of conditional sale.

Jurisprudence is that if a material element of a contemplated contract is left for future negotiations,
the same is too indefinite to be enforceable.[64] And when an essential element of a contract is reserved for
future agreement of the parties, no legal obligation arises until such future agreement is concluded. [65]

So long as an essential element entering into the proposed obligation of either of the parties
remains to be determined by an agreement which they are to make, the contract is incomplete and
unenforceable.[66] The reason is that such a contract is lacking in the necessary qualities of definiteness,
certainty and mutuality.[67]

There is no evidence on record to prove that XEI or OBM and the respondents had agreed,
after December 31, 1972, on the terms of payment of the balance of the purchase price of the property and
the other substantial terms and conditions relative to the sale. Indeed, the parties are in agreement that there
had been no contract of conditional sale ever executed by XEI, OBM or petitioner, as vendor, and the
respondents, as vendees.[68]

The ruling of this Court in Buenaventura v. Court of Appeals has no bearing in this case because
the issue of the manner of payment of the purchase price of the property was not raised therein.

We reject the submission of respondents that they and Ramos had intended to incorporate the
terms of payment contained in the three contracts of conditional sale executed by XEI and other lot buyers
in the corresponding contract of conditional sale, which would later be signed by them. [69] We have
meticulously reviewed the respondents complaint and find no such allegation therein. [70]Indeed,
respondents merely alleged in their complaint that they were bound to pay the balance of the purchase price
of the property in installments. When respondent Manalo, Jr. testified, he was never asked, on direct
examination or even on cross-examination, whether the terms of payment of the balance of the purchase
price of the lots under the contracts of conditional sale executed by XEI and other lot buyers would form
part of the corresponding contract of conditional sale to be signed by them simultaneously with the
payment of the balance of the downpayment on the purchase price.

We note that, in its letter to the respondents dated June 17, 1976, or almost three years from the
execution by the parties of their August 22, 1972 letter agreement, XEI stated, in part, that respondents had
purchased the property on installment basis.[71] However, in the said letter, XEI failed to state a specific
amount for each installment, and whether such payments were to be made monthly, semi-annually, or
annually. Also, respondents, as plaintiffs below, failed to adduce a shred of evidence to prove that they
were obliged to pay the P278,448.00 monthly, semi-annually or annually. The allegation that the payment
of the P278,448.00 was to be paid in installments is, thus, vague and indefinite. Case law is that, for a
contract to be enforceable, its terms must be certain and explicit, not vague or indefinite.[72]

There is no factual and legal basis for the CA ruling that, based on the terms of payment of the
balance of the purchase price of the lots under the contracts of conditional sale executed by XEI and the
other lot buyers, respondents were obliged to pay the P278,448.00 with pre-computed interest of 12% per
annum in 120-month installments. As gleaned from the ruling of the appellate court, it failed to justify its
use of the terms of payment under the three contracts of conditional sale as basis for such ruling, to wit:

On the other hand, the records do not disclose the schedule of payment of the
purchase price, net of the downpayment. Considering, however, the Contracts of
Conditional Sale (Exhs. N, O and P) entered into by XEI with other lot buyers, it would
appear that the subdivision lots sold by XEI, under contracts to sell, were payable in 120
equal monthly installments (exclusive of the downpayment but including pre-computed
interests) commencing on delivery of the lot to the buyer. [73]

By its ruling, the CA unilaterally supplied an essential element to the letter agreement of XEI and
the respondents. Courts should not undertake to make a contract for the parties, nor can it enforce one, the
terms of which are in doubt.[74] Indeed, the Court emphasized in Chua v. Court of Appeals[75] that it is not
the province of a court to alter a contract by construction or to make a new contract for the parties; its duty
is confined to the interpretation of the one which they have made for themselves, without regard to its
wisdom or folly, as the court cannot supply material stipulations or read into contract words which it does
not contain.

Respondents, as plaintiffs below, failed to allege in their complaint that the terms of payment of
the P278,448.00 to be incorporated in the corresponding contract of conditional sale were those contained
in the contracts of conditional sale executed by XEI and Soller, Aguila and Roque. [76]They likewise failed
to prove such allegation in this Court.

The bare fact that other lot buyers were allowed to pay the balance of the purchase price of lots
purchased by them in 120 or 180 monthly installments does not constitute evidence that XEI also agreed to
give the respondents the same mode and timeline of payment of the P278,448.00.

Under Section 34, Rule 130 of the Revised Rules of Court, evidence that one did a certain thing at
one time is not admissible to prove that he did the same or similar thing at another time, although such
evidence may be received to prove habit, usage, pattern of conduct or the intent of the parties.
 Similar acts as evidence. Evidence that one did or did not do a certain thing at
one time is not admissible to prove that he did or did not do the same or a similar thing at
another time; but it may be received to prove a specific intent or knowledge, identity,
plan, system, scheme, habit, custom or usage, and the like.

However, respondents failed to allege and prove, in the trial court, that, as a matter of business
usage, habit or pattern of conduct, XEI granted all lot buyers the right to pay the balance of the purchase
price in installments of 120 months of fixed amounts with pre-computed interests, and that XEI and the
respondents had intended to adopt such terms of payment relative to the sale of the two lots in question.
Indeed, respondents adduced in evidence the three contracts of conditional sale executed by XEI and other
lot buyers merely to prove that XEI continued to sell lots in the subdivision as sales agent of OBM after it
acquired said lots, not to prove usage, habit or pattern of conduct on the part of XEI to require all lot buyers
in the subdivision to pay the balance of the purchase price of said lots in 120 months. It further failed to
prive that the trial court admitted the said deeds[77] as part of the testimony of respondent Manalo, Jr. [78]
Habit, custom, usage or pattern of conduct must be proved like any other facts. Courts must
contend with the caveat that, before they admit evidence of usage, of habit or pattern of conduct, the
offering party must establish the degree of specificity and frequency of uniform response that ensures more
than a mere tendency to act in a given manner but rather, conduct that is semi-automatic in nature. The
offering party must allege and prove specific, repetitive conduct that might constitute evidence of
habit. The examples offered in evidence to prove habit, or pattern of evidence must be numerous enough to
base on inference of systematic conduct. Mere similarity of contracts does not present the kind of
sufficiently similar circumstances to outweigh the danger of prejudice and confusion.

In determining whether the examples are numerous enough, and sufficiently regular, the key
criteria are adequacy of sampling and uniformity of response. After all, habit means a course of behavior of
a person regularly represented in like circumstances.[79] It is only when examples offered to establish
pattern of conduct or habit are numerous enough to lose an inference of systematic conduct that examples
are admissible. The key criteria are adequacy of sampling and uniformity of response or ratio of reaction to
situations.[80]

There are cases where the course of dealings to be followed is defined by the usage of a particular
trade or market or profession. As expostulated by Justice Benjamin Cardozo of the United States Supreme
Court: Life casts the moulds of conduct, which will someday become fixed as law. Law preserves the
moulds which have taken form and shape from life. [81] Usage furnishes a standard for the measurement of
many of the rights and acts of men.[82] It is also well-settled that parties who contract on a subject matter
concerning which known usage prevail, incorporate such usage by implication into their agreement, if
nothing is said to be contrary.[83]

However, the respondents inexplicably failed to adduce sufficient competent evidence to prove
usage, habit or pattern of conduct of XEI to justify the use of the terms of payment in the contracts of the
other lot buyers, and thus grant respondents the right to pay the P278,448.00 in 120 months, presumably
because of respondents belief that the manner of payment of the said amount is not an essential element of
a contract to sell. There is no evidence that XEI or OBM and all the lot buyers in the subdivision, including
lot buyers who pay part of the downpayment of the property purchased by them in the form of service, had
executed contracts of conditional sale containing uniform terms and conditions. Moreover, under the terms
of the contracts of conditional sale executed by XEI and three lot buyers in the subdivision, XEI agreed to
grant 120 months within which to pay the balance of the purchase price to two of them, but granted one 180
months to do so.[84] There is no evidence on record that XEI granted the same right to buyers of two or
more lots.

Irrefragably, under Article 1469 of the New Civil Code, the price of the property sold may be
considered certain if it be so with reference to another thing certain. It is sufficient if it can be determined
by the stipulations of the contract made by the parties thereto[85] or by reference to an agreement
incorporated in the contract of sale or contract to sell or if it is capable of being ascertained with certainty
in said contract;[86] or if the contract contains express or implied provisions by which it may be rendered
certain;[87] or if it provides some method or criterion by which it can be definitely ascertained. [88] As this
Court held in Villaraza v. Court of Appeals,[89] the price is considered certain if, by its terms, the contract
furnishes a basis or measure for ascertaining the amount agreed upon.

We have carefully reviewed the August 22, 1972 letter agreement of the parties and find no direct
or implied reference to the manner and schedule of payment of the balance of the purchase price of the lots
covered by the deeds of conditional sale executed by XEI and that of the other lot buyers [90] as basis for or
mode of determination of the schedule of the payment by the respondents of the P278,448.00.

The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric Railroad and Light
Company[91] is not applicable in this case because the basic price fixed in the contract was P9.45 per long
ton, but it was stipulated that the price was subject to modification in proportion to variations in calories
and ash content, and not otherwise. In this case, the parties did not fix in their letters-agreement, any
method or mode of determining the terms of payment of the balance of the purchase price of the property
amounting to P278,448.00.
 It bears stressing that the respondents failed and refused to pay the balance of the downpayment
and of the purchase price of the property amounting to P278,448.00 despite notice to them of the
resumption by XEI of its selling operations. The respondents enjoyed possession of the property without
paying a centavo. On the other hand, XEI and OBM failed and refused to transmit a contract of conditional
sale to the respondents. The respondents could have at least consigned the balance of the downpayment
after notice of the resumption of the selling operations of XEI and filed an action to compel XEI or OBM to
transmit to them the said contract; however, they failed to do so.

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

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court
of Appeals in CA-G.R. CV No. 47458 is REVERSED and SET ASIDE. The Regional Trial Court of
Quezon City, Branch 98 is ordered to dismiss the complaint. Costs against the respondents.

SO ORDERED.
G.R. No. L-11827 July 31, 1961

FERNANDO A. GAITE, plaintiff-appellee,

vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC.,
SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO
TY, defendants-appellants.

Alejo Mabanag for plaintiff-appellee.

Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.

REYES, J.B.L., J.:

This appeal comes to us directly from the Court of First Instance because the claims involved aggregate
more than P200,000.00.

Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a representative
capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated in the municipality of Jose
Panganiban, province of Camarines Norte.

By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and appointed
plaintiff-appellee Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract with any
individual or juridical person for the exploration and development of the mining claims aforementioned on
a royalty basis of not less than P0.50 per ton of ore that might be extracted therefrom. On March 19, 1954,
Gaite in turn executed a general assignment (Record on Appeal, pp. 17-19) conveying the development and
exploitation of said mining claims into the Larap Iron Mines, a single proprietorship owned solely by and
belonging to him, on the same royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked upon
the development and exploitation of the mining claims in question, opening and paving roads within and
outside their boundaries, making other improvements and installing facilities therein for use in the
development of the mines, and in time extracted therefrom what he claim and estimated to be
approximately 24,000 metric tons of iron ore.

For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite to
exploit and develop the mining claims in question, and Gaite assented thereto subject to certain conditions.
As a result, a document entitled "Revocation of Power of Attorney and Contract" was executed on
December 8, 1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the consideration of P20,000.00,
plus 10% of the royalties that Fonacier would receive from the mining claims, all his rights and interests on
all the roads, improvements, and facilities in or outside said claims, the right to use the business name
"Larap Iron Mines" and its goodwill, and all the records and documents relative to the mines. In the same
document, Gaite transferred to Fonacier all his rights and interests over the "24,000 tons of iron ore, more
or less" that the former had already extracted from the mineral claims, in consideration of the sum of
P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out of
the first letter of credit covering the first shipment of iron ores and of the first amount derived
from the local sale of iron ore made by the Larap Mines & Smelting Co. Inc., its assigns,
administrators, or successors in interests.

To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of Gaite a
surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated December 8,
1954 with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its stockholders
George Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando Ty as sureties
(Exhibit "A-1"). Gaite testified, however, that when this bond was presented to him by Fonacier together
with the "Revocation of Power of Attorney and Contract", Exhibit "A", on December 8, 1954, he refused to
sign said Exhibit "A" unless another bond under written by a bonding company was put up by defendants to
secure the payment of the P65,000.00 balance of their price of the iron ore in the stockpiles in the mining
claims. Hence, a second bond, also dated December 8, 1954 (Exhibit "B"),was executed by the same parties
to the first bond Exhibit "A-1", with the Far Eastern Surety and Insurance Co. as additional surety, but it
provided that the liability of the surety company would attach only when there had been an actual sale of
iron ore by the Larap Mines & Smelting Co. for an amount of not less then P65,000.00, and that,
furthermore, the liability of said surety company would automatically expire on December 8, 1955. Both
bonds were attached to the "Revocation of Power of Attorney and Contract", Exhibit "A", and made
integral parts thereof.

