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156437, 1 March 2004

Facts: Respondent Church applied to purchase lots from a Resettlement Project in Cavite.
Petitioner approved the respondent’s application. Respondents then proceeded to possess the land
and made improvements. The Respondents received the letter from the petitioner duly approving
the sale of the subject lots but in a price not declared to them by the NHA Field Office. Petitioner
returned the check stating that the amount was insufficient considering that the price of the
properties had changed. The Church made demands to the petitioner but the latter refused to
accept the payment.

The Church instituted a complaint for specific performance and the trial court ruled that there was
a valid contract of sale between the parties and ordered that the petitioners reimburse the
respondent Church the overpayment made for the lots. NHA appealed the case and the appellate
court affirmed the trial court’s decision that there was a valid contract of sale but held that the
petitioner sell the lots at the price approved by the NHA.

A motion for reconsideration was filed but was denied.

Issue: WON there was a valid contract of sale

Ruling: There was no contract at all.

Ratio Decidendi: The principle of estoppel will not apply in this case because it does not operate
against the Government for the acts or inaction of its agents. The case will cover the principle of
equity under the law ad will require the determination of the laws that will govern. Contracts, once
perfected, are binding upon the parties and obligations arising from it have the force of law
between them and should be complied in good faith. However, contracts are not the only source of
law that govern obligations. A contract must not run in contrary to law, morals, good customs,
public order and public policy.

The offer of the NHA to sell the subject property was not accepted by the respondent. Thus, the
alleged contract involved in this case should be more accurately denominated as inexistent. There
being no concurrence of the offer and acceptance, it did not pass the stage of generation to the
point of perfection. As such, it is without force and effect from the very beginning or from its
incipiency, as if it had never been entered into, and hence, cannot be validated either by lapse of
time or ratification. Equity cannot give validity to a void contract, and this rule should apply with
equal force to inexistent contracts.

The Church, despite knowledge that its intended contract of sale with the NHA had not been
perfected, proceeded to introduce improvements on the disputed land. On the other hand, the NHA
knowingly granted the Church temporary use of the subject properties and did not prevent the
Church from making improvements thereon. Thus, the Church and the NHA, who both acted in
bad faith, shall be treated as if they were both in good faith.

The case was remanded back to the trial court to access the value of the improvements made on
the land and fix the terms of the lease if the parties so agree.