On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two executed and
signed the "Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier entered into a "Contract
of Mining Operation", ceding, transferring, and conveying unto the Larap Mines and Smelting Co., Inc. the
right to develop, exploit, and explore the mining claims in question, together with the improvements therein
and the use of the name "Larap Iron Mines" and its good will, in consideration of certain royalties. Fonacier
likewise transferred, in the same document, the complete title to the approximately 24,000 tons of iron ore
which he acquired from Gaite, to the Larap & Smelting Co., in consideration for the signing by the
company and its stockholders of the surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp.
82-94).

Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety and
Insurance Company, no sale of the approximately 24,000 tons of iron ore had been made by the Larap
Mines & Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore been paid to Gaite by
Fonacier and his sureties payment of said amount, on the theory that they had lost right to make use of the
period given them when their bond, Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And when
Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the present complaint against
them in the Court of First Instance of Manila (Civil Case No. 29310) for the payment of the P65,000.00
balance of the price of the ore, consequential damages, and attorney's fees.

All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon by
Gaite was subject to a condition that the amount of P65,000.00 would be payable out of the first letter of
credit covering the first shipment of iron ore and/or the first amount derived from the local sale of the iron
ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the complaint, no sale of
the iron ore had been made, hence the condition had not yet been fulfilled; and that consequently, the
obligation was not yet due and demandable. Defendant Fonacier also contended that only 7,573 tons of the
estimated 24,000 tons of iron ore sold to him by Gaite was actually delivered, and counterclaimed for more
than P200,000.00 damages.

At the trial of the case, the parties agreed to limit the presentation of evidence to two issues:

(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due and
demandable when the defendants failed to renew the surety bond underwritten by the Far Eastern Surety
and Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were
actually in existence in the mining claims when these parties executed the "Revocation of Power of
Attorney and Contract", Exhibit "A."

On the first question, the lower court held that the obligation of the defendants to pay plaintiff the
P65,000.00 balance of the price of the approximately 24,000 tons of iron ore was one with a term: i.e., that
it would be paid upon the sale of sufficient iron ore by defendants, such sale to be effected within one year
or before December 8, 1955; that the giving of security was a condition precedent to Gait's giving of credit
to defendants; and that as the latter failed to put up a good and sufficient security in lieu of the Far Eastern
Surety bond (Exhibit "B") which expired on December 8, 1955, the obligation became due and demandable
under Article 1198 of the New Civil Code.

As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000 tons of
iron ore at the mining claims in question at the time of the execution of the contract Exhibit "A."

Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly and
severally, P65,000.00 with interest at 6% per annum from December 9, 1955 until payment, plus costs.
From this judgment, defendants jointly appealed to this Court.

During the pendency of this appeal, several incidental motions were presented for resolution: a motion to
declare the appellants Larap Mines & Smelting Co., Inc. and George Krakower in contempt, filed by
appellant Fonacier, and two motions to dismiss the appeal as having become academic and a motion for
new trial and/or to take judicial notice of certain documents, filed by appellee Gaite. The motion for
contempt is unmeritorious because the main allegation therein that the appellants Larap Mines & Smelting
Co., Inc. and Krakower had sold the iron ore here in question, which allegedly is "property in litigation",
has not been substantiated; and even if true, does not make these appellants guilty of contempt, because
what is under litigation in this appeal is appellee Gaite's right to the payment of the balance of the price of
the ore, and not the iron ore itself. As for the several motions presented by appellee Gaite, it is unnecessary
to resolve these motions in view of the results that we have reached in this case, which we shall hereafter
discuss.

The main issues presented by appellants in this appeal are:

(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee Gaite the
P65,000.00 (balance of the price of the iron ore in question)is one with a period or term and not one with a
suspensive condition, and that the term expired on December 8, 1955; and

(2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles of iron ore
sold by appellee Gaite to appellant Fonacier.

The first issue involves an interpretation of the following provision in the contract Exhibit "A":

7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his rights
and interests over the 24,000 tons of iron ore, more or less, above-referred to together with all his
rights and interests to operate the mine in consideration of the sum of SEVENTY-FIVE
THOUSAND PESOS (P75,000.00) which the latter binds to pay as follows:

a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of
the first letter of credit covering the first shipment of iron ore made by the Larap Mines &
Smelting Co., Inc., its assigns, administrators, or successors in interest.

We find the court below to be legally correct in holding that the shipment or local sale of the iron ore is not
a condition precedent (or suspensive) to the payment of the balance of P65,000.00, but was only a
suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or
obligatory force (as distinguished from its demandability) 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. That the parties to the contract Exhibit "A" did not intend any
such state of things to prevail is supported by several circumstances:
1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-
Five Thousand Pesos (P65,000.00) will be paid out of the first letter of credit covering the first shipment of
iron ores . . ." etc. There is no uncertainty that the payment will have to be made sooner or later; what is
undetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore,
the existence of the obligation to pay is recognized; only its maturity or demandability is deferred.

2) A contract of sale is normally commutative and onerous: not only does each one of the parties assume a
correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the
price),but each party anticipates performance by the other from the very start. While in a sale the obligation
of one party can be lawfully subordinated to an uncertain event, so that the other understands that he
assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or
expectations, emptio spei), it is not in the usual course of business to do so; hence, the contingent character
of the obligation must clearly appear. Nothing is found in the record to evidence that Gaite desired or
assumed to run the risk of losing his right over the ore without getting paid for it, or that Fonacier
understood that Gaite assumed any such risk. This is proved by the fact that Gaite insisted on a bond a to
guarantee payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap Mines & Smelting
Co., and the company's stockholders, but also on one by a surety company; and the fact that appellants did
put up such bonds indicates that they admitted the definite existence of their obligation to pay the balance
of P65,000.00.

3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the ore as a
condition precedent, would be tantamount to leaving the payment at the discretion of the debtor, for the sale
or shipment could not be made unless the appellants took steps to sell the ore. Appellants would thus be
able to postpone payment indefinitely. The desireability of avoiding such a construction of the contract
Exhibit "A" needs no stressing.

4) Assuming that there could be doubt whether by the wording of the contract the parties indented a
suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000.00, the rules of
interpretation would incline the scales in favor of "the greater reciprocity of interests", since sale is
essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides:

If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.

and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be actually
existing, with only its maturity (due date) postponed or deferred, that if such obligation were viewed as
non-existent or not binding until the ore was sold.

The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit, and not
an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at all; and that the
previous sale or shipment of the ore was not a suspensive condition for the payment of the balance of the
agreed price, but was intended merely to fix the future date of the payment.

This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have the
right to insist that Gaite should wait for the sale or shipment of the ore before receiving payment; or, in
other words, whether or not they are entitled to take full advantage of the period granted them for making
the payment.

We agree with the court below that the appellant have forfeited the right court below that the appellants
have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the
balance of P65,000.00, because of their failure to renew the bond of the Far Eastern Surety Company or
else replace it with an equivalent guarantee. The expiration of the bonding company's undertaking on
December 8, 1955 substantially reduced the security of the vendor's rights as creditor for the unpaid
P65,000.00, a security that Gaite considered essential and upon which he had insisted when he executed the
deed of sale of the ore to Fonacier (Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of
Article 1198 of the Civil Code of the Philippines:

"ART. 1198. The debtor shall lose every right to make use of the period:

(1) . . .

(2) When he does not furnish to the creditor the guaranties or securities which he has promised.

(3) When by his own acts he has impaired said guaranties or securities after their establishment,
and when through fortuitous event they disappear, unless he immediately gives new ones equally
satisfactory.

Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the
securities given to the creditor (appellee Gaite), unless immediately renewed or replaced.

There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with full
knowledge that on its face it would automatically expire within one year was a waiver of its renewal after
the expiration date. No such waiver could have been intended, for Gaite stood to lose and had nothing to
gain barely; and if there was any, it could be rationally explained only if the appellants had agreed to sell
the ore and pay Gaite before the surety company's bond expired on December 8, 1955. But in the latter case
the defendants-appellants' obligation to pay became absolute after one year from the transfer of the ore to
Fonacier by virtue of the deed Exhibit "A.".

All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding
payment and instituting this action one year from and after the contract (Exhibit "A") was executed, either
because the appellant debtors had impaired the securities originally given and thereby forfeited any further
time within which to pay; or because the term of payment was originally of no more than one year, and the
balance of P65,000.00 became due and payable thereafter.

Coming now to the second issue in this appeal, which is whether there were really 24,000 tons of iron ore
in the stockpiles sold by appellee Gaite to appellant Fonacier, and whether, if there had been a short-
delivery as claimed by appellants, they are entitled to the payment of damages, we must, at the outset,
stress two things: first, that this is a case of a sale of a specific mass of fungible goods for a single price or a
lump sum, the quantity of "24,000 tons of iron ore, more or less," stated in the contract Exhibit "A," being a
mere estimate by the parties of the total tonnage weight of the mass; and second, that the evidence shows
that neither of the parties had actually measured of weighed the mass, so that they both tried to arrive at the
total quantity by making an estimate of the volume thereof in cubic meters and then multiplying it by the
estimated weight per ton of each cubic meter.

The sale between the parties is a sale of a specific mass or iron ore because no provision was made in their
contract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the
price of P75,000,00 agreed upon by the parties based upon any such measurement.(see Art. 1480, second
par., New Civil Code). The subject matter of the sale is, therefore, a determinate object, the mass, and not
the actual number of units or tons contained therein, so that all that was required of the seller Gaite was to
deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity
delivered is less than the amount estimated by them (Mobile Machinery & Supply Co., Inc. vs. York
Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of the Louisiana Civil Code). There is no charge
in this case that Gaite did not deliver to appellants all the ore found in the stockpiles in the mining claims in
questions; Gaite had, therefore, complied with his promise to deliver, and appellants in turn are bound to
pay the lump price.
But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite mass, but
approximately 24,000 tons of ore, so that any substantial difference in this quantity delivered would entitle
the buyers to recover damages for the short-delivery, was there really a short-delivery in this case?

We think not. As already stated, neither of the parties had actually measured or weighed the whole mass of
ore cubic meter by cubic meter, or ton by ton. Both parties predicate their respective claims only upon an
estimated number of cubic meters of ore multiplied by the average tonnage factor per cubic meter.

Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore that he sold
to Fonacier, while appellants contend that by actual measurement, their witness Cirpriano Manlañgit found
the total volume of ore in the stockpiles to be only 6.609 cubic meters. As to the average weight in tons per
cubic meter, the parties are again in disagreement, with appellants claiming the correct tonnage factor to be
2.18 tons to a cubic meter, while appellee Gaite claims that the correct tonnage factor is about 3.7.

In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage factor of iron ore
in this case to be that made by Leopoldo F. Abad, chief of the Mines and Metallurgical Division of the
Bureau of Mines, a government pensionado to the States and a mining engineering graduate of the
Universities of Nevada and California, with almost 22 years of experience in the Bureau of Mines. This
witness placed the tonnage factor of every cubic meter of iron ore at between 3 metric tons as minimum to
5 metric tons as maximum. This estimate, in turn, closely corresponds to the average tonnage factor of 3.3
adopted in his corrected report (Exhibits "FF" and FF-1") by engineer Nemesio Gamatero, who was sent by
the Bureau of Mines to the mining claims involved at the request of appellant Krakower, precisely to make
an official estimate of the amount of iron ore in Gaite's stockpiles after the dispute arose.

Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by appellant's
witness Cipriano Manlañgit is correct, if we multiply it by the average tonnage factor of 3.3 tons to a cubic
meter, the product is 21,809.7 tons, which is not very far from the estimate of 24,000 tons made by appellee
Gaite, considering that actual weighing of each unit of the mass was practically impossible, so that a
reasonable percentage of error should be allowed anyone making an estimate of the exact quantity in tons
found in the mass. It must not be forgotten that the contract Exhibit "A" expressly stated the amount to be
24,000 tons, more or less. (ch. Pine River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).

There was, consequently, no short-delivery in this case as would entitle appellants to the payment of
damages, nor could Gaite have been guilty of any fraud in making any misrepresentation to appellants as to
the total quantity of ore in the stockpiles of the mining claims in question, as charged by appellants, since
Gaite's estimate appears to be substantially correct.

WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs
against appellants.
 [G.R. No. 152658. July 29, 2005]

LILY ELIZABETH BRAVO-GUERRERO, BEN MAURICIO P. BRAVO,[1] ROLAND P. BRAVO,

JR., OFELIA BRAVO-QUIESTAS, HEIRS OF CORPUSINIA BRAVO-NIOR namely:
GERSON U. NIOR, MARK GERRY B. NIOR, CLIFF RICHARD B. NIOR, BRYAN B.
NIOR, WIDMARK B. NIOR, SHERRY ANNE B. NIOR, represented by LILY
ELIZABETH BRAVO-GUERRERO as their attorney-in-fact, and HONORABLE
FLORENTINO A. TUASON, JR., Presiding Judge, Regional Trial Court, Branch 139,
Makati City, petitioners, vs. EDWARD P. BRAVO, represented by his attorney-in-fact
FATIMA C. BRAVO, respondent, and DAVID B. DIAZ, JR., intervenor-respondent.

DECISION
CARPIO, J.:

The Case

Before the Court is a petition for review[2] assailing the Decision[3] of 21 December 2001 of the Court
of Appeals in CA-G.R. CV No. 67794. The Court of Appeals reversed the Decision[4] of 11 May 2000 of
the Regional Trial Court of Makati, Branch No. 139, in Civil Case No. 97-1379 denying respondents prayer
to partition the subject properties.

Antecedent Facts

Spouses Mauricio Bravo (Mauricio) and Simona[5] Andaya Bravo (Simona) owned two parcels of
land (Properties) measuring 287 and 291 square meters and located along Evangelista Street, Makati City,
Metro Manila. The Properties are registered under TCT Nos. 58999 and 59000 issued by the Register of
Deeds of Rizal on 23 May 1958. The Properties contain a large residential dwelling, a smaller house and
other improvements.
Mauricio and Simona had three children - Roland, Cesar and Lily, all surnamed Bravo. Cesar died
without issue. Lily Bravo married David Diaz, and had a son, David B. Diaz, Jr. (David Jr.). Roland had six
children, namely, Lily Elizabeth Bravo-Guerrero (Elizabeth), Edward Bravo (Edward), Roland Bravo, Jr.
(Roland Jr.), Senia Bravo, Benjamin Mauricio Bravo, and their half-sister, Ofelia Bravo (Ofelia).
Simona executed a General Power of Attorney (GPA) on 17 June 1966 appointing Mauricio as her
attorney-in-fact. In the GPA, Simona authorized Mauricio to mortgage or otherwise hypothecate, sell,
assign and dispose of any and all of my property, real, personal or mixed, of any kind whatsoever and
wheresoever situated, or any interest therein xxx.[6] Mauricio subsequently mortgaged the Properties to the
Philippine National Bank (PNB) and Development Bank of the Philippines (DBP) for P10,000 and P5,000,
respectively.[7]
On 25 October 1970, Mauricio executed a Deed of Sale with Assumption of Real Estate Mortgage
(Deed of Sale) conveying the Properties to Roland A. Bravo, Ofelia A. Bravo and Elizabeth
Bravo[8] (vendees). The sale was conditioned on the payment of P1,000 and on the assumption by the
vendees of the PNB and DBP mortgages over the Properties.
As certified by the Clerk of Court of the Regional Trial Court of Manila, the Deed of Sale was
notarized by Atty. Victorio Q. Guzman on 28 October 1970 and entered in his Notarial
Register.[9] However, the Deed of Sale was not annotated on TCT Nos. 58999 and 59000. Neither was it
presented to PNB and DBP. The mortage loans and the receipts for loan payments issued by PNB and DBP
continued to be in Mauricios name even after his death on 20 November 1973. Simona died in 1977.
On 23 June 1997, Edward, represented by his wife, Fatima Bravo, filed an action for the judicial
partition of the Properties. Edward claimed that he and the other grandchildren of Mauricio and Simona are
co-owners of the Properties by succession. Despite this, petitioners refused to share with him the possession
and rental income of the Properties. Edward later amended his complaint to include a prayer to annul the
Deed of Sale, which he claimed was merely simulated to prejudice the other heirs.
In 1999, David Jr., whose parents died in 1944 and who was subsequently raised by Simona, moved
to intervene in the case. David Jr. filed a complaint-in-intervention impugning the validity of the Deed of
Sale and praying for the partition of the Properties among the surviving heirs of Mauricio and Simona. The
trial court allowed the intervention in its Order dated 5 May 1999.[10]

The Ruling of the Trial Court

The trial court upheld Mauricios sale of the Properties to the vendees. The trial court ruled that the
sale did not prejudice the compulsory heirs, as the Properties were conveyed for valuable consideration.
The trial court also noted that the Deed of Sale was duly notarized and was in existence for many years
without question about its validity.
The dispositive portion of the trial courts Decision of 11 May 2000 reads:

WHEREFORE, premises considered, the Court hereby DENIES the JUDICIAL PARTITION of the
properties covered by TCT Nos. 58999 and 59000 registered with the Office of the Register of Deeds of
Rizal.

SO ORDERED.[11]

Dissatisfied, Edward and David Jr. (respondents) filed a joint appeal to the Court of Appeals.

The Ruling of the Court of Appeals

Citing Article 166 of the Civil Code (Article 166), the Court of Appeals declared the Deed of Sale
void for lack of Simonas consent. The appellate court held that the GPA executed by Simona in 1966 was
not sufficient to authorize Mauricio to sell the Properties because Article 1878 of the Civil Code (Article
1878) requires a special power of attorney for such transactions. The appellate court reasoned that the GPA
was executed merely to enable Mauricio to mortgage the Properties, not to sell them.
The Court of Appeals also found that there was insufficient proof that the vendees made the mortgage
payments on the Properties, since the PNB and DBP receipts were issued in Mauricios name. The appellate
court opined that the rental income of the Properties, which the vendees never shared with respondents, was
sufficient to cover the mortgage payments to PNB and DBP.
The Court of Appeals declared the Deed of Sale void and ordered the partition of the Properties in its
Decision of 21 December 2001 (CA Decision), as follows:

WHEREFORE, the decision of the Regional Trial Court of Makati City, Metro-Manila, Branch 13[9] dated
11 May 2000[,] review of which is sought in these proceedings[,] is REVERSED.

1. The Deed of Sale with Assumption of Real Estate Mortgage (Exh. 4) dated 28 October 1970
is hereby declared null and void;
 2. Judicial Partition on the questioned properties is hereby GRANTED in the following manner:

A. In representation of his deceased mother, LILY BRAVO-DIAZ, intervenor DAVID

DIAZ, JR., is entitled to one-half (1/2) interest of the subject properties;

B. Plaintiff-appellant EDWARD BRAVO and the rest of the five siblings, namely: LILY
ELIZABETH, EDWARD, ROLAND, JR., SENIA, BENJAMIN and OFELIA are
entitled to one-sixth (1/6) representing the other half portion of the subject
properties;

C. Plaintiff-appellant Edward Bravo, intervenor DAVID DIAZ, JR., SENIA and

BENJAMIN shall reimburse the defendant-appellees LILY ELIZABETH, OFELIA
and ROLAND the sum of One Thousand (P1,000.00) PESOS representing the
consideration paid on the questioned deed of sale with assumption of mortgage with
interest of six (6) percent per annum effective 28 October 1970 until fully paid.

SO ORDERED.[12]

The Issues

Petitioners seek a reversal of the Decision of the Court of Appeals, raising these issues:

1. WHETHER THE COURT OF APPEALS ERRED IN NOT UPHOLDING THE VALIDITY

AND ENFORCEMENT OF THE DEED OF SALE WITH ASSUMPTION OF MORTGAGE.

2. WHETHER THE COURT OF APPEALS ERRED IN ORDERING THE PARTITION OF THE

PROPERTY IN QUESTION.[13]

At the least, petitioners argue that the subject sale is valid as to Mauricios share in the Properties.
On the other hand, respondents maintain that they are co-owners of the Properties by succession.
Respondents argue that the sale of the conjugal Properties is void because: (1) Mauricio executed the Deed
of Sale without Simonas consent; and (2) the sale was merely simulated, as shown by the grossly
inadequate consideration Mauricio received for the Properties.
While this case was pending, Leonida Andaya Lolong (Leonida), David Jr.s aunt, and Atty. Cendaa,
respondents counsel, informed the Court that David Jr. died on 14 September 2004. Afterwards, Leonida
and Elizabeth wrote separate letters asking for the resolution of this case. Atty. Cendaa later filed an urgent
motion to annotate attorneys lien on TCT Nos. 58999 and 59000. In its Resolution dated 10 November
2004,[14] the Court noted the notice of David Jr.s death, the letters written by Leonida and Elizabeth, and
granted the motion to annotate attorneys lien on TCT Nos. 58999 and 59000.

The Ruling of the Court

The petition is partly meritorious.

The questions of whether Simona consented to the Deed of Sale and whether the subject sale was
simulated are factual in nature. The rule is factual findings of the Court of Appeals are binding on this
Court. However, there are exceptions, such as when the factual findings of the Court of Appeals and the
trial court are contradictory, or when the evidence on record does not support the factual
findings.[15] Because these exceptions obtain in the present case, the Court will consider these issues.
 On the Requirement of the Wifes Consent

We hold that the Court of Appeals erred when it declared the Deed of Sale void based on Article 166,
which states:

Art. 166. Unless the wife has been declared a non compos mentis or a spendthrift, or is under civil
interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real property of
the conjugal partnership without the wifes consent. If she refuses unreasonably to give her consent, the
court may compel her to grant the same.

This article shall not apply to property acquired by the conjugal partnerships before the effective date of
this Code.

Article 166 expressly applies only to properties acquired by the conjugal partnership after the
effectivity of the Civil Code of the Philippines (Civil Code). The Civil Code came into force on 30 August
1950.[16] Although there is no dispute that the Properties were conjugal properties of Mauricio and Simona,
the records do not show, and the parties did not stipulate, when the Properties were acquired.[17] Under
Article 1413 of the old Spanish Civil Code, the husband could alienate conjugal partnership property for
valuable consideration without the wifes consent.[18]
Even under the present Civil Code, however, the Deed of Sale is not void. It is well-settled that
contracts alienating conjugal real property without the wifes consent are merely voidable under the Civil
Code that is, binding on the parties unless annulled by a competent court and not void ab initio.[19]
Article 166 must be read in conjunction with Article 173 of the Civil Code (Article 173). The latter
prescribes certain conditions before a sale of conjugal property can be annulled for lack of the wifes
consent, as follows:

Art. 173. The wife may, during the marriage and within ten years from the transaction questioned, ask
the courts for the annulment of any contract of the husband entered into without her consent, when such
consent is required, or any act or contract of the husband which tends to defraud her or impair her interest
in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs after the
dissolution of the marriage, may demand the value of property fraudulently alienated by the husband.
(Emphasis supplied)

Under the Civil Code, only the wife can ask to annul a contract that disposes of conjugal real property
without her consent. The wife must file the action for annulment during the marriage and within ten years
from the questioned transaction. Article 173 is explicit on the remedies available if the wife fails to exercise
this right within the specified period. In such case, the wife or her heirs can only demand the value of the
property provided they prove that the husband fraudulently alienated the property. Fraud is never
presumed, but must be established by clear and convincing evidence. [20]
Respondents action to annul the Deed of Sale based on Article 166 must fail for having been filed out
of time. The marriage of Mauricio and Simona was dissolved when Mauricio died in 1973. More than ten
years have passed since the execution of the Deed of Sale.
Further, respondents, who are Simonas heirs, are not the parties who can invoke Article 166. Article
173 reserves that remedy to the wife alone. Only Simona had the right to have the sale of the Properties
annulled on the ground that Mauricio sold the Properties without her consent.
Simona, however, did not assail the Deed of Sale during her marriage or even after Mauricios death.
The records are bereft of any indication that Simona questioned the sale of the Properties at any time.
Simona did not even attempt to take possession of or reside on the Properties after Mauricios death. David
Jr., who was raised by Simona, testified that he and Simona continued to live in Pasay City after Mauricios
death, while her children and other grandchildren resided on the Properties. [21]
 We also agree with the trial court that Simona authorized Mauricio to dispose of the Properties when
she executed the GPA. True, Article 1878 requires a special power of attorney for an agent to execute a
contract that transfers the ownership of an immovable. However, the Court has clarified that Article 1878
refers to the nature of the authorization, not to its form. [22] Even if a document is titled as a general power
of attorney, the requirement of a special power of attorney is met if there is a clear mandate from the
principal specifically authorizing the performance of the act. [23]
In Veloso v. Court of Appeals,[24] the Court explained that a general power of attorney could contain a
special power to sell that satisfies the requirement of Article 1878, thus:

An examination of the records showed that the assailed power of attorney was valid and regular on its face.
It was notarized and as such, it carries the evidentiary weight conferred upon it with respect to its due
execution. While it is true that it was denominated as a general power of attorney, a perusal thereof
revealed that it stated an authority to sell, to wit:

2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands, tenements and hereditaments or
other forms of real property, more specifically TCT No. 49138, upon such terms and conditions and under
such covenants as my said attorney shall deem fit and proper.

Thus, there was no need to execute a separate and special power of attorney since the general power of
attorney had expressly authorized the agent or attorney in fact the power to sell the subject property. The
special power of attorney can be included in the general power when it is specified therein the act or
transaction for which the special power is required. (Emphasis supplied)

In this case, Simona expressly authorized Mauricio in the GPA to sell, assign and dispose of any and
all of my property, real, personal or mixed, of any kind whatsoever and wheresoever situated, or any
interest therein xxx as well as to act as my general representative and agent, with full authority to buy, sell,
negotiate and contract for me and in my behalf.[25] Taken together, these provisions constitute a clear and
specific mandate to Mauricio to sell the Properties. Even if it is called a general power of attorney, the
specific provisions in the GPA are sufficient for the purposes of Article 1878. These provisions in the GPA
likewise indicate that Simona consented to the sale of the Properties.

Whether the Sale of the Properties was Simulated

or is Void for Gross Inadequacy of Price

We point out that the law on legitime does not bar the disposition of property for valuable
consideration to descendants or compulsory heirs. In a sale, cash of equivalent value replaces the property
taken from the estate.[26] There is no diminution of the estate but merely a substitution in values. Donations
and other dispositions by gratuitous title, on the other hand, must be included in the computation of
legitimes.[27]
Respondents, however, contend that the sale of the Properties was merely simulated. As proof,
respondents point to the consideration of P1,000 in the Deed of Sale, which respondents claim is grossly
inadequate compared to the actual value of the Properties.
Simulation of contract and gross inadequacy of price are distinct legal concepts, with different effects.
When the parties to an alleged contract do not really intend to be bound by it, the contract is simulated and
void.[28] A simulated or fictitious contract has no legal effect whatsoever [29] because there is no real
agreement between the parties.
In contrast, a contract with inadequate consideration may nevertheless embody a true agreement
between the parties. A contract of sale is a consensual contract, which becomes valid and binding upon the
meeting of minds of the parties on the price and the object of the sale.[30] The concept of a simulated sale is
thus incompatible with inadequacy of price. When the parties agree on a price as the actual consideration,
the sale is not simulated despite the inadequacy of the price. [31]
Gross inadequacy of price by itself will not result in a void contract. Gross inadequacy of price does
not even affect the validity of a contract of sale, unless it signifies a defect in the consent or that the parties
actually intended a donation or some other contract. [32] Inadequacy of cause will not invalidate a contract
unless there has been fraud, mistake or undue influence. [33] In this case, respondents have not proved any of
the instances that would invalidate the Deed of Sale.
Respondents even failed to establish that the consideration paid by the vendees for the Properties was
grossly inadequate. As the trial court pointed out, the Deed of Sale stipulates that, in addition to the
payment of P1,000, the vendees should assume the mortgage loans from PNB and DBP. The consideration
for the sale of the Properties was thus P1,000 in cash and the assumption of the P15,000 mortgage.
Respondents argue that P16,000 is still far below the actual value of the Properties. To bolster their
claim, respondents presented the following: (1) Tax Declarations No. A-001-00905[34] and A-001-
00906[35] for the year 1979, which placed the assessed value of the Properties at P70,020 and their
approximate market value at P244,290; and (2) a certified copy of the Department of Finances Department
Order No. 62-97[36] dated 6 June 1997 and attached guidelines[37] which established the zonal value of the
properties along Evangelista Street at P15,000 per square meter.
The subject Deed of Sale, however, was executed in 1970. The valuation of the Properties in 1979 or
1997 is of little relevance to the issue of whether P16,000 was a grossly inadequate price to pay for the
Properties in 1970. Certainly, there is nothing surprising in the sharp increase in the value of the Properties
nine or twenty-seven years after the sale, particularly when we consider that the Properties are located in
the City of Makati.
More pertinent are Tax Declarations No. 15812 [38] and No. 15813,[39] both issued in 1967, presented
by petitioners. These tax declarations placed the assessed value of both Properties at P16,160. Compared to
this, the price of P16,000 cannot be considered grossly inadequate, much less so shocking to the
conscience[40] as to justify the setting aside of the Deed of Sale.
Respondents next contend that the vendees did not make the mortgage payments on the Properties.
Respondents allege that the rents paid by the tenants leasing portions of the Properties were sufficient to
cover the mortgage payments to DBP and PNB.
Again, this argument does not help respondents cause. Assuming that the vendees failed to pay the
full price stated in the Deed of Sale, such partial failure would not render the sale void. In Buenaventura v.
Court of Appeals,[41] the Court held:

xxx If there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the
manner of payment, or even the breach of that manner of payment. xxx

It is not the act of payment of price that determines the validity of a contract of sale. Payment of the price
has nothing to do with the perfection of the contract. Payment of the price goes into the performance of the
contract. Failure to pay the consideration is different from lack of consideration. The former results in a
right to demand the fulfillment or cancellation of the obligation under an existing valid contract while the
latter prevents the existence of a valid contract. (Emphasis supplied.)

Neither was it shown that the rentals from tenants were sufficient to cover the mortgage payments.
The parties to this case stipulated to only one tenant, a certain Federico M. Puno, who supposedly leased a
room on the Properties for P300 per month from 1992 to 1994.[42] This is hardly significant, when we
consider that the mortgage was fully paid by 1974. Indeed, the fact that the Properties were mortgaged to
DBP and PNB indicates that the conjugal partnership, or at least Mauricio, was short of funds.
Petitioners point out that they were duly employed and had the financial capacity to buy the Properties
in 1970. Respondents did not refute this. Petitioners presented 72 receipts [43] showing the mortgage
payments made to PNB and DBP, and the Release of the Real Estate Mortgage [44] (Mortgage Release)
dated 5 April 1974. True, these documents all bear Mauricios name. However, this tends to support, rather
than detract from, petitioner-vendees explanation that they initially gave the mortgage payments directly to
Mauricio, and then later directly to the banks, without formally advising the bank of the sale. The last 3
mortgage receipts and the Mortgage Release were all issued in Mauricios name even after his death in
1970. Obviously, Mauricio could not have secured the Mortgage Release and made these last payments.

Presumption of Regularity and Burden of Proof

The Deed of Sale was notarized and, as certified by the Regional Trial Court of Manila, entered in the
notarial books submitted to that court. As a document acknowledged before a notary public, the Deed of
Sale enjoys the presumption of regularity[45] and due execution.[46] Absent evidence that is clear, convincing
and more than merely preponderant, the presumption must be upheld. [47]
Respondents evidence in this case is not even preponderant. Respondents allegations, testimony and
bare denials cannot prevail over the documentary evidence presented by petitioners. These documents the
Deed of Sale and the GPA which are both notarized, the receipts, the Mortgage Release and the 1967 tax
declarations over the Properties support petitioners account of the sale.
As the parties challenging the regularity of the Deed of Sale and alleging its simulation, respondents
had the burden of proving these charges.[48] Respondents failed to discharge this burden. Consequentially,
the Deed of Sale stands.

On the Partition of the Property

Nevertheless, this Court finds it proper to grant the partition of the Properties, subject to modification.
Petitioners have consistently claimed that their father is one of the vendees who bought the Properties.
Vendees Elizabeth and Ofelia both testified that the Roland A. Bravo in the Deed of Sale is their
father,[49]although their brother, Roland Bravo, Jr., made some of the mortgage payments. Petitioners
counsel, Atty. Paggao, made the same clarification before the trial court.[50]
As Roland Bravo, Sr. is also the father of respondent Edward Bravo, Edward is thus a compulsory
heir of Roland Bravo, and entitled to a share, along with his brothers and sisters, in his fathers portion of
the Properties. In short, Edward and petitioners are co-owners of the Properties.
As such, Edward can rightfully ask for the partition of the Properties. Any co-owner may demand at
any time the partition of the common property unless a co-owner has repudiated the co-ownership.[51] This
action for partition does not prescribe and is not subject to laches.[52]
WHEREFORE, we REVERSE the Decision of 21 December 2001 of the Court of Appeals in CA-
G.R. CV No. 67794. We REINSTATE the Decision of 11 May 2000 of the Regional Trial Court of Makati,
Branch No. 139, in Civil Case No. 97-137, declaring VALID the Deed of Sale with Assumption of
Mortgage dated 28 October 1970, with the following MODIFICATIONS:
1. We GRANT judicial partition of the subject Properties in the following manner:

a. Petitioner LILY ELIZABETH BRAVO-GUERRERO is entitled to one-third (1/3) of the

Properties;

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

c. The remaining one-third (1/3) portion of the Properties should be divided equally between the
children of ROLAND BRAVO.
 2. The other heirs of ROLAND BRAVO must reimburse ROLAND BRAVO, JR. for whatever
expenses the latter incurred in paying for and securing the release of the mortgage on the
Properties.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-11491 August 23, 1918

ANDRES QUIROGA, plaintiff-appellant,

vs.
PARSONS HARDWARE CO., defendant-appellee.

Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.

Crossfield & O'Brien for appellee.

AVANCEÑA, J.:

On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and
between the plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present
defendant later subrogated itself), as party of the second part:

CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.

PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE
EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.

ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands
to J. Parsons under the following conditions:

(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment
in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila, and, in the
invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as
commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or
of different styles.

(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty
days from the date of their shipment.

(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight,
insurance, and cost of unloading from the vessel at the point where the beds are received, shall be
paid by Mr. Parsons.
 (D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when
made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be
made from the amount of the invoice.

The same discount shall be made on the amount of any invoice which Mr. Parsons may deem
convenient to pay in cash.

(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in
price which he may plan to make in respect to his beds, and agrees that if on the date when such
alteration takes effect he should have any order pending to be served to Mr. Parsons, such order
shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected
by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the
obligation to invoice the beds at the price at which the order was given.

(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.

ART. 2. In compensation for the expenses of advertisement which, for the benefit of both
contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the
obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the
exclusive agency for any island not comprised with the Visayan group.

ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds
in all the towns of the Archipelago where there are no exclusive agents, and shall immediately
report such action to Mr. Quiroga for his approval.

ART. 4. This contract is made for an unlimited period, and may be terminated by either of the
contracting parties on a previous notice of ninety days to the other party.

Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the
subject matter of this appeal and both substantially amount to the averment that the defendant violated the
following obligations: not to sell the beds at higher prices than those of the invoices; to have an open
establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for
the advertisement expenses for the same; and to order the beds by the dozen and in no other manner. As
may be seen, with the exception of the obligation on the part of the defendant to order the beds by the
dozen and in no other manner, none of the obligations imputed to the defendant in the two causes of action
are expressly set forth in the contract. But the plaintiff alleged that the defendant was his agent for the sale
of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency. The whole
question, therefore, reduced itself to a determination as to whether the defendant, by reason of the contract
hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.

In order to classify a contract, due regard must be given to its essential clauses. In the contract in question,
what was essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the
defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to
pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for
the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class.
Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or in cash, if the
defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt
payment. These are precisely the essential features of a contract of purchase and sale. There was the
obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price.
These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent
received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from
the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the
contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to
pay their price within the term fixed, without any other consideration and regardless as to whether he had or
had not sold the beds.

It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one
of purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as
the plaintiff claims it was, for these contracts are incompatible with each other. But, besides, examining the
clauses of this contract, none of them is found that substantially supports the plaintiff's contention. Not a
single one of these clauses necessarily conveys the idea of an agency. The words commission on sales used
in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the
invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the
only one that could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the
least that can be said is that they are not incompatible with the contract of purchase and sale.

The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant
corporation and who established and managed the latter's business in Iloilo. It appears that this witness,
prior to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit against
it, and had even accused one of its partners, Guillermo Parsons, of falsification. He testified that it was he
who drafted the contract Exhibit A, and, when questioned as to what was his purpose in contracting with
the plaintiff, replied that it was to be an agent for his beds and to collect a commission on sales. However,
according to the defendant's evidence, it was Mariano Lopez Santos, a director of the corporation, who
prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the truth, his statement as to what
was his idea in contracting with the plaintiff is of no importance, inasmuch as the agreements contained in
Exhibit A which he claims to have drafted, constitute, as we have said, a contract of purchase and sale, and
not one of commercial agency. This only means that Ernesto Vidal was mistaken in his classification of the
contract. But it must be understood that a contract is what the law defines it to be, and not what it is called
by the contracting parties.

The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that,
without previous notice, it forwarded to the defendant the beds that it wanted; and that the defendant
received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But all this, at the
most only shows that, on the part of both of them, there was mutual tolerance in the performance of the
contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties
stipulated it, but as they performed it. Only the acts of the contracting parties, subsequent to, and in
connection with, the execution of the contract, must be considered for the purpose of interpreting the
contract, when such interpretation is necessary, but not when, as in the instant case, its essential agreements
are clearly set forth and plainly show that the contract belongs to a certain kind and not to another.
Furthermore, the return made was of certain brass beds, and was not effected in exchange for the price paid
for them, but was for other beds of another kind; and for the letter Exhibit L-1, requested the plaintiff's
prior consent with respect to said beds, which shows that it was not considered that the defendant had a
right, by virtue of the contract, to make this return. As regards the shipment of beds without previous
notice, it is insinuated in the record that these brass beds were precisely the ones so shipped, and that, for
this very reason, the plaintiff agreed to their return. And with respect to the so-called commissions, we have
said that they merely constituted a discount on the invoice price, and the reason for applying this benefit to
the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant obligated itself in
the contract to incur the expenses of advertisement of the plaintiff's beds, such sales were to be considered
as a result of that advertisement.

In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the
contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant
might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot
complain for having acted thus at his own free will.

For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the
defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a cause
of action are not imposed upon the defendant, either by agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant. So ordered.

Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 179965 February 20, 2013

NICOLAS P. DIEGO, Petitioner,

vs.
RODOLFO P. DIEGO and EDUARDO P. DIEGO, Respondents.

DECISION

DEL CASTILLO, J.:

It is settled jurisprudence, to the point of being elementary, that an agreement which stipulates that the
seller shall execute a deed of sale only upon or after tl1ll payment of the purchase price is a contract to
sell, not a contract of sale. In Reyes v. Tuparan, 1 this Court declared in categorical terms that "[w]here 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."

In this case, it is not disputed as in tact both parties agreed that the deed of sale shall only be executed upon
payment of the remaining balance of the purchase price. Thus, pursuant to the above stated jurisprudence,
we similarly declare that the transaction entered into by the parties is a contract to sell.

Before us is a Petition for Review on Certiorari2 questioning the June 29, 2007 Decision3 and the October
3, 2007 Resolution4 of the Court of Appeals (CA) in CA-G.R. CV No. 86512, which affirmed the April 19,
2005 Decision5 of the Regional Trial Court (RTC), Branch 40, of Dagupan City in Civil Case No. 99-
02971-D.

Factual Antecedents

In 1993, petitioner Nicolas P. Diego (Nicolas) and his brother Rodolfo, respondent herein, entered into an
oral contract to sell covering Nicolas’s share, fixed at ₱500,000.00, as co-owner of the family’s Diego
Building situated in Dagupan City. Rodolfo made a downpayment of ₱250,000.00. It was agreed that the
deed of sale shall be executed upon payment of the remaining balance of ₱250,000.00. However, Rodolfo
failed to pay the remaining balance.

Meanwhile, the building was leased out to third parties, but Nicolas’s share in the rents were not remitted to
him by herein respondent Eduardo, another brother of Nicolas and designated administrator of the Diego
Building. Instead, Eduardo gave Nicolas’s monthly share in the rents to Rodolfo. Despite demands and
protestations by Nicolas, Rodolfo and Eduardo failed to render an accounting and remit his share in the
rents and fruits of the building, and Eduardo continued to hand them over to Rodolfo.
Thus, on May 17, 1999, Nicolas filed a Complaint6 against Rodolfo and Eduardo before the RTC of
Dagupan City and docketed as Civil Case No. 99-02971-D. Nicolas prayed that Eduardo be ordered to
render an accounting of all the transactions over the Diego Building; that Eduardo and Rodolfo be ordered
to deliver to Nicolas his share in the rents; and that Eduardo and Rodolfo be held solidarily liable for
attorney’s fees and litigation expenses.

Rodolfo and Eduardo filed their Answer with Counterclaim7 for damages and attorney’s fees. They argued
that Nicolas had no more claim in the rents in the Diego Building since he had already sold his share to
Rodolfo. Rodolfo admitted having remitted only ₱250,000.00 to Nicolas. He asserted that he would pay the
balance of the purchase price to Nicolas only after the latter shall have executed a deed of absolute sale.

Ruling of the Regional Trial Court

After trial on the merits, or on April 19, 2005, the trial court rendered its Decision 8 dismissing Civil Case
No. 99-02971-D for lack of merit and ordering Nicolas to execute a deed of absolute sale in favor of
Rodolfo upon payment by the latter of the ₱250,000.00 balance of the agreed purchase price. It made the
following interesting pronouncement:

It is undisputed that plaintiff (Nicolas) is one of the co-owners of the Diego Building, x x x. As a co-owner,
he is entitled to [his] share in the rentals of the said building. However, plaintiff [had] already sold his share
to defendant Rodolfo Diego in the amount of ₱500,000.00 and in fact, [had] already received a partial
payment in the purchase price in the amount of ₱250,000.00. Defendant Eduardo Diego testified that as
per agreement, verbal, of the plaintiff and defendant Rodolfo Diego, the remaining balance of
₱250,000.00 will be paid upon the execution of the Deed of Absolute Sale. It was in the year 1997 when
plaintiff was being required by defendant Eduardo Diego to sign the Deed of Absolute Sale. Clearly,
defendant Rodolfo Diego was not yet in default as the plaintiff claims which cause [sic] him to refuse to
sign [sic] document. The contract of sale was already perfected as early as the year 1993 when plaintiff
received the partial payment, hence, he cannot unilaterally revoke or rescind the same. From then on,
plaintiff has, therefore, ceased to be a co-owner of the building and is no longer entitled to the fruits of the
Diego Building.

Equity and fairness dictate that defendant [sic] has to execute the necessary document regarding the sale of
his share to defendant Rodolfo Diego. Correspondingly, defendant Rodolfo Diego has to perform his
obligation as per their verbal agreement by paying the remaining balance of ₱250,000.00. 9

To summarize, the trial court ruled that as early as 1993, Nicolas was no longer entitled to the fruits of his
aliquot share in the Diego Building because he had "ceased to be a co-owner" thereof. The trial court held
that when Nicolas received the ₱250,000.00 downpayment, a "contract of sale" was perfected.
Consequently, Nicolas is obligated to convey such share to Rodolfo, without right of rescission. Finally, the
trial court held that the ₱250,000.00 balance from Rodolfo will only be due and demandable when Nicolas
executes an absolute deed of sale.

Ruling of the Court of Appeals

Nicolas appealed to the CA which sustained the trial court’s Decision in toto. The CA held that since there
was a perfected contract of sale between Nicolas and Rodolfo, the latter may compel the former to execute
the proper sale document. Besides, Nicolas’s insistence that he has since rescinded their agreement in 1997
proved the existence of a perfected sale. It added that Nicolas could not validly rescind the contract
because: "1) Rodolfo ha[d] already made a partial payment; 2) Nicolas ha[d] already partially performed
his part regarding the contract; and 3) Rodolfo opposes the rescission." 10

The CA then proceeded to rule that since no period was stipulated within which Rodolfo shall deliver the
balance of the purchase price, it was incumbent upon Nicolas to have filed a civil case to fix the same. But
because he failed to do so, Rodolfo cannot be considered to be in delay or default.
Finally, the CA made another interesting pronouncement, that by virtue of the agreement Nicolas entered
into with Rodolfo, he had already transferred his ownership over the subject property and as a consequence,
Rodolfo is legally entitled to collect the fruits thereof in the form of rentals. Nicolas’ remaining right is to
demand payment of the balance of the purchase price, provided that he first executes a deed of absolute sale
in favor of Rodolfo.

Nicolas moved for reconsideration but the same was denied by the CA in its Resolution dated October 3,
2007.

Hence, this Petition.

Issues

The Petition raises the following errors that must be rectified:

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THERE WAS NO
PERFECTED CONTRACT OF SALE BETWEEN PETITIONER NICOLAS DIEGO AND
RESPONDENT RODOLFO DIEGO OVER NICOLAS’S SHARE OF THE BUILDING BECAUSE THE
SUSPENSIVE CONDITION HAS NOT YET BEEN FULFILLED.

II

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE CONTRACT OF SALE
BETWEEN PETITIONER AND RESPONDENT RODOLFO DIEGO REMAINS LEGALLY BINDING
AND IS NOT RESCINDED GIVING MISPLACED RELIANCE ON PETITIONER NICOLAS’
STATEMENT THAT THE SALE HAS NOT YET BEEN REVOKED.

III

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONER

NICOLAS DIEGO ACTED LEGALLY AND CORRECTLY WHEN HE UNILATERALLY
RESCINDED AND REVOKED HIS AGREEMENT OF SALE WITH RESPONDENT RODOLFO
DIEGO CONSIDERING RODOLFO’S MATERIAL, SUBSTANTIAL BREACH OF THE CONTRACT.

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS NO

MORE RIGHTS OVER HIS SHARE IN THE BUILDING, DESPITE THE FACT THAT THERE WAS
AS YET NO PERFECTED CONTRACT OF SALE BETWEEN PETITIONER NICOLAS DIEGO AND
RODOLFO DIEGO AND THERE WAS YET NO TRANSFER OF OWNERSHIP OF PETITIONER’S
SHARE TO RODOLFO DUE TO THE NON-FULFILLMENT BY RODOLFO OF THE SUSPENSIVE
CONDITION UNDER THE CONTRACT.

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT

RODOLFO HAS UNJUSTLY ENRICHED HIMSELF AT THE EXPENSE OF PETITIONER BECAUSE
DESPITE NOT HAVING PAID THE BALANCE OF THE PURCHASE PRICE OF THE SALE, THAT
RODOLFO HAS NOT YET ACQUIRED OWNERSHIP OVER THE SHARE OF PETITIONER
NICOLAS, HE HAS ALREADY BEEN APPROPRIATING FOR HIMSELF AND FOR HIS PERSONAL
BENEFIT THE SHARE OF THE INCOME OF THE BUILDING AND THE PORTION OF THE
BUILDING ITSELF WHICH WAS DUE TO AND OWNED BY PETITIONER NICOLAS.

VI

THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ACTUAL DAMAGES,

ATTORNEY’S FEES AND LITIGATION EXPENSES TO THE PETITIONER DESPITE THE FACT
THAT PETITIONER’S RIGHTS HAD BEEN WANTONLY VIOLATED BY THE RESPONDENTS.11

Petitioner’s Arguments

In his Petition, the Supplement12 thereon, and Reply,13 Nicolas argues that, contrary to what the CA found,
there was no perfected contract of sale even though Rodolfo had partially paid the price; that in the absence
of the third element in a sale contract – the price – there could be no perfected sale; that failing to pay the
required price in full, Nicolas had the right to rescind the agreement as an unpaid seller.

Nicolas likewise takes exception to the CA finding that Rodolfo was not in default or delay in the payment
of the agreed balance for his (Nicolas’s) failure to file a case to fix the period within which payment of the
balance should be made. He believes that Rodolfo’s failure to pay within a reasonable time was a
substantial and material breach of the agreement which gave him the right to unilaterally and extrajudicially
rescind the agreement and be discharged of his obligations as seller; and that his repeated written demands
upon Rodolfo to pay the balance granted him such rights.

Nicolas further claims that based on his agreement with Rodolfo, there was to be no transfer of title over
his share in the building until Rodolfo has effected full payment of the purchase price, thus, giving no right
to the latter to collect his share in the rentals.

Finally, Nicolas bewails the CA’s failure to award damages, attorney’s fees and litigation expenses for
what he believes is a case of unjust enrichment at his expense.

Respondents’ Arguments

Apart from echoing the RTC and CA pronouncements, respondents accuse the petitioner of "cheating"
them, claiming that after the latter received the ₱250,000.00 downpayment, he "vanished like thin air and
hibernated in the USA, he being an American citizen,"14 only to come back claiming that the said amount
was a mere loan.

They add that the Petition is a mere rehash and reiteration of the petitioner’s arguments below, which are
deemed to have been sufficiently passed upon and debunked by the appellate court.

Our Ruling

The Court finds merit in the Petition.

The contract entered into by Nicolas and Rodolfo was a contract to sell.

a) 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. 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.

This stipulation, i.e., to execute a deed of absolute sale upon full payment of the purchase price, is a unique
and distinguishing characteristic of a contract to sell. In Reyes v. Tuparan,15 this Court ruled that a
stipulation in the contract, "[w]here 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. According to this Court, this particular provision is tantamount to a reservation of ownership on the
part of the vendor. Explicitly stated, the Court ruled that the agreement to execute a deed of sale upon full
payment of the purchase price "shows that the vendors reserved title to the subject property until full
payment of the purchase price."16

In Tan v. Benolirao,17 this Court, speaking through Justice Brion, ruled that the parties entered into
a contract to sell as revealed by the following stipulation:

d) That in case, BUYER has complied with the terms and conditions of this contract, then the SELLERS
shall execute and deliver to the BUYER the appropriate Deed of Absolute Sale; 18

The Court further held that "[j]urisprudence has established that where the seller promises to execute a
deed of absolute sale upon the completion by the buyer of the payment of the price, the contract is
only a contract to sell."19

b) 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 San Lorenzo Development Corporation v. Court of Appeals,20 the facts show that spouses Miguel and
Pacita Lu (Lu) sold a certain parcel of land to Pablo Babasanta (Pablo). After several payments, Pablo
wrote Lu demanding "the execution of a final deed of sale in his favor so that he could effect full payment
of the purchase price."21 To prove his allegation that there was a perfected contract of sale between him and
Lu, Pablo presented a receipt signed by Lu acknowledging receipt of ₱50,000.00 as partial payment. 22

However, when the case reached this Court, it was ruled that the transaction entered into by Pablo and Lu
was only a contract to sell, not a contract of sale. The Court held thus:

The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos
(₱50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna.
While there is no stipulation that the seller reserves the ownership of the property until full payment of the
price which is a distinguishing feature of a contract to sell, the subsequent acts of the parties convince us
that the Spouses Lu never intended to transfer ownership to Babasanta except upon full payment of
the purchase price.

Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that despite his repeated requests
for the execution of the final deed of sale in his favor so that he could effect full payment of the price,
Pacita Lu allegedly refused to do so. In effect, Babasanta himself recognized that ownership of the
property would not be transferred to him until such time as he shall have effected full payment of the
price. Moreover, had the sellers intended to transfer title, they could have easily executed the
document of sale in its required form simultaneously with their acceptance of the partial payment,
but they did not. Doubtlessly, the receipt signed by Pacita Lu should legally be considered as a
perfected contract to sell.23

In the instant case, records show that Nicolas signed a mere receipt24 acknowledging partial payment of
₱250,000.00 from Rodolfo. It states:
 July 8, 1993

Received the amount of [₱250,000.00] for 1 share of Diego Building as partial payment for Nicolas Diego.

(signed)
Nicolas Diego25

As we ruled in San Lorenzo Development Corporation v. Court of Appeals,26 the parties could have
executed a document of sale upon receipt of the partial payment but they did not. This is thus an indication
that Nicolas did not intend to immediately transfer title over his share but only upon full payment of the
purchase price. Having thus reserved title over the property, the contract entered into by Nicolas is a
contract to sell. In addition, Eduardo admitted that he and Rodolfo repeatedly asked Nicolas to sign the
deed of sale27 but the latter refused because he was not yet paid the full amount. As we have ruled in San
Lorenzo Development Corporation v. Court of Appeals,28the fact that Eduardo and Rodolfo asked Nicolas
to execute a deed of sale is a clear recognition on their part that the ownership over the property still
remains with Nicolas. In fine, the totality of the parties’ acts convinces us that Nicolas never intended to
transfer the ownership over his share in the Diego Building until the full payment of the purchase price.
Without doubt, the transaction agreed upon by the parties was a contract to sell, not of sale.

In Chua v. Court of Appeals,29 the parties reached an impasse when the seller wanted to be first paid the
consideration before a new transfer certificate of title (TCT) is issued in the name of the buyer. Contrarily,
the buyer wanted to secure a new TCT in his name before paying the full amount. Their agreement was
embodied in a receipt containing the following terms: "(1) the balance of ₱10,215,000.00 is payable on or
before 15 July 1989; (2) the capital gains tax is for the account of x x x; and (3) if [the buyer] fails to pay
the balance x x x the [seller] has the right to forfeit the earnest money x x x." 30 The case eventually reached
this Court. In resolving the impasse, the Court, speaking through Justice Carpio, held that "[a] perusal of
the Receipt shows that the true agreement between the parties was a contract to sell." 31 The Court noted that
"the agreement x x x was embodied in a receipt rather than in a deed of sale, ownership not having passed
between them."32 The Court thus concluded that "[t]he 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."33 Thus, the "true agreement between the parties was a
contract to sell."34

In the instant case, the parties were similarly embroiled in an impasse. The parties’ agreement was likewise
embodied only in a receipt. Also, Nicolas did not want to sign the deed of sale unless he is fully paid. On
the other hand, Rodolfo did not want to pay unless a deed of sale is duly executed in his favor. We thus say,
pursuant to our ruling in Chua v. Court of Appeals35 that the agreement between Nicolas and Rodolfo is a
contract to sell.

This Court cannot subscribe to the appellate court’s view that Nicolas should first execute a deed of
absolute sale in favor of Rodolfo, before the latter can be compelled to pay the balance of the price. This is
patently ridiculous, and goes against every rule in the book. This pronouncement virtually places the
prospective seller in a contract to sell at the mercy of the prospective buyer, and sustaining this point of
view would place all contracts to sell in jeopardy of being rendered ineffective by the act of the prospective
buyers, who naturally would demand that the deeds of absolute sale be first executed before they pay the
balance of the price. Surely, no prospective seller would accommodate.

In fine, "the need to execute a deed of absolute sale upon completion of payment of the price
generally indicates that it is a contract to sell, as it implies the reservation of title in the vendor until
the vendee has completed the payment of the price."36 In addition, "[a] stipulation reserving ownership
in the vendor until full payment of the price is x x x typical in a contract to sell." 37 Thus, contrary to the
pronouncements of the trial and appellate courts, the parties to this case only entered into a contract to sell;
as such title cannot legally pass to Rodolfo until he makes full payment of the agreed purchase price.
c) Nicolas did not surrender or deliver title or possession to Rodolfo.

Moreover, there could not even be a surrender or delivery of title or possession to the prospective buyer
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.

Significantly, when Eduardo testified, he claimed to be knowledgeable about the terms and conditions of
the transaction between Nicolas and Rodolfo. However, aside from stating that out of the total
consideration of ₱500,000.00, the amount of ₱250,000.00 had already been paid while the remaining
₱250,000.00 would be paid after the execution of the Deed of Sale, he never testified that there was a
stipulation as regards delivery of title or possession.38

It is also quite understandable why Nicolas belatedly demanded the payment of the rentals. Records show
that the structural integrity of the Diego Building was severely compromised when an earthquake struck
Dagupan City in 1990.39 In order to rehabilitate the building, the co-owners obtained a loan from a
bank.40 Starting May 1994, the property was leased to third parties and the rentals received were used to
pay off the loan.41 It was only in 1996, or after payment of the loan that the co-owners started receiving
their share in the rentals.42 During this time, Nicolas was in the USA but immediately upon his return, he
demanded for the payment of his share in the rentals which Eduardo remitted to Rodolfo. Failing which, he
filed the instant Complaint. To us, this bolsters our findings that Nicolas did not intend to immediately
transfer title over the property.

It must be stressed that it is anathema in a contract to sell that the prospective seller should deliver title to
the property to the prospective buyer pending the latter’s payment of the price in full. It certainly is absurd
to assume that in the absence of stipulation, a buyer under a contract to sell is granted ownership of the
property even when he has not paid the seller in full. If this were the case, then prospective sellers in a
contract to sell would in all likelihood not be paid the balance of the price.

This ponente has had occasion to rule that "[a] contract to sell is one where the prospective seller reserves
the transfer of title to the prospective buyer until the happening of an event, such as full payment of the
purchase price. What the seller obliges himself to do is to sell the subject property only when the entire
amount of the purchase price has already been delivered to him. ‘In other words, the full payment of the
purchase price partakes of a suspensive condition, the nonfulfillment 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.’ It does not, by itself, transfer ownership to the buyer." 43

The contract to sell is terminated or cancelled.

Having established that the transaction was a contract to sell, what happens now to the parties’ agreement?

The remedy of rescission is not available in contracts to sell.44 As explained in Spouses Santos v. Court of
Appeals:45

In view of our finding in the present case that the agreement between the parties is a contract to sell, it
follows that the appellate court erred when it decreed that a judicial rescission of said agreement was
necessary. This is because there was no rescission to speak of in the first place. As we earlier pointed out,
in a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase
price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive
condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that
prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is entirely
different from the situation in a contract of sale, where non-payment of the price is a negative resolutory
condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the
thing sold and cannot recover it, unless the contract of sale is rescinded and set aside. In a contract to sell,
however, the vendor remains the owner for as long as the vendee has not complied fully with the condition
of paying the purchase price. If the vendor should eject the vendee for failure to meet the condition
precedent, he is enforcing the contract and not rescinding it. When the petitioners in the instant case
repossessed the disputed house and lot for failure of private respondents to pay the purchase price in full,
they were merely enforcing the contract and not rescinding it. As petitioners correctly point out, the Court
of Appeals erred when it ruled that petitioners should have judicially rescinded the contract pursuant to
Articles 1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of the purchase price as a
resolutory condition. It does not apply to a contract to sell. As to Article 1191, it is subordinated to the
provisions of Article 1592 when applied to sales of immovable property. Neither provision is applicable in
the present case.46

Similarly, we held in Chua v. Court of Appeals47 that "Article 1592 of the Civil Code permits the buyer to
pay, even after the expiration of the period, as long as no demand for rescission of the contract has been
made upon him either judicially or by notarial act. However, Article 1592 does not apply to a contract to
sell where the seller reserves the ownership until full payment of the price," 48 as in this case.1âwphi1

Applying the above jurisprudence, we hold that when Rodolfo failed to fully pay the purchase price, the
contract to sell was deemed terminated or cancelled.49 As we have held in Chua v. Court of
Appeals,50 "[s]ince the agreement x x x is a mere contract to sell, the full payment of the purchase price
partakes of a suspensive condition. The non-fulfillment of the condition prevents the obligation to sell
from arising and ownership is retained by the seller without further remedies by the buyer."
Similarly, we held in Reyes v. Tuparan51 that "petitioner’s obligation to sell the subject properties becomes
demandable only upon the happening of the positive suspensive condition, which is the respondent’s full
payment of the purchase price. Without respondent’s full payment, there can be no breach of contract
to speak of because petitioner has no obligation yet to turn over the title. Respondent’s failure to pay in
full the purchase price in full 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
respondent." Otherwise stated, Rodolfo has no right to compel Nicolas to transfer ownership to him
because he failed to pay in full the purchase price. Correlatively, Nicolas has no obligation to transfer his
ownership over his share in the Diego Building to Rodolfo. 52

Thus, it was erroneous for the CA to rule that Nicolas should have filed a case to fix the period for
Rodolfo’s payment of the balance of the purchase price. It was not Nicolas’s obligation to compel Rodolfo
to pay the balance; it was Rodolfo’s duty to remit it.

It would appear that after Nicolas refused to sign the deed as there was yet no full payment, Rodolfo and
Eduardo hired the services of the Daroya Accounting Office "for the purpose of estimating the amount to
which [Nicolas] still owes [Rodolfo] as a consequence of the unconsummated verbal agreement regarding
the former’s share in the co-ownership of [Diego Building] in favor of the latter." 53 According to the
accountant’s report, after Nicolas revoked his agreement with Rodolfo due to non-payment, the
downpayment of ₱250,000.00 was considered a loan of Nicolas from Rodolfo. 54 The accountant opined
that the ₱250,000.00 should earn interest at 18%.55 Nicolas however objected as regards the imposition of
interest as it was not previously agreed upon. Notably, the contents of the accountant’s report were not
disputed or rebutted by the respondents. In fact, it was stated therein that "[a]ll the bases and assumptions
made particularly in the fixing of the applicable rate of interest have been discussed with [Eduardo]." 56

We find it irrelevant and immaterial that Nicolas described the termination or cancellation of his agreement
with Rodolfo as one of rescission. Being a layman, he is understandably not adept in legal terms and their
implications. Besides, this Court should not be held captive or bound by the conclusion reached by the
parties. The proper characterization of an action should be based on what the law says it to be, not by what
a party believed it to be. "A contract is what the law defines it to be x x x and not what the contracting
parties call it."57
On the other hand, the respondents’ additional submission – that Nicolas cheated them by "vanishing and
hibernating" in the USA after receiving Rodolfo’s ₱250,000.00 downpayment, only to come back later and
claim that the amount he received was a mere loan – cannot be believed. How the respondents could have
been cheated or disadvantaged by Nicolas’s leaving is beyond comprehension. If there was anybody who
benefited from Nicolas’s perceived "hibernation", it was the respondents, for they certainly had free rein
over Nicolas’s interest in the Diego Building. Rodolfo put off payment of the balance of the price, yet, with
the aid of Eduardo, collected and appropriated for himself the rents which belonged to Nicolas.

Eduardo is solidarily liable with Rodolfo as regards the share of Nicolas in the rents.

For his complicity, bad faith and abuse of authority as the Diego Building administrator, Eduardo must be
held solidarily liable with Rodolfo for all that Nicolas should be entitled to from 1993 up to the present, or
in respect of actual damages suffered in relation to his interest in the Diego Building. Eduardo was the
primary cause of Nicolas’s loss, being directly responsible for making and causing the wrongful payments
to Rodolfo, who received them under obligation to return them to Nicolas, the true recipient.1âwphi1 As
such, Eduardo should be principally responsible to Nicolas as well. Suffice it to state that every person
must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith; and every person who, contrary to law, wilfully or negligently
causes damage to another, shall indemnify the latter for the same. 58

Attorney’s fees and other costs.

"Although attorney’s fees are not allowed in the absence of stipulation, the court can award the same when
the defendant’s act or omission has compelled the plaintiff to incur expenses to protect his interest or where
the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and
demandable claim."59 In the instant case, it is beyond cavil that petitioner was constrained to file the instant
case to protect his interest because of respondents’ unreasonable and unjustified refusal to render an
accounting and to remit to the petitioner his rightful share in rents and fruits in the Diego Building. Thus,
we deem it proper to award to petitioner attorney’s fees in the amount of ₱50,000.00, 60 as well as litigation
expenses in the amount of ₱20,000.00 and the sum of ₱1,000.00 for each court appearance by his lawyer or
lawyers, as prayed for.

WHEREFORE, premises considered, the Petition is GRANTED. The June 29, 2007 Decision and
October 3, 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 86512, and the April 19, 2005
Decision of the Dagupan City Regional Trial Court, Branch 40 in Civil Case No. 99-02971-D, are
hereby ANNULLED and SET ASIDE.

The Court further decrees the following:

1. The oral contract to sell between petitioner Nicolas P. Diego and respondent Rodolfo P. Diego
is DECLARED terminated/cancelled;

2. Respondents Rodolfo P. Diego and Eduardo P. Diego are ORDERED to surrender possession
and control, as the case may be, of Nicolas P. Diego’s share in the Diego Building. Respondents
are further commanded to return or surrender to the petitioner the documents of title, receipts,
papers, contracts, and all other documents in any form or manner pertaining to the latter’s share in
the building, which are deemed to be in their unauthorized and illegal possession;

3. Respondents Rodolfo P. Diego and Eduardo P. Diego are ORDERED to immediately render an
accounting of all the transactions, from the period beginning 1993 up to the present, pertaining to
Nicolas P. Diego’s share in the Diego Building, and thereafter commanded to jointly and severally
remit to the petitioner all rents, monies, payments and benefits of whatever kind or nature
pertaining thereto, which are hereby deemed received by them during the said period, and made to
 them or are due, demandable and forthcoming during the said period and from the date of this
Decision, with legal interest from the filing of the Complaint;

4. Respondents Rodolfo P. Diego and Eduardo P. Diego are ORDERED, immediately and
without further delay upon receipt of this Decision, to solidarily pay the petitioner attorney’s fees
in the amount of ₱50,000.00; litigation expenses in the amount of ₱20,000.00 and the sum of
₱1,000.00 per counsel for each court appearance by his lawyer or lawyers;

5. The payment of ₱250,000.00 made by respondent Rodolfo P. Diego, with legal interest from the
filing of the Complaint, shall be APPLIED, by way of compensation, to his liabilities to the
petitioner and to answer for all damages and other awards and interests which are owing to the
latter under this Decision; and

6. Respondents’ counterclaim is DISMISSED.

SO ORDERED.
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 RBJBuilding 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 sale is 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 payment of the mortgage obligation of the First Party in order to reduce
the amount to ₱2,000,000.00 only as of November 15, 1990;

b) ₱721,921.87 received in cash by the First Party as additional payment of the

Second Party;

c) ₱1,200,000.00 to be paid in installments as follows:

1. ₱200,000.00 payable on or before January 31, 1991;

2. ₱200,000.00 payable on or before June 30, 1991;
3. ₱800,000.00 payable on or before December 31, 1991;

Note: All the installments shall not bear any interest.

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

of November 15, 1990 which is hereby assumed by the Second Party.

xxx
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 15, 1990.[12]

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
Finally, the Court upholds the ruling of the courts below regarding the non-imposition of damages
and attorneys fees. Aside from petitioners self-serving statements, there is not enough evidence on 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:

Respondents are not entitled to moral damages because contracts are not
referred to in Article 2219 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 defendant acted fraudulently or in bad faith.
However, this case involves a contract to sell, wherein full payment of the purchase price
is a positive suspensive condition, the non-fulfillment 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 to
moral damages.

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 mentioned.

WHEREFORE, the petition is DENIED.

SO ORDERED.
G.R. No. 170405 February 2, 2010

RAYMUNDO S. DE LEON, Petitioner,

vs.
BENITA T. ONG.1 Respondent.

DECISION

CORONA, J.:

On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land2 with improvements
situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties were mortgaged to Real
Savings and Loan Association, Incorporated (RSLAI), petitioner and respondent executed a notarized deed
of absolute sale with assumption of mortgage3 stating:

xxx xxx xxx

That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND PESOS (₱1.1
million), Philippine currency, the receipt whereof is hereby acknowledged from [RESPONDENT] to the
entire satisfaction of [PETITIONER], said [PETITIONER] does hereby sell, transfer and convey in a
manner absolute and irrevocable, unto said [RESPONDENT], his heirs and assigns that certain real
estate together with the buildings and other improvements existing thereon, situated in [Barrio] Mayamot,
Antipolo, Rizal under the following terms and conditions:

1. That upon full payment of [respondent] of the amount of FOUR HUNDRED FIFTEEN
THOUSAND FIVE HUNDRED (₱415,000), [petitioner] shall execute and sign a deed of
assumption of mortgage in favor of [respondent] without any further cost whatsoever;

2. That [respondent] shall assume payment of the outstanding loan of SIX HUNDRED EIGHTY
FOUR THOUSAND FIVE HUNDRED PESOS (₱684,500) with REAL SAVINGS AND
LOAN,4 Cainta, Rizal… (emphasis supplied)

xxx xxx xxx

Pursuant to this deed, respondent gave petitioner ₱415,500 as partial payment. Petitioner, on the other
hand, handed the keys to the properties and wrote a letter informing RSLAI of the sale and authorizing it to
accept payment from respondent and release the certificates of title.

Thereafter, respondent undertook repairs and made improvements on the properties. 5 Respondent likewise
informed RSLAI of her agreement with petitioner for her to assume petitioner’s outstanding loan. RSLAI
required her to undergo credit investigation.

Subsequently, respondent learned that petitioner again sold the same properties to one Leona Viloria after
March 10, 1993 and changed the locks, rendering the keys he gave her useless. Respondent thus proceeded
to RSLAI to inquire about the credit investigation. However, she was informed that petitioner had already
paid the amount due and had taken back the certificates of title.

Respondent persistently contacted petitioner but her efforts proved futile.

On June 18, 1993, respondent filed a complaint for specific performance, declaration of nullity of the
second sale and damages6 against petitioner and Viloria in the Regional Trial Court (RTC) of Antipolo,
Rizal, Branch 74. She claimed that since petitioner had previously sold the properties to her on March 10,
1993, he no longer had the right to sell the same to Viloria. Thus, petitioner fraudulently deprived her of the
properties.

Petitioner, on the other hand, insisted that respondent did not have a cause of action against him and
consequently prayed for the dismissal of the complaint. He claimed that since the transaction was subject to
a condition (i.e., that RSLAI approve the assumption of mortgage), they only entered into a contract to sell.
Inasmuch as respondent did apply for a loan from RSLAI, the condition did not arise. Consequently, the
sale was not perfected and he could freely dispose of the properties. Furthermore, he made a counter-claim
for damages as respondent filed the complaint allegedly with gross and evident bad faith.

Because respondent was a licensed real estate broker, the RTC concluded that she knew that the validity of
the sale was subject to a condition. The perfection of a contract of sale depended on RSLAI’s approval of
the assumption of mortgage. Since RSLAI did not allow respondent to assume petitioner’s obligation, the
RTC held that the sale was never perfected.

In a decision dated August 27, 1999,7 the RTC dismissed the complaint for lack of cause of action and
ordered respondent to pay petitioner ₱100,000 moral damages, ₱20,000 attorney’s fees and the cost of suit.

Aggrieved, respondent appealed to the Court of Appeals (CA),8 asserting that the court a quo erred in
dismissing the complaint.

The CA found that the March 10, 2003 contract executed by the parties did not impose any condition on the
sale and held that the parties entered into a contract of sale. Consequently, because petitioner no longer
owned the properties when he sold them to Viloria, it declared the second sale void. Moreover, it found
petitioner liable for moral and exemplary damages for fraudulently depriving respondent of the properties.

In a decision dated July 22, 2005,9 the CA upheld the sale to respondent and nullified the sale to Viloria. It
likewise ordered respondent to reimburse petitioner ₱715,250 (or the amount he paid to RSLAI). Petitioner,
on the other hand, was ordered to deliver the certificates of titles to respondent and pay her ₱50,000 moral
damages and ₱15,000 exemplary damages.

Petitioner moved for reconsideration but it was denied in a resolution dated November 11, 2005. 10 Hence,
this petition,11 with the sole issue being whether the parties entered into a contract of sale or a contract to
sell.

Petitioner insists that he entered into a contract to sell since the validity of the transaction was subject to a
suspensive condition, that is, the approval by RSLAI of respondent’s assumption of mortgage. Because
RSLAI did not allow respondent to assume his (petitioner’s) obligation, the condition never materialized.
Consequently, there was no sale.

Respondent, on the other hand, asserts that they entered into a contract of sale as petitioner already
conveyed full ownership of the subject properties upon the execution of the deed.

We modify the decision of the CA.

Contract of Sale or Contract to Sell?

The RTC and the CA had conflicting interpretations of the March 10, 1993 deed. The RTC ruled that it was
a contract to sell while the CA held that it was a contract of sale.

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.12

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. 13

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.14 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 balance15 payable directly to RSLAI (on behalf of petitioner) within a reasonable time. 16 Nothing
in said instrument implied that petitioner reserved ownership of the properties until the full payment of the
purchase price.17 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.18 In this regard, Article 1498 of the Civil Code19 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. The totality of petitioner’s acts clearly
indicates that he had unqualifiedly delivered and transferred ownership of the properties to respondent.
Clearly, it was a contract of sale the parties entered into.

Furthermore, even assuming arguendo that the agreement of the parties was subject to the condition that
RSLAI had to approve the assumption of mortgage, the said condition was considered fulfilled as petitioner
prevented its fulfillment by paying his outstanding obligation and taking back the certificates of title
without even notifying respondent. In this connection, Article 1186 of the Civil Code provides:

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

Void Sale Or Double Sale?

Petitioner sold the same properties to two buyers, first to respondent and then to Viloria on two separate
occasions.20 However, the second sale was not void for the sole reason that petitioner had previously sold
the same properties to respondent. On this account, the CA erred.

This case involves a double sale as the disputed properties were sold validly on two separate occasions by
the same seller to the two different buyers in good faith.

Article 1544 of the Civil Code provides:

Article 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. (emphasis supplied)

This provision clearly states that the rules on double or multiple sales apply only to purchasers in good
faith. Needless to say, it disqualifies any purchaser in bad faith.

A purchaser in good faith is one who buys the property of another without notice that some other person
has a right to, or an interest in, such property and pays a full and fair price for the same at the time of such
purchase, or before he has notice of some other person’s claim or interest in the property. 21 The law
requires, on the part of the buyer, lack of notice of a defect in the title of the seller and payment in full of
the fair price at the time of the sale or prior to having notice of any defect in the seller’s title.

Was respondent a purchaser in good faith? Yes.

Respondent purchased the properties, knowing they were encumbered only by the mortgage to RSLAI.
According to her agreement with petitioner, respondent had the obligation to assume the balance of
petitioner’s outstanding obligation to RSLAI. Consequently, respondent informed RSLAI of the sale and of
her assumption of petitioner’s obligation. However, because petitioner surreptitiously paid his outstanding
obligation and took back her certificates of title, petitioner himself rendered respondent’s obligation to
assume petitioner’s indebtedness to RSLAI impossible to perform.

Article 1266 of the Civil Code provides:

Article 1266. The debtor in obligations to do shall be released when the prestation become legally or
physically impossible without the fault of the obligor.

Since respondent’s obligation to assume petitioner’s outstanding balance with RSLAI became impossible
without her fault, she was released from the said obligation. Moreover, because petitioner himself willfully
prevented the condition vis-à-vis the payment of the remainder of the purchase price, the said condition is
considered fulfilled pursuant to Article 1186 of the Civil Code. For purposes, therefore, of determining
whether respondent was a purchaser in good faith, she is deemed to have fully complied with the condition
of the payment of the remainder of the purchase price.

Respondent was not aware of any interest in or a claim on the properties other than the mortgage to RSLAI
which she undertook to assume. Moreover, Viloria bought the properties from petitioner after the latter sold
them to respondent. Respondent was therefore a purchaser in good faith. Hence, the rules on double sale
are applicable.

Article 1544 of the Civil Code provides that when neither buyer registered the sale of the properties with
the registrar of deeds, the one who took prior possession of the properties shall be the lawful owner thereof.

In this instance, petitioner delivered the properties to respondent when he executed the notarized deed 22 and
handed over to respondent the keys to the properties. For this reason, respondent took actual possession and
exercised control thereof by making repairs and improvements thereon. Clearly, the sale was perfected and
consummated on March 10, 1993. Thus, respondent became the lawful owner of the properties.

Nonetheless, while the condition as to the payment of the balance of the purchase price was deemed
fulfilled, respondent’s obligation to pay it subsisted. Otherwise, she would be unjustly enriched at the
expense of petitioner.

Therefore, respondent must pay petitioner ₱684,500, the amount stated in the deed. This is because the
provisions, terms and conditions of the contract constitute the law between the parties. Moreover, the deed
itself provided that the assumption of mortgage "was without any further cost whatsoever." Petitioner, on
the other hand, must deliver the certificates of title to respondent. We likewise affirm the award of
damages.

WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court of Appeals in
CA-G.R. CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar as respondent Benita T.
Ong is ordered to pay petitioner Raymundo de Leon ₱684,500 representing the balance of the purchase
price as provided in their March 10, 1993 agreement.

Costs against petitioner.

SO ORDERED.
DAO HENG BANK, INC., now G.R. No. 173856
BANCO DE ORO UNIVERSAL
BANK, Present:
Petitioner,
QUISUMBING, J., Chairperson,
CARPIO MORALES,
TINGA,
- versus - VELASCO, JR., and
BRION, JJ.

SPS. LILIA and REYNALDO LAIGO, Promulgated:

Respondents.
November 20, 2008

SECOND DIVISION

x--------------------------------------------x

DECISION

CARPIO MORALES, J.

The Spouses Lilia and Reynaldo Laigo (respondents) obtained loans from Dao Heng Bank, Inc. (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 two parcels of land registered
in the name of respondent Lilia D. Laigo, . . . married to Reynaldo Laigo, one containing 569 square meters
and the other containing 537 square meters.
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.

It appears that respondents negotiated for the redemption of the mortgages for by a June 29,
2001 letter[2] to them, petitioner, to which Dao Heng had been merged, through its Vice President on
Property Management & Credit Services Department, advised respondent Lilia Laigo as follows:

This is to formally advise you of the banks response to your proposal pertaining to the
redemption of the two (2) foreclosed lots located in Fairview, Quezon City as has been
relayed to you last June 13, 2001 as follows:

1. Redemption price shall be P11.5MM plus 12% interest based on

diminishing balance payable 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

2. Release Values for Partial Redemption:

a. TCT No. 92257 (along Commonwealth) P7.500 MM*

b. TCT No. N-146289 (along Regalado) P4.000 MM*

* excluding 12% interest

3. Other Conditions:

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
c. Arrangement to be covered by an Agreement

If you are agreeable to the foregoing terms and conditions, please affix your
signature showing your conformity thereto at the space provided
below. (Emphasis and underscoring in the original; italics supplied)
 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
respondents allegation that it agreed to the settlement of their obligation via the assignment of one of the
two mortgaged properties, alleged that there was no meeting of the minds thereon:

4. Plaintiffs claim that defendant Dao Heng Bank[s] foreclosure sale of the mortgaged
properties was improper because there was an agreement to dacion one of the two (2)
mortgaged properties as 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 unsconscionably low price
of P10,776.242.00 are clearly WITHOUT BASIS. Quite to the contrary, there was no
meeting of the minds between defendant Dao Heng Bank and the plaintiffs 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 proposal, much less did the negotiations mature into the execution of a dacion en
pago instrument. Defendant Dao Heng Bank found the offer to settle by way of dacion
not acceptable and thus, it opted to foreclose on the mortgage.

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.
 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.

WHEREFORE, the Court of Appeals Decision of January 26, 2006 is REVERSED and SET
ASIDE. The Resolution of July 2, 2002 of the Regional Trial Court of Quezon City, Branch 215 dismissing
respondents complaint is REINSTATED.

SO ORDERED.
ANTONIO R. CORTES (in his G.R. No. 126083
capacity as Administrator of the
estate of Claro S. Cortes),
Petitioner, Present:
Panganiban, C.J. (Chairperson),
- versus - Ynares-Santiago,
Austria-Martinez,
Callejo, Sr., and
Chico-Nazario, JJ.
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
 Q Do you know if the broker or Marcosa Sanchez indeed delivered the titles to the
plaintiff?
A That is what [s]he told me. She gave them to the plaintiff.

x x x x.[16]

ATTY. ANTARAN
Q Are you really sure that the title is in the hands of the plaintiff?

xxxx

Q It is in the hands of the broker but there is no showing that it is in the hands of the
plaintiff?
A Yes, sir.

COURT
Q How do you know that it was delivered to the plaintiff by the son of the broker?
A The broker told me that she delivered the title to the plaintiff.

ATTY. ANTARAN
Q Did she not show you any receipt that she delivered to [Mr.] Dragon[17] the title without
any receipt?
A I have not seen any receipt.

Q So, therefore, you are not sure whether the title has been delivered to the plaintiff or
not. It is only upon the allegation of the broker?
A Yes, sir.[18]

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]

We find no merit in Cortes contention that the failure of the Corporation to act on the proposed settlement
at the pre-trial must be construed against the latter. Cortes argued that with his counsels 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 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 1169 of the Civil Code, from the moment one of the
parties fulfills his obligation, delay by the 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 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 Cortes counsel. For another, the previous representation of Cortes that the TCTs were already
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.

The Court of Appeals therefore correctly ordered the parties to perform their respective obligation
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 price. And since the
Corporation did not question the Court of Appeals decision and even prayed for its affirmance, its payment
should rightfully consist not only of the amount of P987,000.00, representing the balance of the
P2,200,000.00 down payment, but the total amount of P2,487,000.00, the remaining balance in the
P3,700,000.00 purchase price.

WHEREFORE, the petition is DENIED and the June 13, 1996 Decision of the Court of Appeals in CA-
G.R. CV No. 47856, is AFFIRMED.

SO ORDERED.
G.R. No. 199648 January 28, 2015

FIRST OPTIMA REALTY CORPORATION, Petitioner,

vs.
SECURITRON SECURITY SERVICES, INC., Respondent.

DECISION

DEL CASTILLO, J.:

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 cliche, 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.

This Petition for Review on Certiorari1 seeks to set aside: 1) the September 30, 2011 Decision2 of 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 Reconsideration5 of the assailed judgment.

Factual Antecedents

Petitioner First Optima Realty Corporation is a domestic corporation engaged in the real estate 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 property). 6 Respondent Securitron Security
Services, Inc., on the other hand, is a domestic corporation with offices located beside the subject property.

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 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 Maria Remoso (Remoso), who was an employee of
petitioner.9 At this point, Eleazar was unable to personally negotiate with Young or the petitioner’s board
of directors.

Sometime thereafter, Eleazar personally went to petitioner’s office offering to pay for the subject property
in cash, which he already brought with him. However, Young declined to accept payment, 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

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 payable
to petitioner. The letter states thus:

Gentlemen:

As agreed upon, we are making a deposit of ONE HUNDRED THOUSAND PESOS (Php 100,000.00) as
earnest money for your property at the corner of Layug St., & Lim-An St., Pasay 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).

Full payment upon clearing of the tenants at said property and signing of the Deed of Sale.

(signed)
ANTONIO S. ELEAZAR13

Despite the delicate nature of the matter and large amount involved, respondent did not deliver the letter
and check directly to Young or her office; instead, they were coursed through an ordinary receiving
clerk/receptionist of the petitioner, who thus received the same and therefor issued and signed Provisional
Receipt No. 33430.14 The said receipt reads:

Received from x x x Antonio Eleazar x x x the sum of Pesos One Hundred Thousand x x x

IN PAYMENT OF THE FOLLOWING x x x

Earnest money or Partial payment of

Pasay Property Layug & Lim-an St. x x x.

Note: This is issued to transactions not

yet cleared but subsequently an OfficialReceipt will be issued. x x x15

The check was eventually deposited with and credited to petitioner’s bank account.

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:

Dear Atty. De Jesus:

Anent your letter dated January 16, 2006 received on February 20, 2006, please be informed of the
following:

1. It was your client SECURITRON SECURITY SERVICES, INC. represented by Mr.

Antonio Eleazar who offered to buy our property located at corner Layug and Lim-An
St., Pasay City;

2. It tendered an earnest money despite the fact that we are still undecided to sell the said
property;

3. Our Board of Directors failed to pass a resolution to date whether it agrees 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 directly to Young or coursed directly
through her office, since she is the officer directly responsible for negotiating the sale, as far as respondent
is concerned and considering the amount of money 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 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. , Petitioner First Optima Realty
Corporation is ordered to REFUND the amount of ₱100,000.00 to respondent Securitron Security Services,
Inc. without interest, unless petitioner has done so during the course of the proceedings.

SO ORDERED.
STARBRIGHT SALES G.R. No. 177936
ENTERPRISES, INC.,
Petitioner, Present:
VELASCO, JR., J., Chairperson,
- versus - PERALTA,
ABAD,
MENDOZA, and
PERLAS-BERNABE, JJ.
PHILIPPINE REALTY CORPORATION,
MSGR. DOMINGO A. CIRILOS,
TROPICANA PROPERTIES AND
DEVELOPMENT CORPORATION
and STANDARD REALTY Promulgated:
CORPORATION,
Respondents. January 18, 2012

x --------------------------------------------------------------------------------------- x

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 conforme portion 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
AMPARO HERRERA,
Petitioners,
Present:

PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ,
CORONA,
*
- versus - AZCUNA, and
GARCIA, JJ.

GODOFREDO CAGUIAT, Promulgated:

Respondent.
February 28, 2007
x------------------------------------------------------------------------------------------------------ x

D E C I S I O N

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 LOT SITUATED 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 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 canceling
the transaction. Petitioners also informed respondent that he can recover the earnest money of P100,000.00
anytime.

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, 1990 in the amount of P100,000.00
payable to him.

In view of the cancellation of the contract by petitioners, respondent filed with the Regional Trial Court,
Branch 63, Makati City a complaint against them for specific performance and damages, docketed as Civil
Case No. 90-1067.[6]

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
[9]
1458 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.

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 LOT SITUATED 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.

there can be no other interpretation than that they agreed to a conditional contract of sale, consummation of
which is subject only to the full payment of the purchase price.
 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]

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.

WHEREFORE, we GRANT the instant Petition for Review. The challenged Decision of the
Court of Appeals is REVERSED and respondents complaint is DISMISSED.

SO ORDERED
 [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 Decision 1 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
P10,000.00 was paid at the time of the execution of the deed of sale, contrary to the written
acknowledgment, thus showing bad faith;
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)

WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals
is AFFIRMED. No Costs.
SO ORDERED.